Productivity as a Key Indicator Of Competitiveness 2009

The heavy growth and regional expansion of Russian companies in recent years have made labor productivity a way of measuring effectiveness.

At a time of a favorable foreign trade environment and growth in domestic consumer markets, there are possibilities for expanding areas of activity, entering new markets and acquiring new assets, not only increased efficiency.

The belief that productivity depends solely on the level of technological growth and facilities is mistaken. Labor efficiency is also influenced by:

•Efficiency of business processes and qualifications of the personnel;

•Management skill and the availability of bonuses;

•The company's access to attractive marketing outlets and scale of operations;

•The extent of vertical integration and development level of outsourcing;

•The degree of competitiveness in the environment and access to superior training;

•Ability to effectively promote and sell the products or services they supply.

The reality of the demographic problem and its effect on the securing of labor resources has obviously been exaggerated. If as little as 10 percent of the working population in Russia worked with what is a medium level of productivity in the U.S. ($137 000 GDP per capita), then the total output of the Russian economy would increase 1.4 times and the GDP would increase 1.5 times. That said, in order to reach a similar figure of output, the current performance rate would demand the creation of at least an additional 30 million new jobs.

At the present time Russian companies are in a difficult situation. The performance level of Russian enterprises consists of 10 to 30 percent of the level of U.S. companies. One would think that at the time of the economic crisis, it would be possible to increase effectiveness and do away with unproductive assets, like technology or personnel.

But what has to be taken into account is the fact that Russia is a country with a high concentration of production and reduction of ineffective assets is practically impossible for the local economic mainstay. The regional leaders, who are the arbiters, may chose to vie for resources from the federal budget to reduce social strain, rather than to attempt to attract new investment which would create effective new workplaces.

The holder of assets in the regions may be obliged not only to support superfluous personnel, but also to set a timeline of social programs for the local administration. On one hand, this means that the administration can declare the creation of innovative economy, which implies both competitive ability and a high level of production. On the other hand the administration will put pressure on the business to prevent a staff reduction. Despite the difficult time, the Russian government should make a clear choice and change the policy of preservation of jobs at the cost of the effectiveness of the economy, and make a policy decision to increase productivity.

In order to bridge the productivity gap, Russian must continue to try to attract major private direct investors to create new work places. The government is bound to review its investment priorities in the coming 2-3 years, focus on intensive diversification of the economy and upgrade productivity. Primarily the Russian government will find it necessarily invest in regional industrial zones, ensure necessary transport, energy and other infrastructure, as well as ensuring other desired conditions, to promote direct investment, first and foremost in the training of qualified personnel.

Considering the fact that investors are unwillingly take risks in crisis conditions, it is necessary to take emergency measures directed at promoting the investment attractiveness of Russia. Investors who decide to invest during the next two years should receive a maximum amount of privileges.