We now come to international comparisons.
We first compare the long-run evolution of income inequality in Russia and Western countries (here we take the US and France as examples, France being relatively representative of the West European pattern). In a way, Russia appears like an extreme version of the long-run U-shaped pattern observed in the West during the 20th century.
During the 1917-1989 period, inequality stood at low levels everywhere, but the compression of inequality was particularly extreme in Russia. Previous research has stressed the role of political factors to account for the reduction of inequality in Western countries in the aftermath of the 1914-1945 political and military shocks: severe compression of top capital incomes following war destructions and the Great Depression; new policy regime with the rise of steeply progressive taxation of income and inherited wealth, the welfare state, and in some cases rent control and partial nationalization, with important variations across countries. Russia illustrates an extreme form of political shock: the Soviet regime attempted to put an end to private property altogether, and to reduce monetary inequality to an extremely low level – indeed a level that had probably never been experimented before in human history.
Finally, in order to explain rising inequality in the West since the 1970s-1980s, with important variations across countries, previous research has again stressed the role of political factors and ideological reversals, including the conservative revolutions of the 1980s in the US and the UK, the rise of anti-progressive-tax movements, financial deregulation, and so on. Here again Russia illustrates an extreme form of policy reversal: the system of public property was dismantled in a couple of years in 1991-1995, ultra-rapid voucher privatization and so-called “shock therapy” were implemented, and at the end of the process a flat tax system was put in place (with a 13% flat rate on top incomes which Reagan, Thatcher and Trump combined could not have dreamed of). Regardless of how one evaluates the desirability of these policies, this is clearly a policy reversal of enormous proportions.
Two further remarks are in order.
First, the ideological shifts observed in the different parts of the world across the 20th century clearly share some common origins, and have influenced one another. At a general level, the very high – and to some extent rising, or at least non-declining – inequality levels observed in the late 19th and early 20th centuries contributed to the rise of anti-free-market reactions pretty much everywhere. World War 1, the Great Depression and World War 2 strengthened the perception that laissez-faire capitalism was leading the world to chaos and needed to be regulated by stronger state policies. The Bolshevik Revolution also contributed to induce Western elites to accept policy changes which they largely refused until World War 1. In turn, the failure and final fall of the Soviet Regime in the late 1980s contributed to the pro-market ideological shifts.
Next, it is particularly interesting to compare the inequality trajectories followed by Russia and ex-communist countries. All Eastern European countries for which we have historical data – in particular Poland, the Czech Republic and Hungary – are characterized by high inequality levels in the early 20th century and during the interwar period, low inequality during the communist period (1945-1990), and high and rising inequality since 1990.
The fact that Soviet inequality was generally higher than under East European communist regimes has been noted by other researchers using historical survey and earnings data for communist countries during this period. In particular, this finding also applies to other dispersion indicators such as the P90/P10 ratio. We refer in particular to the work of Atkinson and Micklewright (1992), who stress that Russian inequality during the 1960s-1970s-1980s is in some ways intermediate between the East European level (Hungary, Poland, Czechoslovakia) and the British level, and who also find that gender inequality is substantially smaller in all communist countries (as compared to Britain and to other Western countries) during the 1960s-1970s, with a somewhat shrinking gap during the 1980s (For some years, earnings inequality levels in the USSR (as measured by P90/P10 ratios or Gini coefficients) are actually very close to British levels. Unfortunately our data sources do not allow us to look at gender gaps in the long run in Russia.).
Regarding the recent period, it is striking to see that inequality has risen to much higher levels in Russia (with top 1% income shares as high as 20-25%) than in Eastern European countries (where top 1% shares fall in the 10-14% range the end of the period) (see Figure 11c). While our income tax data for Russia has many limitations (the income tax tabulations available for Eastern European countries are much more extensive and were recently exploited by Novokmet 2017), the gap with other ex-communist countries seems large enough to be significant. This is also consistent with the Forbes billionaire data showing an unusually large number of Russian billionaires since the 1990s-2000s, as compared to other ex-communist countries, and also as compared to other parts of the world.
While our data sources are too limited to provide a complete analysis of the inequality gap between Russia and other ex-communist countries, it seems natural to refer to the different post-communism transition strategies that were conducted in the different countries, and in particular to the very fast “shock therapy” and voucher privatization strategy that was conducted in Russia. A plausible interpretation of available data is that voucher privatization took place so fast, and within such a chaotic monetary and political context, that small groups of individuals were able to buy back large quantities of vouchers at relatively low prices, and also in some cases to obtain highly profitable deals with public authorities (e.g. via the famous loans-forshares agreements). Together with capital flight and the rise of offshore wealth, this process arguably led to much higher level of wealth and income concentration in Russia than in other ex-communist countries. As was mentioned above, the fact that a substantial part of the capital stock is owned by foreign wealth holders in Eastern European countries also contributes to lower inequality.
The data series that we have for China are unfortunately much shorter (they begin in 1978), but they also show that rising inequality is much stronger in Russia, while China seems to be closer in magnitude to the Eastern European pattern.
Finally, we present our findings for wealth inequality. According to our benchmark series, wealth concentration has increased substantially in Russia over the 1995- 2015 period, and now stood at a substantially higher level than in countries like China or France, and a level that is comparable or even higher than the United States.
We do our best to combine Forbes billionaire data with normalized wealth distribution data for other countries and generalized Pareto interpolation techniques in order to produce transparent estimates, but we stress that different variants (based upon alternative assumptions regarding how to use the Forbes data) lead to significant margins of error. We can reasonably certain that wealth inequality is very high in Russia by international standards, but it is not possible to be certain for instance as to whether top wealth shares in Russia are higher or not than in the US. They are certainly higher at the level of the top 100 individuals, but we would need more information about individuals who own (say) between ten and one hundred millions dollars (rather than on billionaires only) in order to be able to conclusive regarding the top 1% or top 0,1% wealth share (let alone the top 10% share). (See Appendix B, Figures B51-B57 for alternative series on wealth inequality in Russia. What is reinsuring is that this has a negligible impact of our corrected inequality series, because most of the correction comes from the income tax data rather than from the wealth data. See Figures B30-31).
Concluding comments and perspectives
In these 5 pats of paper, we have attempted to combine the various existing data sources in a systematic manner in order to provide consistent series on the accumulation and distribution of income and wealth in Russia from the Soviet period until the present day. In particular, we have combined national accounts, survey, wealth and fiscal data, including recently released tax data on high-income taxpayers (which to our knowledge was never used before). We have found that official inequality estimates vastly underestimate the concentration of income in Russia. We have also provided the first complete balance sheet series for private wealth, public wealth and national wealth in post-Soviet Russia, including an estimate of offshore wealth.
We should stress again that the lack of data access and financial transparency makes it very difficult to properly analyze inequality dynamics in Russia. In particular, currently available income tax tabulations suffer from major shortcomings and ought to be extended and improved (see Appendix B). We have done our best to combine the various existing data sources in the most plausible manner, but the quality of raw available data remains highly insufficient.
Our findings on long run distributional trends in Russia also confirm the importance of policies, institutions and ideology for understanding inequality dynamics. The dramatic failure of Soviet communism and egalitarian ideology – in the form it was applied in Russia – seems to have led to relatively high tolerance for large inequality and concentration of private property (partly coming from outright plundering of the country’s natural resources and foreign reserves). In effect, extreme inequality seems acceptable in Russia, as long as billionaires and oligarchs appear to be loyal to the Russian state and perceived national interests.
Whether this fragile equilibrium will persist in the coming years and decades remains to be seen.
Co-authored with Gabriel Zucman.