The OECD poverty rate: Lessons from the Russian case

Introduction

Poverty is a multidimensional problem, and the very notion of what constitutes ‘poverty’ varies greatly across and within societies. In principle, poverty can be measured in terms of absolute, relative and subjective dimensions. Which method is chosen to determine poverty, however, depends, among other things, on the availability and comparability of data, the level of development of a society and, last but not least, one’s own idea of a just society. It is itself a normative act of social policy. In measuring poverty, the Organisation for Economic Co-operation and Development (OECD) focuses on relative income indicators, as this approach is said to take into account the different levels of well-being in a society and allow for comparing income situations across countries. Information on relative income, Förster and d’Ercole (2009) argue, allows us to draw conclusions about people’s living conditions.

The key OECD indicator for international comparison of poverty is the poverty rate, which is defined as the percentage of people living in households whose income falls below half the median household income of the total population (OECD, 2020). According to this statistic, the poverty rate in 2016 was 10.4% in Germany, 12.7% in Russia and 17.8% in the United States. From the perspective of qualitative research on poverty in Russia, this figure is astonishing. In fact, the value for Russia is very close to what the Russian Federal State Statistics Service Rosstat itself indicates as the national poverty rate for 2016 (13.2%), even if they use an absolute poverty line. Meanwhile, these OECD data series suggest that the problem of poverty in Russia is only marginally more prevalent than in Germany and significantly lower than in the United States. Although I cannot make a qualitative comparison at this point, this seems misleading in view of the Russian situation. This raises the question of what epistemological value can be derived from the cross-country OECD comparison of poverty rates (as well as from other international poverty benchmarks) in very different societies.

As this is a short forum article, I cannot give a conclusive answer to this question here. Rather, my aim is to illustrate the complexity behind poverty figures using Russia as an example. I argue that the OECD approach appears to be seriously underestimating the problem of poverty in Russia (and potentially other countries for that matter) because it disregards various dimensions of poverty which have distinct weight in different societies.

Russia’s poverty according to official statistics

How poor is Russia? According to Rosstat, 18.1 million Russians or 12.3% of the population were living in poverty in 2019. ¹ That at least is the national average, but the poverty level varies widely across the 85 federal subjects – between 5.6% and 34.7%. ² The ‘poor’ are defined as those who live in households in which total income is less than the legal minimum subsistence level that constitutes the lower threshold of what is considered essential for physical survival. In 2021, the country’s monthly subsistence minimum is set at 11,653 roubles (approximately US$157 as of 1 January 2021). ³

Russia’s subsistence minimum and poverty rate are political thresholds, being central reference points for government policies on alleviating poverty. Many means-tested welfare provisions, for instance, refer to the minimum subsistence level as a threshold of need. However, the minimum subsistence level is often criticised as being set too low, and for not reflecting the real costs of everyday life (Tikhonova and Mareeva, 2016). This was revealed, for example, by a survey conducted by the independent polling institute the Levada Centre. In this survey, respondents put the perceived minimum subsistence level almost twice as high as the official poverty line. ⁴ Taking this subjective subsistence minimum as the baseline, almost 40% of all people in Russia lived in poverty in 2018. ⁵

How can it be that the legal minimum subsistence level, and thus the official poverty line, is set so low? First, some researchers argue that the government is keeping the minimum subsistence level artificially low to limit the budgetary burden on social welfare programmes. Since 2013, for example, only costs for groceries have been calculated in the basket of goods, with non-food products and services each pegged at 50% of grocery costs – thus, relatively higher inflation in services is no longer taken into account. ⁶ Second, the official poverty rate reflects the state’s idea of poverty as a life beyond the physical subsistence level. Aspects like social inequality in Russian society or the unequal distribution of income and wealth can be masked when poverty is defined in terms of an absolute threshold. Although this is certainly a common approach to measuring poverty, particularly for developing countries, more comprehensive concepts are being ignored, such as poverty as material deprivation preventing a person from leading an adequate life, as capability-deprivation or as social exclusion (Dittmann and Goebel, 2018).

Alternative perspectives on Russian poverty

While the official poverty rate in Russia may seem too low, it nevertheless corresponds to the OECD poverty threshold. However, when self-assessments, material deprivation surveys and sociological studies are taken into account, the poverty problem in Russia appears much more serious.

With regard to the self-assessment of the population, Rosstat conducts quarterly surveys, according to which 26.6% of respondents assessed their material situation in the fourth quarter of 2020 as bad or very bad (in the first quarter of 2019, this figure was as high as 29.6%). ⁷ In a survey conducted by the Levada Centre in 2019, 72% of respondents estimated their income was below the required minimum subsistence level (for comparison, in 2000, the percentage was even higher at 90% of respondents). ⁸ Although the large differences between the two surveys show that self-assessments must be interpreted with caution, they nevertheless point to a massive poverty problem.

Another way of measuring poverty is to focus on material deprivation, as for example, practised by Eurostat, the statistical office of the European Union. ⁹ This approach addresses the inability to afford some items considered by most people to be desirable or even necessary to lead an adequate life. Rosstat offers corresponding surveys, according to which 13.6% of households have found it difficult to buy clothes and cover housing costs in 2020, and 49.9% have enough money for food and clothing but not for consumer durables. Rosstat’s Comprehensive Monitoring of Living Conditions 2018 caused a stir among the Russian public, reporting that more than a third of households cannot afford to buy each family member two pairs of comfortable, seasonally appropriate shoes, and over half cannot cope with unexpected spending (Brand, 2020).

In a sociological study on poverty in contemporary Russia, Tikhonova and Mareeva (2016) combine the official statistics on absolute poverty with the results of two research studies on deprivation-based poverty. They conclude that by 2013, almost one third of the Russian population was affected by poverty, and these people form a closed social group that clearly differs from the rest of the population. According to their study, unemployed and unskilled/low-skilled workers are particularly at risk of poverty, and since a large share of the poor is involved in shadow employment practices, they cannot seek any kind of social protection.

Conclusion

This brief outline of the data on poverty in Russia shows that every eighth (official poverty line) to every third (sociological estimate) Russian is considered to be poor, and according to deprivation surveys, many more people are far from a standard of living that they would perceive as desirable. The OECD poverty rate for Russia is at the lower end of this spectrum, which defines the bare minimum for continued existence – in fact, in 2016, it was even slightly below the official Russian poverty threshold.

Two questions regarding the OECD poverty rate therefore arise: First, is the OECD method of measuring poverty really capable of capturing the specific poverty situation of a country? In the case of Russia, I would argue that the threshold of 50% of median income is not an appropriate indicator because it does not reflect the specific features of Russian society, such as the economic capacity of the society, high inequality of income and wealth, the enduring experience of instability of the middle class as well as weak social protection and redistribution. For other societies, however, the OECD poverty definition may reflect the spectrum of national poverty debates in a more balanced way.

Second, is comparing very different societies on the basis of a one-dimensional poverty indicator like the one used by the OECD leading to a misunderstanding of the Russian poverty situation? In view of the Russian case, it seems that the more societies differ in terms of their economic wealth and the nature of their social security systems, the more difficult such a comparison becomes. While in one society, poverty is a problem threatening the very existence of a person, in other societies, it is a matter of social exclusion. A poverty indicator for cross-national analyses would therefore have to include at least several dimensions of poverty. Such an approach could make the differences in the poverty situation in Germany, Russia and the United States much more evident.