Globalization and the Russian Transition

Insufficient attention has been paid to the fact that Russia has been going through a process of economic transformation in a time characterized by increasing globalization both of economic and political processes, remarked Michael Bradshaw, Professor of Human Geography, University of Leicester at a Kennan Institute lecture on 6 November 2000. In order to understand why Russia's transformation has been so troubled, Bradshaw continued, it is necessary to look at questions of globalization which have great implications for the creation of a functioning state, a coherent federal system, and a market economy.

The process of globalization impacts the processes of change on the local and regional scale. According to Bradshaw, globalization implies a stretching of social, political, and economic activities across frontiers such that events, decisions, and activities in one region of the world can impact individuals and societies elsewhere, as well as an increased interconnectedness which transcends individual states. In many ways, the state is no longer the key scale of action as the boundaries between domestic matters and global affairs are blurred. In the case of the Russian Federation and other post-Soviet states, Bradshaw remarked, we see societies that were previously closed off from global influence are now open to all these forces.

Globalization processes have a great impact on the progress of economic transformation in the post-Socialist world. The "transition economies" have been encouraged to open their crisis-ridden economies to international trade and attract foreign investment. The governments of these states have been powerless to combat the changing fortunes of the global economy. According to Bradshaw, Russia's 1998 financial crisis was in large part caused by the changing sentiments of international financial markets. Equally, Russia's current economic recovery is partly driven by high world oil prices. In addition, the devaluation of the ruble has actually been beneficial for Russia as import substitution revived domestic producers and encouraged foreign investors to produce locally.

The Russian government faces a dilemma--as do most transition economies--Bradshaw noted. Opening the economy to global, competitive forces may promise new wealth while ending state subsidies and protective measures as required by the World Trade Organization could unleash further destruction upon the Russian economy.

According to Bradshaw, it is unclear what role Russia will play in the global economy. It is necessary to consider the relationship between globalization and economic transformation as well as to look at the relationship between economic transformation and regional change. The regional dimension is a key factor explaining why Russia's economic transformation has been so troubled, Bradshaw remarked. Russia inherited economic activity and geography that made some sense in a centrally planned command economy, but which is ill-suited to the demands of emerging market economies. Consequently, Bradshaw noted, economic transformation has brought a spatial restructuring, as the economic geography of Russia has started to reflect the market economy.

According to Bradshaw, however, the actions of the central and regional state have slowed down the process of spatial restructuring in order to protect the interests of the old order. These actions have in turn hampered the emergence of a new economic geography. The result is a partially restructured economic map. There have been many changes, but most of them have been destructive--a consequence of collapse. One of the key indicators of whether or not Russia is becoming a market economy will be if its geography begins to reflect the logic of the market, Bradshaw argued.

It is at the regional level where the struggle between the old and the new is most obvious, Bradshaw stipulated. According to Bradshaw, there are regions in Russia which could benefit directly from greater interaction with international actors without dealing with Moscow. Globalization could free these regions from overdependence on Moscow.

In Russia, Bradshaw pointed out, statistics on import/export activity, foreign investment, and bilateral and multilateral technical assistance programs reveal that very few regions have been incorporated into the global economy. Moscow is a difficult and expensive place to operate, so companies developing a Russia policy must get beyond Moscow, Bradshaw argued. Patterns of foreign investment reflect a strong natural resource orientation in sparsely populated regions of Russia such as the north and far east. Conversely, statistics on "enterprises with foreign involvement" show a concentration in "gateway" and "hub" regions. In addition, Moscow oblast is becoming an obvious solution to the problem of expensive Moscow city, Bradshaw pointed out.

To make sense of any one region, one must look at the relationship between transition and regional change as well as the relationship between globalization and those two processes. Regions can use the links between the global and the local to increase their independence from Moscow--which will increase dependence on the global market. However, Bradshaw argued, that vulnerability may be preferable to being dependent on Moscow.