Effects of Transformation on Inequality in Russia

Most observers agree that there has been a dramatic increase in inequality in Russia, and that inequality matters. But there are many arguments as to why it is significant. The key question concerns the effect of the transformation of Russia on inequality and poverty. Marshall1 once characterized (and celebrated) the hyphenated society of democratic-welfare-capitalism as the ideal mechanism for managing the transition from pre-industrial to post-industrial society. This was to be accomplished by the political control of a capitalist economy. Inequality would grow, but the poor would be helped and enabled to retain their place in society. The traditional view was that it is economic growth that matters, particularly in relation to poverty reduction, and that a period of inequality within a country was a price to be paid for moving from an agricultural economy to a developed economy, epitomized in the Kuznets ‘curve’.2 In the Russian case, the process of transformation into a capitalist economy was expected to generate inequality, but the simultaneous evolution of democracy would, it was hoped, enable citizens to vote for enough welfare support to contain the impact of the transformation on those at the bottom.