INSTITUTIONAL FAILURE AND THE DELIVERY OF EDUCATION IN RUSSIABYK.C. ROYSCHOOL OF ECONOMICSUNIVERSITY OF QUEENSLANDBRISBANE, 4072AUSTRALIAk.roy@economics.uq.edu.auANDANATOLY V. SIDENKOPLEKHANOV RUSSIAN ACADEMY OF ECONOMICSMOSCOWRUSSIAoknedis@aha.ru INTRODUCTIONThe economic development of a country and its human development are interlinked and interdependent. The ultimate objective of economic development in a country is achieving greater human development. But, greater human development also facilitates greater economic development as it has been demonstrated in the growth and development process of ‘Miracle Economies’ of East and South East Asia. But the four main areas of human development which are interlinked are education, health, nutrition and fertility. Educated mothers can better take care of health and nutrition of their children and keep their fertility rate at a low level than uneducated mothers. The improvement in literary level, health and nutrition of all members on a family helps the family to increase its income and to overcome poverty. From a more non-materialistic viewpoint, one can argue that every individual is born with a collection of abilities and talents which in Sen’s theory (1981) are referred to as ‘Natural Endowment’ at birth. Education, in its many forms, has the potential to help fulfil and apply these abilities. The fulfilment of human capabilities and talents lead to what in Gandhian Planning is referred to as ‘complete development of human personality’ (Narayan, 1962; Roy, 1986). In this paper we comment at the theoretical level on the contribution of education to human development and to economic development of a country and then examine the current state of delivery of education in Russia’s transitional democracy.^ THEORETICAL ISSUES IN EDUCATION, HUMAN RESOURCE DEVELOPMENT AND ECONOMIC DEVELOPMENTMark Blaug (1970) in his pioneering study on the relationship between education and economic growth commented that although the relationship between education and economic growth may be quite different in one period from that in the other, and that causal forces may not always be in the same direction, it is perfectly possible to believe that education contributes to economic growth. The well known World Bank Economist, G. Psacharopoulos, (1982), in his study on the contribution of education to development, found the presence of a strong positive correlation between an improvement in farm productivity and farmers’ elementary education. In developing countries, the social returns to education appeared to be 27 percent for primary education compared with 16 percent for secondary education and 13 percent for higher education.As these developing economies continue to grow, social returns to all levels of education continue to fall and, in advanced countries, the social return to primary education becomes marginal. Psacharopoulos (1994) also found that on regional basis, social returns to primary, secondary and higher education were considerably higher in Sub-Saharan Africa than in Asia, Latin America and the Caribbean and OECD countries. Following Leibenstein’s model of x-inefficiency, Roy and Vemuri (1988) argue that if the principal sources of x-inefficiency viz lack of basic education and training and poor health of the people and lack of well developed entrepreneurial class, are eliminated, then the economic growth of a country would improve. The result would be reflected in the production function which would experience the positive returns to scale strong enough to offset the diminishing marginal productivity of a single variable factor, the human resource. The developed countries, by eliminating the main sources of x-inefficiency and by continuously upgrading technology, have been able, for a long time, to delay the appearance of diminishing returns in production and to move on higher average product curves. The East Asian economies have also followed the same path.One way of analysing the role of education in development is within the framework of the Solow model (1956) which treats an investment in human capital in the same way as an investment in physical capital and, therefore, is subject to diminishing returns; or, the other way is in treating human capital as different from other factors of production in that it generates externalities which allow an economy to continuously improve human welfare. While Krugman (1994) uses the Solow model to argue that investment in education, like investment in all other factors of production, is subject to diminishing returns and hence, East Asian Tiger economies will also experience diminishing returns from their investment in human capital and eventually reach Solow’s steady state of growth, Sen (1999), on the other hand, supports the other view that education produces positive externalities to human capital which can help an economy overcome (or at least delay the appearance of) diminishing returns and, therefore, generate long term economic growth.Here, of course, the capacity of investment in education to generate positive externality over a long period of time greatly depends on the administration of the education in a country, i.e. the institutions in charge of the delivery of education in a country, such as the government, the private sector, the society, the teachers who are imparting knowledge, and students who are receiving knowledge. In advanced countries, these institutions have been efficient and honest; in East Asian countries the administration of education has been highly efficient and almost corruption free and hence, high quality human resources have developed in these countries. In many developing countries, these institutions are riddled with corruption, inefficiency and thus, the delivery of education has become poor. On a narrower level, Sen’s Entitlement Exchange Theory (1981), when analysed and extended, it implies that a person’s natural endowment inherited at birth can be transferred through education into a skill based (acquired) endowment which creates for the person a set of entitlements which, when exchanged, will enable the person to acquire what he or she needs to alleviate material poverty and to fulfil that person’s desires. This acquired endowment builds up in a person, capabilities to pursue one’s well being, to be happy and to be free. Thus, in Sen’s welfare theory, an individual’s capabilities which enable a person to be adequately fed and nourished, and to be what that person wants to be, can be acquired primarily through education. On a broader level, in support of his argument that education produces positive externalities, Sen (1999) comments that if we educate a part of the community, the whole of it benefits.^ LIKELY SCENARIOS OF INSTITUTIONAL FAILURE: SUPPLY AND DEMAND SIDEEducation can be treated as a product just like any other product, although it is an intangible knowledge based product. Hence, there are different sets of factors which govern the demand for education and factors which govern the supply of education.On the supply side, the main suppliers are the state and the private sector. But, to supply the product, i.e. education, there is the need for infrastructure, i.e. building equipment and so on, teachers and proper curriculum; on the demand side, the students and their parents are the consumers. The demand for education is governed by: i) price, i.e. fees, cost of books and other ancillary items, as well as fees for education in the secondary market and the opportunity cost of sending children to school in poor families, and ii) the quality of education in developing countries.^ QUALITY OF EDUCATIONSince the government is the largest provider of education in a poor country, provision of sufficient expenditure to cover the cost of infrastructure and teachers would be necessary. But, if the state apparatus administering the education system is corrupt, then the money earmarked for education will not be spent in education. A large part of it may disappear as rent. The selection process of teachers can be corrupt. As a result, teachers with inferior qualifications and skills can get appointments through political connection and bribe money. If teachers have obtained their qualifications by unfair means and have secured appointment to teaching positions at schools, colleges and universities by unfair means, they cannot impart knowledge to their students. The students of the teachers who have passed their examinations by copying from notes in the examination hall or by adopting other unfair means, and have been appointed in the same way, are likely to follow the examples set by their teachers.Admissions of a student to a preferred school or college are likely to be determined more by political connection than by the student’s merit. Teachers appointed through political connections can and do use their political connections to systematically avoid performing their normal duties at their institutions and instead spend that time on running their private coaching classes for the students who they are supposed to teach in formal classes in schools and colleges or on farm related activities which has nothing to do with teaching. As a result, the teachers of schools and colleges earn handsome salary guaranteed to them by the muscle power of their political party affiliated trade unions without performing many of their formal duties as well as earn high income (sometimes even twice the amount of their salaries) by providing coaching to students in secondary education markets (private coaching classes). The extent of corruption does not end here. Teachers, to ensure a continuous flow of students to their privately run coaching classes, tell their students the questions they have set in the examinations. In such a situation, students find little use of attending formal classes in schools and colleges. Under such a system where the heads of educational institutions, many of whom have been appointed to their positions through political connections, cannot enforce accountability on the teachers for their performances, for, among other things, the fear of reprisals from their political masters. The educational institutions in this way virtually turn themselves into centres for recruitment of political party supporters who in due time would become informal agents of the government to run DUPE (Directly Unproductive Economic) activities including vote rigging in democratic states. ^ TEACHERS’ SALARIES, JOB SECURITY AND PERFORMANCE REVIEWSecurity of tenure and good salary are the two essential pre conditions to the making of a good teacher, but as we have already noted, because of the inability of the head of educational institutions to enforce accountability on the teachers, many of those with good salaries and job security are not bound to devote their time to imparting knowledge to their students in schools and colleges. Hence, teachers with low salary, non-permanent appointments and who are subjected to periodic performance reviews are likely to work sincerely and devote their time to genuinely educating students more than those with permanent jobs and high salary.The job of a teacher is not simply to deliver lessons to students in the class but also to implant in students’ minds some moral principles, some ethical values – a sense of right and wrong, and some ideal for them to hold on to. But, a teacher who does not possess these values cannot teach these to the students. In East Asian countries, teachers by and large possess these values and as a result, even without security of tenure, they perform their task far better than many of those in non-East Asian developing countries. The political institutions in most East Asian countries are autocratic.^ EXPENDITURE ON EDUCATIONIn most of the developing countries, the state is the main provider of education. In Former Soviet Union, the state was the sole provider of education. In Federal States, the total expenditure on education is shared by the federal and provincial governments. For example, in India, the expenditure for primary and secondary education is borne entirely by the provincial governments, but that for undergraduate and post-graduate education are shared by both the federal and provincial governments. For a number of educational institutions of national importance, the entire expense is borne by the federal government. The total expenditure incurred by both the federal and provincial governments in India accounted for 3 percent of GDP in 1980, 3.7 percent of GDP in 1990 and 3.2 percent in 1997, as compared with 2.5 percent, 2.3 percent and 2.3 percent during the same years in China. Hence, one may conclude that India spent more money on education than China. But, to make a better assessment of whether a country has incurred adequate expenditure on education, it is necessary to look at the per capita expenditure on education. In the following table, we present the share of government expenditure on education in GDP and the per capita expenditure on education in a number of prominent Asian countries.Table 1: Expenditure on Education in selected Asian countries ^ Government expenditure on education as % of GDP Per capita expenditure on education (in US dollars) 1980 1997 1980 1997 China 2.5 2.3 30.66 72.76 India 3.0 3.2 25.63 43.90 Malaysia 6.0 4.9 179.27 462.97 Singapore 2.8 3.0 488.33 2371.19 South Korea 3.7 3.7 164.24 1036.16 Thailand 3.4 4.8 69.26 249.02 Source: IMF (2002), International Financial Statistics Yearbook, Washington DC: IMF. World Bank (2003), World Development Indicators, Washington DC: World Bank. World Bank (2001), World Development Report 2000-01, New York: Oxford University Press.It can be seen from the table that of the per capita expenditure on education of all the countries included in the table, the per capita expenditure on education in India has been lowest ($25.63 in 1980 and $43.99 in 1997) although the share of the country’s educational expenditure in its GDP remained at 3 percent and 3.2 percent in 1980 and 1997. The per capita expenditure on education in Singapore and South Korea increased from $488.33 in 1980 to $2731.19 in 1997 and from $164.24 in 1980 to $1036.16. Hence, one has to admit that the expenditure on education in India has not been adequate. An assessment of whether a particular level of expenditure is adequate or not is usually made on the assumption that the entire amount of money earmarked for expenditure on individual items such as building, equipment, curriculum development, teachers etc is spent on those individual items. Although in developed and most East and South East Asian countries this is the situation, in many third world countries, including India, a portion of the money is very likely to end up as rents in the pockets of politically powerful people and their informal agents. Also, a disproportionately large proportion of the total money may be spent on teachers’ salaries with very little left for expenditure on other equally important items such as buildings, equipment, books and other infrastructure.Hence, educational institutions become overstaffed with highly paid teachers, many of whom are appointed not on their merits but on their political connection and do not have adequate infrastructure to ensure that high quality education is provided. In such a situation, teachers obtain high salary but work as agents of political parties in power. Thus, under institutional failure a large per capita expenditure does not ipso-facto ensure that high quality education will be provided and does not ensure that a 100 percent school enrolment ratio will genuinely mean 100 percent students of the particular age group will be attending school and getting proper education.^ DEMAND SIDE FACTORSIn many third world countries, because of such institutional failures as mentioned above, poor parents face high opportunity cost of sending children to the school as they lose the income which their children would have earned by working in agriculture, collecting non-market goods or by working in formal markets. While the cost of sending children to the schools involves the cost of buying clothes, books and papers etc, which the parents can ill afford, the students may not get proper lessons if the classrooms have no seating facilities and the teachers do not get penalised for not attending classes. Thus, poor families’ demand for education declines. In the end, a teacher’s dedication to duty depends greatly on his/her sense of responsibility and ethical values. Quality of education is also an important factor governing demand. But, the maintenance of the quality of education depends on teachers and on the curriculum. In advanced countries and in several East Asian countries viz, Singapore, South Korea and Taiwan, course structures are continuously revised and improved to provide the students with high quality education in both state funded and private sector funded educational institutions. But, in Third World democracies, due to institutional inefficiencies, little attention is paid to curricular improvement.The price of education to parents is high also because they are required to bear the cost of private coaching in secondary education markets and the cost of fees, books, and other ancillary imports for formal institutions. Since the quality of the delivery of education in state controlled institutions is inferior to that in private sector (mainly church controlled) institutions, the demand for education in private sector controlled and funded institutions is very high.In Third World democracies, the inherent tendency of the political party in power to stay in power for an indefinite period of time, leads it to try to acquire absolute powers by corrupting all institutions, including the education sector, to subserve the interests of the party. The institutional failure is more severe under a multi party parliamentary system of government in a federal state than in a two party parliamentary democracy in a unitary state as corruption arising from institutional failure slowly destroys the cultural values of the society.The high level of education and the consequent human resource development in East Asian countries are primarily due to low levels of institutional failures resulting from the presence of unitary state, benevolent autocratic government and the culture and ethical values unique to East Asia.In Table 2 we present the corruption perception index for a number of high performing Asian economies, a few advanced countries and for Russia.^ Table 2: Corruption Perception Index of Transparency International, 2000. Country Rank Index Country Rank Index Country Rank Index Least corrupt countries:First 15 ^ Most corrupt countries:Last 15 Other Asia Finland 1 10.0 Armenia 75 2.5 Malaysia 35 4.8 Denmark 2 9.8 Tanzania 75 2.5 Thailand 59 3.2 New Zealand 3 9.4 Vietnam 75 2.5 China 62 3.1 Canada 4 9.2 Uzbekistan 78 2.4 India 68 2.8 Iceland 5 9.1 Uganda 79 2.3 Norway 5 9.1 Mozambique 80 2.2 Singapore 5 9.1 Kenya 81 2.1 Netherlands 8 8.9 Russia 81 2.1 United Kingdom 9 8.7 Cameroon 83 2.0 Luxembourg 10 8.6 Angola 84 1.7 Switzerland 10 8.6 Indonesia 84 1.7 Australia 12 8.3 Azerbaijan 86 1.5 United States 13 7.8 Ukraine 86 1.5 Austria 14 7.7 Yugoslavia 88 1.3 Hong Kong 14 7.7 Nigeria 89 1.2 Source Table: Transparency International Website: transparency.org; Nov 3, 2000.In the table presented above, an index value of 10 represents zero corruption and the country with an index 10 is ranked 1. Therefore, the lower the index value starting from 10, the higher the corruption and the higher the corruption level rank. It can be seen from the table that Russia is among the 15 most corrupt countries along with two South East Asian countries: Vietnam and Indonesia. On the other hand, Singapore and Hong Kong are among the top 15 least corrupt countries. Malaysia, Thailand, China and India appear to be more corrupt than Singapore and Hong Kong. This corruption level in Russia is indicative of the magnitude of institutional failure in that country.Therefore, in the light of the discussion presented above, we can now comment on the differences that exist between the views expressed by Paul Krugman and Amartya Sen on the long term return from investment in education. It is difficult to say to what extent Krugman’s comments are true, that, although the rapid expansion in education in East Asian Tiger economies contributed greatly to their success, increase in investment on education ‘will’ nevertheless be subject to diminishing returns can be accepted as true. The level of education in Tiger economies has generally been of high quality and these economies are continuously upgrading their technology and human capital to increase the production of technology intensive products. But, certainly his argument is valid in countries where corrupt political institution has corrupted the education sector so that the law of diminishing returns from investment in education takes effect as soon as the investment is undertaken. On the same ground, Sen’s argument that education possesses positive externalities which help a country to overcome diminishing returns and therefore to achieve permanent economic growth is not likely to be true for countries where, due to institutional failures, the education sector has virtually collapsed. This situation has developed more in multi-party parliamentary democracies in Third World Federal states, such as India, than in unitary and autocratic states in East Asia.^ DELIVERY OF EDUCATION IN RUSSIALet us now look at the Russian situation. As soon as Russia began its transition from a totalitarian regime under former Soviet Union to a modern democratic regime, corruption began to permeate the entire institutional set up (political, economic, and judicial) of the country.^ THE STATE OF THE EDUCATION SECTOR IN FORMER SOVIET UNIONUntil Mr. Gorbachev began to open up the country to the outside world, the former Soviet Union, since its formation as a state, was virtually closed off to the outside world. Hence, the investment in education played a key role in the advancement of scientific research and indigenous technology which helped the country to acquire the status of a super power, second to the United States. Although the lack of adequate state-of-the-art infrastructure and resource materials limited the capability of institutions and teachers to adopt the latest and more improved methods of teaching and learning, there was enough sincerity of purpose among teachers and students to impart and receive knowledge at all levels of education. Since the communist state was the only provider of education in former Soviet Union, the political interference in the selection and appointment of teachers could not be completely ruled out. Since teachers and students were not organised under unions, large scale communist party interference in the affairs of educational institutions and union military which was experienced in communist West Bengal in India, was probably absent. Hence, in a sense, in both autocratic and Confucian East Asia, as well as in totalitarian Russia, order and discipline were maintained in educational institutions and genuine education was imparted to students.With full employment and security of tenure guaranteed by the state and inflation non-existent, with subsidised rents for apartments and prices for essential goods, even a low salary level was enough for the teachers to maintain a reasonable minimum living standard. The secondary education market, as it operates in India, did not exist.^ THE EDUCATION SECTOR IN DEMOCRATIC RUSSIA SINCE 1991Russia’s transition to democracy, as in other former Soviet republics and in other East European states, has been abrupt and as a result a conflict has emerged between the old institutions such as customary rules and regulations and the newly emerging market conforming institutions for carrying out all transactions. While the Russian society is comfortable with the old way of completing transactions, the formal institutions are still in their formative stage and not quite capable enough to handle all transactions. Hence, a powerful mafia class has taken over the role of formal institutions to carry out transactions on behalf of their agents. The Russian people have experienced large increases in poverty and insecurity through macro-economic volatility, the loss of old job related forms of security and the sharp rise in mafia-led violence and often psychological stress from the rise in poverty. While the electoral process has been, to some extent, important in empowering the citizenry, this has been offset by the profound feelings of disempowerment stemming from the new sources of insecurity and the elite capture of the state. The new oligarchs who include members of the government such as bureaucrats and political leaders, even members of judiciary, business people, former KGB agents and other powerful figures, through their mafia’s, have also captured privatised assets and resource rents. Hence, today’s structural inequality, closely linked to the democratic governance, can become deeply imbedded in the society, unless the mafia’s dominance in the Russian society is curtailed (World Bank, 2000). But, this mafia acts as the informal agents of oligarchs who are also linked to the state, as we have found the existence of such a situation in several Indian provinces.Hence, in such a situation, a persons legal ownership right to private property is a misnomer as another person with the help of ‘mafia’ can establish his/her customary right to that property and also can acquire fake legal rights. Therefore, the supply of state funded education which is a social transaction cannot take place safely, if that state property on which the infrastructure for state sponsored education is built is taken over by a private business company. Currently, corruption and rent seeking activities have crept into the education sector. With the expansion of private sector sponsored education, which is beyond the reach of poor people, and the general rise in the cost of education, the cost of schooling has become a serious concern for poor families as education in former Soviet Union was provided free of cost. With the rise on demand for places in state sponsored educational institutions, people reported problems with teachers soliciting bribes and special tutoring fees for providing private coaching in the secondary education market, in exchange for passing grades and diplomas (World Bank, 2000). An abrupt transition from colonial governance to democratic governance in India, and from totalitarian governance to a democratic one in Russia, appear to have produced similar impacts on the education sector in both countries.We provide below some statistics on the delivery of education in democratic Russia. The gross enrolment ratio in secondary education as percent of relevant age group declined from 96 in 1980 to 83 in 2000; the average years of schooling in 2000 for both male and female was only 2.6 years which was even lower than those in Tanzania and Uganda. On the other hand, the gross enrolment in tertiary education as percent of relevant age group increased from 46 in 1980 to 64 in 2000 (World Bank, 2003). This ratio increased to 92 for secondary education and 70 for primary education in 2002 (World Bank, 2005). But public expenditure on education as percent of GDP declined from 5 percent in 2000 to 3.1 percent in 2002-03 (World Bank, 2003, 2005). Also, public expenditure on education per student as percent of GDP per capita has declined from USD 290.88 in 2000 to USD 270.68 in 2002-2003 (World Bank, 2003, 2005; IMF, 2004)1. Hence, the administration of education and the delivery of education have suffered under Russia’s transitional democracy.The structure of the Russian educational system is basically standard. The elementary school provides training from the first to the fourth classes, children who have finished 9 classes receives incomplete secondary education, and those who manage to pass exams in 11th class get secondary education certificate. The higher education, alike in Western countries, consists of two stages - a four-year bachelor course and a two-year magistracy. A bachelor can work as an expert with higher education but to enter postgraduate study one requires a diploma of a master. The postgraduate course lasts for 3 years; it is possible to defend Ph.D. thesis after that. A candidate of sciences can also defend thesis for a Doctor's degree in Russia.In the context of benefits, examined in the first part of this paper, the reform of education plays an important role in a complex system of social reforms in Russia. On the one hand, we suggest that there should be a free education in the country financed by petrodollars. And since Russia is suffering from the demographic crisis, and consequently, since the number of graduates coming out of schools will be less than budgeted number of university entrants, it is logical to accept that there will be funds for free higher education for all school graduates who would pass the elementary test of base literacy and ability to study. But in practice, the reform of education sector is aimed at the commercialization of all forms of education.School-teachers and lecturers, alongside scientists belong to the poorest group of the population in Russia. If a teacher obtains no additional earnings from providing private coaching to students (these are called tutoring in Russia) then he or she languishes in poverty. However from the 1st of January, 2006 the salary of several categories of teachers will be raised.Purchasing a degree certificate, in the informal education market have become very popular among students. One can buy any essay, term paper or diploma paper. The prosperous citizens can order Ph.D. thesis and even doctoral thesis by paying a fee.The Dissertation Council is becoming a production line for candidates for masters and doctors of sciences. The only thing you should know to become a Doctor of Science is how much to pay and who is in charge of the racket. Scientists of dissertation councils in need of money take part in the dissertation defense meeting in order to eat and drink merrily. Topics of discussions in this meeting are not the same as these of members of a council, and the system of preliminary examination by experts of the dissertation, operating nowadays is designed to convince the experts that the dissertation is suitable, so it’s possible to vote for it. The discussion of a dissertation is undertaken just for the sake of an appearance. A case where the dissertation although passed preliminary expert examination, was not defended successfully is rare.It is obvious that only wealthy people can afford a dissertation. They treat the attachment of an academic degree like that purchasing a new prestigious car: everyone’s got it, so why haven’t I? The science falls a victim to a business. The academic laborer is employed to write the dissertation and procure necessary publications on behalf of the customer. A show of a proper procedure of defense is maintained and a nourishing banquet is paid. The new scientist is now ready to engage in rent-seeking activities.There are certain pleasant exceptions when well-known state or public figure such as a head of a bank defends the dissertation on a topic of his or her work. Money is spent for writing the dissertation and for a registration of defense only because the specified person has no time for such routine work. The scientific degree obtained is quite deserved in this case.The labour legislation in the sphere of education was considerably changed during the term of the Minister of Education, Vladimir Filippov. In Soviet Union, the labour rights of a teacher were protected not only by the law but by the trade-union and party organizations. There was a formal re-election of a teacher on the staff of the union once in 5 years. During such re-election, academic council members of an educational institution were involved in a secret vote. The teacher was usually re-elected by common consent, however one couldn’t know the teacher personally. It was difficult to convince members of a council to vote against the candidate.Nowadays the head of institution signs a labour contract on term from 1 to 5 years with the teacher in accordance with the current situation and candidate’s work experience. After the contract is expired neither one of the two parties has any power of bargaining with the other party. The search for a new employee and a new place of employment starts from the very beginning. A higher school can take a teacher for a new term, thus depriving, the current teacher has the possibility to continue to work in his/her former place. The process of transformation from free education to education on commercial basis is being discussed and the law is being prepared. It is not probably ethical to facilitate the process of legislative destruction of free educational system expedited by the present boom of oil prices. However the high price for oil and the consequent high petrodollar income is being spent on so-called fake important problems. As a result stabilization fund is likely to disappear as expenditure incurred on so called prime needs.^ CONCLUDING REMARKSWe believe that the reform of education in Russia will follow the general course of transformation of an economic and social life of the country which is experiencing a drastic change of social order. In Socialism, education and public health services, despite their limited supply, were free-of-charge. Under conditions of market economy the free-of-charge benefits will be provided only under exceptional circumstances. A majority of Russian citizens have lived under socialism, so they hardly have the capacity to understand that now rules have considerably changed. They continue to live and think in an old-fashioned way mechanically but they’ve forgotten that 14 years has passed since the demise of socialism and its usual values. It is difficult to change psychology and hence the shock therapy is going on despite the assurances that the social character of the Russian state will be maintained.REFERENCESBlaug, M, (1970), An Introduction to the Economics of Education, UK: Penguin.IMF, (2004), ^ International Financial Statistics Yearbook 2004, Washington DC: IMF.Krugman, P, (1994), “The Myth of Asia’s Miracle”, Foreign Affairs, 73(6), pp.62-78.Narayan, S, (1962), The Principles of Gandhian Planning, Allahabad: Kitab Mahal.Psacharopoulos, G,(1982), ‘Education as an Investment’, Finance and Development, 19 (3),p.40.Roy, K.C, (1986), Foreign Aid and Indian Development: a Study from the viewpoint of Peace and Development, Ahmedabad: Gujarat Vidyapitl.Roy, K.C and Vemuri, S.R, (1988), “Human Resources in the Economic Development of Low Income Countries”, Journal of Economics and International Relations, 2(2), 111-112.Sen, A.K, (1981), Poverty and Famines: An Essay on Entitlement and Deprivation, Oxford: Clarendon Press.Sen, A.K, (1999), “No School, No Future”, The Economist, March 27, P.45.World Bank, (2000), World Development Report 2000-2001, New York: Oxford University Press.World Bank, (2003), World Development Indicators 2003, Washington DC: World Bank World Bank, (2005), World Development Indicators 2005, Washington DC: World Bank 1 Note: These figures are authors’ estimates on the basis of the statistics obtained from the World Bank and IMF publications.