Presenting the findings of a recent report, World Bank Economist Radwan Shaban ’80 told students and faculty Wednesday evening that while it is possible to cut Russian poverty in half in the next three years, a number of challenges stand in the way of doing so. Russian President Vladimir Putin has recently made such a reduction in poverty one of the three priorities for his second administration. Shaban’s talk was based on the World Bank report “Poverty Assessment of the Russian Federation” released on September 22, of which he is the lead author.
In order to set the context of the report, Shaban recalled that when he first became involved in Russian research efforts a senior colleague told him that in Russia he could never discuss the P or the two C’s: poverty, Chechnya, and corruption. Instead, in order to discuss poverty, economists had to use euphemisms such as “living standards improvement.” In a culture with strong egalitarian roots, Shaban found “a denial problem” that made dealing with poverty a difficult issue. Today, Shaban is proud to report, poverty has been made a national priority. There is good reason for the newfound focus: roughly 20% of the Russian population lives in poverty, down from a high of 40% on some measures as recently as 1999.
In order to address the problem, Shaban proposes a program with three pillars: pursuing a program of broad-based growth, engaging in targeted interventions to deal with deep pockets of poverty, and developing improved social programs. However, while economic growth in Russia has been strong in the past three years, a number of factors suggest that sustaining such growth will be difficult. In 1999 there was significant excess capacity due to the economic slump, but today most businesses are producing at or near capacity. In addition, over the past three years Russia’s exports have benefited from a large depreciation in the value of the currency, but the effects of that depreciation have likely run their course. Finally, the high oil prices which are a boon to Russia’s oil industry may not be sustainable for an extended period. To meet Putin’s anti-poverty goal, Russia needs to sustain a growth rate in excess of 5% over the next three years without any increase in income inequality. In addition to the challenges of sustaining such a growth rate without any outside influences, a number of economic reforms on the horizon are likely to come with short-term costs hindering anti-poverty efforts.
Key to any anti-poverty program in Russia, Shaban argues, is a reform of the privilege system. Variously described as a program addressing poverty or as a program supplementing wages, the system lacks transparency and the benefits disproportionately accrue to the wealthy. In total, the program makes up a large chunk of the Russian economy, at roughly 5% of GDP. As Shaban describes it, the system has developed as a mishmash of programs with a new one put in place every time a political crisis arises.
In his lecture, Shaban presented an optimistic picture of a Russia emerging from the struggles it faced in the transition to a capitalist economy, and one that would likely be able to reduce its current high level of poverty in the coming years. Whether Russia will be able to meet the ambitious goal set by President Putin remains an open question.