Russia Profile
May 8, 2008
Championing the Poor
Russia’s New Prime Minister Promises Higher Minimum Wages and Increased Budget Spending
By Dmitry Babich
The State Duma, the lower house of the Russian parliament, approved the candidacy of Vladimir Putin for the position of the country’s prime minister. The candidacy, put forward by the president Dmitry Medvedev, received 392 votes for it and 56 votes against it, without any abstentions. The Duma has 450 members.
Putin was widely expected to win the support of the Duma due to being the chairman of United Russia, the ruling party that holds 315 seats in the Duma. Putin’s candidacy was also officially supported by the mildly leftist Just Russia party (38 seats) and by Vladimir Zhirinovsky’s flamboyant Liberal Democratic Party of Russia (40 seats). Only the Stalinist Communist party of the Russian Federation (57 members) voted against his candidacy almost in full (56 votes). The vote was an open one.
Despite being assured of the Duma’s support, Putin’s speech was not short on promises and grandiose plans. With Russia’s GDP catching up with that of Great Britain, a member of the G7, the club comprising the most developed economies of the world, Putin promised to increase the spending on roads and on infrastructure fourfold. Expenditures on health care and education are also supposed to grow at an impressive rate, expected to reach 400 percent of what they were in 2004 by 2010. All of this growth is meant to be achieved without fueling inflation, whose annual rate Putin promised to cut down to “single digits” in the next few years. In 2007, inflation in Russia reached 11.4 percent. During the first five months of 2008, inflation hit 6.3 percent. Putin likewise promised numerous improvements in the structure of education, health care, and social protection to the stormy applause of most of the deputies present.
The deputies of every faction were allowed to ask two questions, and the faction chairmen made speeches explaining their faction’s position. The speech delivered by Gennady Zyuganov, the chairman of the communist faction, was the most critical one, with the communist leader calling Putin’s eight years in power “the period of missed opportunities,” blaming the former president for high inflation, overreliance on imports, backsliding on democracy, and failing to annex Abkhazia and South Ossetia, drawing them away from the neighboring Georgia. Putin listened to the criticism with an ironic smile on his face.
“The Communist party of Russian Federation certainly competes with Russia’s ruling elite, it’s an old and tested one,” explained Vyacheslav Igrunov, one of the leaders of the Union of Social-Democrats, a political movement presenting itself as a leftist alternative to communists. “When Zyuganov criticizes Putin, it is almost a ritual.”
Putin countered Zyuganov’s criticism by promising more social spending. One of his most challenging promises was to bring the minimum monthly wage (currently 2300 rubles, or $97) in line with the subsistence level, which is the price of a minimal amount of food needed for a person’s survival during a month (currently 4330 rubles, or $181).
“This spring, the Duma should already introduce legislation bringing the minimum monthly wage to the level of 4330 rubles,” Putin said in his speech to the Duma.
Since 1991, when the old system of Soviet social guarantees collapsed, the fact that Russia’s minimum wage was insufficient to purchase even basic food staples was a painful reminder of Russia’s poverty problem. During Putin’s first years in office, the minimum wage was just 600 rubles, the equivalent of about $22 at the time.
“It meant that one could be officially employed, but still be unable to provide even for food, not to mention renting a room or buying something besides food,” said Andrei Isayev, the chairman of the State Duma’s committee on labor and social issues. “It was humiliating, but one Duma after another was unable to raise minimum wage, because the government said it would fuel inflation.”
In fact, the problem was rooted in the communist system of full employment, which guaranteed stable incomes even to people unwanted by their employers. In the early 1990s, instead of massive firings and layoffs used in Poland and the Czech Republic under similar circumstances, Russia opted for a more conservative strategy of cutting real wages instead of laying off the unneeded workforce.
“Many people stayed at jobs with small wages in the budget sector, where firing a person was a big problem,” explained Liliya Ovcharova, a researcher at the Moscow-based Independent Institute of Social Policy. “Inflation was so high that the government did not even have to cut their wages. They were just not indexed to inflation and soon became irrelevant.”
As a result, Russia acquired an entire class of the “new working poor,” which made up the bulk of Russia’s 30 million poor people. “Most of the people coming to us asking for help are not unemployed, but poorly paid working women with kids,” said Irina Kosheleva, the chairwoman of the committee on social protection of the Central district in Tula, a city of approximately 500 thousand people south of Moscow. “Some of them are professionals who just do not want to leave their jobs, preferring meager incomes to leaving their work.”
Lilya Ovcharova of the Independent Institute of Social Policy claims that a sudden jump in the minimal wage will not lead to increased inflation. “In fact, two of Russia’s regions, the Leningrad oblast and Tatarstan already increased minimum wages on their territories, putting administrative pressure on employers,” Ovcharova said. “There, it did not lead to higher inflation. Economic growth and demographic fluctuations led to Russia’s experiencing a certain deficit in the workforce. All of these factors would alleviate the inflationary effect of Putin’s initiative.”
But won’t employers just fire low paid workers, instead of paying them higher wages according to the new legislation? “This is possible, and this is one of the negative effects of Putin’s generally sound initiative,” Ovcharova said. “However, I don’t think there are many full-time employees left whom employers can’t pay even 4330 rubles. Most of such unqualified people left their jobs during the past 17 years. As for part-time jobs, Putin’s initiative does not cover them.”