“Development under this system is impossible”: Natalya Zubarevich on the crisis emerging in Russia’s regions
September 28, 2022
The economist Natalya Zubarevich offers a sobering outlook for the socio-economic situation in Russia’s regions.
In a recent online interview with Pskov regional deputy Lev Shlosberg, the economist and regional expert Natalya Zubarevich discussed the socio-economic trends playing out across Russia’s regions, the impact of Western sanctions and what crisis-plagued regional development might look like moving forward. Below are the highlights.

The socio-economic trends in Russia’s regions

● “All regional centers have an advantage since, as research shows, large urban centers attract migrants from all the other parts of the regions. People move there. It’s a long-term trend that doesn’t change. Regional capitals pull in young people for study and work... Why is in-migration so important? Because we’ve had a very strong increase in the natural mortality rate since 2020, one person dying for each that is born. That actually is natural decline. The country lost a million people. Only migration saves us, and above all [to] large cities.”

● “The most competitive young people leave their hometowns to go study [somewhere else] and most never return. That concerns two types of cities. First, it’s cities that are not far from the two ‘great vacuums.’ We all know them: Moscow and St Petersburg. We see a wearing away of regional centers located not too far from the Moscow region. And the same thing is happening in Veliky Novgorod, Pskov and Karelia: the younger populations [of these regions] go to study and work in St Petersburg.”

The new crisis facing Russia’s regions

● “We’re entering the next, non-COVID-related crisis. This crisis is changing the needs of employers. There are entire sectors that are simply losing workers. You can’t always lay off workers, so they’re kept on, but with miserable wages or even without wages. It’s clear that there’s no remote work option for the automotive industry, where reduced hours have become very common. And hotels [have also been affected], since people now travel around the country less. Employment in retail [has also been affected]. All of this shows that the labor market is changing and demand is decreasing. Remote work is mostly for IT specialists and people connected to that sector. So, there are two different trends: there is less demand in big cities for attracting workers from outside. And at the same time, the IT sector is seeing steady demand for remote workers.”

● “If you look at regional capitals from a different angle, not through migration, but through how they earn their money, then they’re all very different. To this day, Russia maintains industrial regional centers. We know Omsk, Perm and Samara for their oil refining plants. Yet there are regional capitals that have very little remaining from their Soviet industrial past. Pskov is one. Why? People from older generations remember the many machine-building plants in Pskov. They were mostly branches of St Petersburg [manufactories]. They performed some kind of intermediary function. And when everything went under [during the collapse of the USSR], the first places to go were those plants. Pskov went through a strong downturn. To some extent, new jobs appeared, but numbers are important here.”

● “All else being equal, the larger the city, the more concentrated the demand for modern services. All forms of retail, all possible services related to everyday life, such as bars and restaurants. In large cities, the demand for these services is higher and they develop more quickly… so cities like Pskov gradually turn into centers for services. But, to put it simply, that just isn’t enough for [economic] development.”

Issues of local governance

● “Conflicts between mayors and governors are mostly in the past since the system of electing governors was quietly and gradually changed… [and now mayoral elections] are entirely managed by the governor’s team. Old political passions have been buried. The ‘right people’ hold mayoral posts now. As far as the economy and budget are concerned, it’s all done by the old method of ‘get all you can get…’ the governor and his team will decide who gets how much. And if you argue, well, mayoral elections are in the hands of the governor.”

● “Before the system underwent feverish reform, 30% of income tax revenues remained at the municipal level. Then it became 20%, which was done in the 2010s. And the current figure is 15%. Then you have redistribution from regional budgets according to some formula or another… In short, regional centers are the main payers of income tax… So, you [as mayor] have only 15% remaining. You have very little money. And practically all basic powers have been transferred to the regional level. All social benefits, along with most of education and basically all healthcare spending, come from the regional budget. So the poor mayors are responsible only for city roads, garbage collection and a bit of cultural spending. For this they’re given money. Everything else is either managed by the regional government or comes down as a budget transfer called a subvention. Regional authorities give you money and tell you what to spend it on… Development under this system is impossible. Because specifically cities, large cities, regional centers – they’re the drivers of growth. But they’ve been stripped, tied up - and told to swim.”

The outlook for Russia’s regions

● “I don’t see worst-case scenarios. I see unavoidable scenarios. The unavoidable scenario is increased technological backwardness for Russia. [Due to sanctions and need for import substitutions] there are wild attempts to make what we couldn’t make before, but now with huge sums of money, with a bigger price tag and poorer quality. But in general [Russia will become] more irrelevant and more technologically backward… Even more frightening is the depreciation of human capital. We see a serious brain drain. And then there’s the quality of instruction that we see in schools today. We see ideologization in schools, which never raises quality. Thus, there are two frightening trends: technological backwardness and depreciated human capital. It’s extremely likely that this is all to some degree or another inevitable.”

● “[Economic distress] cannot be cured quickly. Many types of Soviet economic activity died out and nothing came to replace it… People leave [distressed communities]. Young people leave and almost never return, while older people stay. In suburban areas, that is, places with an optimal location, investors might come. Faraway and abandoned places, where there used to be some mine, which turned out to be unprofitable – investors won’t go there... What was fine in the Soviet economy has died out. And the most frightening thing about it is that people suffer… Things would be much better if Russia had a healthier business climate for small and medium-sized enterprises. Something would get going. But since the climate is so terrible, then it's hard to get things moving.”

Digest by Mack Tubridy for the Russia.Post editorial team.
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