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Russia’s wealth gap has always been wide, but as the war against Ukraine drags on, the divide is only growing more extreme. Reports about the economy often seem contradictory: despite heavy international sanctions, the Kremlin is pouring billions into defense spending and offering ever-larger sign-on bonuses for army recruits. Meanwhile, with thousands sent to war and a crackdown on migrant workers, the country is grappling with a labor shortage. At the same time, soaring inflation has eroded wages. Yet Russia’s super-rich are only getting richer — with those on Western blacklists often even outperforming their peers. To unpack these conflicting dynamics within the Russian economy,
An interview with Jem Morrow, a researcher studying Russian society.
Question: ***Russia is facing a nationwide labor shortage, while the government has increased defense and wartime spending. Why hasn’t this resulted in broader economic benefits for lower-income workers in the country?
Jem Morrow: I think that the main problem people have when they think about the economic benefits of the war is that there are essentially three groups that are benefiting: soldiers’ families, workers in the military-industrial complex, and another small group, which is business owners.
The problem people have is they think that, like in perhaps some Western countries, these groups are bigger than they really are. In reality, when you look at them as a proportion of the population, even if you take into account the extended families of soldiers, the economic benefits to towns where munitions factories are sited, or indeed the broader economy that might benefit from increased spending from these groups — the mistake is that to think that this is a bigger effect than it really is. And indeed, it's a small effect.
People always look at the money being paid to soldiers. [But] as a proportion of the population, it's a tiny amount and it's still a tiny amount of money.
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Even the polling companies most sympathetic to the central authorities always cite the fact that the majority of Russians have no savings and cannot financially plan for the immediate future. Yes, there are people that have got savings, but these are a minority. So, this issue of economic precariousness hasn’t changed [for the better] because of the war.
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[The three things contributing to the income gap between the wealthy and the poor in Russia are] first, the difficulty in access to affordable credit (people are using microcredit to meet even their basic needs); second, the fact that inflation is very, very high by any standards; and third, the fact that most people are starting from a low income level, even in relatively wealthy cities.
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There's this very old text by these two economists [Andrei Shleifer and Daniel Treisman] from early in Putin's [second term] where they said [that] Russia's finally going to become a normal country, where people get the economic benefits of, okay, not a liberal democracy, but a kind of more typical market economy. And they obviously turned out to be completely wrong, because [...] Russia was able to remain this highly, highly unequal society.
It's not as unequal as a country like Brazil, or even Mexico, but given the high level of human development, human capital, the high level of education, the integration that was happening with the global economy in the early 2000s and even 2010s, it's not what you would expect.
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We've seen that there's this good evidence that some already rich people have gotten a lot richer thanks [to the war] to the division of these productive assets that were effectively abandoned by Western companies [after they left Russia]. The famous example is the yogurt maker Danone, but also [the brewing company] Carlsberg. And then there are the gaps in the market that the exit of companies like McDonald’s has provided. So the economic blockade, partial blockade, of Russia has only provided more opportunities for the elite to buy more loyalty through redistributing assets at the top. And this process is entirely separate from the process that I was just talking about. So while people say, “You know, the Russian economy has been very robust” — it's been robust if you're a capital owner.
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[The Russian wealthy] are spending [their money] on Chinese cars. They may be paying off a mortgage early. But there isn't this huge multiplier effect of the money from war salaries going into the economy. If anything, the effect is that this money is being burned through very, very rapidly by recipients who have never seen this kind of money before. Yes, it may be a lot of money for them. But it's not enough to have a massive multiplier effect in the economy as a whole.
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If there is a negotiated ceasefire, or even a permanent peace, I think very, very quickly, we will see social discontent emerge in some ways. And I'm not saying that there would be unrest or anything, but there would have to be a reanalysis by the elites of their kind of complete, unbridled, rapacious appetite for the country's wealth.
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People talk about the North Koreanization, and I'm kind of skeptical about that, but at the same time, if you continue to ask people to make sacrifices and see their living standards fall as a result of your foreign policy decisions as a leader, then you have to do something about that — whether that’s more repression or whether it’s making examples of kind of hate figures, or creating hate figures from among the sub-elite.
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[When the war ends] that's just when the problems really begin for the regime. Because the war [...] started as a result of Putinism not having any answers for most people who live in Russia. Especially when it came to what feminist researchers call social reproduction. I want to know that my children will live in a better country than I live in and have better opportunities than I did. Your average person wants to be sure social reproduction occurs in a meaningful and positive way, and that just hasn't been possible since at least 2008 in Russia.
