Death of a Nation March 2006 Fifteen years after the fall of Communism, Marcel Theroux goes on a personal journey through Putin's Russia. He discovers a country that's literally dying. When the Soviet Empire collapsed in 1991 it was generally assumed that life was going to get better for the average Russian. Sadly, however, as Marcel Theroux's journey through this vast and troubled country graphically demonstrates, most people are actually worse off than they were 15 years ago. In fact, modern Russia seems to have most of the disadvantages of the old Communist system, but few of the advantages. Putin's uniquely thuggish and dictatorial version of democracy - with his restraints on media criticism and his reliance on police batons and guns to put across his point of view - has meant that Russians don't enjoy much more freedom than they did in the days of the KGB and the gulags. And now their heating bills have rocketed, food costs more, universal health care is a thing of the past and millions of jobs have disappeared. Meanwhile, the majority of the country's wealth has been siphoned off by a tiny minority of oligarchs and mafia-backed businessmen. So, although the economy has grown rapidly in recent years (largely thanks to the country's vast mineral wealth), most people have grown poorer in real terms. The country Theroux explores is in serious decline. The population is already falling and threatened further by the very real possibility of a million deaths from AIDS by 2020. Those that survive have given up on life. Picking his way through the blighted ruins of Ivanova, a former powerhouse of the Soviet command economy where two thirds of the population now live below the poverty line, he says "it looks like a bomb hit in 1991 and everyone went away." Not surprisingly, most of the people he meets are traumatised and defeated - or half mad. Two homeless alcoholics tell him tearfully "we weren't always like this". A billionaire smiles piously and explains how he plans to build dozens of new churches with his money, but Theroux also shows that this same man used anti-terrorist police armed with sub-machine guns to force people from their homes and is now using his trophy-wife as a puppet front for his own political career. A HIV positive man says that out of his 23 classmates, five are now junkies and 10 alcoholics. Most shocking of all is his encounter with some racist Cossacks who have been persecuting the Turks in their neighbourhood. They accost the crew, force Theroux to drink their moonshine, whip the film's director until he's bleeding, and sing and dance uproariously while Theroux peruses their preferred reading matter: Mein Kampf. "The next step is the concentration camp," he says, ashen faced.
Russia, an independent country officially known as the Russian Federation (in Russian, Rossiyskaya Federatsiya). By far the world's largest country, Russia is almost twice the size of the next largest country, Canada. Russia sprawls across eastern Europe and northern Asia. It possesses mineral resources unmatched by any other country. Four-fifths of the people live in the European part of Russia, west of the Ural Mountains. The capital, Moscow, is an administrative, commercial, industrial, and cultural hub in the heart of European Russia. In the 14th and 15th centuries a powerful Russian state began to grow around Moscow. Russia emerged as a great world power during the reign of Peter the Great, who built Saint Petersburg as Russia's new "window on the West" and moved the seat of government there in 1712. The massive Russian Empire reached its greatest size in 1914, before World War I. Moscow regained its capital status after the Russian Revolution of 1917, when militant socialists called Bolsheviks overthrew the Russian monarchy. In 1922 they founded the world's first communist state, the Union of Soviet Socialist Republics (USSR, or Soviet Union). Russia was the largest and most powerful Soviet republic.
The USSR had a totalitarian political system in which Communist Party leaders held political and economic power. The state owned all companies and land, and the government controlled most aspects of the economy. After the Soviet Union broke apart in 1991, Russia began transforming itself into a more democratic society with an economy based on market mechanisms and principles. For many Russians the transformation brought a severe decline in standard of living. At the same time, Russia became more integrated with the global economy and benefited from improved relations with the countries of the European Union as well as its neighbors in Asia.
Russian economy
The Soviet Union had a planned socialist economy, in which the central government controlled everything from production targets and prices to distribution. The Soviet satellite states in Eastern Europe had planned economies as well. After the breakup of the USSR, Russian reformers were confronted with the daunting task of building a modern capitalist economy while simultaneously striving to create a democratic state based on effective laws and reliable administrative structures. The collapse of communism in Eastern Europe in the late 1980s and the dissolution of the Soviet Union at the end of 1991 disrupted the close economic relations Russia had previously enjoyed with neighboring communist states and other Soviet republics. Political turmoil and uncertainty inside the Russian government also contributed to the country's economic woes. Compared with most of the former planned economies of Eastern Europe, Russia experienced a severe and protracted drop in officially reported economic output.
In 1992 the new Russian government led by President Boris Yeltsin launched a comprehensive program to create a market economy. In the mid-1990s, after several years of runaway inflation, the economy began to stabilize. Inflation fell to manageable levels and the exchange rate of the Russian currency (the ruble) stabilized. Nonetheless, severe structural imbalances persisted, and the introduction of market competition continued to encounter stiff resistance from the ranks of conservative politicians and industrial managers. Many unprofitable state-owned enterprises remained open, in part by simply not paying employees, suppliers, and taxes. Federal and regional governments allowed tax arrears to accumulate, even while government spending continued to outpace revenue generation. Meanwhile, a new class of well-connected business tycoons, commonly known as "oligarchs," exploited the reform process to promote their own narrow interests. Their manipulation of the privatization of industry and the banking sector contributed to the country's budget deficits and the spread of corruption.
In late 1997 the national economy began to feel the effects of an international financial crisis in Asia, and the following August Russia experienced its own financial crisis. Alarmed by the Asian meltdown and the growing imbalances in Russia's public finances, many foreign investors withdrew from the Russian market. The flight of foreign capital forced Russia's Central Bank to devalue the ruble and to default on foreign and domestic debts. The crisis rocked the Russian stock market and plunged the living standards of ordinary Russians to new lows.
Moscow
In the longer run, however, the crisis laid the basis for the first period of economic growth since the end of the USSR. By making Russian exports cheaper in foreign markets, the devaluation of the ruble strengthened the competitive position of Russian manufacturers engaged in foreign trade. By making foreign imports more expensive in Russia, the devaluation also strengthened the competitive position of manufacturers in the domestic market. The domestic market had been flooded with foreign goods during the first years of the reform and was crucial to the renewal of Russian manufacturing. In addition, Russia benefited from a sharp rise of oil prices on the world market that allowed it to accumulate foreign-currency reserves and increase government revenues. The election of Vladimir Putin as Russia's president in 2000 provided a further important ingredient. Putin was strongly committed to economic growth and was determined to reestablish order after the economic chaos of Yeltsin's final years in power.
All of these factors combined to bring an impressive economic recovery that exceeded the expectations of most Western economists. Russia's gross domestic product (GDP) grew an average of 6.7 percent annually from 1999 to 2003. Public finances also improved dramatically. From 1996 through 1999 the government's annual budget deficit averaged 6 percent of GDP, but from 2000 through 2003 the government budget generated a surplus averaging 2 percent of GDP.
However, it remains unclear whether Russia can sustain a high rate of economic growth over the long term. Skeptics have emphasized the country's heavy reliance on oil exports and its vulnerability to oil price swings. They have also pointed to signs of mounting government hostility toward private business and the persistence of corruption under President Putin. On the other hand, the government has sought to address the problem of long-term sustainability. In addition to strengthening the fiscal system, it set up a stabilization fund in 2004 to save revenue generated during periods of high oil prices as a cushion against lean periods of low prices. How effective these measures will be in practice remains to be seen.
According to the International Bank for Reconstruction and Development (World Bank), Russia's GDP in 2004 totaled $581.4 billion. Services, including the banking sector, accounted for 60 percent of the GDP. Industry, which includes manufacturing, mining, electricity generation, and construction, accounted for 35 percent, and the agricultural sector, including forestry and fishing, contributed 5 percent. Adjusting official data to take account of the peculiarities of Russian energy prices, the Organization for Economic Cooperation and Development (OECD) estimates that the service sector generates about 46 percent and industry about 41 percent of GDP.
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