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Sep 20, 2022
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Have Russians become richer or poorer than in Soviet times?

This year Russia has thirty years of capitalism. Radical economic reforms began thirty years ago, and we can already draw some conclusions. In 1985-1991, Mikhail Gorbachev tried to build socialism with a human face. Hungary and Yugoslavia were taken as a model. The Soviet planning and administrative system was inefficient, but provided a minimum acceptable standard of living.

The reforms of Mikhail Gorbachev created such distortions in the economy that the shortage of goods became total, everyone wanted changes or a transition to capitalism. Many were sure that they would become millionaires or the middle class – “like in the West.” In the autumn of 1990, to us, first-year students, a respected professor at the first lecture on economic theory said that communism was done away with forever, and he would teach us the basics of a market economy. The applause of the students lasted fifteen minutes.

However, in reality, the market shock exceeded all the worst expectations. Hyperinflation wiped out Soviet savings. Initially, according to the forecasts of officials of the Russian government and experts from the IMF and the World Bank, GDP should have fallen by a maximum of 15-20%, the fact turned out to be 50%. In October 1993, Russia was on the verge of civil war. Many Russians lost money in pyramid schemes and during the banking crises of 1995 and 1998. The tight financial policy of the Ministry of Finance and the Bank of Russia, dictated by the IMF, has led to an economy of non-payments and delays in public sector salaries and pensions for six months or more. The overvalued exchange rate of the ruble stimulated imports, rather than the development of national industry and agriculture.

The stock market appeared in the summer of 1995, but served only a small number of corrupt officials, security officials and oligarchs. The main role was played by foreign investors, the standard lot on the stock market was 200-300 thousand dollars. As a result, following the results of the 1998 default, one could say that the reforms in Russia failed. And it is still not entirely clear why then capitalism in Russia survived. Perhaps the Russians loved freedom too much, including in the economy, or perhaps the left simply did not find a strong leader. From my point of view, the talented economist Sergey Glazyev could become it. However, he never became the unified candidate of the left forces.

The growth of the economy and, accordingly, real private incomes began in 1999 and continued through 2013 inclusive. The only exception was 2009, when Russia was covered by a wave of the global financial crisis. Natural rent, primarily from oil and gas, as a result of the Yukos affair and several other transactions, was returned to the treasury, which made it possible to sharply increase public sector salaries and pensions. Some Russians still wonder why Russia, which is tied for 1st-3rd place in the world in terms of oil production, has a lower standard of living than the oil-rich countries of the Middle East. The most obscure citizens explain this by the fact that all the oil was “stolen by the damned oligarchs.”

In fact, the per capita production barrel in Russia is quite modest, plus Russia is forced to spend significant funds on defense, primarily maintaining the strategic nuclear forces in an appropriate order. The main revenues from the export of raw materials through taxes and dividends on state shares go to the budget. However, the shares of all major commodity companies are available to any Russian on the Moscow Exchange. In 2006, the people’s IPO was held by Rosneft, and the most popular chip is Gazprom. At the same time, there are now 19 million private brokerage accounts on the Moscow Exchange in Russia, with families – this is about 50 million people.

Do Russians live richer or poorer than in Soviet times? This is a key issue, because in order to live richly and happily, market reforms were started in Russia. However, there is no single answer to it. The reason is social inequality. In Russia, by world standards, it is average, although after decades of socialism, this topic is perceived by many as very painful. The percentage of the poor in Russia is no greater than in many other major economies. Plus 15 trillion rubles are salaries in envelopes. Since the mid-2000s, the level of GDP and industrial production has exceeded the Soviet level. How to determine whether you are personally richer or poorer than in Soviet times, and how much money burned on your grandmother’s savings book? At parity prices, one Soviet ruble is equal to 300–400 current Russian rubles. However, do not forget that in the USSR imports were mainly only in Beryozka. And, of course, there were no financial markets and no accessible international tourism. So it’s fair to count 1 to 100. And – you won’t believe it – in this case we get the Soviet exchange rate of 60-70 kopecks per dollar. And 1000 Soviet rubles on the passbook turns into 100 thousand current money. And so on.

At the same time, it is not entirely correct to compare the total amount of deposits in commercial banks with Soviet deposits now. In addition to deposits, the population has, according to various estimates, up to $100 billion in cash, plus the value of Russian and foreign shares quoted on the stock exchange, as well as investments in cryptocurrencies that have become fashionable recently. The development of the Russian stock market has made Russians much richer than it might seem at first glance. In the early 1990s, many Russians received shares in various enterprises for free or almost free of charge, primarily for employees of these companies. However, in most cases, dividends on these securities have not been paid for years, or they amounted to a very small amount. It was either impossible to sell shares, or, if possible, then for a penny. Withholding salaries so that the director can buy up staff shares for a penny is generally banal.

However, gradually the shares of subsidiaries were exchanged for the papers of the parent companies of the holdings, where profit centers were usually located. And instead of incomprehensible junk assets, strong chips of the second and third echelon turned out to be on hand. The pioneer in this, having successfully carried out the transition to a single share in 1994-1995, was Lukoil. As a result of the removal of restrictions on the purchase of shares for foreigners, in about a year, Gazprom shares in 2005-2006 rose from $2.50 to $13. The RTS dollar index, which reflects the situation on the Russian stock market as a whole, started in 1995 with a mark of 100 points, now its value is 1270 points, and this is not counting the dividends received over the years of holding securities. Many Russian companies set their dividend policy at 50% of the group’s net consolidated profit under International Financial Reporting Standards.

And, of course, many Russians are the owners of their apartments. There are not so few people, especially in Moscow, St. Petersburg and other large cities, who have inherited apartments from relatives and live simply from renting out real estate. Any property, shares, bank deposit, apartment, land makes a person free. He is not afraid of losing his job or his illness, or the illness of loved ones. And for a girl, for example, assets allow her to feel independent of her partner in any life situation. After all, love comes and goes, but you always want to eat. Ownership makes a person free. And freedom is undoubtedly the highest value available to modern man. So August 1991, the bourgeois revolution, did not take place in vain. Modern Russian society enjoys its fruits in full.

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