Exodus

DSCN3281Human capital is fleeing Russia. Since President Vladimir Putin’s ascent to the presidency, between 1.6 and 2 million Russians—out of a total population of 145 million—have left for Western democracies and some new destinations where they can be freer with their skills put to better use. This emigration sped up with Putin’s return as president in 2012, followed by a weakening economy and growing repressions. It soon began to look like a politically driven brain drain, causing increasing concern among Russian and international observers.

In this report, the Atlantic Council’s Eurasia Center offers a comprehensive analysis of what we are calling the Putin Exodus and its implications for Russia and the West. It is supported by a pioneering sociological study of new Russian émigrés now living in four key locations in the United States and Europe, through a 100-question survey and a series of focus groups.

[…]

There are two particularly important findings. On the one hand, the new Russian émigrés living in different locations are very similar in the way they use their high cultural capital to adapt to new life and employment in a postindustrial society. At the same time, there is a distinct disparity between those who emigrated before 2012 and those who left later: among other things, the latter demonstrate a growing pro-Western and liberal orientation and greater politicization in general, including stronger support for the anti-Putin “non-systemic” opposition.

John Herbst and Sergei Erofeev, The Putin Exodus: The New Russian Brain Drain (Atlantic Council, Eurasia Center, 2019), p. IX

Although I am the last person who thinks you can find out what people really think using opinion polls, questionnaires, and focus groups, this new report from the Atlantic Council does, at least, deal with something real that has been underreported and little discussed in Russia and elsewhere. Since I have had lots of conversations with many different Russian immigrants over the years, I am also skeptical about the report’s optimistic conclusions about their alleged “liberalism.” Nevertheless, it is worth reading. Thanks to the invaluable Mark Teeter for the heads-up. Photo by the Russian Reader//TRR

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Nationalizing Russia’s Middle Class

OLYMPUS DIGITAL CAMERAIn the last decade or two, Russia’s monied classes and middle classes have been wildly enriched or merely kept afloat by cheap, disenfranchised labor from Central Asia. I took this photo on April 10, 2017, in the container village inhabited by Central Asian migrant workers building Petersburg’s so-called Marine Façade on 476 hectares of reclaimed land in the Neva Bay next to Vasilyevsky Island.  

Nationalizing the Middle Class: Society’s Previously Most Dynamic Group Seeks to Rely on the State
Vladimir Ruvinsky
Vedomosti
June 26, 2019

Analysts at Alfa Bank have concluded Russia’s middle class has been shrinking. More importantly, it is being nationalized, which distances the prospects of qualitative economic growth.

What constitutes the Russian middle class is mostly a philosophical question: a specific definition of it has never gained a foothold. Some researchers argue it never emerged in the social sense and remains akin to a folklore character. Other researchers, focusing on income levels, have claimed to have sighted it in Russia, but in recent years their observations have been suffused with sadness.

In a new report, “The Russian Middle Class: Lowering the Appetite for Risk,” analysts at Alfa Banks have defined the middle class as a group of people whose monthly income is between 39,000 and 99,000 rubles per person [i.e., between 546 euros and 1,387 euros at current rates], that is, 110–250% of the median income in Russia, and who are able to buy durable goods.

In the noughties, the middle class grew. By 2014, it constituted 37% of the Russian populace. In four years, however, all of this growth had been forfeited. In 2017, only 30% of the populace could be counted as middle class, which was less than in 2004 (34%). Simultaneously, the group’s share in the populace’s total income dropped from 48% in 2014 to 39% in 2017.

The middle class has lost its economic clout, becoming more vulnerable. In some ways, it has lost more than other classes. Alfa Bank’s analysts write that the middle class’s real incomes stagnated in the ten-year period between 2008 and 2018, while the incomes of the country’s most impoverished groups rose by four percent, and the incomes of the wealthiest Russians increased by eleven percent. An indicator of the middle class’s fading fortunes was that its core spent three percentage points more on groceries during the ten-year period, just like the country’s lower classes, while its expenditures on holidays and education dropped by one to two percentage points. In 2014–2018, the middle class’s loan payments grew by 20% in nominal terms. This is probably why it has not been involved in the new consumer loan boom.

Simultaneously, the middle class has been undergoing nationalization. It is a commonplace the middle class consists of people independent of the state and living on their own means. Its progress has been regarded as a vital driver of economic growth, including in Russia.

Its potential, however, appears to have weakened. Whereas in 2003 approximately ten percent of the middle class was employed in the state sector, this figure had grown to fifteen percent in 2017, according to Alfa Bank.

This is not a disaster yet, especially since middle-class employment in commerce, the restaurant business, finance, real estate, and health care has grown. However, the middle class’s share of business income has decreased more than it has among the general populace.

Traditionally considered the core of civil society, the middle class has come to rely more and more on the state for employment, claims Natalya Orlova, Alfa Bank’s chief economist. Even if the middle class does not shrink anymore, its nationalization worsens the prospects for Russia’s progress, since its ranks will be replenished by people who do not power the economy but count on the regime for their livelihoods.

Translated by the Russian Reader

Search and Intimidate

“Court approval of search warrant requests, 2007–first quarter of 2017. Red=number of warrant requests; gray=warrants issues. || In the past 11 years, Russian courts have approved, on average, 96.3% of search warrant requests. 67% of the requests concerned searches of private premises as part of surveillance operations, while 33% of searches were part of specific criminal investigations. ||Numbers and kinds of intimidation during so-called political searches (based on an analysis of 600 searches conducted in the homes of grassroots activists and members of persecuted organizations): violence, threats – 97; breaking down doors, forced entry through windows – 70; search performed at early hour of the day – 63; search conducted at homes of relatives – 47. Sources: International Agora and Russian Supreme Court Judicial Department.” Courtesy of Vedomosti

How Police Searches Have Become Tools of Political Intimidation
Agora International Says Privacy in Russia Has Nearly Vanished
Anastasiya Kornya
Vedomosti
March 29, 2018

Over the past ten and a half years, Russia courts have issued law enforcement agencies 1,976,201 warrants to search or investigate private premises. This number constitutes 96.32% of all such requests, according to calculations made by analysts at the Agora International Human Rights Group, which on Thursday will release a report entitled “Politically Motivated Police Searches: The Specter of Inviolability.” Often police investigators manage to obtain search warrants after the fact. During the period, the number of requests for search warrants has increased by nearly fifty percent. With respect to Russia’s 54 million households, this means that, over the last ten years, every twenty-seventh home in Russia has been searched.

The report’s authors note this is only the tip of the iceberg. Searches and inspections of non-residential premises, such as offices, warehouses, etc., do not require court warrants, and data on the number of such incursions has not been published by anyone.

The exception to this rule are law offices. Since April 2017, they have enjoyed greater formal protection than the residences of ordinary citizens. Law offices cannot be searched without a court order, and a representative of the regional bar association must be present during the search. Andrei Suchkov, vice-president of the Federal Bar Association, says they have not specially kept track of the statistics, but his sense is the number of searches in law offices has decreased during this time. There have been cases when police investigators tried to carry out searches without permission, but the courts have nevertheless mainly sided with lawyers, he notes.

Agora’s report reminds its readers that, in the early 1990s, the term “mask show,” meaning a police search carried out with backup from masked and armed special forces soldiers, came into common usage. Such searches were an effective means of coercing business partners and business rivals alike. Subsequently, the tool came to be used against the regime’s political opponents.

Recently, the practice of “serial” searches has been widespread. Thus, according to Leonid Volkov, head of Alexei Navalny’s presidential election campaign, police have raided the offices of the Anti-Corruption Foundation and Navalny’s regional campaign offices no less than 150 times. Police have raided the offices of Mikhail Khodorkovsky’s Open Russia around fifty times over three years. Agrora’s analysts note the most frequent targets of large-scale, systematic searches have been members of opposition organizations and Crimean Tatars.

Another goal of police searches is the confiscation of electronic devices and subsequent unauthorized access to personal data, correspondence, and social media accounts. For example, during a June 2012 search of Alexei Navalny’s home, police seized a laptop, tablet computers, and mobile phone. Two weeks later, Navalny’s email and Twitter account were hacked.

In recent years, as Agora’s report underscores, police searches have been a vital element of campaigns against not only political opponents but also government officials. State-controlled national TV channels extensively covered searches in the homes of ex-regional governors Alexander Khoroshavin and Vyacheslav Gayzer, Federal Customs Service chief Andrei Belyaninov, and members of the Dagestani government.

Pavel Chikov, head of Agora, says they took an interest in the numbers of police searches after analyzing the state of privacy of correspondence and telephone conversations. If we recall that, on average, the courts have approved 98.35% of wiretapping warrants, we must admit judicial oversight in this area is illusory, and there is no privacy in Russia, claims Chikov.

Expanding the remit of law enforcement agencies to ever broader areas of daily life has transformed searches from investigative tools to signals broadcast by the regime and received by everyone involved in politics, government, and business, concurs political scientist Mikhail Vinogradov.

“What matters nowadays is not the outcome, but the search per se. We have been seeing an increased number of searches whose point is just that,” says Vinogradov.

Translated by the Russian Reader

As Protests Increase, National Guard Ready to Crack Down

dimon balet
“Dimon, what’s with the ballet?” Anti-corruption protesters on the Field of Mars in Petersburg. Photo courtesy of Sergei Nikolayev/DP

Experts Speak of Sharp Increase in Number of Protests in Russia
Delovoi Peterburg
November 7, 2017

According to a report by the Center for Economic and Political Reform (CEPF), the number of social and political protests in Russia has risen sharply compared to the beginning of the year.

The number of protests has been continuously growing in Russia throughout the year. In the first quarter, 284 protests were recorded; in the second quarter, 378; and in the third quarter, 445. Thus, as noted in the report, the overall number of protests has increased by almost 60% since the beginning of the year.

The analysts at the CEPF divide protests into political protests, socio-economic protests, and labor protests. They note that around 70% of protests had to do with socio-economic issues, including protests by Russian truckers against the Plato road tolls system, and protests by Russian farmers against the seizure of land by agroholdings, as well as protests by hoodwinked investors in unbuilt cooperative apartment buildings.

Political protests came in second place, including protests by supporters of opposition leader Alexei Navalny. A total of 106 political protests were recorded in the third quarter of 2017. There were 27 labor protests in the third quarter.

The number of conflicts related to labor relations has also steadily climbed throughout the year. The number of protests caused by cases of late payment and non-payment of wages, for example, has grown as follows: 142 in the first quarter, 196 in the second quarter, and 447 in the third quarter. Thus, by the third quarter, the number of such incidents had more than tripled.

The authors of the CEPR report cites figures provided by Rosstat, according to which the amount of unpaid back wages in Russia totaled 3.38 billion rubles [approx. 49 million euros] as of October 1, 2017. The number of incidents of late payment and non-payment of wages in the third quarter of 2017 (447 companies) was more than triple the number of such incidents in the first quarter (147 companies), and more than double the number in the second quarter (196 companies).

The analysts point out that Russia has not yet put in place a system for preventing and constructively solving social conflicts, and thus protests are still nearly the only effective means for employees to defend their rights.

“We should generally expect the high number of protests nationwide to continue, especially in the socio-economic realm. This is due to the fact the problems people (hoodwinked investors, truckers, farmers, opponents of construction projects, environmental activists et al.) have been currently protesting have not been solved. At the same time, evolution of the protest movement has been greatly hampered by the lack of capable political parties, grassroots organizations, and trade unions,” write CEPR’s analysts.

Translated by the Russian Reader

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Ahead Of Election, Putin Seeks Wider Mandate For Russian National Guard
Radio Free Europe/Radio Liberty
November 6, 2017

0327929D-DFC1-4E65-BD89-EC9685C0B625_cx0_cy8_cw0_w1023_r1_sRussian President Vladimir Putin (second right) and National Guard chief Viktor Zolotov (third left) take part in a ceremony marking National Guard Day in Moscow on March 27. Photo courtesy of Mikhail Klimentyev/TASS

Russian President Vladimir Putin has proposed legislation to widen the responsibility of the National Guard, an entity created last year and headed by Putin’s former chief bodyguard, to include protecting regional governors.

The bill was published on the website of the State Duma, the lower house of parliament, on November 6.

The Duma is dominated by the Kremlin-controlled United Russia party and supports almost all Kremlin initiatives.

The proposed change could enhance Putin’s ability to crack down on dissent or seek to impose order if there is unrest in Russia’s far-flung regions.

The National Guard reports directly to the president. Its director, Viktor Zolotov, was chief of the presidential security service from 2000 to 2013.

The initiative comes months before a March 18 election in which Putin is expected to seek and secure a new six-year term.

Putin will be barred from seeking reelection in 2024 if he does win a fourth presidential term in the March vote, raising questions about how Russian politics will play out in the coming years and how he will maintain his grip.

Putin established the National Guard (Rosgvardia) in 2016 on the basis of the Interior Ministry troops and other security forces.

Its stated tasks initially included preserving “social order,” fighting against terrorism and extremism, and guarding state facilities.

The National Guard announced that it will be also responsible for a fingerprints database, issuing weapons-possession licenses, averting “threats to state order,” and protecting information security.

Capital Flight for Your Right to Party

OLYMPUS DIGITAL CAMERA
Petersburgers queue at a money exchange point in the downtown as the euro again rises in value against the ruble, August 22, 2017. Photo by the Russian Reader

Half the Kingdom for an Offshore
Since the early 1990s, Russians have exported as much money as is left in the country 
Arnold Khachaturov
Novaya Gazeta
August 24, 2017

Research into the scale of the transfer of money from Russia to preferential tax jurisdictions has confirmed the darkest fears of economists and politicians. The offshore capital of Russian companies amounts to 62 trillion rubles [approx. 888 billion euros], which is comparable to 72% of Russia’s annual GDP and three times larger than the country’s gold and foreign exchange reserves. A handful of hyper-wealthy Russians and major companies have deposited in accounts in Panama (read our special investigation “Offshores: An Autopsy”), Cyprus, and other offshore zones about the same amount of money as the rest of Russia’s populace has left at home. Or, to invoke another comparison, the elites have exported the monetary equivalent of the entire Russian economy during the mid-2000s.

You won’t find this information in the official statistics, of course. These are the calculations reached by three of the world’s leading specialists on inequality—Thomas Piketty, Gabriel Zucman, and Filip Novokmet. (Piketty and Novokmet work at the Paris School of Economics, while Zucman works at UC Berkeley and the National Bureau of Economic Research.) The economists have authored a report entitled From Soviets to Oligarchs: Inequality and Property in Russia, 1905–2016. The report has been published by the NBER, a private research organization based in Cambridge, Massachusetts.

Piketty and his colleagues most often assemble and analyze globe-spanning data sets, but this time they have written a detailed article on a single country. It deals with a particular trajectory in Russia’s progress after the Soviet Union’s collapse: the economy has been sent offshore, and the income gap between the wealthy and the poor has reached critical levels not typical either of the developed countries nor of other post-communist regimes. The report’s authors see this as an example of an extreme form of oligarchic capitalism, which confirms their central hypothesis that a high level of inequality is incompatible a country’s sustainable development.

Although Piketty’s methodology has been constantly criticized due to the insufficient reliability of his data (the use of official Soviet statistics provokes the biggest questions in this instance), the conclusions reached by the world’s biggest star in academic economics and author of the international bestseller Capital in the Twenty-First Century cannot be ignored.

In any country in the world, the major capitalists are engaged in devising different ways to minimize tax payments: economic incentives function the same everywhere. In his previous works, Zucman calculated there is $7.6 trillion tucked away in the world’s offshore zones. In 2014, according to Oxfam, the fifty biggest US companies kept $1.4 trillion in tax havens.

In relative terms, however, this is only 8% of the US economy. The European elites keep approximately the same percentage of their wealth abroad. Returning these assets to their original jurisdictions and adding them to the tax base would certainly be a powerful impetus in the fight against inequality, but the quality of life of the average American or European would probably not change too drastically.

Can the same be said of Russia? Offshores have played a fundamentally different role here.

Due to corruption and the lack of legal protections for business, the Russian economy has been deprived not just of a small part of corporate super-profits, but of almost half of its potential assets. The failure of the deoffshorization campaign has shown the problem in Russia lies much deeper than in western countries. Russian businessmen are trying not so much to evade the practically preferential income tax rate of 13%; on the contrary, in other jurisdictions they are willing to pay twice as much so as not face the Russian tax inspectorate and the Russian courts.

Even if we ignore the origins of the offshore fortunes of the Russian rich, the possible public gain from returning these funds to Russia appears extremely significant. The most conservative estimates predict 400 to 500 billion rubles in additional tax revenues for the budget annually. This was the same amount the federal government spent on healthcare in 2016.

If at least part of this money were invested in the Russian economy, the effect could be much stronger. For example, the Stolypin Club’s strategy argues that, in order to grow, the Russian economy lacks 1.5 trillion rubles annually in the form of business loans. Economist Mikhail Dmitriev proposes allocating the same amount to finance infrastructure projects.

These are conversations in a vacuum, however. Having made their fortunes both in the private sector and government service, wealthy Russians imagine Russia’s “national interests” quite differently.

Translated by the Russian Reader

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This paper combines national accounts, survey, wealth and fiscal data (including recently released tax data on high-income taxpayers) in order to provide consistent series on the accumulation and distribution of income and wealth in Russia from the Soviet period until the present day. We find that official survey-based measures vastly underestimate the rise of inequality since 1990. According to our benchmark estimates, top income shares are now similar to (or higher than) the levels observed in the United States. We also find that inequality has increased substantially more in Russia than in China and other ex-communist countries in Eastern Europe. We relate this finding to the specific transition strategy followed in Russia. According to our benchmark estimates, the wealth held offshore by rich Russians is about three times larger than official net foreign reserves, and is comparable in magnitude to total household financial assets held in Russia.
Abstract to Filip Novokmet, Thomas Piketty & Gabriel Zucman, From Soviets to Oligarchs: Inequality and Property in Russia, 1905-2016, NBER Working Paper No. 23712, August 2017