2. Main Ideas
• The former Soviet republics, particularly Russia, have committed themselves to
making the transition to a market economy.
• Privatization : They transfer the major industries to private owners.
– Result government monoply to private monoply.
• Price Reform: Russia recognized the need do away with government- controlled
prices. The problem was that prices in the Soviet economy bore no relationship to
the economic value of either products or resources.
– Result the soviet government fixed both input and output and in many instances did not change
those prices for many years.
3. Examples
• Privatization: It enabled a handful of business groups led by so called “oligarchs” to
gain control over the production assets in several sectors of the Russian economy.
• Price Reform: High prices of energy have prompted firms in market economies to
reduce energy use substantially per unit of output.
• Privatization: Not only was energy priced far below its true price, so too were
many basic consumer goods. The soviet rationale for setting low prices was to
ensure that everyone could afford such goods.
4. Opinions
• The current round of Russia’s privatization was ordered by former President
Dmitry Medvedev nearly two years ago, but state sales have been delayed by
volatile markets and politcial infighting between government liberals and hard
liners favoring a slower approach.
• In the meantime, Russia lost $80.5 billion to capital outflows last year and $46.5
billion in the first four months of 2012.
• The problem is that the oil prices have turned around Russia prospects so quickly
that economists are now warning of a different the risk: the crisis may be too
short.
