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. Last Updated: 07/27/2016

Increasing Inequality Dangerous for Reform

On Open Radio one morning this week, the manager of the Manhattan Experience night club in downtown Moscow was being interviewed about his clientele: Would he let in mafia types? Well, he said, in Moscow as in New York there was a "diversified community" (a lot of criminals) and in Moscow as in New York, they could come in if they were well dressed, parked their weapons and behaved themselves.

All of this was of course in English, and thus the number of Russians listening to the calm acceptance that gangsters needed somewhere to dispose of their hard- (on other people) earned cash could only have been heard and understood by a few. In a fit of proxy outrage, I experienced the bitterness that interview could have animated in the breasts of the many in Moscow for whom daily existence is a struggle and the enormously conspicuous consumption of the organized crime bosses and the new businessmen a standing affront.

Yet still these average people support reform - or we trust that they do. President Yeltsin's ratings have gone up since he shelled the parliament - a strong tsar still attracts clearly - and his supporters believe that a December campaign will see a majority of pro-Yeltsin deputies in the new Federal Assembly and a revived economic reform program ready to go under a new government by January.

Yet the perception of the people that the benefits all go to the rich will be critical to the maintenance of reform - indeed, to the maintenance of stable government. Once the parliament is elected, there can be no more excuses on the side of the president and the government that it is unrepresentative: However it is composed, it must be taken for a reflection of the people's political choice. How far will their perception of inequality determine how they choose - and how they continue to support - their representatives?

First, Russia has become much more unequal than it was. Though economists differ on how far communist economies in general and the Soviet one in particular rewarded unequally, there is no doubt that the gap in income and wealth has widened hugely since the start of reforms. In particular, pensioners have over the past two years suffered terribly: An analysis by Dr. Chris Doyle from Cambridge University's Department of Applied Economics show pensioner's real living standards halving between the beginning of 1991 and 1992 - while those who lived on or close to the official minimum received an income below half of the so-called "physiological minimum" monthly income level (based on a minimal carbohydrate intake).

Pensioners do not usually riot or overthrow governments, but they are not the only sufferers. All on state salaries - local and central government workers, medical and academic staff - have seen living standards plunge, while the anticipated higher unemployment will put on welfare workers who until now have been relatively shielded.

This widespread reality of inequality between individuals is matched by inequality between regions - as the resource-rich regions get richer and those without resources find themselves increasingly strapped for cash. Just as central government can do only the minimum for poor people, so it can do little to equalize the incomes of the rich and poor regions - since the fiscal system is new, taxes are evaded and the rich regions are extremely resistant to being treated as milk cows for the poor:

The reformers may well have had the ground cleared for them by the tanks of October. Now, they will be constrained not so much (initially) by parliamentary pressure as by the people themselves - whose tolerance for scraping by while mafiosi burn money in night clubs may decrease rapidly in the next few years.

John Lloyd is Moscow bureau chief for the Financial Times.