Russia

B

Russia’s Cultural Institutions

During the Soviet period it was institutions more than individuals that shaped the arts in Russia. Consequently, museums, libraries, and theaters played a major part in the country’s artistic life. They continue to be important in post-Soviet Russia. The State Hermitage Museum in Saint Petersburg and the State Tretyakov Gallery in Moscow rank among the greatest museums in the world. Other institutions, such as the Russian Museum in Saint Petersburg and the Pushkin Museum of Fine Arts in Moscow, also have important collections.

Russia’s major theaters date from imperial times and continue to thrive. The most important theaters are in Moscow and Saint Petersburg. Moscow is the home of the Bolshoi Theater, which is the home of the Bolshoi Ballet, and the Moscow Art Theater. The Mariinsky Opera and Ballet Theater, home of the Kirov-Mariinsky Ballet, and the Pushkin Dramatic Theater are in Saint Petersburg.

Of the thousands of libraries in Russia, the largest is the Russian State Library (formerly the Lenin Library). It contains more than 30 million volumes in more than 250 languages, one of the largest collections in the world. Nearly as large is the collection of the Russian National Library (formerly the M. E. Saltykov-Shchedrin Library) in Saint Petersburg.

W. Bruce Lincoln contributed the Arts in Russia section of this article.

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V

Economy of Russia

The Soviet Union had a planned socialist economy, in which the central government controlled everything from production targets and prices to distribution. The Soviet satellite states in Eastern Europe had planned economies as well. After the breakup of the USSR, Russian reformers were confronted with the daunting task of building a modern capitalist economy while simultaneously striving to create a democratic state based on effective laws and reliable administrative structures. The collapse of communism in Eastern Europe in the late 1980s and the dissolution of the Soviet Union at the end of 1991 disrupted the close economic relations Russia had previously enjoyed with neighboring communist states and other Soviet republics. Political turmoil and uncertainty inside the Russian government also contributed to the country’s economic woes. Compared with most of the former planned economies of Eastern Europe, Russia experienced a severe and protracted drop in officially reported economic output.

In 1992 the new Russian government led by President Boris Yeltsin launched a comprehensive program to create a market economy. In the mid-1990s, after several years of runaway inflation, the economy began to stabilize. Inflation fell to manageable levels and the exchange rate of the Russian currency (the ruble) stabilized. Nonetheless, severe structural imbalances persisted, and the introduction of market competition continued to encounter stiff resistance from the ranks of conservative politicians and industrial managers. Many unprofitable state-owned enterprises remained open, in part by simply not paying employees, suppliers, and taxes. Federal and regional governments allowed tax arrears to accumulate, even while government spending continued to outpace revenue generation. Meanwhile, a new class of well-connected business tycoons, commonly known as “oligarchs,” exploited the reform process to promote their own narrow interests. Their manipulation of the privatization of industry and the banking sector contributed to the country’s budget deficits and the spread of corruption.

In late 1997 the national economy began to feel the effects of an international financial crisis in Asia, and the following August Russia experienced its own financial crisis. Alarmed by the Asian meltdown and the growing imbalances in Russia’s public finances, many foreign investors withdrew from the Russian market. The flight of foreign capital forced Russia’s Central Bank to devalue the ruble and to default on foreign and domestic debts. The crisis rocked the Russian stock market and plunged the living standards of ordinary Russians to new lows.

In the longer run, however, the crisis laid the basis for the first period of economic growth since the end of the USSR. By making Russian exports cheaper in foreign markets, the devaluation of the ruble strengthened the competitive position of Russian manufacturers engaged in foreign trade. By making foreign imports more expensive in Russia, the devaluation also strengthened the competitive position of manufacturers in the domestic market. The domestic market had been flooded with foreign goods during the first years of the reform and was crucial to the renewal of Russian manufacturing. In addition, Russia benefited from a sharp rise of oil prices on the world market that allowed it to accumulate foreign-currency reserves and increase government revenues. The election of Vladimir Putin as Russia’s president in 2000 provided a further important ingredient. Putin was strongly committed to economic growth and was determined to reestablish order after the economic chaos of Yeltsin’s final years in power.

All of these factors combined to bring an impressive economic recovery that exceeded the expectations of most Western economists. Russia’s gross domestic product (GDP) grew an average of 6.7 percent annually from 1999 to 2003. Public finances also improved dramatically. From 1996 through 1999 the government’s annual budget deficit averaged 6 percent of GDP, but from 2000 through 2003 the government budget generated a surplus averaging 2 percent of GDP.

However, it remains unclear whether Russia can sustain a high rate of economic growth over the long term. Skeptics have emphasized the country’s heavy reliance on oil exports and its vulnerability to oil price swings. They have also pointed to signs of mounting government hostility toward private business and the persistence of corruption. On the other hand, the government has sought to address the problem of long-term sustainability. In addition to strengthening the fiscal system, it set up a stabilization fund in 2004 to save revenue generated during periods of high oil prices as a cushion against lean periods of low prices. How effective these measures will be in practice remains to be seen.

According to the International Bank for Reconstruction and Development (World Bank), Russia’s GDP in 2005 totaled $763.7 billion. Services, including the banking sector, accounted for 56 percent of the GDP. Industry, which includes manufacturing, mining, electricity generation, and construction, accounted for 38 percent, and the agricultural sector, including forestry and fishing, contributed 6 percent. Adjusting official data to take account of the peculiarities of Russian energy prices, the Organization for Economic Cooperation and Development (OECD) estimates that the service sector generates about 46 percent and industry about 41 percent of GDP.

A

Economic Reform in Russia

Under the Soviet system of central planning established in the late 1920s, basic decisions concerning the relative priority of various economic sectors, the location of new enterprises, and investment in capital equipment were made for more than six decades without regard to the true economic costs. This long-standing misallocation of resources was built into the physical structure of Russia’s post-Soviet economy. In addition, the Soviet regime had geared the economy to meet the requirements of a massive military establishment, and this exceptional level of militarization created a bigger drag on economic reform in Russia than in most other post-communist countries. Although Soviet central economic planning produced high rates of industrial growth for many years, the pace of economic growth began to slip in the 1960s and dropped sharply in the late 1970s. Restoration of Soviet economic dynamism was one of the main goals of Soviet leader Mikhail Gorbachev when he came to power in the mid-1980s. However, Gorbachev soon became preoccupied with introducing radical political reforms and sweeping changes in Soviet foreign policy. He lacked a coherent plan for reforming the economy, and his economic initiatives deepened the economic crisis.

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1

Shock Therapy

Boris Yeltsin, who became president of Russia in 1991, made economic reform his top priority. The leading reformers under Yeltsin championed a policy of rapid economic reform sometimes known as 'shock therapy.' Shock therapy was an attempt to achieve four objectives at the same time: (1) liberalization, or the abolition of government control over economic activities such as production, price setting, and distribution; (2) financial stabilization, or the imposition of deep cuts in government spending and firm limits on the growth of the national money supply; (3) privatization, or the transfer of most government-owned enterprises to the ownership of individuals and private companies; and (4) internationalization, or the opening of the economy to foreign trade and investment.

Proclaimed with great fanfare by President Yeltsin in early 1992, shock therapy proved exceedingly difficult to implement under the conditions that existed in Russia at the time of the Soviet breakup. Russia’s annual budget deficit equaled as much as 25 percent of its GDP. Its foreign currency reserves had been exhausted, and its economic relations with other former communist countries had been severely disrupted. Russia’s debt burden was staggering, as it had inherited all of the USSR’s foreign debts with virtually no international reserves. In the mid-1990s the government began to fund its deficits by borrowing in private capital markets at very high rates of interest. Russia also borrowed heavily from the International Monetary Fund (IMF) to help cushion the economic transition.

Yeltsin’s economic program quickly became the object of intense political struggles inside the executive branch, the parliament, and society at large. The pace of reform generally fluctuated according to shifts in the balance of power between the advocates and opponents of shock therapy inside the government. Analysts disagree about whether the dismal economic record of the 1990s should be blamed on the introduction of shock therapy or on poor implementation of the policy. In any case, an outright reversal of market-oriented reforms is highly unlikely. The 1998 crisis, which some analysts thought might trigger such a reversal, actually tended to discredit the half-measures and compromises under Yeltsin and demonstrated the need to push the reforms further. By the late 1990s it was clear that Russia had gone too far down the reform path to return to the planned economy of the Soviet period.

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2

Monetary Policies and Inflation

Until the mid-1990s the Central Bank of Russia (CBR) undercut the reform program. Hampered by a lack of modern banking expertise and led by a chairperson who opposed shock therapy, the CBR extended vast credits to inefficient enterprises, as well as to other former Soviet republics, and presided over a rapid expansion of the money supply. This fueled runaway inflation, which reached an annual rate of more than 1,350 percent for 1992 and 875 percent for 1993. By 1995, however, Yeltsin’s strengthened political position in relation to the parliament, a frightening plunge of the Russian currency’s value in foreign exchange markets, and the installation of a new CBR chairman led to more restrictive budgetary and monetary policies that produced substantial improvements. Price stabilization was finally achieved in 1997, when Russia’s consumer price inflation slowed to 15 percent. This hard-won achievement was put at risk by the 1998 financial crisis, which caused the inflation rate to spike to 85 percent the next year, but the rate was once again reduced to a tolerable level by the early 2000s.

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