History of Russia and Its Economy - Research Paper Example

? Introduction Globalisation is not a new word, as people would deem it to be. It started long before the world war when then there exist free markets with countries having reduced the tariffs imports, exports, as well as immigration and other limits to do with what determined the flow of information within countries and people alike. However, this capitalism was somehow destabilised by the emergence of totalitarianism and collectivism. Yergin and Stanislaw (2002) assert that it will be better off if governments are given the opportunity to regulate the economy. This resulted in many countries adopting this system that is still evident up to now. This paper will thus talk about the country Russia by focusing on the relationship between the country and its economy since 1910 to today in a bid to identify some of the risks associated with opening an ICT related business in the country (Yergin and Stanislaw, 2002). Imperial Russia (1910-1922). During this time, Russia was regarded as the largest country by land mass and population in Europe and an additional prestige of the biggest army in the world. Being the largest source of agricultural products most of which it exported, in addition, to the overwhelming mineral resources, its trade was more of a give and take. Literary it stood to gain a lot from these exports thus making it a prime beneficiary of foreign investment (Yergin and Stanislaw, 2002). This was emphasized by the fact that markets were free in the making. It is during this time that Russia emerged as a capitalist economy. This resulted from the capability it had of feeding its population without any assistance from outside. However, this economic progress was only tied to the peasant agricultural production rather than the commercial sector. In this wake, Russia had to pay the price, for it led to unevenness in the economy that was only based on the small-scale system with nothing to show off in the cottage and heavy industry. This economic boom resulted from the rise in the world prices of wheat, but this did not do much to raise Russia from the imbalances in its economy. Its backwardness, in addition, to the labour productivity rating that were found to be low, as well as the costs of the material that had dropped in prices thereby dropping in industrial output ranks (Yergin and Stanislaw, 2002). This was to be the beginning of inflation that would later be fuelled by the attempt of the government to print more money. The occurrence of the First World War and domestic revolutions came as a major setback in Russia’s economy that left a story people have lived to tell. The free markets that once existed were no longer available, for it saw a monopoly on prices that were subjugated by the government. USSR (1922-1952). It is at this stage that the future of the soviet economy is established. The government’s involvement in implementing strategies that could raise them above this crisis led to an immediate and theatrical step up in the economy. The government decided to introduce incentives to farmers to enable them farmland, in addition, to the opening up lands for privatisation. This functioned to limit small trade and increase industrial production. It is noticeable that the world was hit by the great depression during this time. However, due to these strategies, as the rest of the world dragged, the soviet was on the move trying to wipe of the dust and forge ahead (Yergin and Stanislaw, 2002). However, due to the collective nature of the Soviet agriculture, the economy did not improve as much. This followed stiffer regulations on production that saw the government prioritise industrial growth with steel, coal, power chemicals, and the military topping the list. It is at this time that the government resorts to acknowledge quantity over quality with efforts to maintain a high productivity. This indeed sailed the country through making it the largest employer in Europe by the fall of 1940. Even as, the Second World War started, the Soviet had established itself. It is further emphasized by forced labour that led to a significant increase in production. The rapid recovery set in consequently as the command economy that embraced production no matter the cost. With an increase, in input the results were encouraging, and this resulted into a rapid recovery (Yergin and Stanislaw, 2002). However, things did not stay put this way for long. The cold war turned to be unnecessary evil in the end. This competition with the United States for superiority drained the Soviet unprecedented wealth. This prioritisation of the military over economic gains led to most of the resources being diverted to the manufacture of nuclear weapons and launching of space races. In the end, it left the agriculture, light industries, as well as the food and essentials supply in peril. USSR (1953-1991). The command economy was still in existence by the end of the cold war, and it thus aimed to recover from this economic meltdown by increasing input for equal or resultant output. In order to do this, there was a need to create more land for cultivation and this are when the then president allows more cultivation of virgin lands (Yergin and Stanislaw, 2002). However, this was not long lasting, for after a rise, there was a consequent deep that resulted into Russia importing wheat. The government’s decision to do a radical overhaul of ministries was crucial. This was in order to establish better councils and ministries that could engage in better and brave economic decisions. However, they did little to free the practice from interference. With an overwhelming 30 percent of the GNP being directed to the military, one would be able to tell why despite the fact that efforts were in the order they did little in solving of the problem. The coming of the strategy of concentrating on consumer goods in the year 1966 saw a rise in demand of private cars. This was facilitated by the government’s indulgence in partnerships with the west for technology. This shows an alternating pattern in the economy of Russia with deeps and hills. However, the oil crisis in 1973 spared Russia to a little extent. Russia had grown to be the leading producer of oil in the world, but this was not a reprieve to the population. They did struggle with unending energy shortages, but this oil windfall managed to keep the economy running until the mid 1970 s. The economy majorly depended on the one percent of the private land that was being cultivated for the 28 percent of the gross agricultural output (Yergin and Stanislaw, 2002). However, the country was under pressure to the US foreign policy, and they had no otherwise but to continue their competition by the increased production of arms. As oil, prices deepened in the late 1980 s there were outstanding government strategies in force to reorient the rapidly decreasing economic potential but were to no avail. However, it was the coming into power of Margaret Thatcher in the UK and Ronald Reagan in the US that saw a momentous change in economic policies. This is in the way they decided to do away with the Keynes economic policies and embrace a pure, free market. The Russian Federation (1991-Today) With the legalisation of family enterprises and joint stock ownership of companies by the year 1991, yielding no fruits, there was a need for strategic change. The economic shock therapy was later to be launched. This entailed a cut on welfare and military budgets, liberalisation of most of the subsidised prices as well as legalisation of private land (Yergin and Stanislaw, 2002). Even though it had reached at a point that commodity prices had soared, but decrease in shortages and disappearance of black market, it was just the beginning of a new Russian economy. The dawn of 1994 saw the reformers race with time to capitalise on the privatisation and try to make this move to market a matter of no return (Kraimer, 2010). This, however, encompassed even the corrupt officials and entrepreneurs as well who rushed to capitalise on the fortunes. This sale of state assets at bargain able prices could later become to go into history as the theft of the century. This led to a wider gap between the rich and the poor that rose exponentially within an unusually short time. However, this lack of tax revenues had an absurd impact on the bond souk forces. What followed was a devaluation of Russia’s rubble with consequent plunging of the country in debts. However, the tough financial disciplines that were established by President Putin between 2000 and 2001 came to serve as a saviour from the economic crisis that had resulted into collapse of banks. The government allowed the selling and buying limited parts of Russian land. This was a tremendous break from the paternalistic sale of land (Kraimer, 2010). However, it did something to enable the rise from an economic crash. This was, in addition to the flexibility of, the people and high commodity prices apart from the prevention of the economy being affected by the swing in the commodity prices. Towards the end of 2003, Russian economy seems to be segmented but rise in oil prices, increased production and modernisation sets it apart from the rest. It is at this stage that Europe and the United States recognizes Russia as a market economy and urges it to join the World Trade Organisation. This was a formidable improvement in the gigantic Russian economy as it got to start using dollar and euro alike as options for safer currencies other than the rubble. The economy, therefore, remained stable until late 2009 when it experienced the first recession in 10 years. However, this did not last for long as in other European and nations, for economic growth resumed its course by late 2010. Country Risks (Current Climate) Now, Russia rates the ninth in the world by considering the nominal value and the sixth by purchasing power parity Kraimer,2010 (Kraimer,2010). It has thus embraced a market based and worldwide-incorporated economy that is more predictable. With the privatisation of most of its industries with an exception of energy and defence sectors, Russia posted a 4.2 percent rise in gross domestic product in 2011. This made it the world’s third highest growth rate among leading economies. Now, Russia’s economic is all time low. This is facilitated by the vast energy reserves and the fact that this industry accounts for about 25% of the gross domestic product (Kraimer, 2010). The announcement of Putin to run for the presidency in March this year sends getters to most economists. This was due to his association with the past deterioration of Russian Economy when he was the prime minister. This is because of his passion for foreign investors. This is, in addition to Russia’s overreliance, on the global energy prices. This is a so risky game that there should be an urgent move for diversification. Another risk comes with the entry of Russia into World Trade organisation. This puts Russia in a disadvantaged position. This is because it is the foreign investors who stand to gain more than the Russian firms considering the greater international competition and higher quality standards. It is evident that the country has an indefinite future with many things to think about such as oil prices that most determine its economy. Diagram showing the fluctuation of economic status of Russian economy as from 1992. Source:http://www.marketresearch.com/Business-Monitor-International-v304/Russia-Business-Forecast-Q1-6684563/. Retrieved on 24/02/2012. ICT Industry Risks Russia has an astounding strength in engineering and scientific talent that this ratio nears that of the United States. This ICT sector makes 8-12% GDP of Russia, and that is why the government has introduced incentives to push this technology sector. This is aimed to reduce foreign dependency. Therefore, this has led to readily available IT resources with the 10th largest internet traffic globally hence a high computer literacy (Kraimer, 2010). However, with approximately a million trained technicians, there is a persistent price competition with India whose services were cheaper. This prestige, it is noteworthy that it has come with its risks. The frequent ITC hacking, as well as phone tapping, is one of the most risks associated with highly skilled IT technicians. This is a threat to the security of this country as well as the neighbouring nations. This is emphasized by the fact that, terrorist groups are fond of using technology in various ways. These include getting money to fund their activities, communicate without being noticed and launching of their terrorist attacks. With these high skills and no proper employment, it is set to introduce varied characteristics of a people. Therefore, opening an ICT related business in the country is an equally beneficial as well as risky. Diagram showing unemployment status since the collapse of the Soviet Union. Sourcehttp://www.alacrastore.com/country-snapshot/Russia. Retrieved on 24/02/2012. Conclusion Russia has thus maintained a fluctuating economy right from before the First World War up to date. This has entirely depended on government decisions. They included the policies that they used in determining tariffs, as well as, in trying to save the public from fluctuating prices and unknowingly causing inflation. In 1910, it started out as a wealthy nation although with no middle class. In 1914, it took a turn where it was reaping from the consequences of hyperinflation. This lasted until 1928 when where private property was legalised, in addition to, land ownership. The introduction of command economy in 1929 prevented it from plunging into global depression. This remained the same until 1953 when they resorted to massive military investment. This continued investment destabilised the economy until 1986 when economic development begins to accelerate. However, the shock therapy in 1995 led to hyperinflation, but it was until 2008 that there occurred a financial crisis due to volatility of commodities. Now, the country seems to gain a lot from the ICT sector. This trend shows the interrelatedness of a country and its economy where most of the decisions that the country make determine their economic status. However, the international market also matters a lot especially to countries under World Trade Organisation. References Kraimer, E.R. (2010). Russia plans to promote technology inventions. Global business. Retrieved on 24th February 2012 from: Yergin, D. and Stanislaw, J. (2002). The commanding heights: The battle for the world economy. Simonchuster.com. Read More