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Subway passengers stand near military recruitment poster. Moscow, Russia. May 25, 2023.
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‘The end of the war will herald far more challenges for the regime than the war itself’ As war deepens Russia’s wealth divide, the super-rich only grow richer

Source: Meduza
Subway passengers stand near military recruitment poster. Moscow, Russia. May 25, 2023.
Subway passengers stand near military recruitment poster. Moscow, Russia. May 25, 2023.
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Russia’s wealth gap has always been wide, but as the war against Ukraine drags on, the divide is only growing more extreme. Reports about the economy often seem contradictory: despite heavy international sanctions, the Kremlin is pouring billions into defense spending and offering ever-larger sign-on bonuses for army recruits. Meanwhile, with thousands sent to war and a crackdown on migrant workers, the country is grappling with a labor shortage. At the same time, soaring inflation has eroded wages. Yet Russia’s super-rich are only getting richer — with those on Western blacklists often even outperforming their peers. To unpack these conflicting dynamics within the Russian economy, Meduza spoke with Jem Morrow, a researcher studying Russian society.

The following interview has been lightly edited and abridged for length and clarity. Jem Morrow is the pseudonym adopted by the researcher for security reasons.

— Russia is facing a nationwide labor shortage, while the government has increased defense and wartime spending. Why hasn’t this resulted in broader economic benefits for lower-income workers in the country?

I think that the main problem people have when they think about the economic benefits of the war is that there are essentially three groups that are benefiting: soldiers’ families, workers in the military-industrial complex, and another small group, which is business owners.

The problem people have is they think that, like in perhaps some Western countries, these groups are bigger than they really are. In reality, when you look at them as a proportion of the population, even if you take into account the extended families of soldiers, the economic benefits to towns where munitions factories are sited, or indeed the broader economy that might benefit from increased spending from these groups — the mistake is that to think that this is a bigger effect than it really is. And indeed, it's a small effect.

People always look at the money being paid to soldiers. [But] as a proportion of the population, it's a tiny amount and it's still a tiny amount of money. It seems to me that the mistake people make is that they have this rather patronizing view of Russia and the Russian economy: “Oh, these people in poor cities are now getting paid 2,000 euros a month and a sign-on bonus of perhaps up to 10,000, 20,000 euros. This is changing the picture of social inequality in Russia.” But that ignores basic statistical reality, which is that Russia was one of the most unequal countries in the developed world before the war. And it will remain that way. It might even get worse, I would argue.

It will get worse because of the massive problems that the war is storing up for the economy as a whole, in terms of things like access to consumer credit, which is now obviously costing about three times as much as it would cost in a comparable economy in the West. And the fact that regardless of the wage increases to compensate for high inflation, these wage increases, except for a small minority, are not actually indexed. So, they aren’t actually keeping up with inflation. Sure, we know people that are getting much bigger salaries than before, but for 10 years, they’ve seen declining living standards. And so, to catch up with what we would think of as a decent blue-collar salary in Western countries, we would still need a decade or more of sustained increases to really make a difference. If somebody was earning 500 euros a month [before the war] doing a blue-collar job in one of these cities that is supposedly benefiting from the war, now they're earning 800, or even 1,000 euros a month. It still doesn't mean they're not living [in] a precarious situation where they're not able to plan for the future.

And this was one of the things that survey polling [showed]. Even the polling companies most sympathetic to the central authorities always cite the fact that the majority of Russians have no savings and cannot financially plan for the immediate future. Yes, there are people that have got savings, but these are a minority. So, this issue of economic precariousness hasn’t changed [for the better] because of the war.

Recruitment problems

Even after doubling its sign-on bonus payment, the Russian army’s recruitment rate is falling. Losses may now outpace new enlistments.

Recruitment problems

Even after doubling its sign-on bonus payment, the Russian army’s recruitment rate is falling. Losses may now outpace new enlistments.

— You mentioned that wages aren’t keeping pace with real inflation. How is this contributing to the income gap between the wealthy and the poor in Russia?

Because of the three things I already mentioned — first, the difficulty in access to affordable credit (people are using microcredit to meet even their basic needs); second, the fact that inflation is very, very high by any standards; and third, the fact that most people are starting from a low income level, even in relatively wealthy cities. I don’t think anything that has happened during the war, or if there was going to be peace tomorrow, would change the picture with the kind of long-term structural issues that you have. That gives you a situation where you take a trade, or a manufacturing job, or even white-collar work like skilled, professional, administrative, or managerial positions, you look at how much they’re paid vis-à-vis the cost of living and the wealth is generated in the economy — albeit largely from minerals and hydrocarbons — and Russia is not a normal country in that sense.  

There's this very old text by these two economists [Andrei Shleifer and Daniel Treisman] from early in Putin's [second term] where they said [that] Russia's finally going to become a normal country, where people get the economic benefits of, okay, not a liberal democracy, but a kind of more typical market economy. And they obviously turned out to be completely wrong, because, as I said, Russia was able to remain this highly, highly unequal society.

It's not as unequal as a country like Brazil, or even Mexico, but given the high level of human development, human capital, the high level of education, the integration that was happening with the global economy in the early 2000s and even 2010s, it's not what you would expect.


Even though we’re outlawed in Russia, we continue to deliver exclusive reporting and analysis from inside the country. 

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— Despite the war and sanctions, the number of Russian billionaires has grown over the past few years. What factors are allowing the wealthiest individuals to thrive while many ordinary Russians face economic hardship?

We know that some people were offered the opportunity to reshore their wealth, both before and during the war. And some people have done that. But even for people that have lost significant amounts of money in the West, or had their assets frozen, the fact is that the exit of Western companies actually provided this opportunity for [Russian President Vladimir] Putin to reward loyal people.

Again, not all of them were necessarily oligarchs before the war. But we've seen that there's this good evidence that some already rich people have gotten a lot richer thanks to the division of these productive assets that were effectively abandoned by Western companies. The famous example is the yogurt maker Danone, but also [the brewing company] Carlsberg. And then there are the gaps in the market that the exit of companies like McDonald’s has provided. So the economic blockade, partial blockade, of Russia has only provided more opportunities for the elite to buy more loyalty through redistributing assets at the top. And this process is entirely separate from the process that I was just talking about. So while people say, “You know, the Russian economy has been very robust” — it's been robust if you're a capital owner.  

We've got to think about how these contradictory, different processes are occurring at different levels within the Russian economy, and not focus on this very misleading picture where sure, a couple of hundred thousand people connected to the army are being paid quite a lot more than they were before. But also, again, by any international standards, and even by Russian standards, it's not that much money.

What are they spending it on? They're spending it on Chinese cars. They may be paying off a mortgage early. But there isn't this huge multiplier effect of the money from war salaries going into the economy. If anything, the effect is that this money is being burned through very, very rapidly by recipients who have never seen this kind of money before. Yes, it may be a lot of money for them. But it's not enough to have a massive multiplier effect in the economy as a whole. 

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— By some reports, billionaire assets now account for 27 percent of Russia’s GDP. How do ordinary Russians perceive this concentration of wealth, especially during a time of widespread economic hardship?

I think there are conflicting discourses that are operative. You do have people complain about profiteering, about people benefiting from the sacrifice made by Russian soldiers. But you also have this competing discourse, which is “my country, right or wrong.” This idea of defensive consolidation behind the leader. And so they kind of cancel each other out, I would say, certainly among the ordinary people that I talk to.

Having said that, if there is a negotiated ceasefire, or even a permanent peace, I think very, very quickly, we will see social discontent emerge in some ways. And I'm not saying that there would be unrest or anything, but there would have to be a reanalysis by the elites of their kind of complete, unbridled, rapacious appetite for the country's wealth.

Earlier, in one of his iterations, Putin was very effective rhetorically at saying, “Well, you know, everybody's going to benefit, and oligarchs who step out of line are going to find themselves in trouble.” And he was performative, disciplining people like the aluminum oligarch [Oleg] Deripaska many, many years ago, dressing him down in public. So there'll have to be something. The end of the war will herald far more political challenges for the regime than the war itself, in my view.

— If the war drags on, do you expect the wealth gap to widen further, or could it eventually lead to an economic collapse for the wealthy? Conversely, if the war ends in a peace deal soon, how might that change the dynamic?

The coercive capacities are such that people who perhaps naively, or through wishful thinking, believe that there'll be some spectacular changes within the Russian political economy are, you know, thinking wishfully. I don't agree that that’s something that could happen, but certainly you could see that the country might actually become more repressive — have to become more repressive — if the war ends or if the war continues, just as a way of keeping a handle on things.

People talk about the North Koreanization, and I'm kind of skeptical about that, but at the same time, if you continue to ask people to make sacrifices and see their living standards fall as a result of your foreign policy decisions as a leader, then you have to do something about that — whether that’s more repression or whether it’s making examples of kind of hate figures, or creating hate figures from among the sub-elite. I personally think that the war will end in some way in the next 18 to 24 months, but as I said, that's just when the problems really begin for the regime. Because the war, again, in my view, started as a result of Putinism not having any answers for most people who live in Russia. Especially when it came to what feminist researchers call social reproduction. I want to know that my children will live in a better country than I live in and have better opportunities than I did. Your average person wants to be sure social reproduction occurs in a meaningful and positive way, and that just hasn't been possible since at least 2008 in Russia.

I know a lot of people focus on the ideological, or geopolitical reasons for the war in Ukraine, but for me, those things themselves are at least implicitly part of, a result of, the dead end that was what Putinism could offer your average Russian person. 

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