Volume 43, Number 171,
October-December 2012
Russia: Strengths and Weaknesses
Arturo Bonilla
Vladimir Putin

Vladimir Putin’s rise to power set the conditions that would facilitate Russia’s advance in the new framework through fierce political support that would allow him and the country to establish monopolistic State capitalism. With his protection, a number of economic policy actions centralized by the State were carried out, which would decide the fate of a large part of Russia’s economic surplus.

Regarding this, Antonio Sánchez Andrés points out the following:

At the beginning of 2000 (...) Vladimir Putin was elected President (...) of Russia (...) The goal of the reforms applied (was to) obtain sustained growth (and) diversify the economy. As such, he established three types of economic policies. The first were institutional changes and had two major dimensions (...) on the one hand, limit the capacity of regional governments to act and, on the other hand, restrict the capacity of the most powerful economic elite to have direct influence on state decisions. He sought to recover State authority (which ought to) manifest itself in greater real capacity to make decisions and raise financial resources. The second type of policy (temporary) was to stabilize the economy as a whole, (reduce) inflation, (ameliorate) the public deficit and (orient) some public spending towards (improving) the population’s standard of living. The third set of policies was structural, with the goal of diversifying the economy and changing behavior within the productive apparatus.

Although Putin managed to stabilize the economy and achieve sustained growth, he was unable to respond to “the structural problems that Russia suffered nor (...) did he address the goal of diversifying the productive fabric.” He points out that “although deficiencies in the direction and leadership within the State were identified, these were associated with the great power of regional governments (and underline the fact that) attention was not paid to one of the more serious problems that limited the capacity of state intervention: corruption.”14

Little by little, free health care and education systems were reestablished at all levels, always in the hands of the State, although as some observers said, “always less free and always less.” These basic services for the population were still not fully established by mid-2010, especially taking into account the 1998 crisis and the crisis that began in mid-2007 and still continues today. The idea of reinforcing the education system in the hands of the state still persists in the governmental conception, but private teaching has begun to surge.

On the periphery, problems emerged for many small and medium-sized enterprises in the hands of new owners. Some new owners ended up managing large companies. They all launched into all types of businesses, despite having little or no experience in managing companies in the framework of a functioning market and in the midst of great competition. Blunders were common in all issues related to management, like rudimentary accounting, extremely low salary policies — in fact, on the subsistence level — the acquiring of inputs, price movements, merchandise inventory and marketing in general.

In addition to domestic issues, there were external problems, such as a series of unfavorable phenomena that made conditions more difficult to operate with a minimum efficiency and obtain profit, such as partial loss of control of transportation, storage, the lack of credit, tax payments, strong inflation that did not exist during the Soviet period, and other issues. In the framework of these extremely unstable conditions, many companies ended up in bankruptcy, but as is common in these conditions, there were other Russian capitalists that managed to survive. Concurrently, part of the capital was centralized and concentrated, especially when taking into account that at the beginning of capitalism, many mafias of all sizes formed, and even today, they charge 10% of sales in many establishments, a so-called protection quota.

14 “The greater tax collecting capacity (stands out) as one of the positive results of the Putin term, reflected by reaching a budget surplus. (...) Likewise, while inflation was 20.2% in 2000, it had fallen to nearly 9% by 2007. This macroeconomic stabilization accompanied an improved standard of living for the population, reflected in the constant fall in unemployment levels and the constant rise in the population’s real salaries (...), it should be emphasized that an important part of the Sate’s resources were derived from increases in petroleum prices. Regarding industrial restructuring, the State increased its control over the hydrocarbon sector, which constituted the greatest priority for intervention by Russian authorities. (...) However, sector policies were uncoordinated. In some cases, public assets were privatized and the intervention capacity of entities related to stimulating competition was limited, which led to a persistently high level of monopolization in the Russian economy. Economic improvements and increases in public resources did not lead to modernization or increased infrastructure, nor did they lead to improvements in the country’s technological and education system, areas where many reforms were still pending,” Antonio Sánchez, Andrés, “The Russian Economy in the World Crisis: An Evaluation of the Medvedev Term,” Journal cidob d’Afers internacionals, num. 96, December 2011, issn 1133-6595, e-issn 2013-035x, pp,47-48.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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