Russia's transition into capitalism after the dissolution of the Soviet Union on 25 December, 1991 was a consummate economic failure. Many of the same elements that adulterated Marxist socialism in the Soviet Union also corrupted Russian capitalism, causing increases in abject poverty and concentration of wealth, as well as declining living standards and life expectancy until about 1997- five severe years of economic decline and despair. Russian business was popularly defined by crime, corruption, and national decline.
In January 1992, Russian reformers pursued an abrupt privatization of the Russian economy. This shock therapy freed prices on 90% of all Russian goods. The government also launched a rapid privatization of industry and turned thousands of factories and mines over to new private enterprises. Although 64% of the privatized firms were owned by their workers, the control remained in the hands of the old bosses, the managers and government officials who had been running the factories and ministries in the communist era. The government anticipated only six months of hardship while the economy transitioned at warp speed, but the prompt low prices and increase in consumer goods never manifested. The reality was quite different: sobering hyperinflation, in which prices increased 26 times just in1992 and 250% on the first day alone. Production unexpectedly declined 20%. The situation certainly didn't stabilize until 1997, when the relentless combination of gradually increasing inflation and reduced production finally ceased. Some estimates place production in1996 at 25-50% less than that in 1991.
The primary causation for Russia's dismal introduction to capitalism was the communist industrial infrastructure in Russia. In the years past, industry was consisted of primarily of state monopolies that focused predominately on military goods. As state monopolies, these entities concentrated industrial production to a couple of gargantuan interconnected factories per industry. When privatization occurred, these state monopolies naturally became powerful private monopolies. Monopolies by definition produce less and charge higher prices than firms in actual competitive industries in order to extract the largest possible profit. Since there were no official government imposed barriers to entry in these industries, President Yeltsin and his fellow reformers expected the immense economic profit to attract new firms to produce and consequently increase production and decrease prices through competition in accordance with standard economic theory. However, this process was painstakingly slow, as these massive private barons of industry extracted subsidies and credits from Yeltsin's supposedly reform-minded government. Through the influence of empowered bureaucrats and the managerial elite, the Russian government developed distinct attributes of technocracy and plutocracy. This stage represents how the corruption of capitalism in Russia parallels that as how well-intended Marxist socialism, which was diluted by the same impulses of rapacious technocrats that came to dominate the communist party following the 1917 Revolution. The Russian managerial elite also established an affiliation with organized crime syndicates that had only grown strong in the later years of the Soviet period. These criminal organizations were utilized to deter the few daring enough to start a business. And so started the infamous corruption trifekta between government at all levels and big business and organized crime. The new found dynamic resulted in the subversion of Yeltsin's "radical" liberalization. Business directors and politicians succeeded in eliminating worker ownership and converted large portions of previously state-owned property into their own private property. Coupled with hyperinflation, this new arrangement initiated a social revolution in Russia, in which wealth became concentrated amongst the capitalist elite in Moscow while the Russian masses fell further into poverty. It was because of this social revolution.
