In former command economies, such as Belarus, the
process of enterprises shedding their "social assets"
is seen as necessary to the transition to a market economy. The
problem-for social policy in transition economies-is whether and
how to continue supplying those social services after enterprises
no longer provide them.
Sewell argues that in Belarus the term "enterprise social assets" is just about always a misnomer for fringe benefits that were part of the normal wage bargain with employees and were a rational response to labor shortages and constraints on wage offers in the old command economy. Firms in market economies respond similarly to the same incentives, and the continuing favorable tax treatment of benefits explains much of their continued importance, in Belarus and elsewhere.
Between 1994 and 1995 those benefits, as a portion of employee remuneration in Belarus, were cut by at least two-thirds. The economic downturn then contributed to a relative decline in benefits, particularly those involving capital expenditures such as housing construction and maintenance.
Large enterprises provided more benefits than other firms, and the quality of services provided by enterprises was considered superior to those provided by the government. In other economies of the former Soviet Union enterprise costs for these services have also been found to be higher because of the substantially higher salaries paid to employees who provided these services.
Whether most of those benefits should still receive public subsidies or preferential tax treatment is debat-able. A case can be made for some government funding of public health and kindergarten services. It is also essential to find alternative sources of housing and public utility services. As much as 25 percent of unemployment in transition economies has been attributed to labor immobility arising from lack of housing.
Local infrastructure is clearly a responsibility appropriate to local governments. In Belarus assigning services such as education and health care to local governments is more debatable.
Methods of financing local services also need to be addressed. The central government shares its revenues with local governments based on the area where the revenues are collected, but such revenue sharing inherently leads to more resources going to wealthier regions. Moreover, the subnational share of government revenues has declined, from 70 percent in 1992 to 48 percent in 1996. The earmarked taxes levied on enterprises to pay for housing maintenance and kindergartens are not justified because no close link exists between beneficiaries and payments. In fact, too much use is made of earmarked taxes in Belarus. And the taxes levied by subnational governments raise insignificant revenues.
Cost recovery from users should finance local utilities. Belarus also needs effective real estate taxes to finance local government services to property; current land use taxes cost more to administer than they raise in revenues. Where transfers to local governments are required, Sewell recommends formula financing.
This paper — a joint product of the Technical Department
and Country Department IV, Europe and Central Asia Region — is
part of a larger effort to find solutions to the problems of transition
in the economies of this region. Copies of this paper are available
free from the World Bank, 1818 H Street NW, Washington, DC 20433.
Please contact Constance Lawrence, room H7-092, telephone 202-473-2216,
fax 202-477-0686, Internet address clawrence@worldbank.org. (31
pages).
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