Inequality has become one of the most pressing issues in modern economics. The persistent trend of the rich growing richer, even in times of crisis, while the poor struggle to escape poverty, is no longer a challenge unique to individual nations—it is a global economic phenomenon. In Russia, a country where wealth has always been disproportionately concentrated among the ultra-rich, the war has further complicated an already skewed economic landscape. Despite the turmoil, the wealth of Russia’s elite continues to expand, leaving the majority of the population not in outright poverty, but devoid of prospects for income growth.
Since February 2022, Russia’s economy has been divided into two distinct eras: “before” and “after.” Both the current trajectory of economic development and the outlines of its future have changed dramatically. Paradoxically, as is often the case in wartime economies, production capacity and even incomes have seen a short-term boost. Russia’s economy has grown at a faster rate than anticipated over the past two years. However, this growth is far from sustainable. It introduces more challenges for the future, rather than laying the groundwork for long-term development.
While aggregate incomes have risen, closer examination reveals a darker reality. The apparent growth disproportionately benefits the wealthy, exacerbating an already significant income disparity. The focus, therefore, must shift to redistribution and the role inequality plays in shaping Russia’s economic narrative. By dissecting these dynamics, one can better understand how Russian society is reacting to the war, sanctions, and the loss of long-term growth potential.
From Alternative Globalization to Alternative Redistribution
The current state of the Russian economy and its ability to maintain relationships with other economies under heavy sanctions reveal a fascinating phenomenon. Professor Vladislav Inozemtsev aptly described the evolution of Russia’s economic model as “alternative globalization”.
While the 19th and 20th centuries championed free markets and global trade, today’s global order faces disruptions from new paradigms and rogue actors. Nations like Iran, Venezuela, North Korea, and Myanmar have defied democratic norms and free-market principles, operating instead as pariahs. When Russia joined this group, this “alternative world order” gained new momentum.
In response to sanctions and international isolation, Russia has constructed an alternative globalization framework. This new model binds together actors and principles incompatible with democratic and market norms. Building on Inozemtsev’s idea, one could argue that Russia is also developing an alternative approach to addressing inequality – by redistributing some of the wealth to certain categories within the wealthiest strata, the middle class, and the majority of the population.
Redistribution and Loyalty: The New Criteria for Wealth
At the core of Russia’s redistribution mechanisms lies loyalty to the regime, support for its militaristic agenda, and active participation in state policies. Among the wealthy, redistribution takes the form of seizing assets from foreign companies exiting the Russian market. Authorities compel these companies to forfeit a significant portion of their revenues and property, which are then redistributed among politically connected entrepreneurs and officials.
Additionally, the assets of individuals critical of Russia’s actions in Ukraine are confiscated and reassigned. This process has even led to a peculiar side effect: a surge in business loans despite prohibitively high interest rates. Many businesses found it financially challenging to acquire even the undervalued assets left behind by departing foreign companies. Banks, recognizing the lucrative nature of these one-time transactions, approved loans despite high rates, often based solely on the assessed liquidity of the new assets. This phenomenon has contributed to a growing money supply, complicating the Russian Central Bank’s efforts to control inflation through interest rate adjustments.
Redistribution is also taking place among less affluent populations. Following the challenges of partial mobilization and its negative social impacts, the government opted for economic incentives to recruit military personnel. The wages offered to soldiers are extraordinarily high by local standards, with some estimates suggesting that compensation, including death benefits, equals what a man in a poor region might earn over a lifetime. For many in Russia’s impoverished and economically depressed areas, sending a man to the front has become a tragic yet practical way to improve the family’s financial situation.
This stark reality raises questions about the value of human life in contemporary Russia, both as a moral concept and a societal norm. It also highlights the deep inequalities between regions, as residents of the rich ones are better off financially and, thus, less likely to enlist.
The Illusion of Reduced Inequality
Such a situation is poised to create a deeply polarized Russian society in the long run. The divide will grow not only between the newly wealthy, who profited from the war, and those left without opportunities to benefit, but also between prosperous regions that avoided paying the price of economic gains with the lives of their men and those that chose to make such a grim bargain.
Simultaneously, labor shortages have driven up wages in defense-related industries, where significant state funding enables salaries far above the national average. This has created a divide between those employed in sectors directly or indirectly linked to the military-industrial complex and those in civilian sectors, such as education and healthcare, which remain underfunded. Pensioners and other vulnerable groups, deemed low-priority by the government, face stagnating or declining incomes.
Interestingly, the redistribution of wealth has allowed the government to present statistics suggesting reduced inequality. As new military-related incomes flow into poor regions, the share of the population living in extreme poverty decreases. However, the wealth and income gains of the ultra-rich, often hidden or statistically challenging to measure, distort the overall picture.
These dynamics create an illusion of improvement in income distribution. Yet, this redistribution is neither fair nor sustainable. It fails to address the root causes of inequality and exacerbates long-term imbalances in society and the economy.
The Long-Term Consequences
The current model of wealth redistribution in Russia is unsustainable and deeply flawed. It prioritizes short-term political gains and loyalty at the expense of long-term economic stability. By tying income growth to support for militaristic policies, the government deepens societal divisions and neglects the broader population’s needs.
This approach also undermines economic fundamentals. High-income disparities create social tensions that, over time, threaten to destabilize the very system the government seeks to uphold. The reliance on military spending and asset seizures as economic drivers further limits Russia’s prospects for sustainable growth.
In conclusion, Russia’s response to inequality reflects its broader departure from global norms. While it may appear to be narrowing income gaps, the reality is a redistribution model that entrenches loyalty and suppresses dissent. The long-term costs of this approach will likely outweigh any short-term benefits, leaving the country more divided and economically vulnerable than ever.
