Guest Commentary: Russian “Security Net” Must Not Be Abandoned

Publication: Eurasia Daily Monitor Volume: 6 Issue: 8

In December 2008, when these lines were written, it was difficult to understand the prospects of the world and domestic financial-economic crisis. For Russia, however, the current turbulence may be useful, because it offers a good pretext for changing many elements of social policy to which we all have become accustomed until now.

The biggest drawback of the pre-crisis social policy in Russia was the constantly increasing gap in the level and quality of life between different social and regional population groups.

In particular, in recent years the steady growth of the stock coefficient of differentiation of pecuniary gains has been observed in parallel with the commercialization of public healthcare and education. In practice, all of this led to the cessation of upward social mobility. According to research carried out by the Independent Institute of Social Policy from 2000 to 2007, the already thin middle class practically did not expand at all.

In practice, Russia split into two main sectors: approximately 30 percent of the population are involved in the export sector (oil, gas, metals, and the industries that service these sectors, including banking and finance, educational institutions, and public healthcare facilities) and the remaining 70 percent, who improved their financial position slightly by receiving the “crumbs from the noble’s table” but who are still without comfortable housing, quality education, and effective public healthcare. This is reflected in the extremely low average life expectancy and international comparisons of quality of general and professional education.

Despite the abundance of budgetary resources, the portion of the GDP directed for the development of human capital is as low as half the share allocated in the developed countries.

Such negative social trends indicate that the Russian redistribution mechanism—which guarantees the balance between two fundamental social institutions, the social safety net and the market— is inadequate.

The crisis, which has been manifested, in particular, in the decrease in opportunities for resolving social questions, does not leave chances for maintaining the status quo. The only choice left is between “mobilization” and “modernization” and apparently it will be taken in 2009. Judging by the already existing forecasts, the economic situation next year will be different from that in previous years. In particular, zero or even negative GDP growth rates are expected, which will predetermine a significant (possibly two-fold) increase in unemployment and a 5 to 10 percent decrease in real income for the population. At the same time the situation may become worse in a number of regions and cities, which could lead to isolated demonstrations of open social unrest.

In this context the leadership of the country is facing the choice between the strategy and tactics of its behavior.

The “mobilization” might be declared through the massive indoctrination of the public with reference to the necessity of survival under conditions of foreign infection, which was brought to us from abroad and which affected the financial institutions and the real sector of the economy. That is, the existence of domestic problems in Russia—such as the preponderance of raw materials and the Russian economy’s dependence on them; its tendency to become more primitive; universal monopolism, which extends to the political sphere; systemic corruption; and the aforementioned absence of an adequate social redistribution institution—will be flatly denied.

The propaganda efforts will be directed toward justifying such unpleasant social phenomena as cutbacks in state funding of social programs, unemployment, and a lowering of living standards for the overwhelming majority of the population. Considering the extremely low level of government management, however, it would be hopeless to expect other solutions (for instance, reform of the retirement system and the adoption of alternative policies in the labor market and the sphere of social protection) from the authorities, because they are constantly lagging behind and are at the tail end of events. All of this could end up in a large-scale and open political crisis that would resemble the events at the end of the USSR.

Nonetheless, even the “modernization” scenario is fraught with risk. First, it is necessary to note that its implementation would only be possible if equitable negotiations were held from “above” with all major political and social forces in the country. There are two inherent dangers here, however. The upper strata may not be willing to do this, because they lack the skill and ability to negotiate with real domestic partners and because they still expect a miracle that will somehow melt away the crisis and return everything to so-called “stability.” The lower strata may not (or cannot) do this because real—not fictional—political and social institutions have not been created but have constantly been delayed by the authorities.

Be that as it may, the chance for implementing the “modernization” has not been lost yet. One of its results would be the creation of a balance between the aforementioned “social safety net” and the “market.”

What is the essence of the first?

In Russian it is called the “net of social security.” This means that any member of society can rely on some form of support in case he finds himself in severe social difficulties. Here the array of services ranges from a free bowl of soup and a place to sleep for a homeless person to free and accessible nationwide quality medical care. In practice, the existence of a full-fledged “net of social security” is the most important characteristic of a well-functioning “social state.”

If we look objectively at the social situation in Russia, it becomes evident that this “net” has many gaping holes. Some of them are:

—a lack of even the most basic medical care (half the working people do not go to doctors because of queues or the inability to pay);
—the degree of satisfaction of those needing high-tech medical care is not more than 20 percent;
—2 million children do not go to school;
—a similar number of children are considered to be neglected;
—there is no unemployment insurance;
—mandatory retirement insurance has been practically ruined;
— in practice, there is still no system of medical and social rehabilitation for invalids.
It would seem that patching up these holes would be incompatible with the market principles and would have to be carried out within the boundaries of purely budgetary approaches. That is not the case, however. Many of the social problems could be resolved with the skillful use of insurance. Even the purely budgetary approaches should be combined with contemporary mechanisms for guaranteeing the effectiveness of state expenditures, which fully corresponds to market principles.

**Evgeniy Gontmakher is a professor with a Ph.D. in Economics and is a member of the board of trustees of the Institute of Contemporary Development, a Moscow-based think tank.