‘There Will Be no Collapses, but Rather a Viscous, Slow Sinking into Backwardness’
June 5, 2023
  • Natalia Zubarevich
    Professor of the Department of Economic And Social Geography of Russia of the Moscow State University
  • Maxim Blant
    Economic commentator, Radio Free Europe/Radio Liberty
Natalia Zubarevich talks about the labor shortage in Russia, the trends in labor migration within the country, how resource exports are being redirected to China, how compensation from the state is helping to get men to sign up, and how Russians, unable to change anything, are building barriers between themselves and the war.
I’ll start with a broad question. How would you characterize the general state of the Russian economy?

There has been some adaptation. There has been no serious deterioration yet. In the short term, business has been able to more or less adjust to the changing circumstances. But already the medium term, not to mention the long term, is a different story.

Since the middle of last year, studies have begun to record a shortage of workers in Russia. Since the beginning of this year, we are seeing the most acute labor shortage since the data started being tracked. How significant is this factor?

This is a long-term factor. A very small younger generation is entering the labor market, and the big generation of the 50s is retiring. At this point, the military-industrial complex is working as a “vacuum cleaner” within the economy. Thanks to the bump in rates on wages and protection from mobilization, it is sucking up workers from other manufacturing segments. The rest of them are seeing an outflow of personnel.

Will this affect migration flows within Russia? Before the pandemic, the “vertical” structure of migration was clearly visible. From the countryside people went to the district centers, from there to the regional centers. Further, to million-people cities, like Moscow and St Petersburg. Plus, there is a constant flow to Krasnodar Territory. The regions, where the auto industry used to be, sit idle, while those specializing in military production are raking up everything they can from the labor market. Will “horizontal” migration appear in Russia – a flow from one industrial center to another?

Horizontal migration will not emerge in Russia. In 2022, the migration flow to Moscow was recovering after Covid-19. To Petersburg, too, though a little slower. Vertical migration is a powerful and very stable trend that no amount of mobilization can “cut off.” Now, to the question of whether people will go to the military-industrial regions. Of course not. They rake up the labor force within their regions – they have no other choice. This is done in two ways. Base salaries were doubled from September, plus protection [from mobilization]. But that is still not enough.

I looked at the statistics for 2023.
The biggest increase in vacancies in the first quarter was in the regions home to the military-industrial complex.
A third shift is not working out. As for labor mobilization as an industrial practice, the Soviet experience is being brought back very quickly.

I have many doubts as to what extent this labor will then stick around at these enterprises. If there is protection and this special operation continues for a long time, some, of course, will stay. But it is their own people, from their region, residents of the city or people who came to study there. So, no inflow from the outside.

In the automotive industry regions, the problem is being solved differently. Firstly, those who worked at the halted enterprises of Kaluga Region either moved to defense enterprises in Kaluga or began to go to work in Moscow Region – as they had done previously. This is a huge market that is always in need of labor.
Avtotor, an automobile assembly plant in Kaliningrad founded in 1996, used to manufacture BMW, Hyundai and other foreign makes. Because of Western sanctions, it suspended operations in May 2022 before switching to assemble Chinese cars in early 2023. Source: VK
In Kaliningrad Region, things are a little more complicated. But Avtotor is a few thousand people. They will dissolve into the medium and small businesses of Kaliningrad. Until August-September, they were on a reduced [wage] rate, a reduced salary. Currently, those who are qualified enough are rather quickly finding places to go. There are so few workers in the labor market that finding work is not hard at all.

So, let’s forget about a rise in horizontal migration. Generally speaking, it is there: people go from regions that are poorer to neighboring ones that are richer. For example, Tyumen Region “vacuums” Kurgan and Omsk regions. Just because salaries are higher and there are jobs. Well, they go to Tyumen from northern districts to study, and then many of them stay on there.

Another example of such “horizontal” migration is Novosibirsk. The largest university center in the country, where many people go to study and then stay there. The city is more interesting and richer, so people go there to live and work from Kemerovo Region, from Altai Territory. Novosibirsk is a capital of sorts. And this capital status makes it attractive for people from more distressed regions.

Also, we must not forget about Krasnodar Territory. It has its own specifics. Obviously, when a person slaved away all his life in “the Norths” and then retires early (known as a “northern pension”), many dream of a cottage in a warm place, real tomatoes that grow right in the garden and the sea that can be reached by car. This migration has not disappeared since the Soviet years. To Krasnodar Territory and to Mineralnye Vody in the Caucasus, a piece of Stavropol.

In recent years, also to Crimea?

Crimea was a powerful magnet. But already in 2022, migration – if you believe the statistics – showed an outflow. Sevastopol saw an inflow, though the migration there is partly “on paper.”
The Sevastopol authorities uncovered a huge number of people who allegedly lived there without being registered. And they put this down as migration, and all my colleagues gasped and said that it could not be.
Because a migration inflow of 60,000 in a city of 450,000 is a 15% increase in the population. That doesn’t happen. It is the games of local bosses who really wanted to make the city “half a million.” This year will certainly show an outflow. The housing market is already showing that people are selling more than they are buying.

If we talk about external relations, then Russia has actually done a 180 – until 2022, the main trading partner was the EU, and now it is China. Such a pivot cannot take place without logistical problems. Far East ports are overloaded, while Baltic ones are idle. Can all this change the balance of power between Russia’s regions? And instead give an impulse to the process that the government has been struggling with for the last 20 years – developing Eastern Siberia and the Far East?

The migration outflow from the Far East and Eastern Siberia continued in 2022. On top of that is the natural decline in the population. Except for Yakutia, where they are still making babies, and Buryatia, where the growth is near zero, all the other regions have a natural decline in population. It is due to two factors: the population is aging, and the migration outflow continues. It is not as monstrous as in the 90s, but it is persistent. You cited Smolensk and Pskov regions. Did the “road of life” to the West really lift them up? Basically, nothing changed. They were weak, distressed, depressed, and have remained such.

What will the Far East pivot do? It will help to improve infrastructure, and this is a sore spot for the entire Far East. Access roads to ports, new terminals. Last year’s Russian Railways investment program was a trillion rubles. Money is going there, and that money is not “empty.” But will it drive the economic development of the Far East? I have big doubts about that. Yes, transit requires labor. But generally speaking, you will not be able to make the money on transit that you do, say, on oil production. Now – about the outlook for the Far East as a place for increased investment. Infrastructure investment – without a doubt. But this is government money. As for business investment, I doubt that very much. A huge number of various investment projects have been presented. One major project is actually being built: Gazprom’s gas processing plant paired with Sibur’s gas chemical complex. Together, they are a serious driver of exports to China, where there is a market. Moreover, the Chinese state-owned company Sinopec is a minority shareholder in the project. These links are working. Construction is continuing. They have found alternative suppliers of equipment.

Back to the “western shores.” Not everything is so clear-cut here.
In April-May 2022, the Baltic ports were half dead. But now loading from the Baltic Vysotsk, Primorsk and other oil ports is up versus last year.
Tankers have been bought, there are places to send them. And when you have more than 80% of oil exports going to India and China, all the ports are used.

The coal miners were somewhat trapped, because it is impossible to haul everything by the Trans-Siberian Railway. For now, the price of coal is not bad, but it is falling. Accordingly, the Ust-Luga coal terminal is full. Part of the flow has been redirected to the Azov-Black Sea basin. And currently Taman is the largest coal port in Russia. Murmansk will be used more widely. Who knows how you haul it – around Scandinavia.

But the carrying capacity of the railways is exhausted in the southern direction – they had not counted on all this. And you have to export, because it is money. There are no impasses – instead of the western direction, we now have a southwestern one. It is Turkey, either by sea to Russia, or by trucks through the South Caucasus. Now, a route is being cut through Iran.

The completion of the railway lines is entirely at Russian expense – they modestly call it a loan – but we have seen so many nonrepayable loans in our lives that there are no illusions.

There are no dead ends. There are unnecessary, often inefficient investments in infrastructure patching. The country is paying for this, and paying dearly. The existing infrastructure is not being used, an alternative one is being created. It’s all budget money.

Since we have touched on the subject of money, don’t you think that its role in recent decades has been somewhat exaggerated? To build something (especially in the Far East), money, of course, does not hurt. But the main thing that is needed is construction workers, construction equipment, building materials. How will the current demographic problems impact all these infrastructure and other projects?

That’s a fair question. Indeed, there is an acute shortage of blue-collar workers. You can just get migrants. But they prefer to deliver food orders in Moscow and St Petersburg, and not cut clearings in the Far East. But most of all, there is a shortage of working professions – crane operators, bulldozer operators, welders. Partially, the problems are being solved through rotations.

But the rotation is not from Moscow, but from Amur Region, Khabarovsk Territory. But there are complaints, and indeed there are not enough construction workers.

You are right, workers are important, but so is money. So, last year 9% of all investments in the country went to the Far East. In previous years, it had been 6-7%.

Now there will be more money from the budget, but hardly from business.

Currently, the only major region for [private] investment is Amur, and we understand why – the border with China. The second is Sakha-Yakutia. Oil, coal, diamonds. Russian business invests where it sees its interests.

The amount of money that the state can spend is not infinite, and the experience of 2014 shows that the emergence of two new regions – Crimea and Sevastopol – meant financial and other resources were redirected there. And now four new subjects have emerged for the Russian budget (the DNR, the LNR, parts of Kherson and Zaporizhzhia regions). Obviously, just the rebuilding will require huge resources. How will this affect everyone else?

I would like to get through 2023 and see what will come. But what is already clear: if we take the first quarter and look at grants (dotatsii) – money that can be spent on what local authorities consider necessary – then 29% of all grants to the regions are to the so-called “new territories.” They need gigantic infusions. And that’s not all. The regions themselves, those that are more or less developed, are saddled with “dues” – for big regions they run to billions of rubles.
All regions that are somewhat competent must supply people and equipment to the new territories, finance projects. And those that are not so competent are to provide more for mobilization.
St Petersburg was put in charge of restoring the occupied Ukrainian city of Mariupol. In the photo: St Petersburg Governor Alexander Beglov and Vladimir Putin watching online the launch of a tram line in Mariupol in early May 2023. Source: VK
So, you have a choice: [you help] with money, equipment, construction workers, or, as they say, “manpower,” no matter how terrible that might sound.

There is a well-known link between St Petersburg and Mariupol. If you look at the budget of St Petersburg, the item “National Economy” has expanded by almost 50%. This is the duty assigned to the city. There cannot be such an increase in spending on the national economy in St Petersburg. And there never was.

You touched on plans for mobilization. In depressed regions, contract service and – no matter how cynical this might sound – the money that is received for the wounded and killed is very significant. For many, for example, in Buryatia, this is the only possible “social lift.” There, the percentage of contract soldiers and, accordingly, losses per capita are higher. There are fewer people and workers, and more money. How does it affect life there?

Clearly, there are people to take from there. Clearly, there is no work there, and some were even pushed by their own families [into signing up for contract service].

Do these people now have money? Sort of.

I’ll explain why. Many of these families were saddled with consumer loans. Therefore, the first money that went out in 2022 was used to pay off 4-5 loans that the household would never have been able to pay back under other circumstances.

The second thing that the market noticed was that demand for mortgages grew in medium-sized cities. There appeared money for down payments, and people began to take out mortgages, often without thinking about whether there would be money to service them in 2-3 years. The same picture is seen in industrial cities. Because they took people from there too. It is very convenient. The military commissar sends an order to the personnel department of the enterprise, and they are already making decisions, drawing up lists. This is basically how it happened – it was not house by house. Everything was very centralized.
Large- and medium-sized enterprises are very convenient for military enlistment offices.
A map of the Northern Latitudinal Railway. Construction was started in the Stalin era but was suspended in 2022-23. Source: Wiki Commons
Moving on. Money for a wound allows you to buy a car. For a resident of the periphery, this is unreal. Plus, do not forget that each region pays extra to the families of mobilized men from its own budget. The money, of course, varies. It is a lot in Moscow – about RUB 50,000 a month, in other places not so much. And here you are right, the periphery came into money that it had not had. But the question is: how long will it last? And we are back to budgets again. Because the second key issue in the country is fiscal resources. How much, for how long, how will they spend it. Already, big infrastructure projects that are unrelated to getting out of the “deadlock” are being cut. They said goodbye to the Northern Latitudinal Railway. It was started in the Stalin era and was suspended in 2022-23.

The Ministry of Finance has begun to put together the budget for the next three years. And they propose seriously reducing planned payments of so-called maternity capital. Simply because, due to the decline in the birth rate, it is not finding demand. It was not the decline in the birth rate that was surprising, but the fact that from this year, the Ministry of Finance has begun issuing certificates in the four Ukrainian regions, meaning the number of potential recipients has gone up purely in nominal terms.

I’ll tell you more. In these four regions, maternity capital will be paid for children born since 2007. They were included in the program after the fact.

But Eastern Ukraine is the oldest part of the country. And the age pyramid there is just as sad as in Central Russia. And there won’t be many children. They were right to include children who were already born. My position is simple: if you can help someone, help them. However, you cannot say that the new territories will somehow improve the demographic situation in Russia.

To what extent has society and the economy adapted to the war? A couple years ago, it seemed that the realization of war risks would be a complete disaster. And now people are living, continuing to make forecasts and plans...

If we talk about adaptation, then it has basically happened. People live their previous lives: they rejoice, go out, visit their friends and relatives, eat at restaurants. When you walk through the center of Moscow, there is nothing to remind you that people are shooting at each other somewhere. The city lives its early summer life, and is very affluent. I have traveled through other cities – the same thing. You will not find even a trace of the “special military operation” anywhere. People have built barriers to keep out what is happening, and this is a very understandable form of psychological defense. People cannot change anything, so they build barriers. As for the outlook, it seems to me that no shock will do anything. The last shock was the mobilization. After that, everything has been running in the background, and I think that in 2023 this will continue.

Fatigue will keep building. It will manifest itself in domestic aggression – in forms that people do not associate with the state.
“Obedience in relation to the state will continue. I have no illusions about that.”
Let’s try to summarize. Wages – especially in the military-industrial sector – are rising. People have started receiving more benefits and other payments from the state. And there are fewer goods – those for civilian life. Where does this lead?

Add in the country’s being cut off from advanced technologies that could increase productivity, and the physical reduction of the labor force, which will continue at least until the end of the 20s – together, all this will have consequences.

People who will return from the war will be deeply traumatized. And they will demand, especially after having been wounded, that they be paid the same money at their place of regular work as during mobilization. They consider themselves heroes. And very difficult situations are brewing in terms of their adaptation to civilian life.

There are no examples in the world economy of a country that grew rapidly amid a reduced labor force and no great possibilities to offset that with modern, high-tech equipment. Hence stagnation. And technological degradation. In a word, there will be no collapses, but rather a viscous, slow sinking into what we call backwardness.
Share this article
Read More
You consent to processing your personal data and accept our privacy policy