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Modernization and market: how to improve labor productivity in Russia

April 20, 2017, 15:59 UTC+3 MOSCOW

Russian President Vladimir Putin has called to build up labor productivity in the country by 5-6% a year

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© Donat Sorokin/TASS

MOSCOW, April, 20. /TASS/. The labor productivity in Russia is much lower than in other economies: the Ministry of Economic Development explains it by a lack of managing and technical competences. Recently, President Vladimir Putin called to build up labor productivity in the country by 5-6% a year. Leading companies told TASS how they solve the problem of labor productivity, they named reasons that keep effectiveness low, and explained what problems will emerge with growth of the labor productivity.

What keeps effectiveness low

Even though leading companies by implementing own ways to raise labor effectiveness plan to raise the level by several dozen percent within coming decades, problems related to this question are still quite numerous - both general ones and industry-specific problems. The sector of machinery, for example, is affected by the political situation, while production effectiveness depends directly on the demand - it is unreasonable to invest in modernization not being sure the product would be sold.

"The machinery sector is successful on the global market only. Russia is under sanctions, and it is equally problematic to buy from over there and to sell to over there," deputy head of the Sverdlovsk region’s Machinery Union Alexander Balandin told TASS. At the same time, he continued, the Russian market shrank over recent three years from 5,500 to 3,500 produced machines, and economic reasons for investments in effective labor are not clear nowadays.

Russia’s biggest truck producer KAMAZ told TASS the tax regulations are biggest problem for higher labor productivity. "The legislation does not take into account interests of certain sectors (for example, high-tech industries). The big tax burden causes smaller offer on the labor market, and thus employers go "to the shadow" and the labor market deforms," the company said.

The very strict labor legislation is also in the way of many initiatives, but, the company said, it cuts both ways - if the labor code is soft it would not protect employees.

Modernization and payments

The public organization of small and medium businesses Opora Rossii recently has suggested a big program for raising labor productivity. The program suggests subsidies of about 140 billion rubles (about $2.4 billion) for companies. In this case, the program authors say, an economic effect will make 25 trillion rubles (about $439 billion).

Judging from what TASS learned from the companies it questioned, the conclusion is the following - they work mostly in two directions: technical modernization and staff’s training and stimulating. The Siberian Anthracite Company, a coal producer working in Novosibirsk, modernizes the mining equipment. "For example, in 2016, productivity of the excavation park grew by 15%, the average technical speed of the vehicles grew by practically 1.5 times," the company told TASS.

The Siberian Business Union in Kuzbass, which unites mining, machinery, chemical, construction and agricultural companies, pays bonuses to employees for good performance under corporate social programs.

"We make yearly, quarterly, and additional payments for good performance," the Union’s President Mikhail Fedyayev told TASS. "Payments to employees are not little: if we consider payments in addition to wages, then the additional payment will make not even ten percent, it will be twice more."

Companies are trying to make work more effective. A radio-electronic company Almaz in the Saratov region uses the team-based approach in organization of the work.

"This approach is applicable now not only to workers, but to all the engineers, technicians, and to the equipment used by the teams," the company’s Director General Nikolai Bushuyev told TASS. "Over five year, the labor productivity grew by at least four times, lowering consequently the production cost."

Role of the state

Opinions about the role of state in supporting companies, which pay due attention to labor productivity, differ among the companies TASS has interrogated. KAMAZ says Russia should have special governmental programs, which would offer subsidies for loans’ interests or certain tax benefits.

Head of the Siberian holding says support for those who work well is useless. "The country has enough directions for support. If a company is working well, then why supporting it?" he wondered. "There are other companies, which need support much more - new, beginning companies, which do not have revenues yet."

However, the companies said, the state could settle large-scale issues, which in the long run would improve the labor productivity - for example, developing the markets.

"If we look at the domestic market of non-ferrous metals, it remained practically unchanged for a few years and in Russia it has been quite narrow, week. In terms of copper per capita we are way behind developed countries. The domestic market of cable-conduct products is filled with falsified stuff. Export is not growing. The low productivity problem may be solved only in connection with tasks to develop markets for the industry’s products - both inside the country and outside it," Director General of the Urals Metallurgical Company Andrei Kozitsyn told TASS.

Head of the Machinery Union says the state could deal with the problem of those who lost jobs in the modernization changes, about whom (Norilsk Nickel’s CEO) Vladimir Potanin said earlier. "The peak of progress now is in use of robots and ‘humanless’ technologies," he said. "This is the biggest contradiction we face. Technical modernization, higher productivity as a rule cannot go along with additional jobs."

The unemployed in the Arctic

The problem of jobs cut for the sake of higher effectiveness is seen as a concern at the highest level. Head of the Norilsk Nickel Company Vladimir Potanin at the congress of Russian Union of Industrialists and Entrepreneurs in March devoted his speech to this topic.

"The employers, released from the sphere of main production, may be absorbed by the other, new economy. People should be prepared for it. There are very good examples to give. For example, my colleague Alexei Mordashov, as he began the big modernization of Severstal some 15 years ago, initiated a non-profit partnership Agency for Cherepovets Development. That organization helped in providing of many jobs in small and medium businesses, and influenced positively the tax structure in the city," Potanin said.

Norilsk Nickel works in the Arctic, where the issue of employment is a big problem. Thus, the company is following that approach, Potanin said. "When employees lose jobs at the closing poisonous, outdated facilities, we, on one hand, organize for them training at our corporate university, and, on the other hand, at the Agency of Norilsk Development we are trying to revive the municipal environment, so that it could absorb those people."

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