Red Square near the Kremlin in Moscow. Russia's work force is expected to decline as baby boomers retire and the upcoming population is smaller.Pawel Kopczynski/Reuters
KARL MOORE – This is Karl Moore of the Desautels Faculty of Management at McGill University with Talking Management for The Globe and Mail. Today I am delighted to be with 44 McGill students in Moscow and we are meeting, this evening, with the chief economist of Merrill Lynch Russia, CIS. Interestingly they put a report, just recently, out about Russia in 2020.
Vladimir, what are the key messages of the report "Russia in 2020"?
VLADIMIR OSAKOVSKIY – Yes, we put out this "Russia in 2020" report and the main message, I think, is that we do, first of all, view Russian demographic contraction as a short- to medium-term advantage because this demographic contraction effectively removes the problem of unemployment off the list of economic problems. This is a trend, which we think will support a long-term creation of a Russian middle-class. We expect the Russian middle-class to actually triple in size, for it to become a dominant layer of the general population by 2020. That is a major thing. A second thing is that we do think the Russian government will increase the general level of taxation basically in order to fulfill the pre-election promises of President [Vladimir] Putin, which are quite a lot. Therefore, we do think that the general level of taxation in the economy will be much higher then it is right now.
KARL MOORE – What is the demographic contraction we see happening in Russia? Tell Canadians about that please.
VLADIMIR OSAKOVSKIY – So speaking of demographic contraction, basically what we are talking about is that Russia is going through the same retiring baby boomer generation crisis, the same period of history as the U.S., Europe and all other economies do. In terms of Russia, this trend is actually much more intensified by the fact that during the 90s we had a very dramatic drop in fertility and now all those people are entering into the labour force. So we have this numerous generation of baby boomers who were born in the 60s and are now retiring, but those people who were born in the 90s, who were quite few, are now entering the labour force. As a result, Russia is loosing up to one million people of working age population a year and that will be the trend for the next 10 to 15 years, at least.
KARL MOORE – What are some of the solutions to this demographic contraction, or are there any?
VLADIMIR OSAKOVSKIY – I don't think there are any solutions except for a potential dramatic increase in immigration. The way we treat it is as one of the exogenous factors on which we build our long-term economic projections.