Too soon for labor productivity growth to be announced as driver for the Russian economy

In his report Minister of Economic Development Alexey Ulyukayev defined 10 key goals which the MEG set for itself in 2014. “Create a system of strategic governance, comfortable business environment, provide support to export, innovation, improve the quality of public services, enhance effectiveness of budget expenditures and management of public assets, provide support to small and medium-sized businesses (SMB), promote Russia’s interests in other countries, and develop civil society institutions”. 

Enhancing labor productivity should be the major priority of economic policy in 2014, and, according to the results of a respective action plan, “the number of highly productive jobs will increase 1.5 times” by 2018.

It should be noted, however, that the priority of productivity growth as key factor of economic growth in the Russian Federation triggers questions, above all, about determining criteria of labor productivity. Productivity growth is normally referred to either manufacturing products more efficiently and with less labor costs. It stands to reason that it is growth in labor productivity expressed in more efficient production that matters in terms of economic growth.

It is hard to understand, however, what kind of criteria the MEG relies on in formulating its target indicators. Experts repeatedly underlined that it is the high quality of the available production factors including labor force that should become the principal priority for an economic policy aimed at achieving high and steady growth rates of the Russian economy. In doing so, it is the human capital, in our opinion, that should be one of the key factors in a new model of economic growth in Russia. This requires focusing on the social sector – education, healthcare, and pension system.

There is no way one can do two things at a time, i.e. speculate about measures of enhancing the effectiveness of budget expenditures and raise (unreasonably) salaries for bureaucrats while the national average wage is falling. Overall, in our opinion, social sector reforms, a new model of economic growth, structural economic reforms and shifting focus from the oil and gas sector, supporting small and medium-sized business and other measures can hardly be implemented as long as Russia faces such a low quality of institutions and high corruption levels, which do exist and should be focused on. Instead, the Government have been making attempts to cope with the effects rather than the cause. 

Kazakova M.V., Ph.D. in Economics, Head of Economic Development Department, Deputy Head of International Center for Budget Sustainability Study