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Improving Production Efficiency: A National Priority

27 February 2017

The panel session held as part of the Russian Investment Forum discussed the brakes on labour productivity growth. Three quarters of Russian entrepreneurs think it will take a long time for Russia to match the labour productivity of developed countries (6–15 years), while 20% think this will be possible in the medium-term (up to 5 years). About 80% of entrepreneurs consider the state to be the driver of labour productivity growth.

The Government has developed a comprehensive plan for boosting labour productivity and is preparing a new “white paper” on the issue to be discussed at the Presidential Council in March 2017.  

Olga Golodets, Deputy Prime Minister of the Russian Federation, said in her speech that there is no conflict of interests between faster growth of the economy and of labour productivity. Release of manpower will help create high-productivity and highly-paid jobs. Today, we have about a million vacancies and that indicator has been holding since 2012. The problem of labour productivity growth, the Deputy Prime Minister went on to say, is a sharp drop in investments in the Russian economy and lack of incentives for entrepreneurs to invest in retrofitting production. The same effect is exerted by the depressed wages, which do not match the current level of worker skills. 4.9 million people today receive the minimum wage, which is below the subsistence level.

Olga Golodets said that the basic principles for running the country’s economy had been violated. The balanced financial result of enterprises in 2015 stood at +76.0%, while investments had dropped by 9.0%. The figures for 2016 were +23.0% and 3.0%, respectively. People deposit money in banks and earn 5–6% in profits without “sweat.”

Vasily Osmakov, Russia’s Deputy Minister of Industry and Trade, believes that labour productivity is not an end in itself and it should not become a fetish. He then drew attention to the fact that the there are many methods and variants used in the world for calculating it. Russia’s global position on that count may vary depending on the calculation method used. If labour productivity is calculated on the basis of purchasing power, the gap between Russia and the USA is 30–40% but not multiple times, Mr. Osmakov added. He then noted that the Russian economy was a patently mixed economy. There are highly productive hubs and there are sectors and enterprises that are “stuck” in the Soviet Union. The picture here is very varied. Each sector or segment needs its own recipes for supporting labour productivity. The approach and set of instruments for technological modernisation have already been formed. These include numerous subsidiary programmes, the National Programme for Development of Industry and the Industry Development Fund, which have already supported about 200 projects. In conclusion, Vasily Osmakov said: “It is necessary to improve the quality of management and find new growth points. Production today faces three big challenges: technological modernisation, administrative barriers and indirect costs (complicated regulations, including customs regulations) and social obligations. The most important thing today, which is hard to sort out, consists in indirect costs.” Andrei Slepnev,  Deputy Chief of the Russian Government Staff and Director of the Government’s Project Activities Department, challenged those present to answer the question: “What technologies do we want? Modern platform-based technologies or our standard schemes of catch-up development.” In Mr Slepnev’s opinion, we are today seeking quick practical results at medium-sized and large enterprises in the regions, including Tatarstan. He believes that the potential for labour productivity growth, not counting space technologies, is very high and may grow by as much as 30–50% in the next year or two thanks to new managerial approaches and technologies. The social aspect should also be kept in mind, Mr. Slepnev added. Higher labour productivity means higher wages, greater demand and consumption. Risks have to be taken into account. Regulation involving interaction with the state must be improved, including overhead costs: accounting, supervisory bodies and customs. Optimisation may yield quick and good results. Creating both centres of excellence to take into account advanced experience and corresponding programmes is an important area, the speaker said.

In his opinion, it is necessary to improve state planning, assess labour productivity based on added value and encourage enterprises using government tools, to which end special compliance levels should be introduced.

Alexei Kudrin, Chairman of the Board of the Centre for Strategic Research Foundation and Deputy Chairman of the Economic Council under the President of the Russian Federation, described labour productivity as the key indicator for enterprises and cited the following figures: “While, in 2002–2015, labour productivity grew by 60.0%, in  2010–2015 it grew by just 8.0%. This is very slow growth.” Under the development strategy being elaborated by the CSD, labour productivity is to go up 30% by 2024 and double by 2035. Only such labour productivity will be able to support  a 3–4% economic growth rate. In his opinion, the pool of labour resources is shrinking, so labour productivity should be increased by other means: better state governance, growing investments, output of competitive products and access of small and medium-sized enterprises to world markets. Alexei Kudrin thinks slow technological progress is one of the problems. The share of innovative products should be up to 40%, whereas today it is 9%. It is growing at one-tenth of the required pace. Mr. Kudrin went on to say: “The entire chain from the work place to the end product is inefficient. There is no single industry for generating innovations. This chain should be set in motion if we are not to lose ground on new markets, including the digital economy market.”

In conclusion, Alexei Kudrin said: “Labour productivity depends on the quality of the labour force. Creativity is key in the new era. Funding of universities and innovation centres must be increased and the market and competitiveness developed. Subsidies to the economy today do little to boost innovation. They should be at a level of 23% of GDP.”  

Elena Panina, State Duma Deputy, President of the National Economic Strategy Research Institute and Chairperson of the Moscow Confederation of Industrialists and Entrepreneurs, said in her speech: “Business motivation is low. Monopoly permeates everything. Legal nihilism is rife. All products are of an inferior quality, without GOST or TU standards. Enterprises use their profits not to organize production and modernize it technologically but for other purposes. Elena Panina noted that labour productivity was a synergetic indicator that depended on many factors. The economy must be demonpolized, enterprises provide with accessible credits for retrofitting, a system of innovation investment crediting restored and development institutions improved. What is needed is not support for individual enterprises, but a system for motivating business to work under the new conditions.

She stressed that “today there are many strategies at every level: federal, regional, sectoral, but they are not balanced and they are ineffective. What is needed is a fully-fledged system of strategic planning in the production and social spheres, timely monitoring of compliance with these and timely adjustment of managerial processes.”

Nikolai Lyubimov, acting Governor of the Ryazan Region, said there were about 130 systemically important enterprises in the Region. All of them are, to varying degrees, implementing technical modernisation programmes. Replacement of equipment alone can double labour productivity. Four enterprises in the Region, Mr. Lyubimov noted, have the support of the Russian Enterprise Support Fund. The Technological Development Agency is about to start working at full capacity. A regional fund of assistance to enterprises has been set up, but so far its potential is limited. The Region is doing all it can to provide a favourable tax environment at the regional and municipal levels. Mr. Lyubimov believes personnel needs to be trained and university centres for project commercialisation to be set up; a quality urban environment is needed to encourage workers to stay; full use should be made of development institutions. Maksim Shereikin, General Director of the Agency for Technological Development, drew attention to the need to review labour consumption by production processes and implement projects both to modernize enterprises effectively and to make internal processes in companies more effective. Outdated technologies and production facilities should be brought together in special clusters to attract investors in their technical modernisation.

Mikhail Shmakov, Chairman of the Russian Federation of Independent Trades Unions (FITU), had this to say: “Any worker and work team has an interest in higher labour productivity in order to boost wages. The topic of labour productivity is quite pertinent and can be approached from two angles: the philosophical  and the down-to-earth. There are no common criteria for calculating labour productivity. It can be measured by wages, or by profit or costs. While, in the material sphere, labour productivity is high enough and tangible, in the financial sphere it is virtual. In production, a lot depends on the technology used, no matter where the enterprise is locatedThe state, being aware of the importance of human capital, should upgrade the quality of state management. A platform-based economy squeezes man out of production. Every work place generates contributions to social funds and automation calls for an absolutely new lifestyle t be organized in society.”

Robert Urazov,  General Director of the Worldskills Russia Agency for Development of Professional Communities and Skilled Workers, said that labour productivity was the ability to do things faster and cheaper than the competition. Technologies are changing fast and reducing the number of jobs in industry. It The personnel of tomorrow must be trained and the skills of those working today upgraded in a timely manner because skills date quickly. He also noted that the media and public opinion do not cover the issue of measurement and usefulness of socially useful labour.
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