The purpose of the course is to bring the basic knowledge on the specific aspects of Russian economy that had significant impact on the latest development trends in Russia. This course will provide you with knowledge on: 1) the basics of economy; 2) understanding the role of market reforms in developing the key features of modern Russian economy; 3) understanding specific aspects of Russian economy; 4) cause-effect relationship of the most significant trends in Russia’s economic development; 5) instruments for analysis of Russian economy; 6) business climate in Russia and skills required for doing business in Russia. Currently, different aspects of economy have some influence on us and our behavior - e.g. currency exchange rates, inflation and other things define the way in which we distribute our income between savings and investments. In order to understand these principles it is required to have the basic knowledge on economics. So it is not only a lecture on Russian economy. Another main objective of the course is to develop knowledge on the basics of economy as such. So the course will disclose universal patterns by analyzing trends in Russian economy. FAQ: Q: What is targeted audience for this course? What are the course prerequisites? A: The course is mainly developed for students pursuing their master’s degree in the field of international economy and for those who have professional interest in Russian economy. It requires basic knowledge of economic terms. Q: What are the minimum requirements to pass the course? A: In order to pass the course and receive a Course Certificate you will need to have at least 80% of correct answers in each quiz. Welcome to the course “Understanding Russian Economy. Problems of Transition”!
Price liberalization. Shock therapy
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來自 National Research University Higher School of Economics 的課程
Understanding Russian Economy. Problems of Transition
162 個評分
National Research University Higher School of Economics
162 個評分
從本節課中
Pillars of market reforms
Welcome to the Week 3! Today we continue to analyze initial measures within market reforms in Russia. The module will cover several topics like price liberalization including radical reform widely known as ‘’shock therapy’’ and real estate privatization. Then we will proceed to major controversies and paradoxes of transition. This module provides discussion on the ‘’New Russians’’.
與講師見面
Vladimir ZuevProfessor
Department of Trade Policy
[NOISE]
Today we continue to make the analysis of
initial steps of reforms of market reforms in Russia and
the first point we will deal with will be price liberalization.
In order to create market environment In Russia,
it was not only enough to privatized assets,
state home assets but price liberalization should be
also dealt with because as I have already reminded to you,
prices have been regulated by the state.
They were all fixed by the state, predetermined by the state,
and no deviation from the fixed price of the state could be possible.
And whatever shop you visit, you could have similar items,
similar goods at similar prices.
So no variety of prices throughout the space of Soviet Union Territory.
So, in order to proceed further with market reforms,
one has to prices.
A few words about the concept.
As usual thinking about the liberalization of prices
two major options were considered.
Gradual liberalization or fast and
the immediate liberalization of prices.
Two major options existed and
were considered by reformers.
Well if I would be a reformer.
Then my logic rather inclines in favor of gradual change
while definitely in such a serious matter as price liberalization.
Everybody has to adapt to new realities.
Everybody has to adapt its budget for new prices.
People have to
calculate their budgets in order to be ready for price liberalization.
Industries and enterprises had to take into account
the dynamics, the future dynamics or possible dynamics of prices so.
My vision and my logic normally supports,
gradual price liberalization step-by-step I would say.
To a certain extent, and then you could adapt policies
in a more rational way to what is happening, with the price liberalization.
Well, but that was not the case, all Russian reforms and
the reformers opted for a fast and rapid change,
rapid liberalization of prices for the majority of goods.
Here you can see the starting point since January 2nd of the year 1992, prices
for most of the products and services were liberalized.
You can see here, the figures that something like 80%
of wholesale prices and
around 90% of retail prices
at that time were let free to fluctuate.
Prices for some products, especially most sensitive products like medical products.
Like milk or bread, transportation, prices for
some products still were regulated by the state.
But as you can see, that considered only 10% to
20% of prices which are remains partially regulated.
But even those prices that were regulated, they we're in constant increase.
Okay, you can see the figure but they increase prices that had
been regulated was to the amount of three to five times.
They have been an increase by three to five times which is
an incredible rise in prices.
So if regulated prices were in such a fast race,
and fast increase, what about the rest of the prices.
We will learn about that in a minute.
Since March of the year 92, so same year,
similar year, practically all consumer goods
prices were let to fluctuate free, and they went crazy.
I remember that time.
Prices really went crazy and people were shocked.
Each day you go to a shop and you see some item,
I don't know a sausage, today it could be priced 10 kopecks.
Next day 15 copies the other day 20 copies then one rubble then ten rubbles and
there was no limit to price fluctuation so all the required products,
all products which were produced not in substantial quantities to meet.
The demand of the people, they were really in a crazy increase.
You can see here the figures are beyond belief.
The 92 price increase in the Russian Federation
in comparison to the year in 91 was 2500% for many items.
But just imagine if you look at an average increase for
all the items for just one year, not in comparison to 91,
but only within one year, within the year 92,
price increase was something wide by 100 to 150 times
depending on the goods and services just
imagine 100 times more a price and that was really a shock for the people.
People started to make reserves so
to say they started to buy certain goods they would need
in advance ahead of their ahead of their needs.
So they started to buy rice, for example.
Not just one package, but let's say 10 or 20 packages, to stock them
somewhere in their houses or apartments.
Just to be sure that they would not starve to death eventually,
in a week or a month, that they would have something to eat for
prices they could afford at the time they bought some products.
That created even a worse situation because
there was a lack of many goods anyway, but when people
rushed into the shops to buy the necessary goods,
so there were big queues and prices went crazy
and you can compare the salary rise.
Salaries also rose during that time but it was only 10 to 15 times rise.
So incomparable to the rise of prices for product and services.
So that was really a shock to the people, to the majority of people.
That period of time they call, well economists call, it a shock therapy.
Was it a mistake, to choose that kind of option to liberalize prices?
Again, a rhetoric question.
Reform was wanted to make migratory forms faster in a faster way.
And they decided that the market would determine
the level of prices itself and then levels of production and
consumption could be more or less balanced by the market itself.
With such an instrument as prices because, well, definitely
prices at the time of the Soviet Union had no correlation with realities.
They were fixed by some imaginary concepts and
they did not represent any kind of realities.
They did not reflect the number of goods produced, costs of
production, level of consumption, demand, and things like that.
So probably that was a reason, one of the reasons why
they wanted to let the market to determine right from the start
good proportions between production and demand.
So, again a rhetoric question but I would like
to advance some more arguments in favor,
or against that kind of logic.
As a result of this fast liberalization of prices a lot of people made fortunes.
Some of the people, the majority of the people struggled to survive as I have
described it because they were really short, they were really,
they didn't know what to do with all of those crazy prices and
they could not afford many products for the every day life.
So, for them, that was really a very hard period in their lifetime.
And that, as a result, as a result, some people,
a small layer of people, started to be very rich.
While the majority, the vast majority started to be relatively poor
you can see here one of the figures which reflects the transition
patterns of that time as a result of this kind of transition.
45% of total incomes in Russia
went to the top small layer of people the top reach and
the discrepancies between
very rich and the top rich the bottom poor
is the highest in Russia among all the OECD countries.
You can see here the figures, that the spread between the top 20% most
reached and the bottom 20% less paid in
Russian figurations is the highest in all the developed economies,
so that's a reflection of hard realities of the time that where
some people struggle to survive and others made their fortunes.
One more important thing to understand which had both
positive and negative impact on the development of national economy.
So remember that the vast majority of state
owned enterprises had been privatized.
So the new owners of the new enterprises were supposed
to start structural reforms because one of the major goals
of reforms was to increase productivity, increase competitiveness,
restructure major industries and make structural reforms in general.
So now imagine that you become a new owner of a new enterprise.
You get the, 51% stake in a certain enterprise.
And you come to control, all together with a other group of people,
you come to control a certain enterprise.
Now before starting any investment into this enterprise,
you start planning your production schemes.
And then all of a sudden comes a period of the shock therapy and
all the prices are liberalized.
And they go up.
In a crazy way.
What are you going to do with your enterprise?
You just sit.
Just do nothing and you can sell whatever products your enterprise is producing.
And whatever quality are your products, you can easily sell them
at prices which each day become all the more higher.
So, new owners felt comfortable.
They got extremely high incomes,
extremely high benefits, from the sales of the products.
There, enterprises continue to produce.
But on the other hand that produced a very negative impact on the,
first on the initial stage of the Russian equality in transition.
Because there was really no motivation for
the new owners to restructure their enterprises, to buy new machinery,
to upgrade the quality
of their products in order to compete with other products and other producers.
Because there was a lack of everything, prices went crazy so
there was nobody compete with.
Producers enjoyed higher profits and
that led to another very negative if effect in the Russian economy
conservation of inefficient management for a long time.
So instead of starting to apply efficient management techniques to increase your
productivity and the quality of production and competitiveness of your product.
You didn't have to do that at that time because of the short therapy and
because of the situation on the market.
So that turned out to be very negative consequence for
right from the start and the starting point of the reforms which could be felt.
Yet until present times, because those bad habits of doing nothing and
enjoying high profit had the deep roots in the Russian
mentality of the Russian business community.
So, it's one important point to understand which will be
important to apply to modern trends in the Russian Economy and
in general the sub-conclusion of this slide would be that for
many people, this kind of experience was really a shock without a therapy.
Because they were not really cured.
So [SOUND].
[MUSIC]
