Russian Economic Growth since 1998 - Essay Example

Russian Economic Growth after the 1998 Financial Crisis Russian Economic Growth after the 1998 Financial Crisis The largest country in the world, The Russian Federation has received its share of criticism over the past few hundred years; from the days of the land hungry monarchs to the Revolution of 1917, right up until the 1990's when the Soviet Union broke and laid Russia and its counterparts bare to the scrutiny of the Western world. After years of harsh monarchical rule and nearly one hundred years of highly controversial communist dictatorship, Russia is struggling under the pressure to redeem itself as a viable and strong nation. Poverty, deprivation and social exclusion have all been pinpointed as the facets of the new Russian state that need the most work; however a number of researchers and citizens of Western countries seem to have the opinion that these have been significantly improved after the financial crisis of 1998. The answer depends on the interpretation of data provided mostly by the World Bank. The 1998 financial crisis spread throughout the Asian continent and was described by economist Richard Cooper as "the rapid outflow of funds akin to a deposit run on a bank"1. Money just seemed to seep out of countries like Russia who in previous years had been so economically powerful, and the government scrabbled desperately to regain a foothold on world economics. The assumption has been made that following this initial year of economic distress, The Russian Federation has succeeded in turning itself around and making basic social services available to its citizens while eradicating a large portion of past poverty. Poverty, deprivation and social exclusion are purported to be a thing of the past; how accurate is this depiction of modern Russia Most research shows a slightly different reality than this ideology suggests, and despite the wishes of the state to be classified as economically sound its leaders have been constantly struggling with the administration of such a massive country. In fact it seems that while The Russian Federation has successfully pulled itself out of a massive financial slump in terms of world economy, a great number of its people are still struggling to meet their basic needs. Things like health care, education, and access to unemployment benefits have no real constancy throughout the country and because of this social exclusion is not only being supported but encouraged. After the dissolution of the Soviet Union, The Russian Federation faced incredible difficulties not only in securing foreign trade agreements but in catering to the needs of its millions of diverse people spread over eleven time zones. Dissolution having exposed the former Soviet Union as an incredibly fragile economy, the 1990's saw the swift and steady decline of the Russian economy as well as those of most former Soviet states. 1998 was the culmination of this degradation and the country's overall growth suitably expanded to 74% of the booming 1989 GDP by 20012; a success that convinced Western countries that Russia had regained its strength and capabilities from the Communist era. Kharas, Pinto and Ulatov note that the devaluation of the Russian ruble led to domestic inflation for which Russian people were not prepared3; federal borrowing meant that the government had to continue to sacrifice social services and put its people at further risk until internal revenues were restored. De Blij and Muller cite the sheer size of The Russian Federation as the reason for most social imbalances within the state, explaining that forces of devolution and fundamental geographic differences have contributed not only to the economic crises but the subsequently frail social structure of the country; namely poverty. "After communist collapse, [Russia's] leaders faced a massive problem. A multinational, multicultural state that had been accustomed to authoritarian rule and government control over virtually everythingnow had to be governed in a new way"4. Therefore with the breakdown of communism Russia had to re-examine itself and decide which factors to focus on for a stable future both in terms of infrastructure and economy. Poverty is one of the major issues the state has had to deal with to date following the financial crisis of the 1990's. The World Bank has examined poverty trends in The Russian Federation with relevance to several indicators, including access to quality education, deteriorating health, access to health care and funding for education5. Essentially the World Bank as well as other watchdog international organizations believes that what every industrialised nation should strive to achieve access to quality education and health care for each of its citizens; this is what The Russian Federation has tried to focus on in the past decade and a half. According to World Bank findings using the official poverty line established for international statistics, the state has indeed curbed its once startlingly high poverty rates by roughly 20% between 1999 and 2002, where the former sat at over 41% of the entire Russian population. Certainly drastic measures were called for after the peak of economic hardship and poverty, and as far as the international political world is concerned, Russia has taken the necessary steps to alleviate suffering within its borders. How was this accomplished World Bank documents suggest that this sharp turn around was due to the reformation of several facets of the Russians infrastructure. Housing, health care, schools, employment and agriculture were all re-examined closely after the fall of the Soviet Union. Previously the entire Soviet economy was dealt with in terms of collectivisation and state proceeds that were divided and redistributed equally - theoretically, at least - between the workers. Following the dissolution of the Soviet state Russia needed to redesign this pattern of economy, however the country wasn't entirely certain how to proceed. Instead of following the popular Western capitalist models word for word like many reformed nations choose to do, Russia was not willing to seem weak in its resolve to deal with its issues with its own ideology. Communism remained a popular option with the voters, and because of this any kind of major shift in economics was thwarted. A socialism of the Russian state, as opposed to the Soviet state, was loosely imposed while Eastern Russians remained at odds with Western Russians and culture divided against culture within the giant land. Millions of workers were displaced in the formation of the Soviet Union and because of this they felt the urge to migrate home in the reformation of the state. This meant that many of the workers would lose their livelihoods; many of them would struggle to find new employment in the new Russia and this contributed to the massively high unemployment rate immediately preceding the new millennium. Russian poverty is and always has been closely related to the same basic factors as with any other country: deprivation and social exclusion. The extent to which people have been unable to gain access to education and health care, and to which they have been subject to some kind of discrimination says a lot about the sort of country they are living in. The Russian state in particular has been very open about its aims to eradicate class structure and deprivation; these were some of the core ideals behind the Revolution in 1917 and the formation of a communist state. Nearly a century of communism failed to prove itself a worthy economic structure, however, and thus in the early 1990's Russia required an economic and political facelift to follow the poor value of the ruble. Housing has been a priority on the current Russian agenda, specifically affordable housing to keep families off the streets or from living in cramped and unsanitary conditions. The Russian Federation: Reducing Poverty document explains that the fundamental issue in Russian economy is the fact that urban areas have and continue to attract finances and therefore the better social structures6. Better housing, health care and education systems are all to be found at a much higher frequency in urban areas than in rural ones; this is quite devastating to Russia on the whole because of the number of people who do inhabit vast stretches of rural lands. Traditionally, people in the country have been subject to unfit living conditions that lead to ill health and low life expectancy; the World Bank acknowledges that although Russia has been able to drastically change its poverty statistics over the last few years it still has a lot of work to do in terms of providing adequate housing to its citizens. Education and employment are two of the other major concerns of both Russia and foreign bodies like the World Bank, and these two seem to go directly hand in hand. Research tends to show that areas with a low level of education standard will also tend to harbour the larger percentage of adults facing unemployment7. It seems clear that not only in the case of The Russian Federation but the entire world, that the sooner citizens have free access to education the more likely they are to find jobs and have a chance of living above the poverty line. To ensure that unemployment does not mean strict poverty for those people without work, Russia has its own benefits system set up for registered unemployed labourers to receive federal money to support themselves and their families. According to 1994 statistics, however, around 50% of people registered to receive Russian social benefits do not meet the specific guidelines of an out of work labourer. The initial response to this information is the assumption that these benefits represent an incredibly high percentage of money that is for all purposes lost to the Russian government who might have found more functional uses for it. People holding down part time work, for example, technically ought not to have received the money they did, because theoretically they have claimed benefits to add onto their own regular wages and as such have more than they are entitled to. Closer study of the 1994 statistics, however, shows that this is in fact not the case: conversely, those people who held down part time jobs as well as collecting state benefits actually represented the poorest of the Russian people at the time8. Not only were these people in need of full time work to support themselves, but they weren't able to get nearly enough funding from the government to carry on at the accepted standard of living. This was one of the clearest signs of an intricately weakened economy; following 1998 and the passage of the worst part of the Russian financial crisis, however, unemployment statistics have gone down sharply enough that the state has moved much further towards economic balance. Assuming that this massive decrease was not due solely to the correct registration of unemployed people, the only conclusion to be reached is that Russia itself was in a state of recovery and the rejuvenation sparked the creation of jobs in sectors like the education and health services that had before been neglected. Social exclusion has been a difficult factor to quantify for most of the post-Soviet nations, according to the World Bank in Increasing Inequality in Transition Economies: Is There More To Come9. The paper does express the opinion, however, based on a per capita consumption indicator, that transitional countries like The Russian Federation have experienced increased segregation in terms of income over the past decade. Social exclusion, the authors of the document believe, comes primarily of status that is related directly to income; therefore the wealthy Russian citizens (found mostly in cities and urban centres) continue to have access to good health care and education which is expected to significantly raise their standard of living as compared to those who start life with very little. The poverty stricken citizens have been generally able only to stay within the means they were born into and this clear cut income difference has created divides between poor and wealthy regions of Russia. In a country with 37 administrative units, segregation can have a big effect on the facilities made available to people across the state. This is particularly true when not only is the land so vast, but the people who dwell there are of several different nationalities, all with strong ties to their homelands that were in many cases simply annexed by the Russian state during the reign of the monarchy10. Instead of alleviating this problem after the financial stresses of the 1990's, it seems more that the Russian state has allowed its citizens to grow ever further apart from one another in terms not only of income and access to social systems but culture and identity as well. With significant Turkish, Mongolian and various Eastern European populations within its borders, Russia has to deal with the fact that these different cultural groups were never brought into the mainstream Russian system; instead the lands were used for state benefit and the people maintained their own beliefs, languages and anger over the takeover. Following the harsh treatment of so many independent states over the course of Soviet rule, it is no wonder that so many of these ethnic groups decided to band together instead of align themselves with new Russia. In terms of cohesion, the Russian monarchs were not what can be called forward thinking. The devolution of the current Russian state is indicative of not only social exclusion but also of dividing lines between the haves and the have-nots; basically it is the original frailty of the Russian infrastructure that has contributed to the issues the country has experienced over the past hundred years. The financial crisis in the 1990's forced Russians to think long and hard about what their country was capable of in terms of monetary value and social structures; these have been the two basic factors taken into consideration these fast fifteen years. Russia has managed to right its economy considerably, knocking a huge percentage of unemployment out of existence and working on ways to unify the country. Where the country has been less successful is with the issues of deprivation and social exclusion; these are things that need to be addressed before it can be definitely claimed that Russia has cured itself from the shocking economic crisis that peaked in 1999. Reference List "Russian Federation: Reducing Poverty through Growth and Social Policy Reform", at http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2005/03/17/000012009_20050317113145/Rendered/PDF/289230RU.pdf, (accessed February 21). De Blij, H and Muller, Peter Geography: realms regions and concepts (USA: Wiley, 2002). Harwood, Alison, Litan, Robert and Michael Pomerleano Financial Markets and Development: The Crisis in Emerging Markets (Washington: Brookings Institution, 1999). Jeffries, Ian The Caucasus and Central Asian Republics at the Turn of the Twenty-First Century: A Guide to the Economies in Transition (New York: Routledge, 2003). Kharas, Homi, Pinto, Brian and Ulatov, Sergei, "An Analysis of Russia's 1998 Meltdown: Fundamentals and Market Signals", Brookings Papers on Economic Activity, (2001). Klugman, J. (ed), Economic Institute Development of the World Bank "Poverty in Russia, Public Policy and Private Responses", at http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1997/05/01/000009265_3971126124318/Rendered/PDF/multi_page.pdf, p. 182-183, (accessed February 21). World Bank, "Increasing Inequality in Transition Economies: Is There More to Come", at http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2006/09/14/000160016_20060914143004/Rendered/PDF/wps4007.pdf, (accessed February 21). Read More