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have begun to understand the interrelation between the level of their social spending and their market competitiveness. This strict division in views among managers, as mentioned above. should be interpreted as a confirmation of the fact that during last 3 years a radical shift in managers' attitude towards delivery of social services had been underway but the change is not completed yet.

Impact on wages. This question was not asked directly in the survey, but data provided by enterprises and answers to other questions reveal some indicators in this area. It was expected that enterprise savings deriving from reduction in their social spending will facilitate cash wage adjustments, which, in its turn, will support reduction of budget subsidies for social sector and general public sector reforms. Following survey results, enterprise managers have not in practice enacted such a wage adjustment to compensate employees for reductions in real social spending. Only I out of 17 firms that had recently reduced delivery of social services said that they compensated employees through higher cash wage. The same findings have been revealed by the Urban Institute (1995), which reported that managers prefer to spend corresponding savings on purposes other than wage increases considered as being more important for enterprise surviving.

It seems that absence of a link between reductions in enterprise social expenditure and an increase in cash wages could be explained by the fact that the dynamics of the real cash wage has been determined so far by other factors. This is primarily by average prevailing wage levels in corresponding localities, which in turn largely follow the price level of basic consumer goods. Adjustments in the cost of living without reductions in non-cash benefits influence overall enterprise wage policies (Commander, Dhar and Yemtsov, 1995). Such implicit indexation of wages was rather effective in Russia in 1992-94 and caused a high level of real wage stability during the period of price liberalization and high and volatile inflation. This may suggest that, while managers do not currently use their savings from social spending cuts for wage adjustments, they may conduct different types of wage policies under different circumstances. Specially if cost recovery in housing is increased substantially and housing expenditures become a real factor in determining the cost of living. It is then likely that growth in employee housing expenditures, such as between 1992-94 with food expenditures, would be an effective determinant of managerial policies regarding cash wage adjustments.

# 5. CONSEQUENCES **OF DIVESTITURE FOR MUNICIPALITIES AND** ECONOMY AS **A WHOLE**

Divestiture and policy reforms. Various components of the Russian public sector require radical changes in their operational and managerial principals. Some presently public-funded services should be taken out from the public sector completely (housing). Others should expect either an increase in cost recovery (child care) or emerging of more flexible co-existence of public and private providers (health care. education). It might be difficult to achieve these changes without prior transferring social assets under full public control, i.e. without divestiture. First experience with housing reforms in Russia has demonstrated the practical advantages of having enterprise housing divested to municipalities. The latter currently have more managerial capacity and more incentives to push for housing privatization, increase in cost recovery, establishing housing allowances for poor households, etc. It may sound controversial, but the re-establishing of full public control over some sectors such as housing could be viewed as an important facilitator for success of subsequent privatization. Even when enterprises have to support a large housing stock, housing remains a sideline activity for them. Enterprises do not see themselves as the promoters of any housing reforms. For them, the preferable policy in this field is to be a passive. and