The Dismemberment of the Soviet Union – Part 2

RUSSIA’S ECONOMIC AND POLITICAL ENVIRONMENT SINCE 1991

By Nicholas Dima l September, 5, 2011

Photo: AFP/EPA Alain-Pierre Hovasse

By 1990 the communist regimes in Eastern Europe had collapsed. Meanwhile, the decline of the Soviet economy was accelerating and Soviet citizens were desperate for a dramatic change. While that change did come, it did not bring the anticipated benefits so many had expected. Most Soviets expected economic improvement and the introduction of at least some elements of Western democracy.  Instead, they got political and economic corruption and a new class of “oligarchs” who took advantage of Russia’s chaotic situation in order to enrich themselves.

There are two factors that contributed greatly to the unsatisfactory evolution of the post-Soviet economic and political environment. The first was the absence of any model for transformation of a socialist economy into a market economy. Such an event was without historical precedent. The second factor was the inability of the West, taken completely by surprise, to assist in such a radical transformation. The West was unprepared.

Whereas, in the aftermath of the Second World War, there was a political consensus in the United States that the reconstruction of war-torn Europe was worth the effort, when the Soviet Union collapsed circumstances did not allow for such a commitment. By contrast, the collapse of the communist systems in Russia and Eastern Europe opened the region to an influx of Western businessmen, the vanguard of the so-called ‘Washington Consensus’, who had hoped to take advantage of these dramatic events to establish a free market.

A further consideration is that the newly arrived Western businessmen found willing partners among those who had dominated the communist system. While many Russians liked the idea of democracy, they did not want to lose the control over the former Soviet republics. As a result, political democracy advanced half-heartedly, while the economy was left in the hands of those who had already been in charge.  Gradually, the people found themselves controlled by another ruthless system.  By 2000, embittered Muscovites would conclude with sadness “the children of our former masters are now the masters of our children.” 

Mikhail Gorbachev, the last Soviet leader, inherited a ruined economy.  According to Der Spiegel, shortly after assuming office, Gorbachev flew to the automobile-manufacturing city of Tolyatti on the Volga and then to Kuybyshev where, according to his advisers, he would encounter “a sense of hope the likes of which hadn’t been seen since the end of the war.” Yet, when he visited these places he could not disguise his horror.  He compared them with 18th century factories.  While there he was informed of the housing shortage, the lack of kindergartens and recreational facilities and the dismal state of the food stores.  At the same time, Gorbachev noted that members of the party elite were catered for in special stores and had everything they wanted.  His effort to restructure the Soviet society was failing. The German magazine reported:

“Gorbachev had a limited understanding of economics and also failed to enlist the right advisers. Rather than putting an end to central planning and decontrolling prices, he established new super-ministries and continued to subsidize a number of goods… When the oil price fell dramatically, causing problems for the state budget, soap and washing powder were added to the list of rationed goods alongside eggs and butter. But the population was no longer willing to put up with such conditions. The most serious wave of strikes in the history of the Soviet Union broke out – and didn’t abate until the country collapsed.” (The Mystery of Mikhail Gorbachev’s Ambiguous Legacy, Der Spiegel, August 18, 2011). 

The economic decline accelerated under Boris Yeltsin’s leadership. According to the Guardian of August 17, 2011, in this period Russia’s GDP fell as much as 50 percent resulting in capital flight, industrial collapse, hyperinflation and widespread tax avoidance. As union republics asserted their independence from Moscow, there was a wave of violence at the periphery of the former empire and a growing popular demand for order and stability.  It was in such a climate that Yeltsin brought Vladimir Putin to Moscow and designated him as his successor.

Vladimir Putin subsequently came to power following the Russian election of March 26, 2000 on a platform calling for economic reform, government reorganization and the eradication of corruption.  He took a tough stand against dissident minorities, crushed Chechnya’s separatist movement, and promoted his collaborators to positions of leadership.  His presidency benefitted from a period of high oil and gas prices, which allowed him to increase the pensions and salaries of government workers. Thus, Putin emerged as a traditional strong leader, while he stabilized the country and asserted his influence not only in the new Russia, but also in the “near abroad” and overseas.

The Guardian further notes that Putin managed to reverse Russia’s economic decline.  However, Russia lost some seven million people due to emigration and life expectancy declined, as drug and alcohol abuse became rampant during this period. In assessing socio-political factors, the Guardian placed the new Russia at the bottom of the Global Peace Index, citing rigged elections and the ‘vertical’ power centered on the Kremlin as being reminiscent of the Soviet era.

After serving two four year terms as president, Putin designated Dmitri Medvedev as his hand-picked successor, while as prime minister he remained the “power behind the throne.”  By 2011, Putin was already preparing his new presidential campaign for 2012.  An August 16, 2011 article posted by Radio Free Europe/Radio Liberty (RFE/RL) titled “Vladimir Putin isn’t going anywhere,” describes how he governs Russia:

“Putin designed a system of managed conflict. There is no competition in public. But he created different clans and groups who are fighting against each other. This is the way Putin keeps control over the system. He is a judge and arbiter who is keeping the balance… Without him, all of these clans would fight each other, like after Stalin’s death.”  

Kremlin-watchers claim that this system comprises the core of Russia’s ruling elite with about thirty key players at the top and an inner circle of about twelve people.  It amounts to a new Central Committee.  The RFE/RL article quotes Nikolai Petrov of the Moscow Carnegie Center, (as) describing those leaders as “shareholders” who not only manage Russia “but they also enrich themselves.”

Among the men promoted by Vladimir Putin is Igor Sechin, deputy Prime Minister and one of the new oil “oligarchs.” He is also the leader of the Kremlin’s lobby known as Siloviki.  Since July 2004, Sechin has served as chairman of the board of directors of Rosneft, which appropriated the assets of Yukos, Mikhail Khodorkovsky’s former company. Khodorkovsky accused Sechin of plotting his arrest to plunder his oil company. (See “Jailed tycoon Mikhail Khodorkovsky framed by key Putin aide,” The Sunday Times of London, May 18, 2008).

Oil and gas are some of Russia’s most lucrative businesses but these fields have been renationalized by the state or appropriated by the new oligarchs. The people working in the oil industry are content to have jobs and to make a decent living.

In light of the prevailing business climate, a number of questions arise including, “Is Russia economically better off today than it was 20 years ago?” And, “Have the Russian’s living standards improved?” The answers are complex.

By comparison with the stark days of the USSR, the new Russia appears prosperous.  The stores are stocked with merchandise.  There is plenty of food in the supermarkets.  And big cities like Moscow look like a real metropolis. While some new tycoons have amassed billions of dollars, many Russians still live in poverty and social polarization has become a major concern.  By and large, people live better, which also reflects the recent increase in Russia’s per capita GNP.  People are also free to speak, but they are not free to directly criticize the new system.  What is worse for average Russians is that they see the nouveau riche as corrupt, callous, dishonest and uncaring. And, there is nothing they can do about it. There is a new apathy and a sense of despair similar to that of the old Soviet times. From this point of view, the title of an article “20 Years later, Hope is lost in Russia,” published by the Washington Post on August 19, 2011 tells the entire story.

The new Russia also faces many serious demographic problems. While the rate of population growth has been declining since 1959, Russians have experienced a negative growth rate for the first time since 1993 characterized by the country’s low fertility and aging population. The Russians are the most numerous European group numbering about 140 million worldwide.  Roughly 116 million of them live in Russia and about 16 million more live in the neighboring countries.  However, only about 80 percent of the population of the Russian Federation is ethnic Russian and this proportion is decreasing.  That trend will create a labor shortage in the future. There are also millions of Russians in the neighboring former Soviet republics.  While some of them want to come back home, others provide a reason for the Kremlin to interfere in the “near abroad.” Another demographic problem is that the Russian population is increasingly overwhelmed by that of neighboring China. There are currently ten times more Chinese than Russians and in the future this disparity will increase.  With millions of Chinese settled legally or illegally in Eastern Siberia, Russia may eventually lose the area to China. Consequently, Russia’s demographic future looks quite bleak.


Nicholas Dima, Ph.D., is a former professor and author of numerous books and articles including the autobiographical memoir, Journey to Freedom, a description of the effects of communist dictatorship on a nation, a family and an individual. (Refer to updated editions). He is currently a contributor to

SFPPR News & Analysis.