Friday, April 16, 2010

Window on Eurasia: Income Inequality in Russia Limiting Both Economic and Demographic Growth, Moscow Scholar Says

Paul Goble

Vienna, April 16 – If income inequality in Russia were not as high as it is, a leading Moscow specialist on the interrelationships of economics and demography says, the country’s GDP would be 35 to 50 percent higher than it currently is and Russia’s population could increase to 150-160 million by 2050.
But unfortunately, according to Aleksey Shevyakov, the director of the Institute of Social-Economic Problems of Population at the Russian Academy of Sciences, the powers that be are “not interested” in addressing this issue, despite what they say about the need to overcome Russia’s problems (
“Investigations have shown,” Shevyakov says in an interview posted online this week, “that normal inequality is positively correlated with economic growth and even promotes it, but that excessive inequality holds things back, reduces the birth rate and increases mortality,” all things Russia is now suffering from.
Shevyakov notes that “the simplest measure of inequality is the relationship between the average income of the 10 percent of the ‘richest’ and the ten percent of the ‘poorest’” in a population. In Scandinavian countries, that figure is between three and four, in the US, it is “about 14-15,” and in Mexico, it is 25.
As far as Russia is concerned, he says, Rosstat estimates suggest that for the country as a whole, the ratio has reached 16 to 17, and in the city of Moscow, “it is approaching 50,” a figure not found “even in the countries of Latin America” but which may be similar to some African countries.
Shevyakov adds that he and his researchers have sought to identify both the positive ways income inequality affects economic growth and demographic behavior and the negative ways it does so when it becomes extremely large. Since 1991, he points out, there has been a consistent correlation between economic and demographic behavior and inequality in Russia.
If Russia could approach European levels of inequality (7-8), Shevyakov continues, then “Russia already today would have a GDP almost 35 to 50 percent higher than it does, and the population by 2050 would be approximately 160,000,000,” far more than demographers now predict.
Both the reality and these possibilities are obscured by the way in which Moscow gathers and reports statistics, Shevyakov points out. “If we look at the income curve [for Russia today], then the average indicators are growing. If however we consider various parts of the population then the picture will be different.”
It will show, he says, that “today, for 80 percent of the residents of the country, the purchase of housing and a mortgage are in fact inaccessible.”
Another example of this, one that Shevyakov says is especially “interesting” is that “demographic data on births and deaths weakly correlate with the absolute measures of level of life but are strongly related to relative indicators – that is, how an individual feels himself among those around him.”
The abnormally high income differentiation in Russia now, the Moscow scholar suggests, means that many people there feel “uncomfortable” with their situation. As a result, “social-psychological tensions increase, illnesses spread and birthrates decline” when people see that others around them are vastly wealthier than they.
Given that the Russian powers that be always say that they would like to see the country’s GDP increase and its demographic decline reversed, Shevyakov’s interviewer asks whether there is “much demand” in government offices for the research the scholar and his colleagues have been conducting.
“Unfortunately,” Shevyakov responds, there isn’t. Worse, “in Russia there is no systemic social policy. The government has driven itself into a paradigm in which it assumes that if there is economic growth, then all will be well. But that is far from the case,” because growth in incomes overall may be accompanied by an increase in the number of poor people.
That reflects the fact that in Russia now, “the redistribution mechanisms have been affected in such a way that they now work in favor of the rich. I don’t know,” he says, “whether the government recognizes this or not.” The rich pay a lower rate of taxes on dividends and interest, their most important source of incomes, than the poor pay on their wages and salaries.
In fact, in Moscow at the present time, Shevyakov says, the tax burden on the wealthiest groups is “three times lower than on those whom we would like to see in the middle class (the fifth, sixth, and seventh deciles of the income pyramid).” And the situation for those lower down is even worse.
Russian pensions are too low to provide a minimum standard of living.” Because the relationship between pensions and salaries was “three times less” than in Europe, “the government decided to increase pension payments. But in doing so, the government did not consider that the poorest people in Russia are not pensioners.”
“Poverty among pensioners is two times lower than the average for the country as a whole, and among families with children, the poverty rate is twice as high as the average for the country. Therefore,” Shevyakov continues, “these families and their children live four times worse than pensioners do.
Even if one uses absolute figures, the Academy of Sciences specialist says, almost 30 percent of Moscow’s children live in poverty. Elsewhere, the situation is worse. And still more depressing, “today, more than 50 percent of families with three children live below the poverty line,” indicators which are “an order of magnitude worse” than in Europe.

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