By Tatiana Ryabkova, Russia Post, 7/26/24

Journalist Tatiana Rybakova notes that the war with Ukraine has led to a reduction of inequality in Russia and looks at whether that will continue after the war ends.

Russia’s economically depressed areas – typically where defense enterprises, agriculture and barely competitive sectors, such as light industry, are concentrated – are currently on the rise. The previously prosperous northwest of the country is declining, while Eastern Siberia and the Far East have caught a second wind.

Social shifts caused by the war

The Russian middle class, increasingly filled with officials in recent years, is now seeing more people from disadvantaged social strata, which previously seemed doomed to poverty and debt. Meanwhile, the part of the middle class that is usually called the “creative intelligentsia” is visibly struggling – besides those who are on the pro-war side. What do these shifts mean?

The Baikal–Amur Mainline (BAM) and Trans-Siberian Railway, the main railways of Eastern Siberia and Primorye (the territory along the Sea of Japan), are overwhelmed. They have become the main routes for transporting goods to China and Far Eastern ports, from where they are sent to India and other countries. Wage gains in logistics have outpaced all other sectors, including IT. Not long ago, it was people working in transportation at the other end of the country, in the Northwestern Federal District, who made good money; today, however, the Baltic ports, customs terminals and railways are empty: practically no freight flows to or from Europe – the borders are closed.

Where there is freight, there is money. The closure of the northwestern borders was a big hit to the region’s timber industry, which had been the biggest in the country. It is too expensive to transport timber across the country to China, and besides, the Siberian taiga has its own lumberjacks and sawmills. Moreover, China has its own pulp and paper mills, several of which are located right on the border with Russia, while the inputs are provided by long-trusted local suppliers. Industry officials say that it is economically feasible for these mills to transport raw materials from no more than a thousand kilometers away.

Timber is not the only industry on the border with Europe that has suffered, as the entire region lived on trade with Russia’s neighbors. In particular, raw materials and components were actually cheaper for a local enterprise to bring over from the neighboring Baltic countries or Finland. Petersburgers, citing better quality and price, even went to Finland for their weekly groceries.

Now, Russia’s Far East is invigorated. For example, the largest construction companies in Russia have rushed in to build new residential complexes in Vladivostok, Sakhalin, Khabarovsk and Nakhodka. The boom is driven not only by more money in the wallets of the local population but also the Far Eastern Mortgage program, with interest rates of 2% per annum – versus the 20% prevailing in the market – spurring demand.

Besides railways and ports, another important source of new income for the Far East is contract service in the army, as it is for residents of Ryazan and Voronezh regions and other Russian backwaters.

War pays

Russia’s regions are now competing in terms of enlistment bonuses: the highest-paying are Karachay-Cherkessia and Moscow Region, offering RUB 1.3 million (about $20,000) and RUB 1.7 million ($25,000), respectively, though nowhere is less than a million paid.

Still, it is not only money that motivates people to enlist: as political commentator Abbas Gallyamov notes, contracts are often signed by men who were considered good-for-nothings – by their relatives, acquaintances and sometimes even themselves. But now they are heroes, “participants in the special military operation,” “the new elite,” as Putin called them, entitled to all sorts of benefits, honor and respect. Those who are lucky enough to return alive and in one piece are given comfortable jobs with good pay.

Even if they do not come back, their families receive substantial compensation for a killed-in-action father or husband. Political commentator Vladimir Pastukhov has calculated that payments for a family member killed in action can reach RUB 14 million (EUR 140,000). This compares to the average monthly wage in Russia of approximately EUR 730 and means a family receives approximately 16 years of average wages for every member killed.

“If we take into account that now a significant part of the army is people who get paid not the average but the minimum wage, which this year is about EUR 192 [a month], then compensation in the event of their death for their families is up to 60 years of their potential income. In Russia, these people do not work that long, so the compensation covers the income of two or three generations of Russian men at once, who have finally become economically attractive to their partners. In other words, the payment immediately compensates for lost income from unborn children,” Pastukhov wrote on his Telegram channel.

Professional military men are now much better off, too. Not long ago, military salaries were, by Moscow standards, pathetic. A military career attracted only people from poor regions: sure, the salary is small, but the pay is stable; the uniform is free, they feed you, you can retire at 45, and the pension is good compared to a civilian one.

Now, not only do officers receive good money for staying in the combat zone, but they also have excellent opportunities for additional “earnings.” Before, there were quiet rumors that Prigozhin’s Wagner PMC, while recruiting convicts into its ranks, manufactured time at the front, followed by an amnesty six months later, for some inmates who could pay. These days, the trade in “special operation participant” documents has become an open secret: more and more deputies and bureaucrats are announcing that they fought in Ukraine, while even small businessmen who want to protect themselves from raiders and siloviki are getting in on it. For those who are actually in Ukraine, there is the option to pay off your commander so that he does not send you to fight on the front line but rather to, for example, unload shells in the rear.

So what? a cynic would say. What’s wrong if the poor are becoming, if not rich, then at least better off? In Russia, there has been a lot of talk for a long time about the need to reduce inequality – both across the population and across regions – which in Russia was already very high. People got what they wanted, albeit in a terrible way.

How long will there be money for war payments?

Even if we ignore the moral side of getting rich by killing other people, we still must admit that this method of reducing inequality is not only expensive (already a third of federal budget expenditures go toward the war and related payments) but also toxic.

First of all, because war is a short-term affair. The Russia-Ukraine war is unlikely to last a decade, and not only because the sides hardly have enough resources for that. Judging by Putin’s rhetoric, even he is for peace – albeit on his own terms.

Almost the entire West is for ending the war, while China, apparently, is not happy about the current situation. And though predicting the end of a war is a thankless task, we can still say with reasonable confidence that we are talking about 2-3 more years at most. Everyone understands this, including those who are benefitting from the war.

Even now, many in Russia, including high-ranking officials, are asking a completely reasonable question: what will happen when those 300,000-400,000 soldiers, who are accustomed to mortal risk and good money and know how to handle weapons, come back? Of course, the authorities will probably give them benefits, perhaps some kind of regular payments or a preferential mortgage. But it is unlikely that these payments and benefits will be indexed, even to real inflation, which is still high now, while there are no factors suggesting it will come down after hostilities end.

Of course, they will be shown honor and respect and will continue to be invited to schools to speak, just like veterans of the Great Patriotic War in Soviet times. Yet during United Russia primaries for local elections, across the country special operation veterans were sunk – after all, party functionaries did not get into politics to give way to some kind of “new elite.” The candidacy of a former tractor driver who fought in the special operation had to be rammed through so he could become a Federation Council senator.

Others will not be able to live on “veteran payments” alone; they will have to work. But will there be work for those who before the war often did not have a real vocation or who during the war lost the skills they had? Besides them, there are workers at defense factories: today, they work three shifts for good wages, but what about tomorrow? Will they have to choose between keeping their job for the prewar pay of $200 a month or taking a hike?

Not everything is hunky-dory in terms of regional development, either. Yes, the current modernization of the BAM and Trans-Siberian Railway, like other infrastructure projects in Siberia and the Far East, is likely to continue, as if the war ends, trade with China, which has faltered of late amid Chinese fears of secondary sanctions, will certainly pick up. Perhaps, the northwest of the country will see some relief if some sanctions are lifted – at least if the borders are open for the export and import of goods.

But how high will demand and prices be? Inflation around the world is dying down, and the end of the war may also cause prices for key Russian commodities to fall, from oil and gas to metals. For example, Kuzbas coal is already facing headwinds: China does not want to buy more; it just does not need so much. Stockpiling is a bad thing, however: production cannot just be stopped, while stockpiling means direct losses, and no expansion of the Trans-Siberian Railway or the BAM can change that.

Oddly enough, salvation from the crisis for Russian industry might be defeat in the war – at least in the form of an obligation to rebuild what was destroyed in Ukraine. Then there would be a place to sell metals, oil and gas, timber and coal. If the war ends without such an obligation and without the lifting of sanctions, then those who have greatly benefited from the war risk reverting to their starting point. But with weapons in hand and anger at the politicians who promised them everything.