Oxfam lunch time talk 25.07.2014 Inequality Trends in Russia
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The document discusses inequality in contemporary Russia, including key trends such as rising income inequality and disparities in access to healthcare, housing, education, and jobs. It analyzes past government policies aimed at reducing inequality through regional development programs and social protections, finding them insufficiently targeted or funded. Moving forward, it argues policies are needed to create quality jobs, reform taxation, increase funding for public services, pass anti-discrimination laws, and fight corruption in order to effectively address Russia's inequality challenges.
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Oxfam lunch time talk 25.07.2014 Inequality Trends in Russia
- 1. Inequality in contemporary russia Key trends and policy responses Daria Ukhova 25 July 2014
- 3. Page 3 ECSN PROGRAMME • Empowering civil society networks in an unequal multi-polar world programme http://csnbricsam.org/ • Overall objective: Policy-making processes in global institutions are influenced by civil society networks of emerging economies to take account of the needs of poor and marginalised people • Specific objective: Collective capacity of multi-thematic civil society organization (CSO) networks across Brazil, Russia, India, Indonesia, China, South Africa and Mexico (collectively referred to as BRICSAM countries) to engage in multi-stakeholder dialogue and influence global policy-making fora, with a particular focus on issues of inequality is strengthened.
- 4. CSO consultations • 3 focus group consultations with 30+ representatives of GCAP Russia in Moscow, Nizhnyi Novgorod and Novosibirsk • GCAP Russia is a network of 40+ NGO’s working across the whole country Page 4
- 6. INEQUALITY AND POVERTY Page 6 The wealth share of the richest one per cent in Russia is currently the highest in the world and stands at 71 per cent of national wealth (Credit Suisse 2013) Income of the richest 10 per cent of Russians now is almost 17 times greater than the income of the poorest 10 per cent not, in the end of the 1980s – it was only four times greater
- 7. INTERNATIONAL COMPARISON Page 7 While globally, the wealth of billionaires collectively account for one to tow per cent of total household wealth, in Russia today 110 billionaires own 35% of all the country’s wealth (Credit Suisse 2012)
- 8. INCOME INEQUALITY FACTORS Market income, effect of redistribution mechanisms, and disposable income in Russia, 2011 Bottom 10%, RUB per month Top 10%, RUB per month Decile dispersion ratio Labour income – total 2234.8 43514.8 19.5 Wage 1916.5 29356.5 15.3 Entrepreneurial income 239.8 11818.8 49.3 Income from other labour activities (second job. 78.5 2339.5 29.8 consultancy. etc.) Non-labour income – total 12.9 645.8 50.1 Income from real estate property 7 534.9 76.4 Total market income 2247.7 44160.6 19.6 Income after social transfers 3376.5 48023.3 14.2 Income after all transfers 3495.5 50163.8 14.4 (including private) Disposable income 3230.2 45256 14.0 Here and further, if the source is not indicated – Russian Federal Statistics Service Page 8
- 9. MULTIDIMENSIONAL PROBLEM Page 9 Today, GDP per capita in the richest region is 10 times greater than that of the poorest – these regions are comparable to Norway and Iraq, respectively GCAP Russia members point out that their beneficiaries, especially, elderly, women, disabled and homeless regularly face discrimination
- 10. RUSSIANS ABOUT INEQUALITY • 96 per cent of Russians recognise inequality as a problem (Institute of Sociology of the Russian Academy of Science) • Increased inequality and the perception that the new economic system is unfair – one of the three key factors of low levels of subjective wellbeing in Russia (EBRD 2007; Guriev & Zaslavskaya 2009) • 64 per cent believe the government should take measures to reduce income inequality (Institute of Sociology of the Russian Academy of Science) • The forms of inequality most strongly affecting the well-being of the country’s population (Institute of Sociology of the Russian Academy of Science): • Income inequality (72 per cent of respondents pointed this out ) • Inequality in access to healthcare(47 per cent) • Housing inequality(42 per cent) • Inequality in access to education(31 per cent) • Inequality in access to quality jobs(31 per cent) Page 10
- 11. ACCESS TO HEALTHCARE • Income inequality and spatial inequality as key drivers of inequality in access to healthcare in Russia (WHO 2008) • In 2012, the expenditure on healthcare of the richest 10 per cent of the population was 1 times greater than that of the poorest 10 per cent • By the end of 2000s, regional differences in per capita financing of healthcare reached 10-12 times • Although completely against the federal law on the freedom of movement, residence registration is often used as a criterion for granting access to public healthcare (Karlinsky 2013) Page 11
- 12. HOUSING INEQUALITY • Quality of housing. In urban areas, 17% of population don’t have running water, sewage system, or central heating, and 9% do not have hot water • Among urban youth aged 21-40 and having their own families, 50 per cent have to live with extended family (Zavisca 2012) • In 2010, on 19.8 per cent of families could afford to buy new housing with their own savings and/or mortgage credits • Cases of ethnic discrimination in access to housing in urban areas with substantial migration inflows Page 12
- 13. ACCESS TO EDUCATION In 2000/2001 academic year 34.4 per cent of students were self-funded; this increased to 61.5 per cent, while the number of educational places did not increase substantially Page 13 Total private expenditure on education in Russia (million RUB), 2000– 2012 Expenses on education by income quintiles as a share (%) of the total private expenditure on education, 2008-2012 2008 2010 2012 Total expenditure 100 100 100 Q1 (lowest income) 4.7 4.0 3.8 Q2 9.5 10.8 8.6 Q3 18.5 17.2 15.5 Q4 33.6 35.9 35.8 Q5 (highest income) 33.7 32.1 36.3
- 14. ACCESS TO QUALITY JOBS • Official unemployment rate – 5.6%, BUT: • Only 48 mln out of 86 mln Russians of working age work in the formal sector (vice-minister O.Golodets 2013) • Between 14 and 25 mln Russians work in the informal sector (Sberbank 2013) • Regional difference in unemployment (in 2012, 1% in Moscow vs. 50 per cent in Ingushetiya) • Women are paid 64% of what men are paid • Discrimination of disabled (HRW 2014) • Discrimination based on residence registration status (migrants, homeless) (Karlinsky 2008) Average salary of men and women by professional groups (rubles per month), 2011 Page 14
- 15. INEQUALITY BEFORE LAW • 74 per cent of the poor people in Russia and 71 per cent of the non-poor believe that the current judiciary system in the country protects the interests of rich and influential people more often than interests of the common people (Institute of Sociology of the Russian Academy of Science 2013) • 29 per cent of the poor people and 20 per cent of the non-poor state that they had their rights violated in the past three years. The most common cases included access to healthcare and social benefits, labour relations, and contacts with police people (Institute of Sociology of the Russian Academy of Science 2013) • ‘corruption rests on the foundation of uneual resources and it leads to greater inequality in turn…’ (Uslaner 2009) High levels of public demand for fighting corruption as a demand for social justice and reduction in inequality. Page 15
- 17. POLICIES: LOOKING BACK Russian government’s theory of change: - economic development as a panacea for inequality between both regions and individuals - inequality could be reduced by ‘lifting up the bottom’ (be it poor regions or poor people) Page 17
- 18. REGIONAL DEVELOPMENT • Economic ‘equalisation’ of the regions without properly addressing regional inequality in human capital • Differences in key socio-economic indicators between top 10 per cent and bottom 10 per cent of the Russian regions, 2000–2012: Page 18
- 19. ‘LIFTING UP THE BOTTOM’ • Inter-regional budget transfers • Raising salaries of public sector employees and labour market-related social protection measures: • Raising public pensions In 2011, the number of working poor was estimated at 13% Average consumption of people aged 60+ still comprises only 46.9% of average consumption of the rest of the population • Increasing social protection for other socially vulnerable population groups, especially, families with children • But still poorly funded (0.5% of GDP vs. 3% in OECD) and poorly targeted (50% access) social assistance programmes. Page 19
- 21. JOBS ‘One-sided resource-based economy does not ensure development and demand for human potential and, thus, by default, causes inequality. Its reserves are exhausted, while for the sake of Russia's development, an annual GDP growth of 5–6 per cent in the next decade is required. The real change of the structure of the economy, creation of the new – and return of the leadership in the traditional – industries, development of the small and medium business – these are the key issues.‘ (V.Putin, 2012) • 25 million quality modern jobs by 2020 BUT: Slowed down economic growth and lack of investments Page 21
- 22. TAX • Payroll tax evasion – 40% • Flat rate income tax at 13% • Illicit financial outflows – $880.96 billions between 2002 and 2011, ranking Russia second after China Page 22
- 23. PUBLIC SERVICES • Decreasing funding – ‘Working for the fewer’ • In 2013, 450,000 children – on a waiting list for a place in kindergartens. Significant effect on women’s economic activity and access to labour market Page 23
- 24. ANTI-DISCRIMINTATION • Article 19 (Constitution of the Russia Federation) All people shall be equal before the law and in the court of law. The state shall guarantee the equality of rights and liberties regardless of sex, race, nationality, language, origin, property or employment status, residence, attitude to religion, convictions, membership of public associations or any other circumstance. Any restrictions of the rights of citizens on social, racial, national, linguistic or religious grounds shall be forbidden. Man and woman shall have equal rights and liberties and equal opportunities for their pursuit. • Anti-discrimination legislation and mechanisms for its enforcement weakly developed in Russia Page 24
- 25. FIGHTING CORRUPTION ‘Key societal demands addressed to the state today include guarantee of civil rights and justice, reduction of violence and social inequality, solving of housing problems. Everyone is aware what the key challenges for achieving that are, I won't say anything new – these are low effectiveness of the government and corruption’ V.Putin, Address to the Federal Assembly 2012 • Key anti-inequality policies, such as progressive taxation, deoffshorization, and creation of jobs in the formal sector, simply could not be effectively implemented in Russia, unless the problems of corruption and inequality before the law are effectively addressed Page 25
Editor's Notes
- This report was prepared in the framework of the programme Empowering civil society networks in an unequal multi-polar world project coordinated by our colleagues from Mariano De Donatis and Thomas Dunmore Rodriguez based in Mexico. The programme started in 2013 and will run until 2016. Just few words about the project. Overall objective of the project is to ensure that policy-making processes in global institutions are influenced by civil society networks of emerging economies to take account of the needs of poor and marginalised people. The specific objective of this program is to strengthen the collective capacity of multi-thematic civil society organization (CSO) networks across Brazil, Russia, India, Indonesia, China, South Africa and Mexico (collectively referred to as BRICSAM countries) to engage in multi-stakeholder dialogue and influence global policy-making fora, with a particular focus on issues of inequality. This Program will integrate civil society perspectives into global policy-making processes in three key ways, influencing: i) global governance structures by expanding the presence and formal role of civil society; ii) agenda setting (at national and global levels) by influencing the issues under discussion to include development and inequality; iii) policy commitments made by these institutions. The expected results of the program are: Networks’ ability to represent their national constituencies reinforced; Close linkages and coordination established, both physically and virtually, across the networks; Networks have in depth understanding of inequality issues across the countries; Networks are facilitated and provided with the skills jointly to engage with international institutions and in global fora. You can find all the information and publications for this project on the web-site
- The structure and main arguments of the report were developed in the first three focus group consultations with the 30 + members of the Russian office of the World Coalition Against Poverty (network of 40 + NGOs working across Russia) Similar reports are prepared in all BRICS countries, as well as Mexico and Indonesia, which you could also find at the web-site I mentioned
- So what was the income dynamics? Figure 1, at least according to official statistics (which according to many experts, some embellishing the real situation) in Russia in the last 20 years have seen a significant increase in income inequality. The highest growth, of course, occurred in 1990, when the economy has decreased significantly, and a large part of the population was below the poverty line (Fig. 2). However, contrary to current in the 1990s, that inequality will decrease when the economy will emerge from the crisis, even when the economy recovered and as a result there was a significant reduction in absolute poverty, inequality remains high and even continued to grow until 2008, although and much more moderate pace. In addition to income inequality should also say that Russia ranks first in the world rated Credit Suisse in terms of inequality in the distribution of wealth. Currently in the hands of 1% of Russians concentrated 71% of all personal assets in Russia (Credit Suisse 2013)
- If you look at what happened in Russia in the international context, it turns out that the level of inequality we have at the moment are in the neighborhood of Turkey and some Latin American countries. It is noteworthy that in the late 1980s, we coexisted in this regard with the Scandinavian countries. Overall inequality over the past 20 years has grown in most countries-20, as shown in FIGURE 2 on this slide. But hardly any growth in the other country the increase in inequality was so radical. If we talk about assets If a global scale for billionaires collectively account for between 1 and 2% of all personal assets, in Russia - 35% (Credit Suisse 2012)
- Factors of income inequality Intra-and inter-sectoral wage differentiation Only 8% of the population is "other income" (not from work) Weakness redistributive mechanisms. If social transfers reduce the income gap, the taxes have little or no effect. In this context it is also worth to say that the illegal outflow of capital, which we have a lot of talk lately, can also be considered as one of the factors of inequality. First, nedosobrannye taxes that secondly, could be spent on social protection.
- The main conclusion which we have arrived at the focus group consultations with our partners Nko - is that talk about economic inequality in isolation from other forms of inequality that exist in Russia as it is, unfortunately, often done in view of the fact that in our country, just sometimes there are no statistics that would allow to assess the level of social inequality, it makes little sense. It is interesting to note that when, during the focus groups, we asked our partners that means to them, inequality, they often with primarily emphasizes the spatial and social inequality. First, they can appreciate working with different regions. Second - working with socially excluded groups, the example which they see as discrimination eventually transformed as a result in economic inequality. It is clear that these forms of inequality have a mutual influence, and they must also be seen in the complex. Especially if our goal is to improve understanding of the problem among the general population.
- If we talk about the population of Russia as a whole, you can see the following trends. Highest level of inequality is perceived negatively by the majority of Russians. 96% recognize the existence of the problem of inequality (Institute of Sociology, 2013) Earlier studies show that increasing inequality and the understanding that the new economic policy is unfair - one of the three key factors for the low level of subjective well-being in Russia. Other factors include a decline in the quality and accessibility of public education and health care, as well as increased earnings volatility and economic uncertainty. 64% believe that the government should take measures to reduce income inequality (Institute of Sociology, Russian Academy of Sciences, 2013) According to a survey the most influence on the welfare of the general population have the following inequalities: income inequality (72%) inequalities in access to health services (47%) Housing inequality (42%) inequality in access to education (31%) inequalities in access to quality jobs (31%) 74% of poor and non-poor 71% believe that the current judicial system often protects the interests of the wealthy and influential members of society than ordinary people (Institute of Sociology, Russian Academy of Sciences, 2013) The results of our focus groups is meaningful largely echoed the results of the polls. Mainly our partners were concerned about inequality in living standards and opportunities that arise as a result of economic inequality. Income inequality, together with the spatial and social inequality in Russia leads to disparities in living standards and access to key social, economic and even legal institutions. And that is primarily concerned people.
- How exactly does it happen? Income inequality and spatial inequality as the main drivers of inequalities in access to health care in Russia (WHO 2008) As this study demonstrates, the major inequalities in access to medicine in Russia include Elderly people have to wait longer for service provision and they face financial difficulties they experienced in having to pay for services Significantly higher risk of "catastrophic health expenditure“ among poor households The difficulty getting access to free healthcare services for people with chronic diseases Lower availability of specialized outpatient care for people living in the rural settlements and small towns Differences in income lead to differences in the consumption of services. We see the official statistics in health care expenditure in the wealthiest 10% of the Russian population in 2012 was 11 times greater than that of the poorest 10%. And you can certainly say that it is due to the fact that high-income groups just go into private medicine. But we know the examples of the focus groups that we conducted in the regions that the cost low-income groups are not associated with the fact that they get the services in full at the MLA, and the fact that they imagine they simply refuse. Regional differences in the level of funding per capita by the end of the 2000s, reaching 10-12 times Join the community sometimes acts as a criterion for the provision of public health services (Carlin, 2013)
- There is a relatively low correlation between income and owned housing space in Russia – a result of the post-Soviet housing privatization system which granted property rights to occupants of Soviet housing, thus ameliorating potential housing inequalities that could have emerged as a result of the market transition.
- In education, we are seeing a trend of gradual privatization and commercialization. This is less visible in primary and secondary school, although the increasingly common practice of hiring private tutors indicate that these processes there are just hidden. In tertiary education, this fact is on the face, as shown by the data of Rosstat. In general, private spending increased greatly in recent years. And, as the table shows, these costs are increasingly concentrated in high-income group. Also worth mentioning that the spatial and social inequality (eg disability) also play a significant role in access to education) This trend is particularly alarming in terms of rooting current trends, since the value of higher education factor in income inequality has been growing steadily.
- It is important to note that, according to the Russians, economic inequality also leads to inequality before the law. 74% of poor and non-poor 71% believe that the current judicial system often protects the interests of the wealthy and influential members of society than the common people. 29% poor and 20% of non-poor state that over the past three years, they were faced with a violation of their rights. The most common cases concerned access to health care and social benefits, labor relations and contacts with the police. "... Corruption rests on the foundation of unequal distribution of resources and, in turn, leads to greater inequality" With inequality before the law related problem became widespread corruption that unites Russia with many other emerging economies. In 2012, Russia ranked 133 out of 174 on the Corruption Perceptions Index of Transparency International. It is noteworthy that Russia has a lower rating than its partners in the BRICS - Brazil, India, China and South Africa. And although the Russian debate on corruption in most cases does not go beyond the discussion on good governance and the rule of law, we can assume that the social demand for the fight against corruption supported by notions of social justice and is associated with high levels of inequality of income and wealth distribution. According to Eric Usleyner: "corruption rests on the foundation of unequal distribution of resources and, in turn, leads to greater inequality." Institute of Sociology and the Fund it. Friedrich Ebert (2013), supra Institute of Sociology and the Fund it. Friedrich Ebert (2013), supra Transparency International (2012) Corruption Perceptions Index, Berlin: TI, http://cpi.transparency.org/cpi2012/results/ Uslaner, E. (2009) 'Corruption and the Inequality Trap', paper presented at a Conference on Institutions, Behavior, and the Escape from Persistent Poverty, November 16-17, 2009, Cornell University, Ithaca, NY, https:// www.academia.edu/184979/Corruption_and_the_Inequality_Trap
- It is important to note that since mid-2000s, Russian government has started making attempts to reverse inequality. Their ‘theory of change’ about how inequality could be tackled in Russia is based on two key assumptions. The first assumption, as I have shown in the first part of the presentation, has been dominating thinking in Russia since the beginning of the transition basically. This is basically one of the cornerstones of neoliberal thinking. Since the mid-2000s, having realised that economic development alone is not actually able to resolve the inequality problem, the government somewhat changed the strategy (or rather added an element to the previous strategy), i.e. it has employed what I – following some of the Russin experts – call ‘lifting up the bottom’. Most of the Russian experts – the majority of whom are neoliberally-minded – see this strategy as a total evil (too much public spending). But I would argue that while the government has actually had some inequality-reduction successes by employing this strategy, the problem with it that it is exclusively focusing on the ‘bottom’. And thus the problem of resourcing this spending remains unresolved.
- The persistence of the ‘economic growth panacea’ myth we could first of all observe is the way the government has been attempting to resolve the problem of regional. The focus has been primarily on creation of so-called points of growth and on economic ‘equalisation’ of the regions, which is considered as a dead end by many experts, taking into account vast differences in natural resources, geography, etc. between Russia region. At the same time, inequalities in human capital, as experts argue, however, have not been properly addressed. National priority projects that meant to address inequalities in access to healthcare, education, housing, etc. are currently underfunded. And as we see from the graph below, which depicts differences in key socio-economic indicators between top 10% and bottom 10% of the Russian regions (overall, right now Russia has 85 regions). This graph basically shows that basically only inequality in income per capita has been substantially reduced. And this happened only due to actually inter-regional budget transfers and not because of economic development (as we see gross regional product per capita has been increasingly unequally distributed among the regions).
- Inter-regional budget transfers to support low-income regions – the problem is that funds usually stay in the pockets of regional elites. Raising salaries of public sector employees who in the first post-Soviet decade were one of the groups with lowest income. Shown to have led to reduction of income inequality. Other labour-market related measures have been much less efficient. And this graph explains why. The other measure included raising of the public pensions. This has been shown to have had significant positive effect on income inequality. But the consumption inequality between pensioners and the rest in Russia is still very high. Finally, spending on a number of other social protection measures, such as child benefits, etc. has also been increased. The problem with social protection system, however, is that it’s still underfunded and, therefore, has limited redistributive effect (18.8% vs. 22% OECD average and 24% in the UK). But even more importantly it is very poorly targeted. In 2011, social assistance programmes for poor people accounted for only 0.5 of GDP (3% in OECD), and 50% of poor didn’t actually have access to safety net programmes.
- The need to create modern jobs
- In its current state, the Russian tax system exacerbates rather solves the problem of income inequality. This slide speaks pretty much for itself. We have very high rates of payroll tax evasion.
- While, as Emma Seery has shown in her recent paper, public services have great redistributive potential, the increases of social spending in Russia very notably was for things other than public services. We have seen continuous reduction of public expenditure on healthcare and education in the recent years. Thus, it’s clear that these services are ‘working for the fewer’. We do not have data on how exactly these services impact income inequality, but the example of kindergartens show that it has clear effect on economic a activity – especially, on women’s – and, consequently, on income inequality.
- As we have seen today, certain population groups (women, disabled, homeless, migrants and others) are facing systematic discrimination in access to the labour market, social services, housing in Russia. And while all these barriers addressed in the constitution, in reality anti-discrimination legislation and mechanisms for its enforcement are very weakly developed in Russia. Out partners from St.Petersburg NGO working with homeless people is leading very important advocacy work around the issue of residence registration and having some important wins. But there’s still a long way to go. But improvement of hits legislation is essential for tackling social inequalities, which are inextricably linked with income inequality.
- The struggle against inequality in Russia should be underpinned by a strong drive to make law enforcement fair and equitable and fight corruption at all levels of social institutions. Many of the factors contributing to high levels of income inequality in Russia, for example a large informal sector and high levels of tax evasion, are based on very low (among the lowest in the world)127 levels of institutional trust characterizing Russian society. Consequently, many of the key anti-inequality policies, such as progressive taxation, deoffshorization, and creation of jobs in the formal sector, simply could not be effectively implemented in Russia, unless the problems of corruption and inequality before the law are effectively addressed.
- Russian policymakers are increasingly focusing on the problem of inequality, and since the mid-2000s a number of policies have been put in place to address income inequality and regional inequality. These policies have been predominantly focused on economic development of the regions and on redistributive transfers to the low-income and vulnerable regions and people. While it is difficult to estimate actual inequality-reduction effect of these policies, it is obvious that they have been insufficient to reversing current inequality trends. As this paper showed, without addressing labour market challenges, realizing the redistributive potential of the tax system and public services, improving anti-discrimination legislation, and addressing the problem of corruption and an inequitable law enforcement system, the future fight against inequality in contemporary Russia is unlikely to succeed. Moreover, these policies are precisely what the Russian citizens now expect from their government. As documented by a series of focus groups conducted in the spring of 2012 by Mikhail Dmitriev’s Center for Strategic Research: What Russians seem to want is not so much equalization for the sake of equalization but a well-functioning state with a significant welfare component. Many Russians in the provinces are deeply upset about the failure of a visibly corrupt bureaucracy to provide high quality education, healthcare, and legal enforcement. Mere redistribution of money—to regions or even to individuals—will not satisfy the demand for these services. Institutional changes are required.128 The latter seems to bring Russian population close to the population of other emerging economies, such as Brazil, Thailand, and Turkey, which in recent years have increasingly been actively demanding better public services and better and more transparent investment of public money from their governments.