The Modern Economy of Russia

[Music] this is Russia the largest country on earth by pure landmass the country is the center of many controversies that have today made it a bit of a blue man in the international community it is an enormous military power with the largest nuclear arsenal in the world even beating out the United States which comes as a hangover from the time when the nation was the centerpiece of the Soviet Union but we are not here to look at Russian military assets or speculate about the wild conspiracies that Vladimir Putin is inevitably plotting in the Kremlin as we speak we are not even here to look at the Soviet Union that one deserves a video all the time no we are here to explore modern-day Russia which is an economy that is really just not that impressive Russia is hugely powerful by virtue of its military and political influence but its economy is really nothing to be that proud of its current gdp of around 1.7 trillion US dollars is certainly nothing to be ignored but it puts it in line with countries like Canada or Brazil but it does not put it in line with the real world powers like China or the USA which it is normally compared to this is both curious and unsurprising all at the same time surprising in the sense that Russia was another economy that made the transition from a communist nation to an open and free market economy which normally brought about huge boosts and productivity and output also just by virtue of its gigantic size it is home to the largest wealth of natural resources in the world between oil gas precious and non precious metals it is also kind of unsurprising because we have spoken endlessly on this channel about how instability can cause even the most resource rich countries in the world to suffer terrible economic conditions and Russia is certainly a country plagued by instability and corruption following the collapse of the Soviet Union Russia underwent a radical transformation moving from a centrally planned Soviet economy to an open global market economy this transition was not smooth in the case of countries like China for example the transition from a centrally planned to a market economy was far more gradual and even today China is technically a communist country that has just incorporated itself into the free markets Russia on the other hand basically went to bed one night with soup lines and workers quotas and woke up the next day with Starbucks and stock markets of course this is a bit of an overstatement but it's not too far from the truth the man overseeing all this was Boris Yeltsin the first president of the Russian Federation after taking over from Mikhail Gorbachev the last president of the Soviet Union Boris Yeltsin's plan of radical market reform became known as shock therapy for the transitioning economy and was based of a set of policies outlined in the Washington Consensus the Washington Consensus is kind of like an instruction manual of how to get a terrible economy working again the reason it is called the Washington Consensus is because it was well a consensus of the right set of prescription to agreed upon by major institutions based in Washington DC most notably the International Monetary Fund the World Bank and the US Treasury Department now the prescriptions were as follows fiscal policy discipline eg stop the government buying everything and just giving it away redirection of public spending from subsidies especially indiscriminate subsidies and more towards pro-growth and pro-poor services like primary education primary health care and infrastructure investment which is basically saying stop giving away money to everyone and just give it to people or policies that need it tax reform broadening the tax base and adopting moderate marginal tax rates interest rates that a market determined and positive but moderate in real terms competitive exchange rates what this means is that your local currencies value must be determined by the foreign exchange market and stop trying to control it yourself trade liberalisation especially the liberalisation of imports with particular emphasis on eliminating any quantitative restrictions now most economies in the world today have tariffs on imports and this is okay but they are very much against limiting imports based on quotas liberalization of foreign inward direct investment eg let multinational corporations invest in your nation and set up infrastructure do you regulation abolishment of regulations that impede market entry or restrict competition except for those justified on safety so you can build a factory without endless bureaucratic red tape but you can't practice as a doctor for example legal security for property rights this is a big one and it means that if you purchase something you own it and it is your property and for the most part not even the state can take it away from you and finally the privatization of state enterprise these were prescriptions that the Washington agreement decided was ideal for a sick economy Yeltsin sort of took these prescriptions and overdosed on them particularly in relation to that last point the privatization of state enterprise everything went up for sale from electricity grids to ports and mines to healthcare schools airports and telecommunications the Soviet Union controlled every facet of Industry of the state now it was all been dished out to private shareholders who were these shareholders well supporters of Yeltsin of course this all gets very political and Russia after the fall of the Soviet Union was literally Game of Thrones but from an economic perspective the Washington agreement wanted free markets and private industry what Russia got was monopolized markets and oligarchs run industries by virtue of being open to foreign trade and adopting private enterprise on smaller scales eg small shops and the like the Russian economy did grow but it was still hampered dramatically by a dozen or so billionaires that got given the keys to the kingdom and worked tirelessly to extract resources from it international trade was great it meant Russia could trade goods and take advantage of its local industries comparative advantage but it was even better for the new Russian billionaires who could export their oil and natural resources to the new world market and line their pockets open markets were good it meant Russian citizens could be rewarded for their productivity and that they internal motivation to educate oneself or develop skills or simply even work harder but again it was even better for the Russian billionaire class a four hundred million dollar super yacht would have been a bit on the nose in the Soviet Union but in modern Russia who cares it's perfectly legal and even encouraged all of these issues have been compounded throughout history of the Russian Federation which has today made it one of the most economically unequal countries on the planet inequality in a nation is typically measured using wealth inequality meaning we compare how much people own this is different from income inequality which is comparing how much people earn which is often not the greatest indication of true wealth because extremely wealthy individuals tend not to make most of their money from regular income and instead make it from the appreciation of assets that they own income inequality sometimes also fails to capture the intentional underreporting of income by individuals to avoid taxes and the like now with that out of the way the actual figures stated is the Gini coefficient which is a scale of 0 to 100 with zero being perfect equality everyone in the country has exactly the same amount of wealth and 100 which would mean one single individual has all the wealth in the nation and every single other person has nothing of course every country on Earth exists somewhere between these two extremes Russia's actual Gini coefficient as measured by the World Bank is sixty nine point nine which is about average it's not great but it's similar to other developed nations like let's say the United Kingdom and also significantly better on paper than the United States but a big consideration here is that these are reported figures an in-depth study by Credit Suisse a multinational Finance Corporation that does a lot of work in the region reported that Russia is the most unequal major country on earth without equal the thing here is that the World Bank's Gini figures are measured by the distribution of wealth in a country now because Russia has been shown to be quite politically unstable and personal wealth within the country relies heavily on the favor you have with the political leaders the first thing Russian billionaires want to do with their money is get it out of there a paper written by Russian finance professors no the amount of money that wealthy Russians have in offshore havens is equal to the wealth of all households in Russia and this is just the wealth that they could trace what this means is that Russians and more specifically a few dozen Russians have more wealth locked away overseas than Russia has within its borders now I'm not going to get into an argument of if inequality is good or bad but what can be noted is that all of that money sitting in tax havens or poor authorities or in priceless works of art is money that is not being invested back into Russia a big thank you to all of our patrons on patreon your support will continue to make these videos possible so a big thank you to you guys otherwise I hope you enjoy the latest video guys if you did please consider liking and subscribing and jumping onto our discord server to discuss this video or anything else you would like to do with economics thanks guys bye you

Channel: Economics Explained

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Keywords: the economy of modern day russia, the economics of modern day russia, the economy of modern day russia explained, the economics of modern day russia explained, modern day russia economics explained, economics explained modern day russia, modern day russia economy explained, modern day russia economy, modern day russia economy economics explained, economics, modern day russia economics, how modern day russia economy works, economics explained

Id: 6wBvG533K8A

Length: 10min 2sec (602 seconds)

Published: Sun Dec 15 2019