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Excerpts from the JRL E-Mail Community :: Founded and Edited by David Johnson

#5 - JRL 7021
No. 229
December 2002 (?)
Following below is an interview with professor Vyacheslav BOBKOV, D. Sc. (Econ.), director of the National Living Standards Center.

What is now happening in the Russian Federation's constituent members? What regions are scaling down their poverty levels? And where does the situation get worse? It's impossible to move forward, unless we find out all about specific changes in regional living standards. The State Committee for Statistics has failed to compile the relevant survey for two consecutive years. Nor does the Economic Development and Trade Ministry possess such information.

At the same time, the National Center of Living Standards has conducted some research of its own, subsequently finding out that the social sector situation is marked by contradictory trends and alarming contrasts. The Center's director and professor Vyacheslav BOBKOV, D. Sc. (Econ.) talks about positive and negative trends, which were pinpointed during yet another survey.

Question: Mr. Bobkov, what do your center's latest findings suggest? Is it true that Russian living standards continue to improve?

Answer: Yes, that's right. Unfortunately, this doesn't happen to all Russians. A study of overall trends highlights some positive changes. First of all, this concerns the poorest population category, whose wages fall short of subsistence minimum levels. According to our statistics, this category has dwindled by 5.5 million people over the entire 2002 period. At the same time, the Russian middle class has increased by over 4 million people. Meanwhile the number of rich and well-to-do Russians didn't increase considerably. Therefore, one can say that part of all poor Russian citizens now fits into the more affluent low income category, with some members of the latter category becoming part and parcel of the national middle class.

Question: Could you explain the difference between poor and low income people? How many income categories are there? And whom do they comprise?

Answer: Our experts single out four groups. Poor people, whose per capita incomes fall short of the subsistence minimum, make up the first group. (The State Committee for Statistics estimated the third quarter subsistence minimum for poor people at 1,817 roubles. Meanwhile the active population's subsistence minimum was 1,980 roubles - Ed.)

The low-income category follows next, comprising those specific citizens, whose cash incomes tally with the afore-said subsistence minimum, as well as the recuperative and development-oriented consumer budget. In other words, any given person in this category has already overcome poverty; nonetheless, he or she can't be called affluent. This category's income ceiling is about two subsistence minimums, thus ranging between 1,817 roubles and 3,645 roubles (third quarter estimate).

Relatively well-to-do (medium class) citizens account for the third category. Their per capita incomes are much higher totalling somewhere between two and 6.5 subsistence minimums (i.e. the so-called affluence budget, which stands at 3,645-11,807 roubles). The so-called Russian middle class, as well as its prospective members, fit into the given category. As a matter of fact, this category increased by the greatest margin throughout the 2002 period.

And, finally, I'd like to say a few words about well-to-do and rich Russians, who comprise the fourth, and last, category. Their lowest incomes total 11,807 roubles. Meanwhile there is no upper limit because rich families may be earning thousands and even tens of thousands of dollars each month.

Question: How many poor, middle class and rich Russians are there today?

Answer: Despite positive shifts, the scale of nationwide poverty still remains something exorbitant. Poor people and the low income category account for two-thirds of the entire Russian population. This is still seen as an extremely pressing national problem. Those specific families, which suffer from stagnant poverty, eventually don't get used to such poverty (as some authors claim) because it's impossible to become accustomed to this. On the contrary, they more acutely comprehend the fact that their plight is something intolerable and humiliating.

Question: Does the number of poor people diminish in all regions?

Answer: This is a rather contradictory process, as far as the Russian Federation's constituent members are concerned. The situation does improve considerably in some regions. However, some territories have registered even greater poverty over the 2002 period. Positive and negative trends are highlighted by the purchasing power of per capita popular cash incomes. Such purchasing power can be calculated easily enough. We compare the number of subsistence minimum packages, which could be bought in any specific territory during the third quarter of 2001 and over the corresponding 2002 period. The purchasing power of such incomes has dwindled this year in Ingushetia, Kalmykia, the Kaluga region, the Orenburg region, the Amur region, the Rostov region, the Kaliningrad region, as well as Mordovia. Such "nuances" are overshadowed by those positive nationwide economic growth statistics. However, specific changes in living standards should not be analyzed on the basis of abstract charts, which show the "overall" situation alone. The material situation of real-life families in specific regions should also be heeded. Such a detailed study shows only too clearly that the social sector situation isn't so optimistic, as "overall" diagrams imply.

Question: What is the difference in living standards between the population of relatively prosperous and poor territories?

Answer: Such differentiation is really impressive. People living in Moscow, the Yamal-Nenets autonomous area and the Tyumen region can buy goods and services worth somewhere between 4.5 and 6 subsistence minimums for their per capita incomes. Russia's four poorest territories, i.e. the Chita region, the Ivanovo region, the Ust-Orda Buryat autonomous area and Ingushetia, offer pitifully inadequate per capita cash incomes well below the subsistence minimum. Six constituent members of the Russian Federation are no longer classed as poor this year; however, territorial living standards still differ considerably.

Average wages also differ from territory to territory. For instance, average wages in Daghestan total 2,029 roubles. Meanwhile the Yamal-Nenets autonomous area boasts wages to the tune of 16,012 roubles, on the average (September 2002 estimate). Consequently, those living in the Yamal-Nenets autonomous area can buy six times more goods and services than the people of Daghestan can.

One is also alarmed because 25 percent of all Russian workers get basic (not part-time) wages below the subsistence minimum. This absolutely abnormal situation must be rectified within the next 2-3 years, if we want to ensure normal economic development.

Question: The highly important study of social sector changes over the entire 2002 period doesn't provide an insight into long-term trends. Can one say that the people of Russia have attained the pre-crisis purchasing power of their cash incomes, if we take the ill-fated 1998 period as a vantage point?

Answer: Nationwide statistics confirm this. Judging by the results of the January-June 2002 period, one can say that many constituent members of the Russian Federation haven't yet attained such levels. This is highlighted by the example of the north-western federal district's regions. Five of them haven't yet attained pre-crisis levels in this field, with another five surpassing such pre-crisis levels. Nonetheless, all local regions have more poor people on the 1998 period. How can this discrepancy be explained? Our research shows that the incomes of well-to-do citizens often grow more quickly than those, who can barely make ends meet.

The Kaliningrad region situation is more involved than anywhere else. As a matter of fact, local poverty has increased at a staggering pace on 1998 levels.

Question: What, in your opinion, must be done to expedite positive social sector changes? Some people are saying that our living standards match our work style. In their opinion, putting the cart before the horse, as well as large-scale money hand- outs, may trigger off yet another crisis. Are they right, after all?

Answer: Naturally enough, any hand-outs don't top the agenda nowadays. At the same time, I'd like to note that our current living standards are much worse than they could possibly be. Our experts have compared Russian living standards with those in some neighboring countries. It turns out that six out of ten regions making up the north-western federal district boast a greater economic potential than, say, Poland, Lithuania or Latvia. Unfortunately, many Russian regions considerably lag behind Poland in terms of their living standards. One can, therefore, say that our living standards don't match the quality of our work.

Right now, I'd like to dwell on specific trouble-shooting measures. It goes without saying that we need more energetic economic growth. Moreover, material inequality levels must be reduced; and we must alter GDP patterns in favor of end consumption.

Alas, Russia has surged ahead of many industrial countries in terms of the concentration of incomes in the hands of well-to-do and rich citizens. Russia is second only to the United States in this respect; however, even not very rich American families, which get low incomes, can, nonetheless stay afloat. However, most industrial countries lack such excessive social stratification. The income concentration index is characterized by the so-called Gini coefficient. A Gini coefficient of about one highlights greater material inequality. Slovakia, Denmark, Japan, Belgium, Sweden, the Czech republic and Finland boast the lowest Gini coefficient (between 0.195 and 0.256). Meanwhile the respective break-down for Russia, the United States and Brazil is 0.396, 0.408 and 0.600.

Question: How can, in your opinion, specific incomes be redistributed?

Answer: Among other things, this can be accomplished with the help of the tax system. I'm deeply convinced that the introduction of a single social tax scale was something unjustified. Consequently, the rich get richer, thus aggravating social inequality. Furthermore, Russian authorities must charge more impressive severance tax and rent for the use of mineral deposits. Apart from that, state-run enterprises must be managed more effectively. The federal treasury would, therefore, scoop up additional monies, which should be used to raise the wages of state-run organizations' personnel and to even out social sector discrepancies. An effective crackdown on corruption and thievery, as well as efforts to cope with the black market economy, can also swell the treasury still further.

Question: You have also said that the GDP structure should be altered in favor of end consumers.

Answer: Many experts know only too well that the Russian GDP is something lop-sided. One can agree with sky-high production expenses, if the money is used to retool production and to implement cost-effective investment projects. Still all this is nowhere to be seen; the money is often being wasted in order to swell the bureaucratic machinery and to build all kinds of "prestigious," albeit unnecessary, facilities. The relevant shadow economy processes have acquired such a tremendous scale that we still know nothing about many covert financial flows. These resources would also make it possible to improve the social sector. It's an open secret that monies being skilfully invested into end consumption will inevitably facilitate greater consumer demand, which, in turn, would, boost the economy.

The National Center of Living Standards estimates that Russia had 54 million poor people during the third quarter of 2002.

The low income category totalled 42 million people.

41 million relatively affluent Russians were registered over the same time period.

Meanwhile Russia had 6.5 million well-to-do and rich people.

Transcript by Vitaly GOLOVACHEV, Trud political analyst.

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