Normalization of the Russian Economy: Obstacles and Opportunities
Summary of a Kennan Institute meeting at the Woodrow Wilson Center with James Millar, Director, Institute for European, Russian, and Eurasian Studies, George Washington University, and former Wilson Center Fellow
Although Russia's economic performance in the 1990s has been marred by misguided or uninformed decisions, it appears that the country is on its way to solidifying itself as a "normal" economy. In his presentation, Dr. James Millar defined economic normalcy as a state in which, "everyday citizens can form reasonable expectations of the future." Dr. Millar also noted that despite a surprisingly high growth rate in the past two years, Russian economic leaders still face many challenges including: capital flight, low rates of investment, and a substantial decline in investment in education. According to Millar, a successful transition to a market economy depends on Russia's success in promoting domestic and foreign investment, establishing a legitimate, impartial judicial system and building constructive political and economic relationships with the West.
Dr. Millar stated that the United States has a vital role in the normalization of the Russian economy. According to Dr. Millar, U.S. policymakers must move past the Cold War mentality that Russia is the enemy. Although repealing such legislation as the Jackson-Vanik amendment would have very little effect on Russia's economy, it would have a substantial role on the psyche of Russian policymakers. Dr. Millar also stressed the importance of educational exchanges between the two countries. As stated earlier, Russia's dramatic decrease in educational expenditures since 1991 has had a disproportionate effect on the quality of higher education. Through educational exchange programs, Russian scholars not only provide invaluable experience and insight to their American colleagues, but also return to their respective universities with improved teaching and research skills. Dr. Millar stated that the success of exchange programs in raising professionalism can be seen in the dramatic increase in the quality of research proposals from scholars from the former Soviet Union.
If Russia's experiment with large-scale economic reforms culminated in the financial collapse of 1998, concluded Dr. Millar, the subsequent economic growth demonstrates the efficacy of incremental reforms. Stable GDP growth, an increase in exports, especially in oil and gas, and a favorable trade balance have contributed to the normalization of the Russian economy. However, Millar warned, it is important that Russian leaders do not forget the lessons learned from "shock therapy" of the 1998 financial collapse. Slow, sustainable growth combined with domestic investment in areas such as small business initiatives, agriculture, and judicial reforms are the keys to maintaining the gains made since 1998. Dr. Millar also advised that Russian leadership should turn to the EU to bolster their economic reforms. By adopting EU economic standards as a blueprint for institutional development, Russia would not only cement ties with its largest western trading partner, but would also increase its attractiveness to foreign investors.