THE RUSSIAN TRANSITION FROM SOCIALISM TO CAPITALISM

On 21 December 1991, a meeting of representatives of the eleven republics of the Soviet Union took the decision to dissolve the union at the end of the year, replacing it with the much looser Commonwealth of Independent States (CIS). Many powers that had previously rested with the Soviet Union were now devolved to the republics. By far, the largest republic was the Russian Federation. Its government, led by Boris Yeltsin, who had been elected President in July 1991, inherited a rapidly deteriorating economic situation. Unemployment was rising, and output falling rapidly. Prices (though still largely controlled by the state) were rising rapidly, and the ruble was clearly overvalued. Economic reform was essential, for the Soviet system was collapsing. The question facing the government was not whether or not to reform but how to do so.

Though Yeltsin had been elected by a large majority, the Russian political system was far from stable. Political criteria were inseparable from economic ones, not just because certain strategies were impossible, but also because economic decisions would affect politics. Other countries in Eastern Europe (such as Poland, Czechoslovakia and Hungary), which had begun the same transition two years earlier, could provide some guidance. However, the situation in those countries was in many ways different from that of Russia or the other former Soviet republics. They were smaller; their economies were different, and their political cultures, characterized by decades of hostility to Soviet domination, were also different.