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Russia: Economic Metamorphosis

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SCOPE: The experiences of the former republics of the now-defunct Soviet Union provide a good lesson in transforming economies, in particular, the Russian republic. Research the Russian experience (text and internet). Using this information, provide a general overview of this transition from a Communist "command" economy to a free market economy over the past 10 years. Has the transition to a free market economy been a success? What have been some of the major difficulties? What do you believe are the prospects for a sound Russian economy?


Russia:  Economic Metamorphosis


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The post-Soviet era resulted in the formation of new nations and marked the beginning of the economic transition. In Russia, the new regime faced many difficulties, such as, inflation that resulted in many people blaming the communist policies (Popov, 2011). In a Communist “command” economy the principal means of production were controlled by political leaders. This situation led to the transition to a market economy where the means of production were to be owned and coordinated by the private sector. The economic metamorphosis to a free market economy has been a success due to its profound influence on the Russian economy.

The economic transition has been successful as evidenced by the achievements of Russian reformers. In its immediacy, the implementation of the market economy did not bring any good to Russia. However, according to Ponomareva and Umans (2015), statistics collected in the late 1990s revealed that on average the economy was growing. Economic reformers have achieved a great deal; for example, the government no longer controls the means of production because private individuals and firms are producing most of the output of goods and services. This argument is supported by Popov (2011) who asserts that the state does not control the prices of most goods and services since the private sector own the majority of the state-owned firms.

The transition to a free market economy was a significant move that created various challenges, for instance, embezzlement, privatization, inflation, and economic failure. The implementation of “shock therapy” policies led to the removal of price controls causing hyperinflation. By 1998 due to hyperinflation, Russia faced a financial crisis that was worsened by the reality of the Asian financial crisis (Puffer & McCarthy, 2011). Cases of corruption hampered the privatization of state-owned firms with the majority of these enterprises being acquired by oligarchs. The unequal distribution of government resources resulted in oligarchs wielding essential political influence. Also, the transition led to the failure to service national debts, loss of foreign investment, a decline in the Russian currency, loss of investor confidence and low prices for significant exports.

The prospects for a sound Russian economy rely on the improvement of the purchasing power. The Crimea crisis resulted in Russia facing multiple sanctions that led in the fall in oil prices. According to Ponomareva and Umans (2015), the success of...


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