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Let The Post-Soviet State Starve

KIEV: The new post-communist nations have turned out to be rough and tumble societies. This is particularly true of the former Soviet Union, where income differentials have risen to Latin American levels, and a third of the population has temporarily fallen below the poverty line.

In response, many observers conclude that a bigger "social safety net" is needed to aid the poorest. However, the post-communist states have abundant social expenditures even by West European standards. Hungary, the Czech Republic, Poland, and Slovakia devote no less than 30-35% of GDP to social expenditures, more than total public expenditure in the USA, Switzerland, and Japan. Even Russia spent 24% of GDP on social expenditures in 1994, and Ukraine almost 30%. Clearly, high income differentials and poverty are not caused by insufficient social expenditures.

The fundamental flaw with the argument for higher social expenditures is that the post-Soviet states are good, as their protagonists believe, but forced by the harshness of the transition to be mean. Instead, these states are highly corrupt and predisposed to divert money from the general population to the rich.

Look at what the state is actually doing. Russia is a good example, because its social expenditures have been analyzed in detail, but the situation appears similar in most post-Soviet countries. The most striking thing about Russian "social" expenditures is that they are not directed to the poor. Of total social expenditures of 24% of GDP in 1994, nearly 5% went to housing subsidies, which are regressive. The larger your apartment, the more your housing is subsidized. The poorest fifth of the population receives no housing subsidies, because they have no dwelling of their own.