by James Millar
The heavy military burden was another significant factor adversely affecting Soviet growth. Early on the Soviet Union was threatened and then attacked by Germany, and following World War II engaged in the Cold War. Throughout the entire period it had to match the military capabilities of larger and more advanced economies, hence to set aside a higher share of its output for defense. During the Soviet system’s last decades this share grew to around 15 percent of GNP. This amount was unprecedented in peacetime. The real defense burden was even heavier than shown by the figures because the defense effort forced the leaders to give priority to defense, in both routine production and in technological efforts, thereby disrupting civilian production and depriving it of significant technological innovation.
Additional causes of declining growth over time were the deterioration of work motivation and discipline, increasing corruption and illegal activities, declining improvements in the standard of living, and weakening legitimization of the regime. Collective agriculture, the cornerstone of the communist system, became the millstone around its neck. See also: ECONOMIC GROWTH, EXTENSIVE; ECONOMIC GROWTH, INTENSIVE; FIVE-YEAR PLANS; INDUSTRIALIZATION, RAPID; MARXISM; NET MATERIAL PRODUCT
BIBLIOGRAPHY
Bergson, Abram. (1961). The Real National Income of Soviet Russia since 1928. Cambridge, MA: Harvard University Press. Domar, Evsey. (1957). “A Soviet Model of Growth.” In Essays in the Theory of Economic Growth. New York: Oxford University Press. Easterly, William, and Fischer, Stanley. (1995). “The Soviet Economic Decline: Historical and Republican Data.” World Bank Economic Review 9(3):341-371. Maddison, Angus. (2001). The World Economy: A Millennial Perspective. Paris: Development Centre of the Organisation for Economic Co-operation and Development. Nove, Alec. (1993). Economic History of the USSR, 1917-1991, rev. ed. New York: Penguin. Ofer, Gur. (1987). “Soviet Economic Growth, 1928-1985.” Journal of Economic Literature 25(4):1767-1833. Ofer, Gur. (1996). “Decelerating Economic Growth under Socialism: The Soviet Case.” In The Wealth of Nations in the Twentieth Century: The Policies and Institutional Determinants of Economic Development, ed. Ramon Myers. Stanford, CA: Hoover Institution Press.
GUR OFER
ECONOMIC REFORM COMMISSION
The State Commission on Economic Reform, chaired by economist and vice premier Leonid Abalkin, was created in July 1989. The first fruit of its work was a background report written for a conference on radical economic reform held October 30- November 1, 1989, in Moscow. This document was very radical by soviet standards. It argued, “We are not talking about improving the existing economic mechanism, nor about merely replacing its outdated parts. One internally consistent system must be dismantled and replaced by another one, also internally consistent and thus incompatible with the previous one.”
In April 1990 Abalkin and Yuri Maslyukov (chairman of Gosplan) presented to the Presidential Council a program for a rapid transition to the market. This program drew attention to the costs involved in economic reform (e.g., open inflation, decline in production, closing of inefficient enterprises, fall in living standards, increased inequality). Most likely the program was rejected because of its honesty in discussing the costs of rapid mar-ketization. The program officially adopted in May was substantially more conservative.
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ECONOMISM
From May to August of 1990 two teams were working on economic reform programs, one headed by Abalkin and one headed by Stanislav Shatalin. The latter produced the Five-Hundred-Day Plan. Mikhail Gorbachev did not commit himself to either. He asked Abel Aganbegyan to merge the two documents. This compromise was adopted at the Congress of People’s Deputies in December 1990. Abalkin was dissatisfied by these events and resigned effective February 1991. See also: GORBACHEV, MIKHAIL SERGEYEVICH
BIBLIOGRAPHY
Ellman, Michael, and Kontorovich, Vladimir, eds. (1998). The Destruction of the Soviet Economic System: An Insiders’ History. Armonk, NY: M. E.Sharpe. Hough, Jerry. (1997). Democratization and Revolution in the USSR, 1985-1991. Washington, DC: Brookings Institution Press.
MICHAEL ELLMAN
ECONOMISM
The label applied to a group of moderate Russian Social Democrats at the end of the nineteenth and the beginning of the twentieth century.
An offshoot of the legal Marxists, the economist group emphasized the role of practical activity among industrial workers. According to their theories, activism at the rank-and-file level would lead to social change: Agitation for a ten-hour day, limitation on fines for petty infractions, better sanitation in the workplace, and so forth would ignite conflict with tsarist officialdom. Class conflict would provoke revolutionary political demands and eventually lead to a bourgeois-liberal revolution, which all Russian Marxists of the time thought necessary before the advent of socialism. For the time being, though, these economist Marxists were willing to follow worker demands rather than impose an explicitly socialist agenda on the laboring class. Workers involved themselves in strikes, mutual aid societies, and consumer and educational societies to raise their class consciousness. Thus this faction criticized the leading role assigned to the revolutionary intelligentsia by scientific Marxists such as Georgy Plekhanov and Pavel Axelrod.
Organized as the Union of Social Democrats Abroad, the economists published the newspaper Rabochaia Mysl from 1897 to 1902 in St. Petersburg, Berlin, and Warsaw. While mostly concerned with worker grievances and local conditions, this newspaper (at first produced by St. Petersburg workers) did bring out a “Separate Supplement” in issue 7, written by Konstantin Takhtarev, that was critical of the more radical Marxists. The economists also sponsored the journal with a more political and theoretical character: Rabochee Delo, published from 1899 to 1902 in Switzerland. Economism is sometimes linked to the leading German revisionist Marxist Eduard Bernstein (1850-1932).
In 1899 one of the economists, Yekaterina Kuskova, wrote a “Credo,” which came to the attention of Vladimir Ilich Lenin, who penned a protest the same year. That group’s practical and local emphasis continued to be attacked, somewhat unfairly, by Lenin and his supporters in Iskra (Spark) and later in “What Is to Be Done?” (1902). Lenin argued that the opportunist notions of economism, as opposed to his revolutionary activism, justified a split in Russian Social Democracy the following year.
Several of the leading economists, for example, Sergei Prokopovich, later became liberals, like the more famous legal Marxist Peter Struve. Both Prokopovich and Kuskova became anticommunists and participated in an emergency relief committee during the 1920-1921 famine. Soon afterward they were arrested in the general crackdown on Lenin’s opponents. See also: LENIN, VLADIMIR ILICH; MARXISM
BIBLIOGRAPHY
Harding, Neil. (1977). Lenin’s Political Thought, vol. 1. London: Macmillan. Lenin, Vladimir Ilich. (1978). Collected Works, vol. 4. Moscow: Progress Publishers.
MARTIN C. SPECHLER
ECONOMY, POST-SOVIET
Establishing a market economy and achieving strong economic growth remained Russia’s primary concerns for more than a decade after the breakup of the Soviet Union in 1991. By the middle of the decade, Russia had made considerable progress toward creating the institutions of a marECONOMY, POST-SOVIET ket economy. Although the process of privatization was flawed, a vast shift of property rights away from the state toward individuals and the corporate sector occurred. The main success of economic reforms were macroeconomic stabilization (gaining control over the inflation, relative reduction of government deficit, and so forth) as well as initial steps toward creating a modern financial system for allocating funds according to market criteria. The banking system was privatized, and both debt and equity markets emerged. There was an effort to use primarily domestic markets to finance the government debt.
In contrast to other ex-Soviet countries in Central Europe, Russia could not quickly overcome the initial output decline at the beginning of market reforms. Russia’s economy contracted for five years as the reformers appointed by President Boris Yeltsin hesi
tated over the implementation of the basic foundations of a market economy. Russia achieved a slight recovery in 1997 (GDP growth of 1%), but stubborn budget deficits and the country’s poor business climate made it vulnerable when the global financial crisis began in 1997. The August 1998 financial crisis signaled the fragility of the Russian market economy and the difficulties policymakers encountered under imperfect market conditions.
The crisis sent the entire banking system into chaos. Many banks became insolvent and shut down. Others were taken over by the government and heavily subsidized. The crisis culminated in August 1998 with depreciation of the ruble, a debt default by the government, and a sharp deterioration in living standards for most of the population. For the year 1998, GDP experienced a 5 percent decline. The economy rebounded in 1999 and 2000 (GDP grew by 5.4% in 1999 and 8.3% in 2000), primarily due to the weak ruble and a surging trade surplus fueled by rising world oil prices. This recovery, along with renewed government effort in 2000 to advance lagging structural reforms, raised business and investor confidence concerning Russia’s future prospects. GDP is expected to grow by over 5.5 percent in 2001 and average 3-4 percent (depending on world oil prices) from 2002 through 2005. In 2003 Russia remained heavily dependent on exports of commodities, particularly oil, natural gas, metals, and timber, which accounted for over 80 percent of its exports, leaving the country vulnerable to swings in world prices. Macroeco-nomic stability and the improved business climate can easily deteriorate with changes in export commodity prices and excessive ruble appreciation. Additionally, inflation remained high according to international standards: From 1992 to 2000, Russia’s average annual rate of inflation was 38 percent. Russia’s agricultural sector remained beset by uncertainty over land ownership rights, which discouraged needed investment and restructuring. The industrial base was increasingly dilapidated and needed to be replaced or modernized if the country was to achieve sustainable economic growth.
Three basic factors caused Russia’s transition difficulties, including the absence of broad-based political support for reform, inability to close the gap between available public resources and government spending, and inability to push forward systematically with structural reforms. Russia’s second president, Vladimir Putin, elected in March 2000, advocated a strong state and market economy, but the success of his agenda was challenged by his reliance on security forces and ex-KGB associates, the lack of progress on legal reform, widespread corruption, and the ongoing war in Chechnya. Despite tax reform, the black market continued to account for a substantial share of GDP. In addition, Putin presented balanced budgets, enacted a flat 13 percent personal income tax, replaced the head of the giant Gazprom natural gas monopoly with a personally loyal executive, and pushed through a reform plan for the natural electricity monopoly. The fiscal burden improved. The cabinet enacted a new program for economic reform in July 2000, but progress was undermined by the lack of banking reform and the large state presence in the economy. After the 1998 crisis, banking services once again became concentrated in the state-owned banks, which lend mainly to the business sector. In 2000 state banks strengthened their dominant role in the sector, benefiting from special privileges such as preferential funding sources, capital injections, and implicit state guarantees. Cumulative foreign direct investment since 1991 amounted to $17.6 billion by July 2001, compared with over $350 billion in China during the same period. A new law on foreign investments enacted in July 1999 granted national treatment to foreign investors except in sectors involving national security. Foreigners were allowed to establish wholly owned companies (although the registration process can be cumbersome) and take part in the privatization process. An ongoing concern of foreign investors was property rights protection: Government intervention increased in scope as the enforcement agencies and officials in the attorney general’s office attempted to re-examine priECONOMY, TSARIST vatization outcomes. The most significant barriers to foreign investment and sustainable economic growth continued to be the weak rule of law, poor infrastructure, legal uncertainty, widespread corruption and crime, capital flight, and brain drain (skilled professionals emigrating from Russia). See also: BLACK MARKET; FOREIGN DEBT; PUTIN, VLADIMIR VLADIMIROVICH; RUSSIAN FEDERATION
BIBLIOGRAPHY
Gregory, Paul R., and Stuart, Robert C. (2001). Russian and Soviet Economic Performance and Structure. Boston, MA: Addison Wesley. Gustafson, Thane. (1999). Capitalism Russian-style. Cambridge, UK: Cambridge University Press.
PAUL R. GREGORY
ECONOMY, TSARIST
The economy of the Russian Empire in the early twentieth century was a complicated hybrid of traditional peasant agriculture and modern industry. The empire’s rapidly growing population (126 million in 1897, nearly 170 million by 1914) was overwhelmingly rural. Only about 15 percent of the population lived in towns, and fewer than 10 percent worked in industry. Agriculture, the largest sector of the economy, provided the livelihood for 80 percent of the population and was dominated by peasants, whose traditional household economies were extremely inefficient compared to agriculture in Western Europe or the United States. But small islands of modern industrial capitalism, brought into being by state policy, coexisted with the primitive rural economy. Spurts of rapid industrialization in the 1890s and in the years before World War I created high rates of economic growth and increased national wealth but also set in motion destabilizing social changes. Despite its islands of modernity, the Russian Empire lagged far behind advanced capitalist countries like Great Britain and Germany, and was unable to bear the economic strains of World War I.
The country’s agricultural backwardness was rooted in the economic and cultural consequences of serfdom, and it was reinforced by the government’s conservative policies before the Revolution of 1905. The Emancipation Act of 1861, while nominally freeing the peasantry from bondage, sought to limit change by shoring up the village communes. In most places the commune continued to control the amount of land allotted to each household. Land allotments were divided into scattered strips and subject to periodic redistribution based on the number of workers in each household; and it was very difficult for individual peasants to leave the commune entirely and move into another area of the economy, although increasing numbers worked as seasonal labor outside their villages (otkhodniki). Rapid population growth only worsened the situation, for as the number of peasants increased, the size of land allotments diminished, creating a sense of land hunger.
Most peasants lived as their ancestors had, at or near the margin of subsistence. Agricultural productivity was constrained by the peasantry’s lack of capital and knowledge or inclination to use modern technology and equipment; most still sowed, harvested, and threshed by hand, and half used a primitive wooden plow. In 1901 a third of peasant households did not have a horse. Poverty was widespread in the countryside. Items such as meat and vegetable oil were rarely seen on the table of a typical peasant household.
After the 1905 revolution the government of Peter Stolypin (minister of the interior, later premier) enacted a series of laws designed to reform agriculture by decreasing the power of the village communes: Individual peasant heads of households were permitted to withdraw from the commune and claim private ownership of their allotment land; compulsory repartitioning of the land was abolished and peasants could petition for consolidation of their scattered strips of land into a single holding. However, bureaucratic processes moved slowly. When World War I began, only about one-quarter of the peasants had secured individual ownership of their allotment land and only 10 percent had consolidated their strips. While these changes allowed some peasants (the so-called kulaks) to adopt modern practices and become prosperous, Russian agriculture remained backward and underemployment in the countryside remained the rule. In increasing numbers peasants took out passports for seasonal work, many performing unskilled jobs in industry.
Industrialization accelerated in the 1890s, pushed forward by extensive state intervention under the guidance of Finance Mi
nister Sergei Witte. He used subsidies and direct investment to stimulate expansion of heavy industry, imposed high taxes and tariffs, and put Russia on the gold standard in order to win large-scale foreign investment.
ECONOMY, TSARIST
Although the process slowed from 1900 through the 1905 revolution, it soon picked up again and was very strong from 1910 to the outbreak of the war. The rate of growth in the 1890s is estimated to have been an impressive 8 percent a year. While the growth rate after 1910 was slightly lower (about 6%), the process of economic development was broader and the government’s role diminished.
Railroad construction, so critical to economic development, increased greatly toward the end of the nineteenth century with the construction of the Trans-Siberian Railroad and then rose another 20 percent from 1903 to 1914. Although the number of miles of track per square mile and per capita was the lowest in Europe, the railroad-building boom stimulated great expansion in the related industries of iron and steel, coal, and machine building.
Industrial production came to be concentrated in large plants constructed during the period of rapid industrialization. In 1914, 56 percent of the employees in manufacturing worked in enterprises that employed five hundred or more workers, and 40 percent in plants employing one thousand or more workers. Such large-scale production frequently incorporated the most up-to-date technology. In a number of key industries production was concentrated in a few large oligopolies.
Starting in the later 1890s foreign investment became an important factor in the economy. In 1914 it amounted to one-third of total capital investment in Russian industry, most of it in mining, metallurgy, banking, and textiles. France, England, and Germany were the primary sources of foreign capital. Foreign trade policy was dominated by protectionism. Tariffs just before the war averaged an astonishing 30 to 38 percent of the aggregate value of imports, two to six times higher than in the world’s most developed economies. Predictably, this led to higher prices.
