IV. Communicative practice

1. Give your explanation of the main features of public goods and private goods to decide if the following goods must be produced by the market or by the government: bread, bridges, parking places, swimming pools, health service, post service, housing, air control, libraries.

2. Suppose you are a member of the State Duma. You are concerned about the inflation rate in this country. Make suggestions to the Government.

3. Most of the government actions have a simultaneous effect on the income allocation, allocation of resources and on the level of unemployment and prices. Can you give any examples to prove this statement?

4. Suppose you are a member of the board of directors of a big company. You suggest your company should stop polluting the environment because... Discuss the problem.

Russian Experience

1.Think and say:

a) Do many people in Russia need help?

b) Does the government do much to help needy people? Is it a problem of allocation of resources?

c) What depends on the State Duma?

d) Have you ever got any benefits?

2.Read the text and speak about the welfare policy of the Russian government.

State Duma Rejects Welfare Package Again

The State Duma has failed to sign the welfare package and no new proposal is likely to be forthcoming.

Cabinet ministers think that the deputies simply obeyed party discipline, while opposition factions assert that it was not a matter of discipline, adding that the government failed to explain why the people need such a package.

The welfare package seeks to regulate a number of privileges: altering the financial sources for free fares on public transportation for public prosecutors, judges and customs officers; revising veterans’ benefits (which are also enjoyed by members of their families); ascertaining whether or not welfare aid for poor children reaches the correct addressees; introducing norms for payments on medical certificates, and so forth.

After the first (June) rejection of the welfare package, government experts presented detailed calculation showing how the abolition of benefits for a section of the population would affect the rest of the citizenry, and how this would affect budgets of all levels. The government also agreed to take some deputies’ proposals into account. The first responses to the new welfare package were encouraging. For example, it won the backing of nearly all members of the Duma Committee on Labor and Social Policy. But at government representatives’ preliminary meetings with deputies’ factions and groups, it became clear that the welfare package would be voted down. The deputies were annoyed because they had not received substantial arguments in favor of adopting such package at the right moment.

The government has long given up its former interpretation of the concept of “the beginning of social reform”. The emphasis is now on something else. Budget expenditures must be regulated in order to ensure benefits for at least the most needy. However, the funds saved in this way would not be large, and the cutback of “unnecessary” benefits would not immediately lead to the liquidation of arrears on “necessary” benefits. The government is right when it says that we have to start getting rid of “limitless benefits”, but this reasonable argument was rejected by the exasperated deputies. They contend, for example, that it would be dangerous to cut the benefits of officials of the General Prosecutor’s Office because their salaries are always delayed.

According to Yevgeny Gontmakher, head of the government’s social welfare department, the government is unlikely to go to the Duma a third time. He says, “In the first place, we can no longer propose anything fundamentally new. Second, it’s high time the Duma gets busy with the budget and the Tax Code. Finally, many of the proposed amendments can be enforced without parliament’s approval.”

Some recommendations will be given to local administrations. Other measures, such as the adjustment of benefits for judges and public prosecutors, can be carried out within the framework of federal budget allocations for the judiciary.

Incidentally, some of the government’s social proposals are already being implemented. Beginning from September 1, the social insurance fund’s board will introduce a new scheme for making payments on medical certificates. Prior to 1993, the amounts of these benefits were limited. Later on, the limits were abolished, and the social insurance funds burdened with these payouts were tired of enterprises’ tricks. There is a textbook story about a firm’s female employee who, two months before her maternity leave, received a sum equal to the price of an apartment (in the last few months of her employment, she was given a huge salary, which formed the basis for calculating the amount of payments on her medical certificates). Henceforth such things will not happen.

The government’s new scheme is also going to be used in granting public transportation benefits financed from regional budgets. The government believes that in this case the regions will gladly accept the relevant recommendations.

The government intends to continue its social initiatives. Some of them may have to be upheld in parliament, others introduced by edicts and decrees, and still others may gain approval during debates on the 1998 budget.

(Moscow News, October 2-8, 1997.)

Key terms.

1. Public and private goods

2. Free rider

3. Externalities

4. Monopoly

5 .Merit goods