Transforming a centrally planned economic system into one based on market forces calls for the restructuring of eco- nomic institutions, the privatization of a vast number of State enterprises, and the decontrol of prices and wages. In the short term, such changes have exacerbated the difficulties faced by former Communist countries, the Soviet Union included, in meeting social needs in a market-based economy. Centrally planned economies typically promised full employment, free education, and free or low-cost housing and health care, while wages were low and the quality of social services was poor. There were generally no programs to pro- tect unemployed citizens or to cope with inflation. The Central Government, which monopolized social policies and programs, offered its citizens few incentives to be Income Security in Transition for the Aged and Children even partially responsible for their own economic security, and allowed Little, if in the Soviet Union and in the Russian Federation any, local government or nongovernment by Lillian Liu * initiative to supplement the State efforts. Under the pre-Gorbachev Soviet sys- A dynamic process of social security reform took place during the tem, beneficiaries of social security’ - economic transition in the Soviet Union from 1985 through 1991, and in (1) disability, and survivors; (2) work- the Russian Federation in 1992. Despite administrative and financial diffrcul- related disability and death; and (3) allow- ties, the Gorbachev reform objectives have been incorporated (with modest ancesfor families with childrende- pended on fixed benefits that were revisions) into the Russian Federation pension legislation and family allow- especially vulnerable to inflation. ance programs. Following the adoption of a radical economic reform policy in As of January 199 1, under the first January 1992. policymakers in the Russian Federation have been hard pressed and second of the programs specified to meet rising social needs under severe fiscal constraints. As the number of above, there were 6 1.2 million pensioners the vulnerable population has increased, and as the emerging poor have had to (2 1 percent of the total Union popula- face more severe hardships, the social security system has overcome unprec- tion) in the Soviet Union, including edented political and economic disruptions to become fully operational. Local 33.8 million (23 percent of the total Rus- governments and civic groups are organizing assistance to help meet needs sian Federation population) in the Russian where the State-operated programs have been inadequate. These efforts, how- Federation, which was the largest of the ever, have been made haphazardly. 15 constituent Republics of the U.S.S.R. Approximately three-fourths of these pen- sioners relied on pension benefits as their main source of income in the Soviet Union and in Russia. A large number of people also receive family allowances (the third *Oftice of International Policy, Social Security Administration. This article program specified above). According to updates the author’s “Social Security in Transition in the Soviet Union (1985-1991) 1989 census data, some 6 1 percent of the and in the Russian Federation (1992),” in Economies of the Former Soviet Union, 73 million families in the Soviet Union U.S. Congress, Joint Economic Committee, Washington, DC, U.S. Government had at least one child; in the Russian Fed- Printing Office (forthcoming). The section on the Russian Federation is substan- eration, 58 percent of a total of 40 million tially revised based on information the author acquired from her participation in a families had one or more children under ?-week World Bank fact-finding mission to Moscow, and to the Altai, Cheliabinsk, age IS.* By 1990, cash allowances were and Novosibirsk regions. made available to all families with one or more children, Social Security Bulletin l Vol. 56, No. 1 9 Spring 1993 60 This article examines the transition ries were funded by the current genera- recipients of pensions and grants who of the social security system in the tion of workers. Such programs may be had begun receiving benefits years ear- Soviet Union during the Gorbachev funded by employer/employee contribu- lier. This state of affairs had contributed years (1985-9 1) and in the Russian tions (as in France), government budget much to the poverty of some pensioners Federation during 1992. The discussion allocations (as in Australia and New and recipients of family allowances. is presented in six parts: First, the Soviet Zealand), or a combination thereof (as Moreover, the pre-Gorbachev social social security system prior to 1985 on in West Germany, the Netherlands. and programs were notable for their low the eve of Gorbachev’s reforms; second, Sweden). In the Soviet Union. pension level of public assistance to those who a summary analysis of social security funding was based on a combination of never worked or were unable to work reforms during 1985-90, and the four budget allocations and employer contri- due to child rearing or disability since objectives of these reforms; third, the butions; employees did not contribute.h childhood.‘” In contrast, some Western implementation of new social security Family allowances were funded from economies (For example, the Nether- programs under political and economic general revenues (as in Canada, West lands, Sweden, and the United Kingdom) restructuring during 199 1; fourth, the Germany, the Netherlands, and the provide a floor of subsistence benefits for impact on social security programs of the United Kingdom) and were paid to fami- all residents or citizens, while others (for collapse of the Union Government; fifth, lies with low income and those with a example. the United States) offer means- social security developments under radi- large number of children (as in Japan). tested benefits for the poor. Most coun- cal economic reform in the Russian There were. however. significant tries guarantee a routine benefit adjust- Federation during 1992; and sixth, differences between the pre-reform ment according to price and/or wage remaining issues regarding income secu- Soviet social security system and the indices so that benefits and allowances rity programs for the aged and children. prototypical Western system. Under the usually rise with the overall standard of pre-Gorbachev system, the combination living. The Pre-Gorbachev of relatively low retirement age, short Characteristic of the centrally plan- service tenure required for pension eligi- ned economic system, the Soviet social Social Security System bility, and an inadequate reward struc- security system was financed primarily Prior to 1990, two laws governed ture for longer service was generally from general revenues. No employee pension programs in the Soviet Union: regarded as ineffective for productive contributions were required. State- The 1956 Law on State Pensions covered and prolonged labor. The normal pen- sector employers (State farms, enter- workers and employees of State farms, sionable ages for men (60) and women prises, and institutions) paid an average enterprises, and institutions, and the (55) were low by Western standards.’ of 9 percent of payroll to social security 1964 Law on Pensions and Benefits for The required minimum years of service in 1989 (ranging from 4 percent to Collective Farmers covered members of to qualify for a pension was 25 for men 14.4 percent, varying across industries). collective farms and their families. Al- and 20 for women. Supplementary ben- a rate far below the combined contribu- lowances to families with a large number efits for longer service required either a tions by employers and employees in of children were first introduced in 1944. minimum of 10 years over the required Western economies.” Over time, these aliowances were ex- minimum years of service or at least Finally. unlike most Western gov- tended to children of unmarried mothers 15 years of uninterrupted service in the ernment social security systems that co- and of low-income families. The 1977 same enterprise.8 Also, the Soviet ben- exist with private pension plans. the Constitution of the U.S.S.R. incorporated efit computation was based on wages Union-level Soviet Govermnent provided the existing family benefit programs, during the last 12 months before retire- the only income security for the average thus providing a legal foundation for ment. As a result, retirement income was citizen. There were very limited (if any) thesebenefits.) not determined by one’s life-long earn- republic or locally initiated complemen- The pre-Gorbachev system shared ings records (a function of productive tary cash benefit programs or charity a uumber of the features that character- labor) but on the worker’s ability to ne- available to populations suffering from ize social security systems in Western gotiate a higher wage for the last year economic hardship. economies. The Soviet pension benefits preceding retirement.g were wage related, as is the case in most Since there were no regular cost-of- The First Phase of Transition: Western economies.4 The Soviet pension living benefit adjustments, recipients of Legislative Reform, 198WO systemhad separate benefit formulas for fixed benefits from family allowances urban and agricultural labor forces-a and pensions saw their income deterio- The impetus for social security re- policy that is also applied in other coun- rate in value over time. Even though the form had been present throughout the tries (for example, Austria, France, and Government controlled the prices of 1970’s and early 1980’s, before Mikhail West Germany).5 goods and services, wages had risen over Gorbachev took the position of General Pension program financing was the decades. Current wage earners and Secretary of the U.S.S.R. Communist basedon the “pay-as-you-go” method, new pensioners could afford a living Party.” By the mid- 1980’s, researchers whereby current obligations to beneficia- standard that proved elusive to many claimed that hidden inflation had impov- Social Security Bulletin l Vol.