4.1 Entrepreneurship and Property
4.1.1 Conversion of the Social Infrastructure
The conversion of the social infrastructure
comprises reforms related to changes in the ownership form
of public establishments, registered on the balance sheets
of enterprises, organisations, institutions, and municipal
administrative organs. At the same time, we will witness
a change in the structure of the population's incomes and
increases in housing rents and public utility rates to a
level which will cover the losses incurred by the related
services, owing to the removal of subsidies.
Problems
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Over the past few decades, significantly
large non- production funds were formed at state enterprises
and are currently recorded on their financial statements.
By fixing low or zero costs for many services, the State
shifted responsibility for the resolution of all social
issues (principally housing, kindegartens, and medical services)
to enterprises.
Such an approach was advantageous both
for the state and for the enterprise managers. The state
largely absolved itself of all responsibility to build and
maintain public establishments. The enterprise managers
obtained additional levers against the work collectives:
by distributing apartments, places in kindergartens, and
resort vacation packages, etc., to workers and their families.
Consequently a substantial number of public establishments
are listed on the balance sheets of state enterprises. In
Nizhni Novgorod, enterprises hold over 50% of the city's
housing stock. The financial statement of the GAZ production
association alone lists 2,480,000m2 of residential space,
105 establishments for children with a total capacity for
16,807 youngsters, 13 health institutions able to accommodate
a total of 3,420 people, a 1000-bed hospital, and a re-habilitation
centre. In the city of Arzamas, only 14% of the housing
stock is municipally-owned. The Oka ship- building plant
in the city of Navashino has a large medical centre which
serves the entire municipal population. In addition, the
plant has a large housing stock, kindergartens, a stadium,
and a cultural centre. A similar situation exists in other
cities of Nizhni Novgorod oblast.
The structure of public establishments
and their capacities in relation to the enterprises are
disportionate. By differentiating budget allocations from
profits, the state regulated the funds directed to the upkeep
of these facilities. The allocation rates were numerous,
varying according to the enterprises and the actual year.
Budget subsidies were allocated to loss-making and marginally
profitable enterprises.
After the price liberalisation campaign
on January 2 1992 and the introduction of unified tax rates,
the situation changed abruptly. Remaining faithful to the
principle of cheap housing, public utilities and free medical
services, the state was unable to work out and implement
a policy which could enable enterprises to adapt to the
new conditions.
Moreover, by freezing apartment rents and
setting fixed rates for residential consumption of natural
gas, heating, and electricity, the state put enterprises
into the toughest of spots. Rates of growth in expenditure
on social infrastructure exceed the population's spending
on apartment rental and public utilities by factors of ten.
Growing social infrastructural losses are covered by enterprises'
profits.
Whereas in 1991 average monthly expenditures
on the housing stock in Nizhni Novgorod amounted to 18.4
million roubles, they are projected to reach for the third
quarter of 1992 461.4 million roubles. In other words they
will increase by a factor of 25. At the same time, subsidies
increase every month. Public utility rates grew by a factor
of 6 over the past half year, but apartment rents remained
unchanged. Existing legislation provides tax breaks to enterprises
with public establishments on their balance sheets. However
this will not salvage them. There is an ongoing reduction
of expenditures on production, with a concurrent increase
in the share of profits used in the form of subsidies to
cover losses in the social sphere. Individual state enterprises
of Nizhni Novgorod oblast already direct 80% to 100% of
their profits toward the financing of such entities. The
number of these enterprises is growing.
All this leads to a situation where more
and more state enterprises lose interest in preserving the
existing procedure used to maintain public establishments.
A decree issued by the Russian President on the obligatory
conversion of large state enterprises into joint stock companies
stimulates change in this procedure: it stipulates that
the work collectives must determine what they should do
with these establishments.
We are witnessing a spontaneous, uncontrollable
transfer of responsibility for housing stocks and kindergartens
to the balance sheets of municipal authorities. In Arzamas,
at several factories, meetings of work collectives voted
to unilaterally transfer public establishments to the municipalities.
The situation is also aggravated by the
production slump and worsening payments crisis: public services
are consequently directly dependent on an enterprise's financial
standing. At any time, enterprises may lack the requisite
funds to cover losses stemming from the use of public establishments,
leading to their closure and complicating the situation
in the public services sector.
The conversion of the social infrastructure
should involve the attainment of the following goals:
- the creation of the necessary prerequisites
to transform state enterprises into joint stock companies,
by removing non-production entities from their balance sheets;
- the attraction of domestic and foreign
investment by expanding the enterprises' potential to use
profits to modernise and develop production and pay out
dividends;
- the restructuring of incomes and subsequent
formation of more accurate estimates of labour costs, by
including in incomes all housing and public utilities maintenance
expenditure;
- the creation of a housing market; - substantial
savings on the social infrastructure by using funds more
efficiently and creating a competitive environment on the
public services market.
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