Will there be greater disparity between the wealthy and poor?
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In Russia, the incomes of the rich are almost 20 times higher than the incomes of the poor. The Bolsheviks once promised to solve this problem by seizing all of the wealth and redistributing it equally among the general population. However, this ended up bringing more harm than good.
A more modern approach has been to simply raise wages and pensions – this is a policy that the Russian government has been pursuing for the last eight years. Indeed, wages have continuously outpaced GDP growth throughout the decade and annual real wage increases have remained in the double digits, bringing tangible results for the general population.
As a result, the absolute number of poor people (e.g., those living below the threshold of poverty) is dropping: from over 40% at the beginning of the decade to around 20% today. However, the problem with this statistic is that it is defined exclusively by bureaucrats themselves. One could potentially eliminate "poverty" altogether by manipulating the data.
To address this problem, European countries tend to use a relative poverty indicator. This approach measures the distribution of wealth in society, rather than absolute poverty, by determining the "poor" to be persons with incomes less than 60 percent of the per capita national average. In Russia, under the monthly average of 6,500 rubles ($268), this method would classify almost half of the population as "poor." Paradoxically, this number has (and continues to) increase together with rising overall incomes and GDP.
In fact, this is not unusual: the contrast between these two approaches to defining poverty is striking. When pensions and wages rise, the absolute number of poor people goes down. That makes sense. But relative poverty keeps growing, and it increases more in wealthy regions. Moscow is a good example of this: about 13 percent of its residents live in absolute poverty, but 57 percent would be considered "poor" according to the European method.
Could this be a purely Russian phenomenon? I think it is. The mechanism of wealth distribution in Russia today differs drastically from that of developed countries. That explains the paradox of relative poverty rising along with economic growth. Our Institute ran a series of mathematical regressions to study the dependence between inequality and key social and economic indicators in Russia. We found that there is hardly any link between absolute poverty and these indicators, while relative poverty depends on them directly. In other words, you can go on raising pensions and wages, but as long as relative poverty continues to grow, no serious progress will be achieved in regards to the economy or the demographic situation. Simply raising wages and pensions is not the most effective way to combat the adverse effects of poverty.