Russians are resigned

On Thursday, the Wilson Center hosted Natalia Zubarevich, professor at Moscow State University and Director of the Regional Program at the Moscow-based Independent Institute for Social Policy. Zubarevich discussed how the Russian financial crisis involves all of the regions of Russia and all aspects of economic development. The Russian economy has stopped growing, due in part to sanctions and largely due to the fall of oil prices.

Zubarevich concludes that trends differ from previous crises. Regional budgets have destabilized, investment has declined, incomes and wages have declined, and industrial output has dropped. Decline stretches across all sectors, but the unemployment rate still remains low. The devaluation shock reduced incomes and wages, hurt investment, and affected the consumption and processing industries. A deepening of the Russian economic crisis is impending.

Investment has plummeted by 8 percent, declining in 51 regions. Real money incomes declined in 78 regions, with the worst effects felt in the Urals, Volga, and the Northwest. In only three regions is the construction sector growing; otherwise, a 10 percent construction decline is seen throughout Russia. The only noteworthy industrial growth is in those regions that specialize in defense, as the federal budget funds defense spending. Moscow has pushed regions to cut expenditures. Forty-one have cut education spending, which could lead to a less-skilled workforce in the future. The Urals and the Northwest regions have been affected intensely.

Cities and smaller towns have differential factors that set them apart from one another. The smaller towns’ financial crisis is a result of industrial output decline, while large cities’ economic woes come from the weakening of incomes and purchasing power. The biggest risk of the crisis in small towns is growth of unemployment. Labor migration is accelerating. Those qualified in IT sectors seek jobs abroad, so some of the most skilled workers are leaving Russia.

The unemployment rate is 5.8%. No significant changes are foreseen. Russia created a specific model of labor that could adapt to market fluctuations. The Russian government and businesses will drop people down to part-time work. This is acceptable to citizens. The workers’ mindset is that there is still paid work available, so there is no need to protest and demand immediate improvement of their situation. The shrinkage of the working age population contributes to this low unemployment rate, too. A very small generation born in the 1990s is coming to the labor market, while a very large generation born in the 1950s is leaving the market simultaneously. The labor market will be reduced by 10 to 14 percent by 2025.

The Russian middle class, which has enjoyed access to global consumer goods, will now have to adjust their lifestyles due to the financial crisis. But the working classes will not protest. There is no real trust between neighbors, so Zubarevich does not see large clusters of people rising up to protest economic conditions. People are dissatisfied, but are ultimately surviving in the current economic conditions. Russia will continue to face its economic stagnation. Full recovery is not in sight. But Russians are resigned to their circumstances.