Kazakhstan - Poverty and wealth

Poverty is a major concern in Kazakhstan. More than a third of the population of the country was estimated by the World Bank to live below the subsistence minimum in 1996. Some 6 percent of the population was estimated to live on less than US$2.15 per day. Almost two-thirds of the poor live in the southern and eastern regions of the country, the areas that are largely agrarian and rural. Certain groups are most affected by poverty: the young, households with many children, households with one parent, and the retired.

Under the Soviet system, industrial facilities based in cities and regions were largely responsible for the welfare of the local citizens. The farms, factories, offices, and enterprises in which virtually every Soviet citizen worked were responsible for providing everything from road maintenance to health care to childcare. When Kazakhstan ended state ownership of industry and agriculture, these large enterprises ceased to provide social services. However, few programs came into being to rapidly assume the responsibility for providing these public services. Many Kazakh citizens who were unable to find employment in the new, rapidly changing circumstances of a market economy found their incomes lost or dramatically diminished and social services almost non-existent.

In the Soviet Union, most people lived at a roughly equal socio-economic level. The Soviet personnel system and the system of distribution of state resources such as

GDP per Capita (US$)
Country 1975 1980 1985 1990 1998
Kazakhstan N/A N/A N/A 2,073 1,281
United States 19,364 21,529 23,200 25,363 29,683
Russia 2,555 3,654 3,463 3,668 2,138
Uzbekistan N/A N/A N/A 1,338 1,007
SOURCE: United Nations. Human Development Report 2000; Trends in human development and per capita income.

Distribution of Income or Consumption by Percentage Share: Kazakhstan
Lowest 10% 2.7
Lowest 20% 6.7
Second 20% 11.5
Third 20% 16.4
Fourth 20% 23.1
Highest 20% 42.3
Highest 10% 26.3
Survey year: 1996
Note: This information refers to expenditure shares by percentiles of the population and is ranked by per capita expenditure.
SOURCE: 2000 World Development Indicators [CD-ROM].

housing and access to education was highly standardized. Such systems are inherently wasteful because the scarcity of goods and services is not efficiently or accurately represented. The end of communism and the advent of market economics introduced new efficiencies. At the same time, the transition period introduced the possibility of using government positions or control over resources to amass great personal wealth. New extremes of rich and poor arose quickly. Some townspeople with access to wealth benefitted greatly from the first stages of the post-communist transition. Many rural dwellers, such as herdsmen and farmers, suffered terribly as government subsidies came to an end and health, education, and other social services ended abruptly. Many small towns that had been organized during the Soviet period were essentially "company towns," that is, towns in which virtually all the population worked in one large factory. After the Soviet era, many of these communities turned into ghost towns as unprofitable factories teetered on the edge of bankruptcy, released workers, and were unwilling to support the social services for the towns and villages.

Some analysts estimate that as much as 30 percent of the economic activity in the Kazakh service sector takes place in the informal economy and is thus not visible to tax collectors. In transition economies people often seek to conceal their earnings out of fear that conspicuous wealth may attract outlaws or the tax collectors. Payments for services are often made in cash; many kinds of government control over the economy allow bureaucrats to pad their modest incomes through bribes, that is secure payments for government licenses, approvals, or support. As a consequence, many business people find that they often have to make bribes or other payments to advance their business deals or assure that they will not be harassed by officials.

A step the Kazakhstan government has taken to address this situation is the strengthening of the funded pension system that was introduced 1 January 1998. This fully-funded pension system was designed to help the government improve the marketability of financial assets held by the pension funds. Pension funds are now compelled to use internationally-accepted accounting and valuation standards, and they have greater freedom to invest in high-quality foreign assets. In the long run, workers in Kazakhstan can be assured that their earnings over their productive years will grow and pay them dividends in retirement. However, the new system amasses money as new entrants into the workforce begin regularly paying a portion of their incomes into the pension funds. Those workers already on pension or close to pension will receive little benefit from the funds. A great social injustice of the transition period is the large number of pensioners who worked their entire productive lives and only to receive monthly pensions amounting to no more than US$15 per month.

The government has taken steps to focus public assistance programs on providing critical services to the truly needy. In 1998 the Kazakhstan government adopted a system of needs tests to ensure that social assistance is provided to those who need it and not provided to those who are not entitled to it. In addition, the government discontinued reliance on unemployment registration as a means of identifying eligibility for social assistance. Overall, public assistance in such areas as medical care,

Household Consumption in PPP Terms
Country All food Clothing and footwear Fuel and power a Health care b Education b Transport & Communications Other
Kazakhstan 37 10 20 9 6 6 12
United States 13 9 9 4 6 8 51
Russia 28 1 16 7 15 8 16
Uzbekistan 34 3 13 4 7 9 30
Data represent percentage of consumption in PPP terms.
a Excludes energy used for transport.
b Includes government and private expenditures.
SOURCE: World Bank. World Development Indicators 2000.

assistance to children and the elderly, however, has fallen far below the level needed.

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