Russia: A Country Study, edited by Glenn E. Curtis

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Rural Life

For rural society in both Soviet and post-Soviet times, agriculture has been the primary source of employment. Before 1992, however, the CPSU and its predecessors constituted the sole form of political organization, and all village communities were organized around the economic institution of the collective farm (kolkhoz --see Glossary) or state farm (sovkhoz --see Glossary) and the village soviet (council) administration--organizations that employed the elite of rural society, nearly all of whose members were men.

As in the past, the post-Soviet nonpolitical elite includes schoolteachers, agronomists, veterinary surgeons, and engineers. Teachers are held in high esteem, partly because of their role in determining who in the next generation will have upward social mobility. Despite this status, teachers receive low pay and often must maintain private garden plots to support themselves. Agricultural machinery specialists, including operators and mechanics, emerged as increasingly important and well-paid members of rural society in the 1970s and 1980s. In general, however, workers who remain in the countryside have less possibility of upward mobility than do urban dwellers. Managers and white-collar workers in rural agricultural and other organizations generally are brought in from outside.

Rural dwellers tend to spend more time in their homes than residents of urban areas. Rural homes generally are larger than those in the city and have private garden plots. The tastes of country people are simpler and less Western-oriented than those of their urban counterparts, and they have less money to spend on leisure pursuits. The routine of life in many rural villages has scarcely changed over many generations; the central concerns continue to be the weather and the condition of crops and livestock.

The end of Soviet rule cast a shadow over the villages' guarantee of medical care, job training, and entertainment, and rural areas benefited much less from the increased pace of information exchange characteristic of urban centers. Rural young people continue to leave their families to seek a better life elsewhere because village life has improved little since their grandparents were young. In this process, the family, the foundation of peasant society, has become fragmented. Villages with fewer than 1,000 inhabitants are disappearing at a rapid rate: between 1960 and 1995, the entire population of an estimated two-thirds of such villages either died or moved away. In the remaining rural villages, health care and education are increasingly inadequate, and essential commodities such as propane gas have become extremely expensive.

Many young people return to their rural homes after acquiring the type of education or technical training that is available only in cities and that is increasingly necessary to run mechanized farming operations and agroindustrial enterprises. They are joined by Russian émigrés from former Soviet republics, especially Central Asia, for whom it is easier to start life in Russia in a rural rather than an urban setting. However, most of those additions to the rural population are only stopping temporarily until they find more satisfying situations elsewhere. According to most experts, the long-term prospects of the traditional Russian village became grim in the immediate post-Soviet period.

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Social Organizations

In the mid-1990s, the structure of Russia's civil society was still in flux, but by that time the country had developed a large and growing network of social organizations, including trade unions, professional societies, veterans' groups, youth organizations, sports clubs, women's associations, and a variety of support groups. Whereas all types of organization during the Soviet era functioned as "transmission belts" for the communist party, in the years that followed the emergence of a large number of diverse, autonomous nongovernmental groups was an important aspect of the growth of civil society.

The Federation of Independent Trade Unions of Russia (Federatsiya nezavisimykh profsoyuzov Rossii--FNPR) is one of the largest trade union organizations. Created as the official trade union movement was reconstituted following the disintegration of the Soviet Union, the federation includes thirty-six unions--many of them quite small in the mid-1990s--grouped by type of occupation. Among the FNPR's activities is the collection of contributions to the Social Insurance Fund by Russia's enterprises, each of which is required to earmark 4.5 percent of its total payroll for the fund.

Breaking the legal stranglehold of the Soviet-era trade union structure on the provision of social security benefits was a complicated but essential stage in enabling new unions to gain legitimacy in the eyes of workers. In the early 1990s, most workers saw the FNPR as representing the interests of management and the government, so they relied more heavily on unofficial, independent unions and a variety of worker-oriented organizations. However, in 1995 and early 1996 the FNPR, now a partner with top businesspeople in an umbrella party called Trade Unions and Industrialists of Russia, played a central role in organizing large-scale rallies and picketing actions to protest chronic late wage payments by enterprises all over the Russian Federation.

In the 1990s, substantial independent union activity has also occurred in the coal industry. There, the Independent Miners' Union (Nezavisimyy profsoyuz gornyakov--NPG) and the Independent Trade Union of Workers in the Coal-Mining Industry (Nezavisimyy profsoyuz rabochikh ugol'noy promyshlennosti--NPRUP), a reformed version of the official Soviet-era trade union, share power and have organized large-scale strikes.

In the 1990s, independent individuals and groups have begun establishing professional, research, educational, and cultural organizations. This activity has included a substantial upswing in the number of voluntary charitable and philanthropic organizations. In 1995 about 5,000 nonprofit organizations and 550 formal charities were operating in Russia. In Moscow more than 10,000 volunteers worked for these organizations in 1996. These numbers are low by Western standards, and a legal framework for the existence of charities and nonprofit organizations still did not exist as of mid-1996. However, the starting point in 1992 was nearly zero in both categories.

A significant token of citizen awareness is the proliferation of local and regional ecological and environmental cleanup groups throughout the Russian Federation (see The Response to Environmental Problems, ch. 3). For example, Epitsentr, an umbrella organization in St. Petersburg, has spawned numerous smaller groups that focus on controlling pollution in the city's water supply, stopping the construction of a controversial dam in the Gulf of Finland, and preserving St. Petersburg's historic buildings and cultural monuments. Students at Moscow State University and other educational institutions have played an important role in directing public attention to the massive environmental degradation that plagues Russia. The Socio-Ecological Union, which was founded at Moscow State University in 1988, has become one of the Russian Federation's most influential umbrella organizations committed to environmental protection.

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The Family

As the Soviet Union became urbanized, families grew more numerous and smaller in average size. Between the censuses of 1959 and 1989, the number of family units increased 41 percent, from 28.5 million to more than 40 million. Average family size in the Russian Republic declined from 3.4 persons in 1970 to 3.1 in 1989. Already in the late 1970s, more than 80 percent of urban families had two children or fewer. In 1989 some 87 percent of the population lived in families, of which about 80 percent were based on a married couple.

In the 1980s, the divorce rate in the Soviet Union was second in the world only to that of the United States, although "unofficial divorces" and separations also were common. Crowded housing and lack of privacy contributed heavily to the divorce rate, especially for couples forced to live with the parents of one spouse. Drunkenness and infidelity were other major causes. Divorce procedures were relatively simple, although courts generally attempted to reconcile couples. Custody of children normally was awarded to the mother. In the first half of the 1990s, the conditions contributing to the majority of Russia's divorces did not change, and the divorce rate increased.

In post-Soviet attitudes, the family continues to be viewed as the most important institution in society. In a 1994 poll funded by the Commission on Women's, Family, and Demographic Problems, less than 3 percent of respondents named "living alone without a family" as the best choice for a young person. Although the size of the average Russian family has decreased steadily over the past quarter-century, nearly 80 percent of respondents named children as the essential element of a good marriage. At the same time, about three-quarters of respondents said that a bad marriage should be terminated rather than prolonged; the poll also showed that, generally, the Russian attitude toward divorce is more positive than it was in the Soviet era.

According to the 1994 survey, the dynamics of the average Russian family have changed somewhat. Compared with 1989, about 3 percent fewer individuals characterized their marriages as in conflict, and 9 percent fewer called their marriages "egalitarian" in the distribution of authority between the partners. The average distribution of common household tasks was shown to be far from equal, with women performing an average of about 75 percent of cooking, cleaning, and shopping chores. Between 1989 and 1994, women's expression of dissatisfaction with their family situation increased 13 percent, while that of men rose only 2 percent. Women reporting family satisfaction were predominantly young or elderly, with adequate-to-high incomes and at least a secondary education. According to experts, social and economic crises have caused Russians to rely more heavily than ever on the family as a source of personal satisfaction. But these same crises have caused the standard of living to fall, and they have required that more time be spent at work to keep it from falling further, thus making it harder for families to sustain their most cherished attributes.

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The Role of Women

In the post-Soviet era, the position of women in Russian society remains at least as problematic as it was in previous decades. In both cases, a number of nominal legal protections for women either have failed to address the existing conditions or have failed to supply adequate support. In the 1990s, increasing economic pressures and shrinking government programs left women with little choice but to seek employment, although most available positions were as substandard as in the Soviet period, and generally jobs of any sort were more difficult to obtain. Such conditions contribute heavily to Russia's declining birthrate and the general deterioration of the family. At the same time, feminist groups and social organizations have begun advancing the cause of women's rights in what remains a strongly traditional society.

The Soviet constitution of 1977 stipulated that men and women have equal rights, and that women have equal access to education and training, employment, promotions, remuneration, and participation in social, cultural, and political activity. The Soviet government also provided women special medical and workplace protection, including incentives for mothers to work outside the home and legal and material support of their maternal role. In the 1980s, that support included 112 days of maternity leave at full pay. When that allowance ended, a woman could take as much as one year of additional leave without pay without losing her position. Employer discrimination against pregnant and nursing women was prohibited, and mothers with small children had the right to work part-time. Because of such provisions, as many as 92 percent of women were employed at least part-time, Soviet statistics showed.

Despite official ideology, Soviet women did not enjoy the same position as men in society or within the family. Average pay for women in all fields was below the overall national average, and the vaunted high percentage of women in various fields, especially health care, medicine, education, and economics, did not hold true in the most prestigious and high-paying areas such as the upper management of organizations in any of those fields. Women were conspicuously underrepresented in the leadership of the CPSU; in the 1980s, they constituted less than 30 percent of party membership and less than 5 percent of the party Central Committee, and no woman ever achieved full membership in the Politburo.

Most of the nominal state benefit programs for women continued into the post-Soviet era (see Social Welfare, this ch.). However, as in the Soviet era, Russian women in the 1990s predominate in economic sectors where pay is low, and they continue to receive less pay than men for comparable positions. In 1995 men in health care earned an average of 50 percent more than women in that field, and male engineers received an average of 40 percent more than their female colleagues. Despite the fact that, on average, women are better educated than men, women remain in the minority in senior management positions. In the Soviet era, women's wages averaged 70 percent of men's; by 1995 the figure was 40 percent, according to the Moscow-based Center for Gender Studies. According to a 1996 report, 87 percent of employed urban Russians earning less than 100,000 rubles a month (for value of the ruble--see Glossary) were women, and the percentage of women decreased consistently in the higher wage categories.

According to reports, women generally are the first to be fired, and they face other forms of on-the-job discrimination as well. Struggling companies often fire women to avoid paying child care benefits or granting maternity leave, as the law still requires. In 1995 women constituted an estimated 70 percent of Russia's unemployed, and as much as 90 percent in some areas.

Sociological surveys show that sexual harassment and violence against women have increased at all levels of society in the 1990s. More than 13,000 rapes were reported in 1994, meaning that several times that number of that often-unreported crime probably were committed. In 1993 an estimated 14,000 women were murdered by their husbands or lovers, about twenty times the figure in the United States and several times the figure in Russia five years earlier. More than 300,000 other types of crimes, including spousal abuse, were committed against women in 1994; in 1996 the State Duma (the lower house of the Federal Assembly, Russia's parliament) drafted a law against domestic violence.

Working women continue to bear the "double burden" of a job and family-raising responsibilities, in which Russian husbands generally participate little. In a 1994 survey, about two-thirds of women said that the state should help families by paying one spouse enough to permit the other to stay at home. Most women also consider their role in the family more difficult than that of their husband. Such dissatisfaction is a factor in Russia's accelerating divorce rate and declining marriage rate. In 1993 the divorce rate was 4.5 per 1,000 population, compared with 4.1 ten years earlier, and the marriage rate declined from 10.5 per 1,000 population in 1983 to 7.5 in 1993. In 1992 some 17.2 percent of births were to unmarried women. According to 1994 government statistics, about 20 percent of families were run by a single parent--the mother in 94 percent of cases.

Often women with families are forced to work because of insufficient state child allowances and unemployment benefits. Economic hardship has driven some women into prostitution. In the Soviet period, prostitution was viewed officially as a form of social deviancy that was dying out as the Soviet Union advanced toward communism. In the 1990s, organized crime has become heavily involved in prostitution, both in Russia and in the cities of Central and Western Europe, to which Russian women often are lured by bogus advertisements for match-making services or modeling agencies. According to one estimate, 10,000 women from Central Europe, including a high proportion of Russians, have been lured or forced into prostitution in Germany alone.

Independent women's organizations--a form of activity that was suppressed in the Soviet era--have been formed in large numbers in the 1990s at the local, regional, and national levels. One such group is the Center for Gender Studies, a private research institute. The center analyzes demographic and social problems of women and acts as a link between Russian and Western feminist groups. A traveling group called Feminist Alternative offers women assertiveness training. Many local groups have emerged to engage in court actions on behalf of women, to set up rape and domestic violence awareness programs (about a dozen of which were active in 1995), and to aid women in establishing businesses. Another prominent organization is the Women's Union of Russia, which focuses on job-training programs, career counseling, and the development of entrepreneurial skills that will enable women to compete more successfully in Russia's emerging market economy. Despite the proliferation of such groups and programs, in the mid-1990s most Russians (including many women) remain contemptuous of their efforts, which many regard as a kind of Western subversion of traditional social values.

The rapidly expanding private sector offers women new employment opportunities, but many of the Soviet stereotypes remain; the most frequently offered job in new businesses is that of secretary, and advertisements often specify physical attractiveness as a primary requirement. Russian law provides for as much as three years' imprisonment for sexual harassment, but the law rarely is enforced. Although the Fund for Protection from Sexual Harassment has blacklisted 300 Moscow firms where sexual harassment is known to have taken place, demands for sex and even rape still are common on-the-job occurrences.

Women's higher profile in post-Soviet Russia also has extended to politics. At the national level, the most notable manifestation of women's newfound political success has been the Women of Russia party, which won 11 percent of the vote and twenty-five seats in the 1993 national parliamentary elections. Subsequently, the party became active in a number of issues, including the opposition to the military campaign in Chechnya that began in 1994. In the 1995 national parliamentary elections, the Women of Russia chose to maintain its platform unchanged, emphasizing social issues such as the protection of children and women rather than entering into a coalition with other liberal parties. As a result, the party failed to reach the 5 percent threshold of votes required for proportional representation in the new State Duma, gaining only three seats in the single-seat portion of the elections (see The Elections of 1995, ch. 7). The party considered running a candidate in the 1996 presidential election but remained outside the crowded field.

A smaller organization, the Russian Women's Party, ran as part of an unsuccessful coalition with several other splinter parties in the 1995 elections. A few women, such as Ella Pamfilova of the Republican Party, Socialist Workers' Party chief Lyudmila Vartazarova, and Valeriya Novodvorskaya, leader of the Democratic Union, have established themselves as influential political figures. Pamfilova has gained particular stature as an advocate on behalf of women and elderly people.

The Soldiers' Mothers Movement was formed in 1989 to expose human rights violations in the armed forces and to help youths resist the draft. The movement has gained national prominence through its opposition to the war in Chechnya. Numerous protests have been organized, and representatives have gone to the Chechen capital, Groznyy, to demand the release of Russian prisoners and locate missing soldiers. The group, which claimed 10,000 members in 1995, also has lobbied against extending the term of mandatory military service.

Women have occupied few positions of influence in the executive branch of Russia's national government. One post in the Government (cabinet), that of minister of social protection, has become a "traditional" women's position; in 1994 Ella Pamfilova was followed in that position by Lyudmila Bezlepkina, who headed the ministry until the end of President Boris N. Yeltsin's first term in mid-1996. Tat'yana Paramanova was acting chairman of the Russian Central Bank for one year before Yeltsin replaced her in November 1995, and Tat'yana Regent has been head of the Federal Migration Service since its inception in 1992. Prior to the 1995 elections, women held about 10 percent of the seats in parliament: fifty-seven of 450 seats in the State Duma and nine of 178 seats in the upper house of parliament, the Federation Council. The Soviet system of mandating legislative seats generally allocated about one-third of the seats in republic-level legislatures and one-half of the seats in local soviets to women, but those proportions shrank drastically with the first multiparty elections of 1990.

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Education

In the Soviet period, education was highly centralized, and indoctrination in Marxist-Leninist theory was a major element of every school's curriculum. The schools' additional ideological function left a legacy in the post-Soviet system that has proved difficult for educators to overcome. In the 1990s, reform programs are aimed at overhauling the Soviet-era pedagogical philosophy and substantially revising curricula. Inadequate funding has frustrated attainment of these goals, however, and the teaching profession has lost talented individuals because of low pay.

The Soviet Heritage

The Soviet government operated virtually all the schools in Russia. The underlying philosophy of Soviet schools was that the teacher's job was to transmit standardized materials to the students, and the student's job was to memorize those materials, all of which were put in the context of socialist ethics. That set of ethics stressed the primacy of the collective over the interests of the individual. Therefore, for both teachers and students, creativity and individualism were discouraged. The Soviet system also maintained some traditions from tsarist times, such as the five-point grading scale, formal and regimented classroom environments, and standard school uniforms--dark dresses with white collars for girls, white shirts and black pants for boys.

As in other areas of Soviet life, the need for reform in education was felt in the 1980s. Reform programs in that period called for new curricula, textbooks, and teaching methods. The chief aim of those programs was to create a "new school" that would better equip Soviet citizens to deal with the modern, technologically advanced nation that Soviet leaders foresaw in the future. Nevertheless, in the 1980s facilities generally were inadequate, overcrowding was common, and equipment and materials were in short supply. The schools and universities failed to supply adequately skilled labor to almost every sector of the economy, and overgrown bureaucracy further compromised education's contribution to society. At the same time, young Russians became increasingly cynical about the Marxist-Leninist philosophy they were forced to absorb, as well as the stifling of self-expression and individual responsibility. In the last years of the Soviet Union, funding was inadequate for the large-scale establishment of "new schools," and requirements of ideological purity continued to smother the new pedagogical creativity that was heralded in official pronouncements.

The dissolution of the Soviet Union and the transition toward democracy had a profound effect on national education policy. In 1992 a reform philosophy was set forth in the Law on Education. The fundamental principle of that law was the removal of state control from education policy. In regions with non-Russian populations, that meant that educational institutions could base their curricula and teaching methods on national and historical traditions. In all regions, enactment of the law meant significant autonomy for local authorities to choose education strategies most appropriate to the time and place. Post-Soviet education reform also stressed teaching objectively, thus discarding all forms of the narrow, institutional views that had dominated the previous era and preparing young people to deal with all aspects of the society they would encounter by presenting a broader interpretation of the world.

Post-Soviet educational philosophy also has sought to integrate education with the production and economic processes into which graduates will pass in adult life. Envisioning a program of continuous education lasting throughout the lifetime of an individual, this concept has as its goal converting the education process from an economic burden on the state to an engine of economic progress. Especially important in this program is the reorientation of vocational training to complement the economic reforms of the 1990s. New systems of education for farmers and various types of on-the-job training for adults have been introduced, and new curricula in economics stress understanding of market economies.

The Post-Soviet Education Structure

Article 43 of the 1993 constitution affirms each citizen's right to education. It stipulates that "basic general education is compulsory" and that parents or guardians are responsible for ensuring that children obtain schooling. "General access to free preschool, basic general, and secondary vocational education in state or municipal educational establishments and in enterprises is guaranteed," according to the constitution. Although such access continued to exist in principle in the mid-1990s, various components of the system were increasingly inadequate. In 1993 some 35.2 million students were enrolled in Russian schools at all levels, including 20.5 million in general primary and secondary schools, 1.8 million in professional and technical schools, 2.1 million in special secondary schools, and 2.6 million in institutions of higher learning (see table 12, Appendix). A total of 70,200 general primary and secondary schools and 82,100 preschools were in operation at that time. Of the former category, 48,800 were in rural areas and 21,000 in urban areas.

In 1995 the projected budgetary expenditure for education was about 3.6 percent of the total state budget, a level Russian experts agreed could not maintain the system as it was, to say nothing of implementing the changes called for by post-Soviet legislation. The financing system made educational institutions fully dependent on state funds; outside sources of funding did not exist because no tax advantages accrued from investing in education.

Infrastructure

Because the Soviet Union had not built enough schools to accommodate increasing enrollment, Russia inherited a system of very large, overcrowded schools with a decaying infrastructure. By the late 1980s, 21 percent of students were attending schools with no central heating, and 30 percent were learning in buildings with no running water. In 1992 Russia had nearly 67,000 primary and secondary schools, which provided an average per-pupil space of 2.6 square meters, one-third the official standard. About one-quarter of schools housed 900 or more students. In 1993 Russia was forced to close about 20,000 of its schools because of physical inadequacy, and an estimated one-third of the national school capacity was in need of large-scale repair. In 1994 one of every two students attended a school operating on two or three shifts. Rural schools, which make up about 75 percent of the national total, were in especially bad condition.

Teachers

The Soviet Union suffered a shortage of teachers for decades before the 1990s. Although society held the profession in high regard, teacher salaries were among the lowest of all professions, at least partly because women dominated the field at the primary and secondary levels. The emerging market economy of the 1990s improved the pay and career opportunities outside teaching for many who would have remained in education under the more rigid Soviet system; thus, the shortage was exacerbated. In the 1992-93 school year, Russian schools had about 29,000 teacher vacancies, and in the following year 25 percent of all foreign-language teaching positions were unfilled. Although low pay has damaged morale among Russian teachers, they are more disillusioned by the end of the idealistic first post-Soviet years of innovation and freedom of speech and the continued decline of their material environment. In the mid-1990s, rural schools experienced particular difficulty retaining teachers, as qualified young adults sought opportunities in larger communities.

Curriculum

The end of the communist system has led to extensive curriculum revision. A new paradigm has been developed to guide education, and more attention has gone to the arts, humanities, and social sciences. The 1992 Law on Education stressed the humanistic nature of education, common values, freedom of human development, and citizenship. Curriculum changes were laid out in another document, the Basic Curriculum of the General Secondary School; the overall curriculum reform program is to be put in place over a five-year period ending in 1998. In the mid-1990s, many public schools have designed special curricula, some returning to the classical studies prevalent in the early 1900s. Local development of curricula and materials became legal in 1992, although financial constraints have limited experimentation and the Soviet era left educators with a strong bias toward standardized instruction and rote memorization. In contrast to the Soviet era, the quality and content of curricula vary greatly among public schools. A major factor encouraging local initiative is the disarray of federal education agencies, which often leave oblast, regional, and municipal authorities to their own devices. Nevertheless, only about one-third of primary and secondary schools have taken advantage of the opportunity to develop their own curricula; many administrations have been unwilling to make such large-scale decisions independently.

Grade Structure

Russian parents have the option of sending their children to preschool until age seven, when enrollment in elementary school becomes mandatory. Because the overwhelming majority of mothers still have full-time employment, many preschool facilities are colocated with enterprises. As businesses become increasingly profit oriented, however, many have ceased or reduced their support of such facilities. The number of child-care facilities for working parents declined significantly after 1991, mainly because many such facilities lacked the funding to continue operation without state support. Of about 82,100 preschools in operation in 1993, more than one-third were housed in inadequate facilities.

Although the 1992 Law on Education lowered the upper age of the compulsory education range from seventeen to fifteen, in the mid-1990s more than 60 percent of students remained in school for the previously required ten years. Among Russia's educational reforms is a regulation authorizing school officials to expel students fourteen years of age or older who are failing their courses. By the end of 1992, about 200,000 students had been expelled, and two to three times that number had dropped out. In the mid-1990s, Russia had five types of secondary school: regular schools featuring a core curriculum; schools offering elective subjects; schools offering intensive study in elective subjects; schools designed to prepare students for entrance examinations to an institution of higher education (vyssheye uchebnoye zavedeniye --VUZ; pl., VUZy); and alternative schools with experimental programs.

Private Schools

State education is free, but by 1992 several state higher-education institutions had begun charging tuition. At that point, almost half of the students above the secondary level were paying fees of some sort. The 1992 Law on Education provides explicitly for private educational institutions; in the ensuing years, several organizations for private education have appeared, and a variety of private schools and colleges have opened. By 1992 about 300 nonstate schools were being attended by more than 20,000 students.

As public schools debated what to do with their new academic freedom, private schools and preschools became centers of innovation, with programs rediscovering prerevolutionary pedagogy and freely borrowing teaching methods from Western Europe and the United States. Serving largely Western-oriented families intent on making progress up the newly reconstructed social ladder, private schools emphasize learning English and other critical skills. Student-to-teacher ratios are very low, and teacher salaries average about US$170 per month (about three times the average for a public school teacher). Tuition may be as much as US$3,000 per year, but some private schools charge parents according to their means, surviving instead on donations of money and time from wealthy parents. Unlike public schools, all private schools must pay for rent, utilities, and textbooks, and many have struggled to retain adequate building space.

Educational Achievement

The literacy rate in Russia is nearly 100 percent except in some areas dominated by ethnic minorities, where the rate may be considerably lower. According to the 1989 census, three-fifths of Russia's people aged fifteen and older had completed secondary school, and 8 percent had completed higher education. Wide variations in educational attainment exist between urban and rural areas. The 1989 census indicated that two-thirds of the country's urban population aged fifteen and older had finished secondary school, as compared with just under one-half of the rural population. Schools can award diplomas only in three languages--Russian, Tatar, and Bashkir--a requirement that puts many of the country's more than 100 ethnic groups at a disadvantage.

Higher Education

The VUZ category includes all of Russia's postsecondary educational institutions; in 1995 these totaled about 500, including forty-two universities. The other two types of VUZ are the institute and the polytechnic institute. Institutes, the largest of the three groups, train students in a specific field such as law, economics, art, agriculture, medicine, or technology. The polytechnic institutes teach the same range of subjects but without specialization in a single area. Most universities teach the arts and pure sciences.

The institute program consists of two phases. After completing two years of general studies, a student receives a certificate; he or she then may take an entrance examination to continue for two more years or terminate the program and seek a job. Completion of the next two years results in conferral of a baccalaureate degree. The next level of higher education is specialized study based on a research program in the area of future professional activity. This phase lasts at least two years, at the end of which the individual is designated a specialist in the chosen field. The top level of higher education is graduate work, which entails a three-year program of study and research leading to a degree of candidate (kandidat ), then finally to a degree of doctor of sciences (doktor nauk ).

In the post-Soviet era, the system of higher education has undergone a more drastic transformation than the primary and secondary systems. Authority has moved from the center to agencies in local and subnational jurisdictions. About 14 percent of institutions of higher learning are located in the twenty-one republics of the federation (see table 13, Appendix). Under the new system, each VUZ can determine its own admissions policy and the content of its academic programs. These institutions also have their own financial resources and statutes of operation.

Most of Russia's universities are located in large cities. Moscow State University, which was founded in 1755 and has about 28,000 students and 8,000 teachers, enjoys the highest reputation. The Russian People's Friendship University in Moscow has about 6,500 students and 1,500 teachers, and St. Petersburg State University has about 21,000 students and 2,100 teachers.

The Soviet Union concentrated its vocational training resources in areas such as space and military technology. It lagged behind the West in technical and vocational training in other sectors because of the practice of ending students' preparation in these areas at the secondary level. In Russia vocational schools traditionally have had a poor image; only in the early 1990s was comprehensive vocational education introduced for postsecondary students. In 1993 some 400 VUZ offered specialized training in specific vocational areas ranging from engineering and electricity to agricultural specialties. Some vocational schools have combined general and vocational curricula, with the goal of giving specialists a broader educational background. Another trend is the integration of higher technical education with on-the-job training by linking educational institutions with enterprises and factories.

In the post-Soviet era, business education has expanded dramatically because the demand for competent managers far outstrips the supply. Experts believe that Russia's business education programs will play an important role in transforming social attitudes toward the market economy and capitalism and establishing a new economic infrastructure. The primary goal of the new programs is to create familiarity with the principles of the market economy while casting aside Marxist economic ideology. In the first two years after the Soviet Union dissolved, more than 1,000 business schools and training centers were established.

Three types of institution offer business management education: state and private business schools and private consulting firms. Many in the last category simply offer high-priced lectures, but some business schools have developed sophisticated programs. Examples are the International Business School of Moscow State University, the Graduate School of International Business of the Academy of the National Economy in Moscow, and the International Management Institute in St. Petersburg. Several schools offer full master of business administration (MBA) degree programs based on Western models. Business schools are funded by the state and by private enterprise. Competent faculty are at a premium in this field; many have been trained by Western firms such as IBM.

Education and Society

Education plays a crucial role in determining social status in Russia. People who leave school after eight years generally can find only unskilled jobs. Even those who complete secondary education may rise no higher than skilled labor or low-level white-collar work. A college or university education is necessary for most professional and bureaucratic positions and appears to be highly desirable for a position of political power. For example, a very high percentage of the members of Russia's parliament are university graduates.

Access to higher education is roughly proportionate to the social and financial situation of an individual's family. Children whose parents have money and status usually have an advantage in gaining admission to an institution of higher education. The reasons lie not only with the parents' possible influence and connections but increasingly with the better quality of primary and secondary education that has become available to such children, enhancing their ability to pass difficult university entrance examinations. Moreover, such families can afford to hire tutors for their children in preparation for the examinations and can more readily afford to pay university tuition in case the children do not receive stipends.

By the mid-1990s, the new phenomenon of individual commercial success began influencing the attitude of Russian society toward education and its goals. At the same time, the last generation of Soviet-educated Russians was finding itself ill prepared to deal with a new set of conditions for social and economic survival. In the new order, acquisition of money is much more important for both self-respect and practical survival, and career prestige by itself is of relatively less worth than it was in the Soviet system, where every career label ensured a known level of comfort. Significantly, in post-Soviet years, the phrase delat' den'gi (to make money) has passed into common usage in colloquial Russian. Together with the employment insecurity felt in the 1990s by well-educated Russians, the new values have dampened the educational ambitions of many, particularly with regard to higher education. Although most older Russians resent those who achieve commercial success in the new "system," the generation now in school shows increasing interest in advancement in the private sector of the economy. At the same time, polls show that education ranks ninth among the most pressing concerns of Russians.

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Health

Russia has an entrenched, albeit underfunded, system of socialized medicine. Basic medical care is available to most of the population free of cost, but its quality is extremely low by Western standards, and in the mid-1990s the efficiency of the system continued the decline that had begun before the collapse of the Soviet system. In the first four post-Soviet years, that decline was typified by significant increases in infant and maternal mortality and contagious diseases and by decreases in fertility and life expectancy.

Health Conditions

The decline in health is attributable in part to such environmental and social factors as air and water pollution, contamination (largely from nuclear accidents or improper disposal of radioactive materials), overcrowded living conditions, inadequate nutrition, alcoholism, and smoking, and in part to a lack of modern medical equipment and technology. In 1991 life expectancy in Russia was 74.3 years for females and 63.5 years for males. By 1994 the figure for males was 57.3 years. The male-to-female ratio in the population reflects the higher male mortality rate and the enduring impact of losing millions more males than females in World War II. (In all age-groups below thirty-five, there are more males than females.) In 1993 the overall ratio was 884 males per 1,000 females, and experts predicted that the figure for males would decline to around 875 by the year 2005 (see Demographic Conditions, ch. 3).

By the mid-1990s, Russia's death rate had reached its highest peacetime level in the twentieth century. Curable infectious diseases such as diphtheria and measles have reached epidemic levels unseen since the Bolshevik Revolution, and the rates of tuberculosis, cancer, and heart disease are the highest of any industrialized country.

In 1993 the incidence of a number of infectious diseases increased significantly over the previous year: tuberculosis by 1.25 times, brucellosis by 1.9 times, diphtheria by 3.9 times, and syphilis by 2.6 times (see table 14, Appendix). In 1995 the Russian health system was overwhelmed by the return of epidemic diseases such as cholera and typhoid fever, even as it faced chronic staff and equipment shortages. In the winter of 1995-96, Russia suffered its most severe epidemic of influenza in decades. An estimated 1 million people were infected in Moscow alone, and numerous schools and public institutions were closed to prevent the spread of the disease. Experts attributed the virulence of the epidemic to the generally low level of resistance of much of the Russian population, the result of poor overall health care and stressful economic conditions. Other causes were the uneven availability of influenza shots and the population's general belief that injections enhance rather than decrease an individual's chances of becoming ill.

Between 1980 and 1989, cancer and its complications increased from 15 percent to 18 percent among causes of death. In 1990 the most common types of cancer were breast cancer, cancer of the stomach and liver, and skin cancer. In the last years of the Soviet Union, about 680,000 new cases were diagnosed annually. The causes of cancer are varied and complex, but contributing factors in Russia are heavy smoking, radiation exposure, and contact with pervasive toxic emissions and chemicals in soil, food, and water. According to the deputy minister of environmental protection and natural resources, about 50 percent of all cancer-related illnesses can be attributed to environmental factors. Heavy-manufacturing regions show especially high rates; in Noril'sk, the metallurgical center located above the Arctic Circle, the incidence of lung cancer among males is the highest in the world (see Environmental Conditions, ch. 3).

Russia's birthrate has shown an increasingly steep decline in the 1990s, amounting to what one commentator calls "the quiet suicide of a nation." For example, the annual birthrate for the first six months of 1992 was 11.2 per 1,000 population--a 12 percent decline from the same period in the previous year. In some areas, the rate was even lower, for instance, 9.2 in St. Petersburg and 8.2 in the Moscow region.

Russia's Ministry of Health reported in June 1991 that the country had a negative rate of population change for the first time since records have been kept. The declining number of births is attributed in part to a drop in fertility, which presumably stems from a combination of physiological and environmental factors, and in part to women's reluctance to bear children in a time of economic uncertainty.

Maternity, Infant Care, and Birth Control

Some of the same factors shortening the lives of adults cause needless premature deaths of newborns in Russia. Poor overall health care and lack of medicines, especially in rural areas, reduce infants' survival chances. In Russia an estimated 40 to 50 percent of infant deaths are caused by respiratory failure, infectious and parasitic diseases, accidents, injuries, and trauma. For developed countries, this share ranges between 4 and 17 percent.

Infant mortality rates vary considerably by region. Central and northern European Russia's rates have been more in line with West European rates. In the intermediate category are the Urals, western Siberia, and the Volga Basin. The highest rates are found in the North Caucasus, eastern Siberia, and the Far East. Several autonomous republics, including Kalmykia, Chechnya, Ingushetia, Dagestan, and Tyva, consistently record the highest rates in the Russian Federation. In these areas, social and economic underdevelopment, poor health care, and environmental degradation have had an impact on the health of mothers and newborns.

Unwanted pregnancies are common because of the limited availability and substandard quality of contraceptives and a reluctance to discuss sexual issues openly at home or to provide sex education at school. No social stigma is attached to children born out of wedlock, and unmarried mothers receive maternity benefits. Medical care for expectant mothers is among the least adequate aspects of the country's generally substandard system of health care. A high percentage of pregnant women suffer from anemia and poor diets--factors that have a negative effect on their babies' birth weight and general health.

In the mid-1990s, modern forms of contraception are unavailable or unknown to most Russian women. The Soviet Union legalized abortion for medical reasons in 1955 and overall in 1968. But information about Western advances in birth control--and all modern means of birth control--was systematically kept from the public throughout the remaining Soviet decades. As a result of that policy, today's Russian gynecologists lack the training to advise women on contraception, and public knowledge of the subject remains incomplete or simply mistaken. Even in Moscow in the mid-1990s, most contraceptives were paid for by voluntary funds and international charities. In the early 1990s, an estimated 22 percent of women of childbearing age were using contraceptives; the percentage was much lower in rural areas.

Abortion remains the most widely practiced form of birth control in Russia. In 1995 some 225 abortions were performed for every 100 live births, up from a rate of 196 per 100 in 1991. According to one study, 14 percent of the women in Russia with sixteen or more years of school had undergone eight to ten abortions. The conditions under which abortions are performed often are primitive. Moreover, it is estimated that nearly three-quarters of abortions take place after the first trimester of pregnancy, involving substantially greater maternal risk than those performed earlier. The number of abortions is much higher among Russian women than among Muslims and other minority groups, however. Statistically, the higher her social status and the extent of her Russification, the more likely a Muslim woman is to seek an abortion.

Infant and child health in Russia is significantly worse than in other industrialized countries. According to official statistics, only one child in five is born healthy. The inability of more than half of all new mothers to breast-feed, mainly because of poor diet, further undermines infants' health in a country where diets generally are unbalanced. Another problem is that most women of childbearing age are employed and thus must place their young children in day care centers, where they often contract contagious diseases. Illnesses such as cholera, typhoid fever, diphtheria, pertussis, and poliomyelitis, which have been virtually eradicated in other advanced industrial societies, are widespread among Russia's children. Vaccines are scarce. Even when immunizations are available, parents often refuse them for their children because they fear infection from dirty needles.

Alcohol, Narcotics, and Tobacco

Russia's rate of alcohol consumption, traditionally among the highest in the world and rising significantly in the 1990s, is a major contributor to the country's health crisis, as well as to low job productivity. Rated as Russia's third most critical health problem after cardiovascular diseases and cancer, alcoholism has reached epidemic proportions, particularly among males. In the twentieth century, periodic government campaigns against alcohol consumption have resulted in thousands of deaths from the consumption of alcohol surrogates. The latest such campaign was undertaken from 1985 to 1988, during the regime of Mikhail S. Gorbachev (in office 1985-91). Although some authorities credited reduced alcohol consumption with a concurrent drop in Russia's mortality rate, by 1987 the production of samogon (home-brewed liquor) had become a large-scale industry that provided alcohol to Russians while depriving the state of tax revenue. When restrictions were eased in 1988, alcohol consumption exceeded the pre-1985 level. According to one study, between 1987 and 1992 annual per capita consumption rose from about eleven liters of pure alcohol to fourteen liters in 1992; current consumption is estimated at about fifteen liters. (According to World Health Organization standards, consumption of eight liters per year is likely to cause major medical problems.)

A 1995 Russian study found that regular drunkenness affected between 25 and 60 percent of blue-collar workers and 21 percent of white-collar workers, with the highest incidence found in rural areas. Because alcohol remains cheap relative to food and other items, and because it is available in most places day and night, unemployed people are especially prone to drunkenness and alcohol poisoning. In 1994 some 53,000 people died of alcohol poisoning, an increase of about 36,000 since 1991. If vodka is unavailable or unaffordable, Russians sometimes imbibe various combinations of dangerous substances. The Russian media often report poisonings that result from consumption of homemade alcohol substitutes. Production of often-substandard alcohol has become a widespread criminal activity in the 1990s, further endangering consumers. Alcohol consumption among pregnant women is partly responsible for Russia's rise in infant mortality, birth defects, and childhood disease and abnormalities.

Smoking, a widespread habit, especially among women and teenagers, compounds Russia's health crisis. Chain-smoking is endemic in Russia; in 1996 an estimated 55 percent of Russians were regular smokers, and health authorities believed that the figure was rising. However, rather than urge patients to quit, doctors often recommend the purchase of American cigarettes, which are more expensive but have less tar and nicotine than Russian brands. When import restrictions ended in the early 1990s, the American cigarette industry found a large new market in Russia. A modest government antismoking campaign paralleling Gorbachev's anti-alcohol campaign in the late 1980s had little effect. In January 1996, cigarette advertising in the print media was prohibited, and smoking in theaters and workplaces generally was restricted to designated locations.

The increasing incidence of drug abuse was belatedly acknowledged by the Russian government as a public health problem. In 1995 an estimated 2 million Russians used narcotics, more than twenty times the total recorded ten years earlier in the entire Soviet Union, with the number of users increasing 50 percent every year in the mid-1990s. In the Soviet era, drugs were viewed officially as a capitalist vice, but that attitude disappeared soon after the Soviet Union dissolved. Russia legalized drug use (but not possession or sale) in 1991. According to experts, laws against possession are not dissuasive. Narcotics use has spread to new elements of society in recent years, including alcoholics seeking a new means of escape. Russian experts rate the new class of Russian businesspeople as the group with the highest percentage of drug users; for them, success often includes the ability to purchase the most expensive narcotic. The drug scene, once dominated by students and intellectuals, now includes large numbers of housewives and workers. Synthetic drugs now are manufactured in small laboratories by professional chemists; some are easily fabricated by amateurs as well. Legally produced drugs often are stolen and move into the black market (see The Crime Wave of the 1990s, ch. 10).

Medical treatment and educational programs now include hot lines in major cities and walk-in clinics that provide advice and treatment on an anonymous basis. Some schoolteachers have begun class discussions of drug-related issues and have distributed antidrug literature to students. Nevertheless, Russia's drug problem remains largely intractable. Many addicts overdose, and some who cannot afford heroin inject themselves with other substances that cause illness or death.

Aids

Acquired immune deficiency syndrome (AIDS) likely was brought to the Soviet Union by students from countries with high levels of incidence of the disease. In 1987, after the first case of AIDS was confirmed in Russia, the Supreme Soviet of the Soviet Union passed the strictest anti-AIDS law in the world, making the knowing transmittal of the infection a criminal offense punishable by up to eight years in jail. A 1995 law, which has been criticized vehemently for its human rights implications and the cost of its administration, stipulates that all visitors remaining more than three months must prove that they are not infected with the AIDS-causing human immunodeficiency virus (HIV).

The government has established a diagnostic and screening infrastructure for AIDS prevention and control at the central and subnational levels. This system has been criticized heavily, however, because it tests only populations with little chance of infection, and because it fails to allocate scarce funds to root causes of AIDS transmittal such as infection from hospital procedures and reuse of hypodermic needles. The release of statistics on the incidence of AIDS and other sexually transmitted diseases has been extremely slow. In late 1995, the Ministry of Health reported that 1,023 Russians, including 278 children, had been registered as having HIV, and that to that point 160 Russians, of whom seventy-three were children, had died of AIDS. Before 1992 several mass infections of children occurred in medical facilities.

Official diagnoses of HIV increased 50 percent from 1993 to 1994. However, according to an official of the Imena AIDS support group, which is devoted to rehabilitation of HIV victims, the official statistics are understated at least tenfold because Russians in the groups most at risk--prostitutes, homosexuals, and drug users--have reason to fear that results will not remain confidential and so refuse AIDS testing. Although the 1990 Law on Prevention of AIDS mandates confidentiality of medical records, in practice jobs often are lost and social services denied after a positive diagnosis. The highest incidence of HIV is in Moscow, St. Petersburg, Rostov-na-Donu, Volgograd, and the Republic of Kalmykia, the last three of which have medical facilities where unsanitary procedures have resulted in mass transmission of the virus. The majority of reported HIV-positive individuals are drug users.

As in the Soviet period, the public receives little information about precautions against AIDS or the identity of the high-risk categories in society, and AIDS sufferers meet much intolerance in Russian society. Because the disease has been associated with foreigners, government officials and the public have ignored the need for preventive measures among Russians. AIDS transmittal is increased by a chronic shortage of condoms (which Soviet medical officials euphemistically called "Article Number 2") and by the lack of disposable hypodermic syringes in hospitals and clinics, which results in the repeated use of unsterilized needles.

The Health System

The glasnost period of the late 1980s first revealed the decay of the Soviet system of socialized medicine, which nominally guaranteed full health protection to all citizens without charge. That system had been installed under Joseph V. Stalin (in office 1927-53) with an emphasis on preserving a healthy work force as a matter of national economic policy. In the 1980s, Russia had a huge network of neighborhood and work-site clinics and first-aid facilities to provide readily accessible primary care, together with large hospitals and polyclinics to diagnose and treat more complex illnesses and to perform surgery. In 1986 the Soviet Union had 23,500 hospitals with more than 3.6 million beds. Such facilities included about 28,000 women's consultation centers and pediatric clinics, together with emergency ambulance services and sanatoriums.

In the 1980s, the Soviet Union was first in the world in the ratio of hospital beds to population. Behind this system was a huge, multilevel bureaucracy directed from Moscow in consultation with organs of the CPSU. All aspects of health service had nationwide annual programs with complex statistical accounting and goals. Physicians devoted an estimated 50 percent of their time to filling out forms, and every year a large part of the national health care budget went to construction of new facilities.

The structure of the Soviet system, which specified the length of treatment for every disease, often caused people suffering from relatively minor ailments such as influenza to be hospitalized. The result was a serious overcrowding problem in hospitals despite the large number of beds available. Patients preferred hospital treatment because hospitals were better equipped than clinics and because crowded living conditions made recuperation at home difficult. Many large enterprises operated clinics that provided workers health care without requiring them to leave the work site. Such clinics aimed at reducing the incidence of sick leave, which averaged 3 percent of the workforce per day in the 1980s.

The most outdated and abuse-ridden aspect of Soviet health care was psychiatric treatment. That system never advanced from the methodology of the 1950s, which included Pavlovian conditioned-response treatment, heavy reliance on drug therapy, and little practice of individual or group counseling. Therefore, most citizens preferred to suffer rather than submit themselves to treatment. In addition, Soviet psychiatry was at the service of the government to declare dissenters "insane," commit them to psychiatric hospital-prisons, and administer powerful psychotropic drugs. In the mid-1980s, estimates of the number of political prisoners in such institutions ranged from 1,000 to several thousand, and in 1983 the Soviet Union withdrew from the World Psychiatric Association to avoid censure for its abuses of the profession. In 1988 the special psychiatric hospitals to which political dissidents had been committed were transferred from the jurisdiction of the Ministry of Internal Affairs to that of the Ministry of Health.

In 1986 the Soviet Union had about 1.2 million doctors and about 3.2 million paramedical and nursing personnel. Medical training emphasized practical work over basic research and pure science; only nine medical institutes were attached to universities. In the late 1980s, the average doctor's salary was roughly comparable to that of the average industrial worker. In 1996 the average Moscow specialist made about US$75 per month, and senior doctors made about US$150 per month. Paramedics and nurses needed only two years of training and no scientific background; however, in rural areas, which suffered a shortage of doctors, such individuals often were the only medical personnel available.

Despite the nominally equitable nature of Soviet socialized medicine, the actual system was highly stratified according to location, with far inferior care and facilities available in rural areas, and especially according to political status. The Ministry of Health maintained a completely separate, vastly superior system of clinics, hospitals, and sanatoriums for top party and government officials and other elite groups such as writers, actors, musicians, and artists.

The outline of the Soviet system did not change appreciably in the first half of the 1990s, but quality declined in nearly every aspect except the facilities designated for the elite. In 1992 Russia had 662,700 doctors, a drop of about 32,000 since 1990, and 131 hospital beds per 10,000 population, a drop of 97,000 beds (about 5 percent) since 1990. Among the doctors, 78,600 were surgeons, 77,600 pediatricians, 39,600 gynecologists, 20,300 psychiatrists, and 18,500 neurologists.

In the early 1990s, the public health delivery system in Russia was in crisis. Although the number of doctors and paramedics has remained sufficiently high to ensure the provision of adequate treatment, most such personnel are poorly trained, lack modern equipment, and are badly paid. In 1995 Russia had one doctor for every 275 citizens (compared with one for every 450 in the United States), but about half of medical school graduates cannot diagnose simple ailments or read an electrocardiogram when they enter practice. In 1993 about forty institutions offered medical training, but the quality of training varied considerably. Many medical schools suffer from shortages of instructors, textbooks, current medical journals, contacts with Western experts, and equipment.

Low salaries have made corruption common among medical personnel, who often extract bribes for both materials and services. Thus, although health care is free in principle, the chances of receiving adequate treatment may depend on the patient's wealth. The combination of bribes and authorized charges puts many types of medical treatment beyond the reach of all but the wealthy. Elderly people are hit especially hard by this situation. Meanwhile, a sharp decline in state funding has affected all aspects of medical care, from prevention to emergency treatment. Between 1990 and 1994, state funding declined from 3.4 percent of the national budget to 1.8 percent.

Although Russia pioneered in some specialized fields of medicine such as laser eye surgery and heart surgery, the country's medical establishment is generally deficient in hospital equipment, technology, and pharmaceuticals. For example, preventable infant deaths result from an absence of fetal heart monitors, ultrasound units, and various other equipment for monitoring labor and delivery; needless deaths from heart disease occur because hospitals lack the equipment needed to perform bypass surgery and angioplasty.

Facilities for the disabled, of whom about 6 million reside in Russia, also fall far below Western standards. Wheelchairs and artificial limbs are in very short supply, rehabilitation centers are few, and wheelchair ramps are virtually nonexistent. A 1995 law, On the Social Protection of Disabled Persons in the Russian Federation, provides for a wide range of benefits and services, including equal access to education, employment, transportation, and services. The law requires businesses to set aside at least 3 percent of their jobs for the disabled. However, no funding was available for any of the law's programs in 1996.

The shortage of medicines in Russia is chronic and catastrophic. Soviet-era supplies of materials and drugs have been depleted and are not being adequately replenished. Domestic production has plummeted because of the obsolescence of pharmaceutical factories and shortages of requisite raw materials and supplies. Many of the items produced are ineffective. Russia relies increasingly on imports from former Soviet-bloc nations in Central Europe, which formerly accepted barter transactions and payment in rubles but now demand hard currency (see Glossary), a scarce item in Russia, for their products. The nonconvertibility of the ruble also has hindered Russia's ability to purchase medicines abroad. Even when pharmaceuticals are available in Russia, they often are priced beyond the reach of doctors and patients.

Russia's hospitals and polyclinics are generally old (about 15 percent were built before 1940), and they lack basic amenities. Roughly 42 percent of the country's hospitals and 30 percent of its clinics lack hot water, and 12 percent and 7 percent, respectively, have no running water at all. About 18 percent of hospitals and 15 percent of clinics are not connected to a sewerage system, and only 12 percent in both categories have central heating. Even in the best hospitals, medical personnel do not regularly wash their hands, surgical instruments are not always properly sterilized, and rates of infection are abnormally high.

Aside from shortfalls in Russia's health facilities and the quality of medical personnel, much of the country's public health crisis stems from poor personal hygiene and diet and lack of exercise. Preventive medicine and wellness programs are virtually nonexistent, as are programs to educate the public about personal sanitation, proper diet, and vitamins. The average Russian does not consume a balanced diet. Vegetables often are scarce in Russia, except in rural areas where they are homegrown, and fruits never have constituted an important element of the Russian diet. Per capita meat consumption also has fallen in the 1990s (see table 6, Appendix).

Russia's government is attempting to equalize the distribution of health care by fragmenting the Soviet-era network of top-level medical facilities for exclusive use of the elite. In the spring of 1993, President Yeltsin signed a decree entitled On Immediate Measures to Provide Health Care for the People of the Russian Federation. The proclaimed goal, which already had been established in the 1980s, was the creation by 2000 of a "unified system of health care" for the entire population. However, economic constraints are likely to stymie achievement of that goal in the near future. In 1995 less than 1 percent of Russia's budget was earmarked for public health, compared with 6 percent in Britain and more than 12 percent in the United States. Experts forecast that such a meager outlay will not address the major shortfalls in Russia's health care system, not to mention the air, water, and soil pollution that continue to contribute insidiously to worsening public health.

The impersonality and inaccessibility of national health system facilities, with patients often standing in line at clinics for an entire day before receiving brief diagnoses and prescriptions for drugs they cannot afford, has encouraged many Russians to turn to unorthodox alternatives such as faith healing, herbal medicine, and mysticism. By the mid-1990s, private medical clinics were serving a growing number of Russians able to afford their care.

In the Soviet era, the state discouraged alternative medicine by arresting practitioners. By 1995, however, the number of such individuals was estimated at 300,000, and as many as 80 percent of Russians needing medical assistance have turned to them, according to a Yeltsin adviser on social policy. Traditional folk healers constitute the largest group of nontraditional practitioners. They offer personalized attention and affordable cures such as birch bark and cranberries to cure a variety of complaints. Russians with access to a plot of land often grow their own herbs, and books describing home cures have become popular. Long-practiced cures such as wrapping oneself in a vinegar-soaked blanket and drinking one's own urine have become more widespread in the 1990s.

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Social Welfare

As Russia makes the transition from a command economy to a partial free-market system, the provision of an effective social safety net for its citizens assumes increasing urgency. A 1994 World Bank report described the current social-protection system as inappropriate for the market-oriented economy toward which Russia supposedly was striving. Among the major shortcomings noted in the report were the continued major role played by enterprises as suppliers of welfare services, as they had been in the Soviet period; the absence of any coverage for large groups of people and the inadequate level of benefits in some regions; a growing disparity between a shrinking wage base and the demands placed on the system; and the failure to target the neediest recipients. As the economic transition of the 1990s forces more of Russia's citizens into poverty, the state has tried to maintain the comprehensive Soviet system with severely constrained resources.

The system's inefficiency is exacerbated by its fragmentation. As in the Soviet period, allowances and benefits are administered and financed by diverse agencies, including four extrabudgetary funds, several ministries, and the lower levels of government. The Ministry of Social Protection is the primary federal agency handling welfare programs. However, that ministry focuses almost exclusively on the needs of people who are retired or disabled; other vulnerable groups receive much less attention. The four extrabudgetary funds that provide cash and in-kind social welfare benefits at the federal level are the Social Insurance Fund, the Pension Fund, the Employment Fund, and the Fund for Social Support.

Social security and welfare programs provide modest support for the most vulnerable segments of Russia's population: elderly pensioners, veterans, infants and children, expectant mothers, families with more than one child, invalids, and people with disabilities. These programs are inadequate, however, and a growing proportion of Russia's population lives on the threshold of poverty. Inflation has a particularly deleterious effect on households that rely on social subsidies. Women traditionally have outnumbered men in such households.

The Fund for Social Support supplements a variety of in-kind social assistance programs in Russia. It is financed through the Ministry of Social Protection and supplements social welfare programs at the subnational level. The federal government has transferred most responsibility for social welfare, health, and education programs to subnational organs but has failed to ensure their access to adequate revenue. The total allocation of transfers from the federal budget to localities amounted to less than 2 percent of Russia's gross domestic product (GDP--see Glossary) in 1992. Thus, the quantity and quality of social services at the local level--including the provision of food vouchers and cash payments to cover specific items such as heating bills--are far from certain as time passes. Under these conditions, local jurisdictions have come to rely increasingly on extrabudgetary sources, the instability of which makes long-term planning difficult.

Pensions

Pensions are the largest expenditure of the social safety program. The Pension Fund accounts for 83 percent of Russia's extrabudgetary allocations. At the end of 1994, about 36 million citizens, or 24 percent of the country's population, were receiving pensions, an increase of about 5 percent in the first three post-Soviet years. Two broad categories of pensions are paid in Russia: labor pensions, which are disbursed on the basis of a worker's payroll contributions, and social pensions, which are paid to individuals who have worked for less than the five years needed to qualify for a labor pension. All Russian citizens who have worked for twenty years are entitled to at least a minimum pension. In 1994 about 75 percent of all pensioners received labor pensions. The Pension Fund also finances some child allowances and other entitlements.

The Pension Fund is administered by the Ministry of Social Protection and financed by a 29 percent payroll tax and by transfers from the state budget. Between 1991 and 1993, the real income of pensioners was cut in half as prices rose rapidly and pension indexation failed to keep pace. Inflation also severely eroded the value of the life savings of retirees, and a disproportionate number of pensioners were victimized by financial scams. A 1994 law requires quarterly indexation of pensions, but the law was not observed consistently in its first year, and in mid-1995 the average pension fell below the subsistence minimum for pensioners. Beginning in 1994, the government's failure to pay pensions on time led to large rallies in several cities. In August 1994, an estimated 10 million pensioners did not receive their checks on time, and pension arrears mounted in the two years that followed. By mid-1996 the payment backlog was estimated at US$3 billion. The present system includes an important provision that has kept many pensioners above the poverty line: it allows workers to draw pensions while continuing to work. In 1995 as many as 27 percent of Russian pensioners continued to work after retiring from their primary job.

Russian and Western experts agree that the pension system requires comprehensive reform--although its rate of payment compliance by enterprises is substantially better than that of the State Taxation Service. The most pressing needs are an effective system of indexation of pensions to purchasing power, an insurance mechanism, individualized contributions, higher retirement ages, and the closing of loopholes that allow early retirement. In 1995 the Ministry of Social Protection began work on a reform that would establish a three-tier pension system including a basic pension, a work-related pension in proportion to years of service, and an optional private pension program. In 1995 Prime Minister Viktor Chernomyrdin admitted that the state budget lacked the money to continue indexing pensions according to living costs. In November 1995, a decree by President Yeltsin, On Additional Measures to Strengthen Payments Discipline for Settling Accounts with the Pension Fund, set stricter reporting standards for payments to the fund by organizations and citizens, in an effort to preclude nonpayment. In the midst of his campaign to be reelected president, Yeltsin then approved two laws increasing minimum pension levels in three stages, by 5, 10, and 15 percent, between November 1995 and January 1996.

Women are entitled to retire when they reach age fifty-five, and men when they reach age sixty. Nevertheless, financial hardship leads many women to remain in the labor force past retirement age, even while continuing to receive pensions, in order to prevent a drop in their families' standard of living. In 1991 women constituted an estimated 72 percent of pensioners. The disproportion between the genders stems from women's earlier permissible retirement age and their greater longevity. Aside from pensions, women receive other retirement privileges. Mothers of five or more children are entitled to a pension at age fifty. "Mother Heroines"--women with ten or more children--receive an allowance equal in sum to the pension, and the time they spent on child care leave counts toward the minimum twenty years of work required for labor pensions. For these reasons, many women retire before age fifty-five, while most men wait until they reach sixty-two. (Many job categories routinely allow retirement for both sexes before the standard ages.)

Worker Protection and Benefits

Legislation has established numerous protective devices at the enterprise level to provide a social safety net that is particularly attuned to the needs of women of childbearing age. Thus, family policy and employment policy are inextricably linked. In addition to basic allowances for all workers, special allowances exist for children of military personnel, children with unmarried, divorced, or widowed mothers, and children who are disabled. Women who have an employment contract are entitled to paid maternity leave from seventy days prior to giving birth until seventy days afterward. Maternity leave benefits are based on the minimum wage rather than on a woman's current wage, however.

Russia also provides a maternity grant, which is a onetime payment totaling three times the minimum wage or 45 percent of the minimum wage in the case of mothers who have worked less than one year. In order to receive a maternity allowance (or sickness benefits), a woman must have an employment contract. The maternity allowance amounts to 100 percent of the mother's salary, regardless of her length of employment.

Maternity allowances in Russia are followed by a monthly child allowance of 80 percent of the minimum wage in the case of children up to eighteen months old. This allowance may be supplemented by a child-care allowance, set at 35 percent of the minimum wage, to compensate for earnings lost in the course of caring for children in this age bracket. The latter allowance is paid to mothers over the age of eighteen who have been in the labor force at least one year. An additional compensatory child-care allowance, equivalent to 35 percent of the minimum wage, is available to mothers or other caretakers of children under the age of three.

Russia also has an extended child allowance of 45 percent of the minimum wage (60 percent for children of military personnel, children living with a guardian or in an orphanage, and children with AIDS) to assist families with the care of children between the ages of eighteen months and six years. Single mothers and those who receive no child support from the father of their child may obtain an additional 45 percent of the minimum wage up to their child's sixth birthday; this figure is then increased to 50 percent and remains effective until the child is sixteen. In May 1992, special cost-of-living compensations were introduced to cover the increased expense of meeting children's basic needs. These compensations ranged from 30 percent of the minimum wage in the case of children less than six years old to 40 percent in the case of those ages thirteen to sixteen.

Among other benefits provided by enterprises to their workers are access to special shops that sell subsidized milk for families with low incomes and small children and an allowance to children for the purchase of a school uniform when they start school and again at the age of thirteen. Other regulations focus more specifically on families with small children. These include protective legislation prohibiting the dismissal of pregnant women or women with children under the age of three, banning night work and overtime for mothers of small children, stipulating workload concessions to pregnant women and mothers of young children, and providing flextime, part-time work, home-based employment, nursing intervals, and additional paid and unpaid leave to mothers to care for sick children. Many workplaces also permit informal leave arrange-ments for the purpose of food shopping.

A significant portion of Russian workers have entitlements to housing, child care, and paid vacations, regardless of their rank within an enterprise. Housing entitlements involve either outright provision of a low-rent apartment (most apartment rents are very low) or various forms of cash or in-kind assistance. Moreover, occupants obtain an implicit ownership right extending beyond their term of employment. They may also have the legal title of the apartment transferred to their own names without paying any purchase price (see Housing, this ch.).

Besides housing allowances, most large and medium-sized enterprises provide on-site medical facilities or they contract for outside health care facilities for their employees. The medical care provided through the auspices of enterprises is free and often is of much higher quality than the care available in government-run facilities (see The Health System, this ch.). Finally, enterprises provide their employees with goods ranging from foodstuffs to consumer durables. The enterprises procure these items through direct purchase, barter, or from their own farms, and make them available at below-market prices.

The Social Insurance Fund is the administrative mechanism for payments to workers of birth, maternity, and sickness allowances, and child allowances for children between the ages of six and sixteen. The fund is managed by the largest union organization in Russia, the Federation of Independent Trade Unions of Russia (Federatsiya nezavisimykh profsoyuzov Rossii--FNPR) and serves as the repository of enterprise contributions consisting of 5.4 percent of the total payroll (see Social Organizations, this ch.). Nominally an independent institution since its establishment in 1991, the Social Insurance Fund is in fact responsible to the FNPR.

In 1993 an overhaul of the fund's administrative structure began as a result of enterprises' low levels of compliance with contribution requirements, charges of serious abuse by trade union officials, and the government's desire to promote democratic accountability. Since 1993 the management system has been in flux, and the quality of administration varies considerably throughout the country. Most worker contributions to the fund are retained by the enterprise for distribution. About one-half of the money goes to sick pay and one-fifth to subsidize treatment at sanatoriums. Family support includes birth and maternal allowances intended to replace lost wages, but child allowances do not address poverty directly because payments are not in proportion to household income.

Russia also has an overall system of family benefits. These can be grouped into three broad categories: those payable to all families with children, regardless of income or other qualifying conditions; those payable to working mothers; and those payable to disadvantaged families.

The communist system, for all its economic and moral deformities, provided virtually universal employment, so that every able-bodied citizen had an opportunity to earn income and thus social security. In postcommunist Russia, the phenomenon of unemployment is openly acknowledged and growing (see Unemployment, ch. 6). At the end of 1995, some 8.2 million people were registered as unemployed, indicating a far higher actual number. Three years earlier, about 5 million were registered. The "new poor," in the parlance of the World Bank, put a considerable strain on the resources available in Russia for social welfare.

Administered by the Ministry of Labor, the Employment Fund, which is financed by a 2 percent payroll tax from all enterprises, disburses compensation to jobless people. The level of compensation, already low in 1995, was expected to drop further if unemployment rose. As part of its assistance package to Russia, the World Bank is providing a computerized system that will help the country register claimants for unemployment and pay adequate benefits.

The Ministry of Labor's subsistence minimum is based on the cost of nineteen staple items considered sufficient to ensure survival, plus an estimated minimum cost for utilities, transportation, and other necessities. The calculation varies according to age-group and region; trade unions use other formulas that usually expand the number of people identified as living below the poverty line. In early 1996, the State Duma considered a law that would make the Ministry of Labor's figure the legal basis for establishing minimum wages, pensions, and other levels of social support. Barring such legislation, the subsistence minimum has no legal status.

The Homeless

The urban homeless are a category of the socially disadvantaged that received no official recognition in the Soviet era. Because Soviet law banned beggars and vagrants, the homeless (meaning anyone who lost his or her place of residence for any reason) were imprisoned or expelled from the cities. When the ban ended in the early 1990s, thousands of homeless people, mostly men, appeared in Russia's cities; the majority had migrated to urban areas seeking work or were refugees from the armed conflicts that erupted in the Caucasus and Central Asia when the Soviet Union dissolved.

In 1995 Moscow authorities estimated that city's homeless population at 30,000, but Western experts put the figure as high as 300,000. An estimated 300 homeless people died in Moscow in the first half of the winter of 1995-96, and on-site medical personnel reported widespread disease. At that point, Moscow had one shelter, with a capacity of twenty-four, and other Russian cities offered no sanitation or temporary residence centers of any sort. In the mid-1990s, the government of mayor Yuriy Luzhkov followed the Soviet pattern of forcibly removing vagrants from the city, especially at times when large numbers of Western visitors were expected. Police routinely harass and beat vagrants found on the streets. The Soviet propiska system of residency permits, which granted housing and employment to individuals only in the place where they were officially registered, has been found unconstitutional several times by Russia's Constitutional Court. However, many local authorities, including those in Russia's largest European cities, continue to require Soviet-era documentation; in 1995 Moscow assessed a fee of 35 million rubles (about US$7,000) for registration as a permanent resident of the city, and several other cities adopted similar measures. In the face of such restrictions, many homeless individuals are unable to change their status.

Through the first half of the 1990s, no specific agency of the Russian government has borne responsibility for aiding the homeless; the Federal Migration Service, a badly underfunded and understaffed agency created in 1992, has not been able to carry out its legal responsibility to locate housing and employment for internal and external migrants (see Migration, ch. 3). A number of Western humanitarian organizations, such as the Salvation Army and Doctors Without Borders, are the main source of assistance. In late 1995, the many deaths of homeless people prompted the Moscow government to announce plans to build ten new shelters and to ease the procedure for obtaining residency permits.

Private charities in Russia have suffered from an absence of government support and a general lack of social acceptance. In 1995, for example, the soup kitchen of the Christian Mercy Society in Moscow, which fed 400 poor people daily, had to pay city officials to stay open, and the organization was unable to obtain a designated space in which to operate. In fact, Russian law gives no status whatever to private charities, so such organizations must fend for themselves in helping the increasingly large number of urban poor. Russian society generally distrusts charities, partly because no such institutions existed either in tsarist times (royalty and the nobility provided whatever assistance went to the needy) or in the Soviet era, and partly because society has become fragmented by the difficult economic conditions of the 1990s.

According to Western experts, a comprehensive system of social protection is an urgent need of the Russian government, both for humanitarian reasons and as a prerequisite to financial stabilization and economic restructuring. The quality of future Russian society also will depend on reversing a steep downward trend in the quality of education and health care that has eroded the ability of Russians to improve their economic standing and to feel the sense of basic security that the Soviet system provided to some degree. Under Russia's conditions of drastic social and economic change, such forms of support are especially missed in the mid-1990s.

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The Economy

LIKE MANY OTHER ASPECTS OF RUSSIAN LIFE, the Russian economy underwent a journey through uncharted waters in the early 1990s. First came the disintegration of the centrally planned economy that was a hallmark of the state-controlled economy and then its replacement by an economy operating on the basis of market forces. Some of the former communist states of Central Europe began their process of economic transition two years before Russia and have provided positive models. But Russia lacks experience with market economies and the institutions needed to operate them. Moreover, deeply en-trenched remnants of central planning present challenges in Russia that other countries were able to avoid.

Russia undertakes the transition with advantages and obstacles. Although only half the size of the former Soviet economy, the Russian economy includes formidable assets. Russia possesses ample supplies of many of the world's most valued natural resources, especially those required to support a modern industrialized economy. It also has a well-educated labor force with substantial technical expertise. At the same time, Soviet-era management practices, a decaying infrastructure, and inefficient supply systems hinder efficient utilization of those resources.

For nearly 60 years, the Russian economy and that of the rest of the Soviet Union operated on the basis of central planning--state control over virtually all means of production and over investment, production, and consumption decisions throughout the economy. Economic policy was made according to directives from the communist party, which controlled all aspects of economic activity. The central planning system left a number of legacies with which the Russian economy must deal in its transition to a market economy.

Much of the structure of the Soviet economy that operated until 1987 originated under the leadership of Joseph V. Stalin (in office 1927-53), with only incidental modifications made between 1953 and 1987. Five-year plans (see Glossary) and annual plans were the chief mechanisms the Soviet government used to translate economic policies into programs. According to those policies, the State Planning Committee (Gosudarstvennyy planovyy komitet--Gosplan) formulated countrywide output targets for stipulated planning periods. Regional planning bodies then refined these targets for economic units such as state industrial enterprises and state farms (sovkhozy ; sing., sovkhoz --see Glossary) and collective farms (kolkhozy ; sing., kolkhoz --see Glossary), each of which had its own specific output plan. Central planning operated on the assumption that if each unit met or exceeded its plan, then demand and supply would balance.

The government's role was to ensure that the plans were fulfilled. Responsibility for production flowed from the top down. At the national level, some seventy government ministries and state committees, each responsible for a production sector or subsector, supervised the economic production activities of units within their areas of responsibility. Regional ministerial bodies reported to the national-level ministries and controlled economic units in their respective geographical areas.

The plans incorporated output targets for raw materials and intermediate goods as well as final goods and services. In theory, but not in practice, the central planning system ensured a balance among the sectors throughout the economy. Under central planning, the state performed the allocation functions that prices perform in a market system. In the Soviet economy, prices were an accounting mechanism only. The government established prices for all goods and services based on the role of the product in the plan and on other noneconomic criteria. This pricing system produced anomalies. For example, the price of bread, a traditional staple of the Russian diet, was below the cost of the wheat used to produce it. In some cases, farmers fed their livestock bread rather than grain because bread cost less. In another example, rental fees for apartments were set very low to achieve social equity, yet housing was in extremely short supply (see Housing, ch. 5). Soviet industries obtained raw materials such as oil, natural gas, and coal at prices below world market levels, encouraging waste.

The central planning system allowed Soviet leaders to marshal resources quickly in times of crisis, such as the Nazi invasion, and to reindustrialize the country during the postwar period. The rapid development of its defense and industrial base after the war permitted the Soviet Union to become a superpower.

The record of Russian economic reform through the mid-1990s is mixed. The attempts and failures of reformers during the era of perestroika (restructuring--see Glossary) in the regime of Mikhail S. Gorbachev (in office 1985-91) attested to the complexity of the challenge. Since 1991, under the leadership of Boris N. Yeltsin, the country has made great strides toward developing a market economy by implanting basic tenets such as market-determined prices. Critical elements such as privatization of state enterprises and extensive foreign investment went into place in the first few years of the post-Soviet period. But other fundamental parts of the economic infrastructure, such as commercial banking and authoritative, comprehensive commercial laws, were absent or only partly in place by 1996. Although by the mid-1990s a return to Soviet-era central planning seemed unlikely, the configuration of the post-transition economy remained unpredictable.

Economists have struggled to achieve accurate measurement of the Russian economy, and they have questioned the accuracy of official Russian economic data. Although the market now determines most prices, the Government (Russia's cabinet) still fixes prices on some goods and services, such as utilities and energy. Furthermore, the exchange rate of the ruble (for value of the ruble--see Glossary) to the United States dollar has changed rapidly, and the Russian inflation rate has been high. These conditions make it difficult to convert economic measurements from rubles to dollars to make statistical comparisons with the United States and other Western countries.

According to official Russian data, in 1994 the national gross domestic product (GDP--see Glossary) was 604 trillion rubles (about US$207 billion according to the 1994 exchange rate), or about 4 percent of the United States GDP for that year. But this figure underestimates the size of the Russian economy. Adjusted by a purchasing-power parity formula to account for the lower cost of living in Russia, the 1994 Russian GDP was about US$678 billion, making the Russian economy approximately 10 percent of the United States economy. In 1994 the adjusted Russian GDP was US$4,573 per capita, approximately 19 percent of that of the United States. A second important measurement factor is the extremely active so-called shadow economy, which yields no taxes or government statistics but which a 1996 government report quantified as accounting for about 50 percent of the economy and 40 percent of its cash turnover.

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Historical Background

The Soviet economic system was in place for some six decades, and elements of that system remained in place after the dissolution of the Soviet Union in 1991. The leaders exerting the most substantial influence on that system were its founder, Vladimir I. Lenin, and his successor Stalin, who established the prevailing patterns of collectivization and industrialization that became typical of the Soviet Union's centrally planned system. By 1980, however, intrinsic defects became obvious as the national economy languished; shortly thereafter, reform programs began to alter the traditional structure. One of the chief reformers of the late 1980s, Boris Yeltsin, oversaw the substantial dissolution of the central planning system in the early 1990s.

The Eras of Lenin and Stalin

The basic foundation of the Soviet economic system was established after the Bolsheviks (see Glossary) assumed power in November 1917 (see Revolutions and Civil War, ch. 2). The Bolsheviks sought to mold a socialist society from the ruins of post-World War I tsarist Russia by liberally reworking the ideas of political philosophers Karl Marx and Friedrich Engels.

Soon after the revolution, the Bolsheviks published decrees nationalizing land, most industry (all enterprises employing more than five workers), foreign trade, and banking. The peasants took control of the land from the aristocracy and farmed it in small parcels.

Beginning in 1918, the new regime already was fighting for its survival in the Russian Civil War against noncommunist forces known as the Whites. The war forced the regime to organize the economy and place it on a war footing under a stringent policy known as war communism. Under such conditions, the economy performed poorly. In 1920 agricultural output had attained only half of its pre-World War I level, foreign trade had virtually ceased, and industrial production had fallen to only a small fraction of its prewar levels. Beginning in 1921, Lenin led a tactical retreat from state control of the economy in an effort to reignite production. His new program, called the New Economic Policy (Novaya ekonomicheskaya politika--NEP; see Glossary), permitted some private activity, especially in agriculture, light industry, and services (see Lenin's Leadership, ch. 2). However, heavy industry, transportation, foreign trade, and banking remained under state control.

Lenin died in 1924, and by 1927 the government had nearly abandoned the NEP. Stalin sought a rapid transformation from an agricultural, peasant-based country into a modern industrial power and initiated the country's First Five-Year Plan (1928-32). Under the plan, the Soviet government began the nationwide collectivization of agriculture to ensure production and distribution of food supplies to the growing industrial sector and to free labor for industry (see Industrialization and Collectivization, ch. 2). By the end of the five-year period, however, agricultural output had declined by 23 percent, according to official statistics. The chemical, textile, housing, and consumer goods and services industries were also performing poorly. Heavy industry exceeded the plan targets, but only at a great cost to the rest of the economy.

By the Third Five-Year Plan (1938-41), the Soviet economy was once again on a war footing, devoting increasing amounts of resources to the military sector in response to the rise of Nazi Germany. The Nazi invasion in 1941 forced the government to abandon the five-year plan and concentrate all resources on support for the military sector. This period also included the large-scale evacuation of much of the country's industrial production capacity from European Russia to the Urals and Central Asia to prevent further war damage to its economic base. The Fourth Five-Year Plan (1946-50) was one of repairing and rebuilding after the war.

Throughout the Stalin era, the government forced the pace of industrial growth by shifting resources from other sectors to heavy industry. The Soviet consumer received little priority in the planning process. By 1950 real household consumption had climbed to a level only marginally higher than that of 1928. Although Stalin died in 1953, his emphasis on heavy industry and central control over all aspects of economic decision making remained virtually intact well into the 1980s.

The Postwar Growth Period

Soviet economic growth rates during the postwar period appeared impressive. Between the early 1950s and 1975, the Soviet gross national product (GNP--see Glossary) increased an average of about 5 percent per year, outpacing the average growth of the United States and keeping pace with many West European economies--albeit after having started from a much lower point.

However, these aggregate growth figures hid gross inefficiencies that are typical of centrally planned systems. The Soviet Union was able to attain impressive growth through "extensive investments," that is, by infusing the economy with large inputs of labor, capital, and natural resources. But the state-set prices did not reflect the actual costs of inputs, leading to enormous misallocation and waste of resources. In addition, the heavily bureaucratic economic decision-making system and the strong emphasis on meeting targets discouraged the introduction of new technologies that could improve productivity. Central planning also skewed the distribution of investments throughout the economy.

The aggregate Soviet growth figures also did not reveal either the generally poor quality of Soviet goods and services that resulted from the state monopoly over production or the lack of priority given the consumer sector in the planning process. Eventually, diminishing returns from labor, capital, and other inputs led to a severe slowdown in Soviet economic growth. Furthermore, the availability of inputs, especially capital, labor, and technology, was decreasing. Declining birth rates, particularly in the European republics of the Soviet Union, placed constraints on the labor supply. By the mid-1970s and into the 1980s, average Soviet GNP growth rates had plummeted to about 2 percent, less than half the rates of the immediate postwar period.

Although such rates might have been acceptable in a mature, modern industrialized economy, the Soviet Union still trailed far behind the United States, other Western economies, and Japan, and in the 1980s another challenge arose from the newly industrializing countries of East Asia. Furthermore, the standard of living of the average Russian citizen, which had always been below that of the United States, was declining. In the 1980s, with the advent of modern communications that even Soviet censors found impossible to restrict, Soviet citizens began to recognize their relative position and to question the rationale of their country's economic policies. This was the atmosphere in which the Gorbachev regime undertook serious economic reform in the late 1980s.

Reform and Resistance

During several distinct periods, Soviet leaders attempted to reform the economy to make the Soviet system more efficient. In 1957, for example, Nikita S. Khrushchev (in office 1953-64) tried to decentralize state control by eliminating many national ministries and placing responsibility for implementing plans under the control of newly created regional economic councils. These reforms produced their own inefficiencies. In 1965 Soviet prime minister Aleksey Kosygin (in office 1964-80) introduced a package of reforms that reestablished central government control but reformed prices and established new bonuses and production norms to stimulate economic productivity. Under reforms in the 1970s, Soviet leaders attempted to streamline the decision-making process by combining enterprises into associations, which received some localized decision-making authority.

Because none of these reforms challenged the fundamental notion of state control, the root cause of the inefficiencies remained. Resistance to reform was strong because central planning was heavily embedded in the Soviet economic structure. Its various elements--planned output, state ownership of property, administrative pricing, artificially established wage levels, and currency inconvertibility--were interrelated. Fundamental reforms required changing the whole system rather than one or two elements. Central planning also was heavily entrenched in the Soviet political structure. A huge bureaucracy was in place from the national to the local level in both the party and the government, and officials within that system enjoyed the many privileges of the Soviet elite class. Such vested interests yielded formidable resistance to major changes in the Soviet economic system; the Russian system, in which many of the same figures have prospered, suffers from the same handicap.

Upon assuming power in March 1985, Gorbachev took measures intended to immediately resume the growth rates of earlier decades. The Twelfth Five-Year Plan (1986-90) called for the Soviet national income to increase an average of 4.1 percent annually and labor productivity to increase 4.6 percent annually--rates that the Soviet Union had not achieved since the early 1970s. Gorbachev sought to improve labor productivity by implementing an anti-alcohol campaign that severely restricted the sale of vodka and other spirits and by establishing work attendance requirements to reduce chronic absenteeism. Gorbachev also shifted investment priorities toward the machine-building and metalworking sectors that could make the most significant contribution to retool and modernize existing factories, rather than building new factories. Gorbachev changed Soviet investment strategy from extensive investing to intensive investing that focused on elements most critical to achieving the stated goal.

During his first few years, Gorbachev also restructured the government bureaucracy (see Perestroika , ch. 2). He combined ministries responsible for high-priority economic sectors into bureaus or state committees in order to reduce staff and red tape and to streamline the administration. In addition, Gorbachev established a state organization for quality control to improve the quality of Soviet production.

The Perestroika Program

The Soviet economic reforms during Gorbachev's initial period (1985-86) were similar to the reforms of previous regimes: they modified the Stalinist system without making truly fundamental changes. The basic principles of central planning remained. The measures proved to be insufficient, as economic growth rates continued to decline and the economy faced severe shortages. Gorbachev and his team of economic advisers then introduced more fundamental reforms, which became known as perestroika (restructuring). At the June 1987 plenary session of the Central Committee of the Communist Party of the Soviet Union (CPSU--see Glossary), Gorbachev presented his "basic theses," which laid the political foundation of economic reform for the remainder of the decade.

In July 1987, the Supreme Soviet passed the Law on State Enterprises. The law stipulated that state enterprises were free to determine output levels based on demand from consumers and other enterprises. Enterprises had to fulfill state orders, but they could dispose of the remaining output as they saw fit. Enterprises bought inputs from suppliers at negotiated contract prices. Under the law, enterprises became self-financing; that is, they had to cover expenses (wages, taxes, supplies, and debt service) through revenues. No longer was the government to rescue unprofitable enterprises that could face bankruptcy. Finally, the law shifted control over the enterprise operations from ministries to elected workers' collectives. Gosplan's responsibilities were to supply general guidelines and national investment priorities, not to formulate detailed production plans.

The Law on Cooperatives, enacted in May 1987, was perhaps the most radical of the economic reforms during the early part of the Gorbachev regime. For the first time since Lenin's NEP, the law permitted private ownership of businesses in the services, manufacturing, and foreign-trade sectors. The law initially imposed high taxes and employment restrictions, but it later revised these to avoid discouraging private-sector activity. Under this provision, cooperative restaurants, shops, and manufacturers became part of the Soviet scene.

Gorbachev brought perestroika to the Soviet Union's foreign economic sector with measures that Soviet economists considered bold at that time. His program virtually eliminated the monopoly that the Ministry of Foreign Trade had had on most trade operations. It permitted the ministries of the various industrial and agricultural branches to conduct foreign trade in sectors under their responsibility rather than having to operate indirectly through the bureaucracy of trade ministry organizations. In addition, regional and local organizations and individual state enterprises were permitted to conduct foreign trade. This change was an attempt to redress a major imperfection in the Soviet foreign trade regime: the lack of contact between Soviet end users and suppliers and their foreign partners.

The most significant of Gorbachev's reforms in the foreign economic sector allowed foreigners to invest in the Soviet Union in the form of joint ventures with Soviet ministries, state enterprises, and cooperatives. The original version of the Soviet Joint Venture Law, which went into effect in June 1987, limited foreign shares of a Soviet venture to 49 percent and required that Soviet citizens occupy the positions of chairman and general manager. After potential Western partners complained, the government revised the regulations to allow majority foreign ownership and control. Under the terms of the Joint Venture Law, the Soviet partner supplied labor, infrastructure, and a potentially large domestic market. The foreign partner supplied capital, technology, entrepreneurial expertise, and, in many cases, products and services of world competitive quality.

Although they were bold in the context of Soviet history, Gorbachev's attempts at economic reform were not radical enough to restart the country's chronically sluggish economy in the late 1980s. The reforms made some inroads in decentralization, but Gorbachev and his team left intact most of the fundamental elements of the Stalinist system--price controls, inconvertibility of the ruble, exclusion of private property ownership, and the government monopoly over most means of production.

By 1990 the government had virtually lost control over economic conditions. Government spending increased sharply as an increasing number of unprofitable enterprises required state support and consumer price subsidies continued. Tax revenues declined because revenues from the sales of vodka plummeted during the anti-alcohol campaign and because republic and local governments withheld tax revenues from the central government under the growing spirit of regional autonomy. The elimination of central control over production decisions, especially in the consumer goods sector, led to the breakdown in traditional supplier-producer relationships without contributing to the formation of new ones. Thus, instead of streamlining the system, Gorbachev's decentralization caused new production bottlenecks.

Unforeseen Results of Reform

Gorbachev's new system bore the characteristics of neither central planning nor a market economy. Instead, the Soviet economy went from stagnation to deterioration. At the end of 1991, when the union officially dissolved, the national economy was in a virtual tailspin. In 1991 the Soviet GDP had declined 17 percent and was declining at an accelerating rate. Overt inflation was becoming a major problem. Between 1990 and 1991, retail prices in the Soviet Union increased 140 percent.

Under these conditions, the general quality of life for Soviet consumers deteriorated. Consumers traditionally faced shortages of durable goods, but under Gorbachev, food, wearing apparel, and other basic necessities were in short supply. Fueled by the liberalized atmosphere of Gorbachev's glasnost (literally, public voicing--see Glossary) and by the general improvement in information access in the late 1980s, public dissatisfaction with economic conditions was much more overt than ever before in the Soviet period. The foreign-trade sector of the Soviet economy also showed signs of deterioration. The total Soviet hard-currency (see Glossary) debt increased appreciably, and the Soviet Union, which had established an impeccable record for debt repayment in earlier decades, had accumulated sizable arrearages by 1990.

In sum, the Soviet Union left a legacy of economic inefficiency and deterioration to the fifteen constituent republics after its breakup in December 1991. Arguably, the shortcomings of the Gorbachev reforms had contributed to the economic decline and eventual destruction of the Soviet Union, leaving Russia and the other successor states to pick up the pieces and to try to mold modern, market-driven economies. At the same time, the Gorbachev programs did start Russia on the precarious road to full-scale economic reform. Perestroika broke Soviet taboos against private ownership of some types of business, foreign investment in the Soviet Union, foreign trade, and decentralized economic decision making, all of which made it virtually impossible for later policy makers to turn back the clock.

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Economic Reform in the 1990s

Two fundamental and interdependent goals--macroeconomic stabilization and economic restructuring--mark the transition from central planning to a market-based economy. The former entails implementing fiscal and monetary policies that promote economic growth in an environment of stable prices and exchange rates. The latter requires establishing the commercial, legal, and institutional entities--banks, private property, and commercial legal codes--that permit the economy to operate efficiently. Opening domestic markets to foreign trade and investment, thus linking the economy with the rest of the world, is an important aid in reaching these goals. Under Gorbachev, the regime failed to address these fundamental goals. At the time of the Soviet Union's demise, the Yeltsin government of the Russian Republic had begun to attack the problems of macroeconomic stabilization and economic restructuring. As of mid-1996, the results were mixed.

The Yeltsin Economic Program

In October 1991, two months before the official collapse of the Soviet regime and two months after the August 1991 coup against the Gorbachev regime, Yeltsin and his advisers, including reform economist Yegor Gaydar, established a program of radical economic reforms. The Russian parliament, the Supreme Soviet, also extended decree powers to the president for one year to implement the program. The program was ambitious, and the record to date indicates that the goals for macroeconomic stabilization and economic restructuring programs may have been unrealistically high. Another complication in the Yeltsin reform program is that since 1991 both political and economic authority have devolved significantly from the national to the regional level; in a series of agreements with the majority of Russia's twenty-one republics and several other subnational jurisdictions, Moscow has granted a variety of special rights and powers having important economic overtones.

Macroeconomic Stabilization Measures

The program laid out a number of macroeconomic policy measures to achieve stabilization. It called for sharp reductions in government spending, targeting outlays for public investment projects, defense, and producer and consumer subsidies. The program aimed at reducing the government budget deficit from its 1991 level of 20 percent of GDP to 9 percent of GDP by the second half of 1992 and to 3 percent by 1993. The government imposed new taxes, and tax collection was to be upgraded to increase state revenues. In the monetary sphere, the economic program required the Russian Central Bank (RCB) to cut subsidized credits to enterprises and to restrict money supply growth. The program called for the shrinkage of inflation from 12 percent per month in 1991 to 3 percent per month in mid-1993.

Economic Restructuring Measures

Immediately after the dissolution of the Soviet Union was announced, the Government lifted price controls on 90 percent of consumer goods and 80 percent of intermediate goods. It raised, but still controlled, prices on energy and food staples such as bread, sugar, vodka, and dairy products. These measures were to establish a realistic relationship between production and consumption that had been lacking in the central planning system.

To encourage the development of the private sector, fundamental changes were made in the tax system, including introduction of a value-added tax (VAT--see Glossary) of 28 percent on most transactions, a progressive income tax, and a tax on business income; revisions in the system of import tariffs and export taxes; new taxes on domestic energy use to encourage conservation (a necessary step because energy prices were still controlled); and new taxes on oil and natural gas exports to narrow the gap between subsidized domestic prices and world prices and to prevent domestic energy shortages (see Taxation, this ch.). A fixed exchange rate was to be established for the ruble, which then would become convertible. Many restrictions on foreign trade and investment also were to be lifted to expose Russia to the discipline of world prices.

Monetary and Fiscal Policies

In 1992 and 1993, the Government expanded the money supply and credits at explosive rates that led directly to high inflation and to a deterioration in the exchange rate of the ruble. In January 1992, the Government clamped down on money and credit creation at the same time that it lifted price controls. However, beginning in February the RCB loosened the reins on the money supply. In the second and third quarters of 1992, the money supply had increased at especially sharp rates of 34 and 30 percent, respectively, and by the end of 1992, the Russian money supply had increased by eighteen times.

The sharp increase in the money supply was influenced by large foreign currency deposits that state-run enterprises and individuals had built up and by the depreciation of the ruble. Enterprises drew on these deposits to pay wages and other expenses after the Government had tightened restrictions on monetary emissions. Commercial banks monetized enterprise debts by drawing down accounts in foreign banks and drawing on privileged access to accounts in the RCB (see Banking and Finance, this ch.).

Government efforts to control credit expansion also proved ephemeral in the early years of the transition. Domestic credit increased about nine times between the end of 1991 and 1992. The credit expansion was caused in part by the buildup of interenterprise arrears and the RCB's subsequent financing of those arrears. The Government restricted financing to state enterprises after it lifted controls on prices in January 1992, but enterprises faced cash shortages because the decontrol of prices cut demand for their products. Instead of curtailing production, most firms chose to build up inventories. To support continued production under these circumstances, enterprises relied on loans from other enterprises. By mid-1992, when the amount of unpaid interenterprise loans had reached 3.2 trillion rubles (about US$20 billion), the government froze interenterprise debts. Shortly thereafter, the government provided 181 billion rubles (about US$1.1 billion) in credits to enterprises that were still holding debt.

The Government also failed to constrain its own expenditures in this period, partially under the influence of the conservative Supreme Soviet, which encouraged the Soviet-style financing of favored industries. By the end of 1992, the Russian budget deficit was 20 percent of GDP, much higher than the 5 percent projected under the economic program and stipulated under the International Monetary Fund (IMF--see Glossary) conditions for international funding. This budget deficit was financed largely by expanding the money supply. These ill-advised monetary and fiscal policies resulted in an inflation rate of over 2,000 percent in 1992.

In late 1992, deteriorating economic conditions and a sharp conflict with the parliament led Yeltsin to dismiss economic reform advocate Yegor Gaydar as prime minister. Gaydar's successor was Viktor Chernomyrdin, a former head of the State Natural Gas Company (Gazprom), who was considered less favorable to economic reform.

Chernomyrdin formed a new government with Boris Fedorov, an economic reformer, as deputy prime minister and finance minister. Fedorov considered macroeconomic stabilization a primary goal of Russian economic policy. In January 1993, Fedorov announced a so-called anticrisis program to control inflation through tight monetary and fiscal policies. Under the program, the Government would control money and credit emissions by requiring the RCB to increase interest rates on credits by issuing government bonds, by partially financing budget deficits, and by starting to close inefficient state enterprises. Budget deficits were to be brought under control by limiting wage increases for state enterprises, by establishing quarterly budget deficit targets, and by providing a more efficient social safety net for the unemployed and pensioners.

The printing of money and domestic credit expansion moderated somewhat in 1993. In a public confrontation with the parliament, Yeltsin won a referendum on his economic reform policies that may have given the reformers some political clout to curb state expenditures. In May 1993, the Ministry of Finance and the RCB agreed to macroeconomic measures, such as reducing subsidies and increasing revenues, to stabilize the economy. The RCB was to raise the discount lending rate to reflect inflation. Based on positive early results from this policy, the IMF extended the first payment of US$1.5 billion to Russia from a special Systemic Transformation Facility (STF) the following July.

Fedorov's anticrisis program and the Government's accord with the RCB had some effect. In the first three quarters of 1993, the RCB held money expansion to a monthly rate of 19 percent. It also substantially moderated the expansion of credits during that period. The 1993 annual inflation rate was around 1,000 percent, a sharp improvement over 1992, but still very high. The improvement figures were exaggerated, however, because state expenditures had been delayed from the last quarter of 1993 to the first quarter of 1994. State enterprise arrears, for example, had built up in 1993 to about 15 trillion rubles (about US$13 billion, according to the mid-1993 exchange rate).

In June 1994, Chernomyrdin presented a set of moderate reforms calculated to accommodate the more conservative elements of the Government and parliament while placating reformers and Western creditors. The prime minister pledged to move ahead with restructuring the economy and pursuing fiscal and monetary policies conducive to macroeconomic stabilization. But stabilization was undermined by the RCB, which issued credits to enterprises at subsidized rates, and by strong pressure from industrial and agricultural lobbies seeking additional credits.

By October 1994, inflation, which had been reduced by tighter fiscal and monetary policies early in 1994, began to soar once again to dangerous levels. On October 11, a day that became known as Black Tuesday, the value of the ruble on interbank exchange markets plunged by 27 percent. Although experts presented a number of theories to explain the drop, including the existence of a conspiracy, the loosening of credit and monetary controls clearly was a significant cause of declining confidence in the Russian economy and its currency.

In late 1994, Yeltsin reasserted his commitment to macroeconomic stabilization by firing Viktor Gerashchenko, head of the RCB, and nominating Tat'yana Paramonova as his replacement. Although reformers in the Russian government and the IMF and other Western supporters greeted the appointment with skepticism, Paramonova was able to implement a tight monetary policy that ended cheap credits and restrained interest rates (although the money supply fluctuated in 1995). Furthermore, the parliament passed restrictions on the use of monetary policy to finance the state debt, and the Ministry of Finance began to issue government bonds at market rates to finance the deficits.

The Government also began to address the interenterprise debt that had been feeding inflation. The 1995 budget draft, which was proposed in September 1994, included a commitment to reducing inflation and the budget deficit to levels acceptable to the IMF, with the aim of qualifying for additional international funding. In this budget proposal, the Chernomyrdin government sent a signal that it no longer would tolerate soft credits and loose budget constraints, and that stabiliza-tion must be a top government priority.

During most of 1995, the government maintained its commitment to tight fiscal constraints, and budget deficits remained within prescribed parameters. However, in 1995 pressures mounted to increase government spending to alleviate wage arrearages, which were becoming a chronic problem within state enterprises, and to improve the increasingly tattered social safety net. In fact, in 1995 and 1996 the state's failure to pay many such obligations (as well as the wages of most state workers) was a major factor in keeping Russia's budget deficit at a moderate level (see Social Welfare, ch. 5). Conditions changed by the second half of 1995. The members of the State Duma (beginning in 1994, the lower house of the Federal Assembly, Russia's parliament) faced elections in December, and Yeltsin faced dim prospects in his 1996 presidential reelection bid. Therefore, political conditions caused both Duma deputies and the president to make promises to increase spending.

In addition, late in 1995 Yeltsin dismissed Anatoliy Chubays, one of the last economic reform advocates remaining in a top Government position, as deputy prime minister in charge of economic policy. In place of Chubays, Yeltsin named Vladimir Kadannikov, a former automobile plant manager whose views were antireform. This move raised concerns in Russia and the West about Yeltsin's commitment to economic reform. Another casualty of the political atmosphere was RCB chairman Paramonova, whose nomination had remained a source of controversy between the State Duma and the Government. In November 1995, Yeltsin was forced to replace her with Sergey Dubinin, a Chernomyrdin protégé who continued the tight-money policy that Paramonova had established.

By mid-1996 many Duma deputies raised concerns about the Government's failure to meet its tax revenue targets. Revenue shortages were blamed on a number of factors, including a heavy tax burden that encourages noncompliance and an inefficient and corrupt tax collection system. A variety of tax collection reforms were proposed in the parliament and the Government, but by 1996 Russian enterprises and regional authorities had established a strong pattern of noncompliance with national tax regulations, and the Federal Tax Police Service was ineffectual in apprehending violators (see Ministry of Internal Affairs (MVD), ch. 10).

Inflation

In 1992, the first year of economic reform, retail prices in Russia increased by 2,520 percent. A major cause of the increase was the decontrol of most prices in January 1992, a step that prompted an average price increase of 245 percent in that month alone. By 1993 the annual rate had declined to 840 percent, still a very high figure. In 1994 the inflation rate had improved to 224 percent.

Trends in annual inflation rates mask variations in monthly rates, however. In 1994, for example, the Government managed to reduce monthly rates from 21 percent in January to 4 percent in August, but rates climbed once again, to 16.4 percent by December and 18 percent by January 1995. Instability in Russian monetary policy caused the variations. After tightening the flow of money early in 1994, the Government loosened its restrictions in response to demands for credits by agriculture, industries in the Far North, and some favored large enterprises. In 1995 the pattern was avoided more successfully by maintaining the tight monetary policy adopted early in the year and by passing a relatively stringent budget. Thus, the monthly inflation rate held virtually steady below 5 percent in the last quarter of the year. For the first half of 1996, the inflation rate was 16.5 percent. However, experts noted that control of inflation was aided substantially by the failure to pay wages to workers in state enterprises, a policy that kept prices low by depressing demand.

Exchange Rates

An important symptom of Russian macroeconomic instability has been severe fluctuations in the exchange rate of the ruble. From July 1992, when the ruble first could be legally exchanged for United States dollars, to October 1995, the rate of exchange between the ruble and the dollar declined from 144 rubles per US$1 to around 5,000 per US$1. Prior to July 1992, the ruble's rate was set artificially at a highly overvalued level. But rapid changes in the nominal rate (the rate that does not account for inflation) reflected the overall macroeconomic instability. The most drastic example of such fluctuation was the Black Tuesday (1994) 27 percent reduction in the ruble's value.

In July 1995, the RCB announced its intention to maintain the ruble within a band of 4,300 to 4,900 per US$1 through October 1995, but it later extended the period to June 1996. The announcement reflected strengthened fiscal and monetary policies and the buildup of reserves with which the Government could defend the ruble. By the end of October 1995, the ruble had stabilized and actually appreciated in inflation-adjusted terms. It remained stable during the first half of 1996. In May 1996, a "crawling band" exchange rate was introduced to allow the ruble to depreciate gradually through the end of 1996, beginning between 5,000 and 5,600 per US$1 and ending between 5,500 and 6,100.

Another sign of currency stabilization was the announcement that effective June 1996, the ruble would become fully convertible on a current-account basis. This meant that Russian citizens and foreigners would be able to convert rubles to other currencies for trade transactions.

Privatization

The essence of economic restructuring, and a critical consideration for foreign loans and investment in Russia's economy, is the privatization program. In most respects, between 1992 and 1995 Russia kept pace with or exceeded the rate established in the original privatization program of October 1991. As deputy prime minister for economic policy, the reformist Chubays was an effective advocate of privatization during its important early stages. In 1992 privatization of small enterprises began through employee buyouts and public auctions. By the end of 1993, more than 85 percent of Russian small enterprises and more than 82,000 Russian state enterprises, or about one-third of the total in existence, had been privatized.

On October 1, 1992, vouchers, each with a nominal value of 10,000 rubles (about US$63), were distributed to 144 million Russian citizens for purchase of shares in medium-sized and large enterprises that officials had designated and reorganized for this type of privatization. However, voucher holders also could sell the vouchers, whose cash value varied according to the economic and political conditions in the country, or they could invest them in voucher funds.

By the end of June 1994, the voucher privatization program had completed its first phase. It succeeded in transferring ownership of 70 percent of Russia's large and medium-sized enterprises to private hands and in privatizing about 90 percent of small enterprises. By that time, 96 percent of the vouchers issued in 1992 had been used by their owners to buy shares in firms directly, invest in investment funds, or sell on the secondary markets. According to the organizers of the voucher system, some 14,000 firms employing about two-thirds of the industrial labor force had moved into private hands.

The next phase of the privatization program called for direct cash sales of shares in remaining state enterprises. That phase would complete the transfer of state enterprises and would add to government revenues. After that procedure met stiff opposition in the State Duma, Yeltsin implemented it by decree in July 1994. But the president's commitment to privatization soon came into question. In response to the monetary crisis of October 1994, Yeltsin removed Chubays from his position as head of the State Committee for the Management of State Property, replacing him with little-known official Vladimir Polevanov. Polevanov stunned Russian and Western privatization advocates by suggesting renationalization of some critical enterprises. Yeltsin reacted by replacing Polevanov with Petr Mostovoy, a Chubays ally. In the ensuing eighteen months, Yeltsin made two more changes in the chairmanship position.

In 1995 and 1996, political conditions continued to hamper the privatization program, and corruption scandals tarnished the program's public image. By 1995 privatization had gained a negative reputation with ordinary Russians, who coined the slang word prikhvatizatsiya, a combination of the Russian word for "grab" and the Russianized English word "privatize," producing the equivalent of "grabification." The term reflects the belief that the privatization process most often shifted control of enterprises from state agencies to groups of individuals with inside connections in the Government, the mafiya [mafia], or both. Distrust of the privatization process was part of an increasing public cynicism about the country's political and economic leaders, fueled by the seeming failure of Yeltsin's highly touted reform to improve the lot of the average Russian (see Social Stratification, ch. 5).

The second phase of the privatization program went ahead with the sale of state-held shares for cash. Although the process was virtually complete by the end of the first quarter of 1996, the Government failed to garner expected revenues. Meanwhile, Yeltsin's June 1996 bid for reelection brought a virtual halt in privatization of state enterprises during the campaign period. In February 1996, the Procuracy announced a full-scale investigation into privatization practices, in particular a 1995 transaction in which state banks awarded loans to state firms in return for "privatization" shares in those enterprises (see The Procuracy, ch. 10). This loans-for-shares type of transaction characterized the second phase of privatization; banks provided the government badly needed cash based on the collateral of enterprise shares that banks presumably would be able to sell later. But most of the twenty-nine state enterprises originally slated to participate withdrew, and the banks that received shares appeared to have a conflict of interest based on their role in setting the rules of the bidding procedure. In the most widely publicized deal, the Uneximbank of Moscow received a 38 percent interest in the giant Noril'sk Nickel Joint-Stock Company at about half of a competing bid. Other banks and commercial organizations joined the traditional opponents of privatization in attacking the loans-for-shares program, and in 1996 the Government admitted that the program had been handled badly. As a result of corruption allegations, the State Duma formed a committee to review the privatization program. And Prime Minister Chernomyrdin requested off-budget funds to buy back shares from the banks.

Because the faults of the Yeltsin privatization program were an important plank in the 1996 presidential election platform of the Communist Party of the Russian Federation (Kommunisticheskaya partiya Rossiyskoy Federatsii--KPRF), the strongest opposition party, Yeltsin's campaign strategy was to reduce privatization as far as possible as a campaign issue (see The Executive Branch, ch. 7). Part of that strategy was to shift the privatization process from Moscow to the regions. In February 1996, a presidential decree simply granted shares in about 6,000 state-controlled firms to regional governments, which could auction the shares and keep the profits.

After Yeltsin's reelection in July 1996, his financial representatives announced continuation of the privatization program, with a new focus on selling ten to fifteen large state enterprises, including the joint-stock company of the Unified Electric Power System of Russia (YeES Rossii), the Russian State Insurance Company (Rosgosstrakh), and the St. Petersburg Maritime Port. The Communications Investment Joint-Stock Company (Svyazinvest), sale of which had failed in 1995, was to be offered to Western telecommunications companies in 1996.

The new, postelection privatization stage also was to reduce the role of enterprise workers in shareholding. Within the first years of such ownership, most worker shares had been sold at depressed prices, devaluing all shares and cutting state profits from enterprise sales. Therefore, to reach the budget target of 12.4 trillion rubles (about US$2.4 billion) of profit from privatization sales in 1996, distribution was to target recipients who would hold shares rather than sell them immediately.

Despite periodic delays, the inept administration of the program's more recent phases, and allegations of favoritism and corrupt transactions in the enterprise and financial structures, in 1996 international experts judged Russia's privatization effort a qualified success. The movement of capital assets from state to private hands has progressed without serious reversal of direction--despite periodic calls for reestablishing state control of certain assets. And the process has contributed to the creation of a new class of private entrepreneur.