FAMILY SAFETY NETS AND ECONOMIC TRANSITION: A STUDY OF WORKER HOUSEHOLDS IN POLAND

Can Eastern European families most severely impoverished during the transition to capitalism rely on private family safety nets? This question is likely critical for the transition's success, but little is known about family networks in Eastern Europe. We analyze newly available Polish household surveys, conducted both before and after Poland's economic transition, which measure private inter-household transfers. Such transfers are large and widespread in Poland, and in many ways they appear to function like means-tested public transfers. They flow from high to low-income households and are targeted to young couples, large families and those experiencing illness. Private transfer patterns also suggest that they are responsive to liquidity constraints. Our results from 1987 data indicate that private transfers could fill a non-trivial portion of the income gap left by unemployment. But we also find evidence from 1992 data that family networks weakened somewhat after the transition. Can Eastern European families who are most severely impoverished during the transition from socialism to capitalism rely on private family safety nets for support? Consider, for example, the plight of a family whose primary earner has just been laid off from a liquidated state enterprise or a family farm rendered insolvent because of the elimination of government subsidies. Do these families have more fortunate relatives or friends who can assist with cash, in-kind help, gifts or shared housing? Conversely, which are the households that cannot rely on such support? These questions are critical for evaluating the likelihood of successful economic transition in the Eastern bloc. On the one hand, an effective social safety net must be preserved--the rise in unemployment and widening of the income distribution could derail popular support for a quick transition to capitalism (see, for example, Kornai (1990) and Lipton and Sachs (1990)). On the other hand, governments are facing fiscal constraints which render the previous regime's universal public transfer system unsustainable. One answer is to target public transfers to the truly needy more effectively. In the words of Calvo and Frankel (1991), when "choosing among alternative safety nets, one should be aware that there is no way to protect all segments of society" (p. 42). But reforming institutions to accomplish more effective targeting is difficult and takes time. Are there other options? Fortunately, public transfers are not the only means of shuffling resources from one group to another. Family networks can also achieve substantial income redistribution, privately and with no apparent coercion. Information about the size and flows of these private transfers would be extremely useful in determining the public funds needed to round out an adequate safety net. Private transfer information is also useful for identifying households who lack private safety nets. Targeting these families can be critical since the public sector may be their only source of insurance. Despite the potential significance of family networks during Eastern Europe's transition, we currently know little about how they might function. In fact, we know little about even the basic facts, such as the incidence and magnitude of private transfers.