Many Russians Will Not Live to See End of Country’s Economic Crisis, Moscow Experts Say

Paul Goble

            Staunton, June 1 – Most Russians will not live long enough to see the end of their country’s economic crisis. Their real incomes will continue to stagnate at least for another decade, the divergence between rich and poor will increase, and Russian pensions may not rise in real terms for two decades, according to Moscow experts.

            Those conclusions, offered by Nezavisimaya gazeta and Vedomosti this week, reflect both worldwide economic trends and specific Russian conditions, and they won’t be fundamentally changed by the government’s expected pump priming in advance of the presidential elections (ng.ru/economics/2017-05-30/4_6999_distrofia.html and vedomosti.ru/economics/articles/2017/05/31/692224-dohodi-vernutsya).

            In Nezavisimaya gazeta, Anastasiya Bashkatova, an economics reporter, directly asserts that “a significant part of Russians will not get out of the crisis” because what she and others call “income dystrophy”—stagnant pay and rising income inequality -- is now “an illness characteristic of the Russian economy.

            In the “fat” years before 2008, the trends were going in the other direction. But since 2013, “the real incomes of citizens have begun to contract and this tendency has not stopped,” although it may not be quite as bad as official statistics show, Bashkatova says, because many Russians do get money from the shadow economy.

            “It is possible that this helps citizens to soften the consequences of the crisis but this does not reduce the risk for them that an employer may cut also those in the gray sectors, where neither pay nor bonuses are fixed.”

            The Moscow experts she surveyed were unanimously pessimistic about the future, although some expected an uptick next year when the Kremlin will try to boost figures in advance of the presidential elections.

            Kirill Yakovenko of the Alor Broker Company, says that “the reduction of real incomes of the population bears a long-term character and it is hardly likely that this problem will exhaust itself in the next 1.5 to 2 years.” And Pavel Sigal, vice president of Russia Reliance, says that he does not exclude the possibility that by 2025, the number of poor in Russia will reach 30 million.

            The report in Vedomosti yesterday was even more damning. Its headline says that “incomes of Russians will return to pre-crisis levels only in 2022 and pensions will never” recover to that level as far out as anyone can now predict or even as the government expects (vedomosti.ru/economics/articles/2017/05/31/692224-dohodi-vernutsya).

            Indeed, the paper continues, the economic development ministry has prepared a report, a copy of which Vedomosti says it has, showing that it does not expect any growth in the real value of pensions over the next 20 years, even as it anticipates a rise in the pension ages to 65 for men and 63 for women.

            Importantly, the ministry report notes the demographic impact of this: “The number of pensioners will decline 23 percent by 2035,” seven million fewer than now. If pension ages aren’t raised, in contrast, the number of pensioners would go up by 5.4 million.  The age increase will mean there will be one million more workers. Without it, there would be 3.2 million fewer.

            At the same time, the increase in pension ages will be accompanied by “a sharp fall in the level of pensions: they will decline from the current 35 percent to 22 percent” relative to wages paid, something that reduces “the burden” on workers but does nothing to boost consumer demand and thus a major reason for companies to increase investments.

           

            According to the ministry report, the Moscow paper continues, “wages and incomes for the next two decades will grow more slowly than the economy,” but the growth of the economy “also will be far from outstanding.”  And the combination of these two trends may have serious consequences for Russia’s future.

            On the one hand, Oksana Sinyavskaya of the Moscow Institute of Social Policy, says, the notion that pensions can be “frozen” for 20 years is unrealistic and “socially dangerous.”  And on the other, Vladimir Tikhomirov, an economist at the BKS Brokerage, says that the ministry’s notion that there can be economic growth while pensions are cut is unrealistic.

            If there is no increase in demand – and there won’t be if wages and pensions are stagnant – he says, there won’t be much investment. That is an economic truism in all countries, and Russia isn’t going to be able to escape it.  He does not say, but there is one way out: the way Stalin adopted in the 1930s: totalitarian control and radical extraction of money from the people.