Russia An Economic Analysis

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Russia An Economic Analysis Sample Essay


The Russian Federation is one of the largest countries in terms of the population and the territory. Its political, natural, and cultural potential is enormous. The peculiarity of Russia is largely associated with its quite unique geographical characteristics, the main of which is a huge territory. Despite the great potential of the country, the Russian economy suffers from the great crisis. The crisis is especially noticeable in recent years due to the implementation of sanctions and the decrease of oil prices. The aim of the paper is to study the economic system and economic indicators of the Russian Federation.

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The Current Economic System of Russia

There are four types of economic systems, such as traditional, market, command-administrative, and mixed (Pryor, 2007). Nowadays, these types of systems do not occur in the pure form as the economic ties between the countries are extremely strong. Basically, most of the countries have the mixed economy. The experts affirm that the economic system of Russia is also mixed (Pryor, 2007). It is a type of economy, in which the market economy is the basis but the government also plays a significant role in the economic processes of the state. According to the method of production, Russia is the capitalist system with the predominance of large-scale private ownership of the means of production. A very important factor is that the foundation of the economy is private property. However, at the same time, government, corporate, and collective property also co-exist and interact. The mechanism of regulation combines the market and government regulation methods. The state regulates the economy with the help of legislative and judicial power, as well as executive power mediated through tax breaks and subsidies. A mixed system is a socially oriented system. In the state, much attention is paid to the development of the social sphere and the improvement of the living standards of the country. According to the Constitution of the Russian Federation, Russia is a social state (Pryor, 2007). The level of development of the productive forces demonstrates that Russia follows the path of a post-industrial society. The economic system of Russia has an open nature as the country pursues an active foreign trade with many other states.

Economic Indicators

The key economic indicators of the country include the ruble exchange rate, oil prices, inflation, gross domestic product (GDP), and standard of living. The ruble exchange rate in Russia is determined by supply and demand. If in the stock exchange the dollar is more in demand than the ruble, the ruble weakens and vice versa (Bacon, 2014). Supply and demand are influenced by several factors, the main of which is the price of oil. It is associated with the fact about half of the country’s budget is formed due to oil revenues. In 2015, the ruble weakened to 70-80 rubles per one dollar (Oxenstierna, 2015). According to the prognosis of the economists, these indicators will remain in 2016 (Oxenstierna, 2015). Regarding the oil price, it is more difficult to build predictions. It is determined by the fact that in the world, there are no methods that could predict the pricing of this product. If the oil prices are low, Russia will experience serious difficulties. The weakening of the forecast of oil prices worsens the prospects for restoring of the Russian economy.

At the end of 2014, inflation was double-digit – 11.5 % (Bacon, 2014). In December, there were periods when inflation was increasing by 1 % per week (Bacon, 2014). Experts state that it is an extremely alarming sign (Bacon, 2014). The fall of Russia’s GDP in 2015 accounted 3.8 % (Oxenstierna, 2015). According to the prognosis of the Fund of the World Economic Outlook, Russia’s GDP will fall by 0.6 % in 2016 (Oxenstierna, 2015). Earlier, the International Monetary Fund (IMF) predicted a recovery growth by 0.2% (Bacon, 2014). In general, the decline of Russia’s GDP reflects the interaction of many factors including a drop in oil prices and international sanctions (Oxenstierna, 2015). The standard of living of the population in such economic situation cannot grow, as it depends mainly on oil. In the book The Challenges for Russia’s Politicized Economic System, it is stated that “Russian’s income is as high as it is thanks to oil” (Oxenstierna, 2015, p. 15). In 2014, real incomes of the population have fallen by almost 5 % (Bacon, 2014). In 2015, real incomes of Russians continued to drop and reduced by 8 %.

The Dependence of the Russian Economy on Other Countries

The Russian economy is commonly characterized as the economy with a strong dependence on raw materials. According to the book The Economy and Economics after Crisis, “the Russian Federation, dependent on incomes from selling and distributing fuels, has become one of the countries, which feel the consequences of crisis in the highest degree” (Sepp & Frear, 2011, p. 19). Russia still excessively relies on exports of hydrocarbons and other commodities. In such a way, the country is highly dependent on the current situation of the world prices. There is also an increase in the production dependence of the Russian economy on imports. Imports of goods of intermediate demand have grown significantly. The proportion of imports in the country’s costs for raw materials, components, and semi-finished products has also risen.

These days, the Russian Federation greatly depends on the import of such goods as cars and equipment, vehicles, consumer goods, food, chemicals, as well as consumer and industrial products. The country depends on such states as Italy, Switzerland, Germany, Finland, Poland, Turkey, the USA, UK, and China. Thus, import from these countries is extremely significant for the economy of Russia. However, as it is known, the country has introduced sanctions that ban import of certain goods in the state. They have a highly negative influence on the Russian economy as the country cannot provide its inner market without assistance.

Domestic Policies

Modern Russia can be called Putin’s Russia (Makarychev & Mommen, 2013). The country is developing in the framework of the policy of the current president, his ideology, and plans. Under Vladimir Putin, the orientation of domestic policy of the country has its advantages and disadvantages. The strengthening of state institutions and the creation of a single legal space is one of the advantages. The President strengthened the vertical power structure and state institutions. He established the constitutional order in the entire country and a common legal space of the country was restored (Makarychev & Mommen, 2013). Another advantage is the social orientation of domestic policy. Improving the quality of life of Russian citizens has become a key issue of public policy (Makarychev & Mommen, 2013). However, due to the economic crisis in the state and the imposed sanctions, the quality of life is on the low level in the country.

The disadvantages of the policy of Vladimir Putin include the flourishing of corruption and the dependence and opacity of the legal procedures. The first problem stems from the fact that the law on the fight against corruption was not adopted (Makarychev & Mommen, 2013). The second problem associated with the fact that, despite all declarations, the conditions for the formation of the genuine independence of the judiciary from the executive and legislative branches were not created (Makarychev & Mommen, 2013).

Foreign and Defense Policies

The transitional nature of the modern world system requires from Russia an active and assertive but, at the same time, balanced and consistent line of conduct in international affairs. The foreign policy of the country has to be aimed at genuinely equitable cooperation in neutralizing and blocking tendencies, which in the future may put Russia in a disadvantaged position. The international policy, as well as military initiatives, will solve this task. Nowadays, due to the unstable situation in the world, the government pays great attention to defense policy (Oxenstierna, 2015). In foreign policy, there is an undeniable link between economics and security. Wealth is an aspect of power, and power is one of the factors that affects the security policy. Wealth and economic interests of the country should be safe. The military policy of the Russian Federation is a necessary and important part of the overall political and foreign policy activities aimed at ensuring national security and the strengthening of the strategic stability. It is proved by the fact that a great part of the budget of the country is spent on the military sector. According to many experts, the foreign and defense policies of the state depends on the situation in Ukraine (Oxenstierna, 2015). What will happen in the eastern territories of the country, will largely determine the rest of foreign policy of the Russian Federation.

Diplomatic Stance

The economic system and situation of the country greatly influence the diplomatic stance of Russia. These days, it has strong diplomatic relations with Iran and Venezuela, which are the most important trading partners of Russia (IBP, 2015). It is also determined by the fact that they support Russia’s political actions. 2014 and 2015 are marked by the further complication of the international situation. The crisis in Ukraine and Syria has caused serious disagreements between the Russian Federation and most countries of the world. It became the reason of the worsening of the diplomatic relations between Russia and other international players. Most countries around the world blame the actions that Russia conduct war in Ukraine and Syria. Russia has the tensest relations with the United States. The book Russian Political Atlas – Political Situation, Elections, Foreign Policy, Contacts affirms that “the main problematic issues between Russia and the United States are Russia’s assistance to Iran in the implementation of the nuclear program, energy security, the situation in Georgia, Ukraine, and Palestine” (IBP, 2015, p. 48). All this has caused the implementation of sanctions that have a negative influence on the Russian economy. In response, Russia has introduced its sanctions such as the ban of import of products from European countries. These actions have a negative impact on both sides. Thus, Russia uses the economic potential as the way of the influence on the international community.

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The Russian Federation is one of the largest countries in the world with a long history and rich cultural traditions. The economic system of the country is mixed with the expressed market economy. Socio-political and economic changes that take place in today’s Russia are scale and lay the foundations for the future development of the country. However, these days, the most important economic indicators in the country are on the extremely low level. Thus, the economic situation of the country is difficult. It is associated with the imposed economic sanctions and oil prices. According to my opinion, the U. S. military should not interfere in the economic affairs of Russia as it will threaten the military situation in the world.