Russia is Rich but the People Remain Poor

Mark HOLLINGSWORTH's picture
Russia is Rich but the People Remain Poor

Putin was re-elected President largely based on his record of improving the living standards of ordinary Russians after the corruption and chaos of the Yeltsin years. But Russia's relatively prosperous economy is almost solely due to the high price of oil. And while the country now boasts of extraordinary wealth, this is confined to a tiny elite while the majority of Russia's citizens languish in poverty.

Last year Forbes estimated that Russia contains 101 billionaires, the richest being the steel magnate Vladimir Lisin, who had an estimated net worth of $24 billion. Only the United States and China (both of which have much larger economies) had more billionaires (413 and 115 respectively). Moscow, where the vast majority of Russia’s billionaires are based, has the most billionaires in the world with a total of 79, compared with New York which had 59, and London which had 41. Together Russia’s 101 billionaires have a total net worth of $432.70 billion) – an amount which is the equivalent to well over a quarter of Russia’s total gross domestic product (estimated by the World Bank as 1,479.8 billion in 2010).

Between 2010 and 2011, Russia’ richest man, Vladimir Lisin, increased his wealth from $15.8 to $24 billion. Putin’s challenger, Mikhail Prokhorov, increased his wealth from $13.4 to $18 billion and Oleg Deripaska increased his wealth from $10.7 to $16.8 billion. Prokhorov lives in a 21,500-square-foot mansion with a stainless-steel swimming pool, a gym, a wine cellar and a library featuring three solid gold eggs). In 2009 he put down a £35 million deposit on the world’s most expensive house, Lily Safra’s Villa Leopolda on the French Riviera. He also has a 200 foot yacht which he only uses for two weeks a year ‘as a platform for jet skiing’. When he was asked by CBS where the yacht was he said he didn’t know because he had people managing it for him.

Oleg Deripaska has a family home in Moscow and in the southern region of Khakassia and a mansion in Belgrave Square, which he bought in 2003 for £25,000,000 using a British Virgin Islands company. The property was used as collateral for a $100 million loan from Credit Suisse First Boston International Ltd (CSFB) negotiated in October 2003. He also owns a house in Weybridge on Surrey’s St George’s Hill. He paid £7.1 million for the property in 2001, using a Cyprus-registered company, and installed a gymnasium and swimming pool. According to High Court documents he also owns three houses in France, another in Sardinia, New Delhi, Beijing and Kiev. Aside from his numerous properties, his other major luxury asset is his super-yacht Queen K.

This is a mere glimpse of the Russian super-rich. And yet, despite the country's vast natural resources, 13.1% of the Russian population live below the poverty line and every year it gets worse.

Last year the number of people in poverty had increased to 16.1% and that in the first quarter of 2011 22.9 million were living in poverty – an increase of 2.3 million people. In the last quarter of 2011, the Statistics Agency reported that due to inflation, 14.9% of the population was below the poverty line. When Putin officially announced that he would run as President he referred to the ‘dangerous levels of social inequality’ in Russia. But very little has been done.

Last week Alexander Surinov, the head of the Federal State Statistics Service, announced that the number of people with incomes below the subsistence level was 12.8 percent of the total population in 2011. But these are merely the official figures. Most analysts accept that the figure is much higher, because these official figures designate only the limit for physical survival. Indeed in 2011 a senior government official reportedly admitted that the ‘minimum subsistence level’ was only enough ‘to stay alive’. Indeed, note that ‘the minimum wage amounts to hardly anything in real life’.

In January 2011, a teenage blogger called Vitaly Nikishin attempted to live on the officially designated minimum subsistence level. His diet was so inadequate that at the end of the month he wrote that he was scared to even think about how he would begin to recover from the experiment. When his blog attracted significant public attention he was invited to meet local politicians. He told the St Petersburg Times: ‘They apparently invited me to see them because my blog has attracted a lot of attention. But some were openly yawning at what I said, while the others offered only a nominal reply’.

A survey conducted by a Russian NGO, the Public Opinion Foundation, found that 45% of respondents said they lived in poverty and the Russian Academy of Sciences’ Institute of Sociology reportedly found that 59 percent of Russians live in poverty whilst Russia’s middle class, as defined by European standards, comprises between 6-8% of the population. note that:

‘Another criterion that some researchers use to define poverty is the share of income spent on food. People who spend more than a half of their income on food are deemed poor. In Russia, this group is estimated at 50 to 60 percent of the population, according to various surveys. About a third of the country’s population can afford only food, about a half only food, clothes, and cheap household appliances, and the rest – expensive goods, such as cars’.

According to the World Bank, the average monthly wage in Russia in 2010 was $697.80. But in reality this is not enough to live on. As note:

‘[U]tility payments for a small, one-bedroom apartment start from 2,500 rubles ($90), and renting a flat costs from 7,000 rubles ($250) in small towns and from 28,000 rubles ($1,000) per month in Moscow. A universal transportation pass for one month in Moscow costs 2,380 rubles ($85). Even if the hypothetical minimum-wage earner doesn’t rent a flat, what’s left after housing and transportation expenses is not enough to live on.’

Oxfam note that, ‘Although Russia is a middle income country with some of the richest natural resources, many people still lack access to basic social services such as healthcare’. The CIA World Fact Book currently rates Russia as having the 7th largest economy in the world but ranks it at 163 in terms of life expectancy at birth (behind India and North Korea). It is ranked at 132nd in terms of its health spending relative to GDP, which is estimated as 5.4% (compared with 9.3% in the UK).

With the collapse of the Soviet Union and the imposition of a free market (dubbed ‘shock therapy’) the Russian economy collapsed. Whilst a tiny number of well connected figures enriched themselves through the acquisition of formerly state-owned assets, around third of the population was plunged into poverty.

According to Russia's state committee on statistics, in 1992 33.5% of the population had a ‘money income below subsistence minimum level’, whilst in 2000 29% of the population were still below the poverty line. The World Bank’s statistical database does not yet contain any figures for inequality in Russia after the onset of the financial crisis, but the CIA World Fact Book suggests that level of inequality have remained more or less steady since. In total, 60% of the population was found to have the same real income or less than the average 20 years earlier. (Tom Parfitt, ‘Russia's rich double their wealth, but the poor were better off in 1990s’,, 11 April 2011).

After inequality in Russia became more of a political issue last year, the investment bank Renaissance Capital released a report claiming that ‘the level of income inequality [in Russia] is just about right’ since ‘Russia is only marginally more income-unequal than China and India, but far better placed than Brazil’ – which is true but rather overlooks the fact that governments in those three countries have similarly been criticised for the high levels of inequality engendered by their economic policies.

All these statistics detail the contrasting income enjoyed by the poor in Russia compared with the upper middle class. They do not therefore capture the incredible income disparities between Russia’s poor and its super-rich oligarchs, who are numerically too small a group to be included in such statistics. Neither do the statistics capture the true nature of inequality, since statistics based on income differentials ignore inequalities in wealth (and power).

As anyone who has lived in Russia knows, the truth is that the country's vast wealth has been siphoned off by a small number of well-connected and ruthless businessmen and corrupt state officials. Putin became President in 2000 on the basis that he would root out corruption, tax evasion and fraud to ensure that hard-working Russians would receive their fair share of the country's oil, gas and mineral wealth. But so far he has failed to deliver on that promise. Let us hope that he keeps his promise this time in his new period of office.