Question

Does Putin’s Russia have a “market economic system”? What does that mean, and how does it differ from the alternative? What are the key (defining) characteristics of the present Russian economic system? How does this system affect the performance of the Russian economy and the economic welfare of the Russian people? What are the principle challenges/problems faced by that system?

Answer 1

A market economy system means economies that work on the principle of free market. The interference of the government is kept to the minimum in these economies in matters of importance such as public goods (roads, infrastructure, etc.), merit goods (education and healthcare), goods with negative externalities (pollution-causing firms, etc.). The alternative to this system is one that is controlled by the government- a socialist system where all factors of production are owned by the government. The government makes pricing and wages decisions.

Russia has a market economy system on this date. It used to have a socialist system but it converted many years ago, and now the government only owns factors of production in key areas. The path from a socialist economy to a free market economy was not smooth for the country. The country is greatly dependent on oil prices, and keeps on facing rough patches every now and then in terms of GDP (the economy contracted in 2014-16 but did not collapse).

All economic systems affect the economy and people's welfares greatly. Market economy is said to work the best for an economy with limited government interference. When people's actions are voluntary and they are prevented from being exploited, their welfare automatically rises.

The country, however, has a special system because it only transformed from a socialist economy two decades ago. Major challenges faced by it include low oil prices (Russian economy's major source of income) as well as capital movement across the world.