Sortavala, Russia (14.10.1999 - Juhani Artto) Most of the economic news from Russia which reaches Finland and the rest of the world is negative and gloomy. In the 1990s expectations of an upturn - of economic growth and the establishment of a basis for a healthy new start - have unfortunately repeatedly proved unrealistic. In spite of this, millions of Russians and friends of the country elsewhere in the world have continued their efforts to get this huge country moving.
This was the starting point for a group of Finnish journalists which visited the 2,190 square kilometre Sortavala district just over the Fenno-Russian border in mid-October. While the major problems of the region did not surprise the experienced Finnish journalists, visits to three enterprises and discussions with the Republic of Carelia trade union leader Gennadi Salaponov gave concrete reasons for cautious optimism.
Vartsila Metallurgy Company
A few kilometres from the border the Vartsila Metallurgy Company had just sent a 20 metric ton load of galvanised nails to Germany. While the export of a few tons of simple construction material is not such a major event on the European scene, the opening up of German markets surely signals the potential of this employee-majority-owned Russian enterprise.
Already earlier Finland's largest retail chain Kesko began to buy nails, wire and plastic coated metal netting from the Vartsila Metallurgy Company. "Since the rouble was devalued in August 1998 our prices have been highly price competitive and our quality is well suited to the demands of the international market", says General Manager Viktor Kamelin, explaining the company's success in the Western market.
The location of the firm - a few minutes drive from the North-Eastern corner of the European Union - is one more favourable factor.
The 370 employees in the plant currently work a single shift. If it wins larger orders, the company could rapidly enlarge its production without new investments. Realising this potential depends heavily on the export market.
While domestic sales have risen sharply over the last 12 months, it is typical of the present Russian economy that half of domestic sales are paid for in goods, and not in roubles or hard currency. "This causes us lots of problems. Our aim is to reduce barter trade to no more than ten per cent of our sales", Kamelin says.
Another problem, also typical of the present Russian economy, is draconian enterprise taxation. A company operating strictly within the law will normally pay taxes amounting to some 50 per cent of its turnover. In the worst cases, the sum total of 27 different taxes may clearly exceed the annual sales!
The Vartsila Metallurgy Company has increased its cost-effectiveness by halting production for its finished product warehouse. The production lines now move only to meet orders received from customers. It has also been an important factor that a training programme has given most employees the skills needed to manage in two or even four different jobs, instead of only one as in the past.
Over the last few years the company has shed its excess labour. Now all employees receive their wages and salaries on time. Kamelin also gave credit for the company's improved performance to the Republic of Carelia and the present supreme authorities of the district of Sortavala.
In spite of this progress, production is still far below the 1990 level. January-September sales totalled 40 million roubles (USD/EUR 1.00 = 25 roubles). On average the employees earn 2,000 roubles a month, which is slightly higher than the 1,900 rouble average for industrial workers in the Republic of Carelia. Faced with Russian price levels, a family can make ends meet if both spouses earn 2,000 roubles a month. In the Republic of Carelia the minimum single person requirement is reckoned to be 1,090 roubles a month, or 760 roubles for pensioners.
The regular working hours defined in the law date back to the Soviet Era. These are 08:00-17.00 for men and 08:00-16.20 for women. A one-hour unpaid lunch break is included in the working day. Men retire at 55 years and women at 50 years. All employees enjoy at least 42 days annual leave.
A sore point at the Vartsila Metallurgy Company is the absence of any kind of trade union organisation. There used to be organised labour and a local union thanks to an effective activist but, according to General Manager Kamelin, this employee gave notice and left the company for another job. When asked to help the journalists to discuss with employee representatives, Mr Kamelin was not helpful.
The Republic of Carelia trade union leader Gennadi Salaponov knows the Vartsila case well. "The local leader was sacked and now the management prevents any trade union activity from taking place in the factory", he explains.
Another confusing factor is the employee majority ownership of the company. A company called Vitis owns 62 per cent of the shares in the Vartsila Metallurgy Company and is in turn owned by a large number of the metallurgy factory employees and pensioners. The Russian State owns ten per cent of the enterprise.
In the first half of 1999 the company paid dividends to its owners, awarding a 5-6 per cent bonus to employees and pensioners who are shareholders in Vitis. Last year's financial result did not justify such dividends. The second half of 1999 will also pay a dividend, Kamelin confirms.
When one of the Finnish journalists took note of the Lenin memorabilia in the manager's office, Viktor Kamelin was neither embarrassed nor lost for words: "One cannot rewrite history. Accidents always occur when one rewrites history", he replied, also referring to the portrait of company founder Ludvig Arppe on his office wall. The company was established in 1832.
There are three major employers in the 3,500 population Vartsila village: the metallurgy company, the railways and the customs authority. The village population is falling as young people move away to study in larger urban centres and do not return.
The Vega+ garment assembly plant
The Vega+ garment assembly plant exports all of its products to Finland. The Russian-owned company has been operating for six years in the town of Sortavala. Its existence has been based wholly on orders from two Western garment producers, the Finnish Skila and the Swedish Molnlycke.
Current agreements extend until January 2000, after which the future of the 200-employee plant is uncertain. In the worst scenario its almost completely female staff will lose their jobs and the production halls will be stripped of half of their machinery. Skila has provided the machinery needed to assemble the outdoor leisure clothes which it orders.
"This is not a new situation for Vega+ and its employees, as contracts with foreign customers have always been concluded only to meet specific orders", deputy manager Valentina Golovina explains calmly.
In Sortavala, as elsewhere in the world, women on garment assembly lines are among the lowest-paid industrial workers. Vega+ pays an average of 1,000 roubles a month for intensive and demanding work that must meet the fastidious demands of Western consumers.
The production line operations give an impression of professionalism. The machinery is not the very latest in the field but it operated appropriately during our short visit.
Only a minority of the employees were present, as the larger hall was under repair and thus most of the workers were on annual leave. In any case the investment being made in upgrading the facility left us with an optimistic feeling regarding the plant.
Dzumjenka farm
The Republic of Carelia's last "sovhoz" - or collective farm, supplies the population with milk products. Perhaps the biggest surprise to the Finnish visitors came with the visit to Dzumjenka farm, which is not far from Sortavala town centre. Our interpreter was careful to call the facility an agricultural farm instead of "a sovhoz", which would have alluded to the extinct Soviet system.
In spite of this caution, the farm is a direct successor of the Bolshevik sovhoz, established in 1956 by its recently deceased Director Dzumjenka. The 600 employees are more or less the same as before, the milk-centred production strategy has not changed and the farm, with all its facilities, is still owned by the State. The differences, however, are just as obvious. Nowadays the producers have to compete in a market economy framework and the character of the State, as owner, has also changed.
"The farm's more than one thousand cows produce an average of 3,800 litres of milk per annum. This fall in productivity from 5,000 litres has mainly been due to temporary, transitional problems", the farm's newly-elected Director Viktor Sevastjanov explains.
At the farm's own dairy the milk is processed into a range of sixteen milk products. The market extends from adjacent districts all the way to Petrozavodsk, the capital of the Republic of Carelia, and on to the still more distant Murmansk area up in the far North by the Barents Sea.
The biggest challenge comes from Saint Petersburg dairies. According to Sevastjanov, the only nearby private milk farm is no threat to the Dzumjenka farm, which serves its consumers with a range of processed milk products at five retail outlets.
As the farm belongs to the State, the result of the recent Director election had to be formally confirmed by a State representative, in this case by the Mayor of Sortavala. The Director makes the daily decisions needed to run this large farm.
Farm workers earn an average of 650-700 roubles a month. Individual smallholdings of up to three hectares (seven acres) also provide an important supplement in the income of farm worker families. The farm provides its employees with free tilling and many other agricultural production services. The workers may also buy the farm's products at half-price.
Farm pensioners also receive some assistance, e.g. money for medicines. Their pensions are paid by the State. Contrary to the situation for millions of rural Russian pensioners, the Dzumjenka farm old folk live in flats equipped with running water, appropriate heating systems and other modern facilities.
An encouraging sign of worker optimism is the fact that many families are currently constructing houses of their own so that they can keep their own cows and other production animals. Construction materials subsidised by the farm are available for those erecting their own detached houses. The farm runs its own nursery school, primary and secondary schools and an agricultural school (technikum).
The other sovhozes in the region have collapsed and, in the new circumstances, have no successors. According to Sevastjanov, the disappearance of the other large farms was mainly caused by short-sighted decisions or solutions which in other ways reflect the locally shortage of professional skills.
Basic social and health services
Basic social and health services are intact despite the dramatic resource reductions of the 1990s. According to official statistics, the Soviet Union used to spend three to four per cent of the GDP on health and social services. Nowadays, the share is less than one per cent of a GDP which has been cut in half.
It is even more surprising to learn that the basic structure of Sortavala district social and health care services has not collapsed. "Everyone in need is cared for", stresses Boris Netschajew, the leading physician at Sortavala Central Hospital.
The Deputy Mayor of the town, Anatoli Gusarov, conveys the same message. A steady flow of humanitarian aid from Finnish trade union and church organisations, NGOs and individuals has slightly eased the burden of the local authorities.
However, the social crisis is far from being tackled and cannot be resolved at such a low level of the economic development. The pay figures for so-called budgetary sector employees alone bear shocking witness to the present reality. Public sector social and health care workers earn an average of only 677 roubles a month, which is less than one US dollar or Euro per day. Teachers, with an average of 744 roubles, are not much better off.
In the Republic of Carelia, the average pension is 466 roubles a month, with a minimum of 260 roubles. At such a level, the 50 rouble supplement given in September was a response to extreme need. Pensions will rise in November by an average of 15 per cent, with a higher percentage going to those currently receiving the least.
While the official 4.5 per cent unemployment rate does not sound too bad, the real situation is far worse. Workers who loose their jobs are entitled to unemployment benefit for only three months.
According to official calculations, the district's public financial resources meet less than 40 per cent of sum needed. In the health sector several practices have been modified to make them more cost-effective. Important savings have been achieved by removing a major part of care from hospitals to the home.
Finally, basic services for all would no longer exist without great individual efforts by professionals and other employees. Dr. Netschajew describes the situation by saying "Nowadays, our work is based on mere enthusiasm".
The trade union education programme
The trade union education programme has exceeded its ambitious goals. Naturally the Republic of Carelia trade union movement is also suffering badly from the economic collapse. With seriously reduced financial resources, it has had to meet another major challenge. Soviet style trade unionism has little to offer in a market economy.
Western style trade unionism, on the other hand, has been under construction for a few years. In the Republic of Carelia one essential element of the work has been the effort to create a new trade union training system.
The Finnish unions have provided an important boost for these efforts. A two-year project, co-financed by Finnish trade unions and the European Union, was completed last Summer. The original goal of training 650 trade union educators was clearly exceeded. More than a thousand activists from the construction, engineering and machine assembly industries, the commercial and several other sectors participated in the courses.
New members have joined the unions, dozens of new local branches have been established and more than a hundred new collective agreements have been negotiated. Recently, the Russian organisations in Carelia began to organise training courses with no external assistance.
Project leader Vera Malaja formulated her thanks to the Finns saying that the Finnish unions have given their Eastern counterparts a rational seed which the Russians will grow into a beautiful flower.
Republic of Carelia trade union leader Gennadi Salaponow also sounded more optimistic than a year ago when interviewed by Trade Union News from Finland in the Republic's capital Petrozavodsk. He referred in particular to the recent high growth figures for the Republic's crucial forest industry and for industry as a whole.
"There are signs of new life in worker communities", Salaponov said. The downward spiral has, however, not been stopped. Union membership continues to fall, although the 68 per cent organising rate is still very high by international standards.
The growing self-confidence of the movement in Carelia is well illustrated in its latest demand for a 100 US dollar monthly wage for workers in larger industrial enterprises.
Tripartite relations between the authorities, employers and trade union organisations are, according to Salaponov, mostly constructive. This was confirmed a few weeks ago at a top-level forum. The Republic's employers recently established an organisation of their own.
Salaponov described the small positive steps taken by Federal, Republic and local authorities as welcome. "Even though they are far from adequate, any positive trends are important", he said.
In the coming Parliamentary and Presidential elections the trade union movement is divided both nationally and in the Republic of Carelia. Most support has gathered behind the coalition headed by the Mayor of Moscow, Yuri Luzhkov. The communists and the most clearly Western-minded candidate, Yevgeni Yavlinski and his political party Yabloko (Apple), also have supporters among union activists.
Our delegation was headed by Tuulikki Kannisto and Turo Bergman, the Director and Deputy Director of the International Department of Finland's leading central trade union confederation, SAK.
As the two-year educational programme has ended, SAK and its unions are seeking other forms of co-operation with trade unions in the Republic of Carelia. The positive results have been encouraging. Many organisations and individual members of Finland's other two central trade union organisations, STTK and Akava, are also actively assisting the needy people of the Republic of Carelia.
Our group included journalists from the labour-related press, the Finnish Broadcasting Company, the Finnish News Agency and the provincial daily newspaper Karjalainen. The latter is published in Joensuu, which is the capital of the Finnish Province of North Carelia. This province is adjacent to Sortavala and some other districts in the Russian Republic of Carelia.
Karjalainen journalists regularly visit the neighbouring area and report on events taking place there. Development in Russia still plays and will always play a big role for the Finns, whether the latest news is good or bad. This time we were happy to receive a heap of good news for our Finnish and international readers.