The crisis hits a one-factory town
CHEREPOVETS, Russia – On summer evenings, residents of this industrial city in northwestern Russia take a stroll down Metal Workers Street. Sometimes they catch a performance at the Cultural Palace of Metal Workers. In mid-July, they gather with friends and family to celebrate Metal Workers Day, one of the city’s main holidays.
This isn’t the Soviet Union. This is modern Russia, plagued by the legacy of Soviet planning, which built entire cities based around one industry. Towns like Cherepovets, and there are dozens around Russia, are suffering all the more as a result, as the crisis brings the country’s economy to a screeching halt.
"The situation on the labor market is not catastrophic," said Oleg Kuvshinnikov, the mayor of Cherepovets. "It’s just unknown to us, because we’ve never had to deal with unemployment before."
Nearly everyone in Cherepovets, a city of 300,000 some 250 miles from Moscow, is linked to one factory run by Severstal, Russia’s largest steelmaker.
As the factory goes, so go the people, and the situation is looking dire.
When the crisis hit in September, Severstal sharply cut production at the Soviet-era factory, a hulking brick behemoth that still features a mosaic in Socialist realist style urging workers to the furnaces. From a November low of 50 percent of pre-crisis levels, the factory is now producing about 67 percent of the steel it did before the crisis hit.
That meant employees had to go. The company fired about 9,000 of the 24,000 that worked at the factory.
“We did it in the softest way possible,” said Alexander Osipov, the head of human resources at Severstal in Cherepovets. “First we let the pensioners go. Before, we asked the government to take fewer people into the army. This year, many went to the army. Some went home.”
But that’s not the whole story.
"We say only so many people have lost their jobs at Severstal," said a factory worker who only identified herself as Marina. "But you have to think of the thousands who were contractors and lost their jobs."
This is Russia’s first real experience with unemployment. Even during the chaos of the Soviet Union’s fall and the 1998 financial crisis, workers were kept on, though they often went months without pay or received barter goods like vodka as wages.
“The Russian people are not used to losing their jobs. In the U.S., you can be without work for a while and it’s OK. Here, people are in shock,” Marina said.
Russia’s unemployment rate is due to be nearly double that of the United States by the end of the year, according to official prognoses.
The U.S. employment rate stood at 9.5 percent in June, according to Labor Department statistics released in early July. Yury Gertsy, the head of Russia’s Federal Labor and Employment Service, said Wednesday that he expects the figure here to reach 18 percent by year’s end.
And the bad news won’t stop coming. International organizations are jumping over themselves to constantly revise downward projections for Russia’s recovery. In the latest move, the World Bank warned that Russia’s recession would last longer than expected, and the economy would contract by 7.9 percent this year, versus April projections of negative 4.5 percent.
It also warned of a return to widespread poverty, with projections that 24.6 million people — 17.4 percent of the population — would end the year living in poverty.
The Vologda region, where Cherepovets lies, has been one of the worst hit, with 60 percent of its budget relying on taxes paid by Severstal.
“Most of the city depends on the successful functioning of this plant,” said Andrei Ulitin, 40, a Severstal worker who has worked at the Cherepovets site since 1992.
Ulitin, a specialized worker, managed to avoid the wave of firings. His statements on the crisis mirror those of countless who have seen their country live through what they see as much tougher times.
“We have to live through the crisis,” Ulitin said. “We have to suffer through it, endure it."
In some of these single industry towns — known as monogorods, using the Russian word for city — however, discontent is spilling over.
In nearby Pikalyovo, residents took to the streets in June to protest firings and unpaid wages, prompting a swift visit by Prime Minister Vladimir Putin, who was eager to quell the social upheaval. Spot protests have appeared around the country, from hunger strikes by unpaid flight attendants in Krasnodar to a Pikalyovo-style protest by factory workers in Sverdlovsk.
Calls for the renationaliziation of industry, by average and prominent Russians alike, have grown louder.
Vladimir , the head of Russia’s state rail monopoly and a close Putin ally, became the most high-profile figure to make such a call, saying last week that the government should nationalize struggling industries.
All the while, officials are keen to maintain the veneer that all is well.
“In general, we have reversed the situation on the labor market, and it will keep improving,” Deputy Prime Minister Alexander Zhukov said last month.
Cherepovets’ mayor follows the same line.
Kuvshinnikov, a former Severstal worker, is a large man with a quick smile, enthusiastic about the job, and a departure from the Soviet-style technocrats that staff most provincial mayor’s offices. He insists unemployment is not a serious problem.
“The unemployment rate has stabilized and by the end of the year it will go down,” he said. “It is currently at 5 percent and will not be above 6 percent.”
That, he admits, doesn’t include those who have not registered for unemployment, where benefits can be paltry.
“People can live on $10 or $20 a month, though with difficulty,” he said. “The people can go get jobs, but they do go. They think the pay isn’t high enough.”
At the same time, Kuvshinnikov admits the road ahead will be tough.
“We all thought the peak of the crisis would come in March or April, thought during summer it would stagnate and autumn would be better,” he said. Now, the city is preparing for a crisis that will last through 2010, with no growth at all until 2011.
More on how the economic crisis is affecting Russia: