Interim Report IR - 99 - 060 Production Functions and Efficiency Analysis of the Siberian Forest Industry : An Enterprise Survey 1989 and 1992

Interim Reports on work of the International Institute for Applied Systems Analysis receive only limited review. Views or opinions expressed herein do not necessarily represent those of the Institute, its National Member Organizations, or other organizations supporting the work. Foreword The technological state and upgrading are the most important determinants of competitiveness for the Siberian forest sector. The technological properties and the geography of output and efficiency are investigated in this paper. This is a first attempt to quantify and explain the differences in productive efficiency on an enterprise level. From numerous personal visits to enterprises in the region, we know that the financial balance sheet data prior to and after the collapse of the Former Soviet Union are, in general, not reflecting the true state of an enterprise. Instead, it was decided to use physical output data from 1989 and 1992 to quantify the technological state of the enterprises. These two years were selected for two reasons: (1) enterprises were still tightly monitored by the statistical organs which is reflected in the high reliability of the data; and (2) enterprises were producing close to their production capacity which allows us to measure technical inefficiency. The data was collected by a large network of regional experts in the field and were appraised for consistency at IIASA. Our findings indicate that on the micro-level economies of scale in production are even more important than on the regional level. Efficiency differences are small within Siberia compared to the large productivity gap of current western technologies. Labor productivity could rise by a factor of 6 to 40 if the latest western technology were introduced. This will, of course, have dramatic effects on the employment situation in the forest sector, which has its operations primarily in rural mono-enterprise towns. As soon as forest enterprises adopt a high productive and more economical (even under Russian conditions) technology, it can be predicted that a large number of workers will be omitted from the payroll of forest industrial enterprises. Currently, the Russian Federation lacks policy measures and effective programs to deal with large scale unemployment in rural areas, and there are no programs to facilitate labor mobility of rural workers. This lack of support has already created severe social hardship and will, according to our predictions, pejorate in the near future when enterprises start to restructure and radically increase productivity in a post-barter economy. There is also …