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30 May 2003
from Ezhenedelny Zhurnal
Russia: Unaccounted-for Happiness
Russians spend much more than they officially earn--and both legal and unaccounted-for income is spent immediately.
by Mikhail Berger

The majority of Russians have a shared feature in that they like to complain about being poor--in front of relatives and acquaintances so they dont ask to borrow money, to tax collectors and government bodies so they dont get sued for non-labor-related income, and even to themselves, so as to not explode from happiness, from realizing their secret material possibilities. Of course, its true that the size of this passive happiness is different for each person. One persons soul is warmed by the thought of a glass of red wine on payday, while another stashes a small sum away for a villa on the Riviera. And between these extremes there are millions of people with hidden incomes and expenses of different sizes.

Everyone in our country has something to hide. This doesnt just concern living standards or income, but a social psychology formed over more than a generation and more than one political system. In Soviet times, money had to be hidden because it was impossible to have any. During the early reform years, one needed to hide money so it wouldnt be seized by mafiosi and other bandits. Now, during the reign of stabilizing centralizers, one hides in order to not pay taxes.

The reason is not just that the state and government in our country have for many years taught us to hide the reality of our income and expenses, but also that the majority of our fellow citizens do not realize that they have committed a financial crime and commit such crimes without any intention of wrongdoing. If a person borrowed $1,000 from a friend (lets say they didnt have enough money for a new car) and returned the same $1,000 a couple of months later, then he has earned material gains in the form of unpaid interest. If someone bought euros last December at 32 rubles per euro and sold them today at 35 rubles, he has also realized material gains subject to taxation.

More obvious examples of conscious embezzlement of personal income are too commonplace to be mentioned: unofficially renting out an apartment or cottage, or receiving ones salary in an envelope without a receipt.

At the beginning of the 1990s, the majority of economic relations were built on an unofficial basis. Unofficial employers provided work and paid salaries to unofficial workers. And all of the money made in the first half of the 1990s was spent almost immediately.

Such unofficial relations make even those who would otherwise like to disclose their income present themselves as poorer than they really are. The coefficient of impoverishment (authors own invention: the ratio of people who couldnt or didnt want to hide their income to those hiding their income for whatever reason) was especially high during the early years of reform, during the period of hyperinflation. If the official income statistics for that period were realistic, then one-third of the country would long since have died of hunger. But that, thankfully, did not happen because people not only adjusted somehow to daily price increases, but as always hid something from their own government and used this to survive those difficult times.

Today, the impoverishment coefficient is significantly lower. A sizable portion of the population now wants to show their income, or at least a part of it. They want to go on vacation, and foreign embassies ask about the income of Russian tourists. They need to buy an apartment, and the tax police could ask where they obtained the cash. Nonetheless, a large group of employees and businessmen still dont want anyone to know the full truth about their financial status. Recently, the Independent Center for Social Research surveyed 5,000 people. The goal of the survey was to determine who initiates unofficial financial relations today, employers or employees. Sixty-seven percent of those asked answered that unofficial payment was in the interest of both sides.

As a result of this informal conspiracy, the difference between the official statistics for consumer spending and the estimates of experts can reach between 70 and 80 percent.

Also, Russian consumers are not given to saving their white (legal), or their grey (semi-legal) incomes. Consumers dont believe theyll be able to recoup their money from banks or insurance companies. Theyre also not sure that the best place to save money is in their own apartment, cottage, or garage. Instead, these nonbelievers attain happiness from going all out, consuming and consuming.

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