Russia in the 20th : Economic Crisis

In December 1991, when the Soviet Union collapsed, the Russian economy was in a terrible state. Foreign reserves had been exhausted, impeding the country’s ability to import goods, and economic output had been in decline since the 1970s. Yeltsin’s response was to launch the so-called shock therapy program of Prime Minister Yegor Gaydar. This entailed freeing prices in order to lure goods back into the shops, removing legal barriers to private trade and manufacture, and allowing foreign imports into the Russian market to break the power of local monopolies. The immediate results of this policy included extremely high levels of inflation and the near bankruptcy of much of Russian industry. Subsequently, a program of privatization was pushed through in 1994 under Anatoly Chubais, the deputy prime minister in charge of the Ministry of Privatization.

Although in most cases the existing management acquired ownership of the factories they had previously administered, large private banks emerged and began to compete for control of the economy.

By the late 1990s the economic reforms had achieved considerable successes. The old, inefficient system of centralized state planning had been dismantled and a capitalist economy was being created. Nevertheless, the process was far from complete, and the Russian population paid a very high price. Most of the industry inherited from Soviet times used out-of-date technology, employed excessive numbers of workers, and was located with no thought to distance from suppliers and markets. Managers and workers trained in the Soviet era found it difficult to adapt to capitalist imperatives of profitability, marketing, and shareholders’ power.

Inflation depressed incomes and wiped out savings at a time when whole sectors of the economy, and even whole cities, were faced with the prospect of unemployment resulting from the massive closing of factories. Encarta