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Consortium for Economic Policy Research and Advice WCER Canadian Association Working Institute Academy International of Universities Center for the Economy of National Development and Colleges for Economic in Transition Economy Agency of Canada Reform Reform of the Social Sphere:

Institutional Barriers at the Regional Level Moscow 2007 UDC 316.334.3(470+571) BBC 66.3(2),41+ 65.49 183(2) R34 Reform of the social sphere: institutional barriers at the regional level / Consortium for economic policy research and advice ; [ J.F. Young etc. ]. M. : IET, 2007. 107 p. : il. ISBN 978 5 93255 2131.

Agency CIP RSL Authors: John F. Young, Yanovskiy K., Zhavoronkov S., Reva E, Shul gin S., Tarapovskaya K.

This publication is about the institutional barriers which reduce the social policy outcome in the Russian Federation. Many efforts of the executive power and legislators undermine the incentives of the phisical persons to invest in the social sphere both in the financial form and in the form of social activity. Analyzed examples of the so cial policy in Canada and in other contries with transition economies underline this issue the solution of which is not connected with addi tional burden on the budget and could have made social institutions in Russia more stable to external economic shocks.

JEL Classification: I21, K39, H55 The research and the publication were undertaken in the framework of CEPRA (Consortium for Economic Policy Re search and Advice) project funded by the Canadian Agency for International Development (CIDA).

Translated from the Russian by Anna and Alexey Yurasovsky Page setting: Yudichev V.

UDC 316.334.3(470+571) BBC 66.3(2),41+ 65.49 183(2) ISBN 978 5 93255 213 1 5, Gazetny per., Moscow, 125993 Russia Tel. (495) 629 67 36, Fax (495) 203 88 16 info@iet.ru, http://www.iet.ru Content Introduction..............................................................................1. The State of the Problem......................................................1.1. Russia: Failed Reforms......................................................1.2. and new initiatives of the lawmakers (a selective analysis).............................................................. 1.3. The Expansion of Budget Liabilities: Money Flows along Longer and Darker Channels................................ 2. The Ways Envisaged for Providing Solutions to Social Problems.................................................................. 2.1. State Charity: National Projects..................................... 2.2. Corporate Charity........................................................... 3. Managing the Public Good: Governments and Education in Canada........................................................ 3.1. Constitutional Context..................................................... 3.2. Historical Trends towards Centralized Administration....................................................................... 3.3. Education in British Columbia.......................................... 3.4. Debating Education as Public Good.................................. 3.5. The Chapters Conclusions.............................................. 4. Education: Some Recommendations as an Alternative to Simple Pumping of Resources.......................................................................... 4.1. State Standards of Education........................................... 4.2. Licensing, Certification and Accreditation:

the Triple Barrier in the Way of Competition and Improvement of Education Quality.................................... 4.3. The Experience of Introducing he Single State Examination (SSE) and New Approaches to Education Standardization..................................................................... 4.4. Problems Associated with the Financing of Education......................................................................... 4.5. Protection of the Autonomy of Educational Establishments and of Academic Freedoms............................. Conclusion.............................................................................. Sources.................................................................................. Annex Statistical Analysis.................................................................... Annex An overview of the provisions of Federal Law of 10 January 2006, No. 18 FZ, On the introduction of amendments to some legislative acts of the Russian Federation................................... Annex Social Policies in Poland and Estonia.............................................................................. Annex Basic initial data for statistical analysis.................................................................................. Introduction In the 2000s, a series of reforms of the institutes of social security and insurance, public health care and public education have been un dertaken.

At the same time, the implementation of each of those reforms has been fraught with some disheartening problems.

Thus, the pension reform, with its emphasis on the involvement of private initiative in the sphere of pension programs, has been brought to an end in such a way that the trust in the authorities and in their ef forts in that direction has been undermined for many years to come (see below).

The reforms gong on in public health care and public education have become a target for sharp criticism in society due to the dramatically aggravating corruption problems in those spheres, without any visible improvement, however, in the quality of services actually being ren dered.

The reform of the social security system (or the monetization of benefits) has resulted in an unprecedented growth of social tension, having forced the authorities to resort to the implementation of emer gency programs (the cost of which amounts to billions of USD) de signed to eliminate the newly existing foci of tension, thus depriving the reform of any sense (because the States responsibilities, instead of having been reduced, have grown in scope).

The authorities do, indeed, realize the acute character of the prob lems they are faced with. The importance of these problems has been further emphasized by the RF Presidents assignment to the Govern ment concerning the preparation of the so called National Projects, aimed at providing appropriate solutions to the problems existing in the spheres of public health care, public education and social protection of the population, as well as by the unwavering attention to the process of the fulfillment of this assignment on the part of the official mass media.

In this connection, in all the cases referred to above, the regional aspects of those problems have been revealing themselves much stronger than during the 1990s, when the influence of regional insti tutes on the development of the reforming process was rather hetero geneous alongside the regions that acted as leaders in reforming, having urged the federal authorities to seek efficient solutions, at the same time providing them with ready examples of best practices, there also existed certain regions that posed serious impediments to the im plementation of those legislative decisions that had been adopted long ago at the federal level.

In the course of reforms going on in recent years, practically no examples of best practices have been seen, alongside a growing number of instances of worst practices (this trend is analyzed in the report entitled Borrowed institutes: regional level). This alarming trend has been making more and more important the need to expand the discussion of this theme in the experts community and to develop proposals aimed at improving the existing situation.

The Canadian experience of providing solutions to such problems both with the participation of the State (at the federal and regional levels) and with involving society's resources may serve not only as a substitution, to a certain extent, of the best practices that Russia lacks, but also as an argument in the ongoing discussions as to the main di rections along which these problems are to be sold, be they based on the strengthening of centralized government institutions or on the de velopment of compact government and public structures that will be decentralized, transparent and accountable to voters.

We should stress and specify here impossibility of direct imitation of this experience without general legal and political framework, providing accountability of the Government based on political competition and on the competitive media market. The private public partnership (PPP) based project for social infrastructure building described in the chapter devoted to Canadian public goods management and provision going to degenerate into governmentally directed soviet style state owned plants patronage relationship (shefstvo) of schools and hospitals.

Even for Canada the PPP project due management and private partners incentives provision appears to be significant problem1. The current trend in the Russia causes the risks of the projects obtrusion to private enterprises. The obtrusion instead profit incentives would destroy possibilities to share risks and to improve the project management and realization quality as this way of management is iden See the interviews: The Partnership British Columbia, February 19, 2007 and BCTF Feb ruary 22, 2007.

identical to worst practices of direct governmental control (without direct governmental responsibility for the outcomes of this control).

The fundamental idea that has become the predominant one among the decision makers is both rational and without any prospects whatsoever. Its essence is that the resources concentrated in the hands of the central authority, their amount having dramatically increased as a result of the currently high oil process, should be made use of for pur poses of large scale financing of the programs in order to win the maximum pre election support of the voters. It is quite obvious that no scientific studies that prove the lack of any prospects and low effect of capital investments, made by the government no matter where, can re verse the existing situation. No experience, even the most brilliant, be it domestic or foreign, of the provision of the so called public benefits (within the category of which, and quite often in contradiction to logic, the aforesaid social services (education, health care, culture, annuity insurance, etc.) are placed by private agencies, can serve as a convinc ing argument if the decision maker has an incentive for a decision based on increased budget expenditure, which, moreover, can prolong his term of office. However, the exploration of the possibilities inherent in the private provision (as well as of its efficiency) of at least mixed social benefits is important and does, indeed, have some prospects for countries like Russia, where2 the opportunities for a constructive appli cation of the state apparatus for any purposes will be quite limited for a very long time.

However, proper argumentation should be prepared for the period that will begin after a fall in oil prices, couples with an inevitable, in the long term perspective, collapse of the etatistic approach of caring for everybody and all from a single center, which can be taken advantage of in order to open a new window of opportunity for implementing reforms in that direction.

The Canadian experience of solving the existing problems by means of the participation of the State (at the federal and regional levels, and with the use of societys resources) may not only become a substitute for the best practices lacking in Russia, but also serve as an argument In our case because of this countrys huge scope and the once again interrupted de mocratic trend even if there soon occurs a new and decisive turn toward democratiza tion.

in the current discussions as to which main direction for providing solu tions to these problems should be chosen. They should be based either on the strengthening of centralized government institutions, or on the development of government structures compact and decentralized, transparent and accountable to voters, or public structures account able to private grant providers.

1. The State of the Problem J. Spencer, while violently attacking the system of a caring State and the very concept of societys responsibility for the able bodied poor, was basing his arguments, in contrast to his opponents, on an analysis of the history of legislation and law enforcement practices in England. He addressed the historical period from the Middle Ages to the 1880s.

As for the history of England, it demonstrates that throughout centu ries similar motivations have always brought about similar results.

Unselective aid to the poor at the expense of the other part of society was constantly reproducing the pattern of negative selection and urged the upper marginal strata, next to the poor ones, to drop their labor activity in hope of getting aid (J. Spencer, 1884, Chapters New Tory ism and Future Slavery).

In course of these historic processes, England, however, did not ex perience the phenomenon of a significant inflow of rent resources into the central governments budget.

The resources enabling the government to temporarily make the ex isting problems less acute by applying the least rational methods (in England the bad (in Spencers opinion) laws concerning the poor were being implemented, in contrast to the Russian national projects, at the parish level that is, at the level where at least the current needs of the poor no matter what the reasons had been of a persons beggarly state were more visible).

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