Russia's Elusive Middle Class

In a recent meeting with young entrepreneurs in Nizhny Novgorod, President Yeltsin praised Russia’s middle class as the “pillar of the economy.” This pronouncement is hardly a revelation. Through the ages, a strong middle class has always been seen as a bulwark against revolution. What was interesting was that President Yeltsin perceived there to be a Russian middle class at all. Most observers feel Russia has not had a middle class since the Bolshevik Revolution and its Thermidor swept all citizens into the common mold of proletariat. So, on the occasion of the 80th anniversary of that revolution, Russian Life sent Associate Editor Anna Hoare in search of Russia’s middle class.  She has come back with a very interesting portrait. Photographs by Sergei Kaptilkin.

In the media, much is made of the Russian elite. And even more is made of the poor – pensioners, schoolteachers and coal miners who live below the poverty line and have not been paid wages for months. Jokes abound about members of the crass “New Russian” elite outdoing each other to buy the same fur, Mercedes or Armani suit for a higher price. On the other end of the spectrum, a couple of years ago, the US fast food chain Arby’s ran a tongue-in-cheek TV commercial claiming that one of their roast-beef sandwiches costs the equivalent of a month’s salary in Russia.

In this way, we are led to believe that Russia is a country of stark contrasts between privilege and poverty – which in some ways it is. But what of those Russians who live in between the two extremes? Those who do not go out to fancy clubs and restaurants, but who can afford a car, nice clothing and a vacation abroad once a year? Those who, by virtue of education, moral upbringing and hard work, carry the torch of civility, common sense and respectability through a gaunlet flanked by base poverty and crass opulence? Does such a class exist in Russia? And, if so, why do we hear so little about them?

No one will deny that the number of Russians who live “comfortably” is growing, but opinions differ as to whether a “middle class” in the Western sense exists. Konstantin Mikulsky, director of the Russian Academy of Sciences’ Institute of Employment, flatly said that it does not. “The kind of middle class they have in the West does not exist in Russia,” Mikulsky declared. Economist Mikhail Delyagin agreed. “It is incorrect to compare the Russian and Western middle classes. We lag behind them by about 20 years. This is simply a different level.”

Yet not everyone would seem to agree. The French, for example, seem to have no trouble identifying a Russian middle class. At a recent press conference for an exposition titled the “Days of French Goods,” representatives of French firms told reporters that Russia’s middle class is alive and kicking, and that their companies have received as many inquiries about household appliances and furniture from Russian consumers as they typically do from the French middle class. What is more, if the number of commercials on Russian television touting everything from state-of-the-art vacuum cleaners to cellular phones is anything to judge by, Russian consumerism has caught up with Western standards.

In Search of a Definition

A lot, of course, depends on how the “middle class” is defined. According to Mikulsky, a true middle class is made up of a group of the population that has good income and educational qualifications, that makes up a significant fraction of a country’s population and that plays a specific role in society, influencing the political situation and public opinion. In addition, he noted, the middle class should have its own schools, residential areas and social clubs. “In the West,” Mikulsky said, “you say that the middle class is made up of qualified workers, educators, doctors, small-business owners and entrepreneurs. In Russia, it turns out that teachers are poor, a typical doctor is poor, and small businessmen are either absent or are hired workers for big-time speculators or magnates, more specifically for the mafia.”

Mikulsky has a point. In the sense of an influential social and political force, Russia does not yet have a middle class. The middle-income bracket has so far failed to gel into a cohesive socio-political whole. In the last elections, this group of the population was largely ignored, as politicians concentrated on winning votes from the influential elite, and playing on the fears and discontent of the poor masses.

Yet, if one defines Russia’s middle class in a narrower sense – in terms of level and structure of consumption – then a completely different picture emerges. Today’s middle-income Russians no longer have to worry about satisfying basic needs. They buy televisions, VCRs and Western cars. They take vacations to Turkey and Cyprus. They give their children private music or tennis lessons. And they have an annual family income of $10-12,000 per year. [According to the All-Russian Living Standards Center, a Russian family must have an income of at least $1,000 per month – i.e., 12 times higher than that of the poorest 10% of the population – in order to be considered middle class. Mikulsky puts this figure slightly lower, at R5 mn ($870) per month.]

Poor But Equal

These income levels and consumption patterns stand in stark contrast to life in Russia just a decade ago. In the Soviet Union, as the saying went, everyone was poor but equal. According to Olga Kryshtanovskaya, head of the Department of Studying the Elite at the Russian Academy of Science’s Sociology Institute, the Soviet “middle class” was made up of that 90% of the USSR’s population that made from R140 to R300 per month.

Said Mikulsky, “we lived OK. We were for the most part poor, but we didn’t know that it was possible to live better. We thought that in the West they were living worse than us ...” And, after all, those few Russians who had the opportunity to travel abroad went mostly to socialist countries on organized tours, so who was to know better?

“Perestroika reforms gave Russians the possibility to travel abroad freely,” Mikulsky continued, “and not to be running from store to store in search of ‘deficit’ items” – like jeans, running shoes, beer, fruit and cigarettes. For even 10 years ago, just about every consumer product was in short supply at one time or another. Lines for such products could stretch around the block, while the elite dined on caviar and imported meat and fruits. Now, anyone with an average income can feed themselves as well as any member of the elite.

On the other hand, the new economic inequality can be painful, all the more so because it is unaccustomed. Alexei Novikov, deputy head of the Department of the Politics of Incomes and Living Standards at Russia’s Labor Ministry, said that, while in the Soviet economy the gap in incomes between the richest 10% of the population and the poorest 10% was a factor of four, now it is a factor of 15 and growing. Some economists even worry that Russia will follow a Latin American model, with a small layer of the extremely wealthy, no middle class to speak of and the vast majority of the population on the brink of poverty.

A Home to Rent

In the West, owning a home (or, more precisely, a mortgage on a home) is de riguer for being a member of the middle class. But owning your residence in Russia has only been a possibility for a few years. In the early 1990s, a government privatization plan allowed Russians to buy the apartments in which they lived for a nominal fee – basically the cost of processing the paperwork. Some did not take advantage of this offer, either because they did not have the chance (i.e., they were young adults living with their parents) or because they feared having to pay high property taxes in the future. But those who privatized their apartments received a tremendous boost in terms of real wealth.  Considering, for example, how much middle-class Americans typically pay for their homes – and how long they spend paying off mortgages – this deal was quite amazing and undoubtedly helped to jump-start the growth of Russia’s middle class.

What is interesting is that apartment ownership through this cheap privatization (the opportunity for which has now passed) has been seen as a way to increase family income, rather than a way to decrease family expenditures. With rents going up every year and apartments, especially within Moscow’s Ring Road, at a premium, a family can rent out its spacious, centrally-located apartment, move to the suburbs, and live comfortably on the difference in rents. This applies not only to apartments, but also to garages, dachas or any type of rentable property. Due to the murky situation with land privatization in Russia, it is still technically impossible to own land, but, in practice, through inheritance, a dacha – and thus the land on which it is located – can be passed down to one’s children or other close relatives.

Yelena Makeeva, 50, is a good example of this phenomenon. Well-read and educated, she and her husband have suffered the typical fate of the Russian intelligentsia – those who have not already emigrated, that is. An engineer by education, she now works as a translator, earning a paltry R500,000 ($86) a month and supplementing this income by doing freelance translations. Her husband Alexander, a literature instructor, makes R1 mn ($172) a month. The vast majority of the couple’s income comes from renting out their centrally-located, two-room apartment for $520 a month. “We used to be much more than middle class,” Yelena lamented. “Now we cannot even consider ourselves average.” She says that all their appliances date back to pre-perestroika times and she makes many of their clothes. On the other hand, the couple has a dacha outside Moscow and makes enough to vacation in the Kostroma region every summer.

According to Filipp Bogdanov at the Moscow realty firm Noble Gibbons, for those middle-class Russians who are not lucky enough to own an apartment, buying one is out of reach, because of the lack of a developed system of home credit.

This could soon change, however. The Moscow daily newspaper Moskovsky Komsomolets recently reported that, starting the first of next year, an experiment in home mortgages will be carried out in the Moscow region towns of Podolsk and Dubna, where whole blocks of buildings stand half-finished, as no one can afford to move into them. By Western standards, these mortgages are not a great deal – the borrower must pay off the loan within 10 years at a 12% yearly interest rate, as opposed to 8% over 15 or 20 years in most European countries and 8% over 30 years in the US. Still, this represents an important step in home financing, which could allow many more Russians to own apartments.

Just How Many?

Two years ago, in December, 1995, the Moscow newspaper Kapital came out with a profile of Russia’s emerging middle class. Although much has changed since then, the basic trends still hold true. At that time, Bruce MacDonald, then Director of BBDO Marketing, estimated that the “vast majority” of residents of large Russian cities between the ages of 25 and 40 belong to the middle class.

Demographically, this group represents only a small fraction of Russia’s population. But businesspeople are not terribly worried that this group is not yet numerous. According to Edwin Dolan, director of the American Institute of Business and Economics, in Russia, as in India, the middle class makes up a small fraction of the population, but still accounts for enough people in real numbers to represent a significant market segment.

A big problem with counting the middle class lies in pinpointing people’s actual incomes. According to official statistics, the average monthly salary is on the order of $120 a month for Russia as a whole and $200 a month for Moscow – leading one to wonder how Russian families can possibly make it. (By way of comparison, in the United States, the median household income last year was $35,492 per year (about $2960 per month) according to the latest Census Bureau report.) But these low figures are not telling the whole story. To get at the true picture, it is necessary to judge by consumption patterns and not by reported salaries.

For one thing, people – especially those involved in shady dealings – tend to hide their real incomes. For another, salaries often play just a small role. Not only do Russians rent out their apartments and dachas, they also tend to “podrabotat” (earn money on the side) by giving private lessons, babysitting, selling newspapers or running an unofficial taxi service. Babushki  – Russian grandmothers – supplement their pensions by selling cigarettes (recent figures have it that babushki account for 23 to 27% of retail cigarette sales in Russia). What is more, official salary figures also fail to take into account wage arrears, which often date back for months.

According to the Academy of Sciences’ Mikulsky, official statistics also fail to take into account Russia’s richest and poorest. It has been reported in the Russian press that 20% of the country’s population lives below the subsistence wage, but Mikulsky said he does not believe such an alarming statistic. On the other hand, Mikulsky does consider that 50-60% of the population lives below “sufficiency” – i.e., their income limits their choices in food, clothing and other goods.

According to Mikulsky’s reckoning, people who possess significant capital make up perhaps 3% of Russia’s population, while 10% can be considered well-off. This leaves between 27-37% (roughly 45 mn persons) in the middle class – a substantial number, which politicians and advertisers alike would be crazy to ignore.

So just who is your typical middle-class Russian – or, to make it simpler, middle-class Muscovite? According to Mikulsky, he or she dresses stylishly, by shopping at wholesale markets rather than expensive stores. She eats well, receives enough nutrition, but lives in a small, crowded apartment which could use some repairs. She rarely goes out to the theater or the movies. Her main source of entertainment is TV, and, in the past couple of years, the VCR, for which bootleg movies appear almost as fast as they hit movie theaters in the US. She has a telephone and a plot of land outside the city where she grows fruits and vegetables, which make up a significant part of her family’s diet. As far as work goes, she could be a manager in a successful enterprise, a doctor, lawyer or other professional near the top of her field. Or she could be almost anyone, so long as she has an additional source of income.

Summer in Cyprus

For a number of reasons, your typical middle-class Russian does not go out to dinner at a restaurant regularly. On the one hand, prices at most Moscow restaurants run upwards of $50 per person. Plus, the old Soviet restaurant system, with a rude and dictatorial waitstaff and most of the menu items crossed out, still leaves a bad taste in many Russians’ mouths, even though standards of service have improved greatly.

On the other hand, this same typical, middle-class Russian can afford to take a vacation abroad. Valentin Stogonenko of Moscow’s Relief travel agency estimated the average monthly income of his clients at $500-$1000 – at or slightly below the level indicated by experts (see above). This suggests that foreign travel is now accessible to a large percentage of Russians.

Stogonenko says that his typical travel customer is middle-class, relatively young (30-40) and travels alone, although the desire to travel with the family is there (it is difficult to obtain visas for an entire family). The typical client spends $360 a week on tour packages to the Czech Republic or Paris, where he stays in three-star hotels. Stogonenko said that he believes even more Russians would travel abroad were it not for the high cost of  airline tickets. If ticket prices came down 20-30%, he said, even more Russians would be able to buy tour packages and the agency’s business would increase substantially.

Still, plenty of Russians are traveling abroad – 12-15 million a year by some estimates. In 1996, 721,000 Russians traveled to neighboring Turkey (the leading, inexpensive travel destination) and another 200,000 traveled to the Canary Islands. The World Tourism Organization estimates that Russians spent $11 bn abroad last year, and will match that sum again this year.

Room and Board

Another important standard of living indicator is the percentage of a family’s expenditures that is spent on food. The lower this percentage, the higher the standard of living. The poorest 10% of Russia’s population currently spend more than 60% of their monthly earnings on food, whereas the richest 10% spend less than 35%. Middle-class Russians eat less bread and potatoes than their poorer counterparts and more meat, fish and fruits.

Yet even within the middle class, there are subdivisions, and a family with a monthly income of $1,000 lives quite differently from one with an income of $3,000. The All-Russian Living Standards Center recently conducted a study that revealed some of these differences. According to the results, families with a combined monthly income of $1,000 can fully satisfy their requirements for quality food products and are no longer buying the old Soviet brands of televisions or refrigerators. They prefer foreign cars and foreign clothing (not that they have much choice in this area, as little clothing is yet produced in Russia). They spend 35% of their incomes on food, 40% on non-food products and put away 10% in savings.

On the high end of the middle class, those families with incomes of $3,000 a month are spending 10% of their incomes on vacations abroad, 46% on non-food products and only 20% on food. 15% they put away as savings. This income bracket consumes on a Western level – making substantial home improvements, owning a second car and shelling out big money to educate their children. This is the good life, and it is lived by less than 1% of Russia’s population.

When incomes reach $6,000-$8,000 per month, the middle class stops and New Russians – who have replaced Soviet leaders and bureaucrats as the butt of Russian jokes – begin. One typical ‘New Russian anecdote’ illustrates the new class relations and resentments:

A New Russian meets an old school chum who has fallen on hard times.

“How are you doing?” asks the poor Russian gloomily.

“Fine, fine, how about yourself?”

“Well, to be honest, not so good, I haven’t eaten in two weeks.”

“Oh, come on,” says the New Russian solicitously, “you’ve got to force yourself!”

Moscow and Russia

Moscow Mayor Yuri Luzhkov recently stated that the phenomenon of a Russian middle class has a place in Moscow, but nowhere else in Russia. He may have a point. Although Muscovites make up only 6% of Russia’s population, they account for 40% of tax payments to the federal budget.

And yet, Moscow is one of the world’s most expensive cities. Prices for consumer goods, food and transportation are comparable with that of Western cities and in many cases much higher. But average Moscow salaries are several times lower than in Western cities. This may be changing, however. The daily newspaper Moskovsky Komsomolets reported that, during the month of August this year, the subsistence wage for the average Muscovite decreased for the first time in recent memory, by just under one-half of one percent, to R812,234. This is largely a result of declining food costs, the paper reported. But the positive effect was felt by all segments of the population – from pensioners to schoolchildren.

Income disparities may also be less in Moscow than in Russia as a whole. According to information compiled by the All-Russian Living Standards Center, over the first six months of this year, the number of relatively well-off Russians increased, while the number of poor went down. And this trend is occurring much faster in Moscow than in Russia as a whole. According to the Center’s findings for the second quarter of 1997, 29% of Russia’s 147 mn population lives beneath the poverty line (defined by an income of less than R356,200 ($60) per month). In Moscow, however, only 6% of the population is living beneath this threshold. The Center’s deputy director, Vladimir Litvinov, said he attributed this situation partly to the fact that 80% of Russia’s financial institutions are located in the capital.

If Moscow has it better than the rest of Russia, Russia has it better than the rest of the former Soviet Union. According to statistics printed in the newspaper Trud-7, Russia had the highest average salary among countries of the Commonwealth of Independent States in November of 1996 – $155 per month, followed by Kazakhstan at $112. Central Asian countries fared the worst – Turkmenistan and Tadzhikistan had average salaries of $20 and $13 per month, respectively.

Another “Moscow factor” contradicts the claims of some that the emerging middle class is not a cohesive political force, and may well provide a signpost to the future. In the referendum on continuing market reforms held in April of 1993, in the last two presidential elections, and in the parliamentary elections of 1996, Moscow, which has the largest proportion of middle class voters in the nation, has consistently voted for reform and for more moderate political candidates. As in other countries and in other ages, the Russian middle class, young as it is, is a defender of economic stability.

Baby Boom

A final, positive indicator of the health of the Russian middle class may be Moscow’s recent baby boom. Rising birth rates are an anomaly in any industrialized country, but even more so in Russia, where declining birth rates and single child families have been the norm for many years. Time was, you would see few young children on Moscow streets, and a pregnant woman on the metro would turn heads. Now, however, change may be afoot. A recent article in Moscow’s English-language daily, The Moscow Times, reported that 50,000 babies were born in Moscow during the first half of this year, compared with 72,000 in all of 1996. If this trend continues, Moscow’s birth rate for 1997 will be 35% higher than last year’s. This “baby boom” may well be the best possible indication of Moscow’s mood.

So it is that many important signs point to the growth and thriving of Russia’s middle class. For others – pensioners, the unemployed and even struggling intellectuals edging into the middle class like Yelena and Alexander Makeev – there is still a long, hard road ahead. When asked what she expects from the future, Yelena said, “I don’t know. We try to be optimists. We read or go to the theater to forget about our problems.” She said her current favorites are the plays of 19th-century dramatist Alexander Ostrovsky, whose characters – mainly merchants and minor officials – might not feel so out of place in today’s Russia. “He wrote about a capitalist society,” Yelena says. “We can understand his plays much better now.”   RL