Economics The Russian Experience Essay Example for Free

Economics The Russian Experience Essay The economy of the Soviet Union was based on a system of state ownership and administrative planning which meant that the state was the single decision organ in economic matters. The economic growth was guided by what was then called Five Year Plans crafted by the national decision makers appointed by the state. This approach made it easy for the resources to be harnessed to achieve set objectives. The economic set up concentrated more in building capital goods, machine manufacture and the chemical industry. The economic setup was top down model that offered little option for feedback to move to the decision makers. This made it hard for the decision makers to assess the effects of their decisions with a view to eliminate destructive ones. It therefore made it hard for the decision makers to abandon earlier decisions that failed to work or that produced negative results. (http://www. answers. com/toic/history-d-the-soviet-union-1985-1991). The economic setup, otherwise called communism, often resulted into the problem of over or under production of goods. The system paid little attention to the production of consumer goods and this led to black markets thriving. This black market had a counter effect on the economic agenda of the planners. The system was also very bureaucratic delaying issues that required urgent decisions. This scenario led to a back logging of decisions, which overwhelmed the decision makers with time. Middle level managers began to agitate for freedom to deal with customers and suppliers directly for them to more effectively respond to the economic laws of demand and supply. This agitation built up to eventually break the Soviet Union because the decision makers and the political leaders of the time failed to respond to these demands responsibly. (http://www. answers. com/toic/history-d-the-soviet-union-1985-1991). The economic setup of the Soviet Union had made some big gains, which enabled them to become industrialized faster than other economic fronts. Failure to respond to arising issues was what contributed to its downfall. Strong institutions had already been setup such as the agricultural sector, foreign trade as well as the financial sector. All capital goods were collectively owned with little exceptions. Individual property ownership was minimal. The ownership controversy also contributed to the Soviet Union breakup. Since then Russia has had to undergo intensive reform program to enable them to respond to the largely capitalistic world economy (Moszczynska, undated) A key sector that is the focus of the reform process is the financial sector. The Russian economy is reliant on oil and the fluctuations of prices affect the economy adversely. To alleviate such adverse effects, the financial sector needs reforms because it offers smoother transition into the envisioned economic setup. A challenge facing Russia and other countries as they transit from command economy to the free market economy is imbalance created by foreign trade. These countries have begun to import goods that were in short supply but on the other hand exports have began to decline. This slows down the recovery process since exports spurred growth previously. When the exports are more than the imports, a country is performing well economically and this is reverse for these former Soviets. Consumption growth had for a time led to an increment is real wages but productivity growth has stagnated those gains. This again is due to the heavy reliance on the oil industry for economic growth (Barnard, 2000). In addition, there is little investment outside the oil and metal industries. This means that as much as the motive is to create wealth for the citizenly, there cannot be much success if no considerable investment is made. In fact investments in other areas has been declining over time. The investment climate in Russia is still hostile which slows down the ability of the reform process to spur growth. The economic system only favor large business establishments leaving small and medium sized enterprises struggling. The government’s authorization requirements are stringent while corruption has been rife. This has led to more resources being allocated to large firms. With the medium sized enterprises grounded, no much growth can be achieved. The banking system is also inefficient since it only lends to the large establishments. The reform of the banking sector has largely depended upon political climate but a legal framework is needed to effectively reform this sector. A better framework to regulate the banking industry has to be put in place (Kahan, 2001). The reform process of the Russian and other former Soviet countries are on the right track. There are enough challenges in the implementation process of the proposals but they are gaining ground. Under performing areas have shown indications of growth. The recovery process, though, calls for political will among the leaders to drive the process. No much progress would be realized if political will is lacking. The effects of the Cold War need to be eliminated from the fore. The Russian economy has great potential and if the strategies respond appropriately to upcoming issues, the Russian economy would perform better. The Russian economy performance had put Russia ahead of other countries. It was not entity based on wrong principles. The major problem was the bureaucratic system that had been set that made it difficult to respond to rising issues. If the economy is to acquire the envisioned status it once had, it has to respond to arising issues.