Transforming Post-Communist Political Economies (1998) / Chapter Skim
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10 Reform of the Welfare Sector in the Post-Communist Countries: A Normative Approach
10 Reform of the Welfare Sector in the Post-Communist Countries: A Normative Approach
Pages 272-298
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From page 272... ...
In the United States, the Clinton Administration's health-care reform effort was stymied, while in Germany and Austria there has been strong resistance to attempts to introduce modest reductions of a few percentage points in welfare spending. Similar efforts in France produced crippling strikes.
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From page 273... ...
While the promise of universal entitlements aroused great expectations among the public, the actual standards for their provision embittered many, who felt that the communist state had failed to keep its promises. As a result of the dramatic changes of 1989-1991, the post-communist countries experienced the deepest economic crises in their history.
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From page 274... ...
274 4= .~ a' fi A ¢ o sit ;^ Ed ~ ;^ · ~ 4= ca ca ~,4 ~ ~ ·o ~ ~ o o ~ ~ ~ En ~ ~ ~ o o ~ ~ ~ ca ~ ° V, ~ o ca ~ o z or Do ~ ~4 E-° do .
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From page 276... ...
Expectancy 1989 Albania 5.4 30.9 72.1 Bulgaria 11.9 14.4 71.3 Croatia 11.3 11.7 72.2 Czech Republic 12.3 10.0 71.8 FYR Macedonia 6.9 36.7 Hungary 13.7 15.7 69.6 Lithuania 10.3 10.7 68.7 Poland 10.0 16.0 71.1 Romania 10.7 26.9 69.6 Russia 10.7 18.1 69.6 Slovakia 10.2 13.5 71.1 Slovenia 9.3 8.1 72.8 Turkmenistan 7.7 54.7 65.1 Ukraine 11.7 13.0 70.9 1994 Albania 5.25a 35.7 73.7a Bulgaria 13.2 16.3 70.9 Croatia 10.4 10.2 73.1 Czech Republica 11.4 8.5 72.9 FYR Macedonia 8.1 27.3a Hungary 14.3 11.6 69.4 Lithuania 12.5 16.5 68.7 Poland lo.2a 13.3a 71.7a Romania 11.7 23.9 69.5a Russia 15.6 18.6 64.1 Slovakia 9.6 11.2 Slovenia 9.7 6.5 74.1 Turkmenistan 7.9 42.9 63.9 Ukraine 14.7 14.3 68.4 Central and Eastern Europe averagea 11.4 14.4 71.1 Former Soviet Union averagea 13.1 23.5 66.1 European Union averagea 10.1 6.79 76.9 aThe data are for 1993. SOURCE: Goldstein et al.
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From page 277... ...
It is taking place on various planes: among politicians, within and between political parties, between finance ministries and the ministries responsible for managing the welfare sector, among opposing pressure groups, and among various schools of thought in the academic world. Reforms too often reflect compromises between diametrically opposed principles, or embody no guiding principle whatsoever.
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From page 278... ...
The main problem with the welfare system inherited from the communist regime is that it leaves too wide a sphere of action, and a corresponding range of resources, in the hands of the government, the political process, and the bureaucracy, rather than with the individual. This infringes on such fundamental human rights as individual sovereignty, self-realization, and self-determination.2 When government spending on welfare decreases, along with the taxes that finance it, citizens are not having their rights infringed upon; rather, they are regaining rights of individual determination and disposal.
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From page 279... ...
Suffice it to say that the set of those in need of aid will be much narrower than the community as a whole (see Andorka et al., 1994; Atkinson and Micklewright, 1992; Milanovic, 1997; Sipos, 1994~. Implementation of the solidarity principle requires only targeted state assistance, not universal entitlements.
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From page 280... ...
and targets state assistance to the needy, while the latter promises universal entitlements, with resources channeled through paternalist state redistributive institutions. One further comment seems appropriate.
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From page 281... ...
These requirements can provide a broad base that is acceptable to people with widely differing views on the nature of freedom, equality, and social justice. Still, Principle 1 will be alien, and Principle 2 may be superfluous, to those whose axiomatic point of departure is collectivist, i.e., those who would subordinate the rights of the individual to the interests of a specific community or ideology, be that a nation, race, class, or religion.
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From page 282... ...
However, the nonstate sector must attain a critical mass before it can overcome the enervating effect of the state's dominance, which enables the producer (the welfare state) to dictate to the consumer.
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From page 283... ...
Just as it would be a mistake to entrust all of one's retirement savings to a single pension fund, total reliance on the state can render an individual vulnerable. By the time a person retires, the political authorities may have revised the rules for compensation, effectively expropriating part or all of an individual's contributions.5 Alternatively, pensions may be eroded by policy-induced inflation and by indexation rules that whittle away their real value (see Table 10-3~.
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From page 284... ...
Proper incentives on the demand side include inducing efficiency among the insurers that will largely finance welfare services. This is one of several arguments against awarding monopolies to the monstrous "great wens" of central state health insurance and pension authorities.
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From page 285... ...
It should establish minimum standards for service providers, while claimants' and users' associations, the press, and civil society as a whole should play the role of watchdogs. · The state should guarantee the security of savings that citizens entrust to insurance institutions or pension funds.7 7Nonstate or quasistate reinsurance institutions can be established to protect citizens insurance investments against the failure of a particular insurer.
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From page 286... ...
If the public, through the political process, expresses the wish that part of the financial provision for old age remain within the state pension system or that certain hospitals remain in state hands, and if they are willing to pay the necessary taxes, their wishes should be respected. The latter proviso (willingness to pay the associated tax burden)
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From page 287... ...
The first calls attention to the fact that many citizens do not recognize that the costs of the services provided by the welfare state are borne by them, as taxpayers. Understanding of the relationship between taxes and state spending is vague or distorted all over the world, but this fiscal illusion is nowhere as pronounced as it is in post-communist societies, where people have been indoctrinated for decades with the idea that health care or education is "free."9 Once citizens recognize that the taxpayer pays for every state service and are informed of the extent of the costs, resistance to decentralizing reforms will decrease substantially.
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From page 288... ...
These difficulties provide additional arguments for Principles 1, 3, and 5. There must be a reduction in the set of welfare services under the state's direct control so that these matters are less subject to the vagaries of the political process.
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From page 289... ...
to an individual account with a nonstate pension fund. Returning to the more general plane of discussion, to the extent allowed by the state of the economy, the sufferings caused by the introduction of these changes should be mitigated, and the process of adaptation encouraged, through assistance to those who suffer severe losses as a result of reform.
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From page 290... ...
They dismiss the elementary economic argument that living standards for the majority in the post-communist countries will never attain the present average level in the West until there is sufficient investment to produce lasting and sufficiently rapid growth. At the other extreme is the view that sacrifices welfare spending in favor of investment projects.
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From page 291... ...
That is why I termed them "premature welfare states" in an earlier study (Kornai, 1992~. Hungary went the furthest in this respect (see Table 10-5)
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From page 292... ...
23.1 (20) Post-Communist Countries Albania 6.3 14.4 Bulgaria 10.2 21.5 Czech Republic 8.3 Slovakia 9.3 18.0 Hungary 11.6 18.3 Poland 14.7 29.2 Romania 6.4 14.9 Russia 6.0 Ukraine 7.1 14.8 NOTES: In the first part of the table, the data refer to the period 1985-1992, and figures in parentheses indicate the number of countries for which data are available.
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From page 293... ...
State welfare expenditures are paid out of general tax revenues, making it difficult to determine the relative role of welfare spending in the overall deficit. This study does not address the various causes of fiscal deficits at different times and in different countries.
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From page 294... ...
We must consider both the social and economic costs and benefits of welfare reform. All too often the academic debate is bifurcated, with the "defenders of the welfare state" describing in dramatic terms the sufferings of the destitute and disadvantaged while dismissing any mention of the requirements of harmonious economic growth.
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From page 295... ...
They are also dissociated from the cold-hearted radicalism that would dismantle all the achievements of the welfare state, and the ideologues who are uncritically biased against the state and in favor of the market. The set of nine principles represents a specific "centrist" position, and though dissociated from the traditional left and right wings, draws noteworthy ideas and proposals from both.
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From page 296... ...
It seeks to build much more firmly on individual responsibility, the market, competition, private ownership, and the profit motive, and it rejects much more strongly the proliferation of bureaucracy and centralization than old-style social democracy used to do. On the other hand, it does not accept any of the Eastern European variants of ultraconservatism.
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From page 297... ...
Lindbeck, A 1996 Incentives in the Welfare-State, Lessons for Would-Be Welfare States.
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From page 298... ...
Pp. 226-259 in Labor Markets and Social Policy in Central and Eastern Europe.
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