Developing Economy in Russian Federation after World War II

Introduction

Following World War II, many of the countries that took part in the war had to rebuild their countryside and public spirit. Unlike other countries who had already established economies, Russia had to rebuild their financial system and carry out reforms as well. Whereas majority of the countries involved in the war were already industrialized, Russia was still in the process of setting up its economic foundations when the war started.

The industrialization process that had been began by Stalin a decade before the war broke out moved at full speed after the war ended. While most countries that had taken part in the war were struggling to recover from its effects, the Russian industry flourished and attained new levels. This growth was however short-lived.

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By the time of Stalin’s demise, the Russian economy was heavily strained by industry investments, huge military formation, and reduced agricultural output. For this reason, Russia like most other countries within the Soviet Union was unable to attain a balance between manufacturing and agriculture (Blackwell 16). This essay traces the development of the Russian economy after World War II to its current state.

Economic Situation during the War

The story of Russia’s post war years is just as significant as the account of the war itself. Russia came to victory in 1945 only after first coming close to defeat. During the war, close to 25 million people had lost their lives and this left the war survivors extremely weary.

Despite this fact, the Russian economy and political alignment quickly returned to its previous form. Just like before the war, there was increased political and economic mobilization. Economic resilience was revealed in quick Russian postwar economic recovery. Although a large section of Russia was adversely affected by the war, the destruction did not match that which was witnessed in other countries that were participating in the war.

It was in these countries that the countryside became battlegrounds for the entire period of the war. While the western and northern parts of Russia were adversely affected by the war, the eastern and southern parts continued to experience exponential economic growth (Murphy et al 563).

Indeed, the German invasion led to the conversion and relocation of Russian industries. As German troops kept on advancing, the Russians dismantled and relocated entire sections of industries to areas that were not affected by the war. Railroad cargo vehicles carried tools and laborers to the Urals, Siberia, and other parts of Central Asia. By the time the war was ending in 1945, the areas where the industries had been relocated to had become leaders in production in the whole region.

According to Blackwell (20), the industrial centers in the eastern part of Russia helped in the growth of Russian industry while the invasion shattered other sections of the country. Despite the presence of the war, Russia was able to sustain production in parts that were not affected by the war and this trend continued even after the war (Murphy et al 564).

In a large part, Russia has greatly suffered numerous hardships and has one of the most dramatic histories. In the last one century, the country has witnessed several local conflicts, participated in two world wars and gone through the cold war. This has led to the fall of several well-established dynasties and brought about significant economic change.

In order to get the real picture of economic development in Russia, it would be prudent to first examine what the region lost during the period of the war. During the four years of the war (1941-1945), the entire Soviet Union lost close to 27 million people with 14 million of these being Russians and even more were immobilized (Harrison 361). In Russia, more than 1,700 towns were destroyed and close to 71,000 burnt down. By the time the war had ended, the country had virtually to begin rebuilding everything afresh.

This was worsened by the fact that the entire economy had been restructured to accommodate the rising demands of the military. Due to the significant loss in production and transportation, the regions freed from Nazi oppression witnessed a sharp decline in GDP. However, the bravery of soldiers and laborers on the home front saw the GDP in the entire Soviet Union drop by only 14% on average (Janossy 68).

Economic Situation after the War

The losses occasioned by the crumbling of the Soviet Union were no less important and even far more acute in some respects. The change in population during this period was inconsequential contrasted with other pointers since it consisted of a meager 4.3% difference while the GDP at Purchasing Power Parity (PPP) was quite bleak.

In 1991, the Russian PPP was more than $1.9 billion while the Soviet Union GDP amounted to $ 3 billion by the time of its disintegration whereas years before it amounted close to $3.5 billion (Murphy et al 564). In 1995, the Russian federation PPP dropped by 34% to nearly $ 1 billion.

Without considering the demographics, there is no doubt that the Soviet Union possessed a somewhat stable position financially, politically and militarily after World War II. To the keen observer, this is not particularly out of the ordinary since the Russian federation was the biggest loser after the Soviet Union collapsed (Janossy 78).

After the World War II, the Russian Gross Domestic Product (GDP) grew 9 percent per annum for the five years after the war while the GDP of the entire Soviet Union region grew by close to 15% within that period. The high economic growth was because of the strong positive inclination following the triumph in the war.

This was also occasioned by free labor derived from millions of prisoners-of-war as well as the payoffs of the perceived triumph and all its derivatives. Within the Soviet Union, the expansion rate rose due to the exhaustive rebuilding programs in affected areas. The economic growth slowed in 1995-2000 where the country’s GDP grew by less than 2% due to the 1998 economic meltdown and failure by the government to act decisively on economic matters.

From 1951-1960, the economic growth in Russia was 5.8% while the growth rate from 2001-2010 was 5.1%. In 2009, the GDP dropped by 7.9% points due to the global economic meltdown, the outpouring of foreign capital, a drop in business activity, and the constantly dropping confidence among investors and the Russian population as a whole.

Another factor that occasioned this drop was the drop in spending which consequently led to overflow of goods in stores. However, experts predict that this situation will correct itself once consumer confidence is restored (Gregory 241).

In Soviet Russia, the GDP increased by 270 percent in 1960-1975 as compared to 175 percent growth from 1995 to 2010 (Gregory 240). From these results, it is obvious that soviet Russia and modern Russia have been developing along similar lines as seen in the results of the per capita GDP.

Additionally, this indicator grew at a faster rate in the last ten years amounting to 5.3% on standard, while from 1950-1960 it totaled 4.4%. Financial experts predict that Russia’s per capita GDP will have risen to close to 6 percent by the end of this year.

By looking at these results, what comes out in the open is the fact that the rate of development in Soviet Russia was the same as that of the modern day Russia. The only noticeable alteration between the two periods is that unlike in the present day, the GDP growth rate was higher in the years after the war ended (Nove 30).

The current economic structure in Russia was formed in the 1950’s and has been in operation ever since. Ideally, this was the period when the soviet region began focusing on raw materials as a potential growth stimulator before finally turning its focus into attaining the status of a superpower.

However, this quest was strongly opposed by Western countries and it took the concerted efforts of modern day Russian leaders to achieve the objective. In trying to compare the structure of the 1960 and the 2010 economies, one should bear in mind that the size has changed in a significant way.

In 2010, the Russian GDP was at par with the one experience two decades before but it was significantly higher that the one experienced four decades earlier.

At the present, raw materials form the bulk of the Russian foreign currency. So far, the economic modernization program orchestrated by the government has borne little fruits. Financial experts warn that the effects of this modernization program will only begin being felt in 2015 while the real modernization process itself will not take place until 2020 at the earliest (Gregory 243).

By that time, electronic production, which compared to its contemporaries is currently very low is expected to rise sharply. Experts also predict that civil and naval shipbuilding and specifically aircraft production will become more established within that period. It is also predicted that the coming years will see Russia making significant strides in the production of aircraft spare parts. Although the forecast for car manufacture is not guaranteed, experts predict that the production of overseas cars in Russia will soar (Gregory 245).

After the II World War, the development of industry was the key pointer for economic development in Russia. It is therefore not surprising to note that the industrial production before the war surpassed that of the period before the war. Within three years after the war, Russia surpassed the expectations of critics by building close to 15,000 large factories.

From 1945-1960, manufacture in the chemical and petrochemical industries rose by more than 600%, oil production rose by 650% while the production of gas rose to unprecedented levels surpassing the 1000% mark. Five years after the war, the labor productivity increased by 50% due to automation in industrial production. Overall, labor productivity had increased by almost 200 from the time the war ended to 1960 (Crafts & Toniolo 20).

In 1945, Russia lagged behind in the amount of cars and civilian aircrafts. However, this number grew exponentially after the end of the war and by 1960, the region had one of the highest numbers of civilian aircrafts. According to experts, the number of cars in Russia grew by 140 % in the first 15 years after the war while this number rose by 200% in 2000-2010.

The increase in the total number of cars in the first 15 years after the war stood at 6% annually and rose to 6.13 from 2001-2010. This shows that most of the economic growth in Russia started being experienced immediately after the war and these statistics have not changed much over the years (Crafts & Toniolo 25).

As noted earlier in the paper, Russia required a comprehensive rebuilding after Word War II for its economy to be able to recover. Russian planners persisted on implementing the string of economic reforms, which had been started more than a decade before the war broke out.

The planners embarked on five-year goals running from 1946 to 2010 with a view of stabilizing the economy. As noted earlier, this plan mainly concentrated on building heavy manufacturing plants. Of importance to note is that 88% of all the total investment funds went into heavy industry production.

The effect of this was that two years after it was started it restored the output level to that of the period before the war. Four years after it was implemented, industrial production exceeded the level attained five years before the war by 40%. This strategy was what set the Russian economy on a recovery path and this has continued to the modern day (Cohn 107).

According to financial experts, the type of industry that Russia was engaged in explains not only the structure of the economy, but about Russia’s political beliefs as well. After the war, most of the Russian industrial investment was concentrated on weapons and the manufacture of war apparatus.

One reason why this was so is because majority of the industries had been formed to cater for the war demands and they were retained because they had become key drivers of the economy. Since Russia was a big country with a great population, it became a main producer of the arms that needed to be stashed as a means of demonstrating the Soviet might to Western countries.

During the Korean War of 1950 in which Russia was deeply involved, much resources were allocated to the military and this proved to be unfavorable to the economy. Because Russia concentrated much of its effort in the Korean War, its economy started to diminish and this explains why its economy was sluggish from 1950-1960 (Cohn 110).

Apart from the Korean War, many other factors weighed down the Russian economy during the closing stages of Stalin’s rule. Problems in the agricultural sector compounded the Russia’s economic woes. Despite the notable industrial growth, the high loses in agriculture because of the war led to a sharp decrease in work force, equipment, and agricultural land.

Other factors included the apparent lack of meaningful investment in the agricultural sector, the heavy taxation of civilians, and the repeated attack on their personal wealth. All of these issues led to the economic hold up, which marked the commencement of the 1950s. The economic segment in particular was a key reason for jaded fiscal results (Roland 50)

Another reason for the sluggish economy was the effect of the Russian Revolution that replaced the agrarian Russian economy. In a large part, the Russian Revolution slowed the output of light industrial manufacture and consumer products. Just before the start of the war, the government had begun neglecting the production of consumer goods in favor of industrial manufacture and this gave way to price increases thus hurting the economy.

However, this situation was corrected after the war and it was not long before it began yielding dividends. From 1970-1980, there was some stagnation in economic development and this gave way to prospects of enhanced role for consumer goods in Russia. However, despite the concerted efforts to enhance light industry and to streamline the whole scheduling and manufacture systems, the results were not encouraging and this gave rise to acute shortage in the economy.

In the 1980s, there was an acute shortage of customer goods in the whole of Russia. This spanned for more than a decade and by 1990, nearly every consumer good was rationed. The situation was so severe such that every consumer good that was not rationed had vanished from stores. This consumer goods crisis had a negative effect and slowed the economic growth considerably (Weiner 110).

Starting from 1990 to the end of 1995, the Russian GDP fell by almost 50 points. During this period, the agricultural, energy and health sector took a beating thus further slowing the economy. There was a notable drop in health expectancy something that drastically reduced the Russian total population.

During this period, the poverty and income inequality increased thus reducing the purchasing power. The Russian economy stabilized in 2000 and has been experiencing an average annual growth of almost 7% ever since. In the last five years, fixed capital investments have grown on an average of 10% annually and individual incomes have been on the rise thus reducing the poverty and inflation rate.

For the last few years, the federal budget has been running on surpluses of almost 9% of GDP something that demonstrates an increased economic growth. Despite these improvements, there are still that Russia has to conquer if the economy is to remain stable. One of these problems is checking up on oil, natural gas, and timber, which currently account for close to 80% of exports and more than 30% of government income.

Currently, the Russian production base is rundown and must be substituted or restructured if the country is to attain expansive economic growth. There is also need to enhance the banking system, which despite increasing customer lending is still small compared to Russia’s peers in the global scene (Gregory 247).

Conclusion

There is no doubt that Russia underwent a remarkable period of quick recovery in the industrial sector in the years after World War II. During this period, industrial production increased progressively driving the country towards industrialization. After some years, however, neglect in agriculture and increased military spending began to poke holes in the Russian economy.

By the close of Stalin’s rule, the economy had slowed and weakened by heavy investment in manufacturing and the military. The neglect of the countryside and exploitation of city dwellers dampened the people’s building power leading to a sharp decrease in consumer spending. The incapability of harmonizing investment in agriculture industry is a tendency that has been passed down to different leaders. However, this issue seems to have finally been addressed and the economy is finally showing some prospects of growth.

Works Cited

Blackwell, William. The Industrialization of Russia. Thomas Y. Crowell Co., 1970. 16-30. Print

Cohn, Stanley. Economic Development in the Soviet Union. Heath Lexington Books, 1970. 100-110. Print.

Crafts, Nicholas & Toniolo, Gianni. Economic Growth in Europe since 1945. Cambridge University Press, 1996.1-37. Print.

Gregory, Paul. National Income: From Tsarism to the New Economic Policy: Continuity and Change in the Economy of the USSR. Harvard, 2010. 237-247. Print.

Harrison, Mark. Industrial Expansion under Late Stalinism (1945-1955): The Short-Run Dynamic of Civilian Output from Demobilisation to Rearmament. Journal of European Economic History 17.2 (1989). 359-378. Print.

Janossy, Ferenc. The End of the Economic Miracle: Appearance and Reality in Economic Development. International Arts and Sciences Press, 1971. 66-81. Print.

Murphy, Kevin J., Robert W. Vishny and Andrei, Shleifer. Income Distribution, Market Size and Industrialization. Quarterly Journal of Economics, 16.1 (1989). 537–564. Print.

Nove, Alec. Studies in Economics and Russia. St. Martin’s Press, 1990. 16-51. Print.

Roland, G?erard. Transition and Economics: Politics, Markets, and Firms. MIT Press, 2000. 39-50. Print.

Weiner, Amir. Making Sense of War: The Second World War and the Fate of the Bolshevik Revolution. Princeton University Press, 2001. 103-110. Print.

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