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Russia is becoming more like America in a way that could be deeply divisive

The United States has become increasingly enmeshed with Russia in the wake of its meddling in the 2016 presidential elections. When it comes to the economy, and inequality specifically, the feeling turns out to be mutual.

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A country that presented a radical experiment in forced income equality under the Soviet Union, albeit with special treatment for Communist Party leaders, is now approaching American-style income and wealth gaps.

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That’s according to a new paper from some of the world’s most prominent economists specializing on inequality, which finds that existing surveys "vastly underestimate the rise of inequality since 1990."

The widening gap is in part the result of years of controlled looting of the public purse under the regime of Vladimir Putin, who has never worked outside government and yet is estimated to be one of the richest men in the world. Inequality became a major political issue in the United States following the Great Recession and the Occupy Wall Street movement’s reaction to the financial crisis.

"Top income shares are now at least as high than in the United States, with a top 1% income share around 20-25%,” estimate Filip Novokmet and Thomas Piketty of the Paris School of Economics, and Berkeley’s Gabriel Zucman.

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Novokmet, Piketty & Zucman

The paper’s authors also find inequality has risen a lot more in Russia than in China and ex-communist Eastern European countries. In Russia, top 1% income shares are as high as 20%-25%, compared to just 10%-14% in Eastern Europe.

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Novokmet, Piketty & Zucman

"This is also consistent with the Forbes billionaire data showing an unusually large number of Russian billionaires since the 1990s-2000s, as compared to other ex-communist countries, and also as compared to other parts of the world," they say, pointing to the difficulties of gathering wealth data in Russia.

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Novokmet, Piketty & Zucman

So where is all the money going? A stunning amount is flying offshore, the paper says.

"Offshore wealth is about three times larger than official net foreign reserves (about 75% of national income vs. around 25%), and is comparable in magnitude to total onshore household financial assets," the authors write.

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Put another way: 'There is as much financial wealth held by rich Russians abroad—in the United Kingdom, Switzerland, Cyprus, and similar offshore centers—than held by the entire Russian population in Russia itself."

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Novokmet, Piketty & Zucman
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