restricted access 6. Wages and Welfare

From: Putinomics

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CHAPTER6 Wages and Welfare “Oleg Vladimirovich, did you sign this?” Vladimir Putin asked Oleg Deripaska , once the richest man in Russia, as the television cameras rolled. “I don’t see your signature.”1 Deripaska was a quintessential oligarch, married into the family of President Boris Yeltsin, and a survivor of the mafia wars of the 1990s. When Putin demanded a meeting in the summer of 2009, many people thought that Deripaska was about to suffer the same fate as the other oligarchs Putin toppled as he consolidated power. Unlike the other elite businessmen Putin jailed or exiled, Deripaska had not engaged in dissident activities. It was his business—and his labor management practices—that attracted the Kremlin’s ire. Deripaska was the ninth-richest person in the world in 2008, but by the time of his meeting with Putin, the global financial crisis had pummeled his businesses. Forbes estimated that the oligarch lost $25 billion between 2008 and 2009, as aluminum prices tanked and the former nuclear physicist struggled to refinance his debts.2 Many Russian businesses were trying to survive the crisis by slashing costs and cutting output. Three factories in the struggling rust-belt town of Pikalevo, population 22,000, were among the victims. Pikalevo’s three factories—one for cement, one for potash, and the third for alumina—were built in the Soviet era. Each depended on the others for business. Once the first factory closed, the others were doomed. Together, these three plants provided the bulk of the town’s jobs, making Pikalevo a monogorod, a Russian word for a city precariously dependent on a single Soviet-era industrial cluster. Almost all monogorods dated from the Soviet era,andmanyteeteredonthebrinkofbankruptcy.WhenPikalevo’sfactories shutdown,4,500employees—one-fifthofthecity’spopulation—werelaidoff or put on unpaid leave. The three factories owed employees at least 41 million rubles in unpaid wages.3 As the factories shut, the town spiraled toward Wages and Welfare | 99 crisis. It soon ran up a $4.5 million debt to Gazprom after not paying its gas bill. The town’s heating plant was shut down, leaving Pikalevo’s residents without hot water.4 With no other option, the town’s residents took to the streets, blocking a major highway and creating a 250-mile traffic jam.5 The Kremlin feared that industrial unrest might spread. Putin arranged a visit to Pikalevo to show Russia’s working class that he had their struggles in mind. The president compared the businessmen who owned the city’s factories to “cockroaches.” “Why has your factory been so neglected?” Putin inquired of Deripaska. “They’ve turned it into a rubbish dump.”6 Putin forced Deripaska to pay the outstanding wages.7 As the crisis subsided, Deripaska retained his business empire, avoiding the fate of other oligarchs. But he had tested the limits of Russia’s implicit socialcontractandhighlightedthecontradictoryrulesofRussia ’slabormarket. Those rules are opaque, but hugely significant. They structure the relationship not only between employers and employees but also between citizens andthegovernment.Broad-basedimprovementinlivingstandardswasakey source of Putin’s legitimacy. It remains the metric by which many Russians judge their government today. Higher living standards were provided by surprising and contradictory mechanisms. On the one hand, many workers were stuck in dead-end jobs, often in isolated cities. They could form unions, but union bosses were coopted by the government, strikes were relatively rare, and there was little evidence that unions raised wages or improved working conditions. Faced with the threat of accident or unemployment, Russians had only a limited safety net. The quality of public services such as health and education was low. Given demographic and budgetary challenges, there is no guarantee that the hefty social security taxes that workers pay today will guarantee the generous pensions that most Russians expect. If the Soviet Union’s promise ofaworkers’paradisehadbeenapipedream,postcommunistRussiadidnot, from this perspective, look much better. On the other hand, two powerful forces sustained Russia’s social contract through the stresses of the 2008 financial crisis and the 2014–15 oil price slump.Thefirstwaslowunemployment.Evenattheheightofthepost-Soviet recession, when every company faced pressure to cut headcounts, Russia’s unemploymentratewasfarlowerthanonemighthaveexpected.Itdecreased further during the boom of the 2000s and has stayed low since. The government has taken special care to avoid unemployment in monogorods such as Pikalevo, where laid-off workers have few options other than protest. 100 | Wages and Welfare ThesecondfactorsustainingRussia’ssocialcontractisrapidwagegrowth. In inflation-adjusted terms, wages have grown in every year but two since Putin took power in 1999. In some years, wages...


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Subject Headings

  • Russia (Federation) -- Economic policy -- 1991-.
  • Russia (Federation) -- Economic conditions -- 1991-.
  • Russia (Federation) -- Politics and government -- 1991-.
  • Elite (Social sciences) -- Russia (Federation).
  • Putin, Vladimir Vladimirovich, 1952-.
  • Presidents -- Russia (Federation).
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