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February 28, 2008

Russia: Oil Wealth Trickling Down -- But Not Far Enough

by Claire Bigg

Has Russia's new wealth left behind many Russians? (ITAR-TASS)

Like every evening, Igor Bokov and his family gather around the broad kitchen table to share dinner and talk about their day.
The 42-year-old entrepreneur lives with his wife, their four children, and his mother-in-law in a large wooden house some 25 kilometers south of Moscow.

The three-story house, painted a cheerful blue and pink, has a vegetable patch, a shed with farm animals, and a large garden dotted with fruit trees.

Bokov, a tall, solid man with an unabashed affection for his family, has grabbed the opportunities unleashed by the Soviet collapse with both hands. Today, he runs a successful chain of electronics repair shops in Moscow, owns a flat in the city, and is building two more houses for his children.

It's a far cry, he says, from his own frugal childhood in Soviet-era Moscow.

"I built a solid business that has been able to generate money, which we chose to place in real estate rather than in banks," he says. "I think it's a good investment, and it also provides the children with a future -- not like what I had, sharing a room with my mother in a communal flat."

New World Of Plenty

Bokov is not alone in reaping the fruits of Russia's still-young market economy. The overall standard of living in Russia has come a long way since Soviet times, particularly since high oil prices began flooding the country with petrodollars some five years ago.

According to President Vladimir Putin, purchasing power in Russia rose by an average of 10 percent last year, despite soaring inflation and a record price increase on basic foodstuffs. The country has seen robust economic growth, with GDP rising steadily at around 7 percent a year for the past several years.

Russia's new wealth has sparked an all-out consumer frenzy across the country, although much of the shopping is still concentrated in Moscow and St. Petersburg.

Cocktail bars, sushi restaurants, and designer boutiques have sprung up in places where, in a not-too-distant past, hungry people once queued up for bread.

Russians can now purchase the latest Swedish furniture designs in one of their country's 10 IKEA stores. The furniture giant is poised to open two more shops in southern Russia this spring.

Big-city dwellers can also freely indulge in late-night cravings for Italian cheese, fresh fish, or mango juice -- Russia's sprawling, round-the-clock supermarkets have it all.

"It's like night and day," Bokov says. "If 15 years ago, shelves were empty and there were huge lines for products as basic as toilet paper, now shelves are piled high with a wide variety of products. People once found it hard to believe that 30 types of sausages were sold in Germany. Now shops here offer much more than 30 different kinds of sausages, and this no longer surprises anyone."

Feeling Poor

But is this abundance making Russians happier?

To a certain extent, it is. The Russian Academy of Sciences' Psychology Institute has kept a tally of suicides, murders, mental disorders, orphans, and divorces in the country since the collapse of the Soviet Union.

The figures, although still significantly higher than in most Western countries, have been steadily receding over the past five years.

But Andrei Yurevich, the institute's deputy director, says Russia's mounting riches also carry the potential for social discord.

"The positive changes in recent years give ground for optimism," Yurevich says. "But economics are not the only factor here. In some cases, economic growth can even cause deterioration in a society's psychological state. The growing economic pie, for instance, is being divided very unequally -- the rich are getting richer, and this affects the psyche of the poor."

While life has become more comfortable for the vast majority of Russians, the bulk of petrodollars has landed in the hands of a select few.

According to the Russian magazine "Finance," the number of dollar billionaires in Russia last year jumped from 61 to 101, with the country's 10 richest people sitting on a combined fortune of $221 billion.

Such massive wealth stands in stark contrast to the millions of Russians who continue to live well below the poverty line.

Officials put this figure at 13 percent of the population. Sociologists, however, prefer estimations based on the population's own perception. Surveys conducted by Russia's respected Levada polling center found that 32 percent of Russians considered themselves living in poverty in 2007. It's a marked decline from 48 percent in 2000, but still high for a country with the world's sixth-biggest economy.

Respondents, on average, described the poverty threshold last year as 3,000 rubles ($122) per person per month. This sum is barely enough to cover basic expenses. A monthly transportation coupon in Moscow, for example, can cost as much as 1,800 rubles ($73), and a pensioner benefiting from a 50 percent discount will still have to pay some 1,300 rubles ($53) a month on utilities for a one-room flat in the capital.

Trading Liberties For Well-Being

The deepening gap between Russia's rich and poor puts the country on the list of socially volatile countries. According to the World Trade Organization, countries where the richest segment of the population earns at least 14 times more than the poorest are prone to severe social unrest. This figure has reached 15 in Russia.

The Kremlin fears a repeat of the protests over social-benefit changes (AFP)

No wonder, then, that Putin has made improving living standards one of the top priorities for 2008. The outgoing president is intent upon consolidating his regime, but needs the support of Russia's nascent middle class to do so.

In return, the middle class, for the time being, appears to be willing to muzzle any concerns about the Kremlin's clampdown on civil liberties -- but only as long as economic conditions remain stable.

Improvements in living standards during the past several years have generally been enough to prevent widespread discontent over continued shortcomings in health care, housing, and education.

Polls show that the majority of Russians are willing to trade some of their rights for more stability. But not all are turning a blind eye to the government's failings and its rollback of the democratic freedoms gained in the 1990s.

Bokov, for instance, condemns the upcoming presidential vote as falling short of international standards for free and fair elections. And as a small-business man, he says the Kremlin has done far too little to protect the rights of the country's burgeoning entrepreneurial class.

Law Of Diminishing Returns

The highly popular Putin and his likely successor after the March 2 election, Dmitry Medvedev, may see their ratings fall in the long term without much-needed reforms in the social sphere.

Marina Krasilnikova, a living-standards expert at the Levada Center, says the situation presents "a kind of trap" for the Kremlin.

"On the one hand, the political regime must continue raising living standards," she says. "On the other hand, rising living standards will generate higher expectations toward the regime concerning the quality and the delivery of services such as education and health care. Then conflicts will arise. I don't know whether the regime is prepared for this."

Ordinary Russians, on the contrary, seem prepared for anything -- including a repeat of the 1998 financial meltdown that wiped out their savings overnight. To a large extent, Russia's consumer frenzy is a testament to misgivings about the sustainability of the current financial boon. Many Russians still prefer to spend their money than save it.

Back at the Bokovs' pretty suburban home, the family's real-estate investments are a recurrent topic of conversation around the dinner table. Igor Bokov, too, is uncertain of what the future holds. Like most Russians, years of privation and the wild instability of the 1990s have left him with a guiding principle -- get it while you can.

"There are rumors predicting financial meltdowns, devaluation. People are afraid of losing their savings and of keeping it under a pillow or in stockings as they used to," he says. "People don't trust banks either -- we've all been through perestroika and 1998. The demand for consumer goods is growing not because people need a second video recorder or a second television, but because they want to invest their money before it completely evaporates."

(RFE/RL's Moscow correspondent Chloe Arnold contributed to this report.)
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