Rosy poverty picture comes under fire: Critics are questioning new estimates of the size of Russia’s middle class

(Moscow News – themoscownews.com – Anastasia Matveyeva, Moskovskiye Novosti – November 26, 2012)

Over the 2000-2012 period, the income of Russians has grown by 2.5 times. This has radically changed the country’s social structure, say two academics who presented a report at a Gaidar Readings conference in Moscow on Nov. 13: such conditions as poverty have practically disappeared and the proportion of poor has sharply declined. At the same time, the middle class has grown. These conclusions have triggered an active discussion, presenting a question of whom we should describe as poor and of whom we should assign to the middle class, and by what criteria.

Using criteria from the World Bank, the Center for Strategic Development’s Mikhail Dmitriyev and the Center for Social Policy at the Institute of Applied Economic Research’s Svetlana Miskhina conclude, that if one applies them to Russia as a developing country, then the proportion of poor is currently no larger than 0.5 percent. According to the criteria for developed countries, the proportion is around 30 percent.

Thus, Dmitriyev and Miskhina say, even if we define Russia as a developed country, around 60 to 70 percent of its population belongs to the middle class, though there is a fair-sized layer of the rich (around 10 percent, following from the report).

No government illusions

But no one even in government offices has drawn a rosy picture from these figures. In a long-term development strategy through 2020 that the Economic Development Ministry prepared before the global economic crisis, for the middle class to reach 50 percent of the country’s population was a target for 2020. In an updated post-crisis “Strategy 2020” this year, experts produced other figures: a 27 percent middle class currently, and 40 percent by 2020.

Dmitriyev and Miskhina’s critics direct attention, above all, to the fact that the two have based their conclusions on data about consumption. According to these data, Russia’s poor are no different from other parts of the population in owning cars, refrigerators and televisions, and pets, or in the consumption of tourist services and even in homeownership.

However, ownership of apartments is explained by the results of free privatization, and a significant amount of expensive goods is bought on credit that the poor frequently do not have the possibility to pay back. Critics interpret the increase of credit in the Russian consumer market over the past year from 15 to 29 percent negatively: a large part of these debts is incurred by people with limited financial means.

Vague definitions

The possibility of developing absolute criteria of want and, correspondingly, the line of where the middle class begins, also fall within the critics’ doubts. Calculations of the level of poverty, made according to the World Bank’s criteria (less than $2 a day for developing countries and less than $15 a day for developed) do not look right, in their opinion.

“Poverty is a phenomenon that depends on how you measure it,” said Lilia Ovcharova, director of the Independent Institute of Social Policy. According to her data, the real portion of the population that is middle-class in Russia consists of no more than 19 percent. She said that leading World Bank economist Branco Milanovic ­ on whose figures “Farewell, Poverty” was largely based ­ presented only international standards of poverty and corresponding international criteria of the middle class that he thought up.

“Milanovic proposes, that if your income is higher than the American poverty line, then that means that you are middle-class in the Western understanding. But those who study the middle class, I think, have done a double-take, because the economic theories of the middle class lie in this completely other understanding,” Ovcharova said. “The theory of the middle class and the theory of poverty did not intersect. They are theories about different things, and we should not confuse them.”

Quality, not quantity

As Yevsei Gurvich, director of the Economic Expert Group, in the situation when the average level of per capita income exceeds $10,000 per year, which has already happened in Russia, demand for more quality institutions arises in society, however there is no basis to think that they change for the better.

“It means not only the level of per capita income, but its distribution, differentiation and source,” Gurvich said. “The country with the highest per capita income is Qatar, but it is not a leader in the quality of its institutions.”

The middle class is, in his opinion, about values more than anything.

“Society is split into two parts with different values, with a different orientation: a small but active vanguard, for whom values of freedom prevail, and a large majority, for whom economic values and values of parity are a priority,” Gurvich said.

Both the lowering of the poverty level and the growth of the middle class are an official priority for the state’s socialeconomic policy, shared by almost everyone. It is understood that the choice of objective criteria for one and the other are not in the least merely academic, but a daily task. The almost polar position of experts on this subject shows only that we are still far from its resolution.