The article presents the multiple aspect examination of the notion crisis. On the basis of the analysis of social and economic position ofRussia during pre-crisis time and during the crisis of 20082009, global problems of Russian economy are examined. The author substantiates the necessity for a new concept of national Russian economy regulation the concept of state socially oriented capitalism, andalso offers legal tools which make it possible to overcome the consequences of the crisis.


Crisis, economy, management, state, law

Socio-economic consequences of the global economic crisis in Russia: legal instruments of control and overcoming

Crisis is to some extent a free democracy zone

Naomi Klein Shock Doctrine

Socio-economic situation of Russia before the crisis of 2008. It is not a secret that Russian economy is oriented to raw materials. Fuel and energy resources sum nearly a half of export. For example, the share of machines and equipment in Russias exports totaled: 8,8 % in 2000, 9,5% in 2002, 9 % in 2003, 7,8% in 2004, 5,6% in 2005, 5,8% in 2006, 5,6% in 20071. Consequently there is a significant increase of share of machines and equipment import (in 2000 the share of import totaled 33,6%, in 2007 it grew up to 51,0%). As a result the national machinery-producing industry is close to extinction.

According to Harvard University WEF experts' research, Russia has very strong international position in ferrous metal industry, strong in non-ferrous metallurgy, electric-power industry, petrochemistry, timber and defense industry, ordinary in chemistry, aircraft industry, shipbuilding industry, general engineering and weak - in automotive industry, electronics engineering, textile industry2. These facts are neither new nor sensational. Traditionally Russia occupies strong competitive positions in material and resource-oriented branches and in defense industry. For instance in the last three years Russia share on the World Arms Market is approximately 14 %. (in 2005 - 14,3%, in 2006 - 13,2% and in 2007 - 13,88%). USA remains the undisputed leader, controlling more than one third of the World Arms Market (in 2006 - 38,6%, in 2007 - 40,5%). Three largest west-european exporters of arms France, Great Britain and Germany considerably lag behind Russia3.

Over the years of V. Putins presidency positive in economic development are such criterions as GDP growth. Thus, MEDT of Russia (Ministry of Economic Development and Trade of the Russian Federation) predicted GDP growth by the end of 2006 at the level of 6,1 %. But this figure changes constantly from 6% to 7%. Nevertheless, Russian president set a task to double GDP of Russia by 2012. For this purpose it is necessary that the annual growth is not less than 7,3%. According to some analyst opinion Russia can become a member of top 10 ratings of world leading countries in case it could keep its economic rate at least at the level of 4%. For comparison, on the 2nd of April Rosstat (Federal Service of State Statistics) announced the first overall estimate of Russian GDP growth at the 2008 year-end. Last year the economy of Russia had increased by 5,6%. Data of Service of State Statistics concurred with the formerly made estimation of Russian MEDT (Ministry of Economic Development and Trade of the Russian Federation). In 2007 the growth of Russian economy reached the level of 8,1 %4.

Certainly, GDP criterion is a remarkable one. However Russia still remains the underdeveloped country particularly on per capita GDP, which is low in fact. According to different estimations Russia occupies from the 6th to 10th place in the world in terms of volume, but only the 38th place as per capita.

And now lets speak about capital consumption. National capital consumptions are evaluated as having significant level of wear and tear. According to experts opinion more than 70% of productive assets have had a working lifespan over 10 years. The fastest industries to deteriorate are airplane, rocket-and-space, electronic industry and communication. It should be noted that capital consumptions in the technical-and-economic complex reaches almost 80% when major part of resources coming from export remain in this complex5.

According to Rosstat at the beginning of the year the degree of capital assets depreciation in manufacturing industry amounts to the following figures: in 2004 47,9%, in 2005 47,7%, in 2006 47,4%, in 2007 46,8%; in mining operations - 55,4%, 53,2%, 53,0%, 53,3% correspondingly to the years6. As we can see the degree of capital assets depreciation is high even on the formal layer.

According to scientist forecasts Russian park of physically and morally exhausted basic capital of industrial enterprises requires nearly $500 billion dollars for restoration and investment renewal7. To this astronomic sum of money it is necessary to add 10-11% from the mentioned sum to guarantee the regime of simple reproduction of active part of worked out funds. But mass inflow of foreign investments into Russian economy is hardly reliable. Foreign investments (with due account for the real picture of their income) are not able to become a determinative remedy to factors which develop Russian production.

Consequently massive investments are necessary for the stable growth and extension of export potential. International practice shows that there is a choice in certain limits. If the country excessively increases import, than the growth of investments restrains. The investments are put in the place where to the goods cant come8. In 2008 $ 103,8 billion dollars of foreign investments came into the Russian economy. This figures are 14,2% less in comparison with 2007. In the first quarter of 2008 Russian economy got $ 17,3 billion dollars of foreign investments (be 29,9% less of the relevant period of the preceding year), in the second quarter - $ 29,3 billion dollars (be 18,0% less), in the third quarter -$ 29,2 billion dollars (6,1% more), in the fourth quarter - $ 28,0 billion dollars (be 15,2 % less)9. In 2008 the major countries investors were Cyprus, the United Kingdom (Great Britain), the Netherlands, Germany, Luxembourg, France, Virgin Islands. Their portion of the overall volume of cumulative foreign investments was 77,0%, and of the overall volume of cumulative direct foreign investments was 79, 4% . Moreover, the portion of the investments into physical capital is 15,3% (according to another estimate 21%). Other returnable investments have the biggest share of cumulative foreign capital - 51,6%.

At the same time the illegal currency export from Russia continues. Thus over the period of 1991 1998 (according to estimates of different experts) $ 270 500 billion dollars were exported from Russia illegally. It is significantly exceeded the income of foreign investments10. To compare: for the whole year of 2007 capital flight was $44 billion dollars, and at the year-end of 2008 the pure capital outflows constituted $139,1 billion dollars11, i.e. total increase more than in 3 times.

Sociodemographic situation of Russia. According to Rosstat in 1989 the commonweal of the population of Russia was 147mln people, in 2005 - 145mln people, in 2008 142 mln people12. It is assumed that in foreseeable future demographic smashup will continue its progressive advance. The amount of the annual depopulation in Russia is unalterably preserved at the level of about 0,6% of general population. According to I.A.Gundarov, native population is depopulated by 800-900 thousands of citizens yearly. Such movement means that country will lose 50% of its ethnic composition in 80 years. This period is called as the time of nations half-disintegration13. Especially it concerns Northwest territories of Russia (the Novgorod Region, the Pskov Region, the Tver Region, the Leningrad Region). In these regions the depopulation is up 1-1,5%, and the time of half-disintegration is 35 50 years. Even Rosstat optimistic forecasts show the depopulation in Russia by 2020 provided that there is a high level of migration up to 137,3mln people, and by 2030 up to 132,8mln people.

One of the factors of the sociodemographic situation of Russia is the national property differentiation increase, and the poverty level rise is the serious danger for the national economic security. These facts are proved by figures. According to the Department of Population Income and Standards of Living at the Ministry of Labour in the first quarter of 2002 43,3mln people lived below the poverty line or it is 30,2 % of Russian population14. There is stratification of society on the rich clubby bonhomie and the dominant mass of the poor. There is no such differentiation neither in industrially developed countries nor in other states. In 1997 Russia was in the 71st place in the world as for the human potential development being close to such countries as Western Samoa, Ecuador, Mexico. The difference between the income of 10% of the most high-yielding groups of population and 10% of population with the least income raised from 13,9 times in 2000 to 15 times in 2004. It is the highest during the existence of new Russia15. At the end of 2006 Russia held the 65th place in the world in level of living. Such criteria as the duration of life, the educational level, the quality of medical care, the level of income per caput were taken into account while making the rating16. As we can see the worse situation is only in Africa17.

Few words about unemployment. During the 90-s it was firmly increasing, but from 2001 it began to go down. For comparison in 1998 1999 the level of unemployment was nearly 9mln people (unemployment high), in 2001 6,4mln people18, in 2005 the number of unemployed shortened to 5,208 mln people, in 2006 4,998 mln people, in 2007 4,232 mln people19. But in 2008 there is a significant increase of the unemployed. It is approximately 6 mln people.

Inflation. In 2007 the rate of inflation was 11,9%, but in 2006 it was 9% and at the 2008 year-end it was 13,3%. It results in the rise of price for foodstuffs20.

2. Socio-economic situation of Russia during crisis. Lets begin with the estimation of base criterion GDP. According to the forecast of Ministry of Economic Development and Trade of RF, in 2009 the decrease of GDP will reach the level of 2,2%. At the end of March Organization for Economic Cooperation and Development (OECD), which unites 30 headmost countries all over the world, predicted that the economy of Russia would fall down at the level of 5,6%. Earlier World Bank forecasted that in the current year the downfall of Russian GDP would be at the level of 4,5%21. Although there is more negative development scenario - flat or even negative economic growth and the growth of personal income to the extent of 2 3%.

For information, within the first quarter of the 2009 Russian GDP shortened for 9,5%. According to Russian MEDT deputy minister A. Klepach, the factors affected the decrease of GDP are the shortening of investments to the level of 18% and the reduction of the retail volume to the level of 1,1% within the first quarter of the 200922.

The index of industrial production also showed its reduction per year and increase as compared with the previous month. By February of 2008 the volume of industrial production fell by 13,2% and by January of 2009 grew by 6,4%. Analytics say these figures are not seasonally regulated and may be explained by long January holidays.

More considerable decrease is in the sphere of mining industries, especially in coal-mining (20,8%) and natural gas (13,2%). Another example: Russian nonferrous-metals industry demonstrated decrease in the production of all types of metals and products in January-February of 2009.

Within two months from the beginning of the year rolled aluminum production had decreased by 49,1%, of plumbum - by 56,8%, of Zink by 23%, of refined - copper by 17,4%, of bronzed rolled steel by 65,9%, of brass-mill products by 60,8%,of copper mill products by 60,6%, of nickel by 13,6%, of cobalt by 5,6%, of metal molybdenum by 83,3%, of metal wolframium by 93,2%, of sponge titanium by 38,3%, magnesium and magnesium alloys by 22,1%, titanous rolled steel by 35,3%23. The same situation is seen on the market of ferrous metals.

The mirthless situation is in the manufacturing industries. In comparison with the similar period of the previous year the decrease was nearly 16%. In engineering industry there is a significant decrease of the machinery and equipment rollout by the 21,2%24. According to the Rosstat statistics and information from the engineering manufacturers in January and February of 2009 there is a continuing decline in production, which exceeded the level of 70% in comparison with the same period of the previous year in the groups of production manufactured by enterprises of tractor, agrarian, road-building and communal machinery-producing industry. The greatest decrease happened in the following kinds of production: excavators - by 92,9%; column-jib cranes by 92,8%; autograders by 82,7%; prime log movers by 79,2%; tractors by 78,5%; cultivators on 76,8%; bulldozer earthmovers by 76,4%; clippers by 72,5%; fodder harvesting combines by 67,7%.

The illustrative factor that shows a deep economic slowdown is the freight turnover, which was cut down by 19,1% in comparison with the level of February of 2008, which includes of railway - by 25%, and from January of 2009 by 6,4%. Negative tendency of cargo turnover decrease is growing.

Against this background there is a reduction of the investments, capital outflows and so on.

Thus, foreign trade turnover crashed down as per month and per year (by 40,2% and 42,8% respectively). Even so, import in February of 2009 in comparison with January fell more then two times. As a result black foreign trade ink of Russia in January of 2009 reduced by two times to 9,361 bln dollars in comparison with 18,862 bln dollars in January of 2008.

Inflation tops record levels. According to statistics published by Rosstat in March of 2009 the index of consumer cost amounts to 101,3%, within the period from the beginning of the year 105, 4% (in March of 2008 - 101,2%, within the period from the beginning of the year 104,8%). From 2008 to 2009 inflation was 13,3%25 per year.

Some words about the level of the unemployment in Russia during crisis. In February of 2009 the number of the jobless was 6,1 million people or 8,1% of economically active population. On an annualized basis the total number of the jobless increased by 1,1 million people. For the first two months the number of legally registered jobless increased by 156 thousand people and amounted to 1,708mln people or 2,3% of economically active population26. However in March 2009 according to the preliminary estimates of Rosstat the number of unemployed reached the level of 7,5 mln people. (Ministry of Labor protection standard).

3. The listing of Russian problems can be continued, but it is necessary to make some intermediate conclusions. Financial crisis, including banking and mortgage, originated in the USA, spread as an infection all over the world. The economies of different countries were harmed by it. Indisputably the main beat came on the countries with open infrastructure, developed market system. The more is the level of integration into world economical order, the more is the degree of erosion of a country economy. Its clear that such countries as D.P.R.K. (Democratic People's Republic of Korea), Nigeria are not able to feel the strength of recessionary beat. Before the crisis these countries had already had a permanent bad economical situation. 2. Russian economy has become more integrated into world economy (if we compare not only with the period of Soviet Union, but also with the period of the first Russian president government). At the same time it (economy) is half-closed for the penetration of allogenic (foreign) elements. Lets take for example the stock market of Russia. Indeed it (the market) is the part of Russian economy. But on the other hand it is something special that doesnt have any relation to the real economy. One more instance: sharp decline of index-numbers on the stock market of MICEX (Moscow Interbank Currency Exchange) and RTS (Russian Trading System) didnt have much influence on the general assessment of Russian economy in its entirety and the public. In this situation national oligarchs were harmed, their virtual (speculative) assets had sharp decline. Many of them had lost their place of honor in rating of the most moneyed people. As for the commons of Russia the majority of it for well-known reasons didnt take part in speculative games. And this disadvantage of market economy became a great advantage for Russia. The same can be said about the mortgage lending. 3. The structure of Russian foreign trade turnover vividly shows that the share of Russian export concentrates on the delivery of natural resources mainly oil, gas, metals. On the contrary Russia is the country which imports machinery, equipment, electronics, foodstuffs and so on. That is why oil and gas prices were more important for Russia than international securities markets. They fell. But this also happened before and didnt depend on the decline of financial markets. Perhaps the principal question for Russia is not why the prices on oil and dissolved gas had fallen down, but why they have raised to such level. For Russia the price increase was a temporary interest, but not a medium-term stable perspective. The decline was predictable and foreseeable. That is to say if the prices on oil and gas rise up, then Russia will come out of free democracy zone, i.e. out of the crisis, ahead of time. 4. BRIC countries (Brazil, Russia, India, China) established themselves as leading countries as they had the high rate of production and the GDP growth rate. Though during crisis Russia found itself in the worst position as others countries provided generally the more effective control over the inflation, more diversification of national economies, increase in efficiency, generous social programs and political stability. Russia is making first steps on the way of production diversification, the development of nanotechnologies. Now it sounds rhetorical with political sarcasm: Let there be nanotechnologies. Though, economical policy of China during crisis is oriented to the demands of the internal market. Hence there is a smaller dependence on external factors. The global financial crisis showed a range of global problems, particularly in Russian economy. The first one is ineffective model of current Russian economy. We couldnt diversify the economy. We still depend on raw materials. The second one is weak management of economy in whole and of entrepreneurship in particular. 5. The nowadays crisis in Russian economy requires a serious analysis and needs prognostication. It should be agreed that the widespread crisis in Russian economy cant be unambiguously treated either as the infection, that was brought from the western economy, or absolutely Russian cyclical crisis. The combination of external and internal factors makes it a specious one27. Certainly, how is it possible to speak about the cyclicality of the current crisis if there is no the crisis of overproduction of commodities and services in Russian economy. We cant agree with the opinion of V. Starodubrovsky that the high rates of GDP, investments, personal income growth led to the economic overheating, but it needs supercooling28. The main reasons for crisis consequences in Russia shoud be found not in intrigues of the West and the USA (although the events on the world financial market became the impulse to the beginning of the current process), but in own miscalculations and mistakes: the strong dependence of a raw material industry on export, underdevelopment of a private financial system, the existence of unsolved problems in the economical policy aspect29. Therefore Russia repeated the way of more developed countries through the financial crisis to industrial recession.

4. Legal instruments of overcoming crisis consequences. For a long time in conditions of a free market economy there has been an axiomatic statement that Only market can control a private ownership. The events that happened on the market are a vivid pointer that the state must effectively manage the market, extensively intervene in these processes. Private ownership cant be a sacred cow, and the state cant play the role of night-watchman. Self-righting of the market is not bad, but must be rational and combined with the government control.

Today the following thesis (control principle) is actual: Private ownership is the way of social wealth control30. It doesnt matter who controls some part of the social wealth, if only he does it effectively and within the limits of the law. Therefore the state must protect social wealth from the effectless management of the ownership. For this purpose it is necessary to create a legal framework without help of western models. Private ownership is the great resource of control. So the way of making assessments must be radically changed.

There is wide spread opinion that the state is the most ineffective owner. N. Volchkova, a Senior Economist of the Centre of Economical and Financial Development noted that The state is ineffective owner inherently31. Those who oppose to strengthening of the role of state in the Russian economy often handle monetarism concepts (science of money). Monetarists consider that the key to the economical strength is in well-adjusted money-and-credit mechanism. And not only. Monetarism is an integral concept, a special treatment of reprocessing, employment, international economic interdependence problems.

Over against, the opponents to this point of view give many examples of private owner ineffective control. S.I. Tsiganov, associate professor of the Chair of Econonomics of USLA writes: The repeated statement that the state is ineffective ownership is wrong. Numerous examples show how entrepreneurs very easily destroy powerful enterprises32. According to the opinion of the president of Chamber of Commerce and Industry academician . M. Primakov, some opponents of the state role strengthening conception are connected with the West and gather concepts from there. He calls them pseudo liberals. As a rule they dont openly dispute the economical role of the state, but insist that the state has occupied overmuch place in Russian market economy33.

Sometimes you can come across opinion that the public servants controlling business are the potential and practicable corruptionists. Such statement is not groundless. But nobody writes and speaks about corruptionists from the private sector of business. There are frequent occasions when the leaders of private structure carrying out their direct obligations make money on the black scheme of kick-back funds just signing the contracts of delivery of metal. And this operation takes place very often. One division director kicks back money in building business, the second in sphere of corporative relations, the third uses the power of the enterprise to delivery crozzling coal. In a word, dirty business which is inside private business. This happens when the owner (or owners) connives, allowing his senior managers to earn on rainy day (days). There is unpublicized rule about quota on theft.

In our opinion we need a new concept of management in Russian national economy the concept of state socially oriented capitalism (competitive economy). In conditions of strengthening of the state regulation of the economy the act about principles of Russian economy ruling should be elaborated and passed34. Such suggestions were made by different scientists several years ago, but there are no actions. There is a great dominant influence of opponents of the state role in regulating the economy and business activity.

The alternative variant is to pass the act about the property ruling. Today in Russia there are disparate laws regulating different aspects of property ruling. These are privatization act, bankruptcy act, commercial partnership act. Moreover, the edicts of president and regulations of the government exist in this sphere. They are devoted to the questions of regulation of federal government property, open joint-stock company (public corporation) shares holding and also of property located abroad. Such aspect as trust of joint-stock company shares assigned as federal property.

We successively support the adoption of the law On Nationalization and Deprevatization and On State Monitoring of Property in Economic Branches of Strategic Value in Russia. It is known that the article 235 of Russian Civil Code provides the opportunity of nationalisation of property of citizens and of legal entity. It is done with the authority of law with compensation of a cost of property and others losses, according to article 306 of Civil Code. But still there is no law on nationalization. There are several projects of this law in the State Duma of Russia. This law has both opponents and supporters.

From our point of view present conditions require the act on nationalization. Dont be afraid of the term nationalization. In our country (traditionaly) nationalization is viewed mostly as the synonym to unpaid expropriation. Other world considers its economic idea as the transfer of private enterprises under control of state on the basis of repayment. As usual one of the main aims of such nationalization is the establishment of state control over strategic branches for providing security (including economic security) of the state. These processes have taken place in various countries and their consequences are different. All participants of the economic turnover have to know common rules of conduct including the questions of nationalisation. As for the deprivatisation it can be held not only by the way of nationalization. Deprivatisation can be held by the way of selling the subject to the state or municipal unit, by the compensation-free transfer of property to the state or municipal unit ownership.

Meanwhile in the absence of act on nationalization there are some processes the essence of which reminds the lessons of nationalization. The state recovered control over Gazprom, repurchased the assets of Ykos and Sibneft. It is the shareholder of the two largest banks in Russia Sberbank and Bank of Foreign Trade, monopolist in arms export35. In 2007 state powerful corporations were found in different branches of economy. The process is continued.

Thus today there are widespread operations of the largest property redistribution for the last fifteen years. As a result other people can become oligarchs in Russia. Totally there is a very intresting absolute oil painting as the character of one of the famouse television series had it.

Russian economy needs the folowing legislative acts: on control and merger (absorption). In Russian Federation there are a lot of controlling bodies and disparated acts, but there is no consolidated law on state control. The western governments decided to nationalize the bankrupt commercial (credit) banks. Is it necessary for Russia to follow this way and to make the same decisions? Probably this cannot be dispensed with. But it is necessary to use the factors of global crisis for the large mergers and absorptions on the financial market.

Actually the time for the enlargement of assets, productions, business has come. Dont prevent the natural process of absorption of small banks, insurance companies, investments trusts. Conversly this process should be stimulated under the strict control of the state. On the other hand we support the tendency of the state to develop small businesses.

Among special laws we should name two of them: Stock Exchange and Exchange Activities Law and Securities Law. The securities market legislation and securities legislation are not the same notions. As it was correctly mentioned in literature the first is larger than the second. For this reason we suggested to pass Securities Law (along with the current Securities Market Law). Although the lawmaker has chosen another way. On the 14 of October, 2003 the State Duma enacted the Law on Mortgage-backed Securities. From our point of view the more preferred option is to pass the Securities Law, which would include the provisions of securities (as of mortgage-backed securities). Legal regulation of stock market is in arrears of its real sector of economy. It is not an objective indicator of economys condition.

To rule Russia is not difficult, but is absolutely ineffective (Alexander II).

1 See The export pattern of Russia//

2 See Bulletin of national commodity producer: materials, documents, information 2002. 1 (7). p.8.

3 See

4 See

5 See Merchant 2001, 20th December. p.7.

6 See:

7 According to estimate forecasts of the investment and innovation center of Russian Academy of Sciences till the last current decade it will require about 1200-1500 billion of US dollars for the full modernization and recapture of fixed-capital assets of all branches of the real sector of Russian economy; in prospect till 2025 it is necessary about 2500-3000 billion of US dollars to create knowledge-intensive innovating economy (Energy strategy project of Russia, M. 2001). Russia doesnt have such astronomic resources.

8 Economic security of Russia: the Guideline: Textbook under the editorship of V.K. Senchagov, ., 2005. p.199.

9 See:

10 According to experts estimates in recent years unlicensed export of assets is preserved at the level of 20 billion of US dollars more annually. //Economic security of Russia: the Guideline: Textbook under the editorship of V.K. Senchagov, p.79.

11 See:

12 See:

13 See the control of social and economic development of Russia: theories, targets, mechanisms //The head of composite author D.S. Lvov, A.G. Porshnev . ., 2002. pp.154-155.

14 Russian paper. 2003. 31 of January p.9.

15 Russian statistical yearbook, M., 2001 and 2005.

16 In 2007 Russia took the 67th place between Bosnia and Albania.

17 Scientists put 29 African countries and one island Haiti into the group of countries with the low level of living. According to the rating such African countries as Nigeria, Sierra Leone, Mali are uninhabitable //

18 Economic security of Russia: the Guideline: Textbook under the editorship of V.K. Senchagov ., 2005 p. 695.






24 Federal State Statistics Service Information about Socio-economic situation of Russia January and February of 2009 Manufacturing activities. Index of production according to the fundamental kinds of manufacturing activities //

25 According to the rate of inflation in the first quarter of 2009 Russia was on the third place in Europe after Byelorussia and Ukraine.

26 Federal State Statistics Service Information about Socio-economic situation of Russia January and February of 2009. Employment and unemployment //

27 Economical crisis in Russia: expert aspect// The question of the economy 2009. 4. p.4.

28 See Financial crisis in Russia and in the world/ Scientific editor E.T. Gaidar. ., 2009. p. 107.

29 Economical crisis in Russia: expert aspect. p. 5.

30 See:

31 See:

32 See: Tsiganov S.I. The supporting of Russian economic security// Business. Management. Law. 2007. 2. pp.50 54.

33 See: Primakov E.M. Is the world be without Russia? Where can political short views lead ., 2009. p.106.

34 See: Belykh V.S. About the concept of draft law about the property ruling// Business. Management. Law. 2009. 1.

35 See: Primakov E.M. Ibid p.106.


Business, management and law