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Town Forming Enterprise

The term town-forming enterprise exists specifically in reference to the Soviet phenomena (although such company towns can be formed around mills etc. in other countries). The literal translation is "town-forming" i.e. a huge mill or factory that employs half of the people in town. Remember Lou Reed's "In a black and blue collar town // Everybody worked the steel mill // But the steel mill got closed down". Twenty-five million Russians live in 460 single company towns, supplying 40 percent of national GDP and up to 80 percent of local administrations, tax revenues. This is especially true for most coastal regions of the North and the Far East, where the fishing industry maintains a high social significance and is often the town-forming industry. World practice shows that a city, economically dependent on the stable operation of one or two core enterprises, is more prone to other social risks. The enterprise supplies the city and its infrastructure of heat and electricity.

Leon Aron noted in 2009 that "Products of Stalinist industrialization, Russian company towns were built around a single plant or factory (hence the official designation, the "monotowns"), often by prison labor in the middle of nowhere and with complete disregard for long-term urban viability and economic geography, not to mention the needs and conveniences of workers and their families. In addition to being the single employer, the so-called town-forming (or main employer) enterprise (gradoobrazuiushchee predpriiatie) is responsible for providing all social services and amenities, from health care and schools to heat, water, and electricity.... The monotowns' increasingly obsolete economies, their crumbling infrastructures, and their largely immobile workforces--unable to seek employment elsewhere because of a lack of affordable housing -- epitomize Russia's current predicament in a broader and more troubling sense."

Single-industry towns represent centers of stagnation, largely incapable of independent economic development, not fitting in the modern social and urban standards. The problems of single-industry towns (or monoprofile settlements) in modern Russia significantly worsened during the global financial crisis of 2008-2009, and follow-up of the post-crisis recession. It turned out that in the vast country there are many such settlements, and the situation does not lend itself to regulation by the municipal authorities. Rather, it required intervention and support, particularly financial, from the highest levels of Government, the Federal Center. In the final report on the results of the expert work on actual problems of socio-economic strategy of Russia for the period up to the year 2020 "strategy-2020: a new model of growth and a new social policy was needed. Urban planning in Russia is stuck in the middle of the 20th century.

In a display of political drama broadcast on national television, Prime Minister Putin rode into the small town of Pikalyovo in Leningrad Oblast on 04 June 2009 and forced a resolution to a simmering labor dispute, meeting workers' demands and publicly humiliating the Leningrad Governor, local officials, and even his friend Oleg Deripaska in the process (although Deripaska ultimately emerged victorious in the commercial dispute that lay at the root of the labor unrest). Putin turned his ire onto the local and oblast officials present. While he did not single anyone out by name, he said that all involved had "run like cockroaches" when they heard the PM was on his way to Pikalyovo. He chastised officials for letting workers go without pay and instructed officials and factory owners to fix the problem "or we'll fix it without you." Putin's surprise visit followed weeks of labor unrest that culminated in a demonstration June 2 when several hundred workers blocked a major highway in Leningrad Oblast for seven hours to demand payment of their salaries and the reopening of three enterprises in their single-industry town.

According to the Institute of Modern Development, closely linked to President Medvedev, by 2009 approximately 100 single company towns were experiencing situations similar to the conditions in Pikalevo. In June 2008, Communists launched protests at the factory in Motorni Zavod, 30 km from Yaroslavl, the only enterprise in the town and one that employed many people from nearby Yaroslavl as well. Protesters complained about job cuts and cost of living expenses. The United Russia-dominated local and regional governments refused permission to the Communists for further public protests; nevertheless, on January 18, 2009 demonstrations did take place in Tutaev, about 60 km from Yaroslavl in response to massive job cuts at all plants in the town. The combined population of three industrial areas, Yaroslavl, Ryabinsk, and Cherepovets, is about a million people and that since all were experiencing significant job losses.

Pikalyovo is a single-industry town of 20,000 residents in Leningrad Oblast and is the home of three interconnected enterprises. Two of the enterprises, Metakhim and Yevrotsement, produce cement from byproducts of the third plant, BazelTsement. BazelTsement is owned by billionaire Oleg Deripaska. The three enterprises employ about 10,000 residents of Pikalyovo. Serious problems emerged in the town in January 2009, when BazelTsement ceased operation, causing the other two enterprises to also cease production. According to official sources, there were about 4,000 unemployed people in the town, but the real unemployment rate was likely twice that number.

Oblast and municipal authorities initially attempted to reduce tensions in the town by providing Pikalyovo's unemployed residents with jobs and housing in other oblast towns. According to labor union leaders, however, the jobs were low-paying and the housing consisted of single-occupant dormitory rooms. Additionally, the labor union objected to the authorities' efforts on the grounds that resettlement of people to other towns was not a viable long-term solution for the unemployed workers of Pikalyovo.

Alexander Shokhin, Head of the Russian Union of Industrialists and Entrepreneurs, told journalists at the St. Petersburg Economic Forum that he was concerned government intervention in the Pikalevo conflict would provoke many other workers to block roads and summon the Prime Minister. The Pikalevo demonstration and Putin's response influenced developments in other single company towns suffering from the crisis. On 12 June 2009, several hundred employees of Elbrusturist and Kanatnye Dorogi Prielbrusya (KDP) blocked a road near Mount Elbrus in the Republic of Kabardino-Balkariya, demanding higher salaries and the transfer of KDP shares to the labor collective.

Arsen Kanokov, President of Kabardino-Balkariya, walked, owing to the blockade, into Elbrus to meet with protesters and promised their problems would be resolved shortly, after which the road was re-opened. In addition, union leaders at the OOO Alttrak tractor factory in Rubtsovsk, Altai region announced their readiness to take part in similar protests, comparing the situation in their town to Pikalevo. Union chair Lubov Maslova told a local news service the factory leadership was &practically holding people hostage, not paying salaries since November last year.

Putin's message to business owners in Pikalevo had its intended effect, as business owners and local officials in several towns with problems similar to Pikalevo have acted quickly to resolve them and avoid becoming the next stop for the Prime Minister. The head of the Ural Railway Car Factory in Nizhny Tagil, Sverdlovsk region used the day Putin visited Pikalevo to meet with Nizhny Tagil's mayor and discuss a plan to rescue the factory and its workers. Through a newly concluded agreement, the enterprise, which had planned to terminate 24,000 employees, increased its production from 170 tank cars in May to 500 in July 2009, also calling back 6,500 workers from forced leave.

The government's response to the situation in Pikalevo represented an unfortunate step in the wrong direction in terms of the development of the country's industrial towns. Nationalization may address the immediate concern for workers' job security, but will do so by propping up inefficient enterprises for whose products demand is not growing. It will also place an additional strain on the government's budget resources. Finally, Putin's dismissal of labor unions and request for United Russia monitoring of business' compliance with labor regulations increased political intervention in local business while further isolating unions away from the bargaining table. That said, Putin's intervention in Pikalevo had the intended effect. Business owners in several areas acted independently or upon the intervention of local authorities to pay off wage arrears or bring workers back from forced leave.

Severe socio-economic and moral and psychological situations in the 2009-2010 biennium were also seen in Togliatti, Nizhny Tagil, Zlatoust, Cherepovets, Miass, a number of other cities and towns. Currently negative situation continues to develop in many Russian single-industry towns. For example, in November 2011, the Metallurgical Company RUSAL aluminium decided to close the production-Bogoslovsky aluminium smelter (baz) in monogorode Krasnotur'inske, Sverdlovsk region. Having received a "wild" privatisation of the aluminum plant into ownership of RUSAL owner Oleg Deripaska, 15 years removed from the profit, not by investing in production, and thus had overstretched its productive base. In Soviet times, the State performed two roles simultaneously, organizing key factories and the activities of social institutions. The situation has changed significantly due to the transition to a market economy. In the 1990s, private business acquires ownership of the backbone enterprises in single-industry towns, but they were not ready to take responsibility for the welfare of the people living in them. Thus, in single-industry towns are in a crisis situation, which is not only economic, but more a social and humanitarian aspects. The discourse is increasingly that these Russian towns are an anachronism, a relic of the planned economy, they need to be shut down, and the population massively relocated to other accommodation.

The most pessimistic forecasts of developments took certain analogies with the last years of the Soviet Union. For example, a series of strikes by miners in the Kuzbass in 1989, contributed to the breakdown of Soviet power two years later. In 1991, the miners discontent was a catalyst for subsequent the collapse of the Soviet Union.

Vladimir Putin held a meeting on stable development of single-industry towns on 28 April 2014. Before the meeting, the President visited Kalevala timber mill in Petrozavodsk. The mill produces modern materials used in the construction and furniture-making sectors and was designed to meet the latest standards in economical operation and energy efficiency.

At the meeting, Putin said "We have a very important and sensitive topic to discuss today, which is well known and, I would even say, painful: single-industry towns. We will re-address the critical issues that concern the residents of these towns and we will talk about measures for strengthening economic and social trends to support the people living there, as well as companies that are based there.

"I will state immediately that the scale of the problem is not regional; it is national. For example, in Karelia alone there are ten such towns, which have many residents and produce a large share of regional output. Overall, we have more than 300 such towns in Russia, which are home to over 15 million people.

"We fully understand that it would be very dangerous to maintain this situation, where the wellbeing of many individuals essentially depends on one or two local companies."

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Page last modified: 28-04-2014 18:28:07 ZULU