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Top 14. HSE’s most interesting research in 2014

Why are Russians unhappy; who serves the dictators; how to reform control and supervision;Trade versus wars; Russia’s new citizens; what do Russian and Chinese banks have in common; why analysts don’t predict recession; the provincial social environment and physical isolation of rural settlements: the most interesting research by HSE in 2014. According to Opec.ru.

‘Interestingness’ is subjective. Any two lists of work selected on this basis will be completely different. In this instance we have chosen works which are comprehensible, curious and useful to experts working in areas that overlap with economics, to civil servants in the socio-economic sphere and people interested in economic and social issues.

As far as possible, research included in the list is available online. Some reports were written in 2013 but discussed in seminars and conferences in 2014. The list does not include work that got into the Top 15 most interesting reports of HSE’s XV April Conference.

1. Ronald Inglehart, Roberto Foa, Eduard Ponarin, Christian Welzel. Understanding the Russian malaise: The collapse and recovery of subjective well-being in post-communist Russia.

In the 1990s not only the Soviet economy collapsed, but also people’s subjective feeling of satisfaction with their own lives and their sense of national pride. In general the dynamics of satisfaction with life is linked to a country’s socio-economic development. But already in 1982 levels of satisfaction in the USSR were lower than in poorer Nigeria and India. Things hit a low in 1995 when almost the entire population was unhappy. From 2000 levels of contentment began to pick up but even so, in 2011 they were still lower than 30 years earlier. It seems that Russians’ happiness only revived in 2014 thanks to the country’s foreign adventures, although now it is endangered again by the economic crisis.

An article by Marina Kolosnitsyna, Natalya Khorkina and Khongor Dorzhiev, What Happens To Happiness When People Get Older? Socio-Economic Determinants Of Life Satisfaction In Later Life is a good accompaniment to the research led by Ronald Inglehart. It shows that old people in Russia are particularly unhappy. Older people’s contentment was studied using the Russian Longitudinal Monitoring Survey (RLMS). For the over 55s happiness is determined mainly by health, income levels, where you live and social status. The famous global U-curve of happiness (around the world the young and the old are the happiest) barely works in Russia – it only applies to very old women. Having work to do in old age only makes women happier, education doesn’t feature here but the presence of children at this age has a negative influence on happiness.

2. Georgi Yegorov (Northwestern University – Kellogg School of Management), Konstantin Sonin. Incumbency Advantage in Non-Democracies .

The smartest and most popular dictators in the modern world can afford to hold elections. Getting rid of democracy altogether is not really necessary. In these kind of regimes, politicians already in power have an advantage in elections over those who haven’t yet got there. They can manipulate the voting and they can physically remove their main rivals from the race. But a formal victory at the polls doesn’t guarantee the winner will stay in power. Egorov and Sonin have created a single model for elections and the mass protests that occur in those kinds of political regimes.

The function of elections is to show the relative popularity of those in power and those in opposition. So dictators who have no fears about losing win democratic elections which neither opposition nor observers can fault. ‘Average’ dictators manipulate elections, sometimes not allowing the opposition to take part. And only ‘lousy’ dictators cancel elections altogether resorting to repressive measures. So the weaker the dictator and the stronger the opposition, the more likelihood there is of repression.

3. Alyona Khaptsova, Shalom Schwartz. How Robust Is The Association Of Life Satisfaction With Value Congruence? A Study Of Constructed Socio-Demographic Groups In A Russian National Sample.

Happiness depends not only on socio-economics but on values too. In particular on the extent to which your values coincide with the values of the social groups you use as a point of reference. Imagine if people important to you imposed sanctions on you (take offence, boycott you, cut you off) – you will be devastated right away. But is this rule true for social groups close to an individual in social demographic characteristics but consisting of people that he or she doesn’t actually have to do with? As it turns out, it is. The closer a person’s values are to the values of people close to him or her in age, sex, religion, education, place of residence, etc, the happier he or she is. So people who don’t share the same values and views as their referential group, all else being equal, are less happy unless they are out and out egocentrics.

4. Alexei Zakharov. The loyalty-competence tradeoff in dictatorships and outside options for subordinates.

Dictators are critically dependent on the loyalty of their subordinates to stay in power. This loyalty sometimes involves actions which the subordinates would never dare to take without the close ties to their leader. Loyalty comes from the strength of the subordinate’s ties to the dictator - if he falls, they lose everything. This encourages dictators to hire not the strongest managers for top government jobs but rather those with whom the ties are strongest. The less competent a bureaucrat is the more loyal he will be to the dictator – if only because his chances of staying in his job are lower if power changes hands.

5. Andrei Zhulin, Sergei Plaksin and others. Moderating the system of government control and supervisory powers in Russia.

Regulatory and supervisory costs for doing business in Russia are disproportionately high. Up to 30% of federal civil servants are engaged directly in regulation and supervision while 80-90% are involved in issuing permits and agreements. Regulation and supervision matters directly increase business overheads and withhold from 1.5 to 7.5% of GDP annually. It is impossible to do business in Russia without the risk of corruption. Now checks in 10% of cases are connected with causing damage or the risk of damage. Inspectors use the opportunity to create excessive and inappropriate pressure on companies of their choice. Most of the norms are out of date or difficult to fulfil.

One of the reasons for this state of affairs is the absence of target-setting and indicators evaluating the real impact of work by government departments. Zhulin and his colleagues propose introducing a risk-orientated approach when how much attention is paid to a business by regulating agencies should be determined by the extent to which the business risks being damaged by them. Only those which are really dangerous need to be checked, for the others supervision should be drastically simplified.

The report explains in detail how regulation and supervision should be reformed according to this approach. Alas, there isn’t much stimulus for the authorities to implement the reform as it would mean they lose a convenient instrument for pressurizing on business. A popularised version of these issues is available in Russian.

6. Ekaterina Borisova, Andrei Govorun, Denis Ivanov, Irina Levina. Who To Help? Trust And Preferences Over Redistribution In Russia.

The more trusting a Russian is, the more inclined he is to increase redistribution [of government support] to the advantage of those who work for the state – war veterans, highly-regarded teachers and doctors. But the demand for redistribution for the benefit of the poor, homeless, large families and others in difficult life situations is lower. They, according to people with higher levels of trust, should be helped by society – social capital should step in for the state, to some degree.

Overall levels of trust in Russian society took a dive in the 1990s. You can read research by Christian Welzel, Eduard Ponarin and Anna Almakaeva into the economic and social factors which influence levels of trust in Human Development and Generalized Trust: Multilevel Evidence.

Alexander Tatarko’s Trust, Cooperative Behavior And Economic Success: When Trust Is The Capital Of The Person? shows, incidentally, that trust is the basis of both social capital and of economic success. In an experiment organised for the occasion, he demonstrated that through 11 rounds of a game, a group didn’t manage to achieve the cooperative behaviour which is needed to win. He noted that towards the end of the game, the participants cooperated more although those with higher levels of trust had cooperated more from very the start.

7. Lilia Ovcharova and others. The dynamics of monetary and non-monetary features of the standard of living of Russian housewives in the post-soviet period.

In the 1990s levels of real incomes in the population fell further than GDP and there was a significant increase in inequality. This was followed by a serious growth in incomes and consumer standards changed. Now people were earning enough to be able to buy, not just the bare necessities but to spend on leisure, investment in human capital, and expenses beyond basic survival.

However the large share of spending on food, criteria of subjective poverty, and even the kind of food, shows that Russians’ consumer happiness is rather limited. But consumer expectations and preferences depend on which age cohort they belong to, as shown in Dilyara Ibragimova’s Consumer Expectations of Russian Populations: Cohort Analysis (1996–2009).

Russia has been in a period of income stagnation since 2008. At the same time inequality is extremely high, writes Lilia Ovcharova, and social policy won’t let it increase further.

Soon negative attitudes towards inequality could get noticeably stronger as usually happens in times of economic crisis when incomes fall.

8. Roman Zakharenko, Alexander Tarasov (University of Munich), Michael Seitz (BCG). Trade Costs, Conflicts and Defense Spendings

Countries which trade a lot with each other and have liberalized trading regulations rarely go to war. So liberalization of trade leads to reduced military spending which, by domino effect, influences other countries. Thus the positive economic effect from lowering costs by mutual trading is doubly strengthened by the decrease in non-productive military spending. Some countries behave in exactly the opposite way.

9. Olga Choudinovskikh. State regulation of acquiring Russian citizenship: policies and tendencies.

This report analyses two basic problems connected to granting citizenship:

Mass application of a simplified procedure when citizenship is granted after two years of living in the country;

The unwarranted widespread practice of accepting Russian citizenship by people who live permanently outside the country (in the Baltics and Transnistria etc.).

As a result, the policy becomes completely indiscriminate – it creates needless obstacles for ordinary migrants wishing to receive Russian citizenship but at the same time the practice of granting preferences to new applicants who receive it remarkably quickly is growing. The situation when almost 100% of those who receive Russian citizenship undergo simplified procedures suggests that the basic form is unnecessarily bureaucratic.

10. Andrei Vernikov. Structural-institutional similarities in the Russian and Chinese banking systems.

Regardless of the differences in size and socio-cultural characteristics of the two countries, their banking systems are remarkably similar. And they are becoming more alike. Both banking systems are organised hierarchically – at the top are several government controlled structures combining usual banking activities with solving government tasks. But the government influences the banks’ lending decisions public or private.

Recently China has become an institutional donor – a source for borrowing innovations in the organisation of credit systems. This means that the problem of bad debts, reasonably studied by China’s example, will soon become a Russian one.

11. Vladimir Gimpelson, Rostislav Kapeliushnikov. Polarization or Upgrading? Evolution of Employment in Transitionary Russia.

Was the evolution of the Russian labour market in 2000-2012 progressive or did the market undergo the popularisation of dividing the market into good and bad jobs? You know a good quality job by the size of the salary and the educational qualifications required.

Having classified jobs by microdata the authors of the report stuck to their initial hypothesis: overall, workers migrate from poorer quality to better quality jobs. Bad jobs are gradually becoming fewer and good jobs are increasing in number. But soon this trend will come to a halt because the economy has begun to stagnate and structural changes in the labour market are more or less complete.

Gimpelson and Kapeliushnikov show in another piece of work, Between Light and Shadow: Informality in the Russian Labour Market, that paradoxically, while the number of good jobs has been increasing, the numbers of people in informal jobs has been growing all the time. The creation of new formal sector jobs is restricted by the inauspicious business climate.

But in his report, Russians only live well thanks to 'grey' incomes , Kapeliushnikov argues against the view that wage increases outstrip the increase in productivity. And with the opposite view that the proportion of wages in GDP is down. Wage levels (including hidden wages), measured in percentages to the nominal GDP grew compared with the beginning of the 2000s.

However labour costs change in time with industry. In 2012 out of 32 mostly developed countries only in nine were labour costs higher in relation to GDP than in Russia.

12. Sergei Smirnov. Russian cyclical indicators and their usefulness in real time. An experience of the 2008-09 recession.

For many years anyone interested in the Russian economy has had full access to macroeconomic indicators to predict the business cycle – to leading indicators, management and consumers surveys etc.

Nevertheless, the crisis in 2008-9 took politicians, businessmen and experts by surprise. Not all indicators are useless, some even changed direction a few months before the crisis, but some really don’t help. Too much flattening the fluctuations is a problem.

But the main issue is that many analysts present a rosy picture because they are afraid to be the bearers of bad news. In his work Predicting US Recessions: Does a Wishful Bias Exist? Smirnov looks at this issue taking the USA as an example. When an economy is near to the peak of its business cycle, many experts are unable to predict that a turn is coming up. An excess of optimism blinds them to the signs of impending crisis (another explanation could be that their predictions are too dependent on extrapolations). The author suggests that the main problem is optimism rather than extrapolations.

13. Olga Molyarenko. IT support for municipalities

There are still no local government statistics in Russia and the huge flow of vertical accounting doesn’t allow state and municipal bodies to exchange information and adjust statistics. So municipalities cannot supply Rosstat and other federal departments with figures they gather. Local statistics are not officially recognized and Rosstat lowers population and small business figures in many municipal areas.

The reason is that they are based on information gathered during the census in which many people were not able to register where they actually were. This problem with statistics is making the municipal areas poorer because the Ministry of Finance uses Rosstat data to calculate the volume of allowances which make up to 80% of their incomes.

Some of Molyarenko’s research has been funded by Khamovniki (A Klyachin and S. Kordonsky) the only private foundation in Russia which supports publishing social research in the public sphere.

14. Sergei Shishkin, Elena Potapchik, Elena Seleznyeva. Paying for medical care in the public health service.

The practice of patients paying for medical aid continues to spread. At the same time, the number of patients paying for outpatient care and medicines, and for inpatient medicines and treatment is going down. The cost of diagnostic and outpatient services is even going down for big city dwellers.

The payments people make smooth over the disproportion in state financed medicine: hospital care costs reach 62% of budget expenditure, outpatient care costs - 38% while individual citizens spending comes up between them in proportion 51/49. While the number of legal payments for care in polyclinics rises, the number people making informal payments in hospitals continues to grow.

In another paper on patient choice in the Russian healthcare system, Shiskin and his co-authors show that in 41-43% of instances, choice is not connected to paying for care. In big cities it is often about wanting to get better quality services, while in the countryside it’s about getting help of any kind (in the absence of specialists in the centres they’re attached to). See Shiskin’s article in Opec.ru on payments to medical personnel.


It was extremely difficult to restrict the number of interesting research reports 2014 to just 14, so below we’ve included some other worthwhile reading currently available in English.

A) Anna Kamerling. Political Campaigns Of The Stalin Period: Their Content, Peculiarities And Structure.

In 1946-53 there were two types of campaigns – the first were to mobilize the population to build socialism and the second were to repress those who got in the way. The author describes the contents, function and structural elements of each kind of campaign.

B) Israel Marques II. Firms and Social Policy in the Post-Communist Bloc: Evidence from Russia.

Not all Russian firms lose out from government-financed expansion of the state. The first to benefit are firms with political connections. Their connections protect them from expropriation by the state and they gain access to the growing resources of state funds. The second category are firms who, aided by the weakening of institutions, can more easily avoid paying taxes.

C) Mikhail Alexeev (Indiana University, Bloomington), Andrey Chernyavskiy. Natural Resources And Economic Growth In Russia’s Regions.

The Dutch disease has not infected the Russian regions. In 2002-2011 when the NDPI tax on mining minerals was introduced, Russia’s mineral wealth stopped having an effect on regional development. The boost that various regions might have received from the increase in oil prices was absorbed by the country as a whole. The government succeeded in extracting rents for raw materials so that the storm on the global raw materials market had only an indirect influence on regional development.

D) Andrei Yakovlev, Andrey Tkachenko, Olga Demidova, Olga Balaeva. An Impact of Different Regulatory Regimes on the Effectiveness of Public Procurement.

Putting together data bases of state procurement in two public universities, one of which worked according to the old legislation on state procurements and the other according to the new, the authors conclude that broadening the possible form of government procurements lowers the level of competition but contracts have begun to be fulfilled more efficiently.

E) Timur Natkhov, Leonid Polishchuk. The Regulation of Exit: Political Economy of Passport Costs.

Freedom of movement for people across the globe is controlled not only by visa restrictions but by the cost of obtaining a passport. On average, in 127 countries they cost 5% of people’s income, but in some places the figure goes up to 100%.

In developed democracies the ratio of these expenses is lower. The better the bureaucracy, the less it tries to burden the population with costs. But in authoritarian and weak democracies things are rather different – there the cost of passports is a constant problem and it even grows when the democracy weakens.

F) Anastasia Likhacheva, Igor Makarov. The Virtual Water Of Siberia And The Russian Far East For The Asia-Pacific Region: Global Gains Vs Regional Sustainability.

Siberia and the Far East are not only the reservoirs of oil and gas which Russia is currently living on, but also a gigantic source of water. Reorienting water for export provides the logic for closer economic cooperation with Asia where water is in short supply.

This report attempts to guess what the global market will be for water - potentially Russia’s next major export.

G) Ilya Voskoboynikov. Is the Russian Strategy 2020 Workable?. Sources of productivity growth and policy implications for the Russian economy.

In this article, written for the KLEMS project, the author examines the reasons why Russia lags behind in technology and productivity. He concludes (see also presentation of the report) that this backwardness makes innovational growth impossible and that Russia needs a development strategy to catch up which would allow us to come to grips with existing technology at top speed.


January 15, 2015