The Politics of Bad Governance in Post-Soviet Russia

PoliticalChanges in Post-SovietRussia Vladimir Gel’man (EUSP/University of Helsinki) Penn State University, lecture 5, October 11, 2017 The Politics of Bad Governance: Policy-Making, Unrule of Law, and Interest Groups

The Politics of Bad Governance • Why the quality of governance in Russia is much poorer than one might expect judging by degree of its socio-economic development? • Russia - example of bad governance by several international indicators in terms of property rights, rule of law, and corruption: • Transparency International 2016: Russia shared 131/176 rank alongside Kazakhstan, Nepal, Iran, and Ukraine (score is 29/100); • World Bank Governance Matters 1996-2015: average control of corruption index in Russia is -0.86 on the scale from -2.5 from +2.5; • World Justice Project 2016: Rule of Law Index – Russia’s rank is 92/113;

The Politics of Bad Governance Despite these (negative) features, there is no collapse – Russia pursuit successful macroeconomic and financial policies, effectively conducted tax reforms, launched some other policy reforms not so badly… Still, law enforcement is notoriously inefficient: police, courts, prosecutor offices, state watchdog agencies, etc. How we can explain these dis-junctures – why policy-making and governance in Russia is so controversial?

The Politics of Bad Governance • Governance - a rather loose yet popular term, which is used in many analyses of politico-economic mechanisms of governing the state (NOT those of corporate governance); • “Governance” became a catchword since the 1990s due to World Bank’s “Governance Matters” (Worldwide Governance Indicators) – the quality of governance in all states is evaluated according to six pillars: • (1) Voice and Accountability; (2) Political Stability and Lack of Violence; (3) Government Effectiveness; (4) Regulatory Quality; (5) Rule of Law; (6) Control of Corruption - six dimensions, or criteria of “good governance”

The Politics of Bad Governance • Rule of law – the fundamental principle of “good governance” (necessary yet insufficient condition): • ”1. All laws should be prospective, open and clear; • 2. Laws should be relatively stable; • 3. The making of particular laws… must be guided by open, stable, clear, and general rules; • 4. The independence of the judiciary must be guaranteed; • 5. The principles of natural justice must be observed (i.e., open and fair hearing and absence of bias); • 6. The courts should have review powers… to ensure conformity to the rule of law; • 7. The courts should be easily accessible; • 8. The discretion of crime preventing agencies should not be allowed to pervert the law” (O’Donnell, 1999, p. 317).

The Politics of Bad Governance • Russia barely met some of these criteria despite the fact that the rule of law set up as a key priority of government’s agenda since the early 2000s… • Usual argument: historical “legacy of the past”, cultural traits… • Russia – a laggard in development of the rule of law before 1917; • Soviet period – politicization of justice, large-scale use of repressions before mid-1950s; • Late-Soviet period – the institutional decay

The Politics of Bad Governance • The principles of the rule of law were proclaimed in the late 1980s, but soon the Soviet Union ceased to exist; • Decline of the state capacity after the Soviet collapse, decentralization, and the rise of “violent entrepreneurship” (Volkov, 2002); • In the 2000s – restoration of state capacity, recentralization, numerous reforms of police, courts, and other agencies… • Still, the rule of law did not emerge…

The Politics of Bad Governance • Low “demand for law” – the lack of habits among ordinary citizens and business people for application of formal rules and tendency to bypass the law instead; • The evidence is different: • Survey of company managers (Frye, 2002) – 2/3 positive responses about the experience of use of commercial courts for resolving disputes among companies; • … but 2/3 negative responses about the experience of use of commercial courts for resolving disputes between companies and the state :( • Now low demand for law but insufficient supply of the rule of law from the state

The Politics of Bad Governance • The role of special interest groups (seekers of private goods) against the rule of law (public good): • Paradox of collective action (Olson, 1965) – relatively small well-organized interest groups can overweight public preferences even in democracies, let alone authoritarian regimes; • “Winners” and “losers” of economic policy reforms – in the 1990s, there was no serious organized resistance of “losers”, but strong pressure from “winners” (oligarchs), representatives of big business; • 1995 – “loan-for-shares” privatization deal, “state capture” until 1998

The Politics of Bad Governance • From “state capture” (1990s) to “business capture” (2000s)? • Informal “barbeque agreement” between Big Business and Putin (June 2000); • “Yukos Affair” (2003); • De-facto nationalization of enterprises (by 2016, 70% of national economy under the state control); • Positive versus negative effects of “statist turn” in Russian economy - “state capture from within” (another model of crony capitalism);

The Politics of Bad Governance • How interest groups affected the rule of law? • 2009 – police reform under Dmitry Medvedev (goals: more efficiency, cuts of expenditures and personnel, etc.); • Policy outcome – expenditures increased, personnel slightly decreased (merely on the paper), (in)efficiency is nearly the same; • Reform was conducted by the Ministry of Interior itself (by the interest group), no political oversight… (Taylor, 2014)

The Politics of Bad Governance • Law enforcement agencies – production of bias and privileges (Paneyakh, 2014); • Trajectory of criminal cases in Russia: very low acquittal rate – less than 1%, but relatively high share of probations; • Selective incarceration – state officials have less chances to be imprisoned than representatives of low classes (unemployed, migrants, poor people), but entrepreneurs are also in the zone of risks; • Mechanism of evaluation of law enforcement officials – quota system (share of successful cases vis-à-vis previous periods); for courts - the number of overturned court decisions (via appellations);

The Politics of Bad Governance • Why there is no political will to implement reforms aimed to the rule of law? • Entrenched bureaucrats (especially in police and security apparatus) vs. weak technocratic policy reformers, who have to rely upon political leadership; • “The main question of every evolution is constraining political power: how to provide competent decision-making, which will depend upon knowledge and experience but not upon voting results, and how to achieve a “regime of non-interference” of politics in other spheres of public life” (Ulyukaev, 1995: 8); • Many (if not most) of policy experts in Russia and beyond would endorse Ulyukaev’s statement – they would like to exclude or, at least, limit the influence of politics on policy-making;

The Politics of Bad Governance • … but results are often the opposite: • Most of policy reforms in global history were technocratic by their nature (political model of governance is a relatively recent phenomenon), but in the modern world technocratic policy reforms rarely bring major breakthrough successes (some exceptions more or less prove the rule); • Rent-seeking nature of governance inhibited technocratic policy changes due to resistance and/or distortions by bureaucracy and/or interest groups as formal and informal veto players; • Limited opportunities for building of ”broad” pro-reform policy coalitions of various actors; • The major source of policy reforms is their priority support by political leaders – this support is unsustainable and by definition related only to a limited number of policy directions

The Politics of Bad Governance • Why political leaders need technocratic reformers? • Response to domestic and international challenges – they forced to hire well-qualified experts in economic policy and state governance (technocrats are similar to crisis managers in companies); • Political leaders gave certain autonomy to technocrats, able to insulate some of their policies from influence of public opinion and interest groups, and keep monopoly on decision-making and policy evaluation; • BUT! – principal-agent problems are inevitable (leaders are now always able to evaluate policy outcomes properly)

The Politics of Bad Governance • Loyalty vs. efficiency dilemma: • Technocrats may switch sides toward the camp of regime’s rivals or even become leaders of opposition to the regime; • Threats to political leaders from both successful and unsuccessful technocrats; • Resolving principal-agent problems: competition between agents (”divide and rule”) and limited discretion of technocrats under the patronage of political leaders (”pockets of efficiency” ); • BUT! – problems are not limited to disloyalty of technocrats • Political isolation of technocrats – fragile ”narrow” coalitions for policy reforms, which may bring unexpected and unpredictable outcomes;

The Politics of Bad Governance • ”Technocratic trap” – the role of technocrats in policy-making diminished over time but they can’t change major ”rules of the game”, and policy programs implemented partially and became less meaningful; • Dependency from ”regime cycles” – political leaders and technocrats prioritize those policy changes, which may bring quick returns at the expense of long-term developmental plans (the case of tax vs. pension reforms in Russia in the 2000s); • Weakness of state apparatus – lack of control of policy reformers and poor coordination of various agencies (why financial policy is better coordinated than social policies); • Privatization of gains and socialization of losses as an effect of dis-balance among interest groups and increasing influence of rent-seekers; • The spiral of overregulation as a side effect of struggle of policy reformers against resistance of state bureaucracy;

The Politics of Bad Governance • BUT! – technocrats remains indispensable because of needs of political leaders in fool-proofing (especially in financial, tax, and banking policy areas); • Dilemma of technocrats: • Long preparation of policy changes; public discussions, agreements of major stakeholders, consistent step-by-step implementation, and subsequent embedding or • Relatively quick imposition of major changes from above in a format of ”secret operation” (often without taking into account positions of major stakeholders); • High risks in both instances – either unworkable compromise (pension reform in Russia) or turn to counter-reforms (privatization of enterprises or introduction of the Unified State Exam in Russia)

The Politics of Bad Governance ”Success stories” of major policy reforms – exceptions that prove the rule? (tax reform of the early 2000s in Russia and some other post-Soviet countries): incentives to launch changes, which brought quick positive results; Alternative solutions: • Policy reform strategies – ”borrowing” and ”growing” of good institutions – mechanisms of outwitting of rent-seekers and implementing of new ”rules of the game”; • ”borrowing” of institutions – transfer of effective mechanisms onto post-Soviet soil: risks of their “shitization” (Zaostrovtsev, 2009); • ”Open government” in Russia (aka e-government): not complementary but substitutive vis-a-vis democratic accountability – barrier to unwanted public initiatives and tool of manipulations for imposition of state-directed projects (the case of ”Active citizen” project in Moscow);

The Politics of Bad Governance • ”Growing” of institutions – making a limited number of ”pockets of efficiency” under patronage of political leaders (a long history from ”toy army” of Peter the Great to Soviet nuclear and space programs); • Limited effects of patronage (Skolkovo project did not survive after the end of Medvedev’s presidency); • The spread of new institutions beyond ”pockets of efficiency” faced with major resistance of rent-seekers; • The logic of institutional isomorphism – unfriendly policy environment may change ”pockets of efficiency” and adjust them to general ”rules of the game”, not vice versa

The Politics of Bad Governance • Support of technocratic reforms by political leaders – a necessary yet insufficient condition: • Risks of revisions of policy priorities of political leaders (or of leaders themselves): ”modernization” program in Russia after Medvedev, turn from economic development to geopolitics in Russia after the annexation of Crimea; • Powerful interest groups may turn down programs of policy reforms despite the good will of political leaders (the case of police reforms in Russia); • … and policy reforms as such may went too far and cause certain challenges to political leaders in terms of their survival in power struggle (”saturation” effect) …

The Politics of Bad Governance If not policy reforms, then what? • Russian Railways – «Russian greatest rent machine»: • 2015 – commutertrainsabolished in a number of regionsbecause of lack of subsisiesfromregionalbudgets (tariffswere set upbythecompanyitself, and taxpayerscoveredallthecosts, later on costsweretransferredfromregional to federalbudget); • Russian Railwaysemerged in the 2000s on theruins of theSovietsystem of governingthesector; • In 2005–15 CEO of Russian Railwayswas Vladimir Yakunin (Putin’sdachafriend) whohadcarte blanche on all arbitrary decisions (his replacement not changed much…); • Privatization of gains and socialization of losses – why?

The Politics of Bad Governance Basic principlesof politico-economic order in Russia: (1) Rent extraction is the major goal and substantive purpose of governing the state at all levels of authority; (2) The mechanism of governing the state tends towards a hierarchy (the “power vertical”) with the only one major center of decision-making; (3) The autonomy of domestic political and economic actors vis-à-vis this center is conditional; (4) The formal institutions are arranged as by-products of the distribution of resources within the “power vertical” : they matter to the degree to which they contribute to rent-seeking; (5) The state apparatus within the “power vertical” is divided into several groups and/or informal cliques, which compete with each other for access to rents

The Politics of Bad Governance • The rise of bad governance in post-Soviet Eurasia is resulted from the lack of constrains for maximization of power and rents by ruling elites, and aggravated because of several factors: • (1) ideational orientation of elites and society-at-large on «legacy» of the past and on the «good Soviet Union» as a normative ideal / role model for ruling groups and for respective countries; • (2) limited circulation of elites (including those in the state apparatus) and reproduction of ruling groups in the region; • (3) weak influence of the West on governing post-Soviet states and lack of mechanisms of international enforcement towards them; • Few «success stories» - exceptions, which prove the rule? • Effects of bad governance – from growing pains to chronic deceases…

The Politics of Bad Governance • Q1: what are the major obstacles toward the rule of law in Russia? • Q2: why state agencies and state-owned companies in contemporary Russia performed so badly?

The Politics of Bad Governance in Post-Soviet Russia