#13 - JRL 7237
The Russia Journal
June 20, 2003
Focus the fight on poverty
What has been called Russian ‘reform’ is really no such thing
By Ajay Goyal

The economies of poor nations work differently from those of prosperous ones. The Russian population does not have a social-security net, savings, real healthcare or pensions, access to lending or venture capital – and yet their government behaves as though it really deserves a seat among the world’s most powerful countries. It is an irony that the Russian president should participate in discussions among rich nations where the size of one pension fund could equal the Russian GDP.

Somehow, the world has come to expect that, when talking of Russia and its economy, the key word is "reform." Implicit in that is the message it is a rich malfunctioning economy that needs to be reformed to work efficiently. Ever since former Soviet leader Mikhail Gorbachev gave the world words like "glasnost" and "perestroika," the public perception has been that Russia is going through a perpetual reform of its institutions, government, constitution and public life. Nothing could be further from the truth.

All the talk of "reform" is really a great deception. It shifts the focus away from the real tragedy of Russian economy – the abject poverty of a great many of its citizens and the lack of any hope that they can get out of it soon.

Successive Russian politicians have placed their personal enrichment and interests above those of the country, and there have been bitter turf fights among the ruling elite for control of the nation’s vast resources. Real Russian reform started and ended with Yegor Gaidar’s freeing of prices in 1992 – governments since then have merely been privatizing national assets and stuffing their own pockets with the proceeds. That is the sum total of Russian "reform."

Make no mistake about it, the existing sets of laws at any given time should not prevent the government from functioning efficiently and for the benefit of the majority of people. The problem is that there are too many good laws on paper to do any good. Their abundance creates a smokescreen for bureaucrats, behind which they can continue their arbitrary and corrupt rule.

In setting economic priorities, Russian governmental economic advisors have missed an important point and, thus, remained blind to the whole idea of the economic revival of their country. They refuse to accept that the economic "reform" of the past 10 years has generally resulted in mass-scale poverty in Russia while creating only a very few incredibly rich robber barons from among the ranks of former communist-era elites.

The "reform" from 1993 on has been about the division and redistribution of wealth, about the acquisition of natural monopolies and about power plays between oligarchs over who will get an energy, a telecoms or metals giant and how.

Any true talk of economic reform in Russia must focus on the desperate poverty many Russians are living in now.

If anything, joining the World Trade Organization and forcing municipal services and fuel costs to go up to world market levels without raising wages and pensions will only press the public further into poverty. Given the already pitiful standards of living of the more than 50 percent of the population who get by on $100 or so a month, the focus of reform must shift from, well, reform for the sake of reform, to relieving poverty.

Russian utilities and service companies cannot follow the European or American models. The obsession with how things are done in Europe or the United States in energy, telecoms or transportation is misplaced and dangerous.

Just as former Prime Minister Sergei Kiriyenko once did, the Russian government must first admit that it rules a very poor economy. Then, it must turn its attention from the developed to the developing world for models. Over the decades, many developing countries have been engaged in a battle with poverty, and the battle has not been won despite single-minded attention. Poor countries should focus on basic healthcare, literacy, education, communication and transport infrastructure, small-scale business, self-employment and on economic ideas that affect the poorest people in society and bring them some benefit and hope. A focus on reform of the biggest enterprises and large corporations and freeing utilities prices brings more misery to people who remain ill-equipped to deal with the changes being imposed on them from the top.

The government’s response, then, is to throw a few more kopeks into pensions or support for the poor, driving them further into dependence. Real poverty relief focuses on enabling people in wealth creation, helping them get away from state support and benefits – which hardly exist in Russia anyway – toward self-employment and sustainable enterprise. The Russian government has spent too much time and effort in protecting the wealth of the nouveaux riches; it should now help to build the prosperity of millions more.

The rich are not willing to give, the government is unable to collect and bureaucrats are not willing to let go. The money cannot reach the poor through the inch-thick steel sieves of the Russian system; it just keeps moving along the top to those holding the reins of power.

After admitting that Russians are a poor people and Russia a poor country, the government could embark on a true mission of helping people self-help, self-employ and educate. Only then, large sections of society could move away from expectation of support from Big Brother to being in charge of their own destiny. There are many opportunities in this land, and Russians are a die-hard enterprising people that thrive on fighting adversity. Since the government cannot do much to help the poor, it can, at the very least, get out of their way. An admission of truth and a shift in priorities would be a welcome first step.

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F A C T B O X

The poverty line:

The poverty line in Russia as approved by the government for the first quarter of 2003 comes to 2,047 rubles a month.

In fact, different sums are set for different categories of people. For working age people, for example, it is set at 2,228 rubles, for pensioners, 1,554 rubles, and for children, 2039 rubles. The figures are a little higher in Moscow, where the poverty line for the first months of 2003 was set at 3,044 rubles.

One in every four Russians has an income below the poverty line.

According to the State Statistics Committee, the number of Russian citizens living below the poverty line dropped last year from 45 million people to 37.2 million people.

Cost of the consumer basket of basic goods and services:

The consumer basket came to a cost of 1,934 rubles in the first quarter of 2003. Of this, 945 rubles went to basic foodstuffs, 433 rubles to other goods and 556 rubles to a minimum range of services. The cost of foodstuffs in the consumer basket rose by 10 percent over the first quarter.