The Effects of Globalization and Economic Expansion on Russia - Research Paper Example

? The Effects of Globalization and Economic Expansion on Russia Business December Contents Contents Introduction 2 History and Background of Russia 4 By the end of 1991, the government of Yeltsin had acquired control of Gorbachev's government that seemed to lag behind in all matters (“Russia-Historical Background,” mongabay.com). Despite this, Russia had not gained independence. However, parties from various nations declared that a treaty that had established the Soviet Union1922 had been revoked, and the Soviet Union no longer existed. This decision was formerly announced by Gorbachev at the end of 1991, marking the independence of Russia as a sovereign nation. As a result of this, Russia obtained international acknowledgement as the sovereign successor to the Soviet Union. Russia was honored with a permanent seat to represent the Soviet Union in the United Nations Security Council, and various positions in regional and international organizations. 7 Russia sits on both Europe and Asia. However, it is neither Asian nor European in its standpoint and culture. Russia has remained the largest country in the world, even after the division of the Soviet Union in 1991. Ziegler points out that the nation “occupies about 6.6 million square miles of territory, and is nearly twice the size of the United States. From East to West, the country stretches over 5,000 miles and occupies 11 time zones” (1). After the breakup of the Union of Soviet Socialist Republics, Russia abandoned much of its access to the Black sea. As a result of this fragmentation, Russia was left smaller, landlocked, and geographically isolated. The former Soviet Union was the third-largest nation in the world with a population of approximately two hundred and ninety million people. Despite the fact that Russia is physically the largest nation in the world, its population has been declining over the years. In this regard, it becomes the ninth largest nation in the world following “China, India, the United States, Indonesia, Brazil, Pakistan, Bangladesh, and Nigeria” (Ziegler 2) in terms of population. Over eighty percent of the population of Russia lives on the western side of the nation, while the rest of the population lives in Siberia and Russia’s Far East. 8 Western Russia is populated with majority of Russia’s roads, railways, and air routes. Ziegler asserts that “Siberia is extremely rich in natural resources-oil, natural gas, gold, diamonds, furs, and timber-but much of its wealth is virtually inaccessible or very costly to extract due to the country’s weak transportation system” (2). Today, Russia is more ethnically united compared to the former Soviet Union and imperial Russia. This is because before the downfall of the Soviet Union, it had only fifty one percent ethnic Russians. However, the Russian Federation today comprises of eighty two percent ethnic Russians. Tatars are the second largest ethnic group in the Russian Federation; the group comes from Mongols descendants, who controlled the lands in Russia in the thirteenth century. Three percent of Russia’s population comprises of the Ukrainians, who are Russian’s Slavic cousins. Twelve percent of the population is made up of Jews, Germans, Belarusians, Turkic people, Caucasians, and small tribes form Siberia. The ethnic groups in Russia generally relate very well, but from time to time, outbursts of violence occur against non-Russians. 9 According to Ziegler “Russia as a whole lies much further north than the United States; in this sense it is more comparable to Canada” (2). Russia has a lot of fertile agricultural land, but its location in the north results in cold weather and very short growing seasons. As a result of this, most crops do not fare well on Russian soil. When it was part of the Soviet Union, Russia had great cropland. This was however lost when the Soviet Union was dissolved, great cropland located in Kazakhstan and Ukraine was lost. Crops grown in Russia include rye, winter wheat, potatoes and sugar beets. Unfortunately, “soviet policies severely damaged agriculture, and this sector of the economy has not recovered in the post-communist period” (Ziegler 3). In 2008, Russia had to import most of its food from other nations. 9 Russia is generally an urban nation, with most of its population living in towns. Moscow, which is the capital city of Russia, is regarded as the most dynamic city in the world. The city has a population of approximately nine million people. In fact, three quarters of investment by western nations is concentrated in Moscow. Despite the fact that Moscow was a dull and monotonous place during the Soviet Union, today the city is characterized by luxurious hotels, alluring restaurants and night clubs, improved roads, traffic jams resulting from the huge international population, and an aggressive economy. Russia’s “network of canals and bridges, stately Italian architecture, and green parks make Petersburg a favorite tourist destination and a source of great pride for its Russian inhabitants” (Ziegler 4). Other cities in Russia are however deserted. They are characterized by old industries that were established during the Soviet Union, and the new market economy in these cities has not yet been achieved. 10 The Russian countryside is very remote, and life there is very different from the life in major cities. Rural Russian homes are very poor compared to homes in cities. The Russian countryside is underdeveloped and debilitated. In fact, horse drawn carriages still exist in the countryside. According to Ziegler “agricultural production was mechanized under the Soviets, and peasants were forced onto huge collectives and state farms, many of which still operate to this day” (4). Consequently, productivity in the countryside is very low and majority of youths here lack jobs. In search of jobs and better lives, many youths move from the rural areas to cities in large numbers. This kind of migration began during the time of the Soviet Union although residency restrictions had been put in place. Today, the Russian constitution does not place any restrictions on movement and residency so citizens are not forced to stay in the countryside. 10 Majority of the people of Russia are highly literate and well educated. “When the Soviet government came to power in 1917, about 55 percent of the population was illiterate. Now, literacy stands at about 97 percent, and Russian students routinely outperform Americans in math and the natural sciences” (Ziegler 4). All schools under the Soviet regime were maintained and operated by the state. Today, private and religious schools supplement state education, and the education system of Russia today is similar to that of western nations. Standards in Russia are however not strictly followed due to serious underfunding of state education and extensive corruption in higher education. This can be clearly seen from the fact that “the new Russian elite often send their children abroad to expensive boarding schools and universities in France, Switzerland, or the United States. Young, entrepreneurial Russians quickly master English or German, languages that are both necessary in the international business world” (Ziegler 5). 11 In the 1990s, the economy of Russia went through a period of capital flight, hyperinflation, unemployment and underemployment, and an increasing disparity in income. Ziegler points out that “a burdensome and irrational tax system led most businesses to keep two sets of books, forcing the government to operate at a deficit. Wealthy entrepreneurs had connections to the criminal mafia gangs, and the great majority of Russian businesses paid them protection money” (6-7). The economy of Russia expanded greatly under the reign of Vladimir Putin. This was due to great oil and gas prices, which made Russian citizens glad to have life return to normal. This however lasted for a very short while, since between 2008 and 2009, Russia felt the impact of the global economic crisis. 12 A History of Russia’s Economy 12 On the eve of the First World War, Russia was a rather regressive and primarily agrarian economy. According to Smith “income per head in the Russian Empire was about one-third of the level of Germany and one-sixth of that of the USA” (15). The relatively low level of per capita income was attributed to the large proportion of the population employed in agriculture, whose productivity was low in comparison with that of Russia’s industrial labor, and agricultural labor in Western Europe and the United States. Population growth between 1860 and 1913 was very high. The population in 1860, 1890, and 1913 was seventy four million, a hundred and sixteen million, and a hundred and seventy five million respectively. Growth in population was concentrated in the rural areas, which had low level of capitalization, and poor soil fertility. The population growth of Russia during this time was only exceeded by developed economies such as Canada, the United States, and Australia, and this was as a result of immigration. Consequently, the growth of agricultural output per worker decreased, and this caused further deflation of the growth per capita income, which at this time grew to only one percent per annum. 12 In 1913, over eighty two percent of Russia’s population lived in the rural areas. Smith asserts that “this figure overstates the degree of dependence of the population on agricultural employment, as much of the rural population supplemented agricultural work with outwork and occasional employment in factories, mining and construction, or were employed entirely outside agriculture” (15). In 1914, sixty six percent of Russia’s population depended on agriculture, creating only forty five percent of the national income, while only five percent of the labor force was employed in mining and industry, accounting for twenty percent of the national income. Although there was a form of growth of the iron, steel, and textile industries, the first half of the nineteenth century in Russia was marked by a sharp relative decline. During this time, Russia was overtaken by Britain as the largest economy in Europe, as income per capita only grew by five percent. 13 By the second half of the nineteenth century, the process of industrialization was underway. The process accelerated in the last quarter of the nineteenth century. According to Smith “industrial growth slowed down at the turn of the century but accelerated from 1907 to 1914 after the introduction of the Stolypin reforms , which broke up the peasant communes and stimulated the movement of labor from agriculture to industry” (16). This helped in the establishment of an elementary capitalist form of agriculture in the rural areas. Consequently, Russia became the fourth largest industrial producer in the world in 1913; this was after Britain, the United States, and Germany. The nation also became the fourth largest producer of steel, fifth largest consumer of energy, and second largest producer of crude oil. During this time, Russia accounted for 8.2 percent of global output of manufactured goods. 13 In 1913, Russia dropped in terms of income per capita becoming the seventh among industrialized nations. Russia was behind Italy, France, and the Austro-Hungarian Empire. Employment in industries was evenly distributed between big large scale factories that were found in major Russian cities, and had the capacity of employing thousand s of workers in processes that were highly labor intensive such as duties that involved working in shifts. Small scale handicrafts and workshops employed approximately three million workers in 1913. Russia’s comparative economic and technological decline in the first half of the nineteenth century is attributed to the exclusion of western capital and ideas. The economy of Russia was opened to western influence and capital after the shock defeat in Crimean War. Russia’s economic underdevelopment also resulted from poor communications and transport. 14 The population of Russia “was concentrated in the poor soil regions around Moscow while difficulties in transportation hindered the development of the richer black earth soils in the south, both as a source of food for the north and as a surplus for export” (Smith 17). The Eastern sector of European Russia had a concentration of rich sources of minerals and raw materials, populations centers on the other hand were in the west, while major rivers flowed from north to south but were only used as means of transportation. Smith asserts that “consequently, the construction of a railway network became an urgent priority for both strategic and economic reasons” (17). 14 Russia’s Economy and State of Economic Progress 15 In the 1990s, the economy of Russia went through a major strain as it shifted from a predominantly planned economy to a free market system. This was caused by problems in carrying out monetary reforms that were targeted towards increasing government revenues, and Russia’s dependence on short-term loans to manage deficiencies in its budgets. Consequently, Russia got into a huge financial crisis in 1998. Russia’s financial problems were intensified by low prices of the country’s oil and minerals, which were the leading export earners, and damage of investor confidence that occurred as a result of the financial crisis. This led to a swift decline in the value of the Russian ruble, late repayments of private and sovereign debts, a disruption of commercial transactions, which took place through the system of banking, loss of foreign investment, and the danger of uncontrolled inflation. 15 However, the Russian economy quickly recovered from the crisis of 1998, and for about nine years the country enjoyed continuous economic growth. This was as a result of the employment of major reforms in labor, banking, tax, and land codes, the Russian ruble, which did not lose value, good prices of commodities, and the strong fiscal policy. During this period, fixed capital investments and household consumption in Russia grew by ten percent each year, replacing net exports as the principal drivers of demand. As a result of the sound fiscal policy, exchange rates and inflation stabilized. According to the United States Bureau of European and Eurasian Affairs “foreign exchange reserves grew to almost $600 billion by mid-2008, the third-largest in the world, of which more than $200 billion were classified as stabilization funds designed to shelter the budget from commodity price shocks” (“Background Note: Russia,” state.gov). In late 2006, Russia had repaid a debt of $22 billion, which it had with the Soviet-era Paris Club. However, by October 2008, Russia had foreign external debt of 540 billion dollars, of which 500 billion dollars was to be repaid by corporations and banks, as well as businesses owned by the state. 15 In 2008, Russia was hardly hit by the global economic crisis that began with heavy loss of capital in September 2008 leading to a crisis in Russia’s stock market. Earlier in 2008, Russia lost a lot of capital in big business disputes such as Mechel and TNK-BP and in the Georgian war. By September 2008, Russia’s stock market had completely crashed. Consequently, Russian businesses had to sell shares in order to increase pledges for margin calls that were demanded by international lending institutions. According to the United States Bureau of European and Eurasian Affairs, as the worldwide financial crisis increased in 2008, global demand for goods and services decreased and by late 2008, the economy of Russia was almost stagnant (“Background Note: Russia,” state.gov). A crisis in the banking sector was prevented by the Central bank of Russia, which supplied capital to Russian banks. The Russian government also made huge efforts to control devaluation. This prevented a break in bank deposits and the ruble, but this caused a sharp decline in foreign exchange reserves to billions of dollars by the month of February 2009. 16 In 2010, the economy of Russia began to recover. This is because the Russian government introduced anti-crisis policies that helped in the recovery. There was also an increase in oil prices and a global revival. Innovation as a principal to economic modernization was promoted by Russian leaders who emphasized in innovative activities. Russian leaders also emphasized on the need to expand the Russian economy, and reduce overdependence on gas and oil. Although Russia’s growth in the Gross Domestic Product in 2009 was negative, the economy returned to growth in 2010. According to the United States Bureau of European and Eurasian Affairs this was marked by “a 3.8% increase in GDP. Russia’s Economic Development Ministry predicted that the nations GDP would grow 4.0% in 2011” (“Background Note: Russia,” state.gov). 17 In August 2011, the population of Russia was 142.9 million (“Background Note: Russia,” state.gov). According to the United States Bureau of European and Eurasian Affairs, “Life expectancy remains low compared to developed countries, averaging 63.03 years for men and 74.87 years for women in 2011. The UN predicts that Russia may lose one-third of its population by 2050” (“Background Note: Russia,” state.gov). There have been cases of HIV/AIDS in Russia. The number of HIV/AIDS cases in 2011 had increased compared to those of 2010. Through the National Priority Health Project and Federal Targeted Program, the government of Russia administers and funds programs to prevent and treat HIV. Millions of dollars are spent each year in programs to treat HIV/AIDS, and vaccine research for HIV/AIDS is also funded by the government. 17 Russia is a nation that is rich in natural resources. The Ural Mountains are rich in minerals, while the rural areas of Siberia located to the Far East of Russia are rich in coal, gas, oil, and timber. However, there have been difficulties in developing regions rich in resources due to the fact that they are located in areas where climate is unfavorable, and they are remotely located very far from Russian ports. Despite all this, Russia remains a leading producer and exporter of minerals such as gold, and fuels such as oil and coal. According to the United States Bureau of European and Eurasian Affairs, “Natural resources, especially energy, dominate Russian exports. Over two-thirds of Russian exports to the United States are fuels, mineral oil, or metals” (“Background Note: Russia,” state.gov). 18 Among the former republics of the Soviet Union, Russia is one of the most industrialized nations. However, the nation has failed to invest in its industries over the years leaving them inefficient and very old. Russia has however developed huge manufacturing capacities in transport equipment, food products, and metals. Today, the nation is the third largest exporter of primary aluminum and steel. Ornaments are also a major export form Russia. In recent years, the Russian government has made great efforts to reform defense industries and use them for civilian purposes. Many enterprises owned by the state are also in the process of being privatized. Agriculture on the other hand is an underdeveloped sector. However, in recent years, grain productions and export has been concentrated in western Siberia, non-Arctic Russia and European Russia. 18 In 2008, Foreign Direct Investment in Russia had reached historical heights. However, in 2009 it fell rising again in 2010 and much higher in the first quarter of 2011. The banking sector has also experienced growth recently. However, financial intervention in the entire economy remains backward. Small and medium businesses lack access to credit. Despite reducing to very low levels in 2009, trade between Russia and the United States has been increasing. The overall trade surplus of Russia has also been positively increasing. In 2009, the number of unemployed people in Russia continued to rise. Consequently, the Russian government has made it a priority to fight unemployment in the country. Each year, the government finances programs aimed towards promoting growth of jobs. The Russian government also pays monthly unemployment benefits to the unemployed. 19 Impact of Rapid Economic Change on Employment and the Workforce 19 With the opening of the Russian economy, unemployment greatly increased. The problem of unemployment was caused by Russia’s transition to a market economy. According to Horsley et al., the total number of unemployed in 2000 “was 9.8 percent of the labor force. In recent years, there has been a slight decrease in the number of unemployed due to the higher levels of economic growth……the unemployment rate was 7.9 percent in the middle of 2005” (115). In 2006, the refugees from former Soviet Union republic, those who left or were fired from the military, young people, women, and the low-qualified people formed the groups most affected by unemployment in Russia. Many unemployed people during this time turned to crime and alcohol. However, the Russian government intervened by establishing job placement agencies in most regions and towns to help in finding employment for Russian inhabitants. 19 Russia has maintained constant economic growth from then and this has led to a gradual decrease in unemployment. In 200, Russia’s unemployment rate was at 10.6%, this however decreased to 6.3% in 2008 (“Unemployment in Russian Federation,” unemploymentinrussia.com). In September 2012, the rate of unemployment in Russia stood at 5.23%, this is a significant decrease from 6.40% in October 2011 (“Unemployment in Russian Federation,” unemploymentinrussia.com). The number of unemployed people in September 2012 was 3,985,000 while in October 2012 it was 4,023,000 (“Unemployment in Russian Federation,” unemploymentinrussia.com). 20 Effects of Globalization and Economic Expansion on Russia 20 Over the last few years, the economy of Russia has experienced significant growth, inflation rates have gone down and financial stability has increased. Consequently, the living conditions of the Russian people have improved. Russia has also become a free market economy, and therefore people from all over the world can start business here, and the Russian people can visit other nations. In agreement to this, Horsley et al. state that, “the consumer market has flourished. Goods that were not available before can be bought easily today” (115). Russians can now own residential and non-residential property, and freely buy and sell foreign currency. 20 People with startup capital, abilities, and knowledge are now supported by the government in starting up businesses. “People can now criticize the government; hold demonstrations and strikes, read books of formerly prohibited authors like Alexander Solzhenitsyn” (Horsley et al. 115). The rate of unemployment has also decreased and today, more people are able to earn an income. 21 In conclusion, Russia has gone from a country whose economy was stagnant to rapid economic growth. This has however been accompanied by a number of problems with the biggest one being the transition from a centrally planned economy to a market economy. The nation has however emerged victorious in establishing a market economy and today, the nation is a business hub for business people from all over the world. 21 “Russia-Historical Background.” Mongabay.com. 2010. Web. December 2, 2012. . 22 Smith, Alan. Russia and the World Economy: Problems of Integration. New York: Routledge, 1993. Print. 23 Introduction Globalization is an action that is fundamental to life. The process of globalization is distinguished by constant changes and improvements. From the twentieth century, the term gained universal usage becoming an international term with various meanings. Due to its widespread usage, the term “Globalization” has no generally accepted definition. However, globalization is widely used to define the modern and progressive process of global economic, social, and political unification (Wells, Shuey, and Kiely 37). Globalization is therefore used to define a system of internationalization. Universal integration provides people with ways to travel, communicate, and make global investments. Companies on the other hand are able to obtain capital, labor, and material resources more easily, sell their products to a wider market, partake in progressive technology, and appreciate economics of scale. However, while majority of people and nations benefit from globalization, others are damaged economically, harming cultures and destroying local environments. Globalization together with a number of other advancements and strategies generates both profits, and hazards that affect the national security of nations. There are many definitions of the term globalization. According to Paul, Globalization is “the shift towards a more integrated and interdependent world economy” (4). Mullerat points out that the process of globalization is characterized by increased associations and interactions in worldwide businesses and markets (120). In this sense, globalization was used as an economic concept. However, it is good to note that in the contemporary society, globalization influences all types of human activities. The World Bank’s definition of globalization is increasing associations among nations, which is a result of growing unification in business, investment, people, and concepts in a universal marketplace (66). Globalization has been driven by factors such as the end of the Cold War and downfall of Communism, the basic desire of various people to do business, travel, and disseminate information and progressive improvements in transportation systems and electronic information. With the simultaneous expansion of democracy and free markets among nations, physically and economically possible activities are now achievable politically. However, globalization can be slowed down by War, economic recession, trade protectionism, and diseases. The term “Economic Expansion” also refers to economic growth. Therefore, the terms can be used interchangeably to mean the same thing. Dwivedi defines economic growth as “a sustained increase in per capita national output over a long period of time” (383). For a nation to experience economic expansion, the ratio at which its total output increases must be higher than its population growth rate. Economic growth therefore means growth in per capita income alongside growth in population. It is measured through an increase in the Gross Domestic Product of a nation, which occurs over a period of time, and increase in real Growth Domestic product per capita, which also occurs over a period of time. Economic growth requires a nations national output to be composed of goods and services that meet the maximum number of people’s needs. There is also need for increase in national output to be maintained over a long period of time. Dwivedi describes that “short-run increase in output in one period followed by a similar decrease in it in the next period does not mean economic growth” (383). Occasional, seasonal or recurrent growth in output does not meet conditions of continuous economic growth. For any economy to grow, it requires six major variables grouped as demand, supply, and efficiency factors. An increasing level of aggregate demand is required for a nation to achieve its growing production potential where it must completely utilize its growing supply of resources. Increases in quality and quantity of national and human resources, increase in supply of capital goods, and advancements in technology are supply factors that allow a nation to boost its real output. Although supply and demand factors are significant in the attainment of economic growth, this cannot be achieved before a nation attains economic efficiency. Russia is among the nations that have been mostly affected by the spread of globalization. Unlike any other economy in the history of man, the economy of Russia transformed to a capitalist economy, from being a planned socialist economy. The country went through a period of exceptional economic change throughout the 1990s (Horsley et al. 108). It was during this time that Russia’s economic growth declined, while poverty and unemployment increased. However, this changed since 2000 when the economy began to grow. History and Background of Russia Russia has been inhabited for millions of years. Its early history was characterized by old kingdoms and migrations of people. The Slavic people were the first to settle in Russia about 2000 years ago. For centuries, emperors (also called tsar) ruled Russia. According to Russians, their first dynasty with Emperor Rurik began in 862 AD. Mikail Romanov was elected in 1613 marking the beginning of the Romanov Dynasty (Hunt 6). Under the Romanov Dynasty, Russia became the largest empire in the world. The Romanov Dynasty ruled from 1613 to 1917. Nicholas II became the last ruler of the Romanov Empire after he resigned in 1917. This was as a result of a number of defeats such as the defeat of Russia in the Russo-Japanese War between 1904 and 1905, consequently leading to the Russian revolution. During the First World War, Russia was defeated in a number of battles. This resulted into serious riots and as a result another revolution occurred tumbling the Royal household in 1917. After “Nicholas II lost control of Russia, the Bolshevik party took over in 1917” (Hunt8). The Bolshevik Party comprised of an organization of revolutionaries, who were guided by Vladimir Lenin. The objective of this group was to improve conditions in their society, which had faced unequal division of wealth under the emperors. Communists advocated for communal property ownership. In 1922, a collection of republics called the Union of Soviet Socialist Republics (USSR) was formed by the communists (Hunt 8). The group of republics came to be known as the Soviet Union. The republics included Russia, Ukraine, Belarus, Latvia, Estonia, Uzbekistan, and Lithuania. Among these republics, Russia was the largest in terms of populace and territory. In 1924, promulgation of the treaty of union, which was incorporated into the first Soviet constitution, took place (“Russia-Historical Background,” mongabay.com). In order to include each nation’s territory, formal borders for each nation were drawn. Despite the fact that the involved nations had freely entrusted their independent powers to the union, the first soviet constitution granted sovereignty to the new nations. The Union of Soviet Socialist Republics government and politics were therefore controlled by Ethnic Russians. Due to Russia’s control in the interests of the Union of Soviet Socialist Republics, a number of governance and administration institutions were not developed. Examples of governance and administration institutions that failed to be developed include a party of communists at the level of the republic, Russian branches of trade unions, and a Russian academy of sciences. In the late 1980s, the formal nations that comprised of fourteen union republics apart from Russia, requested for establishment or reinforcement of particular institutions in the Union of Soviet Socialist Republics (“Russia-Historical Background,” mongabay.com). Under the rule of Soviet leader Mikhail S. Gorbachev, citizens of the union republics including Russia established a number of policies to claim for their rights. Consequently, constitutional reforms were made and new republic legislatures were elected. In 1990, a new legislature known as the Congress of People’s Deputies was designated in Russia (“Russia-Historical Background,” mongabay.com). In the same year, the nation’s congress acknowledged the Union of Soviet Socialist Republics dominion over all its natural resources which included Petroleum, timber natural gas, precious and nonferrous metals, and furs. The congress also acknowledged the supremacy of the laws of Russia over the laws of the principal soviet government. Between 1990 and 1991, sovereignty was reinforced in the Union of Soviet Socialist Republics through establishment of branches of organizations for the republic (“Russia-Historical Background,” mongabay.com). These included the establishment of the Soviet Union Academy of Sciences, the Communist Party, the Committee of State Security, and radio and television broadcasting facilities. In June 1991, Yeltsin was elected as president of the Union of Soviet Socialist Republics (“Russia-Historical Background,” mongabay.com). Yeltsin was very active in proclaiming Russia’s supremacy and loyalty. In August 1991, Yeltsin’s election led to a collapse of Gorbachev’s hard-line government that had failed to win in the elections. However, after a lot of debates and coups, Gorbachev restored his position as president of the Soviet Union. As a result of this, activities of the Communist Party were postponed and majority of the nations that made up the union proclaimed their independence. However, a number of nations had no problem signing a treaty that had been indefinitely outlined by Gorbachev. As they gained complete independence, Baltic nations immediately acquired diplomatic acknowledgement from other republics. In September 1991, the rump government of Gorbachev acknowledged the independence of Latvia, Estonia, and Lithuania (“Russia-Historical Background,” mongabay.com). By the end of 1991, the government of Yeltsin had acquired control of Gorbachev's government that seemed to lag behind in all matters (“Russia-Historical Background,” mongabay.com). Despite this, Russia had not gained independence. However, parties from various nations declared that a treaty that had established the Soviet Union1922 had been revoked, and the Soviet Union no longer existed. This decision was formerly announced by Gorbachev at the end of 1991, marking the independence of Russia as a sovereign nation. As a result of this, Russia obtained international acknowledgement as the sovereign successor to the Soviet Union. Russia was honored with a permanent seat to represent the Soviet Union in the United Nations Security Council, and various positions in regional and international organizations. Russia sits on both Europe and Asia. However, it is neither Asian nor European in its standpoint and culture. Russia has remained the largest country in the world, even after the division of the Soviet Union in 1991. Ziegler points out that the nation “occupies about 6.6 million square miles of territory, and is nearly twice the size of the United States. From East to West, the country stretches over 5,000 miles and occupies 11 time zones” (1). After the breakup of the Union of Soviet Socialist Republics, Russia abandoned much of its access to the Black sea. As a result of this fragmentation, Russia was left smaller, landlocked, and geographically isolated. The former Soviet Union was the third-largest nation in the world with a population of approximately two hundred and ninety million people. Despite the fact that Russia is physically the largest nation in the world, its population has been declining over the years. In this regard, it becomes the ninth largest nation in the world following “China, India, the United States, Indonesia, Brazil, Pakistan, Bangladesh, and Nigeria” (Ziegler 2) in terms of population. Over eighty percent of the population of Russia lives on the western side of the nation, while the rest of the population lives in Siberia and Russia’s Far East. Western Russia is populated with majority of Russia’s roads, railways, and air routes. Ziegler asserts that “Siberia is extremely rich in natural resources-oil, natural gas, gold, diamonds, furs, and timber-but much of its wealth is virtually inaccessible or very costly to extract due to the country’s weak transportation system” (2). Today, Russia is more ethnically united compared to the former Soviet Union and imperial Russia. This is because before the downfall of the Soviet Union, it had only fifty one percent ethnic Russians. However, the Russian Federation today comprises of eighty two percent ethnic Russians. Tatars are the second largest ethnic group in the Russian Federation; the group comes from Mongols descendants, who controlled the lands in Russia in the thirteenth century. Three percent of Russia’s population comprises of the Ukrainians, who are Russian’s Slavic cousins. Twelve percent of the population is made up of Jews, Germans, Belarusians, Turkic people, Caucasians, and small tribes form Siberia. The ethnic groups in Russia generally relate very well, but from time to time, outbursts of violence occur against non-Russians. According to Ziegler “Russia as a whole lies much further north than the United States; in this sense it is more comparable to Canada” (2). Russia has a lot of fertile agricultural land, but its location in the north results in cold weather and very short growing seasons. As a result of this, most crops do not fare well on Russian soil. When it was part of the Soviet Union, Russia had great cropland. This was however lost when the Soviet Union was dissolved, great cropland located in Kazakhstan and Ukraine was lost. Crops grown in Russia include rye, winter wheat, potatoes and sugar beets. Unfortunately, “soviet policies severely damaged agriculture, and this sector of the economy has not recovered in the post-communist period” (Ziegler 3). In 2008, Russia had to import most of its food from other nations. Russia is generally an urban nation, with most of its population living in towns. Moscow, which is the capital city of Russia, is regarded as the most dynamic city in the world. The city has a population of approximately nine million people. In fact, three quarters of investment by western nations is concentrated in Moscow. Despite the fact that Moscow was a dull and monotonous place during the Soviet Union, today the city is characterized by luxurious hotels, alluring restaurants and night clubs, improved roads, traffic jams resulting from the huge international population, and an aggressive economy. Russia’s “network of canals and bridges, stately Italian architecture, and green parks make Petersburg a favorite tourist destination and a source of great pride for its Russian inhabitants” (Ziegler 4). Other cities in Russia are however deserted. They are characterized by old industries that were established during the Soviet Union, and the new market economy in these cities has not yet been achieved. The Russian countryside is very remote, and life there is very different from the life in major cities. Rural Russian homes are very poor compared to homes in cities. The Russian countryside is underdeveloped and debilitated. In fact, horse drawn carriages still exist in the countryside. According to Ziegler “agricultural production was mechanized under the Soviets, and peasants were forced onto huge collectives and state farms, many of which still operate to this day” (4). Consequently, productivity in the countryside is very low and majority of youths here lack jobs. In search of jobs and better lives, many youths move from the rural areas to cities in large numbers. This kind of migration began during the time of the Soviet Union although residency restrictions had been put in place. Today, the Russian constitution does not place any restrictions on movement and residency so citizens are not forced to stay in the countryside. Majority of the people of Russia are highly literate and well educated. “When the Soviet government came to power in 1917, about 55 percent of the population was illiterate. Now, literacy stands at about 97 percent, and Russian students routinely outperform Americans in math and the natural sciences” (Ziegler 4). All schools under the Soviet regime were maintained and operated by the state. Today, private and religious schools supplement state education, and the education system of Russia today is similar to that of western nations. Standards in Russia are however not strictly followed due to serious underfunding of state education and extensive corruption in higher education. This can be clearly seen from the fact that “the new Russian elite often send their children abroad to expensive boarding schools and universities in France, Switzerland, or the United States. Young, entrepreneurial Russians quickly master English or German, languages that are both necessary in the international business world” (Ziegler 5). In the 1990s, the economy of Russia went through a period of capital flight, hyperinflation, unemployment and underemployment, and an increasing disparity in income. Ziegler points out that “a burdensome and irrational tax system led most businesses to keep two sets of books, forcing the government to operate at a deficit. Wealthy entrepreneurs had connections to the criminal mafia gangs, and the great majority of Russian businesses paid them protection money” (6-7). The economy of Russia expanded greatly under the reign of Vladimir Putin. This was due to great oil and gas prices, which made Russian citizens glad to have life return to normal. This however lasted for a very short while, since between 2008 and 2009, Russia felt the impact of the global economic crisis. A History of Russia’s Economy On the eve of the First World War, Russia was a rather regressive and primarily agrarian economy. According to Smith “income per head in the Russian Empire was about one-third of the level of Germany and one-sixth of that of the USA” (15). The relatively low level of per capita income was attributed to the large proportion of the population employed in agriculture, whose productivity was low in comparison with that of Russia’s industrial labor, and agricultural labor in Western Europe and the United States. Population growth between 1860 and 1913 was very high. The population in 1860, 1890, and 1913 was seventy four million, a hundred and sixteen million, and a hundred and seventy five million respectively. Growth in population was concentrated in the rural areas, which had low level of capitalization, and poor soil fertility. The population growth of Russia during this time was only exceeded by developed economies such as Canada, the United States, and Australia, and this was as a result of immigration. Consequently, the growth of agricultural output per worker decreased, and this caused further deflation of the growth per capita income, which at this time grew to only one percent per annum. In 1913, over eighty two percent of Russia’s population lived in the rural areas. Smith asserts that “this figure overstates the degree of dependence of the population on agricultural employment, as much of the rural population supplemented agricultural work with outwork and occasional employment in factories, mining and construction, or were employed entirely outside agriculture” (15). In 1914, sixty six percent of Russia’s population depended on agriculture, creating only forty five percent of the national income, while only five percent of the labor force was employed in mining and industry, accounting for twenty percent of the national income. Although there was a form of growth of the iron, steel, and textile industries, the first half of the nineteenth century in Russia was marked by a sharp relative decline. During this time, Russia was overtaken by Britain as the largest economy in Europe, as income per capita only grew by five percent. By the second half of the nineteenth century, the process of industrialization was underway. The process accelerated in the last quarter of the nineteenth century. According to Smith “industrial growth slowed down at the turn of the century but accelerated from 1907 to 1914 after the introduction of the Stolypin reforms , which broke up the peasant communes and stimulated the movement of labor from agriculture to industry” (16). This helped in the establishment of an elementary capitalist form of agriculture in the rural areas. Consequently, Russia became the fourth largest industrial producer in the world in 1913; this was after Britain, the United States, and Germany. The nation also became the fourth largest producer of steel, fifth largest consumer of energy, and second largest producer of crude oil. During this time, Russia accounted for 8.2 percent of global output of manufactured goods. In 1913, Russia dropped in terms of income per capita becoming the seventh among industrialized nations. Russia was behind Italy, France, and the Austro-Hungarian Empire. Employment in industries was evenly distributed between big large scale factories that were found in major Russian cities, and had the capacity of employing thousand s of workers in processes that were highly labor intensive such as duties that involved working in shifts. Small scale handicrafts and workshops employed approximately three million workers in 1913. Russia’s comparative economic and technological decline in the first half of the nineteenth century is attributed to the exclusion of western capital and ideas. The economy of Russia was opened to western influence and capital after the shock defeat in Crimean War. Russia’s economic underdevelopment also resulted from poor communications and transport. The population of Russia “was concentrated in the poor soil regions around Moscow while difficulties in transportation hindered the development of the richer black earth soils in the south, both as a source of food for the north and as a surplus for export” (Smith 17). The Eastern sector of European Russia had a concentration of rich sources of minerals and raw materials, populations centers on the other hand were in the west, while major rivers flowed from north to south but were only used as means of transportation. Smith asserts that “consequently, the construction of a railway network became an urgent priority for both strategic and economic reasons” (17). Russia’s Economy and State of Economic Progress In the 1990s, the economy of Russia went through a major strain as it shifted from a predominantly planned economy to a free market system. This was caused by problems in carrying out monetary reforms that were targeted towards increasing government revenues, and Russia’s dependence on short-term loans to manage deficiencies in its budgets. Consequently, Russia got into a huge financial crisis in 1998. Russia’s financial problems were intensified by low prices of the country’s oil and minerals, which were the leading export earners, and damage of investor confidence that occurred as a result of the financial crisis. This led to a swift decline in the value of the Russian ruble, late repayments of private and sovereign debts, a disruption of commercial transactions, which took place through the system of banking, loss of foreign investment, and the danger of uncontrolled inflation. However, the Russian economy quickly recovered from the crisis of 1998, and for about nine years the country enjoyed continuous economic growth. This was as a result of the employment of major reforms in labor, banking, tax, and land codes, the Russian ruble, which did not lose value, good prices of commodities, and the strong fiscal policy. During this period, fixed capital investments and household consumption in Russia grew by ten percent each year, replacing net exports as the principal drivers of demand. As a result of the sound fiscal policy, exchange rates and inflation stabilized. According to the United States Bureau of European and Eurasian Affairs “foreign exchange reserves grew to almost $600 billion by mid-2008, the third-largest in the world, of which more than $200 billion were classified as stabilization funds designed to shelter the budget from commodity price shocks” (“Background Note: Russia,” state.gov). In late 2006, Russia had repaid a debt of $22 billion, which it had with the Soviet-era Paris Club. However, by October 2008, Russia had foreign external debt of 540 billion dollars, of which 500 billion dollars was to be repaid by corporations and banks, as well as businesses owned by the state. In 2008, Russia was hardly hit by the global economic crisis that began with heavy loss of capital in September 2008 leading to a crisis in Russia’s stock market. Earlier in 2008, Russia lost a lot of capital in big business disputes such as Mechel and TNK-BP and in the Georgian war. By September 2008, Russia’s stock market had completely crashed. Consequently, Russian businesses had to sell shares in order to increase pledges for margin calls that were demanded by international lending institutions. According to the United States Bureau of European and Eurasian Affairs, as the worldwide financial crisis increased in 2008, global demand for goods and services decreased and by late 2008, the economy of Russia was almost stagnant (“Background Note: Russia,” state.gov). A crisis in the banking sector was prevented by the Central bank of Russia, which supplied capital to Russian banks. The Russian government also made huge efforts to control devaluation. This prevented a break in bank deposits and the ruble, but this caused a sharp decline in foreign exchange reserves to billions of dollars by the month of February 2009. In 2010, the economy of Russia began to recover. This is because the Russian government introduced anti-crisis policies that helped in the recovery. There was also an increase in oil prices and a global revival. Innovation as a principal to economic modernization was promoted by Russian leaders who emphasized in innovative activities. Russian leaders also emphasized on the need to expand the Russian economy, and reduce overdependence on gas and oil. Although Russia’s growth in the Gross Domestic Product in 2009 was negative, the economy returned to growth in 2010. According to the United States Bureau of European and Eurasian Affairs this was marked by “a 3.8% increase in GDP. Russia’s Economic Development Ministry predicted that the nations GDP would grow 4.0% in 2011” (“Background Note: Russia,” state.gov). In August 2011, the population of Russia was 142.9 million (“Background Note: Russia,” state.gov). According to the United States Bureau of European and Eurasian Affairs, “Life expectancy remains low compared to developed countries, averaging 63.03 years for men and 74.87 years for women in 2011. The UN predicts that Russia may lose one-third of its population by 2050” (“Background Note: Russia,” state.gov). There have been cases of HIV/AIDS in Russia. The number of HIV/AIDS cases in 2011 had increased compared to those of 2010. Through the National Priority Health Project and Federal Targeted Program, the government of Russia administers and funds programs to prevent and treat HIV. Millions of dollars are spent each year in programs to treat HIV/AIDS, and vaccine research for HIV/AIDS is also funded by the government. Russia is a nation that is rich in natural resources. The Ural Mountains are rich in minerals, while the rural areas of Siberia located to the Far East of Russia are rich in coal, gas, oil, and timber. However, there have been difficulties in developing regions rich in resources due to the fact that they are located in areas where climate is unfavorable, and they are remotely located very far from Russian ports. Despite all this, Russia remains a leading producer and exporter of minerals such as gold, and fuels such as oil and coal. According to the United States Bureau of European and Eurasian Affairs, “Natural resources, especially energy, dominate Russian exports. Over two-thirds of Russian exports to the United States are fuels, mineral oil, or metals” (“Background Note: Russia,” state.gov). Among the former republics of the Soviet Union, Russia is one of the most industrialized nations. However, the nation has failed to invest in its industries over the years leaving them inefficient and very old. Russia has however developed huge manufacturing capacities in transport equipment, food products, and metals. Today, the nation is the third largest exporter of primary aluminum and steel. Ornaments are also a major export form Russia. In recent years, the Russian government has made great efforts to reform defense industries and use them for civilian purposes. Many enterprises owned by the state are also in the process of being privatized. Agriculture on the other hand is an underdeveloped sector. However, in recent years, grain productions and export has been concentrated in western Siberia, non-Arctic Russia and European Russia. In 2008, Foreign Direct Investment in Russia had reached historical heights. However, in 2009 it fell rising again in 2010 and much higher in the first quarter of 2011. The banking sector has also experienced growth recently. However, financial intervention in the entire economy remains backward. Small and medium businesses lack access to credit. Despite reducing to very low levels in 2009, trade between Russia and the United States has been increasing. The overall trade surplus of Russia has also been positively increasing. In 2009, the number of unemployed people in Russia continued to rise. Consequently, the Russian government has made it a priority to fight unemployment in the country. Each year, the government finances programs aimed towards promoting growth of jobs. The Russian government also pays monthly unemployment benefits to the unemployed. Impact of Rapid Economic Change on Employment and the Workforce With the opening of the Russian economy, unemployment greatly increased. The problem of unemployment was caused by Russia’s transition to a market economy. According to Horsley et al., the total number of unemployed in 2000 “was 9.8 percent of the labor force. In recent years, there has been a slight decrease in the number of unemployed due to the higher levels of economic growth……the unemployment rate was 7.9 percent in the middle of 2005” (115). In 2006, the refugees from former Soviet Union republic, those who left or were fired from the military, young people, women, and the low-qualified people formed the groups most affected by unemployment in Russia. Many unemployed people during this time turned to crime and alcohol. However, the Russian government intervened by establishing job placement agencies in most regions and towns to help in finding employment for Russian inhabitants. Russia has maintained constant economic growth from then and this has led to a gradual decrease in unemployment. In 200, Russia’s unemployment rate was at 10.6%, this however decreased to 6.3% in 2008 (“Unemployment in Russian Federation,” unemploymentinrussia.com). In September 2012, the rate of unemployment in Russia stood at 5.23%, this is a significant decrease from 6.40% in October 2011 (“Unemployment in Russian Federation,” unemploymentinrussia.com). The number of unemployed people in September 2012 was 3,985,000 while in October 2012 it was 4,023,000 (“Unemployment in Russian Federation,” unemploymentinrussia.com). Effects of Globalization and Economic Expansion on Russia Over the last few years, the economy of Russia has experienced significant growth, inflation rates have gone down and financial stability has increased. Consequently, the living conditions of the Russian people have improved. Russia has also become a free market economy, and therefore people from all over the world can start business here, and the Russian people can visit other nations. In agreement to this, Horsley et al. state that, “the consumer market has flourished. Goods that were not available before can be bought easily today” (115). Russians can now own residential and non-residential property, and freely buy and sell foreign currency. People with startup capital, abilities, and knowledge are now supported by the government in starting up businesses. “People can now criticize the government; hold demonstrations and strikes, read books of formerly prohibited authors like Alexander Solzhenitsyn” (Horsley et al. 115). The rate of unemployment has also decreased and today, more people are able to earn an income. In conclusion, Russia has gone from a country whose economy was stagnant to rapid economic growth. This has however been accompanied by a number of problems with the biggest one being the transition from a centrally planned economy to a market economy. The nation has however emerged victorious in establishing a market economy and today, the nation is a business hub for business people from all over the world. Works Cited Dwivedi, D.N. Macroeconomics Theory and Policy. 3rd ed. New Delhi: Tata McGraw Hill Education Private limited, 2010. Print. Horsley et al. “Globalization in Russia, and Comparing Russia’s and China’s Responses to Globalization.” cambridge.edu.au. 2006. Web. December 7, 2012. . Hunt, Jilly. Russia. Oxford: Capstone Global Library Limited, 2012. Print. Mullerat, Ramon. International Corporate Social Responsibility: The Role of Corporations in the Economic Order of the 21st Century. Alphen aan den Rijn: Kluwer Law International, 2010. Print. Paul, Justin. International Business, 4/e. 4th ed. New Delhi: PHI Learning Private Limited, 2008. Print. “Russia-Historical Background.” Mongabay.com. 2010. Web. December 2, 2012. . Smith, Alan. Russia and the World Economy: Problems of Integration. New York: Routledge, 1993. Print. The World Bank. “Globalization and International Trade.” worldbank.org. n.d. Web. December 1, 2012. . “Unemployment in Russian Federation,” unemploymentinrussia.com. 2011. Web. December 7, 2012. . United States Bureau of European and Eurasian Affairs. “Background Note: Russia.” State.gov. March 19, 2012. Web. December 2, 2012. < http://www.state.gov/r/pa/ei/bgn/3183.htm>.  Wells, Gary J., Shuey, Robert and Kiely, Ray. Globalization. New York: Novinka Books, 2001. Print. Ziegler, Charles E. The History of Russia. California: ABC-CLIO, LLC, 2009. Print.     Read More