LifestyleTHERE IS NOTHING TO OFFER THE POORBy Yevgeny Trifonov
September 2006
SourceAnd nothing to take from them either
After the Kremlin managed to overcome the strong leftist opposition and legalize (at least on paper!) the private ownership of land, the main remaining legacy of Soviet times was and still is the communal housing sphere.
“Fortresses of socialism”The communal housing services (CHS) are a very sizeable sector of economy in the 2002 budget expenditures on it amounted to 68.7 billion roubles, which is almost equal to defence expenditures (68.8 billion).
The CHS and the defence spending have one thing in common: both sectors have remained “fortresses of socialism” which ravenously demand more and more resources that disappear without trace into a bottomless pit and do not bring about any positive changes whatsoever. Total opaqueness of the communal services, unrestrained hiking of rates, and spending money received from the budget and from the population for the personal enrichment are the essence of the work of this sector of the economy, and the reason for its degradation. According to official figures, during the period 1987-1990 subsidies from all levels of the budget for the CHS accounted for 1.1-1.3 percent of the GDP. By 1996 the indicator stood at 3-4 percent of the GDP and by 1997 it had already reached 6 percent of the GDP. And what is there to show for it? Sixty percent of the main heat supply facilities, 70 percent of the electricity supply facilities, 55 percent of the water pipe networks, and 30 percent of the sewage pipes are worn out. The number of accidents for every 100 kilometres of network increased from 15-20 in the mid-1990s to as much as 70 in the water supply distribution systems and to 200 for the heat supply networks today. All these figures are from official sources (Gosstroy).
Imperative, but not easyIt is imperative to reform the sphere of housing services – this is obvious. The main line of the reform was worked out by Boris Nemtsov, the then governor of the Nizhni Novgorod Region, already in the mid-1990s. In 1997, when the ex-governor became vice-premier, the programme for the reform of the CHS became the state’s own. Its main points were as follows: a gradual transition to 100 percent payment for housing services by the population; demonopolization by creating of a competitive environment in this sector through privatization of its enterprises; attraction of private capital; creation of associations of home owners who can choose their suppliers of services; and installation of meters to measure the consumption of services. As a result, the housing and communal services sector should begin to operate on a market basis, and the lower income groups of the population should receive targeted subsidies.
On paper everything looks good. Experience, however, shows that carrying out the reforms will be very difficult. Such reforms were attempted in Nizhni Novgorod in 1995-1997 and in St Petersburg in 1998, but in both cases they fell through. Why? In the first place, the sharp rise in the rates for housing services resulted in masses of city dwellers simply refusing to pay for them. Kicking thousands of people out of their apartments is obviously not an option. This would have caused a social explosion of major proportions with barricades in the streets. Secondly, the demonopolization of housing services did not work out, because private capital did not go into the sector: corrupt administrative bodies have a firm hold on anything having to do with communal housing services. They do not allow any unfamiliar faces to enter there. Thirdly, work in this sector does not promise big returns, because its capitalization is small, and the entrepreneurs do not want to work for peanuts. Further, the associations of owners are created with great difficulty because the owners themselves show no or little initiative. The already created housing associations are forced to kneel before those run by municipal services because there is no market and turning directly to the suppliers of electricity, water and heat, is a hundred times more costly than turning to the municipal services. And this is not to mention the fact that those who wish to buy the services directly get looked upon like idiots by those very workers in the energy and sewage companies. And they send them off to the same municipal services. This is clearly monopolization, perhaps not formally one, but one based on firm links of corruption.
In Nizhni Novgorod and in St. Petersburg, the reforms have resulted only in housing costs going up, without any improvement in the quality of services. In other cities prices have gone up and continue to do so without any word of reforms. And the quality is getting worse from year to year. The failure of the regional housing reforms is indicative – there is no reason to think that things would go otherwise at the federal level.
The Yabloko party’s alternativeDuring the discussions on communal housing reforms, an alternative was proposed by Yabloko. At first glance Yabloko’s criticism was absolutely correct. Deputy Sergei Mitrokhin announced that it was essential to firstly demonopolize the communal housing sector and only then to capitalize it. In reference to the government’s reform programme he said: “the second draft of Chubais’s privatization programme is contrary to elementary economic logic, common sense and world experience.” The Yablokoists believe that if it is implemented, housing enterprises will be ‘privatized’ by their current bosses according to insider prices, and then these very bosses will freely dictate their conditions to the city dwellers and arbitrarily set their own prices.
Sergei Mitrokhin believes that the end result will not be “the competition that the government announced should emerge, but a strengthening of the monopolistic influence by the housing-communal oligarchy”. According to the Yablokoists, it is important to search for a solution to the problem of communal housing services beyond just increasing expenditures on the maintenance and exploitation of the housing. It is essential to look for and find new solutions, which could bring real savings.
As an example of new solutions, an alternative programme envisions a transition to autonomous heat supply in the municipal sector. This is the experience of industry, where in recent years proper electrical power plants and heat supply systems are being built by metallurgical, chemical and other enterprises. The Yablokoists point out that the introduction of autonomous systems would make it possible to save four times more energy resources than with today’s central heating systems; and the curtailing of costs should increase the effectiveness of use more than eight times. This means that with the hiking of rates, the volume of energy consumed would be reduced, and the cost for the consumers would rise insignificantly. According to the Yablokoists this would be the main economic effect of the alternative communal housing services reforms.
Theoretically, it is sound. Unfortunately, however, the practical realization of the Yabloko project is not feasible. Again we run into the impossibility of demonopolizing a sector of no commercial interest for business. And as far as the transition to alternative heat supply is concerned, it is not clear who is going to foot the bill, because the construction of such systems costs a lot. A large factory can lay out a couple of hundred million dollars on such objectives, but there is no way a municipality could, not even of a big city. As for associations of house owners – they don’t have any money to really speak of. Attempts to organize an alternative heat supply have been undertaken in a number of cities, but none were successful.
No other political party or social organization presented alternative projects, if you do not count the usual leftist incantations that everything must go back to the Soviet models. So it is natural that the government has again decided to carry out Nemtsov’s six-year-old project. In the Kremlin and White House they believe that the federal scale of the reforms will allow money to be pumped into the communal housing sphere. Then they can proceed with its commercialization. The main thing here is that today the federal authorities are far more self-confident than under Boris Yeltsin, and think it possible to begin the implementation of the most painful and socially dangerous reform.
The reform of the slumsAt the end of last year, the lower house of the Federal Assembly accepted the draft of the reform in its first reading. This means that the housing services reform will be implemented shortly. There are endless arguments going round about what this reform will actually turn out in reality, arguments which, as was already the case in Voronezh, could result in mass protests. Moreover, the reforms, or to be more precise, their results, are capable of evoking such strong opposition in society that the consequences are anybody’s guess. The several-fold increase of housing prices will be a blow to relatively well-to-do people; poor people will simply be forced to sell their apartments at give-away prices and move. However, there is nowhere to move to. The city authorities, preparing for the reform, have already “broken the good news” to Muscovites about the fact that 5.2 million people can live in the city “normally”, but the rest will be asked to move to the surrounding region. An exodus of several million people from the capital could turn into an uncontrollable social explosion – maybe worse than the December disorders of 1905. It is not clear how reforms will effect the millions of people who still live in the Khruschev-style and barracks-style buildings, as neither one nor the other can be considered full-fledged housing. In the upcoming years, houses of this type will completely collapse. Can these people be expected to pay two to three thousand roubles for their little cubicles in houses which do not have much longer to stand? And in five years, the panelled nine-story buildings constructed in the early seventies will begin to crumble, and more millions of people have a good chance of ending up on the streets.
This is what awaits us in the event that the communal housing reform will be implemented within the strict parameters of the government programme. However, it is known that the strictness of Russian laws is compensated for by their lack of enforcement. So in reality everything will probably look differently. We can presuppose that in the beginning housing associations will be forced to be serviced by the municipal services, but the function of the latter will change. They will have to mainly calculate the volume of subsidies for every housing association and distribute them among the associations. After the installation of the meters, the associations will be able to pay only for actually provided services. This will have the effect of somewhat bringing down the tyranny of housing services. In time the municipal enterprises will not be able to make the consumers pay for their own ineffectiveness. Later on a real market of services will become a reality and housing associations will be able to independently choose suppliers.
This will facilitate the gradual transition to market relations, where this is possible, but it will only be possible in several large and relatively rich cities. In depressed regions and poor cities there will not be any talk about a market for communal housing services for a long time to come; there enterprises in the sector will remain municipal. It is not ruled out that in municipal areas, where the housing services eventually crumble or are clearly unable to maintain their functions, the market for communal housing services will gradually develop, but only on one condition: the general improvement in the economy and a rise in the standard of living. Thus in coming years we will witness a sharp rise in the prices of housing services and the slow, tortuous emergence of market services, in local zones, but not in the whole country. But taking a real inventory of the available services – water, gas, and heat – is unavoidable. Such stock-taking is an essential component of the reforms.
There is no escaping the main question of all these reforms: without a sharp rise in economic efficiency and stable growth, without a substantial rise in the standard of living of the population, no reforms will work, and they will not be of benefit to the overwhelming majority of the population. If we are going to talk about the communal housing services, we need to be honest: more than 90 percent of the housing in Russia is slums which must be torn down. New, suitable for living, private houses and apartment buildings are only being built for well-to-do people, who account for 10-15 percent of the country’s population. If nothing is done about the present situation, Russia will find itself falling into the class of third-world countries that have palaces and huts, and deepening social stratification. Any reforms in these countries touch only the high strata of the population, passing by the overwhelming majority. Because there is nothing to offer the poor, and nothing to take from them either.