Get to Work
Russia’s extensive model for economic development has reached a peak according to a recent report by the World Bank’s Moscow office. Russia has the highest employment rates and the lowest poverty rates possible with current economic capacities. The current model will not allow for an increase in national wealth, and the fluctuations of the Russian economy will keep it at this level. Russia’s progress depends on two variables not currently in abundance: quality investment and a qualified work force.
Yesterday’s World Bank report on the Russian economy was perhaps the most compelling attempt to show that the economic model adopted in the early 1990s has run its course. Due to slackening economic growth and a high inflation rate, GDP growth over the next year will most likely be the lowest in two decades. This forecast is not optimistic despite the evidence of global economic growth. All things being equal, Russia can only count on 3.6 percent GDP growth next year.
These figures back the Ministry of Economic Development’s assertion that the existing model has seen its potential. Moreover, the general employment rate has exceeded the peak of August 2008 (72.1 million), while the unemployment rate has dropped to a record 20 year low.
Russia’s current economic model is stumbling over both a shortage in the professional workforce and in quality investment. Unemployment is falling regardless of gender, location and industry. The number of those living below the official subsistence rate has dropped to 12.5 percent, the lowest in the past 20 years.
The World Bank points to an ‘overheating’ labor market as the population is steadily ageing and the mortality rate among the employable population remains high. But a widening gap between wages and productivity appears to be the main problem. The public sector and sectors that do not compete in foreign markets have the biggest gap (19 percent). A Russian worker produces over 60 percent less added value than an American worker within the same period of time. While productivity has increased in other developing countries in recent years, Russia has seen the reverse. There is also a limited opportunity for growth through labor immigration as the OECD countries appear more attractive to the foreign workforce.
The World Bank’s recommendations for the Russian government are half-hearted. They suggest saving budget funds and consolidating the expenses that “are conducive to economic growth.” The Central Bank should maintain a strict monetary policy that can hold back the inflation risk caused by unproductive consumption growth and promote moderate economic growth. Despite ambitious plans to improve the investment climate and to increase capital investment and productivity by 2017, there has been little substantial change. Investors will tend to wait and see if the government has a solution. But inflation will continue unless capital investment increases.
Unmanageable inflation might be the first sign that Vladimir Putin’s ‘golden age’ is nearing an end.
Chechen Budget Declared Most Effective
The republic will be given an additional $3 million as a bonus.
Clever use of budgetary funds may earn Chechnya an additional 95.7 million rubles ($3.1 million) as a bonus requested by the Russian Finance Ministry and the Ministry of Regional Development. The draft resolution on the $3 million bonus for the North Caucasus republic was submitted to the government in late September.
In all, 1 billion rubles (about $32 million) will be allocated for supporting and encouraging the regions whose budget expenditures were the most efficient, the Finance Ministry writes. The remaining 904 million rubles ($29.1 million) will be distributed among 14 regions. The Orenburg Region, which ranks second this year, will receive 81.6 million rubles, the Bryansk Region 81.2 million, the Komi Republic 76.8 million and the Murmansk Region 72.4 million rubles.
Last year’s winner was the Altai Territory, which received 85.3 million rubles ($2.7 million). The runner-up was the Omsk Region (81.8 million), followed by Karelia (75.1 million), Buryatia (71 million) and the Altai Republic (69.1 million rubles). Chechnya was not reviewed last year.
This funding competition is based on 45 criteria, which the Finance Ministry published in June 2011.
Chechnya’s 2012 budget is based on 33 long-term targeted republican programs and seven targeted departmental programs. At the stage of budgetary debates, Eli Isayev, the-then Finance Minister of Chechnya who has been promoted to the Federal Service for Financial Monitoring, said the fundamentally new budget would “allow the Chechen Republic to take its place among the best regions in Russia.”
Late last week, Deputy Finance Minister Alexei Lavrov visited Chechnya.
“This recognition of your program is proof that the regional leaders have chosen the right policy,” Alexei Lavrov is quoted on the Chechen Ministry of Finance website as saying. “I hope that you will continue on this path, with ever more achievements.”
In the early 2000s, Chechnya was considered a “financial black hole.”
Russian Defense Ministry in Search of Reliable Recruitment Process
A new department has been established at the Russian Defense Ministry to convince privates and sergeants to sign up for military service. Before, the department was part of the General Staff and was led by a colonel. It has now been transferred to the Personnel Directorate and is commanded by a general. There are also other innovations designed by military bureaucrats to demonstrate their supposed efficiency.
Until recently, a young person could sign up for contract service at a military recruitment office upon the recommendation of the unit commander he would serve under. Now, the military personnel at recruitment offices has been replaced with civilians. In addition, special recruitment stations consisting of one major, two captains, three sergeants and a civilian have been set up at regional commandant offices. The duties of recruitment agencies were simply transferred from one department to another. Why? Will this move have any political, economic or organizational effect? There is no clear cut answer, only the simulation of efficiency to fulfill Kremlin and government orders.
According to the plans which have been made public by President Vladimir Putin, Prime Minister Dmitry Medvedev and Defense Minister Anatoly Serdyukov, by 2017 the Russian Armed Forces will have 425,000 privates and sergeants serving on contract. The current number is only 186,000. The plan calls for 50,000 handpicked, rather than simply recruited, new contract service personnel every year. The Armed Forces need more than just healthy and morally stable young people who will serve and behave responsibly, they need highly trained professionals who can use complex systems for communications, technical and radar surveillance, navigation and target acquisition, automated combat control, and who can run a variety of combat vehicles, including the mobile launchers used by the Strategic Missile Force. There is a list of over 2,000 military positions that should be filled by trained contract service personnel with a secondary vocational education at least. The units’ combat readiness depends on these professionals, and conscripts serving for just one year cannot be trained to fulfill these duties.
There are ten military universities, including the well- known military academies with the best faculties, which currently offer three-year training to 1,244 cadets. But the Armed Forces need at least ten times that many. It is difficult to find suitable candidates among the civilian graduates of vocational schools who have served by conscription, and it is even more difficult to convince them to sign up. To do that, the recruitment staff needs to know their potential, which the military recruitment offices did in the past.
This duty has now been turned over to a new body, which is beginning from scratch, as usual.
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