|End of Soviet-Era Freebies
Dents Putin's Popularity;
Risk to 2nd-Term Agenda
By GUY CHAZAN
Staff Reporter of THE WALL STREET JOURNAL
January 13, 2005
MOSCOW -- Russia's implementation of far-reaching, ground-level economic
changes to the welfare system this month has provoked huge protests and put
an immediate dent in President Vladimir Putin's seemingly ironclad popularity.
The Kremlin has scrapped Soviet-era social benefits for the elderly, the
disabled and other disadvantaged groups, replacing free public transport,
prescription drugs and phone lines with cash handouts of as much as $70 a
month. The move is part of Mr. Putin's plan to dismantle the last vestiges
of the old socialist economy, but the ensuing demonstrations -- the biggest
in years here -- could slow his pursuit of further changes.
Free-market advocates long had called for an overhaul of the old system,
which was inefficient, open to abuse and saddled the government with more
obligations than it could afford. But the chaotic way the transition has
been handled shows that despite Mr. Putin's tight grip on all branches of
government, his administration still struggles to operate efficiently. Many
people have yet to see any of the cash payments they were promised, and
those who have say the money doesn't compensate for the benefits they have
The result has been a wave of protests on a scale not seen since 1998, when
angry miners lay down on railway lines to protest wage arrears. On Monday,
hundreds of pensioners blocked the main Moscow-St. Petersburg highway for
several hours before being dispersed by riot police, and similar
demonstrations have been held in other cities. Across the country, bus
conductors who have tried to collect fares from pensioners have been
attacked. Policemen, who also lost their right to free transport, have
protested as well.
Mr. Putin has taken note, telling a local governor in Siberia yesterday to
make sure groups affected by the changes, such as veterans of labor and
victims of Stalin-era political repression, "don't feel insulted," he said.
"We have to think about ... the people."
The changes have contributed to a souring of the public mood. Opinion polls
show the share of Russians who think the country is on the wrong track is
rising after several years of registering a more positive outlook. Mr.
Putin's popularity, while still high, has slipped.
For Mr. Putin, the outcry could bode ill for his second-term agenda, which
was to be dominated by an overhaul of Soviet-era institutions. Plans are
afoot to make Russians pay far more for education, health and pension
provisions. Liberals now fear the mishandling of the benefit changes could
give Mr. Putin pause.
"The whole idea of economic reform has been discredited," says Mikhail
Zadornov, a former finance minister and leading independent lawmaker. "This
will inevitably mean that the next big overhauls -- of the budget,
education, health -- will be put off. That will be ruinous for the economy."
Mr. Putin's first term was defined by moves to simplify Russia's tax code
and allow the privatization of land, earning him the reputation of a
free-market modernizer. But the benefits change is the first major move to
directly touch tens of millions of Russians since the 1992 decision by
Boris Yeltsin's government to free up state-controlled prices. While that
move eliminated shortages and ushered in a market economy, it also led to
hyperinflation and wiped out the savings of millions of Russians, causing
widespread disenchantment with all efforts to revamp the economy.
The same reaction is afoot today.
"People believed the official propaganda that this law will be good for
pensioners," says Valery Gartung, head of the Russian pensioners' party and
a member of parliament. "Now it's come into force and they realize they've
been deceived again. They realized this as soon as they started getting
kicked off buses and trams."
The rising tension comes as economic policy, a relative success story
during most of Mr. Putin's first term, has lost direction. Paralyzed by a
long-running administrative shake-up, the government of Prime Minister
Mikhail Fradkov has repeatedly postponed promised measures to liberalize
the energy sector, overhaul the banking system and reshape public services.
Business confidence has been soured by the state's pursuit of oil giant OAO
Yukos, and capital flight has increased. The drift in policy led to a
slowdown in growth last year, endangering Mr. Putin's plans to double
Russia's gross domestic product in 10 years.
Mr. Putin long has argued that Russia's benefits system was ripe for
change. "In a market system, the old methods of state support ... have
become inefficient," he told reporters last month. "A lot of resources were
allocated ... but a lot of it just didn't reach the people." Federal
spending on the poor and the disadvantaged would increase sixfold this
year, he said.
But the effort was mismanaged from the start, critics say. In early
calculations, ministers underestimated the number of benefit-recipients by
several million. Regional parliaments weren't given enough time to pass the
hundreds of regulations required to underpin the new system.
Most controversial of all, the Kremlin forced regional governments to foot
the bill for about half the 30 million people receiving the new handouts.
That isn't a problem for cities such as Moscow, which is continuing to
subsidize pensioners' transport, or for oil-rich parts of Siberia. But some
regions are so poor they can barely afford to pay public-sector workers,
let alone supplement the incomes of the disadvantaged.
"About two-thirds of Russian regions don't have enough money to cover
this," says Mr. Gartung.
Previous attempts to change Russia's welfare state were modified
substantially after encountering tough resistance from lawmakers in the
Duma, or parliament. But after years in which Mr. Putin has steadily eroded
Russia's democratic institutions, stacking the Duma with pro-Kremlin
parties and putting all the major television channels under state control,
the latest benefits changes were subjected to far less public criticism
before being signed into law in August.
"What's most scary is that no one seemed to care about how the people felt
about this," says Sergei Smirnov, director of the Institute of Social
Policy at the Higher Economic School. "This reform affects half the
population, but they just brush off people's opinion like it's a nuisance.
They know that whatever stupid laws they write, they'll still sail through