The Political Economy of Post-Soviet Russia

The Political Economy of Post-Soviet Russia

Also by Vladimir Tikhomirov ANATOMY OF THE 1998 RUSSIAN CRISIS (editor) CHURCH AND POLITICAL STRUGGLE IN SOUTH AFRICA: The Role of Religion in Development of South African Society (in Russian) DEVELOPMENT OF POLITICAL THOUGHT IN SOUTH AFRICA, 1948-1988 (in Russian) IN SEARCH OF IDENTITY: Five Years since the Fall of the Soviet Union (editor) STATES IN TRANSITION: Russia and South Africa THE PARTY OF APARTHEID: Socio-Political Evolution of the National Party of South Africa

The Political Economy of Post-Soviet Russia Vladimir Tikhomirov Deputy Director Contemporary Europe Research Centre University of Melbourne Australia tt

!'in publi,hed in Cireat Britain 2000 hy MACMILLAN PRESS I:ri> Houndrnills. Basingstoke. Hampshire RG21 6XS and Londnn Compani..-s and repre,entatives throughout the world A catalogue record for this honk is availabk from the British Library. ISBN 978-1-349-41798-8 DOl 10.1057/9780230289062 ISBN 978-0-230-28906-2 (ebook) First publish..-d in the llnited States of Arneriea 2000 by ST. MARTIN'S PRESS, INC.. Scholarly and Reference Division. 17) l'ifth An nul'.i'\l'w York. N.Y. 10010 Library or Cnngress Cataloging-in-Publication Data Tikhomiro\. V.I.!Vladimir lgnrnidll The PolitiraiL~l"llllOmy or post-sovil't Russi;!. Vladimir Tikhnmirm. p. em. lndudes bibliographical referenc-es and ind, x. I. Russia I Federation)-- El:onomic L"Oilllition'- 1991-2. Russia ( Ft'derationi -Ewnomic polic) -1991-- I. Titk HC3..J.O.l2.T545 2000.>3X.9..J.7'009'049-dc21 99-053112 < Vladimir Tikhomirov 2000 All rights reserved. No reproduction. L"OJl)' nr transmission of this publicatinn may be made \\ ithout written permission. No paragraph of this publieation may be reprodueed. copied or transmitted save with written permission or in <ll"c"tmlmu:e with the provisions or the Cnpyright. Designs and Patents Act Jl)tl!l. ur under the terms of any lil"ence pennitting limited copying issued by the Copyright Licensin~ Agency. 90 'li>ttenham Court Road. London WI P OLP. An) person \\ho does any unauthorised act in rdation to this publication llla) he liabk to criminal pro,ecution and ci\ il daims ror damages. The author has asserted his right to be identitied as the author of this work in accordance with the Cnpyright. Designs and Patents Act 191l8. This book is printed nn paper suitahk fur recycling and made from fully manago.>d and sustained forest sources. 10 9 8 7 6 :; 4 ' 2 I 09 08 07 06 ()) 04 03 02 OJ 00

Contents List of Tables List of Graphs List of Maps vii xi xii Introduction 1 Chapter 1 Dynamics of Development in the Real Sector of Economy 13 1.1 Russian industry in the post-soviet era 13 1.2 Crisis in agriculture 33 Chapter 2 State Finances, Banking Sector and Investment Flows 47 2.1 Federal budget, tax collection and dynamics of state borrowing in Russia 49 2.2 The emergence of private banking in Russia 69 2.3 Capital investment trends 80 2.4 Foreign investment in post-soviet Russia 97 Chapter 3 The Russian Foreign Trade 115 3.1 Russian foreign trade with non-cis countries 115 3.2 Russia's trade with the Commonwealth of Independent States 121 3.3 Regional patterns of foreign trade 127 3.4 Capital flight: ways and volumes 141 Chapter 4 Social Development and Income Distribution 167 4.1 Dynamics of population and employment growth 167 4.2 Current crisis in health services and in education 172 4.3 Changes in national and regional food consumption patterns 179 4.4 The widening gap between rich and poor 186 4.5 Shifts in occupational wages 194 4.6 Wage arrears and changes in regional per capita incomes 202 Chapter 5 The Evolution of Modern Russian Capitalism 225 5.1 Gaidar reforms (1991-92) 227 5.2 The confrontation (1993) 231

vi Contents 5.3 Chernomyrdin's stalemate (1994-95) 235 5.4 Presidential elections (1996) 242 5.5 The Chubais' reform (1997-98) 246 Chapter 6 The Dynamics of Political Change 270 6.1 Some general remarks on transition 271 6.2 The importance of social and economic reform 280 6.3 "Nomenklatura" revolution in Russia 287 6.4 Political fragmentation in post-soviet Russia 292 6.5 The role of the presidency 297 6.6 Russian nationalism and the search for a national idea 309 Chapter 7 Conclusion 323 Bibliography 333 Index 348

List of Tables Table 1 Russia's General Economic Performance in the Three Critical Periods of 20th Century 8 Table 2 Groups of Regions by Economic Profile, 1996-97 10 Table 1.1 Volumes of Production by Branch of Industry 15 Table 1.2 The Structure of Production of Major Industries in Russia 16 Table 1.3 Annual Production of Major Industrial Commodities in Russia 18 Table 1.4 Production Dynamics in the Russian Military-Industrial Complex 20 Table 1.5 Indices of Production of Some Major Civilian Commodities in the Military-Industrial Complex 21 Table 1.6 Non-Payments and Loss-Making Enterprises in the Russian Economy 23 Table 1.7 Depreciation of Capital in Russian Industry (share of obsolete equipment in the total volume of key assets) 25 Table 1.8 Indices of Industrial Production by Economic Region 26 Table 1.9 Annual Indices of Gross Industrial Output by Oblasts (best vs. worst) 28 Table 1.10 Annual Indices of Gross Industrial Output by Groups of Regions 30 Table 1.11 Structure and Indices of Gross Agricultural Production 35 Table 1.12 Production of Major Agricultural Commodities in Russia, 1985-98 37 Table 1.13 Production of Major Agricultural Commodities by Category of Producers 38 Table 1.14 Indices of Gross Agricultural Production by Economic Region 40 Table 1.15 Annual Indices of Gross Agricultural Production by Groups of Regions 43 Table 2.1 Russian State Budget, 1990-98 50 Table 2.2 Annual Dynamics of Internal State Borrowing in Post-Soviet Russia, 1994-August 1998 57

viii List of Tables Table 2.3 Growth of Tax Non-Payments to the Russian State Budget 66 Table 2.4 Russia's Banking Sector 72 Table 2.5 Dynamics of Capital Investment in Russia, 1980-98 82 Table 2.6 Structure of Capital Investment in Russia, 1980-98 85 Table 2.7 Regional Structure of Capital Investment in Russia 87 Table 2.8 Indices of Per Capita Investment by Region 90 Table 2.9 Indices of Per Capita Investment by Selected Oblasts 92 Table 2.10 Dynamics of Foreign Investment in Russia 95 Table 2.11 Foreign Non-Financial Investment in Russia by Type, 1994-98 99 Table 2.12 Structure of Foreign Investment in Russia, 1993-98 100 Table 2.13 Regional Structure of Foreign Investment in Russia 103 Table 3.1 Dynamics and Structure of Foreign Trade with Non-CIS Countries 116 Table 3.2 Russia's Major Non-CIS Foreign Trade Partners 120 Table 3.3 Dynamics and Structure of Russian Foreign Trade with CIS States 122 Table 3.4 Geographical Distribution of Russia's Trade with CIS 124 Table 3.5 Foreign Trade Orientation of the CIS States 125 Table 3.6 Shares of Russian Economic Regions in Foreign Trade, 1990-97 128 Table 3.7 Structure of Foreign Trade by Economic Region 131 Table 3.8 Areas with Largest Shares in Russian Exports and Imports 134 Table 3.9 Structure of Foreign Trade by Groups of Regions, 1993-94 137 Table 3.10 Variations in Estimates of Capital Flight from Russia, 1991-1997 149 Table 3.11 Russian Exports of Major Commodities to Non-CIS Countries, 1992-97 151 Table 3.12 Estimates of Export-Related Capital Flight from Russia by Commodity 152 Table 3.13 Russian Imports of Some Major Foodstuffs from Non-CIS Countries, 1992-97 153 Table 3.14 Some Estimates of Import-Related Capital Flight from Russia by Commodity 154 Table 3.15 Estimates of Capital Flight from Russia in 1992-97: A Summary 155 Table 4.1 General Demographic Indicators 168 Table 4.2 Employment Indicators 170

List of Tables ix Table 4.3 Health and Medical Services 173 Table 4.4 Education Level of the Russian Population 175 Table 4.5 Science and Education in Russia 176 Table 4.6 Food Consumption in Russia 180 Table 4.7 Purchasing Power of Regional Incomes in Russia, 1994-96 183 Table 4.8 Dynamics of Average Income and CPI 187 Table 4.9 Russia: Income Distribution of Population 190 Table 4.10 Dynamics of the Average Salary in the National Economy, 1991-98 193 Table 4.11 Average Salaries in the Russian National Economy by Occupational Groups 196 Table 4.12 Average Salaries by Branches of Industry 200 Table 4.13 Russia: Wage Arrears in National Economy 204 Table 4.14 Russia: Wage Arrears by Sectors of Economy 206 Table 4.15 Regional Distribution of Income 209 Table 4.16 Income Dynamics in Selected Groups of Regions 212 Table 4.17 Income Dynamics in Russia's Areas with Highest and Lowest Per Capita Incomes 213 Table 4.18 Growth of Regional Income Disproportions in Russia 217 Table 5.1 Gaidar Reforms: Social and Economic Results, 1992 231 Table 5.2 The Confrontation: Social and Economic Results, 1993 234 Table 5.3 Gradual Reform - Year One: Social and Economic Results, 1994 236 Table 5.4 Gradual Reform - Year Two: Social and Economic Results, 1995 240 Table 5.5 The Year of Elections: Social and Economic Results, 1996 245 Table 5.6 Russia: Privatisation in Major Branches of Economy 250 Table 5.7 Chubais Reform: Social and Economic Results, 1997 253 Table 5.8 Small Business Development in Russia, 1993-98 258 Table 6.1 Areas with the Largest Portion of Votes Cast for Democratic-State Parties, 1993-96 305 Table 6.2 Areas with the Largest Portion of Votes Cast for Left-Nationalist Parties, 1993-96 306 Table 6.3 Shares in the Population and the Gross Income in 30 Russian Regions 307 Table 6.4 Income Disparities and Political Polarisation in Russian Regions, 1993-96 308

x List of Tables Table 7.1 Table 7.2 Some General Indicators of Russia's Performance in 1993-97 325 Economic and Political Development of Groups of Regions 330

List of Graphs Graph 1.1 Best and Worst Regional Industrial Performers in Russia, 1990-98 29 Graph 2.1 Dynamics of Money Supply and Budgetary Deficit in Russia, 1993-97 54 Graph 2.2 Dynamics of CPI and Money Supply in Russia, 1992-97 56 Graph 2.3 Dynamics of the Bond Market (GKO-OFZ), May 1993-August 1998 58 Graph 2.4 Budgetary Effectiveness of the GKO-OFZ Market 59 Graph 2.5 Annual Dynamics of Growth of State Debt Accumulation 61 Graph 4.1 Share of Food in the National Average Income 182 Graph 4.2 Change in Real Income Distribution in Russia, 1990-98 192 Graph 4.3 Dynamics of Average Wage in Russia 194 Graph 4.4 Growth of Income Disproportions between 89 Russian Areas 215 Graph 5.1 Growth of Wage Arrears in 1996 244 Graph 5.2 Privatisation vs. Performance in Russian Industry 262

List of Maps Map 1.1 Indices of Industrial Output in Russian Regions in 1997 32 Map 1.2 Indices of Agricultural Production in Russian Regions in 1997 41 Map 2.1 Capital Investment in Russian Regions in 1997 96 Map 2.2 Foreign Investment in Russian Regions in 1997 104 Map 3.1 Regional Distribution of Exports in Russia in 1994 135 Map 3.2 Regional Distribution of Imports in Russia in 1993 136 Map 4.1 The Cost of Food Basket as a Share in an Average Per Capita Salary by Region, December 1997 185 Map 4.2 Dynamics of Change in Real Per Capita Incomes in Russian Regions, 1990-97 219 Map 5.1 Net Balances of Industrial Output in Russia by Region, 1997 263 Map 6.1 Regional Distribution of Votes Between Major Political Trends in December 1993 Parliamentary Elections 295 Map 6.2 Regional Distribution of Votes between Major Political Trends in the First Round of Presidential Elections, June 1996 304