Vladimir Sokolin, head of Goskomstat (the State Statistics Committee) announced the other day that real incomes in Russia have increased 24 percent since September 1998 when they hit the lowest point in the entire post-communist period. This meant, he added, that the standard of living of the Russian population has finally achieved levels attained prior to the economic and financial crisis of 1998.
What he did not say was that it took much longer to restore pre-crisis levels of personal income rather than production. GDP was restored already one year after the crisis and by the end of 2001 it exceeded the 1997 level by 16.3 percent. But the recovery in incomes took 3.5 years. When personal incomes grow slower than output it means that their share in total national income falls while the share of gross profits increases. The population is relatively worse off even though its real income may have increased.
In addition, the “Putin boom” of the last few years has been marked by a further rise in income inequality. The Gini coefficient, a standard measure of inequality in the distribution of total money income of the population, increased to 0.4 compared to 0.26 at the start of market reforms. The gap between the average income of the lowest and highest fifth parts (quintiles) of the population, which was only 2.6 in 1991, jumped to 13.8 by today. Inequality growth in Russia has been among the fastest in the world.
Recent World Bank studies on show that rising inequality is a world-wide phenomenon accentuated by economic globalisation. Russia’s case is particularly noticeable because it combines the effects of a change from a socialistic to a capitalist type of economy with those of rapid integration into world markets.
In 1990, under communism, non-labour income accounted for only 8.9 percent of total personal income while in 2000 its share rose to 24.2 percent. These figures do not tell the whole story because incomes of the entrepreneurial class, corrupted bureaucrats and organised crime are under-reported to the extent of 20 percent of the GDP.
Globalisation adds to inequality in more than one way. A direct negative influence is seen in the trend of consumer prices to gravitate towards the much higher level of imported goods while wages lag far behind due to the system of low medical, educational and housing costs partly retained from socialism. As a result, real wages, even though they recovered from all time low of 44 percent in 1998 compared to their 1990 level, they were still only 51 percent as high in 2001, or about half of their pre-reform value.
Globalisation also causes more wage differentiation inside Russia. Particularly favoured are export-oriented industries (like oil, gas, non-ferrous metals), natural monopolies, and the banking sector, where wages are more than twice higher than the country average. Suffering are practically all industries working for the domestic market, as well as medical services and education where wages are less than half of the national average.
Because most employment is in the less fortunate industries their plight tends to reproduce mass poverty. Not surprisingly, the number of persons with incomes below subsistence level rose from 34.2 million in the crisis year of 1998 (25 percent of the population) to 47.7 million in the relatively boom-like first quarter of 2002 (33 percent). Fast economic growth in the last few years did nothing to reduce hard-core poverty. Perhaps, it even accentuated the trend by having the export dependent economy reject a growing part of wage-seekers.
The effect of globalisation is also seen in the enormous gap between Moscow, where most super-profitable big business and bank headquarters are situated, and the provinces that mostly live form hand to mouth. The gap between average incomes in the capital and most provinces is as large as 5 to 8 times. The only province comparable in incomes to Moscow is oil-producing Tyumen. Gaps like these are typical of Third World countries with intensified economic relations with the rest of the world: parasite metropolises against the background of widespread decay.
Further integration into the world economy is bound to bring Russia more of the same because the nation is largely unprepared for globalisation. According to calculations made by the Russian Union of Producers, after the country joins the WTO, production companies in about 900 Russia's towns with combined populations close to 40 million will go out of business. This means that another third of the whole nation will lose their means of subsistence.
With the parliamentary and presidential elections coming closer the issue of mass poverty will certainly become a central political topic. So far, the issue is ignored by the Kasyanov government. President Putin gives it lip service by talking about poverty in general without going deep into its causes. He does not seem to realise that economic growth per se does not guarantee fair distribution if economic policy is not aimed at social justice. It looks like the neoliberal-minded regime has consciously banished social fairness from its official ideology and lexicon.