Does Russia Need the Thirds Revolution to Compite Glabalization
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Transcript of Does Russia Need the Thirds Revolution to Compite Glabalization
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Name : Achmad Room Fitrianto
Student Number : 30689438
Unit Code : MBS 531
Unit Name : Economics Of Globalisation
Unit Coordinator : Dr. Ameer Ali
Tutors Name : Dr. Ameer Ali
A Group Essay Assignment
The attached assignment is my own work, and has not been submitted for assessment for
any other course before. Proper reference has been made to all sources, published or
unpublished work, and ideas of other persons that have been drawn upon in completing
this assignment.
________________________ Date: 18/03/2008
(signature)
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Does Russia need the Thirds Revolution to compete Globalization?
Introduction
Some economist mentions that globalization is a golden moment facing economic policy
makers. Public services and social protection become main issue in governments
policies. Moreover, global trade and capital movement cannot be denied as dominant
factors that government should adapt to. Soviet Union as country tried to cope with this
pressure by introducing Glasnost and Perestroika in Gorbachev era. Although this
concept not fully success but the changing in Soviet (later known as Russia federation) is
very attractive to learn for.
Azizian (2006) argues that the centralistic administration of USSR was a major obstacle
to globalization. This is because USSR had exclusive ideology, closed and implements
protectionist economic system. However, Gorbachev and Puttins era are very unique as
transition period. Succeed in putting administration on the right track is a key issue. This
succeed determine that does Russia needs his thirds revolutions for struggling in
globalization? Some expert mentions that the changing in Russia is a prologue to a new
cooperative world order (Azizian, 2006:135).
Gorbachev EraThe USSR shifted become federation was a result from rivals, compromise and
difference view between Gorbachev and Boris Yeltsin. Partly Yeltsin did not agree with
Gorbachev policies in Perestroika and he always critics the negative of those policies
(Winston, 1991; 40). As result Yeltsin was exile from communist party politburo. The
position of both Gorbachev and Yeltsin was look like the pair of bird wings, one is left
wing and the other is right wing. Therefore, to make the country get in to the right track,
both wings mush be in motion regarding it own function.
Actually Gorbachev inherited a country with huge economic problems. Economic growth
had come to a halt and in many instances had become negative, the goods were produced
in poor quality and the harvest had consecutive bad and demanding in large grain imports
(Goldman, 1988a; 331). National products had begun to decline in late 1983. The
productivity rate was down 3 percent in 1985 (Goldman, 1988b).
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Some expert mentions that if the economic failure of Soviet Union was result from frigid
centralistic planning. Soviet Union economy was developed by top down mechanism
which the planning was developed based on the information that the government agent in
each states and then this information was triangulated in Gosplan. However, the result
was national out put seem to be under produced. Therefore, Soviet consumers were very
dependent to black market that could provide the goods that they need with adequate
portion and prices.
Table 1. Comparison between US and USSR economies in 1987
US USSR
GDP (millions$) 5,093,396 1,965,457
Populations (thousands) 244,942 283,100
GDP Per Capita ($) 20,880 6,943
Employment (thousands) 114,697 138,121
Annual Hours per Person Engaged 1,608 1,700
GDP Per Man Hour ($) 27.62 8.37
Sources: Maddison (1998)
From the table above shows that in 1987 the USSR Gross domestic bruto was
38.6 % from the US. Moreover the GDP Per-capita of the USSR was one-third from the
US. Which mean the USSR economy was left behind the US.
In order to catch up the US Economy and to fix the economy weaknesses, Gorbachev
tried to formulate an economic reform to generate better economy. However, by 1990 the
Soviet administration cannot control their budget and result in overhaul economic. This
was because the government spending to run reformation increased such as to re-stabilize
government enterprises that never get appropriate profit. Moreover the government
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earning from tax plumbed. This was because one of national income resources, which
were alcohol tax, halted by anti alcohol champagne. Tax from alcohol was 12 percent of
national revenue (Brown, 1996; p 142).
There are two responses that Gorbachev receives regarding his effort to up grades the
Soviet Union Socialist economy concept by mixing with the market mechanism. Firstly
Gorbachev was adored by the western societies because he would like to promote the
western style of live by promoting Glasnost and perestroika whereas in domestic arena he
became deeply unpopular (Brown, 1998; xi). This judgment cannot be blamed because in
that time when he in power, he tried to develop discipline for the proletarian class and
had much restriction in work world in order to increase national total productivity by
reducing dependencies in alcohol (Winston, 1991; 3). Gorbachev tried to accelerate inenhance productivity in order to catch up with the others countries. He wracked down
the centralistic mechanism in planning that was produced similar development programs
in each state, which in each state have difference characteristics and potencies. As a
result, this system just gives advantages to central bureaucracy to control the programs.
Additionally, the centralistic planning also produces cliptocracy mechanism, which
each states of bureaucracy expected levy for support their programs. Therefore
Gorbachev stride restructured the Kremlin by giving more outonomy for each state to
produce own development planning even tough still have to following the main pattern
from Gosplan (the State Planning Commission).
Likewise, the spirit for providing an equal development in whole Russia is essentials
issue. It is cannot be denied that Russia is the largest country in the words with huge
natural potencies and natural difficulties. With 17,075,400 square kilometers, covering
more than an eighth of the Earths land area. However the centre for development was
just in the certain part such as surround Moscow in the west of Soviet, whereas the other
part such as Tyumen in West Siberian, relatively still left behind. In addition Soviet
Union was a country, which has lack of proper soil and climate for agriculture. Some
region is too dry for crops or too cold. Because of that mostly the area that was developed
well just the west area, which has close distance to other European countries and have
potencies to develop.
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The Soviet position in global words was disrupted beside by the domestic situation but
also by the integration between West German and East German in 1989 that was marked
by smashed down the berlin wall. Moreover the result from this unification was the East
Germany administration was integrated totally to the West German style by
implementing democracy and free market and restores capitalism. As a result, they
achieve better economy condition (Reid, 2005). Beside that the dominance of socialist
tough in east European was declined rapidly. Yugoslavia was divided in to separated
countries, Poland, Rumania and others East Europe countries changed their economy
model from centralistic economy to open market economy.
Moreover, Gorbachev recognized that beside Soviet Union experience malaises also
suffering from the negative of central planning administration (Goldman, 1988). He
began to change the centralistic planning in Soviet Union and transfer the mechanism by
giving autonomy in each Republic, Oblash and Kray that under Soviet Union
administration.
Therefore Gorbachev introduced three-reformation system Perestroika, Glasnot and
Democratizationnot only in order to be able to compete with the United States and theWest in the bi-polar world, but the most important thing is to survive as honored nation in
the 21st Century.
PERESTROIKA
Perestroika was a reform program from Gorbachev administration in order to response of
the soviet social changing that was caused by the fall of centralistic economy system.
What is more this reform had objectives to catch up with other countries especially
western european countries and the united state. This reform program was initiated in
1985 and amended in 1987 and 1989 significantly (Maltsev, 1990). Three sectors of
perestroika such as restructuring bureaucracy, military reform and agriculture reform will
be described more detail.
According to Martin (1990; 3) there were three working area of perestroika. Firstly is that
to redesign the command economy system in order to make this economy system more
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efficient. Secondly is to strengthen the socialist political system. The last dimension of
perestroika is by giving more autonomy to each state.
In order to create efficiencies in command economy system, Gorbachev tried to reduce
long bureaucracy in central administration as main concern. He tried to make simple but
still use the role of Gosplan, the state planning organization, and the ministries. To
provide simple bureaucracy Gorbachev uses his authority by transferring economic
planning to the outside edge. Martin (1990) point out two key documents that have been
changed the Soviet by mixing centralistic and market mechanism. The first key is the
occurring of the law of the enterprise of July 1987 and the second key is the occurring of
the law on the Cooperatives of May 1988. These laws reduce the role central planning in
Government enterprises. Gorbachev gave autonomy to the managers and encourages
them to earn some profit. Therefore those Laws implemented decentralized decision-
making in order to manage the prices for raw materials, labor and final goods. This
mechanism tried to manage the prices based in the market demand.What is more, these
enterprises were forced to learn how to reduce costs. If they get loss, they can no longer
dependent in subsidies from the state budget. Those enterprises that operate in the
unprofitable condition in certain times, will be declared bankrupt and closed down
The effecting of this restructuring was dispensed to the state committee o f the USSR on
labor and social affair. While the income differential was caused by rationalizing the
number of managerial staff, does not have positive relation to reducing managerial staff
(Maltsev, 1990).
Perestroika was affected not only in bureaucracy but also in the Soviet Armed Forces and
the military industrial complex. According to Joris Jozef Elisabeth Van Bladel (2004,
72-73) Gorbachev used two traditional approaches to reforms the military. Firstly, by
using propaganda Gorbachev tried to enforce of ideological indoctrination. Secondly in
order to anticipate rejection from who is still resisted change, Gorbachev used a method
of personnel and administrative purges. In brief, he tried to convince, coerce, manipulate
and build coalitions among political and military elites. (Joris Jozef Elisabeth Van Bladel,
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2004: p). One result from the military reform was The Soviet Pull out their army from
Afganistan.
Beside governmental administration and military had been affected by Perestroika,
agriculture sector was affected as well. First of all, Gorbachev demoralized the peasantry
that has had such a devastating effect on agriculture production. Secondly, Gorbachev
strengthened the central planning in agriculture by establishing a new state ministry for
Agriculture and industry (Martin, 1990; 6). This ministry had authority to formulated new
regulation through agriculture activities such as giving opportunity to individual members
of the cooperative to diversify their crops. Moreover, this reformation also gave more
autonomy to cooperate to buy equipment and sell their produce relatively freely (Brown,
1996; 142). The significant change was when Gorbachev administration gave authority tohave contract leasing between groups of farmers and their parent state farm (collective
farm) (Brown, 1996; 144).
It cannot be denied that these policy were big innovation, however these policies
just make the harvest failed. This is because Soviet farmers not ready to change their
daily activity. They used to cultivate certain crop that was ordered by the government
then suddenly they have to manage their field with their own crops and they have to sell
it by their selves. This policy could be success if the Gorbachev administration
implemented the policies stages by stages until the farmer ready to cope with this new
mechanism.
Another concern was providing incentives to factory managers as well as peasants
and farm manager, However Gorbachev cut the subsidies around $110 billions annual
subsidy on costumer goods and it result in necessitate a twenty to thirty fold increase in
housing cost and almost a threefold increase in meat. As affect that the meat price never
change from 1962 (Goldman, 1988). Reducing Subsidies had double swords effects. On
one side it could help government to reduce their spending but on the other side it make
all prices rocketing. Moreover, if government cannot control the rocketing prices,
economy will experience high inflation.
Moreover, According to Maltsev (1990) estimation the rubles note that was issued
was not supported by an adequate growth in production of goods that reached around 20
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billion rubels in 1989. Further an adequate growth cannot support the devaluation of the
rubel from around $ 1.60 to $0.16 in September 1989.As a result from these phenomena
was high demand for consumptions was not supported adequate supply that result in high
inflation.
The Challenge of Perestroika
There were at least three challenges in implementing perestroika. Firstly, the
resistances from elite communist party member especially with politburo, the majority of
politburo was not prepared to cope with Gorbachevs commitment to oppose corruption
in the upper echelons at the socialist system (Winston, 1991; 4). The example of
resistance for Gorbachev reformations was when the military tried to coup Gorbachev
administration in August 1991. Luckily in that time Boris Yetlsin backup for Gorbachev
programs.
Secondly, Conflict between the central Authorities and the dominance state.
Russia as dominant state tried to control the federal government and when Boris Yeltsin
had been elected and he forbid the communist party activity in Russia territory make the
federal administration had been amputated (Brown, 1996; 150).
And the third challenge was incomplete supporting system. For example the
agriculture program which gave opportunity to farmers to have their own land. However,
this program was not accusable by farmers because just the mafia, corrupt official and
foreigner who could buy the land (brown, 1996; 145)
GLASTNOST
The word Glasnost was mentioned by Andropov and then defined clearly by
Gorbachev in the eulogy at Chernenkos funeral which means as symbol of free speech
and this concept was strengthen after the poor designed reactor at Chernobyl power plan
was exploded (Winston, 1991; 6)
In the 1980 when China showed the significant achievement both in economy or
politic that pursued Soviet position. Democratization or openness was ones strategy in
keeping soviet dominances in socialist world.
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Gosplan (State planning body) since 1921 more over the Gosplan activities was believed
make the economy stagnant and destroy the USSR slowly but surely.
Marshall Goldman, an Russia expertise from US, analyst that the reformation in
Russia was to fast, was compel, and there were many manipulation in governmental
finance (cliptocracy) that make the democracy that has been build does not have strong
foundation. Moreover, these weaknesses have effect in oligarchy system. As result the
central government in politburo cannot prevent the vanishing process from the dominant
state through the democratization that was given by the Union administration.
The mistake of Yetlsin
Some expert mentions that the biggest mistake that Boris Yetlsin made was when
he prepares Vladimir Putin as his ancestor. Whereas the others mention that Putin is the
right person this is because Putin could develop strong leadership that is need in
transition era.
Yeltsin as leader with a huge mandate saw that the one solution for this
cliptocrazy was reformation therefore even though Gorbachev was not in power he
continue his idea with the Russia federation. He was a brave leader who could break
tyrannical administration that was crated by Stalin since 1917. He gave the new
generation more opportunity to get more freedom, freedom from fear and freedom to
expres. However this system that is adopted by recent Russia administration still not
provides freedom from hunger and freedom from poverty.
Figure 1.Lorenz Curves and Gini Indexes ComparisonBrazil (1989), Russia (1993) and Hungary (1993)
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Sources: http://www.worldbank.org/depweb/beyond/wren/wnrbw_all.pdf
The Loren Curve above shows that Russia wealth gap is quite moderate compare
to Brazil But worse compare tu Hungary. In Russia the first 20 % richest of population
controlled 53.8 % of total national income. The second 20% richest people controlled
20.4 % of total national income. Whereas the 20 % poorest people just controlled 3.7 %
from total Income.
Despite from pro and contra about Russia, since 2001 World Bank reported thatRussia not only reaches significant economic growth but also this country could reduce
the poverty rate. Which in November 2007 had estimated Unemployment rate at 5.9%
Moreover Russia had 15.8% of their population was in below poverty line. Which mean
in Russia there were around 22.337.685 people live in adequate economy condition:
15.8% (The Word Fact Book, 2008).
Russia income is dependent in Oil and gas production that these sectors
contributed around 30% from all Russia Income (The Word Fact Book, 2008). Oil export
earnings have allowed Russia to increase its foreign reserves from $12 billion in 1999 to
some $470 billion at yearend 2007, the third largest reserves in the world (The Word Fact
Book, 2008). Russia experience 8, 1 % economic growth in 2007 and more specifically
Russia income increase by 10.4% from previous year. (Kholmogorova, 2008). However
Russia still has to be conscious with the inflation which in 2007 they experience 12 % of
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inflation. In other hand Russia has significant foreign direct investment from $14.6
billion in 2005 to approximately $45 billion in 2007. Overall In 2007, Russia's GDP grew
7.6%, this growth had generated by non-tradable services and goods for the domestic
market, as opposed to oil or mineral extraction and exports (The Word Fact Book, 2008).
The Future Of Russia
I analyses that there are many factors that are supported or became obstacle for
Russia to have significant position in global world as superpower country.
The Barriers:
Disintegration is the biggest barrier that is faced by Russia federation. Russia as
the largest and the biggest state in USSR has many ethnic and culture, if the
administration cannot integrate the differences among societies it will potential danger.
The shifting administration from RSFSR (Russian Soviet Federative Socialist Republic)
as a part from USSR to Russia federation has their own problem such as political
pressure from the former members of KGB, who tries to return back the centralistic style
in administration. Moreover, Separatism with religion issue become trend, unfair position
among ethnic could make it worse. Chechnya was an example for religious separatism
and rebellion.
The relation Russia among the countries ex USSR state is not binding compare to
when they in USSR. Mostly these countries join in CIS except Balkans countries and
the state in central Asia such as Kyrgyzstan. Basically they are having different ethnicity
and religion (Azizian, 2006:135). Moreover the have own thinking that they will more
have prosperity if they independent from Russia.
Each country has own potencies and would like to maximize for each countries
objectives. This potency was inheritage from former Soviet Union. The Soviet Union
inherited a lot of technology, infrastructure, and other potencies that will be maximum
use if they reunited as one nation. Therefore CIS was founded. CIS is consisting of
eleven former Soviet Republics: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan,
Kyrgyzstan, Moldova, Russia, Tajikistan, Ukraine, and Uzbekistan
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Even though the spirit to return bank the soviet dominance in word is on every
country ex Soviet but there are many obstacles among them such as there is no dominant
power that could coordinate them. That way most of them still implement the old style
administration. Indeed Russia has implemented open market and liberalism however the
Russia citizen is not full understood what is going on. They though that even they
implement democracy they still cannot catch up with global economy.
Realize that this changing not bring advantage for Russia therefore Vladimir Putin
who replace Boris Yeltsin tried to centralize the administration. He tries making Kremlin
powerful again. This policy was supported by all exp USSR officials.
The military technology was left behind especially if compare to US technology.
Even Russia has potencies and has this technology but they cannot develop in further
stages because they have economy difficulties. The most correct example is the Russia
Navy. The Russia Navy just has one carrier plane ship. Moreover, after accident of Kursk
submarine in Barents Sea at 2000 the government evaluates the using of Submarine,
especially that have nuclear power engine.
Russia still has Nuclear weapon and also the other ex Soviet Union such as
Ukraina and Kazakhstan. Soviet have space launcher station (kosmodrom) in Baikonur,
however kosmodrom in Kazakstan territory which has the higher criminal rate in the ex
soviet countries. That is why Russia has to replace this space launcher station for space
science or even tough for military.
Supporting factors:
With the natural resources that Russia has this country could develop their
economy. Moreover Russia was inheritance factor production from former Soviet Union
if they could maintenance they could start to merchant with other nation such as with the
Middle East countries. The market mechanism cannot be denied therefore in order to
compete with open market Russia must reforms all sectors from agriculture such as
maintaining the irrigation system, especially in Russia regulation and administration
services in order to attract the foreign business to invest.
Even tough Russia military technology recently is left behind the US but the
Russian goods still have potencies because of two reason. Firstly is that mostly Russian
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offer cheaper price comparing to the US military technology. The second reason is that
Russia never involve in domestic affairs of a country that would like to buy weapon from
Russia. It is different with the US, US administration always relate the weapon
purchasing to domestic human right or democratization. For example, When Indonesia
would like to Up Grade their military weapon (Alutsia) and Indonesia administration
would like to buy from The US, The US administration always have reason to reject or
make it hard to fulfill such as make relation to Human right in east Timor or other region.
Whereas when Indonesia tried to purchase from Russia such as to buy Succoi they give
intensive such as free training for the Indonesia operators and the maintenances.
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