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Post-Communist Economies

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Inequality and historical legacies: evidence frompost-communist regions

Alexander Libman & Anastassia Obydenkova

To cite this article: Alexander Libman & Anastassia Obydenkova (2019): Inequality andhistorical legacies: evidence from post-communist regions, Post-Communist Economies, DOI:10.1080/14631377.2019.1607440

To link to this article: https://doi.org/10.1080/14631377.2019.1607440

Published online: 08 May 2019.

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Inequality and historical legacies: evidence from post-communist regionsAlexander Libmana,b and Anastassia Obydenkovac,d,e

aLudwig Maximilian University of Munich, Munich, Germany; bInternational Center for the Study ofInstitutions and Development, National Research University Higher School of Economics, Moscow, Russia;cInstitut Barcelona D’Estudis Internacionals, Barcelona, Spain; dCenter for Institutional Studies, NationalResearch University Higher School of Economics, Moscow, Russia; eInstitute for Economic Analysis of theSpanish Council for Scientific Research, Barcelona, Spain

ABSTRACTEgalitarianism is one of the key elements of the communist ideology,yet some of the former communist countries are among the mostunequal in the world in terms of income distribution. How does thecommunist legacy affect income inequality in the long run? The goal ofthis article is to investigate this question by looking at a sample of sub-national regions of Russia. To be able to single out the mechanisms ofthe communist legacy effects more carefully, we look at a particularaspect of the communist legacy – the legacy of the Communist Partyof the Soviet Union (CPSU). We demonstrate that the sub-nationalregions of Russia, which had higher CPSU membership rates in thepast, are characterised by lower income inequality. This, however,appears to be unrelated to the governmental redistribution policies;we link lower inequality to the prevalence of informal networks.

ARTICLE HISTORYReceived 15 January 2019Accepted 10 April 2019

KEYWORDSIncome inequality;communist legacy; regionsof Russia

1. Introduction

Studies on historical legacies, including the legacies of communism, have blossomed in thelast two decades (e.g. Barany & Volgys, 1995; Beissinger & Kotkin, 2014; Crawford & Lijphart,1997; Jowitt, 1992; LaPorte & Lussier, 2011; Millar, 1994; Pop-Eleches & Tucker, 2017).Communist countries indeed belonged to a group of particularly intrusive autocracies, withfew or no spheres of society left unaffected by the interventions of the regime, which claimedits intention to create a ‘new man’ based on the principles of the communist ideology(Soboleva, 2017). The intrusiveness of the regime, however, led to the opposite reactions, aspeople acted in a way that reduced their ‘visibility’ to the all-powerful state (Sztompka, 1993).Both top-down policies and bottom-up adaptation and resistance generated importantbehavioural changes, and there are good reasons to expect these changes to persist for along period of time. The research produced a wide array of findings confirming that formercommunist countries still differ from the non-communist world and that generations socia-lised under communist rule bear a mark of the political environment in which they grew up(Alesina & Fuchs-Schündeln, 2007; Beissinger & Kotkin, 2014; Bönisch & Schneider, 2010, 2013;Malisauskaite & Klein, 2018; Pop-Eleches & Tucker, 2011, 2013, 2014, 2017).

CONTACT Alexander Libman alibman@yandex.ru

POST-COMMUNIST ECONOMIEShttps://doi.org/10.1080/14631377.2019.1607440

© 2019 Informa UK Limited, trading as Taylor & Francis Group

This article contributes to the debate on the impact of the communist historythrough focusing on the legacy of the Communist Party of the Soviet Union (CPSU) acrossthe Russian regions and its implications for income inequality. Egalitarianism is probablyone of the cornerstone elements of any version of communist ideology. Throughout itsexistence, Soviet propaganda presented the USSR as a country of complete egalitarian-ism, where no class or power divisions existed, where income was equally distributed,and where everyone was guaranteed access to social benefits, free education andhealthcare, housing and employment. In reality, the Soviet Union was certainly not asegalitarian as its propaganda claimed; yet the country was still characterised by a muchmore equal distribution of (official monetary) income than Western societies. Thecollapse of the USSR resulted in an unprecedented increase in the levels of incomeinequality, which is, in fact, one of the reasons for the negative attitude many Russiansshare towards the contemporary economic system the country has. The Russian case isparticularly interesting, since there are large differences in the extent of income inequal-ity across different regions of the Russian Federation; this variation as such forms anattractive topic for empirical investigation.

The goal of this article is to look at the historical roots of differences in the extent ofincome inequality among the regions of Russia. In particular, we intend to investigatehow income inequality is shaped by one particular type of communist legacy, which hasbeen shown to matter substantially in the previous empirical research: the legacy of thevariation of the membership rate in the Communist Party of the Soviet Union (CPSU)during the Soviet era. Russian regions during the Soviet period were homogenous interms of how they were governed both politically and economically, as the Sovietleadership did not permit any form of deviation from the established set of economicand political institutions anywhere in the country. However, the provinces differed a lotin terms of the extent to which membership of the Communist Party, the ‘leading andthe guiding force of the society and the nucleus of its political system’ (according to theSoviet Constitution of 1977), was present in each of the regions. In 1976, for example,the share of Communists in the regional population varied between about 4% inChecheno-Ingushetiya and more than 12% in Moscow; in spite of the continuous growthof the CPSU membership in the post-war USSR, there was a lack of convergence ofregions in terms of party membership rate.

Does this variation matter in the long run and, in particular, after the fall of thecommunist regime? Looking at the Russian data, Obydenkova and Libman (2015)demonstrate the association between the CPSU membership rate and corruption,more specifically, a willingness to pay bribes by the public, the willingness of bureau-crats to request bribes and public approval of bribery. Ivlevs and Hinks (2018) supportsome of these findings using micro-level evidence from the LiTS data. Lankina, Libman,and Obydenkova (2016a) and Libman and Obydenkova (2015) argue that regions ofRussia with a larger party membership rate in the Soviet era developed into moreauthoritarian polities after the start of transition and show that the CPSU legacy isassociated with significantly lower protest activity in the regions. In a nutshell, allthese studies provide empirical evidence of a long-lasting impact of CPSU membershipon a wide variety of social and political aspects.

All of these studies highlight a specific mechanism of the persistence of the CPSU legacy:the opportunistic, cynical and compliant behaviour of the former CPSUmembers. As we will

2 A. LIBMAN AND A. OBYDENKOVA

show in what follows, in the Stagnation Era (and probably even before that, to some extent),the Communist Party, in spite of its self-proclaimed intention to represent the ‘vanguard’ ofthe Soviet society in terms of ideological loyalty and in spite of the massive effort the CPSUinvested in indoctrinating its members, became an attractive goal for career-orientedindividuals, willing to pay lip service to ideology, but having little faith in the officialcommunist doctrine. Socialisation within the CPSU strengthened these attitudes ratherthan weakened them. As a result, the former communists became particularly willing toadjust and to adapt to the new social order they found themselves in, including supportingthe efforts of regional autocrats and consolidating their power and paying bribes to publicofficials when necessary (Libman & Obydenkova, 2013). In short, the legacy of the CPSU isnot that of a strong ideological commitment – it is one of opportunism.

Given the importance of egalitarianism for the communist ideology, it appears to beprudent to ask whether the CPSU legacies had an effect on inequality as well. This is whatthis article intends to investigate. We look at the variation of the income inequality acrossthe regions of Russia in the 2010s, and match it with the variation of the CPSUmembershiprate in the regional population in the 1970s. We do find a statistically significant correlationbetween these two variables. However, unlike the previous research, this time the CPSUlegacy seems to be associated with an improvement in terms of one of the crucial problemsfaced by the Russian society and economy (Treisman, 2012): regions with a higher CPSUmembership rate in the past are characterised by lower income inequality levels. This effectis unrelated to the social policies of the regional governments. We suggest that themechanism explaining lower inequality in the regions with a strong CPSU legacy is adevelopment of informal networks, which serve as redistribution devices, providing accessto resources to broader groups of the population.

The article is organised in the following way. The next section reports a number ofstylised facts on the development of inequality in Russia after the onset of the economicand political transition, as well as on the differences in income inequality levels acrossregions. The third section briefly discusses the idea of a ‘legacy of opportunism’ asso-ciated with the CPSU. The fourth section develops the hypotheses linking the CPSUlegacy and inequality in modern Russia. The fifth section presents our data and themodel; the sixth section reports econometric results; and the seventh section tests someof the causal mechanisms possibly explaining the effects we observe. The last sectionconcludes.

2. Income inequality in the USSR and after transition

The magnitude of income inequality in the USSR is a difficult topic to investigate. This is tosome extent because of the lack of information and to some extent because of thedifficulty with defining the concept of ‘income’ in an economy of the Soviet type, char-acterised by the encompassing shortage of consumption goods. Still, the existing researchsuggests that the USSR managed to achieve a very low level of monetary income inequal-ity. For example, the share of income received by those in the top 1% of the incomedistribution in society throughout the Soviet period fluctuated around 4%, meaning thatthe top 1% of income earners received only about four times higher income than theaverage. For the top 10%, the share in the total income they received fluctuated around25% until the early 1960s, and went down to about 20% after that (Novokmet, Piketty, &

POST-COMMUNIST ECONOMIES 3

Zucman, 2018). The Soviet government invested substantial effort into creating the imageof a society where everybody has an equal share of the wealth or, at least, the distributionof wealth is related only to the work effort. Kopstein (2003) points out that the communistsocieties reduced inequality as compared to the levels existing prior to the establishmentof the communist rule.

However, even from the point of view of monetary income, Soviet society was notfully egalitarian (Bergson, 1984), and while the Soviet government attempted to replacemonetary stimuli with intrinsic motivation through different forms of economic activity,differences in salaries continued playing an important role as an incentive for employeesof the Soviet factories and establishments; there were also differences across variousparts of the USSR (Alexeev & Gaddy, 1993). More important, however, was the system ofnon-material benefits, which all Soviet citizens participated in in one form or another.Given the endemic shortage of consumer goods, the fact that an individual earned aparticular amount of money did not allow any access to actual goods or services. Thelatter was organised through two interacting systems, both leading to much largerinequalities than the official monetary income distribution. First, the Soviet governmentcreated a variety of regional, sectoral and individual privileges giving access to certaingoods (Szelenyi, 1978). Second, spontaneous adaptation of society resulted in theemergence of a large shadow economy providing people with access to the goodsand services they were unable to obtain officially. ‘Knowing the right people’ was themain prerequisite for obtaining deficit goods or services (Ledeneva, 1998). One cansafely claim that most citizens of the USSR were to some extent involved in the shadoweconomy networks (Feldbrugge, 1984; Sampson, 1987).

In short, the USSR was not an equal society, although it claimed to be one (Yanowitch,1977). However, the collapse of the Soviet Union led to a substantial increase in incomeinequality. To some extent, it resulted from the emergence of new economic opportunities,which were used by individuals for personal enrichment. The legalisation of private propertyled to growing asset inequality (which was literally absent in the USSR: even themembers ofthe nomenklatura rarely had any sizable ownership and were merely using apartments andvillas owned by the party or the government). Growing inequality was also an outcome ofthe failure of the welfare safety net, which existed in the USSR: the new Russian governmentwas unable and had no desire to fully maintain all the social obligations of the Soviet era(which were to a large extent originally carried out by enterprises, which underwentprivatisation and partly went bankrupt; see Juurikkala & Lazareva, 2006). Finally, the wayin which privatisation was conducted in Russia resulted in the emergence of a small groupcontrolling the majority of assets, which became the manifestation of the unequal distribu-tion of wealth and income in the new Russian society (Guriev & Rachinsky, 2005). Theeconomic growth of the 2000s did not offset this enormous increase in inequality(Lukiyanova & Oshchepkov, 2012); the renationalisationwhich Russian industry experiencedunder Putin also did not lead to a more equal distribution of assets and income but ratherresulted in the emergence of the new cohort of Putin-affiliated oligarchs.

Thus, Russia within a very short period of time became a country with very high levels ofincome inequality. In 2016, according to the World Inequality Report (2016), the top 10% ofthe income distribution in Russia earned 46% of the total income, which is almost 10percentage points more than in Europe (but comparable to the US level). While the increasein the inequality levels was generally present in most transition economies (although to a

4 A. LIBMAN AND A. OBYDENKOVA

very different extent; see Bandelj & Mahutga 2010), in Russia, as well as in other countries ofpost-Soviet Eurasia, it was particularly strong and was not offset by subsequent develop-ments (Bernhard & Jung, 2017; Commander, Tolstopiatenko, & Yemtsov, 1999; Gerber &Hout, 1998; Milanovic, 1998; Remington, 2018). Growing inequality was ultimately disap-proved of by the Russian population (Shlapentokh, 1999). In 1999, as Suhrcke (2001) shows,79% of Russians strongly agreed that the inequality in their country was too large vs. about30% in Germany, or 60% in France. The fact that Russian society still perceives that the socialobligations of the state are fulfilled to an insufficient extent became clearly visible in 2018,when the government announced an increase of the retirement age. Not only did about90% of Russians have a negative attitude to this measure,1 but also the pension reformappears to be one of the reasons for the unprecedented weak performance of the rulingparty United Russia at the regional elections in September 2018.2

It seems compelling to claim that the negative attitude of Russians to the incomeinequality can also be attributed to the Soviet legacies. On the one hand, communistpropaganda could have led to a stronger rejection of inequality altogether; on the otherhand, the idealised memory of the Soviet Union provides Russians with a reference pointfor the evaluation of the contemporary inequality, which makes the latter appear asexcessively high (Kasamara & Sorokina, 2015). Indeed, Pop-Eleches and Tucker (2017)show that communist attitudinal legacies are associated with greater demand for awelfare state; similar conclusions are reached by Alesina and Fuchs-Schündeln (2007),Blanchflower and Freeman (1997), Habibov (2013), Kreidl (2000), and Mueller and Clarke(1998), although Gijsberts (2002), Kelley and Zagorski (2004), and Medgyesi (2013) arguethat there was some convergence in this respect between former socialist and WesternEuropean countries. At the same time, preferences for redistribution are amplified by theexperience of corruption Russians make in their everyday life (Domonkos, 2016).Contemporary economic turbulences and economic development also affect demandfor redistribution, as does the low level of perceived opportunities for social mobility(Munro, 2017; Ravallion & Lokshin, 2000).3 According to Brosig-Koch, Helbach, Ockenfels,and Weimann (2011), communist legacies are associated with lower solidarity: this, inturn, should increase inequality rather than reduce it.

Income inequality in Russia varies a lot across sub-national regions (Denisova, 2012;Kolenikov & Shorrocks, 2005; Kufenko, 2014; Remington, 2011; Yemtsov, 2005). This variationis driven by numerous factors. To start with, it can reflect the patterns of economic growth indifferent parts of the country (which have shown a lot of variation as well) and the economicstructure of the regions (e.g. predominant industries, age of the population, extent to whichstate-owned assets are present in the region etc.). It can also be an outcome of the regionaleconomic policy: both general (e.g. measures supporting economic performance, access topublic services etc.) and specificmeasures directed against inequality. In the 1990s, there wereexamples of regions in Russiawhich engaged inwidespread redistribution of income, partly toboost support for the regional governors. In the 2000s, with the declining fiscal autonomy ofthe Russian regions, the importance of this redistribution diminished. However, until well intothe second half of the 2000s, there were still regions in Russia which established large ‘welfarestates’ more significant than those operating at the federal level. The question remains,however, as to how far the historical past of the Russian regions affected their contemporaryinequality levels. In what follows, the article discusses the hypothetical mechanisms linkingthe CPSU legacies and inequality in the regions of Russia.

POST-COMMUNIST ECONOMIES 5

3. CPSU membership: opportunism or ideology?

The key argument of this article, as of many other contributions to the legacy literature,is that the behavioural patterns and social norms, once acquired by the population or byits particular sub-group, are very durable, survive political changes and are reproducedover generations (e.g. Dohmen, Falk, Huffman, & Sunde, 2011). In the post-communistcontext, as mentioned, there is abundant evidence of this persistence and reproductionof norms: for the Russian case, one of the best-known examples is the concept of a‘homo sovieticus’ pioneered by Yuri Levada, who argues that the Soviet rule resulted inthe development of a set of distinct behavioural traits and values, which outlived theUSSR by decades (Gudkov, 2017). However, in the case when we talk about the legaciesof the CPSU membership, an important question emerges: which types of norms, valuesand behavioural traits did the former communist possess, which would form the core ofthe CPSU legacy?

For the Soviet propaganda, the answer to this question was easy: communists wereseen as the most loyal, active and reliable members of the Soviet society, who hadaccepted the premises of the Soviet ideology to the fullest extent possible and werewilling and able to defend it at any cost. However, while in the 1940s or 1960s these‘ideological communists’ were (at least to some extent) present in the party, since the1970s, most observers have refused to believe that the CPSU members were particularlyideological. Unger (1981, p. 110), using a collection of interviews with immigrants fromthe USSR of the Cold War era, concludes that most of them ‘simply regarded partymembership as a standard career requirement’. Harris (1986), talking about those whojoined the party in the post-World War II period, identifies three main motives formembership: mandatory membership due to the sensitivity of their work (e.g. journal-ists, high-ranked administrators etc.), search for professional and social advancement,and willingness to improve one’s personal life (e.g. obtain a better flat). Glazov (1988, p.16) goes as far as to claim that ‘The individual who decides to enter the Party, has toovercome a good number of his idiosyncrasies and sometimes even reflexes of disgust,in order to convince himself that he cannot avoid joining the Party’.

While it was not a problem for a worker to join the party, the representatives ofintelligentsia and other educated strata faced restrictions in this respect, and had to passa number of formal and informal barriers to become party members.4 At the same time, itwas the educated strata which expressed a stronger demand for party membership, sincethey had more to gain from it in terms of their careers – in the Brezhnev era, intelligentsia,engineers and bureaucrats became the dominant group of CPSU members (Lankina et al.,2016a). Thus, during the Stagnation Era, for a typical individual willing to join the CPSU,party membership was associated with the search for career advancement, but alsorequired a fair amount of adaptation and opportunism, allowing one to pay lip service toan ideology one did not really believe in (as most other representatives of the Sovieteducated class; see Furman, 2001; Shlapentokh, 1990). This emulation of ideological activitydid not stopwith obtaining partymembership – on the contrary, communists were requiredto continue and strengthen it throughout their career. This, along with interaction withother communists, could have nurtured and strengthened the already available inclinationtowards opportunism and cynicism, producing individuals highly skilled at adjusting to anysocial and political environment and able to use it to their advantage.

6 A. LIBMAN AND A. OBYDENKOVA

If we interpret the effects of the CPSU legacy as those of opportunism, we face acertain problem. Is it the CPSU which made its members more opportunistic, or wasopportunism the necessary prerequisite for joining the CPSU? Our argument is thatinformal socialisation in the CPSU increased opportunism and willingness to adapt tothe existing environment, however, it is difficult to find explicit empirical evidence forthis socialisation effect. If we used individual-level data, distinguishing between self-selection into the CPSU and socialisation within the CPSU would be impossible. Here,however, the fact that we use region-level data is an advantage. If we find a significantlink between the CPSU legacy and inequality in the region, it would be difficult tobelieve that there were some regions of Russia where populations were ‘on average’more prone to opportunism and careerism – it is not clear which mechanism wouldproduce such an effect (note that, as discussed in what follows, we control for the levelof social and economic development). Thus, the explanation associated with socialisa-tion within the party ranks becomes more plausible.

4. CPSU legacy and inequality

In order to devise our hypotheses concerning the effect of the CPSU legacy on inequal-ity, we can rely upon two types of reasoning. The first argument is about the preferencesfor redistribution. In this case, the mechanism we assume is the following: first, the CPSUmembers have a stronger inclination to support more redistribution; and second,because of the dominant role of the CPSU members in the society and their broadnetwork of connections, their values spread throughout the regional population andsurvived for a prolonged period of time (on the value diffusion see Bisin & Verdier, 2005).

Equality is, as mentioned, probably one of the core aspects of the socialist ideology, andtherefore ideologically indoctrinated CPSU members could be more likely to embrace it.This, in turn, should lead to two possible outcomes: either the elites should perform moresystematic redistribution in favour of the poor strata of the population because of theiregalitarian preferences, or the voters with strong inequality aversion should force the handof regional governors to make them implement broader redistributive policies. In bothcases, the CPSU legacy should be associated with, first, lower inequality, and second, moreintensive redistribution through governmental policy (e.g. larger social spending). As aresult, we suggest the following hypothesis to guide our analysis.

H1: Larger CPSU membership rate in the past should lead to lower inequality in theregion because of more intensive redistribution/larger social spending.

While this argument appears to be plausible, if one accepts the picture of theideologically indoctrinated CPSU members, there are still two important caveats to bemade. First, how autonomous are Russian regional governments in terms of theirredistributive policies? Under Putin, their fiscal capacity and autonomy diminishedgreatly, and it is not necessarily the case that they would be able to engage inredistribution even if they wanted to. Second, if the causal mechanism is through thepreferences of the population, why should the regional governors take them intoaccount while making policy decisions? After Putin abolished direct gubernatorial elec-tions by the end of 2004, there have been almost no incentives for governors to care

POST-COMMUNIST ECONOMIES 7

about anything but maximising votes for the federal candidates during federal electionsin their region (Reuter & Robertson, 2012).5 Inequality should matter for the governorsonly in the case when it could either affect electoral outcomes (which the Russiangovernors are very skilled at manipulating through various forms of electoral fraud orother interventions in the electoral process) or lead to public protests, which have beeninfrequent in Russia so far.6 Note that our article focuses on explaining the levels ofincome inequality rather than attitudes towards inequality (on the latter see, e.g.Borisova, Govorun, Ivanov, & Levina, 2018), and the attitudes can affect the actual levelsof inequality only through specific measures aimed at the redistribution of income insociety (e.g. governmental redistributive policies).

More importantly, it is possible to formulate the reverse hypothesis to H1 as well. Asubstantial literature shows that the CPSU members were actually very successful in thenew economic systems after the onset of transition, earning substantially higher wagesthan those who never belonged to the party (Geishecker & Haisken-DeNew, 2004;Gerber, 2000; Rona-Tas & Guseva, 2001). The existing research does not clearly attributethis success to the advantages people could have received as members of the CPSU orto the selection effect (i.e. that members of the CPSU were fundamentally different thanthose who never joined the party, and thus turned out to be more successful in themarket economy as well). For us, however, the important fact is that the economicsuccess of former CPSU members could have made them likely to support redistribution.The fact that legacies of communism lead to more substantial demand for redistributiondoes not necessarily mean that it is the CPSU members who express this demand:precisely this group could, because of their adaptation to the post-transition environ-ment, be less interested in it. As a result, we suggest the following hypothesis:7

H2: Larger CPSU membership rate in the past should lead to higher inequality of theregion because more successful CPSU members would have little support forredistribution.

There is, however, a different way of thinking about the effect of the CPSU legacy onregional inequality, which is not related to attitudes towards inequality and their effecton political behaviour. This set of arguments is more likely to hold if one accepts thepicture of the former CPSU members as opportunistic career-seekers. It is possible thatthe inequality in regions with large CPSU legacies goes down because former CPSUmembers are able to create additional redistribution mechanisms beyond the domain ofthe public policy (possibly, even without intending to do so). In particular, the mechan-ism we conjecture is based on the following premise: a higher share of CPSU membersin the region could result in the emergence of more extensive informal networks post-transition, which would then function as a redistribution device.

The fact that transition, instead of supporting the emergence of competitive marketeconomies, encouraged the development of informal networks is well-established in theliterature (Stark, 1990). Ledeneva (2009), Schrader (2004) and Wedel (2003), amongothers, highlight the importance of these networks for the post-socialist social andeconomic development. The CPSU members, given their high position in the Sovietsociety, could have had extensive access to social networks during that era, being ableto maintain and to preserve such access after transition. Alternatively, they could have

8 A. LIBMAN AND A. OBYDENKOVA

obtained the necessary skills for the development of contacts and ties, which were soessential for a career in the USSR; then they would be able to continue using these skillsafter the market transition started, thus creating new networks in the highly uncertainenvironment of the new market economy. These informal social networks, in turn, couldhave reduced inequality through a variety of channels. To start with, networks based onpersonal connections and informal ties could have served as an insurance device forthose who happened to experience economic hardship. In this case, they would receivesupport from other participants of these networks (in the form of monetary or in-kindpayments or assistance in finding jobs). Furthermore, post-Soviet entrepreneurship,given the extreme uncertainty of the external environment, lawlessness and poorprotection of property rights by the state, heavily relied on informal connections forobtaining capital and searching for business partners. More extensive networks couldhave allowed more individuals access to these informal contacts and thus the ability tobe more successful in the new environment:8 the argument that, for example, oldKomsomol networks were decisive for early business success in post-communist Russiais very widespread in the literature and in the public discussions.9

Our argument is specific to the post-Soviet countries (with a very particular role ofsocial networks during the transition and the possible role of the former CPSU membersin the formation of these networks). However, there is a somewhat analogous argumentpresent in the literature on corruption and inequality. Generally speaking, there arenumerous studies, which show that corruption increases income inequality (Gupta,Davoodi, & Alonso-Terme, 2002; Gyimah-Brempong & Gyimah-Brempong, 2006; Li, Xu,& Zou, 2000; Sánchez & Goda, 2017). Some studies, however, argue that under certaincircumstances the relationship is reversed: corruption can actually decrease inequality.This effect was observed, in particular, in some Latin American countries (Andres &Ramlogan-Dobson, 2011; Dobson & Ramlogan-Dobson, 2010, 2012). The reason for thisapparently paradoxical relationship is the existence of informal markets. In highlyregulated economies, corruption allows people access to an alternative informal eco-nomic sector, where they could find employment and income opportunities absent inthe formal sector – if corruption did not exist, the informal sector would be muchsmaller, as the bureaucrats would be more diligent in implementing their jobs. As aresult, fewer people would have access to informal employment and revenue. One coulddevelop a similar argument for the case we investigate in our article: essentially, oneassumes that there exists an alternative redistribution mechanism (informal markets inthe case of the Latin American countries; networks created by former CPSU members inRussia), which serves as a substitute for, e.g. governmental redistribution or reallocationof income through free market competition and therefore reduces inequality.

Of course, redistribution through networks is only a second-best mechanism forreducing inequality. In an open access order with competitive markets and ampleopportunities for social mobility, there would be more options for reducing inequalitythan in a society based on informal networks. However, comparing different societieswith limited competition, inefficient bureaucracy, high corruption, low vertical socialmobility etc., we should find societies where the redistribution through networks ispossibly more equal than those where even this channel is absent and large portions ofthe population are excluded from the rent-generation process. Based on this logic, wedevelop a further hypothesis linking the CPSU legacy and inequality:

POST-COMMUNIST ECONOMIES 9

H3: Larger CPSU membership rate in the past should lead to lower inequality of theregion because of the proliferation of informal networks providing a larger group ofpeople with access to resources and serving as informal redistribution devices.

Note that this hypothesis implies the same direction of effect as H1, but a differentmechanism: not the ideological beliefs, but the practical experience of informal net-works serving as tools for redistribution. The subsequent empirical analysis thereforeshould attempt to explicitly isolate the mechanism in question, should we find evidenceof negative correlation of inequality and CPSU legacy.

5. Data and model

The article’s dataset covers 71 regions of the Russian Federation. Our main dependentvariable is the level of inequality in individual regions in the year 2012. We use the year2012 for our analysis because, on the one hand, it is sufficiently distant from thedissolution of the Soviet Union (to identify whether the legacies indeed persist); thus,it follows not only the period of economic decline of the 1990s, but also the period ofunprecedented economic growth in 2000–2008 and the emergence (and the recoveryfrom) the global economic crisis in 2009–2011. In 2013, Russia appears to have alreadyentered the long-term stagnation it finds itself in as of today; furthermore, in 2014 thepolitical conflict with the Western countries affected all aspects of Russian foreign anddomestic policy. We want to investigate a period preceding this era of instability;however, if we replicate our results for any single year in the period of 2010–2016, weconfirm the findings of the article reported below.

We measure the income inequality by looking at the regional Gini coefficients. Figure 1reports the evolution of the value of the Gini coefficient for the Russian Federation since1995 according to the official statistics (Rosstat) data. One can see that since the early 2000s,the coefficient systematically exceeds 0.4, peaking at about 2007–2008 and then slightlygoing down. The region-level Gini coefficients exhibit strong variation (see Figure 2). By farthe highest Gini coefficients are observed inMoscow, St. Petersburg and the oil-rich TyumenOblast in Western Siberia, with the values exceeding 0.44 (according to the World Bankdata,10 the City of Moscow has a level of inequality comparable to Costa Rica and Paraguay,and Tyumen is comparable to Peru).11 The lowest Gini coefficient in the Tver Oblast (inCentral Russia) is equal to 0.366, which is roughly equivalent to the level of Greece. We haveto acknowledge that the Gini coefficient is an imperfect proxy for measuring inequality.First, the official data may fail to capture revenue from the informal sector, which could besubstantial. Second, it captures only income inequality, while other forms of inequality (forexample, inequality in the distribution of assets) may also be highly important. Still, thevariable allows us to investigate at least an aspect of the problem of inequality in Russia, andis the only one systematically available at the sub-national level.

In our empirical analysis, we regress the Gini coefficient on the CPSU legacy proxy (theformer CPSU membership rate), as well as a number of controls. A fundamental problemassociated with obtaining data for the CPSUmembership rate is that the Soviet statistics didnot publish any official region-level data on this topic. Following the empirical strategy ofprevious research on CPSUmembership (e.g. Libman &Obydenkova, 2013, 2015), we extractthe data on the CPSU membership rate in the Russian regions of the Soviet era from the

10 A. LIBMAN AND A. OBYDENKOVA

publications of the CPSU congresses. The congress (s”ezd) was the most important decision-making body in the CPSU, which assembled regularly (during the Brezhnev era, every fiveyears). Each regional party organisation sent a delegation to the Congress, with the sizeproportional to the size of the regional party organisation itself. Since the size of each

0.36

0.37

0.38

0.39

0.4

0.41

0.42

0.43

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Figure 1. Gini coefficient for the Russian Federation.Source: Compiled by authors based on Rosstat data.

Figure 2. Gini coefficient at the regional level, Rosstat.Source: Compiled by authors based on Rosstat data.

POST-COMMUNIST ECONOMIES 11

delegation is published in the Congress minutes (which include a full list of all thedelegates), we can use this information to approximately infer how large the regionalparty organisation was. The information is available for all Soviet regions, which coincidedwith the modern Russian regions with three important exceptions.

– First, a number of provinces of the modern Russian Federation were part of otherregions (and hence, of other party organisations) in the Soviet era (the Republics ofAdygeia, Altai, Karachaevo-Cherkessia and Khakassia, Evreyskaia AutonomousOblast, Chukotka, Khanty-Mansi, Yamalo-Nenets and Nenets AutonomousOkrugs). We exclude all these regions from the initial analysis, but add them laterin the robustness checks.

– Second, while in modern Russia the City of St. Petersburg is separated from thesurrounding Leningrad Oblast, in the USSR they formed a single region (with asingle party organisation). Since there is no accurate way of attributing the mem-bership in the CPSU to either city or oblast, we exclude these regions from theanalysis, again, dealing with it in a robustness check.

– Third, yet another Soviet region, Checheno-Ingushetia, was split in two (Chechnyaand Ingushetia) after the collapse of the USSR. Here, because of a similar level ofsocioeconomic development and the fact that Chechens and Ingushs occupied asimilar position in the informal ethnic hierarchy of the Soviet population, we canassume that the CPSU membership was similar in Chechnya and in the Ingushetiaparts. We include Ingushetia in our analysis, assuming that the CPSU membershipshare in this republic was the same as in the entire Checheno-Ingushetia; Chechnyais dropped from our analysis altogether due to the lack of reliable data for itscontemporary development. In a robustness check, we exclude Ingushetia as well.

To estimate the size of the CPSU organisation in a region, we use the data from the1976 Congress – this Congress took place amidst the Brezhnev rule era and was firmlywithin the period of Stagnation, when Soviet practices were perceived as particularlydurable (Yurchak, 2013) and thus likely to generate robust behavioural patterns andhence cause legacy effects. We use data from other time periods as well to validate ourfindings.

The regressions of the article include a large set of control variables. We are awarethat many of these variables (listed below) could be correlated with each other, and thusinclude them in the regressions in different combinations, to avoid multicollinearity. Wefurthermore acknowledge that for many of the variables reverse causality is highlyplausible, and thus we could face the problem of endogenous controls. However, ifwe drop all covariates except education and urbanisation (which in the Russian contextare still strongly influenced by the Soviet past rather than by contemporary policychoices and hence are unlikely to be subject to the reverse causality problem), theeffect of the CPSU legacy we report in the next section remains robust.

Specifically, we use the following control variables.12 To start with, we control for thelevel and dynamics of the regional economic development. We capture it using twovariables: income per capita (in the baseline specification reported in Table 1) and theaverage GDP growth rate13 (substituting income per capita by this variable does not causeany changes in our results; the regression output is available on request). Income per capita

12 A. LIBMAN AND A. OBYDENKOVA

Table1.

CPSU

legacy

andinequality,dep.

var.:

region

alGiniind

ex,2

012,

OLS.

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

CPSU

mem

bershiprate,1

976

−0.004

−0.005

−0.006

−0.005

−0.005

−0.005

−0.006

−0.005

(0.002)**

(0.002)***

(0.002)***

(0.001)***

(0.002)**

(0.002)***

(0.002)***

(0.002)***

Incomepercapita,2

012

0.003

0.003

0.003

0.002

0.003

0.003

0.003

0.003

(0.001)***

(0.000)***

(0.000)***

(0.001)***

(0.000)***

(0.000)***

(0.000)***

(0.000)***

Urbanisation,

2012

−0.000

−0.000

−0.000

−0.000

−0.000

−0.000

−0.000

−0.000

(0.000)

(0.000)

(0.000)

(0.000)

(0.000)

(0.000)

(0.000)**

(0.000)

Education,

2010

0.078

0.062

0.075

−0.030

0.010

0.041

0.063

0.058

(0.063)

(0.055)

(0.057)

(0.049)

(0.060)

(0.052)

(0.048)

(0.058)

Distancefrom

Moscow

−0.003

−0.002

−0.001

−0.003

−0.003

−0.001

−0.002

(0.001)***

(0.001)***

(0.001)**

(0.001)***

(0.001)***

(0.001)**

(0.001)***

Unemployment,2012

−0.000

(0.000)***

Shareof

entrepreneurialincom

e,2012

0.000

(0.001)

Shareof

incomefrom

wages,2

012

−0.000

(0.000)

Shareof

incomefrom

socialtransfers,2012

−0.002

(0.001)**

Shareof

incomefrom

prop

erty,2

012

0.005

(0.001)***

Shareof

pensioners,2

012

−0.000

(0.000)

Pensionersproem

ployed

individu

al,2

012

0.016

(0.008)*

Shareof

employmentin

state-ow

nedcompanies,2

012

−0.001

(0.000)***

Shareof

employmentin

NGOs,2012

−0.013

(0.006)**

Shareof

employmentin

foreigncompanies,2

012

0.002

(0.001)*

Shareof

miningin

GDP,

2012

−0.000

(0.000)

Constant

0.363

0.373

0.383

0.440

0.401

0.358

0.421

0.374

(0.017)***

(0.014)***

(0.016)***

(0.034)***

(0.023)***

(0.014)***

(0.017)***

(0.015)***

R20.57

0.64

0.65

0.76

0.66

0.66

0.72

0.64

N71

7171

7171

7171

71

Note:Robu

stHub

er-W

ight

standard

errorsin

parentheses.*p<0.1;

**p<0.05;***

p<0.01.

POST-COMMUNIST ECONOMIES 13

can first be seen as a proxy for the long-term regional development; GDP growth ratescapture the short-term growth variation experienced by the Russian regions in the 2000s.Both long-term and short-term factors could matter for the level of inequality, and thereexists a large literature studying how inequality and growth (short-term and long-term) arerelated to each other (e.g. Bourguignon, 2004).14 In addition, we control for urbanisation: inmore urban localities there may be ample opportunities for employment and businessactivity, while the Russian countryside could literally offer no opportunities for raising one’sincome (Zubarevich, 2013). Following empirical studies on the regions of Russia (e.g.Lankina, Libman, & Obydenkova, 2016b), we also control for the distance to Moscow(regions proximate to the capital could, for example, supply labour force to the Moscowlabour market, where much larger earning opportunities exist; furthermore, individualgroups of the population in these regions could directly or indirectly benefit from accessto the wealth accumulated in the capital).

We also control for the regional share of unemployment, which is an obviouscorrelate of inequality, and for the level of education in the region (captured by theshare of the regional population with a university degree according to the Census datain 2010): Gregorio and Lee (2002) suggest that education is likely to reduce incomeinequality levels. Furthermore, we control for the share of the mining industry: while theeffect of the resource curse on income inequality could be ambiguous (Fum & Hodler,2010), at the very least the mining sector could create an additional source of revenuefor some groups of the regional population. In addition to that, we control for the mainsources of income of the regional population as indicated in the official statistics.Rosstat, for instance, reports data on the share of income that the regional populationreceives from entrepreneurial activity; from wages; from social transfers from the gov-ernment; and from property (e.g. real estate, securities etc.). It appears to be plausible toexpect that a larger share of property and, possibly, entrepreneurial income should leadto higher inequality, as it is likely to be more unequally distributed among the popula-tion. Large revenue from transfers would typically reduce inequality, as this source ofincome is specifically designed to target otherwise poor groups in the society.

We also control for the share of employment in companies owned by different typesof actors: government (including federal, regional and municipal government); NGOsand religious organisations; and foreign companies (the residual category is privateproperty). The public sector could potentially have smaller variation in salaries andwages (although in Russia high-ranked managers of influential state-owned companiesare notorious for having very high wages).15 Furthermore, the public sector is more likelyto be used to maintain excess employment for political purposes (Shleifer & Vishny,1994) – but in Russia it is not unusual for private companies to coordinate their decisionswith the government if they plan sufficiently large layoffs of their personnel. Finally, wealso control for two indicators of the extent to which the population of the region is atretirement age: share of pensioners and the ratio of the number of pensioners to thenumber of employed individuals. Regions with more people of retirement age could alsoexhibit a lower level of inequality both because in this case pensions (paid by thegovernment in Russia) are more important as a source of income for the regionalpopulation (and there is smaller variation in the pensions assigned to individuals thanin other sources of income) and because the salaries of the pensioners (who stillcontinue to work, as is permitted by Russian law) could be more equitable. Unlike the

14 A. LIBMAN AND A. OBYDENKOVA

developed world, Russian pensioners rarely have a large income from property orsavings, which would exacerbate income inequality.

6. Results

Table 1 reports the main results of our estimates. It contains eight specifications of theregression. Model (1) includes only the baseline controls (income, education and urba-nisation). Model (2) also adds distance from Moscow. Model (3) controls for unemploy-ment. Model (4) controls for the structure of income of the regional population. Models(5) and (6) include two proxies of the share of people at retirement age as presentedabove. Model (7) controls for the employment structure by form of ownership. Model (8)controls for the share of mining in the regional GDP.

Our results remain robust throughout all models. We find that the CPSU membershiprate in the 1970s is negatively and significantly correlated with the contemporary Ginicoefficient. In particular, an increase of the CPSU share by 1% is associated with a declineof the Gini coefficient (measured between 0 and 1) by 0.004–0.006 (or 0.4–0.6% for theGini coefficient measured between 0 and 100%). To show the economic significance ofthese effects, we use the counterfactual analysis.16 For example, if in the Tver region(which had a very high CPSU membership rate in the past) the CPSU membership ratewere twice as small as it was in the 1970s (4.4% instead of about 8.8%), its Ginicoefficient would have declined from 0.366 to 0.384 (for the beta coefficient of specifi-cation (1), which is the difference between Greece and Macedonia or Bhutan).

We subject this result to a battery of robustness checks, which fully support ourfindings. In particular, the following robustness checks were used in our study:

– We control for two further characteristics of the regional economy and society,which could matter for the levels of inequality: sub-national political regimes (seeRemington, 2011) and corruption. Russian regions are very different in terms ofhow their politics are organised: some may have more pluralist political systems,while in others the incumbents are in full control of the sub-national politics(Obydenkova, 2008, 2012). We use the typical proxy for the sub-national institu-tional variation applied in the studies of Russia – the Carnegie Center index of sub-national democracy (we use the data for 2006–2010). Similarly, in 2010, the PublicOpinion Foundation (FOM, one of the largest Russian polling centres) conducted alarge survey, which was used to develop an index of corruption as experienced byRussian households: we control for this proxy as well.

– We check whether the correlation we observe is driven by the legacy of the CPSUor by the contemporary popularity of the Communist Party of the RussianFederation (CPRF), the self-proclaimed successor to the CPSU, which also endorsesegalitarian policies. For this purpose, we control for two variables: the share ofvotes CPRF received in 1999 (the last relatively open elections before the Putin era)and a dummy for the ‘red belt’ regions, i.e. territories of Russia which in the 1990ssystematically voted for communists. We have to point out that in the 2000s CPRFbecame much more complicit with the regime, and, as Menyashev (2011) shows,the regions which voted for the CPRF in the past became loyal supporters of the

POST-COMMUNIST ECONOMIES 15

pro-governmental ‘party of power’, United Russia. Still, there may be some ele-ments of stronger egalitarian beliefs still present in these regions.

– We substitute the share of the CPSU in the regional population by the share of theCPSU in the regional adult population (since only adults were admitted to the party).

– We experiment with the composition of the sample in the following way. We first addthe regions, which were excluded in the previous analysis because of the lack of dataon the CPSUmembership, using the following convention: the CPSUmembership ratefor the ‘entire’ region, which was later split in two (Leningrad Oblast), is assumed to bethe same for both parts of the region; the CPSUmembership rate in the ‘smaller’ region(e.g. Khakassia), which split from the larger one, is assumed to be the same as in thelarge one.17 We also run a series of specifications, where we drop Ingushetia (given theproblems we had with measuring the CPSUmembership rate there), Moscow City andMoscow Oblast (as particularly developed regions, which could differ from the rest ofRussia in terms of inequality), as well as estimate robust regressions (rreg routine inStata) to check for the impact of outliers.

– We control for the age structure of the population (share of elderly and of youngpeople as defined in the Russian statistics), which can affect the inequality aversion,but also access of the regional population to various employment opportunities.

– We apply the fractional logit model instead of OLS to estimate our baselineregression. Fractional logit models were developed to deal with fractional responsevariable (i.e. share of income, of the budgetary revenue or of an amount of timespent for a certain purpose or activity), which by definition are bound between 0and 100% (Papke & Wooldridge, 1996). The Gini coefficient, similarly, is boundbetween 0 and 1, which could limit the applicability of the OLS (specifically, theOLS regressions could generate predicted values of the Gini coefficient exceeding 1or smaller than 0). The fractional logit model solves this problem.

– To make sure our results are not driven by a particular year in which the CPSUmembership rate was measured (1976), we use data from several post-World War IIparty congresses prior to 1976 to construct alternative proxies of the CPSU mem-bership rate (1956, 1969, 1961 and 1966), and confirm our result using each ofthese proxies.

– We control for the employment structure of the Russian regions (share of employedin different sectors) to eliminate the possibility that our results are driven by theprevalence of particular sectors in the regional economy or by the importance ofthe middle class, which varies across regions of Russia as well.

– We control for the size of the bureaucracy in 2012 (number of bureaucratsemployed by the regional and the federal governments working in the region)and for the growth of the size of bureaucracy in 2000–2012 to account for thepossible expansion of the group of the population better able to participate instate-led rent-generation.

As a final test, we add a battery of the Soviet-era variables from the 1970s, measuringthe development of the region at that moment. This is done to find out whether thecorrelation between the CPSU legacy and the inequality holds ceteris paribus otherproxies for developmental legacies of the Soviet era. Soviet developmental policiescould have left an imprint on the social and economic situation in the regions and

16 A. LIBMAN AND A. OBYDENKOVA

thus matter for the contemporary inequality levels. In particular, we control for thefollowing variables:

– urbanisation, territory and population of the region in 1977 (which could capturethe extent of development and the importance of the region in the eyes of thecentre);

– retail trade per capita, housing construction per capita, number of doctors percapita (all 1976) and infant mortality rate (1970) (which could capture the level ofregional development – income data are not available for the 1970s);

– educational structure of the workforce and of the population (the share of peoplewith a university degree and with a vocational training degree from the 1979census – again, a reasonable proxy for modernisation);

– the share of students of various educational establishments (universities, vocationaltraining, evening schools and professional-technical schools) in the total populationin 1976/77 (as an alternative proxy for the development of the educational infra-structure of the region); and

– the 1985 monthly income data published by the Russian official statistics as afurther covariate (older data are not available).

Finally, we control for two variables, which are unrelated to modernisation or devel-opment, but could still affect both preferences of the regional population (includingpreferences for redistribution) and CPSU membership. First, we control for a dummy forregions located at the former Soviet external borders (Obydenkova and Libman (2015)argue that these regions showed particularly high CPSU membership rate in the past).Second, we create a dummy for ethnic republics, populated by ethnicities subject todeportation and repression under Stalin – the experience of such a deportation couldprovide a powerful historical experience, constituting a legacy effect in its own right(Lupu & Peisakhin, 2017), but also can reduce CPSU membership even after the end ofStalin’s era. None of these controls change our results.

Table 2 allows us to understand the logic underlying the change in the Gini coeffi-cient more precisely. It estimates the link between the CPSU legacy and the shares ofindividual income quintiles in the total income. Rosstat, in its official publications,separates the population of each region into five income quintiles, and reports theshare of the overall income captured by each of these quintiles. The poorest quintileearns on average 5.7% of the total income; the average shares of other quintiles are,respectively, 10.4%, 15.4%, 22.7% and 45.8%. This means that the top 20% richestinhabitants of a region receive on average 45.8% of the overall income of the region,while the poorest 20% receive only 5.7% of the overall income. As one can see fromTable 2, in regions with a higher CPSU membership rate in the 1970s, poorer quintilesearn a larger share of the overall income. The beta coefficients of the CPSU membershiprate reported in the first three columns of Table 2 are roughly of the same size. Thismeans that an increase of the CPSU membership rate in the 1970s by 1% is associatedwith an increase in the share of the overall income received by each of the three poorerquintiles by about 0.1 percentage points. At the same time, an increase of the CPSUmembership rate in the 1970s by 1% is associated with a decrease of the share of theoverall income received by the richest quintile by 0.3 percentage points.

POST-COMMUNIST ECONOMIES 17

Essentially, it means the following. In regions where the CPSU membership rate waslarger, the richest quintile of its population captures a smaller share of the contemporaryoverall income. This portion of income, which is not attributed to the richest quintile, isroughly equally divided among the three poorer quintiles. That is, in a hypotheticalregion, where the overall income of the population was equal to 100 units, an increaseof the CPSU membership rate in the past by 10% would be associated with a decline ofthe income of the richest 20% of the population by three units and an increase of theincome of each of the three poorer 20% groups by one unit.

The analysis therefore provides evidence in favour of hypotheses H1 and H3 andrejects hypothesis H2. However, we still need to understand which mechanism poten-tially drives the association between the CPSU legacy and inequality: either the redis-tribution policy of the regional government or the emergence of informal networksserving as redistribution devices. While we cannot provide a direct empirical test of thesecond mechanism (due to the lack of data on informal networks), we can test the firstmechanism: if rejected, it makes the second mechanism associated with hypothesis H3more plausible. In a nutshell, we confront two different arguments explaining the CPSUlegacies: the ideological indoctrination vs. the opportunistic adaptation. The followingsection will offer a statistical test of H1.

7. Social networks or public policies?

This section analyses the effects of the CPSU legacy on the social policy of the Russianregions. In the Russian case, social policy expenditures are funded by both federal andregional budgets and non-budgetary institutions (like the pension fund), with the bulkof social expenditures (e.g. pensions) covered by federal institutions. The regionalgovernments enjoy only limited autonomy in their policymaking and have to followeither formal standards set by the federal administration (determining who has access tosocial benefits) or the informal guidelines and requirements equally determined by thecentre. Still, the structure and size of the social expenditures varies across the territory ofthe Russian Federation, and thus it is reasonable to look at whether there is a correlationbetween these social expenditures and the CPSU legacy.

We use three proxies of social expenditures as our dependent variables. The first iswhat we designate ‘social expenditures in the narrow sense’ (sotsial’naya politika): they

Table 2. CPSU legacy and shares of income quintiles in the total income, 2012, OLS.Q1 (lowest income) Q2 Q3 Q4 Q5 (highest income)

CPSU membership rate, 1976 0.093 0.113 0.081 0.030 −0.317(0.045)** (0.052)** (0.045)* (0.020) (0.161)*

Income per capita, 2012 −0.057 −0.067 −0.058 −0.024 0.206(0.012)*** (0.014)*** (0.012)*** (0.006)*** (0.044)***

Urbanisation, 2012 0.004 0.004 0.004 0.002 −0.013(0.006) (0.007) (0.006) (0.003) (0.021)

Education, 2010 −1.575 −2.159 −1.924 −1.067 6.724(1.419) (1.704) (1.510) (0.703) (5.286)

Constant 6.369 11.336 16.241 23.170 42.884(0.366)*** (0.442)*** (0.397)*** (0.210)*** (1.401)***

R2 0.54 0.56 0.56 0.57 0.56N 71 71 71 71 71

Note: Robust Huber-Wight standard errors in parentheses. * p < 0.1; ** p < 0.05; *** p < 0.

18 A. LIBMAN AND A. OBYDENKOVA

include various forms of social assistance covered by the regional budgets: financialsupport to individual vulnerable groups of the population (for example, families with alarge number of children, orphans, individual groups of pensioners, teachers and doctorsworking in rural areas, the elderly and small babies etc.). Assistance can be provided inkind or in a monetary form, as well as in the form of reduction of certain types ofmandatory fees (e.g. for housing services). The second indicator is designated ‘socialpolicy’ (sotsial’no-kulturnye meropriyatiya), and it includes, in addition to the socialexpenditures in the narrow sense, also expenditures for education (mostly primary andsecondary schooling) and healthcare: if it is ideology which leads to larger expendituresby regional governments, then most probably this will result in an increase of theseexpenditures as well. The third indicator includes social policy expenditures and housingexpenditures: in Russia, utilities are still subsidised by the regional budgets, and thisagain is frequently treated as an achievement (or, depending on the ideological pre-ferences, as a costly legacy) of socialism.

We look at both the absolute size of these three expenditure indicators, as well astheir share in the total expenditures. For each of the dependent variables, we run twotypes of regressions: first controlling for the baseline characteristics of the region(education, urbanisation and income), and second also controlling for the total revenueof the regional budget: it goes without saying that regions where governments receivelarger budgetary revenue are also able to maintain larger social expenditures. The resultsare reported in Table 3 and are unequivocal. If we do not control for the total revenuesof the regional budget, there is no link between the CPSU legacy and the socialexpenditures in the region whatsoever. If we control for the total budgetary revenues,we find a marginally significant and positive association between the CPSU legacies andthe social expenditures in the narrow sense, but for social expenditures includinghealthcare and education the association with the CPSU legacy is actually negative.This is a striking result, suggesting that the CPSU legacy does not affect inequalitythrough the regional social policy. It can be related either to the lack of autonomy ofthe regions in this matter18 or to the fact that belief in communist values among theformer CPSU members was actually not very strong – our results are much more likely tobe driven by opportunistic behaviour resulting in the formation of networks than byloyalty to the communist ideology persisting after the fall of the old regime.19

8. Conclusion

It only remains to summarise the main conclusions of our study. Our article attempted tofind out whether the communist legacies matter for the level of inequality in Russia. Weused the variation in the contemporary inequality levels across Russian regions andmatched it with the levels of CPSU membership rate in the 1970s. We were able to showa consistent and robust negative correlation between contemporary inequality and theCPSU legacy. Regions where the party membership rate was higher in the 1970s have asignificantly lower level of inequality in the post-Soviet era. While one could, intuitively,attribute it to the strong egalitarianism of the communist ideology, our findings do notconfirm this: on the contrary, regional social policy is not correlated with the CPSU legacies.We therefore advance an alternative explanation – the ability of the former CPSU membersto form networks, which are then used for the redistribution of wealth. Our article has

POST-COMMUNIST ECONOMIES 19

Table3.

CPSU

legacy

andregion

alsocialpo

licy,2012,O

LS.

Dep.var.:

Expend

ituresforsocial

policyandho

using

Expend

ituresfor

social

policy

Social

expend

ituresin

thenarrow

sense

Shareof

expend

ituresforsocial

policyandho

using

Shareof

expend

itures

forsocialpo

licy

Shareof

socialexpend

itures

inthenarrow

sense

CPSU

mem

bership

rate,1

976

18,620.908

12,521.442

4928.205

−0.004

−0.007

0.005

(15,158.156)

(11,799.907)

(3562.647)

(0.007)

(0.007)

(0.003)

Incomepercapita,

2012

7902.819

6032.047

1649.027

−0.003

−0.007

−0.002

(3771.849)**

(3008.872)**

(882.450)*

(0.002)**

(0.002)***

(0.001)***

Urbanisation,

2012

−1691.717

−1122.791

−388.740

0.002

0.002

0.001

(1525.025)

(1207.426)

(350.207)

(0.001)***

(0.001)***

(0.000)*

Education,

2010

1,375,652.111

1,106,855.478

317,049.554

0.068

0.034

−0.075

(521,361.124)**

(409,238.594)***

(122,412.288)**

(0.156)

(0.224)

(0.105)

Constant

−426,982.717

−333,937.661

−99,986.890

0.676

0.663

0.144

(172,562.857)**

(133,199.186)**

(40,393.184)**

(0.043)***

(0.062)***

(0.029)***

R20.62

0.61

0.61

0.11

0.31

0.22

N71

7171

7171

71Controlling

forbudget

revenue

CPSU

mem

bership

rate,1

976

331.914

−2064.031

670.705

−0.005

−0.012

0.002

(1164.975)

(1090.114)*

(390.242)*

(0.006)

(0.006)*

(0.002)

Note:

Robu

stHub

er-W

ight

standard

errors

inparentheses.*p<0.1;

**p<0.05;***p<0.01.Regression

scontrolling

forbu

dget

revenu

ealso

includ

eallothercontrolsof

themain

regression

s;detailedresults

areavailableon

requ

est.

20 A. LIBMAN AND A. OBYDENKOVA

therefore provided yet another piece of evidence that historical legacies matter for thecontemporary social and political development of Russia. It shows, however, that the effectsare sometimes non-trivial and are associated with rather complex mechanisms, which haveto be taken into account in the empirical analysis.

As an important limitation of our study, we acknowledge that our results have to beinterpreted as conditional correlations rather than causal effects. Since we estimate cross-sectional regressions, we cannot fully exclude the omitted variable bias (although we try touse a broad array of control variables), which would imply that both the CPSU membershiprate in the past and the contemporary inequality in the regions of Russia are driven bycommon unobserved factors. Using panel data for our analysis is problematic because thereis no natural match between the temporal evolution of inequality in post-communist Russiaand CPSUmembership in the Soviet Union: if, say, we looked at inequality levels in 2010 and2015, which years when the CPSUmembership rate was measured should have been linkedto each of them in a panel? Thus, the best strategy for solving the endogeneity problem inour analysis was to use instrumental variables. The problem is that for inequality as adependent variable it is extremely difficult to find an instrument which would satisfy theexclusion restriction. Lankina et al. (2016a), for instance, argue that the CPSU membershiprates were driven by two factors: the pre-revolutionary human capital and the ethniccomposition of the regions. But, unfortunately, both of these variables could also have animpact on inequality by themselves, which makes them unsuitable as instruments. Still, webelieve that even the conditional correlations we report in this article are of interest forstudents of regional inequality in Russia and of the communist legacies and could motivatesubsequent research in this direction.

Notes

1. https://www.znak.com/2018-07-05/opros_89_rossiyan_negativno_otnosyatsya_k_pensionnoy_reforme

2. https://carnegie.ru/commentary/772013. Interestingly, for Poland, Grosfeld and Senik (2010) show that the demand for redistribution

increases in times of transition: while at the beginning people welcome the departure fromthe old system, over time they become more willing to support policies leading to theexpansion of the welfare state. In Russia, already at the beginning of transition, the attitudetowards growing inequality was vastly negative.

4. For a historical anecdote see http://world.lib.ru/m/muradow_j/conform-01.shtml5. Gokmen and Kofanov (forthcoming) suggest that poor incentives for sub-national gover-

nors can be seen as part of a long-lasting historical legacy present since the pre-revolu-tionary era.

6. In recent years, Russia has experienced a growth in labour protests though (https://www.rbc.ru/politics/07/11/2017/59fc780e9a794772d40d85d1), and in 2012, which will be thebaseline year for our analysis, the country had just recovered from a major economic crisis.However, these protests do not appear to be threatening for the stability of the regime tothe extent that the governors should become immensely concerned with them. On protestsin Russian regions see also Lankina (2015) and Lankina and Voznaya (2015).

7. Of course, in this case one has to be cautious regarding the possible mechanisms of thehorizontal value diffusion from the CPSU members across the society: it is not clear why theless successful would emulate the anti-redistribution preferences of the more successful.

8. Backhaus (2008), for the case of the former German Democratic Republic, actually suggeststhat former communists created vast informal business networks after the collapse of the

POST-COMMUNIST ECONOMIES 21

communist regime. In Russia, where the social and political environment towards formerparty members was even less hostile, they did have even stronger chances for developingthese networks.

9. https://lenta.ru/articles/2017/06/11/komsomol/10. Data for 2012.11. Note that for many countries data on income distribution are not available.12. All variables are from the Rosstat data, except education, and, if not indicated otherwise, for

the year 2012.13. We use average real GDP growth rates in the decade preceding the year of our observation,

i.e. 2002–2012.14. Since, according to Kuznets (1955), the link between inequality and growth could be non-

linear, we also estimate a regression controlling for the squared growth rates or squaredincome per capita as well, but our results do not change.

15. https://www.kommersant.ru/doc/321955116. Note that the language of counterfactual analysis by construction could give the impression

of a causal link between the CPSU membership rate in the past and contemporary inequal-ity. We acknowledge that our analysis reports conditional correlations rather than causaleffects; we discuss this issue in greater detail in the concluding section of the article.

17. By performing this analysis, we still exclude three autonomous okrugs (Nenets, KhantyMansi and Yamalo Nenets) from our sample, as is typically done in research on Russia.

18. Note that some research indicates that informal relations in Russian society became moreimportant in the 2010s as opposed to the second half of the first decade of the 2000s (seeKravtsova, 2012). Our study looks at the effect of the CPSU legacy on the income inequalityin the 2010s, i.e. at the period when informality could have gained in importance. This againmakes the interpretation of our results through the informal networks more likely.

19. As a caveat, we have to acknowledge that some of the redistribution implemented by theregional governments does not go through the regional budgets and may be associated withinformal pseudo-budgetary institutions that private companies ‘voluntarily’make contributionsto, which are outside the official fiscal system and under the control of the governors.

Acknowledgments

The authors are very grateful to the participants of the DGO Economic Section conference in Berlinfor helpful comments. In particular, they appreciate the suggestions of Tomila Lankina, OlgaPopova and Maria Kravtsova. We appreciate the suggestions of two referees, which helped us alot in terms of improving the article. We are also grateful to Julia Blaut for her excellent researchassistance and her help with data collection. The study has been funded within the framework ofthe Basic Research Program at the National Research University Higher School of Economics (HSE)and by the Russian Academic Excellence Project ‘5-100’. All mistakes remain our own.

Disclosure statement

No potential conflict of interest was reported by the authors.

Funding

This work was supported by the National Research University Higher School of Economics (RU)[NA].

22 A. LIBMAN AND A. OBYDENKOVA

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