In a video posted to social media from the Ukrainian city of Melitopol in the early days of the Russian invasion, an elderly civilian can be seen confronting Russian troops: “Don’t you have problems in your own country to solve?”
The soldiers offer little in the way of reply, but if I may offer a response in their stead: boy, do they ever.
Russia is the most unequal of the world’s developed economies. Before the pandemic, the richest 10% of Russians owned 87% of its wealth, compared with 76% in the US and 66% in China. And COVID has only made things worse. The wealthiest 500 Russians now control 40% of the country’s wealth, while the other 144 million have seen poverty rise, incomes fall and food costs surge.
It is not only galling that President Vladimir Putin should focus his attention on territorial conquest while his citizens are suffering. His imperial expansion relies on the deliberate deprivation of ordinary Russians; his government diverts the nation’s largely fossil fuel-derived revenue to its war chest instead of spending it on improving citizens’ health, welfare and economic opportunities.
Ukrainians are the foremost victims of this shameful invasion. But it is worth unpacking how the Kremlin’s regressive economic agenda, a key buttress of its armed offence, hurts the Russian people too.
Putin’s austerity politics
Putin rose to national leadership in 1999 promising to arrest skyrocketing inequality and inflation. After initially stabilising the growing chasm between rich and poor (though it may have already begun levelling off), it has remained stagnant at world-leading highs throughout his two-decade reign, despite Russia significantly increasing revenue from fossil fuel exports.
This hasn’t merely been due to Putin’s infamous circle of oligarchs corruptly siphoning off funds. It is also due to various austerity policies, such as strict budget and foreign account surpluses (exports exceeding imports). Russia was one of very few nations to run a budget surplus in 2021 despite the raging pandemic. Some brave Russians even protested the lack of government support in a country where protest can incur draconian punishment — but the Kremlin steadfastly refused to cough up.
Such miserly savings, including the significant sums in the country’s national wealth fund, meant Russia was effectively stockpiling its fossil fuel revenue that could have lifted millions out of poverty.
Such economic conservatism only renders Putin’s left-wing apologists embarrassingly hypocritical.
This “rainy day fund” appears to be the reason he thought he could invade Ukraine and withstand the inevitable economic sanctions. But since Western nations have imposed much harsher measures than many anticipated, including effectively nullifying the parts of Russia’s holdings denominated in foreign currencies, Putin has wasted mountains of stashed cash that could have significantly improved the lives of struggling Russians.
What remains of his war chest is now being spent on corporate stocks and bonds to prop up ailing Russian companies, but such belated spending will hardly trickle down to those most in need — and will hardly be enough to stem the bleeding he provoked.
Other countries do it too
Putin isn’t the only authoritarian leader squeezing his people to finance the elite’s pet projects — Chinese President Xi Jinping pioneered this strategy. Harsh financial and welfare policies have diverted excessive amounts of China’s export revenue from citizens’ incomes to state-led investments, leading to white elephant projects like empty cities, while the lower and middle classes are held back.
And before the West gets too cocky, some of our allies are guilty too. Germany has long explained away its foreign account surpluses by boasting about its strong exports. But this export revenue hasn’t translated into greater domestic spending due to the Bundestag’s fiscal austerity, which it foist on other European nations after the global financial crisis, and because too much of it flows to the richest who are least likely to spend.
Their excessive focus on balanced budgets has constrained German investment in renewable energy, which increased its reliance on Russian gas. Beyond the environmental cost, the national security implications of this have been magnified by the Ukraine crisis.
On balance: frugal governments are often complicit in the crimes of despots. Whether it’s Putin’s cronies beavering away foreign currencies to cushion the blowback from his next military adventure, or miserly bureaucrats brutally balancing their bean-counters from a misplaced notion of “fiscal responsibility”, denying the people the fruits of their labour forgoes investments in a better future.
As that brave Ukrainian senior reminded us, the world has more pressing problems than indulging imperial delusions — if only our leaders can marshal the resources to solve them.
quote:
Russia is the most unequal of the world’s developed economies. Before the pandemic, the richest 10% of Russians owned 87% of its wealth, compared with 76% in the US and 66% in China. And COVID has only made things worse. The wealthiest 500 Russians now control 40% of the country’s wealth, while the other 144 million have seen poverty rise, incomes fall and food costs surge.
What re the figures for Australia?
According to the ACOSS 2020 report on inequality.:
The highest wealth group (highest 10%) had 46% of all household wealth and the middle wealth group (the next 30%) had 38%, leaving the remaining 60% with just 16%:
• The average wealth of the highest wealth group was $4,754,000 comprising $1,413,000 in their homes (after mortgage debt), and $3,341,000 in other assets.
• The ‘middle wealth’ group (next 30%) had 27% of the average wealth of the richest 10% ($1,282,000) comprising $615,000 in their homes, and $667,000 in other assets.
• The lowest 60% by wealth had just 6% of the wealth of the richest 10% ($277,000). This comprised an average of $120,000 in their homes (noting that many were not home-owners), and $157,000 in other assets.
We know the pandemic made inequality much worse and the gains went overwhelming to the top 10%. The 2021 ACOSS report will be interesting reading.
Incidentally, the wealth figures for the middle group are the real reason I don’t think they really care about the price and availability of first homes and/or rents. They’re doing ok. They say they care, but they don’t because they gain from it. The other 60% can just suck it up and continue subsidising them.
Good article thanks, cuts to the core in my view. My Dad was a soldier in WW2 and saw eastern Europe after the war, he regarded the Russian government as hopeless, for the reason that they couldn’t imagine and work for a positive future. He also accepted climate change decades ago, and said that local and global politics would squabble over it (try to get the last selfish advantage) rather than work together to fix it.
Thanks again.
Should Tsar Putin be more worried by a Peoples Revolution within Russia? His apparent excitement in bringing back the Empire may backfire as his troops hesitate to kill their cousins.
“Chinese President Xi Jinping pioneered this strategy. Harsh financial and welfare policies have diverted excessive amounts of China’s export revenue from citizens’ incomes to state-led investments, leading to white elephant projects like empty cities, while the lower and middle classes are held back.”
Seriously it’s statements like this that that reduces the authors opinion to complete jumbo jumbo. I have been travelling to China for two decades. The improvements there in standard of living has been incredible. Private enterprise is flourishing. Many former state industrials are long gone. The middle class is expanding. The big cities are already wealthy, and the rural areas are now catching up.
The “removal” of Putin would go a long way in reducing the amount of misery in the world.