Gaidar Forum 2014: Day 3

The 3rd day of the Gaidar Forum 2014 was dedicated to the "Sustainable Social Development is a Source of Economic Growth" topic and included a plenary discussion on "Social Policy: Inputs or Investment?".


The discussion was moderated by Rector of Moscow School of Management Skolkovo Andrei Sharonov. The discussion was attended by Olga Golodets, Deputy Prime Minister of the Russian Federation; Maksim Topilin, Minister of Labor and Social Protection of the Russian Federation; Tatyana Maleva, Director of the Institute of Social Analysis and Forecasting under the RANEPA; Laurence Kotlikoff, Professor of Economics, Boston University; Natalya Zubarevich, Professor at Lomonsov Moscow State University; Sergei Vasilyev, Member of the Board, Deputy Chairman, Vnesheconombank.


In her speech Tatyana Maleva dwelled on how to find a liability balance between social policy participants – between the state, business, families, and the society. It is the pension system that is meant to be the area in which the balance can be found. The pension reform was initially intended to combat poverty. The poverty issue in Russia was coped with as early as 2010, and new objectives for the pension system have been searched for the last 3-4 years. The issue of negligible amount of pension benefits vs. wages is the most obvious today. Economic incentives of retiring at an age other than the official retirement age will be able to increase the amount of pension benefits in the future. This mechanism will also help outcompete the acute and sensitive issue of extending the official retirement age in Russia.


Sergei Vasilyev urged to consider all social costs as investment in human capital, because even a seemingly pure expenditure item, such as costs of social support to the disabled has an indirect social effect as the unanimity of the society. There, however, are external factors which have an effect on social investment. For instance, private investors should be engaged to the healthcare and education sectors through insurance, which is the case in all the developed countries, whereas federal budgets are only needed to support the poor and those who are socially vulnerable.


However, planning social policy and public-private partnership in this area often ignores the difference in economic potential between the regions. For instance, private investors can easily enter sponsored regions, whereas they stay away fr om depressed ones. Therefore, special arrangements and measures of support to less developed regions are needed.


Natalya Zubarevich also pointed to the weakness of the reforms which the government has recently been implementing, without factoring in the difference in economic potential between the regions. "The federal government promotes reforms, provides some ideas but never asks the regions: "What are you able to do?" This is why we face systemic risks", noted the expert. She warned that in racing for the sector effectiveness the federal government will encounter major social issues. Mrs. Zubarevich provided an example of delegating authorities in social protection and education to the regional level. "We will end up with a situation in which the mayor in even major cities has nothing to decide on, because the regions have all the authority. Mayors won't be in charge of creating a competitive environment in cities. Such decisions require a systemic approach", pointed out the expert.


Maksim Topilin in his turn pinpointed the importance of the issue of driving economically active individuals from the informal sector of the economy. "Fifteen to 20 percent of the population are engaged in the informal sector. The state can't collect taxes and insurance contributions from their economic activity. It appears that 80% of the individuals with declared wages have to maintain and provide social support to those who avoid this obligation. This is unfair", noted Mr. Topilin. He urged to develop legal arrangements to address this issue.


The moderator asked Laurence Kotlikoff to dwell on social effects of the fiscal gap. Furthermore, Mr. Kotlikoff pointed out that the current issue of social sector underfunding will keep aggravating and have to addressed by the future generations. In Russia, wh ere the fiscal gap accounts for 8% of GDP, had a pension reform taken place in the middle of 1990s, there would have been no fiscal gap. The United States is facing a severe fiscal gap issue.


According to the expert, to resolve the fiscal gap issue in Russia in the context of pensions, avoiding debt accumulation, the existing pension-related part of the social framework should be frozen, 8% of workers' earnings should be credited to special individual accounts accrued with an interest based on the global market index. In the healthcare sector: workers should receive a voucher for a certain amount of medical expenses. This voucher, which the worker presents to a medical insurance company, will allow him to receive the basic scope of medical services. Should the allocated amount be not selected, it is to be revised the following year.


According to Mr. Sharonov, such proposals are painful for many.


Olga Golodets stated that the state will not accept decline in pension benefits because of shortfalls to the Pension Fund of the Russian Federation. "There is far too much of scaremongering around the so-called Pension Fund's deficit. This is a myth which should be dispelled once and for all". According to Mrs. Golodets, the pension system is well-balanced and can't be destroyed by any withdrawals. Should, however, problems occur, the state may revise challenged decisions. "We always can maneuver, and there is nothing to be worried about", assured the Deputy Prime Minister.


Regarding the extension of the retirement age, O. Golodets believes that this issue has been resolved for at least a decade to come and there is no need to go back to it. The Russians have enough incentives today to retire at an age beyond the official retirement age. "Women at the age of 56-57 and men at the age of 62-63, like in other countries, don't feel themselves old". According to Mrs. Golodets, encouraging late retirement which is provided for by a new pension formula offers a substantial benefit in terms of the amount of a pension for those who take such a decision.


Additionally, the Deputy Prime Minister noted that businesses have been showing more interest in the social sector (education, healthcare), and the government accommodating them.


In conclusion Mr. Sharonov suggested that the speakers should answer the question of measures they think the government should take in order to promote social investment. According to Mrs. Zubarevich, Russian major cities should let go, Mrs. Vasilyevа believes that public guaranties on private investment should be given, Мrs. Topilinа thinks that the profit tax on social-oriented enterprises should be set to zero, Mrs. Maleva believes that it investment should be made in all stages of education, in ensuring continuous education, because it means investment in increasing life expectancy.


A plenary discussion – "State strategic initiative – enlarging access for business to the social area" – was held by General Director of the Agency for Strategic Initiatives Andrei Nikitin. The discussion was attended by Deputy Minister of Labor and Social Protection of the Russian Federation Alexey Vovchenko; First Deputy Minister of Education and Science of the Russian Federation Natalya Tretyak; Deputy Head of the Federal Agency for Tourism Dmitry Amunts; Director of the Department for Budget Policy in Social Area and Since under the Ministry of Finance of the Russian Federation Vladimir Zelensky; Kirov Region Governor Nikita Belykh; First Deputy Chairman of the Ulyanovsk Region Government, Minister of Strategic Development and Innovations Akexandr Smekalin; State Duma Deputy of the Russian Federation, First Deputy Chairman of the Committee for Housing Policy and Communal Services, President of the National Agency for Low-Rise Housing and Cottage Construction (NAMIKS) Elena Nikolayeva; Director of the Public-Private Partnership Development Center of under the State Corporation 'Bank for Development and Foreign Economic Affairs (Vnesheconombank) Akexandr Bazhenov; ОАО Gazprombank Vice-President Oleg Kostin.


The discussion covered issues related to the social sector, namely ensuring equal rights of public organizations and business entities. Furthermore, potential measures which can provide an opportunity for social-oriented business entities to have access to public contracts were covered. The discussion also focused on a technical matter concerning methods of introducing unified quality evaluation standards for provided social services. Public-private partnership projects in the social sector and their feasibility under the current conditions were discussed too.


At present, Russia has as little as 78 non-public social service agencies providing everyday support to the disabled, lonely elderly people. They account for a bit more than 1% of the total social agencies. "There is "Social Support to Individuals" government program under which we must increase the share of the non-public sector to 10% by 2018", reported Alexey Vovchenko. Moreover, the Federal Law "On the Social Services" provides for engaging private entities in the social service sector. Yet, private entities hasn't shown much interest in this sector, because, on the one hand, it is a hard and troublesome matter, on the other hand, it simply has so far been unfavorable for private business to provide social services. "Public social agencies have provided services for more than 26,7 million persons, while non-public agencies covered as little as approximately 27,000 individuals", said Mr. Vovchenko. At the same time, this market is potentially promising for business, because the number of those who seek entitlement to social services has been growing. "Investment in this sector should be long-term, and there are solid guarantees of strong demand for social services. Investors, social service providers, must be sure that the costs covered by the state will meet their costs", stated the Deputy Minister.


The Ministry of Labor of Russia has been working on new rules of operating the social sector which would promote competition in the market of social services. Public-private partnership is assumed to be actively introduced. Options of granting various allowances have been working out to be able to engage private businesses in the social sector, e.g., subsidizing interest rates on loans for investment projects, granting extra fiscal loosening.


"Also, the social service sector should receive coverage by the Federal Law "On Concession Agreements", which is not the case for the time being, as noted Alexey Vovchenko. "Respective amendments have been prepared by the Ministry of Economic Development of the Russian Federation, and the Law will cover social services along with education, healthcare". Additionally, a framework law on the basic principles of social services has been adopted, which allows individuals to sel ect an institution for the provision of a service. "Should a non-public organization be selected, the state will cover the costs within the tariff on a social service".


Natalya Tretyak reported that the Ministry of Education and Science of the Russian Federation is very much interested in the non-public sector's extensive development in the Russian education. She also recalled that "private education emerged for the first time in 1992 and was most widespread in higher vocational education and extended children education". At the same time, the Deputy Minister noted that "the Ministry of Education and Science of Russia has already taken a package of measures which are supposed to boost the development of non-public education in the Russian Federation". In particular, public and non-public education institutions are equally entitled to educational grants for children: both non-public and public pre-school general education institutions are entitled to educational grants for children in compliance with the standards established in the constituent territories of the Russian Federation. Additionally, there has been an arrangement of distribution of admission quotas in place for a few years in higher vocational education which makes no division between a public and non-public higher education institution. "We are sure that these and other measures towards non-public education institutions must promote the development of the private sector in the Russian education", concluded Mrs. Tretyak.


Mr. Amunts brought up the issue of the development of social tourism including public-private partnership projects which are intended to promote the same. In his speech he told about topical issues of the development of social tourism, positive experience in implementing social programs in tourism in Russia's regions and outlined focus areas towards a successful development of social tourism.


The state has exhausted its potential and needs business help in expanding the social sector, improving the quality and quantity of services. This conclusion was made by an interdepartmental team of specialists engaged by the Agency for Strategic Initiatives for making a roadmap of business and non-profit organizations entering into the social sector. The results of the experts' work were reported by Lev Jacobson.


Mr. Jacobson noted that business and non-profit organizations have two options of entering the social sector: adopt western methods of public-private partnership while making no efforts until ideal conditions are created or increase financing of respective public agencies. The expert believes that both options are wrong. Mr. Jacobson said that simple replacing budget funding with private one is a political mistake: "We considered an option of how to amplify public efforts and financing with non-public entities', both business and non-profit ones, efforts and financing".


According to Vladimir Zelensky, the state shouldn't allow business entities to use budget funds unless and until a list of services to be ordered fr om private companies has been prepared, the cost of such services understood, and unified standards elaborated. Additionally, he believes that the public contracting system is useless here, because it provides no opportunity to entrepreneurs for long-term planning, and funds should be allocated on the basis of grant principle.


Elena Nikolayeva and Akexandr Bazhenov emphasized the issue of implementing public-private partnership projects in the social sector and the problems faced in adopting a law on public-private partnership.