# Restructuring of Enterprise Social Assets: Trends, Problems, Possible Solutions't

## Lev M. Freinkman and Irina Starodubrovskaya The World Bank

## **INTRODUCTION**

The problem of enterprise social assets is one of the most important issues facing enterprise restructuring. The extensive provisioning of social services to both employees and general public in surrounding communities diverts enterprises from their core activities. Financial and administrative burdens associated with social services raise costs and prevent enterprises from being competitive. Social assets are considered as an additional barrier for external investors who might refrain from investments in enterprises with large social liabilities. Additionally, in cases where large potentially insolvent enterprises provide a number of social services to their communities, it increases the bargaining power of such uncompetitive enterprises vis-a-vis governmental authorities. It makes very it difficult for bankruptcy procedures to be initiated against them, and forces the state to continue to subsidize them. Users of enterprise social services are often not protected enough from arbitrary actions of enterprise managers and a general deterioration in the level of provided services.

The downsizing of enterprises' social activities means that some other agents will have to perform these functions in their place. That is why the issue of enterprise social assets is not only one of the crucial components of industrial restructuring, but is also closely connected with both public and social sector reforms. There are a number of purposes for the public sector's involvement in substituting enterprise social functions: (i) protection of some critical elements of public services (e.g. kindergartens), which might otherwise disappear due to reductions in enterprises' funding; (ii) facilitating of reforms in both housing and delivering mechanisms for some public services (e.g. health services), which would be easier if all corresponding assets were temporarily concentrated under the management of municipal governments; (iii) guaranteeing adequate access for citizens to important public services, largely because social activities of enterprises are sometimes delivered at a much higher, sometimes at a much lower, level than public ones; (iv) financial savings through rationalization of management and provision of services. At the same time, some former enterprise social assets could be either privatized or used to introduce new institutional reforms in the public sector. These assets are not necessarily to be transferred to existing public governance structures and fall under the control of prevailing interests therein. So, the divestiture of these assets could make them pioneers in social sector restructuring and, therefore, might facilitate social sector reforms in general.

The paper reflects some findings derived from the preparation work done under the World Bank's Enterprise Housing Divestiture Project. The Project was managed by Dennis Whittle and Mari Kuraishi, whom we are very grateful for stimulating discussions and organizational support. We thank also Marina Krasilnikova, Olga Shabalina, Jeff Procak, Alexander Morozov, and Natasha Veligura for helpful comments and help with collecting and processing the data. Any errors are our own.