Russia’s Road to Capitalism, Essay Example

Introduction

There is currently a debate about the status of Russia in the world economy, and its position on the democratic scale. Indeed, after the fall of the Soviet Union, the old ways of doing business and operating services have changed, and the country had to adapt to new values. The below essay is examining whether or not Russia is on the road towards capitalism, and if its road wold create a society and economy that is similar to countries like the United States and the United Kingdom. The main argument the author would like to make through the below review is that Russia’s economy is moving towards capitalism, however, it will not become the same type of capitalist country as those where the same values have been present for several decades without disruption.

Political And Social Environment

Markus (277) examines the impact of entrepreneurial collective action on the Putin government’s economic policies. In the comprehensive review, the author states that the free market and the rise of entrepreneurial spirit in post-communist countries drives innovation and the movement towards capitalism. On the other hand, the author also argues that capital investments made by foreign companies within the country also influence the government to engage in capitalist practices. Applying the threat theory, Markus (279) states that the government is making allowances for both foreign and national companies as they fear that the invested capital would flee the country and move to another region where the business and economic conditions are more favorable for them. There is, indeed, a difference in the current economic conditions of Europe compared with that of 30 years ago. The economic agreements of the Soviet region provided the market conditions for all countries, and they involved both freedom and restrictions. Exports within the region were controlled by the states, and limited to socialist and socialist-oriented countries. While trade of natural resources with China was common, the market was far from being free. At the moment, however, Russia is a trading partner of several countries. Still, the involvement of the government in the economy is far too great. Taking the example of recent conflicts in the region, it is evident that the Putin administration is using the country’s economic power to influence international relations. However, it is important to note that in order to answer the question whether or not Russia’s economy is on the way towards capitalism, is it necessary to separate the democratic and economic development of the country. While Russia’s road towards democracy is often questioned by authors and publishers, the country is still one of the largest economies of Europe, and has several trade agreements created and signed around the world in order to benefit the entrepreneurs and businesses operating in the country. At the same time, the presence of international capital within Russia, and Russian investment abroad, the presence of the Moscow Stock Exchange also indicates that Russia’s economy is mainly capitalist. According to Ranasinghe, the Russian Stock exchange was the most successful in the world last year, as the sanctions for intervening in Ukraine drove prices down and increased interest of investors, due to the low prices of stocks.

The Elements of Capitalism

The companies of Russia engage in free market trade, and international agreements are present. However, in order to determine whether or not Russia is on the road towards capitalism, it is important to review the main criteria of a capitalist economy. Ingham (53) states that the main basic elements of a capitalist economy are: monetary system for producing money for credit, the presence of a market exchange, and the presence of private enterprises producing commodities. Based on that list, it is clear that Russia’s economy is capitalist, or at least has capitalist elements and foundations. During the communist era, credit was controlled by the government, and companies were owned by the people, based on socialist principles. The appearance of private companies, and foreign investments has created a positive environment for developing capitalism. The author (Ingham), however, also states that the state has a significant role in forming the capitalist values in the country. This is clearly visible in Russia. The amount of influence the government has on industrial production of commodities and company operation determines the route the country takes towards capitalism. Therefore, the question is no longer whether or not Russia is a capitalist country, but whether or not it is a modern capitalist state.  Ingham (58) defines modern capitalist countries based on the below characteristics: a level of social order, legal rights of companies and economic agents, sound currency, educational, and welfare system, and the government’s efforts to correct economic crises and social problems. Based on the above list, it is clear that Russia does not fulfill the criteria of a modern capitalist country for various reasons. First of all, the rights of companies are affected by unclear legislation and corruption, which makes it hard for national and international companies to plan ahead and make decisions in advance. The political stability of the country is greatly affected by the conflict in Ukraine, and the economic sanctions implied on the country show that the stability of the economy is not comparable with that of modern capitalist states’. Regarding the last criteria that the government intends to solve social and economic issues, it can be argued that the political power struggle disadvantages businesses in Russia, therefore, stand in the way of development. The government’s decision to get involved in the crisis in Ukraine was based on considering different priorities. Indeed, the government prioritized maintaining political power and influence over providing businesses with a stable and reliable economic environment. It is more than likely that the majority of businesses are affected by the sanctions of the international community, and are restricted in their movements and innovation due to the decision made by the Putin administration. At the same time, while there is economic order in the country, the efforts of the administration to resolve high unemployment and poverty rates are not visible.  The government’s corruption and anti-democratic attitudes can have a negative impact on the development of capitalism and the growth of the Russian economy.

The Movement from State Socialism To Merchant Capital

Burawoy and Krotov (52) describes state socialism as one “based on the central appropriation and redistribution of surplus”, basically, trade being controlled by the state. This was quite the opposite of free market capitalism, and the transformation of Russia was not without difficulties and obstacles. First of all, the mindset of people was fixed on having common goods, and sharing responsibility. One of the main problems associated with socialism was corruption. When the factory was not owned by a certain group or person, but was declared to belong to the community, taking advantage of opportunities to serve one’s self-interest (i. e. stealing or corruption) did not seem serious. Hence, the mindset of people in Russia needs to change in order for the country to fully embrace capitalist values.

In the recent decades, entrepreneurs have embraced free trade, and the idea of maximizing profit through trade by buying cheap and selling at a high price. The main reason why Burawoy and Krotov (54) find that Russia is not a modern capitalist country is that “Russian top managers advance their profits from trade through political regulation”, just like it happened in early capitalism.

The Distinctive Nature of Russian Capitalism

Clarke (229) examines the distinctive features of Russian capitalism, and these are extremely relevant to the current research. It has already been discovered that Russia’s political and social environment has a great impact on the economic development of the country. The collective bargaining power of businesses is low, and this impacts their ability to influence economic policies. Unlike in the developed capitalist countries, industry organizations and unions can engage in meaningful conversation with policymakers in order to create shared social and economic benefits for the country. This is, however, not the case in Russia, as the state is still authoritarian, and implies power on every aspect of business and society. Indeed, it is understandable that the attitude of political leaders in a country where communism was present for four decades is hard to change. People are more likely to accept the power of politicians if they are used to a powerful government, without democratic features.

Examining Clarke’s argument, it is clear that Russia’s economy have some peculiarities that impact its road towards capitalism. Most of the specific characteristics slow down the country’s transformation. Clarke (229) states that the presence of old Soviet values and managerial attitudes stands in the way of transformation. The author states that this leadership trait is present even in international and private enterprises. Further, the limited profitability of companies also makes it hard to introduce innovative leadership principles and approaches. Companies that have low or no profits are not able to grow the same way as in the West. While it is visible that the governments of developed capitalist economies, such as Germany, the United Kingdom, and the United States have already realized the benefits of supporting small and medium sized businesses, the same attitude is not present in Russia. The economic policies of the country focus on short-term tax income, instead of creating a long term capital through helping entrepreneurs grow. Struggling companies with limited access to finance and government funding might want to make their leadership more democratic, and would like to introduce innovation that would help the national economy grow, but their movements are limited.

One of the most interesting ideas presented by Clarke (279) is related to the power and the lack of it within Russian companies. The author (Clarke, 279) states that a business can “rather than organizing itself, business can be the object of state actors’ strategies”. This interesting idea is related to the relationship between the state and the company’s management. Therefore, it can be assumed that while in Western type of modern capitalism, there is a shared consensus between enterprises (and industry organizations) and policymakers, this is not present in Russia. Indeed, if there is no freedom for development, innovation, and growth, the market is not completely free, therefore, capitalism cannot be complete. The attitudes of the old social and political order, on the other hand, are also visible. Forced by the lack of opportunities to grow, many companies keep wages low, engage in corruption, in order to maintain satisfactory standards. Competition has a smaller impact on corporate decisions than in modern capitalism.

Conclusion

The above review of Russia’s economic changes has revealed that while the country has the basic elements of capitalism, it is also handicapped by several political and social problems that negatively affect the freedom of trade and markets. The lack of collaboration between entrepreneurs and the government, the high level or regulation in several industries, and the lack of economic consideration involved in international political decisions indicates that while Russia is a partly capitalist country, it is not a modern capitalist state. As Burawoy and Krotov (55) state: “a Russian transition to modern capitalism would require turning monopolies into competing enterprises, barter into market exchange, and worker control into managerial control”.

At the same time, it is important to note that Russia as a major player in the world has a great impact on trade and policies. After the communist economic agreements disappeared old member states of the Eastern Bloc became competitors instead of collaborators. They no longer had assigned production and purchasing quotas, and had to create their own policies to become more competitive on an international scene than other ex-communist countries. The Russian government, in order to create a shared benefit for the state and businesses will need to learn how to collaborate with different stakeholders of the country; civil and business organizations in order to deliver positive change and help Russia develop national competitive advantages on international markets.

Works Cited

Burawoy, Michael, and Pavel Krotov. “The economic basis of Russia’s political crisis.” New Left Review (1993): 49-49.

Clarke, Simon. The development of capitalism in Russia. Routledge, 2007.

Ingham, Geoffrey. “Capitalism: reissued with a new postscript on the financial crisis. 2011. Web. Polity.co.uk

Markus, Stanislav. “Capitalists of All Russia, Unite! Business Mobilization Under Debilitated Dirigisme*.” Polity 39.3 (2007): 277-304.

Ranasinghe, D.  “This year’s  best  performing  stock  market  is…Russia”  2015. CNBC. Web.