Inequality in Russia since 1990

Abstract

Most observers agree that there has been a dramatic increase in inequality in Russia, and that inequality matters. But there are many arguments as to why it is significant. This general problem raises a number of issues which will be addressed in the paper. The first is the nature of inequality, and how we can measure it. Is it inequality of income, or is consumption a better point of entry? If the latter, what about non-income determined consumption? Then there is the question of which indicator to use. This is typically the Gini coefficient but there are others. Finally there are the practicalities of data sources, of which there is a limited choice available.
The next issue is to examine the general pattern and causes of inequality. The bigger picture might include the nature of the transition away from state socialism, the process of economic development, globalization, the new political and policy environment and so on. More specific factors can be identified to suggest why it is that the rich are rich, and the poor are poor. The pattern of inequality in Russia (in a comparative context) has now been mapped in some detail. How can this be decomposed, and thus in part explained?
Finally we can think about what the pattern and significance of inequality might be in the future. Where is this going, and how might is compare with other countries such as Eastern Europe or China? Inequality did grow rapidly in the 1990s in Russia. There are a variety of ways in which this has been measured, but the trend over time comes through clearly. In the last five years the rate of growth of inequality has slowed and probably reversed. The significance of this pattern varies. For macro economic issues, there is the question of whether inequality hampers economic growth – now becoming a new orthodoxy in some economic circles. However this probably depends on whether Russian economic growth is widely embedded, or, as is more likely the case, it is driven by export oriented raw materials sectors. These are likely to be far less sensitive to domestic inequality than the manufacturing sectors of the Asian ‘miracle’ in the 1990s.
The causes of inequality are relatively clear. Those who moved into the private employment sector benefited from a marked premium, as did those who were able to develop private non-wage economic activities. Those who remained in traditional employment, either manufacturing or services, suffered from wage arrears and pay restraint in the face of inflation that undermined the old egalitarian distribution. In contrast to Central European societies, the returns to education have not been strong in Russia, nor are gender effects pronounced. Some of these effects have been ameliorated in recent years – especially the reduction in wage arrears. On the other hand, regional inequalities have not reduced, and the impact of capital cities (especially the Moscow effect), and export oriented raw materials regions, remains substantial. However the ability of survey techniques to capture the upper end of the income and wealth distribution has been limited and we cannot find a clear picture of the rich from this general work on inequality.
While inequality may not get in the way of current Russian economic growth, it clearly does have consequences for Russian individuals and households. Poverty has also grown rapidly, and the consequences for ordinary lives have been devastating. Millions have lost their lives through premature mortality, and infectious disease has reappeared. A whole generation has lived through a period of great instability and anxiety.
While rapid change in economic fortunes keeps open the possibility for households and individuals to secure a better future at some point, there is evidence that a significant layer are now stuck in longer term poverty. This itself can amplify the accumulation of personal misfortunes, and give little prospect of relief through personal efforts. The impact of government social and regional policies and spending is at best neutral as to its impact on this group, and more likely worsens inequality through poor targeting and financial restraint.