Monetization is also used to refer to the process of converting some benefit received in non-monetary form (such as milk) into a monetary payment. The term is used in social welfare reform when converting in-kind payments (such as
food stamps or other free benefits) into some "equivalent" cash payment. From the point of view of economics and efficiency, it is usually considered better to give someone a monetary equivalent of some benefit than the benefit (say, a liter of milk) in kind. •
Inefficiency: in the latter situation people who may not need milk cannot get something of equivalent value (without subsequently trading or selling the milk). •
Black market growth: people who need something other than milk may sell it. In many circumstances, this action may be illegal and considered fraudulent. For example, Moscow pensioners (see below for details) often give their personal cards that allow free usage of local transport to relatives who use public transport more frequently. •
Changes on the market: supply of milk to the market is reduced by the amount distributed to the privileged group, so the price and availability of milk may change. •
Corruption: firms that should give this benefit have an advantage as they have guaranteed consumers and the quality of the goods supplied is controlled only administratively, not by market competition. So, bribes to the body that choose such firms and/or maintain control can take place.
Russian social welfare monetization of 2005 In 2005, Russia transformed most of its in-kind benefits into monetary compensation. Before this reform there was a large system of preferences: free/reduced price of travels on local transport, free supply of drugs, free health resort treatment, etc. for diverse categories of society: military personnel, the disabled, and separately, persons disabled due to
World War II,
Chernobyl liquidators, inhabitants of
Leningrad during the siege, former political prisoners, and for all
pensioners (that is, women 55+, men 60+). This system was a legacy of the Soviet Union, but it was heavily extended by populist laws passed by central and regional authorities during the 1990s. By the law 122-ФЗ of 22 August 2004, this system was converted into cash payments by various means: • abolition of preference, compensated by raising of wage (e.g. free use of local transport for military personnel) or pension (e.g. different preferences for Chernobyl liquidators) • for the three most important preferences (free local transport, 50%-price suburban rail transport, free supply of drugs): a choice between the preference and some extra money. The main causes of friction in the reform were the following: • technical and bureaucratic problems (e.g. for usage of the 50% discount for suburban rail transport, a person would need to present a paper from the local State Pension Fund office stating that he/she doesn't choose monetary compensation); • separation of all preference-recipients into
federal and
regional according to the body authorizing the preference. The largest group – pensioners – was regional, and this caused most of the problems: • In poor regions, financial pressure caused the local government to abolish these preferences with little or no compensation to the former recipients. • Even if the preferences were retained, they would apply only to pensioners of the region in question. Thus, pensioners from the
Moscow Oblast (administrative region), for example, could not freely use the metro and buses in
Moscow proper, because these are two different local governments. Later, most of these problems would be solved by a series of bi-lateral agreements between neighboring regions. A wave of protests emerged in various parts of Russia in the beginning of 2005 as this law started to take effect. The government responded with measures that eventually addressed the most pressing of the protesters' concerns (raising of compensations, normalization of bureaucratic mechanisms, etc.). The long-term effects of the monetization reform varied for different groups. Some people received compensation in excess of the services they had previously received (e.g. in rural areas without any local transport, the free transport benefit was of little value), while others found the compensation to be insufficient to cover the cost of the benefits they had previously depended on. Transport companies and railroads have benefitted from monetization as they now collect higher revenue from the use their services by pensioners who had previously ridden at the government's expense. (In some regions, more than half of the passengers formerly did not pay for municipal transport, but the government did not compensate the transport companies for the full fare of these passengers.) Effects on the medical system are controversial. Doctors and nurses have to fill out many forms in order to receive compensation from the government for services provided to pensioners, thus reducing the time that they have to provide medical services.
United States agricultural policy In United States agricultural policy, "
monetization" is a
P.L. 480 provision (section 203) first included in the
Food Security Act of 1985 (P.L. 99–198) that allows private voluntary organizations and cooperatives to sell a percentage of donated P.L. 480 commodities in the recipient country or in countries in the same region. Under section 203, private voluntary organizations or cooperatives are permitted to sell (i.e., monetize) for local currencies or dollars an amount of commodities equal to not less than 15% of the total amount of commodities distributed in any fiscal year in a country. The currency generated by these sales can then be used: to finance internal transportation, storage, or distribution of commodities; to implement development projects; or to invest and with the interest earned used to finance distribution costs or projects. ==See also==