Postcommunist Welfare States: Reform Politics in Russia and Eastern Europe

Introduction: Welfare States and Postcommunist Transitions

Introduction Welfare States and Postcommunist Transitions The postcommunist transitions that altered the political and economic systems of the Soviet Union and Eastern Europe had dramatic effects on their welfare states. As these countries moved into market transformation and deep recession in the early 1990s, their inherited systems of broad, basic social provision became financially unsustainable and ineffective. Governments were caught between preexisting commitments to provide welfare for their populations and intense pressures to restructure their economies, cut social expenditures, and adopt more market-conforming welfare models. This book looks at how governments in Russia and four other postcommunist states responded to these conflicting pressures as their centrally planned economies collapsed and market economies began to emerge. It asks how welfare state change was negotiated through transitional recessions and subsequent economic recoveries, and it compares the outcomes for welfare state structures, expenditure levels, and provision of social services, insurance, and protections. For postcommunist states and societies, a great deal was at stake. Communist-erasocialsectorswerefullyadministeredandfinancedbystates, which had eliminated markets and alternative sources of social provision. State-funded social services such as health and education, although comparatively of low quality, were nearly universally available. Social insurance, subsidized housing, and myriad other benefits and transfer payments were provided to broad populations and privileged groups. Communist welfare states faced high demand, and they were chronically underfinanced. The situation had worsened significantly during the 1980s as economic growth across the region slowed and welfare performance deteriorated. Moreover, these welfare states were embedded in full-employment economies based on the centralized state planning and resource allocation that formed part of the communist developmental model. The transformation to market economies and privatization of production cut away their core by ending full-employment guarantees and greatly reducing states’ control over allocations. In addition, deep economic recessions affected postcommunist economies during the 1990s, calling for programs of fiscal stabilization and substantial cuts in welfare expenditures. At various points in the decade,economicrecoveryeasedthesefinancialpressuresongovernments, but for the most part the old welfare models were no longer viable. At the same time that they faced strong economic and structural pressures to cut back on welfare, postcommunist governments confronted potentially high political costs for doing so. Here there were three major problems: populations were state-dependent, popular attachments to the welfare state were strong, and organized stakeholders favored its maintenance. Communist systems had allowed almost no accumulation of personal wealth, and most savings were eliminated by inflation in the early 1990s. Pensioners and other recipients of transfer payments depended on the state—most had no alternative sources of income. Moreover, postcommunist populations remained strongly attached to public provision, sharing a broad sense that the state was responsible for accustomed social services and entitlements. The governments in newly democratizing postcommunist states had to be concerned about a possible political backlash against welfare cuts that could threaten their power as well as the broader reform program. Third, communist-era welfare states had produced organized stakeholders, social-sector elites and welfare bureaucracies with vested interests in public administration and financing of social welfare. Powerful stakeholders could try to block reforms or press for compensation. While some parts of communist-era publics and social-sector elites had become critical of the old welfare system and supported reform efforts, many resisted changes. Most fundamentally, popular welfare, or the fulfillment of “crucial needs,” was at stake in the postcommunist transition.1 If reformers responded to economic pressures by dismantling statist structures and cutting 1 This term is used in Robert R. Kaufman and Joan Nelson, eds., Crucial Needs, Weak Incentives: Social Sector Reform, Democratization, and Globalization in Latin America (Baltimore: Johns Hopkins University Press, 2004) to refer to health and education because of their centrality to societal well-being and development. 2 Postcommunist Welfare States Introduction 3 entitlement programs, they risked leaving large parts of their populations without access to basic services or income. If they tried to keep the inherited welfare state in place, existing beneficiaries might retain some protection but overall deterioration of welfare provision seemed inevitable. Services and benefits could become seriously underfinanced, leading to declines and arrears in social payments, corruption among poorly paid service providers in health and education, and exclusion of low-income groups from access. Moreover, there would be no resources available to address pressing new social needs such as transition-induced unemployment and poverty. On the face of it, the best strategy was to restructure the inherited welfare state, to create a new system of social provision that reduced and re-allocated...