Rapid real wage growth and even faster increases in unit labour costs are squeezing profit margins and eroding the overall competitiveness of the Russian economy. The main drivers have been skills shortages and a catch-up in returns to labour from a low base. But 2007 has brought the first serious signs of another driver – which in its way is also a catch-up or normalisation phenomenon. This is the emergence of a genuinely independent organised labour movement.
For reasons described by our trusted source, it is still very early days for modern trade unionism in Russia. Entrenched placid Soviet-legacy unions combined with a new Labour Code give management the upper hand in labour disputes. But investors should expect more labour unrest not only in foreign-owned factories but also in energy and other important and profitable sectors – especially those like metallurgy and beverages with a history of below-average wage growth.
The successor of the original socialist workers’ state, Russia has a century-old tradition of trade unionism. But that tradition is very different from the labour movement that developed simultaneously in the West.
Under Soviet rule, workers were denied the right to strike and (with the exception of collective farmers) were obliged to belong to one of the official trade unions that were represented at every enterprise and united in the All-Union Central Council of Trade Unions (VTsSPS). The unions’ primary function was not to promote the interests of the worker but to further the goals of the management – and ultimately those of the Party – by helping ensure worker discipline, morale and productivity. At the same time, the unions administered social insurance and pension funds, provided housing and other services and organised holiday camps and mass entertainments.
Today, the overwhelming majority of trade unions at Russia’s large and medium-sized industrial enterprises and state institutions are the direct descendants of the Soviet-era workers’ organisations. As a rule, they enjoy good relations with management and, also as before, their main role is that of a channel for the delivery and administration of various social benefits for employees ultimately funded by the state or employers.
With few exceptions, these unions are united in Russia’s largest trade union umbrella organisation: the Federation of Independent Trade Unions (FNPR), which succeeded the VTsSPS in the early 1990s and inherited its considerable portfolio of property and other assets, estimated to be worth $6 billion today. Largely unreformed, the FNPR is independent in name only: direct or indirect funding from the state means that its member organisations do not have to rely on members’ subscriptions. As a result, FNPR officials act as if they were accountable to bureaucrats rather than their own members.
According to its own information, the FNPR has around 28 million members, down from over 40 million in 1990 – but still accounting for around 90 per cent of all trade union members in Russia. However, many of those belonging to the FNPR are pensioners who have not taken the trouble to cancel their memberships.
Independent polls suggest that FNPR members account for no more than 18 per cent of the industrial workforce and 10 per cent of the total working population (that is, around 7 million people). Of the FNPR members still in employment, many are older workers who continue to belong to the company union through either habit or inertia. Few of their younger colleagues join an organisation that is rooted in the Soviet past and from which they believe the workforce derives little benefit other than various Soviet-style material advantages (such as free summer camp for children).
The persistence of the official Soviet trade union culture is no longer the whole story of organised labour in today’s Russia. The opinion poll results shown in the table below cast interesting light on the key new development.
This is the appearance of a second generation of trade unions in post-Soviet Russia that has no links to former communist organisations. These new unions have been behind much of the new wave of labour disputes seen in 2007. This is reflected in the above opinion poll finding that public scepticism about unions has begun to decline (albeit from a high base).
Initially, these alternative trade unions were formed to represent various branches of industry. The most prominent example is the Independent Miners’ Trade Union, which had its roots in the coal miners’ strikes which called attention to the death throes of Soviet central planning in 1989-91, and which played a prominent role in the torrent of labour unrest that was unleashed in the mid-1990s largely over wage arrears or for explicit political purposes. More recently, alternative unions have been increasingly established at companies setting up shop in Russia for the first time, including multinationals (for example, the union at Ford’s plant in Vsevolozhsk, near St Petersburg). Links with trade unions at the parent company abroad allow local employees to tap directly into decades-long experience of Western-style labour activism.
These second-generation unions are funded mainly through membership fees and, especially in the case of unions at Russian plants of multinationals, grants from labour organisations abroad. Many belong to one of several umbrella organisations that offer genuinely independent alternatives to the FNPR. These include:
Completing Russia’s post-Soviet organised labour landscape is a third-generation trade union. Over the past couple of years, alternative trade-union cells have been spawned by spontaneous protest actions that the workers themselves, rather than any labour organisation, have staged. Such cells are also appearing at companies that have Soviet-era workers’ organisations, so that the new and the old now exist side by side within one company (for example, at the Heineken plant in St Petersburg and the giant AvtoVAZ car works in Tolyatti, Samara region).
Because of their very small size and, more often than not, the lack of support from the old (official) trade union, these alternative grass-roots cells have extremely limited influence. But the emergence of inter-company groupings offers a platform for them to find at least some strength in numbers. At present, the trend towards this type of trade union consolidation is most evident in the automotive industry (see below).
In the late 1990s work began in earnest on revising the communist-era Labour Code amid frequent complaints by investors and others that Russian labour law was too pro-employee and the labour market excessively rigid. But because of opposition to the now heavily pro-employer slant of the draft – both from groups within the Duma and the otherwise docile traditional trade unions – the new Labour Code did not enter into force until February 2002.
Under the code, Russian workers are granted – for the first time ever – the right to strike. But the new labour law stipulates that a strike can be held only to resolve a collective labour dispute. It does not grant the right to hold solidarity strikes, strikes demanding the recognition of a trade union or strikes protesting against government economic or social policy. Moreover, many of categories of workers, including civil servants and railway workers, are prohibited from taking part in any strike action.
At the same time, the new Labour Code makes exercising this right to strike extremely difficult in practice. The procedure for organising a strike outlined in the code begins with the written presentation to management of the workers’ demands, which must be approved at a workers’ assembly attended by at least half of the workforce (the original version of the new Code stipulated a two-thirds quorum, but under pressure from the International Labour Organisation it was amended in July 2006 to require 50 per cent attendance). There follows a long and tortuous sequence of stages that workers’ representatives must observe for the strike to take place. In the event that any single stage is not followed, the employer may apply for a court injunction to have the strike declared illegal. (For full details of the strike procedure, click here.)
Over the past couple of years, employers have repeatedly been successful in obtaining court injunctions against strikes on the grounds of procedural violation. Frequently, such a violation will be the failure to convene a meeting attended by half of the employees – a near impossibility in the manufacturing industries, where shift work means that only about one-third of the workforce will be on the premises at any given time, and a Herculean task for the smaller, alternative trade unions, which often encounter opposition from the traditional unions loyal to the management and to the authorities in a wider sense. The courts have also proved wiling to grant frequent injunctions on the strength of management claims that strike action would endanger the health and safety of the workforce as a whole.
Many company managements have also had no qualms of late in using intimidation – specifically, the threat of dismissal – to bully workers into not taking part in strikes. Here, too, the new Labour Code works significantly in the employer’s favour. Among other things, it makes it easier to lay off workers under certain circumstances, including internal restructuring. It also abolishes the requirement of obtaining the consent of the trade unions in dismissal procedures, in effect stripping the unions of the power to block dismissals.
This last feature of the new Labour Code has allowed management to target directly the ringleaders of any labour unrest, which in most cases means the leadership of the new, alternative trade unions. This year alone has witnessed numerous dismissals of trade union officials in the wake of labour unrest – not just at state- and local authority-owned entities but also at multinationals. In some cases, dismissals have been followed by further intimidation, including the arrest of trade union activists by the local security services and their subsequent interrogation about “extremist” activities. Such was the fate of several trade union activists at the Urals-based subsidiaries of the aluminium group SUAL (now part of Rusal) in July 2007.
Intimidation tactics notwithstanding, Russian workers are increasingly forming alternative trade unions and taking part in labour protests. They have also found ways round the legal restrictions to holding a strike. The most common response is to stage a one-day walkout and, following a court injunction that rules the action illegal, call an abrupt end to the protest. After a short period the whole process is then repeated – if necessary, as many times as it takes to obtain a result.
Another means of circumventing legal restrictions is to hold what in Russia is called an “Italian strike” or, in Western parlance, a work-to-rule. An often effective tool in the West – according to international labour organisations, it can cut labour productivity by up to 40 per cent (or up to 80 per cent in Italy) – the concept of this form of strike is not included in Russian law. Thus, management can choose simply to ignore the work-to-rule until the action peters out without the workers’ demands having been met.
It should also be noted that management does not shy away from staging workers’ protests to serve its own ends. Those ends include preventing a hostile takeover bid (a recent example is the Samara-based leading chemicals company Tolyattiazot, whose workers repeatedly halted traffic on a federal highway this autumn to draw attention to the company’s plight) and achieving an overtly political aim, such as attempting to help bring down an unpopular governor or local authority. A substantial portion – and perhaps even the majority – of workers’ protest actions are provoked by management, which then conveniently turns a blind eye to the strike definitions and procedures stipulated in the new Labour Code.
If walkouts, work-to-rules and management-provoked sham strikes are included in the final tally, along with a host of other unsanctioned protest actions, the number of strikes in Russia annually runs into hundreds or, according to some estimates, even thousands. But official statistics take into account only those actions that strictly follow the elaborate strike procedure and are thus deemed legal. Hence, the Federal State Statistics Service reports that there were only eight strikes in Russia in the whole of 2006 and a meagre two in the first half of 2007.
During the past five years, labour activism – measured in terms of the ratio of activists to the total workforce – has been most widespread in the aviation industry. The 2003 air traffic controllers strike that spread throughout both the Volga region and the Northwest Federal District was the most significant action of its kind during this period. The only action than compares in scope was the autumn 2006 campaign of protests in Western Siberia, inspired by the alternative trade union PROFSVOBODA at Surgutneftegaz (Russia’s fourth largest producer of crude) and involving thousands of oil and gas industry workers.
In 2007, trade unions have been most active in the automotive industry. The main player in this sector is the trade union at the Ford plant in Vsevolozhsk, which, unlike virtually any other alternative union, enjoys the support of the majority of the workforce (up to 80 per cent, according to some reports). Since splitting away from the FNPR in 2005, the Ford trade union has staged several high-profile protest actions. In February, it successfully renegotiated the plant’s 2007 collective contract – a rare victory for organised labour that triggered the wave of copy-cat disputes during the rest of 2007. The recent strike at the Ford plant, launched in mid-November and ended on 17 December, aimed at securing an even more favourable contract for 2008.
The Ford workers have also been the driving force behind initial attempts to consolidate the alternative trade union movement. Earlier this year trade unions at five companies in the car and car-parts manufacturing sector – including the tiny “Unity” trade union at state-run carmaker AvtoVAZ (which staged an unsuccessful strike in August) – formed the Inter-regional Trade Union of Automotive Workers. The new association, whose total membership is just 4,000, backs individual protest actions by its members and intends to organise coordinated inter-company protests in support of shared demands.
Elsewhere, alternative trade unions have been most active in some of the most profitable sectors of the economy, including the metals and metallurgical, beverages and construction materials industries. Workers at the Russian plants of multinationals Heineken and Coca-Cola (both in St Petersburg) have formed trade union cells that have already demonstrated a willingness to combine forces (along with the Ford union). However, protest actions at both companies earlier in 2007 ended unsuccessfully and with significant repercussions for the ringleaders whose contracts were promptly terminated at the Dutch- and the US-owned plants.
There has also been significant labour activism in those sectors traditionally associated with strikes in the West. Dockworkers in St Petersburg and the Black Sea port of Tuapse held parallel strikes in November 2007, while postal workers (St Petersburg) and train drivers have also contributed to the recent wave of labour unrest, with the latter devising unorthodox ways of circumventing the legal ban on strikes by their profession.
(For details of strikes and trade union activism in Russia in 2007, click here.)
As in labour disputes always and everywhere, the goal of most protests by Russian workers has been wage hikes (with accompanying demands on working conditions ranging from shorter night shifts to the provision of premises for the new alternative trade union). Not surprisingly, the largest sought-after wage increases are frequently at the Russian plants of multinationals: direct comparisons between wages at these companies and those at a sister company in another emerging market – which often show Russian workers earning significantly less than their foreign counterparts – have emboldened trade unionists to push for increases of up to 50 per cent (for example at the Heineken plant in St Petersburg in January 2006). This has had a knock-on effect at other firms in the sector (including wholly Russian-owned and state-controlled companies), with the “Unity” union at AvtoVAZ demanding a tripling of wages for some workers in the summer of 2007. The average wage increase demand in Russia in 2007 was around 30 per cent.
Such demands add to already considerable wage pressures on employers, particularly in Moscow and other large cities. Wage growth in recent years has been strong, not least owing to the chronic shortage of professional skills in key sectors of the economy such as IT, legal services and finance. Although the rate of growth has slowed in recent years, wage inflation continues to outpace consumer price inflation by a wide margin.
As a result of this robust wage growth, the structure of GDP is changing rapidly: since 2005 the share of wages has consistently increased while that of gross profits has steadily declined.
In the non-manufacturing industries, wage growth during the period 2000-06 was strongest in the financial sector (though the fastest growth of all has come in the previously cash-starved public sector, where higher government spending – notably through the ‘national projects’ – has boosted wages in education and health care from a very low base). Workers in the machine-building industry enjoyed an even bigger hike than those in the financial sector during the same period, but elsewhere in the manufacturing industries, the picture was less rosy. With the exception of electrical engineering, all other manufacturing industries saw below-average wage increases for the period 2000-06. Workers in the beverages and metallurgical industries – sectors which, as noted above, have a relatively strong organised labour presence – fared least well.
Sergei Khramov, chairman of the independent trade union association SOTS-PROF
Labour relations in Russia remain deeply rooted in the country’s totalitarian past. This is reflected in the negative attitude of society and the authorities towards trade unions in general. It is also reflected in the fact that the alternative, genuinely independent trade unions remain small in both size and number.
Anecdotal evidence collected by SOTS-PROF suggests there are several reasons for this: the widespread and well-documented belief that trade unions have no real influence over management; a general failure to understand the real role of the modern [post-Soviet] trade union; the desire not to lose the various material advantages that accrue from membership in the old trade unions; reluctance to openly oppose management; the fear of reprisals; and a lack of experience in taking independent action. Also, not least important, there is a culture of paternalism among the workforce, according to which only management is capable of evaluating the worker and rewarding him.
For any or all of these reasons, a situation peculiar to the Russian labour market has arisen: although workers are showing a growing tendency to support alternative trade unions at meetings and during strikes, they remain “nominal” members of the old trade unions. This means that the old trade unions frequently continue to boast a membership of least half the workforce of the relevant company or organisation and are thus empowered under the new Labour Code to play the dominant role in collective bargaining on behalf of the workers. However, as the ally of management, they are unlikely to try to push through the kind of workers’ demands that an increasing number of their “nominal” members back at the meetings of the alternative trade unions.
The reality is that it is extremely difficult to form genuinely independent trade unions at companies with (majority) Russian capital, especially if those companies are not in sectors which are crucial for the wider economy. Workers at highly profitable enterprises can reasonably expect demands for a pay rise to be met if management decrees an increase in production volumes in order to meet growing demand for the goods produced. If expectations are high, workers are more likely to join a trade union that will represent their interests vis-a-vis the management. But in an industrial enterprise where the workforce produces poor-quality goods for which there is a shrinking market, workers cannot reasonably expect improved pay and conditions. And where expectations are low, workers are less included to form or join trade unions.
Today, the priority task of the existing alternative trade unions is to attract new members. This would boost membership dues, which are the only source of income for many alternative trade unions. Having larger sums of money at their disposal would allow the unions, among other things, to step up activities such as ensuring that the Labour Code is observed and that workers are guaranteed a safe working environment. This, in turn, would help change the prevailing general perception of the trade unions as the ally of management and distributor of benefits.
It will be some time before a full-fledged independent organised labour movement emerges in Russia. The challenges facing the new trade unions in overcoming the Soviet legacy look all the more stark in the account of our trusted source who is engaged full-time in trying to overcome that legacy. The summary is that the incumbency of the old-style FNPR is reinforced by the asset base inherited from its Soviet predecessor, and this situation induces many company managements to intimidate rather than engage with embryonic modern trade unions.
But for all the difficulties they face, alternative trade unions will continue to develop. They have already demonstrated their potential strength by forming "horizontal" cross-company links. An important milestone was the protest action in the West Siberian oil sector in autumn 2006. This brought together members of a wide range of trade unions, forming a potential network of activists industry-wide who could be called on to take part again in concerted labour unrest or to support demands from segments within these industries. The nature of the organised protest in the automotive industry in 2007 provided further evidence that these lateral links are forming.
The appearance of these particular 2006-2007 actions supports the other main conclusion of our trusted source: labour disputes underpinned by modern trade unions will be seen mainly in sectors which are profitable and account for a significant share in the economy as a whole.
The oil sector obviously fits that bill best of all. The average sector wage still exceeds the national average by almost three times, despite having grown at a less rapid rate over the past six years (see chart in the Context section above). But the main reason for oil industry workers’ readiness to stage labour protests is clear: they want a bigger share in the industry’s profits at a time when the price of oil continues to reach new highs.
Metallurgical and beverages – both profitable industries where wage growth has lagged behind the national average – are other sectors (besides automotive) to flag for potential labour unrest. Some of the highest wage hike demands have stemmed from the beverages industry, and a growing number of international companies – frequently hotbeds of labour activism – has entered or is seeking to enter this dynamic sector.
Download PDF
