Capitalism hits home in Russia

Next month, the Kremlin unveils a plan to wean the country away from housing and other subsidies.

The USSR collapsed 10 years ago, but for most Russians, Communism never really ended. It has lived on in the form of nearly cost-free housing, municipal services, heating, and electricity. But a capitalist jolt is on the way.

In early July the Kremlin will hand down a plan to carry out Russia's long-delayed "housing reform" - a set of dull-sounding but potentially explosive changes. Experts say the reform will have to navigate a fine line between infrastructural collapse and social chaos. "There must be a swift and fundamental shift from state subsidy to market relations in the housing sphere," says Anwar Shamuzafarov, head of the State Committee on Housing and main author of the plan. "It is extremely urgent," he adds, citing dire figures on the deterioration of housing stock and physical infrastructure over the past decade.

The plan aims to shift the full burden of housing, utilities, and municipal service costs to the consumer by 2003. Then follows a program to privatize such functions as garbage collection, apartment maintenance, repair, and the huge Soviet-era central heating stations that warm entire city quarters.

But Valery Mansurov, president of the Russian Society of Sociologists, and a critic of the plan, says that "in putting this reform on the agenda before the living standards of Russians have been radically improved, the Kremlin is planting a bomb under the foundations of our social stability." He adds, "All of our studies show that over 60 percent of the population cannot afford to pay anything near market value for their housing, heat, and utilities."

Almost every Russian family received an apartment or house free of charge, as a gift from the departed USSR. Fearful of popular backlash, successive post-Soviet governments have been reluctant to tamper with the massive subsidies that kept the charges for maintenance, utilities, and municipal services almost negligible. That helps explain how most Russians have weathered the past 10 winters on average salaries hovering around $100 per month.

But there has been little investment in infrastructure over the same period. Mr. Shamuzafarov says 60 percent of crumbling, Soviet-era apartment blocs require major repairs, one-third of all water pipes and 17 percent of sewage pipes urgently need to be replaced, and the natural-gas distribution network has become dangerous due to decaying lines and equipment. Leaks in central heating networks waste the equivalent of 80 million tons of oil annually.

Accidents and breakdowns have increased fivefold in the past 10 years. "If we don't energetically start reform now, the system may collapse and create multiple catastrophes," says Franz Sheregi, director of the Center for Social Forecasting, an independent Moscow think tank. He cites breakdowns of central heating systems in several Russian Far East communities, and rolling power blackouts that swept across Siberia last winter. "That's what awaits the whole country if we don't act quickly."

At least $20 billion must be raised to make immediate repairs, and the only possible source for these funds is the Russian consumer, Mr. Sheregi says. "The poorest people must be subsidized, but I believe the majority of Russians can pay. In the longer run, most municipal services should be privatized and turned into profitable, competitive businesses."

Critics say Russia's beleaguered middle class will be undermined by the reform, and that the country's tentative industrial recovery could suffocate as consumers shift their spending to cover escalating housing costs.

"In Russia, a family of three whose combined income is 6,000 rubles (about $200) per month is considered solidly middle class," says Vladimir Grishanov, a researcher with the independent Institute for Social and Economic Population Studies in Moscow, which has surveyed possible effects of housing reform in several Russian cities.

"Right now, that typical middle class family's bill for housing and utilities comes to around 400 rubles (about $12) per month," he says. "That leaves them enough disposable income for food, clothes, maybe newspaper subscriptions, a few consumer goods, perhaps even an occasional vacation."

But, Mr. Grishanov continues, if the same family is forced to pay market value for housing and services, that will devour at least a quarter of its income. "Under the plan being prepared, this family would still not be eligible for state relief. But the family's disposable income will be gone, and it will have to give up most of those extra purchases. So much for our middle class, and so much for our fragile economic recovery, too."

The plan is unlikely to meet much resistance in the State Duma, where pro-Kremlin parties comprise a majority. But an unlikely combination of liberal and communist deputies say they intend to put up a stiff resistance to it.

"It is just wrong to shift the burden of a decade of neglect onto our citizens," says Sergei Metrokhin, a deputy with the liberal Yabloko party. "The state must find ways to pay for renovation of housing and infrastructure, and then only raise prices as it improves the quality of services."

Options suggested by lawmakers opposed to the plan include: using the windfall the Russian government has reaped over the past year from high global oil prices, asking the West to reschedule Russia's debt payments, and ending the costly war in Chechnya.

"The state has an obligation to create a properly functioning economy before it squeezes people," says Alevtina Aparina, a Communist member of the Duma's social policy commission. "Prices should only rise in line with peoples' salaries.

"We believe this so-called reform could lead to a mass refusal to pay in many regions of Russia. The government is flirting with social explosion and economic collapse," she says.

But supporters of the plan say it's more likely that Russia will muddle through this difficult passage, as usual. "A decade ago people were terrified when market reforms began, but step by step they adjusted," says Mr. Sheregi. "I'm sure the same thing will happen when the housing reform takes hold."

(c) Copyright 2001. The Christian Science Monitor

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