It Will be Difficult to Motivate the Private business to Enter the Social Sphere

On January 22, 2014, Premier Dmitri Medvedev put forward proposals on development of the sphere of social services, including a transfer of one-third of the state-guaranteed order for social services to the private business and commercialization of the education.


Such a proposal was prompted due to inefficiency of the existing economic growth model aimed at motivation of demand at the expense of oil and gas revenues. As early as the mid-2012, it became clear that the former model stopped working, so, it was time to look for a new model and review the pattern of state expenditures.


The Ministry of Finance may face problems already this year because the budget was drawn with a forecast plan envisaging a 3% growth in GDP with oil prices amounting to $100 a barrel. However, the government's expectations as regards oil prices appear quite optimistic in a situation where the global trend of diminishing demand on oil prevails. In 2014, the Ministry of Finance may encounter difficulties in fulfillment of the budget as regards revenues and expenditures if the price on oil drops considerably. In future, the situation will be getting only worse due to reduction of the able-bodied population and higher pressure on the pension system.


The consensus opinion of the government and the expert community is that the drivers behind the recovery of the Russian economy should be improvement of the business climate, motivation of private investments and support of the small and mid-sized business. Also, it is important to reduce budget expenditures and learn to live within means.


So, on the one side, a transfer of the state-guaranteed order for social services to the private business is a need justified by economic realities, while, on the other side, it is in line with the trend of encouragement of a better business climate.


It is to be noted that in a number of western countries the healthcare and education are effectively run by the private business. In those countries, state guarantees apply only to socially unsecured people.


However, in Russia there is a number of problems in the way of implementation of that proposal. Firstly, the Russian private investor is rather reluctant to enter the social sphere due to the fact that the prospects of return of investments and receipt of profits are unclear. Secondly, it is necessary to create conditions for development of the market of social services which are completely unavailable now. Thirdly, public conscience is to be adapted to formation of the market of social services as a majority of Russian citizens is used to receive social services from the state free of charge and does not trust the level of experience of workers at private clinics, in particular. Fourthly, from 2014 a portion of expenditures on education and healthcare will be placed on regions, thus creating an additional burden for them; regions dependent on federal donations will suffer it most. So, a transfer of a portion of the state-guaranteed order in that sphere to the business will make life for regions easier to some extent.


However, the problem actually consists in competition between regions for private investors. It is obvious that for a donor-region it is easier to attract investments than for a recipient. A return of investments to a Moscow-based clinic will be much faster than to a clinic of any other city. On the other side, it is logical that local governments should be responsible too for establishment of a competitive environment, however, due to the fact that budget funds are accumulated at the regional level local governments will not be motivated to encourage business activities and create conditions for attraction of investors to the sphere of social services.


Е.А. Pospelova, PhD, Senior Researcher of the Economic Development Department