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Books by Grigory Yavlinsky
Economics and Politics in Russia
The Center for Economic and Political Research (EPIcenter)
Nizhni Novgorod-Moscow, 1992
CHAPTER 2. The New Policies of the Administration.

2.2. Social Policies

Appraisal of the situation

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The population is feeling the results of reform foremost through the social support system; the rapid devaluation of income, the widening of the scope of lay-offs in the workplace, the destruction of past state social institutions, and the rise of crime and general aggressiveness.

In a country where the social welfare system fulfilled the function of guaranteeing the social base of the ruling elite which, accordingly, to a large part was realized by the state as subsidized foodstuffs, distributed housing, free medical services, etc., a weakening of the state power in practice means a fall in the previous system of social welfare for the average citizen.

The decline happens in the following manner. Firstly, the central power pretends that it does not notice the drastic devaluation of the population's monetary income as a result of a liberalization of prices and the consequential inflation in the consumer sector. The sharp leap in prices is thereby taken as unexpected, and consumers are left to deal with it by their own devices. These attempts at fiscal stabilization occur above all at the expense of the general public, its current incomes and savings. Even in the cases of measures taken to compensate the population for the higher cost of living, such actions take place after such time lags and in such scales that they really have no influence on rate of the fall of the family's standard of living. The prime example of this attack by the administration on the incomes of the population is the delay in paying out wages, pensions and benefits. The administration considers it possible not only to pay a significant part of the population sums far less than what is considered the "poverty line," but it also delays this payment of wages, pensions and benefits over a long period of time.

The next step is a decline in the state social support system, the free system of medical care and education. These services are not abolished, but under an austere economic regime the means to support them shrink drastically. Considering the condition of the services previously, this basically means their destruction. The main problem is that nothing is being done for the creation of new institutions to replace the old system. For that, one needs resources.

The lack of resources in local budgets prevents the solution of this problem at a regional level. Instability in the political and economic situations discourages private investment in these spheres. Hence, the old system is being destroyed, and there do not yet exist the conditions for the creation of a new one.

Pressure on the population also occurs through state enterprises. An uncontrolled recession in production results in the dismissal of workers. As the government sector of the economy crumbles, supplementary employment takes on a very important role, but the absence of such a sphere and other opportunities to earn a living heightens the pauperization of society, the growth of crime and social strife. The worsening of enterprises' financial affairs is fraught with yet another problem; the destruction of those government agencies in charge of the social infrastructure. In many regions these agencies are the sole source of satisfying the needs of the inhabitants for housing, health services, pre-school care, etc.

A similar scheme of the destruction of the old system of social services for the general public has its own flawed logic. The argument is as follows: 1) The social sphere in our country is a source of inflation. Therefore, 2) in the interest of our financial stabilization programs, it is very important to free the budget of inefficient social expenses. Here we have an example of a knee-jerk reaction to accept the need to change over to a new model of government social funding, but formulating in advance neither the model, which, by the way, is strongly tied to the form of government involvement, nor the mechanism of change itself.

The attempt to use the traditional programs of stabilization in our country were doomed to failure due, in a large extent, to social limitations. Vital criteria in deciding how to use stabilizing measures are: the standard of living of the general population, the length of time which the

public is willing to withstand austere measures, the level of social patience, the degree of control that the state has over the events unfolding, and the readiness of the executive and legislative branches of government to realize further steps in the process of reform. Besides that, a preliminary condition for the carrying out of shock therapy is the availability of monetary resources among the general public comprising the private sector. In the end, the experience necessary to carry out these reforms in such large, diverse countries simply did not exist. As a result, - 53 -

the attempt at financial stabilization in Russia not only failed to achieve the desired result, it actually brought into being a whole array of more difficult problems, seriously worsening the situation.

The administration forcefully placed the costs of stabilization upon the general public. That is by definition legal. Experience has shown that the negative results of stabilization programs severely burden the affairs of the state sectors of the economy. Here in Russia, such a sector comprises practically the whole economy. But there is a different side to the problem. It is those groups of workers employed in the state sectors, who exert the most pressure on the administration, while foiling attempts to create a stabilization program.

The changes which are occurring in the social sphere practically guarantee that the crumbling of the old system of social programs is irreversible. The creation of new forms of ownership and the development of new economic entities in our country are progressing very slowly and as yet have very little effect on the social structure of the country. It is sufficient to say that in the first half of 1992, i.e., when economic reforms began, the share of workers employed in the government sector in Russia decreased only by 1.3%, having comprised 75% of the number of jobs in the domestic economy, and in 1991, 6.3% of the workers took new jobs. These state workers comprised 75% of

those employed in agriculture. It is typical that the process of creating a farming infrastructure is slowing down. By June 1st, 1992, only 33% of state-owned collective farms chose to reregister as private cooperatives.


With no correlation between the rates of creating new forms of employment and new jobs and the curtailment of manufacturing, the effect is felt first of all by state enterprises, creating a serious threat of massive unemployment. Although today the number of registered unemployed is still low by international standards and remains below 1% of those employed (203 thousand persons), it is worth noting that this figure rose 3.4 times in the first half of 1992. Besides that, a strong potential for hidden unemployment is a unique feature of our country. Already today the number of unemployed reporting to employment agencies seeking jobs is twice the number of vacancies, and this does not count the qualitative imbalance in the skills of the employment seekers and the skills required by the job listings.

The absence of a well thought out policy for the creation of a labor market and the spontaneous nature of this process to date have intensified the vulnerability of the general public in the face of high inflation. In the first half on 1992, the growth of average income rose 3.4 times while the consumer price index (CPI) rose practically 10 times. In the second quarter, the monthly CPI was about 117%. Despite the fact that about 50% of the public's income goes for food, its quality significantly decreased. The nutrition structure of the population is drastically changing, as carbohydrates begin to comprise more and more of the food eaten. Two thirds of the average calories are gotten from bread products, potatoes and sugar. Even so, the daily calorie intake during the first half of 1992 decreased by more than 11%.

The process of income stratification among the population, which began the moment when unemployment appeared and began spreading, can no longer be simply dismissed as a fall in the standard of living. Pauperization of the general public is gaining strength, which in our country means the co-existence of an impoverished general public and an insignificant group of rich, with no middle class.

Negative institutional changes are also increasing in social spheres. The destruction of the state system of free medical care, education and social services is occurring in the absence of a sufficiently effective nongovernmental system in these areas. There do not yet exist the conditions necessary to support the change to a new form of guaranteed public health and education services. The problem here is current wages, pensions and benefits, which would have to cover those expenses. There also exists the problem of determining the share of free services provided by the government. This problem is tightly bound to the economic opportunities not only of the government, but also of the population. Under such conditions when fees for pre-school care rose 12 to 14 times in the first half of 1992 and sanatoria and resort area fees rose 12 to 20 times, the majority of people cannot allow themselves to look after their health, to study or take care of their children, i.e., they cannot lead a normal life without the help of the government.

In fact, the function of the government in the area of social services has remained as before: distribution. But there is practically nothing to distribute. The appearance of new functions, among which is included a new role for the population, the creation of a partnership relationship in the social sectors, and the protection of property, must all precede the execution of a whole range of serious institutional measures. Therefore, a change toward a new state social policy can only happen in a general framework

of economic reform. This is also necessary because there is developing among the population a new model of behavior in this nuclear, uncontrolled, multidirectional economy. The existence of such an economy is normal, but only in certain limits, when it acts as a social shock absorber. Its domination not only destroys organized economic activity, but also the state structure. This is why today, what is needed is political will; only a strong power can do all these things.

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