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Monetizing Benefits, in Principle, Correct, But Reform Implementation Botched
An interview with Leon Aron, director of Russian Studies at the American Enterprise Institute

The Russian government is saying that the law to replace pensioners’ in-kind benefits with cash payments was necessary and well-crafted, but that difficulties enforcing it have surfaced in some areas of the country. What are your thoughts on this?

Aron: As I am familiar with Russian bureaucracy, it’s clear to me that there will be some incompetence in parts of the country. The central government will have to deal with this. But the problem is much more widespread. In a general sense, all depends on the rule that everything in politics has its price. And we see that these protests are directed toward the highest echelons of power. What is different about these disturbances from others that have periodically erupted among people receiving government support in the past is that they are directed exclusively toward the center. Everyone understands that the “power vertical” is in place, and now one person, perhaps with the help of one or two deputies, is responsible for every decision made in Russia. That’s a big problem! Yes, the local authorities perhaps are to blame. Yes, maybe they are even guilty. But that’s the price you pay for hyper-centralization, for rashly choosing a strategy for fighting disorderliness and anarchy in Russia.

And that’s only the beginning. Many decisions yet to be made point to the explosive combination of incompetence, ineffectiveness and unpopularity. When these three elements are combined, they bode an extremely dangerous outcome.

Some say that these protests result from the deeply ingrained idea of free-loading that existed for decades in the Soviet Union…

Aron: It is the manifestation of a widely discussed condition but which, by all appearances, we will not be able to extirpate. The fable goes something like this: Before the beginning of the 90’s, all was fine in Russia. With the arrival of capitalism, however, everything turned bad and pensioners’ quality of living declined. This is nonsense, of course!

One only need look at relevant documentation of the glasnost era, or recall what was being said at the national congresses….

Between 1985 and the beginning of the 90’s, a person making 100 rubles a month was considered living in dire poverty. More than half of all pensioners in urban centers and 80% of those residing in rural areas received less than 100 rubles. It’s also worth mentioning that the first soup kitchen in the Soviet Union was opened in Leningrad. It was opened especially to serve the needs of pensioners. So, with that in mind, the theory that “everything used to be good but now it’s bad” is just plain rubbish. It was always bad!

Today, Russia is going through enormous changes. The idea of this reform had been considered since the early 90’s and, from the current government’s standpoint, it’s of course better when people have monetized benefits and privileges. Because when you have money in your pockets, you can spend it any way you like. Money opens doors; you need not lower yourself to bureaucrats…. But money has to be made available. And it has to be available in sufficient amounts.

Remember back to how this reform was handled. No one knew what was coming. In August, the Duma gathered for a special session and within one or two days, lawmakers rammed through this most important legislation. Under normal circumstances, or at least in the early 90’s, a lengthy debate would have ensued, demonstrations would have been staged and Zyuganov would have addressed the crowds… All these excesses would have gotten the public’s attention, and local bureaucrats would have realized that this is a very serious matter that must be carefully thought out and executed. The government had all the trumps in its hand. It could have refined the legislation; it could have sought to see how it worked in one region or oblast. Numerous similar reforms in many countries, including Russia, have been introduced this way.

Hence, saying it is a matter of free-loading is an oversimplification. Russian people lived 50 to 60 years of their lives under a welfare-based system, and suddenly, without any warning or preparation, they are switched over to a totally different system. Of course they will go through a period of shock. And the effects of this shock are in no way diminished because the center of gravity where these decisions are made has been raised to the highest echelons of power. This is exactly why the entire system is unstable.

What can the government do to address this issue?

Aron: Of course apprehending the instigators, Russia’s tried and tested method, will resolve nothing. You could certainly drive the illness deeper inside. But it will only fester and turn into a bigger sore, which eventually will collapse with even more destructive force. Do you recall the old Soviet rule of thumb? Catch the agitators and punish them ruthlessly; but if the matter is much more serious, make concessions. That’s the policy that has been followed since the 1962 riots of Novocherkassk. Today, to a somewhat lesser extent, the government is following a similar strategy: On the one hand, they’re taking a few prisoners; on the other, they’re making small compromises. I believe that the government will swiftly increase people’s pensions; there is, after all, sufficient funds in the budget. But, again, that’s not the end of the story. Because, on 31 January, people will have to go pay rent again and afterwards visit the pharmacy….

I will say it again. There is only one moral that can be taken from this story: everything has its price.

Russian society is divided over the monetization of benefits: one group has taken the side of the government, while the other supports that of the pensioners. Which position do you stand closer to?

Aron: It’s a purely Russian dilemma: a progressive idea is initiated, but it’s undertaken in a political and commercial context that ends up reducing to naught the beneficial core of the idea. In this sense, I wholly sympathize with the pensioners. I believe the government isn’t guilty of failing to conceptually think through the reform, which is essentially correct. Rather, it has failed to carry out the reform in a competent, effective way.