In what ways have social inequalities been reduced?
Since the beginning of the war in Ukraine and the imposition of Western sanctions on Russia due to the invasion, many analyses and assessments have been published on how the Russian economy would be affected—both by developments on the battlefield and by the sanctions themselves.
Undoubtedly, the war has negatively impacted Russia. For example, in recent months, there have been significant flight delays and cancellations due to attacks by Ukrainian drones. The price of potatoes has risen by 166% this year due to a poor harvest, partly caused by a labour shortage, as many have enlisted in the military or taken jobs in defence manufacturing plants. In eastern Ukraine, Russia is losing more than 1,000 soldiers (dead and wounded) daily.
The situation is far from ideal. However, as Kremlin power dynamics expert Professor Mark Galeotti notes, there is no sign of discontent among Russian citizens regarding the war or its continuation—although he highlights the difference between public and private statements made by Russians.
“Ukraine and its Western partners have not succeeded in making the cost of war unbearable for the aggressor,” he says, arguing that, in fact, the war in Ukraine has effectively reduced major inequalities between Russia’s various regions. How?
“Coffin money”
Learning from past wars where conscription was used, in Ukraine, Russia chose to avoid compulsory military service. Instead, it relies on volunteer soldiers who are compensated with relatively generous salaries and bonuses.
A volunteer can receive a sign-up bonus of up to 1.5 million roubles—equivalent to nearly 18 times the average wage—and is then paid two-and-a-half times the national average salary.
In the event of death, soldiers’ families continue to benefit, with compensation up to 15 million roubles, as well as pensions and preferential access to universities for their children.
Recruits generally come from poorer regions such as Tuva and Buryatia on the Mongolian border, or Dagestan in the North Caucasus. Their participation in the war has brought unprecedented wealth to these areas.
In the first two years of the war, bank deposits in Tuva and Buryatia increased by 151% and 81%, respectively. Meanwhile, in Dagestan, building materials became scarce due to a construction boom as families of fallen soldiers renovated their homes using compensation—known informally as “coffin money.”
Economic drivers
Inflation is expected to range between 7.1% and 7.6% this year, but wages have also increased thanks to a tight labour market.
Real incomes are rising faster during wartime than they did in the previous decade. While this growth may be limited for new hires, Russians still have more disposable income than ever.
Before the invasion, most Russians were pessimistic about their financial situation, but last year the majority expressed optimism.
Self-sufficiency and substitutes
The defence industry is operating at full capacity, with many factories running three shifts, 24 hours a day. However, this is not yet a total war economy.
“In many ways, it’s difficult for ordinary Russians—even those outside the big cities—to feel that they live in a country under economic siege,” says Galeotti. He explains that, aware of the need to convince Russians the war is bearable, Putin has taken measures to shield the population from the West’s withdrawal.
Sanctions have had a negative impact, but many domestic industries have benefited from the exit of Western competitors. International companies that left Russia have largely been replaced by local ones—from the fast-food chain Vkusno i Tochka, a McDonald’s substitute, to Mir Kubikov, a Lego replacement.
Also, while Apple Pay may no longer be available, Russians can still buy a new iPhone imported through third countries at a slightly higher price—or opt for the latest Chinese equivalent.
Public opinion matters
Public sentiment is important even for more authoritarian regimes, says the professor, noting that public opinion does not direct Putin’s actions, but it does constrain them.
Although his generals have at various times pushed for a broader mobilisation or the deployment of conscripts, Putin has refused. “He understands how unpopular and destabilising that would be,” says Galeotti, adding:
At present, this limits the effectiveness of his summer offensive, preventing him from expanding the front line and forcing him to scale back operations elsewhere in order to concentrate more troops in Donbas, eastern Ukraine.
It has also forced Putin to spend money shielding the general population from the war’s effects. Maintaining a subsidised loan scheme, for instance, cost more than paying the salaries of the entire police force.
Given all this, it’s not surprising that a recent poll found that although 61% of Russians want negotiations and an end to the war, they don’t want this outcome at any cost.
Also read: Eurobank Limited and the “discreet” banking big bang
Source: naftemporiki.gr/ Economy Today
