Income transfers in transition : constraints and progress

Visiting the main employment office in Warsaw in late 1989, I asked how many people they were currently paying benefits to. The answer (in a city of 1.6 million people) was five. A year later, unemployment in Poland was more than a million, and by December 1993 was three million. There is no need to belabour the resulting strains on a social safety net designed for a very different régime. This paper discusses how the safety nets in the reforming countries, though in many ways well-adapted to the old system, were poorly suited to the needs of a market economy, and what progress has been made in adjusting them. The problems faced by the system of income transfers need to be seen against the backdrop of broader constraints facing policy makers at the start of the reforms. The emphasis on these constraints is not intended to sound gloomy; rather the opposite – it shows how much progress has been made in very difficult circumstances. A former French Prime Minister invited fellow citizens to imagine that France had over a very few years to go through the Political Revolution of 1789, the Industrial Revolution of the nineteenth century and the decolonisation of the 1960’s. That, he pointed out, was precisely what the world community is asking Russia to achieve.