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Where Do Social Reforms Lead?

      Marina Liborakina

CONTENT
National policy transition from the concept social rights to concepts of social needs and social care for the poor, to my opinion, is incompatible with constitutional status of the Russian Federation as the social state. However assertive, this judgement resulted from my thorough examination of the governmental Program of Social Reforms. As future changes will inevitably produce direct impact on all social groups, motives for and consequences of these changes need be clarified and explained.
The keystone of the governmental Program of Social Reforms is the principle of ‘rearranging the current system of social benefits and compensations in an orderly manner through introduction of stricter standards of eligibility and appropriateness’. First of all, the government plans to apply this principle to policies for housing and public utilities. Policy-makers claim that ‘immense public expenditures to cover costs of housing and utilities result in collapse of the national health care system and government failure to pay salaries to its employees for months.’ And for this reason, the state can no longer afford partial budget coverage of rent and utilities for the entire population; in due time, citizens will have to pay for housing and utilities out of pocket — as it is practiced worldwide.
First, we must understand why we have not lived to the ‘worldwide practice’ before. It requires some social and financial analysis. In socialist economy, two sources of labor compensation existed: personal salaries in cash; and benefits and in-kind reimbursement covered from public consumption funds. In addition, public enterprises offered their employees supplementary free benefits: employer-owned summer camps and kindergartens for their children, etc.
In-cash reimbursement in socialist environments was very low: some 20 kopeck per one rouble of output produced. Other resources were collected from public enterprises and accumulated in public consumption funds. Public coverage of most costs of housing was not a privilege, but a tool of keeping living standards at acceptable level in the situation of universally low family incomes. ‘Privilege’ means that some privileged social group exists; universal coverage is not a privilege.
In other countries levels of labor compensation are much higher: 50 to 70% of output value. That is why housing costs in market economies are covered by citizens with comparatively high, and not from public funds.
Obviously, transition to out-of-pocket payment for housing — or to the ‘worldwide practice’ — must be accompanied by commensurate growth and changed structure of payers’ incomes. The same is true for proposed reforms of social insurance and social security. Nevertheless, labor reimbursement level today is as low as ever both on absolute and relative scales. If we take ‘minimum salary’ (86 000 rubles/month) as a basic measure, we will be highly surprised to discover that governmentally approved schedule of labor tariffs sets some of compensation rates below the ‘minimum salary’ level. And the Government does not plan to review the schedule until sustainable economic growth begins. Therefore, in the situation of persistently low individual income, abrupt limitation of citizens’ access to benefits financed from public funds is planned.
In particular, the slogan of ‘ineffective privileges removal’ was invented to cover the aggressive public campaign to reduce volumes of public benefits through their restructuring and more complicated eligibility and payment procedures. The fact of welfare payments overdue — which, in fact, is the result of governmental income-containment policies — is used as an argument in favor of cutting welfare programs.
In draft law ‘On modifications to the Article 16 of the Federal Law ‘On public benefits to citizens, parents of immature’, social aid provided to children is rendered as a convincing example of ‘ineffective social care: prosperous parents do not need it; and for poor families, the amount of the is insufficient to satisfy elementary needs of their children.’ The proposal is to restrict eligibility to those families with income per capita below the survival minimum. The true intention of legislators is highlighted in the commentary to the draft. The expected effect of the amendment is 25% reduction of public spending to cover obligations under this benefit. The notable fact is that current benefit amount per child will stay unchanged! Then why all these crap about ‘more effective social care’?
Motives of the coming social reform are clearly determined by priorities and policies prevalent in national economy, by financial market requests, but never by actual social problems and demand in social services. The fact that frozen salaries produce negative impact on the quality of living is well-known to government officials. Nonetheless, they keep on conducting this policy as it helps control inflation and other macroeconomic factors as required by International Monetary Fund and the World Bank.
Our government has been receiving low-interest credits from IMF, and has to comply with its political requirements to control certain processes in the national economy, and, first of all, inflation. Tools of inflation control are few. And the first is to cut national budget. The problem is what programs to cut. Some nations, for example, cut military programs. Russian government invented a simpler tool: to retain salaries of its employees. No money, no problem. As for managed inflation model and other flexible instruments of inflation control, we have to remember that Russian government has always been an adept of headlong methods.
That is why when we are not paid our earnings for months, we must be happy: our salaries are our input in Russian government’s efforts to fulfil its international commitments. Yet, IMF and WB requirement is that the government controlled inflation; they never recommended starving people as a tool. So it was free choice of the Government; and this grounds is enough to find it guilty of malignant incompetence.
The second key point of governmental Program of social reforms is separation of social insurance and social security functions. Here we shall start with delimitation of the two. Social insurance — a system of financial support provided to employees in case of disability, illness, old age, etc. In other words, social insurance covers social and professional risks from indemnity funds accumulated from mandatory premiums collected in form of pay-roll tax, and employer contributions.
Social security — a system of social and economic measures aimed at financial support of disabled, and comprehensive support of immature and parenthood. Social security includes:
Historically, social security, being a comprehensive public system, is much younger than social insurance. Social security imposes extensive responsibilities on state which is to cover copious social commitments from national budget. In the USSR, functions of social insurance and social security were pooled in one. It was V.I. Lenin who first introduced this practice through adoption of the State Labor Insurance Program. The program incorporated both social insurance and social security functions, and financing of the program came both from insurance premiums paid by employers and from the state budget while Soviet citizens did not have to pay social insurance premiums at all.
The first step towards separation of the two functions was institution of non-budget social funds. However, until recently contributions to these funds have been still made practically by employers alone. Today employees do not pay either to Social Insurance Fund, or State Fund of Employment, or Mandatory Health Insurance Fund... And premiums collected from employees by Pension Fund are set at 1% of income level, why employers have to pay 28% of their remuneration funds.
The reform suggests the shift of insurance obligations from employers to employees. For instance, new retirement income system implies separate pension accounts for every individual of active age with monthly accrual and capitalization. The supposed arrangement is that employees will pay about 10%, and employers — about 20%. The question is, why the government is not satisfied with the current ‘distributional’ system? Maybe, because lack of opportunities to manipulate capitals of the Pension Fund? Transition to the ‘accrual’ (insurance) model will open before both state and business organizations uncontrollable opportunities for profitable financial operations with insurance money.
Another concern is that social insurance/security delimitation process is accompanied by a monstrous mash of terms, subjects, and management mechanisms. Absolutely no difference is made between such fundamentally different matters as securing national reproduction, insurance of social and professional risks resulting in disability, insurance against environmental and catastrophic risks, and so on. A unified system of employee insurance against occupational traumas and diseases is planned, and it will include pregnancy and maternity as indemnity cases! How do you like it? After all, are pregnancy and delivery occupational diseases? Reproductive matters are not a field for compulsory insurance! The future of the nation shall not depend on employee insurance and mandatory employer contributions! The only predictable result of this approach is that employers will tend to turn down women of reproductive age, making them an non-competitive category of labor force. Therefore, further expansion of insurance and insurance-type arrangements will have a negative social effect, i.e. increased discrimination by gender/age factor.
A basic right of citizens to reproduce must be secured by state (and that was the situation in the Soviet Union: beginning from early 70s, all women retained 100% salaries throughout pregnancy and post-delivery periods, irrespective of length of employment and trade-union membership). Today we face the situation when the government plans to limit eligible population to women whose income is below subsistence level. If these plans are implemented, we shall have to acknowledge the fact of complete rejection of constitutional guarantees of social rights by Russian government.
CONTENT

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