Economic Crisis Hampers Chelyabinsk's Growth Ten years ago, the factories of Chelyabinsk were almost at a standstill. Then prices for raw materials and metal began to rise, which fueled extraordinary growth. Now factories and businesses have started cutting back again.

Economic Crisis Hampers Chelyabinsk's Growth

Economic Crisis Hampers Chelyabinsk's Growth

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The second of a five-part series.

More In The Series

While based in Russia in the 1990s, NPR's Anne Garrels followed developments in the "real Russia" from the provincial town of Chelyabinsk. Returning 10 years later, much has changed. This series charts this transformation.

Ten years ago, the factories of Chelyabinsk were almost at a standstill. Workers were lucky to get paid $15 a month — if at all — during the Russian economic crisis. Now, workers are feeling the effects of the current global economic crisis.

High prices for raw materials and metal fueled extraordinary growth in Chelyabinsk in the past decade. The standard of living dramatically improved. Now that prices are plunging, factories are cutting back again.

Factory Workers Pinched

On one freezing evening, grim steelworkers pour out of the huge Mechel plant. Management has cut back each worker by four days a month, with a corresponding 20 percent salary drop. The word is that workers here and at other plants across the city will be furloughed for a month over the Christmas and New Year holidays. No one knows where this is all heading.

"In addition to cuts, they are holding off paying our salaries," says Vladimir Fadeev, a Mechel employee. "Management isn't saying anything. Everyone is just waiting."

Fadeev says life had been getting better, and many believed that the worst was finally behind them — though, at $600 a month, their factory salaries are still way behind those in the West. Many took advantage of new credit to buy an apartment or a car, anticipating that the boom would continue. Now, Fadeev says he has no idea how he'll manage.

"We had banked on things getting better and better," he says. "The government tells us you Americans are the problem."

Role Of Government

Others focus closer to home, pointing fingers at rich and corrupt stockholders. The workers are angry at management, which they say has yet to make cuts in its own ranks.

Fearing social unrest, the local government is urging manufacturers not to let workers go. And there's another problem: Chelyabinsk, like many Russian industrial cities, actually has a shortage of skilled workers because of a declining birth rate and new opportunities in other fields. Young people just don't want to go into the factories anymore. Management is in a bind. Sales have plummeted, but if managers lay off valued workers now, they may not be able to find technicians in the future, when the economy picks up again.

Igor Turbanov, a young manager with the Chelyabinsk Forge and Press plant, says the recent boom allowed many plants to put off making changes that would allow them to survive in a tougher market.

"It was a problem for many companies in Russia," Turbanov says, "because they felt very good about the economy growing, and they didn't think about the effectiveness of business."

Reality has hit. Luckily, Turbanov's boss began to think about that before the crisis hit. He hired Kaizen Consulting, based in the U.S., to help the factory reorganize. Consultant Jorge Barron describes a plant growing at incredible rates but burdened by its Soviet legacy.

"They have not very good working conditions for the operators," Barron says. "At the time, they were buying a lot of new technology and not having the right skills."

After two straight years of 80 percent growth, the company faces a sudden 60 percent drop in sales, with no end in sight. It's the same everywhere in town. Barron was sure he would lose his consulting contract because of the crisis, but to his delight, he still has a job. Turbanov says this crisis makes the need for change more important than ever.

"Now, most people understand that it's not only important, it's urgent," Turbanov says.

With a federal government flush with oil and gas money, and local industry doing well, Chelyabinsk has had full employment. But salaries have not kept pace with prices — which are comparable to, if not higher than, in the U.S. College students now work to help bolster the family income.

Young And Optimistic

The ripple effects are being felt across Chelyabinsk as shops, hotels and restaurants cut back on staff. The Wall Street Bar, usually a popular drinking spot for young professionals, is nearly empty on a Friday night.

In low-slung designer jeans, Dasha, 17, the daughter of a local building magnate, remains one of the few to be deliriously optimistic as she and her girlfriends order another bottle of champagne.

"I want to have a big travel business," she says. "My father runs his own business. I am very proud of my father. I want to be like my father."

During the boom years, she has traveled the world. She is too young to remember the last crisis, but tourist offices are shutting their doors, and construction now is at a standstill. Dasha's traveling days may soon be over.

A Collapsing Real Estate Market

Best Credit, one of the new real estate companies that have sprung up in Chelyabinsk, has also been hit. Agents were making $2,000 a month, an extraordinary salary by local standards. These days, they don't have much business. The real estate market in Chelyabinsk has collapsed. Prices, which had tripled over the past three years, are dropping.

But agency owner Tatiana Gulyaeva says there are few bargain hunters.

"Other agencies are closing, but I am going to try to hang on," she says. "I want to be in a position to restart when things improve."

Only three of 40 banks that once offered mortgages are still in the business.

Mark Kelleher, an American teaching English in Chelyabinsk, shares a tiny one-room apartment with his Russian wife and 3-year-old twins.

Housing is still tight for families here. Kelleher's hopes of moving to a bigger place are now on hold. He says some banks are raising rates on what borrowers thought were fixed loans.

"This year, they had mortgages available for about 11 percent," Kelleher says. "That's not a good mortgage. That's a great mortgage. But people who took these mortgages out for 11 percent — suddenly, in September, their rates were increased to 17, 18 percent. Boom. One step."

The local government is scrambling to rewrite its budget. It has canceled anticipated increases in utilities. Tax revenues will be significantly down. New social programs are at risk. Construction on the new subway system has screeched to a halt. All of the signals of a crisis are here, but journalists writing about it have to be careful. Several local reporters are being investigated for what the prosecutor general calls "inflaming a mood of panic."

Journalist Marina Kudriashova with Evening Chelyabinsk is panicked by confusion and uncertainty.

She remembers the last economic crisis, when her family didn't know where it would get food to put on the table. She hoped she would never see that again in Russia. It might not be as bad this time, but Kudriashova had begun to imagine a future when ordinary Russians would begin to live like Europeans or Americans. She doesn't want that dream to go away.