Russia's transition from Communism to capitalism has been at best a disappointment and at worst an outright failure. What went wrong?
Under Communism, the Russians developed black markets which were highly efficient. These markets enabled people to exchange goods and help to alleviate chronic shortages. In a Communist society black markets serve an economic function and improve efficiency.
Under capitalism, however, black markets promote criminality and discourage honest business. If there is an accessible black market in bread, then the employees of a bakery will steal bread to sell on the black market, and the bakery will fail.
On the other hand, if black markets do not exist, then employees who steal from their employers will have no place to sell their stolen goods. This reduces the incentive to steal.
So my hypothesis is that the efficiency of Russia's black markets undermined the transition to private ownership. State-owned businesses, which were not forced to be profitable, could survive widespread employee theft. Private businesses, however, require honesty on the part of employees. Because the black markets continued to thrive after the transition to private ownership, that transition failed. In other words, the successful transition from state ownership to private ownership requires not only the creation of open markets but the destruction of black markets.
Discussion Question. What other factors might account for the failure of Russia to make a successful transition to capitalism?