Russia should have a look into Basic Income8 min read
Since his reelection in 2018, most analysts argue Putin has focused primarily on internal affairs. He has pushed the Russian government on a spending spree, with a greater focus on infrastructure. However, allocating public money into what Putin calls National Projects includes several downsides. Such massive infrastructure projects take years to move from the stage of being planned to being achieved. In countries like Russia, a share of the public money spent on infrastructure tends to get lost on corruption, and the choice of companies used for such projects favors major players, owned by a small group of people. Russian public bids do not ban companies that have previously been caught for corruption, and Russian public projects are known to be overbilled, with the Sochi Olympic games as a great illustration. To top that off, the country’s low unemployment rates mean that it does not necessarily need the employing effect of these projects, taking away one of their expected upsides. As a result, Putin’s national infrastructure spending spree has so far failed to bring the promised growth levels, and the Russian Federation won’t become a top-five economy by 2024, as Putin had promised before his reelection.
Paradoxically, Russia among all states, and with its communist past, has an acutely stunted social benefits system. It has not always been this way. As noted by Simon Clarke, the author of A Basic Income For Russia?, Soviet Russia had an official ‘minimum consumer budget’ which defined the socially acceptable minimum standard of living and was used initially for the assessment of need-related child benefit payments and later as a guide in defining the minimum wage and minimum pension. This amounted to 50 roubles per head per month when it was introduced in 1975, increasing to 75 roubles in 1985. With diverse layers of today’s benefits divided between students, pensioners, the disabled, the unemployed and others, these benefits, as a rule, are very low. A combination of ever more centralized power, corruption, and lack of diversification on the national economy have resulted in Russia not reaching its full economic potential. Behind the numerous issues lies a lack of investing in the Russian people. As simple as it sounds, a better overall quality of life in Russia would result in improvements with most, if not all of the problems stated earlier.
Nevertheless, some statistics are encouraging. Gross domestic product, salaries, life expectancy, among other measurements have improved during Putin’s presidency, especially during his first two terms. Russian public debt is low, and its gold and foreign exchange reserves exceed $500 billion. Infrastructure is not necessarily what is lacking the most in Russia. Nonetheless, 21 million Russians live in poverty in 2019, according to Russia’s State Statistics Service. This number has increased by three million over only one year. Consequently, the Russian government should focus on ameliorating the average Russian’s quality of life, and fighting inequalities. Several options are available, but the focus should be put on reforming social programs. A simplified, potentially more efficient and fair system such as Basic Income would likely fit the country’s situation in a better way than the current bureaucratic system of pensions.
Discussions on Basic Income tend to focus on wealthy countries. A Basic Income is often defined as a periodic, monthly payment unconditionally delivered to all on an individual basis, without a means-test or work requirement. Supporters of the Basic Income claim that it incentivizes people to accept any work, without fear of losing social assistance. It is a safety net that can enable people to follow their dreams and not be stuck in a job they dislike, encouraging entrepreneurship, and thus innovation. This would fit the Russian Federation’s plan and need to diversify its economy. Basic Income could also possibly be good for demographics, relieving financial worries for those unsure of starting a family. It could furthermore help fight tax fraud and undeclared work, as people would not lose support by accepting declared work. A Levada poll in March 2017 showed that 61% percent of Russians “rely only on themselves and avoid contact with authority”. With a well-implemented Basic Income, the Russian Federation could alleviate extreme poverty, and rebuild some trust between its government and its citizens. Russia already has nationwide welfare programs. Yet, reforming them or implementing new ones is difficult in a country with such an inefficient distribution of services. Major changes would be required on the bureaucratic level, with a reduction in corruption as a start.
There are various ways in which Basic Income could be implemented in the Russian Federation, with different options for financing it. The Russian National Wealth Fund could be an option. A basic income would potentially replace a big part of the current pension system, leaving the current system’s budget as a base for it. The Current Pension Fund of the Russian Federation expenditure stands at around 8.5 trillion rubles, which is roughly equal to 120 billion euros. Without adding any additional funds, and leaving 20 billion euros for the pensions that cannot be replaced by Basic Income (pensions for the handicapped, for example), there would still be enough money to give a yearly Basic Income of around 1000 euro per adult. Such a sum alone might not be enough for a nationwide Basic Income, but some other government spending could potentially be redirected towards it, as well as some of the state’s funds. Finally, Basic Income would not necessarily have to be at the same monthly level in every region. Like the minimum wage in Russia, Basic Income could be administered on a regional level, and maybe even indexed to the cost of living in different regions of the Russian Federation. Alternatively, a fixed Basic Income across all of the Russian Federation would incentivize people to move away from expensive cities towards cheaper rural areas, where their money will go further. This would be consistent with the Putin administration’s push against urbanisation.
Between 2007 and 2016, military spending in Russia increased by 87 percent. While the Russian Federation has been spending a high amount on defense, other sectors have been underfunded. According to Simon Clarke, in particular, health and education have suffered from chronic underfunding, with Russia spending less on them per capita than any other country in Europe, and are in deep crisis. However, the introduction of the measures outlined here, leading to a Basic Income, would also help alleviate the crisis in health and education, since more than half of Russian health care employees earn less than the proposed minimum wage, and they constitute a quarter of all those whose earnings would be increased by the introduction of such a minimum wage. In conclusion, this simulation allows us to say with some confidence that it is perfectly realistic to envisage the introduction of a Basic Income to Russia, perhaps through the transitional procedure of progressively raising the minimum wage and welfare benefits, including benefits for non-working adults, towards the subsistence minimum over a period of a few years. All that is required is the political will to do so.
Some of the main issues that come up with designing a Basic Income model include deciding how to include children into it, and its cost. This would also be the case when implementing Basic Income in the Russian Federation. The total cost not only depends on the amount given to citizens but is also directly linked to the savings the system creates (i.e. which current welfare programs or pensions it replaces). To fight ageism and to potentially replace both child support and retirement pensions, a system of Basic Income that is indexed to age could be a solution. This could include people from their birth until their death, fighting precarity for the whole population. It would also imaginably replace child support, student allowances, unemployment benefits, housing help, and retirement pensions. Providing more to a 58-year-old than to a 29-year-old, an age-indexed Basic Income would potentially motivate older unemployed people to stay active in the workforce but to take on lower-paid jobs than their previous ones. This system would leave people with the choice of retiring when they want to, but motivate them to work as long as the Basic Income is too low for the lifestyle they plan to keep during retirement. This would also open up the possibility for people to pay for private retirement funds if they don’t think that the Basic Income is enough. A higher Basic Income for the elderly would help with medical costs. Another method to administer it could be to index it to age for certain parts of life only. In this way, Basic Income could increase from birth until the age of 20, stay the same from 20 to 50, and start increasing again indexed to age after that. With the lack of a better name, this original idea could be called the Age-Indexed Basic Income.
Basic Income is not a solution to every problem in Russia, nor the rest of the world. Every country is different, but Russia, with its high level of poverty, inequalities, inefficient pension system, and its fairly debt-free government is quite a perfect match for Basic Income. Basic Income is a forward-thinking idea, and implementing it in Russia would not only improve its citizens’ lives but also the country’s reputation. Deciding to implement some sort of Basic Income or Negative Income Tax would conceivably help the Russian Federation in reducing inequalities while giving the country a more forward-thinking ideological trend-setter image.