#7 - JRL 7259
July 22, 2003
Welfare on Eve of Elections
By Boris Kagarlitsky
Russia likes to think of itself as a socially responsible state. No one knows exactly what this means, but most everyone agrees that it's a good thing. All of our political parties portray themselves as champions of public services, with the possible exception of the Union of Right Forces.
In practice, the socially responsible state in Russia amounts to what has survived of the Soviet system. Privatization in the 1990s never got as far as health care, education, public transport and housing. As a result, these services remain largely the responsibility of the state, though private enterprise has made inroads as well.
The reform program proposed by Economic Development and Trade Minister German Gref shortly after President Vladimir Putin took office threatened to put an end to such holdovers of the Soviet past. For two years the government frightened us with the prospect of housing reform, explaining that we were living beyond our means. The state was subsidizing the upkeep of our apartments, we were told, and that was unacceptable. Those subsidies come from our taxes, of course, and the overwhelming majority of Russians believe that the state should subsidize housing. But in terms of free market ideology, apparently, we have all got it wrong. And who's to argue with ideology?
Housing reform was a resounding failure. In Voronezh, where the local government introduced a new system of housing payments, reform led to widespread unrest and no less widespread nonpayment. Upon closer inspection, it emerged that the new system would either leave one-third of the population without a roof over their heads or that the various forms of compensation doled out to low-income residents would more than cancel out any savings achieved by abolishing blanket housing subsidies in the first place.
Attempts to introduce per-minute billing for telephone calls also went nowhere, although the prospect of payment based on the length of calls gave pensioners and Internet users no rest for several years. In the end, the issue got buried in the State Duma. New legislation offering consumers a range of payment options guarantees that nothing will change, because no one in their right mind will voluntarily pay more.
The bureaucrats' next big idea was privatization of public transport. They didn't seem bothered by the fact that most public transport networks belong to city governments that have no intention of handing them over to private operators. The smart money says that privatization of trolleybuses will share the fate of housing reform.
On the whole, the socially responsible state has held together. Even the authors of Gref's reform program have fallen silent about the need for change. But that's not the end of the story. While reform efforts are at a standstill, the cost of living is not. This summer, everything from telephone charges to electricity is becoming steadily -- if not dramatically -- more expensive. Rate hikes are under consideration. The cost of education is also on the rise. Take, for example, Moscow Linguistic University's notorious decision to charge students on full financial aid for foreign language instruction. Nor were fee-paying students let off the hook; they would have been charged twice. After protests by students and faculty, the university administration shelved the proposal.
By fall, consumers will discover that their cost of living has significantly increased. Where should we point the finger? Parliamentary elections are right around the corner, and come fall the campaign will be in full swing. Yet there's no reason to assume that the rising cost of living will become a major campaign issue. Voters know full well that on this issue, the Duma is neither here nor there. That will change when we get around to the presidential election next year.
In 2000, it was no liability for Putin that he had people like Gref in his entourage. Few really knew what Putin was about, and they certainly weren't thinking about Gref or his reform program. Now all that has changed. The president will have to prove his commitment to the basic principles of the welfare state. For powerless Duma deputies, words will suffice. But Putin will have to back up his words with deeds.
If the rising cost of living is the only appreciable result of Putin's social policy when election day rolls around, he will have a much harder time than expected winning re-election. But then again, by hook or by crook the Kremlin will ensure Putin's re-election.
Boris Kagarlitsky is director of the Institute of Globalization Studies.