from soviets to oligarchs: inequality and property in...
TRANSCRIPT
From Soviets to oligarchs:
Inequality and Property in Russia, 1905-2015
Filip Novokmet Thomas Piketty Gabriel Zucman
First WID.world conference 14 December 2017
Introduction
Russia has undergone a dramatic transformation since the fall of the Soviet Union in 1990-1991 • Per adult national income has risen by about 40% between
1989 and 2016 • Russian living standards were 60-65% of the Western
European average in 1989-90 à about 70-75% in mid-2010s.
• But little is known about who has benefitted (or not) from this growth – Which income and wealth classes have gained from the post-
Soviet transition, and in what proportions? – How do Russia’s inequality levels compare to those in Western
capitalist countries, in China, and in ex-communist Eastern European countries?
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1980 1985 1990 1995 2000 2005 2010 2015
Per adult national income: Russia vs W. Europe 1980-2016 (€ 2016)
Western Europe
Russia
Per adult national income in € 2016 PPP. Western Europe = arithmetic average Germany-France-Britain. Authors' computations using official national accounts and revised GDP deflator. See Appendix A.
New income and wealth series for Russia
• We combine national accounts, survey, wealth and fiscal data to produce new series on the accumulation and distribution of income and wealth in Russia
• New balance sheets 1990-2015: – Private vs public wealth – Estimates of hidden offshore wealth
• Income inequality series: – Household income survey data (HBS, RLMS) – Combined with official income tax data – Need for more detailed and usable income tax statistics
• Tentative wealth inequality series: – Forbes data
Main results
Extreme level of inequality in Russia and concentration of rent-based resources: • Top income shares at least as high as in the US, with a top 1%
income share around 20-25%. • Surveys vastly underestimate inequality (miss top of
distribution) • About half of household financial wealth is held offshore • Inequality has increased substantially more in Russia than in
China and ex-communist Eastern European countries
World Wealth & Income Database (WID)
• This paper: part of broader, international research program: the World Wealth and Income Database (WID.world)
• Goal: produce Distributional National Accounts (DINA) – comparable international distributional statistics – how economic growth is distributed among various income groups – Income series for the United States (Piketty-Saez-Zucman QJE 2018),
France, China, etc. (see Alvaredo et al. 2017) – Wealth series for the US (Saez-Zucman QJE 2016), France, etc.
• Aggregate wealth evolution: private, public, foreign wealth – rise of private wealth-income ratio (Piketty-Zucman QJE 2014) – from public to private wealth in Russia, China and Eastern Europe – rise of global offshore wealth (Zucman QJE 2013)
• Wealth distribution series
From public to private wealth
• From communism to capitalism: from dominantly public to private wealth in the very short period (“big bang”)
• the rise of Russian private wealth (from 100% in 1990 to 350% by 2015) has been almost exclusively at the expense of public wealth (from 300% to 100% of national income)
• i.e., national wealth almost did not increase relative to national income (from 400% to 450%)
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1990 1994 1998 2002 2006 2010 2014
(% national income)
Net national wealth (public+private)
Net public wealth (government)
Net private wealth (households)
Public vs. private property in Russia, 1990-2015
The rise of private wealth
• Critical role of housing for the rise of the private wealth – volume effects: mainly privatization – and price effects: rise of real estate prices
• Very low recorded private financial wealth - actually no increase from the Soviet era – despite the mass
(‘voucher’) privatization - hyperinflation wiped all saving (Bank of Russia’s deficient
monetary policy) - persistently low market valuation of equity - unrecored offshore wealth
• As a result, Russians are on average ‘house rich & cash poor’
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1990 1994 1998 2002 2006 2010 2014
(% national income)
Agricultural land
Housing
Other domes4c capital
Financial assets
Offshore wealth
The rise of private wealth in Russia 1990-2015
Low market valuation of corporations
• Tobin’s q less than one – Not unique to Russia – But reinforced by ill-defined and enforced property rights and
low protection of shareholders rights (weak legal system, corruption, powerful stakeholders (government), etc.)
– Low valuation of obsolete communist capital stock (many industries artificially kept alive as government social policy) / wider rent-sharing system
– Offshore assets and legal outsourcing in the management and control of Russian corporations (complex nexus of offshore contract arrangements)
Offshore wealth • Huge problem of offshore wealth
– Hard to quantify by nature – But publicly available macroeconomic statistics enable to shed some
light – Our approach: forensic investigation of large discrepancies between
trade balance surpluses (oil and gas exports) and foreign assets
Where is the money?
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-5%
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1990 1994 1998 2002 2006 2010 2014
Trade surplus and missing foreign assets in Russia 1990-2015 (% national income)
Trade surplus (net exports)
Net foreign income
Net foreign assets
Given the large trade surpluses (9,8% of national income per year between 1993 and 2015, i.e. a cumulated trade surplus over 200% of national income), net foreign assets accumulated by Russia are surprisingly small (26% in 2015).
Offshore wealth • Our offshore wealth estimate ≈ 75% of national income
– cumulate net sum of net errors and omissions and capital transfer outflows in BoP; assume rates of return
– the rich Russians holds as much financial wealth abroad (UK, Switzerland, Cyprus, etc.) as the entire Russian population holds in Russia itself!
– three times larger than official NFA – but conservative estimate (e.g. differential in returns and valuation effects
taken as given; trade surplus could be underestimated)
• recent ‘deoffshorization’ attempts do not seem to be especially successful
New estimate of offshore wealth
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1990 1994 1998 2002 2006 2010 2014
Russia's net foreign assets: with vs. without offshore wealth (net foreign assets as a fraction of national income)
Official net foreign asset position
Net foreign assets including offshore wealth
Wealth hidden offshore = 75% of national income
Russia’s vs other oil-rich countries’ net foreign assets
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1990 1994 1998 2002 2006 2010 2014
(net foreign assets as a fraction of national income)
Norway (official)
Russia (official + offshore)
Russia (official)
International comparisons of the aggregate wealth evolution
• General rise of private wealth relative to national income in developed countries since the 1970s-1980s, accompanied by the fall of public property
• the evolution of aggregate wealth in Russia, China and other ex-communist countries as an extreme case of these general trends
• China’s private wealth / national income ratio higher than Russia’s (including our estimate of the offshore wealth)
• China has higher saving: these are mainly used for domestic investment, while half of Russian saving used for foreign investment and dissipates
• Higher market valuation of corporations in China (Tobin’s q=1) than in Russia
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1980 1984 1988 1992 1996 2000 2004 2008 2012
(private wealth (households), in % national income)
Russia China
USA France
Britain
The rise of private wealth: Russia vs China & rich countries
The decline of public property: Russia vs other countries
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1980 1984 1988 1992 1996 2000 2004 2008 2012
(share of net public wealth in net national wealth)
Russia Czech Rep.
China USA
Japan France
Britain Germany
Rise in income and wealth inequality
• New inequality series show much higher levels of inequality than official data
- surveys vastly underestimate inequality (by missing the top of the distribution)
- correction with income tax data: e.g. top 1% income share jumps from 10% (survey-based) to 20% (combination of survey and tax data)
- also found by researchers using ‘leaked’ tax data for Moscow (Guriev and Rachinsky 2006)
Underestimation of the top in surveys
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10% 12% 14% 16% 18% 20% 22% 24% 26% 28%
1980 1985 1990 1995 2000 2005 2010 2015
Top 1% income share in Russia, 1980-2015
Top 1% (national income)
Top 1% (fiscal income)
Top 1% (survey income)
Distribution of income (before taxes and transfers, except pensions and unempl. insurance) among equal-split adults (income of married couples divided by two). Pretax national income estimates combine survey, fiscal, wealth and national accounts data. Fiscal income estimates combine survey and income tax data (but do not use wealth data to allocate tax-exempt capital income). Survey income series solely use self-reported survey data (HBS).
Return to Tsarist inequality levels?
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1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015
Figure 8a. Top 10% income share in Russia, 1905-2015
Top 10%
Distribution of pretax national income (before taxes and transfers, except pensions and unempl. insurance) among adults. Corrected estimates combine survey, fiscal, wealth and national accounts data. Raw estimates rely only on self-reported survey data.Equal-split-adults series (income of married couples divided by two).
The collapse of the bottom 50%
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1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015
Income shares in Russia, 1905-2015
Top 10%
Middle 40%
Bottom 50%
Distribution of pretax national income (before taxes and transfers, except pensions and unempl. insurance) among adults. Corrected estimates combine survey, fiscal, wealth and national accounts data. Raw estimates rely only on self-reported survey data. Equal-split-adults series (income of married couples divided by two).
The distribution of growth after Communism
• High rise of inequality after the fall of Communism • Divergent growth experience,1989-2015:
– strong real growth of the top 10% (+170%) – negative real growth of the bottom 50% (-20%)
• Hurting bottom (strong fall of the bottom 50%): shock therapy ; hyperinflation, etc. (especially pensioners)
• Pro-rich rapid mass privatization: state managers; selling commodities; cheap credits during hyperinflation, etc.
• Emergence of ‘oligarchs’ in institutional and legal vaccum: ‘loans-for-shares’, draining and outflow of funds; rise of offshore wealth
Who benefited most from the transition?
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P10 P20 P30 P40 P50 P60 P70 P80 P90 P99 P99.9
Cumulative real growth by percentile, Russia 1989-2016
Cumulative real growth by percentile
Average cumulative real growth: +41%
Distribution of pretax national income (before taxes and transfers, except pensions and unempl. insurance) among equal-split adults (income of married couples divided by two). Corrected estimates combine survey, fiscal, wealth and national accounts data.
Russia’s income inequality in international perspective
• Convergence to US inequality levels • Much higher rise of inequality than in other ex-communist
countries in Eastern Europe (Poland, Czech Republic, Hungary) and China – Anchor of ‘EU-accession’ – institutional argument – Different natural resource endowements – Higher importance of foreign ownership in Central Eastern
Europe – top capital holders are often foreigners • Credit Suisse Global Wealth Report – Russia among the
highest levels of wealth inequality
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1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015
Top 10% income share: Russia vs USA and France
Top 10% (Russia)
Top 10% (USA)
Top 10% (France)
Distribution of pretax national income (before taxes and transfers, except pensions and unempl. insurance) among equal-split adults (income of married couples divided by two). Sources for USA and France: WID.world.
Convergence to US inequality levels
0% 2% 4% 6% 8%
10% 12% 14% 16% 18% 20% 22% 24% 26% 28%
1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015
Top 1% income share: Russia vs Eastern Europe
Top 1% (Russia)
Top 1% (Czech Rep.)
Top 1% (Poland)
Top 1% (Hungary)
Distribution of pretax national income (Russia) or fiscal income (other countries). Source for Eastern Europe: Novokmet (2017); Hungary: Mavridis and Mosberger (2017).
Divergence with Eastern Europe
Divergence with China
0% 2% 4% 6% 8%
10% 12% 14% 16% 18% 20% 22% 24% 26% 28%
1975 1980 1985 1990 1995 2000 2005 2010 2015
Top income shares: Russia vs China
Top 1% (Russia)
Top 1% (China)
Distribution of pretax national income (before taxes and transfers, except pensions and unempl. insurance) among equal-split adults (income of married couples divided by two). Sources for China: WID.world.
Divergent post-communist patterns
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Top 10% in Poland vs Russia, China and Slovenia
Top 10% (Russia)
Top 10% (Poland)
Top 10% (China)
Top 10% (Slovenia)
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1990 1995 2000 2005 2010 2015
Total Forbes billionaire wealth (% national income): Russia vs other countries, 1990-2016
Russia (citizen billionaires)
Russia (resident billionaires)
USA
Germany
France
China
Total billionaire wealth (as recorded by Forbes global list of dollar billionaires) divided by national income (measured at market exchange rates). For other countries, we only report citizen billionaires (numbers for resident billionaires are virtually identical).
Extreme top wealth concentration
Top 0.01% wealth share
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Spain UK Scandinavia France USA Russia
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The top 0.01% wealth share and its composition
Offshore wealth
All wealth excluding offshore
Conclusion
• Our estimates show a sharp rise of income and wealth inequality in Russia after the fall of communism
• Extreme inequality levels in international comparison • Failure of communism has probably led to higher tolerance for
inequality (as long as elites are seen as loyal to State and perceived national interest)
• Access to better data needed to improve the current estimates and to understand particular mechanisms
• Major issue of offshore wealth / plunder of country’s national resources and foreign reserves
• Divergence with Eastern Europe indicate that institutions matter
Thank you for your attention!
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Figure 1b. Per adult national income: ratio Russia/W.Europe, 1870-2016
Ratio Russia/Western Europe (Germany-France-Britain, PPP)
Per adult national income in € 2016 PPP. Western Europe = arithmetic average Germany-France-Britain.
Russia’s offshore wealth in inter’l perspective
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Offshore wealth / GDP (All countries with GDP > $200 billion in 2007)
World average: 9.8%
Poland: protecting the bottom 50%
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Gini coefficient
0.260.280.300.320.340.360.380.400.420.440.460.480.500.520.540.560.580.600.620.640.66
1980 1985 1990 1995 2000 2005 2010 2015
Figure 10c. Gini coefficients in Russia, 1980-2015
Gini coef. (national income)
Gini coef. (fiscal income)
Gini coef. (survey income, HBS)
Distribution of income (before taxes and transfers, except pensions and unempl. insurance) among equals-plit adults (income of married couples divided by two). Pretax national income estimates combine survey, fiscal, wealth and national accounts data. Fiscal income estimates combine survey and income tax data (but do not use wealth data to allocate tax-exempt capital income). Survey income series solely use self-reported survey data (HBS).
The ‘gradualist’ Slovenia: a limited rise in inequality
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Return to Tsarist inequality levels?
0%2%4%6%8%
10%12%14%16%18%20%22%24%26%28%
1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015
Figure 8b. Top 1% income share in Russia, 1905-2015
Top 1%
Distribution of pretax national income (before taxes and transfers, except pensions and unempl. insurance) among adults. Corrected estimates combine survey, fiscal, wealth and national accounts data. Raw estimates rely only on self-reported survey data.Equal-split-adults series (income of married couples divided by two).