Russia's New Deal

The Kremlin is pumping money into education, housing, and health care

For 20 years, headmaster Alexander Korovin has struggled to keep his school humming. The 75-year-old Gymnasium No. 35 in Ekaterinburg, an industrial city 900 miles east of Moscow, was crumbling. Budgets were tight, his 115 teachers were paid a pittance, and there was little money left over for extras such as computers, science labs, and sports equipment. But lately things have gotten a bit easier for Gymnasium No. 35. Thanks to a 1 million ruble—$38,000—grant from the Russian government, Korovin has been able to expand the opportunities for his 1,300 students, aged 7 to 17. "Now that we have financing, the school's facilities have improved dramatically," he says, showing off the new computers now in every classroom. "The attitude toward education has changed."

Gymnasium No. 35's newfound fortune is part of Russia's so-called national projects. For the first time since the collapse of Communism, the Kremlin is making a bottom-up effort to improve the lot of ordinary Russians. In September, 2005, President Vladimir V. Putin identified health, education, agriculture, and housing as priority areas requiring billions of dollars of extra state funding. The aim, he told a special meeting of the Cabinet at the time, is to "invest in people" and create "a substantial increase in the quality of life for Russia's citizens."

With parliamentary elections looming in December and Russia's next presidential ballot due the following March, the government is focusing on vote-winning social issues as never before. Almost daily, state-controlled television gushes about the latest initiative to help regular folk, from pregnant mothers to underpaid teachers. The public face of this new caring-and-sharing Kremlin is Deputy Prime Minister Dmitry Medvedev, Putin's national projects supremo and a longtime adviser. Once an obscure bureaucrat, Medvedev, 41, has in the past year become one of Russia's best-known public figures as he crisscrosses the country visiting hospitals and housing projects. That's playing into Kremlin politics: Medvedev is one of two men that Putin seems to be grooming as potential successors. (The other is Deputy Prime Minister Sergei Ivanov, who is revamping the defense industry.)

Many Russians see the Kremlin's social policy blitz as short-term vote-grubbing that won't end up helping the people. In an opinion poll published in September by the Levada Center, a Moscow research institute, 58% of respondents said they believed the national projects were unlikely to have a significant influence on their lives. Only 29% thought the efforts would make a difference. The same poll found that 47% of Russians believed that money allocated for the projects would be misspent, and just 13% thought it would be spent well. "It's all just empty words," grumbles Elena Makova, a translator and resident of Ekaterinburg.

Such skepticism is hardly surprising in a country used to disappointments. The "shock therapy" economic reforms of the 1990s left a bitter legacy as a handful of tycoons became billionaires while schools and hospitals fell into disrepair. But unlike many politicians elsewhere, Putin isn't making promises with money he doesn't have. Oil and gas exports reached $170 billion last year, up from just $28 billion in 1998. Federal tax revenues rose from $40 billion in 2000, the year Putin became President, to $240 billion in 2006. And economic growth has averaged 6.8% annually since he took office.

BUST TO BOOMEkaterinburg offers a micro view of the social challenges facing Russia. Surrounded by thick pine forests near the Ural Mountains, the city of 1.3 million is the capital of Sverdlovsk, a territory about the size of Nebraska. Near the center of Ekaterinburg, a recently built cathedral marks the spot where the last tsar, Nicholas II, and his family were killed in 1918. During World War II, the city became a center for the defense industry when 50 big factories were transferred there to escape the invading Nazis.

Manufacturing continued to flourish in Ekaterinburg during Communism, but by the 1990s the city's defense, metallurgical, and heavy-equipment plants were struggling to survive market reforms, and a bankrupt Russian government failed to pay wages and pensions for months at a time.

In recent years, the pendulum of fortune has started to swing back again. Signs of growing wealth are everywhere. Cranes now dominate the Ekaterinburg skyline, as new offices, shopping malls, and apartment buildings rise. Imported cars clog the icy roads, and colorful billboards and banners plug everything from new mobile phones to the latest sushi restaurant. The growing middle class throngs to stores run by the likes of Ikea, Germany's Metro, and the French supermarket chain Auchan.

Yet travel a few miles east toward Siberia and the new construction soon gives way to a snowy landscape of forests and fields, dotted by run-down wooden villages. Near the highway, a lone anti-aircraft missile points skyward: a Cold War monument (still a source of local pride) that marks the spot where the Soviets downed American pilot Gary Powers' U2 reconnaissance plane in 1960. An hour outside of Ekaterinburg and it's time to take the turn to Sukhoi Log, a bleak town of 36,000 whose name means Dry Gulch.

Instead of traffic jams and trendy restaurants, Sukhoi Log boasts smoke-belching metallurgical, cement, and asbestos mills. Gray Soviet-era apartments line the snowy roads, and the only ads are for the local industrial plants. But one bright spot is School No. 1. Sure, on the outside it's just another concrete compound. Inside, though, students are busy working on history, literature, and science projects using new computers and broadband connections recently provided by the state free of charge. "It's a big step forward," says Andrei Rozhnov, 16, who researched underground literature in Russian and English over the Net. "We're no longer so isolated from the world."

Many other schools are also logging on. By the end of this year, the government aims to provide free high-speed Internet to all of Russia's 60,000 schools, and 3,000 will benefit from million-ruble grants for technology and training. Meanwhile, Russia's 10,000 best teachers (out of 1.5 million total) will get awards of $3,800 each—a welcome bonus on top of salaries that average just $260 a month nationwide. "At last our government is starting to pay attention to us and encourage us," says Nataliya Vlasova, a math teacher at Gymnasium No. 35.

AIDS RELIEFEkaterinburg's hospitals and clinics are also benefitting from the Kremlin's largesse. In Sverdlovsk, the health projects are belated answers to the demographic crunch hitting the region. Despite the economic rebound, deaths outstripped births by a margin of 19,000 last year—part of a nationwide trend that has seen the population fall by 4%, to 143 million, since 1991. Poor health means that life expectancy in the region is just 63 years, vs. 66 for the nation as a whole. And AIDS is reaching epidemic proportions: Some 4% of people between 20 and 29 in Sverdlovsk are infected with HIV, local doctors say.

The depth of the problem becomes clear when you step inside the Sverdlovsk regional AIDS clinic, a dingy house on a quiet street near the center of Ekaterinburg. Peeling wallpaper and loose floor tiles suggest that the fight against AIDS hasn't been a high priority. Until last year, the clinic lacked drugs for treating HIV, which cost $10,000 a year for each patient. Today, after a cash infusion from Moscow, the clinic has enough medication for its 700 patients, plus a new laboratory and funds to repair the premises. "We simply sighed with relief," says Galina Fedotova, the clinic's deputy director. "The first question that we get when we provide the diagnosis is: How long do I have left to live? And now we can answer: You'll live a long time, because we have medicine."

The AIDS clinic isn't the only health-care facility in the region getting the state's attention.

Hospitals have received 115 new ambulances and more than 60 X-ray machines, and the government has doubled the pay for general practitioners, to an average of $920 a month. Now there's a big push under way to set up 250 clinics in smaller communities throughout Sverdlovsk.

That's because Russia's most serious social problems are often concentrated in the country's far-flung villages. About half of Sverdlovsk's 600,000 rural inhabitants are over 60 years old. Farmers in the region earn an average of $230 a month, and most young people deserted the villages long ago, attracted by greater opportunities in the city. Still, not everyone is flocking to the bright lights anymore. Evgeny Sivkov, 28, has chosen to stay at the Patrushy dairy complex, a cluster of modern blue buildings housing 1,800 cows. The $12 million complex was built by a local mining company using subsidized credits under the national projects. While only 21 people work on the farm, Sivkov says locals welcome such investments because they provide better pay and new chances for young people. He now earns $765 a month as manager, double the salary in his previous job raising calves. "It's interesting for me," Sivkov says. "You need to raise your level and learn something new."

SO LONG, SWING SETSBack in the booming city, there's no shortage of new jobs. Ekaterinburg's bigger problem is the struggle to provide homes for its citizens. That's one reason Putin's fourth national project aims to build affordable housing. Ekaterinburg has more apartments than ever as subsidized mortgages and state guarantees help fund new construction. Last year the city's housing stock jumped by 14%, the fastest pace ever, boasts local construction minister Alexander Karlov. "The authorities are working so that the population lives better," he says.

But real estate prices have also doubled, and the breakneck development has angered some residents. In northern Ekaterinburg near the giant Uralmash heavy-equipment factory, pensioner Ivan Vlasov gestures in disgust at the area behind his building. Once a leafy enclave with swing sets and park benches, it's being dug up to make room for a 250-unit apartment complex. Led by Vlasov, the neighbors have formed a protest committee to fight the project in court, arguing that the city failed to hold an open auction before it sold the land. "Back in the '50s, Khrushchev made a lot of promises, and then Gorbachev said that everyone would have an apartment by 2000," Vlasov says. "But we still have huge housing problems."

Such opposition is a reminder that, despite the heady economic growth of recent years, many Russians remain dissatisfied. Still, the remarkable face-lift for schools, hospitals, farms, and communities in the Sverdlovsk region suggests there's more to Putin's social programs than empty promises. And among direct beneficiaries, such as the students of Ekaterinburg's Gymnasium No. 35, skeptics are few. "I think our Russia has a good future, especially now that the state is caring about its people," says Irina Afingoeeva, 16, a pupil at Gymnasium No. 35 who wants to become a lawyer. "At least, we really hope so."