Russia’s Inner “Моногород” Time Bombs and the Need for Industrial Reform

London, a.d. VI Id. Sep. MMDCCLXVIII A.U.C.,

One of the most recognizable legacies of the Soviet Union within Russia are the numerous single-industry cities (монопрофильные города or моногорода). During the 2009 economic crisis in Russia, these monotowns were included in the political agenda as a potential source of social unrest. Given Russia’s current economic challenges, would the monotowns once again trigger protests and dissent, or was the 2008 estimation exaggerated? If monotowns are sources of unrest, what are the economic reasons behind their rebellious potential? And most importantly, why does the Russian government continue to keep these monotowns on subsidy life-support? This short piece will try to address these questions bellow.

The Russian Monotowns

Russia’s monotowns are usually constructed around a town-founding enterprise (градообразующее предприятие), a lot of which were established as part of the Soviet Union’s planned economy doctrine. The problem with such towns is that usually, not only is the town-funding enterprise not lucrative, but it also runs the risk of dragging down the whole town if it is shut down. According to the Russian Institute of Regional Development, in 2008, 20% of Russia’s population lived in Russia’s 460 monotowns.[1]

In 2009, Russia’s former head of the Department of Social Development, Evgenyi Gontmacher published a controversial paper, which examined the possibility of a protest in one monotown triggering unrest in others, as a chain reaction.[2] This premise was substantiated when shortly afterwards, protests broke out in the Pikalyovo monotown. The protests triggered further discussions about the rebellious potential of monotowns, in response to which, the Russian government established a commission that has monitored the state of monotowns ever since.[3]

Monotown Economics

Despite the World Bank’s conclusion that monotowns’ are market unfriendly locations with noncompetitive companies, almost none of them have been shut down. The way, in which they have adjusted to the post-soviet reality, is by rapid wage fluctuations and by allowing new employees to fall behind the number of voluntary separations.[4] The most puzzling feature of the monotowns’ economies is that even though a large number of people have left the industrial sector, down from 41% to 27%, many Russian monotown industrial enterprises continue to be financial black holes. For instance, even during the 2007 buyout-stimulated boom, one-fourth of Russian monotown industrial firms’ profits were in the negative. According to a recent study conducted in 2011, monotowns’ industrial output is about 70% lower than that of regular industrial firms.[5] These numbers indicate a significantly lower productivity in monotowns, which appears to create a type of under the carpet unemployment.[6]

What is surprising is that during the 2008 economic crisis in Russia, monotown dismissal rates did not increase at all.[7] The fear that rapidly increasing unemployment rates would cause turmoil, led the Russian government to flex all of its regulatory muscles. For instance, in 2009, in Pikaloyovo, the government intervened and lowered the price of raw materials, in Baikalsk, it nationalized key enterprises and barred dismissals.[8] According to the World Bank, maintaining Russia’s monotowns costs approximately 450 billion roubles, or 7% of Russia’s 2010 federal revenue.[9] Even at this cost, in 2011, then Prime Minister Putin promised to create 200,000 new monotown jobs in three years time.[10] The big question is why are these inefficient and expensive industrial black holes not discarded?

Why Do Monotowns Continue to Exist?

There are several reasons why Russia has kept its monotowns. In the first place, regional leaders have an incentive to maintain monotowns in their provinces, because the fake capital that they represent still has value, as subsidies can be exchanged for votes during elections.[11] In 2011, a group of researchers published a study on political campaigning at work during elections.[12] The findings revealed that employees were far more likely to be subject to campaigning at work, if they worked at large state-owned industrial enterprises, such as the ones in monotowns. In addition, mobilization rates for 2011 in monotown industrial establishments amounted to 41%, in comparison to the 20% in the rest of the country.[13] Clientelism thus plays a major role in the continued existence of monotowns.

Even so, the main purpose of monotown subsidies is probably to ensure social stability. This is exemplified in the promotion of the former factory worker Igor Kholmanskikh, whom Putin appointed as the Presidential Representative for the Ural Federal District.[14] What undermines stability, however, is the heavy government control on strikes. As a result, workers’ ability to express their concerns is reduced to thin air, which in turn may fuel the radical protest outbursts that the Russian government fears the most.

In a nutshell, even though the rebellious potential of Russia’s monotowns was slightly exaggerated during the 2008 economic crisis, they will continue to be problematic for Russia’s leadership and economy. The main problems are the necessary and continuous government interventions and subsidies to keep monotowns “alive”. However, the short-term benefit of keeping the monotowns will have to eventually give way to the long-term and economically reasonable decision to discard them.

Bibliography

[1] Институт Региональной Политики, «Моногорода России: Как Пережить Кризис?» [2008], The Russian Institute of Regional Development, “Russian Monotowns: How to Survive a Crisis” [2008].

[2] Е Гонтмахер, «Сценарий: Новочеркасск-2009» [2009], E Gontmacher, “Scenario: 2009 Novocherkassk” [2009]; The Russian authorities subsequently criticized the paper as encouraging extremist views.

[3] L Aron, “Darkness on the Edge of Monotown” [2009] The New York Times

[4] V Gimpelson and R Kapeliushnikov, “Anticipation and Management of Restructuring in the Russian Federation” [2011] Draft Report

[5] S Commander, and others, “Employment Concentration and Resource Allocation:

One-Company Towns in Russia,” [2011] European Bank for Reconstruction and Development, 23

[6] Supra note 5

[7] Supra note 4, 18 and 19.

[8] Н В Зубаревич, «Регионы России: Неравенство, Кризис, Модернизация» [2010] N V Zubarevich, “Russian Provinces: Inequality, Crisis, Modernization” [2010], 92

[9] The World Bank in Russia, “Russian Economic Report” [2010], 21

[10] Izvestia.ru, «Путин ожидает значительного снижения уровня безработицы к 2015 году», “Putin expects a significant decrease in unemployment in 2015” [2011]

[11] C G Gaddy and B W Ickes, “Bear Traps on Russia’s Road to Modernization” [2013] 1st Edition Routledge, 85

[12] T Frye and others, “Political Machines at Work Voter Mobilization and Electoral Subversion in the Workplace,” [2014] 66 World Politics 02, 217

[13] Supra note 12

[14] E Barry, “Putin Reaches Down to the Assembly Line for First Appointment” [2012] The New York Times

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One thought on “Russia’s Inner “Моногород” Time Bombs and the Need for Industrial Reform

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  1. Great topic! I agree that they are being kept alive for local political rents but the advantage is surely at the center, as Putin is neither interested in bad macro stats (not good for his “economic management skills”) nor in a group of unemployed showing up protesting for jobs, freedom, etc. This situation exists also in China with wasteful (neg RoE) SOEs. In the end, this is the worst type of politics: “making jobs” and thus making citizens dependent on govt.

    Liked by 1 person

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