"The most important thing for Russia now is to learn to live within its means."
The Economist's Big Debate Nikolai Kulbaki and economic observer "NotMoscow Speaking" Tatyana Rybakova about today's labor market, the prospects for industrial development in Russia, and how the concept of greatness hinders the improvement of life in Russia.
There is no work - there are not enough personnel
Tatyana Rybakova: If you don't mind, I'll begin. Look, we have some conflicting data. On the one hand, our unemployment rate is at a historic low, 2,2%, below the generally accepted norm. On the other hand, practices of shortened four-day workweeks are becoming widespread, and even more common are unpaid leave, salary cuts, bonuses, and bonuses—including, incidentally, overtime pay. At the same time, moonlighting, second, and third jobs are becoming increasingly common. For example, a trend is currently spreading in IT where fairly high-level IT professionals consciously take junior positions to work two or three jobs simultaneously—this way, they earn more than they would in a position of their own level. Do you have a hypothesis that can reconcile these contradictions?
Nikolay Kulbaka: Let's start with the fact that IT specialists working multiple jobs is a very local matter. Because no serious business can afford to have a part-time job. Businesses are currently categorically unprepared for remote work in most cases, and without it, IT specialists won't be able to work outside of their jobs. Furthermore, IT specialists are a profession that requires access to the company's inner workings, so they are subject to stricter security screening, which limits the opportunity for outside work.
T.R.: Frankly, I'd focus more on the combination of low unemployment and the simultaneous spread of shorter workweeks and vacations. How do you explain this?
N.K .: Let's start with how the unemployment rate is determined. It's determined very simply using the International Labor Organization (ILO) methodology: using sample surveys to determine how many people are actively looking for work and ready to start working immediately. This is a global methodology, designed to work not with data recorded by officials, but with real facts. According to this methodology, no one is making anything up. These figures significantly exceed the unemployment rate recorded at employment centers. In other words, these are normal figures. But then the question arises of how this fits in with shortened working hours, unpaid leave, and so on. Firstly, as far as I know, many companies have put all HR processes on hold. They're not laying people off, laying off staff, or looking for new ones. And people are also trying to stick with their current positions, understanding that any transition is difficult these days. So, no one is hiring new people, but they're also trying to hold on to the old ones. Therefore, the labor market is simply frozen, the entire system is currently in an unstable equilibrium at a low level. The problem is also that we are currently dealing with a significantly declining labor supply, as in Russia, approximately half a million people leave the labor market every year.
T.R.: My hypothesis is based on very simple principles. Let's say someone is sent on unpaid leave or even works four days a week. This means they have at least one extra day off, but their salary is correspondingly reduced or not paid at all if they're on forced leave. As I understand it, if someone is sufficiently active, they begin to earn extra money informally. Accordingly, if someone is on unpaid leave altogether, they begin working somewhere—again, informally, without quitting, because right now, as you rightly point out, there's no certainty of finding a new job. Moreover, such practices are currently common mainly in depressed regions, where finding a new job is generally difficult. At the same time, informal employment is more common there: people avoid taxes, which allows them to pay and earn some money. So, it's turning out to be roughly the same as it was in the 90s: when many people kept, so to speak, workbooks at some dormant enterprises or empty research institutes—they'd say, let their work experience count, just in case—while they themselves worked wherever. I knew a man who ran a news agency, while officially being listed as a minor official at the Ministry of Culture. I knew people who shuttled to Turkey and Dubai, while listed as employees of all sorts of factories and research institutes, including the nuclear institute in Troitsk. I have a feeling this practice is starting to revive now. And I think my hypothesis is confirmed by the recent comment by Sberbank CEO Herman Gref that people are again switching from cashless to cash payments. This applies not only to trade transactions, when people go out and buy with cash. It also applies to salaries: the official salary goes to a bank card, but unofficially they pay in cash.
N.K .: Look, yes and no. Regarding side jobs, the situation is as follows. A good, serious side-hustle market, capable of providing a relatively reliable living, exists only in large cities. This is primarily a service market, and a growing service market exists only in large urban areas. In small towns, this is practically nonexistent. Therefore, there are simply no jobs there where you can earn extra income. Of course, some people manage to find some extra income there, but it's hard to say that it's widespread. As for Gref's words, they pertain to a wide range of issues. For example, those same small businesses that primarily operate in the service and retail sectors are gradually disappearing. All those cafes, hair salons, and small shops—they're all switching to cash payments. This doesn't mean there are people there who work part-time. For most workers there, it's their primary occupation. Moreover, Gref and many other experts say that consumption in the economy is falling, and people are starting to cut back significantly. And they're cutting back significantly precisely because they don't have enough money. That's why there are no serious part-time jobs like those from the 90s right now.
T.R.: I don't quite agree with you that only big cities offer opportunities for part-time work. Yes, the jobs themselves are mostly in big cities. But often, people come from the remote provinces to find these part-time jobs.
N.K .: Yes, commuting does exist. There are a huge number of people who move to large cities for work. But moving to a large city as a second job—that's definitely not the case.
T.R.: I agree with you on this point. But the fact is that shortened working hours are precisely what's happening at large enterprises. And large enterprises, as a rule, have fairly large businesses around them that provide all sorts of services, including services, sometimes even informal ones. For example, AvtoVAZ, which switched to a four-day workweek, has a huge number of businesses that service, tune, and repair its vehicles. And someone who doesn't tighten a nut on the factory conveyor belt can easily tighten it at such a service center on their fifth day off, or even on an individual, informal basis. Or take the coal-producing regions. There, the option to buy coal below the official price exists as a mandatory option. And somehow, you and I can figure out where this cheaper coal will come from. I'm not even talking about the other service options that exist here.
N.K .: This exists, but it's an informal economy that has existed before and will continue to exist for a long time to come. But this doesn't mean that this informal economy will now begin to provide significant support for those who have been transferred to a shortened workweek or sent on furlough. Judging by the decline in consumer demand, no serious side jobs exist for the masses.
T.R.: I'm inclined to agree with you that right now, there's no side job that can replace lost income or even increase it beyond what people were earning, as was the case in the 90s. I agree with you on that point. But, as you yourself said, the system is currently in such an unstable equilibrium that no one can figure out whether this is temporary and will get better, or whether it's temporarily good and will get worse. Industry today is still far from the state it was in in the 90s. And the question, I suppose, is what will happen next. People are saving more now and taking on side jobs more to somehow mitigate the decline in their incomes. But if this continues, won't we end up back in the 90s, when factories were still in business and not many people were being laid off, but people were earning money elsewhere?
N.K .: No, that's definitely not going to happen. Let's start with the fact that in the 90s, Soviet factories had a huge amount of excess labor, which, throughout the 90s, slowly and gradually left them for other places. We can recall the history of AvtoVAZ, for example: thanks to new technologies, its production capacity is no less than it was during Soviet times, but the number of people there has been reduced several times. Modern technologies simply don't require such a large number of people. This also applies to agriculture, where the number of workers has fallen dramatically. Order has simply been restored because the massive manual labor that was prevalent there during Soviet times has disappeared. Therefore, the time of large enterprises with huge labor pools has essentially passed. There are very few such enterprises left. Consequently, the number of people who end up unemployed at these enterprises is not so large.
Non-obvious reasons
T.R.: Okay, let's try to talk about other aspects of this strange situation of labor shortages and simultaneously rising hidden unemployment. Since the 90s, we've been hearing the same thing: Russia has very low labor mobility, and very low mobility in general. And I'd like to talk about this. Because, as I understand it, there are objective reasons for this. The first objective reason is housing. Most people in their region have some kind of home, but they own it. When they move, they face the need to pay rent. I'm not even talking about finding it, the difficulties of moving, and so on. But when considering moving to a more prosperous region, to where there is work and it pays well, people are forced to consider the cost of rent, which the difference in wages may not even cover. So they prefer to stay put. If, for example, we recall those Americans who traveled all over the country during the Great Depression in search of work, it's worth considering that they actually traveled in trailers. In other words, their housing was mobile. What quality it was is another matter, but nevertheless, they had a place to sleep and a way to travel to the next job. That's the first thing. The second is the lack of information. As I understand it, state employment agencies operate within the regions. Private portals are databases of employers and applicants; they don't guarantee that a particular vacancy actually exists, and aren't market intelligence. That is, there's no national database that would show which regions actually need whom. It's not like they interviewed a thousand people and didn't hire anyone, but rather, they just showed up and found a job. Third, of course, is the lack of state support in general, although the state supposedly needs it. There are calls for help, but I don't see any particularly serious state support. But despite all that, I see that a certain number of people returned from the war, a certain number of them, by and large, have arms and legs, and are more or less psychologically sound. They generally returned with good money, enough to move from their depressed region—and those are the regions that mostly send people to war—to a better place, perhaps even if not Moscow, then the Moscow region. Where there's work, where they can do business, and so on. They have the money for it. Nevertheless, as a rule, they return home—and that's it. In your opinion, what's going on? My hypothesis is this: in Russia, especially in the provinces, informal connections are quite strong. That is, people find work and earn money mainly through their acquaintances, acquaintances of acquaintances, friends and their friends, relatives, and so on. This is absent in the new place, and this becomes a significant barrier to mobility. In your opinion, what exactly is going on?
N.K .: This is a big and complex issue. You're right about the lack of mobility. I'd say right away that creating some kind of unified state database of job offers is, of course, a bit of a Soviet-era approach; it's definitely impossible now, and it's best not to even think about it. What's definitely a hindrance, a categorical hindrance, is the lack of a rental housing market. Because, for example, in America, rental housing is basically the norm. In Russia, rental housing is practically nonexistent. It's an extremely poor market. Therefore, moving to a city in the hopes of finding rental housing is a very difficult proposition. It's quite difficult to deal with schools, kindergartens, clinics, and a host of other issues when moving from one region to another. Nevertheless, migration is ongoing—not so much to where there are jobs, but rather to where the pay is higher. People are moving from small towns to regional centers, and from regional centers to Moscow and St. Petersburg. The situation with people returning from war is as follows. Firstly, they don't bring any money back; they simply don't have it. Because 90% of the payments have already been received by their families, by them themselves—money that went towards paying off loans, debts, and other things. Perhaps buying a car, or sometimes improving their home. Secondly, if someone has returned, it most often means they were seriously wounded. This means they still have a long recovery ahead. All the salaries that were paid at the front were squandered there, because living in the frontline area is extremely expensive; all services there can be multiplied by an order of magnitude in price. So they don't really bring any money back; they have no money to do anything. And they return to their home region simply because they have nowhere else to go, no one is waiting for them, and at least they have some roots there. If, by the highest estimates, around 100 people returned from there, then given that our country has a working-age population of approximately 70 million, that's a drop in the ocean that no one notices. This, to me, is crucial. No one is waiting for them, and no one, in fact, notices them.
T.R.: I agree. In fact, they really have nowhere to go because all these programs like "Heroes of the SVO," employment quotas, and so on—it's all just bureaucratic window dressing to get the stamp of approval for the Heroes of the SVO. Okay, then, let's talk about something else. Let's talk about the future. I'm quite concerned right now about what's happening in education. On the one hand, all sorts of lessons deemed nonessential, like those in the humanities, are being cut. On the other hand, we're seeing more and more lessons that seem to reward children for their ability to march well or quickly assemble and disassemble a machine gun. At the same time, there's a clear drain on higher education: they're actively preventing them from moving on to high school, forcing them to transfer to college, cutting state-funded places and even entire specialties at universities, and so on. I understand why this is happening right now: the state needs people who won't sit around as students and get a deferment from military service, but will quickly finish their education and join the army at 18 or 19. But looking to the future, I'm worried. Because I understand that sooner or later Russia will open up. It doesn't even matter whether it's toward the West or China, it will open up. The war will end. The Chinese, let's say, will come to Russia. They'll say, "Oh, your labor has gotten cheaper here, everything has gotten really cheap." We're opening a factory here, I don't know, or something. This factory will also have robotic assembly lines. Consequently, this factory will need people who can set up and repair these robots, not just move parts from one place to another or tighten screws—robots will tighten screws. Meanwhile, this young generation, which will reach working age by then, won't be able to do this. Because they lack even the basic knowledge; they only know how to march and assemble a machine gun. Couldn't we then face structural youth unemployment due to their lack of modern skills?
N.K .: Let's start with the fact that Russia will inevitably open up, and it will, of course, also open up to the West. It's already open to the East, but we understand perfectly well that China has no interest in investing in the Russian economy. It will supply finished goods, but it won't invest in the Russian economy.
T.R.: I don't quite agree with you. He's willing to do this now, as long as there's demand for finished goods in Russia. When Russia becomes poor enough that its labor force becomes much cheaper than China's, China will be more interested in investing in factories. Just as it's doing in Serbia, for example.
N.K .: This is a slightly different story, because Serbia is interesting here as a way to enter the European market. Russia itself is not very interesting as a market, because incomes in Russia are not very high right now, and the market itself is not very large.
T.R.: I agree with you here, but if Russia opens up to the West, might China be interested in reaching the West through Russia?
N.K .: No, it's not interesting, because the land route through Russia is less advantageous than the sea route to Europe. But we've digressed a bit, so let's talk about education. In terms of education, we're currently entering a situation where our workforce is shrinking, and the number of young people is declining. And this will continue for the next five to seven years, for sure. There won't be many young people, and the population will continue to age and decline. Under these conditions, the small number of young people that will remain in Russia will be in demand simply because there will be plenty of jobs, but a labor shortage. And what the government is doing now—yes, it's a ticking time bomb, laying the foundations for Russia's future. We see that in every respect, the state is squandering its future potential to meet its current needs. In fact, there's nothing surprising about this—the Soviet Union did the same thing in its final decades. And this is the same short-sighted policy aimed at solving short-term problems. Unfortunately, this will simply lead to Russia falling further behind. But this doesn't mean that foreign companies will come to Russia with automation, robotics, and so on. Because they don't find it all that interesting. For example, oil production in Russia is interesting. So, they will extract oil and gas, but it doesn't require many people. Russia isn't so rich in other resources: coal, for example, is pointless to mine because most of it is currently located deep in the country, like in Kuzbass. And transporting coal from there by rail across half the country to the ports is so expensive that it doesn't make sense. And so on. Do you understand? The problem isn't that foreigners will come to build factories that won't be staffed—the problem is that they will only come to mine something. And this is a path to the country's degradation, to its further lag behind the leaders in economic development.
Where should Russia grow?
T.R.: Yes, I agree with you that the future is being eaten away. And given this development, one can assume that only a few centers of business and industrial activity will remain in Russia. Industrial activity will be represented by extractive industries of interest to the global economy. Business activity will be represented by financial centers like Moscow, where the money from these extractive industries will be distributed somehow. And the rest of the region will survive as best it can. And in this regard, I had this thought. Yes, we understand that the government's actions are inadequate. But how adequate are the actions of business? In my opinion, Russian business has and will, unfortunately, have a very short planning horizon, which, in general, is defined by the famous prison phrase, "You die today, and I'll die tomorrow." I can cite, for example, construction or housing and utilities. When the migrants were expelled, they all loudly lamented that there would be no one to work, everything would stop, and so on. So, I recently asked some people near a building under construction how things are going at the site. They replied: when the migrants were kicked out, construction almost ground to a halt for a while. And now they're back to work, only these days it's some Indians. And how are they working? Just like the migrant workers from Central Asia used to: they have a very basic system of pulleys to lift bricks into place. In other words, they haven't even acquired the basic lifts that are readily available even in today's Russia. Instead of splurging on one such lift, manned by two people, one at the top and one at the bottom, they continue to "splurge" on migrant workers, only now from other countries, who diligently haul these bricks, ten of them. Is there a problem here, in your view, and if so, what can be done about it?
N.K .: First, we're missing a very simple point. We currently have a spatial development strategy for the Russian Federation that emphasizes the development of key population centers. For example, Moscow, St. Petersburg, Kazan, Vladivostok, Sochi, and Adler can be considered a single agglomeration, and so on.
T.R.: I remember when this program was adopted, they joked about it, saying that Russia was concentrating, but in a very wrong way.
N.K .: In fact, this fits your hypothesis that there will be several centers—financial or mining, perhaps a couple of industrial centers, perhaps an agglomeration near China, perhaps even Europe, that will serve as a transshipment hub for imports and exports, handling the flow of goods from neighboring countries. And that's it, while the rest of Russia will gradually become desertified, frankly speaking.
T.R.: A sad sight.
N.K .: You see, this isn't surprising, because Russia has a vast territory, yet its population is shrinking and will continue to shrink. This could be seen as a sad story, or you could look at, say, Canada, where 70-80% of the population lives in a narrow strip bordering the United States. Some regions, some industries, some development centers in Russia are currently being artificially supported by state funds due to the lack of a normal market environment. The problem is that the state, on the one hand, isn't providing support where it needs to be, and on the other, it's hindering development where, conversely, the state's reins should be loosened.
T.R.: It's good you mentioned Canada, because I wanted to use that example too. Moreover, I'd also like to add Australia, where the population is also concentrated in a narrow strip along the coast, and in the center there's only shift work at the mines. There, settlements are exclusively for temporary housing for workers—meaning there's no need to create any social programs, any developed life support system, and so on. It's the same in Canada. Moreover, in both cases, unlike in Russia, this was done quite deliberately. Canada generally resettled people based on the principle of lowest cost and greatest comfort. That is, the population in these countries is concentrated in the most favorable climates. In Russia, that's somewhere around the latitude of Rostov-on-Don. Anything further north is either large centers like Moscow, St. Petersburg, and so on—or some kind of temporary shift work. But here, they're starting to develop places where people live in literally inhumane climates. A huge amount of money is spent on this, and there's a real problem with providing for families, children, the elderly, and so on. Naturally, there's never enough money. So, when all these terrible accidents happen in some northern regions, I always ask: listen, if you can't maintain normal infrastructure in such places, then maybe people shouldn't live there? Perhaps far less money and resources could be spent on resettling these people to more favorable locations? For example, I remember how Norilsk Nickel once ran a program to resettle pensioners to the southern regions. They literally built houses for them, left them with all their northern benefits, and offered them the opportunity to relocate. And people were happy to relocate. Because it was cheaper than continuing to maintain the enormous, completely unrealistic utilities in the inhumane conditions of the Arctic, and providing for this entire disabled population.
N.K .: There's a certain logic to this, but it requires, first of all, a state program. And there's a very important problem here. It's that if we look at the country's geography and its politics, then from an economic perspective, let's say even a socioeconomic one, from the perspective of people's well-being, this is indeed the way we need to develop. First and foremost, we need to make peace with all our neighbors and allow economic freedom in all border regions. We need to develop a transport corridor to the Far East, and so on. And then we develop everything else only if it's feasible. But if we start talking about investing in developing the Northern Sea Route, despite the ice there, building a gigantic number of very expensive icebreakers, constructing military bases in the Arctic, supporting a huge number of people serving the North, and so on, investing enormous amounts of money in building, frankly, the country's defensive perimeter, then it turns out these two objectives are directly opposed to each other. If you want to develop a country's geopolitical model, then you really need, say, the Northern Latitudinal Passage—the railway that will run to Norilsk via Salekhard. This is the railway that Stalin tried to build, a purely military-political project designed to maintain the Northern Sea Route in the event of military action and ensure safe transportation of goods along the coast. It has no other economic significance. Similarly, the Baikal-Amur Mainline (BAM) was built with exactly the same logic, designed to prevent China from quickly cutting off rail supplies to the Far East. It's no coincidence that this railway was built twice: the first time in the 30s, when there was a risk of a serious conflict with the Japanese, and the second time in the 70s, when there was a serious conflict with the Chinese. In other words, it is primarily a military railway. It's no coincidence that it was partially built as a single track, because the main thing is that it exists, not whether it's profitable.
T.R.: Yes, and they built it partially non-electrified, because electrification is not at all necessary for the transfer of troops.
N.K .: As a result, it has the legendary Severomuysky tunnel, which remains single-track because it is practically impossible to widen it, and this effectively prevents the normal expansion of this road and its normal commercial use.
T.R.: I completely agree with you that there are two major differences in how the government approaches territorial development. A defensive-offensive policy requires investing enormous amounts of money in border areas, but specifically from the perspective of defense and attack. Build all sorts of supply routes for equipment and military personnel, establish military garrisons, missile silos, and so on. If we develop industry, then we should develop it first in the area of weapons, and second in the area of import substitution—that is, we produce all the most critical components ourselves. And a great deal of the most critical components are being implemented. If, however, the government is interested in preserving the territory's prosperity and intends to compete with neighboring states not through weapons, but through the well-being of the population, then it really is sufficient to free the border areas, and there's no need to invest much money in them, because the people themselves will quickly get things right through cooperation and trade with neighboring countries and will grow rich without any government investment. One that will only need to ensure fair play and some reasonable protection of the business interests of its own population. And from this follows the sad conclusion that everything, including the labor market, is viewed from the perspective of this strategic military standoff. That is, will we have enough workers to make shells, will we have enough soldiers at the front, will we have enough computer scientists who can create software that we won't buy from enemy Microsoft or SAP, will we have enough people in border areas who can serve as human shields during an invasion, and so on. As a result, this leads to much greater material costs than would be the case with a cooperation strategy. And secondly, it leads to the distortions we have today, because any planning is always limited by definition; it always makes mistakes, always goes wrong.
N.K .: Absolutely correct. Unfortunately, the prevailing concept of relative greatness in our country is that Russia is a gigantic country that has everything and plenty of it. As the advertising slogan goes: "Russia—a generous soul." A large population, a large territory, plenty of oil, gas, timber, and so on. In reality, unfortunately, the Russian market isn't very large; the working-age population isn't that large anymore; it was significantly decimated by state experiments and state whims in the 20th and 21st centuries. And the real problem is that, unfortunately, our current leadership simply doesn't fully understand that the Russian market is limited, the Russian population is quite limited in its capabilities, and Russia's resources aren't so vast that it can safely squander everything it has. The most important thing for Russia right now is to learn to live within its means. What, unfortunately, gets in the way of this focus on the country's greatness, which must be maintained, and for which the rulers spare neither people nor money, nor anything. But maintaining this greatness requires resources that are already largely depleted.
T.R.: I completely agree with you here, and I probably have only one question in conclusion: will they have time to come to their senses, or will the situation at some point reach a point where no measures will help?
N.K .: I think life will force us to do so, because I can already see that the understanding that resources are running out is gradually emerging. The problem is that this is happening very slowly, which is hindering a recovery from the systemic crisis currently unfolding in Russia.
T.R.: Yes, I would like to hope that you are right, and perhaps on this optimistic note we will end our conversation.