How well off is the average Russian, anyway?

Photo: Oleg Ukladov, kp.ru

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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  • Oknemfrod

    A very good analysis. It could be added that the figure of “Russia’s GDP per capita is about €9,650” is in itself utterly misleading since it is distributed extremely unevenly among the Russians (especially compared to other states with the economies also based on exporting raw materials) – most of its GDP is pocketed by fat cats leaving the ordinary Russians mere scraps.

    • Dirk Mattheisen

      Yes, I agree. Russia is said to have the most unequal income distribution of any major economy, and corruption siphons off much of Russia’s wealth to financial havens outside of Russia.

  • Screwdriver

    “Growing protests” ??
    What do you smoke bro ?
    Protests are in decline since few years ago (Bolotnaya square).
    Ukrainian senator Vadim Rabinovich mentioned that, …..when Russians see what happened in Ukraine after Maidan, …who would want the same mess in Russia ?

    • Tony

      You mean things like this where a 10 year old was arrested for reciting Shakespeare?
      https://youtu.be/WBU9g6UvlK0

      Well done on trying to suppress protests, it makes your country more of a fascist hellhole.

      • Screwdriver

        Do you really know meaning of the word “growing” ?

        • Микола Данчук

          At first it was St. Pets and Moskva, now it’s over 130 cities, comprenday.

          • Screwdriver

            Just check the total number of protesters compared to 2011-2012 protests., comprenday.

          • Микола Данчук

            Why don’t you, you may learn something?

    • veth

      Russia invaded Ukraine, not vice-versa, Russia downed MH17, not Ukraine. Russia killed 12.000 Russian speaking Ukrainians in Donbass, not Ukraine.

  • Tony

    Baltics surpassed russian GDP per capita despite starting at a lower base. It’s funny how reforming neighbors surpass Russia while Russians humiliate themselves with Soviet fantasies.

    • veth

      RUSSIANS AND THEIR DEPUTIES HAHAHAHAHAHAHAHA

      Deputies in Siberia’s Krasnoyarsk region convened to discuss pay raises for public servants, but ended up doubling their own salaries instead, the local TVK television channel reported Tuesday.

      Regional deputies will now receive a monthly remuneration of 200,000 rubles ($3,290), which is roughly twice their previous salary.

      In comparison, the average salary in the Krasnoyarsk region is approximately $500 a month, according to the local statistics agency.

      Speaking to the channel, a deputy for the Patriots of Russia party, Ivan Serebryakov, said the initiative was initially presented as a means to raise the salaries of civil servants, librarians and doctors.

      “And then somehow the concept changed. It’s mostly members of United Russia that pass laws of this kind,” he said, referring to the government’s majority party.

      Although the proposal was put forward by United Russia, it was unanimously supported by members of the four opposition parties, the report said.

      The proposal has already been approved and signed by the region’s governor, Viktor Tolokonsky.

  • Ihor Dawydiak

    What all of this boils down to in Russia are matters involving the quality of life and for many the prospects have remained dim. For example, which alternative would be considered as less abrasive; a copy of a Russian newspaper or Russian made toilet paper? Neither? Hmmm. Another daily dilemma.

  • veth

    95% of the wealth aka GDP is in het hands of 2% of the Russians, do the maths again………..

  • veth

    Summary of Donbas reintegration bill: Russian occupation, liberation, division of powers

    A bill on Donbas reintegration, which was drafted by the National Security and Defense Council, headed by Secretary Oleksandr Turchynov, recognizes the Russian occupation of the east of Ukraine and provides clear notions of occupied areas and lists illegal armed formations that control that territory.

    Politics 18:55, 12 July 2017

    The document was planned to be considered and approved at a meeting of the National Security and Defense Council on Monday, July 17, but the consideration was postponed, according to the news portal hromadske.ua. Turchynov explained this by “the need to hold additional consultations with our strategic partners,” hromadske.ua said. Officials and lawmakers polled by hromadske.ua do not rule out that the document will be considered by the Verkhovna Rada only in autumn, as parliament will go into its summer recess from July 14. The portal has published the summary of the draft law on the specifics of state policy to restore Ukraine’s sovereignty in temporarily occupied areas in Donetsk and Luhansk regions. Russian occupation and aggression This is the first Ukrainian law that recognizes the Russian occupation of Donbas as a result of military aggression. This is the first attempt to give a legislative assessment of the war in the east of Ukraine. “The Russian Federation is waging military aggression against Ukraine and has temporarily occupied parts of its territory with the help of the Armed Forces of the Russian Federation,” the bill said. Temporarily occupied territory Article 1 of the draft law gives a clear definition of temporarily occupied areas, as well as provides a list of military formations that control that territory. “[This is] an area of ground within the boundaries of which units of the Armed Forces of the Russian Federation, illegal armed formations established under the auspices of, subordinate to, managed, controlled and funded by the Russian Federation and the occupying administration of the Russian Federation have set up authority and exercise their power,” the article says. The boundaries of the temporarily occupied areas shall be defined by the Ministry of Defense of Ukraine as proposed by the General Staff of the Armed Forces. A special legal regime shall be introduced in the occupied areas. Documents and property Article 2 of the draft mentions documents and property rights applicable in the occupied territory. In particular, any documents, decisions, etc. that have been issued in uncontrolled territory shall be deemed as invalid. People, regardless of their status of internally displaced persons, shall retain rights to property that remains in the occupied areas. The same way, the state retains its ownership of assets in uncontrolled territory. “The state of Ukraine, territorial communities of villages, towns and cities located in temporarily occupied areas shall retain their right of ownership of property, including real estate, namely land.” Liberation of territory Article 4 describes the purpose of state policy to restore sovereignty. It proposes the following steps: – to liberate the areas and restore constitutional order; – to protect the rights and freedoms of individuals who have suffered from Russian aggression. Read also Deployment of OSCE police mission key for Donbas demilitarization – Gerashchenko Article 5 outlines provision of constitutional order: “The government authorities shall use existing opportunities to protect the rights and freedoms of Ukrainian citizens living in the occupied areas.” However, the draft law does not give any other details regarding this matter. Yet, it states that “it is necessary to take comprehensive measures to ensure national security and defense, deterring Russian aggression.” Cultural relations Article 6 highlights the restoration of humanitarian and cultural ties with people living in the occupied areas. It also suggests the provision of humanitarian and legal assistance and access to the Ukrainian media. “The foundation of the protection of citizens’ rights and freedoms… is the promotion of their social and economic needs, the rebuilding of humanitarian and cultural ties, [the provision of] access to the Ukrainian media, and national means of legal defense.” Responsibility and self-defense Article 6 of the draft law states: “Ukraine is not responsible for the illegal actions of Russia as an aggressor state and its illegal armed formations controlled by it in certain districts in Donetsk and Luhansk regions.” Article 7 states that Ukraine has an undeniable right to defend itself that can be exercised. For this purpose, the Armed Forces of Ukraine, the SBU Security Service of Ukraine, the intelligence service, the National Guard and other forces shall be engaged. This is stipulated in Article 8. Division of powers Article 9 determines the powers within which the president is authorized to take decisions during the operation of this law. “The President decides on the use of the Armed Forces, other military units, to deter and repel the armed aggression of the Russian Federation.” It is the president who also declares martial law. Article 10 highlights the division of powers. The Joint Operation Headquarters of the Armed Forces of Ukraine shall perform command and control functions. Read also Losses from Russian aggression in Donbas estimated at about $50 bln The Chief of Staff shall be appointed by the President as proposed by the Chief of the General Staff. All who are involved in ensuring national security in Donetsk and Luhansk regions shall be subordinate to the Chief of the Joint Operation Headquarters. The last article, Article 11, states that the rules of crossing the contact line and transportation of goods shall be also determined by the Chief of the Joint Operation Headquarters.

    Read more on UNIAN: https://www.unian.info/politics/2025751-summary-of-donbas-reintegration-bill-russian-occupation-liberation-division-of-powers.html

  • veth

    Ukrtransgaz and the Polish pipeline operator Gaz-System agreed to increase the capabilities of the gas supply to Ukraine from the Polish direction since September 1. The press service of the Gaz-System reported this.

    In connection with this, 250 000 cubic meters of gas per hour will be supplied through the gas measuring station Germanovitse since September 1 until April 30, 167 000 cubic meters of gas per hour will be supplied since May 1 until August 31. The free through capacity will be offered at the auctions.

    The reservation of the through capacity will be accessible on the platform of the holding of the auctions of the Gaz-System in accordance with the schedule of holding of the auctions.

  • zorbatheturk

    RuSSians will soon be trapping brown rats to survive. The rats will be getting fatter and the humans skinnier. Because, out of rats and RuSSians, I will put my money on the rats anytime.