What Went Wrong With Russia’s Economic Reforms?

Abstract

After more than eight years of political and economic reforms, Russia is still in serious trouble. The cumulative decline of GDP has exceeded 45 per cent, while poverty among the population is widespread, and unemployment is substantial and constantly growing. The Russian state can not fulfil its functions and crime and corruption have developed international dimensions. The spectacular collapse of the Russian economy on 17 August 1998 revealed the crisis to be deep and comprehensive. Since that date, the government of Russia, supported by international organizations, has tried to work out a new programme which could correct the mistakes which led to the disaster. It is obvious that the future of Russia’s economic transition is of utmost importance for the country’s accession to the WTO. A country without functioning trade-related institutions is in no position to assume its obligations in the organization. Here an attempt is made to identify the major mistakes committed at the beginning of the reform process and to identify the root causes of Russia’s economic decline. Without such an analysis no remedies can be offered for the resolution of the problems. The conclusion of the chapter is that the major mistakes made by reformers include the total misunderstanding of the importance of historical traditions in Russia’s economic reforms; the preference given to shock therapy methods; violation of democratic principles; and neglecting institutional aspects of reforms.