EDITOR’S NOTE: This is the fourth installment of our series from Dave Essel translating the latest issue of the Nemtsov White Paper condemning the Putin years. The first installment is here, the second is here, the third is here, and the prior issues are here. Video of Nemtsov and Milov at the press release is here.
An independent expert report by
Vladimir Milov and Boris Nemtsov
Translated from the Russian by Dave Essel
CHAPTER FIVE: Oh Dear, the Roads!
We all know that the bad state of our roads roads is one of Russia’s major headaches.
In our first report on the results of Putin, we described in detail the degradation of the road infrastructure under his presidency. The very fact that the rate of road-building dropped during the “fat” years is a disgrace. China in just 20 years has built itself a modern highway network: in 1989 the Chinese had just 147 kilometres of motorway, today they have 60,000.
Meanwhile, in Russia the road-building industry is going down the drain.
Back in the wild 1990s, we were commissioning an average of 6,100 kilometres of new highway a year. Since 2003, under Putin, that is now no more than 2-3,000 kilometres.
Federal highways saw least growth of all: 1,159 kms added in 2009; 560 kms in 2008; ~400 kms in 2006-2007, and a mere 169 kms in 2005.
The quality of Russia’s road is terrible as well: two thirds of federal highways and 76% of others do not meet the official standard. Of the so-called federal highways, 92% have only 2 lanes and over half of them have poor surfaces and foundations. The number of vehicles on our roads has more than doubled since the mid nineties while total road length has actually reduced. Russia’s roads are in the main laid on the cheap with a single layer of asphalt over one layer of gravel and one of sand. Such surfaces need running repairs every 7-8 years and major repairs every 14-15 years. Europe has long used roads laid on concrete foundations that need overhauling only every 30 years or so.
The total length of Russia’s official federal highways is just 49,000 kilometres, of which only 23,000 kms are rated Category 1 and 2 – not less than 2 lanes [TN: 1 in each direction] and width of not less than 7 metres, so that driving speed can reach 100 km/hour. Compare this with the United States whose interstate highway system alone runs to more than 75,000 kms in length.
The US national road system includes more than 265,000 kms of quality highways in a total of 4,200,000 kilometres of hardtop. (Cf Russia with just over 700,000 kms).
Bad roads are one of the main factors holding back development in Russia due to higher transportation costs and the difficulty of moving goods and people about the country. RosAvtoDor [TN: the road authority] estimates that the insufficient development of the road system annually costs the nation 550-600 billion roubles (1.5% of GDP) in lost income. (Source: Main Concepts for a Reformed Road System in the Russian Federation, RosAvtoDor).
China has in recent years spent an overage of $18 billion a year on modernising its road system. Such an amount could easily be found in Russia’s bountiful budget. But Putin has preferred to spend the money on other things – increasing the size of the bureaucracy, financing the special services, stuffing the pockets of the state corporations… It is hardly surprising that China’s is developing faster than we are.
At the same time and paradoxically even the money allocated to road-building is not leading to anything good: corruption in the civil service means that a great deal of it is simply stolen. Consider the figures below.
In 1999, federal budget spending on road renovation and building of new highways amounted to 8.7 billion roubles ($350 million at the then rate of exchange). This bought 321 kilometres of new federal highway. Cost: about $1 million per kilometre.
In 2009, 230 billion roubles ($7.2 billion at 2009 rates) were allocated. This bought 1,159 kilometres of new federal highway. Cost: $6.3 million per kilometre.
Let us leave the question of the quality of the roads in Russia aside and just look at cost. In the US, the construction of 1 km of 4-lane highway costs $4-6 million. In Germany it costs €8 million to lay a kilometre of first-class autobahn. In China highways cost $3 million per kilometre and in Brazil $3.6 million.
Given the appetites of our road agency’s bureaucrats and of the subcontractors servicing them, there will never be enough money in the whole of Russia for us ever to get a proper road system.
In 2009, the authorities announced that as a result of emergency budgets cuts, we would be reducing expenditure on road maintenance, repairs, and development by a quarter, from 434 billion to 343 billion roubles.
A further cutback to 274 billion roubles is planned for 2010. (Source: report of RosAvtoDor head A. Chabunin at the All-Russian Conference for the Review of Results and Prospects for Highway Development, Moscow, 10 March 2010). Subsidies for road building from the federal budget to the regions will be reduced to 37 billion roubles. Financially, road building is in a state of collapse.
Ten years is quite long enough to be able to see if a politician is capable of resolving a problem. It is totally obvious that Putin, despite the oil windfall, has failed utterly in the matter of Russia’s roads.
CHAPTER SIX: A country of screaming inequality
Total inequality and the deepest of divides within society and between the regions are the hallmarks of Putin’s Russia.
Social inequality stands first and foremost amongst these. Economic growth under Putin was accompanied by increasing social divisions. At the end of the 1990s, the income differentiation coefficient was 12-13, i.e. the average income of the richest 10% of the population was 12-13 times as great as the poorest 10%. By 2000, it was 16.9 times as great, an increase of over 20%!
No greater income differentiation coefficient has ever been recorded in Russia’s modern history. Furthermore, differences of such magnitudes are not characteristic of developed countries and are more commonly to be found only in 3rd world countries.
Inequality between the regions has not lessened either. For example, the difference between the GDP per person of the 10 richest regions in Russia (Moscow, Yamal-Nenetsk, Khanti-Mansiisk, and others) and the 10 poorest (the republics of the Northern Caucasus, Tyva, Gorny Altai, Ivanovsk) was a factor of 6.2 in 1999. In 2008 it had not decreased at all and stood at 6.3.
The difference between the average salary in the 10 richest and poorest regions stood at a factor of 5 in 1999. Although this did drop to a factor of 4 by 2008, one would have thought the country could have done better than than in a decade.
Salary statistics for Russia show that there are 20 or so regions where the average salary is equal to or above the mean for Russia as a whole (approximately 17,300 roubles per month in 2008). Besides Moscow and St. Petersburg, these are generally speaking the oil-and-gas rich regions (Yamal-Nenetsk, Khanti-Mansiisk, the Nenets Autonomous Region, Sakhalin, and the Tomsk Region) and regions with other natural resources (Krasnoyarsk, Yakutia).
The remaining 60 or so regions that Russia is divided into have average salaries of under 17,000 roubles per month. In the Northern Caucasus, salaries average 7-9,000 roubles per month. In the Central Black Earth Regions – 10-13,000 roubles.
Meanwhile, Putin’s Russia has been beating all previous records for growth in the numbers of its billionaires. Back in 1999-2000, Forbes’ international list did not contain a single Russian billionaire. In 2010, the magazine “Finans” reckoned Russia had 62 people with a fortune of over $1 billion. Among the leaders of the pack one finds Roman Abramovich, richly paid for Sibneft, (in 4th place with $11.2 billion) and Oleg Deripaska (5th, $10.7 billion). The latter was beneficiary of a massive rescue package from Putin to help him through the crisis. The billionaires include such close friends of Putin as Timchenko, the Rotenberg brothers, Kovalchuk (see our chapter on corruption in Russia). Putin and his buddies have certainly not wasted their time during the last 10 years.
The Putin system sees to it that his friends and those close to natural resources get richer. It is only in those parts of Russia which have access to income from the export of raw materials that people are able to have a standard of living on a par with that of people in the European Union.
While the rest of the country lives on a par with people in, say, Mexico.
Our statist-monolithic economy, built around the exploitation of our country’s natural resources, is the main reason for these social and regional divides. Smaller businesses not connected with natural resources in the regions without such are simply not able to grow adequately – because of the high barriers put up by officials and the monopolies they are linked to, because of the taxation war waged against them, because of the high risk of having their businesses snatched from them, and because of poor infrastructure.
Yet another reason is the result of changes in the distribution of the federal budget. Back in 2000, this was expended in approximately 50/50 fashion between the centre and the regions. Today, the share is 65/35. Contributions that previously went to the regions have been diverted to the salaries of state officials. This has in fact increased average income levels in the regions, but…
In order to overcome differentiation, it is extremely important to support economic activity, to open regions for investment, to develop small and medium business, to involve ever more people in enterprise. That is the only way in which large numbers of Russians will ever be able to become rich. During Putin’s presidency, however, the number of small enterprises in Russia has hardly risen at all and today stands at 1.35 million or fewer than 10 enterprises per 1000 population. Compare this to the EU where the figure is 45 per thousand, Japan – 50 per thousand, and the USA – 75 per thousand! Over half the population in the West is employed in small enterprises. In Japan it is nearly 80%. In Russia, small enterprises employ just 11 million people – a mere 16% of the total workforce.
The contribution of small enterprise to the country’s GDP is about the same at 13-15%. Compare this to the USA, where the figure is over 50% while in the euro zone it reaches over 60%.
It should be no surprise therefore that the people of those countries, unlike the citizens of Russia, lead lives of plenty and that the middle classes are large there. On the other hand, Russia is in 3rd place in the world after the USA and Germany for its number of billionaires.
If we want a country with a fairer economy and social system, we must first dismantle the criminal state monopoly capitalism that has arisen under Putin.