Emerging Economy Of Russia Essay Example for Free

Emerging Economy Of Russia Essay Since Russia suffered the economic crisis in 1998, its economy has grown steadily. The growth has been attributed to investments, consumer demand, the prices of oil and cheap ruble. Since the financial crisis, Russia’s financial position has improved, with the poverty level declining and the middle class improving. The country has the third largest oil reserves in the world, thanks to the earnings from the oil exports, which have enabled it to increase the oil reserves. It also enjoys a bilateral market access agreement in partnership with the United States, with its companies involved in acquisitions and mergers at a global level in the oil, metals, telecom and the gas industries. (The economy of Russia, 2008) The aim of this essay is to describe what it has taken Russia for its economy to emerge to what it is today. Its also purposed to find out how its economy has benefited from globalization. The start of Russia’s economic growth Economics is one part of globalization, and it has been argued that it carries with it major changes in all walk of life. Anthony Gibbons said that, â€Å"globalization is an irresistible force, transforming all aspects of contemporary society, politics and the economy. † Howard says that many writers have expressed the hope that it eventually leads to the introduction of world wide western-style, democratic institutions and human rights. Concerning globalization in Russia, he says that it has had long ambient feelings about its place in the world. Russia focuses its attention towards Europe, Asia, and the Islamic world and at the same time is able to concentrate on its economy. It has been called a civilization of its own, as at times, it wants to be a civilization on its own and at others; wanting to be associated with the Western world. However, it’s clear that Russia has always wanted to be accepted in the civilized world. (Wiarda Howard J. , 2008) Howard continues to say that Russia was far behind the race for globalization. He gives these reasons as; first, that Russia did not possess the technical wherewithal to compete with countries like India, much less those in the EU of the United States. The second reason he gives is that since the collapse of communism in December1991, the country has been so destabilized and so chaotic that the idea of its being able to join the process of globalization was wishful thinking. He says that for the past twenty odd years, Moscow has had more important priorities. Its focus was on transition, from the old communist to a new, different, and for many years undefined political and economic system. The centre of a globalized economy took second, if not the fourth or fifth, or even a lower place in its priorities. (Wiarda Howard J. , 2008) Later on, the importance of globalization was realized in Russia. It was important, in that there was the hope of it bringing modern technology to the country. Bringing globalization to Russia was however a hard task, facing one problem after another, such as corruption, which made it expensive and hard to operate there. There was also no system of commercial laws and capitalist style work habits, both of which are necessary if a country expects to create modern, capitalist, multinational organizations and be competitive in a capitalist market. Not only did Russia have a little impact on globalization, but until recently, one could argue that the impact of globalization itself on Russia was minimal. The country was too weak and isolated, and besides that, cultural factors played a role. (Wiarda Howard J. , 2008) The role of the government in Russia’s economic growth When he came to power, Mikhail Gorbachev was convinced that he could revitalize the communist system-that it was not so much as the system, but bureaucratization and Stalinization that had put the country in a period of stagnation. However, Gorbachev’s efforts to invigorate the communist system ended in failure in December 1991, when the soviet’s union flag was lowered over the Kremlin to be replaced by the Russian tricolor. There was a short lived effort to create the â€Å"Commonwealth of Independent States. † (CIS) an organization that Moscow hoped would help keep the USSR together. Later on, it was realized that the CIS existed in name only, as the USSR evolved into fifteen different countries. This forced the Russian federation to go it alone. Vladmir Putin succeeded Gorbachev. He hoped to rebuild the country to the point where the rest of the world would take it seriously. He also wanted the country to have the kind of economic that other countries like India had with the United States. He made it clear that the change would be evolutionary and not revolutionary or cataclysmic as it had been before. He advocated for globalization, but only if it was in accordance to the Russian political culture. He also outlined a number of areas that he believed were important in the management of the countries economy and in the incorporation of globalization such as integrating the Russian economy into world economic structures and engaging in a battle against the economic crimes. Putin’s efforts to influence relations with other countries One of the major goals of Putin was to bring globalization to Russia. He was especially concerned in improving the relations of the country with the U. S. He made it clear that while there might be differences of opinion between the United States and Russia, he was prepared to talk. An example of efforts by the government leaders to improve relations with the U. S was the June, 2001 Foreign minister Igor Ivanov talks with the Bush administration. There were a series of exchanges between Kremlin and Washington, and the two men agreed to meet in Slovenia. The Ljubljana summit had a major, positive impact o the U. S-Russian relations, thanks largely to the personal ‘chemistry’ between the two men. Despite substantive differences, it was clear that the atmosphere between the two countries had improved. The best news however was on the issue of globalization, where President Bush announced that he would support Russia’s application to join the World Trade Organization (WTO), an action that would significantly increase Russia’s interdependence with the rest of the world. Putin put efforts to gain the trust of President Bush, as he would also lay an important role in marching Russia towards globalization. (Wiarda Howard J. , 2008) Trade in Russia After sixty years as an instrument of the state plan, trade in Russia has irrupted as one of the most volatile elements in the present economy and society. Caroline, in her book, â€Å"The unmaking of a soviet life† suggests that the post-soviet Russian economy is dominated by ‘merchant capital’ meaning that the enterprises seek profit from commerce rather than through the transformation of production. In the sphere of production, a lot of the old Soviet structure remains. What more is that the merchant capital does not evolve spontaneously into modern capitalism; rather, like the past alliance of merchant capital with feudal dominant classes, the present cliental links between Russian managers and organs of political power prevent the growth of autonomous bourgeoisie. (Humphrey Caroline, 2002) In Russia, many provinces cannot still balance their budgets. They rely on financial budgets from Moscow, meaning that very generally, money circulates through regional governmental budgets, only to certain parts of the population: key industries (power, transport), state employees (administrators, doctors, teachers), and state dependants (pensioners, invalids, war veterans). Successful traders reap this cash, giving rise to a number of support industries for the rich New Russians, as they are called, such as car-repair firms, security teams, and builders of their new houses. (Humphrey Caroline, 2002) In the historical long duration, Russian state policy towards trade has been characterized by autocratic, centralized control with a few temporary windows of quasi-free trade. Russia’s economic SWOT analysis Opportunities The World Trade Organization is an opportunity for Russia. As a member of the WTO, Russia would be in a better position to diversify and to expand its production and foreign trade. The bulk of international trade is determined by comparative advantage and trade in differentiated products, by economies of scale and by advantages in imperfect competition. Accessions to the membership in the WTO would require comprehensive commitments by the Russian government to reduce its tariffs and to provide greater market access to all of its regions. The implementation of the commitment in the medium term, prescribed by the WTO rules and regulations, would increase long-term economic flexibility within and among the international sectors. In general, the entry of Russia to the WTO would build a body of commercial law in Russia conforming to WTO standards and would foster interdependence between external and internal codes. Strengths Some of its strengths are that it is well endowed with scientists, engineers and mathematicians, as well as with a low cost and a highly motivated young labor force. The availability of such resources has been of importance in the development of Russia’s economy. Another strength of the Russian economy is the diversification of it economy, which has led to the growth of its international trade, and has made it possible to mitigate the impact of external cyclical and oil shocks. (Letiche John M. , 2007) Its massive and exploitable hydrocarbon reserves, precious metal deposits and potentially vibrant industrial base are of great importance in the growth of the Russian economy. Threats On the other hand, one of the threats to the Russian economy is the enlargement of the European Union. Although it seems to be an opportunity to the economy, Russia should not be too sure about it. There is evidence that the EU might be a threat without intending to be one. The problems have become obvious, by looking at the dependency, national identity, regional split and generally cost approaches. The EU has often been looked at by its members as a safe harbor important to reach, and this view proves to be problematic. Greece has been a victim of this, when its economic growth stagnated after joining the EU. Russia should realize that dependency, instead of cooperation is dangerous. Also, the enormous costs of the EU membership for the countries would probably endanger the economic growth of the countries. (Ledderhos Manja, 2007) Weaknesses The economy of Russia has been growing, although the growth rate has been slow. It is said that a growing economy is the best way to show the government’s effectiveness in leading the country. However, there is the danger of an obsession with the economic growth, leading to a neglect of the structural shifts and the quality of growth. An overdependence of Russia to its massive resources like oil and gas could create structural weaknesses within the economy as energy prices fluctuate like it happened in 1998. (Strengths and weaknesses, 2007) Conclusion There is no doubt that the Russian economy has undergone a big change, from the fall of communism in 1991 to the economic crisis in 1998 and the growing economy it is today. However, the government needs to watch the trends of the economic growth. The country has also welcomed globalization, hence the availability a bigger market for it products and more investment opportunities for the foreigners. This means that if the government would expose the economy more to globalization, then there would far greater markets for its oil, gas, metals and other resources. Other countries that have not had the opportunity to invest in the country would also do so. Finally, Russia should put more effort in pushing for their entry to the World Trade Organization as this will be of importance in boosting its trade opportunities with other countries. It would also result to a more or a faster growth of its economy. References 1) Humphrey Caroline, The unmaking of Soviet life: everyday economies after socialism, Cornell University Press, 20022) Ledderhos Manja, SWOT Analysis of Transition Countries in the Baltic Sea Region, GRIN Verlag, 2007, pg 17-18 3) Letiche John M. , Russia moves into the global economy, Routledge, 2007, pg 34 4) Strengths and weaknesses of the Russian economy, 3/1/2007, Russia in global affairs, retrieved on 4/1/2009 from http://eng. globalaffairs. ru/numbers/18/1090. html 5) The economy of Russia (Russia), Spain Exchange, retrieved on 4/1/2008 from http://www. spainexchange. com/guide/RU-economy. htm 6) Wiarda Howard J. , Globalization: universal trends, regional implications, UPNE, 2008