July 11, 2011 8:35 pm
Russia: Ascent and dissent
By Charles Clover
“Russia needs more successful young entrepreneurs, therefore, governors should have more children!”
No room to move: commuters on the Moscow metro. Amid social stasis, some predict a political 'crisis of legitimacy'. Mikhair Prokhorov, leader of the pro-business Right Cause party, sees parallels with pre-revolution Egypt
At first it may seem a non-sequitur. But in Russia the joke is obvious, cutting to the heart of a growing source of discontent among the young: routes to professional success are fewer and fewer, while the offspring of top provincial officials and the like do well.
“They’re just plain lucky” was the sarcastic headline in Moscow’s Vedomosti newspaper on an April exposé of the uncanny business success enjoyed by the children of provincial governors. Vedomosti (part owned by the Financial Times) uncovered the case of a 25-year-old daughter of the governor of Sverdlovsk province in the Urals who co-founded and made a Rbs126m ($4.5m) investment in a timber mill, after just a few years working for a Moscow accounting firm.
Many children of the elite find their route to the top an easy one. The son of the head of the Federal Security Service is president of the north-west regional branch of VTB, the second- largest bank in Russia. The son of the chairman of Russia’s national security council is president of Rosselkhozbank, another of the country’s largest lenders. The list goes on.
For many, the lesson is stark. While income distribution in Russia creeps towards Latin American levels of inequality, having widened notably since the turn of the millennium, the state has incubated an ever more entrenched and inaccessible elite that now controls government and business, and jealously guards its privileged domain.
Connections and nepotism are the rule and social mobility is grinding to a halt. “Unless you have connections it’s impossible to find a job,” says Vladimir Aleshkin, a recent graduate from Moscow State University with a degree in Arabic, who has spent months pounding the pavement and looking on the www.jobs.ru internet site for work, with little luck.
With an eye on the Arab spring protests in the Middle East, blamed by many experts on the lack of opportunities for advancement for a younger generation growing up in authoritarian regimes, some Russian politicians have started to examine the problem of weak social mobility in earnest. Some suspect that the entrenchment of an upper class may be behind the falling popularity of Dmitry Medvedev, the president, and Vladimir Putin, prime minister, as a presidential election approaches next year, as well as a rise in nationalist violence since late last year.
As one measure of the stasis, although reshuffles have taken place lower down, the country’s top 70 officials have not changed at all under Mr Medvedev, says Olga Kryshtanovskaya, a sociologist and member of the ruling United Russia party.
That has created annoyance in the tier below and translates down the chain into unrest at the bottom of the social ladder. A study of focus groups across Russia by the Moscow-based Centre for Strategic Research predicted in April that the ruling tandem of Mr Medvedev and Mr Putin would face a “crisis of legitimacy” as early as the autumn. Polls taken by the Public Opinion Foundation, a research agency that works with the Kremlin, show the “protest mood” has grown.
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Mikhail Prokhorov, billionaire leader of the Right Cause party, a business-friendly grouping that plans to run in December parliamentary elections, told a magazine interviewer recently that Russia reminded him of Egypt before the fall of Hosni Mubarak. “The situation here is no better. It’s the Soviet model,” he said, pointing out how rapidly political circumstances can change. “I don’t think in July 1991 anyone realised what was going to happen in August,” he added, referring to the coup that brought down the USSR that month.
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Mikhail Chernysh at the Russian Academy of Science’s Institute of Sociology says the lack of social mobility is a problem common to many large emerging economies, such as Brazil and India, where inequalities of wealth are even higher.
In the developed world, the same is true of the US. But in Russia the problem is newer: just two generations ago, virtually everyone in the Soviet Union – from doctors to factory workers – had the same (low) standard of living. Now, Russia’s resource-exporting economy cannot create enough skilled jobs for the vast number of talented and highly educated graduates, many of whom instead leave to work abroad in places including Silicon Valley and the City of London. The outflow of emigrants is thought to be roughly 100,000 a year.
“Russia is an oil and gas exporting economy, and oil and gas production does not require large amounts of highly qualified labour,” says Mr Chernysh. “Only 15 per cent of jobs are highly skilled, so under present circumstances that is the largest that the middle class can be.”
To some, the monopolisation of the state by a nepotistic and increasingly inaccessible elite reminds them of the final days of the Soviet Union, before the perestroika reforms led to social explosion and the collapse of communism. While the Communist party was the traditional route to the top, gaining advancement within its ranks became an ever slower affair. “The same process which led to the end of the USSR is happening now,” says Larisa Kosova, a professor of sociology at Moscow’s Higher School of Economics, who has researched social mobility in the last three decades of the Soviet period, showing how it progressively worsened until the late 1980s.
Measuring income inequality and social mobility today in Russia is admittedly difficult. The data do not capture the small but stratospherically wealthy Russian oligarch class – “They don’t fill out surveys,” quips Mr Chernysh – and income data are sporadic and anecdotal. So it is hard to study such things as the correlation of children’s income with their parents. But what is clear is that new college graduates find it harder than ever to get a job. Moreover, half the graduates interviewed by Mr Chernysh confessed they used family connections to land a position.
Even those who find work are paid a pittance, says Mr Alekshin, the Arabic graduate. That extends from the humanities into science, he points out: a starting salary for a nanotechnology engineer, at Rbs15,000 a month, is Rbs1,000 less than a street sweeper makes. Across the economy, meanwhile, real wages are at best stagnant as inflation rises. “The problem is not so much in the growing income inequality,” says Ms Kosova. “The problem is that the channels for moving up are blocked.” Increasingly, she says, the only route for social advancement is the bureaucracy.
Recognition of this is reflected in numerous opinion polls that show the public sector as the preferred career path. “All my students in the 1990s wanted to go into business. Now they want to be state bureaucrats,” Ms Kosova adds. “The basic problem is that the state now once again has control over all the channels of social mobility.”
That is eerily familiar. In a recently published study, she traced the decline in social mobility in the Soviet Union from the Stalin years to the fall of communism. Such social data on the USSR are notoriously hard to come by, but in tracing the careers of hundreds of top-level bureaucrats from 1953 to 1988, she found that under Joseph Stalin the time it took for the average bureaucrat to reach his or her first “nomenklatura” level job, the cream of the Soviet elite, was eight years. By 1988, on the verge of the communist collapse, it had become 23 years.
Inevitably, it was the repression of the Stalin era that enabled the relatively rapid promotion of Soviet cadres, when nomenklatura were purged and shot in record numbers, opening new rungs on the social ladder. “When the meat grinder was working, there were plenty of free places. But as soon as the repressions stopped, so did social mobility,” she says.
The end of communism created chaos, but the economic liberalisation under the presidency of Boris Yeltsin opened the way for some Russians to become ultra-wealthy, creating a class of oligarchs. “Suddenly, the state was not the only elevator to the top – there were plenty of alternative ways to reach the elite, especially through business,” she says.
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In the 2000s, under Mr Putin’s presidency, two opposite tendencies occurred. Real incomes steadily rose, doubling between 2000 and 2008, giving average Russians who were living in the grip of poverty in the 1990s the chance to travel abroad and have a higher standard of living.
But while middle-class comfort became achievable for many, the chance to reach the elite became harder. As the state seized back the commanding heights of the economy, the private sector route to social advancement dried up. The state grew fast during the oil-fuelled growth years under Mr Putin, with the number of federal employees rising from 866,000 to 1.5m between 1999 and 2009, according to Rosstat, the official statistical service.
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Signs do exist that Russia’s leadership understands the problem. In an interview with the Financial Times in June, Mr Medvedev criticised the growing size of the state sector.
“When I went to university and a bit later, everybody wanted to be economists and lawyers,” he said. “However, I have learnt that many young people want to be state officials; not business people, lawyers and economists, let alone cosmonauts and engineers, but civil servants.” Opportunities for corruption were also a motive for seeking such a career, he said.
Last year, Mr Medvedev pledged to cut the civil service by up to 20 per cent. He has introduced economic liberalisation as a boost to the private sector. But it is unclear whether the system will tolerate reform or if Russia is destined for yet another social explosion. United Russia’s Ms Kryshtanovskaya says that in spite of a lack of movement at the very top, among leading bureaucrats such as governors there is more turnover than in the Putin era – 38 per cent of these officials have been moved or sacked in Mr Medvedev’s first three years as president, compared with 24 per cent under Mr Putin.
Yet without comprehensive economic reforms, aimed at creating more skilled private sector jobs, social mobility in Russia will probably continue to decline. The consequences are anyone’s to guess – but they are unlikely to be joked about.
Economic reform
.Moscow seeks to shift skilled into services
For educated Russians in search of skilled jobs to help them climb the economic ladder, Moscow’s drive to boost the service industries could offer some hope in the longer term, writes Charles Clover.
President Dmitry Medvedev has announced plans to turn the capital into a global financial centre by streamlining regulation and attracting foreign banks.
He is also trying to draw investment to Skolkovo, a technology development centre on the outskirts of the city intended to be up and running in 2013.
While the US and many other western countries made the transition from manufacturing to service-based economies in the 1970s, in Russia sectors such as finance and technology remain underdeveloped. Services form 51 per cent of the economy, according to the International Monetary Fund, compared with an average of 80 per cent for most European countries and America.
Russia boasts a number of features that should give it a natural advantage in its quest to expand its service industries. It has a world-renowned education system and a higher income per head than Brazil, India or China, the fast-growing emerging economies that are the remaining Bric nations.
But it has disadvantages, too, including high labour costs, a result of the overvalued rouble; and low productivity arising from pervasive bureaucracy and regulation.
For western economies, the transition to services was not without cost. In the US, for example, the move of manufacturing jobs overseas in the 1970s and 1980s left “rust belt” cities such as Pittsburgh and Detroit in crisis.
Russia’s own manufacturing sector is already suffering. Many factories were closed in the 1990s. Alexei Kudrin, finance minister, says that state subsidies for those in business today could total as much as 5 per cent of gross domestic product. A smarter way to spend these funds, many economists say, would be to retrain workers for service jobs and to let these manufacturing industries close.
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Copyright The Financial Times Limited 2011.
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