Russians Develop Economy and an Impoverished Class

As foreign investors, Western politicians and rich Russians celebrated President Boris N. Yeltsin’s recent reelection, Valentina Shetchenkova and her 8-year-old daughter rummaged through the garbage behind their local market for rotten tomatoes and cabbages to eat for dinner.

Geneticist Oleg Lazebny endured yet another clash with his in-laws, with whom he and his wife have been living since his laboratory slashed wages.

And Nina Galitsina, who lost her longtime job at a kindergarten when the factory it was attached to shut down, continued her grim search for work.

Of the three, only Shetchenkova supported Gennady A. Zyuganov, Yeltsin’s Communist challenger, who won 40% of the vote in the July 3 runoff election largely because of the impoverishment that has afflicted so many here since the collapse of the Soviet Union 4 1/2 years ago.

The others, who have reaped only hardship from the Yeltsin government’s economic reforms, still voted for the Kremlin leader’s open society.

But now that voters appear to have decisively embraced capitalism, Shetchenkova, Lazebny and Galitsina all hope that the promise of a market economy in which competition rules and hard work is rewarded will somehow become a reality for them and an estimated 50 million other Russians who are also living in poverty.

“It’s very sad to live this way,” said Shetchenkova, who has worked as a janitor since her husband was laid off from a television factory that once exported to a guaranteed market of Soviet bloc countries but now must compete with the Sonys and Zeniths of the world. “My friends tell me this is only a transition, and I hope that’s true.”

Now that Yeltsin has triumphed, with 54% of the vote, much has been said here about improving the climate for foreign investors and cracking down on crime. The media have focused on the winners and losers of the political jockeying for power in the new government.

But some economists and social critics warn that Yeltsin must tend quickly to weaving a more durable safety net for the poor if Russian society is to maintain stability and be safe for private enterprise. Part of building capitalism, they say, is constructing a means to help the new class of poor it creates.

“This is an acute problem for us,” said Tatyana Y. Yarygina, deputy chairwoman of the Russian parliament’s Labor and Social Protection Committee and a member of the political party of Grigory A. Yavlinsky, the liberal economist and unsuccessful presidential aspirant. “With the new rich, we received a new poor. And with 30 million people voting for Zyuganov, I believe the president knows he must finally do something.”

His hand forced, in part, by the close race with Zyuganov in the June 16 first round of the presidential election, Yeltsin made improving social welfare a cornerstone of his campaign.

Last month, he appointed Prime Minister Viktor S. Chernomyrdin to head a commission on social reform. And on July 10, in his first public address since the runoff election results were declared final, he promised to make good on his campaign pledges to help the needy.

“What I spoke about over the past six months is being done already,” Yeltsin said, referring to his promises to increase pensions and ensure that workers get paid. But, he added, “probably not as fast as we all would wish.”

Indeed, the World Bank estimates that one-third of Russia’s 150 million people live below the minimum means necessary for subsistence, compared to 10% in the Soviet era, when a patriarchal state mostly lived up to its promise to provide jobs and enough to eat.

The bank--which recently surveyed Russians’ expenditures (what select households bought in a given month) rather than their incomes to avoid skewed data from respondents eager to hide illicit or underground income--noted that the severity of Russian poverty has almost doubled since 1991.

By comparison, it said, 12% of the people in Poland--an Eastern Bloc nation also slogging through a transition to a market economy--are poor, while 6% of Hungary’s citizens eke out an existence below comparable poverty lines. Russia spends about 8% of its gross domestic product on social services for the poor, compared to the 15% of GDP spent by other Central and Eastern European countries.

Income disparity has also increased faster and more sharply in Russia than in other post-Communist transitional economies, the bank said, noting that Russians among the richest 10th of the population now earn 14 times as much as those among the poorest 10th--a disparity comparable to that of the United States.

“We should pay some price for living in an economic madhouse for 70 years,” Russian economist Nikolai Shmeliov said. “The question is the size of this price.”

As for the Russian poor, much of the cause of their distress, analysts say, can be traced to rampant inflation--now seemingly in check--and Russia’s overall economic decline. As Russia continues to undergo a wrenching restructuring, the nation’s GDP has fallen by almost half. Huge numbers of workers lost their jobs, for example, in the giant Soviet military-industrial sector. But these employees are expected to be reabsorbed into the work force as Russia retools to serve international markets.

But economists say that capitalism inevitably leaves some people poor; the Russians newly afflicted this way are unlikely to see an improvement in their condition unless some combination of state and private support is provided for them.

“The distribution of income in a market economy is likely to be less equal,” said Jeni Klugman, project manager of a recent World Bank report on poverty in Russia. “And there are new groups of poor that are here to stay, such as the unemployed.”

Officially, Russia’s jobless numbers remain low. That, in part, is because unemployment benefits are so spare--on average, equivalent to $22 a month--that many of those without work simply do not register with the Federal Employment Service.

Yarygina, the deputy chairwoman in parliament, estimated that almost a quarter of Russians can work and are willing to do so but cannot find employment--a situation complicated by how foreign the very idea of a job search is for most Russians. And while a “shadow,” or underground, economy provides employment for many Russians, that work rarely offers a real livelihood that will lift them out of poverty.

Some economists have predicted that Yeltsin will have to hold off on many of his more lavish promises so he can comply with the requirements of the International Monetary Fund, which, as a condition of its $10-billion loan to Russia, has insisted that this nation take steps to control its spending and inflation.

Some also argue that more generous social spending would simply prolong the dire conditions of the Russian poor, imposing too heavy a tax burden on small businesses and the wealthier segment of society that would be more likely to invest in enterprises that would create jobs.

But most analysts here agree that if Russia can’t do more than offer a patchwork of programs left over from the Soviet regime and new efforts rooted in Yeltsin’s first term, perhaps the whole system should simply be restructured to help the neediest.

Under the current system, for example, the Ministry of Social Protection provides a subsidy equivalent to about $10 a month for each child younger than 16 in every Russian family, regardless of income.

“We’re considering changing this system to make it differential, but that would require proof of income--[and] that’s an expensive enterprise, and we’re not sure if it is worth it,” said Vladimir I. Mudrakov, a ministry deputy.

Indeed, there seem to be limitless potential demands for government aid to troubled segments of Russian society.

Military personnel discharged without job skills from Russia’s shrinking armed forces need help, some say. Others are championing subsidies to invalids. And while many of Russia’s elderly try to live on monthly pensions of $40 to $50 in a country where most food items cost more than they do in the United States, some economists want retirees younger than 60 to be allowed to seek work, with appropriate reductions in their stipends.

Russia has a problem with its “bad allocation of the social expenditures,” argued Anders Aslund, an economist at the Carnegie Endowment for International Peace who has advised the Russian and Ukrainian governments. Because pensions take up a good portion of social expenditures, “poor families with children are barely getting any help,” he said.

Among the worst off of Russia’s poor now are the young, the sick, the old, single-parent families and families with more than three children, according to official statistics, as well as anecdotal evidence compiled from the raft of charities that have sprung up to help those neglected by the state.

Moscow has, perhaps, been the least hard-hit of any region. But a walk down Tverskaya Boulevard, where the poor congregate near a park and foreign hotels, gives an indication of just how grim circumstances can be for Russia’s poor.

Leonid Yurasov is there with his 11-year-old son, Oleg, a ghostly pale boy in a wheelchair. Yurasov begs passersby for money so he can take his child to a clinic.

Nearby is Valentina Alexeyvna, 58. She says she has been reduced to sleeping in doorways since her apartment was privatized and she could not afford the housing on her meager pension.

Antonina Mikhailovna paces this busy area, selling Cosmopolitan magazine to supplement her pension. Her life has been tough, she says, because last month’s issue sold poorly. But the new issue, with model Cindy Crawford on the cover, seems to be faring better.

Hovering not far off, listening to Mikhailovna’s conversation, is Aksana Gachalinka, 10. She flashes a disarming grin at a visitor but then confesses she cannot read or write even her own name. Aksana, an immigrant from Ukraine, says her mother works in a bakery and she does not have the right papers that would allow her to go to school.

Meanwhile, a woman sporting gold earrings and Gucci sunglasses presses a fistful of money into Mikhailovna’s hand--a sum far exceeding the cost of a Cosmo.

“I feel sorry for her,” the woman said.

Indeed, Muscovites--for whom the sight of poverty in the streets is still relatively new--often stop to give to beggars.

But the bulk of Russia’s poor are less visible, experts say. Many of them, for example, may hold jobs that simply don’t pay. At the Zil automobile factory in Moscow, workers have been struggling with impoverishment; they recently said their employer hasn’t paid them since January. This situation occurs across the country at creaky manufacturing plants.

At Lazebny’s genetics lab, three of his colleagues take turns selling convenience foods from a kiosk so that they can continue to work in science; like him, they all barely scrape by.

For parents, especially, capitalism can be cruel. Under communism, families received privileges such as discounted clothing and tax breaks. But now, with the Soviet system fraying, almost 40% of families with children have incomes below the official subsistence level, the equivalent of $76 a month.

“The state gives us nothing,” said Irina Dyomina, 40, who has five children, ages 8 to 20. “I am afraid sometimes to open the fridge in the kitchen because I know it is empty and my children are hungry. I have nightmares when I dream about meat and fruit. I run to the fridge, but it is as empty as yesterday.”

Nina S. Agapova, director of Soprichastnost, a charitable foundation that collects clothes for families with children and runs a canteen for pensioners, said groups like hers are hampered from corporate fund-raising by a new law that makes donations of as much as 3% of profits tax-deductible--but not more.

The demand for all of their services has been growing. But the area in which demand has risen most? Requests for legal aid have doubled in just the last year.

“People want to know what their rights are under the new system,” Agapova said. “We usually have to tell them, ‘Not much.’ But now that the elections are over, we believe the situation will improve. It must.”