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Normalization of the Russian Economy: Obstacles and Opportunities for Reform and Sustainable Growth

James R. Millar

The quote is an exaggeration, but there is more than a grain of truth to what Mr. Thompson wrote. It has been more difficult and costly in human terms to dismantle and begin to replace the old Soviet economy with market institutions than anyone dreamed at the outset. Progress to date has featured serious distortions, inequities, and a degree of criminality that no one anticipated either. Early on in the process of reform, during the attempt at shock therapy, a Russian babushka was interviewed on Moscow television. She was asked what she hoped the reforms would bring. "All we want," she said, "is to live in a normal economy like everyone else in the world." What did she mean by a "normal economy"? As I defined it elsewhere previously:

    [A normal economy] can be defined as an economy in which the everyday citizen can form reasonably assured expectations of the future. That means an economy where personal savings decisions can be made with the confidence that they will not be eroded by inflation or confiscated by the state; one in which daily necessities are available in stores all day, every day; where employment will not fluctuate wildly; and where plans can be made for the more distant future, such as for children's education or retirement, with reasonable certitude. [1]

A normal economy in today's world is, of course, a market economy, but that is not a sufficient condition for normality. The Russian economy today has achieved the state of normalcy that the babushka wished for, but it remains fragile and vulnerable to internal and external forces that could push it off course, delay, or undermine continuation of the transition process.

In what follows, the principal obstacles and opportunities for the continuation of needed reforms will be examined and certain troubling tendencies of President Putin's policies to date will be identified. This examination includes a review of general macroeconomic and other social trends since 1991, of post–1998 crisis developments, and of Russia's place in the global economy. Russia's progress in economic reform in comparative perspective will also be examined, including relations with the International Monetary Fund (IMF). Finally, Putin's policies toward the United States both before and after September 11 will be considered. In each section the obstacles, opportunities, and troubling tendencies of economic reform under Putin's leadership will be highlighted.

Macroeconomic and Other Social Indicators

As is clear from Table 1 (p. 8), the long decline in most macroeconomic indicators bottomed out...

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[1] James R. Millar, "The Russian Economy: Putin’s Pause,” Current History (October 2001), pp. 340–41.