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Russia's Economy Improved in 2001, But Many Left Behind

Ten years ago the Soviet Union fell apart, taking with it the Soviet-style command economy. In the years that followed, capitalism gradually replaced communism, and market principles made Marxist principles irrelevant.

The new economy has left many Russians behind, though some are managing to thrive.

Yevgeny Avdeev is not on his way to work. He's already there. The 58-year-old Russian owns a small business renting out cars on a monthly basis. He has a fleet of 18 Russian Ladas, Nevas and Zhigulis, which he says are cheaper and easier to maintain than foreign cars. The car rental business provides a comfortable living for Mr. Avdeev; so much so that he can afford to take a ski vacation in the Alps each year. But his success was a long time coming.

In the Soviet Union, he started out as a mechanic at a car repair shop and later became the general director of an auto service center in Moscow. Mr. Avdeev says he got into the rental-car business absolutely by accident. He was going to sell one of the cars when a friend suggested that he rent it to a man visiting from Germany. The next month, three more Germans showed up, and he was in business.

Entrepreneurs like Mr. Avdeev were almost impossible to find in the Soviet Union. It had a command economy that served the needs of the state and the military, not the majority of Russians. But it was an economy that was fundamentally flawed and began to collapse in the late 1980s, when there was hyperinflation and heating shortages, and even lines for bread.

"The first phase of the Russian restructuring, of the Russian post-Communist transformation, begins with the breakdown of the Soviet Union, an end to a 70-year system, which basically sought to control everything both within politics, within culture and within the economy and it doesn't really replace it with anything," says Erik Krause, chief strategist for Nikoil Capital Investments, a Russian investment bank. "You go from a very repressive, authoritarian system and you pull out the mechanisms of control and you have a certain degree of anarchism."

While some people prospered, quite a few were left with even less than they had during Soviet times. One of those is Zhennya Glavatskaya.

It's 8:00 p.m. and almost 20 degrees Celsius below zero. Ms. Glavatskaya has been at work since early in the morning selling slippers and children's toys to Muscovites on their way to and from the metro. Her ripped boots are little protection against the cold. "I'm wearing a couple of pairs of socks and my boots are stuffed with newspapers to keep my boots warm," she says.

She remembers the Soviet Union fondly. She worked in a cigarette factory and her salary was always paid on time. She could afford to go to the theater or movies. She lived about the same as everyone around her. Now, she says, Russia is divided between rich and poor. "You can see here in Moscow people go around in pretty furs. They don't live badly. But I'm poor. I'm not satisfied with this life," she says.

Ms. Glavatskaya's story is repeated throughout Russia, where the standard of living has dropped dramatically since the end of the Soviet Union. Average salaries are about $80 per month. Ms. Glavatskaya also praises another aspect of the Communist system: its security. She says she always knew what was going to happen the next day and now even that has been taken from her.

Even Yevgeny Avdeev, who has done well under the current system, is wary about the future. He says today's Russia is not stable and too much is dependent on the president, Vladimir Putin. If something were to happen to the president, he says anything is possible in Russia.

Fortunately for Ms. Glavatskaya and Mr. Avdeev, there are signs that the economy is finally starting to improve. Oddly enough, a financial crisis in 1998 that many people thought would send Russia into an economic black hole actually did some good.

In August of 1998, the Russian government defaulted on its loans and devalued the currency. Many Russians lost what little savings they had, and people all over the country lost their jobs. Yevgeny Avdeev's client list dropped from 26 to six people. But then a strange thing happened. The economy, having hit rock bottom, started to climb back up.

Erik Krause, Nikoil Capital Management, says the crash was actually a blessing in disguise. "The restructuring of Russia, the rebuilding of something on the ashes of the old system, really begins on August 17, 1998," he says. "I think that this crash, as painful as it was, broke down this system that had been built on the ruins of Communism and allowed Russia to start again building up a modern economy."

Russia has seen three years of growth since then and something that it hasn't known for a long time: stability. It is still too early to say whether that stability will translate into a better job for someone like Ms. Glavatskaya but Yevgeny Avdeev has already started raising prices.

Part of VOA's Year End Series for 2001