Regardless of the growing potential for a social and economic crisis in Russia, the Kremlin believes that it will be able to control the situation. However, experts at the Gaidar Economic Forum in Moscow are not as certain.
Foreign currency exchange rates displayed at a currency transaction office in Moscow. Photo: RIA Novosti
Regardless of the ill-omened indicators Russia’s economy has experienced at the beginning of 2016 — the falling ruble and the weakening stock market — Russian officials and experts expressed cautious optimism about the country’s economic future at the Jan. 13-15 Gaidar Economic Forum, an event that annually brings together top Russia and foreign experts, economists and officials at the Russian Presidential Academy (RANEPA) in Moscow.
However, some of the experts and former officials at the forum remain skeptical about Russia’s economic future, warning that the crisis could persist. With the increasing level of poverty and inequality, it could affect the population and lead to the growth of social tensions and, probably, unrest, they argue.
Russian Prime Minster Dmitry Medvedev and his first deputy Igor Shuvalov are among the optimists. Even though they admitted during the forum that the last year was very difficult, “maybe the most difficult for the last decade,” as Medvedev said, they seem to pin more hopes on the ability of the Kremlin to overcome the crisis.
Everything is not so bad in Russia’s economy as it seems to be from the point of view of an outsider, said Shuvalov, echoing Medvedev, who believes that, “the situation in economy is uneasy, but tractable,” because Russia is among the countries with the least government debt and the largest gold and foreign currency reserves. The combination of these factors makes its economy “sustainable” and capable of coping with “simultaneous economic challenges,” such as the fall of the ruble, the drop of oil prices and sanctions.
However, Medvedev was disappointed with the fact that some part of the Russian population is on the edge of poverty, with their income having decreased significantly as a result of the crisis. At the same time, he said that Russia should be ready for the worst-case scenario, given the volatility of oil prices. Nevertheless, he firmly believes that Russia has enough reserves to minimize the consequences of the crisis and fulfill its social commitments before the population, as does his colleague Labor and Social Protection Minister Maxim Topilin.
In contrast, Olga Batalina, the head of the State Duma’s Committee on Labor, Social Policy and Veterans, argues that the effectiveness of Russia’s social policy leaves much to be desired. Despite rigorous promises of the authorities to improve the social situation, average representatives of the middle class had their incomes cut in 2015, with expenses having increased on transportation, utilities, commodities and other goods and services: People just don’t have enough resources to make ends meet.
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In the same way, former Finance Minister Alexei Kudrin is more skeptical. During his speech at the Gaidar Forum, he pointed out that rhapsodizing about the social welfare of the people is easy to do, but harder to put into action, at least among Russian officials.
“The social welfare state is rather a declaration and a populist motto,” he said, implying that the Russian authorities failed to conduct an effective social policy. He argues that the social problems are among one of the most important structural challenges for Russia, like its addiction to oil profits. And it requires effective long-term measures.
The difficulty is that the number of people in the active and working population is decreasing and by 2030 it will be the same as the number of retired Russians. It will inevitably be a burden for the country’s economy, with grave social implications and, particularly, the growth of poverty among people. This challenge should be addressed now, Kudrin believes, warning that the Kremlin won’t have enough resources and collecting taxes will not be enough to fulfill social commitments, when the number of retired citizens catches up with the number of taxpayers.
And this, in turn, creates a sort of vicious circle, which is very difficult to get out of, according to him. If the authorities will increase budget expenses on social welfare, business will have to shoulder this burden by paying more taxes. Yet, given that business creates new working places, the additional burden will affect it, hamper human capital and, thus, economic growth. But without the economic growth it is impossible to resolve social challenges.
The flaws of the Kremlin’s current social policy stem from the fact that Russia has been relying on oil rent. In the times of the high oil prices, the incomes of the population were also incredibly high and inflated salary bubbles, but economic effectiveness and labor productivity didn’t see any growth.
Today the wages and salaries decreased by almost 10 percent as a result of the inevitable adjustment to the current and expected situation. According to Kudrin, Russia could have avoided such a crash, had it been less dependent on oil.
Similarly, Natalia Zubarevich, the director of the Regional Program at the Independent Institute on Social Policy, admitted that even though the oil rent helped the Kremlin to address inequality in Russia, especially between regions, it contributed to increasing this inequality when oil prices plummeted.
“We lost what was achieved,” she said, during one of the plenary discussions at the Gaidar Forum.
Is social protest possible?
Given that the odds of poverty among the Russian population are increasing in the times of unpredictability, social tensions and unrest might become commonplace. Even though the authorities seem to be confident that they will be able to fulfill their social contract with the population, it remains to be seen how long Russians will endure the economic woes without openly expressing their indignation.
Tatyana Maleva, the director of RANEPA’s Social Analysis and Forecasting Institute, warned during the forum that social problems should be top priority for the Russian authorities and they are the essential part of the deep economic crisis, the first one that Russia is experiencing since the collapse of the Soviet Union. She is concerned that the growth of poverty (2 percent) and the cuts in salaries and wages (9 percent in 2015) could result in social unrest in the near future.
On the other hand, people “understand that the crisis is going to be very long in its nature” and they are saving money to create a sort of safety net, preparing for the worst, added Maleva.
However, poverty and the sense of injustice are still among the reasons that drive people to the streets. Moreover, increasing inequality between people and regions might be an indirect driver of social tensions as well.
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Thomas F. Remington, a professor at Emory University in Atlanta, Georgia argues that the ongoing financial difficulties and the prospect of more cuts might lead to greater social tensions.
“It is possible,” he told Russia Direct during the Gaidar Forum. “What we know about Russia is unpredictability: Any shift can lead to something more serious. After all, nobody expected that Russia’s truckers would protest. People from the lower and middle-income strata are feeling squeezed. That kind of protest is likely to increase. Inequality, thus, can be a distant cause, the indirect reason that may exacerbate the situation.”
However, Jack Goldstone, a prominent U.S. sociologist and a professor at George Mason University, warns against exaggerating the possibility of social unrest only because of the growth of poverty and inequality.
“A lot of people are concerned about the rising inequality within nations as a threat to social stability, but I don’t that it will become a major political problem, simply because historically it rarely has,” he said. “If we look at the countries in the Middle East and North Africa that suffered revolutionary breakdown in 2011, they did not have remarkably high inequality.”
“It is not the absolute level of inequality or poverty that motivates people to take the very risky and dangerous actions of mobilizing [resources] to change their government,” Goldstone added. “That kind of actions only comes from the deep conviction that the exiting system is unfair, fraudulent, unjust, being operated by people in their interest at their expense of everyone’s else.”