Poverty and Inequality in Contemporary Russia | Poverty Threshold

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Oxfam has more than 60 year's experience supporting people to overcome poverty the world over. Since 2003, Oxfam has been working in the Russian Federation, where it has applied its international knowledge to work with civil society partners from Murmansk to Vladivostok and many places in between. From 2012, advocacy on pro-poor social policy has become central to Oxfam’s work in Russia. This briefing outlines Oxfam’s analysis of poverty and inequality in Russia and introduces Oxfam’s policy recommendations, which will be developed further as work in this area rolls out.
  OXFAM BRIEFFING PAPER 8 NOVEMBER 2012 www.oxfam.org  POVERTY AND INEQUALITY IN CONTEMPORARY RUSSIA Oxfam has more than 60 years experience helping people overcome poverty the world over  –  from Asia and Africa to the United Kingdom and the United States. Since 2003, Oxfam has been working in the Russian Federation, where we have applied our international knowledge to our work with civil society partners from Murmansk to Vladivostok and many places in between. In 2012, advocacy on pro-poor social policy will become central to our in-country work. This briefing paper is meant both to outline Oxfam’s vision of the situation around poverty and inequality in Russia and to introduce our policy recommendations, which we will develop further as our work in this area rolls out.  2 1. WHY TALK ABOUT POVERTY AND INEQUALITY IN RUSSIA The rapid economic growth that Russia has experienced in the past decade has, unfortunately, not resulted in radical decrease of poverty and inequality among the Russian population. And while the absolute poverty rate has been substantially decreased (from 29% in 2000 to 13% in 2011) and nowadays a significant part of the Russian population is enjoying the benefits of this economic growth  –  as expressed in the unseen by many developed countries level of consumption  –   more than 18 million Russians (1 in 8 people) still live below the national poverty line.  Notably, the past year has even seen an increase in the number of poor people: 200,000 Russians became poor in 2011 . The situation of poor people in contemporary Russia is further exacerbated by the growing level of inequality, which is further aggravating subjective experience of poverty and limiting people’s chances to escape poverty. However, with Moscow being home to the biggest number of dollar billionaires in the world and Russia’s aspirations to present itself as a successful middle -income country, the poor and marginalised are becoming invisible and being silenced. Persisting poverty and growing inequality in Russia is a systematic issue caused by failures of the system of social protection and redistribution in Russia.  Anti-poverty measures implemented in the 2000s made the poverty of many people less deep, but have not actually managed to bring them out of poverty. And the recent suggestions of the newly formed team in the Ministry of Finance to change the method of calculation of the poverty line, which should result in the reduction of the actual number of people falling below this line 1 , put a big question mark over the government’s intentions to effectively tackle the problem of poverty and inequality in Russia. But without doing this Russia risks facing a serious economic and social crisis in the near future. 2. POVERTY: WHAT IT IS AND HOW IT LOOKS IN RUSSIA The first important step in any discussion of poverty is to define it. The most widely internationally used concepts of poverty are absolute and relative poverty . Absolute or extreme poverty could be defined as a lack of sufficient resources to secure basic life necessities.  There exist international, national, and sub-national/regional absolute poverty lines. The current international poverty line was set by the World Bank at the level of 1.25$ (PPP) per day 2 . Such extreme forms of poverty are said to have been eliminated in Russia in 2009. The national absolute poverty line in Russia corresponds to the estimated price of the basic consumer basket, which currently is set at the level of 6.800 RUR (136 GPB) for a working adult per month. Regional poverty lines in Russia vary from approx. 75% to 200% of the national poverty lines. Currently, 12.8% of Russian population (1 in 8 people) live below subsistence level. However, as a wide range of Russian policy experts agree in Russia today the ‘contents’ of the b asic consumer basket do not meet the public health standards and do not correspond to the real patterns of consumption, and its price is substantially understated 3 . Raising the national absolute poverty line to the level of the real price of basic consumer basket and reconsidering the content of the basic consumer basket to account for actual  population consumption patterns, as well as health, educational and informational needs should become the first step on the way to addressing the problem of poverty in Russia.   3 Relative poverty is the state in which some people’s income is so much lower than the general standard in the country or region that they are almost unable to participate in ordinary economic, social and cultural activities.  Relative poverty could be measured in a number of different ways, but the most common measure used in the OECD countries defines people as relatively poor, if their equivalised disposable income is below 60% of the national median income. Relative poverty has serious psychological and social implications. People living in relative poverty experience high levels of distress in their daily lives, being constantly confronted with very difficult choices they because of the insufficient financial resources that they have. Thus, for example, pregnant women living in relative poverty have to choose between paying for the contract in the maternity hospital, which in contemporary Russia often serves as a ‘guarantee’ of good quality services, and buying necessary goods for their future baby. In the countries with low public provision of healthcare, education, and social services, relative poverty also substantially limits one’s children’s chances for upward social mobility. The measure of relative poverty is not officially used in Russia, but, according to estimates, in 2010, 31.7% of the Russian population lived below the relative poverty line 4  (median income in that period was 13,400 RUR (268 GBP)). Introducing a relative poverty line would allow better monitoring and, therefore, more effectively address actual situation with poverty and inequality in the country. When talking about poverty, however, it is important to understand that poverty has a number of characteristics, such as intensity (also referred as depth of poverty, or poverty gap) and duration (or persistence). Poverty experienced by the majority of poor people in Russia is currently not very deep  –  about three-quarters of those currently living in poverty would need to increase their income by less than a half, in order to get out of absolute poverty. Both absolute and relative poverty in Russia are also characterised by relatively low duration. For two-thirds of families that experienced poverty it was a short period of 1  – 2 years. However, it is important to note that at different moments poverty has been experienced by more than 50% of Russian families and for many, these episodes of poverty were repeated .  5  Moreover, it is important to remember that  poverty is not just about income.  It is also about bad health, educational disadvantage, joblessness, inadequate housing and environmental conditions that people live in. In 2011, Russia was listed on the 66 th   place in UNDP’s Human Development Index rating 6 , and thus fell behind most of the OECD countries, as well as some of its post-Soviet counterparts, such as the Baltic States and Belarus. In 2012, in the OECD’s Your Better Life (also known as Happiness) index rating that evaluated the quality of life in OECD countries plus Brazil & Russia 7 , Russia achieved only 32 nd  place (out of 36). Increasing access to and quality of social services, including healthcare, education, childcare and care of the elderly is key to fighting poverty and inequality.   3. INEQUALITY: WHAT IT IS AND HOW IT LOOKS IN RUSSIA Inequality is a measure of disparity between high and low income groups in a given society.   While in Russia  –  and certainly also beyond it  –  one may often hear arguments that inequality is a necessary precondition of economic growth, when put into actual context, this argument appears simplistic, if not false. Higher levels of inequality are associated with higher crime rates, lower levels of trust, and poorer population health, among others 8 . This, in its turn, leads to instability, decrease in investments, and the undermining of government institutions, which eventually negatively affects economic growth itself  9 .  4 Inequality is also vital for understanding of poverty, especially relative poverty, since the ways in which wealth and income are distributed in a country determine the extent and depth of poverty experienced by its population .  As the international experience suggests, societies   with a more equal distribution of income also have lower levels of poverty . In the last twenty years, Russia has witnessed an unprecedented growth of income inequality. In the span of just two decade, Russian society, which in the end of the 1980s by its level of inequality compared with Scandinavian countries, has become more unequal than most of the G20 countries, including China, Indonesia, and Turkey 10 .  Since the 1990s, the decile dispersion ratio (the ratio of the income of the richest 10% of the population to the income of the poorest 10%) in Russia has jumped from 8 to 16, and GINI coefficient (an indicator of income distribution across all the income groups) grew from 0.24 to 0.46. It is also important to note that in the recent years, inequality in Russia has continued to grow. 4. FACTORS OF POVERTY AND INEQUALITY IN RUSSIA In order to understand why poverty and inequality persist in contemporary Russia, it is important to look at their main factors. Key poverty factors Contrary to common notions in Russia that ‘Who does not work does not eat’ (‘Кто   не   работает  - тот   не   ест’ ), a large proportion of poor Russians  –  38%  –  do actually work 11 , and they are poor precisely because of the kind of work that they do. The cause of this injustice lies in the archaic structure of economy, resulting in unacceptably low salaries in some of its sectors  –  often below the minimum subsistence level. In this respect, it is important to note that the official minimum salary in Russia  –  currently, 4,611 RUR/month (92 GBP)  –  is way below the national poverty line .   When compared with fifty-one countries that joined the ILO Minimum Wage Fixing Convention, Russia ranks 40 th  out of 52   in the rating of minimum wages. 12   Raising the official minimum salary at least to the level of the national poverty line would contribute to the elimination of the phenomenon of working poverty. Children  are another major group among the poor in contemporary Russia.  Almost 28% of those living in absolute poverty  –  or 5,000,000 people  –  are under 18 years.  A greater number of children in a family is associated with higher chances of poverty. Thus currently, the relative poverty rate is 25% for a nuclear family with one child, 26% for a nuclear family with two children, 35% for a nuclear family with three children, 32.5% for single parents with one child, and 42.7% for single parents with two children. The major reason for this is that the government expenditure on child benefits in Russia is comparatively very low    –  it is significantly lower than in most OECD countries, and 20  – 30 times lower than in Scandinavian countries famous for their low levels of child poverty 13 . Moreover, child benefits, like many other social benefits in Russia,  often do not reach those most in need, due to the ineffective benefit targeting system. Currently, only 7% of the overall government’s  expenditure on social transfers is spent on targeted programmes for the poor  14 , and only half of the poor actually have access to those targeted programmes. 15  
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