The economic crisis poses special threats to the ‘company towns’ that continue to play a large role in Russia’s economic landscape. Many Russian cities during the Soviet period relied on a small number of large companies that provided social services as well as production and employment. While some cities have since managed to diversify their economic bases, others have not. Local incomes, employment, social services, and the tax revenues needed to fund the city administration continue to be provided by companies that are ‘too big to fail’ for  the local economy. In addition to declining incomes and employment, the crisis therefore means abrupt reductions in social services that have been provided to local residents by the mainstay enterprise. As a result, the local authorities face a severe revenue crisis.

On 10 April 2009 a meeting in Moscow of the UN Global Compact network in Russia focused on these issues. Representatives of the Russian business and think-tank communities that were present at the meeting concluded that the main ways to overcome the  social consequences of the economic crisis in Russian regions and municipalities could be:

• Closer coordination of government and business anti-crisis responses and long-term development strategies;
• Stronger federal support for the reorganization of company towns that are based on non-competitive enterprises, in the form of additional social payments, public works projects, and possibly the resettlement of local residents;
• Greater support for employment restructuring and vocational training for cities with more competitive companies;
• Salary support for public sector workers in small towns and rural areas from the federal budget;
• Reductions in tax and administrative burdens on small businesses; and
• Stronger assistance to local authorities in strategic planning, rationalizing social protection costs, and public participation in local decision-making.

Evgeny Levkin is Head of Official Development Assistance and Private Sector Engagement for UNDP Russia.