By Renfrey Clarke
MOSCOW — First, in 1992, there was shock and disorientation as the beginning of "reform" threw at least a third of the Russian population into poverty. Then, in 1993 and 1994, even while output in the economy continued to collapse, came a paradoxical sense of hope: maybe it was possible to hang on, perhaps things would gradually get better.
At least for some Russians, things were in fact getting better. Figures from the State Committee on Statistics were there to show it. After crashing in 1992, the total real money incomes of the population recovered to a degree, rising by 10% in 1993 and 16% in 1994.
But now the dream of steady progress to capitalist prosperity has come to an end. Since the beginning of 1995, the financial screws have been tightened as the Russian government tries to satisfy the conditions set by the International Monetary Fund for a US$6.8 billion stand-by loan. Real money incomes are falling steeply. The sheen has gone off the lives of the new commercial middle class, and for millions of workers, the new austerity has brought acute hardship.
Pro-government ideologues have been left to contemplate, with some uneasiness, an increasing level of organisation and militancy in the labour movement. Meanwhile, parliamentary elections are due for December — if the authorities allow them to happen.
The rise in the real incomes of the Russian population during 1993 and 1994 used to be cited by Western journalists as evidence of the success of the Russian "reforms", and as a sign that economic stabilisation was on the way. But as the writers concerned knew perfectly well, the rise in consumption by the Russian population was the result not of a revival of production, but of a sort of economic self-cannibalism.
During 1993 and 1994 real investment in the Russian economy, and especially in industry, was collapsing. Funds that should have been used to renew industrial plant, boosting efficiency and competitiveness, were going to boost the living standards of a narrow layer of big-spending "new Russians".
A massive shift from investment to consumption would, of course, be met with a chorus of denunciations if any government in the West were reckless enough to try it. But in the same spirit as Western leaders forgave Russian President Yeltsin for shelling the country's parliament in 1993 and demolishing Chechen cities early in 1995, Western journalists have been eager to excuse Yeltsin's ministers for disembowelling Russian industry.
One reason the shift to consumption won tacit approval was a sense that it represented a key political aspect of the "price of reform". The rise in real incomes that took place in 1993 and 1994 was important for consolidating a layer of the Russian population that felt a stake in the government's policies. As well as the semi-criminal "new Russians", these people included a rather broader layer of well-paid employees of the new private retail, insurance and banking sectors.
The great majority of Russians, of course, never shared in the bounty. According to the State Committee on Statistics, during the 12 months to January 1995, the rise in the nominal incomes of 80% of the population fell behind inflation. Figures cited on March 25 by the liberal daily Segodnya indicate that during 1994 average real wages — as distinct from incomes — fell by 17%. Measured in 1990 roubles, real wage levels in December 1994 were barely 60% of those five years earlier.
With the worsened position of wage-earners, at the same time as the total real income of the population was increasing, came a dramatically new structure of income distribution. The newspaper Trud noted during March that in 1991 the wealthiest 10% of the Russian population had 4.5 times the average income of the poorest 10%. By January this year, this ratio had increased to 14.2 times.
The rise in the total income of the population could not continue forever, and in January the tap was turned off. At a press briefing on April 18, first deputy prime minister Anatoly Chubais boasted that the national money supply had increased by only 3% during the first quarter of 1995 — a period that had inflation of 44-45%.
As Chubais' statistics indicate, the Russian government is seeking to meet the IMF's loan conditions by staging a drastic demonetarisation of the economy. The effects of this policy are now being seen in rapidly increasing delays in payment for delivered goods and services. First deputy economics minister Andrei Shapovalyants told a press conference on April 20 that in some regions these delays had doubled in recent months. Shapovalyants predicted that the problem of unpaid wage arrears — the cause of many bitter labour conflicts — would soon grow more acute.
Meanwhile, the squeeze on the money supply has flowed through into savage cuts in real incomes, largely through stifling the petty trade in goods and services which now provides all or part of the livelihood of large Â鶹´«Ã½ of the population.
The extent of the drop in incomes is a subject of debate, but no-one disputes that it has occurred. On April 11 Labour Minister Gennady Melikyan told a press conference that over the past two months, real money incomes had fallen by 10%. The business journal Kommersant on April 4 reported that while inflation continued during the first quarter of 1995, nominal money incomes experienced almost no growth. The English-language Moscow Tribune on April 20 published figures suggesting that real incomes in the first quarter of 1995 were 30% below the level a year earlier.
If the main people to suffer from the drop in incomes were Mercedes-driving "new Russians" and well-paid bank employees, most Russians would observe the collapse with pleasure. But although the newly prosperous layers of the population have taken cuts, they are still the people best able to defend their living standards in the new, harsh environment.
The real victims of the government's policies are quite different. Their identity was revealed by a grim statistic cited in the Moscow Tribune on April 20. In February, the paper reported, an estimated 47 million Russians — a third of the population — received less than the official subsistence minimum income, currently about US$50 a month. This figure had risen abruptly from some 32 million in the fourth quarter of 1994.
So far, the government's squeeze has not caused a further abrupt fall in industrial output following the crashes of earlier years; at the moment, production is drifting downward at an annual rate of about 5%. But past experience suggests strongly that as the current wave of inter-enterprise non-payments gathers strength, output will plunge to new lows.
It may be that inflation rates will then slacken. But with industry and agriculture in ruins, talk of "stabilisation" will be frivolous. With their insistence on reducing inflation at all costs, including destroying factors of production essential for a modern economy to operate, the monetarists of the economic ministries and the IMF will have reduced Russia to penury and, very likely, chaos.