Lukashenko appears to broaden nomenclature’s powers
With reduced public administration efficiency and fewer available resources to support the economic policy, president Lukashenko has no choice but to use new staff management methods. Lukashenko is not bringing the socio-political system into question, but has somewhat broadened the nomenclature’s powers. Ahead of the 2015 presidential campaign, Lukashenko needs to find additional ways to consolidate and mobilize public officials, given he has fewer resources to buy their loyalty with pay rises and social benefits.
On December 10th, the president held a national meeting at Minsk’s Independence Palace. Attended by 250 public officials from the Presidential Administration, Government, Parliament, various ministries, and other executives, including regional heads, the meeting addressed challenges in the construction industry and the government’s staffing policy. During the meeting, president Lukashenko did not question the centralized governmental system but sought to bolster public officials’ sense of responsibility by increasing their participation in the decision-making process.
Today president Lukashenko is the only politician who determines Belarus’ state policy. He has repeatedly said that all other members of the power system were managers whose task was to implement decisions taken by the President. However, in the face of shrinking external subsidies, this centralized public management system can no longer cope with managing the economy.
The president constantly reshuffles his top-managers and security officials, which brings some benefits and reduces the risks of nomenclature coup. However, these measures fail to improve public administration’s efficiency.
Failed modernization in the woodworking industry is probably the most obvious example of Lukashenko’s limited influence on his executives. Modernization in the woodworking industry started back in 2007, its deadlines were shifted many times and in 2013, directors were still working to fix the problems.
The president’s personnel policy has resulted in staff shortages, both at top- and mid-level management. On December 10th, Presidential Administration Head Andrei Kobyakov said “the Deputy Economy Minister’s chair has been vacant for nearly two years, while there are potential candidates. For a long time, such positions as Deputy Ministers of Architecture and Construction, Sports and Tourism, Director of the Department for control and supervision in construction at the State Committee for Standardization have been vacant”.
President Lukashenko seeks to preserve the existing socio-political system, and has broadened the nomenclature’s powers in decision-making only pro forma. On a larger scale, he is neither interested in changing the government’s institutional design, nor in allowing the nomenclature to create formal institutions for promoting their interests.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.