Analysis: Russia's Middle Class-I

By SAM VAKNIN, UPI Senior Business Correspondent

SKOPJE, Macedonia, Dec. 18 (UPI) -- A conference held, at the beginning of December, in St. Petersburg, was aptly titled "Middle Class -- The Myths and the Reality." Russia is way poorer than Slovenia, the Czech Republic, Hungary, or even Poland. But, as income disparities grow, a group of discriminating consumers with the purchasing power to match, is re-emerging, having been submerged by the 1998 implosion of the financial sector.

The typical salary in Russia's large metropolises is now more than $600 per month -- four times the meager national average. Some 20 percent of the workforce in Moscow earns more than $1,700 a month, comparable to many members of the European Union. Real average wages across Russia surpassed the pre-1998 level in May 2002.


Moreover, Russians are unburdened by debt and their utility bills and food are heavily subsidized, though decreasingly so. Few pay taxes -- lately dramatically reduced and simplified -- and even fewer save. Every rise in disposable income is immediately translated to unadulterated consumption. Takings are understated -- Russia's informal economy is probably half as big as its formal sector.


A study, financed by the Carnegie Foundation, found that only 7 percent of Russians qualify as middle class. Another 12 percent or so have some bourgeois characteristics. Sixty percent of them are men, though the Komkon marketing research agency says that the genders are equally represented.

Figures culled from the census conducted this year throughout the Russian Federation -- the first since 1989 -- are expected to confirm these findings. About one-fifth to one-quarter of all Russian households earn more than the average monthly income of $150 per person.

Political parties that purport to represent the middle class -- such as the Union of the Forces of the Right, or SPS -- garnered 10 percent to 15 percent of the votes in the 1999 parliamentary elections. Direct action groups of the "third estate" may transform the political landscape in forthcoming elections.

In a recent study by sociologists from the Russian Academy of Sciences' Institute of Philosophy, more than half of all Russians self-flatteringly considered themselves middle class. This is delusional. Even the optimistic research firm Premier-TGI pegs the number at 19 percent at most.

Businesses adapt to these new demands of shifting tastes and preferences. The St. Petersburg-based cellular telephone operator Delta Telecom, owner of the first license to provide wireless-communications services in Russia, intends to test the market among middle class clients.


Ikea, the Swedish home improvement chain, has plunged $200 million into a new shopping center. French, German and Dutch cash-and-carry and do-it-yourself groups are slated to follow. Russian competitors, every bit as sleek, have erupted on the scene. The investment spree has engulfed the provinces as well.

Last month, Citibank opened a retail outlet for affluent individuals in Moscow -- though its standards of transparency may yet scare them off, as observed astutely. A private cemetery in Samara caters to the needs of the expired newly rich. Opulently stocked emporiums have sprouted in all urban centers. TV shopping and even online commerce are on the up. According to The Washington Post, Moscow retail space will have tripled by the end of next year from its level at the beginning of 2002.

The Russian Expert magazine says that the middle class, minuscule as it is, accounted last year for a staggering 55 percent of all consumer goods purchased and generates one-third of Russia's gross domestic product. The middle class is Russia's most important engine of wealth formation and investment, far outweighing foreign capital.

Russia's post-1998 fledgling middle class is described as young, well educated, well traveled, community-orientated, entrepreneurial and suffused with work ethic and a desire for social mobility. It is almost as if the crisis four years ago served as a purgatory, purging sins and sinners alike and creating the conditions for the revival of a healthier, longer-lived, bourgeoisie.


But being middle class is a state of mind more than a measure of wealth. It is an all-encompassing worldview, a set of values, a code of conduct, a list of goals, aspirations, fantasies and preferences and a catalog of moral do's and don'ts. This is where transition, micromanaged by Western "experts" failed.

The mere exposure to free markets was supposed to unleash innovation and entrepreneurship in the long-oppressed populations of East Europe. When this prescription -- known as "shock therapy" -- bombed, the West tried to engender a stable, share-holding, business-owning, middle class by financing small enterprises. It then proceeded to strengthen and transform indigenous institutions.

None of it worked. Transition had no grassroots support and its prescriptive and painful nature caused wide resentment and obstruction. When the dust settled, Russia found itself with a putative and puny middle class. But it was an anomalous beast, very different from its ostensible European or American counterparts.

Part 2 of this analysis will run Thursday. Send your comments to: [email protected]

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