Russia's Middle Class
A conference held, at the beginning of the month, in St.
Petersburg, was aptly titled "Middle Class - The Myths and the
Reality". Russia is way poorer than Slovenia, the Czech
Republic, Hungary, or even Poland. But, as income disparities
grow, a group of discriminating consumers with the purchasing
power to match, is re-emerging, having been submerged by the
1998 implosion of the financial sector.
The typical salary in the large metropolises is now more than
$600 per month - four times the meager national average. Some 20
percent of the workforce in Moscow earns more than $1700 a
month, comparable to many members of the European Union. Real
average wages across Russia have surpassed the pre-1998 level in
May.
Moreover, Russians are unburdened by debt and their utility
bills and food are heavily subsidized, though decreasingly so.
Few pay taxes - lately dramatically reduced and simplified - and
even fewer save. Every rise in disposable income is immediately
translated to unadulterated consumption. Takings are understated
- Russia's informal economy is probably half as big as its
formal sector.
A study, financed by the Carnegie Foundation, found that only 7
percent of Russians qualify as middle class. Another 12 percent
or so have some bourgeois characteristics. Sixty percent of them
are men, though the Komkon marketing research agency says that
the genders are equally represented.
Figures culled from the census conducted this year throughout
the Russian Federation - the first since 1989 - are expected to
confirm these findings. About one fifth to one quarter of all
Russian households earn more than the average monthly income of
$150 per person.
Political parties which purport to represent the middle class -
such as the Union of the Forces of the Right (SPS) - garnered
10-15 percent of the votes in the 1999 parliamentary elections.
Direct action groups of the "third estate" may transform the
political landscape in forthcoming elections.
In a recent study by sociologists from the Russian Academy of
Sciences' Institute of Philosophy, more than half of all
Russians self-flatteringly considered themselves middle class.
This is delusional. Even the optimistic research firm
Premier-TGI pegs the number at 19 percent at most.
Businesses adapt to these new demands of shifting tastes and
preferences. The St. Petersburg-based cellular operator Delta
Telecom, owner of the first license to provide
wireless-communications services in Russia, intends to test the
market among middle class clients.
Ikea, the Swedish home improvement chain, has plunged $200
million into a new shopping center. French, German and Dutch
cash-and-carry and do-it-yourself groups are slated to follow.
Russian competitors, every bit as sleek, have erupted on the
scene. The investment spree has engulfed the provinces as well.
Last month, Citibank opened a retail outlet for affluent
individuals in Moscow - though its standards of transparency may
yet scare them off, as Gazeta.ru observed astutely. A private
cemetery in Samara caters to the needs of the expired newly
rich. Opulently-stocked emporiums have sprouted in all urban
centers. TV shopping and even online commerce are on the up.
According to the Washington Post, Moscow retail space will have
tripled by the end of next year from its level at the beginning
of 2002.
The Russian Expert magazine says that the middle class,
minuscule as it is, accounted last year for a staggering 55
percent of all consumer goods purchased and generates one third
of Russia's gross domestic product. The middle class is Russia's
most important engine of wealth formation and investment, far
outweighing foreign capital.
Russia's post-1998 fledgling middle class is described as young,
well-educated, well-traveled, community-orientated,
entrepreneurial and suffused with work ethic and a desire for
social mobility. It is almost as if the crisis four years ago
served as a purgatory, purging sins and sinners alike and
creating the conditions for the revival of a healthier,
longer-lived, bourgeoisie.
But being middle class is a state of mind more than a measure of
wealth. It is an all-encompassing worldview, a set of values, a
code of conduct, a list of goals, aspirations, fantasies and
preferences and a catalog of moral do's and don'ts. This is
where transition, micromanaged by western "experts" failed.
The mere exposure to free markets was supposed to unleash
innovation and entrepreneurship in the long-oppressed
populations of east Europe. When this prescription - known as
"shock therapy" - bombed, the West tried to engender a stable,
share-holding, business-owning, middle class by financing small
size enterprises. It then proceeded to strengthen and transform
indigenous institutions.
None of it worked. Transition had no grassroots support and its
prescriptive - and painful - nature caused wide resentment and
obstruction. When the dust settled, Russia found itself with a
putative - and puny - middle class. But it was an anomalous
beast, very different from its ostensible European or American
counterparts.
To start with, Russia's new middle class is a distinct minority.
Prism, a publication of the Jamestown Foundation, quoted, in its
August 2001 issue, the Serbian author Milorad Pavic as saying
that "the Russian middle class is like a young generation whose
fathers suffered a severe defeat in a war: with no feeling of
guilt and no victorious fathers to boss them around, the
children of defeat see no obstacles before them".
But this metaphor is misleading. The Russian middle class is a
nascent exception - not an overarching rule. As Akos Rona-Tas,
Associate Professor in the Sociology Department at the
University of California, San Diego, notes correctly in his
paper "Post Communist Transition and the Absent Middle Class in
Central East Europe", a middle class that is in the minority is
an oxymoron:
"In democracies the middle class is the nation proper. The
typical member of a national community is a member of the middle
class. When democratic governments need a social group they can
address, a universal class that carries the overarching, common
interest of the country, they appeal to the middle class. This
appeal, while it calls on a common interest, also acknowledges
that there are conflicting interests within society. The middle
class is not everyone, but it is the majority and it represents
what everyone else can become."
Russia has a long way to go to achieve this ubiquity. Its middle
class, far from representing the consensus, reifies the growing
abyss between haves and haves not. Its members' conspicuous
consumption, mostly of imports, does little to support the local
economy. Its political might is self-serving. It has no ethos,
or distinct morality, no narrative, or ideology. The Russian
middle class is at a Hobbesian and primordial stage.
Whether it emerges from its narcissistic cocoon to become a
leading and guiding social force, is doubtful. The middle class'
youth, urbaneness, cosmopolitanism, polyglotism, mobility,
avarice and drive are viewed with suspicion and envy by the
great unwashed - the overwhelming majority of Russia's destitute
population. Empowered by their wealth, the new bourgeoisie, in
turn, regards the "people" with naive admiration, patronizing
condescension, or horror.
Granted, this muted, subterranean, interaction is not entirely
deleterious. It is the social role of the rich to generate
demand by provoking in the poor jealousy and attempts at
emulation. The wealthy are the trendsetters, the early adopters,
the pioneers, the buzz leaders. They are the engine that
engenders social and economic mobility.
A similar dynamic is admittedly evident in Russia - but, again,
it is tampered by a curious local phenomenon.
Writing for the Globalist, two Brookings Institution scholars,
Carol Graham, a Senior Fellow of Economic Studies and Clifford
Gaddy, a Fellow of Foreign Policy and Governance Studies
described it thus:
"The eyes of Russia's middle class, on the other hand, are
figuratively directed downward, towards the poor. In fact, as
poverty in Russia increased dramatically in the 1990s, the
middle class's reference norms shifted downward as well. As a
result, Russia may be the only country in the world where the
'subjective poverty line' is falling. That is, the amount of
money that Russians say that they need in order to stay out of
poverty has been steadily falling over the past five years. It
is even below the objective poverty line. For the time being, at
least, these curious Russian attitudes, along with the existence
of the non-monetary virtual economy, have insulated the country
against political upheaval."
The list of anomalies is not exhausted.
The new middle class comprises the embryonic legitimate business
elite - entrepreneurs, professionals and managers - but not the
remnants of the financially strapped intelligentsia. It is brawn
with little brains. In dissonance with western Europe, according
to a survey published in the last two years by Expert magazine,
the majority of its members are nationalistic, authoritarian and
xenophobic. Their self-interested economic liberalism is coupled
with social and political intolerance. But two thirds of them
support some kind of welfare state.
Thus, there are major differences between the middle class in
the West and its ostensible counterpart in Russia.
The Russian parvenus - many of them women - do not believe their
state, their banks, or their compatriots. They fear a precarious
future and its inevitable calamities though they are not risk
averse and are rather optimistic in the short run. They keep
their money under the proverbial mattress, invest it
surreptitiously in their ventures, or smuggle it abroad. They
are not - yet - stakeholders in their country's stability and
prosperity.
Often bamboozled by other businessmen and fleeced by a rapacious
bureaucracy, they are paranoid. Tax evasion is still rampant,
though abating. They trust in equity and avoid debt. Some of
them have criminal roots or a criminal mindset - or are former
members of Russia's shady security services.
Three fifths, according to the Expert-Komkon survey, find it
"hard to survive" when "observing all laws". "Strong leaders are
better than all sorts of laws" is their motto, quoted by
Izvestia. Generally, they are closer to being robbers than
barons.
Early capitalism is always unruly. It is transformed into a
highly structured edifice by the ownership of land and realty
(the prime collateral), the protection of private property, a
functioning financial system comprised of both banks and capital
markets and the just and expedient application of the rule of
law.
Russia has none of these. According to Business Week, bank
deposits amount to 4 percent of the country's mid-size GDP -
compared to half of GDP in other industrialized countries.
Mortgages are unheard of, deposits are not insured and land
ownership is a novel proposition. The judiciary is venal and
incompetent. Might is still right in vast swathes of the land.
The state and the oligarchs continue to represent a rent-seeking
opportunity. Businessmen spend time seeking concessions,
permits, exemptions and licenses rather than conducting
business. The "civic institutions" they form - chambers of
commerce, clubs - are often mere glorified lobbying outfits of
special and vested interests. Informal networks of contacts
count more than any statute or regulation. In such a mock
"modern state" no wonder Russia ended up with a Potemkin "middle
class".