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News Release

The Time for Reform in Russia Is Now

June 10, 2010

Washington—In the wake of the 2008–09 global economic and financial crisis, Russia faces some difficult choices. Does it undertake painful reforms or risk low growth for many years to come? The authors of a new book, Russia after the Global Economic Crisis, edited by Anders Åslund of the Peterson Institute for International Economics, Sergei Guriev of the New Economic School, and Andrew C. Kuchins of the Center for Strategic and International Studies examine Russia's current situation post-crisis and what it must do to ensure future prosperity.

In the decade prior to 2008, Russia enjoyed strong growth thanks to high oil prices and reforms implemented by former President Putin. Russia emerged from the crisis relatively unscathed. However the crisis revealed severe structural deficiencies, which left unaddressed, would make a return to precrisis growth levels difficult. The authors identify several major weaknesses including:

  • Low labor productivity
  • Poor infrastructure
  • Excessive regulation of businesses
  • High public spending, especially on pensions
  • Overdependence on commodity production and exports
  • Corruption
  • Weak rule of law

Among these, corruption bred from federalism is the most egregious. It affects all aspects of the economy. The absence of accountability, a strong opposition and free media along with preference given to large versus small business, greatly impedes innovation and thus Russian competitiveness in the global marketplace. To some extent, the IT sector is an exception but it is still subject to an ingrained system of bribery, a significant barrier to ingenuity. President Medvedev has indicated a desire to strengthen cooperation with the United States on technology in his efforts to modernize the Russian economy and may include a stop in Silicon Valley during his visit to North America later this month to that end.

Improving energy efficiency is another key to Russia's long-term economic stability. Its economy is highly energy intensive with energy consumed per unit of GDP higher than the other BRICs (Brazil, India and China) and 2–3 times the global average. Its energy infrastructure is outdated and highly inefficient. However, if Russia makes energy saving a priority, lower demand will hurt the state run behemoth Gazprom, which would threaten the security of the ruling elite.

What must Russia do to resolve its structural weaknesses? It needs to

  • fully integrate with the world economy;
  • diversify its economy and reduce its reliance on commodities;
  • overhaul its foreign policy;
  • dissolve the Commonwealth of Independent States, as that organization is a barrier to, rather than a catalyst for, diplomatic and economic ties between Russia and its former republics;
  • let go of the anachronistic view that the West, specifically the United States, is its biggest security threat; and
  • recognize the real threats to its security, e.g. the Middle East, that it should focus on.

The time to implement these reforms is now while Russia's economy is improving. If the economic situation worsens, Russia's leadership will be forced to mitigate social unrest and deviate from the path of long-term prosperity.

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Russia after the Global Economic Crisis
Anders Åslund, Sergei Guriev, and Andrew C. Kuchins, editors
ISBN paper 978-0-88132-497-6
June 2010 • 288pp. • $22.95

About the Editors

Anders Åslund is a leading specialist on Russia and postcommunist economic transformation with more than 30 years of experience in the field. In the mid-1980s, he worked as a Swedish diplomat in Moscow, which led him to boldly predict the fall of the Soviet communist system in his book Gorbachev's Struggle for Economic Reform (1989). He was one of the chief economic advisers to President Boris Yeltsin's reform government (1991–94) and concluded in How Russia Became a Market Economy (1995) that Russia had made its market choice. In Russia's Capitalist Revolution (2007) he explained why Russia's market reform succeeded and democracy failed. He has written a total of nine books, including The Russia Balance Sheet (with Andrew C. Kuchins, 2009), How Capitalism Was Built: The Transformation of Central and Eastern Europe, Russia, and Central Asia (2007) and How Ukraine Became a Market Economy and Democracy (2009). He is the editor or coeditor of 15 books.

Åslund joined the Peterson Institute for International Economics as senior fellow in 2006. He also teaches at Georgetown University. He was the director of the Russian and Eurasian Program at the Carnegie Endowment for International Peace (2003–05) and codirector of the Carnegie Moscow Center's project on Post-Soviet Economies. He was founding director of the Stockholm Institute of Transition Economics and professor at the Stockholm School of Economics (1989–94). He earned his doctorate from the University of Oxford.

Sergei Guriev is the Morgan Stanley Professor of Economics at and rector of the New Economic School in Moscow. He is also the president of the Center for Economic and Financial Research at the New Economic School. He teaches graduate courses in microeconomic theory, contract theory, and economics of strategy. His research interests include contract theory, corporate governance, and labor mobility.

In 2006, the World Economic Forum named Guriev a Young Global Leader. He has published in international refereed journals including American Economic Review, Journal of European Economic Association, Journal of Economic Perspectives, and American Political Science Review. Since 2007, he has been contributing a monthly column to Forbes Russia. He is also a biweekly columnist for the leading Russian business daily Vedomosti. He obtained his PhD in 1994 from the Russian Academy of Sciences.

Andrew C. Kuchins, an expert on Russian foreign and domestic policies, is a senior fellow and director of the Russia and Eurasia Program at the Center for Strategic and International Studies (CSIS). From 2000 to 2006, he was a senior associate at the Carnegie Endowment for International Peace, where he was director of its Russian and Eurasian Program 2000 to 2003 and again in 2006, and director of the Carnegie Moscow Center in Russia from 2003 to 2005. He has also held senior management and research positions at the John D. and Catherine T. MacArthur Foundation, Stanford University, and the University of California at Berkeley.

Kuchins teaches at Johns Hopkins School of Advanced International Studies (SAIS) and has also taught at Georgetown and Stanford Universities. Recently published books, articles, and reports include Economic Whiplash in Russia: An Opportunity to Bolster U.S.-Russia Commercial Ties? (CSIS, 2009) and Alternative Futures for Russia to 2017 (CSIS, 2007). His latest book (coauthored with Anders Åslund), The Russia Balance Sheet, was published in April 2009. He holds a BA from Amherst College and an MA and PhD from Johns Hopkins SAIS.

About the Organizations

The Peter G. Peterson Institute for International Economics is a private, nonprofit, nonpartisan research institution devoted to the study of international economic policy. Since 1981 the Institute has provided timely and objective analysis of, and concrete solutions to, a wide range of international economic problems. It is one of the very few economics think tanks that are widely regarded as "nonpartisan" by the press and "neutral" by the US Congress, its research staff is cited by the quality media more than that of any other such institution, and it was selected as Top Think Tank in the World for 2008 in the first comprehensive survey of over 5,000 such institutions. Support is provided by a wide range of charitable foundations, private corporations and individual donors, and from earnings on the Institute's publications and capital fund. It moved into its award-winning new building in 2001 and celebrated its 25th anniversary in 2006 and adopted its new name at that time, having previously been the Institute for International Economics.

The New Economic School (NES), an independent graduate school of economics in Moscow, was established in 1992 to introduce modern economics into Russia as a critical part of the transition to a market economy. The mission of NES is to benefit Russia's private and public sectors through excellence in economics education and research. The School offers two-year graduate level programs in economics and finance, similar to programs in top Western institutions. Most NES faculty have received their PhDs in the leading US and European universities and published in top international academic journals. NES is consistently ranked as the top economics institution in postcommunist countries and is among the top five in non-OECD countries.

At a time of new global opportunities and challenges, the Center for Strategic and International Studies (CSIS) provides strategic insights and policy solutions to decision makers in government, international institutions, the private sector, and civil society. A bipartisan, nonprofit organization headquartered in Washington, DC, CSIS conducts research and analysis and develops policy initiatives that look into the future and anticipate change.