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Achmad Room Fitrianto 30689438 MBS 531 Economics Of Globalisation Dr. Ameer Ali Dr. Ameer Ali

A Group Essay Assignment

The attached assignment is my own work, and has not been submitted for assessment for any other course before. Proper reference has been made to all sources, published or unpublished work, and ideas of other persons that have been drawn upon in completing this assignment.

________________________ Date: 18/03/2008 (signature)

Does Russia need the Thirds Revolution to compete Globalization? Introduction Some economist mentions that globalization is a golden moment facing economic policy makers. Public services and social protection become main issue in governments policies. Moreover, global trade and capital movement cannot be denied as dominant factors that government should adapt to. Soviet Union as country tried to cope with this pressure by introducing Glasnost and Perestroika in Gorbachev era. Although this concept not fully success but the changing in Soviet (later known as Russia federation) is very attractive to learn for. Azizian (2006) argues that the centralistic administration of USSR was a major obstacle to globalization. This is because USSR had exclusive ideology, closed and implements protectionist economic system. However, Gorbachev and Puttins era are very unique as transition period. Succeed in putting administration on the right track is a key issue. This succeed determine that does Russia needs his thirds revolutions for struggling in globalization? Some expert mentions that the changing in Russia is a prologue to a new cooperative world order (Azizian, 2006:135). Gorbachev Era The USSR shifted become federation was a result from rivals, compromise and difference view between Gorbachev and Boris Yeltsin. Partly Yeltsin did not agree with Gorbachev policies in Perestroika and he always critics the negative of those policies (Winston, 1991; 40). As result Yeltsin was exile from communist party politburo. The position of both Gorbachev and Yeltsin was look like the pair of bird wings, one is left wing and the other is right wing. Therefore, to make the country get in to the right track, both wings mush be in motion regarding it own function. Actually Gorbachev inherited a country with huge economic problems. Economic growth had come to a halt and in many instances had become negative, the goods were produced in poor quality and the harvest had consecutive bad and demanding in large grain imports (Goldman, 1988a; 331). National products had begun to decline in late 1983. The productivity rate was down 3 percent in 1985 (Goldman, 1988b).

Some expert mentions that if the economic failure of Soviet Union was result from frigid centralistic planning. Soviet Union economy was developed by top down mechanism which the planning was developed based on the information that the government agent in each states and then this information was triangulated in Gosplan. However, the result was national out put seem to be under produced. Therefore, Soviet consumers were very dependent to black market that could provide the goods that they need with adequate portion and prices.

Table 1. Comparison between US and USSR economies in 1987 US GDP (millions$) Populations (thousands) GDP Per Capita ($) Employment (thousands) Annual Hours per Person Engaged GDP Per Man Hour ($) Sources: Maddison (1998) From the table above shows that in 1987 the USSR Gross domestic bruto was 38.6 % from the US. Moreover the GDP Per-capita of the USSR was one-third from the US. Which mean the USSR economy was left behind the US. In order to catch up the US Economy and to fix the economy weaknesses, Gorbachev tried to formulate an economic reform to generate better economy. However, by 1990 the Soviet administration cannot control their budget and result in overhaul economic. This was because the government spending to run reformation increased such as to re-stabilize government enterprises that never get appropriate profit. Moreover the government 5,093,396 244,942 20,880 114,697 1,608 27.62 USSR 1,965,457 283,100 6,943 138,121 1,700 8.37

earning from tax plumbed. This was because one of national income resources, which were alcohol tax, halted by anti alcohol champagne. Tax from alcohol was 12 percent of national revenue (Brown, 1996; p 142). There are two responses that Gorbachev receives regarding his effort to up grades the Soviet Union Socialist economy concept by mixing with the market mechanism. Firstly Gorbachev was adored by the western societies because he would like to promote the western style of live by promoting Glasnost and perestroika whereas in domestic arena he became deeply unpopular (Brown, 1998; xi). This judgment cannot be blamed because in that time when he in power, he tried to develop discipline for the proletarian class and had much restriction in work world in order to increase national total productivity by reducing dependencies in alcohol (Winston, 1991; 3). Gorbachev tried to accelerate in enhance productivity in order to catch up with the others countries. He wracked down the centralistic mechanism in planning that was produced similar development programs in each state, which in each state have difference characteristics and potencies. As a result, this system just gives advantages to central bureaucracy to control the programs. Additionally, the centralistic planning also produces cliptocracy mechanism, which each states of bureaucracy expected levy for support their programs. Therefore Gorbachev stride restructured the Kremlin by giving more outonomy for each state to produce own development planning even tough still have to following the main pattern from Gosplan (the State Planning Commission). Likewise, the spirit for providing an equal development in whole Russia is essentials issue. It is cannot be denied that Russia is the largest country in the words with huge natural potencies and natural difficulties. With 17,075,400 square kilometers, covering more than an eighth of the Earths land area. However the centre for development was just in the certain part such as surround Moscow in the west of Soviet, whereas the other part such as Tyumen in West Siberian, relatively still left behind. In addition Soviet Union was a country, which has lack of proper soil and climate for agriculture. Some region is too dry for crops or too cold. Because of that mostly the area that was developed well just the west area, which has close distance to other European countries and have potencies to develop.

The Soviet position in global words was disrupted beside by the domestic situation but also by the integration between West German and East German in 1989 that was marked by smashed down the berlin wall. Moreover the result from this unification was the East Germany administration was integrated totally to the West German style by implementing democracy and free market and restores capitalism. As a result, they achieve better economy condition (Reid, 2005). Beside that the dominance of socialist tough in east European was declined rapidly. Yugoslavia was divided in to separated countries, Poland, Rumania and others East Europe countries changed their economy model from centralistic economy to open market economy. Moreover, Gorbachev recognized that beside Soviet Union experience malaises also suffering from the negative of central planning administration (Goldman, 1988). He began to change the centralistic planning in Soviet Union and transfer the mechanism by giving autonomy in each Republic, Oblash and Kray that under Soviet Union administration. Therefore Gorbachev introduced three-reformation system Perestroika, Glasnot and Democratization not only in order to be able to compete with the United States and the West in the bi-polar world, but the most important thing is to survive as honored nation in the 21st Century.

PERESTROIKA Perestroika was a reform program from Gorbachev administration in order to response of the soviet social changing that was caused by the fall of centralistic economy system. What is more this reform had objectives to catch up with other countries especially western european countries and the united state. This reform program was initiated in 1985 and amended in 1987 and 1989 significantly (Maltsev, 1990). Three sectors of perestroika such as restructuring bureaucracy, military reform and agriculture reform will be described more detail. According to Martin (1990; 3) there were three working area of perestroika. Firstly is that to redesign the command economy system in order to make this economy system more

efficient. Secondly is to strengthen the socialist political system. The last dimension of perestroika is by giving more autonomy to each state. In order to create efficiencies in command economy system, Gorbachev tried to reduce long bureaucracy in central administration as main concern. He tried to make simple but still use the role of Gosplan, the state planning organization, and the ministries . To provide simple bureaucracy Gorbachev uses his authority by transferring economic planning to the outside edge. Martin (1990) point out two key documents that have been changed the Soviet by mixing centralistic and market mechanism. The first key is the occurring of the law of the enterprise of July 1987 and the second key is the occurring of the law on the Cooperatives of May 1988. These laws reduce the role central planning in Government enterprises. Gorbachev gave autonomy to the managers and encourages them to earn some profit. Therefore those Laws implemented decentralized decisionmaking in order to manage the prices for raw materials, labor and final goods. This mechanism tried to manage the prices based in the market demand. What is more, these enterprises were forced to learn how to reduce costs. If they get loss, they can no longer dependent in subsidies from the state budget. Those enterprises that operate in the unprofitable condition in certain times, will be declared bankrupt and closed down The effecting of this restructuring was dispensed to the state committee o f the USSR on labor and social affair. While the income differential was caused by rationalizing the number of managerial staff, does not have positive relation to reducing managerial staff (Maltsev, 1990). Perestroika was affected not only in bureaucracy but also in the Soviet Armed Forces and the military industrial complex. According to Joris Jozef Elisabeth Van Bladel (2004, 72-73) Gorbachev used two traditional approaches to reforms the military. Firstly, by using propaganda Gorbachev tried to enforce of ideological indoctrination. Secondly in order to anticipate rejection from who is still resisted change, Gorbachev used a method of personnel and administrative purges. In brief, he tried to convince, coerce, manipulate and build coalitions among political and military elites. (Joris Jozef Elisabeth Van Bladel,

2004: p). One result from the military reform was The Soviet Pull out their army from Afganistan. Beside governmental administration and military had been affected by Perestroika, agriculture sector was affected as well. First of all, Gorbachev demoralized the peasantry that has had such a devastating effect on agriculture production. Secondly, Gorbachev strengthened the central planning in agriculture by establishing a new state ministry for Agriculture and industry (Martin, 1990; 6). This ministry had authority to formulated new regulation through agriculture activities such as giving opportunity to individual members of the cooperative to diversify their crops. Moreover, this reformation also gave more autonomy to cooperate to buy equipment and sell their produce relatively freely (Brown, 1996; 142). The significant change was when Gorbachev administration gave authority to have contract leasing between groups of farmers and their parent state farm (collective farm) (Brown, 1996; 144). It cannot be denied that these policy were big innovation, however these policies just make the harvest failed. This is because Soviet farmers not ready to change their daily activity. They used to cultivate certain crop that was ordered by the government then suddenly they have to manage their field with their own crops and they have to sell it by their selves. This policy could be success if the Gorbachev administration implemented the policies stages by stages until the farmer ready to cope with this new mechanism. Another concern was providing incentives to factory managers as well as peasants and farm manager, However Gorbachev cut the subsidies around $110 billions annual subsidy on costumer goods and it result in necessitate a twenty to thirty fold increase in housing cost and almost a threefold increase in meat. As affect that the meat price never change from 1962 (Goldman, 1988). Reducing Subsidies had double swords effects. On one side it could help government to reduce their spending but on the other side it make all prices rocketing. Moreover, if government cannot control the rocketing prices, economy will experience high inflation. Moreover, According to Maltsev (1990) estimation the rubles note that was issued was not supported by an adequate growth in production of goods that reached around 20

billion rubels in 1989. Further an adequate growth cannot support the devaluation of the rubel from around $ 1.60 to $0.16 in September 1989.As a result from these phenomena was high demand for consumptions was not supported adequate supply that result in high inflation. The Challenge of Perestroika There were at least three challenges in implementing perestroika. Firstly, the resistances from elite communist party member especially with politburo, the majority of politburo was not prepared to cope with Gorbachevs commitment to oppose corruption in the upper echelons at the socialist system (Winston, 1991; 4). The example of resistance for Gorbachev reformations was when the military tried to coup Gorbachev administration in August 1991. Luckily in that time Boris Yetlsin backup for Gorbachev programs. Secondly, Conflict between the central Authorities and the dominance state. Russia as dominant state tried to control the federal government and when Boris Yeltsin had been elected and he forbid the communist party activity in Russia territory make the federal administration had been amputated (Brown, 1996; 150). And the third challenge was incomplete supporting system. For example the agriculture program which gave opportunity to farmers to have their own land. However, this program was not accusable by farmers because just the mafia, corrupt official and foreigner who could buy the land (brown, 1996; 145)

GLASTNOST The word Glasnost was mentioned by Andropov and then defined clearly by Gorbachev in the eulogy at Chernenkos funeral which means as symbol of free speech and this concept was strengthen after the poor designed reactor at Chernobyl power plan was exploded (Winston, 1991; 6) In the 1980 when China showed the significant achievement both in economy or politic that pursued Soviet position. Democratization or openness was ones strategy in keeping soviet dominances in socialist world.

Martin (1990) point out, there were two main aspects in implementing Glasnost. The first aspect was implementing partial open election, which means that Soviet changed their composition in Congress. The election which was held in 26 March and 14 may 1989 was result in two third of the congress member was allocated from various social organization which was elected by population. These new congress members perform the lower chamber of bicameral legislature and it was elected from among the members. Moreover this congress have power to appoint the chairman of Soviet Union and this resulted in reappointing Gorbachev as chairman at the end of may 1989 (Martin, 1990; 9). The significant change was when fifteen republics held local and regional election following the May national election in between December 1989 and June 1990. The result from the series of local and regional election was gained power in some nonRussian republic mostly was the Baltics and gained influential position each other. Which the result from these election some Gorbachev opposition was strengthen their position especially with the election of Boris Yeltsin as president of Russia Federation and Gayriil Popovs election as chairman of the Moscow city council (Martin, 1990; 10) The second aspect was the paradoxical between the centralistic in controlling economic reform and the decentralization as product from political reform. However the most crucial issue was the accumulation of power in the hand of executive president that have power to appoint and remove the prime minister and other senior government official and other essential right such as to propose legislation and to vote laws passed by the Congress. Slowly but surely the presidential council that was consists of senior minister replacing the CPSU Politburo as the Soviet Unions chief policymaking body (Martin, 1990; 10). In the late 1980s, the republics constituent of the Soviet Union started legal moves towards or even declaration of sovereignty over their territories, citing Article 72 of the USSR Constitution, which stated that any constituent republic was free to disaffiliate (Crozier, 1990). On April 7, 1990 a law was passed, that a republic could secede, if more than two thirds of that republic's residents vote for it on a referendum. Many held their first free elections in the Soviet era for their own national legislatures in 1990. The Challenge of Glastnot

The media freedom that never been got from previous administration make the grass root condition such as the food shortage and the declining living standard become political commodity to attach Gorbachev reformation. Gorbachev tactic was underlining political reform to compensate for stalled economic reform has not worked (Martin, 1990; 11). As result after the regional and local election, which creates new administration in each republic, make the dominant republic such as Russia Federation to control Kremlin. Moreover, Local administrators blame the Gorbachev reform in control economy fluctuation. This condition was supported by the new USSR constitution that gave opportunity to each republic to separate if reach certain condition (Crozier, 1990). A result Soviet Union was separated in to 15 independent republics in the end of 1991. THE TRANSITION GORBACHEV TO BORIS YELTSIN The shifting process from USSR to Russia Federation was in November 1991. 1991 was the crucial years for Russia. In that year when the old regimes failed coup attempt against the reformations group which marked as the Yeltsin-dominate parliament. Moreover there was a still big push to reserve Gorbachev minor democratic reform to return to a centralistic and totalitarian stated. However this political pressure was eliminated with the mass of workers, even though they still suspicious of Yeltsin (Socialist web site). Yeltsin forbid and deactivate the communist party after he was elected as Prime minister who has authority conferred decree and then followed by Gorbachevs resignt in December 1991. After that in Kremlin administration has change.Yeltsin tries to keep the Russia dominance in global world by reorganizes all former Soviet Union in one confederation (Reid, 2005). The Power Shifting from Soviet Union to Russia Federation can be seen as the second Russia revolution after the Bolshevik revolution. A revolution that cracked down the tyrannical administration, which this administration had have been in power since 1917. This transition process through democratization community with free market mecahnisme is chosen for replaced the centralistic collectivism system that applied in

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Gosplan (State planning body) since 1921 more over the Gosplan activities was believed make the economy stagnant and destroy the USSR slowly but surely. Marshall Goldman, an Russia expertise from US, analyst that the reformation in Russia was to fast, was compel, and there were many manipulation in governmental finance (cliptocracy) that make the democracy that has been build does not have strong foundation. Moreover, these weaknesses have effect in oligarchy system. As result the central government in politburo cannot prevent the vanishing process from the dominant state through the democratization that was given by the Union administration. The mistake of Yetlsin Some expert mentions that the biggest mistake that Boris Yetlsin made was when he prepares Vladimir Putin as his ancestor. Whereas the others mention that Putin is the right person this is because Putin could develop strong leadership that is need in transition era. Yeltsin as leader with a huge mandate saw that the one solution for this cliptocrazy was reformation therefore even though Gorbachev was not in power he continue his idea with the Russia federation. He was a brave leader who could break tyrannical administration that was crated by Stalin since 1917. He gave the new generation more opportunity to get more freedom, freedom from fear and freedom to expres. However this system that is adopted by recent Russia administration still not provides freedom from hunger and freedom from poverty. Figure 1.Lorenz Curves and Gini Indexes Comparison Brazil (1989), Russia (1993) and Hungary (1993)

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Sources: http://www.worldbank.org/depweb/beyond/wren/wnrbw_all.pdf The Loren Curve above shows that Russia wealth gap is quite moderate compare to Brazil But worse compare tu Hungary. In Russia the first 20 % richest of population controlled 53.8 % of total national income. The second 20% richest people controlled 20.4 % of total national income. Whereas the 20 % poorest people just controlled 3.7 % from total Income. Despite from pro and contra about Russia, since 2001 World Bank reported that Russia not only reaches significant economic growth but also this country could reduce the poverty rate. Which in November 2007 had estimated Unemployment rate at 5.9% Moreover Russia had 15.8% of their population was in below poverty line. Which mean in Russia there were around 22.337.685 people live in adequate economy condition: 15.8% (The Word Fact Book, 2008). Russia income is dependent in Oil and gas production that these sectors contributed around 30% from all Russia Income (The Word Fact Book, 2008). Oil export earnings have allowed Russia to increase its foreign reserves from $12 billion in 1999 to some $470 billion at yearend 2007, the third largest reserves in the world (The Word Fact Book, 2008). Russia experience 8, 1 % economic growth in 2007 and more specifically Russia income increase by 10.4% from previous year. (Kholmogorova, 2008). However Russia still has to be conscious with the inflation which in 2007 they experience 12 % of

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inflation. In other hand Russia has significant foreign direct investment from $14.6 billion in 2005 to approximately $45 billion in 2007. Overall In 2007, Russia's GDP grew 7.6%, this growth had generated by non-tradable services and goods for the domestic market, as opposed to oil or mineral extraction and exports (The Word Fact Book, 2008). The Future Of Russia I analyses that there are many factors that are supported or became obstacle for Russia to have significant position in global world as superpower country. The Barriers: Disintegration is the biggest barrier that is faced by Russia federation. Russia as the largest and the biggest state in USSR has many ethnic and culture, if the administration cannot integrate the differences among societies it will potential danger. The shifting administration from RSFSR (Russian Soviet Federative Socialist Republic ) as a part from USSR to Russia federation has their own problem such as political pressure from the former members of KGB, who tries to return back the centralistic style in administration. Moreover, Separatism with religion issue become trend, unfair position among ethnic could make it worse. Chechnya was an example for religious separatism and rebellion. The relation Russia among the countries ex USSR state is not binding compare to when they in USSR. Mostly these countries join in CIS except Balkans countries and the state in central Asia such as Kyrgyzstan. Basically they are having different ethnicity and religion (Azizian, 2006:135). Moreover the have own thinking that they will more have prosperity if they independent from Russia. Each country has own potencies and would like to maximize for each countries objectives. This potency was inheritage from former Soviet Union. The Soviet Union inherited a lot of technology, infrastructure, and other potencies that will be maximum use if they reunited as one nation. Therefore CIS was founded. CIS is consisting of eleven former Soviet Republics: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Ukraine, and Uzbekistan

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Even though the spirit to return bank the soviet dominance in word is on every country ex Soviet but there are many obstacles among them such as there is no dominant power that could coordinate them. That way most of them still implement the old style administration. Indeed Russia has implemented open market and liberalism however the Russia citizen is not full understood what is going on. They though that even they implement democracy they still cannot catch up with global economy. Realize that this changing not bring advantage for Russia therefore Vladimir Putin who replace Boris Yeltsin tried to centralize the administration. He tries making Kremlin powerful again. This policy was supported by all exp USSR officials. The military technology was left behind especially if compare to US technology. Even Russia has potencies and has this technology but they cannot develop in further stages because they have economy difficulties. The most correct example is the Russia Navy. The Russia Navy just has one carrier plane ship. Moreover, after accident of Kursk submarine in Barents Sea at 2000 the government evaluates the using of Submarine, especially that have nuclear power engine. Russia still has Nuclear weapon and also the other ex Soviet Union such as Ukraina and Kazakhstan. Soviet have space launcher station (kosmodrom) in Baikonur, however kosmodrom in Kazakstan territory which has the higher criminal rate in the ex soviet countries. That is why Russia has to replace this space launcher station for space science or even tough for military. Supporting factors: With the natural resources that Russia has this country could develop their economy. Moreover Russia was inheritance factor production from former Soviet Union if they could maintenance they could start to merchant with other nation such as with the Middle East countries. The market mechanism cannot be denied therefore in order to compete with open market Russia must reforms all sectors from agriculture such as maintaining the irrigation system, especially in Russia regulation and administration services in order to attract the foreign business to invest. Even tough Russia military technology recently is left behind the US but the Russian goods still have potencies because of two reason. Firstly is that mostly Russian

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offer cheaper price comparing to the US military technology. The second reason is that Russia never involve in domestic affairs of a country that would like to buy weapon from Russia. It is different with the US, US administration always relate the weapon purchasing to domestic human right or democratization. For example, When Indonesia would like to Up Grade their military weapon (Alutsia) and Indonesia administration would like to buy from The US, The US administration always have reason to reject or make it hard to fulfill such as make relation to Human right in east Timor or other region. Whereas when Indonesia tried to purchase from Russia such as to buy Succoi they give intensive such as free training for the Indonesia operators and the maintenances.

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Bibliography Avtonomov, V.S. Et.All. 1999. The World and Russia Materials for Reflection and Discussion. St. Petersburg: World Bank Institute. From the Word bank Web site : http://www.worldbank.org/depweb/beyond/wren/wnrbw_all.pdf ( accesed March 15, 2008) Azizian, R. 2006. Russia, America and New Conflict in Central Asia in Patman, R.G, Eds. Globalization and Conflict, National Security in a New Strategic Era. New York: Routledge, p.135-167. Brown. A. 1996.The Gorbachev Factor. New York; Oxford University Press. Brown. A. 2006. The Gorbachev Era. In The Cambridge History of Russia Volume III. Ed. Suny, RG. Cambridge: Cambridge University Press. Crozier, B. 1990. The red blues - Soviet politics. From: (http://findarticles.com/p/articles/mi_m1282/is_n12_v42/ai_9119705/print). (Accessed February 25, 2008). Goldman,M. 1988a. Gorbachev and Economic reform in the Soviet Union. Eastern Economic Journal. Vol. XIV, No4. October-December; pp.331-335. From http://college.holycross.edu/eej/Volume14/V14N4P331_335.pdf ( Accesed February 14, 2008) Goldman, M. 1988b. Gorbachev and perestroika. From the website of the Western New England College: http://mars.wnec.edu/~grempel/courses/wc2/lectures/gorrev.html)(Accesed February 25, 2008) Kholmogorova, V. 2008. Five Hours with the President from http: //eng.expert.ru/articles/2008/02/14/putin/%20Five%20Hours%20with %20the%20President/. (Accessed February 28, 2008). Maddison, A .1998. Measuring the Performance of a Communist Command Economy: An
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Maltsev, Y.N. 1990. Soviet Economy Reforms: an Inside Perspective. The Freeman: Idea on Liberty. Volume. 40 No. 3 March. The web site of The Foundation for Economic Education: http://www.fee.org/publications/thefreeman/article.asp?aid=5629&print_view=true (accessed February 16, 2008). Martin, B.G. 1990. The Soviet Union at the Crossroads: Gorbachevs Reform Program. From the Parliament of Australian web site: http://www.aph.gov.au/library/pubs/BP/1990/90bp20.pdf (Accessed February 18, 2008) Reid, D. 2005. How Gorbachev failed to save the Soviet Union. The web site of the committee for a workers International: http://socialistworld.net/eng/2005/05/01history.html (accessed February 25, 2008). The Word Fact Book. 2008. The web site of the Central Intelligence Agency: https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html (accessed February 25, 2008). Winston, V.H 1991. The Early Years of the Gorbachev Era: an Introduction in Hewet, E.A, Winston, and V.H. Eds.Milestone in Glasnots and Perestroika. Brooking Institutions Press. Van Bladel, Joris Jozef Elisabeth . 2004. The all-Volunteer Force in the
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