In ormation in this chapter is based on rom oviets to ligarchs: Ine uality and roperty in ussia , by ilip Novo met, homas i etty, and Gabriel Zucman, ID orld or ing paper series (no. 2017/9).
Russia’s transition from a communist to a capitalist economic model after 1989 brought about a large divergence in the income shares and growth rates of different income groups.
The share of national income attributable to the bottom 50% has fallen from 30% in 1989 to less than 20% today, while the share of the top 1% has rocketed upwards from around 25% to over 45% of national income.
Russia’s rapid and chaotic “shock therapy” of privatization, capital flight, and the rise of offshore wealth, along with high inflation and a new market environment, have contributed to the rise of top Russian incomes since 1989.
Today’s inequality levels are comparable, and somewhat higher, than those observed during the tsarist period. The Russian Revolution led to a significant redistribution of income, with the top 1% share of national income falling from 18% in 1905 to less than 4% in 1928.
The most equitable distribution of income in Russia’s recent history followed the introduction of comparatively liberal de-Stalinization policies from 1958 onwards, with large investments in education and infrastructure.
since the 1990s, russia’s convergence towards Western european levels of GdP has been far from smooth
since the fall of the soviet union in 1990–
, ussia has e perienced dramatic economic and political transformations.
National income and gross domestic product ell abruptly rom to , hen infla-tion skyrocketed, but then started to recover during and , ushering in a decade o robust gro th he orld financial crisis and the fall in oil prices interrupted this process in 2008–2009 and, since then, gro th has been sluggish o ever, there is little doubt that average incomes are signifi-cantly higher in ussia today than they ere in Indeed, the gap bet een russia’s per-adult national income and the est uropean average narro ed rom appro imately o the est uro-pean average in , to around 70–75% in mid-2010.28 this can be seen in Figure 2.8.1.
hile average national income per adult in ussia reached almost in , this figure hides considerable variations in its distri-bution he lo est-earning o the adult population a group o almost million people earned ust under on average in 2016, close to three times less than the national average he middle also received less income than the national average, earning appro imately he richest 10% of the population earned considerably more, ho ever, receiving over on average in hese di erences in income le t ussia ith a very high concentration o income among the country s richest individ-uals. the share of national income attributable to the top as in , ma ing it considerably larger than that o the bottom 50% (17%) and the middle 40% (37.5%). the top 1% earners capture more than 20% of national income he average income o the million adults in the top as appro
National income per adult (2016 € PPP)
In 2016, the average national income per adult was €23 200 in Russia. All values have been converted into 2016 Purchasing Power Parity (PPP) euros at a rate of
€1 = $1.3 = ₽ accounts or di erences in the cost o living bet een countries Values are net o inflation Source: Novokmet, Piketty and Zucman (2017). See wir2018.wid.world for data series and notes.
Western Europe
Russia Figure 2.8.1
average national income per adult in russia and Western europe, 1980–2016
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World inequality report 2018 114
incomes o million and million, respectively—over 523 times and 2527 times greater than the ussian national average (see Table 2.8.1.)
the best available estimates indicate that ussia s per-adult national income stagnated at around 35–40% of West european levels between 1870 and the first World War, but this ratio rose spectacularly to a high o in the aftermath of second World War as the soviet state implemented its modernization strategy o rapid industriali ation and mass investment in basic education. as depicted by Figure 2.8.2, russia’s relative position plateaued at around 55–65% of West euro-pean levels between 1950 and 1990—and
hile ussian living standards stagnated between the 1950s and 1980s, substantial improvements ere e perienced in estern urope and the nited tates ogether ith rising shortages and general rustration among the comparatively highly educated population, the relative sluggishness o living standard improvements arguably contributed to the comple social and political processes that eventually led to the fall of the soviet union.29
yet the consequences of these dramatic transformations of the distribution of income and wealth are not well documented or well understood, particularly ollo ing the all o the soviet union. there is no doubt that income inequality has increased substantially since 1989–1990—at least in part because monetary inequality was unusually, and to some e tent artificially, lo under ommu-nism—but there has been little empirical work to measure the e act magnitude o the increase and ho this compares to change in other countries. it is to these points and many others that novokmet, piketty, and zucman’s recent paper see s to respond, by creating distributional national accounts for russia that combine national accounts, survey, and ealth and fiscal data, including recently released ta data on high-income ta payers, in essentially the way described earlier in this report.
“shock therapy” transition policies drastically increased the top 10% share of national income
he stri ing rise in income ine uality a ter the fall of the soviet union was dramatic in terms
table 2.8.1
the distribution of national income in russia, 2016 Income group number of adults Income threshold
(€)
average income (€)
Income share
Full Population 114 930 000 – 23 180 100%
bottom 50% 57 465 000 – 7 880 17.0%
middle 40% 45 972 000 14 000 21 700 37.5%
top 10% 11 493 000 36 300 105 500 45.5%
top 1% 1 149 300 133 000 469 000 20.2%
top 0.1% 114 930 638 000 2 494 000 10.8%
top 0.01% 11 493 3 716 000 12 132 000 5.2%
top 0.001% 1 149 18 770 000 58 576 000 2.5%
ource: Novo met, i etty and Zucman ee ir id orld or data series and notes
In , the average pre-ta income o the op as All values have been converted into urchasing o er arity euros at a rate o ₽ accounts or di erences in the cost o living bet een countries Values are net o in lation Numbers may not add up due to rounding
o both speed and uantitative change his period as shaped by a shoc therapy and big-bang model o transition rom the previ-ously planned, state-led economy to one that was to be led by free-market principles.30
ith this came the privati ation o the signi -icant wealth of russia’s state-owned enter-prises and the liberalization of prices and capital and labor mar ets, among many other political and economic changes According to benchmark estimates provided by novokmet, piketty, and zucman, the income share of the top 10% rose from less than 25% in 1990–
1991 to more than 45% in 1996 (see Figure 2.8.3), while the income share of the top 10%
rose moderately from 39% to 41% in the united states, and remained at around 30%–31% in france.
rivati ations ere partly done through a voucher privati ation strategy, hereby
citi-ens ere given boo s o ree vouchers that represented potential shares in any state-owned company. however, voucher
privatiza-tion of state-owned enterprises took place very quickly, with the ownership of over fi teen thousand firms trans erred rom state control between 1992 and 1994.31 this happened, moreover, within such a chaotic monetary and political conte t that small groups o individuals ere able to buy bac large uantities o vouchers at relatively lo prices, and also in some cases were able to obtain highly profitable deals ith public authorities or e ample, via the in amous loans- or-shares agreements32 ogether ith capital flight and the rise o o shore ealth, this process arguably led to much higher level of wealth and income concentration in russia than in other e -communist countries the transformation of the labor market from state-led to market-led also led to an increase in income ine uality through higher ine uality of labor income.33 in communist russia, unemployment as virtually none istent ith only small age di erentials used to re ard differential inputs and to motivate effort. this Ratio of Russian to Western Europe national income per adult (%)
30%
In 2016, the national income per adult in Russia was 68% of the national income per adult in Western Europe. All values have been converted into 2016 Purchasing Power Parity (PPP) euros at a rate of €1 = $1.3 = ₽ accounts or di erences in the cost o living bet een countries Values are net o inflation
Source: Novokmet, Piketty and Zucman (2017). See wir2018.wid.world for data series and notes.
Ratio Russia / Western Europe (Germany-France-UK) Figure 2.8.2
ratio between national income per adult in russia and Western europe, 1870–2016
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World inequality report 2018 116
ensured generally egalitarian ine uality outcomes as compared to market economies.
When the transition toward free markets began, ho ever, a significant amount o unemployment was created as workers moved from the state to the private sector.
both state and private employment fell with the closure of state and private enterprises, hile the imposition o hard budgets created intensely unfavorable conditions for invest-ment and hiring, and le t very little support
or those see ing unemployment benefits all of which hit the lowest earners the hardest.
Given the abundance o e cess labor and greater concentration o ealth, the labor market transition and the privatization process favored owners of capital to the detriment of labor.34
price liberalization also saw the consumer price inde multiply by nearly five thousand bet een and Inflation as partic-ularly high in and hen it hit
and , respectively a ter o ficial
price liberalization occurred on January 1, hile these episodes o hyperinflation affected the whole of the russian economy—
national income per adult ell rom appro
i-mately in to in
it was the poorest who were hit the hardest.
A large part o the bottom o the income distribution was made up of pensioners and lo - age or ers hose nominal incomes ere not ully inde ed to price inflation, and this resulted in massive redistribution and impoverishment for millions of russian house-holds, particularly among the retired popula-tion he share o napopula-tional income accruing to the bottom collapsed, dropping rom about 30% of total income in 1990–1991 to less than 10% in 1996.
Concurrent with the rapid collapse in the share of incomes for the poorest 50% of the population, a more gradual and continuous process o rising top income shares can be observed. the income share of the top 1%
gre rom less than in to appro
i-Share of national income (%)
20%
25%
30%
35%
40%
45%
50%
55%
2015 2005
1995 1985
1975 1965
1955 1945
1935 1925
1915 1905
In 2015, the Top 10% income share in Russia was 46%.
Source: Novokmet, Piketty and Zucman (2017). See wir2018.wid.world for data series and notes.
Top 10% (France)
Top 10% (Russia) Top 10% (US)
Figure 2.8.3
top 10% income share in France, russia and the us, 1905–2015
mately in his as a huge turn-around in ust over seven years note that the income share o the bottom as five times greater than that o the top in , but by 1996, it was almost two times smaller.
meanwhile, the middle 40% appear to have been relatively unaffected by the initial tran-sition re orms their share o national income saw only a muted fall over the same period,
rom appro imately to
ollo ing the reelection o resident Boris Yeltsin, income shares began to stabili e for russia’s poorest 50% of the population.
the income share of the bottom 50% rose over five percentage points bet een and as lo -end pensions and ages benefited rom a gradual recovery process between 1996 and 2015. they never fully returned, however, to their 1990–1991 rela-tive income share. the top 10% share fell from around 48% to 43% between 1996 and , be ore averaging around until 2015. this latter period saw consistent rises in the income share of the top 10% in the united states, and by 2015, income concen-tration as higher than in ussia he top income share also rose in france, but very steadily to a more modest 34% by 2015.
his t elve-year period also sa strong macroeconomic gro th, ith ussia s per-adult national income more than doubling
rom around in to appro i-mately in 35 however, it was the top ho ere to be the main benefi-ciaries o this gro th, as their share o national income rose from 43% to 53% across the ten years leading up to his up ard trend or the top as the opposite o that e pe-rienced by the middle 40%, whose share of national income fell from almost 40% in 1998 to in he orld financial crisis and precipitous drop in oil prices interrupted
ussian national income gro th in
, and economic activity remained slug-gish a ter that only to all again in
2015, partly due to the international sanctions that followed the russian military intervention in raine Average per-adult
national income ell by over in
be ore recovering rather lethargically to ust over in , and then alling
bac do n to in he
richest part o the population e perienced the largest all in their share o national income as a result of the crisis, as the top 10%
income share lost si percentage points in the t o years leading up to It later settled to just over 45% in 2014–2015. the bottom and middle e perienced our-percentage-point rises in their respective shares o national income, to appro imately 18% and 39%, respectively.
onsidering the period together, average per-adult national income in ussia increased by that is, by appro imately 1.3% per year. however, as a result of the dynamics described above, the different income groups have en oyed idely di erent gro th e periences n average, the bottom earners benefited rom very small or negative gro th over the t enty-seven-year period (-0.8% per year and -20% over the entire period for the bottom 50%), due principally to the inflation-induced loss o incomes before 1996. the middle 40% had positive but very modest average gro th o ust per year, and thus their incomes gre by over the period he e perience o the top 10%, meanwhile, has been vastly different.
indeed, as table 2.8.2 sho s, the gro th in income these groups sa only increases as one looks further up the income distribution.
he average per-adult incomes o the top gre by per year bet een and , providing the million top earners ith a cumulative income gro th o 171%. moreover, it is almost solely this top that has benefited rom ussia s macro-economic gro th over the period heir share in the country s gro th has been , as opposed to only 1% for the bottom 90%, made up o almost million adults Figure 2.8.4 shows the annual and total gro th rates over the period or di erent groups o the population Interestingly, these igures sho the same up ard-sloping
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World inequality report 2018 118
pattern as those constructed by the euro-pean bank for reconstruction and develop-ment (ebrd).36 they do, however, differ on t o points irst, they sho an even stronger tilt toward the top incomes due to a more
precise estimation of top russian incomes.37 econd, there are meaning ul di erences in the income concepts employed.38 the latter difference has a notable impact on the rate o total real gro th over the
table 2.8.2
Income growth and inequality in russia, 1989–2016 Income group average annual
real growth rate
total cumulated real growth
share in total macro growth
Full Population 1.3% 41% 100%
bottom 50% -0.8% -20% -15%
middle 40% 0.5% 15% 16%
top 10% 3.8% 171% 99%
top 1% 6.4% 429% 56%
top 0.1% 9.5% 1 054% 34%
top 0.01% 12.2% 2 134% 17%
top 0.001% 14.9% 4 122% 8%
ource: Novo met, i etty and Zucman ee ir id orld or data series and notes Bet een and , the income o the op gre at an average rate o per year
Between 1989 and 2016, the average income of the percentile group p99p99.1 (the poorest 10% among the richest 1% of Russians) grew by 143%. Values are net o inflation
Source: Novokmet, Piketty and Zucman (2017). See wir2018.wid.world for data series and notes.
National income growth per adult (%)
-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
99.9 99
90 80
70 60
50 40
30 20
10
Income group (percentile)
Total growth by percentile (1989-2016)
Average total growth (1989-2016): +41%
Figure 2.8.4
total income growth by percentile in russia, 1989–2016
period the B D find this to be rather than the presented above uch a di er-ence is ar rom marginal onsistent with the concepts used in this report and throughout ID world, Novo met et al use national income rather than solely sel -reported survey data In doing so, they recogni e the significant challenges o comparing real incomes or the oviet and post- oviet periods in a satis actory manner or e ample, i the researchers were to evaluate the wel are costs o shortages and ueuing in , then it is possible that their aggregate growth figure might increase rom
to , or perhaps even more Long-run Russian inequality follows a U-shaped pattern
he changes in the distribution o income that too place in the post-communism period o loo very di erent rom those that too place a ter In the tsarist ussia o , the share o national income attributable to the top was
appro imately , while the bottom share was about , and the middle
share was ollowing the ussian evolution o , which dismantled the tsarist autocracy and paved the way or the creation o the nion o oviet ocialist epublics in , these shares changed dramatically By , the top earned ust o national income, five percentage points down rom twenty-our years earlier he loss in the share o national income o the top was subsumed by an appro imate thirteen-percentage-point rise in the share o the bottom and a-tion policies was there ore shared by the bottom , with mass investment in public education and the introduction o the five-year plans plans that brought about the
Share of national income (%)
In 2015, the Top 10% share of national income was 46%.
Source: Novokmet, Piketty and Zucman (2017). See wir2018.wid.world for data series and notes.
Top 10%
Bottom 50%
Middle 40%
Figure 2.8.5
Income shares in Russia, 1905–2015
PaRt II ND IN GL BAL IN M IN ALI Y
LD IN ALI Y 2018
120
accumulation of capital resources through the buildup of heavy industry, the collectiv-ization of agriculture, and the restricted manufacturing of consumer goods, all under state control.39
The death of Joseph Stalin in 1953 and the introduction thereafter of comparatively liberal policies known as de-Stalinization poli-cies, which included the end of mass forced labor in Gulags, saw further changes to income shares that favored those earning lower incomes. The bottom 50% experienced gains in their share of national income from 24% in 1956 to 32% in 1968, while the share of the top 10% fell from 26% to 22% over the same period. Shares of national income then remained fairly constant for these groupings and for the middle 40% until 1989, and growth was thus relatively balanced between them, as illustrated by Figure 2.8.6 and Table 2.8.3.
hese figures reiterate the star di erence between living under the communist system and living after its end, in terms of the vari-ance in average annual real growth rates experienced by income groups. Throughout 1905–1956 and 1956–1989, the bottom 50% and middle 40% saw their average annual real incomes increase by at least as much as those of the top 10%, and at consid-erably higher rates from 1905 to 1956. In this earlier period, growth notably favored both the bottom 50% and middle 40% (with 2.6% and 2.5% annual growth rates, respec-tively) over the top 10% (0.8%). From 1956 to 1989, the bottom 50% experienced an annual growth rate that was higher than in the preceding periods, but the difference with top groups was remarkably reduced.
hese figures reiterate the star di erence between living under the communist system and living after its end, in terms of the vari-ance in average annual real growth rates experienced by income groups. Throughout 1905–1956 and 1956–1989, the bottom 50% and middle 40% saw their average annual real incomes increase by at least as much as those of the top 10%, and at consid-erably higher rates from 1905 to 1956. In this earlier period, growth notably favored both the bottom 50% and middle 40% (with 2.6% and 2.5% annual growth rates, respec-tively) over the top 10% (0.8%). From 1956 to 1989, the bottom 50% experienced an annual growth rate that was higher than in the preceding periods, but the difference with top groups was remarkably reduced.