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# Shifting Responsibility for Social Services as Enterprises Privatize in Belarus

## David Sewell '

## Background

1. Firms in Belarus spend on many functions classified as "social" in their enterprise accounting. Examples are housing for employees, summer camps for the children of employees, spas for employees, health and dental clinics on site and specialized medical and dental facilities off site, subsidized food, creches and kindergartens, and vocational schools. In some localities finns also provide local infrastructure such as district heating, electricity and water and sewer reticulation. Extensive provision of such local infrastructure may have been particularly common by state and collective farms.

2. It has long been asserted that the "divestiture" of such "social" functions is critical to improving the competitiveness of enterprises in transition economies. It might well be added that enterprise "divestiture" of such "social" functions is equally critical to appropriate functioning of governments in the transition economies. Enterprises and govemment should be responsible and accountable for different and distinct sets of functions. Achievement of these goals is impossible if enterprises share vague responsibilities for social functions and are repeatedly subject to pressures to provide such functions by means of unfunded government mandates. Obviously, such a system of financing social objectives is not transparent, allows both parties to evade hard budget constraints, and thereby obscures and dilutes accountability to enterprise owners and the electorate.

3. In transition economies, the state also has to consider whether it wishes to continue to directly fund some of these social functions if enterprises discontinue their funding. If govenmment is to be involved in continued provision of these services, the appropriate level of government has to be chosen for the purpose and the function should be adequately funded. The objective of this paper is to examine these issues as they apply to Belarus and suggest appropriate policy actions.

4. The Russian Government was the first to ask the World Bank for assistance with respect to enterprise social asset divestiture in early 1994. Since then, the Bank has undertaken several loans in support of enterprise divestiture of functions such as housing, kindergartens, medical care, enterprise privatization and related issues in social protection programs in Russia, Kazakhstan, and the Kyrgyz Republic. Staff Appraisal Reports for these loans are a rich source of infonnation on this problem. As well, an extensive published literature is being built up on the issue. Aggregate surveys of the problem have been undertaken for specific countries by authors within and outside the Bank,<sup>2</sup> and are complemented by in

> **1** This document was produced as part of the author's responsibility in the 1996 Belarus Country Economic Memorandum Mission headed by John Hansen. I wish to thank Elena Klochan, Nikolai Lisai and Konstantin Senyut of the World Bank's Resident Mission in Minsk, and John Hansen and Yuliya Merkulova for assistance in preparing this report. I have also benefited from specific comments from Jorge Martinez-Vasquez and Richard Bird, and from extensive discussions at the Bank with Lev Freinkman and Philip O'Keefe, both of whom are engaged in operations work associated with this issue.

- 2 See Adrienne Cheasty, "Social Divestiture in Ukraine-A Budgetary Perspective," IMF Fiscal Affairs Department, OcL 1995; Simon Commander and Richard Jackman, "Providing Social Benefits in Russia: Redefming the Roles of Firms and Government." Pblicy Research Working Paper 1184, Economic Development Institute, The World Bank, 1993; Simon Commander and Une Lee with Andrei Tolstopiatenko, "Social Benefits and the Russian Industrial Firm," Joint Conference of the World Bank and the Ministry of Economy of the Russian Federation, _Russia: Economic Policy and Enterprise Restructuring,_ June 1995; Lev M. Freinkman and Irina Starodubrovskaya, "Restructuring of Enterprise Social Assets in Russia," Policy Research Working Paper 1635, The World Bank, August 1966; Jorge Martinez-Vasquez, "The Challenge of Expenditure-Assignment Reform in Russia," _Journal of Environment and Planning,_ Vol. 12, 1994, pp. 277-