Putin's Russia. Группа авторов
In the 5 years since 2014, the share of those in Russia who consider themselves middle class has shrunk from 60% to 47%. This is according to a study commissioned by the investment arm of Sberbank, Russia’s largest bank, on the “Ivanov index”, a measure of consumer confidence. “Ivanov”, a common Russian last name, is used to represent a typical middle-class person in Russia.
If only education and professional status are considered, Russia would have a large middle class of “European” proportions, between 60% and 70% of the population. But to qualify as middle class according to the Institute of Sociology, one must meet all four criteria. And when all four measures are considered, Russia’s middle class made up 42% of the population in 2014, the last year for which data are available.
But the decline in incomes and the shrinking middle-income groups are not the whole story. Even members of the Organisation for Economic Cooperation and Development, the group of developed market economies, are experiencing a shrinking middle class, though the decline is less dramatic and slower than that in Russia. The share of the middle class in OECD countries declined from 64% in the 1980s to 61% currently, a recent OECD study found.
In Russia, all income groups, and particularly those associated with the middle class, have become critically dependent on the public sector. Pensions, public transfers and public sector wages account for about half of total incomes in Russia. According to data from the International Labour Organization, public sector employees account for 40% of the total employment in Russia, compared to 13% in Germany, 15% in the United States, 25% in Finland and 31% in Saudi Arabia. It is worth noting that the IMF’s estimate of the Russian state’s share in formal employment is 50%, higher than the ILO’s 40%.
This income dependency has been true for relatively worse-off citizens for a long time. What has changed is that relatively better-off groups of the population have become increasingly dependent on the government budget, World Bank studies show (see especially Figure 39 in that report). The share of income from public wages and pensions for better-off groups has grown, while the share of income coming from entrepreneurial activity or property has declined.
Another important breakdown underlying the political and economic divisions in today’s Russia concerns inputs to versus benefits drawn from the system. Those in the bottom 60% of the income distribution are net beneficiaries of Russia’s current system if in-kind health and education services are included, the World Bank’s Russia Economic Report says. “The top four deciles are net payers to the system, with their tax contributions being greater than the benefits they receive”, World Bank economists conclude.
One has to be careful in directly linking Russian society’s heavy dependence on public wages and pensions with its political sympathies. It is not that people automatically support those who pay them, though the Kremlin may think so. It is what it is, a dependency. It certainly helps Russia’s political managers mobilise support when they need it. But the sincerity of such a support will always remain questionable.
Chapter 2
Russia’s Macroeconomy — A Closer Look at Growth, Investment and Uncertainty
Torbjörn Becker
Introduction
Russia is in many ways a special country, which may lead us to believe that regular political and economic analyses are not applicable. This may certainly be true in some regards, but there are still many dimensions that are as relevant in Russia as they are in most other countries. One such dimension is that generating growth and prosperity in a stable macroeconomic environment is something both the leadership and population at large value.1 However, looking at approval ratings and GDP growth for President Putin does not immediately tell this story.
In the left panel of Figure 1, Putin’s approval rating in the Levada Center’s surveys is negatively correlated with GDP growth. It is rather unexpected and unusual that a country’s leader becomes more popular when growth is lower. A closer look at the data reveals that the negative correlation is generated by three distinct periods; the first year is when Putin was still relatively unknown at the same time as Russia’s growth rates were the highest since the break-up of the Soviet Union due to the rebound after the 1998 crisis; then Russian growth was hit by the global financial crisis in 2008/2009; and then finally, there is the period of Putin’s approval getting a significant boost following the annexation of Crimea and period of sanctions and counter-sanctions in a time of very poor growth.
Figure 1:GDP growth and approval ratings of Putin.
Source: Levada Center and Federal Statistics service.
Removing these exceptional periods from the left panel in Figure 1, we get the right panel that shows what we can think of as more “normal” quarters of economic and political developments in Russia. All of a sudden, the approval rating for Putin lines up very well with quarterly growth rates and the correlation between the two variables goes from a negative 0.3 in the left panel to a positive 0.7 in the right panel. In other words, Putin’s popularity increases with higher growth like in most other countries. The caveat is of course that when growth turns out to be less than satisfactory, there are other ways for a Russian president to boost his approval ratings.
Again, Russia may be different in the sense that approval ratings and the probability of regime change are less clearly connected than in Western democracies, but it is hard to think that low popularity ratings would not affect the probability of some type of popular or elite movements that challenge the president. Therefore, generating high and sustainable growth is one of the central tools for a president to stay in power in Russia as well. The fundamental question posed in the chapter is whether capital flows and foreign direct investments can help generate more productive domestic investments that in turn lead to higher sustainable growth. In order to analyse the economic–political nexus of growth and popularity ratings, the chapter starts by investigating how Russian growth compares with peer groups and to what extent a regular growth model can be used to understand growth in Russia. The analysis suggests that this is the case and then looks at investments, capital flows and uncertainty to disentangle external factors and domestic policies that have contributed to the developments we have seen in the Russian economy.
What sets this analysis apart from much of the other literature on Russian growth is the focus on uncertainty and the importance of specific policy actions rather than institutions more generally. It also highlights how a serious economic reform programme will contribute to regime stability in the longer run, while external conflicts only have a short-run popularity effect that carries a high price in terms of lost growth opportunities and lower long-term approval ratings.
Growth
Actual growth since the start of transition
Russia’s growth since 1991 has gone through several phases as can be seen in Figure 2. These phases are explained by a mix of fundamental growth drivers, external shocks and domestic policies. The problem for Russian voters (and sometimes also for researchers and policymakers) is to disentangle those changes in their income that are due to a capable leader’s policies from those that are simply the result of chance or a response to external shocks. The strong positive correlation between approval ratings and growth in the right panel of Figure 1 suggests that voters in more normal times rather indiscriminately reward their leader with higher ratings when growth is higher and vice versa even if much of the variation in growth is due to external factors such as changes in international