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The Struggle for
Economic Reform
How does a nation change its economic system?
Page 1 of 3
Main Ideas
• Russia has struggled to move
from a command economy to
a market economy.
• Russia’s enormous size and
widespread criminal activity
have made economic reform
difficult.
Places & Terms
A HUMAN PERSPECTIVE Russians have faced many hardships since
privatization
the breakup of the Soviet Union. But few have been as difficult to overcome as the collapse of the Soviet command economy. After the Soviet
Union collapsed in 1991, the region’s people began to participate in a
capitalist system. One Russian bitterly summed up the sudden transition in this way: “You developed your capitalist markets in the West over
hundreds of years, and our government wants our people to go to sleep
one night in a Communist world and wake up the next morning in a
capitalist one.” One of the toughest problems facing Russia’s leaders is
how to carry out economic reforms without causing too much turmoil
for the nation’s citizens.
distance decay
The Voyageur Experience
in World Geography
Russia: Rebuilding a Nation
Steps Toward Capitalism
After the Soviet collapse, Russia tried to move
quickly toward a capitalist system. This meant
ending the tight control that the central government held over economic activity.
PRIVATIZATION In January 1992, Russia removed
the price controls that had been set by the Soviet
government on goods sold within the country. The
effect was dramatic. Almost immediately, the
prices of many goods increased by 250 percent.
In the same year, Russia began to sell
government-owned businesses to individuals
and private companies. This process was called
privatization. But few Russians had enough money
to buy large businesses. So, leaders offered vouchers to the public. The
vouchers were like loans that could be used to purchase businesses. The
purchasers promised to repay the government with future profits.
But the policy had mixed success. Many of the new businesses were
not profitable, and their owners were unable to repay their vouchers.
The failures contributed to an economic crash in Russia in 1998. In
spite of this shaky start, though, over 60 percent of the country’s workforce worked in the private sector by the end of the 20th century.
THE HIGH COST OF ECONOMIC CHANGE Since the 1998 crash,
Russia’s economy has moved slowly toward recovery. But the movement toward a market economy has yet to benefit most Russians. By
the end of the 1990s, nearly 40 percent of the Russian population lived
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PLACE The many Western fast-food
chains popping up in Moscow are
symbols of economic change.
Why might fast-food chains
have been rare in Russia
before 1991?
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far below the poverty line. Some people even wondered whether
things had been better under the Soviet Union.
Obstacles to Economic Reform
Russians have made slow, if painful, strides toward capitalism. Even so,
many obstacles remain. Russia’s enormous size and the rise of organized crime are among the most important.
A. Answer
Citizens may feel
that the new districts will return
too much power
to the central
government.
DISTANCE DECAY A major obstacle facing economic reformers is
distance decay. This means that long distances between places make
Seeing Patterns
Some Russians
have objected to
the creation of
new federal
districts. Why
might there be
disagreement over
the districts?
communication and transportation difficult. Russia is an enormous
nation, stretching across 11 time zones. Spread over this vast area are
89 different regional governments. The interaction and cooperation of
these regional leaders with Moscow is crucial if the government’s economic reforms are to be successful. But because the central government
in Moscow has been weak, officials far from the capital sometimes
refuse to carry out the government’s reform programs.
In the spring of 2000, Russian President Vladimir Putin created
seven large federal districts to gain more control over regional leaders.
Each has its own governor-general. Putin hopes that the heads of the
new federal districts will force regional officials to carry out the economic reforms that Moscow wants.
Federal Districts of Russia
RUSSIA & REP.
Central
Far Eastern
Northwest
Siberian
Southern
W
N
S
E
Urals
Volga
District Capital
St. Petersburg
Moscow
Nizhniy
Novgorod
Yekaterinburg
Rostov
Khabarovsk
Novosibirsk
0
500
1,000 miles
0
500
1,000 kilometers
Two-Point Equidistant Projection
White lines indicate Russia's 89 regional governments.
SKILLBUILDER: Interpreting Maps
PLACE What is the capital of the Northwest Federal District?
LOCATION Approximately how many miles separate Moscow
and Khabarovsk?
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ORGANIZED CRIME As the govern-
PLACE Officers from a
special police force in
Moscow arrest a
suspected mafia car
thief in August 1997.
Why might organized
crime present a special problem for the
Russian government?
Places & Terms
Explain the importance
of each of the
following terms.
• privatization
• distance decay
ment tries to improve the economy, it
must also face a powerful enemy—
organized crime. The “Russian mafia,”
as criminal organizations in the
republic are sometimes labeled, grew
rapidly during the 1990s.
By the end of the decade, the mafia
had created its own economy. In
1998, the government estimated that
organized criminals controlled 40
percent of private companies and 60
percent of state-owned enterprises.
Russian criminal activity also expanded outside of Russia. The mafia even
tried to sell a Russian submarine to
drug barons in Colombia.
The growth of organized crime has slowed economic reform by
rewarding illegal activity over honest business. And because illegal activities often go undetected, the government cannot collect taxes on them.
Russian officials have taken initiatives to combat organized crime, including the addition of more officers to a special tax police.
FUTURE PROSPECTS In February 2001, Russia’s prime minister
reported increases in tax and customs revenues. Government officials
said the increases are a sign that the Russian economy is on track. If the
growth in revenues continues, Russia will be better able to come to
terms with the legacy of the Soviet Union and will be able to improve
the living standards of its population.
In addition to the economic problems inherited from the Soviet
Union, this legacy includes the problems created by Soviet nuclear programs, which you will read about in the next section.
Taking Notes
Main Ideas
REGION Review the notes you took
for this section.
Causes
Effects
Issue 2:
Economy
• Why did the Russian government
issue vouchers in 1992?
• What impact might organized
crime have on government
revenue?
Geographic Thinking
a. What is one of the
toughest issues facing
Russia’s economic
reformers?
Drawing Conclusions Why
did President Putin establish
seven new federal districts in
Russia? Think about:
b. How has Russia moved
toward a capitalist system?
• the number of its regional
c. What are some of the
obstacles to economic
reform?
• Russia’s size
governments
See Skillbuilder
Handbook, page R5.
SEEING PATTERNS Do research on a U.S. company doing business in Russia. Create a set of
guidelines that the company might follow in conducting business in Russia.
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