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Geographical Handicap


Geographical and environmental factors are of crucial importance for any national economy. With the breakup of the Soviet Union, all of the empires southern and western republics were lost to Russia. In terms of territory, the country still remains the biggest in the world, but it has now become even more northern.  


Temperatures of minus forty degrees Fahrenheit unimaginable in major cities of Western Europe and the United States are quite normal in Ekaterinburg, Tomsk, Irkutsk, and Novosibirsk, and not uncommon in the capital of Moscow. The severity of the Russian climate means that the cost of housing, heating, and lighting is considerably higher than in the West. In addition, the countrys vast territory increases transportation costs.

All this means that, even with the most judicious use of energy resources, Russian industrial enterprises will always have bigger outlays than their counterparts in Western Europe, the United States, and Japan. State support of industry, transport, and agriculture was one of the main characteristics of Russias economic development both during the Soviet era and under the tsars. Western economic models and prescriptions, which envisage sharp contraction of the states role in these areas, condemn Russian companies to being uncompetitive in world markets.

In Russia, with its enormous territory, unpredictable agriculture, northern location, and specific economic structure, the regulatory role of the state has always been significant and is likely to remain so. The reforms of the 1990s have clearly demonstrated that a weak state can hardly create conditions for an effective market to emerge.

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