How well off is the average Russian, anyway?

Photo: Oleg Ukladov, kp.ru  

Russian

In response to a recent article on prospects for the Russian economy (Russia: All Scenarios Are Bad in Interiabiznes, a Polish news service), a commenter who can be inferred to be a young Russian professional inveighed against the argument that the Russian people were doing poorly simply because Russia’s GDP compared badly to other countries’.

The commenter had a point of sorts about the limits of international comparisons in explaining domestic economic conditions, and his comment explains in part why the Russian people have not reacted more strongly to their declining economic welfare. He wrote,

“Every time [*@$%#] starts listing gdp per capita in russia in dollars or euro or whatever equivalent i roll my eyes. Wana hear a fun fact? Electricity, standard price here, 2 rubbles for a killowat in rush hours. Now go to british gas or whatever have you, and check how much you pay. And it’s like this in everything. Footlong subway – 220 rubbles with double cheese chicken and bacon. I recall it being in the area of 6-7 pounds in london. Any consumer good you can imagine or resource is a LOT cheaper in Russia…Another example 400 euros a month will get you a medium sized (50sqm+) rented flat in city center. In smaller cities even less than 300 maybe. Find me a city in eu that’s relevant and has rents like that. I recall paying this a week in london for a tiny [ *@$%#] flat.

Based on his examples, nominal prices in Russia appear very reasonable and low in comparison with elsewhere, suggesting that local goods and services in Russia are more affordable than in Europe. That 50sqm+ apartment that rents for €400 in Moscow, might cost £1,000 or more in London (although you could come pretty close to €400 in Berlin). That foot-long Subway sandwich that cost 220 rubles in Russia, or about US$4.40, would cost $7.95 in Washington DC. Throw in stunningly low utility prices, and the average Russian might seem to live quite well.

Even though the import of consumer goods has fallen substantially, low prices in Russia seem to reflect an attractive domestic market for non-tradable goods and services—economist-speak for things that aren’t imported or exported–including housing, domestically produced food, and things like health and educational services—things that are sometimes otherwise known as basic needs. But that isn’t the whole story.

Although prices in the commenter’s examples are roughly half in Russia what they are in Europe, the GDP per capita comparison that he doesn’t like is still a problem. Russia’s GDP per capita is about €9,650, while GDP per capita in Germany is about €36,000 (Estonia is about €16,000 and Hungary is about €11,200) (IMF). The average GDP per capita for the Eurozone is €33,000. Even though prices in Russia might be half what they are in Europe, the average Eurozone citizen’s purchasing power is roughly three times higher. That €400 apartment would take half of the average Russian’s monthly salary. After paying rent, a Subway sandwich a day would take 30% of the average Russian’s remaining gross income per month. The price of a sandwich might sound cheap, but it is not in comparison with income. That cheap electricity presents another problem. It is cheap because Russia has the third largest fossil fuel consumption subsidies in the world, amounting to just over US$30 billion per year. These subsidies drain the national budget and divert resources from more productive economic uses, which slows economic growth and suppresses GDP per capita.

There are other problems. Low domestic prices also reflect the low quality of goods and services. The quality of housing, for instance, is far below standards elsewhere in Europe. The proposal by Moscow’s mayor to level thousands of apartments built during Stalin’s reign, many of which are deemed uninhabitable, indicates the decrepit state of Russian housing. That the mayor’s proposal has met with so much opposition reflects a number of factors but includes low public confidence that promised new housing will be of equal value or more attractive than what is being replaced. Food standards are also lower. As much as 60% of Russian-produced food is “poor quality, unsafe, or falsified”. Much of it is of such low quality that it is not exportable—making it an “un-tradable” good. The low—and declining—quality of education and health services is a major concern for Russia, including not only the low quality of the services provided but also low teacher and doctor salaries.

The average Russian has been until now accepting of the level of prices and low quality of basic goods and services because these have been within reach of most of the population and because, while things could be better, things could also be worse. This has contributed to the average Russian’s complacency about economic conditions.

However, Russians today are under severe economic stress and for many even cheap domestic goods and services are becoming unaffordable. The Russian poverty rate reached almost 15% or nearly 22 million people last year, up from 14 million in 2014, the highest number in a decade.

Growing protests indicate widespread dissatisfaction with material welfare, and anecdotal evidence suggests Russians are under severe economic stress. As an example, the broad-based truckers’ strike in its third year has grown because the new road toll system makes it impossible for independent truckers to make a living, forcing them out of business or into the shadow economy. As one analyst describes it, Poverty in Russia,

“…despite the overall economic upturn, Russia’s people are still in dire straits. One-quarter of Russian companies cut salaries in 2016, at times even skipping payments to their employees. The average monthly wage in Russia dropped 8% last year (after falling 9.5% in 2015) to under $450 — less than the mean monthly pay in China, Poland or Romania — while the poverty rate jumped to nearly 15%. And the country’s regional governments are not faring much better, much to the Kremlin’s consternation.”

Although the commenter argues that the quality of life is better in Russia because the price of basic needs such as food and housing is lower, price alone is a misleading and inadequate indicator of economic welfare. Income matters, too, as does freedom from want, opportunity to better oneself and to provide for one’s family, and the chance to enjoy life’s pleasures. In Russia, these are threatened by poor economic policies. There may be Russians who can afford what the commenter describes, but there are too many who cannot. The commenter’s notion that the average Russian is just as well off materially—or better off–as his or her counterpart in the Europe is nonsense. Most Russians have to think twice before spending 220 rubles on a foot-long Subway sandwich.

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