Regionalization and Globalization in the Modern World Economy: Perspectives on the Third World and Transitional Economies

By Alex E. Fernández Jilberto; André Mommen | Go to book overview

5

PREPARING THE RUSSIAN ECONOMY FOR WORLD MARKET INTEGRATION 1

Vladimir V. Popov

INTRODUCTION

The Russian (and the Commonwealth of Independent States, CIS) path of economic transformation, though not so much by design of the policy-makers, but rather due to the flow of events, has proved to be very different from both the shock therapy treatment adopted by most East European countries and by the Baltic states, and the gradual approach adopted by China. The former managed to achieve macro-economic stabilization (and bring down inflation) shortly after the immediate deregulation of prices, whereas the latter kept inflation under control while liberalizing prices gradually. In contrast, Russia and the other CIS states deregulated prices instantly, but failed to proceed with macro-economic stabilization. The Russian reform path may thus be described as inconsistent shock therapy, which implies that Russia tried, but has not succeeded in carrying out conventional ‘big bang’ policies. At the same time the economic transformation in Russia has proved to be associated with greater costs than elsewhere. The recession has been in force for seven years (1990-96) already and has caused a reduction of Gross Domestic Product (GDP) of nearly 50 per cent. Worse indicators were observed only in some Former Soviet Union (FSU) states and in countries affected by wars. In the East European countries the recession lasted for three to four years causing the reduction of output by 20 to 30 per cent, whereas in China and Vietnam reforms led to an immediate increase in output.

True, real incomes and real consumption, after plummeting in January 1992, when prices were deregulated, recovered afterwards. Though there is considerable uncertainty over the measurement problems, it appears that in 1995-96 real incomes of the Russian population were on average comparable with the level of the mid-1980s. However, because income inequalities increased tremendously—and much faster than in the East European countries—for the absolute majority of the Russians living standards deteriorated substantially.

Together with the rise in crime rates, the increase in mortality, the reduction of life expectancy and other unfavourable developments (which, again, were more pronounced in Russia that in other economies in transition), this caused

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