Labor productivity has unexpectedly become a hot topic in Russia – the President has again ordered to raise it by 5% annually, and the Government has been struggling for more than a year figuring out how to do it. Former Minister of Economy of Russia Yevgeny Yasin, Academic Superviser at the Higher School of Economics, shared with Invest Foresight his views on what hinders Russia’s breakthrough.
– State Duma deputies have recently tried to get Minister of Economic Development Maxim Oreshkin to tell them how to achieve higher labor productivity. He could not give a clear answer. Do you know how to do it?
– Yes, I do. What we need to do is change the system of management, to have an effective market economy. The competition mechanisms will work, forcing businesses to increase productivity, to install new equipment … But attacking the minister because he has failed to do it… I would say it is an invalid approach. Putting pressure on Oreshkin in parliament will not change anything. We must understand: one minister cannot do this alone.
– At the Sochi forum, two speakers announced very controversial results: plus 10% and minus 40%. Who is right – Oreshkin or Titov?
– I don’t think Titov is right, his figure is too high. On the other hand, it appears to me that Oreshkin, too, was talking about only desirable results. Of course, 70 participating companies is a big number. These companies increased their productivity over the year. So what is surprising about this? On the other hand, you can get selective growth for several companies but not for all the companies in the country. You can’t even stop the decline. This is the problem.
We experienced this throughout the Soviet years. A small number of companies enjoyed higher indicators. The others grew because they hired more staff coming from rural areas. They created more jobs and increased the production. But there was no required productivity growth. In 2008, when the global crisis hit, the productivity stopped growing because we could no longer increase the oil production. It was 2008, the year of the global crisis. Later, the crisis persisted and we could no longer maintain the same production and productivity growth rates as before 2008. This means that the methods that bring results at these 70 companies do not guarantee that, if we change the same conditions at other companies, we will achieve similar results.
– China that set a goal to achieve the GDP growth of 6% to 6.5% reported very specific steps, which are to lower taxes and levies for companies by almost RMB 2 trln (this amounts to 2% of its GDP and around $298 bln – and they lowered taxes in 2018 as well); monitor the employment in exporting companies; lower the VAT for processing, transport and construction industries; support small and medium-sized businesses; stimulate employment through construction of railways (around $119 bln), roads, irrigation channels, etc. I don’t see similar measures in our country. Perhaps, this is the problem?
– No. China has seen no miracles when it comes to productivity growth. China tried to achieve an actual growth when workers were parting with their old jobs to be in the areas of growth – say, in Shenzhen, the most rapidly developing city in China. That brought substantial results. The transfer from the handicraft industry to more advanced equipment was beneficial too. The manufactured product (which was cheap because of the cheap labor) was then exported. It was the time when China developed a lot. Then the process stopped. The possibilities China had in the 2000s have changed but we still believe that everything is the same there. We speak about regional authorities, about some non-market methods…but there is no significant growth. We keep reading about China’s achievements, that it grows by 6% per year. But it was 12% before. And are these 6% even real?
In my opinion, China cannot maintain the same growth rate because it still uses old socialist methods. We also are growing slower than before because we could maintain the pace until 2007 when energy prices were high. And now we, like China, cannot have big success. If we follow China’s example and take centralized measures (we employ different measures than them but they are still centralized) that can lower the expenses and increase productivity using some internal stimuli, we will not be able to make good progress.
On the whole, we have the same problems as China: how to give a boost to market methods? But if we count not on non-market mechanisms but on the increasing role of the state in the economy, we will not be able to win.
By Elena Skvortsova