26.04.09

The crisis won't stop Russia doubling its per capita GDP by 2020, according to McKinsey. And this will happen by means of rising labor productivity - since there are no other options.

Just before the crisis hit, the Russian government announced an ambitious goal: doubling per capita GDP to $30,000 by 2020. In a report released on April 21, McKinsey argues that Russia can achieve this if labor productivity increases at a rate of 6% a year - and also doubles.

McKinsey has analyzed these possibilities for five sectors that account for around half of Russia's GDP and workforce: housing construction, metals, retail, retail banking, and electricity. Over the past decade, economic growth was driven by post-crisis recovery: starting to use idle capacities, employing increasing numbers of people (the working-age population was growing until 2007). But now these factors have been exhausted. Yevgeny Yasin, research director at the Higher School of Economics, says that even if the crisis hadn't happened, Russia would still have had to think about new sources of growth. Increasing labor productivity could be one such source. McKinsey estimates that labor productivity in Russia has risen by 70% in the past decade; it is now at 26% of the US level.

It's quite simple, really: just get rid of everything that obstructs the growth of labor productivity. As McKinsey notes, this includes ineffective regulations and standards, obsolete equipment and work methods, insufficient job skills, and Russia's underdeveloped financial system.

The figures cited by McKinsey speak for themselves. Almost 40% of Russia's thermoelectrical power stations are over 40 years old (compared to 28% in the USA, 12% in Japan, and 3% in China). Over 16% of Russia's steel is produced using open-hearth furnaces (there are almost none of these furnaces in the USA, Western Europe, or China). The degree of market penetration for modern retail formats (supermarkets, discount stores, hypermarkets) reached 35% in 2008, but in Western countries this indicator is over 70%.

Until recently, Russia could compensate for low labor productivity with its low labor costs - but wages grew twelve-fold in dollar terms between 1999 and 2008.

Over the next decade, Russia is capable of achieving results at least as impressive as its achievements between 1999 and 2008. But McKinsey pointsout that this won't happen of its own accord - and notes a lack of internal motivation for change in the abovementioned sectors. According to McKinsey, the state could create this motivation by improving legislation and removing artificial restrictions on competition in key sectors of the economy.

Translated by InterContact

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Source: Vedomosti