The Great Involution: Russia’s Response to the Market

What is Russia and where is it going? As we approach the ninth year after the Fall, we are faced with Russia’s unprecedented economic decline, year in year out. The story is grim whether measured by gross domestic product, capital investment, industrial and agricultural output, inflation, budget deficits, international debt, educational levels, or health and mortality. Just when economists anticipate the end of the decline, the economy lunges into a new crisis and spirals down further. This is puzzling first because economists considered the Soviet economy such a disaster that any turn to the market could only herald improvement. The headlong plunge downwards is doubly puzzling when Russia’s (and Ukraine’s) desolation is compared to the more impressive performance of such East European countries as Poland, Czech Republic and Hungary and, of course, to the spectacular growth of the Chinese economy. It is puzzling for a third reason, one would have expected the standard of living to have plummeted even further than it has. Somehow Russian people have managed to sustain a day to day existence despite the cataclysm depicted in official figures.