Labor productivity
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Joera Mulders
April 3, 2011
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Since the financial crisis it seems as if Russia is distancing itself from the image of an emerging economy part and the other BRIC countries and positioning itself between the emerging economies and the developed countries. Russia may not keep up with the economic growth percentages of the other BRIC, but it has different strengths and opportunities. A recent Russian survey has calculated labor productivity of the leading economies.

A few weeks ago premier Putin echoed comments made by an expert group preparing alternatives for the governments long-term plan Strategy 2010 arguing that Russia is a ‘social state’ with large social obligations, which consume much of the funds other BRIC countries can spent on direct investments. On the other hand these same high social obligations sustain a higher quality of life and a more developed consumer market with on average a higher purchasing power. I wrote about this earlier here.

Labor productivity

This week Ekspert magazine published about a survey conducted by the Audit and Consultancy Group Finexpertiza (CPA Associates International in English) which calculated the labor productivity in several countries. The calculation is simple. How many people does a country need to produce 1 million dollars of its GDP? It turns out that Russia’s labor productivity is 5 times lower than those of the developed countries, but 3 times higher than that of China and 6 times higher than that of India. To produce 1 million dollar of its GDP Russia needs 57 people. Brazil needs 62 persons, China 152 and India 340. In Germany it takes only 13 people to produce 1 million dollars of its GDP, In the US this number is 11.

Articulating strengths

When articulated clearly, Russia’s repositioning in to a unique spot between the emerging economies and the developed world could be good for Russia’s investment image abroad. Proclaimed strengths need to be real and believable, not attributable to wishful thinking. The financial crisis has taught Russia it cannot rely on high oil prices and accumulated reserves. The global market is simply too volatile. In GDP growth percentages, Russia will not be able to compete with the emerging economies. That’s not an insurmountable problem as long as Russia finds other strengths to articulate.

Reform

The thinking process is not confined to the goal of improving Russia’s image abroad. The self image of Russia as a ‘social state’ is a diagnosis that prompts the prescription of social reform, a task scheduled for after the coming presidential elections. The position of Russia’s labor productivity in between the emerging economies and the developed world may help Russia to further realize that the only long term strategy forward involves the increase of labor productivity. Ekspert shows how the mineral extraction and energy sectors have already progressed in this direction. Other sectors are falling behind.

The director of Finexpertiza, Agvan Mikaelyan, mentions the construction sector. Especially in this sector Russian companies tend to opt for manual rather than technological options combined with the attraction of cheap labor (often illegal immigrants) This, Mikaelyan says, is the Chinese way. China’s growth is based on a massive labor force, which supersedes the Russian labor population by many times. Russia should not try to compete with China doing it the Chinese way.

According to Aleksandr Osin of Finam Management the only option Russia has is improving its investment climate. Direct investment is what is needed most. Credit is simply too expensive at the moment.Nikolai Solabuto thinks that the digitizing of document circulation could save Russia 5 to 6 people when producing 1 million of its GDP.

Read the article in Ekspert in Russian.