Russia’s Economic Woes

(Part 2)


Nonetheless, current conditions in are still far from being fully stable and normal. Since the fall of the Soviet Union, GDP has contracted by 43% and industrial production down by 55%. Unemployment is relatively low compared to the recent years, but it is still considered high at nine percent. Inflation is on the rise again with predicted estimate going up to 13% this year and growth being cut down to 5.8%. Oil prices, even at $60 a barrel, are no longer able to compensate for Russia’s growth. After climbing for nearly five years, oil production began to stagnate last autumn. Present oil reserves are being depleted and companies must now look beyond the easy-to-tap oil reserves of western Siberia for new fields in the East. This is addition with the loss of confidence after the government’s assault on oil giant Yukos, has greatly shaken the oil industry. Without the vital oil industry that had kept Russia out of total depression, the Russian economy can only stagnate or decline in growth.

In addition to the pure numbers of growth and inflation, infrastructure, small businesses, and income disparities, are worse than ever. Investment in infrastructure as a percent of GDP in Russia is at an all time low with roads, power stations, and oil reserves, being worn out and depleted. Roads are in shambles and the electrical plants that were once funded by the state under Communist rule are now bleak and dim. Villagers in rural regions of Russia see such conditions all too often as the lack of investment into infrastructure by the government has brought many villagers to pre-Soviet conditions of living. Experts estimate that it will take at least seven billion dollars to repair the vital power industry. Telephone infrastructure is also equally dismal. Russia needs to spend $6.5 billion to end the current 6.5 million long waiting list for telephones, plus $9 billion to make the existing old-fashioned lines digital, and a further $6.5 billion on modernizing the long-distance system. Currently the Russian government only spends less than $500m a year. Affected Russians are being kept out of important events in the world and in their own country, in an age of communication. Being a purported free market, Russia is currently hostile towards small businesses and entrepreneurs. Government officials under the guise and protection of the justice ministry would seize small business assets in moves that are reminiscent of the old Soviet days. Entrepreneurs would have to cringe to the threats levied by the officials or bribe them in order to alleviate ownership issues. The sort of mass corruption greatly cripples the justice ministry, whose job is to serve the people by fighting crime. With the increase in negligence of the police, the rise of organized crime is evident in Russia. The Russian mafia is everywhere the government isn’t, making small business owners feel entrapped on both sides.

Big business and the rich, however, are not being hurt by growing corruption and crime. In fact, they bathe in it. The Oligarchs, the richest men in Russia, own around 60% of the Russian stock market with virtual control over most of Russia’s GDP, especially its export GDP. The Oligarchs have control over the vital natural resources that keep Russia alive and consequently are extremely influential in governmental policy. This inevitably, and does, lead to massive income disparities, between these few rich men and the rest of the poor masses. The gini index for Russia is fairly high at 40% income disparity. Russia’s income disparities are now nearly as large as that of Brazil, who has been among one of the world leaders in inequality. Similarly poverty rates have skyrocketed since the fall of the Soviet Union to 39% from 1.5%. Life expectancy also went down from 64 to 60 for men.

Most of the statistics regarding the welfare of the people in Russia went into the red after the fall of the Soviet Union. The only positive product of the reforms was the access to free goods. This has been achieved at the cost of economic stability, wellbeing of the people, and infrastructure. The numerous crashes in the economy due to the unstable capitalist system have significantly damaged the Russian economy and standards of living for the Russian people, who have so far been unsuccessful in getting government to truly help their plight. Thus it is truly safe to say that the Russian people are no better today under capitalism that they were twenty years ago under communism.


Works Cited


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‘Crumble, bumble.’ The Economist. 31 August 2000. Available at:
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Rao, Sujata. ‘Capital Flight Hitting Record Highs.’ Moscow Times. 16 October 1998.
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Stiglitz , Joseph. ‘The Ruin of Russia.’ 9 April 2003. Available at:
Accessed: 1 December 2006.
‘Told You So.’ The Economist. 23 June 2005.Available at:
Accesses: 1 December 2006.
Treisman, Daniel. ‘Blaming Russia First.’ Foreign Affairs. Novermber 2000. Available
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‘Watch your back.’ The Economist. 20 May 2004. Available at:
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