Benefits or Services? Politics of Welfare Retrenchment in Russia, 2014-2017

• In Event: Russian Political Economy: Arctic, Oil, Welfare and Pension

Abstract

Vladimir Putin’s third term (2012-2018) was a period of economic stagnation and crisis. For the first time since Putin’s coming to power in 2000, the Russian government found itself in a situation where it had to make tough choices in order to maintain fiscal stability. The paper investigates the scale of social spending cuts during the acute phase of the crisis in 2014-2017, the distribution of those cuts across different areas of welfare provision (public education and healthcare, social benefits and services), regional strategies of welfare retrenchment and the government rhetoric regarding the cuts. The analysis reveals that the Russian authorities did indeed implement austerity measures, yet these measures followed a distinct pattern in terms of their distribution across different regions and areas of welfare policy.

In a 1998 article, Richard Clayton and Jonas Pontusson argued that the Western governments tended to target the service components of the welfare state (i.e. public education, healthcare and social services) instead of entitlement programs during the phase of retrenchment. They suggested that cuts to public services are politically safer and thus easier to implement than cuts to welfare benefits. The purpose of this paper is investigate whether this argument applies to the Russian case, with its welfare policies based on what Linda Cook and Martin Dimitrov call an implicit social contract sustaining the legitimacy of an electoral authoritarian regime.

The analysis of Russian budgetary statistics shows that Clayton and Pontusson’s argument does apply to Russia. While the average annual growth rate fell across all areas of social spending in the period of 2014-2017 compared to the period of 2009-2013, the most dramatic decline was in education, healthcare and social services. For these budget outlays, the average annual growth in spending (adjusted for inflation) was negative, while for pensions and social benefits it was positive, indicating that the government clearly prioritized benefits over services. The subsidy to the Pension Fund in particular became an enormous burden for the federal budget, far exceeding all other budget outlays. Family benefits also showed steady growth, indicating that the demographic concerns were still central to Putin’s administration. However, annual spending on healthcare declined by 2,5 per cent on average, while spending on education declined by more than 4 per cent on average, resulting in staff cuts, unsustainable workload for the remaining teachers and doctors as well as deteriorating material conditions in public education and healthcare. These areas have been neglected throughout the whole post-Soviet period. They were also the first to fall victim to the crisis.

Federalism was an important factor in the pattern of welfare retrenchment as well. While the central government maintained high level of spending on pensions, it consistently withdrew from other areas of social provision, shifting the burden of welfare onto the regional governments. Regional finances greatly deteriorated due to the federal policies, yet Putin did not hesitate to blame the governors for the declining welfare effort in a characteristic strategy of blame avoidance.

The regions chose different strategies to deal with fiscal problems and welfare obligations. In order to reveal these strategies, I constructed a regression model for the growth in regional spending on education, healthcare and social benefits during the crisis years of 2014-2017. The model shows that the spending on education and healthcare is highly dependent on regional economic growth, but also on the size of the regional deficit, indicating that only the most economically successful and highly indebted regions were able to maintain high levels of spending on public services. For the social benefits, however, the dynamic is completely different. The growth in this type of spending is not statistically associated with either regional economic growth or the size of the regional deficit, yet it is negatively associated with the regional spending on benefits in 2013, meaning that regions with low initial level of social spending tried to catch up with higher spenders. The regions with the highest average annual growth in spending on welfare entitlements were also those that were the most dependent on federal subsidies, indicating that heavily subsidized regions prefer to spend federal transfers on welfare benefits.

The diminished spending on education and healthcare has a strong negative effect on the general welfare of the Russian population. It leads to the deterioration of the working conditions for teachers, doctors and other public employees. Austerity measures in these areas undermine economic growth by reducing investment in human capital, thus contributing to the vicious circle of economic stagnation and further austerity.

Author

• Ilya Matveev, North-West Institute of Management RANEPA