Policy Briefing  ·  21. November 2018

Universal Basic Income in Russia: How Oligarchs veto Radical Poverty Reduction

Globalisation and digitalisation are among the latest pegs to hang on the worldwide fight against po­ver­ty. Unanimously towards the goal, scholars discuss appropriate means to address the issue. Among one of the answers is the Universal Basic Income – an idea as straight-forward as the name indicates: All individuals are entitled to a similar monthly cash-based income, without means test­ation, work requirement, targeting, or other conditionality (Van Parijs & Vanderborght, 2017).

In the following, this paper discusses the introduction of the UBI in the Russian Federation by shortly presenting its theoretical approaches and the need for poverty reduction in the country. The paper argues that political feasibility for UBI is low as increasing taxes (required to finance the additional public spending) will be vetoed by politically and economically highly influential oligarchs that regard their wealth to be at risk from new taxation.

 

Economic and political feasibility: Theoretical outlines of UBI in a nutshell

 

As a new way of welfare provision, the modern Universal Basic Income (UBI) discussion initiated in the 1980s in developed welfare states, such Denmark, the Netherlands, or Germany. From there, it soon turned to developing countries in its potential to mitigate poverty (Obermauer, 2006). Beyond questions of normative desirability, which are not discussed in this paper (for an elaborated overview of arguments, see Widerquist, Lewis, & Pressman (2005) and Parijs & Widerquist (2001)), economic feasibility stands at the forefront of theoretical approaches to UBI. Conferences and research rank around controversial questions regarding the amount of income, the means of financing additional expenditure, as well as the ample influence on labour supply, eco­no­mic efficiency, and taxation (Colombino, 2015). General economic conclusions are difficult to draw as the introduction of UBI is high­ly case- and country-specific. The cost debate, for instance, not only relies on the UBI ex­pen­di­ture and the costs saved from substituting other social benefits but must also take increases in la­bour supply due to an omission of minimum wages, shifting consumption of leisure (over work), po­ten­tial increases in human capital, or international spill-over effects into account (Arthur, 2016; Ash­wor­th, 2018; Pereira, 2015). Vlandas (2018) points out that – besides economic feasibility and nor­ma­tive desirability – political feasibility as facilitator or veto mechanism must be assessed as a pre­re­qui­site for UBI assessment. With regards to Russia, the veto role of oligarchs plays a decisive role.

 

Need for UBI: Pauperisation in Russia

 

Russian younger history can be segmented in three parts: From 1991 to 1998, economic decline and impoverishment, peaking in the 1998 Russian financial crisis; a second phase from 1999 to 2009 that was characterised by high oil prices, economic growth, and improved standards of living; and a third phase from 2010 until today that is represented by mixed growth rates, unequal distribution and re-increasing rates of poverty (Alvaredo et al., 2018; Novokmet et al., 2018; OECD, 2011, 2018). Cur­rent­ly, the Russian government spends around 11.5 % of GDP annually for social protection. The spen­ding is well below OECD average and consists mainly of pensions – a legacy of extremely high public employment in the Soviet Union (World Bank, 2011). Despite economic growth and a low un­em­ploy­ment rate, other social spending, such as unemployment benefits, children allowances, or house sub­si­dies, are very low and leave 19.2 (out of 144.5) million Russians below the poverty line (Ostroukh, 2018). Explanations for the misalignment of economic development and poverty reduction are two­fold: extremely unequal distribution of economic gains (Alvaredo et al., 2018; Novokmet et al., 2018) and weak administrative structures in Russia (Krylova, 2018; Sidorkin & Vorobyev, 2018). The former leads to unequal investments in (human) capital, reduces economic output, impedes growth, dis­cour­ages political participation, and enhances criminality (Coccia, 2018; Dabla-Norris et al., 2015). The latter influences the governmental provision of social protection as well as efficient tax collection to finance public expenditure (Clark, 2008).

 

UBI in Russia: Economic feasibility little researched, political feasibility undermined

 

The Universal Basic Income movement in Russia is small, the number of scientific researches for the country close to zero. Apart from Clark (2008), no case studies have been drafted; the most prominent network for UBI, Basic Income Earth Network (BIEN), counts four entries under the keyword “Russia/Russian Federation”. Due to these limited insights and the brevity of this paper, the following paragraphs stress deficiencies in Clark's (2008) argumentation on the economic feasibility and concentrates on the condicio sine qua non of political feasibility.

 

The only available research on UBI in Russia simulates the effects of higher public spending for minimum pensions, minimum wage, non-working and child benefits, etc., on percentage of population in poverty (Clark, 2008). The paper argues that with an increase of 9.5 percentage points of GDP in social spending, all “acute poor” and “poor” Russians could be shifted to the “surviving” or “comfortable” segment, hence eradicating poverty. Though promising, the estimation gives only preliminary insights and fails to take synergies like lower administrative costs from providing one, not different, social programme and lower social fraud into account (Colombino, 2015). Further clarification on the actual costs is required, especially as the paper does not discuss financing the additional 9.5 % percentage point increase in public spending, apart from the statement that “the cost of these benefits could certainly not be funded from a tax on personal incomes” (Clark, 2008, p. 6). Levying more taxes is particularly relevant as resistance from potential taxpayers determines the political feasibility of UBI in Russia.

 

Assessing political feasibility of UBIs in Europe, Vlandas (2018) stresses that not only public opinion but more importantly organized stakeholders possess ample influence on forwarding an UBI approach. In this sense, the very high approval of 73.2 % for an UBI among Russian citizens in the latest European Social Survey provides only limited insights on the political feasibility (Fitzgerald, 2017). Moreover, the alignment of main political actors, such as politically and economically influential oligarchs, is highly questionable. Oligarchs, key players in the post-Soviet hybrid state structure of Russia, possess excessive financial and political means to influence decision making on all levels (Braguinsky, 2009; Novokmet et al., 2018; Robinson, 2013). As wealth, inheritance, or progressive capital taxes are among the few options to finance a redistribution attempt like the UBI, Russian oligarchs were directly affected and hence incited to veto UBI policies. Clark (2008, p.6) stressed the impossibility of increasing overall tax levels, mentioned above: “The Russian government has serious difficulty in raising revenue to cover its meagre spending, and the cost of these benefits could certainly not be funded from a tax on personal incomes, which are so low that the tax would have to be set at a rate of about 2/3 of household income above the subsistence minimum.” Even if a progressive government was able to push for an UBI against the will of oligarchs, increased incentives for tax avoidance would undermine funding additional revenues for higher social spending.

 

Conclusion

 

With around 20 million people in poverty, the Russian Federation requires quick and effective solutions to its poverty problem. Drawing from limited insights provided by Clark (2008), a encompassing, UBI-like poverty reduction measures come the cost of around 9.5 % of GDP and would ultimately require tax financing. As oligarchs are extremely influential in Russia and were to be directly affected from a tax increase, the introduction of an UBI in Russia seems very unlikely. As long as oligarchs hold onto their veto power, only incremental increases in poverty reduction measures seem feasible.

This policy briefing is part of the course "The Policy Process: Social policy and the welfare state" at Hertie School of Governance, lectured by Prof Dr Hanna Schwander, Professor of Public Policy at the Hertie School.

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Tags: Hertie School of Governance, Inequality, Policy Briefing, Russia, Social Protection, Poverty, Universal Basic Income

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