Will Russia Grow?

CAMBRIDGE: Now that President Yeltsin is reelected, will Russia grow? With a democratic government, highly educated workforce, vast natural resources, and increasing political stability (though the sacking of General Lebed gives one pause here), it should. Moreover, Russia has completed the three crucial steps of economic liberalization: it freed prices, privatized most of the economy, and finally conquered inflation. A closer look, however, reveals grounds for concern.

Growth comes from either the formation of new businesses or the restructuring of privatized firms. In most transition countries, new business has been the engine of growth. The spectacular recent growth of China and Poland came largely from new firms. Growth in privatized or state firms is much harder to achieve, though restructuring is critical to the transition. Until now, corruption, predatory taxation, and distortionary interest rate policies have stood in the way of Russian growth. For it to come, Yeltsin must act in all three areas.

Russia lags behind other fast reformers in small business formation. According to the European Bank for Reconstruction and Development (EBRD), at the end of 1995 Poland had some 2 million small private businesses, compared to only 1 million for Russia, with a population four times larger. Even if we allow, as the EBRD does, that Russia has another 2 million unregistered private businesses, it is still far behind Poland. Why?

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.


Log in

  1. An employee works at a chemical fiber weaving company VCG/Getty Images

    China in the Lead?

    For four decades, China has achieved unprecedented economic growth under a centralized, authoritarian political system, far outpacing growth in the Western liberal democracies. So, is Chinese President Xi Jinping right to double down on authoritarianism, and is the “China model” truly a viable rival to Western-style democratic capitalism?

  2. The assembly line at Ford Bill Pugliano/Getty Images

    Whither the Multilateral Trading System?

    The global economy today is dominated by three major players – China, the EU, and the US – with roughly equal trading volumes and limited incentive to fight for the rules-based global trading system. With cooperation unlikely, the world should prepare itself for the erosion of the World Trade Organization.

  3. Donald Trump Saul Loeb/Getty Images

    The Globalization of Our Discontent

    Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US has shown. The challenge is to minimize the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.

  4. A general view of the Corn Market in the City of Manchester Christopher Furlong/Getty Images

    A Better British Story

    Despite all of the doom and gloom over the United Kingdom's impending withdrawal from the European Union, key manufacturing indicators are at their highest levels in four years, and the mood for investment may be improving. While parts of the UK are certainly weakening economically, others may finally be overcoming longstanding challenges.

  5. UK supermarket Waring Abbott/Getty Images

    The UK’s Multilateral Trade Future

    With Brexit looming, the UK has no choice but to redesign its future trading relationships. As a major producer of sophisticated components, its long-term trade strategy should focus on gaining deep and unfettered access to integrated cross-border supply chains – and that means adopting a multilateral approach.

  6. The Year Ahead 2018

    The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

    Order now