In the years before its collapse, the Union of Soviet Socialist Republics had an underdeveloped and horrifically mismanaged economy. The Russian Federation inherited the vast majority of this mess in 1991. With the collapse of the USSR, many well-to-do figures within the Soviet Union itself began the process of pillaging what little was left of the economy. With the backing of the United States and many major corporations, Russia’s vast publicly owned economy and near infinite natural resource wealth was privatised and sold off for a pittance – often through rigged auctions and personal connections among the elites.
The 1990s in Russia were a period of complete and utter chaos and societal breakdown. Western politicians, economists and business leaders lauded it as a period of democratisation and liberalisation. In the eyes of ordinary Russians, nothing could be further from the truth. Corruption became so prevalent that the shadow economy was worth more than the official GDP. The state could no longer pay its doctors, teachers, police officers, and other important professionals – leading to mass emigration and brain drain. Hospitals shut down, ambulances often required bribes to even come and collect those needing medical attention. Alcoholism, drug use and abortion rates skyrocketed while life expectancy plummeted. It was very possibly the worst major nation for quality of life in Europe at the time. Estimates suggest that this era caused something from three million to seven million unnecessary deaths.
The Yeltsin government (which was considered to be a puppet regime of the United States and the oligarchy) fell in popularity to the point where it had almost no support. In the 1996 election Yeltsin faced down Communist Party of the Russian Federation challenger Gennady Zyuganov – it became clear that Yeltsin would not win and the Russian people would choose socialism again out of desperation to return to better times. This ran counter to the interests of the oligarchy and their western backers. A massive multibillion dollar campaign of advertising and electoral fraud began in order to keep Yeltsin in the presidency – it just about succeeded, with him winning a spurious 54% of the vote.
The economic and social situation continued to decline in the 1990s, with the total fertility rate falling to a horrific 1.15 in 1999, almost the point of demographic no-return. Oligarchs controlled the nation’s economy and its politics. The corrupt mass privatisation had resulted in situations such as Mikhail Khodorkovsky acquiring oil assets worth over $5 billion for only $300 million. Another prominent example is that of Boris Berezovsky acquiring assets worth $3 billion for only $100 million. These were commonplace occurrences and resulted in the near entirety of Russia’s economy being controlled by a small elite group, most of whom had no intention of even paying taxes let alone sticking to regulations. It was truly a nightmare for Russia.
Enter Vladimir Vladimirovich Putin, former KGB man who resigned based on moral objection following the attempted communist coup during the final days of the USSR. As a man from a poor working class background and a fairly standard career in intelligence, no one expected his sudden rise to power culminating in the resignation of Yeltsin and Putin assuming the role of President of Russia on December 31st 1999.
Among Putin’s first orders of business were the resolution of the Chechen conflict, restoring federal control and rule of law in increasingly corrupt autonomous regions, cracking down on corruption, employing competent ministers, and perhaps most importantly resolving the problem of the oligarchy. These core measure needed be tackled before any sort of true economic growth or social improvement could even be attempted. The subject of how he and his government tackled these issues in detail is for another time and another article, save to say that most were done as quickly and effectively as could be hoped for in such a ruinous nation.
Russia is often derided as having a poor and unstable economy in the western press and by hostile governments. This is in truth purely politically motivated posturing, Russia’s economy has roughly tripled in terms of GDP PPP (Purchasing Power Parity) since the year 2000. Quality of life and individual prosperity is higher than ever before in Russian history. However looking at GDP gives only a small portion of the picture. Russia’s real strength is in its economic self-reliance and recently, its boom in manufacturing and agriculture.
Once the oil (and other resource) wealth was wrested from the control of oligarchs that had obtained it illegally, the GDP grew at rates similar to those seen in China. This was partially to do with high oil prices but also with intelligent spending and management on behalf of the government, after all there are plenty of oil rich nations that have squandered the wealth they derived from it. In Russia, the profits made from the export of natural resources were spent on a variety of construction and social programmes (as well as the refurbishment of the military).
As we know, when a government spends cleverly and without going into debt, the economy almost always benefits. The construction of roads creates construction jobs, the assembly of bridges benefits the steelworks, the building of schools and hospitals results in jobs for teachers and doctors – and so on and so forth. When a government reinvests in the nation, growth ensues. In Russia – dormant steel forges lit up once more, architects finally had things to design, and the improved infrastructure allowed for better regional trade. Everything improved essentially in unison rather than simply specific economic sectors or classes of people. Naturally seeing the rejuvenation of the country had a psychological effect on the people, who once again began to feel proud of their country and started believing it had a future – something many in western nations nowadays have given up on.
The general improvement in finances for the ordinary Russian drove further growth, and with a happier more productive society, alcohol and drug use declined while general health improved – which is yet another incentive for growth. Another extremely individual-friendly policy is that of the 13% flat tax rate, compare that to Ireland where many of us pay in the region of 50% and only receive slightly better services. Naturally the state also instituted many policies restricting alcohol, encouraging the growth of families (TFR from 1.15 to 1.75), and improving education.
This recognition by the Russian government that a healthy society is necessary for a healthy economy (and vice versa) is a key element of their success which many western nations seem to simply ignore. Certainly Russian society is still on average less wealthy than most of the EU and they still have their problems, but the crucial point is that their problems (economic and social) diminish year on year while ours get consistently worse and more pressing.
The Russian government was well aware that natural resource based growth was not a viable long term plan (especially after the 2008 crash), as we saw with their social and construction programmes. However another much overlooked investment of theirs over the years was that of manufacturing and agriculture. While the western neo-liberal elites outsource our key industries to Asia, Russia recognised the immense importance of industry and agriculture – real tangible assets – to the development of the economy.
In the case of the UK and the US agriculture and industry combined make up a meagre ~20% of the economy, in Russia this number is 40% – far exceeding even industrial powerhouse Germany which sits at around 27%. Perhaps even more important is that the agricultural/industrial sector is vastly Russian owned and employs Russians. As a result of this, imports are a mere $182 billion while exports (which are still fairly low) far outweigh them at $285 billion (2016 numbers). It is also why sanctions on Russia have failed so miserably, as a near self-sustaining economy is almost invulnerable to them.
The Russian economic policy is an unusual one, it does not fit within a single established idea. Possibly the most accurate description is statist interventionism for big business and libertarian economics for the individual and small businesses. It allows the vast majority of people to prosper unhindered, while keeping major corporations in check.
This rebirth of the Russian economy has been characterised by a rejection of neoliberal globalism, a focus on sustainable growth and an improvement in societal conditions. The effects have been far reaching and the Russian economy now looks secure for many years to come. GDP PPP now sits at $4 trillion, and grew by nearly 2% last year, while this growth is modest, it is immensely impressive for an economy to grow at all while under sanction by almost the entire western world and with oil prices unusually low.
Russia has shown the world that there is an alternative to the financial services based, debt-ridden western economic model – an alternative that appears to be leading it into a new golden age.
Perhaps we should take heed?