Chapter 11
The Erstwhile USSR and
Its Crumbled Empire
Russia in Transition
-Bolshevik Revolution of 1917
- Birth of Communism in Russia
-Gorbachev’s Middle Ground between Stalinism
and Moderate policies
- Yeltsin’s Market Reforms
Introduction
• The collapse of Soviet Union strengthened the resolve of
new leadership to create a market economy
• Reform programs began in the second half of the 1980’s by
Gorbachev
• Gorbachev’s plan sought a middle ground between failed
Stalinist model and market system of industrialized nations
• The desire of the republics to become independent from
Soviet Union
• Democratic reforms in Russia was initiated by Boris
Yeltsin
Introduction continued
• The former Soviet Union consisted of 86 million square
miles, it is about 1/6 the surface of the land
• Economically it provided a large internal market and below
average dependency on foreign trade
• It leads the world in the production of minerals such as
iron, nickel, silver, copper, zinc, lead, oil, and natural gas
• The exploitation of such resources from 1900 onwards
produced massive industrial and manufacturing base
• By the middle of WWII, Soviet economy was second
largest in the world, only next to USA
Triple Crisis
• The collapse of Soviet Union was
accelerated by 3 major factors
– Economic
– Political
– Social factors
Economic Factors
Economic Factors
• Fall in Soviet GNP was initiated during the Cold War and
continued to decline and went below 0 in 1989
• The planned economy of the Soviet Union paid little
attention to the forces of supply and demand of a free
market
• The centralized economy of Soviet Union was
unresponsive to consumer demands
• The earlier growth was due to massive inputs such as
labor, cheap energy, and plentiful raw materials, ideal for
building a heavy-industry economy of the 1930s, late
1940s and 1950s
Economic Factors cont.
• In 1960s the world market shifted to produce electronic
goods, automobiles, pharmaceuticals, and communications
• The Soviet economy became trapped in its own centralized
system and was unable to compete with other
industrialized countries
• In agriculture decades of planned farming also faced
similar problems as other industries in the country
• The rise of political dissidents, pressure from US and its
European allies for democratic reforms in Soviet Union,
and East European countries experimenting with market
based economy.
Political Factors
Criticism of the Soviet
Leadership
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Economic Situation
Superior System
Suffering of Public
KGB Actions and its Impact
Soviet Union’s Position in the World
Things Had to Change
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Gorbachev’s vision
Perestroika - restructuring
Glasnost - openness
Improvement or third-world nation
The Fall of Communism
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The end of communism in Germany
Beginning of the Soviet Union breakup
Soviet Republics declare independence in 1990 and 1991
Acknowledgement of the republics independence in
September 1991
• December 26, 1991: The official break up
Capitalism
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A new born economy
Conversion from socialistic market to free market
Free parliamentary election and independent parties
Letting go of the old system
Poor vs. wealthy divided over the free market system
Communism abandoned
Social Factors
Break up of the USSR in 1991
15 Independent New
Nations to the Map of the World
National Groups
Ethnic Subgroups
Independence or Interdependence?
• Tensions between the 15 republics
• Race
• Language
• Religion
• Border Disputes
• Migration
How the Military is Affected?
• Failure to match the West and Japan in advanced
technologies
• Demographic trends impact the military
• Military willingness and effectiveness
The Environment
Demographics
• This area is both “North” and “South”
• Birth rate is declining disproportionately among the
different ethnic groups
• By the year 2000, it is predicted the country will be 46%
Russian and that may decline steadily
Future Environmental Challenges
• Global Warming
– Theoretical
– Floods
• rising sea levels
• melting of permafrost
– Crops
• shift the zone of cultivation to the North
– Less urgent problem
Current Environmental Problems
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Air Pollution
Degradation of Forests
Polluted Rivers and Lakes
Nuclear Plants
Dams/Diverting of Water
Aral Sea
• Water diverted from entering the Aral Sea
• Water used for irrigation and farming
• Aral Sea is drying up and causing problems for those who
live near it
• Salination of surrounding land
• Several new problems created for the different groups
Environmental Problems exacerbate
the Triple Crisis Problems
• Example, Aral Sea
• Central Asian countries depend on the water tapped from
the Aral Sea
• Uzbekistan uses irrigated water to grow its main cash crop;
cotton
• Economy of coastal cities have been destroyed
Biotech Revolution to the Rescue
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Looks Attractive
Could help advance some areas of agriculture
Too expensive for most areas
Still wouldn’t solve water shortage
Eastern and Central Europe
The policies of glasnost and perestroika have
had enormous consequences for the former
Soviet satellites in Eastern and Central
Europe.
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Free elections
The demise of ruling communist party
The move toward free-market economic policies
The dismantling of the iron Curtain
The collapse of the Warsaw pact
The integration of the German Democratic Republic (East
Germany) with West Germany
The result of liberalization
Leaving the responsibility of administration of the
republics to their respective governments in office and
its people to grapple with the new conditions.
The establishment of strong and politically
legitimate governments is achieved easily in
some nations than in others.
• Culture
• Religious unity
• Deep sense of self–identity.
Securing political legitimacy is
difficult in some new born nations if
ethnic divisions reemerge.
Tensions could be diminished by prosperity,
but the productivity and living standard of the
new born republics are still behind the West
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Industrial decay due inefficient infrastructure
Lack of the technical and marketing expertise
Non transferal currencies
Massive ecological damage
Hurdles in shifting to a free-market economy.
Recommendation by IMF and
World Bank
• Removing price subsidies
• Cutting support for state-run enterprises
• Reduce bureaucracies
Even if some countries adjust
soon enough they will endure
• High unemployment
• Bankruptcies
• Popular agitation against price increase, and foreign
interference.
The recovery is made more
problematic by the chaos within
the former Soviet Union itself.
Conclusion
Key Events That Occurred Prior
to Current Financial Crisis
• 3/23/98 Yeltsin fired Chernomyrdin and picks a little
known energy minister, Kiriyenko
• 7/20/98 IMF approves $11.2 billion loan
• 8/14/98 Major banks fail to meet obligations
• 8/23/98 Parliament meets in emergency session and Yeltsin
sacks Kiriyenko
• 8/25/98 Ruble hit hard, falls to a 4 year low
• 8/26/98 Central bank halts ruble trading
• 8/31/98 Duma rejects Chernomyrdin
• 09/03/98 Domestic problems for Yeltsin escalates