Part 16

Russia's paranoid state of mind extends to its interior. Uralinformbureau reported earlier this year that the Yamal-Nenets autonomous okrug (district) restricted access to foreigners citing concerns about industrial espionage and potential sabotage of oil and gas companies. The Kremlin maintains an ever-expanding list of regions and territories with limited - or outright - forbidden - access to foreigners.

The FSB, the KGB's main successor, is busy arresting spies all over the vast country. To select a random events of the dozens reported every year - and many are not - the Russian daily Kommersant recounted in February how when the Trunov works at the Novolipetsk metallurgical combine concluded an agreement with a Chinese company to supply it with slabs, its chief negotiator was nabbed as a spy working for "circles in China". His crime? He was in possession of certain documents which contained "intellectual property" of the crumbling and antiquated mill pertaining to a slab quality enhancement process.

Foreigners are also being arrested, though rarely. An American businessman, Edmund Pope, was detained in April 2000 for attempting to purchase the blueprints of an advanced torpedo from a Russian scientist. There have been a few other isolated apprehensions, mainly for "proper", military, espionage. But Russians bear the brunt of the campaign against foreign economic intelligence gathering.

Strana.ru reported last December that, speaking on the occasion of Security Services Day, Putin - himself a KGB alumnus - warned veterans that the most crucial task facing the services today is "protecting the country's economy against industrial espionage."

This is nothing new. According to History of Espionage Web site, long before they established diplomatic relations with the USA in 1933, the Soviets had Amtorg Trading Company. Ostensibly its purpose was to encourage joint ventures between Russian and American firms. Really it was a hub of industrial undercover activities. Dozens of Soviet intelligence officers supervised, at its peak during the Depression, 800 American communists. The Soviet Union's European operations in Berlin (Handelsvertretung) and in London (Arcos, Ltd.) were even more successful.

Russia's Middle Class

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

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A conference held, at the beginning of the month, in St. Petersburg, was aptly titled "Middle Class - The Myths and the Reality". Russia is way poorer than Slovenia, the Czech Republic, Hungary, or even Poland. But, as income disparities grow, a group of discriminating consumers with the purchasing power to match, is re-emerging, having been submerged by the 1998 implosion of the financial sector.

The typical salary in the large metropolises is now more than $600 per month - four times the meager national average. Some 20 percent of the workforce in Moscow earns more than $1700 a month, comparable to many members of the European Union. Real average wages across Russia have surpassed the pre-1998 level in May.

Moreover, Russians are unburdened by debt and their utility bills and food are heavily subsidized, though decreasingly so. Few pay taxes - lately dramatically reduced and simplified - and even fewer save. Every rise in disposable income is immediately translated to unadulterated consumption. Takings are understated - Russia's informal economy is probably half as big as its formal sector.

A study, financed by the Carnegie Foundation, found that only 7 percent of Russians qualify as middle class. Another 12 percent or so have some bourgeois characteristics. Sixty percent of them are men, though the Komkon marketing research agency says that the genders are equally represented.

Figures culled from the census conducted this year throughout the Russian Federation - the first since 1989 - are expected to confirm these findings. About one fifth to one quarter of all Russian households earn more than the average monthly income of $150 per person.

Political parties which purport to represent the middle class - such as the Union of the Forces of the Right (SPS) - garnered 10-15 percent of the votes in the 1999 parliamentary elections. Direct action groups of the "third estate" may transform the political landscape in forthcoming elections.

In a recent study by sociologists from the Russian Academy of Sciences' Institute of Philosophy, more than half of all Russians self-flatteringly considered themselves middle class. This is delusional. Even the optimistic research firm Premier-TGI pegs the number at 19 percent at most.

Businesses adapt to these new demands of shifting tastes and preferences. The St. Petersburg-based cellular operator Delta Telecom, owner of the first license to provide wireless-communications services in Russia, intends to test the market among middle class clients.

Ikea, the Swedish home improvement chain, has plunged $200 million into a new shopping center. French, German and Dutch cash-and-carry and do-it-yourself groups are slated to follow. Russian competitors, every bit as sleek, have erupted on the scene. The investment spree has engulfed the provinces as well.

Last month, Citibank opened a retail outlet for affluent individuals in Moscow - though its standards of transparency may yet scare them off, as Gazeta.ru observed astutely. A private cemetery in Samara caters to the needs of the expired newly rich. Opulently-stocked emporiums have sprouted in all urban centers. TV shopping and even online commerce are on the up. According to the Washington Post, Moscow retail space will have tripled by the end of next year from its level at the beginning of 2002.

The Russian Expert magazine says that the middle class, minuscule as it is, accounted last year for a staggering 55 percent of all consumer goods purchased and generates one third of Russia's gross domestic product. The middle class is Russia's most important engine of wealth formation and investment, far outweighing foreign capital.

Russia's post-1998 fledgling middle class is described as young, well-educated, well-traveled, community-orientated, entrepreneurial and suffused with work ethic and a desire for social mobility. It is almost as if the crisis four years ago served as a purgatory, purging sins and sinners alike and creating the conditions for the revival of a healthier, longer-lived, bourgeoisie.

But being middle class is a state of mind more than a measure of wealth. It is an all-encompassing worldview, a set of values, a code of conduct, a list of goals, aspirations, fantasies and preferences and a catalog of moral do's and don'ts. This is where transition, micromanaged by western "experts" failed.

The mere exposure to free markets was supposed to unleash innovation and entrepreneurship in the long-oppressed populations of east Europe. When this prescription - known as "shock therapy" - bombed, the West tried to engender a stable, share-holding, business-owning, middle class by financing small size enterprises. It then proceeded to strengthen and transform indigenous institutions.

None of it worked. Transition had no grassroots support and its prescriptive - and painful - nature caused wide resentment and obstruction. When the dust settled, Russia found itself with a putative - and puny - middle class. But it was an anomalous beast, very different from its ostensible European or American counterparts.

To start with, Russia's new middle class is a distinct minority.

Prism, a publication of the Jamestown Foundation, quoted, in its August 2001 issue, the Serbian author Milorad Pavic as saying that "the Russian middle class is like a young generation whose fathers suffered a severe defeat in a war: with no feeling of guilt and no victorious fathers to boss them around, the children of defeat see no obstacles before them."

But this metaphor is misleading. The Russian middle class is a nascent exception - not an overarching rule. As Akos Rona-Tas, Associate Professor in the Sociology Department at the University of California, San Diego, notes correctly in his paper "Post Communist Transition and the Absent Middle Class in Central East Europe", a middle class that is in the minority is an oxymoron: