Eastern Europe, Caucasus and Central Asia, CASE Reports, CASE Network Studies and Analyses, Trade, economic integration and globalization, transition economies

Economic Transition in Russia, the Ukraine and Belarus in Comparative Perspective


Russia, the Ukraine, and Belarus, three successor states of the former Soviet Union (FSU), started their transition to a democratic regime and market economy from the same initial point of the late stage of Gorbachev’s perestroika. The Soviet economy was at that time in complete macroeconomic chaos characterized by deep fiscal crisis, enormous market shortages (repressed inflation) and a severe balance of payments crisis. Government authorities both on all-Union and republican levels lost effective control over state-owned enterprise (SOE) behavior due to uncontrolled, spontaneous de facto decentralization of corporate governance. This was connected with the beginnings of spontaneous nomenklatura "privatization," which mainly consisted of non-legal transfers of profits and assets from the SOE to other persons.

Additionally, the all-Union government lost control over the monetary and fiscal policies of the biggest republics, especially the Russian Federation. Interrepublican trade started to decline mainly as a result of huge shortages and the consequent autarchic policies of the republics as well as the accelerating deterioration of the traditional payment mechanism. Of course, we must also remember the enormous structural distortions accumulated during more than 70 years of existence of the communist system.