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The Russia Journal
October 26-November 1, 2001
As economy grows, so does middle class
By CAIN BURDEAU
As the Russian economy forges ahead, with production levels on the up and incomes rising, evidence of a nascent middle class is blossoming on the streets of Moscow. And with a rosy economic outlook, economists say this new bourgeoisie can only get bigger.
Moscow is the epicenter of the country’s Western-style middle class. It is here that sport utility vehicles cruise the streets. Supermarkets stay open 24 hours, catering to late night office workers and time-pressed families. Meanwhile, gardening tools, chandeliers and wallpaper sell fast at the city’s new home-improvement stores.
"Now, there are some indications that there is again a Russian middle class," said Nadezhda Kosareva, president of the Institute for Urban Economics, an independent think tank in Moscow. "More stable salaries, more stable sources of income, more ability to look into the future and be ready to borrow."
The August 1998 economic collapse largely destroyed the fledgling middle class that had grown up since the fall of the Soviet Union. In June 1998, the average annual income of a Muscovite was almost $8,000. A year later, average incomes plummeted to $2,800. Today, people in the capital earn about $5,970 – five times more than in St. Petersburg.
And as the economy continues to take off, it is lifting millions of people with it.
According to statistics from the State Statistics Committee, retail trade rose by 10.1 percent to 2.1 trillion rubles ($71.18 billion) between January and September this year; real income in the first nine months grew by 6 percent; and by August real salaries grew by 19.9 percent.
And with the economy expected to grow 5.5 to 6 percent in gross domestic product by the end of the year, and steady growth forecast for the long term, analysts are hopeful that the wealth will spread.
Comcon, a market research company that specializes in demographic trends, estimates the middle class makes up about 15 percent of the population in Moscow and 8 percent nationwide, with income levels ranging from $300 to $2,000 a month per family. Since the beginning of last year, 1 million new Russians entered the middle class, Comcom estimates. Nonetheless, of the country’s 146 million people, more than a third still live below the $51 a month poverty line.
"In the last year, you’ve seen a lot of stabilization in the job market, and right now it’s probably one of the fastest growing economies in the world," said Art Franczek, president of the American Institute for Business and Economics. "You’ve got a per capita [income] in Russia, according to economists, of around $8,000. And with that, you have a lot of disposable income, so people can have vacations and really start to spend money on consumer-type items. So, you’re seeing, definitely, a re-emergence of the middle class."
And many businesses are racing to keep up with the new consumer spree.
For example, according to a report by the Moscow-based Interactive Research Group, Yekaterinburg-based cosmetics company Kalina is forecasting sales to shoot up from $84 million in 1999 to $140 million this year; Gloria Jeans, a Rostov-on-Don children’s denim manufacturer, expects sales to go from $17.5 million in 2000 to $60 million this year; and Stroi Dom, a home improvement chain in Moscow, projects sales to reach $3.1 million, more than double its sales in 1999.
For many Russians, especially for the younger generations, the formation of a middle class is vital to become a thriving capitalist democracy.
"If we want to have a civil society in this country, we need a middle class," said Ruslan Pshonkovsky, a 30-year-old Moscow bank manager. "Sooner or later, the middle class will be the main force, the main engine, for progress of the Russian economy."
For people like Pshonkovsky, the fruits of a free market society have been obvious. Ten years ago he earned $50 a month – now he makes 30 times that. Back then, buying a car, a home and going abroad were "dreams."
Now, he said, "I have a car, I have a flat, I have a garage." He is traveled to Spain, Portugal and Austria. And he plans to buy a dacha with his wife and child.
"The middle class – it’s an indicator of the stability of a society," Kosareva said. "It’s a very good indicator of the health of our economy and the social stability of our society."
Despite the progress, the middle class is cautious about being overly optimistic about the future. It’s no surprise, after a decade of chaos and changing fortunes.
"So, you’re seeing a middle class evolve again and you’re seeing it emerge in a much more cautious way," Franczek said, referring to the way the 1998 crisis dashed many Russians’ hopes.
"We had many illusions. We were romantics," Pshonkovsky said. "We have to get rid of our illusions. I want more protections of individual needs. I would like to see more freedom in the market, a free market economy. The government is influencing all spheres of Russian society."
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