The war has brought Russians not so much poverty as a return to the past
March 29, 2023
  • Sergei Shelin 

    Journalist, independent analyst, until recently commentator at Rosbalt labeled “foreign agent” in Russia 
Sergei Shelin writes about profound material changes in Russia: the prosperity of the beneficiaries of militarization, the decline of the middle classes, and the steady restoration of late-Soviet domestic practices.
Sales of alcohol has increased in 2022. Source: VK
A year ago, it was thought almost obvious that the average Russian would suffer ruin and poverty as a result of the war and sanctions. But there has been no collapse in standards of living.

A consumer survey recently published by the state statistical agency (Rosstat) shows that the majority of Russian households (56%) have not seen the deterioration of their financial situation over the last 12 months. Of those surveyed, 33% noted a deterioration, while 11% observed an improvement.

Expectations for the coming year are even less pessimistic. Discussing expectations, the share of neutral responses increases to 66%, the share of negative responses decreases to 22%, and the share of positive responses remains the same (11%). The average Russian definitely does not consider the deteriorations in his standard of living to be fatal — and also thinks that the worst is already behind him.

Technically speaking, the average Russian has reason to think this. According to official calculations, real incomes decreased by just 1% in 2022. The decline in real wages was just as modest. Moreover, in the first months of 2023, incomes and wages halted their downward trajectory.

To get a more complete picture, however, we must recall that the recent decrease in income was only the latest in a series of declines that began back in 2014, the year of the annexation of Crimea, the first wave of sanctions, and the fall in oil prices. As a result, Russians’ real income in 2022 was lower than in 2011. And the pullback was even deeper. Due to fears related to the war, consumer spending by residents of Russia fell much more dramatically than their incomes following the invasion of Ukraine. Retail turnover fell by 10.5% in December 2022 compared to December 2021 and by 6.7% in January 2023 compared to January 2022. At the end of last year and the beginning of this year, purchases of goods were at about the same level as 2008. The past 15 years, then, have not brought residents of Russia any growth in prosperity at all.

It is commonly thought that income stagnation is nothing new and does not require much explanation. But behind the figures showing a general stagnation of incomes are dramatic changes in Russian everyday practices and in the well-being of certain groups of Russians.

The militarist prize

The Institute for Social Policy at the Higher School of Economics (Moscow) has compiled four scenarios for the current decade — from the best possible for Russia (easing of external sanctions amid global economic growth) to the worst (tougher sanctions amid global stagnation).

All four promise, by 2030, "an increase in the concentration of wealth with, and further detachment of, the ‘top,’ on the one hand, and, on the other hand, a reduction in inequality from below by bringing the middle (or formerly middle) strata closer to the poor, with a certain stability in the depth of poverty." Only the degree of these changes varies from scenario to scenario.
"That is, the main economic blow will fall not on the poor, but on the middle-income strata, with the exception of the security forces, whose well-being will improve."
Public-sector employees, especially those working in the military-industrial sector, will feel more secure and prosperous than the rest. Meanwhile, informal employment and informal income-generating schemes will grow significantly.

These processes will develop gradually and become more noticeable only with time. But even now the emergence of a large stratum of military beneficiaries is evident — and it is possible to estimate the scale of resource diversion in their favor.

According to various estimates, in 2022, the direct and indirect expenditures of the Russian Federation on the war against Ukraine amounted to between one-quarter (RUB 7.4 trillion) and one-third (RUB 10 trillion) of the national budget ($100-130 billion at the exchange rate of March 2023) — that is, 5-7% of Russian GDP. In the same period, household expenditures on final consumption decreased by 2.3% of GDP (from 49.2% in the last pre-war year to 46.9%). The difference between these two figures (3-5% of GDP) roughly corresponds to the material gain of those who serve the war, against the backdrop of the loss of everyone else. The militarist premium, which was shared among the rank-and-file beneficiaries, amounted to $60-100 billion.

Putin pays generously

Hundreds of thousands of combatants and millions of their family members have received or are receiving payments, ranging from RUB 195,000 ($2,500) in monthly allowances to RUB 3 million ($40,000) for wounds and RUB 12.4 million ($160,000) for death.

Even the minimum wage for a private is equal to six median salaries, a significant sum for people from low-income backgrounds and poor regions, who comprise the bulk of the recruits.

Almost as tempting are the wages offered to those who agree to participate in the development of the annexed territories. A drawing teacher who spoke to the Telegram channel "We Can Explain" (Mozhem ob"iasnit') on condition of anonymity reported that she was paid several times more than in Russia — RUB 120,000 ($1,600) — to work in the Donetsk region and that her job description included making "patriotic" pictures of military content with children and listening to the Russian anthem and “Well Done, Vladimir Putin” (Vladimir Putin — molodets) with them.

Russian statistics do not provide detailed information on labor migration to the industries serving the war. However, the available fragmentary information is quite illuminating: during the last four months of 2022, the number of those employed in "state administration and military security" rose (seasonally adjusted) by 0.45 million, even as the overall number of those employed decreased by 0.5 million.

During this period, trade and construction lost the most workers (0.2 million each). Notably, however, the decline affected only the civilian part of the construction sector, while the military side is growing rapidly. Thanks to military orders, the volume of construction work performed in January 2023 jumped by 9.9 percent year on year.

The budgets for rebuilding cities destroyed by Russian troops in the "new" — i.e., annexed — territories are very large. The buildings already commissioned are few, but enough to, for example, provide a TV backdrop for Putin when he visited Mariupol on March 18.The remuneration offered to workers at these sites is very generous: between RUB 100,000 and 500,000 ($1,300-6,500), depending on the specialty, making it several times higher than at conventional regional construction sites.

Don’t look for meaning in spending

A characteristic example of inefficient spending on militarist projects is the hastily erected system of fortifications in the annexed territories and neighboring Russian regions — that is, in Crimea, Zaporozhzhiae, Donbas, and the Belgorod and Kursk regions. The construction, which is being carried out on a massive scale, is accompanied by a garish public relations campaign that stresses the alleged importance of these fortifications and describes them using such expressions as "dragon's teeth," "the serf line," and "the Wagner line."

Analysts at the Institute for the Study of War (ISW) in the United States note the weak connection between these facilities and specific military tasks ("the fortifications are […] currently inconsequential for Russian operations in Ukraine") and therefore see no point in their construction. (See also a Russia.Post article about these fortifications at https://russiapost.info/digest/fortifications)

The actors of Putinism are unsurprisingly concerned not so much with solving practical problems as with finding pretexts for disbursing the allocated funds. Many of the new militaristic projects that are constantly emerging clearly serve this very purpose, and they all provide jobs and impressive salaries to a growing number of rank-and-file beneficiaries. The flip side of these individuals’ prosperity is the deterioration of the lives of most Russians, who have to pay for the work of the militarist machinery.
Local officials have come up with initiatives such as putting local air defense costs on utility bills, but these initiatives so far remain on paper. The widespread curtailment of beautification programs will only result in a decline in living standards years from now. And the deterioration of the business climate, import failures, and the generally depressed atmosphere have only seriously affected living standards in the few advanced regions and those where no major militaristic projects have been deployed.

While the overall volume of retail sales in the Russian Federation in January 2023 was 93.4% of the level of January 2022, in Moscow, the Moscow Oblast, and St. Petersburg sales of goods fell much more — to between 86 and 88% of the January 2022 figures. It was here, before the war, that the modern middle classes — those who were not employed by the state — were concentrated.

By contrast, in the Volga regions and in many ethnic autonomous regions, the decline has been minimal or non-existent.
"Those who are supported by the state are now feeling the benefits thereof."
Foreign tourism has almost ceased to exist. Russian vacationers have to choose accessible destinations. Pictured: a hotel in Abkhazia. Source: Twitter
The Central Bank of Russia notes in its latest bulletin that in January-February 2023, "government-oriented industries grew at a faster pace." Those that are not "state-demand oriented" are, of course, not part of the current militaristic prosperity.

But all categories of Russians are now involved in the process of turning back the clock, in terms of both standards of living and everyday practices.

Renaissance of the Brezhnev-Andropov Stagnation

The modes of organizing material life that prevailed at the end of the Soviet regime, in the "stagnant" 1970s and 1980s, did not disappear after those decades passed. They were, however, supplanted by more modern practices — at least in successful urban centers and advanced regions. Now, the archaic is coming to the fore again. The revival of late-Soviet customs is occurring on many fronts.

Requirements for the quality of purchased household goods are decreasing. Purchases are shifting from non-food items to food items, and in reusable goods from new to used items. In January 2023, the volume of food trade amounted to 97.9% of the volume of January 2022, while trade in non-food products decreased even further — to 89.6% of the January 2022 figure. At the same time, the range of purchased non-food items narrowed noticeably. In particular, the standards of manufactured goods have decreased. Demand for inexpensive second-hand clothing has increased sharply.

Consumption of vodka, tobacco, and canned goods is growing. Against the backdrop of a shrinking consumer market, sales of strong alcohol increased by 7.5% in 2022. More tobacco, legal and illegal, was also purchased, in a break with downward trend in tobacco consumption. And as part of the restoration of the Soviet-militarist way of life, the production of canned goods jumped. In January 2023, 45.7% more cans of meat were produced than in January 2022, while the number of cans of vegetables and mushrooms produced increased by 90.2%.

Car purchases have almost halved. This decline is unprecedented in the more than half-century history of the mass automobile market in Russia. Spending on car purchases as a share of the total volume of purchases by Russians collapsed in 2022 to 4.7%, down from 7.8% in the previous year. Interest in buying used cars increased. Demand for professional repair services at service centers has dropped; as in the Soviet past, repairs are now more often done by car owners themselves or informally.

Public catering preferences are shifting toward the Soviet canteen model. The number of visits to traditional restaurants is decreasing, while the number of visits to simpler and half as expensive (in terms of the average bill) fast-food restaurants is increasing. The fast-food outlets themselves are gradually restoring the standards of Soviet catering — in terms of both service and quality.

Western destinations for foreign tourism are disappearing, and tourism is shifting to domestic destinations. In 2022, 60% of the 17.5 million outbound trips to the so-called “far abroad” were to the self-proclaimed Abkhazia (5.4 million) and Turkey (4.6 million).
"Since last fall, European tourism has almost ceased to exist, becoming as exotic as Soviet-era travel to 'capitalist countries'."
Meanwhile, a growing number of trips are being taken to domestic destinations, for example the resorts of Kuban, which in the Soviet era was the main seaside vacation destination.

The boom in individual housing construction has come to an end. This is one of the starkest changes. In previous years, the skyrocketing rate of private home construction represented a move away from the basic housing standards established during the Soviet era.

In 2016, individual houses accounted for 39.5% of all residential space commissioned in Russia; in 2019 47.0%; and in 2021 53.0%. In 2022, as construction was completed on those houses commissioned before the war, individual housing as a share of the total floor area of new residential space rose to a record 55.7%. In January-February 2023, however, the area of completed individual houses fell by 7.6% compared to January-February 2022. If this trend continues, there will be a return to Soviet standards following an almost-complete rejection of them in recent years.

Putin's Russia is returning to the material skills, customs, and domestic priorities of the Brezhnev-Andropov stagnation era. This is, admittedly, not a complete return: the types of inequality and everyday practices of those times are being restored, but not the massive deficits. The embattled Russian Federation is trying to live without contemporary middle classes, with the masses tied to a state employer and bound to shady industries, and with an ossified Chekist-police nomenklatura. If, forty years ago, the then-toilers in the security organs and law-enforcement had been allowed to imagine a paradise for themselves, this would have been it.
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