Russia's Consumption Boom

Forbes reports that a combination of factors including a booming energy sector, low income taxes, and continuing government subsidies have resulted in dramatically increased consumption. The real wage has been growing around 10% a year, and per capita consumption has doubled in the last decade. In dollar terms, consumption grew 27% in 2006 and shows no signs of slowing. Imports have grown 30% over the same period.

Russia is still a poor nation by Western standards, but the spending spree is allowing Russians access to goods like televisions that even the poor have come to expect in the United States. One startling revelation is that the cell phone penetration rate is over 100%. This means the average Russian household has more than one cell phone. And at least one anecdotal account suggests that cell phone service is superior to Eastern Europe.

Russia's booming, consumption driven economy is a stark contrast to the slowing American consumer and China's tight-fisted legions. Russia is also experiencing comparative political stability. Although Putin's recent decision to require 50% positive news in the media is disturbing from the perspective of political freedom, his administration is wildly popular and the prospect of a revolution seems remote. The average Russian will experience a rapidly growing quality of life over the next few years, even if the price of oil were to fall back significantly.

Russia's improving prospects are reflected in the increasing interest from foreign corporations. Nestle has recently invested half a billion dollars in the country and Coca-Cola spent $600 million for Multon, a juice maker.

While rapidly rising standards of living are always something to be welcomed, Russia's recent growth will not return the nation to its previous stature. As long as the political system remains within the iron grip of Putin, the country will not receive maximal access to global financial markets. Many of the revenue streams that Russia is capitalizing on will not be replicable, either elsewhere or even in Russia ten years from now. Carbon credits derived from the economic collapse of the Soviet Union represent a one-time windfall and economies based on exporting national resources are notoriously given to corruption and free-riding.

An old joke from the end of the Soviet Union suggests that three quarters of the men who died in Russia were drunk - no matter how they died. Russia's rising standard of living is a true blessing, but as long as the deep problems illustrated by this dark humor exist the country will still have a long road to recovery.