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Hungarian Prime Minister Ferenc Gyurcsany, right, and Russian President Vladimir Putin, center, are shown at the International Finno-Ugric Peoples Festival.
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Sep. 18, 2007
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Putin’s Eight Years
This is the first part of a series examining the results of the last eight years in various spheres of Russian life. The first article will discuss the social situation in the county; subsequent articles will address education, the army, governance, health care etc.
In Russia eras are named for their leaders. There are the eras of Peter the Great, Catherine the Great, Stalin and Khrushchev. This is not, however, particular to Russia: the US has the Roosevelt era, the Reagan era and, evidently, the Clinton era. In Great Britain there were the eras of Margaret Thatcher and, likely, Tony Blair. An era, however, is not defined simply by whose portrait hangs on the wall. A historical period can be called an era if had a certain style, a certain way of life, a certain mood. Life in the era of Nicholas I was not the same as in the era of Alexander II. Nor was it in the era of Alexander III.

This doesn’t imply that the mood and way of life was created by the leader alone. The Clinton era is a time of historical optimism. It seemed, at least to Americans, that after the end of the Cold War there was no place in the world for serious contradictions and confrontations between states; the internet and globalization were bringing prosperity and freedom. The youthfulness, charisma and optimism of the president reflected this mood, but it doesn’t mean that Bill Clinton invented the internet or globalization.

Do Putin’s eight years in office (it would seem that he is in fact going to leave office) constitute an era? The first things that come to mind about these eight years are the headlines, and usually the unpleasant ones. There have been many: the acts of terrorism in Moscow, the Kursk, Beslan, the Yukos affair, private Sycheva and others. But these are not the only defining events of this era. Our reality changes gradually and unnoticeably. For example, only specialists follow the volume of agro-investment and the structure of production output from quarter to quarter. Eight years is a long time and it’s possible that with enough gradual changes a village today may look very different from the way it did in 1999. The question is did the country experience these kinds of changes during Putin’s time in office?

This is the first part of a series examining the results of the last eight years in various spheres of Russian life. The first article will discuss the social situation in the county; subsequent articles will address education, the army, governance, health care etc. Our principle in selecting the topics is very simple: determine what has changed in those areas Putin himself has made priorities. We will examine the numbers and try to answer several questions: how has the situation in this sphere changed over the past eight years? What has the state done for this sphere? How much of the change was a result the government’s actions?

The Social Sphere

Russia’s economic system must be “socially just” and these matters, “in terms of importance, should be given top priority,” announced Vladimir Putin in his first presidential address. Vlast columnist Igor Fedyukin looks at what kind of society Putin’s successor will inherit.

The president’s attention to the social sphere is understandable: the country’s Constitution it says that Russia is a “social state.” The question is what does that mean? The social sphere often encompasses health care, education, the pension system, budgetary matters in general and much more. This approach is understandable: it is no secret that working in educational or medical establishments, especially in the more depressive regions, is more many a form of masked unemployment. The salary of a teacher or doctor is, in essence, a form of welfare. Any raise in pay is a matter of social politics. However, such a broad definition keeps us from seeing what the government does in a narrower definition of the social sphere: battle poverty and provide social protection for the population (not to mention education, health care and salaries for those on the government payroll. But this is a matter for a different discussion.)

In the 1990s, despite wide-spread poverty, the actual word “poverty,” was avoided in official documents. As noted in the recent World Bank report, they used other phrases such as “families that have little.” It was Vladimir Putin who started to speak about poverty directly. Reducing poverty (as a part of reducing social inequality) began to appear in program documents, such as “Gref’s program,” as one of the priorities of social policy. The slogan of doubling GDP entered into the folklore of the Putin era, but few remember that with it the government also planned to reduce poverty to half its size.

During the eight years that Putin has been in office the income of Russians has grown quickly; the country’s history has hardly seen another period when the prosperity of the population improved at such a fast rate. According to the Russian Monitor of the Economic Situation and Public Health (RMEZ) which has monitored the economic status and health of the population regularly since 1992, the average income of the Russian family almost doubled between 2000 and 2006, from 6,087 rubles to 11, 425 rubles. Today the real income of the average Russian family is roughly 30% higher than in 1992. Specialists at the Independent Institute of Social Policy (IISP) estimate that the average income per person in Russia in 2005 reached the pre-reform levels of 1991. A part of the Russian population approached the threshold where their income covered not only for their immediate needs but also for investment and education, health care and retirement savings, and yet sociologists and market researchers are still looking for a “middle class” in Russia. Although the results of their searches are disputed, the Kremlin can boldly state that as far as the population’s standard of living is concerned, he has succeeded in wiping out the consequences of the “Yeltsin chaos” of the 1990s. Of course, specialists at the IISP note that these are figures for the general income: the average pension and salary (accounting for inflation) has not yet reached pre-reform levels. In other words the income level of the population was restored because of other sources – informal earnings, illegal income etc. But even here the progress in evident. The percentage of legal earnings as part of the Russian’s total income is growing: in 2000 legal earning made up 38.2% of a Russian’s income, where as today it makes up 48%, according to RMES

The private sector has played an increasingly significant role in the prosperity of Russians. The separation of the private sector from the government sector, however, is also blurring and the most recent data available are through October 2006. None the less, in 2000 only 9.2% of a family’s income came from the private sector and in 2006 that number had already reached 19.5%. This figure still lags behind that of the government sector, although the latter grew at a much slower rate: from 22.9% to 24.6%, respectively. The percentage of families in which at least one member receives a government salary has barely changed (44.8% in 2006), whereas the percentage of families receiving income from the private sector grew from 17.5% up to 32.6%.

Of course there are also negative tendencies. Over the past eight years income has grown rapidly, but so has inequality. Putin’s abundance has not yet reached everyone: the rich get richer faster than the poor. The Gini Coefficient, which reflects the material inequality in a country, grew from 0.395 in 2000 to 0.407 in 2004. According to RMEZ, the income of the richest 20% of households was 6 times richer than the poorest 20% of households. To compare, this factor was only 5.2 in 2005. Measured by expenditures, the split is even greater: a factor of 6.7 in 2005 and 8.9 in 2006. This spread points to a colossal difference in lifestyle – but not in terms of mansions and limousines. The best-off Russian families, compared to their poorest countrymen, spend 7.7 times more on fruits and vegetables, 10 times more on alcohol and 12.6 times more on meals outside the home.

The unevenness of income growth calls into question the possibility of ending poverty in Russia. Unfortunately, it is extremely difficult to determine whether the government has succeeded in cutting poverty in half. The poverty level ratings vary greatly depending on who you consider to be poor. According to Rosstat, in 2000 42.3% of Russians had incomes below the cost of living. In 2004 25.5% of Russians earned less than the cost of living. However, the percent of families who receive charity or help from relatives is growing steadily. Currently 29.9% of the population fits this category. In other words, whatever the statistics say, one third of families are poor enough to accept material support from those around them.

The nature of poverty is another matter. In the 1990s and early of the 2000s, a large part of the population hovered around the poverty level as part of a generally low income level in the country. Families could easily improve their standing and then just as easily fall below the poverty level again depending on the ebb and flow of the economy. Today experts are trying to understand if a systematic, generational poverty has begun to set in. If so, this kind of poverty would be far more dangerous: its roots are not in the general economic situation, but in concrete families’ incapacity for economic activity. A downward spiral forms when people loose the ability to make use of accessible services such as healthcare and education.

We will not be able to say whether such a form of poverty has set in until the new generation has replaced the old. In 2005 among young Russians living in poor families, 17% hadn’t completed high school. Moreover, among the poorest unemployed citizens over one third only have an elementary education. And among the poorest layers of the population the desire to further their education and improve their qualifications is very low. Poverty also takes on a new character among the rural population. Overall, according to IISP the problem of poverty takes on a systematic character for 9-10% of Russian families. In other words they will remain poor even if significant monetary funds are redistributed in their favor. Lifting them from poverty will take more than just more money: they will need special social programs.

The most interesting question is to what degree the positive and negative tendencies of recent years in the social sphere can be attributed to the government. The rising standard of living in Russia has taken place against a backdrop of extremely favorable external economic conditions. Simply speaking: high oil prices. The restorative economic growth that came immediately after the 1998 default also played a role before Putin came to office. By the end of 2000 the average income of a Russian family had practically reached pre-default levels. However, over the course of the past eight years the government has spoken so often about the battle against poverty and reform in the social sphere that it is quite fitting to inquire about the results of this policy.

Over the course of the past year there has been talk of inflating social spending on the eve of parliamentary and presidential elections. Actually, social spending was inflated long ago. The last time a complex analysis of social spending was conducted was in 2002, but by then an enormous amount of funding was directed toward social protection: 6% of GDP. In this respect Russia took first place among transitional economies and even surpassed many countries in the Organization for Economic Cooperation and Development (OECD) with higher levels of development. For the majority of countries in the world, according to the World Bank, this figure is between 0.5% and 2% of GDP. After 2002 social spending only increased. According to RMEZ, only from 2005 through 2006 did the volume of state transfers and social discounts to citizens grow to 6% and reached its highest level since 1992. Despite the gigantic income growth, last year government transfers still made up one third of the income of Russian households. Among the poorest households it makes up to one half of the income.

The problem is poor addressness of social aid. In other words, the money isn’t going to the people that it’s supposed to. In his first address to the Federation Council, Vladimir Putin noted that “the current system of social support, the basis of which is undirected welfare and social discounts, is set up in such a way that it dissipates government money and allows the rich to take advantage of the system at the expense of the poor.” However, there have been no cardinal changes made in the last eight years. According to IISP, in 2003 the poorest 20% of the population received only 10% of the total amount of social spending. The situation has not improved in recent years. In 2005 only 35% of child welfare payments and living subsidies went to the poor. “Ministers’ children can get by without child welfare payments, bankers’ wife can do without unemployment payments,” Putin said in his first presidential address. Today the state, as before, is helping those who don’t need help, but isn’t able to help those who really need it. As a result of the social reforms of recent years responsibility was passed to the individual regions. But this did not improve the issue of addressness. But there is one more reason why Russia, despite its enormous social spending, cannot be called a social state. The social spending has little to do with helping the poor in the struggle against poverty. For example, according to RMEZ, three out of four households received social transfers (72.8%). This concerns primarily state pensions, which made up 90% of all state transfers in 2006. According to the World Bank, in 2004 the state spent 400 billion rubles on social aid programs, but only 80 billion of them went directly to help the poorest of the population, to child welfare payments and to living subsidies.

Fact: pensions need to be paid. Pensioners make up one of the least socially protected categories of the population. However, pension payments and the battle against poverty are different matters. A battle against poverty assumes, in part, supplying the poorest groups supplemental opportunities, for example, the opportunity to find work or otherwise improve their positions on the market, to make sure their children are better educated and healthier, to shelter them from the negative influences of their environment etc. Yet again in his first presidential address Putin announced that “social policy means not only helping the needy, but investing in the future of a person, in his health as well as professional, cultural and personal development.” This kind of social aid is all but absent in Russia. Must the government be social? Should it take on the massive redistribution of wealth from the richest to the poorest? This, of course, is a matter of ideology. The fact remains, however, that in Russia in its eight years of oil abundance and talk of battling poverty and three years of talking about stimulating the birthrate, having a large family (in Russia defined as three or more children) is practically and automatic ticket to material need. This is not an issue of the margins. Even for a two-parent, prosperous family, where both parents work and neither drinks, the raising three or more children almost always means that the family drops below the poverty line. Only 29% of large families have sufficient housing with electricity and hot, running water. (For a family with one child this number is 63%). Only 10% of large families have housing with total square-footage at or above the social norm.

Helping these kinds of families is a critical instrument in fighting future poverty. But creating such a system is not a question of additional funds, but of increasing the effectiveness of governance. The state must learn to act much more addressness than it has so far. Whether or not it will succeed in doing so is a critical question for the next eight years.

Social Policy: A Chronology

2002-2003: Social payments stabilize. Number of recipients for child welfare payments shrinks. All other categories of social privileges and subsidies see a steady rise.

2004-2005: Social reforms. Privileges are monetized, responsibility for payments transferred to regions, municipal-level social buildings transferred to regional level, single system of housing subsidy introduced. Significant portion of social spending transferred to the regional level.

2006: Combination of social protection priorities in favor of families with children and orphans. Allowance for the birth and care of a child is raised.

“Poverty is receding extremely slowly”

Over the course of eight years Vladimir Putin regularly stated in his addresses to the Federation Council that a final victory over poverty is not yet attainable.

2000: “The current system of social support, the basis of which is undirected welfare and social discounts, is set up in such a way that it dissipates government money and allows the rich to take advantage of the system at the expense of the poor; child welfare allowances are miserly and delayed for years; pensions are meager and in no way connected to one’s real labor investment.”

2002: “Poverty has decreased somewhat, if only a little, but continues to affect 40 million of our citizens.”

2003: “Poverty is receding extremely slowly.”

2004: “Accessible education, health care and the opportunity to find housing help us to soften the blow of poverty. Right now about 30 million of our citizens have incomes below the poverty line. This is an enormous figure. What’s more is that the majority of the country’s poor are able-bodied people.

2005: “The risks of ending up in poverty are extremely high for the majority of workers on the state budget.”

2007: “The divide in income for citizens is still unacceptably high, but all the same, as a result of the measures taken over the past years the extent of poverty in Russia has shrunk to half its former size.”

In Search of a Middle Class

Over the course of the 2000s, scholars have argued about the meaning of a Russian “middle class”. There is no single definition, but all the suggested definitions contain the following criteria: material resources (income, savings and property), non-material resources (education, profession, work ethic, status), signs of social awareness (values and self-identification, that is, willingness to identify oneself as a member of the middle class).

According to a 2003 report by the Independent Institute of Social Policy “Middle Classes in Russia: Economic and Social Strategies,” at the beginning of the decade the Russian middle class made up 19.1% of the population and 33.1% belonged the category “below middle/close to middle class.” A 2003 document “The Russian Middle Class: The Dynamic of Change,” published by the Institute of Complex Social Research of the Russian Academy of Sciences, put 20% of the population in the middle class. The monthly income of a member of the middle class in 2003 was between 7,000 rubles and $2,000 dollars. 77.5% of the middle class had their own apartment or home, 37.5% had a cabin or land plot for gardening. 28% were qualified workers, 14% were pensioners, entrepreneurs made up only 4%. 48.9% of Russians categorized themselves as middle class.

According to the definition of “Expert-Data” (“Expert” Publishing House), the Russian middle class is made up of people who, because of their education and professional qualities were able to adapt to the market. According to the agency, this middle class made up 15% of the population in 2001 and 37% in 2005. One third of the middle class in 2005 had an income of $300-$500 per family member per month.

According to the Institute of Sociology at the Russian Academy of Sciences in a report “Urban Middle Class in Russia” (2007), more than 20% of the economically active ubran population and about 14% of the country’s overall population belong to the middle class. About 22% of the population is on the periphery of the middle class. The income threshold for middle class is 10,500 rubles per family member per month. 54% of Russia’s middle class are workers in the government sector, 16% of the middle class income is received as social aid. Experts don’t see significant prospects of the middle class growing.

Igor Fedyukin

All the Article in Russian as of Sep. 17, 2007

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