December 25th 1991 marked the end of the Soviet Union and thus ensued a monumental challenge of how to bring about Capitalism to this once vast, Communist state. Economists from around the world were eager to give their opinions on how this dramatic change of the, now Russian economy, would come to light and through which course of direction to steer the economy to prosperity.
The Russian Republic of the Soviet Union had just under 150 million citizens in the early 1990’s. As a result of Communist rule, spread throughout Russia’s vast land were located hundreds of mono-industrial settlements. Each settlement had its own unique function, whether that be a factory town specialising in Nickel or a coal mining town. These towns were the backbone of Stalin’s Russia from an economic and military point of view, in addition the towns provided health care and schooling for families of the workers. The workers and their families depended on their mono-industrial settlement and more importantly, each settlement depended on the next, there could be no chink in the armour.
With the fall of the Soviet Union the population of Russia from 1992 began to decrease dramatically, unusually the number of working aged men were dying at alarming rates. Researchers set out to investigate, due to the secrecy surrounding the former Soviet Union researchers took the view that this shocking increase in the country’s death rate was attributed to a fatal disease outbreak or toxic pollutants inhaled in the factories of the mono-settlements. Nevertheless investigators found that Russia’s transition from a Soviet Socialist Republic into a Western Market Economy lead to tragedy and a demographic crisis. The key element highlighted was that the transition wasn't to blame but, the polices undertaken to achieve this fundamental change.
The following graph puts into perspective the sheer, sudden rise in the death rate post collapse of the Soviet Union in Russia. We can compare this to Poland or the Czech Republic who went through a similar transition from during the early 1990s but instead of using Shock Therapy methods took a gradualist approach to the transition and ultimately prospered.
Death Rate, crude (per 1000 people)
The World Bank (http://data.worldbank.org/indicator/SP.DYN.CDRT.IN?locations=RU-CZ-PL)
The collapse brought about a chain reaction of destruction throughout the mono-settlements, as one fell it bankrupted its dependent. Overnight millions had lost their only source of income, schools and hospitals shut down and the mono-settlements became ghost towns.
But why the sudden death of many millions of working aged men during the transition?
The researches David Stuckler & Sanjay Basu found that after examining thousands of death certificates they identified that the majority of deaths within this category were as a result of “alcohol poisonings, suicides, homicides and injuries and heart attacks.” The deaths occurred over a very short period of time which was attributed to Russian men self medicating with alcohol on a monumental scale. Social anxiety and alcohol come hand in hand and due to the settlements being located many thousands of miles away from Moscow or St Petersburg it was impossible to travel to find work and as a result a sense of hopelessness embedded itself within the communities.
A key issue that became apparent was that it wasn't the quantity of alcohol but the type of alcohol which was causing an increasingly detrimental effect to the death rate. As workers were unemployed, to keep costs low alcohol was commercially produced from bleaches, aerosols etc which were sold as perfumes to avoid tax.
“Across Russia, alcohol was estimated to have accounted for at least two out of every five deaths among Russian working-age during the 1990s, totalling 4 million deaths across the Soviet Union.” (S. Tomkins, 2007, Prevalence & Socio-economic distribution of hazardous patterns of alcohol drinking)
Not only did the death rate, specifically amongst working aged men but the economy suffered in tandem.
“Russia’s economy in the mid-1990s shrank to the equivalent of the US in 1897.” (David Stuckler & Sanjay Basu, 2013, The Body Economic)
However the question should be raised, were these deaths a common attribute of an entire political and economic transformation? The idea of Shock Therapy was to liberalise Russia’s economy and privatise its state run sectors as fast as possible. Nevertheless this accelerated approach with an aim of short term pain for long term gain came to no avail and the basic social programmes in place to protect the Russian people were neglected. In 1999 UN investigative team warned that:
“a human crisis of monumental proportions is emerging in the former Soviet Union, as the transition years have literally been lethal for a great many people”
It was estimated that up to 10 million men died as a result of the collapse and establishment of a market based economy, this figure still resinates in Russia today as statistically there are more Russian women than men.
As stated previously, the transition was not to blame but the rate at which it took place. Both Poland and The Czech Republic prospered as EU member states and during the transition they attracted large amounts of FDI, in addition they were strict on the process of privatisation as to not allow for an emergence of Oligarchs to bring disparity and income inequality amongst the citizens.
Author: Matt - British - Market Analyst