HUMAN
DEVELOPMENT REPORT, 2002
*THE
RUSSIAN FEDERATION*
EXECUTIVE
SUMMARY
The
Role of the State in Economic Growth and Socioeconomic Reforms is suggested as the main theme of the Human
Development Report, 2002. The strategic factors of social development–accumulation
of knowledge, the level and quality of education, physical condition and
cultural level of the population–are largely formed and maintained by the
state. The Report highlights constructive objectives of the Russian state
reform most closely related to human development. These reforms should be aimed
at the improvement of public welfare and health; educational level growth;
concentration of resources and actions in social-humanitarian and
administrative functions and their reduced involvement in production; at
bringing the state closer to the individual through administrative system
decentralization; development by the government of partner relations with civil
society and business, etc.
The first chapter entitled The State and Human Development discusses human development
issues in the world and in Russia in the context of basic global economic
trends. At the present stage intangible capital becomes a key source of
economic growth together with its vital element–human resources the scope and
quality of which substantially and increasingly determine basic indicators of
economic and social development. The individual comes into the focus of
multifaceted transformations as their objective, driving force and primary
prerequisite. Dependence of the economy on human resources is growing along
with its purpose of meeting requirements the pattern of which is shifted
towards nonmaterial values, spiritual and cultural needs. The very content of
social development is changing with the role and contribution of its
intellectual, spiritual and cultural elements increasing.
The
modern state is naturally integrated into this process: its role evidently
tends to grow within the system of human development factors. A strong leap
forward made in this direction in the 1960s and 1970s was associated with a
need for the settlement of social problems within the industrial economy. A new
acceleration in the past twenty-five years was brought about primarily by the
changed economic conditions. Therefore the “human focus” becomes an important
feature of reform of a world nation involved into the general flow of economic,
technological, structural, institutional and other changes. The chapter
analyzes prospective directions of a world nation reform related to human development.
Given significant progress in human development of many countries, the
situation in Russia looks bad: many generally accepted indicators have got
worse, and key spheres–science, education and healthcare–have notably degraded.
Both current and strategic interests of the country demand a decisive breakup
of unfavorable tendencies, and the main burden is to be borne by the state
since the influence of the family and civil society has been seriously
undermined by social deformities of the Soviet period, and the economy is
passing through a thorny path of reform while working with difficulty to
abandon the “production for the sake of production” principle. But the state
itself cannot make an adequate contribution unless it is fundamentally
innovated, its place and role in society is changed, and its responsibilities
and mechanisms are reviewed. In an innovated state the human development
objective should be incorporated into the target-setting system as a priority
goal, and as much as possible resources must be allocated for it.
The
way human development problems are solved in a country depends on the
intensification of certain public policies, such as implementation of market
reform strategies, formation of a large stratum of small and medium business and
of civil society. The urgent tasks include: prevention of further degradation
of the research and social infrastructure, reorientation of fiscal policies
towards social-humanitarian goals and needs of science, and actually priority
funding for science, education, healthcare and culture. A profound
restructuring of the social redistribution function of the state is needed, as
well as replacement of outdated principles and specific forms of social
security and assistance. This sphere especially requires well thought-out and
careful solutions, since the room for maneuver is severely limited by the low
living standards of the bulk of the population and budget deficit.
An
analysis of world processes and the situation in Russia suggests that solution
to numerous human development issues in a country consists in creating a new
socio-economic system that would give free scope for all-round human
improvement. No uniform recipe exists for building such a system, and given the
notable growth of commonality in main directions and in many forms of economic
and social development in today’s world, every country creates and implements
its own model reflecting its specific national conditions. Russia cannot be an
exception to the general rule and should develop its own option of a
socio-economic system. Its historical tradition and moral standards and ideas
are matched, at least in the near- and medium-term perspective, by a model
involving a strong social element, i.e. a socially-oriented market economy
close to the models existing in
continental European countries.
The macroeconomic background of the
past year was favorable and, most important, there still was some time left
before the next Duma (December 2003) and Presidential (March 2004) elections.
Objective indicators recorded a 4% growth in the real volume of the GDP and
industrial production. For the third year running economic growth rates in
Russia exceeded the world indicators. The political elite anticipated a turn
towards fast modernization of the country at 2000-2001 rates. Disappointment
with actually moderate growth rates gave rise to a discussion about ways and
methods of accelerating Russia’s growth and modernization rates.
General
conditions of the country’s development in the third year of recovery continued
to favorably affect the dynamics of human resources. Enormous (especially
regional) problems in education and public health persisted, as well as a large
number of poor people since a few years of growth could not have covered the
losses sustained in the preceding decade. Consumer spending in real terms
dropped by 9.5% in 1998–1999 but went up by 27% (according to estimates, less
than 7% in 2002) over the following three years, having reached apparently the
highest level since 1991. In 2002, the 15% overall growth of consumer prices
consisted of two different components: commodity prices increased by
approximately 11% and services by 36%. A rise in prices for residential public
services was a powerful source of social tensions since majority of the
population found it difficult to (or even could not at all) meet the
costs.
In the past
year the accumulation rate slowed down and reached that of the GDP. The country
continues to invest 18% of the GDP as against the world average of 23%, and
this is obviously insufficient, given the economy’s great need for expansion
and modernization of the country’s physical capital following a long period of
low investment between 1991 and 1999. It is still to be determined which of the
economic forces would implement modernization: integrated business groups or
free entrepreneurs (government program priority) or the state that has so far
persistently avoided the sphere of accumulation.
Many important
reforms that have not been completed in the pre-election period are likely to
be postponed until election results are available. The macroeconomic situation
with the budget being conditioned by revenues from external economic operations
remains exposed to potential risks. It
is important that the years 2003 and 2004 will be lost for reforms due to
election campaigns and policy formulation following the double elections. Modernization of the country will be
ultimately implemented by a combination of various economic agents and this
would require, in particular, modernization of the private financial sector and
stronger encouragement of accumulation.
The third
chapter entitled Incomes and
Employment shows that in 2001–2002 in Russia the process of restoration
of the population’s real incomes continued due to a relatively fast growth of
incomes from employment (wages and business revenues) against the background of
slowed down inflation and actions aimed at pension increases and poverty
reduction. Arrears of wages were reduced, as were instances of employers
breaching their obligations under labor contracts in the form of delayed
payment of wages. As a result purchasing power of the population had notably
increased and the population began to assess their material situation in 2002
better than in 2000. The shadow economy remained a source of means of
subsistence for a considerable part of the population: the share of shadow
wages within the GDP continued to be high with approximately one third of total
wages of all employees in the Russian economy being paid unofficially.
In 2001–2002 no notable changes were observed in terms
of social stratification with the bulk of the population experiencing
difficulties with personal consumption although their incomes are above the
poverty level. Among factors of income-based inequality of the Russian
population, in addition to traditional ones (the burden of dependents borne by
breadwinners, employment status, unemployment, different levels of education),
big wage gaps among the employed and irregular wage payments play an important
role.
Widespread poverty (27% in 2002) remained an acute problem for Russia.
The level of wages continues to be low as compared to the economically
developed countries; there is a big number of jobs with a pay below the
subsistence level and a considerable share of such jobs is concentrated in the
budget-financed sector of the economy. Even if shadow wages are not included
estimates based on formal statistic surveys of labor costs show extreme
inequality in wages fund distribution. Thanks to actions aimed at poverty
reduction and improvement of the situation of older people, the average pension
in 2002 exceeded the pensioner subsistence level. However, the minimum old-age
pension (allowances included) in 2001–2002 accounted for only 41% of the
pensioner subsistence level as against 77% in 1997. The financial situation of
the old generation in Russia is characterized by rather low incomes and a
pattern of consumer spending with abnormally high proportion of food and
day-to-day goods.
The role of the state in the sphere
of employment is dealt with in the context of changes that took place in
2001–2002, i.e. the closure of the State Extrabudgetary Employment Fund that
provided for the government policy of employment protection during the 1990s and
transition to its funding out of the federal budget. It is demonstrated that in
the 1990s the government policy in the sphere of employment in Russia
represented a set of allowances aimed at mitigating the most acute situations
arising from time to time and was essentially focused on social benefits to the
registered unemployed. Registered unemployment still serves as a guideline for
government programs. The result is a shift in government policies, while
critical zones of unemployment that need to be addressed in the first place
remain outside its scope.
The chapter
describes reasons behind the selection of employment policy guidelines in the
early 1990s, as well as factors restraining the progress of basic employment
policies since the middle of the past decade. In addition to fundamental causes
of ineffective public policies, the chapter discusses mechanisms of crisis
development with the main one lying in the sphere of finance. As the economic
crisis developed in Russia, the low level of financing and the inadequate
funding system led to dramatic cuts in allocations for active and passive
programs. The transition to budget financing had not removed the conflict
between the principles of material support to the unemployed formally preserved
in the Employment Law and the mechanisms of their implementation, nor had it
settled the problem of continued and long-term funding needed by active
programs or the problem of equal access of the regions to public funds. It had
also resulted in the outflow of qualified specialists from the National
Employment Service network.
The chapter considers possible
scenarios of the course things may take in the future. Under one of them public
policies would continue to evolve towards excessive centralization, a limited
impact of regional policies, curtailment of active employment promotion
programs, and transition to social benefits to the unemployed. The second and
more preferable scenario would require conceptual changes in public policies in
the field of employment and different sources of financing. Transition to a
system envisaged by it would be associated with a radical transformation of the
financing scheme, assistance mechanisms for the unemployed and organizational
and legal protection against unemployment.
The permanent population in Russia has been on the downward for 12 years
now and all demographic projections available predict that this situation would
persist at least until the mid-21st century. This alarming trend is analyzed in
the fourth chapter, The State and the
Demographic Situation. This trend can be only reversed by intensive
immigration. Most experts are very careful in their estimates of the future
mortality dynamics in Russia. According to the most optimistic estimates of UN
experts, by the late 2050s life expectancy in Russia, its considerable increase
notwithstanding, would remain below the level observed in Western European
countries at the beginning of the 21st century. National life expectancy
forecasts are even lower. In the mid-1960s Russia was only a little behind the
West in terms of life expectancy, however over the period that followed the
mortality trends in Russia and the West were fundamentally different. Since
1965 male life expectancy in the EU countries and the US has been growing by 0.2
years per year on the average, and the figure for Japan is 0.3. But in Russia
the average annual indicator was – 0.1. Continued decrease in life expectancy
was observed in Russia in 1965–1980, 1998–1994 and 1998–2000.
The mortality rate present situation and history in Russia do not promise
any spontaneous solution to the excessively high mortality rate problem if no
special measures are taken, solely due to improvement of living standards and
the quality and accessibility of health services. At the same time an analysis
shows that Russian research offers no well-founded proposals concerning the
strategy and policies of mortality rate accelerated decrease. Estimates of incidence of certain diseases
available today differ by an order, and mutually exclusive recommendations are
offered for combating certain mortality causes. World experience in reducing
mortality needs to be examined and conceptualized; in particular, the
experience of countries that achieved best results in a relatively short period
of time, such as Finland in the 1970s and 1980s; Portugal in the 1980s; Poland
and the Czech Republic in the 1990s. The experience of the Baltic states may
also be useful, as in the late 1990s they, unlike Russia, had a steady downward
trend in mortality rates.
Over the recent years Russian statistics have gradually lost a
considerable portion of standard demographic data. In 2002 a nationwide census
was held in Russia. For the first time
since 1970 the census did not involve any examination of demographic processes
in terms of social differentiation because under the 1998 Vital Registration
Federal Law new registration forms do not contain any socio-economic
information about parents, newlyweds, divorced couples or deceased persons.
The fifth
chapter, Public Health Policies,
discusses changes in the basic principles of the national strategy in the field
of public health over the past decade. The health improvement policy includes
various methods of regulating the social environment and, above all, requires a
sound legal framework. At present, with
the diversity of law-making activities, both at the federal and at the regional
level, it is obvious that the fundamental principles of the individual’s right
to health stipulated in the Constitution of the Russian Federation, have
virtually lost their explicit nature with the resulting difficulties in
statutory interpretation and numerous amendments made to laws. In these
circumstances there is an urgent need for the legal framework being streamlined
and a Russian Federation Public Health Code, being drafted for over six years
now, should be passed.
Mother and child health is a priority in the national healthcare strategy
of any state. Mother and child health is treated in Russia, on the one hand, in
the context of universal global problems and, on the other, in terms of the
current socio-economic development of the Russian society. During the 10 years
of reforms every indicator of maternal health has been worsened: high rates of
maternal and infant mortality with the pattern of maternal death causes
remaining virtually the same across the Russian Federation in the recent five
years; decline in the health of pregnant women, postnatal health and newborns;
high disease incidence among women, especially the growing occurrence of
tuberculosis; and high frequency of abortions. A similar picture can be
observed in child health, with the following typical trends: growing child
disease incidence; a growing number of disabled children; spreading drug
addiction, venereal diseases, AIDS and alcoholism among children. Another
typical feature is a decline in the general physical development of children in
Russia with almost 60% of them having various kinds of deviations. Children
also experience psychological problems.
Gender is an important structural
determinant of health and in combination with other determining factors, such
as age, family status, income, social assistance and others, it affects the
state of health at every level, be it an individual, a group or society at large.
A gender-based approach to healthcare may be useful in the understanding of the
objectives of public health policies; a difference in status between men and
women within society, their way of life, public policies of maintaining or
changing gender roles are indicative of the need for a gender analysis in the
field of healthcare which is so far not mandatory for public health reviews in
the Russian Federation.
Good
health is an important resource that enables people to participate in
human development and benefit from it.
Cuts in human investment inevitably worsen the quality of the population.
Policies of this kind increase the number of people in need of social support
with a respective increase of the social burden. It is now the question of fundamental
adjustments to the overall social policy and, above all, health policies.
Creation of equal opportunities for human
development in the constituent members of the Russian Federation is one of the
crucial tasks faced by the state. These tasks and ways of their solution are
dealt with in the sixth chapter, The
State and Human Development in the Russian Regions. At the end of the
1990s, following political centralization, a process of economic resources
concentration in the center was launched: whereas in 1999 financial support to
budgets of other levels accounted for 9.3% of the federal budget spending, in
2001 it was 18.5% with the assistance having more than doubled, and the
redistribution scheme became far more complicated. Centralization of budget
authorities reduced fiscal autonomy of the regions; their “own” tax revenues
cover less than 40% of regional budget expenditures and a mere 13% of local
budget spending. In 2001, 71 of the 88 subjects of the Russian Federation
(Chechnya not included) were recipients of Federal Support to the Regions Fund
transfers; in 20 regions transfers and other forms of financial assistance make
from 50% to 80% of their budgets. It is increasingly clear that a reasonable
centralization threshold has been left behind. Supervision from the center,
without regional and municipal fiscal autonomy, is unable to solve most of the
problems and is reproducing dependence; nor does it encourage regional and
local authorities to intensify their efforts to improve conditions for economic
growth and sound social policies.
Regional and local budgets are restrained in expanding investment into
human development. The main burden of social spending, including delivery of
residential and public utility services (RPU), is shifted to the subnational
level. The share of social spending in local budgets is 79% with RPU costs
reaching a quarter of overall local budget spending. The gap in per capita
social spending out of different subnational budgets is almost 7 times (cost of
living included).
Due to economic advantages of the “strong”
subjects of the Russian Federation, regional development gaps are further
expanding and so far fiscal equalization can only slow down the growth of
regional differences in population incomes. In 1999–2001 the leading oil
exporting regions showed best indicators of per capita real income dynamics.
Intensified growth was also observed in less developed regions that benefited
from fiscal policy centralization, an increase in social transfers and wages in
the budget-financed sectors. Most areas in the Russian Far East had the lowest
growth rates of population incomes.
The situation in the regional workforce markets
had notably improved during 2001, and the general unemployment level was on the
downward in 68 regions. But basic
disparities remained the same: the highest unemployment rate persisted in most
republics in the south of European Russia and in ethnic units in southern
Siberia. Regional development gaps cannot be bridged by redistribution of
budget resources alone; a fundamental improvement of economic growth
environment in problem areas is needed.
The role of the state in the improvement of
people’s health is clearly inadequate, and regional differences are still being
formed under the impact of natural factors: natural conditions and climate,
living standards, and the level of modernization of the population’s manner of
living. Differences in life expectancy between regions reach 18 years, and in
infant mortality rates more than three times. Differences in infant and
childhood mortality have grown over the transition period between rural and
urban areas since rural healthcare is in need of large investments. Positive
changes in child and maternal mortality rates are largely due to a decline in
birthrates. The incidence of social diseases (tuberculosis and AIDS) continues
to grow.
Regional gaps can be measured using human
development indexes (HDI) calculated on the basis of Goskomstat (State
Statistic Committee) data for 2000. The index corresponded to the developed
countries’ level (above 0.800) in three Russian regions only (Moscow, Tyumen
Region and Tatarstan). The index for Moscow was close to that for Slovenia and
higher than those for the Czech Republic and Hungary. Due to a huge gap between
the top few and the rest of the regions, the HDI exceeded Russia’s average in
12 regions only, and the top group has never been so small in the five years
such measurements were made. Almost
half of the regions of Russia have similar HDIs and are a little below the
average. The low index regions include the least developed areas in the South
and autonomous districts in the Russian Far East.
Chapter Seven, Modernization of the Government Machinery, points
out that by the end of the 1990s Russian society was almost unanimous about the
necessity for a strong government, in contrast to the sentiments that had been
prevalent in the preceding three decades. The spontaneous development of market
mechanisms had notably outpaced the formation of democratic institutions on a
statutory basis. The imbalance between freedom and legality, entrepreneurial
initiative and motivation for creating public benefits, increasing
differentiation and social policy aimed at society’s integration put serious
barriers to human development and economic growth.
The Russian state has
traditionally relied primarily on government machinery, with actual separation
of powers being launched only in the recent decade. The situation is noteworthy for the fact that political parties
and the parliament are comparable in weight, rather than that they are less
influential than the government.
However, so far changes occurred against the background of general
weakening of the power, with old structures losing their capacity and new ones
being in confrontation with each other. The country’s cultural and historical
legacy would be certainly posing a threat of reversal in democratic reforms for
a long time. However the country has a chance to relatively quickly create a
mature, efficient and stable democratic state if the machinery of government is
radically modernized; if the rate of modernization matches at least the rate of
consolidation of power; and if the strategy of modernization suits, in a
sufficient degree, the interests prevalent in this machinery itself.
Consolidation of the state (and municipal) apparatus is largely an
aspect of a broader process, that of a federative relations reform. It is not
limited to either removal of legal conflicts or fixing of this or that
“relationship of forces” between different authorities. The question is that two fundamental defects
in the “vertical” separation of powers formed during the 1990s need to be
overcome. One of these defects consists in that rights and duties involved in
the so-called joint terms of reference–of federal, regional and local
authorities–are actually undefined. The second one is a wide discrepancy
between the fiscal capacity of the regions and their formally established
rights and duties in relation to citizens and institutions. The combination of
these two interconnected circumstances promoted a declarative populist policy
based on decision-making free from specific accountability.
Contrary to the
prevailing view, the number of bureaucrats in Russia is relatively low. In this
country the share of civil service in the overall employment is considerably
lower than, say, in Japan, Germany, the USA or Great Britain. The overwhelming
majority of civilian and municipal civil servants are employed in executive
agencies. In 2001 the President approved a Conception of Civil Service Reform
in the Russian Federation. As
objectives of the reform it suggests a dramatic increase in civil service
efficiency in the interests of civil society development and consolidation of
the state, and creation of an integral civil service system with due regard to
historical, cultural, ethnic and other specific features of the Russian
Federation. Integrity of the system implies uniform principles of organization
of the civilian, military and law-enforcement civil services of the Federation
and its constituent members.
The eighth chapter Government and Business: Development of
New Terms and Conditions of the Social Contract, emphasizes the fact
that the previous model of a social contract between business and government
that appeared in Russia in the post-reform period has exhausted all its
resources and no longer satisfies either of the parties. This model was based
on the government deriving direct and indirect revenues from business
regulation, in other words, on regulation being turned into a special sector of
“public business” with the resulting withdrawal of a substantial proportion of
businesses from every kind of public control into the shadow economy. The
policy of debureaucratization of the economy announced in 2001 aimed at removal
of excessive barriers in the marketplace was the first step towards drawing up
new terms and conditions of the social contract. A legal possibility of
actually concluding a new social contract emerges in 2003, a parliamentary election
year. The matter in hand now is what terms and conditions offered by business
would be supported by the public and accepted by the government. In 2001 the
first three laws on debureaucratization (deregulation) of the economy were
passed. However just three statutory acts cannot bring about any fundamental
shifts and this has been amply borne out by the very first attempts at their
application in practice. The year 2002 witnessed another meaningful event–the
enactment of a Law on Technical Regulation Principles which not only introduced
fundamental changes in the overall system of standardization and safety and
quality assurance, but also opens up a field for a government-business dialogue
on mandatory requirements to products.
“Social contract
renewal” involves negotiations between the parties and, consequently, formation
of a platform for such negotiations and of its participants themselves, as well
as adjustment of negotiation processes. In 2002 important advances had been
made in this field. Business associations many of which appeared as
participants in the debureaucratization effort, learned how to use mechanisms
for an open, transparent dialogue with the government. The government for its
part, having renounced “back door policies” based exclusively on the balance of
forces between oligarchic structures and behind-the-scenes arrangements, is
also developing new ways of communicating with business.
The chapter highlights five key
points in social contract renewal. First, the debureaucratization policy should
be continued. Secondly, government reform is needed. At present, administrative
and municipal reforms are drawn up in a behind-the-scenes manner and in
secrecy, which makes their content questionable. Preparation of the reform
should be made public and involve civil society. Thirdly, administrative
barriers have a distorting effect on the competition environment thereby
creating competitive inequality of different players. Therefore the drawing up, public discussion and approval of a
new conception of competition policies acquire primary significance. Fourthly,
a transition to a contributory pension scheme is a sphere where the interests
of business and the people are closely interlinked and coincide for the first
time. However the pension reform cannot be implemented automatically in a
favorable environment, since the government being a regulator in this sphere is
at the same time a market participant. Fifthly, the process of stage-by-stage
legalization of business should be recognized de facto and necessary conditions
created for this.
Sustained use of natural resources
and civil society development may seem a strange combination of completely
different lines of social and government activities, on the face of it. But it
is an absolutely natural combination in its essence and perhaps a key priority
in Russia today. Arguments in support of this thesis are given in the ninth
chapter, Nature Conservation and
Civil Society Development in Russia. Regardless of whether we want it
or not, the economy and any plans for the revival of Russia are and will long
be based on natural resources. Russia so far abounds in natural resources. But
if used without restraint they may be depleted, degraded or hopelessly polluted
and turn from a reliable support into a serious danger not only for this
country but to the entire world. In addition to natural resources proper, of no
less significance are other environmental resources, such as the air, natural
landscapes with their recreational and aesthetic values and many others. Hence
the need for an overall evaluation of the natural wealth. Economists usually
describe it as an assessment of the genuine value of natural resources.
However, one should be aware of the relative “accuracy” of such assessments. In actual fact, natural resources are
invaluable and any assessments are correct only in terms of our current
understanding of the significance of this or that resource and our ability to
give it a proper evaluation. Our idea
of their value will certainly change together with our own evolution. Therefore
it is necessary to focus on ensuring that the value of natural resources
increasingly grows.
Civil society is something that is
in deficiency in Russia. Its progress is obvious but extremely slow. A growth
in the value of human life and health should become a key priority here. In
actual fact the question of the country’s future is whether this extremely slow
process of civil society evolution can catch up with the unrestrained expansion
of the above process, i.e. will it be completed prior to the ultimate end of
the rampant use of natural resources. This is an issue of political, economic,
social and environmental significance. Awareness of the need to fit the
expanding human activities into the natural limits of the environment and
natural resources lies at the basis of the sustained development conception.
Experience shows that no government can do this without actual civil society
involvement. To sum up, in Russia human resources and natural resources are the
main resources of the state and society, and the country’s subsequent
development will be determined by how successfully the priority task of
enhancing the value of these resources is solved. Civil society alone can act
as the initiator and reliable guarantor of the process.
