Policy Proposal for Economic Reform in Russia Essay

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Policy Proposal for Economic Reform in Russia Despite making a recovery after the 1998 market crash, Russia remains weighted with numerous holdovers from the Communist era that keep its economy from taking advantage of free-market reforms. In short, Russia has not prospered under capitalism because it has not yet discovered it. In order to do so, the Russian government must engage in extensive reform in several key areas: improving the rule of law, creating stable monetary policy, and ending a policy of favoritism to particular businesses. Engaging in these reforms would lower the extremely high transaction costs of doing business legally, stimulating a wave of new investment and wealth creation within Russia, as well as encouraging…show more content…
The lack of clearly defined and enforced property rights is another major problem. The communist-era criminal code has only been partially replaced, and each contract must be carefully examined to check whether it contradicts an ever shifting mess of regulations. In addition, it is unclear what success the communists will have in the next election, so long term planning is very difficult because the future is so unpredictable. Despite an ambitions privatization program, many of the large factories remain state owned, partly because of the fact that their outdated and inefficient production would immediately and properly put them out of business under a free market. However, because the government has so much influence over the banks, it keeps funding these inefficient enterprises to earn the support of the many workers they hire. Many of the factories that were privatized, simply signed ownership to their communist bosses, and because of their pull with the government, stay alive by government aid. Despite all the issues mentioned above, the biggest challenge to Russian economic growth is probably its monetary policy. The Russian central bank is a direct holdover from Soviet times and needs to change its policy drastically to adapt to a free-market economy. In a capitalist economy, private banks serve to store money and provide investment to business. Because banks lose their investment when a debtor defaults, they are careful to insure that entrepreneurs
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