‘We Have a Middle Class, But It’s Small, and It’s Struggling to Survive’

Mark Urnov, Academic Supervisor of the HSE Faculty of Politics, talked to us about his view of the middle class and about the research he’s been carrying out with Irina Soboleva and Anton Sobolev in four Russian regions, as well discussing the reasons for the popularity of this work among international researchers.

— Dr. Urnov, the paper on ‘The Middle Class in Four Russian Regions: Government Policies and Behavioral Strategies’ prepared by you, Irina Soboleva and Anton Sobolev, has been one of the most downloaded papers on public policy during the last two months. In recent years there have been many papers published about the middle class, can you tell us why were you interested in this topic?

— There really has been a great variety and number of middle class studies (between 2006 and 2010, about 29000 articles were published in Russian scientific journals), but only about 5 or 6 works were dedicated to analysing middle class development in the regions. And there were no papers analyzing regional policies towards middle class stimulation and the response to this action. I think this is primarily why our paper published in Social Science Research Network has been so popular.

— What regions were involved in the study, why did you choose them and what methods did you use in your work?

— We initially planned to include eight regions, but in the end, due to financial restrictions, there were only four; Perm, Kransoyarsk, Kirov region and Voronezh. Each of these regions has its specifics: Perm and Krasnoyarsk are relatively wealthy regions, and judging by the development of their political institutions and administration style they are among the most democratic regions in the country. Kirov and Voronezh, on the other hand, are comparatively poor regions, and the level of their democratic institutions’ development is average for the country.  I’m saying this based on the results of research by Nikolay Petrov from the Moscow Carnegie Center, who has been involved in evaluating the development of democratic institutions in Russian regions for a long time.

Our research was based on interviewing middle class representatives, as well as experts, representatives of business associations and governmental bodies. I do not claim this was a representative study. But at least we managed to uncover some relevant problems which seem to be typical for most Russian regions, excluding Moscow, where the situation is quite different.

— For me, the question ‘is there a middle class in Russia?’ is still unanswered.

— This is a good question. We have a middle class, but it’s small, and it’s struggling to survive But we still have it.

— If it exists, what groups of population does it consist of?

— In our research we studied small and medium-sized businesses, highly skilled workers, and so-called ‘white collar workers’. By their behavioural strategies, each of these groups can be divided into two subgroups. For example, among representatives of small and medium-sized businesses there are those who are involved in production and those involved in trade, and different strategies of behaviour, related to different views of the future, are typical for them. Among highly skilled workers, two groups can be distinguished: the first group is those who work for large businesses or organizations affiliated with large businesses, as well as officials and public officers. The second group includes people relying on their own resources, such as lawyers, journalists, artists and highly paid experts working in small and medium-sized business. We did not include typical budget-financed employees in the study: because their labour is underpaid, neither themselves nor other people consider them middle class, and their economic behavior today is absolutely not in line with standard middle class strategies, they are merely surviving. They are, rather, a proto-middle class, a potential cohort which, under certain policies, could increase their income and become a normal middle class.

— Why did you group together small and medium-sized businesses?

— In our view, small and medium-sized businesses do not consider each other as alien organizations, they are not in conflict with each other, instead, they are related. There are associations of small and medium-sized businesses. They have similar problems, such as large businesses and the federal government, which increases taxes and makes it harder for small and medium-sized businesses to survive. As for regional governments and regional elites, the middle class has gained their support in some regions. But at the same time the section of the regional elite which works for large corporations sees the middle class as an obstacle for the free manipulation of central funding. This is the situation with the middle class in Russia.

— You mentioned middle class representatives’ behavioural strategies, what are they?

— Speaking of small and medium-sized production businesses, they cannot exist normally under the current taxation system. And today, when social taxes for salaries are being increased, they don’t feel positive at all. That’s why the prevailing strategy of small and medium-sized enterprises is to gradually turn to the grey economy, accumulate some capital and move abroad. For example, in Krasnoyarsk, there is a move towards China where the taxation system is more transparent and where, as the businessmen say, ‘it is possible to work’. People from Voronezh or Kirov go initially to Moscow or Saint Petersburg and then to Europe or the USA. Tradesmen go into the shadows and start working in a corrupt way.

Highly qualified specialists working in small and medium-sized businesses have the same strategies as their owners – save up and get out. Freelancers do the same. Those who stay are officials and white collar employees working for large businesses. But the problem is those who leave are people oriented to independent activity, willing to live in a competitive economy and with competitive politics, which means in a normal democratic country. And those who stay are people not interested in competitiveness, they feel good with the situation as it is, and democratic values are not very important for them.

— And what are the prospects for middle class development in Russia?

— The structural changes taking place inside the middle class will, in the long term, lead to the elimination of the social group which could have been a carrier of competitive, market, liberal and democratic values. In some rich regions, under active support from regional authorities, things could have been improved. But today regional authorities’ ability to make decisions is very limited, since almost all regions are financially dependent on the federal centre. While in 2006 there were 13 donor regions (which means regions where the share of transfers from the central budget to the consolidated budget was under 10%), in 2009 there were only two donor regions left – Moscow and Tyumen. In this situation it is unrealistic to expect that regional authorities will be able to intensively support their own middle class, especially under the taxation pressure coming from the federal centre.

— In your view, what is the reason for this situation?

— The federal center has taken on a huge number of social responsibilities, which it cannot give up, especially in the run up to an election. The interests of the army, the military-industrial complex, the fuel and energy complex and large corporations are being actively lobbied in the government. They cannot fight these, since these are what supports the political elite. That’s why the resources are taken from those who are weak and won’t make any fuss –  small and medium-sized businesses and the budget-financed institutions. They cannot touch the pensioners, they are active people, they’ll start blocking the streets and banging pans, but the small and medium-sized businesses will not stand up and shout. They will leave – but this doesn’t matter, since there will be no fuss. The oil price that would save the budget is $150 a barrel. But we don’t know if this will happen. But there is already a budget deficit and most probably it will grow. That’s why the short-term aim of retaining power today prevails over strategic interests. One such strategic victim may be the development of the middle class which could have become a long-term basis for political stability and normal development of the competitive environment. Today only the part of the middle class uninterested in the competitiveness stays in the country.

— Is the paper published in the в Social Science Research Network (SSRN) a result of work by a group of researchers?

— Yes, and I am proud to say that this is not just my work, but collective research with a very significant contribution by my colleagues from the HSE Faculty of Politics Laboratory for Political Studies, Irina Soboleva and Anton Sobolev. Despite their youth – Irina is a final year undergraduate student, and Anton is studying in the master’s programme – they have demonstrated a very high level of professionalism and working ability. You can work on equal terms with them, as skilled colleagues. I don’t know how they manage to do everything in time, but they read voraciously, learn languages, stay in the top ten of the ranking, and at the same time they are not nerds, they entertain themselves and live a full life. I must also mention the other student members of our research groups, such as Yaroslav Bakhmetyev, Ilia Borisov, Lena Gaber, Tamara Lutsenko, Masha Knyazher and Anton Gorodnichev.

— Are you planning to continue the project?

— The project was implemented in collaboration with Thomas Remington, our partner and Professor at Emory University, Atlanta, Georgia, USA. He helped with the financing of the project. Now the four of us (Thomas Remington, Irina Soboleva, Anton Sobolev and I) are starting to write a monograph on the situation of the middle class in Russia. In late 2011 we are planning to present the materials we have selected and processed. One presentation will be held at the HSE and another in the U.S. Some colleagues from Germany have also expressed an interest in our work, so probably we shall also discuss the results of our study there. We’re planning to organize a special session on the middle class as part of the HSE April Conference where we shall invite some leading researchers in this field.

In the near future one more American university, the Towson University, Baltimore, Maryland, will join the project. We are planning to carry out a comparative middle class research in Russia, the USA and the SAR. The results of the study will not only be published: the participants from Baltimore are planning to stage an event on the basis of expert interviews which we’re going to conduct in the three countries. Generally, research, including international research, is developing intensively at the Faculty, so we can speak of real research cooperation.

Lyudmila Mezentseva, HSE News Service