Russia - two decades of change

By bne IntelliNews July 27, 2011

Ben Aris in Moscow -

In the months after the fall of the Soviet Union, western goods long banned by the Communist Party began to flood into the country. Since then, street vendors have stocked their kiosks with soft toilet paper, Levi jeans, good shoes and foreign-made cigarettes. But what is the point of quality products if you can't afford them? The irony of the arrival of the free market in Russia is that nothing is free and things are actually quite expensive.

The minimum monthly salary in 1991 was just 72 US cents (at real rates of exchange after currency trading appeared) just after the fall of the Soviet Union, according to Yevgeny Gavrilenkov, chief economist at Troika Dialog. But this was enough to live a decent life, as the state provided so many of the things that Russians have to pay for now: housing, education, heating, power, health and childcare, holidays, retirement homes. None of it was of particularly good quality, but it was universally available and free. "Many people yearn for a bygone era, the symbols of which were vodka for RUB3.62, sausage for RUB2.20 and bread for 13 kopecks. You could even buy a box of matches or get a glass of fizzy water for a kopeck then. Today, you cannot get anything for a ruble. But has our existence worsened because of this? Have we really got poorer?" asked Margarita Vodyanova in an piece in the Russian paper Obshchaya Gazeta.

Money went a long way in Russia in 1991. The basic minimum salary, set at RUB71.83, could buy 74 loaves of bread, or your choice of: 6.2 kg of meat; 6.5 kg of sausage; 13.5 litres of vegetable oil; 163 litres of milk; 6 kg of cheese; 160 eggs; 28.7 kg of sugar; 33 kg of whole grains; 34.5 kg of pasta; 3.5 litres of vodka. And if you did not eat or drink for a month, you could save for 0.09 of a coat; 0.26 pairs of shoes; 0.12 of a suit; 0.11 of a pair of boots or 0.25 of a pair of women's slippers, says Vodyanova.

The caveat was that even if you had the money, the shops rarely had the goods. Vodyanova relates a story of trying to buy toys from Detsky Mir (Children's World), the Soviet Union's notorious answer to London's Hamleys toy store. She arrived at the store in 1991 to find the queue next door to the KGB's headquarters in central Moscow encircling the huge building eight times. "It was the era of total shortages. Literally everything had to be obtained - not bought: from baby food to spools of thread," writes Vodyanova. "When we finally got inside, alas there were virtually no goods left in the shop."

When Vladimir Putin was president, he summed up the problem neatly in one of his State of the Nation speeches: "Our country is rich, but our people are poor."

Today, the problem has been turned upside down: now the goods are the shops, but the people don't have enough money to buy them. However, that too is changing. In 1991, the average salary was RUB548, enough to buy just three bottles of whisky or 20 packs or imported cigarettes; in 2010, the average salary was the equivalent of $1,043, enough to buy 30 bottles of whiskey or more than 700 packets of cigarettes.

Spending habits

In May, a joint survey conducted by the Moscow Higher School of Economics and Russia's leading economy magazine Expert examined changes in the living standards of Russians and their material well-being between 1990 and 2009.

It found that per-capita consumption has risen on average by about half over the last two decades, though what people are spending their money on has changed dramatically.

Of course, a ruble today is worth a lot less than in 1990 - several thousand per cent less - but if you compare the purchasing power of money then and now, the survey found that per-capita income has increased by 45% between 1990 and 2009, while the volume of consumption per capita more than doubled according to GDP-based consumption figures.

A 45% increase in income is actually not very much over 20 years. Incomes plummeted for most of the first decade after the fall of the Iron Curtain and only began to rise after the 1998 financial crisis, taking off during the roaring eight-year boom that started in 2000. Russia's default on its debt and devaluation on August 17, 1998 was not actually a crash; it marked the low point for incomes and the beginning of Russia's economic recovery. Today, somewhere between 40% and 80% of Russians enjoy higher incomes now than they did 20 years ago (depending on how you measure it), though one in five are still worse off than they were under communism; the Gini coefficient for Russia (a broader measure of wealth that includes things like property as well as savings) in the past 20 years has risen much faster than in any OECD country, and is on a par with Turkey and Mexico.

The main difference between the two eras is that things that Russians now have to pay for were things that used to be free. Compared to the Soviet era, a consumer could buy 70% more durable goods in 2008, 25% more food, and two to three times more cigarettes, vodka, cars and clothing. But at the same time, they can only buy a third as much services related to housing such as heating and electricity, the survey found. Household spending on childcare and education has increased substantially, as has spending on private healthcare. The survey notes that World Health Organization (WHO) data shows Russian spending on private healthcare is now 40% of total healthcare spending - a level well above the EU average.

However, the survey also shows that the quality of life has improved hugely as measured in terms of possessions. The ownership of consumer electronics devices and cars has soared. There are currently about 50 cars and 160 televisions per 100 households in Russia, the survey found. The average amount of living space per capita has also risen about 40% over the past two decades to a current level of about 22 square meters per capita, though that's still far behind a country like Finland where the figure in 2009 was 39 square meters per capita.

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