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13 January 1995
Doc. 7219
1403-11/1/95-1-E
REPORT
on social policies and political stability in
central and east European countries
(Rapporteur: Mr GUSENBAUER,
Austria, Socialist Group)
Summary
The destruction of the Berlin Wall and the collapse of totalitarian regimes in the countries of central and eastern Europe raised boundless hopes for their citizens. Five years after recovering their freedom, they are experiencing considerable disillusionment: unemployment, worsening poverty, precariousness and insecurity have befallen many. This situation is a threat to democracy itself. Economic and political reforms alone are not enough to overcome these difficulties, and absolutely must be backed by social measures to protect the individual citizens who constitute the key element of any reform. Individuals are at once the agents and the beneficiaries of reforms.
Action must accordingly be oriented in four main directions:
—tr ansition to a market economy, which must not come about too abruptly but should be attended by protective measures for the most vulnerable sections of the population;—
—in come transfers, which must be universal and combine social insurance with welfare cover;—
—ed ucation and training, which must be improved and extended to enable individuals — adults as well as youths — to find their proper place in society;—
—he alth policy, whose top priority must be the provision of universal access to care.Th
The report makes a number of proposals aimed at politicians of countries undergoing transition in these four fields which are essential but do not cover the entire range of social problems.
I. Draft resolution
1. The Parliamentary Assembly draws attention to the Conference on Social Policies and Political Stability, held in Prague from 19 to 21 October 1994, within the framework of its co-operation programme with the parliaments of central and east European countries, and in collaboration with the London School of Economics and the World Bank.
2. For a fuller consideration of the topics discussed, it refers to the book published in October 1994 by Oxford University Press for the World Bank and the London School of Economics on "Labor markets and social policy in central and eastern Europe" which was used as a basis for the discussions.
3. It notes that the changes in central and eastern Europe have taken place on such an unprecedented scale that legislators are having to introduce reforms rapidly in order to deal with them.
4. It is aware that the situation varies greatly from one country to another, some countries already having undergone more rapid change than others, and that no single model exists which can be applied to all the countries concerned.
5. It is, however, convinced that human resources are the key element in all reforms and that economic policies must be backed by social measures in order to preserve the social consensus needed for the transition process to be successful. Priority must therefore be given to combatting poverty, providing education and training and protecting health.
6. It calls on politicians to make their fellow citizens understand that democracy is a right to be preserved and strengthened.
7. The Assembly therefore recommends that parliaments and governments in central and eastern Europe take account of the following proposals when drawing up their social policies.
A. As regards labour markets
8. In order to create an efficient labour market, a new balance should be struck between the state and private sectors and market forces should not be freed up entirely without measures to protect the most vulnerable sections of the population, that is the unemployed, pensioners and the sick.
9. In order not to worsen the unemployment situation, support should continue to be given to certain firms, even if they are in deficit, especially if they make a large contribution to the social budget.
B. As regards income transfers
10. In order to combat the poverty caused by the transition to the market economy, transfers of income are needed:
i. such transfers must combine social insurance with welfare cover: some aspects of welfare cover must be universal, in particular through the provision of family benefits, while more closely targeted benefits must also be provided to deal with certain risks such as illness or unemployment;
ii. all elderly people must be granted adequate pensions to cover their basic needs, a universal system being preferable to a selective system and private insurance being encouraged as a longer-term measure. The costs must be kept under control to prevent the entire system from collapsing. One way of containing costs is to reduce the number of pensioners, for instance by giving people an incentive to defer retirement by offering higher pensions if they retire later.
C. As regards education and training
11. The success of reform depends on the provision of adequate education and training adapted to change:
i. the funding for education and training must be maintained;
ii. all children must receive preschool, elementary, primary and secondary education;
iii. curricula must be brought into line with the new circumstances;
iv. adult training designed for the requirements of the market economy must be provided, priority being given to the long-term unemployed;
v. teacher training must be improved and education must come under proper inspection, for example through the setting up of a body of inspectors;
vi. teachers' salaries must be increased and made attractive.
D. As regards health
12. Health protection must also be a priority:
i. firstly, the achievements of the communist system should be maintained by offering universal social welfare and in particular by reintroducing compulsory, free vaccination for all children;
ii. health education must be provided for children and adults; its objectives should be to encourage a healthy and balanced diet, to discourage alcohol, tobacco and drug abuse and to combat sexually transmitted diseases, in particular Aids, and also to promote environmental protection;
iii. firms must take steps to prevent occupational injuries and diseases;
iv. information campaigns are appropriate in all these areas;
v. the independence of doctors must be maintained.
13. If these reforms are to be put in place successfully, three criteria must be satisfied, there must be:
i. politicians capable of explaining the reforms they introduce and obtaining a consensus;
ii. competent and highly motivated civil servants with the necessary facilities at their disposal;
iii. democratic and responsible trade unions.
II. Explanatory memorandum
by Mr GUSENBAUER
Introduction
1. This report is the fruit of the Prague Conference which took place from 19 to 21 October 1994 and was attended by some 130 participants, including representatives from seventeen central and east European countries in transition, some of which are already members of the Council of Europe while others have special guest status with its Parliamentary Assembly.
2. This conference was conceived as a meeting between three partners: politicians from western Europe, politicians from the so-called countries in transition and experts, or in other words, between those responsible for decision-making on the one hand, and those who formulate theories on the decisions to be taken, on the other. The intention was, therefore, to enable these men and women of action and ideas (the one naturally not excluding the other) to meet, and more precisely to exchange experiences and ideas, with a view to defining proposals for a social policy, or rather "policies" in the plural since, as we know, it is impossible to define one single model valid for every country.
3. As Rapporteur, I should like to thank the academics from the London School of Economics and the experts from the World Bank who provided the basis for the discussions and who were willing to engage in the process of measuring their ideas against political and economic reality. They would have liked this meeting of ideas to have been broader. In particular, they would have liked the representatives of some central and east European countries, and especially those from the states which emerged from the former Soviet Union, to express centre stage what they said on the margins of the conference.
4. A fuller account of the ideas presented at Prague can be found in a book published in October 1994 by Oxford University Press for the World Bank and the London School of Economics, "Labor markets and social policy in central and eastern Europe", abstracts of which have been published in several languages.
5. Summary of the situation:
i. The countries of central and eastern Europe are at a transitional stage between the former totalitarian system where the state was omnipresent towards an open, democratic society with a market economy. Some have advanced further along this path than others. Some participants therefore suggested that parts of the book no longer applied to their situation.
ii. However, the change of system has led to the appearance of phenomena which western liberal societies have been experiencing for some time, such as unemployment, inflation, poverty, inequality, insecurity, absence of health care insurance, crime, delinquency and drugs. All these phenomena endanger the social fabric and even democracy itself, since it is tempting to link their appearance with the setting up of democracy. Another explanation might be that the crisis of capitalism has coincided with the end of communism and that the effects of the crisis have been compounded in the countries of central and eastern Europe by the difficulties of transition.
iii. It has become clear that political and economic reforms alone are not sufficient. It must be borne in mind that the link between the economic and social spheres must be preserved if we want to maintain the social cohesion necessary to political stability, which in turn guarantees the ultimate objective of peace.
iv. It is therefore vital to realise that human resources are the key element in the transformation. This factor is the guiding principle and primary objective of all the measures proposed.
v. What should be the state's role now? For the people of these countries, the state has become synonymous with blind authoritarianism, a total absence of liberty and scorn for human rights, and anything linked with the state has become suspect. Yet, the role of the state in central and eastern Europe will have to change, rather than disappear. The principle of subsidiarity must apply, that is to say that the state must take the responsability that the private sector cannot take. However, the extent of public distrust means that the state must first be "rehabilitated" in the people's eyes. This will involve changing mentalities, which is clearly the most difficult objective to achieve. Politicians have a role to play in this, by explaining the reasons for the measures they take, even if they are unpopular. Education should do the rest, but its effects will not be felt until much later.
6. I shall now go on to examine the following themes which were addressed during the conference:
A. Labour markets
B. Income transfers
C. Education and training
D. Health and health care
A. Labour markets
7. The discussion was introduced by preliminary observations on controlling wage inflation, sustaining employment and managing large-scale layoffs.
8. The changes which have occurred in central and eastern Europe are on an unprecedented scale, but at the same time there is a wide range of different situations. It is therefore impossible to formulate one universally valid solution. Rather, it is essential to increase exchanges of experience and information, of the kind for which the conference provided an opportunity.
9. Next, the economic changes, which are reflected in increasingly aggressive competition in an increasingly global and international economy, have to be accompanied by action in the social sphere.
10. In order to find a substitute for the state provision which characterised the previous regimes, there has to be a change in attitudes, and this involves education and culture on the one hand, and explanations of the measures taken on the other. Political measures are not enough: politicians must also explain to the public why these measures have been taken, in order to obtain a social consensus on the changes.
11. The reform strategy must aim to maintain a macro-economic balance, in particular by scaling down the public sector, boosting the private sector and balancing state income and expenditure. At the same time, it must succeed in controlling inflation and keeping unemployment within acceptable limits whilst managing the large-scale layoffs which are necessary for the restructuring of enterprises.
12. In other words, market forces must be both liberated and regulated. It follows that steps will have to be taken to respond to this situation and to limit the effects on individuals and families.
13. In the short term, a tax-based incomes policy should be maintained, at least in the state sector, to help contain inflationary pressures. Palliative measures, such as job-sharing and reduced working hours, should be adopted to soften the impact of rising unemployment.
14. It must be clearly understood that waves of redundancies are bound to come when the effects of the market economy begin to be felt and when the least viable enterprises are forced to close.
15. The unions will have to be involved in the introduction of these measures and in ensuring, together with employers, that they are accompanied by social measures. However, the unions must also work on democratising themselves.
B. Income transfers
16. The introductory remarks covered policies for combating poverty and containing costs, that is, national insurance, family allowances and social aid and the administrative and political aspects of implementing them.
17. The number of those living below the poverty threshhold in central and eastern Europe rose from 8 to 58 million between 1989 and 1993. An annual sum of between 6 and 9 thousand million dollars would be needed to overcome poverty. This is incompatible with economic policies. Yet at the same time, poverty is undermining productivity. It would be an illusion to hope that economic growth alone will suffice to eliminate poverty.
18. Action must be taken. Transition to a market economy will require reform of the social insurance system in order to secure pensions while containing costs, and in order to cover unemployment benefits.
19. There are two ways of guaranteeing minimum pensions at a time when resources are decreasing along with production: either to reduce the number of beneficiaries and maintain pension levels or to provide pensions for everyone but reduce their amount.
20. Several criteria can be applied in order to tackle the number of beneficiaries: one can either increase the qualifying periods for pension eligibility or use a different method for calculating these periods.
21. Incentives have to be introduced into pension systems by, for example, offering higher pensions for taking later retirement or dividing responsibilities between the public and private sectors.
22. There is a need for both public and private-sector pensions. The amount spent on public pensions must be reduced and private pensions must be introduced, but it has to be borne in mind that the latter represent only a medium-term solution and this has to be explained to the workforce.
23. It is not easy to implement a tax policy, however, because of the difficulty of accurately assessing incomes: there is a gap between official incomes and actual incomes, and the picture is complicated still further by undeclared work. The grey areas of the economy have a certain role to play in the economies in transition, and it would not be wise to eradicate them entirely.
24. Family assistance and social welfare remain a priority. Priority must go to preserving a minimum level of benefits for all who are entitled to them, as well as universal cover, and this involves the payment of family benefits, plus more targeted aid for the most disadvantaged groups or to respond to crises.
25. Policy must be kept simple and the public administration must be competent, hence the crucial role of education and the need for politicians to appear on television to explain policy.
C. Education and training
26. This theme was introduced by observations on ways of meeting the needs of a market economy and adapting to reductions in public expenditure.
27. Educational standards are a prerequisite for success, and so it is vital to maintain or improve the quality of education and training in order to guarantee the future economic prosperity of the countries in transition.
28. Although it would be tempting for governments looking for savings to cut the funding for primary education, it is, on the contrary, vital to maintain standards of pre-school and primary education, which represent an investment for the future both for individuals and for society as a whole.
29. The more education and training employees receive, the easier it is for them to adapt to changes both in their work and in their everyday lives.
30. Major aims of education are to enable people to find a job and a place in society.
31. This presupposes the participation of all those involved, not only teachers and the public authorities but also firms themselves.
32. It also presupposes that teachers are decently paid and enjoy a certain prestige. Other necessities are to provide in-service training and to set up a system, such as an education inspectorate, for monitoring teaching standards.
33. The priorities are to adapt to the new needs of the market economy without tying the programmes too closely to the economy.
34. Adult education and training must also be extended instead of being reserved for a minority, as was previously the case.
35. Private schools have already mushroomed in some central and east European countries, such as the Czech Republic. This development must be encouraged, but the state should nevertheless maintain some measures of control over education, including private schools.
36. With regard to the desirability of decentralisation, earlier reservations still apply, namely that although it allows greater flexibility, it can also lead to excessive disparities of standards, not least because of regional income differences.
D. Health and health care
37. This subject was introduced with a reference to policies for improving health and health care together with cost control.
38. The first point made was that life expectancy has decreased over the last five years in the countries in transition. Hungary has recorded the largest decrease for men, while the inhabitants of both the Czech and Slovak Republics have life expectancies lower than their neighbours.
39. The main causes of death are heart attacks and lung cancer, caused by tobacco, poor diet and high levels of environmental pollution. Occupational hazards and lack of protection also contribute.
40. It was also noted that life expectancy is closely linked to per capita income, a well known fact. Everyone knows that manual workers die at a younger age than white-collar workers and that the rich live longer than the poor. There is a known connection between unemployment and health as well. It is reported that in Lithuania the suicide rate is particularly high. The short-term prospects are, therefore, quite worrying since the combination of economic recession and the ending of services provided by the former regimes is bound to lead to a deterioration in people's health.
41. One of the achievements of communism in central and eastern Europe was to offer universal, comprehensive social welfare cover.
42. Health policy must above all maintain this cover, especially in the case of immunisation. Major epidemics will be the inevitable result of any failure to maintain immunisation programmes.
43. The institutions must then be reformed so that the whole population can be educated in health matters. Consumers must be helped to make informed choices. There should be campaigns against alcoholism, drug addiction and tobacco.
44. Of course, public health budgets should not be cut — costs must be maintained to prevent the existing system from collapsing.
45. The link between health policy and social welfare is as applicable here as it is in western countries. Obviously the authorities have a vested interest in funding the former so that less will have to be spent on the latter.
46. Any health policy must address the whole population, without exception or discrimination.
47. Privatisation must be carried out in the framework of legal regulations and it is vital for the state to continue to play a role. The western pharmaceutical industry has begun to lobby vigorously in these countries, especially Hungary. It is crucial that those directly involved in health care should be independent.
Conclusions
48. Reforms for what purpose? The aim is to ensure political stability while improving people's living conditions, ensuring freedom and a measure of well-being. This depends on three factors:
i. the ability of politicians to achieve a consensus on these reforms;
ii. their ability to pass the necessary laws and regulations;
iii. the administration's ability to implement them.
49. The task of the politicians is to explain their planned reforms. This will mean communicating, using television and the press, without falling into the trap of repeating old attitudes (rigid arguments putting theory before practice). The first difficulty for politicians is to learn how to conduct policy in a democratic system. Most of the democratically elected politicians were new to politics; they were intellectuals or academics more used to concepts than communication.
50. Their task is made all the harder by the fact that every measure that they propose will have budgetary implications. Every proposal concerns key sectors where savings are out of the question and yet funds are scarce.
51. Politicians must convey a simple and clear message to their electors, together with hopes of a better future, without constructing illusions. Perhaps the governments swept to power immediately after the change of political regime committed the error of giving the impression that everything would henceforth be easy — or perhaps they really believed it.
52. Unless they win support from their electorates, political stability is at stake, and in some countries there have already been signs of a drift to populism.
53. It is the duty of government services to implement the laws or regulations passed. These services must therefore be competent, efficient and swift to react, as the popular perception of any changes will depend on them. Mention was made of a pension increase still to be implemented several months after its adoption.
54. Computers will be a useful aid but only once people know exactly what is to be computerised.
55. Is decentralisation necessary? Although decentralisation can offer greater flexibility, it can also lead to a total lack of controls and can even be disastrous as it proved, for example, in Estonia.
56. The establishment of the rule of law as a reality, not just a pious hope, is essential, both to protect individual rights and because the rule of law is vital to an efficient market economy. Penalties must be laid down for infringements and, especially, for failure to apply legislation.
57. During this phase, international organisations can be of assistance: firstly, they can provide legislators with models in the form of conventions or recommendations, such as the European Social Charter or ILO conventions.
58. In addition to the occasional logistical aid that it can provide, the Council of Europe can help all these countries to become fully bound to Europe and to survive this especially awkward period — after the excessive expectations raised at the end of the authoritarian regimes, dashed hopes have nurtured nationalistic tendencies. It is also the purpose of this report to make proposals for recommendations which will offer guidance for politicians working out a social policy.
Reporting committee: Social, Health and Family Affairs Committee.
Budgetary implications for the Assembly: none.
Reference to committee: Order No. 482 (1992).
Draft resolution unanimously adopted by the committee on 4 January 1995.
Members of the committee: Mr Rathbone (Vice-Chairman), Mr Marques (Vice-Chairman), Mrs Andnor, Mrs Albrink, MM. Andriukaitis, Banks (Alternate: Mr Cox), Bloetzer, Bowden (Alternate: Earl of Dundee), Brugger, Bugli, Buzatu (Alternate: Mr Leonte), Curto, Dees, Deguara, Dionisi, Mrs Fleetwood, MM. Geoffroy, Gouteyron, Mrs Guourova, Mr Gusenbauer, Mrs Halonen, Mr Hegyi, Mrs Høegh, MM. Jacquat, Kotsonis, Koucký, Laanoja, Van der Maelen, Maginas, Malachowski, Mazzone, Meyer zu Bentrup, Mozetič, Mulvihill, Mrs Van Nieuwenhoven, Mr Ottenbourgh, Miss Özver, MM. Palacios, Paunescu, Pini, Mrs Ragnarsdóttir, MM. Raška, Regenwetter, Reimann, Robles Orozco, Schwimmer, MM. Vajda, Wielowieyski, Mrs Wohlwend, MM. Wolfgramm, Yürür
N.B. The names of the members present at the meeting are printed in italics.
Secretaries to the committee: Ms Coin and Ms Meunier.