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Background And History Of Russias Federation Politics Essay

The area now known as Russia has experienced many changes in name, ideology, and rule over its long history. It is situated in the northern part of Asia bounded by Arctic and Pacific Oceans, Caucasus mountain ranges, and Europe. The country began its history as the Principality of Muscovy. The nation emerged in the 12th century after more than 200 years of Mongol control and grew by conquering surrounding territories. Ivan III ruled from 1462 to 1505, referring to this empire as the “Third Rome.” Ivan IV the Terrible, who ruled from 1530 to 1584, was the first official tsar. Boris Godunov followed Ivan the Terrible during the era titled the Time of Troubles. Mikhail Romanov established the Romanov Dynasty in 1613 with a period of stability and continued expansion.

Under Peter I, who ruled 1682-1725, the nation continued to expand to the Baltic Sea and the country was renamed the Russian Empire. Modernization and European influences spread in Russia under Peter. He moved the capital from Moscow to St. Petersburg and westernized the military and education. His introduction of Western ideas and customs generated nationalistic backlash and created the rivalry between "Westernizers" and "Slavophiles”, which still exists today. Catherine the Great continued modernizing the country from 1762 to 1796, establishing Russia as a European power. When Poland divided in 1772, Catherine segregated the Jewish population into "The Pale of Settlement."

During the 19th century, Russia acquired control Georgia and much of the Caucasus. Particularly under the reign of Nicholas, the Russian Government continuously faced attempts at reform by various national movements. Meanwhile, Russia’s economy failed to compete with the West due to unemployment. However, emancipation of the serfs in 1861 by Alexander II led to urbanization and rapid industrialization. Russia continued expansion during this time period into the Caucasus, Asia, and Siberia and opened the Trans-Siberian Railroad.

In 1905, Russia was defeated in the Russo-Japanese war which led to the Russian Revolution. The revolution forced Tsar Nicholas II to introduce a constitution and democratic reforms, resulting in the formation of a parliament. The government suppressed the revolution and supported anti-Semitic pogroms. After World War I, riots due to the defeats suffered during the war led to overthrowing Tsar Nicholas II in 1917. The Communists under Vladimir Lenin seized power and formed the U.S.S.R by conquering Ukraine, Belarus, Azerbaijan, Georgia, and Armenia. Josef Stalin, who ruled from 1928 to 1953, strengthened Communist rule but contributed to the deaths of millions from famines and millions more in the Gulag.

During World War II, the U.S.S.R initially allied itself with Germany. However, the Axis attacked Russia in 1941. More than twenty million Soviets died fighting during World War II as well as more than two million Soviet Jews who died during the Holocaust. The U.S.S.R. became a permanent member of the UN Security Council and developed a nuclear program after the war. After Stalin, Nikita Khrushchev led the nation during an era called the Thaw. The U.S.S.R struggled during the next couple decades until General Secretary Mikhail Gorbachev took control from 1985 to 1991. He introduced glasnost (openness) and perestroika (restructuring) in hopes of modernizing Communism. However, his attempts failed and in December 1991, the U.S.S.R collapsed. The country split into Russia and 14 other nations.

Russia elected Boris Yeltsin the first president 1991. Russia inherited the U.S.S.R’s seat on the UN Security Council and most of its military assets, foreign assets, and debt. In 1993, President Yeltsin and the U.S.S.R parliament still in place were in constant conflict. The parliament had succeeded in stopping the President drafting a new constitution, holding elections, and passing democratic and economic reforms. President Yeltsin attempted to dissolve the Russian parliament. In response, the parliament tried to overthrow him. However, Yeltsin crushed the attempt with military force. In December 1993, Russia elected new parliament and created a new constitution.

In 1994, Russia invaded the Republic of Chechnya to stop rebels who wanted to secede from Russia. In 1996, Russia and Chechnya finally reached a cease-fire agreement after many failed attempts and one year later signed a peace treaty. However, after some terrorist attacks blamed on Chechen rebels, Russia re-invaded Chechnya in 1999. By spring 2000, Russia reclaimed control over the area but was plagued with frequent skirmishes. The election of Ramzan Kadyrov in Chechnya in 2007 helped to improve the situation and in 2009, Russia ended its military occupation of Chechnya.

In 1999, Boris Yeltsin resigned and Russia elected Vladimir Putin as its new president. Putin focused on expanding Moscow's control over the certain regions by ending direct elections for regional leaders and establishing "plenipotentiary representatives.” Putin stabilized the government and economy. The economy grew due to rising oil prices and reforms in banking, labor, and private property. The establishment of the NATO-Russia council occurred in 2002.

Currently, Dmitriy Medvedev presides over the country with former president Putin presiding as Prime Minister. According to the CIA World Factbook, more than 138 million people live in Russia, a population which is declining, and Russian is the official language. The area is abundant with natural resources such as wind, timber, and oil. Its citizens practice many different religions including Russian Orthodox and Islam.

Economic Model

After the collapse of the Soviet Union, Russia went from an isolated, centrally planned economy to a market economy open to globalization. In the 1990s, Russia underwent reforms that privatized most industry, especially energy and defense. However, the private sector is still subject to government regulation and the protection of property rights is weak. According to the 2001 Index of Economic Freedom, Russia scored 50.5; indicating economic freedom is severely challenged. This low score is attributed to low investment freedom, property rights, and corruption. However, Russia gains some retribution due to their fiscal freedom with relatively low taxes. Property rights and government corruption are also ranked low according to the International Property Rights Index 2011 Report. This index places Russia at 105 out of 129 for legal and political environment and 111 out of 129 for physical property rights. Russia’s redeeming index according to the report is the index for gender equality, which is comes in at 1 out of 80. Globally competitive commodity producers and industries that primarily serve the Russian domestic market largely make up the Russian industry. Russia faces challenges of a shrinking workforce, corruption, and dependence on global commodity prices.

Hofstede Evaluation

In early 1980, Hofstede introduced a model that identified four dimensions to assist in the analysis of a country’s culture. The four dimensions are: Power Distance, Individualism, Masculinity and Uncertainty Avoidance. In 2000, Naumov and Puffer estimated Russian culture using Hofstede model, through regional culture study and national statistics. These estimates rate Russia high in power distance and uncertainty avoidance indexes and low in individualism and masculinity. The result is showed in follow table:

Country

Power distance

Individualism

Masculinity

Uncertainty Avoidance

Hofstede’s/Russia

95

42

40

90

Power distance

The study showed Russia has a very high power distance index, which indicates a high level of inequality of power and wealth within the country. It may be explained by the history that the former Soviet Union has a tight ruling of authority. The governance of Soviet Union controlled society and suppressed personal freedom. Although lots of changes have taken place since the breakdown of Soviet Union, Russia is still affected by politics of the former Soviet Union.

Uncertainty avoidance

Uncertainty avoidance measures the people’s attitude towards the unknown and unexpected situation. Majority of studies have showed that Russia has fair high uncertainty avoidance. The high uncertainty avoidance indicates Russian has a low tolerance for the uncertainty. Russia as a centralized country designs its policies, standards and procedure officially to avoid uncertainty. The ultimate goal of this country is to control everything in order to eliminate or avoid the unexpected. As a result, the nation does not readily accept change and is very risk adverse.

Individualism versus collectivism

They study shows that Russia experiences a low, almost medium, index for individualism at 42. The low individualism index shows that the social has a low degree of unity and cooperation among its members or to individual interests. Russia believes that collectivism can create a harmonious environment for country development so that can be more efficient to achieve government goal. Therefore, Russia is more on the collectivist side than individualistic, in which people from birth integrate into strong, cohesive groups, often extended families.

Masculine and feminine tendencies

A low masculine index indicts that Russian females are more independence and they make equal or more contribution to society. Russia has a traditional low masculinity. Centuries of serfdom followed by 60 years of dictatorship have prevented men from developing sense of initiative. Successive war also contributed to the low masculine. Then men died in the wars and widows have to take their responsibility to take care their families. Although Russian women work alongside with men, men always take higher and more important positions. And majority of new studies have showed that the masculine index is increasing. The traditional low masculine is fading.

Accounting Values

Culture has a great influence on accounting and this issue has been explored greatly in recent years. Culture affects accounting value directly or indirectly. In order to understand the accounting system, it is necessary to analyze a country’s cultures.

Based on Hofstede’s research on culture value dimensions, Gray S. J., the British scholar proposed accounting subculture value dimensions to explore the accounting differences of business conducts with cultural differences. Gray proposed four considerations to evaluate a country’s accounting value:

(1)Professionalism versus Statutory

(2)Uniformity versus Flexibility

(3)Conservatism verse Optimism

(4)Secrecy versus Transparency (Gray, 1988)

The relationship Gray argued between cultural value and the accounting value is summarized as follows:

H1: Higher individualism, lower uncertainty avoidance and lower power distance indicate more professionalism in accounting practice.

H2: Higher uncertainty avoidance, greater power distance and lower individualism indicate high uniformity in accounting standards.

H3: Higher uncertainty avoidance, lower individualism and lower masculinity indicate more conservatism in accounting recording and reporting.

H4: Higher uncertainty avoidance, greater power distance and lower individualism indicate higher secrecy in information disclosure. (Gray, 1988)

Table 1.2

Relationship with culture value

Accounting subculture Positive Negative

Professionalism Individualism Uncertainty avoidance

Power distance

Uniformity Uncertainty avoidance Individualism

Power distance

Conservatism Uncertainty avoidance Individualism

Secrecy Uncertainty avoidance Individualism

Power distance

According to the analysis above about the culture value of Russia, we can know that Russia is a large power distance country who emphasizes the collectivism, masculinity and uncertainty avoidance. Thus its accounting subculture value, based on Gray’s hypothesis, is: Statutory control, uniformity, optimism and secrecy. The chart shows Russia’s accounting subculture values clearly as follows:

Although privatization has taken place since the breakdown of Soviet Union, Russia is still a highly centralized country. The planned and centralized economy model of Soviet Union still has a great impact on Russian accounting standard setting. In Russia, contrary to the due process system widely adopted by west countries and America in financial standard setting, the government controls the formulation of accounting standards and principles, in that, Russian accounting is extensively and strictly regulated. The non-government accounting professional organizations play a much less important role that those in West countries. Rather they are sponsored by government and thus lack independence (Ke, 2007). Due to the lack of participation of a public accounting profession and an interested public, Russian accounting standards (RAS) lack the sufficient transparency and flexibility. Some standards may be impractical for all entities and situations, especially for small businesses.

The government-driven accounting systems in Russia concern more about the interest of government than that of investors. The Russian accounting system, to some extent, is a tax accounting system, which is mainly designed to meet the demands of tax authorities (Ke, 2007). Russian accounting standards (RAS) lay too much stress on tax purpose and bypass the audit purpose. The public is still not clear about what auditing or its purpose is; it thinks auditors are tax inspectors. Also, there is no definite separation between accountants and auditors. For Russia, auditing, which can greatly improve the quality of financial reporting, is a new field worthy of attracting more attention (Enthoven, 2001).

As a large power-distance country, Russia considerably emphasizes the importance of collectivism. As a consequence, Russian accounting standards prefer uniformity and lack flexibility. The government mandatory norms in accounting system regulate accounting standards in details. RAS requires that accounting recording and financial reporting are based on documents, forms, accounts, entries which are regulated strictly by acts and statutes mainly issued by Ministry of Finance of Russia. (Petroff, 2001).

Take documents as an example. In Russia, there is an exact rule on documents used to record and report financial information. Documents must be in conformity with the specially designed forms which are predetermined by the law--Order of the Ministry of Finance of the Russian Federation No.105, issued on 29 July, 1983 (Ke, 2007).

Though Russia makes a detailed information records requirement, Russia lacks the sufficient transparency in information disclosure. Compared to information disclosure which is required by International Financial Reporting Standards (IFRS), information disclosure under Russian Accounting standards (RAS) is less in quantity and lower in quality, especially in the disclosure of non-financial information. Several reasons lead to this phenomenon. Unlike the developed capital markets in Western countries and America widely used by worldwide investors, the capital market in Russia is still on the initial stage and there are only hundreds of companies listed on the Russian trade system. Thus, financial and non-financial information is of less necessity and importance for Russian investors to make decisions. Besides, Russian companies are more concerned with the interests of the related groups and parties, and prefer to maximize their internal profit (Ke, 2007). Thus Russian companies are more inclined to keep their information secret rather than disclose publicly to outside users, such as investors and creditors. This also can explain why auditing is less important in the Russian accounting system. However, transparency, which can be improved by auditing, is a significantly important element for a healthy capital market to attract international investment capital. Thus, a reform in audit field is necessary to optimize the Russian capital market.

Financial Statement and Reporting-RAS and IFRS

Since early 1990, great change has taken place in Russian accounting system. The Russia government has devoted considerably to make its national accounting standards in line with the international norms and standards. The first act to declare this internationalization direction was the “Programme for the Reformation of Accounting in Accordance with International Accounting Standards”, approved by Government Decree No.283, dated March 6 1998 (McGee & Preobragenskaya, 2006). In 2004, Russia required Russian companies that own more than one subsidiary to prepare their financial statements in accordance with both Russian national accounting standards and IFRS (Wikipedia, 2011).

Russian accounting rules include most accounting principles mentioned in IFRS and U-GAAP. The basic principles--accrual principle and going concern assumption--of RAS are identical to that of IFRS. Russian accounting law requires that “a company’s accounting policy should be recorded in the period to which they are related, not the period when cash flow takes place” (Prov.12, PBU,9/98). So the recognition of revenue and expense should comply with match rule emphasized by IFRS and US-GAAP. And Provision of statement on accounting and financial reporting requires that “accounting policy should assume continuity of operation. The mechanism of financial reporting in the event of liquidation is not addressed” (McGee &Preobragenskaya, 2006).

However, RAS is now only 50 % identical to IFRS, and there are considerable differences in recognition, measurement, presentation, and disclosure between RAS and IFRS.

The following are significant differences between them:

RAS requires that transactions are accounted for in accordance with their legal form, rather than their substance, while IFRS emphasizes the importance of substance.

RAS requires that financial statements are prepared with historical cost basis and the historical cost of property cannot be changed, except in several specific situations for fixed assets. And costs of future dismantling and site restoration are not capitalized.

RAS requires that fair market value only applies to marketable investments, while IFRS now appear to support greater use of fair market value in financial statement.

RAS requires that impairment for fixed assets is not considered, leading to a higher value of asset. Impairment for goodwill and intangible assets is not tested neither.

RAS requires that the salvage value of assets to be taken into account in determining depreciation, and there is no difference in useful lives for tax purposes and financial purposes. While there are several depreciation methods under IFRS, only tax-book deprecation difference is allowed.

RAS requires that documents for confirming the impossibility of collect the debt are necessary to write off bad debt. In contrast, IFRS allows entities to write off immediately.

RAS requires the financial statements are prepared only in Russian (Khazimuratova, 2006).

RAS reform in the future

Russian accounting is still in reformation, and a full transition to IFRS is expected to take place in the near future. The majority people in Russia are looking forward to the reform to convert to IFRS.

In 2004, Romir, the largest independent market research holding in Russia, conducted a project, “Implementing Reform in Accounting and reporting in the Russian Federation”, which showed that the majority of respondents believe that Russia should regulate and implement IFRS to help improve the quality of financial reporting for Russian accounting (KPMG, 2009). IFRS will bring great benefit to improve Russian accounting systems, such as increase the transparency of standard setting and quality of financial reporting. Besides, it can help to establish a good business environment to attract investment to develop the capital market. However, implementing IFRS in Russia is a hard and painful task and a lot of political and economic problems need to be resolved. Therefore, it is still a long way to go for Russia to fully adopt IFRS.

Legal Environment

Since the disintegration of the Soviet Union in 1991, Russia has experienced drastic economic and legislative reforms to adopt itself into the new model of capitalistic free market economy. The Russian government has made efforts in establishing a new statutory framework, which was substantially different from that of the soviet time, to match the new standards. Considering the relatively short time since its new regime, Russia has developed its legal structure at a fairly quick pace and in a fairly large scale. Therefore, the current Russian legislative system is still deemed very unstable and not well established. The former soviet communism regime is often blamed for the problems in current the legislative system. However, it is the historical root of Russia that is deeply influencing the ways of conducting business practices: religion and Tsarism set up the very foundation of the weak legislation. Historically, neither the Orthodox Church nor the Tsars made an effort to push the growth of law as an educational pursuit that was seen in the West (Centreeurope.org, 2008). Although Russia has had some of the best constitutions in its history, with its earliest law code known as Russkaya Pravda written under Yaroslav the Wise dating back to the 11th century (Beard, 1999), the legislation yet only tended to protect the nobles and not normal citizens. The Russian citizens were not actively involved in the legislative process when the Tsars had the complete power of justice. Such practices ended with the revolution in 1917, and then 70 years of communism established a socialist legal system which significantly abolished the Western legal concepts.

Today, the consolidation of the Russian legal framework still remains an ongoing process and one of the highest priorities of the Russian government, with major changes being anticipated in a number of areas.

Constitution

The Constitution of Russian Federation was adopted in 1993. It defined the federal sovereign power, federal structure and governing system, which was modeled after many Western democratic systems embracing the doctrine of separation of powers by consisting of three major branches: executive, legislature and judiciary. The Constitution also specifically emphasized self-determination, human rights and civil liberties of private citizens as key points, as no other form of democratic government ever has existed before in its history.

Federal structure

The Russia Federation is comprised of 83 federal entities, among which are 46 oblastey (provinces), 21 republics, 4 autonomous okrugs (districts), 9 krays (territories), 2 federal cities, and 1 autonomous oblast (CIA, 2011).

While the Constitution granted those entities certain autonomy over their own internal affairs, it also defined a set of general powers reserved to the federal authorities. The Constitution also empowered regional bodies to pass local laws, provided they do not contradict the Constitution and federal laws (Zubarev, 2008).

Executive branch and structure

The highest executive power is split between the President and the Prime Minister, with the President being the dominant figure. The President of the Russian Federation used to be elected for a term of four years, which was later amended to six-year term by the parliament in 2008. As the head of the state, the President makes decisions on domestic and foreign policies, holds the position of chief commander of the armed forces, possesses veto power over legislative bills, issues decrees and directives, resolves issues of citizenship of the Russian Federation, awards state decorations and grants pardons. (Russiapedia, 2011)

The Russian executive branch is lead by its government. Following the major reform in 2004, current executive branch has the following structure:

1. Government;

2. Federal ministries;

3. Federal agencies;

4. Federal services. (Zubarev, 2008)

Parliament and legislative process

The legislature resides by the Federal Assembly of Russia, which consists of two chambers: the State Duma, aka the lower chamber, and the Federation Council, aka the upper chamber. The two chambers possess different powers and responsibilities, while the State Duma is of more significance, as the State Duma carries the main responsibility for passing federal laws. Although bills may originate in either of the legislative chambers, they must be submitted to the State Duma first and be adopted by a majority vote before it could be submitted to the Federation Council, where it would have a 14 day period to be voted on. If rejected, the bill will be returned to the State Duma, which then can only pass it with a two-thirds vote again in the same form. If a bill is approved by the Federation Council, signature of the President is required for it to become law. The President has a final veto, but the State Duma and Federation Council also have the overriding power by passing a two-thirds vote (Fischer, 2006).

Judiciary system

The Russian judiciary system comprises of three types of court:

The courts of general jurisdiction, subordinated to the Supreme Court;

The court of arbitration, subordinated to the High Court of Arbitration;

The Constitutional Court

The Ministry of Justice administers the judicial system, and the General Prosecutor's Office, Internal Affairs and Federal Security Service perform the duties of law enforcement (Zubarev, 2008).

Legal system

Russia has a civil law system, with limited involvement of precedents in judge's decision on certain issues. Major codes governing business activities include the Tax Code, Custom Code, Labor Code and etc.

Tax

Currently, Russia is undergoing a major process of tax reform. Part II of the Tax Code was passed in August 2000 and became effective in January 2001. In the mean time, many tax regulations are still in transition. The major taxes provisions include:

Profit tax, which is levied at a general tax rate of 24% on business’ gross profit.

Value added tax (VAT), which is computed based on the sales value of products and services at an 18% tax rate.

Excise tax, which is levied based on the sale, import and export of special products including alcohol, tobacco, oil, gas and etc. at various rate depending on the products.

Land and property tax, which is levied at a tax rate based on property locations.

Personal income tax, which is levied at a flat rate of 13% of individual income. (Zubarev, 2008)

Property

As defined by the Constitution, Russian citizens enjoy the general rights to own and sell property; although many ambiguities in the legislation still exist. The Land Code, which came in effect in 2001, covers the regulation over the municipal and industrial land. On the other hand, agricultural land is regulated by a separate federal law that became effective in 2003. This law specifically prohibits ownership of agricultural land by foreign legal entities, or individuals, or domestic legal entities with more than 50% of their charter capital owned by foreigner. (Zubarev, 2008)

Foreign investment

The Russian federal Law "Foreign Investment in the Russian Federation" of 1999 is the major legislative act governing foreign investment. It requires that foreign investors and foreign investments be treated no less favorably than domestic ones, only with exceptions that may be applied in need to protect the Russian constitutional system, morality, state security and etc. The law also permits entrance of foreign investment into most sectors and in all forms available in domestic economy including government securities, stocks and bonds, new businesses, acquisition of existing enterprises, joint ventures, and etc. Moreover, foreign investors are specifically protected against nationalization and expropriation, unless it is provided for by the federal law. (Zubarev, 2008)

Accounting

Federal Law "On consolidated financial reporting" No.208-FZ became effective in Russia on 10 August 2010. This Law establishes general requirements for consolidated financial statements to be produced and published in accordance with IFRS. The new Law would apply to companies that are listed or quoted on stock exchange or other trading platform on the securities market. Also, the consolidated financial statements in accordance with IFRS are required to be produced in addition to the Russian statutory accounts and reports prepared in accordance with the Russian accounting regulations. This federal law is intended to improve the quality and transparency of the financial accounts of large Russian companies, as well as to help attract foreign investment into the Russian economy (Shvander, 2010).

Impact of Globalization

Russia’s economy faced difficult financial times until the mid-1990’s in the years following the dissolution of the Soviet Union. The nation had taken on “shock therapy”, or rapid trade liberalization and large scale privatization at the recommendation of the United States and International Monetary Fund. It was mostly a failure, wherein the country experienced economic collapse (a 50% decline in GDP and output), hyperinflation, poverty, and rampant crime and corruption. On the other hand, it experienced substantial economic growth during Putin’s presidency from 1999 to 2007. Like many other countries, Russia has been and is still being affected by the forces of globalization and it is being challenged to modernize to accommodate with the global economy. The following discusses the impact of globalization on economic development, poverty alleviation, offshoring, culture, crime, natural resources, and human resources.

Russia maintains a low score on the Globalization Report compiled by the Economist Intelligence Unit and Ernst & Young (2011), ranking in the 50s out of 60 countries. It has scored especially low in the technology and cultural categories, but it also scored low in trade, capital and labor. It has been argued that due to its oil price windfall in the 2000s, Russia’s government has not had the motivation to make the sweeping reforms necessary to further integrate itself internationally (Åslund & Kuchins, 2009).

Russian industry is divided between global commodity producers and domestic manufacturers. In 2009, Russia was among the world’s leaders in exports of oil, natural gas, steel and aluminum. Russia also exports other metals and timber, and it is the world’s second largest exporter of weaponry (CIA, 2011).

According to the World Trade Organization (2011), Russia’s largest trading partner is the European Union. China is its second largest export destination and third largest importer. Russia obtained a trade surplus with China of $3.8 billion in 2009. China’s rapid industrialization requires a vast amount of resources, and Russia has the world’s largest mineral and energy supply, containing 22% of the world’s oil, 16% of the world’s coal, 40% of the world’s natural gas and 33% of the world’s timber. Russia increased its exports to China in 2009, including crude oil, metals and metal ore. It has also reached an agreement to export electricity to China (Asia Times, 2010). Overall, Russia’s total exports everywhere increased from $42 billion in 1992 to $472 in 2008 (Åslund & Kuchins, 2009).

Because of its reliance on commodity exports, Russia’s economy is prone to fluctuations in global commodity prices (CIA, 2011). Russia’s economy benefits greatly when oil prices are high and does poorly when they are low. Its industries benefit from the economic growth of other nearby developing nations due to globalization which increasingly require commodities, including India.

Russia’s private sector contributed to 70% of GDP in 2007. Essentially all of its growth has come from economic private enterprise. The government has been able to sustain a surplus (before 2009) and keep taxation low to moderate to encourage business growth (Åslund & Kuchins, 2009).

Russia’s economy had averaged a high growth since its financial crisis, leading to a “doubling of real disposable incomes and the emergence of a middle class” (CIA, 2011). The middle class increased seven-fold during Putin’s presidency. The number of people living below the poverty line decreased significantly, from 30% in 2000 to 14% in 2008 (Åslund & Kuchins, 2009). Russia is now the seventh largest economy in the world.

Russia’s economic development along with opening its market has had some negative demographic consequences, however. The growing availability of drugs combined with weak government policies regarding substance control contributed to epidemics of alcoholism and narcotics addiction. These have created a crisis of rising mortality and declining fertility (Blum, 2008).

In addition, it is estimated that 25% of Russian software is pirated. Microsoft is heavily affected by this as pirated versions of its software are sold in stores (NZ Herald, 2010). Insisted by Microsoft to protect its property rights, Russian authorities have been cracking down. However, they have used Microsoft’s piracy woes as an excuse to discriminately raid outspoken advocacy groups and government-opposition newspapers (New York Times, 2010).

Like most of the world, Russia was also negatively impacted by the financial crisis in 2008-09. Oil prices fell and foreign credits diminished (CIA, 2011). The Central Bank of Russia spent $200 billion international reserves in late 2008 to slow the devaluation of its currency, the ruble. The government also spent another $200 billion to help its banking sector and aid Russian firms unable pay for large foreign debts coming due. Finally, the economy began to recover in 2010. Unfortunately, natural disasters hurt Russia’s agricultural output and required the government to reduce its exports of grain. This also impacted Russia’s manufacturing and retail industries. In early 2011, high oil prices enhanced economic growth and helped reduce Russia’s budget deficit acquired from the global financial crisis, but presently “inflation and increased government expenditures may limit the positive impact of these revenues” (CIA, 2011).

Russia’s government has recently begun trying to reduce its dependency on commodities and enhance its high technology sectors (CIA, 2011). The government had provided numerous subsidies for its technology sectors, in addition to starting to improve its IT infrastructure and accepting outside investment.

Information technology is a driving factor in the process of globalization. Russia’s telephone system is now experiencing significant changes (CIA, 2011). Thousands of companies are licensed to offer communication services; according to the CIA World Factbook (2011), “access to digital lines has improved, particularly in urban centers; Internet and e-mail services are improving; Russia has made progress toward building the telecommunications infrastructure necessary for a market economy; the estimated number of mobile subscribers jumped from fewer than 1 million in 1998 to some 230 million in 2009.” However, “a large demand for fixed line service remains unsatisfied.”

In 2006, Russia’s information technology industry was expected to more than double by 2012 (Russoft.org, 2006). Russia was expected to become a popular destination for offshore software development. Its market size for exported IT services approached $500 million in 2004 and was growing at a rate of 25 percent per year. Russia’s workforce was being recognized for its highly skilled and experienced tech and engineering talent (Loschinin, 2006). Today, expanding Russia’s IT industry is still seen as an opportunity to diversify its economy and reduce its dependence on sales of minerals and energy. In June 2010, Cisco Sytems Inc. met Russian President Dmitry Medvedev at its Silicon Valley campus and pledged a US $1b investment over the next ten years to spur entrepreneurship and innovation in Russia (EY, 2011).

Unfortunately, legal protections, including property rights, remain central concerns for both Russian and foreign businesses. In fact, there have been some expropriations in the past. Foreign direct investment is a low share of GDP by comparison with leading large economies. Russia has been intending to join the WTO since 1993. Should the country be able to appease the other members and be granted acceptance into the organization, it will reinforce Russia’s commitments to international legal standards and market opening and attract more foreign direct investment (Åslund, A. and Kuchins, 2009).

Most Russians, especially its older and youngest generations, claim to be skeptical about Western political and economic values. They tend to view the United States as “unfriendly.” Nevertheless, the U.S.’s imports, such as McDonald’s and Hollywood movies, are about. Also, Russians were similar to Americans in their attitudes towards markets, equality, and wealth. The typical Russian highly values money, respect, power, success and achievement, making them “even more capitalist” than Europeans (Åslund & Kuchins, 2009). Russians are adopting some American culture. A New York Times article (2007) had this to say: “a drumbeat of anti-Americanism may be coming from the Kremlin these days, but across Russia people are embracing that quintessentially American genre, the television sitcom.” Russia’s own version of “Married with Children” appeals to its new middle class.

Concerning human resources abuse, Russia “remains a significant source of women trafficked to over 50 countries for commercial sexual exploitation” (CIA, 2011). An example of this is the commonly seen advertisements of Russian brides on the internet, a human trafficking activity which is strongly enabled by the spread of information technology. Men and women are trafficked in, out and through Russia to and from surrounding areas to be exploited and forced to do labor. Within the country, women are “trafficked from rural areas to urban centers for commercial sexual exploitation” and men are “trafficked internally and from Central Asia for forced labor in the construction and agricultural industries (CIA, 2011).

Impact of NGOs

A non-governmental organization (NGO), or civil society organization, is a legally constituted organization that operates independently from any government. NGOs normally try to benefit society either by pushing for reforms or implementing improvement (Wikipedia, 2011). Since the fall of communism in 1991, Russia has been flooded with an estimated 600,000 NGOs currently in operation within its borders. This explosive growth can be credited to both local independent community groups as well as international donor agencies. Multiple international organizations, such as Amnesty International, Charities Aid Foundation, and Greenpeace, have local branches operating in Russia today (Cherry, 2006).

NGOs in Russia focus on many social services, as well as having contributing roles in advocacy and activism. Many of their pursuits were highlighted at the 2006 G8 Summit in St. Petersburg, of which Russia assumed the G8 presidency for the first time. Russian NGO’s first goal involved the environment and energy security. They hope to reduce fossil fuel and nuclear energy consumption, as well as increase the use of sustainable energy sources. Russian environmental NGOs are pushing for new government standards that would call for more investments and expansion in energy savings and renewable energy sources research. They are also urging leaders to fairly distribute energy resources amongst the population, primarily to the poor. A second goal focuses on global health and infectious diseases. NGOs are advocating for an increase in spending on preventing, diagnosing, and curing infectious diseases, especially those that affect vulnerable social groups such as the poor. They also recommend the creation of an international pandemic surveillance system that would ensure vulnerable social groups have access to medicines and treatments. A third goal is the improvement of education, specifically a movement toward more inclusion of children with special needs and learning handicaps. Other issues focused on at the Summit included trade, finance, and development in Africa. Many NGOs feel that improving relations with African nations through more open global trade policies will benefit society (Cherry, 2006).

While civil society groups have experienced freedom and influence in Russia over the past 15 years, recent laws passed in 2006 that apply restriction to NGOs may have derailed that promising trend (Cherry, 2006). The controversial bill “would require all NGOs operating in the country to register with a state commission and place serious restriction on the ability of foreign groups to fund and support Russian NGOs” (Gvosdev, 2005). It also introduced difficult-to-meet reporting requirements for NGOs, accompanied by severe non-compliance penalties. The law also granted broad powers to governing bodies to be able to audit the operations of NGOs in Russia (The International Center for Not-for-Profit Law, 2011). Russian President at the time, Vladimir Putin, claimed the law was necessary “to prevent financing political activities from abroad” (American Enterprise Institute, 2006). Other leading members of the United Russia political party described the law as a way to crack down on extremism against the political structure in Russia (Gvosdev, 2005). However, human rights groups, NGO’s that are pushing for democracy, and the foreign governments that invest in those groups are all expressing concerns that this law is being used to crush any political opposition to the parties currently in charge (AEI, 2006). Along with trying to push NGOs out of the country, the law also makes it difficult for new organization to set up and register. It became much harder for NGOs to make changes to their own charters or to register a new address or director. The law has also reduced the list of organization entitled to receive money without having to pay taxes on it from 101 to 12 (Gnezdilova, 2009).

The election of President Medvedev in 2008 has fueled hope the legal framework involving civil society will improve. Amendments to the law took place in 2009 and the following changes were made (summarized):

Exemption for small non-commercial organizations

Activities reports should be publicly available

Government audits of NCO take place every three years

Requirements for registration

Effect of refusal to register a foreign NCO representative office (ICNL, 2011)

It is unknown yet whether the effects of these amendments have yielded positive change to how NGOs are treated in Russia. The 2006 Russian NGO law set civil society organizations back in their pursuit of improving society. However, the fact that reform of the law has actually happened, whether it is effective or not, is a promising sign for the future. It is important that in the future, NGOs in Russia be given freedom to improve the infrastructure of a country that supports a large and dependent poor population.

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