Russia's wealth gap wounds Putin

Posted at 12/21/2011 8:10 AM | Updated as of 12/21/2011 8:10 AM

MOSCOW - Konstantin owns apartments in Moscow and London, drives a $150,000 Mercedes-Benz car and buys his groceries at the expensive Azbuka Vkusa store.

At the age of 44 he is part of Russia's new generation of rich bankers, but is too cautious to let his full name be published in a country where the wealth gap generates anger and resentment.

Pensioner Lyudmila Rybakova can only dream of such a lifestyle. She has never even been to Azbuka Vkusa and makes ends meet by selling strings of dried mushrooms to supplement her 8,000 rouble ($250) monthly pension.

"With my pension? What would I buy there? It's not for people like me. It's for the rich, it's just for the rich."

The gap between rich and poor in Russia is a growing problem for Prime Minister Vladimir Putin as he prepares to return to the presidency in an election next March.

During his 12-year rule, as president and then prime minister, Russians have broadly speaking become wealthier than they were in the chaotic years following the collapse of the Soviet Union. But the citizen of Putin's Russia can easily lose even a modest sense of well being when confronted with the sometimes flambuoyant ostentation of the rich.

In Soviet times privilege was often a well guarded secret.

Many people cited the wealth gap in ditching Putin's ruling party in a Dec. 4 election that cut its majority in parliament.

The election also touched off protests by demonstrators who say the vote was slanted to favour United Russia and demand a rerun. There will be no rerun, but the March presidential election could push the same issues to the fore.

If a gap has widened between individuals, it is also evident between Russia's many poor regions and wealthy cities like Moscow and the booming oil heartland.

"Poverty is no vice"

Real disposable income has slightly declined this year, official data show, and the difference in income between the bottom 10 percent of the population and the top 10 percent grew by nearly one-fifth between 2000 and 2010.

As in other former Soviet republics, pensioners are among the worst off because they were too old to make the most of the opportunities offered by the free market that followed the collapse of the Soviet Union in 1991.

Moscow is home to 2.65 million retired people and some elderly people have taken part in the recent protests, although many more are young middle-class professionals.

The Organisation for Economic Cooperation and Development said in a report this month that the so-called Gini coefficient, a measure of income disparities, was much worse in Russia than the OECD average.

The number of Russians who made the Forbes' list of the world's billionaires jumped from none in 2000 to 101 last year, with Moscow becoming the billionaire capital of the world.

The average monthly salary in Russia, however, was only 21,000 roubles ($670) last year.

"What can I do with 21,000 roubles? Nothing, absolutely, nothing - it's not money," said Konstantin, who made his wealth during the turbulent 1990s. "It's not enough to breathe!"

He said he could not imagine getting by on less than 150,000-200,000 roubles a month.

"It would be very difficult to do it," he said.

He described his standard of living as "not too bad" and said he did not remember the last time he spent under 200,000 roubles in a month. He has not taken part in the protests.

Russia qualifies as a middle-income country as a whole, but the average pay in three-quarters of more than 80 regions is below the national level.

An average monthly wage would buy about 200 loaves of bread in the Azbuka Vkusa store, and 2,000 loaves at one of the many outdoor food markets around Moscow.

Rybakova, who for decades worked at a local pencil factory, has never made 21,000 roubles in a month. Now 74, she charges 100 roubles for a string of her mushrooms and considers it a good day if she makes 500 roubles.

"Well, such is the fate of people like me," she said.

Dissatisfied voters

Dissatisfaction over income distribution played its role in United Russia's performance in the Dec. 4 election. The party had its two-thirds majority cut to a slim majority after winning just under 50 percent of the votes cast.

"I don't like United Russia," said Nina, a pensioner in Moscow who voted for the Right Cause party that did not cross the five percent threshold for representation in parliament.

"In 2009, he (Putin) said he would increase pensions by three times but he did so by only two times and has never said, 'Sorry, we don't have the money'."

Russia's Communist Party, which targeted hard-up voters in its election campaign, won almost 20 percent of votes and will have 92 representatives in the 450-seat lower house.

"The country has a growing number of dollar millionaires and billionaires. At the other end of the spectrum, there is a huge mass of impoverished people crushed by the threat of unemployment and uncertainty about the future," the party programme says.

A high-ranking government official who declined to be identified said: "Putin is not losing his power, but he realises he is losing the people."

Putin, a former KGB officer, is widely expected to win the March 2012 presidential election even though the announcement last September that he planned to swap jobs with President Dmitry Medvedev without consulting voters upset many Russians.

He still appears to have more support in the countryside, where disparities are probably less manifest, than in big cities such as Moscow and St Petersburg where bright lights and luxury boutiques contrast with grim suburban tower block developments.

"It is obvious that people are very unhappy with the display of wealth they see around them and with the lack of progress to ensure their lives are better

"With (Putin's) ratings sliding, it will be very difficult for him to assure people that he can still raise their living standards."

How bad is it?

Despite this, economists at Renaissance Capital investment bank in Moscow say that income inequality in Russia is adequate for gross-domestic-product-per-capita levels.

"Considering its wealth, the level of income inequality is far from excessive," said Ivan Tchakarov, a Renaissance Capital economist.

"In the BRIC universe (of emerging countries Brazil, Russia, India and China), Russia is only marginally more income-unequal than China and India, but far better placed than Brazil."

China, however, with a population nearly 10 times that of Russia, had only 14 more billionaires last year, according to Forbes.

"The Putin system sees to it that his friends and those close to natural resources get richer," wrote Boris Nemtsov, a liberal former cabinet minister before Putin's rise to power who is one of the 59-year-old leader's fiercest critics.

The poverty rate in Russia stood at 13.1 percent in 2010, according to the World Bank, affecting about 18.6 million people.

"Social assistance is poorly targeted ... privileges generally do not reach the poor well, and hence achieve little in terms of poverty reduction", the World Bank said in a report.

Bleak outlook

Vinogradov said the outlook remained bleak.

"For now, I don't see any government strategy whatsoever on how to raise (living standards)," he said.

John Roemer, a Yale University political science professor, has said that switching from Russia's flat 13 percent rate of income tax to a progressive tax system would raise living standards for the population as a whole.

"There should be much more taxation and redistribution in the public services and to public goods, which will increase the welfare of the people at the bottom," he told a conference discussing efforts to draw up a long-term development plan for Russia on Putin's orders.

Konstantin, who declined to say how much money he has but is described by friends as "a lower-tier oligarch", said Russia needed to develop a proper and bigger middle class to develop.

The middle class is defined by the Centre for Strategic Research as people whose income is large enough to buy housing using a mortgage, and put the per capita monthly income needed to afford a mortgage at 25,000 roubles.

"The middle class helps with better distribution of wealth: It creates competition, it creates better services," Konstantin said.