Moscow Stories and Tips

Russia and Capitalism

Another Member’s journal titled “Capitalism in Russia” discusses some micro-economic trends
attributable to the introduction of capitalism in 1991. Here, I discuss the macro-economic impact of
capitalism in Russia.

There are three sources of information on the effects of capitalism on Russia in the post-Soviet era: 1]
what we saw on our trip, 2] what we learned from the ship’s on board lectures on Russian life, and 3]
statistics, including the extensive public opinion polling now going on in Russia.

A recent article in Newsweek summed up the poll results: “Most Russians remember Russia in the
1990s as a country of instability, lawlessness and banditry. They believe that Boris Yeltsin bankrupted
the country, handed its assets over to his cronies and spent most of his time drunk and dysfunctional.
Russians see Putin, on the other hand, as having restored order, revived growth and reasserted
national pride. Why? For the average Russian per capita GDP has gone from $600 to $4,500 during
Putin's reign, much, though not all of which, is related to oil prices. Poverty rolls have fallen from 42
million to 26 million. College graduates have increased by 50 percent and a middle class has emerged
in Russia's cities. Russia today is a strange mixture of freedom and unfreedom. (The country publishes
90,000 books a year, espousing all political views.) Polls in Russia show that people still rate
democracy as something they like and value. But in the wake of the 1990s, they value more urgently
conditions that will allow them to lead decent civic and economic lives.” – Newsweek.

What Newsweek found in the polls squared with what we saw and heard in Russia, and with the hard
statistics: so far, capitalism has been a disaster in Russia, and is well on the way to destroying
Russia’s incipient democracy.

In 2005, Russia’s GDP grew 6%-10%, depending on whose statistics you use, the highest rate of
growth since the end of Soviet rule, or maybe 2004 was. The average annual economic growth
under the Soviets was 17%, the longest sustained and highest rate of economic growth in world
history. During the 1990s, Russia’s first decade of capitalism, Russia was the only nation on Earth to
experience negative economic growth. It took until 2003 for capitalism to return the nation to the
income level of the last year of the Soviet regime.

Russia’s per capita income is somewhere between 12-29% that of the USA*. The true economic
condition of Russia became obvious the further away we traveled from Red Square or old St.
Petersburg. This is a real advantage of the Russian waterways cruises– you get out of the showpiece
cites into real Russia (about 12% of all Russians live in the two showpiece cities).

Don’t be misled into thinking the natives are Commie brainwashed braggarts by the obvious pride the
they take in their nation’s progress. Russia is little more than one generation away from Tsarist
peasantry, life much like what the West experienced under feudalism, and the very bad pre-revolution
days and even worse WWII are the people’s standard of comparison, not Beverly Hills 20901.
Compared to life back then, things are good today, but they were better under Communism.
Compared to Communist rule, capitalism made income, poverty, housing, inflation, unemployment,
crime, health, prostitution, life expectancy, health care, standard of living, and the schools worse than
they were under Communism. Today, although the average income has finally passed the best Soviet
years, the economic situation of a large part of the population, especially the elderly, is still worse
than it was under Communism because the income distribution was much fairer then.

A friend summed up Soviet life like this, “In my former life, I frequently traveled on the Eastern
Shuttle. I once sat next to a member of the Count Basie Orchestra. He was on his way to Moscow
where he had played many times over the years. His observation was ‘no bums on the street; everyone
had a job; no crime; no ass.’ ” Note that the Soviet Communists had better family values than the
Republican Party USA-- no crime, jobs for all, and no prostitution or promiscuity.

From 1990 to today, under capitalism, Russia is the only industrialized nation in the world to
experince a decline in life expectancy, excluding the effects of AIDS.

The change from Communism to capitalism was a change from a shortage of affordable goods to an
even worse surplus of unaffordable goods. This is a meaningless difference for all practical purposes,
except that capitalism was decidedly worse, especially in its first few years.

Pres. Putin enjoys great popularity because he has somewhat alleviated the worst evils of capitalism
by attacking the leading Russian capitalists.

At great social cost, capitalism, after 15 years, is beginning to show some small signs of progress, but
it remains to be seen if and when capitalism will ever manage to make the average Russian’s life
better than it was under Communism. So far, on the economic front, the Commies are wining
(democracy is a separate issue)-- had the 7.7% annual GDP growth of the last Soviet decade
continued through 2005, the average Russian PPP-GDP would be over $25,000, more than double
what capitalism accomplished. Had the historic Soviet 17% growth rate continued, Russian income
would be almost double America’s $83,000 a year. This is what Khrushchev was talking about when
he told America, “We will bury you.”

* I give a range here reflecting that fact that it isn’t easy to determine the average Russian’s income
because the ruble does not freely trade in international money markets. Going by the official
exchange rate, the average income per capita is ~$5,000 a year. Economists generally agree that
PPP-GDP, an adjusted figure taking into account the purchasing power of a currency in comparison
to the dollar, is a better measure. Russia’s PPP-GDP is ~$12,000 a year. This means that an
American can buy $12,000 worth of stuff in Russia by converting $5,000 into rubles. This works to
the visitor’s advantage, except that it is off sett by price gouging tourists who pay higher admission
fees and higher tax fares than do the locals.

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