Nationalizing Russia’s Middle Class

OLYMPUS DIGITAL CAMERA In 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

Russian Import Substitution Blues

cherry coke 2018 “Try Ripe Cherry Coca-Cola.” Billboard, Petersburg, July 28, 2018. Photo by the Russian Reader

The Consequences of Countersanctions: Food Import Embargo Makes Russian Producers More Inefficient
Vladimir Ruvinsky
Vedomosti
June 25, 2019

Vladimir Putin has extended Russia’s food embargo until the end of 2020, but the policy’s positive effect has dried up. Instead, it has been making Russian producers less efficient and driving up prices. The Kremlin imagined an embargo would be a good response to western sanctions over the annexation of Crimea, but Russian consumers have had to foot the bill.

Putin’s ban has been in effect since August 2014. It prohibits the import of meat, fish, and dairy products from the United States, the European Union, Canada, Australia, and Norway. During his televised “direct line” to the nation the other day, Putin explained that, over the past five years, the sanctions those countries imposed on Russia had led to the loss of $50 billion for the Russian economy since 2014. The west, however, had lost more. According to Putin, the EU had lost $140 billion, while the US had lost $17 billion. Apparently, Russians should take heart knowing they have not been the main losers in the sanctions war.

First, however, the economies of the EU and the US are many times bigger than Russia’s, so, in fact, Russia has lost the most. Second, the losses do not boil down to simple arithmetics. Third, the subject of countersanctions has not really been discussed. Natalya Volchkova, director of applied research at the Center for Economic and Financial Research (CEFIR), has calculated the protectionist policy costs every Russian 2,000 rubles a year: this is the sum total of what we overpay for products in the fourteen categories affected by the countersanctions. She argues that, out of this sum, 1,250 rubles go to Russian producers and 500 rubles go to companies importing food from countries not covered by countersanctions, while the toll on the Russian economy’s efficiency amounts to 250 rubles per person per year.

Full import substitution has not been achieved: suppliers from the sanctioned countries have been replaced by suppliers who work with other countries, who often charge more for their goods. Restricting competition was meant to give Russian agriculture a leg up, and some domestic producers have, in fact, increased output. According to Rosstat, retail food imports decreased from 34% in 2014 to 24% in 2018. Since 2016, however, the dropoff in imports has trailed off. Volchkova complains that most Russian import-substituted goods have increased in price. They are produced by businesses that had been loss-making. This is the source of the overall inefficiency.

Natalya Orlova, the chief economist at Alfa Bank, divides countersanctions into two phases. When they are implemented they have a positive effect, but over time the risks of negative consequences increase. The only good option on the horizon is the lifting of the sanctions. When it might happen is not clear, says Orlova: it is currently not on the agenda. When it does happen, however, it will be bad news for Russian producers. Countersanctions have helped major players increase their shares of the domestic market. They have become more visible in such cushy conditions but less competitive as well. The longer the conditions are maintained, the less ready the Russian agro-industry will be to face the harsh competition. When the walls come tumbling down, we will see again that European producers are more sophisticated technologically.

Translated by the Russian Reader

Why Most Russians Will Stay Home for New Year’s

Why Most Russians Will Stay Home for New Year’s
As Incomes Crumble, Even Celebrating with Friends Is Too Expensive for Them
Vladimir Ruvinsky
Vedomosti
December 27, 2018

New Year’s, apparently, has become a truly stay-at-home holiday. The number of Russians who plan to spend the long New Year’s holiday at home has jumped from 41% in late 2015 to 70% in late 2018, according to a survey by Romir, a Russian research company. The main reason is the rapid return to the conservative tradition of growing poverty and uncertainty in the future, combined with the desire to maintain previous levels of consumption of the most vital goods and services, which no longer include a winter holiday away from home.

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“How do you plan to spend the upcoming New Year’s holidays?” Overall: at home, 70%; at dacha, visiting relatives, 19%; traveling in Russia, 2%; working, 6%; traveling abroad, 2%; other, 1%. Average monthly income per family member of 10,000 rubles: at home, 73%; at dacha, visiting relatives, 18%; traveling in Russia, 2%; working, 6%. Average monthly income per family member of 10,000 rubles–25,000 rubles: at home, 74%; at dacha, visiting relatives, 17%; traveling in Russia, 1%; working, 5%; traveling abroad, 1%; other, 1%. Average monthly income per family member of 25,000 rubles or greater: at home, 56%; at dacha, visiting relatives, 25%; traveling in Russia, 4%; working, 8%; traveling abroad, 5%; other, 2%. Source: Romir, December 2018. Courtesy of Vedomosti

Surveys of the same representative selection of respondents have shown a drop-off in all other ways of spending the New Year’s holidays, which have basically become yet another period of time off work for Russians. The number of Russians planning to spend the holidays at the dacha or visiting friends or relatives has decreased from 34% to 19% in three years. Trips within Russia have dropped from 8% to 2%, while trips abroad have fallen from 4% to 2%. Nearly everyone has been scrimping, including Russians with above-median incomes. Fifty-six percent of Russian with monthly incomes of 25,000 rubles [approx. $364] per family memberwill stay home, as will 74% of Russians with monthly incomes between 10,000 rubles and 25,000 rubles per family member. As Tatyana Maleva, an economist from RANEPA, notes, the Russian urban middle class, which has grown accustomed to traveling, cannot afford it.

The picture emerging from the survey reflects the mood of many Russians. Since 2014, real incomes have fallen four years in a row, and all indications are they will be shown to have fallen in 2018 as well. According to Rosstat, the monthly modal income in in 2017 was 13,274 rubles [approx. $233], while the monthly median income was 23,500 rubles [approx. $412]. Given these circumstances, the ruble’s devaluation, which has made trips abroad more expensive, is not such an important factor. In December 2015, one dollar cost as much as it does currently, 67 rubles, and its value was rising.

Holidays at home are not cheap, either. In November 2018, the percentage of Russians who had noticed a rise in prices had grown in comparison with October 2018, according to the Russian Central Bank. Forty percent of Russians noticed upticks in prices for meat and poultry; 32%, rises in the price of petrol; 28%, rising prices for cheese and sausage; while 26% had noticed that milk and dairy products were more expensive. All of these goods are part of the home holiday menu.

In comparison with 2014, consumption levels have fallen. They have not returned to their previous levels. Attempting to wriggle their way out of poverty or maintain their previous income levels, Russians have taken out an ever-growing number of consumer loans, which have proven difficult to pay back. Every fourth Russian who had outstanding loans in 2015–2017 spent 30% of their incomes paying them off, note Olga Kuzina and Nikita Krupensky, economists at the Higher School of Economics, in an article entitled “The High Debt of Russians: Myth or Reality?” published in the November 2018 issue of the journal Voprosy ekonomiki.

Generally, the Russian populace has transitioned to a minimalist model of consumerism, notes Maleva. Scrimping begins literally with the New Year. As Romir’s survey indicates, this transition has become a trend that will, apparently, shape the strategies and tactics of Russian consumers in the future, too. The only thing that has not changed over the years is the president’s televised New Year’s greeting: it costs nothing.

Translated by the Russian Reader

Kremlinsplaining and Its Discontents

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Vladimir Putin Explains How to Debate the 1917 Revolution
Delovoi Peterburg
November 3, 2017

Discussion of the 1917 Revolution should be based on facts and documents, President Vladimir Putin emphasized in his greeting to participants of international events occasioned by the Russian Revolution’s centenary.

“The turbulent, dramatic events of 1917 are an inalienable, complicated part of our history. The revolution had a tremendous impact on the evolution of Russia and the world, and it largely defined the political, economic, and social picture of the twentieth centure,” noted the president, as quoted by TASS.

The president also said the interest of public figures, scholars, and the media in a deep and comprehensive interpretation of the era was legitimate.

“Yet I am convinced that even the most heated polemics must be based on facts and docoments, on an objective and respectful attitude to the past. I hope that your meetings, which shall bring together people from many countries, will contribute to this constructive discussion,” Putin said.

Earlier, Rossotrudnichestvo (Russian Federal Agency for the Commonwealth of Independent States, Compatriots Living Abroad and International Humanitarian Cooperation) reported it would be holding various events commemorating the centenary of the October Revolution at Russian Culture Houses in over eighty countries.

“Russian Culture Houses in more than 80 countries [will] host exhibitions, science conferences [sic] and seminars, which aim on delivering an objective approach to historical events to foreign audience,” the agency said.

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Attack of the Bio Samples
How Conspiracy Theories Flourish
Vladimir Ruvinsky
Vedomosti
October 31, 2017

Vladimir Putin’s story about the collecting of “bio samples” in Russia by persons unknown for unknown purposes has stirred up Russians. It is a telltale case of a double distortion and an example of society’s sensitivity to conspiracy theories, which flourish in an impoverished informational environment.

The president made his remarks at a meeting of the Human Rights Council. They were seemingly spontaneous. Council member Igor Borisov had complained to the president that, according to his information, certain people were using video surveillance systems in Russia to gather images of Russians for unknown purposes. That was nothing, responded Putin. Bio samples from different ethnic groups and regions were also being “deliberately and professionally” collected nationwide. The question was why.

The story took on even more dramatic overtones when the president’s press secretary tried to explain it.

According to Dmitry Peskov, “Certain emissaries conduct such work: employees of nongovernmental organizations and other entities.”

The Russian secret services had reported them to the president, Peskov claimed.

But you did not need the secret services to tell you this. The notion of “bio samples” is broad, including, for example, blood tests, which have been done in Russia for approximately 150 years, and performed by Russians and foreigners alike. Obviously, Putin had in mind genetic samples. Methods for rapidly deciphering DNA sequences were discovered in 1977. DNA became a research subject at approximately the same time in the Soviet Union, and nowadays genetic research is carried out worldwide. Genes and genetics are global phenomena, and the DNA of all human beings is 99% identical.

There are two main areas of research. Medical genetics, in which individual samples from sick and healthy people are studied to determine, in particular, predispositions to certain diseases, and population genetics, which studies samples from different ethnic groups in order to reconstruct the history of peoples [sic], notes biologist Mikhail Gelfand. Research objectives can overlap. Apparently, Putin had population genetics in mind, but data has long been collected in Russia for both medical genetic and population genetic research. This work has been done by pharmaceutical companies (as part of clinical trials), medical centers (as part of genetic counseling), and researchers (as part of their search for the genes that trigger diseases).

Russia has been actively involved in international genome projects. In 2015, the results of a multi-year study of the gene pool of Slavic and Baltic peoples were published. The study was done by Russian and international geneticists, and one question they explored was who the Slavs were. In the same year, the Genome Russian Project, supported by Putin, was launched. Its aim is to create an open-accesss database containing anonymous genetic information about 3,000 men and women, the indigenous people of Russia’s various regions. The project has been coordinated by an American, Stephen O’Brien. There have been no reports the secret service has any gripes with the project.

Perhaps it is a commercial conflict. Valery Ilyinsky, director of the company Genotek, told RIA Novosti that two research centers in Moscow and Petersburg had been collecting bio samples from different Russian ethnic groups and sending them to colleagues in the US for research studies, but these studies could have bee done in Russia as well.

In the absence of a foreword such as I have just provided (I wonder how much the president was told), what Putin said sounded ominous, of course. Ignorance generates feelings of fears and danger. It is one step from there to conspiracy theories about genetic weapons and a future biological war that would threaten to destroy Russians. (According to Gelfand, even theoretically, it would be possible to devise a genetic weapon only against an ethnic group that had been living in isolation for a thousand years, which does not apply to Russians.) Of course it was wrong to claim that Russians were being targeted for biological war, stipulated Federation Council member Franz Klintsevich, but one must be ready.

This was not the first time the president has been sold a pack of imaginary threats. In 2007, FSB director Nikolai Patrushev reported to Putin that bio samples were being sent from Russia to the US. They were being used, allegedly, in a program for developing a “genetic bioweapon” targeting Russians. Patrushev claimed the weapon would be capable of damaging the health of ethnic Russians to point of killing them or rendering them infertile (as reported by Kommersant). Consequently, the Russian customs service banned the export of all bio samples, including hair, blood, and clinical analyses, which threatened the lives of thousands of Russians, who needed to be paired with bone marrow donors in German clinics. The ban was lifted after public protests, but the notion has proven tenacious.

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Central Bank Says Russians Mistrust Low Inflation Figures
Yevgeny Kalyukov
RBC
October 31, 2017

A survey conducted by the Central Bank of the Russian Federation has shown that most Russians had noticed a price rise for goods that, according to official statistics, had become cheaper.

Most Russians do not believe Russia’s inflation rate has slowed to 3% per annum, according to the Central Bank’s report. Commissioned by the bank, the survey showed 56% of Russians were certain that by the end of 2017 the total rise in consumer prices would be “considerably higher than 4%,” and 75% of respondents claimed that over the previous twelve months prices had risen no more slowly or even more quickly than earlier.

“People are not yet ready to believe inflation really has slowed to such a low level. A considerable role in this discrepancy has also been played by the volatility of prices for individual goods and services,” the Central Bank report says.

Zoya Kuzmina, head of the review group in the monetary policy department at the Central Bank, noted that Russians’ subjective perception of changes in prices of goods they purchase regularly was at odds with official statistics.

“In reality, sugar prices have decreased nearly by 50% on the year. Fruits and vegetables have also become cheaper, while prices for tea and coffee have increased somewhat (by around 2%). But respondents said prices for all these goods had increased,” Kuzmina explained.

According to Kuzmina, the survey’s outcome confirmed Russians “would need a little more time to get used to low inflation.”

According to the Central Bank’s reports, inFom’s October 2017 assessment of Russians’ inflationary expectations for the next twelve months had risen to 9.9%. The Central Bank, however, was confident that conditions for decreasing the populace’s inflationary expectations would emerge as inflation became entrenched at around 4%.

In early August 2017, Alexander Morozov, director of the Central Bank’s research and forecasting department, advised Russians to think less about rapid price growth, since it was just such sentiments that facilitated increased inflation.

Earlier, Central Bank chair Elvira Nabiullina warned that excessively low inflation could generate new difficulties for Russia’s “emerging economy.”

See my previous posts on the subject of official economic statistics in Russia:

Articles translated by the Russian Reader. Photo courtesy of Yekaterina Kuzmina/RBC. The emphasis in the translations is mine.

Kotlas: Russia’s Bankruptcy Capital

A City of Bankrupts
Vladimir Ruvinsky
Kommersant Dengi
November 28, 2016

Kotlas, a district center in Arkhangelsk Region, will be one hundred years old in 2017. During the first half of the twentieth century, it was one of the main transit centers for political prisoners, but nowadays it is the capital of individual bankruptcies. There is no work in the city, which over the past ten years has become a local consumer’s paradise, and every fourth resident is up to their ears in debt.

In 2012, Kotlas resident Tatyana and her entire family, including her husband, daughter, and brother, took out a total of five million rubles in loans from banks. She asked we not reveal her surname, since her husband is unaware their daughter also took out a loan. As Tatyana says, they took out the loans not for themselves, but for a friend.

“I worked for two female entrepreneurs who sold clothing. We had known each other for something like twenty years. We would visit each other’s homes, go to each other’s birthday parties, and attend the weddings of each other’s children,” Tatyana recalls. “One of them, in fact, asked me to take out the loans because otherwise, she said, they would have to borrow at an interest rate of eight percent on the black market.”

Tatyana borrowed 1.7 million rubles at Trust, Tinkoff Bank, Home Credit, and OTP Bank.

“I worked for my friends selling luxury clothing. The turnover was good so I was not particularly afraid,” she explains.

Soon afterwards, her friends persuaded to take out additional loans for them. Her husband, daughter, and brother agreed to do this, borrowing 900,000 rubles, 1.8 million rubles, and 700,000 rubles, respectively. The deal was based on trust. Tatyana’s family handed the loan agreements over to the female entrepreneurs, and they paid back the loans themselves. This went on for two years.

“In 2014, the police came and searched our workplace. It turned out the women had been running something like a pyramid. They had been borrowing money on paper to purchase goods. They had not been buying anything, however, but had been cashing out the loans,” say Tatyana. “That is how we got in trouble, although we had not taken out the loans for ourselves.”

The banks demanded repayment of the loans. At first, Tatyana admits, she felt like hanging herself.

“But that is no solution. A woman I know hung herself over a loan. Someone shot himself. Well, if I hung myself, the debt would have been passed on to my relatives. So I got up and went to work.” Continue reading “Kotlas: Russia’s Bankruptcy Capital” →