The economy

From 1917 until 1991 Russia (then the R.S.F.S.R.), by virtue of its great size and abundant natural resources, played a leading role in the economy of the Soviet Union. Resources, in particular, made possible the main economic achievements of the Soviet regime until the 1950s: the rapid development of mining, metallurgy, and heavy engineering, the expansion of the railway network, and a massive increase in the energy supply. A second phase in Soviet industrial development began in the 1960s and also had a particularly strong effect on the Russia n republic. In addition to further growth in established industries—especially in the production of oil, gas, and electricity and in the chemical industries—there was a marked diversification in industrial output, including a limited expansion in consumer goods. In the years before the dissolution of the Soviet Union, however, the economy of Russia and of the union as a whole was in a state of decline.

In 1992, after the collapse of the union, the government of the Russia n Federation implemented a series of radical reforms designed to transform the Russia n economy from one that was centrally planned and controlled to one based on free enterprise and market forces. Major components of the reforms included establishing privately owned industrial and commercial ventures, with foreign as well as Russia n investment, and privatizing state-owned enterprises. Vouchers were issued to each Russia n citizen that were to be used to purchase shares in firms being privatized, which often were sold at auction; in practice, these vouchers frequently were sold for cash and were accumulated by entrepreneurs. A commodity- and stock-exchange system also was set up.

The privatization process was slow, however, and many firms—particularly in the heavy industries—remained under state ownership. In rural areas, land-reform legislation offered farmers the opportunity to gain title to parcels of land. This conversion also was slow, as many clung to the old, familiar system.

At the outset, these measures caused considerable hardships for the average Russia n citizen. The monetary system was in disarray: the removal of price controls caused a huge escalation in inflation and prices, the value of the ruble plummeted, and real incomes fell dramatically. Industrial and agricultural production declined, and unemployment rose, causing shortages of consumer goods and (in urban areas) foodstuffs. These difficulties were reduced to some extent by the rapid development of a large informal (i.e., black market) economy. A result of these trends was the appearance of a widening gap between the successful entrepreneur and average worker. Conditions began to improve by the mid-1990s, but both production and consumption remained below the peak levels achieved under the Soviet regime.

In addition to these difficulties, Russia and other republics had been subjected to serious, long-term environmental degradation during the Soviet period, the full extent of which became apparent only in the 1990s. The most visible aspects of this situation—such as the Chernobyl

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accident and its aftermath and the drastic reduction in the water volume of the Aral Sea through inflow diversions—were only symptomatic of decades of wasteful agricultural practices and resource exploitation and of widespread industrial pollution. Addressing environmental concerns placed another burden on Russia 's already overwhelmed economic structure.

The economic foundation of the country itself remained similar to that which had been developed during the Soviet period. For purposes of description, it is convenient to refer to the official set of 11 economic regions into which Russia is divided. In Europe the regions are the North, Northwest, Central, Volga-Vyatka, Central Black Earth, North Caucasus, Volga, and Ural, and in Asia they are West Siberia, East Siberia, and the Far East.