A pimple on the body of the Russian economy

25.05.2012 — Analysis

Russian President Vladimir Putin gave an order to reach a 1.5 increase in labor productivity in the manufacturing industry and a one third increase in the output of high-technology products by 2018. Experts say that, in theory, the task is quite accomplishable, but, in practice, it is unlikely to be solved. As the RusBusinessNews columnist has found it out, the advancement of high-technology production is impeded, first of all, by officials who either go in for the wrong targets or disorganize blatantly national economy by encouraging theft and corruption.

The Russian President set the task to the government to mastermind the program for the country's development for years ahead. The program must be ready by December 2012. Vladimir Putin hopes that the program will offer a package of measures that will help increase the output of knowledge-intensive industries by 30% within six years and will generate 25 million new high-performance jobs by 2018.

Industrialists think that the target of reaching a one and a half increase in labor productivity by 2018 is quite realistic. Nikolay Manko, the director of the Experimental Design Bureau of Automatics, asserts that the market offers a wide range of equipment that can substantially decrease labor intensity of production operations and, consequently, product costs. So, the matter depends on allocation of funds for re-equipment of machine-building enterprises.

Experts do not argue with manufacturers, though they warn that apart from the lack of investment, re-equipment of enterprises can be hindered by policy. It is common knowledge that high-performance equipment makes quite a few workers redundant, and these workers must be taken care of. Prospects for new jobs are clouded by the world financial crisis, which, instead of resolving since its beginning in 2008, is threatening economy with new shocks. Due to the crisis the Sverdlovsk Region registered a dramatic decrease in labor productivity in 2009: The product output dwindles by fifty percent, while the number of employees remained unchanged. The government authorities did not allow factory owners to downsize their operation facilities.

By 2012, the situation had slightly improved: By the estimates of the management of the Almaz-Antey PVO Concern, OJSC, the productivity has increased 2.5 times over the recent years. However, it was of little help for Russian machine-building; the problem of its backwardness remains unsolved: Advanced automated machine-tools are still very few in numbers even at leading defense enterprises. To tell the truth, even that little is too much for factories: Most of the production facilities use only half or even one third of their capacity because of the insufficient number of orders. The staff composition is still far from being optimum, preventing the output-per-man growth росту.

The Ministry of Economy of the Sverdlovsk Region declared officially that the level of labor productivity in the region is three times as low as the world level and by 25% lower than the average level in Russia. It is obvious that the older industrial regions are hit hardest by the crisis. On the other hand, the new jobs also hardly have anything to do with high labor productivity: if in 2000 commodities accounted for the lion's share in the gross regional product, in 2008, according to the ministry, the balance shifted to services accounting for 53%.

Being aware of its weaknesses, the Sverdlovsk Region masterminded the development strategy till 2020. It offered several scenarios of economy modernization. All of them deal with a sharp (in some cases 5.7 fold) increase in investment in high-technology sectors. In fact, the region is planning to create new sectors of economy, which will generate employment for up to 400 thousand top-ranked specialists. Without a second thought and clear idea about the investment sources, the government of the Middle Urals produced declarative assignments, following which metallurgists were to embark on manufacturing of high-added value products, lumber companies were to start using non-waste technologies of woodworking, while developers and builders were to shorten the time and cut the costs of residential development through application of advanced technologies and materials.

It did not take long to realize that the strategy was hanging in mid-air. At one of the meetings Alexander Misharin, the former governor of the Sverdlovsk Region, noted that big business was not interested in development of new technologies and had no intention to launch high-technology production operations. The entrepreneurs represented by Andrei Kozitsyn, the general director of the Ural Mining and Metallurgical Company, CJSC, brought to notice of the region's head such factors as absence of fiscal incentives and affordable loans, steadily increasing prices set by natural monopolies and draconian rules imposed by the customs authorities.

The representatives of the timber industry saw the strategy as ridiculous. The director of one of the companies told RusBusinessNews that timber enterprises do not have money for development. Clear-felled areas are steadily weeding like neglected vegetable plots, as no one is taking care of re-forestation. The logging area is shrinking, the freight market does not exist, the facilities for processing of round wood are absent, automated equipment is very rare, certification has not been organized, and forest management is a perfect mess: It came to the point that foresters do not know how much forest they have at logging sites.

In this context, all talks about non-waste technologies in woodworking are perceived as nothing but a downright travesty. Efficient owners operating in the sector can be counted on fingers - all the other only strip natural resources. They are actively supported by government authorities, who openly lobby either their own or someone else's private interests. It is known as Russian-style competition that sets fire to all formally announced plans for modernization of economy.

Off-the-record, some officials agree that the productivity campaign should be started with reforms in the administrative machinery. The corridors of power experience dramatic shortage of people who can set proper objectives and find optimum tools and methods for their accomplishment. For example, officials invariably link housing growth to cheaper materials and new technologies, though it is well known that the market is hampered by monopoly and corruption. In Russia, it takes 450 days to receive a building permit. One would think that building-industry assigned officials can easily rectify such glaring nonsense; however these officials tend to turn a blind eye to the absurd situation, for their performance is assessed by the quantity of commissioned square meters rather than by promptness of service by the government.

The same is true about all sectors of the economy. For example, the plan for producing of biological fuel from refuse wood went flop. According to Andrei Dobrachev, the director of the Ural Forest Technopark, the company employees had been working on biotechnologies for two years and they gave up, because the government of the Sverdlovsk Region had forgotten about the technopark and embarked on the forest cluster. It is most likely to be forgotten too: That is how the present-day Russian government authorities work. Officials see their mission in preparing a plan and making sure that businessmen are informed accordingly. The latter, following the officials' logic, must use their own efforts to find the ways and means for implementation of this plan. However, as it is known, without certain conditions being in place even a pimple will not spring up on the body. Therefore, after some time it comes out that the plan did not work and no production operations were brought to life.

So, there is nothing surprising in that innovative production is generally wrapped in the future time context by authorities of the Sverdlovsk Region: Like, we will build the Titanium Valley and create immediately 8,000 new high-technology jobs. The project has been discussed for one year and a half, but no effort has been made even to build a standard road in the empty field.

The Ministry of Industry and Science of the Sverdlovsk Region reports that in 2011 the region added up 9,750 new jobs. Only a few dozens of them can be referred to as high-technology. This is reality that cannot be ignored by the federal government when it starts preparing the development strategy for the country till 2030. In the meantime, there is some feeling that 25 million new jobs are nothing but plans that are made in Russia for the only purpose - not to be fulfilled.

Vladimir Terletsky