The Annals of PreCrime: “An Absolute Nightmare”

precriminals.jpegUnder legislation currently tabled in the Russian parliament, these up-and-coming Russian businesswomen could do hard time in a penal colony for the wholly fanciful crime of “complying” with western sanctions against target businesses and individuals. Image courtesy of Credit Bank of Moscow

Sanctions Victims Refuse the Russian State’s Protection
Big Business Categorically Rejects Adopting Law on Anti-Sanctions
Yelizaveta Bazanova, Anna Kholyavko and Yekaterina Burlakova
Vedomosti
May 16, 2018

“An absolute nightmare”: that was the phrase used by the majority of lawyers and executives of Russian and foreign companies whom we asked to comment on plans to imprison people who “implemented” foreign sanctions. On Monday, a law bill to this effect, tabled by State Duma Speaker Vyacheslav Volodin, Federation Council Speaker Valentina Matviyenko, and leaders of all four parliamentary factions was passed in its first reading. The second reading has been scheduled for Thursday.

Under the law bill, if a company refuses to sign a public contract with an entity on the sanctions list, the company and its executives would be threatened with a maximum fine of ₽600,000 [approx. €8,200] and a maximum prison term of four years.

The board of the Russian Union of Industrialists and Entrepreneurs (RSPP) has decided passage of the law would be completely unacceptable. Companies would find themselves between the frying pan and the fire: violations of sanctions would threaten them with secondary sanctions, while complying with sanctions would make them criminally prosecutable in Russia.

The RSPP’s resolution was supported even by board members who had themselves been sanctioned.

“We believe it would cause further damage to the Russian economy, including business with foreign and Russian companies, and both Comrade Vekselberg [Renova Group Chair Viktor Vekselberg] and I voted for the resolution,” Interfax has quoted VTB Bank president Andrei Kostin as saying.

A spokesperson for Vekselberg did not respond to our questions. We were also unable to contact a spokesperson for Oleg Deripaska, another target of western sanctions, yesterday evening.

If passed, the law would be unlikely to have a considerable impact on how businesses operate, but it could be a means of threatening and pressuring them, the entrepreneurs we surveyed said unanimously. The wording of the law bill is harsh. Nearly anyone could be prosecuted on the flimsiest of pretexts, complained an executive at a transnational food producer.

The key risk is the absence of clear criteria for defining what would constitute a violation of the proposed law, our sources all agreed. Even the Russian Finance Ministry could be prosecuted. In its Eurobonds prospectus, it pledged not to use the funds raised to support entities targeted by western sanctions. In January, Alfa Bank warned Russian defense companies it would not handle their accounts due to sanctions. Spokespeople for the Finance Ministry and Alfa Bank did not respond to our inquiries.

The Kremlin has also been unhappy with the law bill, said a federal official close to the presidential administration.

The law bill, if passed, would also generate risks for those companies who refuse to do business in Crimea due to sanctions, said Alexei Panich, a partner at Herbert Smith Freehills. These include the state banks Sberbank and VTB, as well as mobile telecom operators. Andrei Isayev, deputy head of the State Duma’s United Russia faction, claimed  companies who do not open branches in Crimea would not be affected by the law. What was at stake, he said, were the ordinary deals and transactions companies perform almost automatically. However, refusal to do business with counterparts in Crimea could be considered a criminal offense under the terms of the law, said an attorney at a major international law firm. The law could complicate public offerings, the issuing of loans, and contracts and transactions, he specified.

An employee at a major international firm explained it would be hard to determine whether a company refused a deal with a counterpart due to their bad reputation or the threat of sanctions. An auto dealer agreed the threat of criminal prosecution would be powerful leverage. To encourage its partners to agree to a deal, a business could threaten to report them to law enforcement agencies, argued Panich.

The proposed measures were excessive, agreed a spokesperson for an agricultural commodities trader. Some companies have in-house rules restricting such deals. Our source said the law bill appeared to be means of coercing such companies. Theoretically, it could be used as leverage. A company or person on the Specially Designated Nationals And Blocked Persons List (SDN) could show up and demand another company do business with them, agreed the head of major private bank. It was difficult to imagine how banks would solve such dilemmas, he said.

“There are many ambiguities in how the law would be interpreted, and what specific actions or inactions would be punishable,” he concluded.

Foreign businesses could interpret the law bill as a signal it was time to wrap up their operations in Russia, said the vice-president of a major foreign company that produces popular consumer products. No one has any intention of sacrificing their top executives to the Russian law enforcement and judicial system.

All issuers of bonds include in their covenants the refusal to do business with entities targeted by sanctions. Perhaps expatriates who do not want to take risks would leave the country, argued an employee at a large foreign company.

Passing the bill into law would be a mistake, said political scientist Yevgeny Minchenko. The law would have to be seriously amended over time.

“Knowing how this could affect both Russian companies and foreign business operating in Russia, this is very risky decision in my opinion,” Minchenko told us.

Spokespeople for Sberbank and Credit Bank of Moscow declined to comment.

With additional reporting by Vladimir Shtanov, Darya Borisyak, Alexandra Astapenko, and Svetlana Bocharova

Translated by the Russian Reader

How Don Trump Gave the Russian Economy a Leg Up

Brent-Crude

Buying Dollars No Way to Stop: Russian Finance Ministry Purchasing Foreign Currency at Record Pace in Aftermath of Putin’s Announcements
Alexander Pirozhkov
Delovoi Peterburg
May 10, 2018

As of today, the Russian Finance Ministry will be buying dollars at a record pace over the next four weeks. It will spend a total of ₽323 billion on these deals during the period. Since the start of the year, the Finance Ministry has spent nearly ₽3 billion on replenishing its foreign currency reserves. If we take into last year’s transactions, it has spent a total of ₽1.8 trillion.

High oil prices have made it possible to buy up foreign currency aggressively. This week, the price of Brent crude jumped above $76 a barrel, its highest price in three and a half years. Russian Urals crude, which is traded at a discount of several percentage points to Brent, exceeded $70 a barrel. The price rise has continued for several months, producing a huge surplus in the federal budget (₽344.35 billion in the first quarter of 2018), since budget revenues had been planned based on a Urals price of $40 a barrel. Thanks to favorable trends in extractive resources markets, both President Putin and Prime Minister Medvedev cheerfully announced earlier this week that finding an additional ₽8 trillion to implement the president’s so-called May decree would not be a problem.

In turn, oil prices have been conquering new heights not only due to the efforts of OPEC and the countries allied to it. Quoted prices for black gold flew up an additional five to seven dollars thanks to statements by US President Donald Trump, who has been trying to dissolve the nuclear deal with Iran while blaming OPEC for high oil prices on his Twitter acccount for appearance’s sake. The US’s exit from the nuclear deal means sanctions cancelled under the previous US leader, Barack Obama, would be reintroduced against Iran, thus removing from the market, according to various estimates, 500,000 to 700,000 barrels of Iranian oil a day.

While Trump has been bending over backwards to give the Russian economy a leg up, Putin has spoken of the need to “untie” it from the US dollar in order to boost economic sovereignty. Perhaps these are mere words, not backed by real intentions, especially since they are at odds with the Finance Ministry’s actions. However, Iran itself earlier took certain steps in the same direction as it faced the threat of renewed sanctions. There is a risk the example of our Middle Eastern neighbor will prove contagious.

Translated by the Russian Reader. Image courtesy of Business Eye

Welcome to St. Petersburg!

DSCN5677Two Russian National Guardsmen shake down a non-Russian and his friend (off camera) in the run-up to this summer’s FIFA World Cup. Photo by the Russian Reader

I remember when the G8 summit was held in Petersburg in July 2006. I will leave aside the counter-summit (aka the Russian Social Forum), held in then-already-doomed Kirov Stadium, that is, in a part of the city so far off the beaten path you had to want to be there very badly to get there, and the excellent job the Russian security services did making sure that social and political activists from other parts of the world’s largest country could not make it to Petersburg, much less to the forum.

I bring the summit up only because, the social forum aside, the city was pullulating with so many cops, riot cops (OMON), and Interior Ministry troops it was impossible not to notice them and realize how absurd and wasteful the security overkill was, especially since the summit per se was held in the newly refurbished Constantine Palace in the southern Petersburg suburb of Strelna, a site at least fifteen kilometers away from the central city and most of its inhabitants, and thus easily secured by a few hundred guards, policemen, and special forces troops.

Back in those halcyon days, I had a job that kept me moving round the city from morning to night, and so I would happen upon clusters of utterly idle cops, riot cops, and special forces troop in the oddest places on a regular basis while the summit was on. I remember how I once walked into an otherwise obscure, out-of-the-way courtyard late in the evening and found it chockablock with Russia police officers of some sort, possibly imported for the occasion from the other side of the country. They seemed almost ashamed to be hiding in that courtyard, protecting nobody at all from utterly nonexistent threats, and chainsmoking to kill the time.

Our beleaguered city’s next opportunity to shine in the international limelight will be during the 2018 FIFA World Cup, held in Petersburg and several other Russian cities from June 14 to July 15.

I was reminded by a tiny incident I witnessed earlier today of the Russian police state horrorshow literally everyone in the city with their heads screwed on straight expects during the month the World Cup is in town.

By the way, all locals with an ounce of sense in their brains are planning to be somewhere else, if only at their dachas in the countryside, during that month.

When I exited my building earlier today I immediately spotted two Russian National Guard officers hassling two young men of “non-Slavic appearance.” The officers were conducting their shakedown squarely in front of the gateway that accesses the yard of the building next to ours, the only courtyyard left on our street connecting it with the street running parallel to it.

Once upon a time not so long ago, central Petersburg was chockablock with interconnecting, walkthrough courtyards, and natives in the know could cover long distances in the inner city navigating this extensive network of courtyards without having to emerge onto the actual streets.

But when the new era of “capitalism” and “democracy” dawned, and Petersburgers privatized their flats and turned their courtyards into impromptu car parks, many of them gated, locked, and otherwise blocked off their courtyards, a move that in many cases was probably illegally, although no has ever gotten in trouble, so far as I know, for establishing their own little gated communities this way.

The guardsmen were reading the swarthy troublemakers the usual bored riot act about their having the wrong paperwork when I squeezed my way around them. One of them said they would have to take the swarthy men down to the precinct and write them up, which probably meant they would hold them there long enough to make their serious intentions plain before “fining” (bribing) them and letting them go.

The preparations for the 2018 World Cup have already been a debacle for Petersburg and many of the other host cities, as well as segments of the local populace that the authorities want to go away during the festivities, including university students, dogs and cats, antifascists tortured and framed as “terrorists,” and migrant workers.

I thus took the shakedown I witnessed as a sign of things to come: the full force of the utterly lawless, mendacious, and violent Russian law enforcement machine would be unleashed against migrant workers, people who look funny or out of place, and even completely ordinary, unprepossessing local residents while the World Cup was underway.

So, my message to you out there in the wide world is take a thought for us back here in the Motherland and keep your TV turned off during the World Cup. The “beautiful game” need not be played and enjoyed at such a high human cost to the World Cup’s Russian host cities, but since ultraviolence and the gleeful trampling of human rights are the only ways the current Russian regime knows how to handle mega events like the World Cup and the Winter Olympics, not to mention the country’s day-to-day governance, show a minimum of solidarity with us here in the line of fire and don’t watch any of the matches on TV. It won’t cost you a thing, but the world’s TV executives and advertisers will notice.

I won’t even bother appealing to the jetsetters who are planning to travel to Russia for the World Cup. You are beyond the pale in any case, since you choose to live your lives in such a thoughtless, wreckless way. My only hope for you is that, at some point during your expensive, wasteful trip, Russia’s real reality will burst through the carefully packaged and securitized experience the Russian authorities have planned for you, and you realize you paid Satan a lot of money to watch a few bloody football matches in person. // TRR

Russia’s Trash Flashpoint

Landfills Become a Problem for the Kremlin
Environmental Protests Move from Local to Federal Level
Yelena Mukhametshina and Yekaterina Bryzgalova
Vedomosti
April 1, 2018

guseva“Volokolamsk right now. Protest rally against the Yadrovo Landfill.” Screenshot of Olya Guseva’s Twitter page. Courtesy of Meduza

According to various estimates, 6,500 to 7,000 people attended this past Sunday’s protest rally in Volokololamsk against the Yadrovo Landfill. This was more than the number of people who attended the rallies on March 3 (approx. 5,000) and March 29 (6,000). (Volokolamsk’s official population is less than 21,000.)

Among the demands made at Sunday’s rally were the closure of the Yadrovo Landfill, the declaration of an emergency, the resignations of Moscow Region Governor Andrei Vorobyov and Andrei Vikharev, acting head of Volokolamsk District, and the release of activist Artyom Lyubimov, who was detained by police a day before the rally.

Protesters at the rally held up placards addressed to President Putin, including ones  bearing the message, “Putin, Help!”

On March 21, a strong release of landfill gas took place in Volokolamsk, causing schoolchildren to say they felt sick. Fifty-seven children were hospitalized in the Volokolamsk Central Hospital. Subsequently, Governor Vorobyov fired the head of Volokolamsk District.

Volokolamsk has not been the only town in Moscow Region protesting landfills. During the past year, people have taken to the streets in such towns as Balashikha (after the local Kupchino Landfill was closed there on direct orders from the president, the garbage that used to be transported to the landfill was redirected to Yadrovo), Kolomna, Klin, Sergiev Posad, Tuchkov, and Serpukhov.

A former federal official explained why garbage has recently become a hot-button issue.

“New laws were passed obliging the regions to adopt local waste handling schemes and select regional contractors. A market is emerging. There are different disposal strategies: incineration versus separate collection of recyclables. Different strategies require building different processing facilities, and the stakeholders backing the different strategies are also different, from the federal to the municipal level,” he said.

The stakeholders are in conflict with each other and with the regions. This is especially true of Moscow and Russia’s other major cities, he claimed.

Last week, it transpired that Tver Region Governor Igor Rudenya had warned all heads of municipalities in his region that if the regional authorities found garbage from other regions in local landfills, the municipal heads responsible for this would have problems with law enforcement and Governor Rudenya’s administration.

“You will not import garbage from other Russian regions for any amount of money at all,” said Governor Rudenya, as quoted by Tverigrad.ru.

The president’s retinue is to blame for the flare-up in Volokolamsk. When they were getting ready for his annual Direct Line program, they insisted on underscoring the subject of landfills by way of speeding up the construction of processing facilities. It was then the president ordered the closure of the landfill in Balashikha, argues a source close to the Kremlin.

“The landfill was closed. The garbage from there was shipped to nearby landfills, and the flow of garbage to these landfills increased manifold. First it was necessary to put the infrastructure in place, and then close the landfills,” he said.

Environmental protests by people concerned with specific issues are a considerable risk to the system’s stability, and the regime is very concerned about them, saif another source close to the Kremlin.

“The president pays great attention to the environment. Last year, he personally telephoned activists in Chelyabinsk to show he supported them. This is quite important, especially in circumstances when environmental measures are given short shrift to save money.”

Last year was officially the Year of the Environment in Russia. During the presidential campaign, Putin held meetings in Krasnoyarsk on improving the ecological situation and  reducing the emission of pollutants into the atmosphere.

Political scientist Andrei Kolyadin argues the issue of landfills cannot be solved quickly. Several years would be needed to do that.

“This abscess has long been ripening, and now it threatens people’s lives. As the risks to people’s live increase, the risks to the regime increase as well.”

A final decision on the future of Governor Vorobyov, who faces elections in the autumn, has not yet been made, said Kolyadin.

“If the protests balloon, he could be made their scapegoat. He has been doing his best to wiggle his way out of the subject politically, but he has not been able to do this economically. If the elections are handled by the authorities, he will not have complications, but if they are run more or less honestly, the districts in which anti-landfill protests have been taking place will not turn out to vote for him.”

Political scientist Mikhail Vinogradov argues such protests ordinarily wane quickly. In this case, however, the boiling point has not yet been reached. Various grievances, such as Governor Vorobyov’s less-than-happy appointment of a new head of Volokolamsk District, have been building up.

“I get the feeling there will be a new wave [of protests] that will help solve the problems that have accumulated. People feel they are in the right, and it gives them a strong impetus to protest,” he said.

Given current conditions, in which protests have been de facto banned, any socio-economic protest takes on political overtones, Vinogradov concludes.

Translated by the Russian Reader

Russia Set to Fall Further Behind US in Terms of Living Standards

DSCN2995“Change Yourself for the Better.” If you read the following article, about the OECD’s forecast for economic growth in Russia, between the lines, you will discover a takeaway message that has been apparent to numerous observers for a long time. Until Russia does away with official kleptocracy, rampant corruption, outrageously bad governance, and the shock-and-awe policing of politics and business by the siloviki—i.e., unless it renounces Putinism and all its ways—there is little chance the living standards of ordinary Russians will improve much in the next forty years. Photo by the Russian Reader

Russia Set to Fall Further Behind US in Terms of Living Standards
OECD’s Experts Have Predicted the Futures of the World’s Major Economies
Tatyana Lomskaya
Vedomosti
March 7, 2018

Russia is one of the few member states and parters of the Organization for Economic Cooperation and Development (OECD), in which real per capita GDP will fall by 2060 relative to the benchmark, the United States, according to an OECD reported entitled “Long-Term Prospects: Scenarios for the World Economy, 2060.” Vedomosti has had access to the eport. A source at the OECD confirmed its authenticity while noting it was a preliminary draft.

In the absence of reforms, Russia’s per capita GDP will grow only 0.7% in the next twelve years, predict OECD economists. The stumbling block is low workforce productivity. In recent years, it has not increased at all, and it will accelerate to a mere 0.5% in the period 2018–2030. Another brake on economic growth is poor demography: the economically active and able-bodied segment of the populace has been declining. By way of comparison, due to its positive demographic circumstances, Turkey’s standard of living will increase considerably by 2060 to about three fourths of the figures for the US, write the report’s authors.  In Russia, it will increase to 40% of the benchmark before decreasing slightly.

It is hard not concur with the diagnosis, notes Alexander Isakov, VTB Capital’s chief economist for Russia. Demography and workforce productivity are the biggest constraints on economic growth in Russia.

In his March 1, 2018, address to the Federal Assembly, President Putin promised to increase per capita GDP by 50% by 2025. He said = Russia must firmly gain a foothold among the world’s top five economies by then. Putin meant GDP at purchasing power parity (PPP), Economic Development Minister Maxim Oreshkin explained on the TV program Pozner. According to the IMF, Russia is now in sixth place in terms of GDP (PPP), four percent points behind Germany. The goal is to “bypass Germany,” explained the minister.

The goal can be brought within reach by applying active budgetary (e.g., tax cuts and increases in oil and gas costs) and monetary (e.g., lending) stimuli, says Kirill Tremasov, director of the analytics department at Locko Invest, but this is fraught with great risks.

Without reforms, Russian and the other BRICS countries will slow the growth of the world’s real GDP for forty years beginning in 2019, warn the report’s authors. To accelerate growth, they must increase workforce productivity by reforming governance, increasing the duration of schooling, and reducing trade tariffs.

If during the period 2020–2060, the BRICS countries develop the rule of law (which the World Bank evaluates on a scale from minus two to plus two), increase schooling to the median level of the OECD countries, and decrease trade tariffs to OECD median levels by 2030, the growth of per capita GDP will be 25% to 40% higher than in the baseline scenario. A key factor is governance reforms: combating corruption, improving law enforcement and the judiciary, increasing the efficiency of the civil service, and involving ordinary citizens more actively in politics.

The report notes this is especially important for Russia. Among the BRICS countries, Russia has the worst score for rule of law (-0.8) and the best score for average length of schooling (10.8 years). The Russian civil service has been adapted to the current political system, which assumes maximum centralization and the absence of political competition. Tremasov is skeptical: it is impossible and pointless to reform the civil service without democratizing the political system.

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“How Living Standards Will Change: The OECD’s Baseline Scenario. Real Per Capita GDP at Purchasing Power Parity in 2010 Prices (US=100).” The blue horizontal lines represent predicted outcomes for 2018; the red lines, predicted figures for 2060. The countries included in the survey, as  listed from top to bottom, are Brazil, Russia, Turkey, Poland, Italy, France, Great Britain, Finland, Germany, Switzerland, Norway, and Ireland. Source: Preliminary Calculations from the OECD. Courtesy of Vedomosti

In his May 2012 decrees, Putin charged the government with increasing workforce productivity by one and a half times by 2018, but it had increased only by 3.8% as of 2016. Minister Oreshkin listed the obstacles: underinvestment, insufficiently developed infrastructure, and a lack of resources to upgrade productive assets.

Managers do not have a “culture of constantly improving efficiency and productivity,” he complained.

Workforce productivity is indeed the main obstacle to economic growth, but an increase of investments is needed in order to increase it, notes Natalya Orlova, chief economist at Alfa Bank. In 2017, about 50% of the increased investments in Russia were due to the extractive resources sector, although the bulk of GDP is generated in other sectors, says Orlova. Investments in agriculture grew by a mere 1.3%, fell in manufacturing and construction, and the commercial sector crashed altogther, falling 9.7%. Investment growth has been hindered by economic and geopolitical uncertainty, and the government has an ever harder time of reducing that uncertaintlywith sanctions in place, notes Orlova. Business, on the contrary, needs guarantees the rules of the game will not change for a long time.

Growth in productivity is impossible without increased competition, Tremasov points out. It is competition that compels companies to introduce new technology, reduce costs, and improve management. The more intense the competition in a sector, the higher the productivity, he notes, citing the retail trade and metallurgy as examples. Therefore, the main means of increasing economic efficiency is reducing the state’s share in the economy, argues Tremasov, as well as attracting foreign investors, reforming the judiciary, and reining in the security services [siloviki].

Measures to improve the country’s demographic circumstances will bear fruit in twenty-five years, when the corresponding generation enters the labor market, notes Isakov. The authorities should thus concentrate on increasing productivity.  If the market functions smoothly, the difference in productivity between companies in the same industry decreases, he argues, because they borrow technology and methods from each other, while inefficient companies are forced out of the market. In Russia, on the contrary, differences in productivity within industries are some of the highest in the world, due in part to gray sector employment practices, Isakov concludes.

Economic growth could take off if reforms are implemented, argues Orlova. The Russian economy is currently so inefficient that the jumpstart supplied by reforms would be huge.

Translated by the Russian Reader

Raising Russia’s Minimum Wage: A Band-Aid for the Poor

624869d68f57b0f0b20b1b6c8e808f58“Why did you open up your MROT?”

Who Will Win and Lose from the Rise in the Minimum Monthly Wage?
Ivan Ovsyannikov
Proved.rf
February 20, 2018

The minimum monthly wage in Russia [often referred to by its abbreviation, MROT] has been pegged to the subsistence minimum. This gift to employees will come into effect on May 1, 2018, when the minimum monthly wage will grow from the current ₽9,489 to ₽11,163 [approx. €160 at current exchange rates]. Regional minimum wages might be higher. For example, in Moscow, it will be set at ₽18,700 a month, while in Petersburg it will rise to ₽17,000. According to former federal deputy labor minister Pavel Kudyukin, the lowest paid category of workers will benefit from the rise in the minimum wage, but there will more losers.

••••••••••

Pavel Kudyukin, Russia Federal Deputy Labor Minister, 1991–1993; currently, council member, Confederation of Labor of Russia (KTR):

The principle that the minimum monthly wage cannot be lower than the subsistence minimum was incorporated into the Russian Labor Code way back in 2001, with the proviso, however, it would be implemented gradually.

The fact this decision has been made amidst less than propitious economic circumstances is undoubtedly an election campaign gambit. Theoretically, it is a measure that had to be taken. Having a minimum monthly wage lower than the subsistence minimum, especially Russia’s subsistence minimum, is simply shameful. Some people will stand to gain from the decision, but fairly broad segments of the populace will also suffer serious losses. But the propagandists, of course, will talk about the gains, especially as we are in an election campaign.

Minimum Minimorum
The general opinion of nearly all social policy experts is that Russia’s subsistence minimum is equivalent to the poverty level. It will keep a person from starving to death, but it would be a great exaggeration to call it a means to a full-fledged, dignified life.

International standards are also quite modest, of course: the subsistence minimum is defined for the poorest countries. Naturally, the developed countries have their own notions of the subsistence minimum. It is an essential tool of social policy. Various welfare payments are pegged to it, and it determines the level at which households are seen to need additional assistance. It is measured in different ways. Measuring the subsistence minimum in terms of the consumer goods basket, as is done in Russia, is deemed quite an archaic method, although the US uses the same method to calculate it.

The question, of course, is how the contents of the consumer goods basket are decided. Russia does not fully take into account the needs of the modern individual. It bases its calculations on the assumption people have no need of such an important social benefit as housing. The costs of utilities are at least included in the basket, but the possibility of improving one’s living conditions are not. Cultural needs are very poorly represented. Most of the so-called non-product needs are calculated through an adjustment, as a percentage of the consumer basket given over to products. It is no wonder the subsistence minimum, as it is imagined in Russia, satisfies neither the experts nor ordinary people.

The subsistence minimum has also been reduced from time to time with reference to drops in prices. This has also provoked a slew of questions. How are prices determined? Inflation affects different income brackets in very different ways. The poorer people are, the greater their personal level of inflation. If the price for a Mercedes suddenly drops, it does not mean the price of sunflower seed oil will not go up.

There is an important brake on seriously expanding the subsistence minimum in Russia. When the number of poor people is between fifteen and twenty percent, you can provide them with supplemental financial assistance and benefits. If the percentage of poor people is fifty percent or greater, it is quite tricky for the state to do anything for them. When half of the populace is receiving poverty assistance payments, either the payments are utterly paltry and spread thin or the state simply cannot make them.

The Winners
For people who earn the least of all, pegging the mininum monthly wage to the subsistence minimum does constitute an increase in wages. It is a quite decent increase in some cases, especially if you consider the fact there are people in Russia—Deputy Prime Minister Olga Golodets has estimated there are nearly five million such people—who received a salary lower than the previous minimum monthly wage.

The workers who really have a chance to improve their lot are mainly those employed in the public sector in various auxiliary positions: maintenance personnel, cleaners, and so on. They will earn more.

The Losers
Formally, there will be winners, but there will be more losers. The rise in the minimum monthly wage will cause serious problems in the regions, since poor public sectorsworkers are usually paid from regional and municpal budgets. The new expenditures they incure will be only partly covered by transfers from the federal budget. Regional officials will once again have to optimize some things and lay off people. This is a quite significant aspect of the headache generated every time the parliament passes laws or the president signs decrees increasing payments to people who do not get them from the federal budget.

The rise in the monthly minimum wage will be a considerable problem for a number of businesses, especially small businesses. There is a risk it will expand the gray sector of the employment market. This is also an unpleasant consequence for workers, for when they are employed in the gray sector, payments to the Pension Fund are not deducted from their wages, and they lose pension payments they would have received in the future.  People in Russia usually disregard this, because, one, they do not actually believe they will live until pension age, and two, they really do not believe the state will not think up more mischief by the time their pensions come due.

Another important question: what is included in the minimum monthly wage? Currently, there are several court rulings that the minimum monthly wage should not include any sort of compensatory pay, such as the northern hardship bonus. This pay must be disbursed over and above the minimum wage. These are sound rulings, but the problem is Russia does not have a precedents-based judicial system, and one court’s ruling is anything but obligatory for other courts. Every individual whose minimum monthly wage includes compensatory or incentive pay must file suit in court to have his or her wages individually recalculated. So, the problem is not only the amount of the minimum monthly wage and how it correlates with the subsistence minimum but also what is included in the minimum monthly wage.

A Band-Aid for the Poor
Increasing the minimum monthly wage cannot be implemented in isolation. It should be complemented by serious reforms in other areas. We must radically change our entire social and economic policy, including, as an obligatory part of such reforms, our taxation policy. It has not always been understood in Russia that there is no such thing as a welfare state* without progressive taxation. The introduction of progressive taxation, of course, will be an unpopular measure amongst a large number of people. Plus, given the inefficiency of the Russian state and the social irresponsibility of the rich, such an attempt would push the growth of the gray economy.

Poverty is not only a problem of social policy. It is not eliminated by paying people social benefits. We need a completely different economic policy that would give people the opportunity to work in well-paid jobs and thus make decent pension contributions. The problem of poverty is not solved merely by redistributing resources, although it is also necessary. Treating poverty with social benefits means treating the symptoms. Treating poverty with economic growth means treating the causes.

* According to Article 7 of the Russian Federal Constitution, the Russian Federation “is a social State whose policy is aimed at creating conditions for a worthy life and a free development of man [and where] the labour and health of people shall be protected, a guaranteed minimum wages and salaries shall be established, state support ensured to the family, maternity, paternity and childhood, to disabled persons and the elderly, the system of social services developed, state pensions, allowances and other social security guarantees shall be established.” For more on the practical implications of this constitutional guarantee in a quasi-populist kleptocratic tyranny, see Ilya Matveev, “The ‘Welfare’ State Doesn’t Get Any Better Than This,” Chtodelat News, October 12, 2012.

Cartoon by Alexei Merinov. Courtesy of Moskovsky Komsomolets. Translation by the Russian Reader

(Don’t) Pay Your Rates

DSCN4253A Petersburg housing services worker risking life and limb to clear snow off the roof of a tenement building in the city’s downtown. Photo by the Russian Reader

Russians Are Increasingly Not Paying for Their Flats
Growing Debts for Housing Services and Utilities Reflect Obvious Social Ills
Pavel Aptekar
Vedomosti
February 21, 2018

The increase in housing and utilities rates, occuring alongside a protracted downslide in personal income, has produced an abrupt upturn in debts for housing services and utilities, and collections of arrears in court, especially among low-income segments of the Russian populace.

The Russian Supreme Court has published statistics on the collection of debts for housing services and utilities. In 2014, 2.1 million such cases were ajudicated by the courts. In 2017, the figure was 5.4 million cases, and the total amount of recoverable debt had doubled, from ₽60 billion to ₽120 billion—taking into account, however, the debts of legal entities that paid for heating irregularly. Nevertheless, these figures reflect both an alarming trend—utilities payments have increasingly become a burden for disadvantaged parts of the populace—and the unwillingness of the rich to pay the bills for flats they have purchased as investments.

Generally, the collection of payments for utilities and housing services proceeds calmly. According to the Institute for Urban Economics, 95–97% of apartment residents pay their bills on time, but an individual’s timeliness in paying their bills depends on their income, as well as the climate and budget priorities of the Russian region where they live. According to Rosstat, household expenses on utilities and housing services per family member rose between 2014 and 2016 from ₽1,511 to ₽1,816, i.e., by 20.2%. The share of total household expenses spent on utilities and housing services rose during the same period from 10.3% to 11.3%.

For the sake of budget savings, many regions have reduced subsidies on housing and utilities, which has seriously increased the amount of money spent on these services by local populations, says economist Natalya Zubarevich. For example, housing and utilities account for 25.8% of paid services in Kursk Region, while in neighboring Oryol Region the figure is 41.1%. In Khabarovsk Territory, housing and utitilies expenses make up 26.7% of the cost of all services, while in Amur Region, which has a comparable climate, the figure is 45.8%.

In 2016, housing and utilities expenses accounted for 15.2% of all expenses among the ten percent of Russian families with the lowest incomes, and 14.8% of all expenses among the ten percent of families who were less poor. People who have to scrimp on everything are often forced not to pay for housing and utilities simply in order to survive. However, according to Mikhail Men, Minister for Construction and Housing, some of the arrears are owed by the proprietors of apartments bought as investments, who do not want to pay the bills for vacant flats.

According to Rosstat, the total amount of money owed by the Russian populace for housing and utilities in 2014 was ₽111 billion; in 2015, it was ₽135.8 billion. Subsequently, the debts have grown more quickly. In October 2016, Andrei Chibis, Deputy Minister for Construction and Housing, informed TASS News Agency they had reached ₽270 billion, and in July 2017, Men cited the figure of ₽645 billion [approx. €9.2 billion].

This increase reflects an obvious social ill. Housing and utitilies fees are billed by private companies, who turn not only to the courts to collect unpaid bills but also to the services of illegal debt collectors. Such circumstances could engender serious conflicts, especially in small towns with poor populations.

Translated by the Russian Reader. See my numerous previous posts on the problem of debt in Russia.