1.1. Russia: Failed Reforms The pension reform in Russia represents such an obvious example of a failure that within the framework of this project we will only briefly mention it in course of our general overview, by citing the opinion of Yevgenii Gontmakher, one of the authors of one variant of that reform, which was briefly accepted and than rejected. In accordance with the initial idea, a “funded component” was to be introduced gradually for those who worked and earned, so that the population could be properly prepared for the oncoming “privatization” in this sphere and the need to assume responsibility for their own annuity provision. The “funded component” first was made available to those who were to reach the retirement age in 10 or more years. That is, to those workers who were the most experienced, the most highly paid, and also had sufficient life experience and sufficiently observable prospects for their old age for a reasonable and responsible decision to be made by them. Then, as noted by Gontmakher, the following happened: “suddenly, in a couple of years, when the single social tax rate was lowered, the middle aged people were cut off. And now the right to have a funded component be longs only to those born in the year 1967 and younger. This was done presumably in order to save a certain part of the money available to the Pension Fund by means of lowering the single social tax. But this economizing resulted just in some pennies having been saved, while political losses were huge. Because the middle aged people, that is, those whose earnings are greatest, have now been deprived even of a hypothetical possibility to create their personal savings and manage these savings. It is intended that this right should either be transferred to a private asset manager, or be left with a state asset manager. This, as far as I can judge by the results of surveys, has made a very strong impression on our people. Because this means that the authority, as always, is failing to comply with those very terms that it has put forth itself”.
As a result, the actual amount of savings has become purely sym bolic. The first to receive any money at all in addition to their pensions from the funded component will be those retiring in 2022. As stated by Ye. Gontmakher, “Estimations demonstrate that this additional amount is going to be very small, as the director of the Center for Social Studies and Innovations says. Now an average pension is equal to approxi mately 3 thousand roubles, while the amount added will be 100–roubles, although it has been planned so that the funded component should provide as much as one third of a pension, and later, in a suffi ciently long term perspective, up to a half of a pension”.
Corruption and the scandals associated with it, after “the field” has been “cleared” in this quite artificial way, seem to be such a natural phenomenon that the President’s strategy of keeping at his post the minister whose reputation was discredited as a result of such scandals appears very reasonable, indeed. In fact, nothing can be changed by replacing one person by another, if the strategy itself is like that.
1.2. …and new initiatives of the lawmakers (a selective analysis) Many politicians and leaders in opposition3, from the stand point of social demagogy that has been made fashionable by the authorities and is in great demand during elections, being popular with the majority of voters, are criticizing this Law for its attempted hidden privatization of the social sphere, and for shedding any responsibility for supporting the weak, for public education, for science and culture.
The main problem is exactly that no efficient and transparent privati zation mechanism is envisaged in the Law, with one exception – through the redemption of the claims of creditors during a liquidation procedure (in accordance with Article 19). As a result, the property, which is presumably protected by the Law from being transferred to private persons, in effect remains without any owner at all. In this as pect, the Law does not differ from the unfortunate “Law on à state en terprise”, which was adopted in 1988 and enabled directors, in fact, to freely dispose of property that was not theirs (owned by the State, that is, by nobody). From the formal point of view, this Law’s wording is more accurate than that of its 18 year old counterpart.
However, is does not create any incentives for preserving property that is not transferable into private ownership. This means that it would be considered quite reasonable to exploit that property – including “Objects of cultural heritage (or monuments of history and culture)” – until its complete deterioration. It is exactly in this manner that former mansions and apartment buildings nationalized by the Soviet power used to be exploited. It would be feasible to continually increase the share of property belonging to an autonomous organization and con sisting of the legally being privatized (or transferred to creditors) assets at the expense of property “protected by the State”. Obviously, in face of a seemingly complete control by the founder, the State has at its dis See, e.g., regular publications in support of the old and the intrinsically inefficient mechanism of granting privileges, against privatization in the spheres of social protection, public education, etc. These can be found at the United Civil Front’s website http://www.rufront.ru/. Although some of them do admit that in developed countries the provision of public benefits by private agencies is performed successfully, this paper aims not at borrowing that experience, but at preventing the transfer of the affairs from the larcenous and incompetent hands (in the author’s opinion) of the State into appropriate (the most interested) private ones.
posal no real control mechanisms (that is, mechanisms based on strong private interests – for example, career related).
Privatization in this case should be directed toward the not for profit sector. The problem is that for the truly not for profit organizations to be distinguished from the fictitious ones, created for purposes of commer cial acquisition of public property, there exists only one relatively reliable criterion. It is an organization’s reputation and length of existence.
From this it follows that the organizations belonging to a majority of members in the Public Chamber, that is, those that have become ad justed to a non transparent authoritarian regime and to the mecha nisms of “private – public partnership”, should be cut off from the par ticipation in such privatization. And on the contrary, the sole players in that privatization must become those organizations that exist since the 1990s or even since the 1980s, have been financed predominantly by grants provided by the West, and therefore are suspected by the cur rent authorities in being orientated toward interests alien to this coun try’s. Probably, this participation should also be shared with some of the most respected and eminent foreign organizations, predominantly those from the USA (because it is in the USA that the not for profit sec tor has become relatively better developed.
One simple reason for it is that those organizations have for a long time been making investments in their own reputation, and their incen tives to employ property that has been transferred to them in accor dance with declared targets, and not for purposes of personal gain (those incentives being further augmented by private grants, the do nors of which watch against the danger of their funds being stolen), are so strong that they are associated with the lowest post privatization risks and the best price to quality ratios of public benefits.
However, this choice, which is the only reasonable one in terms of economics, is presently faced with political restraints, – and quite un derstandably.
Another example of a very useful initiative with dubious practical re sults is the draft law “On the procedure for the formation and use of the target capital of not for profit organizations” (submilled by deputies of the State Duma P. V. Krashennikov (who pretends to be representative of “the liberal wing” of “United Russia”), former entrepreneur V. S.
Gruzdev, and some others), and the related draft law “On the introduc tion of amendments to some legislative acts of the Russian Federation as a result of the adoption of the Law “On the procedure for the forma tion and use of the target capital of not for profit organizations”.
From the formal point of view, the draft law is aimed at increasing the number of available instruments and the opportunities for financing charitable activities. Donors, as well as the organization itself, may pour some capital into commercial turnover, so that the resulting income could become a more or less stable source of financing for the imple mentation of charitable programs.
In this connection, the capital being thus transferred is to become ex empt from the value added tax and the profits tax, and accordingly, the income from the target capital is to become exempt from the profits tax.
In a situation when attempts are being made, through envisaging in the law a variety of possible situations, to provide solutions to the prob lem posed by the low efficiency of the judicial system, some “dead al leys” will inevitable appear.
Indeed, the laws will be falling behind real life, behind the most con venient for donors and the most advanced methods of organizing the financing. The lawmakers’ attempts to enter in the law provisions con cerning transparency, designed to ensure transparency better than it could have been done by donors, do, indeed, look quite naï ve.
The Soviet type institutions, sure of their inviolability in a court of jus tice, will ignore the very idea of reporting through the Internet. All the others – the normal private not for profit organizations – have for a long time already been accounting for their activity before the donors of grants and society by posting on websites their reporting documents and other information.
The only thing that “United Russia” is really striving to achieve, no matter what the authors’ intention might be, is to additionally strengthen the state administrative control over not for profit organiza tions. This control is quite discretional. And therefore the careful elabo ration of legislative provisions (if it was, indeed, authored by “honestly erring” deputies) has, as its consequence, a lower degree of legal pro tection, instead of its improvement.
Of course, there are some organizations and projects, dependent on investments to be made in Russia, who will benefit from new legislation.
Although along with them, some purely commercial projects, disguised as charitable ones, may also have their benefits. As for all others, they will become even more dependent on tax officials, who demand that the daily stream of reporting and information should be increased more and more. This stream is by no means intended for the good of civil society.
The basic cause of this is the obvious situation of competition, a competition quite unfriendly to any non government organization which is truly useful to society (human rights organizations, private orphan ages, cultural projects, etc.), by comparison with government – initiated projects and government agencies. This happens ecause the former perform better and at a greater scope at a much lower cost. Thereby they, in fact, discredit “national projects” and “private – public partner ship”, being an impediment to bringing the amount of resources being distributed by the State to the highest possible level. And finally, they pose a threat to the propaganda effect of similar measures being im plemented by the State shortly before elections and the transfer of power, and thus also a threat to the stability of the most successful and powerful groups of social interests.
Consequently, any mechanism, designed to ensure long term financ ing of not for profit organizations at the expense of incomes from non commercial turnover, must also involve a reliable legal protection of that capital and income stability. Both can be achieved by relatively simple means, when Russian money is invested abroad, but not vice versa.
1.3. The Expansion of Budget Liabilities:
Money Flows along Longer and Darker Channels In most general terms, the algorithm of financing the social sphere is as follows. The federal authorities are regularly increasing their liabili ties to the population at a rate that is much higher than the growth rate of GDP.
The main mechanism for such an increase is the growth of the mini mum wage rate, to which the rates of remuneration in the budget – funded sphere are pegged. The number of those employed in that sphere is not to become subject to any radical cuts. At the same time, there occurs an uneven growth of expenditures on social needs, which is moderate in the federal budget and steep in regional budgets, where there are no corresponding sources of revenue. The regions may cut their investment expenditures, which would not be altogether bad, on condition that there should exist a fully liberalized access of capital into the sphere of railroad construction and exploitation. However, there is no such access. On the contrary, plans are being developed that will involve federal investments in road construction, which means that no competitors can expect any encouragement.
Thus, the central authority is simply increasing the amount of dota tions allocated to regions. The sole purpose of this transaction, in the course of which money flows from one government pocket into another, is to increase the regions’ dependency on the federal center4.