Toil and Trouble: Labor Protests in Russia

Last week, coal miners in the town of Luchegorsk began a hunger strike. Taken by itself, the news isn’t all that notable: the town is both tiny and in the middle of nowhere (sorry, Luchegorsk…). But the strike is important in that it fits into a larger trend, and one potentially of concern to local authorities: Russia has seen a spike in labor-related protests as a result of ongoing economic difficulties (workers face wage cuts, delayed payment, or cuts to their work hours) – a recent report by the Center for Economic and Political reform (Russian) highlights these trends and provides useful data. A couple of specific cases have received coverage in the West (see protests by long haul truckers a year ago); most have not. So while the number of labor protests has increased (see graph 1 below), and may have begun to increase from 2015 levels as of recently (see graph 2), the key question is what does all of this mean?

For some narrative color, here’s a translation of (most of) a piece by Evgeniy Gontmakher called Novocherkassk 2009. A bit of context first, though. The piece is about a labor protest brought on by the financial crisis (2008-09) that spirals out of control. Novocherkassk, by the way, is a southern city that in 1962 saw labor protests brutally quashed by Soviet authorities: 27 were killed and over 50 were injured. In the translation, I refer to N-grad. That’s not an actual place, so much as reference to everytown Russia, in this case a small single-company city. But to business…


We begin with event number one in the city of N-grad, where there’s been a mass firing at the main factory (say, metallurgical, chemical, or automotive) in the city. The owner tried for months to avoid this, sending the most valuable workers on administrative holiday with two-thirds pay and firing almost all of the office personnel. But no miracle came to be: demand for the factory’s production failed to return to pre-crisis levels and money for the remaining workers ran out. Thus, they had to fire everybody.

Event number two. In N-grad there suddenly appeared several thousand unemployed people, who would happily take any paid job (they have to feed their families!), but such opportunities are already gone. Small business, which had rapidly developed in the late 80s and 90s due to the entrepreneurial activity of former engineers, mechanics, and officials, had been squeezed to death by the authorities in the 2000s. As a result, these businesses can’t absorb this mass of newly unemployed workers. Budget difficulties (beginning with low oil prices and ending with the aforementioned factory unable to pay its local taxes) had radically reduced the number of even the most low-skill administrative positions in the public sector.

Event number three. Constricted consumer demand leads to a crisis in N-grad’s retail sector. All of the supermarkets are forced to close, leading to another wave of firings. Only small stalls and shops selling the most elementary goods – bread, milk, cheap sausage, dried soup – remain open. Lonely old women standing on the city streets try to sell their own vegetables. Flea markets appear.

Event number four. The regional administration and city hall of N-grad are totally paralyzed. Having learned to fear losing their posts in the vertical of power, they await instruction from above. At the same time, on federal television stations they speak of “some of our difficulties, caused by the American economic crisis,” in between ice shows and soap operas, of course.

Event number five. Those driven to desperation by the loss of even the most hope for improvement in their lives begin to worry, and that worry spontaneously gives way to open protest. The residents of N-grad head for city hall, demanding that something be done.  Bewildered officials flee, fearing violence. The police don’t get involved, not hiding their sympathy for the “rebels,” many of whom are neighbors or even relatives.

Event number six. People take over the offices abandoned by officials. Natural leaders emerge, who try to get the protestors organized. There are no local party officials in the group, even the communists: the they’re fatally intertwined with the pseudo-part system that formed in the early 2000s and had fallen into the same stupor as the rest of the officials. Moreover, United Russia members hide their party documents, or just burn them.

Event number seven. Demands to higher-level officials, from the regional governor to the president, appear: “give us back our jobs, punish the fat cats!” There’s a chance “Russia for Russians!” shows up as well. The protestors announce that they’ll hold city hall until these demands are met.

Event number eight. The regional governor, having received word of the events in N-grad, urgently contacts Moscow. The first news of the riots spreads by internet. Echo of Moscow and Svoboda run stories. The federal TV stations remain quiet.

Event number nine. Moscow doesn’t answer the governor. Confusion reigns in the offices of high ranking officials. Negotiating with your own people is far from yelling into the phone: “Shamil Basayev, do you hear me? Should I use force?” [2]. But there’s no force to be used: the local police won’t intervene against the locals. Send OMON [3]? What if there’s blood spilled? The fire could spread further – moreover because the “rebels” are desperate and have nothing to lose. Plus, unwelcome witnesses have started to appear in N-grad: journalists.

Event number ten. After long deliberation, the governor is given his order: head to the protests and begin negotiations; attempt to convince people to go home in exchange for a promise that their situation will be sorted out.

Event number eleven. The governor, cognizant that he’ll be fired no matter what he achieves in N-grad, resigns. The situation in the region worsens. A new governor – from another region – is quickly appointed by the local legislature, at the behest of Moscow.

Event number twelve. The new governor arrives at the protest site and publically announces that a state bank is willing to give cheap credit to the local factory in order to resume work.

Event number thirteen. The residents of N-grad demand that the governor becomes their prisoner until his promise is implemented.

Event number fourteen.  Similar outbreaks begin in Moscow.


Some thoughts: this piece has a number of strengths and weaknesses. For one, I find the description of the response by officials – and how it may be constrained by overcentralization – credible. It’s also useful for understanding how an acute crisis could rapidly devolve. However, there’s no explanation for how or why protests spread to Moscow at the end, and I think it’s silly to assume labor protests would/will do so (more on that in a bit). And while the author isn’t at fault here, the current crisis looks a lot different from the financial crisis in terms on how it has impacted Russians. See below a graph of real disposable income starting in 2008 and 2014 and running through August of the next year (source: RBK, Rosstat):

disposableincome

Note the difference: this time around, real income has been consistently bad (that’s the technical term, naturally) but there hasn’t been a particularly steep drop at any point. During the financial crisis, disposable income (and the economy as a whole) dropped quickly and notably, but soon rebounded (don’t make too much of August – vacation season in Russia tends to yield wonky data). All this is to suggest a slow burn rather than a sudden crisis that spreads across the country as described in the piece.

Regarding a sudden crisis and back the Moscow question, it’s helpful to bring in Natalia Zubarevich’s concept of The 4 Russias: Urban Russia (post industrial and well educated, a la St. Petersburg, Moscow, Nizhniy Novgorod, etc.), Industrial Russia (regional centers and single-company towns), Rural Russia, and Peripheral Russia (Chechnya, Dagestan, etc.). Labor protests have been largely constrained to Industrial Russia, and even then haven’t been concentrated or widespread. See the map below, with regions in red facing the most social tension (that doesn’t mean a crisis, to note – just a relative state). (source: Center for Political and Economic Reform)

russia

Two critical points: first, the regions in red account for only 10% of Russia’s population. For mass unrest to be a real possibility, you need to have a lot of people and those people need to be concentrated, neither of which is true here. Gontmakher makes the error of jumping from Industrial Russia to Urban Russia, which seems unrealistic: they’re different regions with different problems, and no common grievance. Indeed, most in St. Petersburg and Moscow don’t work at factories, and don’t view the authorities nearly as favorably as is the case in Industrial Russia. As I’ve mentioned before, a lot of the protests appeal to Putin, not against him.

The key point here is that at present, labor protests are a growing problem but not (yet) an acute crisis. The real risk, as with just about all political risk in Russia, is longer term: that the economy becomes more dependent on the state as a result of this downturn (Putin intervenes to help workers), which then leaves Russia highly vulnerable to an actual crisis – a sudden downturn such as another crash in oil prices, a hard landing for China, another financial implosion, or a regional debt bubble. The other point is that this next crisis won’t start in St. Petersburg or Moscow like the protests in 2011 did: it will come from the inner regions.


A hat tip and shout-out to Sean Guillory (check out his blog!) and Joel Wasserman for the engaging twitter conversation that inspired this post. Yeah, I talk about labor protests for fun…

Made it this far down? Want to write for Bear Market Blog? Do get in touch!

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