ZOiS Spotlight 36/2019

Poverty in Russia

by Martin Brand 02/10/2019
A rundown residential block in Lorino, Russia. Galaxiid / Alamy Stock Foto

“Poverty in Russia has become a disgrace” and, if it continues, could lead to a “social explosion”, liberal economist and long-serving Russian Finance Minister Alexei Kudrin warned last June. He could not have known that weeks later, thousands of people would take to the streets in Moscow for entirely different reasons – namely to demonstrate for their right to fair elections and against an arbitrary state. Last summer, at least, social issues faded into the background.

Nevertheless, in Russia, social issues are of immense importance for the stability of the political system. This became apparent in summer 2018, when people all over the country protested for weeks against a drastic rise in the retirement age. Large-scale deployment of political and administrative measures was needed to contain the protests. So how seriously should we take Kudrin’s warning about the socially explosive nature of Russia’s current poverty trend?

Life below the minimum subsistence level

Russia is a rich country with a poor population,” says poverty researcher Natalia Tikhonova. But just how widespread – and how severe – is poverty within Russian society? Quantifying the problem is no easy task. According to figures from Russia’s State Statistics Service (Rosstat), the poverty rate fell dramatically between 2000 and 2013: from 29% to 10.9%. In the years to 2007, when the economy was booming, there was a particularly sharp drop in the number of people living below the legally defined minimum subsistence level.

However, poverty in Russia rose again as a consequence of the 2014 economic crisis, reaching 13.2% in 2017. According to the latest provisional figures for 2018, the poverty rate is currently 12.9% – in other words, there has been a slight decline. This also ties in with real income trends, which – for the first time under Putin – decreased during the period 2014-2017 but recovered slightly in 2018.

When it comes to regional poverty distribution, it is a very chequered picture: in the two economic centres Moscow and St. Petersburg, the poverty rate is currently 7.2%; this contrasts with the situation in the North Caucasus and along the Mongolian border, where in some areas more than one person in five is living below the minimum subsistence level.

More subjective poverty

If the assessment is based not only the minimum subsistence level but on people’s subjective perceptions, poverty appears to be a much more widespread phenomenon. Almost two thirds of households, according to Rosstat, say that they cannot afford to purchase any consumer durables and almost one household in six can afford food but not clothing or utilities.

There was disquiet over a recent survey by Rosstat on households’ financial status, which showed that 35.4% cannot afford to buy each family member two pairs of comfortable, seasonally appropriate shoes.

Rosstat was quick to point out that quality of life has, nevertheless, substantially improved since 2016. However, this contrasts with the findings of another Rosstat survey on the material situation of people in Russia. Judging by the number of times that respondents answered “bad” and “very bad”, subjective poverty stood at 26.5% – 3.2% higher than in the same period the previous year.

Increase economic growth, halve poverty

No matter which definition is applied to poverty in Russia, what is certain is that it is far too high. That, at least, is the view of the Russian President, who in May 2018 issued a decree requiring the government to halve poverty by 2024. And indeed, Russia has adopted a range of social policy measures in recent years with the aim of providing targeted support to the needy.

The minimum wage was below the poverty line – sometimes by a considerable margin – for years, but as of 2019, it is now fixed to the minimum subsistence level for the first time. Since 2018, low-income families have received financial support, equivalent to the regional minimum subsistence level, for young children – and in many regions, large families in need have received this support since 2012. Efforts have also been made since 2010 to increase retirement pensions that were lower than the official poverty line. In this year’s address to the Federal Assembly, Putin also pledged to expand the hitherto fairly marginal programmes of “activating” social assistance to benefit more than nine million people within five years.

Beyond this targeted support for the needy who live below the minimum subsistence level, a comprehensive social redistribution of income and assets is not under consideration. Granted, there is the pledge of a substantial rise in retirement pensions, and the continuation of the maternity grant – a ringfenced one-off payment on the birth of a second child – has also had a redistributive effect that should not be underestimated. However, nothing has been done to reform the income flat-rate tax – currently 13% – even though distribution of income, not to mention assets, has been highly inequitable for years.

Instead, in the battle against poverty, all hope seems to lie in a surge in economic performance. In his 2018 address to the Federal Assembly, Putin demanded that: “Russia must firmly assert itself among the five largest global economies, and its per-capita GDP must increase by 50 percent by the middle of the next decade.” It seems the lessons of the 2000s have been taken to heart: when the economy is booming, poverty declines. This is the mechanism that Russia will, it seems, continue to rely on.

Poverty: socially explosive?

So could poverty in Russia lead to a “social explosion”, as Kudrin fears? That seems unlikely. Granted, according to surveys by the Levada Center, an independent opinion research organisation, the willingness of people in Russia to participate in economically motivated protests has remained unusually high since the demonstrations against a rise in the retirement age in summer 2018. However, without a specific social conflict, the protest potential that exists is likely to remain latent – and no such conflict is currently in sight. So provided that the Russian economy does not slide unexpectedly into another recession, poverty will continue to be manageable, with glimmers of hope that as the economy recovers, living standards will also rise.

Martin Brand is a research fellow at the Collaborative Research Centre 1342: Global Dynamics of Social Policy, Research Centre for East European Studies at the University of Bremen. He is writing his PhD on social policy development in Russia, Belarus and Ukraine. He is currently a guest researcher at ZOiS.