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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


Substantiation for the System of Measures and Relationships

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Economic interests, conditioned by property relations, are fundamental in all considerations. The initial state is characterized by the majority of the population (excluding, perhaps, real estate owners, private farmers, and certain entrepreneurs) which has no property other than their personal possessions. Consequently, the society is unstratified. Yet the people, i.e. owners, who have something to lose, will be most interested in the preservation of stability in society. Consequently, one of the keys to the proposed system of measures involves the formation of a middle class -- a stratum of the population with a sufficiently prosperous and stable property status -- by granting them the right to dispose of land, real estate, the assets and output of enterprises, and material and natural resources; and by protecting their property rights from infringement, and their incomes from inflation. This is not a new idea. However, perhaps for the first time in this country, an attempt is being made to realise this idea with a specific geographic community, rather than with the people or population in general. Convinced of the futility of the idea of a "black redistribution" of property, we instead propose the formation of a stratum of owners as the mainstay of the stabilisation policy, via:

- the privatization of the departmental housing stock and public establishments;

- the free registration of private enterprises;

- the transformation of large state enterprises into joint- stock companies;

- the consolidation of small business privatisation (the holding of special auctions involving disabled people, private farmers and pensioners);

- agricultural privatisation;

- land reform and the sale of land to the population;

- the creation of a system of protection of private property.

These transformations require the conversion of the population's incomes by removing subsidies for the maintenance of the housing stock and public establishments, and the direct payment of these funds to the population. In the end, individuals should receive all their earnings, and use those incomes to pay for the required services. The second idea (a series of measures) includes social transformations caused by property reform and high inflation. We believe that these changes are absolutely essential to create a social net.

Measures are proposed for social support. Owing to the inclusion of a mechanism of "self-preservation" of the population based on property ownership, this sector will contract. These measures comprise:

- an improvement job placement system based on unemployment forecasts; and

- adjustments to, and partial indexing of, the population's monetary incomes.

The transformation of a significant part of the population into property owners will entail a change in the financing of previously free services, for instance, medical treatment. A projected transition to budgeted and insured medicine is proposed. We have elaborated, together with experts from Nizhni Novgorod oblast, proposals for the

development of education in the humanities. Social support is based on an effective system of social indices elaborated and implemented for the oblast as a whole. At the next stage, this system should be developed for regional and municipal levels as well. The third projected measure involves the adaptation of the economy of the region and its population to conditions of hyper-inflation. We proceed from the conjecture that high inflation will be one of the main characteristics of the economy for the foreseeable future. We wil need to adapt to it via price and wage control and the transformation of the financial system. Plans to transfer subsidies on housing, passenger transport, medication, and fuel to incomes have been studied and are being introduced. Auction sales of property -- land and real estate -- act jointly with indexing as social shock- absorbers. Small additional budget expenses related to the transfer of subsidies may be compensated by savings on individual budget articels. In this way savings are made. The expansion of demand, which acts as a support for production, thereby preserves the budget's tax base. A loan from the state to the oblast, extra-budgetary funds, and available budget resources may be used to create a financial reserve. We have drafted a way of using these funds in a so-called "grain loan". Such a loan could, inter alia, buttress the population's money and protect it from inflation via investment into grain -- a stabilisation article -- purchased by the oblast. The fourth idea concerns the adoption of the requisite steps by the regional administration to create a policy of social consensus. The following measures have been proposed and implemented:

- the consolidation of social, ethnic, and inter-religious harmony, and a civil society in the oblast;

- creation of a permanent agency (headquarters) to manage the reforms: a Coordinating Council including the oblast governor, oblast council chairman, Nizhni Novgorod mayor, and municipal council chairman; - the creation of a new oblast management information system.

Most of the proposed measures may be realistically implemented by the region itself from its own resources and existing legislation in the near future (approximately the next six months or year). The proposed solutions have been studied in various ways and include are proposals which are virtually ready for implementation or have already been carried out in Nizhni Novgorod oblast (transformation of the social infrastructure, free registration, an oblast loan, and an effective system of social indices). Certain proposals are given as practical recommendations, methods, and draft resolutions. Some of them are formulated as analytical notes characterizing the potential of management structures, and finally, as a generalization of practical experience or the formulation of a problem. Wherever possible, plans and schedules for implementation of the measures were elaborated. The drafting and implementation of a whole series of proposals involved specialists from the executive and legislative bodies of Nizhni Novgorod oblast and its centre. Some proposals (for instance, the consolidation of small business privatisation and the allotment of land) constitute a generalization and interpretation of their actual functioning.


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