INTRODUCTION

Although Russia has existed for a very long time, its greatness was marked by the coming of Peter the Great. Russia has amassed huge territories, including Ukraine in 1667 and completed the conquest of Siberia in the 17^th century.

When Peter took control in 1689, the Russian army was lagging behind the West. Given the desire to conquer more territory, Peter’s military problem was serious.

As well as the improvements in the army, Peter started Russia on its way to modernization. Schools and universities were built; talented foreigners and craftsmen were brought in from abroad, new lands were being won from Sweden. Russia was becoming a dominant power on the Baltic Sea and very much a European Great Power.

Peter has also built a “new window to Europe”, a city named St. Petersburg. It symbolized the power and prestige of the new tsar as well as opening the new trade route to Europe through the Baltic Sea.

Figure 1. The Winter Palace, which housed the royal family until 1917, was located in St. Petersburg along with Navy and other government offices. Russia became a naval power and St. Petersburg a great port.

THE MODERNIZAATION OF RUSSIA

At the end of the 19^th century, Russia was an enormous multinational state. Yet, autocratic Russia found itself in serious trouble after 1853. Russia was poor agrarian society, industry was little developed and almost 90% of the population lived on the land.

Figure 2. This emblem of the tsar’s power was soon to be replaced in the revolution of the 1917.

The military defeat in the Crimean War marked a turning point in the Russian economic history. Russia desperately needed railroads, better armaments and reorganization of its army. Alexander II decided to take Russia on its path of rapid social change and modernization.

FYI: The first and greatest of the reforms was the freeing of the serfs in 1861.

The government started encouraging private railway companies and construction boomed.

Figure 3. This bridge built across river in Ukraine, was one of the great monuments, which symbolized Russia’s industrialization.

FYI: In 1860, the empire had 1250 miles of railroad; by 1880 it had about 15500 miles.

The railroads enabled agricultural Russia to export grain and earn money for future industrialization. By the end of 1870s Russia had a sophisticated and well-developed railway-equipped industry.

“Industrial Development has contributed mightily to the spread of my thought and the transformation of the Russian revolutionary movement after 1890.”

In the 1830s and 1840s the gigantic Trans-Siberian railroad was built, linking Moscow with Vladivostok. To finance the project and build up Russian industry, the high protective tariffs were raised. The country was also put on the gold standard of the “civilized world” in order to strengthen Russian finances.

Figure 4. Trans-Siberian railroad, spanning over 5000 miles, still attracts hundreds of tourists every year today.

The inflow of the foreign capital provided the necessary finances to raise Russian industry. For example, in Ukraine, foreign capitalists built an enormous steel and coal industry almost from scratch.

By 1900 only the United States, Germany and Great Britain were producing more steel than Russia. The Russian petroleum industry was producing and refining half of the world’s output of oil.

THE FALL OF IMPERIAL RUSSIA

During Word War I, Russia inflicted more than 2 heavy casualties. Morale was at an all-time low. Food shortages in the cities worsened, and on March 12, 1917, Nicholas abdicated after the revolutionary crowd stormed the winter palace.

Figure 5. In June 1917 there were mass demonstrations in Petrograd (now St. Petersburg) to protest against czarist regime.

“My Communist Manifesto inspired Lenin that capitalism could be destroyed only by violent revolution.”

By spring 1921, Bolsheviks and Lenin won the civil war. However, Russian economy was lying in ruins. Combined with droughts, southern Russia faced the worst famine in generations. Industrial production also broke down completely.

Lenin had to change course, and in 1921, he announced the New Economic Policy (NEP), which re-established limited economic freedom in an attempt to build agriculture and industry.

Economically NEP brought rapid recovery. In 1926 industrial output had surpassed the level of 1913, and Russian peasants were producing almost as much grain as before the war. In 1924, Lenin died and left no successor.

STALINIST RUSSIA

In 1928, Stalin emerged as an undisputed leader of the Communist party. He first launched the first five-year plan. These plans marked the beginning of a renewed attempt to mobilize and transform the Soviet society along socialist lines. Five-year plans, though, were also a set of economic measures to speed up Soviet Russia’s industrial development.

Five Year Plans called for immense changes.

FYI: Under the first five-year plan, heavy industry was expected to increase 300%, agriculture by 150% and total production by 250%.

Stalin realized that “we are fifty or hundred years behind the advanced countries. Either we do it, or we shall go under.”

Figure 6. The Soviet economy concentrated on producing advanced weapons, since there was a great threat from the Western Europe countries and the United States. The production of missiles, like the one shown above, drained Soviet economy for years.

The great industrialization drive, concentrated between 1928 and 1937, was an achievement purchased at enormous sacrifice. The creation of new factories required increase in investment and decrease in consumption.

FYI: Few nations had ever invested more than 1/6 of net income to go for investment.

Soviet planners decreed that more than 1/3 of net income go for investment!

The money was colleted from the people by means of heavy, hidden sales taxes.

Figure 7. The bombing of Moscow by the German forces. World War II was disastrous for Russian economy.

POST-STALIN ERA

After Stalin’s death in 1953, agriculture was in bad shape, and shortages of consumer goods were discouraging hard work and initiative. Stalin’s belligerent foreign policy isolated and contained the Soviet Union from the West. The new leader, Nikita Khrushchev made the economy more responsive to the needs of the people as some resources shifted away from heavy industry and the military toward consumer goods and agriculture. The Soviet Union’s standard of living began to improve and rose throughout the booming 1960s.

FYI: By 1970 Soviet citizens were able to buy twice as much food, three times as much clothing and twelve times as many appliances as in 1950.

The Soviet Union appeared to be quite stable during the 1970s and 1980s, for the rising standard of living for ordinary people contributed to stability.

GORBACHEV AND THE END OF THE SOVIET UNION

In 1985, Mikhail Gorbachev became the new Soviet leader.

His policies were designed to restructure the economy, which was falling further behind the West and failing to provide the needs of the Soviet population. To accomplish this restructuring (or perestroika) Gorbachev permitted free prices, more independence for state enterprises and the setting up of profit-seeking cooperatives to provide personal services. These reforms initially produced some improvements, but shortages then grew as the economy stalled at an intermediate point between central planning and free-market mechanisms.

“For nearly a century, the Soviet Union has tried to achieve Communism, though it never was achieved. I dreamed of a classless society, but classes did exist in the Soviet Union.”

MODERN TIMES

After the Soviet system collapsed, there were two fundamental and interdependent goals for Russian economy--macroeconomic stabilization and economic restructuring. These changes marked the transition from central planning to a market-based economy. The former entailed implementing fiscal and monetary policies that promote economic growth in an environment of stable prices and exchange rates.

Figure 8. At the end of the Soviet Union, the previously artificial ruble exchange rates collapsed, and many people’s savings became worthless.

The latter required establishing the commercial, legal, and institutional entities--banks, private property, and commercial legal codes--that permit the economy to operate efficiently. Opening domestic markets to foreign trade and investment, thus linking the economy with the rest of the world, was an important aid in reaching these goals since, under Gorbachev, the regime failed to address these fundamental goals.

Figure 9. At the time of the Soviet Union's demise, the Yeltsin’s new government of the Russian Republic had begun to attack the problems of macroeconomic stabilization and economic restructuring.

Today, Russia is still struggling to get its finances straight. The corrupt government, bad economic approach, devalued currency, lack of investment and economic instability all contribute to the failing Russian economy. However, Russia still remains the biggest country in the world, with ample natural resources and huge population.

May be one day, Russia will become a great Empire again.

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