Bureaucrats and The Russian Transition: The Politics of Accommodation

HARVARD UNIVERSITY THE GRADUATE SCHOOL OF ARTS AND SCIENCES
T H E SIS A C C EPTA N C E C E R T IF IC A T E
The undersigned, appointed by the Division Department Committee have examined a thesis entitled B u re au c ra ts and the R ussian Transition; The Politics of Accommodation G overnm ent
presented by
Yevgenia A lbats
candidate for the degree o f Doctor o f Philosophy and hereby certify that it is worthy o f/c c e g ^ ic e Signature . {y G . r.. .V. Timothy Colton (Chair) Robert Bates Dominguez
Signature Signature
..................
Date; January 29, 2004
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Bureaucrats and the Russian Transition: The Politics of Accommodatioii, 1991-2003
A thesis presented by Yevgenia M ark Albats to The Department of Government in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the subject of Political Science
Harvard University Cambridge, Massachusetts January 2004
UMI Number: 3131781
Copyright 2004 by Albats, Yevgenia Mark
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Bureaucrats and the Russian Transition: The Politics of Accommodation, 1991-2003 Advisors: Professor Timothy Colton (chair) Professor Robert Bates Professor Jorge Dominguez Author: Yevgenia M. Albats
This dissertation proposes a framework to explain the incentives of the old guard in post-communist transition, based on an intensive case study of bureaucrats of the Russian federal state administration. In contrast to earlier assumptions that ascribe some definitive modes of behavior to bureaucrats (e.g., that they will either oppose reforms or take a leading role in implementing them), my theory suggests that bureaucratic incentives, and hence bureaucratic behaviors, change throughout different stages of transition. It contends that the self-interest of bureaucrats plays a dominant role in their incentives; left unchallenged, they establish rules to fit their own chief purpose: survival in the new political and economic environment. They are thus eager to preserve the safety net of an office in the state administration, while enjoying advantages they did not have before namely the fruits of a market environment. Through this set of arrangements, they avoid the risks inherent in the market sector while enjoying rents from the regulation and control of private business. The role bureaucrats play in times of economic and societal transition has been neglected by scholars in the field. M y study suggests that policy choices regarding the old guard bear responsibility for the course of transition in Russia and explain the
111
variation in outcomes of reforms throughout the post-communist world, fifteen years after the Red Sunset. My model develops the theory of consumers of democratic politics, and suggests that small business is the natural consumer of democracy as commodity. It shows, however, that bureaucratic controls impede the development of such consumers. This dissertation is based on extensive empirical research, including a survey of 665 bureaucrats via personal interview or questionnaire from the three levels of authority within the Russian federal administration. An in-depth study of the ways and means by which bureaucrats impose control over small business was conducted as well. The dissertation argues that the recreation of the Soviet bureaucratic system, run on many of the same rules that had existed under the communist regime, does not prevent marketization, but rather leads to subversion of liberal reforms.
IV
CONTENTS
List o f Tables List o f Figures Acknowledgements The Puzzle At the Crossroads The Model The Case Turning Public Office into Private Business Rules of the Game The Shake-Down State Conclusion List o f Interviews Bibliography
vi vii vii 1 13 46 106 113 222 255 315 326 330
LIST OF TABLES
3.1: De-communization in post-communist countries (selected cases) 3.2: Strikes 3.3: The unofficial economys share of total output 3.4: The Russian state administration (civilian and in uniform) 5.1: Gender representation among bureaucrats surveyed 5.2: Backgrounds of bureaucrats surveyed 5.3: Apparatus of the Russian Federation government 5.4: Breakdown by age of bureaucrats surveyed 5.5: Monetary compensation of executives 5.6; Yearly income of executives including benefits (estimated) 5.7: Number of Bureaucrats taking jobs in the private sector 5.8: Bureaucrats to business migration, 1993-2001 5.9: Total average monthly income of managerial-level bureaucrats (estimated) 5.10: Monthly income of managers, including special payments and privileges (estimated) 5.11: Prices for bureaucratic services 5.12: Advantages of a job in the administration for low-level bureaucrats 5.13: Why do low-level bureaucrats stay at their jobs? 5.14: MNL model of factors affecting bureaucrats willingness to move to the private sector 5.15: Total effects on a bureaucrats willingness to move to the private sector 5.16: Attitudes toward transparency 5.17: Factors affecting a bureaucrats willingness to take a private-sector job
66 77 82 93 119 120 122 125 140 154 160 162 178 182 184 199 199 201 202 206 207
5.18: MNL model of factors that affect bureaucrats attitudes toward transparency 209 5.19; Total effects on bureaucrats attitudes toward transparency 5.20: MNL model of factors that affect bureaucrats willingness to move to the Moscow city government 5.21: Total effects on bureaucrats willingness to move to the Moscow city government 5.22: Supplemental income of low-level bureaucrats 210 211 212 217
VI
6.1: Number of governing documents issued by state agencies compared to the number approved by the Ministry of Justice of the RF, 1996-1997 6.2: Types of written mandates given by executives 7.1 Consumer spending in Russia and the Czech Republic, 2001 7.2 Agencies involved in granting approvals necessary to opening a restaurant in Moscow, 2001 7.3: Frequency of control visits to small businesses 7.4: Prices of judicial favors 7.5; Number of small businesses in Russia 7.6: Number of business activities under licensing with respect to laws on licensing 7.7; Licensing by year and institution 7.8; OLS model of the relationship between licensing and the number of small businesses C .l: Voting for liberal parties, 1993-2003 C.2: Variation in the outcome of transition across the post-communist world
228 236 256 258 265 268 269 289 291 312 315 323
L IST O F FIG U R ES
2.1: Progress in policy reforms, 1990s 2.2: Democracy and economic reforms 7.1: Required documents to open a restaurant in Moscow 7.2: Licensing, 1988-2001 7.3: Dynamics of licensing activities 7.4: Dynamics of licensing activities and political events
19 21 259 293 295 308
v ii
ACKNOWLEDGMENTS
I owe my sincere gratitude to many people in at least two countries separated by the Atlantic Ocean: that is, in Russia and in the United States. First, I would like to thank the members of my dissertation committeeTimothy Colton, Robert Bates, Jorge Dominguez for their support and commitment. I thank Timothy Colton, the dissertation chair and the Director of the Davis Center for Russian and Eurasian Studies, for introducing me to the graduate program at Harvard, and for his devotion to Russia, support, and tolerance for those as obsessed with Russian politics as I am. I owe my deepest regards to Jorge Dominguez, who was always there for me with his advice and support regardless of where I was whether Moscow, Russia or Cambridge, Mass. Regarding the ideas as well as the text of the dissertation, his insights and comments were extremely precise and thoughtful. Professor Dominguez truly taught me not only to be a scholar, but a teacher, too one who always treats students with dignity and respect. I am indebted to the people of the Davis Center for Russian and Eurasian Studies, who became my family during more than a year of writing. I would like especially to thank Mark Kramer, who was a constant source of information, guide to the literature, and discussant of ideas and observations; Marshall Goldman, with whom I have had many illuminating discussions about contemporary Russian politics; Lisbeth Tarlow, an invaluable resource on American culture; Susan Gardos, a librarian at the Davis Center, who always knew where to find the book I needed; Maria Popova, who helped with
V lll
statistical tests, Robert Price, Mara Zapeda, and Ann Sjostedt, who helped with editing and lent a hand on an everyday basis. There are many people in Moscow, as well as in other cities of the Russian Federation, without whom this study could have never happened: Sergeii Vasiliev, Oleg Vugin, Yevgenii Yasin, Yakov Urinson, and Anatolii Chubais helped me to understand how the Russian bureaucratic system operates. Sociologists Olga Kirichenko and Pave! Kudukin of the Moscow -based Expert Fund of Labor Research E l f , masters of the questionnaire, took on the brunt of the burden during the research stage. Someone who chose to be named as anonymous friend helped me with a fellowship when my account ran dry, and to that person, too, I remain grateful. Finally my debt is to my late father, Mark Yefremovich Albats, for everything he taught me, and whose life inspired me to go and do that doctoral; and to my daughter, Lolka, my best friend, my source of inspiration, who tolerated my absences, my introversion and mood swings, and who has always been a great supporter of all the endeavors I have ever undertaken.
IX
To my late father, Mark Yefremovich Albats
I am convinced that though they had no inkling o f this, they took over from the old regime not only most o f its customs, conventions, and modes o f thought; but even those very ideas which prompted our revolutionaries to destroy it; that, in fact, though nothing was further from their intentions, they used the debris o f the old order fo r building up the new. -Alexis de Tocqueville, The Old Regime and the French Revolution
XI
Chapter One: The Puzzle
It was November 15, 1991; one of those hectic, messy, sunless, rainy days of that autumn, when the old state was already void, although yet to be pronounced dead. The USSR would exist de jure for just another month and a half. No signs of its presence, however, were visible in Moscow. The new state was still in delivery, not yet bom, as the first gathering of the reform govemment, convened by its symbolic chairman and the countrys president, Boris Yeltsin, promised to establish a fresh foundation for what was to become the new public administration of the democratic Russian state. The gathering took place in the room where the Politburo of the Central Committee of the CPSU had met for decades. Located in the Kremlin, on the third floor of Building #1, this was the room: the most desirable and the most feared room of the Soviet nomenklatura? The Politburos life and death (and in Stalins time it was literally a question of life and death), and the rise and fall and careers of so many of its members,
' Although we tend to think of the first government of reforms as Yegor Gaidars govemment, de jure it was the RSFSR President Boris Yeltsin who held the position of prime minister until the summer o f 1992. As first deputy to the prime minister (November 6, 1991-December 14, 1992), Gennady Burbulis, the state secretary, was the de facto head of the government. Yegor Gaidar was deputy to the chairman in charge of economic questions and simultaneously the Minister o f Finance and Economy. ^ Nomenklatura positions o f authority requiring prior approval of some organ of the Communist Party in any communist country [Gil Eyal, Ivan Szelenyi and Eleanor Townsley, Making Capitalism Without Capitalists. Class Formation and Elite Struggles in Post-Communist Central Europe (London and New York: Verso, 1998), 200-201]. There were certain discrepancies across different institutions o f the USSR as to who had nomenklatura status and who did not. Traditionally, for instance, heads of departments o f the different ministries, as well as their deputies, were nomenklatura positions authorized by the respective organ o f the Communist Party: the federal-level positions, by the Central Committee o f the CPSU; republican levels by the central committees o f the respective republic; and regional-level positions {krai, oblast), by kraevoi or oblastnoi party committees. When it came to certain positions, however, such as in the national newspapers, the Central Committee of the CPSU Propaganda Department authorized first-year reporters, and all the way up.
were decided precisely here; this was the room where the dozen or so^ all-powerful members of the Politburo used to rule on the most important issues of the country they owned and of the people who lived in it. The room had an antechamber, or predbannik, to the inner sanctum. Several small desks and stools were assigned to those members of the Soviet elite whose fate was decided behind the big, wooden doors. On November 15, 1991, the predbannik looked very strange. Here, a group of young men dressed in cheap trousers and sweaters-few had suit jackets on were waiting for the ministers in the room. The coat comer was even more peculiar: instead of the long, grey coats made of thick woolen cloth topped by the musquash fur hats the uniform of the Soviet nomenklatura it was stuffed with Chinese-made sports jackets (the usual dress of junior researchers in Soviet academia), most likely never seen here before. Yeltsin, presiding, made some introductory remarks, and then motioned to Yegor Gaidar, his deputy and the Minister of Finance and Economy in the new cabinet: OK, now you go ahead.... At this point, Gaidar rose and made a statement, declaring that the new govemment of Russia considered it morally unacceptable to receive any blaga i.e., privileges in the form of food rations, special housing, medical care, transportation, etc. (which in conditions of the Soviet deficit no money could buy they were literally priceless'^) until the people of Russia achieved a higher standard of living (Schokhin 2000).^ Joumalists standing amid the TV cameras that were transmitting this glorious
^ The number of full members o f the Politburo o f the Central Committee o f the CPSU was not designated and, thus, varied. Hedrick Smith, The Russians (New York: Ballantine Books, 1976): 34. To date, Hedrick Sm iths description of the life of the privileged class remains the best. Some o f the favors that the nomenklatura had access to then are still in place. For that, see Chapter 5.
moment to the entire nation were astonished. It was hard to believe. Were these new ministers going to give up their rights to free spacious apartments in the best areas of Moscow, while the rest of the country has been huddling in an average of nine square meters per person? Were there wives who would excuse their rejection of the luxurious Kremlin rations and kormiishki,^ with the kind of food the majority of citizens never saw in a lifetime, while the general public stood in line for the basics and groceries stores had hardly anything but rotten potatoes and orange jelly? Were they going to give up their dachas in closed elite compounds; special medical services;^ the special clothing section in GUM, the major department store near Red Square, across from Lenins mausoleum, which sold Western-made clothing unavailable to the average citizen; special cleaning, tailoring, and beauty shops; special clubs and vocational facilities all of which came with that very special life that the Soviet bureaucrats had created for themselves and which was the biggest career motivation for every single one of them? After all, in the absence of private property (and thus openly declared personal wealth) these privileges and favors that had been granted to nomenklatura bureaucrats since Joseph Stalin had created the system in the late 1920s were the signs and symbols
^ Alexander Shokhin, then deputy to the prime minister in charge of welfare questions. Interview with Yevgenia Albats. Moscow, 12 July 2001. * Kormushka (noun) is derived from the word kormit to feed. These were the closed distribution food stores where the nomenklatura could get groceries with vouchers. Prices in these stores were well below the going rate elsewhere, although a comparison would be hard to make given that the kind and the quality of groceries available in the kormushka were not available in regular stores. In the mid-1980s, just 4% o f the Soviet GDP was appropriated to public health services, half of which 2% went to the privileged nomenclatura clinics. Yevgeniy Chazov, then Minister o f Healthcare o f the USSR. Interview with Yevgenia Albats, Moscow, September 1988. See also: Timothy J. Colton, Moscow: Governing the Sovialist Metropolis (Cambridge: Harvard University Press, 1995): 524-529.
of being a member of a special privileged class, a Soviet-style nobility and celebrity. In fact, when access to information and the state-provided blaga were cracial, very few things in Soviet times were able to draw such a strong distinction between the bureaucratic nobility and the rest of the nation. Yeltsin felt the momentum; he was proudly gazing at the TV cameras as if to say: Look at what a great bunch of young reformers I have (Schokhin 2001). And then in the middle of that declaration of the courageous breakup of the old guards tradition Andrei Kozyrev, the Minister of Foreign Affairs, raised his hand: Boris Nikolaevich, I am in the process of merging my m others apartment and my own into one big, five-room flat; can I continue doing this given the statement that Yegor Timurovich [Gaidar] just made? This was totally out of tune with what had preceded it. A great admirer of special PR effects, however, Yeltsin immediately responded: Andrei Vladimirovich, this is solely up to you. You yourself have to make your choice and decide: either you are a member of the govemment of reform, or you keep taking care of your apartment.^ We were dead serious, we were just short of taking an oath that we were not going to take any of that blaga' (Nechaev 2001). Of course, there was a certain amount of populism in Gaidars statement, given the presence of TV cameras in the room, which were to produce a detailed report of the meeting nation-wide. After all, Gaidar knew better than anyone else how painful the transition would be in the near future (price liberalization was just a month and a half
Sheila Fitzpatrick, E veiyday Stalinism: Ordinary Life in Extraordinary Times: Soviet Russia in the 1930s (New York: Oxford University Press, 1999). ^ Andrei Nechaev, then First Deputy Minister of Economy and Finance (Nechaev took over Gosplan). Interview with Yevgenia Albats. Moscow, 18 March 2001.
away), and he wanted to sho/ that the new government of the newly democratic Russia was prepared to share along with the public the burden and pain of the harsh economic reforms, which presupposed the abolition of the welfare state. Still, there was more to that televised meeting than a mere populist appeal. The presence of electronic and print media in the former Politburo chamber had to malce manifest at once the diagnosis of the disease that had led to the collapse of the Soviet bureaucratic state, and the medicines or rather vaccinations that were to be prescribed to the emerging one. In opening the cabinet proceedings to the public, Gaidar and his team of reformers acknowledged that transparency and accountability of the govemment as opposed to the secrecy and inaccessibility of their predecessors were preconditions for their success. By declaratively rejecting the special privileges for which Soviet top-level bureaucrats had been entitled regardless of their performance, reformers deprived themselves of an untouchable higher-caste status, and so pronounced epitaph to the kind of state that Robert Tucker (1971) has described as an organism existing for its own gains and ends, autonomous from and above the rest of the nation. Lacking sufficient political background and name recognition of their own, and seeking quickly to overcome the gap of distrust between the authorities and the society, reformers felt it necessary to state at least that we are not them meaning that they were not yet another breed of the faceless, self-perpetuating, self-selecting, and self-serving fratemity (Smith 1976) that the Soviet nomenklatura, which had plunged the nation into poverty and bankrupted its economy, had been. Theirs was a claim, in short, for a W estem type of transparent, accountable, limited govemment, aiming to divorce itself from the
1 0Robert Tucker, The Soviet Political Mind, revised ed. (New York: W.W. Norton, 1971).
centuries-long tradition of Russian officialdom that Walter Pintner (co-author of the most exhaustive study on the Russian bureaucratic system ever produced) has characterized as an institution that bound generations together, a rope that spans the 350-year history of Russia (Pintner andRowney, ed. 1980).* Yet that rhetoric had to do more than trumpet new rules of the game in place of the old: it was based in keenly pragmatic reasoning as well. Gaidar and his team of young intellectuals were perfectly aware of how few supporters they had inside the bureaucratic system, and thus also that they were doomed to lose to those seasoned Soviet bureaucrats if playing by the existing rules of under-the-carpet deals and non transparent decision-making. Openness of the system was had to be their main weapon." Unfortunately, as is often the case, good intentions met with complex everyday reality and absence of firm beliefs pave the road to hell. Alliances with the people on the street did not last for long. Opportunists happened to be inside the Gaidar team as well. 1
Thus, by the end of 1993, the whole system of state-provided privileges as it had existed in the USSR (albeit modified and modernized) was back in full swing, and, as in the past, was once again a powerful tool in insuring the loyalty of the bureaucracy to a sovereign, i.e., the president, whose office dispensed these privileges, rather than to the public.
Walter Mckenzie Pintner and Don Karl Rowney, ed., Russian Officialdom. The Bureaucratization o f Russian Society from the Seventeenth to the Twentieth Century (Chapel Hill: The University of North Carolina Press, 1980): 369-370. To be sure, openness (to protect themselves and to threaten their opponents) was not Gaidars invention: Mikhail Gorbachev was the first to use glasnost as limited as it was as a tool o f fighting bureaucratic resistance to his reforms by mobilizing support o f the public via the media.
Since transparency and accountabiiity v/ere doomed as long as a system granting special life to a selected few persisted, these principles gradually fell off the banner as well. By then Gaidar and the chief members of his team were already ousted from govemment. So here are the initial pieces of the puzzle I am trying to resolve. Having been perfectly knowledgeable about the strength of the Soviet bureaucratic machine, Yegor Gaidar and his govemment, unlike their colleagues in many other post-communist countries, in real life chose to avoid any radical actions against the Soviet bureaucracy; they chose to refrain from the systemic change of rules and norms to which Russia had been accustomed, and thereby left the structure and organizational culture of Russian officialdom virtually untouched. Or was it not they who were in charge of such decisions? Apparently, Russian president Boris Yeltsin had another strategy in mind with regard to bureaucrats. Yeltsin himself denounced blaga back in the late 1980s when the war against privileges became a new fashion in glasnost m e d i a . H e never gave them up entirely, however, and he was certainly never averse to a luxury life for himself
In fact, it did not last that long. By the end if the year, two members o f the government obtained cars through government-related structures. The vehicles were Soviet Zhiguli, which were in very short supply at that time. There was a degree o f cynicism in that fight against privileges as well. Liberal Russian newspapers took on blaga in the harshest fashion. The same system of blaga, however, existed among the newspapers themselves. At a tim e when meat and fruit were luxuries, the members o f editorial boards o f newspapers received zakasy (special food packages) behind closed doors. I discovered this at my own publication, Moskovskiy Novosti, the frontline newspaper o f perestroika times. The funniest part was that the very journalist who was covering the anti-privileges was also receiveing these packages. When I questioned the editorial board about this, it was explained that management was too overloaded with work to stand in line. (That very argument o f an excessive workload always came up in my interviews with top-level bureaucrats during that ten-year period.) I felt quite perplexed: do not the majority o f people work several jobs to make a living in post-communist Russia? The response to the question was yet another question: Do you want everyone to live equally in poverty? What I have noticed over the years, however, was that the appetite for blaga has been constantly on the rise. As o f now, there is not even any discussion as to the fairness of these privileges. The comparison in justifying the importance o f blaga is made now not to the people on the street, but to the W estern counterparts o f top-level bureaucrats or wealthy business people, who comprise about 2% o f the population in Russia.
(Korzhakov 1997)/^ Having spent the major part of Ms career in the top echelon of the regional then the federal party bureaucracy, Yeltsin knew quite well the power of favors and privileges in assuring bureaucratic loyalty, as much as he knew the power of Soviet bureaucrats to subvert stratagems chosen by politicians. After all, he himself criticized Mikhail Gorbachev for siding with the bureaucrats rather than with democratically minded people and, in doing so, betraying the ideals of perestroika and glasnost. Surprisingly, however, Yeltsin chose not to challenge his former enemies, including those bureaucrats in epaulets, the old guards, the KGB, who did stir up quite a bit of trouble for him in the mid- and late 1980s. On the contrary, he seems to have done his best to create incentives for bureaucrats to hold on to their public offices, rather than have to try their luck in another sphere. Exactly two days after the govemment of reform was bom,^^ with its main task of freeing the countrys economy and entrepreneurial spirit from bureaucratic control (Gaidar 1998),
17
the Russian president issued a much less publicized executive order
ensuring the preservation of at least partial rights of control that bureaucrats had had under the Soviet regime. On November 8, 1991, Boris Yeltsin gave his old friends in the Ministry of Construction, of which he once was a minister, 1R the right to serve as arbiters
(i.e., to decide who is good for a particular job and who is not) between businesses (by
Aleksandr Korzhakov, Ot rassveta do zakata (Moscow: Intebyk, 1997): 233. November 6,1991. Yegor Gaidar, Days o f Defeat and Victory (Seattle and London: University o f Washington Press, 1998; originally published by Moscow: Vagrius Publishers, 1996): Ch. 4. Boris Yeltsin was expelled from his position as a candidate member o f the Politburo in October 1987. Shortly after this, he was appointed as a M inister of Gosstroi {gosudarstennoue stroitelstvo state construction).
issuing permits, licenses, and the such) that were eager to work in the field of construction.'^ Eight years later, by the end of the Yeltsins presidency, the same Ministry o f Construction had accumulated 824 different kinds of regulatory permits at its disposal, which it was trading to entrepreneurs. Converting the power of an office into economic wealth became an extremely profitable and lucrative business. Sure enough, bureaucrats in other ministries, committees, commissions, as well as regional and local authoritative bodies quickly found themselves on the same profitable path.^ By the tenth anniversary of the beginning of reforms in Russia, bureaucrats in different agencies had the right arbitrarily to regulate (by issuing licenses and permits) about 2,000 types of business activities.^' As a result, bureaucratically controlled taxes on businesses amounted to $12 billion per year,^^ paid simply in order to overcome administrative fences and barricades. In addition, businesses paid $33 billion in bribes a sum just less than half of the federal budgets entire revenues in 2002 (10-12% of the GDP) to different officials on different levels of the bureaucratic ladder just to keep things running smoothly (Satarov.2002).^^ As a result, bureaucratic officers and agencies, as I will argue in subsequent chapters, have in effect become businesses that vie in the market using public goods, taxpayers money, and bribes as their capital. Russia is an extreme
Postanovleniye Soveta Ministrov RSFSR from November 8, 1991, # 593. Sbornik Normativnykh aktov Licenzirovaniye otdelnykh vidov deyatelnosti (Moscow: Spartak, 1995). *^01ga Makarova, Senior Expert on Licensing, the W orking Center o f Economic Reforms under the Govemment of the Russian Federation. Interview with Yevgenia Albats. Moscow, 13 April 2001. For a detailed discussion o f the different types o f regulatory mandates, see Chapter 7. Polina Kruchkova, Administrativniye barieiy v economike (Moscow: Institut nacionalnogo proekta, 2001): 19. ^ Georgii Satarov, President, INDEM think tank, Interview with Yevgenia Albats. Moscow, 13 August 2002. Also see: New York Times, 10 February 2003, p. A2.
example of the absence of the rule of law, concluded Richard Rose, the initiator of Barometer surveys in new democracies, M iti reviewing data from the 1991-2001 surveys. 24 The vital necessity of getting protection against the govemment, rather than
'JC
seeking protection from, it, as John Stuart Mill (1848)
noted some 150 years ago, has
become the key issue in Russia. The outcome of ,refo,rms in Russia has thus become a triumph for bureaucrats; they have managed to preserve some of the control rights that they used to hold under the communist regime while at the same time obtaining property rights they were lacking in the Soviet era. It is clearly a challenge to sustain competition with the bureaucrats, given that the latter have the power of the state behind them with its monopoly on conducting violence, as W eber defined the term state. As a result, Russias entrepreneurial activities have been cut off at the knees; they are less than three quarters of those in Poland and about half of those in Hungary (The Global Entrepreneurship Monitor, 2002).^ Apparently, small and medium-sized businesses have a hard time winning or even surviving the race, having been forced to compete on a field controlled by bureaucrats and state-associated monopolies. Such businesses, however, are the main consumers of democratic politics; they need the rule of law, democratic institutions (parliaments, parties, associations), and freedom of the media in order to promote and protect their interests against both the monopolies and the bureaucrats.
Richard Rose, Advancing into Europe? The Contrasting Goals o f Post-Communist Countries, Nations in Transit. [2002]. Available from http://www.freedoTnhouse.Qrg/research/nattransit.htm.
25
John Mill, On Liberty (Orchard Park, NY: Broadview Press, 1999).
10
Concessions to bureaucrats thus created enormous incentives for them to stay in office; according to some recent estimates, the illegal part of the income of Russian officials (i.e., income other than the salary and benefits provided by the state) constitutes 15.2% of the countrys total individual income (Satarov 2002). This situation has inevitably slowed the process of liberating the countrys economic and political life from the bureaucracys iron hand, considerably affected the pace of economic growth, and, consequently, produced excessive social costs of reforms. Russia together with some other FSU countries rival the worlds most unequal countries, according to a 2002 study by the W orld Bank.
27
Twenty percent of the people in Russia survive on less than
$2.15 per day estimated as the absolute poverty line.^ Social costs have been paid off by the inconsistent, perverse, and very much failed economic reforms (Stiglitz 2002)^^ and, finally, by subversion of the democratic process in Russia,^ if for no other reason than because reforms failed to generate consumers of democratic politics.
Paul Reynolds, William Bygrave, Erkko Autio, and Michael Hay, Global Entrepreneurship Monitor. 2002 Summary report. [30 November 2002]. Available from http://www.gemconsortiuum.org. The First Ten Years Analysis and Lessons for Eastern Europe and the Former Soviet Union, The International Bank for Reconstruction and Development, The World Bank, Washington, DC. [2002]. Available from http://wblnOO 18 .worIdbank.org/eca/eca.nsf. The World Bank, Making Transition Work fo r Everybody (New York: World Bank, 2000). Russians official monthly subsistence level in 2003 was $60/month. Approximately 27 % o f the population lives below that level. (See US Department of State, Bureau of Democracy, Human Rights, and Labor, Russia. Country Reports on Human Rights Practices 2002, [2003]). Joseph Stiglitz, Excerpts from Globalization and Its Discontents: On Russias 1998 Crisis, Transition (May-June 2002): 14-15. The 2002 Freedom House Annual Survey o f Freedom Country Score 1972/73-2000" (available from http://www.freedomhouse.org/ratings/index.htm) shows the steady decline o f political freedom in Russia: its freedom score is four times worse than those o f Poland, Hungary, and the Czech Republic, i.e., advanced reform countries. Freedom House classifies the Russia of 2003 as Partly Free because of substantial derogations of political rights and civil liberties, and as Not Free because o f the state of freedom in the media. (Richard Rose, The Contrasting Goals o f Post-Communist Countries, Nations in Transit. [2002]. Available from http://www.freedomhouse.org/research/nattransit.htm.)
11
But why did bureaucrats succeed? Is there something special about Russia and its political culture, by which Russian society was destined to succumb to bureaucratic rule, or was it an outcome of bad political design? Why did they allow for any changes at all, or were those changes profitable to them, and is that precisely why they happened? Finally, the key question; how did bureaucrats manage to accommodate liberal reforms to their own benefit?
The Nation in Transit 2001 and 2002 surveys suggested the same decline in democratic politics in Russia: the nation was scored as moving downwards towards the least advanced despotic states. In 1997, Russia had been in the group of countries moving upwards ready to join the family o f the most advanced democratic market-oriented states led by Poland, Hungary, and the Czech Republic. Most of the poorly performing countries (i.e., those in the lower half of the democratization and economic reform scales) either exhibited inertia or regressed towards statism or repression. There was significant negative momentum in the democratization indicators of the Kyrgyz Republic and Russia. (Adrian Karatnycky, Nations in Transit: Emerging Dynamics o f Change, Nations in Transit. [2001]. Available from http://www.freedomhoiise.Org/research/nattransit.htm#trans.
12
Chapter 2: At The Crossroads
There is a popular joke in Russia. What is the difference between a pessimist and an optimist? The pessimist says: It cannot be any worse, whereas the optimist responds: Yes, It can be. Good news: had Russia, or for that matter any post communist country in transition, followed the path predicted by political science scholars, they would have stood no chance of conducting any reforms whatsoever. Political scientists of all schools of thought advocates of the behavioral paradigm, the cultural-historical approach, the rational choice theory, and the fam ily o f theories o f transition were very skeptical about bureaucratic behavior in the service of change, and expected the bureaucrats to resist any reforms. The behavioral paradigm
o1
presents bureaucrats as non-economic individuals
who are always starving for information. They operate and make decisions in a world of incomplete and imperfect information since access to it is limited as a result of which bureaucrats have bounded rationality, which, in turn, encourages them to choose the status quo over change. Moreover, bureaucrats are by nature risk-averse; otherwise they would be working in high-wage jobs in the commercial sector. Change by definition implies high risk. Thus, bureaucrats will do their best to impede change. Granted, in the ideal world of Weberian bureaucracy bureaucrats are supposed to obey by the very nature of their existence, which aims to ensure the continuity of the state even in case of revolution by force or occupation by an enemy : all the new rulers have to do (even if
Herbert Simon, Administrative Behavior (New York: Free Press, 1976); Chester Barnard, The Functions o f the Executive (1938; reprint, Cambridge, Mass: Harvard University Press, 1968); James Q. Wilson, Bureaucracy. What Government Agencies Do And Why They Do It (New York: Basic Books, 1989).
13
those rulers are an alien power) is to change the top officials, while the ordinary bureaucrats will continue operating just as they were taught under the legal government (Weber 1968).^^ Even if ideal bureaucrats do exist in the real life, however, and even if we assume that dictators like Stalin were capable of producing such robot-like bureaucrats, the whole goal of reforms in the post-communist countries has nonetheless been to break continuity, to get a divorce from the previous set of political and economic institutional arrangements. Thus, bureaucrats would have had to resist the break with the status quo that they were assigned to guard, unless the Bolsheviks methods of extreme violence had been used. The historical-cultural argument suggests another way of thinking about bureaucracy in transition. Proponents of the idea of political culture imply that bureaucratic actions are affected and constrained by the system of empirical beliefs, expressive symbols and values (Verba 1965),^^ which prescribe the defined cause of action. This is to say, bureaucrats in the service of transition will keep picking up and operating with the same set of tools and attitudes that they are used to. This will allow for continuity of the system, but prevent change. The modem version of the political culture argument, historical institutionalism, asserts that the institutional pattem of any given country may be so strong and so deeply rooted in the very foundation of the state that that pattem is capable unless forcibly ejected of affecting the political development in such a way that the new regime may replicate the old institutional
Max Weber, On Charisma and Institution Building. Selected Papers, ed. Samuel N. Eisenstadt (Chicago: University of Chicago Press, 1968): 75-77. Samuel Verba, Comparative Political Culture. In Political Culture and Political Development, ed. L. Pye and S. Verba (Princeton: Princeton University Press, 1965): 513.
arrangements of the s t a t e . T h e window of opportunity for altering the old and undemocratic institutional habits, including those of the bureaucrats, is very short. As soon as that window is closed, institutions of the old regime may prevail. And so it goes until another period of turmoil ensues. Unlike the theories outlined above, the rational choice approach suggests examining bureaucrats as pure economic beings. In his pioneering study, Downs (1966)'^ argued that bureaucrats are capable of calculating costs and benefits, and that, in order to maximize their personal utility, they are constantly trying to grab a larger share of public goods by expanding the size and scope of their bureausjust as businessmen try to expand their market shares in order to reduce transactional costs and maximize profits. The more bureaucrats intervene in the economy, the more rents they are capable of extracting and the more benefits they gain for themselves. Moreover, through their intervention in the economy, bureaucrats gain not just rents but direct political benefits as well: they create alliances with politicians, exchange favors, and secure their bureaus (and, thus, rents and benefits) via the patron-client network (Bates 1981).^ There is a disagreement among the theorists of that school of thought on the chicken-and-egg problem, i.e., who is the principal and who the agent in the relationship between bureaucrats and politicians. Some, like Niskanen (1971),^ suggest that bureaucrats have first-hand access to information and, thus, gain power and advantage over the politicians.
^ For a discussion of historical institutionalism as an approach, see Sven Steinmo et a l, ed. Structural Politics: Historical Institutionalism (New York: Cambridge University Press, 1992).
35
Anthony Downs, Inside Bureaucracy (Prospect Heights, IL: Waveland Press, Inc., 1966).
Robert H. Bates, Market and States in Tropical Africa: The Political Basis o f Agricultural Policies (Berkeley: University o f California Press, 1981). William A. Niskanen, Bureaucracy and Representative Government (Chicago: Aldine Atherton, 1971).
36
15
Others, such as Moe (1984),'^ argue that it is the politicians who structure the bureaus and line up the bureaucrats so that these organizations will be responsiveto a certain extent, of course to the demands of their political masters. Overall, a rational choice theory suggests that bureaucrats will resist any change that will reduce their capacity to intervene in the economy and extract rents, and thus will fiercely fight any reforms aimed at stripping them of their rights to control over a nations economic and political life as was the case with the communist countries or over vast state property. Consider the previous break with continuity and major change of property ownership in Russia back in 1917: it involved three years of civil war and several million dead. With few exceptions, however Yugoslavia n Europe and Tajikistan in Central Asia being the most vivid examples^^ the majority of post-communist countries did escape civil wars, major unrest, and violent resistance to political and economic transformation. The literature on democratization , unlike the schools outlined above, tends not to notice bureaucrats at all, or, if it does, defines them as a minor species in the big game called regime change. Outcomes are not known ex ante by any of the competing political forces,'^ uncertainty becomes the most important factor, which, in tum, weakens all institutions and the state as a whole. The state is up for grabs; thus, the bureaucracy becomes a non-player. Theorists of democratization instead emphasize
Terry Moe, The New Economics o f Organizations, American Journal o f Politics, Vol. 28, November, 1984, p. 739-777. Wars also broke out in Moldova in Southeastern Europe, Armenia, Azerbaijan, Georgia in the TransCaucasus.
40
Adam Przeworski, Democracy and the Market (Cambridge: Cambridge University Press, 1991): 12.
16
the role of political crafting (Di Palma 1990),'^^ i.e., coalition building, pacts, negotiations, and alliances between the major political actors, all of which help ensure a smooth transition from the old to the new regime (ODonnell and Schmitter 1986).'^^ Bureaucrats, the authors assume, will obey the prevailing force (Huntington 1968).
A n
Yet
the breakdown of the communist regimes was caused by anything but pacts between the elites (with the exception of Poland and to lesser extent Hungary); there was no counter elite, no theory, no organization, no movement, no design or project according to whose visions, instructions, and prescriptions the breakdown evolved."^ To make a long story short, whatever school of thought we employ to explain the bureaucratic behavior as the tum or the cause of reforms in the post-communist world would feel incomplete. A decade after the Red Sunset occurred, as the breakdown of the communist regimes in Eastern and Central Europe and in the USSR was then called, we are well aware that significant transformation did, in fact, occur across the former communist world, bureaucrats did lose their monopoly over property, ideology, and government as Milovan Djilas (1957)^^ once described the essence of the communist system. However, outcomes of reforms, measured according to the degree of liberalization of political and economic life, have varied greatly across the post-
Giuseppe Di Palma, To Craft Democracies: An Essay on Democratic Transition (Berkley: University of California Press, 1990). Guillermo ODonnell and Philippe C. Schmitter, Transition from Authoritarian Rule: Tentative Conclusions about Uncertain Democracies (Baltimore: Johns Hopkins University Press, 1986). Samuel Huntington, Political Order in Changing Societies (New Haven, CT: Yale University Press, 1968): 163-165. ''Ton Ulster, Claus Offe and Urlich K. Peterson, Institutional Design in Post-Communist Societies: Rebuilding the Ship at Sea. (New York: Cambridge University Press, 1998): 11. Milovan Djilas, The New Class: An Analysis o f the Communist System (London: Harcourt Brace Jovanovich, 1957): 45.
17
communist world. The World Bank developed an index the Cumulative Liberalization Index (CLI) to measure progress in the transition to market economy, the depth of political and economic reforms (de Melo, Deni.zer and Gelb 1996; W orld Bank 2002).'^^ That index clearly shows a discrepancy between the CSB countries Central, South Eastern Europe, and the Baltic States (the three formerly Soviet republics) and the CIS (Commonwealth of Independent States),^^ comprised of twelve other republics from the deceased USSR. The index ranges from zero to one with zero being unreformed, centrally planned, and, thus, firmly controlled by bureaucrats, and one representing the standards o f a market economy (World Bank 2002: 14).
Martha de Melo, Cevdet Denizer and Alan Gelb, From Plan to Market: Pattem s o f Transition, W orking Paper # 1564, The W orld Bank, 1996; The First Ten Years Analysis and Lessons for Eastern Europe and the Former Soviet Union, The W orld Bank, International Bank for Reconstruction and Development, Transition, Washington, DC (2002). Available from http://wbln0018.worldbank.org/eca/eca.nsf.
47
CSB and CIS the groupings suggested by the World Bank 2002 report.
18
Figure 2.1: Progress in Policy Reforms, 1990s

in P olicy ISefriw, IS S O s
* - go'i I
P o san d I
Estof5ia )
SIOv Jr t
^r
Jsiovefita i Latvia I
Kyrgyz Reputslic I
Croatia ?
K a za k h stan T B u lg a a a ?
M a c e d o n j a . fV R f
G eo rg ia i M ald o v a i R o m an sa I Arm ensa Afbansa R u ssia U hram d A zem afian U zb ek istan ra jik ista n B elaru s 7'u rk m e n lsta n
O 0.2 0.4 0.6
Q.B
1.0
Lisberafszation index ^
Souto: Meia. i : a s 1095 a098
nU <,iîh 1.1996): EBRO { 2 K > 0 ).
One cannot help but see that the CSB countries, with Hungary, Poland, the Czech Republic and Estonia (one of the former USSR republics) leading the race, have been doing significantly better in terms of liberalization than all other twelve republics of the former USSR, including the country of my primary focus the Russian Federation. The same conclusion is supported by reviewing the W orld Bank data with regard to officially measured gross domestic product (GDP), which radically declined in each and every country in transition at the beginning of the reforms. Countries of Central and Southeastern Europe and Baltic States recovered their pre-reform (1990) levels by 1998 and exceeded them by 6% in 2000. In the CIS countries, on the other hand, the GDP remains well below 1990 levels: the average GDP in 2000 was merely 63% of the 1990 level. It is worth noting that the same differences between the CSB and the CIS countries emerge from surveys that observe the post-communist transition from the standpoint of
19
political liberalization and consolidation of democracy. The Nations in Transition 2002 survey (undertaken by the Freedom House) acknowledged significant progress in democratization in the countries of Central and (South) Eastern Europe, including the Baltic States, and the opposite a negative trend in the twelve CIS countries. The Democratization Score for the CSB rose between 1998 and 2002, while that for the CIS declined (Karatnycky 2002).'^* Meanwhile, research undertaken by the European Bank of Reconstruction and Development (EBRD 1999)'*'^ demonstrated a clear positive correlation between economic reform and the consolidation of democracy (Figure 2).
Adrian Karatnycky, Nations in Transit 2002: A Mixed Picture of Change, Nations in Transit (2002). Available from http://www.freedomhouse.Org/research/nattransit.htm#trans. EBRD, Transition Report (London, 1999): 112-113.
20
Figure 2 . 2 : Democracy and Economic Reforms
^ Siovek Rep.
! G eorgr
1 S
2.
3.5
Y- Freedom in the World Index (reversed) 1 - low, 10 - high X EBRD transition indicators: 1 - little progress, 4 - substantial progress Sources: EBRD, Transition Report, 1999
Another study acknowledged a strong positive association between the level of political freedom and degree of economic liberalization in a given country (de Melo, Denizer, Gelb and Tenev 2001).^ In other words, bureaucrats in the CSB countries have chosen or were made to give up the majority of their initial rights of control over both the political and economic realms, whereas in the CIS they have managed to preserve much of such control over the economy by imposing a myriad of regulations (licensing, certificates, endless check-ups) over businesses, and they have increasingly accumulated (or regained) instruments they used to have over the political spherecontrol of the media, and other public institutions first and foremost. W hat caused the bureaucrats to behave so radically differently in the
Martha de Melo, Cevdet Denizer, Alan Gelb and Stoyan Tenev, Circumstance and Choice: The Role of Initial Conditions and Policies in Transition Economies, The World Bank Economic Review, 15, 1 (2001): 11-31.
21
post-communist countries? What has helped them to regain their power in all twelve but the Baltic republics of the fomier USSR? So fai; the literature has failed to provide a convincing and coherent explanation of-that phenomenon.
In Search o f Answers Scholars of the post-communist development have approached the questions posted in the previous paragraph in the variety of ways. Some argued that initial conditions, i.e., the set of historical, cultural, political, economic variables, presuppose the policies chosen by the reformers. As far as bureaucrats were concerned, they just followed the suit. Urbanization, industrialization, macroeconomic distortions (communist countries tended to value heavy industries over consumer-oriented sectors), the level of development prior to the reforms, geography, the existence of sufficient natural resources, the development of state institutions, even market m em o ry âll these variables should have had considerable impact on the outcomes given that the post communist countries varied greatly with respect to these predictors. Studies undertaken over the past decade, however, have revealed that, even though initial conditions do matter and have an impact on the policy choice, especially at the beginning of reforms, in the long run, initial conditions have relatively little impact on the outcomes, whereas better policies, consistency in pursuing them, and liberalization of economic and political
I have always had problems with variables that have to do with such vague and inchoate concepts as memory. The argument is well known: countries in which people do have some memory of the pre communist way o f life with its free entrepreneurship should do better with the development o f the market economy compared to those countries that, unfortunately, have lived long enough under communism to forget what was it like before. It is quite unclear, however, why memory should be o f help when it comes to major, systemic transformations. Is this not the same as suggesting that, because my mother gave birth and raised three children, I, as her daughter, will do better with parenting than those who were adopted?
22
realms produce strong associations /ith such a key indicator as a higher annual growth of the GDP (de Melo et al. 2001; World Bank 2002: 14-15). To be specific, let us consider Russia in comparison with those CSB countries that led the transitional race, i.e., the Czechoslovakia, Hungary, and Poland. All four countries had the same 100% literacy rate^'^ and about the same level of industrialization. Russia, however, led in urbanization (74% of the population of the Russian Federation lived in the cities as opposed to 59% for Poland, 62% for Hungary, and 65% for the Czech Republic^^). Thus, the modernization theory would have expected all four countries to do well in transition: controlling for other factors, all four countries were to become success stories. By now, though, we know that Russia (along with all other former Soviet republics except for the Baltic States) did not fulfill that prediction. Comparison of other indicators does not make the picture any clearer: Russia had about the same unfortunate macroeconomic distortions as Poland; it had twice the average economic growth in the late 1980s of Czechoslovakia and Hungary, and slightly better than that of Poland. Its per capita GDP in 1989 was higher than in Poland and Hungary, but slightly lower than in the Czech Republic. Russia had developed state institutions by the beginning of the reforms, as much as the other countries in the comparison had, whereas other countries of the former Soviet Union lost the majority of the USSRs financial institutions (such as, for instance, the Central Bank) to Moscow and had to start almost from scratch. Russia shared with the three East-European countries geographical proximity to thriving market economies (de Melo et al. 2001; 4), and it
The World Bank Group, Educational Statistics. Available from http://www.worldbank.org/education/edstats. de Melo et al., 2001, Table 1.
23
definitely outpaced its competitors in terms of natural wealth : Russia is designated as 'rich' in natural resources as opposed to the Czech Republic, Hungary and Poland, which are acknowledged as poor (de Melo et al. 2001: Table 1). Thus, if anything, the initial conditions indicated that Russia would do no worse in the course of reforms than those post-communist countries that have done well. Nevertheless, it has not. These indicators are of no help when comparing the CSB countries to those of the CIS. For instance, all post-communist countries have the same high literacy rate, with lowest (95%) in Albania.^^ The urbanization mean for CSB countries is 61%, whereas for CIS it is just slightly lower 57%. Among thirteen CSB
Much o f the literature argues that high oil prices (i.e., wealth of natural resources) have quite a negative impact on economic policies: i.e., why carry the burden of reforms, if a government is capable o f sustaining itself and carrying out certain welfare policies from profits produced by oil wells? (See: Jeffrey Sachs and Andrew Warner, The Curse o f Natural Resources, European Economic Review, Vol. 45, no.3 (2001): 827-838. In fact, source data for Russia prove the point: high oil prices have a negative association with the politics of reforms. For example, a year after Mikhail Gorbachev came into power and proclaimed the necessity o f economic reforms (1986), prices for the USSRs oil brand Urals was 48% of that in 1984, when the USSR was still deep asleep in its economic (and otherwise) stagnation. Oil prices were quite low all the way through the late 1980s and early 1990s (with the exception of 1990, i.e., the first Gulf War), when Russia embarked on profound economic reforms. On the other hand, while oil prices remained very low later on, in 1994-1999, however, reforms in Russia stalled, and, thus, the lack o f profits from oil did not reinforce reforms, even by a tiny b it . Certainly, the quality of education and literacy are not the same. Research by the Organization for Economic Cooperation and Development (OECD) points out that the generation educated under the Soviet system (i.e., everyone who graduated from high school before or in 1991) is ill prepared for a competitive market economy. While the former communist countries show strong basic literacy, their functional literacy, that is, the ability of adults to absorb written materials combined with graphs, maps, and tables, appears to be much weaker. A comprehensive study of functional literacy across the post-communist world has not been performed (at least, 1 am not aware o f any); a study done in thirteen European countries, including Poland, the Czech Republic, Hungary, and Slovenia, however, showed that the proportion of participants [from the post-communist counties] able to make sense of and apply more complicated written materials was half that of the West. The Czech Republic performed the best among the former post communist countries chosen for the study (OBCE, Working Papers (2003). Available from http://www.worldbank.org/education/edstats). Obviously, functional literacy as opposed to basic literacy is an important variable in analyzing the behavior and choices o f those bureaucrats who were/are in the governmental structures, and had/have to choose or implement policies with regard to reforms. It can be surmised that lack o f understanding of the issues o f the market economy did not help reforms. Once again, however, the situation was (with the exception o f the Czech Republic) pretty much the same across the post-communist world, and, thus, cannot account for the variation in outcomes.
24
counties under review, eleven have had p o o r natural resources, and only two have had moderate, whereas in the CIS there are three rich, three moderate, and six poor. Overall, then, democratization theory indicators are not very helpful in explaining the variances in outcomes of reforms in the post-communist world, and even less so the incentives and behavior of their bureaucrats with respect to change. Another and quite popular approach gives priority to cultural matters. Bureaucrats behaved so differently across the post-communist world because from the very beginning they had a different set of tools, which were determined by their organizational, bureaucratic culture as well as by the broader political culture that existed in each given country. This is to say that the behavior of bureaucrats towards change has been very much shaped by a certain type of social action and collective decision-making (Peters 2001),^* w'hich they were not willing or else not in a position to resist, and which politicians had trouble fighting as well. Thus, the success of, let us say, Hungary or Poland as much as the failure of Russia in the course of reforms to a large extent is, in accordance with the political-cultural approach, presupposed by their past (Brzezinski in Diamond and Plattner ed. 2002)^^ and is the function of a set of legacies social, cultural, and institutional structures created first and foremost under Leninist regimes and Soviet domination in Eastern Europe that persist in the present period. In this view, the past casts a long shadow on the present (Crawford and Lijphart 1995: 72).^^ These legacies
56
B.Guy Peters, The Politics o f Bureaucracy (London and New York: Routledge, 2001): 43.
Zbigniew Brzezinski, The Primacy o f History and Culture, Democracy after Communism, eds. Marc Diamond and Larry Plattner (Baltimore: The Johns Hopkins University Press, 2002).
25
can be anything from: market memory, which one had and another did not, i.e., familiarity with the market institutions on the part of at least the older generation in the majority of the SCB countries as opposed to CIS countries with their seventy years of communism and lack of a single generation ever exposed to a functional market economy (de Melo et al. 2001); the existence of positive institutional legacies, such as the Orthodox Church more or less independent from the omnipotent state (Brzezinski in Diamond and Plattner ed. 2002); or a strong civil service and judicial administration by descendents of the Hapsburg monarchy (World Bank 2000),^^ which is the case in
Hungary and part of Poland, as opposed to a bureaucracy without limits, which has been a distinctive feature of the Russian Empire in its different incarnations. To put it bluntly, the cultural approach assumes that, in each country or each group of countries, there was some toolbox from which bureaucrats could pick up their instruments: if there was an instrument by the name of law, then a bureaucrat would take it and apply to the new post-communist reality; if, on the other hand, there was nothing but the spoils and misappropriation of public goods, th en ... well, you happened to have been bom in the wrong country.
Beverly Crawford and Arend Lijphart, cited in Jon Elster, Claus Offe and Urlich K. Preuss, Institutional Design in Post-Communist Societies: Rebuilding the Ship at Sea (New York: Cambridge University Press, 1998). Anticorruption in Transition: A Contribution to the Policy Debate (Washington, DC: The World Bank, 2000): 26-29. I should point out that the study in question was focused on corruption. The countries acknowledged as formerly o f the Hapsburg monarchy are Croatia, the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia. Researchers were looking for statistical relationships among origin and state capture and administrative corruption. No further research was done to support the conclusion, according to Joel Hellmann, who co-authored the study. (Joel Hellmann. Interview with Yevgenia Albats, Moscow, October 2000).
26
In that respect, for one whose primary focus is Russia, adoption of the politicalcultural approach in an effort to understand the impact of bureaucrats on the outcomes of reforms is a tempting option. Just as English history might be presented as the story of parliamentary progress, so the history of Russia might be seen as the story of the bureaucracy and its constant battle for survival against a weak society.*^' As Pintner and Rowney (1980) concluded in their study of Russian officialdom over a period of four centuries, it was institution that bound generations together, each in tum prepared the way for the nex t.... Where other societies used collegial forms of organization (parliaments, town meetings) at least to some extent, Russia used officials subordinate to the s o v e r e i g n . S o v i e t Russia became the apotheosis of the bureaucratic state an ultra-bureaucratic state, in which politics were controlled by a society of bureaucratized officials, answerable to no one but to their superiors, and accountable to no one but to their collective sovereign, the Politburo of the CPSU.^^ Edward K eenans historical study posited the striking continuity of the Russian bureaucracy over the centuries. Timothy Coltons urban study of the Russian capitalMoscow during the twentieth century proved that continuity despite the change of regime, property rights, and ideological rh e to ric .R u s s ia n artists and scholars of the classical school would not think twice about answering the most pressing question with regard to cultural theories: what is
I borrowed that comparison from; Jane Caplan, Government Without Administration: State and Civil Service in Weimar and Nazi Germany (New York: Oxford University Press, 1988). Pintner ed., 1980: 369. Ibid., 370. ^ Edward Keenan, Muscovite Political Folkways, The Russian Review, Vol. 45 (1986): 115-181. Colton, Moscow: Governing the Socialist Metropolis
27
the vehicle fo r the creation and transmission o f political culture? (Hall 1986)*^ Bureaucracy! they would exclaim in the manner Tevya the Milkman used to proclaim Tradition! Bureaucrats inspired and provoked the emergence of the nations internationally acclaimed nineteenth-century classical literature: they became the heroes of the masterpieces of Gogol, Saltykov-Zhedrin, and Ostrovskiy, in which bureaucrats are the main protagonists, surviving through decades and regimes. Istoria Odnogo Goroda (History of One City), Saltykov-Zhedrins novel about the nineteenth-century provincial bureaucracy, was the most censored classical novel during the Soviet regime precisely because it sounded far too contemporary.^^ To sum up, Russian bureaucracy proved its unsurpassed and unmatched capability to survive and thrive under any political regime monarchist, communist or capitalist market-oriented (Kotchegura 1999)*^^ and is characterized by the following continuous features: absence of defined and specific civil services employment conditions i.e., it has always been a system based on spoils, but not on merit; absence of defined rules and procedures that are applicable without exceptions, i.e., no SOPs;^^ enormous diversity, fragmentation, specialization, and duphcation of functions institutional redundancy,"^* increasing size over the centuries, paralleling but exceeding
^ Peter Hall, Governing the Economy: The Politics o f State Intervention in Britain and France (New York; Oxford University Press, 1986). It finally came out uncensored in 1988 with Mikhail Gorbachevs glasnost. Alexander Kotchegura, The Russian Civil Service: Legitimacy and Performance. In Civil Service Systems in Central and Eastern Europe, ed. Tony Verheijen (Northampton, MA: Edward Elgar Publishing, Inc., 1999): 33. Ibid. Walter Pintner ed., 1988: 373 Timothy Colton, Superpresidentialism and Russias Backward State, Post-Soviet Affairs, No.2 (1995).
28
the growth of empire in territory and population;'^^ a tendency for expansion in order to bureaucratize large segments of non-official society,^ i.e., the desire to take over and control the societal space; predisposition to serve as an instrument of oppression of the state as opposed to fulfilling the role of servants to the taxpayers; loose hierarchy based on a system of personal favors, fealty to bosses rather than loyalty to the office;
nA
and
non-transparency and non-accountability of the public officejust to name a few. W hen all that said and done, a number of puzzles remain. For instance, if the institutional legacies that are unfavorable to reforms are some kind of inherited conditions of a given country, then how did Russia, with all its unproductive political culture, manage to conduct an effective program of industrialization that turned a backward agrarian society into a modem state back in the 1930s (Fainsod 1963)?
nc
And
why did it appear much less successful in the 1990s? If bad institutional legacies were in a way genetically transmitted, then how did the new Soviet bureaucracy acquire them if, starting in the mid-1920s, the Bolsheviks embarked on a systematic purge of the old tsarist bureaucrats, ending up with Stalins 1929 wholesale purge of the state bureaucracy? Apart from control of commanding heights, i.e., critical administrative positions, the percentage of Communist Party members in the executive-administrative organs in the provinces reached 69.8% in 1927,^ i.e., ten years after the revolution and
Walter Pintner ed., 1988, p. 373 Ibid.

74
Eugene Huskey, Presidential Power In Russia (Armonk, New York: M. E. Sharpe, Inc. 1999); 9.
Merle Fainsod, Bureaucracy and Modernization; The Russian and Soviet Case, ed. Joseph LaPalombara, Bureaucracy and Political Development (Princeton; Princeton University Press, 1963).
29
four years after the end of the civil war (Stemheimer 1980)7'^ Thus, the percentage of those old tsarist bureaucrats capable of carrying out the old bureaucratic culture of the Russian Empire was so small as to be meaningless and became invisible by 1933. This being the case, who or what served as a vehicle for the creation or transmission of the political culture, to repeat Peter Halls (1986) question? Another set of puzzles comes when comparative perspective is employed. If the cultural approach is a predictor of outcomes, then why do the three former Soviet republics, i.e., the Baltic States, present success stories as opposed to other twelve former republics? When the USSR took over the Baltics, the purge of their administrative organs was no less profound than the purge of the tsarist bureaucracy. Thus, whatever legacies these states inherited from Prussian, Swedish, and Polish rule, they were destroyed because of the Soviet occupation, and the backpack of institutional legacies, which the Baltic states had by the beginning of democratic reforms, was pretty much the same as for all the other former Soviet republics. It makes things no easier, if we tum to other post-communist countries that were descendents of three empires/monarchies; the Russian, the Hapsburg, and the Ottoman. The two most successful transitional economies, Poland and Hungary, are generally used as an example of the impact of the legacy of a strong civil service and judicial administration inherited from the Hapsburg monarchy (World Bank 2000). It is not clear which part of Poland the authors have in mind, however: the one that became a province -
To be sure, the old tsarist bureaucrats had difficulty in obtaining Communist Party cards not because they were not opportunistic, but because the new Bolshevik authorities did not want them to. Stephen Stemheimer, Administration for Development: The Emerging Bureaucratic Elite, 1920-1930, ed. Walter Pintner (1980); 316-387.
30
of the Russian Empire in the third quarter of the eighteenth century and remained as such for the next almost 150 years, or the part that was under Prussian rule. Exactly the same question is relevant with regard to Hungary, which was under the domination of the Ottoman Empire (as were Bulgaria, parts of the former Yugoslavia, Albania, etc.), and later by the Hapsburg monarchy, which relinquished its control after World War I. True, all things being equal, it is better to have strong law and obedient civil servants as opposed to bureaucrats full of spoils. In the service of rapid change, however, all things are rarely equal, and all good things rarely travel together. This is not to say that cultural and institutional legacies do not matter. They do. In fact, the existence of a bureaucracy full of pitfalls should have prompted politicians to take special precautions with regard to it as politicians did, for instance, in Poland and the Czech Republic, and did not in Russia and the other CIS states. Of course, culture matters to government as Crozier (1964) most convincingly showed with regard to the French bureaucracy.^ It is the web of significance, as Geertz (1973) beautifully named it.
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It is the universe inside which people of each
country live and with which they interact on a daily basis. Any story of todays Russian bureaucracy and its officers will be half-empty without outlining, for instance, the status symbols of the current governmental officers. But it is true, too, that the cultural brush is too broad (Hall 1986).^ First, the cultural argument does not allow for understanding of the diversity in the behavior of the
Michei Crozier, The Bureaucratic Phenomenon, (Chicago: University o f Chicago Press, 1964). Clifford Geertz, The Interpretation o f Cultures (New York: Basic Books, 1973).
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Hall 1996:9.
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Soviet/Russian bureaucrats: why did some choose to stay in office, while others, in the late years o f the Soviet regime, chose the risky and chaotic business environment of the Russian version of the free market?( Solnick,1998)^ Why, later on, did the majority of those who quit the bureaucracy choose to-return? Second, it does not allow for an understanding of how Russian bureaucrats managed aecommodating reforms to their own needs, whereas their arguably more sophisticated and efficient Polish or Czech comrades in arms surrendered to civil societies and became part of the democratic politics in those countries.
Area Studies 1. Victims or Executioners?
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Literature on the bureaucracy and bureaucrats in transition in the post-communist world is by no means exhaustive.
09
That fact alone reflects the confusion in the field.
Jerry Hough (1977)^ articulated the existence of interest groups among both the party and state bureaucracy in the Soviet Union, which may pursue different goals (even though not necessarily directed towards the destruction of the system as such), and thus, we can infer, may even facilitate certain reformsif for nothing else then in order to ensure the survival of the system as a whole. Timothy Colton (1987,*'^ 1988*^) suggested that, contrary to many expectations, bureaucrats may not resist change and will not sabotage reforms; corruption among the
'lbid. Eugene Huskey, the author o f the first book on presidency in Russia (Huskey 1999), suggests that the society-centered orientation of Western-and especially American writing derives ... from the prevailing liberal model o f politics, in which the state is seen as a product of social forces. To understand the state, the argument goes, one must first understand its progenitor, society. My sketchy observation of American politics both from inside and outside the United States over the last decade, and under the governance of two administrations, suggests that the role of the state in change and the degree o f its intervention in economic and social life are highly politicized questions, and academia is not immune from politics by any means. Thus, the recognition o f the fact that the Russian bureaucratic state, and its bureaucrats, are the problem would have had carried political connotations and might have put a huge question mark on the Clintons Administration policy towards Russia. Saying that, 1 would not necessarily insist that that this was the only, or even the primary, reason for the neglect of the study of state and bureaucracy in Russia, given the intensity o f writings on the USSRs governance and bureaucracy by Sovietologists in the past. The unpredictability of the communist breakdown, however, the speed with which the communist bloc collapsed and the total impotence o f the once all-powerful totalitarian institutions to shut down the boiling social spirit o f the long-oppressed society naturally turned attention to the institution that was presumed non-existent in that part o f the world; civil society. No wonder, then, that the study of the new institutions (accompanied by the outburst o f the new institutionalism family o f models) in the wilderness of the post-communist world prompted huge interest among political scientists. In fact, all o f a sudden, the civic spirit emerged at the beginning of transition seemed to be the major hope for a bright outcome of the post-communist transition, given the dubious - at best - results of change of the previous waves of democratization in Asia, Latin America and Africa, which produced very few success stories. Jerry Hough, The Soviet Union and Social Science Theory (Cambridge, Mass.: Harvard University Press, 1977). ^ Timothy Colton, Approaches to the Politics o f Systemic Economic Reform in the Soviet Union, Soviet Economy 3, no. 2 (1987).
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bureaucracy caused by lack of control, however, may create even more problems than open resistance. Paul Gregory (1990)'^ argued that the split inside the Soviet bureaucracy is the factor; the apparatchiki the nomenklatura bureaucracy-would oppose change, while the khozyaistvennikimanagers of the state-owned enterprises closely connected to the real economic life of the nation would have the skills and resources to benefit from reforms. Research by Joel Heilman (1993)^ and Steven Solnick (1998)*^ provided for an even more optimistic approach, greatly reinforced by the speedy and unexpected collapse of the communist system. Scholars suggested that opportunism on the part of the Soviet bureaucrats was so vigorous, so profound, and so bold, that they might, in fact, have become the catalysts of state collapse (Solnick 1998) and even friends of change. This argument was rather compelling: bureaucrats, being traitors by nature, as rational choice theory assumed them to be, would have simply bet on those happened to be winners. Thus, as far as bureaucrats saw weakness on the part of the party/state leadership, as long as they suspected they would lose at the end of the perestroika game, Soviet officials got involved in market activities and employed resources of the stillSoviet institutions or whatever was left of them to create businesses. As a result, self-
Timothy Colton, Gorbachev and the Politics of System Renewal, Gorbachev's Russia and American Foreign Policy, eds. Seweryn Bialer and Michael Mandelbaum (Boulder; Westview Press, 1988). Paul Gregory, Restructuring Soviet Economic Bureaucracy. Soviet Interview Project Series, ed. James Millar (Cambridge, Mass.: Harvard University Press, 1990). Joel Heilman, Breaking the Bank: Bureaucrats and the Creation o f Markets in a Transitional Economy. Ph.D. thesis, Columbia University, 1998. Steven Solnick, Stealing the State: Control and Collapse in Soviet Institutions, (Cambridge, MA: Harvard University Press, 1998). This book was based on research undertaken in the early 1990s.
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interested bureaucrats, long suspected by Sovietologists as resisting institutional changes, were to become nothing less than quasi-generators of the market reforms (Heilman 1993). In fact, nomenklatura privatization, based on control rights in exchange for property rights (Gaidar 1995)^^ (some bureaucrats'gave up power of their officers in the state administration in exchange for property rights over valuable resources or/and ownership of profitable enterprises such as oil and gas companies) provided some grounds for such optimism. The further unfolding of events in Russia, however, marked by degeneration of the reform process, mounting bureaucratic corruption, its considerable economic and social costs, and its undermining of the driving forces behind the reforms (World Bank 2000) made those who embraced bureaucrats as generators of market reforms reconsider. The late 1990s, when the 1998 financial collapse in Russia^ became the focal point for scholars of post-communist politics, saw a resurgence of the old-fashioned twoedged Russian questions: What to Do and Who Is Guilty? Two major approaches to these questions have so far emerged. The first, known as state capture, claims that the state in general and bureaucrats in particular have been captured by (big) businesses. The state becomes weak and virtually incapacitated; unable to resist powerful business interests, it ceases to undertake reforms. Big businesses, meanwhile, known in Russia as oligarchs, gamer
Yegor Gaidar, Gosudarstvo Y Evolutcia (State and Evolution) (Moscow: Evrasia Publishing House, 1995). ^ On August 17, 1998, the Russian government defaulted on government-issued bonds (the GeKeO) and devalued the national currency, leading to the bankruptcy of the major Russian banks and collapse o f endless numbers o f small and medium-sized businesses. The nations newly emergent middle class was the main victim of the financial crash. Marina Ivanushenkova, Reiting Peremen (Rating o f Change), Kommersant vla sf, (14 October 1998): 21-25.
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inside tracks by giving illicit and non-transparent provision of private benefits to public officials and influence the formation of laws, regulations, decrees, and other government policies to their own advantage (World Bank 2000: xv). Thus, in this model, bureaucrats become willing or unwilling victims of powerful oligopoly. The other approach suggested that, at a minimum, it takes two to tango. Bureaucrats are often willing partners in corruption. In this model, the state pretty much becomes an autonomous force incapable of facilitating change, not because something or someone gets in its way, but because it pursues and safeguards expedient bureaucratic interests than rather those of the society as a whole. Adherents of this model believe that it is not private interests, but bureaucratic ones, that have captured firms and prevented the development of small and medium-sized businesses (Klymkin and Timofeev 2000).^ Russia has a formal institutional design that is incompatible with its society, Eugene Huskey concludes in his pioneering analysis of the nations presidency (Huskey 1999: 218). Both models emphasis the problem of the weak state as a cause for stalled reforms, and both are lacking mechanisms to explain the devices by which one post communist state happens to be or to become strong, while another, in turn, weak. As the communist collapse becomes more or less history, scholars of the field and various sub-fields have started to look into the concept of elite circulation as a way to explain the variation in outcomes. First, economists acknowledged that countries where there was a clear break with previous communist regimes, i.e., where reformers conducted a more or less extensive
Igor Klymkin and Lev Timofeev, Tenevayua Rossia (Russia in the Shadow) (Moscow: RGGU,2000).
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purge of the old bureaucracy (Poland, Hungary, the Czech Republic, Albania, Lithuania, Estonia, and Latvia), economic liberalization was speedy, more efficient, and generated fewer social costs (de Melo et al. 1996). Following this, political scientists mainly scholars of institutional design have started to notice, rather intuitively, the same correlation: all things being equal, countries that tried to divorce themselves from their communist past in a radical way, banning the most notorious bureaucrats of the old regime from public office, have come up with more efficient institutional reforms, whereas countries in which reformers tried to accommodate both new and old interests were much less successful in the process of democratic institution-building (Elster et al. 1998).^^ Apparently, those institutional reforms were quite efficient: even in those countries where the reformed communist parties took over (like for instance, in Poland or Lithuania), they didnt even dare to try to reverse the course (Grzymala-Busse 2002).^^ Joel Heilman in his groundbreaking article, Winners Take All: The Politics of Partial Reforms (1998),^"^ has given a strong analytical foundation to these hypotheses. He challenged the dominant view that existed in political science concerning transition, i.e., that it is the rank and file, due to its inability to sustain the pain of transitions, who present the principal danger to reforms. Thus, choosing between two evils, theory had it, old elites are the lesser evil, and reformers would be better off making a mutually protective pact with the old elites than trying to win votes and sympathy from the people
It is rather interesting that Elster et al. came to that supposition by analyzing the change in institutional design in countries of Central and Eastern Europe and were rather surprised by that evidence. Anna Grzymala-Busse, Redeeming the Communist Past: The Regeneration o f Communist Parties in East Central Europe, Cambridge Studies in Comparative Politics Series, ed. Margaret Levi (New York: Cambridge University Press, 2002). ^ Joel Heilman, Winners Take All: The Politics o f Partial Reform in Postcommunist Transitions, World Politics 50, no. 2 (1998): 203-34.
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on the street. Heilman, on the contrary, showed that the post-communist countries that had the m ost inclusive politics and, as a result, the greatest turnover of executives in their respective governments, turned out to be much more successful in transition than those countries where governments were insulated from electoral pressure, i.e., from the people on the street, and thus, have made, at best, only partial progress in reforming their economies (Heilman 1998; 12). True, none of the authors outlined above come up with an explicit or satisfactory explanation of why a radical divorce from the old elites (i.e., party and state bureaucrats first and foremost, whether in epaulets or without them) turned out to be beneficial to reforms. Still, the evolution of the field from embracing old-timers as catalysts of reforms to the present state of affairs speaks for itself. It is true too, however, that the longer post-communist transition scholars of the field have to observe and analyze, the more confusing it gets. For instance, for quite a long time, it has been commonly held that the old nomenklatura bureaucrats were to be among the winners of the reforms since they happened to be near the cake, i.e., the property of the former state, when it was cut into pieces and privatized. The studies suggest, however, that the old communist elite did not always and across the board turn into the new propriety bourgeoisie of post-communist society (Eyal, Szelenyi and Townsley 1998: 117).^^ That is to say, in certain cases bureaucrats turned out to be losers rather than winners of the reform process (Heilman 1998).
Gil Eyal, Ivan Szelenyi, and Eleanor Townsley, Making Capitalism without Capitalists: Class Formation and Elite Struggles in Post-Communist Central Europe (New York: Verso, 1998).
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In the following chapters, I am going to challenge that latter assumptionnot on the basis that the old elites did, in fact, become the new propriety bourgeoisie some did, some are doing so now, the majority did not; however, the fact that the old communist bureaucrats at large have not become the owners of the new companies or enterprises does not malce them ex ante losers either.
Area Studies 2. Remedies Since no school of thought expected any good to come out of bureaucrats in transition, different remedies have been proposed for dealing with them. These remedies can be summed up as three major approaches: conversion, co-optation, and coercion. The conversion approach, advocated by some scholars of post-colonial transition, suggested gradual, non-violent administrative reform that would introduce the Western type of civil service, based on the merit system and the rule of law. Scholars of post-colonialism acknowledged that bureaucrats in those countries fall short of the Weberian legal-rational model^(LaPalombara ed. 1963: 10) with its notions of responsibility, rationality, impartiality, specialization, discipline, professionalism, strict hierarchy, and so on. W hatever they are, they are characterized by traits that are the opposite of the above, and, thus, they are unable to fulfill the task that, according to Weber, justifies and necessitates the existence of the bureaucracy: making politics predictable by applying general rules to specific cases.
That model attributes to bureaucracy such features as hierarchy, responsibility, impartiality (i.e., the ability to apply general rules to specific cases), competence, specialization and differentiation, discipline, goal-achievement, and complete separation from ownership of the means o f production or administration. See Max Weber, The Essentials of Bureaucratic Organization: An Ideal-Type Construction. In Reader in Bureaucracy, ed. R.K. Merton (New York: Free Press, 1960): 18-25; La Palombara, Joseph ed., Bureaucracy and Political Development (Princeton, NI: Princeton University Press, 1963).
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Scholars of post-communism have also warned about the dangers coming from the old guard. For one, they said, the power of bureaucrats should never be underestimated: bureaucrats are never passive instruments to be manipulated at will, like inert pawns (LaPalombara ed. 1963: 15); second, they are very skillful at mfluencing new and much less experienced organizations of civil society, which are easily seduced and tend to become passive instraments of the public administration (LaPalombara ed. 1963: 23); third, while carrying out certain useful policies in implementing economic modernity, bureaucrats themselves are capable of rejecting any changes with regard to themselves, and are likely to fight for preservation of the positions they gained during the process of economic modernizationi.e., they are not likely to withdraw willingly from positions of power (Spengler in LaPalombara ed. 1963),^^ and by so doing will prevent political change. Thus, one of the conclusions was that putting legal constraints on bureaucrats and the introduction of the merit system in the selection of public officials is a pre-requisite for successful transition (Hoselitz in LaPalombara ed. 1963).^^ The second approach co-optation suggests leaving old bureaucrats with all their spoils alone, not trying to reform them, but, on contrary, trying to co-opt them into the ranks of the reformers, satisfying their interests by providing some property rights in exchange for their giving up control rights (Riggs in LaPalombara ed. 1963;^^ Riggs 1964;'^ Boycko, Shleifer and Vishny 1995;^^ Shleifer and Treisman 2000^^). Co-
Joseph Spengler, Bureaucracy and Economic Development, in La Palombara, 1963: 1999-2003. ^ Bert Hoselitz, Levels o f Economic Performance and Bureaucratic Structures, ed. La Palombara, 1963: 168-199. Fred Riggs, Bureaucrats and Political Development: A Paradoxical View, in La Palombara, 1963. Fred Riggs, Administration in Developing Countries: The Theory o f Prismatic Society (Boston: Houghton Mifflin Company, 1964).
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optation is basically a euphemism for corruption: reformers if they want to survive and to succeed buy bureaucratic loyalty to reforms. This approach, introduced by Fred Riggs (1963) as an outcome of his study of South Asian countries (the Philippines and Thailand, to be specific), has been based on two major assumptions. First: bureaucracy in the post-independence period is the only sector of the political system that is reasonably cohesive and coherent and able to exercise leadership and power (Riggs in La Palombara 1963: 23). Second, given the power bureaucrats have and the absence of forces capable of conducting checks on them, it is better not to disturb the tiger with the introduction of the merit system, which may only exacerbate bureaucratic opposition, but rather to let them enjoy their spoils in full measure. Riggs, in particular, argued in favor of a transitionary bureaucracy of spoils men fearing that the better organized, merit-based bureaucracy can project greater political power on its own, resist more successfully the politicians attempts to assert effective control (Riggs in LaPalombara 1963: 128-129). In fact, the case of the Weimar Republic, which fell victim to the notoriously well-organized and sophisticated German civil service (Childers 1983), system argument. Riggs also proposed that the introduction of the rule of law makes no sense, since bureaucrats are capable of enforcing or disregarding the rule at will (Riggs 1964: 201). seems to support the co-opting and spoil
Maxim Boycko, Andrei Shleifer and Robert Vishny, Privatizing Russia (Cambridge, Mass.: The MIT Press, 1995). Andrei Shleifer and Daniel Treisman, Without a Map: Political Tactics and Economic Reform in Russia (Cambridge, Mass: The MIT Press, 2000). Thomas Childers, The Nazi Voter: The Social Foundations o f Fascism in Germany, 1919-1933 (Chapel Hill: The University o f North Carolina Press, 1983).
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Thus, the only way the new entrepreneurial class, which is instrumental in economic modernization, can survive is by engaging in a systematic campaign to corrupt the bureaucracy itse lf (Riggs in LaPalombara 1963: 25). M any scholars of the post-communist transition eagerly jumped onto Riggs bandwagon. Their faith in the co-opting method for dealing with bureaucrats has been considerably reinforced by Adam Frzeworskis powerful book, Democracy and the Market (1991),''* in which he argued that the general public presents the greatest danger to the reform process because it is unable to tolerate the burden and pain that reforms inevitably bring. Thus, choosing between two dangers, bureaucrats on the one hand and the public on the other, reformers should choose the former. Based on that assumption, several authors have developed a theory that represents a mix of the co-optation and coercion approaches. According to this school of thought, in order to overcome bureaucratic opposition, reformers should create a small and autonomous government, which, with the authority of its enlightened politicians, would impose institutional changes by getting bureaucrats to agree to a deal, i.e., to exchange their non-tradable, position-specific rights of control for tradable, market-oriented property or quasi-property rights.'"^ In later post-reform evaluations, Shleifer and Treisman (2000) argued that a country in transition could be viewed as a big and troubled corporation whose survival depends upon consensus between the major stakeholders, i.e., powerful social actors, who have formal or informal control rights (Shleifer and Treisman 2000: 8) to prevent
Adam Przeworski, Democracy and the Market.

105
Boycko, et al., 1995.
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implementation of the reform policies. Bureaucracy on vaiious levels of government was one such powerful stakeholder. In order to neutralize its stakeholders veto on reform policies, the old Soviet bureaucracy should have been either expropriated or co-opted persuaded not to exercise /.../ power to obstruct.^^ * Since governments in transitional countries are often well too weak, and since changes of institutions and organizations are extremely costly (Krasner 1984),^"^ expropriation of the old bureaucracy becomes a non option, leaving reformers with no choice other than to co-opt. The coercion approach, most vocally defended by Huntington (1968) and Olson (1982, Murrell and Olson 1991),^^* suggests an iron hand both with regard to the bureaucrats and the general public of the countries in transition. The idea is quite compelling: given that the bureaucrats have power and skills to oppose reforms, given that the general public has low tolerance and fails to recognize the benefits of reforms, reformers should bring about a small, authoritarian government, such as the one that existed in Chile under General Pinochet, which operates almost in secret and uses coercion in order to push through reforms and bring about modernization and democratization. This type of regime is capable of and willing to conduct a thorough housecleaning, get rid of the most of the old guards and institutions, and make those who stay fully loyal to the new government. Some scholars of the modernization theory found themselves inspired by the case of post-tsarist Russia, which started building a new
** Ibid. Stephen Krasner, Approaches to the State; Alternative Conceptions and Historical Dynamics, Comparative Politics 16 (1984). Mancui' Olson, The Rise and Decline o f Nations (New Haven: Yale University Press, 1982). Peter Murrell and Mancur Olson, The Devolution o f Centrally Planned Economies, Journal o f Comparative Economics 15 (1991).
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economic reality from a thorough purge of the then old tsarist bureaucrats: the Bolsheviks managed to replace the old officeholders in a matter of years (first and foremost by murdering them), turned the country upside down, built a system, fundamentally different from the one that existed before, and succeeded in transforming the backward agrarian Russian Empire into a powerful industrial state (Fainsod in LaPalombara 1963). The validity of the latter success is much questioned in the contemporary literature: it became clear that the system that was built had embedded and incurable flaws (Komai 1986). Even if it did not, however, the human cost of that transformation was so enormous that to propose the Russian way as a model is tantamount to proposing the use of nuclear bombs for the purpose of reforms: no bureaucrats and no public to oppose them. Adherents of mild authoritarian regimes believe that they are better suited to countries in transition due to the absence of the rule of law in those countries. As a result of chaos and anarchy brought about by change, such countries find themselves at the mercy of gangs of roving bandits (Olson 1991), which manipulate reforms to their own advantage and produce further public resistance to change. Olson suggested his famous stationary bandit, i.e., authoritarian state, as a remedy for countries in transition. His proposition, however, when checked against real life, suggests that authoritarian regimes do not invariably promote rapid economic development (as they have done in South Korea and Taiwan); many (such as Juan Perons regime in Argentina) have disastrous effects on the economy (Balcerowicz in Diamond and Plattner ed. 2002: 65). Olson also argued for the existence of certain exogenous forces/conditions such as failure in war and the presence of a foreign occupation army or fiscal and monetary collapsethat might break the power of the old institutional arrangements, as well as
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institute and sustain a new regime and government capable of delivering the necessary reforms. The 2002 fiscal coilapse in Argentina and the 2003 occupation of Iraq by American forces with the goal of changing the regime there put Olsons proposition, which so far has been based on two exceptional casespost-World W ar II Japan and Germany to the test. In my model I will argue that all three approaches are shortsighted. The first approach, conversion, suffers from wishful thinking; the second, co-optation, carries enormous negative side effects, capable of destroying and even reversing the fruits of reforms for the sake of which that method was employed; the third approach, coercion, with its notion of an extemal or internal iron hand, seems workable only in specific cases, such as Chile, but lacking an extemal validity.
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Chapter 3 ; The Model
Summary: My model assumes that democracy, i.e., a form o f government in which people rule, is a commodityju st like everything else. Thus, as is the case with any other commodity, it is not enough just to bring a product to market (meaning, in case o f democracy, to establish institutions and laws); it is equally important to recruit those who are willing to buy that product, i.e., consumers o f democratic politics. 1 argue that whether or not such consumers are, in fact, recruited is a direct outcome o f the policies chosen with regard to bureaucrats as the most cohesive and powerful force o f the old regime. In my model, I suggest that, in the period o f transition, reformers have two choices with regard to bureaucrats: a co-opting strategy and a fe a r factor strategy. The latter implies preventing old guards from entering both public and elected offices. I argue that, due to the necessity o f expanding their rent base, bureaucrats will not oppose initial reforms. But, i f they are being co-opted (as opposed to being kicked out o f office) they will try to grab back control rights in order to secure their residual property rights. Success on the part o f bureaucrats will re-create bureaucratic politics, and, thus, consumers o f that type o f commodity. It will also mean that there will not be a sufficient number o f consumers o f democratic politics, which, as a result, will be pushed out o f the market.
l.A cknow ledeem ent My model is grounded in the basic findings of the rational choice theory. It is that, whatever happens in the social, political, economic world, it is, in essence, a product of individual choices, preferences, and actions. W henever collective entities, such as
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states, societies, classes, and so forth are closely examined, they always come up as a multitude o f faces.
1no
There are several theoretical prerequisites that should be
acknowledged before I proceed with a discussion of my model. First, as has been already noted in the previous chapter, the rational choice family of models treats bureaucrats as self-interested individuals driven by the desire to fulfill their personal goals. That is to say, it is the incentives that are in place that affect the behavior of bureaucratic actors more than such uniform descriptions as red-tape. Second, opportunism is a distinctive characteristic of bureaucrats that allows them to serve under different regimes and in different ideological environments as far as the rules of a system are clearly defined. Third, bureaucrats are non-elected, i.e., appointed, officials. Thus, they do not have any constituency outside their office (Downs 1966), and there are no rational reasons whatsoever for them to seek public support or to make their dealings transparent. Fourth, the fruits of their work, i.e., their output, cannot be measured or evaluated directly or indirectly on any markets by means of voluntary quid pro quo transactions (Downs 1966: 24). Thus, bureaucrats are destined to look for ways and means to justify their success (and, thus, their existence). Fifth, bureaucrats are utility maximizes. In other words, they are seeking to increase the means of control, to multiply functions, and to expand opportunities for distribution of resources. Utility maximization more often than not is turned into budget .
Even in the larger world around us, a tiny little change in a tiny little particle is capable o f drastically affecting even the entire universe: should the mass o f the electron be not 10 but just a little bit less than that, 10 '^*9999, the universe as we know it would not exist. Stephen Hawkins, Interview with Yevgenia Albats, Moscow International Conference, March 1987.
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maximization (Niskanen 1971)/^^ In this way, bureaucrats gain monetary validation of the power of their office, which they can trade with other interests inside the bureaucratic system or outside it. The reward for successful utility maximization comes in the form of increased salaries, noii-monetary benefits, promotions, power, patronage, slack time, and capitalization of the workplace, which, in turn, increases the power of an officeholder inside the bureaucratic system, and thus renders the office tradable for positions in firms outside the bureaus (Niskanen 1971). Obviously, rewards differ depending on the level of the office: operatives, i.e., those on the lowest level of the bureaucratic ladder, are rewarded with bigger salaries, whereas executives, i.e., those on the top, increase the power and the value of the office. Thus, the rational choice approach suggests treating bureaucrats as normal human beings who, however, in addition to having all virtues and vices of people on the street, are empowered by their offices. As far as the latter is concerned, it is important to bear in mind the classical understanding of the bureaus: that bureaucratic office is a distinctive form of social organization that runs on the principal of hierarchy (Weber 1960), ^ has established lines of authority and responsibility (Barnard 1968), standard operating procedures, red tape, and so forth, and whose core task is to make the actions of the government predictable and somewhat controllable by applying general rules to specific actions (Weber 1968).
Both Downs and Niskanen theories were developed for bureaucrats in the United States. Rather amazingly, they are applicable to the post-communist bureaucrats as well, as it will be shown in the empirical chapters. Max Weber, On Charisma and Institution Building, selected paper; The Essentials o f Bureaucratic Organization: An Ideal-Type Construction, Reader in Bureaucracy, ed. R. K. Merton, (NY: Free Press, 1960).
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Theory also holds that any society claiming to be modem and seeking to have stability is destined to have bureaus and bureaucrats (Wilson 1989). These are the major theoretical assumptions derived both from the rational choice theory and from the theory of bureaucracy that serve as a framework for my model.
2. Rejection If one is to sum up the major political science literature expectations about bureaucrats in the service of change in one sentence, it would be that they present both the problem, and the solution, i.e., that they are the obstacles as well as the instruments of modernization. M y model suggests that: (1) Conventional wisdom about the necessary evil of bureaucracy (reliance on bureaucrats in transition is dreadful, the problems they create far outweigh their positive input) is wrong. (2) Contrary to what many theories of transition have predicted, it is not the people on the street, incapable of tolerating the burden of reforms, who present the major obstacle to transition, but the elites, of which bureaucrats are the key, who present the major challenge to modernization and democratization. (3) Policies with regard to bureaucrats are vitally important. Contrary to what some theories have suggested as a policy choice, a small and secretive government of enlightened politicians engaged in trade-offs and bargaining with bureaucrats in order to prevent them from sabotaging
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reforms is not the solution. A desire to buy bureaucratic loyalty via a gift of property rights over state assets and services in exchange for their giving up control rights is a bad policy choice: being rational agents, bureaucrats would aim to secure both. (4) Reformers should be aware, that, as Riggs pointed out some 40 years ago, in order to keep the bureaucracy in check, they need a power base outside the bureaucracy its e lf. (5) Establishing constraints on bureaucrats, means of accountability and transparency, is a must. (6) In countries where all major institutions of the previous regime were part of the ruling elite, democratic, inclusive politics are the key to making public administration both effective, i.e., capable of administering (and thus, conducting) reforms and public in both meanings of the word, i.e., transparent and accountable to forces outside the executive branch. (7) Success or failure in establishing coherent and consistent policies towards public administration in transition defines the success or failure of the reform process in countries in transition; otherwise, economic and political reforms become hostage to bureaucratic games, become corrupted, and presuppose subversion of political and economic liberalization. Thus, in my model, I am seeking not just to explain the incentives of bureaucrats at different stages of transition, but also to show how different policies chosen with . regard to bureaucrats affect their incentives and, hence, behavior over the course of the reforms.
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4 :^
3. A rgum ent Whenever I think about the country where I was bom, fell in love, and gave birth to my child, the Soviet Union, I cannot help but see the same image: a soccer game. The name of one team is S t a t e , t h e name of the other one is Society.^ It is not a fair game: the first one is destined to winjust because the second one does not really exist and those who are to play under its banner are the same state and party bureaucrats (those who did consider themselves to be the players in the team by the name Society were deprived from participation and sent to the Gulags political labor camps). Needless to say the arbitrators, line judges, and coaches as well as field itself all belong to the State too. Thus, the State has total and unlimited control. So, what should be done in order to make the game fair? The obvious answer is to make the team Society extremely strong: throw out weak players and put in the good ones. Right? Wrong. Because it is not feasible: the State worked hard for seventy-plus years in order to eliminate competitors. Thus, another choice is to make the team State weaker and the team Society stronger: kick bureaucrats off the old squad and force them to play on the societal team: if they know nothing else but the ways and means of their old team, its points of weakness it is already worth a try. The truth is that the goal
When I use the word state I have in mind M ax Webers definition o f the ideal type of state: It is an organization, composed of numerous agencies led and coordinated by the states leadership (executive authority) that has ability and authority to make and implement the binding rules for all organizations in a given territory, using force if necessary to have its way. (Weber 1968; 156). My interest, however, is primarily in the inhibitors o f a state, i.e., bureaucrats, who populate its administrative and coercive organizations and who, in Soviet-type states, were responsible for setting its rules and procedures, implementing them, and controlling its authenticity.
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I use the term society here to define the realm that exists outside the state.
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of the new arrangement is not to win, but to create conditions for a fair game in the future. The time that it takes to create these conditions is called transition. As is apparent, the very word transition implies a multi-step process, which absorbs the collapse of the old regime and the emergence and consolidation of the new one. So, what options are available to the major players in the game, i.e., the bureaucrats, society, and the reformers, who initiate change during transition? What actions may they or may they not engage in?
Act I Bureaucrats The first stage of the transition, which might be called a period of disarray, is the most difficult for anyone who happens to live through it. Its major characteristic is the profound uncertainty that underlies all realms of life. After the initial excitement about the collapse of the old regime, questions of everyday survival prevail. In this respect, bureaucrats are no different from anyone else who willingly or unwillingly becomes part of an experiment with an uncertain outcome, i.e., the reforms. Networks or connections that were the essence of everyday life in the non-market system are destroyed; contractual obligations of the previous regime in the form of the welfare system are pronounced null and void; rules and norms, as bad as they were, no longer exist, and the new ones are yet to come; inflation brought about by the price liberalization eats up savings and salaries simultaneously; the suicide rate reaches an all-time The very
Goskomstat, 1995.
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question how am I going to feed my child tomorrow? consumes even the most proreforni minds. In essence, nations in transition find themselves in the Hobbesian world of the state of nature. Self-preservation becomes the motive; a cry for survival determines behavior and suffuses everything else. Bureaucrats on top of all the above find themselves in a situation that is even worse than that of ordinary citizens. They are naked as babies: no ideology, no beliefs, no loyalties, no established lines of authority, no obligations, and no responsibilities. But it is even worse than that: being representatives of the old and much-condemned regime, they expect repercussions. Their panic is grounded in their own experience: violence on the part of leaders of the totalitarian state and fear of becoming the victims of that violence this is what kept the Soviet state machinery intact for more than seventy years. Any dissent among bureaucrats of different ranks from the top to the bottom of the hierarchy was suppressed in the most violent manner. Stalin used murder; his successors tended to employ more vegetarian means: bureaucrats were sent into oblivion, which often meant the permanent loss of status and comfort, unavailable to ordinary people, for them and their children (Arefiev 2001).^^^ Still, if dissent was dangerous enough to frighten the stability of the system at large, the response was a harsh and violent one, as it was in the German Democratic Republic in 1953, in Hungary in 1956, in Czechoslovakia in 1968, and in Poland in 1956, 1970, and 1981: the Soviet Union was
Yevgenii Arefiiev, Deputy Chief of Staff, Apparatus o f the Government, 1991 - present. Interview with Yevgenia Albats, M oscow 29, 2001.
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willing to use military force to suppress any discord in its communist satellites (Linz and Stepan 1996).^^*" T h u s,/e ar becomes the dominant characteristic of bureaucratic incentives during the period of disarray and determines their behavior at large. W hy if the old regime is dead? Because they assume that a new sovereign will rule the same way as the previous did: by means of violence. It does not really matter if that fear has any basis in the transitional reality (as it did, for instance, in Romania where the leader of the communist regime, Nicolae Ceausescu along with his wife were executed), or if it is anticipated as a fifty-fifty probability. The mere expectation of violence prompts a rational person to look for ways and means of lowering risks and avoiding real or anticipated danger. On the plus side for the bureaucrats, however, is that they have what private citizens do not access to information. Information was the most valuable commodity in former Soviet-type countries, and gaining access to it was the main determinant of the place and the role of a bureaucrat in the Soviet hierarchy; the way in for outsiders was strictly rationed and limited. True, Gorbachevs glasnost allowed information to become a somewhat public commodity, and democratization of access to information, in fact, became the most important blow to the Soviet bureaucratic state: it ruined the Soviet Unions hierarchy built on the basis of that access. Still, bureaucrats have had some exclusive items to sell on the market. It is not just knowledge about where the gold of the previous regime is buried (like deposits in foreign banks and off-shore companies) or what other valuables are in reach (like
Juan Linz and Alfred Stepan, Problems o f Democratic Transition and Consolidation. Southern Europe, South America, and Post-Communist Europe (Baltimore: The John Hopkins University Press, 1996).
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knowledge about high-tech enterprises or reserves of natural resources) in fact, that type of highly secret information was the privilege of the top level gatekeepers; most importantly, bureaucrats had intimate familiarity with the ways and means by which the state apparatus operates, expertise about the decision-making process in the governmental hierarchy, and knowledge of the costs and benefits of government actions. Clearly, such knowledge becomes a tradable commodity. Who are the must frequent buyers of such products? Newly emerging businesses, first and foremost. Even in stable Western societies, the formerly well-placed bureaucrat is in demand, more so in transitional societies where state assets are the major source of wealth and where information is still scarce and difficult to check. Thus, bureaucrats in the period of disarray may exercise two options. One is to take an exit strategy give up their control rights and join firms outside the state to acquire some property rights (Heilman 1993). Another option is to stay in office, claim rents from control rights, try to obtain some quasi or residual property rights, and pray that the new regime will not exercise its right to violence. As we have seen in many countries across the post-communist world, at the first stage of transition, quite a few bureaucrats chose the first option. As Gaidar (1999: 65) described the situation: Soviet economic ministries no longer administered anything. Their employees were busy looking for work in the private sector, creating commercial firms and transferring public money and property to them. Why? W hy did bureaucrats behave contrary to everything theory taught us that is, despite being risk-averse, why did they throw themselves into the highly risky environment of the transitional economy? Having the opportunity to extract rents out of
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intervention into the economy under the protection and conformity of their offices (Olson 1982, Murrell and Olson 1991), why did they choose to give up both? The reason for such at first glance irrational behavior is, in fact, purely rational. For one, bureaucrats from the central and regional administrations were engaged in commerce both inside and outside the country long before the Soviet system de jure collapsed. As the states iron hand was loosening and terror ceasing to be the major method of keeping bureaucrats in their place, rent-seeking activities on the part of communist bureaucrats became rather commonplace (Murrell and Olson 1991). Hence, as Heilman (1993) asserts, they had all the incentives to institute full or partial property rights over the firms that were theirs by virtue that they were under their control. Second, there was an army of managers of state enterprises, which were part of the administration (upravlenie) under the old regime and who were eager to make those formerly state assets into their own.^^ ^ Little did they know then that managing an enterprise in the competitive environment of the market and managing it in the conditions of state subsidies and fixed prices are two very different exercises. Third, and most important, the cost of entering the market in the period of disarray is relatively low: no control, no enforcement, no taxes, and few if any transactional costs. Chaos inside the state agencies associated with the collapse of the old regime and its hierarchy of control prevents bureaucrats from imposing on start-ups a host of regulations that first and foremost drive up the price of entering the market (Djankov et al. 2001). Thus, the costs of leaving the office and joining the market are
There were at least 43,000 state enterprises and 26,000 construction enterprises in the USSR, in addition to hundreds of thousands of service, retail, and farming units. (See, A. G. Aganbegian, Upravlenie sotsialisticheskimi predpriatlami (Moscow; Ekonomika, 1979): p. 20
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much lower than those of anticipated violence on the part of the new regime. To put it bluntly; & fea r factor marched bureaucrats out of the office and into the very constituency the new regime had been seeking new market institutions. W hat happens, however, when bureaucrats decide to exercise option 2, i.e., if they stay at the office? Apparently, the rational strategy in this case is to insure survival. The way to do this is to build patron-client networks both inside and outside the office. As Bates (1981) showed, bureaucrats, using their control over allocation and distribution of resources, are capable of doing favors for some politicians and penalizing others. Is it realistic to obtain a patron inside the office given the distrust that naturally exists between the newcomers and the old officeholders? Bureaucrats act the way they do in any other country via utility maximization: by providing knowledge about bureaucratic know how, by having first-hand access to the information that is vital to politicians, by having expertise on the costs and level of slack (Niskanen 1971), as well as expertise on acting both on the margins of the law and outside of it (Los and Zybertowicz 2000: 53).^^* Still, the distrust between the newcomers, i.e., the reformers, and the bureaucrats remains profound, if for no other reason than because the whole notion of liberal reforms presupposes that the entire range of functions and control rights that the Soviet bureaucracy had would be rendered useless and unnecessary in a market economy. Uncertainty and instability, which are, by default, the distinctive features of transition, make those patron-client relationships inside the office even more tangible. Thus, bureaucrats are forced to look for patrons outside the office. They become involved in creating a clientele, i.e., in establishing a special relationship between an interest group
' Mari a Los and Andrzej Zybertowicz, Privatizing the Police State: The Case o f Poland (New York: St.Martin's Press, Inc., 2000).
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aBd an administrative agency that presupposes benefits to both sides (Peters 2001: 196).*^^ Apparently, the strategy at work is the same as the one with regard to politicians: give favors to a patron and penalize his competitors by, for instance, providing a patron in a firm with inside information that is valuable if for no other reason than that a competitor does not have it. Bureaucrats get protection, information, advice, and finallyrents. The latter may range from just a simple bribe to as much as a percentage of business ownership. First-hand knowledge about an upcoming government decision to change a tax policy in the sphere of natural resources, for example, allows market firms to save millions of dollars, whereas the possibility of delaying the implementation of the new tax by influencing a top-level official is worth tens of millions of dollars (Bendukidze 2001). Rewards merit the effort: bureaucrats obtain residual or partial property rights in a firm (by means of converting cash into rights), which ensures their survival should they be kicked out of office, while preserving the control rights that come with the office. Given that politicians in the period of disarray are subjects to frequent reassignment, i.e. their patronage is not stable, bureaucrats establish primary loyalties (and all the benefits that come with them) outside the office: and the value of these loyalties increases as a bureaucrat goes up the hierarchical ladder. One may say that by doing favors for patrons outside the office, i.e., businesses, bureaucrats contribute to the development of the reform s constituency. Literature suggests that the existence of clienteles in Western-type economies sometimes allows for better reallocation of resources (Peters 2001). That can hardly be said of countries in transition, the primary goal of which is the creation of firms and institutions capable of
B. Guy Peters, The Politics o f Bureaucracy.
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existing outside the state. For the purpose of that model, the most important negative impact of clientele networks is preventing normal competition in the market; favors to selected private interests lead to the creation of monopolies and puts obstacles in the way of start-ups, which are the primary consumers of democratic politics. Monopolies, which are capable of buying freedoms and liberties for themselves, in essence become agents of the state, and, instead of empowering the societal team, make the states team stronger.
Reformers Reformers have several choices in dealing with the old regimes bureaucracy. In essence, these boil down to whether (1) to exercise a fea r factor (meaning to create a perception that all old guards will be sooner or later replaced by the new regimes bureaucracy) or (2) not and instead co-op the old bureaucrats to make them allies rather than enemies.
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Option 1 assumes that the old regimes officeholders may do more damage than good in the office. The knowledge and expertise they have, however, is beneficial to the new market institution. As has been mentioned earlier, the option of exercising the fea r factor does not require violencethis contradicts the idea of democratic transition. Still, the mere anticipation of probable violence, expectations of it on the part of the old regimes officeholders, who consider it just rational to exercise it since that is what they would do were they to change places with the reformers (Gaidar 1999: 63), works just as well.
For a discussion o f different approaches in the literature, see the previous chapter.
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T h e /e a r factor option has been exercised in several post-communist states in Southeastern Europe, as well as in the Baltics, in different fashions, depths, lengths, and consistencies, and over different periods of time (Table 1). This approach has been known as de-communization, mirroring (at least in intentions) the similar process conducted in Germany against members of the Nazi party, which became known as deNazification. The ideology behind de-communization, whatever forms it took, was to denounce and break with the totalitarian past so as to prevent it from impeding the present, to bring justice to both zealots and victims of the communist decades, and to give the emerging society a mirror through which it could assess its actions (Bren 1993)
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The practical reason was to prevent the old guards from blackmailing politicians (by using their selective access to secret files), deprive them of access to the decision-making sphere, and, by so doing, prevent them from blocking democratic reforms and regaining full or partial power. The logistics of the most radical approach to the de-communization process, often called lustration, is the screening or vetting of candidates for or holders of important public offices to identify and usually bar for a certain period time former old guards and gatekeepers (i.e., bureaucrats in epaulets of the former communist political police the KGB in its various incarnations), their agents and collaborators, as well as former Communist Party officials and those who held important nomenclature posts in public office whether elected or appointed (Los and Zybertowicz 2000). In some countries, like East Germany, the Czech Republic, and Estonia, lustration was performed on a rather large scale, predominantly during the first phase of reforms. In others, like
Paulina Bren, Lustration in the Czech and Slovak Republics, Radio Free Europe/Radio Liberty Research Report, 16 July 1993.
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Poland and Hungary, it was first replaced by a good deal of public debate and harsh rhetoric until it came into effect in the mid-1990s. It is also worth noting that, in Hungary, replacement of the old bureaucrats with a new economic elite and reform leaders took place gradually within the last years of the communist regime: the new elite occupied 50% of the managerial jobs in the state sector of the economy and 30% in economic command posts in 1988 (Lintz and Stepan 1996: 309). In Latvia and Lithuania (as well as in Estonia), chasing old bureaucrats out of the new governments structures was conducted under nationalistic banners. In others, like the Czech Republic, Poland, and Hungary, de-communization was, to a great extent, driven by the notion of liberation from the de facto Soviet occupation, which resulted in forcing old elites into early retirement (Eyal et al. 1998). The effect of rfe-communization practice became evident when former communists turned social-democrats won the power back via popular elections in several countries of the eastern and central Europe: even if those reformed communist parties did want to reverse the course, they could not do so because the old bureaucratic structure was destroyed, old institutions were at large replaced by new ones, old rules of the game were at large null and void since those who used to practice them no longer held the office. Overall, now, fourteen years after the velvet revolutions in Eastern Europe, it is evident that those countries that conducted the most comprehensive and persistent lustration practices have had fewer political shake-ups over the course of the reforms and achieved the most in terms of consolidating democracy (Ash 2002)
122
than those who
chose the policy of stop-and-go or chose not to conduct de-communization all at all. In
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Bulgaria, for instance, reforms were stalled, and the country was drawn into economic stagnation and poverty (Engelbrekt 1994)'^^ until, in 1997, the nation finally decided to open its dirty communist past to itself. In Slovakia, which dropped lustration after splitting with the Czech Republic, a stop-and-go policy resulted in highly nationalistic rhetoric on the part of its new leaders, who had their background in the communist past, and adversely affected its political and economic progress. In Russia, as in other CIS countries, de-communization was never in the cards (Yeltsin 1994: 126-127;^^^ Baturin et al. 2001: 211^^^). The nation, unlike other post-communist states, also has been laeking the notion of liberation: if anything, Russia has had to liberate itself from itself. It failed at that as well. There are many significant applications of de-communization. For the purpose of the current argument, it is important to outline the following consequences of that policy. First, given that bureaucratic organization is hierarchical in nature with welldefined lines of authority, it allows the established networks and groupings to be broken down; it allows to destroy system of closed cover-ups, where one hand washes the other, arrangements of mutual favors, responsibilities, guarantees, code of silence that existed in
Timothy Garten Ash, Treating a Difficult Past in Post-Communist Europe, in Memory and Power in Post-War Europe: Studies in the Presence o f the Past, ed. Muller Jan-Werner (New York: Cambridge University Press, 2002). Kjell Engelbrekt, Bulgaria's State Security Archives: Towards a Compromise? Radio Free Europe/Radio Liberty Research Report, 4 February 1994. Boris Yeltsin, The Struggle fo r Russia, trans. Catherine Fitzpatrick (New York: Random House, 1994). President Boris Yeltsins words speak for themselves: ... I saw continuity between the society o f the Khrushchev and Brezhnev period and the new Russia. To break everything, to destroy everything in the Bolshevik manner was not part of my plans at all. While bringing into the government completely new, young and bold people, I still considered it possible to use in government work-experienced executives, organizers, and leaders. .. U. Baturin, A.Ilin, V. Kadatski, V.Kostikov, M. Krasnov, A. Liphshitz, K. Nikiforov, L. Pichoya, and G. Satarov. Epoxa Yeltzina (Yeltsin's Epoch) (Moscow: Vagrius, 2001).
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the bureaucratic agencies. By excluding the key elements, those who provided patronage and protection first and foremost, from the network, reformers protect themselves from the effective subversion of their policies. Bureaucrats find themselves in a position in which it is rational to comply with the newcomers rather than not to. Second, it allows reformers, whose power is quite limited by the mere existence of the state in the period of disarray, the absence of loyal agents of law enforcement and so on, to show their muscle: communist bureaucrats, accustomed to violence and brutality on the part of the power holders that is, the only bureaucratic culture they have come to know during the communist period, will not acknowledge reformers as a source of authority unless they appear with a stick in hand. Thus, the establishment of patronage and clienteles outside the office becomes a much more risky affair. Third, de-communization rhetoric brings an explicit message as to who reformers are seeing as their power base: seeking justice both for executioners and victims of the communist regime gains them the support of the public, whereas the fact that the torturers or the commanders go unpunished, even remain in high office, compromises the new regime in the eyes of those who should be its strongest supporters (Ash 2002: 269). Since de-communization is a process, not a one-time measure, and, therefore, a source of constant public debate, it makes the risk of keeping bureaucratic offices constantly high. Thus, bureaucrats as rational agents should be willing to reduce the risk of being exposed and fired by exercising their exit strategies. It is also important that the process (that obviously bears unpleasant signs of witch-hunting (Laber 1992) being
Jeri Laber, Witch Hunt in Prague, New York Review o f Books, 23 April 1992. This is just one of hundreds of articles on the topic that appeared in the media in the early and m id-1990a. Obviously, from the human rights perspective, de-communization was a highly controversial affair and presented potential
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passed as law, does not allow for an easy return into bureaucratic office. In addition to constraining growth of the state bureaucracy, it makes former bureaucrats more loyal to the new market institutions, which they see not just as temporary waiting areas, but as a permanent source of income. In return, former bureaucrats provide these newly established market firms with knowledge and expertise about the ways and means of dealing with the administrative obstacles that inevitably arise, and, by doing so, they increase the survival capabilities of start-ups and widen up their entry into the market. Less bureaucratic pressure contributes to the existence of the new start-ups, new small and medium-sized businesses that become a base for a civil society. Thus, former bureaucrats help to increase the ranks of consumers of the democratic policies. Bureaucratic opportunism supported by substantial knowledge of the vices of government agencies becomes an important source of strength for political parties as well for those who are eager to contest the government. No wonder that, in the post communist countries, reformed communist parties riding on the social-democratic agenda have been able to produce the most professional opposition to their respective governments (Grzymala-Busse 2002)^^^ and largely contributed to the development of
dangers to the development o f a liberal democracy. My objection to that approach is a simple one: transition is a highly unfair process in general; it is all about choosing between relatively good or even bad politics and very bad politics. Yes, in those countries that conducted lustration, the rights of a few were violated in favor o f many, and in those where that policy was rejected, the rights o f many were violated in favor of a few. In the former case, transitional democracy has finally evolved into a liberal one, while in the latter, the outcome is no democracy at all. Anna Grzymala-Busse, Redeeming the Communist Past: The Regeneration o f Communist Parties in East Central Europe (New York: Cambridge University Press, 2002).
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more inclusive politics, which, as several studies have already confirmed, led to more effective governance and higher economic growth (Heilman 1998).^ Thus, whether they desire it or not, bureaucrats of the old regime being forced out of the comfortable environment of their offices cannot help but side with team Society and thus empower it.
I refer to much o f these findings in Chapter 1. The latest (May 2003) research done by the W orld Bank once again stipulates that transparency and accountability o f governments is a prerequisite for better governance. Daniel Kaufmann and Aart Kraay, Growth Without Governance. Working paper, The World Bank, 2003.
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Table 3.1: De-Communization in Post-Communist Countries (selected cases)

Illustration Administrative disqualification by law
P artial
Baltics Bulgaria Czech Rep. East Germany Hungary
Partial
Indictment of former communist leaders No
Dismantling of political police Yes
New legal
framework
Archives opened
& accountability Yes
Yes
No No Yes Partial Partial Y e s (1997) Yes Y e s (1991) Yes Yes (1991) Yes Yes (1991) Yes Yes Yes Yes Yes Yes (1991) Yes Y es (1997) No Yes Yes Yes (1997) Yes Yes Yes (997) Yes Yes Yes Poland (1997) Some Romania No No Partial No No No Russia No No No Partial No No No No No No CIS No Slovakia No Yes'^' No Yes Yes Yes Sources : Yevgenia Albats (1994, 1995), Timothy Ash (2002), James Burke (1993), Paulina Bren (19930. Kjell Engelbrekt (1993), Maria Los and Andrzej Zybertowitcz (2000)
Now comes option 2, which suggests not exercising the fea r factor, but, quite to the contrary, trying to co-op and to buy off the old regimes bureaucrats, making it rational for them to support reformers rather than to oppose them. This very option, based on the notion that one cannot take something from a bureaucrat without giving him something in return (Vasiliev 1998),^^ has found receptive ground in Russia and other CIS countries. Thus, as Shleifer and Treisman (2001) described it, bureaucrats were acknowledged as stakeholders in the assets of the old state, as rightful recipients of property rights over some of those assets. The only payments required from bureaucrats
I.e., while Slovakia was still part o f Czechoslovakia. After Czechoslovakia split into the two sovereign nations o f the Czech Republic and Slovakia, the latter virtually dropped lustration (Ash 2002: 273).
130
Sergei Vasiliev, Ekonomika I Vlast (Economy and Authorities), (Moscow: Ad Marginem, 1998): 158
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in return were their control rights over the economy. The idea is quite compelling although it sounds counter-rational: what should prompt bureaucrats to give up their control rights? Victor Chernomyrdin, the former head of the CPSU Central Committee Department responsible for oil and gas and the one-time head of the Russias largest monopoly, the Gazprom, was quite happy to be appointed as a prime minister in 1993. He did not relinquish his property rights over Gazprom, but he was glad to get quite a few control rights that made Gazprom richer than it was before, though leading the nation into financial collapse in 1998. So, what is the rationale for choosing option 2? The first reason is that there is always fear of chaos, which is almost inevitable when the old regimes collapse. The world was able to witness the outcomes of such chaos, thanks to CNN, in Iraq in 2003, after the U.S. forces took over and all institutions of the old regime just ceased to exist. In Russian history, for instance, the same chaos arose after the collapse of the tsarist regime and the dismantling of all the empires major institutions. Apparently, there were reasons to fear such chaos accompanied by violence in the post-communist regimes as well. Poterya upravleniya (loss of control) was, for instance, the biggest fear on the part of Russian President Boris Yeltsin (Yasin 2000). But first, with few exceptions (East Germany after reunification, for example), the total dismantling of the institutions of the old regime never took place in countries in transition regardless of what strategy the reformers chose: whether all these institutions
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operated or not, or whether they just stood by, is another matter; but they existed in the eyes of the street (Balcerowicz 2002).^^^ Second, chaos did not, in fact, occur in any country that chose & fea r factor strategy with regard to its bureaucrats. In those countries, where chaos accompanied by violence did occur (Romania) or even evolved into civil or ethnic wars (Yugoslavia, Moldova, the former Soviet republics in the Caucasus Armenia, Azerbaijan, Georgia; and Tajikistan in Central Asia), no institutional reforms were instituted or even were proclaimed prior to these events, and the fight was largely among clans formed during the final stages of the previous regime. Another objection emerges from the notion that states in transitional societies are weak. A weak state is a fascinating explanatory variable if for nothing else than because it readily explains all kind of failures. Bad fiscal policy that led to financial collapse? A weak state. Merging of government and business? A weak state. Failure of the W eimar Republic in the 1930s in Germany? A weak state. Alliance with bureaucrats in Russia? A weak state. And so it goes. But what does a weak state mean? Governments simply do not govern (Huntington 1968; 2). Failure to pursue the regimes own professed goals (Migdal 1988: 8).'^^ It seems that the former definition is better suited to failed states, of which there were very few in the post communist countries, whereas the second requires exploration of the term goals. For instance, if a goal for Russian reforms was merely to create private property in the
Leszek Balcerowitcz, Understanding Post-Communist Transitions, eds. Larry Diamond and Marc Plattner, 2002: 63-78. Joel Migdal, Strong Societies and Weak States: State-Society Relations and State Capabilities in the Third World (Princeton, N.J.: Princeton University Press, 1988).
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country, then the Russian government in its different incarnations did succeed. If the goal was to liberalize the countrys political and economic life from the power of non elected, and non-accountable, officials, then they failed. Obviously, a weak state is a pre-condition for transition: the whole regime change in totalitarian countries could have happened only because the states became weak. Otherwise, the human and social costs of even challenging the old regime would have been totally unbearable. And here comes another rationale for choosing option 2; the price of change. Any change is costly, but rebuilding the ship in the sea (Elster et al. 1998), i.e., conducting economic reforms along with reform of institutions and organizations, costs twice as much (Krasner 1984), not the least due to the fact that bureaucrats possess information that is quite valuable for the new regime. Delay of institutional reforms, however, does not lower the price. As has been acknowledged in various studies, as the arrangements of the new regime become institutionalized, the costs of any change become unbearably high. W hether we refer to the period of disarray as a period when the windows of opportunities existed (Gaidar 1995) or whether we call it a time of extraordinary politics (Balcerowicz in Diamond and Plattner ed. 2002), it is all the same: the first stage of transition, when the previous state is in agony, the rales of the game are in flux, and the old institutional patterns are trembling and challenged by strong socioeconomic and political pressure, characterizes the period (in many cases, the only period) when it is feasible to carry out a sufficient change of institutions and organizations of a state. Any
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delay increases the costs dramatically, since patterns and practices inherited from the previous regime have a greater chance of regrouping (Hunter 1997).^' Finally, another major reason for choosing option 2 has to do with concerns that the new regime does not have enough trained and trusted personnel available to replace the old ones (Jacob 1963: whereas the bureaucrats of the old regime at least know
the rales of the game, and they are usually better educated thus, more open to modernization than the general public (LaPalombara ed. 1963). Whereas the latter assumptions probably hold water in post-colonial countries, they are rather artificial for post-communist nations with their high literacy rate (i.e., 100%), sufficient urbanization (from 59% in Poland to 74% in Russia), and high level of industrialization.^^ Thus, the majority of post-communist countries were not lacking a pool of educated labor, a legion of graduates of technical universities who could have been recruited to work for the new state (Solnick 1998). The basic knowledge the old Soviet bureaucracy had to share was how to manage resources in conditions of economies of shortage the very knowledge that became irrelevant two weeks after prices were liberalized (Boyko et al, 1995). True, there were plenty of logistics that had to be seen to under the aegis of the agencies deloproizvodstvo i.e., perfunctory work and record keeping that requires knowledge of the paperwork protocol. These are jobs for professional operatives, who have little if any impact on the decision-making process. Besides that, bureaucratic routine was not rocket science for those who already had degrees in ballistic missile
Wendy Hunter, Eroding Military influence in Brazil: Politicians Against Soldiers (Chapel Hill: University of North Carolina Press, 1997). Jacob Herbert, German Administration Since Bismark: Central Authority Versus Local Autonomy (New Haven, Yale University Press, 1963). For a discussion of the initial conditions and sources o f data, see Chapter 2.
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building. One may argue that, at times of such cracial regime change as was occuning in former communist states in the late 1980s and early 1990s, absence of people with knowledge of tricks and costs can be quite beneficial to the course of reforms. As one guru to Russian reformers. Professor Yevgenii Yasin, once told me: If Gaidar and his rebyata guys (members of the government) did in fact know what challenges they were going to face, they would have never started what they did (Yasin 2000).*^ Yes, in the ideal Weberian world, bureaucracy represents the social structure that ensures the continuity of the state even in case of revolution by force or of occupation by an enemy: all that the new rulers have to do (even if those rulers are an alien power) is to change the top officials, whereas the ordinary bureaucrats will continue to operate just the way they were taught under the legal government (Weber 1968: 75-77). In the world of the post-communist transition, however, breaking the continuity of the system has, in fact, been the goal. As one of the reformers put it: if the major task of the Bolsheviks (in 1917) was to turn economy into a dead fish, then our task has been to revive that dead fish (Gaidar 1998). Thus, if communist bureaucrats had a profound knowledge of the ways to manage the dead fish, i.e., the command economy, what good would have come out of applying the same set of skills and tools (since they did not know any others) to an economy that was to be built on principles opposite to the ones they knew? As much as 1 despise Stalin, the dictator should be given credit; in order to fulfill his goal of turning a viable economy into a dead fish, in less than a decade he almost completely replaced the
Yevgenii Yasin, M inister o f Economy, 1994-1995, member of the Cabinet, 1995-1998. Interview with Yevgenia Albats, Moscow 2000.
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tsarist bureaucracy with one of his own picking, one that did not know how to manage anything other than a command economy based on slave labor for profit (Applebaum 2003). In fact, rather unfortunate outcomes of post-colonial transition in many countries around the world, in Africa first and foremost, suggest that using the old bureaucrats for achieving the new goals is to ask for trouble. There is a joke in Russia with regard to
attempts by the old Soviet bureaucrats to create any new institution, such as, for instance, a political party: Whatever the name given to that party, it always turns out to be the CPSU. Once and again: I readily subscribe to Joseph Schumpeters classic observation, that democratic government in modem industrial society must be able to command, and that, in order to do so, it is in need of well-trained bureaucracy of good standing and tradition, endowed with a strong sense of duty and no less strong espirit de co rp s which is capable of providing advice and, if needed, even of guiding a govemment of amateurs, i.e., elected politicians (Schumpeter 1975: 293).^^ The core of the problem that the post-communist nations experienced, however, was that their bureaucrats were not professionals for the kind of society and economy that the politicians were eager to build. To quite the contrary, the knowledge and skills they possessed might have contradicted the goals of the new regime.
Conversation with Professors Ann and Robert Seidman of the Boston University Law School, who have been serving as law drafting consultants to a number o f African governments over the past four decades. Cambridge, March 2003. Joseph A. Schumpeter, Capitalism Socialism and Democracy (New York: Harper & Row, 1975).
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It is common knowledge that a civil society, i.e., a group of organizations that are relatively independent of the state (Linz and Stepan 1996; 245) as it is understood in the West was almost non-existent in communist countries. Trade unions, cultural societies, religious institutions, youth organizations, media, even sports and rock clubs (Albats 1995) were creations of the state, were sponsored by the state, and were controlled by it. With the exception of Poland and its Solidaiity movement, political organizations developed during the last years of communism were either created by the ruling parties themselves, emerged inside communist parties, or were under the firm control of the partys political police, and, thus, did not produce revolutionary counter-elites, ideologies, blueprints (Elster et al. 1998: 3) substantial enough to challenge regimes. Another widely accepted view that derives from the former statement is that unstructured societies, i.e., those without formal means of channeling peoples desires and dissatisfactions, present a serious danger to reforms and reformers: increased social mobilization leads to political instability, which, in tum, at best, stalls reform or, at worst, reverses it. To put it in plain English: the masses, lacking the firm control that existed under dictatorships or autocracies and overwhelmed by the new pains imposed on them by reforms, will spill out into the streets since the formal channels, capable of absorbing and reflecting their pains, such as parties, are absent (Huntington 1968: 47-49). Both propositions about the danger post-communist societies present to reforms on the one hand and the weakness of the societies and, therefore, their initial inability to serve as a base for reformers on the other are true as much as they are false.
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It has been said many times that theories do not always travel well across oceans. Fear of the uncontrolled street as an outcome of regime liberalization is a purely legitimate one and grounded in a two-decade outburst of political violence (revolts, unrest, coups d etat) in much of the post-colonial world (Latin America, Africa, Asia, and the Middle East) in the 1950s and 1960s (Huntington 1968: 3). Sure enough, prospects for post-communist nations, which had never known representative democracies, but had experienced much violence in their past (two Russian revolutions and a civil war which harvested several million lives, for example) looked quite bleak as well. Nightmares of an upcoming horrible Russian revolt, senseless and merciless, as Alexander Pushkin once put it, haunted theorists, Western advisors, and homegrown reformers day and night (Nemtzov 1996,^^ Gaidar 1998^' ). Mercifully, as is apparent by now, those dreadful expectations failed to materialize. The missing answer to those fears, I believe, sits precisely in the way Soviet politics were organized. The Bolsheviks were just as afraid of the peoples uncontrolled response to their actions as their successors were. Therefore, beginning in preschool and all the way to retirement, the Soviet people were organized into all kinds of formal political organizations designed to absorb whatever little dissent and disputes might have existed. Youth movements {oktyabryta, pioneri, komsoltzi), unions for intellectuals (artists, writers, scientists, architects, and so forth), and finally, the umbrella giant, the
'^Boris Nemtzov, then Governor of Nizhnii Novgorod. Interview with Yevgenia Albats, Nizhnii Novgorod, 16 August 1996. Yegor Gaidar, 1998. In the course o f the research, there were conducted multiple interviews with different sources. For instance, four interviews with Anatoli Chubais, five with Sergie Vasiliev, three with Yakov Urinson, etc. Whenever possible, the exact year o f the interview is added to the name.
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Communist Party, squeezed private life to a minimum; even such issues as divorce or adultery were a matter for discussion (and condemnation) at the meetings of the local party committees. Any organization that had any even distant political connotation had to be inside the formal framework of the state; whatever one dared to place outside of itlike dissident groups was destined to end up in the Gulag. Thus, unlike most post-colonial countries, which lacked the legacy and experience of formal politics (which, I repeat, was aimed at constraining discord and channeling peoples anger off the street), nations of the former USSR and its satellites carried the legacy of their over-formalized politics all the way to their post-communist lives. Old habits die hard, and old habits reinforced by memories of severe repression die twice as hard. Ongoing polls conducted in Russia to test the temperature of the rank and file endlessly proved this once and again: even those who suffered the most (among the active population) were not ready to get involved in any unrest (Albats 1998^'^^). The share of those who claimed to be prepared to take part in protest actions in different years varied from 23% to 42%, whereas the share of those who said that they actually did take part in real demonstrations barely exceeded 7% (Levada 2000: 84, 150-152^^^). Absolute numbers recorded by the Russian state statistical agency (Goskomstat) speak for themselves: during the first years of reforms known as shock therapy, which were accompanied by hyperinflation (as much as 1200% yearly) and the collapse of welfare services, between 120,200 and 357,600 people took part in strikes nationwide (Table 3.2). This represented only about a half a percent of the working population depending
^'^'Yevgenia Albats, Buntov I Revolutcii V Rossii Ne Budet, Kommersant, July 1999. Yuri Levada, Ot Mnenii K Ponimaniu (from Opinions to Understanding): Sociologicheskii Ocherki 1993-2000 (Moscow: Moskovskaya Schkola Politicheskich Issledovanii, 2000).
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on the year (Goskomstat 2000:
As much as opposition leaders in Russia tried to
get people dissatisfied with the course of reforms and sure enough, there were plenty of them out onto the streets, they constantly failed/'^'^ Thus, contrary to predictions and warnings on the part of the transitional theories, revolts and unrest should have been the least of the reformers concerns, as they were in Russia, and surely should not have been the denominator of their choice of political base between the old guards and the elements of what I call the societal team.
Goskomstat Rossii, Russiiskii Statisticheskii Ezhegodnik. Official Edition (Moscow: Goskomstat Rossii, 2000). W hen pollsters asked those who voted for Gennadii Zuganov, the leader of the Communist Party of the Russian Federation during the 1996 presidential elections, if they were ready to take part in protest actions against the falling standard o f living and rising consumer prices, 43.5% of them nation-wide said No. The same question asked in small and medium-sized towns and cities revealed that only 29.8% thought they might take part in protest actions; in big cities, the corresponding figure was much less - from 10.9% in the capital to 19.8% in other big cities. Among those whose per capita income was defined as low, i.e., below the poverty line, some 37.3% said they might take part in street actions (Monitoring Obshestvennogo Mnenia, VCIOM, 1998). According to Yuri Levada, the leading Russian pollster, those numbers taken in 1997-1998 are consistent with the findings o f the previous years o f reforms. In 1995, for instance, only 23% were ready to take part in protest actions; the same was true a year later, in 1996. Yuri Levada, Ibid.
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Table 3.2: Strikes

Years
Number of people engaged in the economy (thousand) 72071 70852 68484 66441 65950 64639 63642 63963 Number of enterprises and organizations that had strikes 6273 264 514 8856 8278 17007 11162 7285 Number of people involved in strikes (thousand) 357.6 120.2 155.3 489.4 663.9 887.3 530.8 238.4 Average per enterprise Share of
people involved in
strikes (% )
1992 1993 1994 1995 1996 1997 1998 1999
57 455 302 55 80 52 48 33
0.5 0.2 0.2 0.7 1.0 1.4 0.8 0.4
Source; State Statistical Committee o f the Russian Federation (Goskomstat), 2000
Now comes the following question; if the level of political mobilization is as low as it seems, then what societal team am I talking about? As mentioned above, civil society as it exists in Western democracies was virtually unknown in countries of the former Soviet bloc. Still, as far as the totalitarian regime loosened its iron grip, quite a few elements of the new society managed to come into being and became engaged in activities outside the state. By those elements, first and foremost I mean those entrepreneurial minds that became involved in all kinds of business activities as far as the state machine allowed. Many of these elements first developed their skills in the Soviet second (underground) economy, others jum ped in when perestroika came. The point is that, by the beginning of reforms in much of the post-communist world, hundreds of thousands of people had expressed their willingness and ability to exist and prosper outside the state: in Bulgaria, for instance, the private sector accounted for 6.5% of the
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labor force, in Romania, 6.9%; in Poland, it accounted for about 10% in industry and was much higher in agriculture (since a large portion of land, unlike in other communist countries, remained in private hands); and in Hungary, which developed a substantial private sector during the last decade of communist rale, about 20% of the active labor force was employed in private firms (Frydman et al. 1993: 8, 66, 120, 173-174, 230).''^^ Finally, in the country of my case study, Russia, private and quasi-private firms that emerged in the former Soviet Union under perestroika employed 10% of the nations workers in 1990 and 15% in 1991, i.e., in the years prior to the start of the privatization campaign (Kaufman and Hardt 1993: 5)}^^ It was precisely these people, who in the case of Russia numbered 14.5-20 million individuals, who comprised the reformers constituency, their support base. Regardless of their ideological preferences, these newly emerged businessmen who cultivated their homemade enterprises in the absence of credit organizations, law enforcement, and the rule of law, were in bad need of support from the new regime and the new state that emerged after the collapse of the USSR. These people made up that societal team: they knew that they had no chance to sustain competition with bureaucrats and state monopolies unless the new regime and the new state, led by enlightened politicians, took their side. In Russia, as well as in other CIS nations where leaders failed to exercise the fe a r factor strategy and chose bureaucrats as their support base, newly emerged businesses found themselves on the
Roman Frydman, Andrzej Rapaczynski and John S. Earle, The Privatization Process in Central Europe, Vol. 1 (London; Central European University Press, 1993). Richard Hardt and John Kaufman for the Joint Economic Committee, Congress o f the United States, eds.. The Former Soviet Union in Transition (Armonk, NY: M. E. Sharpe, Inc., 1993).
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losing side, whereas in countries of Southeastern Europe and the Baltics, which did exercise the fea r factor strategy, they became the driving force of the reforms. As all other players in my model, those elements of the societal team, i.e., businesses that emerged or came out into the daylight after the communist system collapsed, had two choices: to grow, to prosper inside the legal framework, to develop professional associations to defend themselves and parties to promote and lobby for their interests by means of competitive democracy; or, another option, if conditions were rather unfavorable and the risks of operating in the open were far too high to go back into the kind of state where they existed before reforms started, to return into the second economy. That strategy of self-imposed exile was well-known and well-developed in the USSR as a survival tool for those who had neither the guts nor the desire to go for public protest, but who did not want to be part of the regime, either. Those people were physically present in the country, but had detached themselves intellectually and mentally. In the case of businesses entities, such self-exile means exiting from the realm of the legal economy into the realm of its shadow side. To be sure, businesses under consideration have little to do with criminal operations: choice of a self-exile strategy, as studies show, is the outcome of the excessive costs imposed on small and medium sized businesses by the state bureaucracy by excessive taxation, volumes of regulations, and corrupted provision of public goods (Kaufmann and Kaliberda 1996^^^; Johnson et al.
Daniel Kaufmann and Aleksander Kalibrda, Integrating the Unofficial Economy into the Dynamics of Post-Socialist Economies. A Framework of Analysis and Evidence. In Economic Transition in Russia and the New States o f Eurasia, ed. Bartlomiej Kaminski. The International Politics of Eurasia Series (Armonk, NY: M. E. Sharpe, Inc., 1996).
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1997^"^; Djankov et al. 2001). In those countries in which leaders exercised & fear factor strategy and, thus, chose to side with the societal team, like the Czech Republic and Poland, the share of the unofficial economy by the end of the period of disarray accounted for as little as 10-18% (Kaufmann and Kaliberda, 1996) and as much as 2 029% (Estonia, Lithuania, Hungary) (Johnson et al. 1997, Alexeev and Pyle 2003), whereas in Russia the share of the unofficial economy, depending on the calculation, was from as little as 41.6 to as much as 45.6% (in the USSR, roughly 10-15%), and in some other countries of the CIS was all the way from 34 to more than 60%^^ (Johnson et al. 1997; Alexeev and Pyle 2003). Obviously, besides the apparent inefficiency of operating under the conditions of the underground economy, existence of the latter has huge leverage on politics in any given country. Businesses that operate underground do not produce consumers of democratic policies; instead, they give rise to new inhabitants of repressive institutions. Their existence depends not upon political parties or any other institutions of the civil society, but is based on all kinds of corrupted relationships with the elements of the state, its bureaucrats in epaulets first and foremost, who provide certain protection (krysha roof) to businesses in exchange for residual or partial control rights. Thus, the size of the unofficial economy is as much a measure of bureaucratic success to preserve economic and political control over a country, as it is a measure of the failure of reforms, and a societal team, during post-communist transitions. The
^^^Samuel Johnson, Daniel Kaufmann and Andrei Shleifer, The Unofficial Economy in Transition, Brookings Papers on Economic Activity, no. 2 (1997). Michael Alexeev and William Pyle, A Note on Measuring the Unofficial Economy in the Former Soviet Republics, The Economics o f Transition 11, no. 1 (2003). Data for 1995.
larger the shadow economy, the smaller the number of small and medium-sized businesses and the fewer consumers of democratic politics produced by transition.
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Table 3.3: The unofficial economys share of total output

Central and Eastern Europe and Baltics Bulgaria Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Slovakia CIS Azerbaijan Belarus Georgia Kazakhstan Moldova Russia Ukraine Uzbekistan 1989 1995 Kaufmann & Kaliberdas methodology 36.2 11.3 11.8 29.0 35.3 21.6 12.6 19.1 5.8 60.6 19.3 62.6 34.3 35.7 41.6 48.9 6.5*'" 1995 Alexeev and Pyles methodology**
22.8 6.0 12.0"^ 27.0 12.0 12.0 15.7 22.3 6.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0
21.9 40.9 30.6
69.9 34.5 71.4 49.8 47.8 45.6 56.5 28.5
Source : Alexeev and Pyle 2003: 158,165
A ct II
Alexeev and Pyle did their estimates only for the former republics o f the USSR. Neither they, nor Johnson et al. (who used Kaufmann and Kaliberdas methodology) present estimates for Armenia, Kyrgyzstan, Tadzhikistan or Turkmenistan. Figure 12.0 is a mean of the share o f the unofficial economy in the total output used for all the former republics of the USSR estimated by Kaufmann and Kaliberda. Alexeev and Pyle suggest that, by 1989, the share of the unofficial economy in the USSR reached 22%. Since they do not have estimates for 1989 for countries other than the USSR republics, for the purpose of the table, I use data for 1989 calculated by Kaufmann and Kaliberda. Data for Uzbekistan is difficult to conceal, given the factual evidence that comes out of the country. The only explanation that I find reasonable both for the case o f Uzbekistan and Belarus is that those countries are run by authoritarian regimes. Thus, finding reliable data sources is quite a problem; second, in case of Belarus, the regime o f Alexander Lukashenko made it best to subvert any substantial business activity outside strict state control. My trip to Belarus in 1997, interviews with those businessmen who had survived in the marketplace, as well as those who had not, along with interviews with the state officials and opposition politicians, prompted me to write a story titled Back to the USSR, so familiar was the Belarus of 1997 to the one I knew when it was still a part of the USSR.
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With the passage of time, transition enters some sort of orderly phase. As Huntington once noted: throughout history, individuals given a choice between a states however exploitative it might be and anarchy, have decided for the former. Almost any set of rules is better than none... (Huntington 1968: 24). Thus, countries in transition unless, of course they tum into that unfortunate creature, a failed statehave been gradually moving to the second phase, which we may want to call crystallization. O f course, drawing a hard line between phases is rather an arbitrary exercise. Today, it was still disarray, tomorrow, crystallization this does not happen in the real life. Still, we may define the second phase of transition as a period when major institutions of the new order, such as a new constitution, an executive branch, parliament, and so forth, are set up, the type of republicpresidential or parliamentary is defined, lines of authority established, and rules of the game more or less outlined and accepted by the major players/stakeholders. Each country in transition has its own key points, allowing it to see the period of disarray as coming to an end. In Russia, a phase of wild politics and evolution to the next stage was signaled by the profound constitutional crisis of 1993, election of the new legislature under a new set of rules, and adoption of a new constitution,'^"^ which brought an end to the institutional confusion (Colton 1998: 2)'^^ that existed b e f o r e . T h e
The 1993 Constitution established a governmental structure with a strong head o f state (president), a government headed by a prim e minister, and a bicameral legislature (Federal Assembly) consisting of a lower house (State Duma) and an upper house (Federation Council). Timothy Colton and Jerry Hough eds.. Growing Pains: Russian Democracy and the Elections o f 1993 (Washington, DC: The Brookings Institution, 1998). On September 21, 1993, Russian President Boris Yeltsin issued Decree #1400, On Step-by-Step Constitutional Reform in Russia, which effectively dissolved the legislature elected under the old regime and the rules that existed then. The legislature, namely The Russian Congress o f Peoples Deputies, however, refused to obey; several hundred deputies barricaded themselves in the parliament building and
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next three years were marked by a massive redistribution of property rights over formerly state-owned assets.
Bureaucrats So, what happens to bureaucrats in the period when transition moves to the crystallization phase? Obviously the role of the fea r factor as the major attribute of disarray greatly diminishes. In those countries where it has been exercised, it fulfilled its major goal: to destroy the old-style bureaucratic networking, to empower the societal team with expertise that bureaucrats banned from the office were eager to share, and, thus, to ensure transparency and accountability of the new public administration. More muscles on the part of the societal team leads to better and more inclusive politics, greater turnover of executives in the administration (Heilman 1998), and therefore less stable clienteles and less possibility (and higher risks) on the part of bureaucrats of acquiring or maintaining both control and property rights. After all, those bureaucrats who transformed themselves into businessmen are the first by virtue of knowing the routine and its consequencesto ensure that their former colleagues in the public administration would not have too much power; otherwise the costs of operating on the market become much too high. Fewer control rights on the part of bureaucrats, more small and medium-sized businesses and, thus, more consumers of democratic politics. Of course, countries in transition that exercised the, fe a r factor strategy did have their share of turmoil politics and, in real life, the business of establishing public control over the
created a shadow government. The stand-off ended in bloodshed with Russian Army and Interior Ministry commandos bombarding and storming the parliamentary building. The official body count was 170 (Colton 1998: 7).
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new bureaucrats as well as gradually expanding the ranks of the consumers of democratic politics have not been as smooth as it sounds here. For the purpose of the model, however, I will leave the nuances of this beyond the scope of this study. In those countries such as Russia, where leaders chose the co-opting strategy, i.e., recognized bureaucrats as the key stakeholders in the enterprise called Russia, Inc., (or Ukraine, Inc., for that matter, in case my Russia-centrism appears too overwhelming) and acknowledged their place on the board of directors of that corporation, the fe a r factor was gone as well by virtue of not being exercised. So what did bureaucrats do in that old/new environment? Old because they were still where they were under the old regime; new because they found themselves in quite a peculiar situation, sleeping with the enemy, i.e., siding with the reformers. I guess they did what anyone would have done: they struggled for security so to as guarantee their present and their future, some comfort of office, and the pursuit of happiness.
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Certainly, the option of going into the market sphere, joining existing businesses or starting new ones, is still there. Well, sort of: unlike during the period of disarray with its absence of rules, regulations, enforcements, and so forth, the price of entering the market is no longer cheap if for no other reason, bureaucratic rents are becoming too steep, quick money is all but gone, and the best pieces of formerly state-owned property have already found their way into the hands of those who took enough risks in the early years of transition.
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On top of that, the market field has just become too crowded,
I have always found a genius on the part of the American founding fathers to recognize not just life and liberty, but pursuit o f happiness as natural rights o f human beings. One of the most well-publicized cases is that o f Vagit Alekperov, formerly Deputy Minister of the Petroleum Industry, who obtained property rights over several state-owned oil companies during the period of disarray and nomenklatura privatization, and, as a result, created an oil giant, LUKoil, the third largest oil company in Russia. Another similar case is Gazprom, Russias gas monopoly created by a former top
85
den.se, co.mpetitive, hostile, and by no means a comfortable and secure place to be. Thus, the option of leaving the office in the period of crystallization is rather an illusive one. It is like making a choice between high-risk stocks, which may or may not bring substantial profits, and the security of a mutual fund or a saving account in a bank: you do not gain much, but at least you are secure in what you have and may even get some interest on top of that. If you are a rational agent capable of weighing risks, and you are a risk-averse person, as theory suggests is the case with bureaucrats, then you are more likely than not to choose the status quo over the imaginary gains of a volatile market environment, residual property rights that are coming with control rights provided by the office, over the real property rights at a market firm. Unless you are forced to make another choice. In Russia, as well as in other CIS countries they were not. As a result, even many of those bureaucrats who did exercise an exit strategy during the period of disarray appeared to be eager to get back to the office they once left. Much-acclaimed and much-condemned nomenclatura privatization turned out to be short on gains: risk-averse bureaucrats found themselves as losers on the market (Heilman 1998)they lost to a generation of people who had developed their managerial skills in the conditions of the black, grey, shadow whatever the name market, which, nonetheless, provided for more learning experience than the administrative market. In countries where bureaucrats were banned both from administrative and elected office, the old guards found themselves on the margins of political and economic life and gradually became non-players (Szelenyi in Eyal, Szelenyi and Townslev 1998).
Soviet-era bureaucrat, Victor Chernomyrdin, who controlled the energy sector at the Central Committee of the CPSU, and Ren Vyakhirev, the Soviet-era Deputy Minister of the Gas Industry. Marshall Goldman in The Piratization o f Russia discusses the origin of some of the biggest Russian companies at length.
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Quite the opposite happened to their colleagues in Russia as well as in other CIS countries; they rushed back into the office. Reformers had little power to resist. For one thing, new institutions like tax authorities were created and demanded personnel. For another, inefficiency of the state bureaucracy comprised of the same professionals the old guards of the previous regimehad left no choice but to expand the ranks of the bureaucracy. These bureaucrats-once-businessmen brought back to the office not only their disgust with the market p l a y e r s w h o had made them bankrupt, but their clienteles as well. Apparently, many Soviet bureaucrats were used by market players as 'prokladchiki m arshrutov (Maslennikov 2 0 0 0 ) or those who were clearing the paths into and through the old/new state agencies, apparatus of the government first and foremost. Basically, they played the role of a good telephone book: the length of their presence in the firm was dependent upon how thick the book was, according to a former top-level official of the Central Committee of the Communist Party (Grachev 2000) Now comes the problem of the security of the bureaucratic office. Given that uncertainty is embedded in transition, given that those reformers who chose the co-opting strategy with regard to bureaucrats may be replaced by others who decide otherwise, what should a bureaucrat do so that tomorrow his children will have a piece of bread and maybe a pat of butter as well?
My interviews with bureaucrats at different levels revealed the most negative emotional attitudes toward businesses. The often-characteristic terms they used to describe businesses were dirty and criminal. ^*Nikita Maslennikov, Aide to Prime Minister Victor Chernomyrdin, 1992-1998. Interview with Yevgenia Albats, Moscow, March 2000. Andrei Grachev, the former employee of the Central Committee o f the CPSU, and the last spokesperson for the President Mikhail Gorbachev. Interview with Yevgenia Albats. M oscow, August 2000.
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The ansv/er is: you make yourself useful, i.e., you maximize the utilities spealdng in rational-choice theory terms. Under the conditions of a Soviet-type regime, utility maximization took the form of control and distribution of resources. That economy of shortages (Koraai 1986)^^ created a peculiar type of market an administrative market, in which bureaucrats were trading their control rights over access and distribution of resources among themselves. Those who managed to gain a major share of control rights found themselves at the top of the Soviet hierarchy (Kordonski 2000),^^^ relatively immune from the law and repression, and financially and otherwise secure. Of course, in the conditions of the market, shortages no longer existed, and, thus, control over distribution of material resources was no longer an issue. It is wrong, however, to think that there was no longer something left to distribute: quotas for extracting and selling natural resources as well as access to monetary resources (i.e., hard money) replaced the material ones: after all, in countries coming out of administrative economies, there are very few resources for obtaining start-up and operating capital; basically, the choice is between foreign investments or state/budget money. Those bureaucrats who are capable of obtaining the greatest control over the distribution of these monetary resources achieve significant power and bargaining leverage tradable, both on the administrative and the real market, for power and for property rights.
Janos Komia, Contradictions and Dilemmas: Studies on the Socialist Economy and Society (Cambridge, MA; M IT Press, 1986). Simon Kordonskii, Rinki Vlasti: Administrativnye Rinki C C C R 1 Rossii (Authoritative Markets. Administrative Markets of the USSR and Russia) (Moscow: OGI, 2000). In the former USSR, the most powerful economic agency was Gosplan the state planning committee that assigned resources to industries and enterprises. In contemporary Russia, the Ministry of Finance took over the place of Gosplan and became the agency. The hierarchy o f agencies in the government is based on the respective amount o f budget money they have available for distribution and differs significantly from the official table o f ranks (Xachamada 2000).
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Success on the administrative market, however, as important as it is, provides only paitial security in the post-communist environment: it is like trying to sit on a stool with just one leg, since, unlike the situation under Soviet rule, there is another market outside the administrative one. The second leg of the stool comes from obtaining control rights over market agents in different forms. At least three such fo,rms can be identified. The first comes from the notion that bureaucrats represent public administration, which is paid for by the taxpayers, and, thus, that they defend the citizens interests against profit-seeking businesses. As a result, bureaucrats receive rights to regulate entry into the market field by using all sorts of permits (such as licenses, certifications, and so forth), which are supposed to keep bad business practices out of the market. There is a famous example of the Russian State Antimonopoly Committee created with the task of reducing the power of state monopolies, and, by so doing, to allow for small and medium-sized businesses to compete and thrive. The first thing the committee did was to compile a list of thousands of firms that were classified as monopolies: among them were a few dozen real national monopolies, but so were local bakeries, bathhouses, and other small shops (World Bank 1994). In order to get off the list, firms had to bribe local antimonopoly authorities. The second form of control derives from the nature of the state as an organization that has a monopoly over violence: the possibility of applying selective justice in ways that range from imposing new regulations, kontrolniye proverki (checking businesses against all sorts of regulations), all the way to putting businessmen in jail on imaginary or real grounds. This form allows bureaucrats to control the flexibility of operating in the market. For instance, a particular small adoption agency has to pay $10,000 yearly to a
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particular bureaucrat in the Ministry of Education (which regulates that type of business activity) just to avoid any probability of troubles from the side of the agency^*^. The third form usually involves the creation of a semi-government semibusiness organizations that are officially allowed to sell state services, like issuing permits or imposing regulations, and often arise as a result of the rhetoric about making the state bureaucracy more effective than it is. In Russia, for instance, it has the form of so-called GUP {gosydarstvenniye unitamiye predpriyatia i.e., enterprises that conduct commercial activities often in the sphere of bureaucratic control and regulations and in which the state is the sole proprietor), which is nothing more than the market face of the same bureaucratic agency that was created to legalize the commercialization of state services. There may be some derivatives of the three forms presented above. What is important, however, is that it all that boils down to one thing: bureaucrats obtain control rights over market agents by guarding the gates, i.e., entrance into the market and the flexibility of operating there. These control rights have a currency value and circulation on the administrative market and may serve as an instrument of buying protection of the high-tops by distribution of rents obtained through these control rights. The most important outcome of this type of control rights, however, is that they allow bureaucrats to regulate competition on the market. Using a system of all kinds of permits, bureaucrats help their clientele prevent the appearance of new businesses by imposing rents that are unbearably high for start-ups: for instance, the price of opening a
The owner of the M oscow-based adoption agency who spoke on the off-record basis. Interview with Yevgenia Albats, Moscow, July 1999
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small restaurant in Moscow in 1999 n/as from $15,000 to $20,000; a license to enter a telecominunication business may reach as much as $250,000 and requires permission from some 24 different bureaucratic officers. The importance of these control rights over the market field allows bureaucrats to convert them into quasi or residual property rights. By saying that, I have in mind the definition of residual property rights elaborated by Grossman and Hart in 1986. It is that, in certain types of contractual relationships between two parties, one party may find it far too costly to specify a long list of the particular rights it desires, and, therefore, it might be cheaper to purchase all rights except those specified (Grossman and Hart 1986).^^^ W hat this means is that bureaucrats might be unwilling to claim the full ownership of a firm since it comes with a price that they are unwilling to pay such as, for instance, leaving the office. Thus, by exercising control that ensures success in competition, and, hence, profits as well as survival of a firm, a bureaucrat obtains residual property rights that are derived from his right to control. Acquisition of these residual property rights provides for the second leg of the stool and ensures the security of the bureaucratic office. This way, a bureaucrat obtains a support base from the side of the market agents, and, thus, can hedge his future against the political uncertainty of transition. The peculiarity of this type of arrangement is that control and residual property rights are interdependent: bureaucrats can sustain residual property rights as long as they have control rights thus, they should do their best to
All numbers were obtained from real market agents who went through the process in full. For much more on that, see Chapter 7. Sanford Grossman and Oliver Hart, The Costs and Benefits of Ownership: A Theory o f Vertical and Lateral Integration, The Journal o f Political Economy 94, no. 4 (1986).
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preserve the bureaucratic office at any cost: without control rights, they lose residual property rights. Thus, any liberaiization of the economy after the market field comes into existence speaks against their interests. When, in the summer of 2000, German Gref, Minister of Economic Development and the chief reformer under President Vladimir Putin, made an attempt to reduce the amount of bureaucratic control rights, he faced firm opposition not only from colleagues in the cabinet of ministers, but also (as Joel Hellmann 1998 predicted) from big businesses who largely sponsored the anti-liberalization campaign in the State Duma (legislature): if executives were defending the rights to extract rents and preserve residual property rights, than the big businesses (known as oligarchs) were eager to prevent competitors from entering the market (Khakamada 2000). So, what impact does that type of bureaucratic arrangement have on transition? At least three important implications can be cited. First, it leads to growth of bureaucracy, which the nation in transition cannot really afford. If in the super-bureaucratic USSR, where nothing but the administrative market existed and where officeholders were responsible for almost 100% of all enterprises, there was one bureaucrat for every 75.6 citizens, then in Russia of 2000, where the state had control over only one-third of the nations enterprises (34% to be precise) and the welfare system had undergone a drastic reduction, that ratio became 1 to 49.6, i.e., the size of the bureaucracy relative to the population increased by 65%.
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Table 3.4: Russian State Administration (civilian and in uniform)
Year 1991 (USSR) 1992 (RF) 1993 1994 1995 1996 1997 1998 1999 2000 2001
Population 291,060,000 148, 689 000 148,520 000 148,336 000 148,141 000 147,600 000 147,100 000 146,700 000 146,300 000 145,600 000 145, 600 000
Bureaucrats 3, 851 600 2,682000 2,804 000
2,909 000
2,934 000 2,963 000
Source: Goskomstat, 2001 adjusted for data obtained in interview s and through m aterials not available fo r the general public
As one of my expert sources put it, it is not just the problem of great numbers and excessive government expenditure. It would be bearable if they (the bureaucrats) would just sit in their offices and do nothing. The main problem is that each of them want to do (i.e., to be engaged in all kinds of activities) and they do (Tepluchin 1999)^^^ Second, those bureaucratic arrangements prevent the fulfillment of the major goal of transition, which is liberalization of the economy from bureaucratic control and pressure. Three years into reforms in Russia, in 1994, bureaucrats had managed to obtain rights to control no less than 2,500 different spheres of business activities by issuing permits, licenses, certificates, and other paper regulations (Yasin 2000).^ Using as
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Source; Russia in the Changing World, Institute of Economic Analysis, 1997.
Pavel Tepluchin, CEO, Troika-Dialogue Brokerage, Interview with Yevgenia Albats, Moscow, November 1999. For the sake of comparison: in the counties of the European Union, the amount o f business activities under state regulation varies from 30 to 90 activities. Authorities in the EU certify that about 40% o f goods are under official control, whereas in Russia, the corresponding figure is 80%.
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many administrative resources as they could, employing the power of the top executive offices, both the president and the prime minister, reformers at some point (December of 1994) managed to pass a law reducing the number of permits allowed to be issued by bureaucrats by 80% to a total of some 495 licenses. It took just another three years for the bureaucrats to regain the status quo: by 1998, they already had rights to regulate more than 2,000 different business activities. The system got out of hand, said German Gref, Minister of Economic Development and the chief reformer under Putin, who made another attempt to reduce bureaucratic control rights and failed as much as his predecessors had (Gref 2002).^"^' The third implication of the bureaucratic arrangements, which evolved in the period of crystallization, is the impact they have on the perverse nature of the state that surfaced in Russian-type post-communist countries. Simply put, the administrative office becomes not just a safety net as it was under the communists, but an extremely costeffective business as well. Here is why. In the strict hierarchical command systems run by bureaucrats, the latter have a great deal of power, but a great deal of responsibility as well, if for no other reason than because of the absence of any other institutions (political parties, legislature, civil society) with whom to share that responsibility (and, of course, power). Their major responsibility was to keep the population calm and on base by providing it with the very basics: basic medical care, basic clothing, basic food. Failure to fulfill these responsibilities by lower-level bureaucrats was punished by those at higher levels (the party), who were saddled with both political and governmental obligations. Given that
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Vedomosti (27 July 2002).
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no compatible job market existed outside the administrative office, bureaucrats had to keep their personal aspirations modest. In the conditions of elected government and democratic institutions, it is the politicians, the elected officials, who bear all the responsibilities to their constituency via the competitive electoral process. Thus, in postcommunist societies, bureaucrats enjoy power without responsibility (Lopuchin 1999). Minimization of responsibilities, and, therefore, risks, on the part of the bureaucratic office makes the costs of running it as a business negligible. In order to run that business, bureaueratic entrepreneurs do not need start-up capital, credits, or loansthey use public money (state budget) and public goods as such.^^^ They do not need to rent office space, pay utilities, or incur costs for information, security, and so forth. All that and many other useful facilities come with the office. They do not have to pay taxes on their businesses activities since all of them are outside the legal sphere. The risks of being caught red-handed are greatly minimized by virtue of sharing the profits with bureaucrats from law enforcement agencies, as well as with the superiors who provide patronage. Here arises the question of what happens to a state in a country in transition, given that the state is the main agent of change? In essence, it is no longer a state, but a powerful multi-dimensional corporation driven by its own self-interest and one that uses attributes of the state (public goods, right to unpunished violence) as tools to fight competitors: public officers are effectively turned into private businesses.
Boris Nemtzov, the one-time deputy prime minister o f the federal government, claims that half of the yearly state budget is stolen by bureaucrats.
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As scholars of transition have often acknowledged, however, reforms in these countries come from the top and are conducted largely by the state. Alas, the state that turns into a conglomerate of self-interested businesses is unable to effect any change it is doomed to preserve, and fight for, the status quo,' which is being upheld by bureaucrats who have both control and residual property rights.
Reformers Co-opting strategy with regard to the old guards makes reformers hostages to bureaucrats. They are doomed to become involved in a vicious circle of endless concessions to them, whether it is about secretive and corrupted quasi-money gratuities, pork barrel deals, non-merit appointments, dirty tricks (the use of state-sponsored violence against competitors) or privatization of state services (Migdal 1988).
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If one does not use a stick, one has to use a carrot, right? In countries in transition mired in poverty and constantly begging for money, politicians have quite few resources to buy bureaucratic loyalty. Because of populist politics, they cannot give bureaucrats decent salaries. They also lack the opportunity to provide bureaucrats with a core task, or with a sense of mission (Wilson 1989)'^ ^, given that the mission is to undermine the power of bureaucratic office. Quite to the contrary, in order to succeed, they virtually have to operate in secrecy from their own subordinates (Croizier, 1964)
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and, at the
Joel Migdal, Strong Societies and Weak States: State-Society Rrelations and StateCapabilities in the Third World (Princeton, NJ: Princeton University Press, 1988). Migdal calls it the politics o f survival on the part of the state leaders, who are trapped between the necessity of building agencies as a mechanism to fulfill their objectives and the danger of getting caught by those agencies that are becoming more powerful than they are (p. 403). James Wilson, Bureaucracy: What Government Agencies Do and Why They Do It. Michel Croizier, The Bureaucratic Phenomenon (Chicago: The University o f Chicago Press, 1964).
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same time, provide them with some nice perks in exchange for a no-veto policy towards reforms. Thus, instead of finding ways to push bureaucrats out of the office, reformers create incentives for them to keep it at any cost. It sounds rather schizophrenic: refoimers whose agenda is to liberalize the countrys economic and political life from the power of bureaucrats are looking for ways to avoid bureaucratic resistance by satisfying their needs with the comfort and security of the office. It is no wonder, then, that quickly bureaucrats regain the kind of safety net they had under the Soviet regime in the form of state-sponsored medical care, discount food stores, vocational facilities, personal cars, and so on. The benefits of these arrangements are particularly noticeable at the managerial and executive levels of the federal and regional bureaucracy: the package translated into market prices is compatible with salaries in market firms. For example, special accommodations for the level of a deputy minister of the federal govemment are about the same as a CEOs salary in a middlelevel bank (Vasiliev 1998).'^* Under the conditions of a dying welfare state, however, even lesser benefits to lower-level bureaucrats look substantial. Thus, those arrangements in the form of quasi-money (even though initial salaries were quite small) make bureaucratic office a place worth being and staying in. Despite a desire to buy bureaucratic loyalty, however, reformers never can fully trust the old guards. As a result, reformers are trying to bring bureaucrats of their own
Sergei Vsailiev, Deputy Head of the Apparatus o f the Federal Govemment Govemment Staff, 19961998, Interview with Yevgenia Albats, Moscow, May 1998.
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persuasion to office or create parallel apparatuses,^"^' prompting clashes inside the executive branch and leading to further inefficiency and redundancy. However, the most important negative outcome of co-opting strategy is alienation of the reformers from their support base in the society. Literature on bureaucracy of all schools of thought, regardless of whether it sees bureaucrats as a cancer on the societal body (Heclo 1979),*"^ an evil that is preoccupied with its own agenda, i.e., power (Niskanen 1971), or, on the contrary, as a group of people who want to do their job and do it well (Wilson 1989) almost any book on bureaucracy acknowledges the rationale for and the danger of bureaucratic expansion and, thus, the vital necessity of establishing outside control over it. However, allowing for all kind of murky deals with bureaucrats in exchange for their loyalty reformers are doomed to close agencies from the outside view. Transparency and accountability the only means available to reformers to constrain bureaucratsbecome their own worst enemies: openness is to reveal not only bureaucrats dirty tricks, but the reformers concessions to them and deals with them as well. No wonder that Yegor Gaidar (1995) sadly had to acknowledge the reformers defeat in their war with the Soviet bureaucrats: The bureaucracy in Russia is again undergoing ossification. Our nomenclature remains in many respects what it used to be. Although it has grown and devoured the best democrats; after it assimilated them, it
Yegor Gaidar created Rabochii Center Economicheskich Reform (The Working Center o f Economic Reforms) precisely as an alternative apparatus o f the federal govemment. Hugh Heclo, Issue Networks and the Executive Branch, in The New American Political System, ed. Anthony King (Washington, DC: American Enterprise Institute, 1978): 87-124.
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returned to its old habits. Thus, bureaucracys stone ass is again outweighing democracys head. Consequently, reformers become pariahs, distrusted by bureaucrats and hated by the people on the street. They find themselves preoccupied with sur/ival in the office. Given that they do not have broad political support in the society, which sees them as a bunch of corrupt officials, they are looking for support that is traditional for bureaucrats among big businesses that manage to survive and prosper via their close connections with state agents. Such big businesses are interested in preserving the status quo for a simple reason: newcomers to the office (1) will bring clientele of their own and (2) will require new transactional costs. As a result, it is just cheaper to deal with the old executives. Thus, big businesses become the constituency for reformers. The 1996 presidential elections in Russia became a manifestation of these new arrangements between reformers and their new constituency, and stipulated the crystallization phase of transition. Incumbent president Boris Yeltsin defeated the major contesters of the new regime, the Communist Party and its leader Gennadii Zyuganov (McFaul 2001: 395).'^^ These elections were accompanied by privatization of the major state assets (in the sphere of natural resources first and foremost) among those few businesses that managed to establish clientele relationships with the key reformers/executives (that re-distribution of the state assets became known as the loansfor shares deal) (Freeland 2000: 181),'* which in turn led to the formation of powerful financial-bureaucratic clans, which, over the course of the next presidential cycle, became
Michael McFaul, Russia's Unfinished Revolution. Political Change from Gorbachev to Putin (New York; Cornell University, 2001).
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the major competitors on as well as the major gatekeepers of the decision-making sphere. Since then, reformers as independent actors on the Russian political scene have ceased to exist.
Society Society is the ultimate loser in countries in which leaders choose bureaucrats instead. It becomes an orphan that manages to find foster care for only a few months every four years during parliamentary and presidential elections. Small and medium sized businesses as a core of the societal team find themselves squeezed between the state and local bureaucrats on the one hand and state monopolies and big businesses, on the other. There are few options available to them: either to be consumed by the big sharks or to enter the sphere of the second economy with all the problems associated with operations outside the legal sphere. The result of the mountain of bureaucratic pressure is clear from the statistics: if, in 1993, the share of small businesses in the Russian GDP was 15.5%, in 2000, it was just 9.5%; if, in 1995, there were approximately 8.9 million people engaged in registered small and medium-sized businesses, five years later that number was down to about 6.6
million.^'*''"
Chrystia Freeland, Sale o f the Century. Russia's Wild Ride from Communism to Capitalism (New York; Crown Publishers, 2000). The Working Center of Economic Reforms o f the Government of the Russian Federation, Osnovnye Tendentcii Razvitia Malogo Predprinimatelstav v Rossii in 1996-2000 (The Major Trends of Developing Small Entrepreneurship in Russia in 1996-2000), Analytical Report, February 2001. For the sake of comparison: in the United States, 70.2 million people are engaged in small and medium sized businesses, which contribute 50-52% to the nations GDP.
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Whereas the number of small and middle-size businesses goes down, the size of the second(shadow, underground) Russian economy doesnt get any smaller than it was say in 1995. Empirical data provided by the Sociological Center of the State Academy of the State Service suggests that as much as $ 14.5 billion circulates outside the legal realm in just one sector of. economy, i.e., remodeling apartments and houses, and $7.7 billion is circulated in the underground market of construction building and etc.^^ Overall, the share of the second economy as of 2001 was estimated as roughly 42% of the GDP. As far as such businesses are forced to operate outside the legal sphere, they are unable to produce consumers of democratic politics either. Paraphrasing Przeworski, it is not just that there are games in town other than democracy; it is that there are too few who are interested in that game. Subversion of democratic policies leads to even more powerful bureaucratic ones instead.
A ct III The last phase of transition, which we may call consolidation, is in the making right now. In the countries that exercised the fea r factor strategy, it is consolidation of democratic policy. Analysis shows that those countries that exercised the fe a r factor strategy in the most consistent way, such as the Czech Republic, Estonia, and East
Tatyana Koshkareva and Rustam Narzikulov, 2001. Oni delaut vid chto upravlyaut nami, a mi delaem vid chto ich uvazhaem (They pretend as if they run us, but we pretend as if we respect them), Nezavisimaya Gazeta, # 131,20 July 2001. Alexander Chepurenko, President, National Institute o f Systemic Research o f Entrepreneurships Problems. See, Problems o f Small Businesses. Round-table Discussion, Liberal M ission Fund. Available from http://www.liberal.ru/sitan.asp ?Num=396.
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Germany, extricated themselves from prolonged political and economic shake-ups, whereas others, for instance Poland and Hungary, which adopted the law on lustration only during the second phase of transition (in 1997), the new democracy has been shaken not just once, prompting the return to power of the post-conimunist parties and .of historically compromised persons, which, in turn, furnished the populist, nationalist right (Ash 2002). On contrary, in countries, which like Russia and other nations of the CIS rejected the fe a r factor strategy, de.mocracy evolved in what some scholars of transitional politics call competitive authoritarianism (Darden, Levitsky, Snyder, Way, 2002),
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i.e., such type of regime in which electoral institutions do exist, elections are regular and competitive, but regime fail to meet standard procedural minimum criteria for democracy in such fields like civil liberties, or freedom of press, and where legislative and judicial branches are subordinate to the executive (Levitsky and W ay 2001).^*^ In Russia, the period of consolidation was launched with the institution of the new president, Vladimir Putin, in the spring of 2000. This came as a result of the early resignation (i.e., December 31, 1999) of President Boris Yeltsin, who had proclaimed Putin as his heir.
1 R7
The heir, a former
KGB operative and a long-time career bureaucrat had never run for elective office before,
Keith Darden, Steven Levitsky, Richard Snyder and Lucan Way, Non-Democratic Regimes and Trajectories After the Cold War. Un-published paper presented at the conference at Harvard University, 10 May 2002. Steven Levitsky and Lucan Way, Competitive Authoritarianism: Hybrid Regime Change in Peru and Ukraine in Comparative Perspective, Annual Meetings o f the American Political Science Association, San Fransisco, CA (30 August - 2 September 2001). Since August 1999, Putin had served as the prime minister. In accordance with the 1993 Constitution, the prime minister becomes acting president if the elected president resigns or is unable to fulfill his duties for some reason. (Constitution o f the Russian Federation, Article 92).
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and his only encounter with democratic politics had been rather unsuccessful. Putin served as the chief coordinator of the failed election campaign of the incumbent mayor of St. Petersburg Anatolii Sobchak in 1996. After Sobchak lost, Putin, his long-time deputy, moved to the capital to assume responsibilities in the administration of the president of the Russian Federation. In March 2000, Putin was elected as the president of the Russian Federation. Bureaucrats in epaulets, i.e., employees of the FSB (successor to the KGB), widely celebrated that victory as their own: We are back in power was the notion of that celebration (Kabaladze 2000).^^* Just to recap: the KGB was the initiator of the failed August 1991 coup, which aimed to topple Mikhail Gorbachev and to reverse perestroika. KGB officers with a few exceptions were among those former Soviet nomenklatura bureaucrats, who found themselves on the losing side as a result of the reforms. By 2003, about 6,000 former KGB bureaucrats trained in the duties of intelligence at best and in the duties of the Soviet political police at worst found themselves in the top jobs in the executive branch nationwide (Kryshtanovskaya 2003).'^^ They were also assigned authority in cash businesses, such as in the production of weapons and vodka; Russian state has exclusive rights in the trade of both types of products domestically and internationally. In addition to finding themselves positions in weapons and vodka production, former KGB bureaucrats and their associates became the top managers of key state-owned companies, such as the gas monopoly Gazprom and the
*** General Yurii Kabaladze, a former top-ranking intelligence officer. Interview with Yevgenia Albats, Moscow, March 2000. Olga Kryshtanovskaya, the head of the Directorate off o f Study Elites of the Moscow-based academic think-tank Institute o f Sociology, Moskovskii Novosti, #26, 2003.
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state-owned oil company Rosneft. (The latter was created in 1993 specifically to provide for the expenses of the administration of the president as was spelled in the official document requesting a share of oil quotas for the company). W hether bureaucrats are in epaulets or without them, they face one and the same question, it is the security of their residual property rights. Residual property rights have serious flaws imbedded in their very nature: they are residual, not full, property rights, and they cannot be inherited. Of course, some bureaucrats get away by creating companies and offshore accounts that have names of their wives and offspring under the title.^^^ Still, for the majority of the office holders it is not a feasible option. Another way to ensure their property rights is to guarantee the status-quo of the top-executive: i.e., to make election process controllable and predictable. Thus, the next step for bureaucrats is to regain control over politics. This is just part of the problem, however. Another part comes from the fact that even under conditions of competitive authoritarianism, there existed interests capable to challenge bureaucratic desire to have monopole control over politics. Those interests represented bye bureaucracys allies during the previous phases of transition, i.e., big businesses. Thus, we can predict that the next phase of bureaucratic politics will involve yet another round of redistribution of property, and formation of new bureaucratic alliances.
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Yevgenia Albats, Oil for the President, Izvestia, March 1995.
There are several examples of such deals. For instance, Elena Baturina, the wife o f the M oscow mayor, Yuri Luzhkov, controls the plastic goods market in Moscow, and is one o f the major players on the market of construction of subsidized municipal buildings. Yevgenia Albats, Teni Vokrug Luzhkova (Shadow Figures Surrounding Luzhkov), Novaya Gazeta (6 October 1997).
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W hatever future is the cards, one thing is clear: a fair game between the state and societal team is not going to be played any time soon in Russia. Not in my lifetime.
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C h ap ter 4; The Case
The empirical research for my study was conducted in the Russian Federation between autumn of 1996 and summer of 2001. The main subjects of the research were bureaucrats of the Russian federal govemment (state administration), predominantly, but not limited to, the apparatus of the federal govemment, as well as several key agencies located in Moscow, the capita! and the nations center of political and economic activities. The research covered the development of the new state administration from the onset of reforms in November 1991 until the end of the second term of Russias first president, Boris Yeltsin, and the election of his successor, Vladimir Putin, in the spring of 2000. I got lucky. I saw the subjects of m y investigation under different circumstances and in different political environments; during the national, regional and local elections; in times of war and peace; during the period of financial stabilization and financial collapse in times of growing optimism; and in downfall and despair. I had a chance to closely watch Russias top, mid- and street-level bureaucrats under six heads of the federal govemment, seven different cabinets, and through as many as nine reorganizations of the central bureaucratic agencies. The research consisted of four principal components. The first one was aimed at bureaucrats as individuals, with the purpose of understanding their beliefs and incentives, why they choose to work in public administration as opposed to the private sector, what they see as their core task, and how do they view the market live and unfolding outside their offices. For this part, I conducted individual in-depth interviews with 23 top-level bureaucrats, whom, following Terry Moe, political scientists known for his writings in the field of the bureaucratic
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theory, I would describe as E xe cu tives, i.e., b u re a u c ra ts w h o se j o b is to co o rd in a te

b u r e a u c r a tic o r g a n iz a tio n s a n d w h o se p o s itio n s in vo lve risks. These officials had ranks
starting from the head of a directorate of the apparatus of the federal govemment (which, in unofficial bureaucratic hierarchy, equals the rank of federal minister with exception of those heads of agencies who had personal access to the president) and all the way to the rank of deputy to the prime minister. Each interview consisted of two parts. The first included questions tailored to each individual, but with respect to my independent variables, such as status, rank, compensation, possibility of losing their job and opportunities for promotion, risks involved, and opportunities and agendas outside of the office. The second part was a multiple choice questionnaire designed to obtain definite answers with regard to my independent variables so that it would be possible to compare them to the formal questionnaires of the mid- and low-level bureaucrats. Another 47 bureaucrat interviewees represented mid-level central bureaucracy from the heads of departments (otdel) to the heads of directorates (upravleniye} of respected ministries. They can be called M a n a g e rs, i.e., those who make d e c isio n s at
r e s p e c te d le v e ls o f the h ie r a r c h y (Moe 1984). These bureaucrats were predominantly
employees of six different agencies of the federal state administration (the Ministry of Economy and Trade, the Ministry of Labor, the Ministry of Health. Ministry of Finances, Goskomstat, and the apparatus of the federal govemment). These interviews were conducted in cooperation with two professional sociologists from the High School (University) of Economy, who were working on their own project funded by the Moscow office of USAID. Our collaboration allowed me to
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participate in the preparation of an open-ended questionnaire that accommodated questions with respect to my independent variables. All interviews were taped. The third group of bureaucrats chosen for the survey included low-ievel employees of the same agencies as the ones in the second group. Following one of the founding fathers of the contemporary bureaucratic theory, Herbert Simon, I call them Overatives, i.e., persons at the lowest level o f the administrative hierarchy (Simon 1947: 2). This group (595 in all) was surveyed through a multiple-choice questionnaire. Thus, a total of 665 bureaucrats at three major levels of the hierarchy were interviewed for the current study. Plus, personal data for some 41 other bureaucrats of executive and managerial levels was used for the analysis. Now, why did I choose the central bureaucracy as opposed to a regional one? The USSR was a highly centralized state, with resources and decision-making concentrated in the capital. Despite the many changes in Russia since the Soviet Union ceased to exist, the nature of the center-periphery relationship has not changed much. Out of the eighty-nine regions that comprise the Russian Federation, seventy-six receive checks from the federal govemment; they just cannot survive otherwise. As the popular saying goes, the one who pays pipes calls the tune. In other words, the bureaucrats of the central apparatus set up the tune at large for the rest of the nations bureaucracy. I recall a talk I once had with a reform-minded Russian provincial governor who had tried to create his own apparatus using new people, but had to give up in favor of the old Soviet types. Why? Old bureaucrats, he explained, knew the ways and means of dealing with the apparatus of the federal government and the presidential administration that was staffed with former USSR bureaucrats (as of 1997, old-timers comprised 75% of all
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bureaucrats in the central bureaucratic bodies). Thus, those old apparatchiki knew how to work the bureaucracy in Moscow and how to get around the gatekeepersthose who guarded and ruled access to the decision-making officers and procedures (Nemtzov 1996). Thus, it seems only reasonable given very few studies on the Russian bureaucracy existed to dateto start with those bureaucrats who set the tune. Chapter 5, Turning Public Office Into Private Business outlines the results of the survey conducted, describes the incentives of bureaucrats on various levels of authority and explains why the Russian public administration is neither public, nor administration, but rather a conglomeration of bureaucratic businesses run out of federal agencies. The second part of the research had to do with the in depth study of the ways and means by which the Russian federal bureaucracy is set up and operates. The goal here was to figure out the informal rules and norms that existed behind the closed doors of the governmental buildings, bureaucratic language, and the techniques and tricks that constitute the institutional culture of the Russias federal state administration, as well as to what extent bureaucratic incentives and the institutional culture shape and affect each other. For this, I interview five prime ministers of the federal govemment, three chiefs of the Presidential administration, three chairmen of the central bank, ten former members of the cabinet, another dozen of their deputies and personal advisors, five out of the eight Russian key business people known as oligarchs, and dozens of representatives of small and medium-sized businesses. Chapter 6, Rules o f the Game, outlines the finding of that part of the research, and explains that the reasons for non-transparency, non-accountability and inefficiency in the state administration are embedded in its design. The chapter explains that the way the
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system is set up and operates makes its prone to comjption: newcomers even those with noble intentions must either comply with the established rules or leave the administration. The third stage of the research was perfornied in my capacity as a Russian investigative journalist. I conducted numerous investigations in two major fields: bureaucratic corruption (looting the public goods) and bureaucratic regulations imposed on businesses. The first set of investigations was aimed at figuring out the value of the control rights that bureaucrats have or may have and the way rents are distributed along hierarchical lines. The study of the story of developing the system of regulatory executive orders (in the form of licensing, certification, permits, check-ups and so forth) was crucial in understanding: (1) the nature of the pacts that existed between the reformers (the politicians) and the bureaucrats; (2) the efficiency and limits of converting control rights into residual property rights; and (3) the impact these practices have had on creating (or rather more accurately, obliterating) consumers of democratic politics, i.e., small and medium-sized businesses. Chapter 7, The Shakedown State, describes bureaucrats in action. It describes the ways and means by which bureaucrats can and didregain partial control over the market field, and in doing so affected the development of the reform process and ensured the subversion of the democratic politics. The fourth part of my research had to do with an extensive archival search aimed at uncovering incentives and preferences of Soviet bureaucrats prior to beginning of the reforms. The major question that I was eager to answer by digging through the archives was whether or not, as theory predicted would be the case, Soviet bureaucrats were a
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priori resistant to the economic and political liberalization of Russia. Archives revealed extensive involvement of the Soviet bureaucrats in looting the USSRs financial resources and de facto privatization of the public property prior to beginning of the reforms. Some of findings are presented in Chapter 7, but the major part of that research was left outside the thesis, but served as important background for the theoretical model, presented in Chapter 3.
Why Russia? As much as bureaucratic politics and incentives serve as a predictor for the respective politics and incentives in the regions, the same is true with regard to Russia as a country and the eleven other former Soviet republics. I believe, a study of bureaucrats, choice of politics with regard to them, and their impact on outcomes of transition based on the case of Russia bears external validity and may serve as a predictor for the course of development in other CIS countries. I do not want to pretend, however, that it was only academic considerations that prompted me to study Russian bureaucrats. O f course, everything else was and is the driving force behind the study. I am a citizen of the Russian Federation, my daughter was bom in Moscow, my family resides there, and my child, although fluent in English, believes that there is no place better to grow old than Russia. Almost two decades ago, when it was still the Soviet Union and I was, as I am now, an investigative journalist, I embarked on an investigation of the KGB, the U SSRs political police responsible for murdering, torturing, and harassing millions and millions of my fellow citizens. Spy stories have never been a particular interest of mine; rather, I
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have been trying to understand how and v/hy bureaucrats in different incarnations, in epaulets or without them, have had such a profound say over the way we live and die. Fifteen years ago, when I gave birth to my daughter and brought her back home from the maternity house, I got a call from a KGB man who was under my investigation then; Dont forget, he said, that you are no longer just a reporter you are now a mother as well. I would rather not describe the nightmares I have had ever since. For one thing, however, I am grateful to those perverted minds: they have created a clear-cut purpose for my journalistic as well for my academic crusade. I study Russian bureaucrats because the future of my child in that country, her chance for survival and pursuit o f happiness, at large depends upon the choice of politics with regard to them. I was lucky: I saw the new cycle of Russias development from the crash of the Soviet regime back in 1991 to the reinstitution of the bureaucratic state in its new form in early 2000. The future that lies ahead is by no means bright. The decade of freedom, however, was not in vain: there are many more people than before who have developed a taste for freedomconsumers of democratic politics are bom and will soon be numerous enough to prompt another try. I believe there is no better service to the country to which I am attached, both intellectually and emotionally, by chance of birth and by choice of allegiance, than to try to understand what went wrong, why democracy failed to survive in Russia, why did we lose, and what mistakes should those who are to come after us try to avoid.
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Chapter 5: Turning Public Office into Private Businesses
A n y r e fo rm is h a rm fu l b y d efin itio n . W h a t d o e s a re fo rm c o n sist of? A reform consists o f two acts: 1) the a b o litio n o f th e old, a n d 2) its re p la c e m e n t b y s o m e th in g new . W h ic h o f th e se a c ts is h a rm fu l? B o th e q u a lly s o . ..
High-level Moscow bureaucrat in Alexander Ostrovskiys 1877 play The Diary o f Scoundrel
We were sitting in her small, dark office, packed with papers and folders labeled with names and years in Cyrillic letters, and were talking logistics: what are the considerations by which she, Irina Yakovlevna Shongina, the head of the Personnel Department in this administration, has been hiring people to work for the newly re elected democratic governor, who several years ago replaced her previous boss, the First Secretary of the regional party committee. At first she treated me like an American spy who was trying to extract from her the most important secrets of her land (I was innocent of the former, but not the latter). I wanted to know about the questionnaire (the infamous soviet anketa) that she asks newly-hired bureaucrats to fill out. I wanted to learn if those questionnaires had changed since Soviet times and, if so, what was different. Judging by the names she juggled while dwelling on the memories of the past (That was when Brezhnev cam e... that order is from Chem enkos time) I could tell that she was already in, or at least close to, retirement. She wore no makeup, just some cheap lipstick that she obviously put on without the aid of a mirror. Her hair had not been touched by a decent hairdresser in years, and had been colored a mix of plum and grey by one of those mysterious and cheap coloring mixes. She was a classic example of the paper worm so often described in literature a chinovnik whose life had been lived there in that office.
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and if there had ever been love in her life (she had mentioned that she never married) then that was the office as well. Our conversation was running into the second hour and still I had no success whatsoever with my research. I was about to get up and say thank you, but no more, thank you, when suddenly she brought her face close to mine and lowered her voice as if preparing to make a confession. And she did; When I see a mistake done up there, she said, pointing her finger upwards, to indicate the offices of the superiors in Moscow, I get truly high.
192
She explained that this was because after finding a mistake in a
document (an executive order, regulation, outline of a new bureaucratic procedure) she gets to spend the next couple of months engaged in correspondence with respectable officers in the federal government until the wording of the document is changed. When the error is corrected, she said that she feels high again. I believed her. Though I could not personally relate to her feelings, I think, I understood nevertheless what she meant. What I could not comprehend, neither then nor now, is: how can she, Irina Yakovlevna Shogina, who came to work for that office three or so decades ago as the most nondescript clerk in the office (the earliest official record I could find of her was in the telephone book of the regional party committee dated August 1981), and then rose through the ranks to the head of the department, be in charge of hiring personnel for an administration engaged in conducting liberal reforms? Regardless of where we work, do we not acquire experience, skills, tools and tricks over the years that we continue to use until someone teaches us new things? Given that she made a career in that office, she was obviously a good Soviet chinovnik. However, was her experience really valuable to a
The Head of the Directorate of Personnel, administration o f the then-govemor o f Nizhniy Novgorod, Boris Nemtzov. Interview with Yevgenia Albats, Nizhniy Novgorod, August 1996.
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nation trying to depart from the past she represents? Were the skills and tricks she learned over the decades compatible with the new political and economic reality? Or was the myriad of skills and tricks practiced by the hundreds of thousands of former Soviet bureaucrats nationwide the main obstacle to the successful progress of reform? In the following chapters, I will argue that chinovniki like Irina Yakovlevna Shogina would have done a service to the nation if they had retired with the old regime. I will prove that bureaucrats of the current Russian state administration are the problem, that they work and behave by rales and manners that are incompatible with the ideas and goals of liberal politics, and that they are the main obstacle to the transition from the communist past. I will explore and explain who are the bureaucrats who fill the corridors of the federal administration; why these bureaucrats are attached to the office; why employment in the state administration, with its many constraints, holds such a powerful attraction for so many? The answers top those and other questions are drawn from seventy in-depth, oneon-one interviews, at large conducted between 1998 and 2001, with bureaucrats of executive^^^ and m a n a g e ria lle v e ls , as well as from questionnaires given to some 595
I classify executives as bureaucrats whose jo b is to coordinate bureaucratic organizations and whose positions involve risks. These officials have ranks starting rank from the head o f a directorate heads o f the apparatus o f the federal government all the way to the deputy prime minister. The total number of interviews conducted at the executive level is close to 50. However, I posed a controlled and uniform set of questions in only 23 o f these interviews. I classify managers as bureaucrats who make decisions at a respected level of the hierarchy. In my sample, they represent mid-level central Russian bureaucracy from the heads of departments (otdel) to the heads of directorates (upravleniye) of respected ministries. I conducted 41 out o f total o f 47 personal interviews (in addition to questionnaires) in cooperation with Pavel Kudukin and Olga Kirichenko, sociologists at the Moscow-based Expert Fund o f Labor Research Elf, which also did a separate study under a grant from USAID.
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lower-level officials ( o p e r a t i v e s ) i n the seven agencies of the central administration. These include the Apparatus of the Federal Govemment, Ministry of Economic Development and Trade, Ministry of Health, Ministry of Education, Ministry of Labor, Ministry of Finance, and Goskomstat (the state statistical a g e n c y ) . I n addition, for the purpose of demographic precision, personal data for another forty-one bureaucrats'^^ of the executive level (predominantly from the Apparatus of the Federal Govemment) was also analyzed.
I classify operatives as bureaucrats at the lowest level o f the administrative hierarchy {ne nachalniki, e.g. not bosses). The choice o f interviewees with executives can hardly be considered random as it was based on chance and access. It was, however, a decent mix of different bureaucrats with more or less different backgrounds and different political views. Interviewees for the group of managerial-level bureaucrats were randomly selected through personnel lists of each ministry: every fourth name was chosen. In several instances, those selected in this way refused to participate in the survey. They were replaced by the next one on the list or by someone who agreed to talk with the interviewers. Low-level bureaucrats, or operatives, were surveyed through a multiple-choice questionnaire {anketa) by sociologists and their students. Interviewees were asked questions from the questionnaire in person, verbally, without seeing the next question on the page. Agencies were chosen both on the basis of access as well as with regard to variety in status and resources available for distribution. The Ministry o f Economy at the time o f the interviews (spring 2001), for example, did not have too many resources or utilities for distribution, but has had a huge amount of administrative capital via the close personal relationship of its chief executive. Minister German Gref, with Russian President Vladimir Putin. Among other things, this meant that the head o f the agency had more possibilities to allocate resources to his own priorities and intervene into the economy.The Ministry of Health and the Ministry of Labor, on contrary, had high public profiles, but both distribute a lot o f public goods, and, hence, have bigger rents to extract. Thus, in the unofficial table o f ranks o f the federal agencies, the Ministry of Health, for instance, has more value than the Ministry of Economy and Trade, which is responsible for issues o f economic strategy and reforms. The same is true for the Ministry of Labor, whose officials have the power to shut down any office or business on the basis of a bad working environment, such as allocating fewer square meters of space per person than is prescribed in the Labor Code, or as another example the absence of the certification o f a physical exam for chosen employees. (In subsequent chapters, I will try to contrast the weight/rents-base hierarchy o f agencies as compared to the official one.) These forty-one bureaucrats were not interviewed. Rather the data in their personnel files, collected by the personnel directorates of their respective agencies, were obtained via unofficial means and analyzed.
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Introduction to the World o f Russian Bureaucrats I should acknowledge that my research brought quite a few surprises from the onset. For one, it revealed that Russian bureaucrats are preoccupied with some incentives familiar to their western counterparts such as stability (at the managerial and operative levels), security, and prestige of state service which they value over better pay in the commercial sector (Clark and W i l s o n ) . A s in stable democracies (Peters 2001), they are well educated; a large majority has completed higher education, and those in the upper-echelons of administration often have advanced d e g r e e s . I n terms of ethnic^*^^ and gender representation, Russian bureaucrats are not much different from most European administrations (Peters 2001): the bureaucracies reflect the general population
P. Peter Clark and James W ilson, Incentive Systems: A Theory of Organizations, Administrative Science Quarterly 6 (1962). ^ In the current research, not all the officials questioned were asked precise questions about their education. Thus, I refer here to research conducted by the Administration of the President o f the Russian Federation which surveyed the personal data o f the employees of the central administration. This data suggests that 75.7% officials have had higher education, and another 6.8% have advanced degrees. These findings were presented in Analitrichiskaya Zapiska po rezultatam anketnogo obsledovaniya federalnich organov ispolnitelnoy vlasti sub ektov Rossiskoy Federatcii, provedennogo v ramkach Komissii po podgotovke proeta Programmi gosudarstvennogo stroitelstava v Rossiyskoy Federatcii (Analytical report on the results of the questionnaire of the federal agencies of the executive branch and agencies of the executive branch of the subjects of the Russian Federation, conducted in the framework of the Commission on preparation o f the draft of the Program of the state building in Russian Federation), Part 1, Administration of the President o f the Russian Federation, Situation Center of the President o f the Russian Federation, Moscow, 1998. Olga Kryshtanovskaya, the head of the Directorate off of Study Elites o f the Moscov/-based academic think-tank Institute o f Sociology estimated that as many as 52.2% of bureaucrats had advanced degrees in 1993, whereas in 2003, only 21% claimed to have advanced degrees. Moskovskii Novosti, #26, 2003. There is no data pertaining to ethnic representation across the central public administration. However, demographic data for the executives support the conclusion that 97.6% of all bureaucrats are ethnic Russians. Also, given that in the Soviet times there existed strict restrictions on minority representation in the central bureaucracy (whereas in the ethnic republics the situation was often the reverse), and given that the Russian central administration is heir of to the Soviet and RSFSR bureaucracy, the conclusion is likely than not is true. After the USSR collapsed, there was influx o f minorities, (Jews first and foremost), into the top ranks o f executives o f the federal administration. However, by 1999, the absolute majority of them were no longer in the administration. In the Soviet times, the usual quota for lew s in all institutions o f the Soviet Union was about 3%.
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(Slavic), and tend to employ women at lower-level positions whereas men occupy the vast majority of high-levelpositions (Table 5.1).
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Table 5.1: Gender R epresentation among bureaucrats surveyed (percentage)

Male Female 1.6 40.4 68.2
Executives'*^
M anagers O peratives
98.4 59.6 31.8
S o u rce : Y e v g e n ia A lb a ts, P a v e l K u d u kin , O lg a K iric h en ko , 2 0 0 1
There is no way, however, to clearly define the socio-economic backgrounds of the Russian administrators, the way scholars acknowledge them with regard to western bureaucrats who are predominantly of the middle class (Peters 2001). Apart from a few representatives from the intelligentsia economists from universities and think tanks at the executive level who are leftovers from the first post-Soviet govemment (Gaidars govemment), the absolute majority of bureaucrats surveyed rose through the Soviet bureaucracy (Table 5.2).
Combined data for executives that were personally interviewed and for those whose personal data was analyzed.
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Table 5.2: B ackground of bureaucrats surveyed (percentage)

USSR Communist party and state structures 53.1 76.6 Academia, Research think-tanks Army, KGB^ State Duma Business"**"* Other
E x e c u tiv e s*
34.4 10.6 No data
7.8 No data
3.1 No data
0 6.3 No data
1.6 6.3 No data
Managers
Operatives^*** 41.6
Source: 'evgenia Albats, Pavel Kudukin, Olga Kirichenko, 2001
This was also evident from an analysis of a larger data the bureaucratic makeup of the directorates of the Apparatus of the federal govemment (Table 5.3). Key positions in state administration, including those in what is considered to be the creme-de-la-creme of the Russian bureaucracy, the Apparatus of the federal govemment, are occupied by people in their late forties and fifties; e.g., by people whose views, incentives, motivations and experience were formed under the old regime, and who are more likely
Olga Krishtanovskaya, Moskovskii Novosti,#26, July, 2003; Echo Moskvy, 3 September 2003; Since Vladimir Putin became President o f Russia in March of 2000, thousands o f the former KGB servicemen have entered the top echelons o f the Russian bureaucracy. According to Olga Kryshtanovskaya, who has been studying elites since Soviet times, the infusion of bureaucrats in epaulets into the executive branch is unprecedented. Her study suggests that among top executives 50% are people in epaulets, compared to 4.5% in the USSR; in the apparatus of the govemment, former KGB operatives account for 33% (in 1988, 5%); in legislature (both in the upper and the lower chamber 25%). In the Ministry o f Economy and Trade alone, four deputies to Minister German G ref are from the FSB, the successor to the KGB. Olga Kryshtanovskaya insists that 11.3% of bureaucrats at the top level represent specific business companies; Ibid. ^ Combined data o f those interviewed (23) and those whose data was analyzed (41). In the questionnaire. Operatives were asked about the time they spent in the state agencies. 41.6% had spent from eleven to twenty-five years in the state service while another 19.5% had served from six to ten years. Unfortunately, there was no opportunity for more detailed questions regarding their backgrounds.
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than not-by virtue of being at the end of their carriers to have an interest in preserving the status-quo rather than arguing for necessary refo,mis.
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T able 5.3: Apparatus of the government of the Russian Federation 207

Directorate Number of employees^* Average Age Average years in the state/public administration 19.3 Average years In the Communist Party and State structures
Reform of Industry & Conversion (consisted o f 8 sections^) Organizational & Social Supply of the Government^* (5 sections) Finances Economy Main Military Expert Property & Natural monopolies (4 sections) Social Security (4 sections) Personal (5 sections) Administrative^* (6 sections) Science & High Tech (3 sections) Judiciary (4 sections) Govemment Archive (3 sections) Data as o f April 1998.
60
53.3
13.3
22
48.4
18.8
12.2
33 25 8 16
No data No data No data 44.4
30 33 61 24
48.0 50.0 50.0 52.4
15.3 21.2 20 14.8
9.3 15.2 14 8.8
30 19
52.5 43.6
24.3 18.3
18.3 12.3
Only so-called otvetstvenniye rabotniki (those responsible for the essential tasks o f the agency); support personnel such as secretaries are exluced. Otdel is a section o f a directorate. Sometimes, otdel can be divided into podotdel an even smaller part. Directorate in charge o f maintenance affairs o f the govemment. Another example o f institutional redundancy: Administrative Directorate of the federal govemment is meant to coordinate law enforcement, secret service and military agencies, which in turn are under the oversight not of the government, but o f the president and his administration, which in turn has a similar directorate.
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Protocol (2 sections) Culture& Information (8 sections) Socio-economic development of Chechnya (3 sections) Cooperation with regions o f the RF (7 sections) Reform^^^ of House and Communal Sector, Construction, and Industrial infrastructure (5 sections) Coordination with the State Duma and Public organizations (4 sections) R eform o f the Agrarian Industry & environm ental protection (5 sections) Cooperation w ith the CIS^^ (3 sections) Record K eeping (6 sections)^*^ International Cooperation (7 sections)
8 45
40.6^*^ 43.4
11.3 9.4
5.6 3.8
15
49.7
16.5
10.5
57
No data
No data
No data
33
54.0
18.5
12.5
25
45.9
24.6
18.6
47
53.8
20.7
14.7
19
50
20.0
14.3
125 87
47 50.0
18.9 17.9
12.8 11.8
The protocol directorate was formed in 1997 and consisted of two sections; one was comprised of young people, with an average age of 31.2; the second one, was comprised of employees whose average age was 50. This directorate is the only one that had such a distinct age difference between employees. As of 2003, the long-promised reform o f the ZhKaXa zhilishno-komunalnogo xozyistva (housing and communal affairs) had not yet begun. Nevertheless, a directorate (founded in September 1991) with some 33 responcible exists. CIS - Commonwealth o f Independent States, i.e., former Soviet republics minus the Baltic States. This is the biggest directorate in the Apparatus of the federal government. The total number of employees as of 1998 was 246 o f which 125 were considered essential personnel.
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O td el o f E con om ic A nalysis O td el o f Supply for the activities o f C om m ission o f the G ovem m en t on operative questions O td el o f Supply for the activities o f the Presidential R epresentative in Northern O setia and Ingushetia O td el o f Supply for the activities o f the Expert Council 22 D irectorates & 4 O td el
N o data
N o data
N o data
N o data
N o data
N o data
N o data
N o data
N o data
N o data
N o data
N o data
7812 j6
48.7'"^"
18.0
12.0
S o u rc e : P a ssp o rts (F iles) o f the D ire cto ra tess o f the A p p a ra tu s o f the F ed era l G o vem m en t o f the R F (d a ta o b ta in e d unofficially, bu t co p ies o f origin als can be req u e ste d fr o m the author)
There were 1,258 employees in the directorates and special otdel, including 134 employees of the secretariats of the prime minister, deputies to PM, as well as the secretariats o f the Chief of Staff and his 9 deputies. Average for eighteen directorates.
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Table 5.4 B reakdow n by age of bureaucrats surveyed (percentage)

>30 Executives"**** Managers Operatives 0 0 20.8 30-39 7,8 19.2 13.1 40-49 35.9 48.9 30.1 50-60 45.3 31.9 32.8 <60 10.9 0 3.2
S o u rc e : Y e v g e n ia A lb a ts, P a v e l K u d u kin , O lg a K iric h e n k o
Demographic data from my survey corresponds to the results of research conducted via non-individual questionnaire^*^ by the Administration of the President of RF in 1997 in fifty-one federal agencies. (The results of this research, which were outlined in the analytical report, have never been published; as indicative of the nontransparency of govemment, parts of it were classified.) This data indicates, for instance, that almost half of all federal employees (49.7%) have had some experience in Soviet bureaucratic stmctures, and more than a third (36.7%) have substantial at least eight years experience. At the time the study was conducted (1997), employees of the federal agencies who were over 40 years old amounted to 70%. Middle and top-level positions were evenly divided between those between 40 and 50 years old, 50 and 60, and those over 60. Bureaucrats who were over the age of 60 comprised 7.8%. Based on this research, then-President Boris Yeltsins advisors singled out aging of the Russian bureaucracy, at the managerial level first and foremost, as the problem. This research also illustrated the feminine character of the Russian bureaucracy (55.3% of women as
Combined data o f those interviewed (23) and those whose data was analyzed (41). A questionnaire that was directed to the agencies containing requests for personal data.
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opposed to 44.7% male) with the majority of worneii serving at lower levels of the federal agencies, and the majority of men dominating the managerial and executive levels. However, there were surprises of another sort as well. There is a strong perception in both the Russian and western press, as well as among some experts (World Bank 2000) that Russian bureaucrats are overworked and underpaid. The basis of such claims is dubious, considering that executive-level salaries are unpublished and regarded as secret. Also, these positions carry benefits (blaga) that at least have some value, but are never calculated as part of employee compensation. My research revealed that the poverty of Russian bureaucratsof the executive and managerial level, first and foremost is an exaggeration at best, made possible by the lack of transparency of the nations state institutions. Given their constant complaints about their low salaries, why then do bureaucrats prefer jobs in public administration? Where would they go if they were to lose their jobs in public administration? Do they see the private sector as the place where they would end up? What is their attitude towards democratization of public administration, questions of transparency and accountability of agencies? W hat are the rules of the game that exists inside the bureaucracy, which are hidden from outsiders? These were the key questions of my research.
E x e c u tiv e s
Who are they? As has been acknowledged elsewhere, executives in this study is understood as bureaucrats whose jobs are to coordinate bureaucratic organizations and whose positions involve risks. They number approximately 2,800 across fifty-seven
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agencies of the federal government.' .In my study, I included executives from the ranks of the directorate heads of the central apparatus all the way to the rank of the deputy to the prime minister. In accordance with the 1995 Russian Law on State Service, these
c h in o v n ik i belong to catego,ries A and B, which include officer level positions iy y s c h iy e g o s u d a r s tv e n n iy e d o lzh n o s ti) and support level positions {g la vn iye g o su d a rs tv e n n y e d o lz h n o sti). In other words, bureaucrats of category A represent the
supreme authority of the state, whereas bureaucrats of category B are responsible for providing them with the things necessary to exercise that authority. In essence, this system of ranks reinstated the Table of Ranks introduced by Peter the Great in the eighteen century (A.V. Obolonskii 2000),^^ which consists of three categories, five groups and fifteen classes. However, given the almost feudal complexity of the system (which was largely adopted as a political ploy prior to the 1996 presidential elections, to introduce nostalgic symbols that would infer the sense of greatness associated with tsarist times) I dropped the division between categories A and B, because bureaucrats of both groups satisfy the definition for executives adopted for the study. True, bureaucrats of the high-level position (A) might be assumed to be political appointees, and thus, some may argue, should be cleared from all others. But I would argue that in the Russian political system, only the prime minister should be considered a political appointee. A candidate for that post is chosen by the popularly-elected president and must be approved by the lower chamber of the parliament. However, members of the cabinet (deputy to the chairman and heads of the agencies) are appointed jointly by the president and the chairman, and are neither representatives of the political parties, nor representatives of
A. V. Obolonskii, Gosudarstvennay Sluzhba, 2 ed. (Moscow: Delo, 2000).
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parliamentary factions. On contrary, they receive their positions as a result of the bureaucratic bargaining process that talces place between different groups inside the executive branch. Even a change of the nations presidency does not affect the rotation of the cabinet, including the chairman, nor is it affected by parliamentary elections. For example, Viktor Chernomyrdin was the Prime minister during both the first and the second presidential terms of Boris Yeltsin; his resignation in March 1998 had little to do with his performance, but was inspired by the search for the one who would become Boris Yeltsins heir in 2000. The same was true for the members of Chernomyrdins cabinet: they came and went regardless of the outcomes of the elections. In fact, only the members of the first reform govemment led by Yegor Gaidar might be with certain reservations acknowledged as political appointees. Also, several members of the cabinet of Prime Minister Yevgenii Primakov (September 1998-June 1999), who assumed position after August 1998 financial collapse, were brought into the govemment as a result of negotiations with the opposition. But these are exceptions to the established rules of the game (which will be explored in the next chapter). Thus, the division between the two top categories of executives should be acknowledged as artificial.
221
Until lately, executives were the most diverse group in the Russian bureaucracy. The collapse of the USSR and beginning of liberal reforms brought people who never would have been able to attain such positions under the Soviet regime (such as economists from universities and think-tanks, mostly from Moscow and St. Petersburg). The majority of them were associated with a half-legal, half-underground economic club
In fact, in accordance with the 2003 Law on the System o f the State Service, category B was eliminated from the wording o f the law completely.
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called Perestroika, which existed in the mid and late-1980s in then-Leningrad. There, liberal economists discussed the possibility of market reforms in the USSR under the informal guidance of Yegor Gaidar and Anatoly Chubais^^^ (Sergei Vasiliev 1998).^^^ In the autumn of 1992, Viktor Chernomyrdin, a former top-level Central Committee of the CPSU apparatchik, was appointed prime minister. As a result, the executive level, and especially the apparatus of the federal govemment, got an infusion of managers from the former Soviet s tru c tu re s .L a te r, when Yevgenii Primakov, former spy-master and former head of intelligence, was appointed prime minister in autumn 1998, bureaucrats in epaulets particularly from the former KGB took over many important positions. This latter trend has been significantly reinforced since 2000, when Vladimir Putin, the former KGB operative, became president. Today, bureaucrats in epaulets comprise 50% of the apparatus of the federal govemment.
What explains the attraction o f jobs in high level administration ? Most of those interviewed indicated that it is the status and prestige that comes from taking part in state affairs, which are of cmcial importance to the nation, are the first on the incentives list. As one executive explained, life is never the same after you spend a year or two at the ministerial position. You get involved with a new class of people, you get the whole new
223
Sergei Vasiliev was himself an active member of club Perestroika.
221 Analysis o f spravochniki by the former KGB General on an off-record basis. 222 ^ Ibid.; This conclusion is based on analysis of the spravochniki, i.e, personal listings of the apparatus of the govemment from 1991 to 2001. At that time, Anatoli Chubais believed that capitalism was not suitable for the USSR economy, and argued in favor of reformed socialism. He was later in charge of the privatization program. Interview with Yevgenia Albats, Moscow, January, 1999; Sergei Vasiliev.
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range of possibilities, clout, access, and not just domestically but internationally as well. In other words, high-ranking positions have the virtue of a sum of money put in a high-interest bank account; benefits come not only during the tenure, but also later in the form of well-paid job in the private sector. It also entails benefits that cannot be bought for any money (or at least very big money) like invitations to upscale or closed meetings, conferences, parties, etc. For those who came into executive positions from academia,^^ the possibility of fulfilling their ideas in practice were the primary reason why they joined the bureaucracy and forewent high salaries or/and the freedom provided by positions outside the govemment sector. Commenting on his reasons for entering the govemment, one highranking bureaucrat said, reforms were an extremely interesting scientific problem to solve, it was a once in a lifetime opportunity to see your ideas tested in reality. There were no textbooks for what we were doing and we wanted to do. No one really knew what was the reality of the Soviet economy and less, what could and should be done with it. Now we have the opportunity to examine what were the economic realities of the past and how they determine the realities of the present situation (Yasin 2000).^^* Access to the huge and constant influx of information was quite an incentive for those who were previously starving from the lack of real data in the Soviet times. There is just nothing comparable (to a position in govemment). The first time after you leave (your
Executives with an academic background were a one-time event that happened at the very beginning of reforms. Yevgenii Yasin, Advisor to Yegor Gaidar, 1991-1993, Minister o f Economy, 1993-1998. Currently the Chair of the Moscow High School of Economics. Interview with Yevgenia Albats, Moscow, March 2000.
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position) you feel as if you suddenly became deaf and blind; you are constantly yearning for information.^^^ For some, a high-level position in government has been the way to address personal ambitions. One said I was undervalued by the market. This position (first deputy to the Minister of Finances) better reflects my ability and skills."(Ulukaev, 2000) A former KGB general (a high-level bureaucrat of the civilian agency at the time of interview) said that those of his colleagues who went to work for banks have gotten a very good salary, but they complain that, all things considered, it is nothing like work in govemment. They are bored from idleness and would be eager to return back. Interestingly, some of those who left important positions in the bureaucracy of the Soviet Union to go into business after the old state collapsed, felt almost personally humiliated by working for a business owner who was nobody under the old regime. Many chose to re-enter the public sector. I got sick and tired of washing dirty the underwear of those oligarchs, said one, unable to constrain his emotions any longer.
Status Symbols .The notion of being exceptional and powerful plays a very important role in the incentives of the executives as well.^^"^ One of the top managers of the apparatus of
Vasiliev, 1998 Alexei Ulukaev, First Deputy to the Minister o f Finances, 2000-present. Interview with Yevgenia Albats, Moscow, 23 March 2001 In his famous play from 1835, The Inspector General, Nikolai Gogol describes the critical importance o f exceptional privileges to Russian bureaucrats. Through the hero o f the play, the mayor, Gogol asserts: What makes one want to be a general? Why, if one drives anywhere, couriers and aides gallop ahead everywhere, calling for horses. And they w ont give them to anyone else; at the posting stations they all have to wait-the titular councils, captains, and mayors - but you dont care a damn. You dine at a governors, and there - a mayor has to stand in your presence! Ha-ha-ha! Thats whats so alluring, damn it all! The Collected Tales and Plays o f Nikolai Gogol, edited with introduction and notes by Leonard Ken (NY: Pantheon Books, 1964).
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the federal govemment spent quite some time counting the ammunition that comes with the office; a state-owned, conifortable foreign-made car ($100,000 black Mercedes for the highest level, Audi 8 or BMW-5 for the level of the ministers and their deputies, as well as for some heads of the directorates in the federal govemment); a chauffer (24/7 or just business hours, depending of the hierarchical level of an executive); sirens (minister and up); a special car plate (showing two zeros and a state flag plus blinldng lights or migalka] for the level of deputy prime minister and higher; one zero and a flag for ministers and some important directorate heads of the central apparatus; or a flag with no zeros for levels below deputy minister. This is for the police. M y car can go through red traffic lights, or drive in the opposite lane no one will stop me, my interviewee explained. Another important status feature is the kind of telephone access assigned to the official. There exist at least five types of special access lines with a different level of security protection. The top-ranking line allows one to talk directly to the president: depending on the status of the call, either formal or informal, it can be a one-way (from the president to the executive) or a two-way line. That line has twenty-eight subscribers, and it is assigned to the prime minister and his deputies, to the head of the administration of the President in the Kremlin, as well as to the ministers of the key federal agencies (Sisuev 2000).^^^ Next there is a cherry-colored telephone with some fifty top-level subscribers attached to it. Those subscribers are top-level executives in the govemment
Head of the Directorate of the Apparatus o f the federal government. Interview with Yevgenia Albats on the off-record basis, conducted in Moscow, June 2001. All the names o f those interviewed on the off-record basis were made available to the Dissertation Committee. Oleg Sisuev,- deputy to the Prime Minister of the Russian government, 1997-1998, deputy to the Chief of Staff of the Presidential Administration, 1998-1999. Interview with Yevgenia Albats, Moscow, May
2000 .
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and presidential administrations, of the level of minister and higher. A call from that communication line is picked up by the top level official Mm/herself, and never by the secretary, ray interviewee explained. Other special lines, such as top-secret, long distance government lines (with about 100 users)^^'^ and the so-called first vertuchka (yet another communication line with assigned subscribers) are designated for the directorate heads of the apparatus of the federal govemment. These might be picked up by assistants. Finally, there is the so-called second vertuchka that are primary used by the deputies of ministers and directorate heads; these have the lowest security level, and thus the lowest status. Besides these primary access lines, there are others that exist inside a particular agency that define both the formal and informal status of the bureaucrat. In the Apparatus of the federal govemment one such line is connected directly to the Prime minister. Absence of a direct phone to the boss assumes opala out of favor status, and significantly lowers the bureaucrats authority and his bargaining power with other bureaucrats (Vasiliev 1998). As an outsider, I could not appreciate the importance of such a thing as a special telephone access line until I interviewed Victor Chernomyrdin, shortly after he lost his post as chairman of the federal government, which he had held for more than six years. We held the interview at his state-provided suburban residence (dacha), which was equipped with all the benefits assigned to the head of the govemment, including, of course, top-level communication lines. During the entire two hours of amiable
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There were 104 users o f the top secret government communication line in the last spravochnik (book of names) issued by the KGB o f the USSR in May, 1991 - seven months prior to the collapse o f the state. Viktor Chernomyrdin was sacked by the then President Boris Yeltsin in March, o f 1998. The interview was conducted in May o f the same year.
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conversation, Chernomyrdin kept his right hand as if it was a scepteron the receiver of a creme-colored telephone with no buttons or markings beyond a symbol of the state; this was the direct line to the president. An ousted prime minister could hardly expect a call from Boris Yeltsin, but still the presence of that telephone served to announce to visitors, and to reassurance him for his own comfort, that he was still in control. Although such benefits as special telephone access lines and automobiles are supposed to correspond to the executives position in the administrative structure, it often rather reflects the particular relationship between the bureaucrat and the president and prime minister. For instance, German Gref, the current presidential favorite and the M inister of Economy and Trade receives benefits that a regular minister does not, and which corresponded typically to the level of deputy prime minister. Gaining that special status is a dream of any executive, one interviewee confessed.^^ The notion of belonging to a higher caste (just as George Orwell put it, All animals are equal, but some animals are more equal than others) ^ is not just a benefit of high-ranking jobs, but it is actually an important sign of power and status to bureaucrats at lower levels. Consider the issue of where a high-ranking chinovnik gets his lunch. Though it may seem meaningless, it is actually an important sign of power and status to bureaucrats at lower levels. The highest level of food service in the govemment is assigned to the prime minister: he gets his lunch (and often his dinner) from the kitchen of the president. It is
Violations of the strict hierarchy rarely happened in Soviet times, but it became commonplace during the presidency o f Boris Yeltsin. For instance, Shamil Tarpishev, Yeltsins personal tennis coach with a meaningless official position o f the Chairman o f Committee of Overseeing Sports, had his office inside the Kremlin walls and in the most prestigious building (14 B) - the same building where the President and his closest entourage had their officers. That was an explicit sign o f power and access. George Orwell, Animal Farm: A Fairy Story (NY: Signet Classic, 1996).
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delivered to him for security reasonsby officers of the Federal Security Guard Service (similar to the Secret Service in the United States). The meal is brought in a black car -with closed curtains and letters on the license plate (KX) that announce it as coming from the presidential kitchen in the Kremlin. The next level of food service belongs to the deputies to the prime minister (there can be as many as ten, as in 1997, or as few as four, as in 1992; at the time of these interviews, there were five bureaucrats holding the position of vice prime minister). They order their lunch a la carte from the kitchen of the federal govemment. It is served to them by a waitress in the back room of their offices. For the directorate heads, there is a special room separate from the general lunch area (which is shared by all other bureaucrats) on the seventh floor of the federal govemment building (commonly called as White House). The only difference between this room and the general lunch room (besides the fact that common visitors to the building are not allowed in) is that lunch is served by waitresses, and the entry is chosen in the morning, in the silence of the office. Unlike it was the case in the Soviet times when the prices at the special lunch rooms in the Council of Ministers or in the Central Committee of the CPSU were well below the street level, the price in the current govemment stolovaya (canteen) are just slightly less than for the same food in the city. Where the nachalnik (boss) eats shows to everyone around that he is not just an ordinary bureaucrat, but a ranking bureaucrat with power and status, my source concluded Other symbols of status mentioned in the interviews were the type and location of state-provided dachas. These are vacation or weekend houses in the prestigious suburbs of Moscow with services like cooking and cleaning attached. However certain locations
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Interview with the senior official on the off-record basis.
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are considered more prestigious than others, and therefore which dacha a bureaucrat is assigned depends upon his rank. The type of office executive is given (with or without a bathroom), the quality of the office furniture (leather for higher-ups as opposed to upholstery for lower ones) and the sort of drinks (coffee and tea or just water) he has at his disposal to offer visitors, are signatures of the rank or relationship with the high-tops as well. A significant and very practical benefit to occupying a high-level position in the federal govemment (or for that matter, high-level position in a regional govemment krai, oblast, city) is that it excuses you from the hassle, time and expense of dealing with lower-level bureaucrats in ones pursuit of everyday life. For instance, obtaining a new passport in a timely manner typically costs $150 in a direct payment to an official who otherwise does it for free. A new foreign passport through a middle-man costs $300. Registering a private car with the local police costs $100. Obtaining necessary paperwork can sometimes entail standing in a queue for months. Issues such as these which can only be resolved with both money and time by the common man (or perhaps cannot be resolved at all) can be resoluted immediately with only a single phone call for a high-ranking executive. This benefit also accraes to the lower-level operative. Lets say someone from the apparatus (of the federal govemment) has a son who is in business and who is having trouble with the Moscow militia. For the Moscow bureaucrat (whether of a managerial or operative level) a chinovnik from the federal govemment is like a person from the Moon. He will make sure to do the favor so as to have the (telephone) number of a federal bureaucrat in his notebook. The time may come when he may place a call and ask for a favor.
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Stability of the job, unlike for bureaucrats at lower and middle levels, is not reliable for executives. In fact, 70% of those questioned ranked the risk of losing their job as quite high. They indicated political turbulence, vigorous competition for the position, conflict with the bosses or the intrigues of subordinates as accounting for high risk of being removed. The fear is justified. Statistics on the length of time served by top-level executives illustrate the high turnover rate. There have been sixty-two executives at the level of deputy to the prime minister over the last twelve years, making the average tenure only 15.7 months. Anatoly Chubais served the longest in that capacity (4 years and eight months in two installments) while Mikhail Zadornov lasted only three days.
Besides the latter, nine others held that position for only one to four months. Another eight survived for more than three years, and forty-one served for between one year and two years, seven months.
Money M atters. Salary ranked quite low on the list of incentives valued by executives. Stunningly, the majority of those interviewed (87%) claimed that they could not recall the amount of their salary, and only two interviewees (one with an academic background, and the other with a background in the KGB) identified low salary as their reason for seeking employment in the commercial sector. Despite the obvious reluctance of an executive to talk about personal finances, a more detailed inquiry revealed that the majority of the executives questioned felt quite financially secure in the present, however worried about their financial well-being in the future. Only 13% of those questioned
Michail Zadornov, the long time M P from the Yabloko party was appointed as a Minister o f Finances in the short-lived government o f Sergei Kirienko (May 1998-late August 1998).
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acknowledged that they depended on their salaries for daily necessities. The majority claimed that they relied on their salaries for future expenses such as retirement, education for their children, long-term medical care for themselves and their parents and international travel. At a minimum, executives are not struggling to provide for their families, but are actually quite well off, whereas the opposite is true of bureaucrats at the managerial and operative levels: half of all managers complained of economic hardships in their daily lives, and 76.5% of operatives acknowledged that they get by only with help from their families. There might be several explanations for the fact that executives cannot identify the amount of their salaries. First, their salaries, or salaries plus benefits (beginning with the level of deputy to the minister) are either so much greater than those of bureaucrats of lower levels or to the average per capita income, that for political reasons they choose not to remember (or not to say). Or their salaries are so much smaller than those of similar positions in private firms that they feel ashamed to acknowledge it. The answer is not easy to find, given the secrecy that surrounds everything having to do with the life and compensation of the executives. Sources acknowledged that true statistics with regard to salaries exist only in the Ministry of Finance, however inquiries sent there via official and private channels provided no results. To this researchers amusement, study of federal laws and executive orders that should disclose some salaries in the addendum did not do so: salaries were simply not published.^^^ Thus, the table of compensation of executives (Table 5.4) is
Gosudarstvennaya Sluzhba. Sbomik Nonnativnich Documentov (State Service. Collection of Normative Documents) (Moscow; Delo, 2000): 142-143.
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compiled from documents obtained via unofficial sources as well as through interviews with bureaucrats and experts. The financial collapse of 1998, and the accompanymg three-fold devaluation of the national currency, wasted top bureaucratic salaries. Before the crisis they were comparable to the average income of a CEO of a mid-size businesses; after the crisis, they were markedly less (Vasiliev 1998). However, it should also be noted that the financial crisis, for which at least some of the executives under consideration were responsible, rained incomes all across the national spectrum. The middle class, which had just begun to emerge, was the most hard h i t . ^ Thus, the question of whether a salary is big or small is a question of comparison (e.g. whether the salary is compared to the national or regional average, and whether it is compared to executive salary in the private sector or only against other ranking bureaucrats). It also must be remembered that in Moscow, the average per capita income, in both the public and private sector, is more than 3.5 times higher than the average per capita income in Russia as a whole.^*^^
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World Bank 1999.
Victor Golovachev, Uroven Socialno-Econoraicheskogo Razvitia Regionov in 2002 (Level o f SocialEconomic Development o f [the Russian] Regions), Economika I Z h i z n 13 April 2003, p. 29.
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T ab le 5.5: M onetary compensation of the executives (selected cases)

Position Salary or Salary +
A llo w an ces
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(Before Aug. 1998)

in US dollars^^mont hly
Average per capita income (M oscow ,1997)

in US dollars monthly
Salary or Salary -f Allowances (After Aug. 1998)

Average per capita income (M oscow ,1999)

Salary or Salary + Allowanc es (2002)

Average per capita income (M oscow, 2002)

Average
P er capita
income (Russia, 2002)

in US dollars
Chief of Staff of the Administration of the President^* Head of the Maintenance Directorate Chief of Staff of the Federation Council Chief of Staff of the State Duma Chief of Staff of the Apparatus of
1315.0
7 1 6 .3
2 5 4 .0
511.5
144.8
1 263.0
1105.0
1 105.0 1105.0
Until 2003, The system o f compensation of the employees o f the public administration was regulated by the 1995 Federal law On the Foundation of the State Service in the Russian Federation. This law divided all bureaucrats into three categories - A, B and C, five groups (main specialist, leading specialist, etc.) and 15 ranks. Ministers and up belonged to category A, which did not have groups and ranks, and they received a fixed salary, whereas bureaucrats in categories B and C receive compensation that differed depending on the attached group and rank. They received not just a salary but also nadbavki (bonuses) for rank, years in service, special conditions of the job, bonuses, etc.. As a rule, fixed salary constituted only about one third o f total monetary compensation. The package was called denezhfioye obespecheniye (salary plus bonuses). In 2003, a new law on state service was adopted (# 58FZ, 14 May, 2003). As a result categories were abandoned. According to the reports, salaries of top executives (prime minister and his deputies first and foremost) doubled, whereas the average raise o f other bureaucrats was 20-30%. Precise numbers are not available. However, the declarations of income of some officials, which they must provide to the public in accordance with the law, have become partially available, and thus, some estimates for 2002 salaries were based on the excerpts that were made available to the media. All monetary conversions were made in accordance with the rate o f the Central Bank of the RF for the respective year. For instance, in 1997 the rate was 5.7 rubles for one U.S. dollar; whereas after the collapse of August 1998, it was 20.65 rubles per dollar. The first six categories shown in the table are listed exactly in the order they were listed in Addendum #1 to the Executive Order of the President o f the Russian Federation #310, 9 April 1997. Note that the Head o f the Kremlins Business Administration Directorate (then it was the notorious Pavel Pavlovich Borodin) holds the number two position, right after the Chief of Staff o f the Presidential Administration. It was and it is the Business Administration Directorate that provides blaga or exclusive luxuries and privileges to the top echelons of the Russian bureaucracy.
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the Government RF
Secretary of the national Defense Council

Deputy to the Prim e minister Federal Minister
1105.00
1300.0 370.0^^*^ 254.0
1010.0 2000.0^ 935.9 1100.0
511.5 . 511.5
144.8 144.8
Chairman o f the 1184.2 State A gency/Com m iss ion/Service F irst D eputy to 1184.2 400.0 254.0 the Federal Minister First Deputy to 1189.00 the C hief of Staff o f the Apparatus o f the Government RF Deputy to the 1184.2 C hief o f Staff/ Head o f the Directorate o f the Apparatus o f the Government Head o f the 500.0 511.5 1118.0 370.0 Directorate of the Apparatus o f the Govemment Source: The Executive Order # 310, 9 April 1997, Ac dendum s 1-3 (copy can be obtained from the author); G oskom stat 2000, 2002; Y evgenia Albats.
As Table 5.5 reveals, high-level bureaucrats had a pretty comfortable income before the 1998 financial collapse: by 1999 real value of their monetary compensation
Estimation is based on information provided to the media. The difference is probably due to the fact that there are Deputies to the Prime Minister who hold positions of the Federal Minister along with the position of the Deputy. For instance, Alexei Kudrin holds the position o f Deputy to the Prime Minister as well as the position o f Minister of Finance. His declared yearly income for 2002 was approximately $34567.60, or $2880.0 per month. See: Maria Kakturskaya, Ministri raskrivaut koshelki, Argumenti i Facti, 23 July 2003. Until 2003, the Federal Minister had a fixed salary, while his deputy had a salary plus allowances. Thus, the deputy had larger financial compensation.
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was 33.9% of what it was in 1997. Of course, the same was true for all wages, both in the public and private sectors, across the country: salaries dropped by 36% in 1999, whereas pensions for retirees were 32% of their 1997 value.rye}
Still, bureaucratic wages
at the top of the ladder have always been much higher than the average per capita income in the capital. For instance, the average monthly wage of a high-level bureaucrat in 2002 (including bonuses and benefits) was $1607,^^^ whereas the average wage.(including benefits) across the nation was only $144.8, eleven times less. True, high-level bureaucrats do not equate themselves with the average citizen and the average income. It is also true that the incomes of executives are not competitive with the kind of money their counterparts in big business make, particularly in the energy sector. Thus, in my survey, 43% of the executives questioned said that if they were to lose their job, they would go into a private firm because of the higher incomes. Nevertheless, there has been so far just one case in which a high-level executive left his high-profile position in the govemment of his own volition, because of financial constraints, and went entered the private sector. Thus, we may infer that monetary compensation for their work in govemment despite complaints of low salaries is of little significance to the majority of bureaucrats at the executive level. Then what is important? Studies have shown that the executive branch of the govemment receives 98.97% of the $33.5 billion dollars that private businesses pay in rent on a yearly basis (Saratov
Alexander Pochinok, Minister of Labor and Social Development of the RF, quoted at http;//news.battery.ru, 18 March 2002. Available from http://www.battery.ru/theme/finances. Zarabotnaya Plata I korruptzia: kak platit rossiskim chinovnikam, (Salary and Corruption. How to Pay Russian Bureaucrats), Indem, Moscow, 2002. Available from http://www.indem.ru/satarov/ZarplCor.htm.
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2002). This suggests that the opportunity to demand bribes is immense, which is conceivably very attractive to an executive. Such corruption has been endemic to Russia, and is commonly acknowledged. Allegedly, appointments to high-level executive positions require a fee. The price varies from $500,000 for the position of deputy minister, $1,000,000 for the position of minister and $3,000,000 for the position of the deputy prime minister. These fees (bribes) are paid to those who make things
h a p p e n . O b v i o u s l y if there is a market of high-level govemment jobs, and if there are personalities or businesses which are ready to pay six and seven- figure prices in dollars for the appointment of a specific person to a particular position, then that position must pay back both in the way of valuable inside information as well as high rents. I was told by one deputy in the Ministry of Finance (Ulukaev 2001) (the agency that ranks first in the unofficial hierarchy of agencies with the most opportunities for corruption, due to its control of the federal budget and the distribution of financial resources) that when he was looldng for a personal assistant, he got hundreds of resumes, some from seemingly unlikely candidates. Many were from business people, including the CEO of the then state-owned oil company Slavneft, which that year had a net profit of about $128 million.
Price depends upon two major factors; the amount of budgetary resources available to an agency, and a volume of the residual property-rights, i.e., number o f commercial activities over which officials of the agency have control rights. $1,000 000 allegedly was the price for the position o f the Minister of the finishing industry. Allegedly, the sum about $ 3,000 000 was paid for granting the position of one deputy prime minister in 1999, who represented one group o f oligarchs. Georgii Satarov, INDEM, M oscow based think-tank that conducts monitoring o f the corruption in Russia for the World Bank project on corruption; Nezavisimaya Gazeta, 15 August 2003; Sergei Vasiliev, interview (2) with Yevgenia Albats, Moscow, March 1999. In late 1990s, Tatyana Dyachenko, Boris Yeltsins daughter, created a fund for her father that was meant to serve him after his eventual resignation from the presidency. Allegedly, some o f the bribes for top-level positions were directed into that fund, according to sources both in the govem m ent and in the Administration o f the President, who spoke on condition of anonymity. However, no one ever insinuated that the fund or the deposits in it had the consent o f President Yeltsin. Who contributes now to that fund is unclear. There are plenty of rumors, but none have been so far confirmed.
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One must assume that a desire to serve the public was the last on that CEOs list of priorities. Occasionally newspapers give an account of the expenses of some high-level officials, an account that is hardly plausible given their official salaries. For instance, in one not particularly outstanding case, a federal minister with a yearly income of about $12,000 spent at least half that sum on a party in an elite club in Moscow to celebrate the birth of his son. This son was bom in a facility outside Russia (in the U.S., in fact,) at an expense, including travel, of $50,000,^^^ which by no means could have been paid out of the executives salary. This example at minimum suggests that salary is not the only source of income, and not even the primary source for the large majority of the executive level bureaucrats. Even a casual estimation of the price of designer suits, watches, brief cases and shoes of some of those interviewed totals several hundred, if not thousands of dollars per person. This leads one to believe that a myriad of other activities such as consulting and highlypriced lecture tours abroad ($50,000 was quoted as the fee for one high-level executives lecture in the US) as well as outright gifts, helps to compensate for the 85-90 hour week many of these executives endure while in office. Though this system may be regarded
as a conflict of interests (to put it mildly) it is commonly recognized and accepted, and goes by the euphemism one lives with dignity : implying that though one may not be
Anna Levina; Ekaterina Ivanova, Skolko stoit ministr. Naprimer, Pochinok (How Much does the Minister Cost? Lets say, for example, Pochiniok, [Alexander Pochinok, the current Minister of Labor of the RF], Novaya Gazeta, 15 September 2003, #68. Available from http://www.2003.novavagazeta.ru/nomer/2003/68n. All these activities are prohibited by the federal law On the basis o f the state service of the Russian Federation (Federal Law # 119-FZ from 31 July 1995, Chapter 1, article 11).
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involved in openly corrupt affairs(!ike making decisions in exchange for hundreds of thousand dollars in cash), but nevertheless makes a decent supplement through other means outside the office. Still, special cases do exist. I am aware of at least one: Sergei Ignatiev, a long time deputy to the Minister of Finance and the current head of the Russian Central Bank is one whose reputation has remained untainted through his twelve-year career in highranking position. It is not just that his Russian-made suit, Soviet-era watch, cheap domestic cigarettes (among other things) announces that he is living within his salary (which, by the way, he knows very well) but there are even no rumors that exist that might question his integrity. In the interview, Ignatiev acknowledged that he occasionally endures unpleasant conversations with his wife, who is not very happy about their standard of living, however, he said, there is just no way around it for me (Ignatiev 2000)." It is also true, however, that the people I list as special cases
typically do not have children, and are thus excused from the burden of many concerns, such as saving money for education which is no longer free as it was in the USSR. Finally, there is one more hypothesis with regard to forgetfulness about the sum of compensation. It is that monetary compensation is just a small part of the package that
Endless stories and cases illustrating this have been published in the media or presented to me on an offthe-record basis. One oligarch told me that you just dont go to the While House without a couple hundred thousand dollars in cash in your pocket. Another oligarch was outraged as he told me when one topranking governmental official, who happened to be with him in the same first-class salon on the plane from Switzerland to Moscow, bragged about the quality o f the blue-blooded horses in the stable he kept outside the Motherland. His salary doesnt allow for one horse, never mind a stable, the banker said in an angry voice. There even exists a special jargon for bringing bribes directly into the office; zanesti (to carry in). How much did you have to carry in? implies that a suit-case of cash was the price for the favorable decision. Sergei Ignatiev, then Deputy to the Minister o f Finances. Interview with Yevgenia Albats, Ministry of Finances, Moscow, July 2000.
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an executive gets for his work for the state; blaga, or benefits, serves as the real incentive to pursue and keep a job. Blaga is a system of special privileges for the nomenklatura (e.g. high-level bureaucrats at the federal and regional level) was created by Joseph Stalin in late 1920s, for the purpose of ensuring unquestioning loyalty to the sovereign (Fitzpatrick 1999).^^ A directorate called Special Maintenance was created in the Central Committee of the CPSU, with outposts in the regional committees, and was given the responsibility of administering an institutionalized hierarchy of a c c e s s .E v e r y t h i n g from food and clothing to real estate, plants, and farms, was distributed to the nomenklatura through this office. This system turned the all-powerful bureaucrats into slaves of the state; everything they had from housing and furniture to the dinner on their table was the property of the state and was provided by the state; it could not be purchased anywhere else outside that special system. The secret police NKVD, MGB or KGB co-managed this enormous enterprise. During Stalins rule, this office also recruited slave prison labor to build dachas (villas) for the nomenklatura and recruited those who would provide services, such as chauffeurs, cleaning ladies and cooks.^^^ This system remained virtually untouched until the collapse of the USSR in 1991, with the Ninth Directorate of the KGB in control of state-provided luxuries. In November 1991, Yegor Gaidar and
his reform govemment publicly rejected the system of privileges, claiming to want to
Sheila Fitzpatrick, Everyday Stalinism. Ordinary Life in Extraordinary Times: Soviet Russia in the 1930s (New York: Oxford University Press, 1999). Ibid. 96. See: Politburo TzKa VKP (b) i Sovet Ministrov SSSR 1945 -1953, Documenti Sovetskoi Istorii (Moscow: Rosspen, 2002): 404. Albats 1992, 1994.
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share the burden of transition with the rest of the nation (see Chapter 1). However, two years later the system of hierarchical access to privileges was fully reinstituted with the same purpose as before: control and loyalty. Control became the responsibility of the Federal Security Guard Service, successor to the KGBs Ninth Directorate (some other directoratess of the former KGB shared this responsibility as well). As for the loyalty, the story is a bit more complicated. In the USSR, the Central Committee of the CPSU crowned the Soviet bureaucratic hierarchy and, through its Business Administration Directorate, assigned privileges to those chosen to be in the higher castes. In post-Soviet Russia, the Business Administration Directorate was placed under the Presidential Administration and quickly became one of the most powerful institution in the country as well as a powerful business monopoly with a budget of well over one billion dollars and property holdings valued at several billion dollars (Victoria Bogomolova 2 0 0 3 ).^ The Kremlins Business Administration Directorate provides blaga to presidential administration employees as well as to executives in the govemment apparatus and other bureaucratic agencies. As Executive Order #310 on salaries of executives, from President Yeltsin, reveals, the head of the Business Administration Directorate is the number-two man in the presidential administration, reporting only to the president and his chief of staff (see Table 5.5). Apart from the chairman of the cabinet, everybody, including federal ministers and deputies to the prime minister, are subordinate to the one who delivers blaga to them. It is by the discretion of the head of
Victoria Bogomolova, Igri Patriotov: Dvorzi I Hizhini Vladimira Kozhina, (Patriots Games: Palaces and Cabins of Vladimir Kozhin) Moskovskii Komsomolets, 29 April 2003; [Interview with Vladimir Kozhin, Head of the Business Administration Directorate o f the Presidentbial Administration]. Vladimir Kozhin, the current head of the directorate, acknowledged that the Maintetnance Directorate ownes real estate in 70 countries across the globe which is estimated at between $1 billion and $4 billion.
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the Business Administration Directorate (Pavel Borodin under Yeltsins presidency, Vladimir Kozhin under Putins presidency) whether an executive receives a state-owned house (Urinson 1998).^*^ Even powerful deputies to the prime minister, such as Anatoly Chubais, have to push hard to ovemile negative decisions by Pavel Borodin with regard to their housing (Vasiliev 1998). Moreover, they can incur some misfortunes if they question the validity of some decisions or request accountability by the directorate (Nemtzov 1998; Urinson 1998). Only the president himself can overrule the head of his administrations Business Administration Directorate.^^ In short, by virtue of being in charge of privileges for the executives, the Kremlins Business Administration Directorate has become a major source of authority in the executive brunch, in addition to the President and the prime minister, and thus contributes to the further perversion of the lines of authority inside that branch. The special privileges provided to the Soviet nomenklatura were literally priceless those goods and services were not attainable for any money to those outside the system. Institution of a market economy has allowed a price tag to put on these blaga, making it possible to figure the value of what is considered to be the biggest incentive of the job.
^ Yakov Urinson, Minister of Economy, 1995-1997, Deputy Prime Minister, 1997-1998. Interview with Yevgenia Albats, 1998 Consider the following case that shows the power o f the directorate to bring charges of blaga. In the early summer of 1998, Yakov Urinson, deputy to the prime minister, made a request to the Business Administration Directorate regarding Lev Rzgon, the famous Russian Jewish author, a Gulag survivor of seventeen years, and a member o f the Presidential Council. Urinson asked that Razgon, who was ninety years old and who had just recovered from his fourth heart attack, be placed in the Kremlins top medical facility during his convalescence. A special fund was established to help Lev Rzgon pay the expenses in full. Urinson had to ask then Prime Minister Sergei Kirienko to co-sign the request before Pavel Borodin would have approved it.
148
Blaga includes the following privileges: (1) free medical care in luxurious medical facilities, (2) discount vocational facilities, (3) housing, (4) a car and chauffer, (5) means of communication, including cell phone. There are three different levels of medical care which are assigned according to rank and to connections in the Business Administration Directorate. The highest one is assigned to the prime minister and his deputies, as well as to federal ministers (so-called category D-1). Next come deputies to the federal ministers and heads of the directorates of the apparatus of the govemment (known as Sivtcev Vrazhek, special sector). The third one is reserved for heads of the directorates of the agencies (Sivtcev Vrazhek, simple sector). Top-ranking officials (federal ministers and up) enjoy hospital treatment in special medical facilities (Medical Center of the Business Administration Directorate of the Administration of the President RF) in a special building separate from the facilities used by the lower ranks. Deputies to the prime minister enjoy special suites as well as gourmet meals brought directly to their suites, whereas federal ministers as a rule are not assigned suites (Urinson 1998). Insurance agencies that sell insurance with group discounts to institutions other than the state estimate the price for the first two categories at $1020 annually. The latter category includes hospitalization in case of emergency. Individual insurance (not including dental) for category two facilities (Sivtcev Vrazhek) costs $1000.
')K Q
In
addition to medical coverage for himself, the same coverage in the first two categories is also extended to family members (wives and children under 18 year old). Thus, free
268
ROSNO, Insurance Agency. Price quotes as of August 17, 2001; Ulukaev 2001
149
medical care for a high-ranking executive and his family adds at least $3060 to his yearly income. N ext comes housing. In Soviet times and present-day Russia, this has been the most highly valued privilege of all. Like the nomenklatura in Soviet times, the Russian executives receive dachas (weekend houses) in the fashionable Moscow suburbs in addition to the state-provided housing (usually an apartment) they enjoy in the capital. Like the multi-tiered health benefits, there are at least three classes of dachas that exist to separate Russian bureaucrats of blue blood from those of the lower castes. Top-level dachas occupy the most expensive land in the country, and are valued at as much as $40 million ($10 million for the house and $30 million for fifteen acres of land that come with the house). The rental price for such a house to an outsider is as $400,000 annually (Berezovskii 2003).^^ The most valuable dachas (there are about twenty) are under the control of the Federal Security Guard Service. Such a house formerly belonging to the embattled and self-exiled oligarch Boris Berezovski is currently occupied, for instance, by the FSB chief, general, Nikolai Patrushev.^^^ Many executives of a democratic background who experience life in such housing confess it is rather unpleasant. As Anatoly Chubais said, You are constantly surrounded by bodyguards, cooks, servants
Boris Berezovski. Interview with Yevgenia Albats via telephone from his residence in London, UK, 21 September 2003. To be sure, dacha means not just housing itself, but also several state-provided services as well, such as security, cleaning, gardening, etc.
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basically, you dont have a private life any
However, none rejected such a
privilege, it will be wrong sign to subordinates, I was explained. Unless they are favorites of the president, federal ministers and their first deputies usually receive a private brick house in a less expensive suburb called Archangelskoie. This is not without its benefits. As one deputy to the minister explained, I find (living there) convenient: the majority of ministers live in close proximity and can have social contact with each other. Bureaucratic networking, so to speak (Ulukaev 2001). The cost of renting such a house in that location would be $6000-7000 per month for an ordinary citizen. An executive pays only about $2100 annually. Thus, add another $69,000 to
his yearly income. Executives hoi polloi-ordinary deputies to the minister, chiefs of lower-level agencies (such as committees and services)and directorate heads of the apparatus of the govemment often must either share a house or opt to live in a less prestigious suburb (Yevgenii Gontmacher 2001).^^'* Thus, we can estimate this value to be less than half of the ministers benefit: about $20,000 per year. Transportation: of course Mercedez-600, Audi 8 and BMW-5 (the major means of transportation of the executives) are cars of high prestige and price. Prices on the market for cars of this class with a chauffeur in Moscow are astronomical: starting at $ 12/hour.
Anatolii Chubais, Head of the State Property Committee, 1991-1995, Chief o f Staff, Administration of the President, 1996-1997, Deputy to the Prim e Minister, 1997-1998, CEO, United Energy Systems, 1998present. Interview with Yevgenia Albats, 2001. Nedvezhimosts and Tzeni (real estate and prices), August, 2001. Available from http://www.dmrealtv.ru. Yevgenii Gontmaxer, deputy to the Minister of Labor, 1993-1994, head o f the social-economic directorate of the Apparatus o f the federal govemment, 1997-present. Interview with Yevgenia Albats. Moscow, May 2001.
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Given that executives are provided with both the car and chauffer around the clock, the market price of that service is at least $8,640 per month, plus VAT and insurance. The Ministry of Finance paid 32,000 rubles, or $1,185 per month to the Business Administration Directorate for the car it provided for its deputy to the minister (Vugin 2000).^'^^ A car for a deputy to the chief of staff of the apparatus of the govemment cost $3000 per month (Vasiliev 1998). Thus, transportation expenses of the executives cost tax-payers as anywhere from $14,220 to $103,680 per year. Other benefits to the executives include discounted vacations in luxurious Kremlin-managed facilities on the shores of the Black Sea, where executives pay 20% of the market price,^^^ free use of a cell phone (a $120-150 per month value), discounted food deliveries (so not to bother with groceries after hours), including fresh fruit from the Business Administration Directorates farm, just to name a few details. In sum, a quasi money package to an executive has a value from as high as $510,000 per year for the most high-ranking officials to as little as $41,260. Therefore, the salary that executives receive from the state is just a minuscule fraction of what they make in reality: for top officials salaries account for only 4.48% of total compensation, and from 10.5%-12.6% for executives of all other levels. I believe my overall (compensation) package converted into market prices equals what the head of a medium-size bank in Moscow makes, one retired executive acknowledged in an interview (Vasiliev 1998). Thus, the total income of an executive is not bad at all. It is as
Oleg Vugin, Deputy to Minister o f Finance, 1995-1999, First Deputy Chairman of the Central bank, 2002-present. Interview with Yevgenia Albats, Moscow, 25 August 2000. Novaya Gazeta, 15 September 2003.
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high as half a million dollars annually for those at the top level, to about $125,000 for federal ministers and $47,000 yearly for executives on the lower end.
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Table 5.6 Yearly Income of the Executives including benefits (estimates)

Highest-ranking officials Federal M inisters & up Deputies to the Federal ministers, Heads o f the Directoratess o f the Apparatus o f the federal govemment
Salary (incl. allowances) Medical (family) Housing Car Vacation'^^' Package Cell Total fo r Quasi-money TO TA L
12,12024,000 3,060 400,000 103680 2240 1800 510,780
11,230.8-13,200 3,060 69,000 36,000 2240 1800 112,100
6,000 3,000 20,000 14,220 2240 1800 41,260
522,900 534,780
123,330.8 125,300
47,260
For the sake of the comparison, the annual salary of a U.S. cabinet secretary (Executive Schedule, Level 1) is $171,900^^* (minus 35% income tax) and the mean annual wage is
$ 34 ,020 .^^
Federal Minister of theR F Compensation package ($) 125,300 US Cabinet Secretary salary 171,900
Mean Annual Wage (RF) ($)
1737.6 Mean Annual Wage (US) ($) 34,020
1.39% %
19.8%
277
Estimation made from the price of a luxury room: $200/day for two weeks.
Salary Table 2003 -E X , United States Office o f Personal Management. Available from http ://www.opm.gov/oca/03tables/html.
278
154
Quite a few of those executives questioned said that they would prefer to receive what they get as privileges in the form of cash so that they could use those extra thousands of dollars the way they want: many believe it would save the tax payers a lot of money which now ends up in the pockets of those in the Business Administration Directorate, and would force the latter to manage its property in a much more effective way than it does now. Then why not do this? Several of those with status and authority have brought the issue to the very top of the Russian bureaucratic hierarchy. One explained, Borodin (the then-Head of the Kremlin Business Administration Directorate) fought forcefully against such a proposition. He once said if you give them medical allowances in cash, and let them choose any medical facility they want, what guarantee will I have that they will choose mine (the Medical Center of the Presidential Administration)? For Borodin there was much at stake Giving up the power to allocate privileges meant loosing booming business for h i m . ( V u g i n 2000). Others saw it as less a corruptiondriven issue, and more as a way for the sovereign, whether the General Secretary of the Communist party or the Russian president, to keep his top bureaucrats under control and make them accountable to no one but him. It is a pure feudal system which is based on the desire for control. It makes pure slaves of our ministers. Everything they have belongs to the sovereign; their lives and the lives of their families depend upon the grace of a Tsar, bitterly claims Yaroslav K uzminov, the Dean of the Moscow-based High School of Economy and himself a husband to a twice deputy to the M inister of the Economy
2001 National Occupational Employment and Wage Estimates, U.S.Directorate o f Labor, Bureau of Labor Statistics. Available at: http://www.bls.gov/oes/2001/oes QOal.htm.
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(Kuzminov).
280
In fact, Boris Yeltsin, after firing as many as four chairmeii of the
govemment along with some 100 executives in his search for a heir between 1998-2000, chose privileges as severance pay for those he dismissed: in the serious of executive orders, he granted his former ministers, for varying lengths of time, such privileges as medical care, vacations in the Kremlin facilities, and the dachas they had enjoyed while
'y o 1
in office."
Apparently, those privileges are not just a strong incentive for serving in the
govemment, but are also a sort of guarantee of loyalty to the sovereign even after his servants are kicked out of the house. Finally, there is one more incentive for an executive job. It is the possibility to promote a business that an executive owns directly as was the case with Vladimir Potanin, who briefly served as a first deputy to the prime minister in 1997. Then he was also the owner of, Oneximbank, the largest private Russian bank at the time. Another example is Victor Chemomyrdin, who as prime minister for more than four years, also owned a 9% stake in the largest state-controlled monopoly, Gazprom, and whose children, in-laws and long-time associates either ran subsidiaries and spin-offs of Gazprom or controlled large stakes in it.^*^ In the current govemment, there are several executives whose close connection to various business interests were much discussed in
Yaroslav K uzminov, President, Moscow School of Economics, 1994-present. Interview with Yevgenia Albats, Moscow, June 2001 Presidential Executive Orders; #888 dated July 25, 1998 (re: six former members o f the government), #314-rp dated August 25, 1998 (re: all members of the government o f Prime Minister Kirienko), #1044 dated September 2 ,1998 (re: former Prime Minister S.Kirienko). Copies o f the originals can be requested from the author.
282 -
Marshall Goldman, The Piratization o f Russia .Russian Reforms Goes Awry (NY: Routledge 2003).
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the media.^^ In each of those instances, businesses connected to top executives enjoyed favorable deals awarded to them by the state or/and conducted hostile actions against their competitors. Recent cases involving the Minister of Communication, Leonid Reiman, make it clear that even big businesseslike Vympelcom-Bi-Une, one of the nations largest telecommunications companies have a hard time competing against businesses supported by a top executive (Yasin and Zimin 2 0 0 2 ) . So even if an executive is facing a choice between taking a lower position in the govemment or going into private business, the former is considered preferable. Ilya Klebanov, the one-time deputy to the prime minister in charge of the military-industrial sphere, whose close connections to several companies in the filed were widely acknowledged, chose, after he was fired from the office of the deputy to the prime minister, the much less prestigious post of Minister of Science over seeking a higher post in the private sector.
Where they s.o i f they lose the job? As I mentioned earlier, 43% of the executives questioned said that if they were to lose their job, they would go into a private firm because of the higher incomes. Nevertheless, there has been so far just one case in which a high-level executive left his high-profile position in the govemment of his own volition,
Yegor Bykovsli, Reiman gave. Reiman got back, Itogi 38, 2000; The most infamous cases are that of Leonid Reiman, the Minister o f Communication and Information, and Ilya Klebanov, the one time deputy PM in charge of the military-industrial complex, and the Minister o f Science and Technology until 2003. Reiman allegedly represents interests o f the Sonic Duo, a communications company that the future minister created in St. Petersburg, and which got nationwide representation shortly after Reiman became a topranking official. Apparently, an agency that reports to Minister Reiman requested that a competing player on the national communications market, Vympelcom-Bi-line, give back to the state certain frequencies that the company held. Coincidentally, those frequencies were later awarded to the company associated with Minister Reiman. Dmitri Zimin, the founder o f Vympelcom-Bi-line, was forced to sell a controlling stake in his company to one of Russias most powerful banks, Alfa Bank (operated by the oligarch Mikhail Friedman) in order to protect it from a hostile takeover by the company associated with Minister Reiman. Interview with Yevgenia Albats, July 2002.
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because of financial constraints, and went entered the private sector. Several executives became corporate CEOs only after they were fired (most as a result of the 1998-2000 . reshuffling of federal govemment by the President Boris Yeltsin) (Vugin 2000). In fact, as many as 65% of those surveyed acknowledged that business would not be their first choice for employment if they were forced from their positions in the agency. Most (30%) said they would seek another government job ill a different agency; 26% said they would enter politics and 8.7% said academia would be their first choice. I was rather surprised when, going through the list of executives that had held high-level positions at some point over the course of the first decade of reforms, I found that after they got fired only three embarked on (and succeeded in) private business endeavors. These were Peter Aven and Vladimir Lopuchin, the M inister of Foreign and Economic Affairs and the Minister of Fuel and Energy respectively in the first govemment, and Andrei Vavilov, the First Deputy to the M inister of Finance from 1991 to 1997. Apparently, despite knowledge and connections, the majority of executives either stay until they are kicked out, or if no option for the job in the govemment left they go to work for state-owned companies, for big corporations, or lobbying companies, where they can make use of their knowledge and connections. Even people like Anatoli Chubais, who claimed to have a desire to create a business of his own,^^ when time came chose to work for a state monopoly (United Energy Systems) instead (Chubais 1998).^^^
285
Chubais 1996.
In his 1998 interview with the author, Anatoli Chubais, then already CEO o f UBS, acknowledged that he started looking for that position a year before he was fired in 1998.
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There are several reasons for this. One, the business sector became too dense, too controlled by bureaucrats, and thus too difficult to begin a new business. By the time we were done (fired), the field was already too crowded to begin a successful start-up; the best pieces of property were gone, explained one of former deputy to the prime minister (Boiko 1998). Second, those who had top positions in govemment did not, and do not, see themselves as CEOs of small or mid-size businesses, but as directors of big ones. But after the August 1998 financial collapse, the number of jobs in the business sector suitable for bureaucrats of executive and managerial levels dropped significantly, thus limiting the options for life outside the bureaucracies (Urinson 1998). In the four years preceding the August 1998 collapse, about seventy executives from federal and regional governmental institutions Joined private firms, compared to just 27 afterward.
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Table 5.7; Number of B ureaucrats taking jobs in the private sector

From / Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 T o ta l Presidential A dm inistration G ovem m ent apparatus Federal Agencies Regional administrations
Total
4 4 5 1
3 7 12 7 9 1 1
2 8 12 7 1 30
2 6 5 1 1 IS
3 11 28 28 22
4
14
38
1 97
Source: Russian national print media (1993-2001) However, the main reason for the reluctance to leave office is, as I was told by a former assistant to the prime minister Chemomyrdin who had experience in both Soviet and Russian bureaucracies, the business of making business with bureaucrats is the most successful and the most stable type of business activity in the country (Maslennikov [2] 2000). Thus, among those executives interviewed, 43% acknowledged that if they lost their jobs in the govemment, they would consider going to work in the private sector and 26% said that they would start a business of their own. Three years later, none started their own business, choosing either to work for big corporations (one former deputy to the prime minister as a liaison to the state, another as an economist), and some retumed to work for the state. Trust me, those who left here (the apparatus of the federal govemment) are dying to get back, one head of a directorate of the federal govemment explained to me (Gontmacher 2001). Finally, there are more trivial reasons for not choosing business as a career. Of those questioned, 35% acknowledged that they lack the skills and/or education needed for
160
success in the private sector. An additional 17% feel that the business environment is simply too lisky. Thus, those executives who find themselves outside public administration are more likely to seek an employer that is connected with the federal government and that will employ them first and foremost for their clouts in governmental circles. Again, analysis of the stories in the national media reveals that only a minuscule percentage of former executives and top managers who started their own firms (6%), whereas the majority (77%) took positions as members of the boards of the big corporations (both domestic and foreign-owned), employees of analytical departments and lobbyists. To be sure, members of the boards and employees of analytical departments are usually euphemisms for lobbying (Table 5.8).
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Table 5.8; Bureaucrats to Business Migration (1993-2001)

From/ To Started B usinesses State-affiliated companies Members o f the board o f the major corporations Members o f the board m edium and foreign-owned businesses Analytical Directoratess of banks/businesses Lobbies Other businesses Presidential A dm inistration 1 1 3 Government apparatus 3 10 13 Federal Agencies 1 3 9 Total 5
14
25
13
2 6
3 5
1 3
6 14
Source: Russian national print media (1993-2001)
To cut the long story short, we can make some conclusions with regard to executive-level bureaucrats. In the first years of reforms (1991-1993), public service attracted quite a few unorthodox bureaucrats mostly from academia who were eager to invest their talents and ideas, and were driven by the desire to change the country both economically and politically. Salaries in the first reform government did not exceed $30 per month, and privileges were not yet reinstituted in full. However, the notion of doing common good evaporated after the majority of jobs in the government were taken over by the old Soviet apparatchiki. Thus, slowly but surely other incentives began to dominate. Status and prestige rank first in importance to executives. Privileges provided to the executives are a huge incentive for seeking and keeping the office at any cost. Those benefits translated into the market value make position of an executive compatible with the job in the private sector. Rewards are in no way connected
162
to performance of the executives, and serve as the way to make them loyai to a sovereign. Opportunity for coffuption makes a job in the public administration very attractive as well. A study of corruption in Russia (Saratov 2001) revealed that 90.8% of all corruption is a result of the control and oversight functions possessed by the executive branch. Municipal and regional authorities extract the most pay-offs from businesses on a
OQQ
yearly basis, while the federal government extracts only 5% of the total volume.
That
seemingly small share contradicts the reality check and can be explained by constrains on obtaining the data: businessmen of the middle and lower-levels were more likely available for interviews, whereas access to CEOs of big business, whose operations necessitate federal interaction, was harder to obtain. Still, even 5% of the yearly $33.5 billion estimated rents amounts to $1.7 billion that end up in the pockets of bureaucrats in the federal government. Detracting from the allure of a job as an executive is lack of stability The average tenure for the deputy to the prime minister is only 15.7 months. This provides for the very high turnover. The same is true for the heads of the agencies and directorates of the federal government. An analysis of spravochniki (telephone books) of the apparatus of the federal government reveals that only one head of a directorate hired in May, 1992
It is no surprise that despite all the romantics that accompanied the first years of reforms, despite that Gaidar government was often called the government o f kamikazes who came to reform the country or die, few o f those romantics - with exception for Yegor Gaidar himself in January o f 1994 (Gaidar, 1999), and deputy to the prime minister Alexander Shokhin in November, 1994 did resign on their own as a way of protest against subversion of reforms. Those who were not fired chose to keep the office no matter what. Some, like Anatoli Chubais believed that even if they could not move reforms forward, it was important to protect what was achieved, others had had hard time finding a job outside the office that, as they believed, fit their abilities and skills, and material aspirations.
^ Georgii Satarov et ah. Corruption in Russia. Chapter 5: Practice of the Business Corruption (2002)
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remained in the same position seven years later. As a rale, directorate heads lost their jobs after the deputy to the chairman who oversaw the directorate was fired. Also, as a rule those directorate heads (in almost 80% of the cases) were succeeded by their deputies. This latter fact suggests that the performance of a directorate has little to do with the promotion of bureaucrats. Success or failure of executives seems to be rarely connected to their efficiency as public servants. There have been very few instances when a high-level executive was fired because the public was dissatisfied with his work. (In 1992, Yegor Gaidar and two other members of his government were dismissed. In 1994, after so-called Black Thursday , when the ruble collapsed for the first time, the head of the Central Bank and the Minister of Finance were dismissed. In January, 1996, public dissatisfaction with reform policy led to the dismissal of Anatoli Chubais, then the first deputy to the prime minister. And finally the 1999 financial collapse led to the dismissal of Prime Minister Sergei Kirienko and several members of his government.) In fact, prior to spring, 1998, when the Kremlin started searching for an heir to President Y e l t s i n , t h e average tenure of a Russian government (group of bureaucrats as opposed to an individual executive) was as much as twice as high as in the majority of other postcommunist countries in transition: 54 months as opposed to 14 months in Poland and Slovakia, 17 in Estonia, 26 in Hungary, and 35 in the Czech Republic.
Available from: http://www.anti-corr.rU/awbreport/siimmarv/5.htm. It was assumed that only the one who held the position o f prime minister, and thus enjoyed high name recognition, stood a chance to beat the leader o f the main opposition, communist Gennadi Zuganov, in the 2000 presidential elections. That assumption turned out to be the correct one: Prime Minister Vladimir Putin, appointed to the post in August 1999, won the office o f the president in March 2000.
290
Heilman 1998; Heilman provides data from the onset of reforms in the late 1980s to 1995.
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Constant fear of losing job, prompts executives finding ways to either reduce the risk of being fired or to ensure the same level of comfort if they seek a career outside the government. The solution for the former is loyalty to the nations chief executive and support from the powerful business interests outside the realm of the state. The solution for latter is the same: loyalty to the president if the job is with a state-affiliated company or with an oligarch. Thus, there are no incentives whatsoever on the part of the executives to serve the public: their welfare in no way depends upon public well-being and satisfaction whether during their tenure in office or afterward And there are no reasons for them to advocate democratic politics, which can only increase the risk of losing their jobs.
M anasers If there is one thing that unites executive-level and managerial-level bureaucrats, it is their attachment to their jobs in the administration. Like executives, managers cannot see themselves working anywhere else. When asked what they would do if they lost their jobs, 91.5% of bureaucrats at the managerial level said they would seek employment with any other state agency (e.g. stay inside the system). But concerning everything else, managers and executives are very much dissimilar. With few exceptions, manageriallevel bureaucrats are bitter, disillusioned, and feel that they are put down by assignments that end up in the trash. They feel lost in routine, the meaning and purpose of which they do not understand and of which they often do not approve. And they believe that their delo zhiz mission in life has been gradually destroyed over the course of the last decade, leaving them with nothing. I cannot turn away from my lifes calling, one
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employee of the state statistical agency avowed rather emotionally when asked why she stays at her job despite her complaints of low salary and enormous workload.
9Q1
Many
of them suffer from the meaninglessness of their jobs; they know that 90%of what they do will be recognized by nobody and will result in nothing, concludes Olga Kudukina, a sociologist that conducted the majority of interviews with the managerial-level bureaucrats. The author herself was rather affected while reading hundreds of pages of transcripts of personal interviews conducted with the managers: at large these were voices from the past, islets of the long-deceased USSR, existing in the midst of a completely new reality. I knew these bureaucrats before. As a journalist I interacted with them almost two decades ago, when they were quite at peace and proud of their jobs in the leading agencies of the then-Soviet state: Gosplan (the state planning agency, now replaced by the Ministry of Economy) and the Ministry of Trade of the USSR (now incorporated into the Ministry of Economy). The story I researched back then was the following. Each year, the USSRs fishing industry produced hundreds of millions of cans of cheap fish that nobody wanted to buy. Even in the Soviet Union, where the shortage of food was constant, this canned fish could not find consumers and thus piled up in the stores and warehouses. Originally I caught the story at one of the finishing plants in the poorest part of the USSRthe Kuril Islands in the Far East where children never saw fresh (only dry) milk, and where oranges were fruit from foreign-made movies. At the time of my research, more than two billion cans had accumulated in storage all across the country. Each year respective
291
Deputy to the Head o f the Directorate, Goskomstat.
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agencies had to hire workers to open cans and throw out the rotted product. Then trucks had to carry the tin cans to special plants, where yet more workers recycled them, in order to produce new ones for the same product that no one wanted to buy in the first place. But in addition, each year hundreds of millions more of these cans were produced in the Far East, and shipped all across the country all through its eleven time zones. The question of why this madness perpetuated brought me to those in the Russian bureaucratic hierarchy who were responsible for planning the production of those cans, and to those who knew the consumer response to the product: Gosplan and the Ministry of Trade. There was a difference between the bureaucrats in the Ministry of Trade and those who worked in the prestigious Gosplan, the most powerful economic agency of the Soviet Union. Rooms in the Ministry of Trade were old and crying for renovation, and the smell gave evidence of the lack of hot water in peoples homes and the absence of deodorants on the market. The bureaucrats (all women) with whom I spoke were considerate and acknowledged that madness was a fair description of what was happening. But they also said that it was not in their power to do anything to stop that waist of money and resources. They directed me to Gosplan. There I had a meeting at a directorate located in a brand new building (now occupied by the State Duma) where the rooms were spacious and bright, and were occupied mostly by men. That was my first acquaintance with the kind of caste system existed inside the Soviet bureaucracy. The attention of these Gosplan bureaucrats was sought after by the managers of every plant in the country. These were the bureaucrats who distributed resources: everything from nails to tin for the fish cans, and turbines for the electric power plants. In other words, they were very special people who carried
167
great responsibility. The color in their faces spoke of good food obtained from the closed paspredelitili,the special food stores open only to the nomenklatura (where my canned fish was not for sale). (In the USSR, you could often tell a persons status by the color in their cheeks, which always told of the quality of the food they consumed.) The chinovnik with whom I spoke was very friendly and understanding, and he also recognized the foolishness and waste of producing millions of cans that even Soviet people did not want to buy. So I asked when Gosplan intended to stop that ridiculous affair. Unfortunately, it is not up to us to decide the issue, the bureaucrat said and pointed his point upward. This sign needed no translation. He was referring to the god like bureaucrats of the Central Committee of the Communist Party, and in particular the sector in the directorate in charge of the fishing industry.
9Q 9
Obviously, the career
prospects of that bureaucrat, his chances for promotion, the level of his salary and even his self-esteem were in no way connected to the unfortunate product of his efforts, outcomes for which he felt neither responsible nor accountable. The task of producing goods that no one wanted to buy, and not producing enough of those goods that people were desperate to buy, was given to him. His job was to make sure that there were enough ships to catch fish, enough oil and tin enough of whatever was needed for the fish canneries to operate in accordance with the five-year plan, to produce those tinned goods destined for the rubbish bin a couple of years hence. Ironically, the better that
It took me a year and half to finally get the story into the paper. My own newspaper, livestia, was afraid to publish it because Mikhail Gorbachev, then-newly appointed General Secretary was about to visit the Far East. Thus, editors wanted to wait and hear what he was going to say with regard to the state o f the economy in that part o f the USSR. Another newspaper, Sovetskaya Rossia, would not publish it because, as the editor explained, millions of people were standing in line to get food, and thus, he implied, people would be disappointed to read about the doomed fish. Finally, Literatumaya Gazeta, a journal aimed primarily at the intelligentsia, and therefore allowed to print critical stories, ran the story in March of 1986.
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bureaucrat did his job, the worse it was for the nation; in fact, should he have been doing nothing at all, the nation would have gained, not lost. The bureaucrats in
1113/
2000-2001 survey were, of course, different in many
respects from those I met in the Soviet uchrezhdeniya in the mid 1980s. They were no longer so proud of their positions, and they no longer had that distinctive look of people with access to exceptional luxuries, and they definitely no longer had the kind of power and control over resources that the chiniovniki of the U SSRs Gosplan had. However, the very phrase: We dont make decisions, we just implement them. ..(1)^^^ finger pointing upwardnot once came across in the interviews. There was another important difference between the current bureaucrats and the Soviet ones. The latter did not have choices. There was just nowhere to go. I dont know anyone who resigned out of disagreement with his superiors on essential economic or political issues. And if they did leave, it was because they got fired, which made them marked men. This left them doing the work of a dvom ik, all that was left for such people (Arefiiev 2001). But, as my survey shows, todays managerial-level bureaucrats, with all their complaints about senseless work assignments and miserable compensation, still do not envision any employment outside the agency even though they have many more choices and opportunities than were open to their predecessors. Only four out of a total of forty-seven interviewed speculated that they might seek a life elsewhere (two indicated politics, one (sic!) said business, and the fourth would chose academia). Thus, a mere 8.5%of managers surveyed believe that the idea of life outside state service is plausible.
Deputy to the Head of the Directorate, Ministry o f Economic Development and Trade, male, 50 y.o.
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What explains such loyalty to the office? Not surprisingly, given that the majority of those interviewed are close to or well over 50 years old (Table 5.4), the high pensions that the state provides for its retired employees (along with the retention of some of the privileges and benefits that they enjoyed during their employment) ranked first on the list of incentives. In accordance with the federal law on state service and a range of other presidential orders and government resolutions,^^"* retired employees of federal agencies may receive a pension ranging from 55-80% of their monthly s a la r ie s .G iv e n that the average pension nationwide is about $50, government pensions amount to as little as $116 per month (for those with the minimum length of service) to as much as $257 per month, five times more than the national a v e r a g e . If you did fifteen years here (in the office) you are stuck. You become a hostage to your stazh (length of service); it is just impractical to leave, explained one long-timer {2)?'^^ Equally important is the job stability found in administration. Over 76% of those interviewed secured their jobs after the collapse of the Soviet system. Quite a few of
See, for instance, Presidential Order #854, August 16, 1995, and Resolution o f the Federal Government #83, January 31, 1996. Gosudarstvennaya Sluzhba.Sbomik Normativnych Documentov (Moscow: Delo Publishing House, 2000). The percentage depends upon length of employment. Employees who served the minimum (12.6 years for men, ten years for women) are entitled to 55%. To compute the average monthly payment of the managerial-level employees, I estimated compensation (salary plus bonuses) to be 9973.41 rubles per month (~$321) for directorate heads, and 6555.78 rubles per month (~$211) for heads of the otdel (smaller directorates or sections inside the directorate). See: Analytical Report, Zarabotnaya Plata I Korrupzia: Kak Piatit's Rossiiskim Chinivnikam (Salary and Corruption: How to Pay Russian Bureaucrats). Deputy to the Head of the Directorate, Ministry o f Labor, female, 45 y.o.
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those from the Ministry of Economic Development and Trade as well as the Ministry of Labor survived five or six transformations of their agencies. I am already twenty years in the same building; I came here in 1982 as a specialist in the otdel of light industry, said one manager who now heads the directorate of gosudarstvennoy sluzhby (state service), the agency that structures and administers the public administration of postSoviet Russia (3).^^ This one particular bureaucrat survived three General Secretaries of the Communist Party, the collapse of the USSR, two presidents of the Russian Federation, and at least five different ministers. Like executives, managers also value their jobs for the prestige of state service, the status that it gives and the power that comes with the office. In fact, approximately one-third of those interviewed indicated that prestige was a major attraction of the position. Reminiscent of the power of bureaucrats in Soviet times, these present day managers are vested with the power and authority to distribute resources and steer institutions. For instance, the Directorate of Educational Institutions, Medical Organizations and Personal Politics (indeed there is such a directorate) can decide how many new students will be accepted to medical school on a yearly basis (4).^^^ Given that medical education is still paid for with federal funds, the authority to decide which universities in which regions of the Russian Federation to subsidize is quite significant. Another directorate in the Ministry of Health is in charge of the quality, efficiency and harmlessness of the medicine and medical equipment entering pharmacies and hospitals nationwide (pharmaceuticals is presently a booming industry in the country). This
^ Head of the Directorate, Ministry o f Labor, male about 50 y.o. Head of the Directorate, Ministry o f Health, male, well over 55 y.o.
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directorate along with a few others in the same agencyfor instance, the directorate in charge of organizing pharmaceutical activities and supplying medicine and medical productsset normativniye documenty, regulations and laws that establish industry rules. Quite often we get calls from the provinceslets say from Amur region [about five thousand kilometers from Moscow] from their center in charge of certification of medicine. Someone over there needs our consultation with regard to regulatory documents and we provide that right away over the phone (5).^^ According to one directorate boss, each year the directorate receives some 15,000 (sic!) documents that must be reviewed, and acted upon when necessary. However, as impressive as this power may be, nothing outweighs the prestige of merely holding the position, and the respect it commands in the eyes of the bureaucrats friends and relatives and in the public at large. Like a caste system, being part of the ruling nomenklatura class outweighs everything else. Here is an example. The deputy head of a directorate, a woman in her mid to late fifties named Stalina^*^^ (a telling name), decided to quite her job because of low compensation and seek a higher paying job in the commercial sector. To everyones surprise including her own, she succeeded, finding a job as an office manager of a respectable foreign company. I was really curious to see if I could compete successfully [in the labor market] with my [Communist] Party past, my experience in the party structures and my lengthy service as a soviet chinovnik. I did. I w ent through four
Deputy Head o f the Directorate, M inistry of Health, female about 50 y.o. Stalina derives from Stalin. It was quite common to name girls after the last names o f the leaders of the state: Lenina, Stalina. After Stalin died in 1953, and especially after his crimes were acknowledged by Nikita Khrushchev in 1956, some changed their names from Stalina to Svetlana, but some, usually from the families o f devoted Stalinists, did not.
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interviews, and I got a nice proposal. I was to make ten times more than I had [in the agency] (6).^^^ Stalinas responsibilities as office manager included overseeing the employee cafeteria. I didnt have to cookthere was a cook, but I had to control him, to be sure that he bought good groceries in the market, and that he prepared quality meals for the employees, she explained. Apart from managing the cook, her responsibilities were to also include interacting with the service crews responsible for maintaining the .
lavatories and shower rooms, etc., in the rented apartments of the companys employees. I gave it another thought, and I decided that, given all my experience, I had outgrown that kind of work. So I turned it down. Apparently, the prospect of dealing with service people, who in Russia are considered to be very low and poorly educated, was too great a challenge for Stalinas self-esteem; working with untouchables would lower her status to a level that she was not willing to accept. Another bureaucrat I interviewed firmly stated that being a chinovnik is more prestigious than being a doctor(7). As was noted in the previous chapter, status and symbols play a very important role among bureaucrats. Nachalnik (boss) is not a nachalnik not even a small one unless he has an office of a substantial size and a secretary to take calls and meet visitors. A low-level bureaucrat entering the office of his superior should see him from afar; he should feel himself and the issues he brings as small and negligible compared to the range of responsibilities that are carried by the n a c h a ln ik '' (Ulukaev 2001): so explained one top-level bureaucrat (whose office was as large as 60 square meters) about why Soviet and now Russian bureaucrats tend to have sizable offices, while their subordinates
^ Deputy Head o f the Directorate, Ministry of Labor, female, well over 50 y.o. ^ Head of the Directorate, Ministry of Health, male, about 40 y.o., the former chief doctor of the hospital.
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are crowded into much smaller rooms. Of course, managerial-level bureaucrats enjoy less valuable status symbols than executives, but, as Stalinas story reveals, these symbols are worth the money they decline in the realm outside state service. For managerial-level bureaucrats, typical perks include, like executives, a car and chauffer. But unlike executives, it is not exclusively their own: they must request it when they need it, and it will come only if it is not being used by someone else. The car is a black Volga, which was a sign of superiority in Soviet times, but is much less so now. However, the government plates still acknowledge that the cars occupant is someone to respect, if only on the part of the police. Another status symbol is the access managers have to the special cafeteria assigned to the managerial-level class, allowing them to eat apart from their subordinates. The food is about the same in both canteens, but in ours, there are waitresses, and I dont have to clean [the table] afterwards. In obshey (the common area) you have to take your tray, and get your meal yourself, one interviewee told me (8). This manager also confirmed that there exists a third type of cafeteria for
the agencys executives he, however, had never been to it, and did not know what kind of food is served there. Given the substantial size of the various agencies (for example 1,861 employees in the Ministry of Economic Development and Trade, 1,509 in the Ministry of Finance, 821 in the Ministry of Labor) segregated cafeterias allow the various managerial classes to associate only with their own. About one-fifth of those questioned described their jobs as providing good career opportunities and/or helpful for establishing connections that can be useful later on.
^Deputy Head o f the Directorate, Ministry of Finance, male, about 35 y.o.
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These are predominantly incentives described by, and important to, young people (those in their thirties and early forties). Naturally, some agencies offer more such opportunities than others. The Ministry of Finance tops the list a position there provides valuable experience that allows one to rise high in the government or, later, in a respectable private firm (5). By contrast, the Ministry of Labor ranks low. The perceived prestige is usually determined by the size of the agencys budget, the sums it controls for distribution and/or the number of businesses that the agency regulates through permit and license distribution (Maslennikov 2000). For instance, in the Ministry of Economic Development and Trade, there is a directorate called the Directorate of Investment Policy which decides which regions and which industries should and should not be on the states priority list. Thus, because of its enormous authority, it is considered to be prestigious. The sociologists who conducted interviews there noted that, unlike in most other d irectorates in the agency, every employee there had a cellular phone (indicative of a high income regardless of whether the phones were their personal property or were provided by the directorate). In the Ministry of Health, the directorate that regulates the pharmaceutical industry is considered to be a very desirable spot. Otrasleviyey ministerstava (agencies that control specific sectors of the economy, or those that control the flow of financial resources to regions or institutions) are the ones that have real authority, where connections mean the most and where career opportunities are the best, stated one manager who entered state service from academia in post-Soviet times (9).^^ All you have to do is stop by different agencies on the verge of some holiday say, the Eighth of March [Womens
Deputy Head of the Directorate, Ministry of Economic Development and Trade, male, over 50 y.o.
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Day]: there where you see the most amount of people carrying flow'crs and gifts, these are the agencies where people (bureaucrats) have the greatest opportunities to take part in the decision-making process. Its all about the power to decide who gets how much money from the [state budget] (3), announced another bureaucrat. W hat else motivates bureaucrats? Some indicated an actual interest in the job itself. Nine out of forty-seven interviewed (one-fifth) acknowledged that their jobs were interesting. A young man in his mid-thirties with a strong academic background explained his choice of becoming a chinovnik as a matter of civic pride. There are certain things that should be done [in the sphere of the state financial and banking system] now. Otherwise Russia will loose any chance to escape its backwardness. I know what should be done, and I can help this to happen (10), he said, in a reminder
of the ideas that were often put forth in the interviews with the executive-level bureaucrats of academic backgrounds. Rather unfortunately, this young manager was one of a kind in the sample. He also believes that he is performing a service that is of vital necessity to his country, a notion that seems to satisfy both his ambitions as well as his academic interests. He could easily find a job in a prestigious analytical or brokerage firm with a salary ten times his current one ($300-400 monthly) but he declines those suggestions as confirmed by his superior. Others have a very different understanding of the word interesting. For instance, old bureaucrats who spent their lives in the Soviet and now Russian
306
Deputy Head of the Directorate, Ministry of Finance, male, 35 y.o.
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bureaucratic agencies spoke of their love for paperwork and/or contributiiig something literal to a document that eventually becomes an official regulation or law Lastly, interesting job was defined as the honor of serving the state. Regardless of whether those claims are sincere,, they were verbalized by bureaucrats of two distinct age groups: those in their late fifties and those in their mid thirties. Whereas the former simply repeated the slogan (We serve the State!) that has followed them through their entire lives, when the latter say it, they are actually stating their ideological position described in the Russian media as gosudarstvennik or statist (12).^*^^
Money m atters. As was noted earlier in the chapter, managerial-level bureaucrats, unlike the executives, constantly complain about their salaries. The situation was somewhat better before the 1998 financial collapse; back then, the salaries of bosses like directorate heads were comparable to similar positions in the private sector. However, the three-fold currency devaluation ruined bureaucratic salaries. Salaries that were acknowledged in the interviews were stunningly low, ranging from 4000-6000 rubles per month (roughly $130-190). However, salary comprises only about 38% of the total monetary sum. Of total monetary compensation, 25% comes from bonuses that depend on seniority, qualification rate, special conditions of work, access to secret materials, etc.; another 25% comes from premii (rewards given monthly or quarterly) and matedalnaya pomozh (monetary help is the way for the head of the agency to give salary increase ob month by month basis); and the final 11% is accounted for by various other compensations, such
Deputy Head o f the Directorate, Ministry o f Economic Development and Trade, female, about 50 y.o. ^ Deputy Head o f the Directorate, Ministry o f Economy, male, 35 y.o.
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as allowances for vacations, transportation, etc. (Goskomstat 1999). Given the secrecy that surrounds all the information regarding the compensation of chinovniki, we must content ourselves with an approximation. According to the latest research done by specialists of the Moscow-based think-tank Indem, the average monthly salary of managerial-level bureaucrats of the federal agencies is as following:
T able 5.9 ; Estimated total average monthly income of managerial-level bureaucrats Position Directorate Head Head of Otdel Source: Indem, 2002 Salary plus all bonuses $321 $211.4
Given that the average income in the capital where federal agencies are located is about $300 monthly, the total monetary compensation received by managers corresponds to the mean, whereas their subordinates are clearly struggling with their monthly expenses (or at least should be, absent extra or illegal income). The study conducted by Indem revealed that the current system of payment is beneficial first and foremost to those who have spent over ten years in state service. Thus, Soviet-era bureaucrats have the greatest incentives to keep their jobs, whereas there are few incentives for a new generation to enter the system. It is also true that there are large discrepancies between the salaries of employees of different agencies. The Ministry of Transportation leads with the highest salaries of all the federal agencies. The Working Center of Economic Reforms of the Government of RF has the smallest. Neither I nor other researches have managed to obtain data for the
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agencies that provide the law obedience and security of the state, as Goskomstat labels the Federal Security Service, Ministry of the Interior. Ministry of Defense, Federal Service of Body Guards and some others known as ministries with zvezdochka (asterisk), which since 1994 report directly to the President. The difference in salaries has several explanations. First, tradition has existed since Soviet times that certain agencies are to receive higher salaries than others (Satarov et al. 2002). Second, if a particular agency conducts commercial activities and services, then it is capable of donating profits to a common salary pool (Yurkov 2001). Finally, salaries are often determined by the number of dead souls in the agency. Dead souls serve the same purpose as they did for Chichikov in Gogols famous nineteenth-century novel. Dead Souls. Each agency receives a pool of money for salaries that is calculated by the Ministry of Finance in consideration of the number of employees in the agency. If an agency reduces its staff, the money provided by the state will be reduced by the same margin. Thus, the head of every agency often overstates his workforce by 10-20% (Vugin 2001). These nonexistent employees are known as dead souls. Agency heads also award extra cash to those whom they feel deserve extra recognition. These extra payments are known as konverti, or envelopes containing cash. The amount of cash in the envelope is, of course, a secret. Studies revealed that the maximum monthly income of a directorate head, which comes from all kind of sources, may reach as much as $967 (Saratov et al. 2002). The amount they receive under the table may be as much as twice that sum. The standard deviation from the mean monthly income (salary plus all bonuses) of all the directorate heads is about $170, whereas the standard deviation from the mean monthly salary of the heads of the otdel is much lower.
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approximately $65. Therefore, we can safely infer that on average the payments that come in these konverti are, in most cases, as high as $170 and as little as $65. Besides the obvious corruption opportunities that come with such a system, it makes fealty to the bosses a necessity, and, at the same time, hardly inspires respect for the rule of law among agency employees: no taxes are paid on-the extra credits received in konverti. Besides monetary compensation, privileges are also received by managers, though on a much smaller scale than executives. Among the most important privileges is the possibility to obtain an apartment free of charge, which may later be privatized. The Kremlins Business Administration Directorate awards apartments according to rank. Executives and managers with an especially good relationship with the head of the agency or who serves in the Kremlin itself enjoys a luxury apartment in an exclusive Moscow neighborhood. The market price for such an apartment may be as high as $1 m i l l i o n . T h o s e of lesser rank enjoy less valuable real estate. Other privileges for managers include free higher education for their children (in fact, there is a quota for the children of public administration employees in certain colleges in Moscow) (11);^'* free masters degree programs in universities affiliated with the public administration (8); discounted vacation facilities; and free medical care in the clinics attached to the agencies. A review of the insurance prices for these particular clinics reveal that an ordinary Muscovite would have to pay $450 annually for care in the clinic of the Ministry of Finance and $330 for care in the clinic of the Ministry of Economic Development and Trade.
Agency Penny Lane, M oscow-based real estate agency. Information provided to the author, August
2002 .
Deputy to the Head o f the Directorate, Ministry o f Economic Development and Trade, male, 30 y.o.
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Overall, the average compensation of managerial-level bureaucrats can be estimated as follows;
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Table 5.10: Estimated monthly income of managers, including special payments and privileges
Position Salary plus all bonuses Payment in Konverti Medical care Total Directorate Head $321 $170 Head of the Otdel $211.4 $65
$32.5 $ 523.5
$32.5 $308.9
Source: Indem, ROSNO insurance agency
It should be noted, however, that the managers we interviewed were rather dismissive of the privileges that come with the job. Given their modest salaries, one might expect the opposite. The contradiction was explained by one newly-appointed manager who previously had never worked in the public administration, but had much experience in private international finance institutions: [For a bureaucrat] it is less important what kind, and how, many privileges he/she has, than it is to have access to places where others are not allowed in (14). Thus, an agency clinic that is accessible
to ordinary citizens looses its value by definition, whereas a cafeteria exclusively for managers is a privilege to be strictly observed and not violated. Thus, we may conclude that the average income for managers of the higher levels of public administration are not as bad as was described in the interviews; it is either
Computed by taking the mean cost o f two different insurance policies and dividing the sum by twelve months. Deputy to the Head o f the Directorate, Ministry o f Economic Development and Trade, female, over 30 y.o.
312
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comparable to or higher than average income levels in the capital (but, of course, it is not comparable to the incomes of executives). Still, salaries and special payments comprise only a portion of the monetary compensation of managers. Several managers all newcomers to public administration acknowledged, both on and off the record, that there are very few people [employees of the agencies] who live on salary alone (14). Extra income is made by providing consulting services, which include selling inside information, providing protection from bureaucratic meddling, and the trading of permits, certificates and licenses. The sale of such state services comprise the real income of many bureaucrats of the managerial level (Table 5.11), and apparently serve as a powerful incentive for keeping the office regardless of what is considered to be small compensation from the state.
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Table 5.11: Prices for bureaucratic services (selected cases)

Product
Foreign passport Domestic passport Car permit (annually) Confirmation of real-estate (apartment) ownership Escaping the draft Permit to open a small grocery store Permit to conduct import/ export operations Permit for reconstruction of real-estate property Protection fee for an adoption agency Permit to open a restaurant (Moscow) Permit to open a company bank account in a bank outside the country License for tele communication frequencies Bailiff services Getting an order to publish text-books for schools
Agency
Ministry of Foreign Affairs/Ministry o f Interior Ministry o f Interior Traffic Police Municipal authorities Ministry of Health/Ministry of Defense Ministry o f Interior/Local authorities Ministry of Economic Development and Trade Ministry of Construction/Municipal authorities Ministry o f Education Ministry o f Health/Ministry of Interior/Municipal Authorities Ministry o f Finance/Central Bank Ministry of Communication/Ministry of Defense Ministry o f Justice Office o f the Governor
Price
$90-300 $ 150 $ 150 $50 $ 800 1500 (periphery) $4000 - $ 5000 (capital) 10-20% of the future profits 5-10% of the deal $ 1500- $ 2000
$ 10,000 (yearly) $ 15,000 - $ 20,000
$ 60,000
$ 250,000
7% o f the sum 3% of the sum
Right to live and conduct FSB $ 500,000 business in the country^ ^ " * Source: Business Owners (interviews by Yevgenia Albats),Timofeev & Klymkin, Boris Nemtzov (draft), Georgiy Satarov (text-books), Coudert Brothers Law firm (bailiff services)
As was noted at the beginning of the chapter, the vast majority of manageriallevel bureaucrats are either bitter about, or bored with, the Vv'ork they have to do. When asked to elaborate, the interviewees revealed important insights into the way the system works on that level of the Russian bureaucracy.
3!3
Price depends upon speed o f the service performed: the quicker, the more expensive.
That is the exact wording o f the request put to the owner o f a big publicly-owned company by an FSB officer.
314
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In-House Rules There exists two words in the lexicon that describe the organization of the Russian bureaucratic system: porucheniye and soglasovaniye, Poracheniye refers to setting out a task for a subordinate, while soglasovaniye means coordinating the execution of a task between different directorates or different agencies. Bureaucrats of
the various agencies are involved in two major types of activities: writing laws and regulations, and overseeing the enforcement of those laws and regulations. Clearly, as the lawmakers are also the enforcers of the law, there is the potential for conflicts of interest. Porucheniye issued to a directorate originate either with the apparatus of the federal government or with the deputy to the head of the agency that oversees the particular directorate. These tasks often conflict with each other, and result from opposing decisions that originate at the top (14). According to several old-timers, the number of tasks coming from outside the agency are many times greater than in the days of the Soviet Union. This is bizarre given that back then state agencies controlled all spheres of economic and political life, whereas by 2000 just 34% of the national economy remained in the hands of the state (Braverman 2001).^'^ Shrewd bureaucrats know how to identify the porucheniya that should be fulfilled and those that should not. For example, if the document (which will be the product of the task given from above) requires coordination between, and approval from, a considerable amount of different agencies (sometimes as many as 26 (13)), and if the time given to complete the task is flexible (i.e., one month), most likely whomever issued the order is not seeking a resolution to the question, but on the contrary, is seeking an excuse that will allow him to deflect blame for the failure to fulfill the order (14). However, if the head or
Alexander Braverman, Deputy Minister o f State Property, 1993-present. Interview with Yevgenia Albats, Boston, October 2002.
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the deputy head of the agency states that the task should be fulfilled in two days, than it means the matter is serious. Still, regardless of whether a particular task is seen as serious one or not, it may still end up in the trash. Managers (as they acknowledged several times in the interviews) as a rule do not make decisions. The majority of decisions are made on the executive level, by the agency head and his deputies and almost never the other way around. Interestingly, managers who are relatively young (between 35 and 45 years old) are more likely to make decisions on their level of authority then those managers who are in their fifties (13). The reason is obvious: whoever makes a decision must bare responsibility for the outcome. The risk of loosing their job as a result of a bad decision is less consequential for those who are young. They can find another job with relative ease, either in another agency or in the private sector. Older employees, however, have fewer alternatives, and are more often working toward their retirement benefits at that stage of their employment. Regardless, managers do not really have the authority to devise initiatives concerning what should be done in their fields. All initiatives come from the top. They hardly ever come from the bottom (16).^^^ Fulfillment of tasks is surrounded by many obstacles, the most difficult of which is the reluctance of other directorates (let alone other agencies) to share the information they possess. The reason for this is the existence of a clientele that is willing to pay for this information. (Remember that bureaucrats make a considerable profit from selling state services to those in the private sector: therefore, sharing information invites competition.) Several bureaucrats acknowledged that it is very difficult to get
Head of the Directorate, M inistry of Economic Developm ent and Trade, male, 60 y.o.
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information from the Ministry of Finance, the Central Bank, and Goskomstat e.g., from precisely those agencies that possess information that has value on the market. Overcoming this obstacle and forcing a reluctant directorate to release their information can only be done via a call from a higher boss (providing that this boss is not sharing in the graft), or by way of personal contacts. For instance, one directorate in the Ministry of Finance had been seeking information regarding nuclear power plants for an international treaty that was under revision. That information was in the possession of another directorate of the same agency. The first response to the written request declared that the information simply did not exist. Thus, the manager sent another request to a different deputy who happened to be new to the directorate and of the same age (35) and background as the manager making the request. Moreover, the two were acquainted outside the agency. Therefore, as the manager recounted, the response was quick and lengthy in details (10). Soglasovaniye, or the coordination of a task, is a difficult and lengthy process as well. In essence it assumes the coordination of interests between different agencies. Given that those interests are often contradictory and involve the interests of the clientele of those agencies, it takes time, skill and connections to overcome the barriers. Once it took me two weeks to execute an important document (that came from the federal government) with the Ministry of Finance. That document, despite its importance, was lost over there several times and several times it took (connections) to find it, one
o 1T
bureaucrat disclosed angrily, implying that the document was lost on purpose (17).
Deputy Head of the Directorate, Ministry o f Economic Development and Trade, male, about 55 y.o.
187
Another manager from another agency recounted a similar experience. The Ministry of Health was developing a document that was to define its sphere of responsibilities and functions (polozheniye o ministerstve). The first obstacle they encountered came from the agency in charge of sports, Goskomsport. Goskomsport wanted to have control over resorts that fell into the domain of the Ministry of Health. Thus, Goskomspoit continuously blocked final approval of the document until the Ministry of Health relinquished the facilities. When the matter finally seemed finished, the Ministry of Finance suddenly voiced its own objections. By the time of the interview, the Ministry of Heath had been struggling with that particular task for a year and half with no progress to show for its efforts and no resolution in sight (18).^^^ A third manager told how a regulation that his directorate was in the process of developing required approval from as many as thirty different agencies. Because these regulations pertain to purchases the state will make on a regular basis for the armed forces, many people (both public and private) have an interest in it. Such state expenditures are very lucrative for businesses and, by extension, for the bureaucrats who award the contracts. Of course, half of the agencies involved dont want a law that will require merit-based selection [of suppliers]. So, we are stuck (19). However, soglasovaniye, besides attempting to coordinate conflicting interests, have several practical functions as well. First, it allows employees to resist a decision without fear of punishment for not fulfilling the assignment. The best way to kill an idea is to create a commission [to resolve disputes between different entities] one
From a rational point o f view, neither o f those agencies should have had anything to do with vacation facilities, given that the majority of them are run as businesses, not as state enterprises.
319 .
Head of the Directorate, Ministry o f Health, male, 50 y.o.
188
bureaucrat said (18). Second, it allows one to put a price tag on a decision, and extract a bribe. Third, it allows one to avoid responsibility for the decision made; Those on top [i.e., executives] are unable to come to terms, and constantly change their orders. To be on the safe side, just wait and see, explained one manager (16). When coordination involves lower stakes than the turf sharing between different agencies, informal personal connections between managers are the best way to make things happen. Given that the majority of managerial-level bureaucrats are also old-time Soviet bureaucrats, we can safely infer that their abilities for coordination are higher than the abilities of the newcomers. However, this also suggests that their ability to block certain decisions that may endanger their existence (like abolishing supervisory functions) is quite high as well. Given that stability is the number one priority for managerial-level bureaucrats, they must do their best to preserve the status-quo. So not surprisingly, when asked if they saw the need to reform the work of the public administration, the old-timers often responded negatively. This system (of administration) has been working for a very long time. It has proven to be good, and it is better not to touch it, one bureaucrat firmly stated (17). However, the managers who have entered managerial-level bureaucratic positions from outside the public sector are much more critical of the system. There is a clear sense among these newcomers that given their minority status (in my sample they accounted for only 10.6%) they are going to loose the battle for progressive reform unless top-level executives develop the political will to change the system. It is extremely difficult to make anything happened here. First, the chain of command is extremely long. Second, there is a lack of coordination between the directorates: the deputies to the
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minister who oversee the directorates are so overloaded that they just dont have time for that [coordinating activities], complained one such manager. When asked if there exists SOP that define what must be done and by whom, she replied in despair Yes, there are all kinds of documents of that sort. If you are lucky, you may even find them somewhere, somehow. But they are outdated; its just that no one dares to pronounce them void. Life went well further on, but they [ chinovniki] just failed to notice that (14). One cause of bureaucratic inefficiency that is cited by many is the simple lack of experience most public servants have with the new market economy. We are just lacking people qualified to do this kind of job and make the kinds of decisions that the new reality asks for. It is not to say that those chinovniki are bad, but rather that they were trained for a totally different job, acknowledged another newcomerwho was trained in physics but turned into a bureaucrat (19).^^** I feel pity for them, said another one. They see M l and M2 [indexes of the level of monetarization of the economy or the amount of liquidity in the economy], and they think that these are about two secret metros [subways]. This is the level of understanding of the people who set government economic policy! exclaimed a third one (1). If I had the authority. Id fire each and every one, and hire new people with the knowledge and understanding of the job to be done, explained another young manager who refused a promotion to a higher position in his agency after getting acquainted with the bureaucrats who worked there. Finally, I was eager to find the answers to two somewhat related questions concerning managerial-level bureaucrats: Whom do they fe el they serve, and how do they
320
Deputy Head of the Directorate, Ministry o f Labor, male, about 40 y.o.
190
feel about iitaking the notoriously closed Russian bureaucratic system more open and accountable to the public? It was surprising to realize that, on average, there was little difference in the attitudes of both the young and old bureaucrats, regardless of background, toward these questions. Though some rhetoric alluding to helping people does exist, it is reminiscent of the vernacular of Soviet times, when bureaucrats always presented themselves as slugi naroda: servants of the people. Still, even young bureaucrats with no knowledge of that vocabulary, exhibit not populism whatsoever. I serve the state was cited in different variations. It was rather funny that even a chinovnik in the Ministry of Health stated the essence and the goal of his work as the necessity to reduce losses on the part of the state that has to do with the high death rate.^^^ There are at least two explanations for such attitudes. One is that the state is often characterized by the bosses, who in turn provide all the benefits as it was in Soviet times. Also, bureaucrats of the managerial level, unlike operatives, do not interact with the actual public, and therefore do not acquire a sense of respect or obligation to them. Another explanation, is that many bureaucrats even those of a young age have a strong negative attitude towards business. They see them not as functional entities that produce goods, employee people and pay taxes (however few) which in turn pay their salaries. Rather they see them as gangsters who make wealth by stealing it from the state. And since they see themselves as being part of the state, they feel that these businessmen are stealing from them as well. This negative reaction endures even though many bureaucrats of the managerial level supplement their income with commercial activities conducted by their agencies and by selling their consulting services to businesses.
321
Deputy head o f the Directorate, Ministry of Health, male, over 50 y.o.
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These are gangsters who managed to rob their close ones and take over some property, a 35-year-old bureaucrat with academic credentials explained most explicitly. How about bureaucrats are they all that clean? the author asked. No, they are not. There are people in my agency with whom I d not shake hands as well, he answered. Still, his anger towards those who produce the nations wealth did not diminish. Given that kind of approach, it is no surprise that except for a few cases, the large majority of those managers questioned simply do not understand the notion of openness in state service and its accountability to the tax-paying public. Those who chose to answer the question about whether they see more transparency in government as something that would benefit the work of the administration are clearly divided into three groups. One group, represented by the old Soviet bureaucrats, believe that the majority of Russian citizens are just not ready for such openness (29). They believe that inclusion of the public would interfere with the efficiency of the state administration, place additional burdens on the shoulders of the bureaucrats and would have a generally all-around negative effect. Special directorates exist, they say, that know which information should be released to the public and which should not. Can you at least
disclose wbat percentage of information in your directorate is secretive, and what percentage might be regarded as open? an interviewer asked a bureaucrat involved in economic relations with Europe. No, that information is closed, and I will not reveal it to you was the answer (29).
These special directorates are the notorious perviyee otdeli (first otdel): dispatches of the KGB, the USSRs political police, who then and now resolve questions o f openness.
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That type of approach might be dismissed as laughable, and reminiscent of old Soviet-era secrecy, which then and now serves just to camouflage the inefficiency and comiption of the bureaucracy. It might be dismissed if not for the fact that the majority of the current managers grew up as bureaucrats in the Soviet system, and thus, carry on its legacy. Others reject transparency in the state administration on the premise that their offices are something like mom-and-pop shops. Would you expect the owner of the grocery shop to allow you to look into his backrooms? No, you would not. Why should I? stated a young manager in his mid thirties (13). Unlike his older colleagues, he did not attempt to cover his approach with words about the public good or notions of protecting the state. He just sees his office as his private business, and what happens there is of no concern to strangers. It should also be noted that agencies and directorates that offer the most opportunities for profiteering and advancement (see the discussion above) are the least transparent. Among those studied for this research, the M inistry of Finance is the worst in terms of openness, followed by the Ministry of Health. The latter did not even allow our sociologists to interview the operatives in person (probably out of concern that lowlevel, low-paid bureaucrats with little loyalty to the office might disclose some inside information to the researchers). In the Ministry of Labor, which by anyones measure is not regarded as rife with business or corruption opportunities, did not allow interviews in the Directorate of Cooperation with International Organizations (sic!). In the former Soviet Union, such directorates were usually krisha a place for KGB spies who worked
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under the agencys cover. (It is unlikely that this was the case in this instance; more likely, a commercial arrangement was being negotiated behind the closed doors.) In the Ministry of Economic Development and Trade (whose bosses blessed the study) two directorates turned down requests for interviews: the Directorate of Tourism and the directorate that oversees issues related to the energy sector. Tourism hardly requires govemment regulation; it is a booming industry in post-Soviet Russia, and people now travel relatively freely both inside and outside the country. The Directorate of Energy is an example of institutional redundancy, given that the oil sector has a special agency of its own, the Ministry of Energy. (It is also somewhat inane given that the oil sector is now mostly privatized with just one state-owned oil company left, along with the company in charge of the pipeline.) It also has another, the Ministry of Natural Resources, that authorizes licenses to extract natural resources and oversees the fulfillment of licensing agreements. (The gas sector is run by the state-owned monopoly Gazprom, and the energy sector is run by the state-owned monopoly, RAO United Energy Systems.) It is doubtful that our requests for interviews were refused because the officials there feared that we would uncover inside information regarding oil prices and energy policy. Rather, they probably feared which well-known private oil executives would be spotted roaming the directorate. Given the corporate nature of the business, they might have been trying to avoid any appearance of disloyalty to their clientele, and thus were avoiding unauthorized interviews (e.g., the interviews were sanctioned by the heads of the agency, but apparently were not sanctioned by the other bosses in the private sector).
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Finally, there were two managers who believed that transparency is necessary to make the administration less corrupt and more efficient. The only reason for shielding agencies [from the public] is to protect the misdoings [of bureaiicrats](l). So, why not open the agencies? Because many of them work as closed corporations; thus they operate by the rules of corporations, not the public administration. But the most important reason for non-transparency is that the whole system is based on informal rules. Existence of those informal rules insures bureaucratic incomes and the comforts of the office. True, beginning in the last years of perestroika, and following the spirit of glasnost, many agencies created press officers to interact with the public. The first thing to be discovered by journalists in this time was that Soviet agencies were run not by laws but by internal regulations that violated even the most vague and dubious laws of the USSR. In the early 1990s, with the beginning of political and economic reforms (and the adoption of the new constitution that stipulated access to information as a constitutional right of the citizens) these internal regulations were pronounced illegal unless the Ministry of Justice deemed them necessary to protect state secrets and state security; these intemal regulations were meant first and foremost to protect agencies records and internal life from public eyes. Still, a study conducted by the administration of the President of RF in 1997 revealed that purely civilian agencies whose domain includes nothing even remotely relevant to state security are leaders in terms of passing all manner of secretive intemal regulations. In the first half of 1997 alone, twenty-three agencies, none of which had anything to do with matters of national security, issued 16,812 vedomstvenniye acti (agency regulations). Only seventy-nine of these (less than half of 1%) were approved by the Ministry of Justice (Analytical Report, 1997).).
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Since then, the situation has become much worse. Non-transparency of the state agencies was identified in several presidential addresses and speeches as a major reason that govemment is inefficient. In 2002, the prime minister of the govemment, Mikhail Kasyanov, issued an executive order demanding agencies to disclose information regarding thirty-six defined issues of their work on their web sites. A year later, the Ministry of Economic Development and Trade, which was placed in charge of the administrative reform, announced that only six agencies had responded to the prime ministers order. The others either did not do anything or did only some slight cosmetic changes. Even publicly oriented agencies such as Ministry of Health did not follow the order. But worst of all, the ministry in charge of administrative reformthe Ministry of Economic Development and Trade itself-published only half of the information (52%) that it was obligated to reveal. Of course, the prime ministers order was nothing but yet another potemkinskaya [potemkin] village. Bureaucrats are unwilling to open their agencies even to a small extent. It helps prove the point that public administration in Russia is not public at all and it administers little beyond the private business interests that the bureaucrats pursue out of the govemment offices at the tax-payers expense. However, it is also suggests that there is no real pressure from society to force change. Big business buys whatever information it needs directly from the bureaucrats, whereas small business is too poor to do likewise and too weak to lobby for the democratization of the administration.
Anphisa Voronina and Alexandr Bekker, Ministerstava Ne Speshat Raskrivatsa, (Ministries Are Not in a Hurry to Open), Vedomosti, 5 November, 2003. Available from http://www.vedomosti.ru/stories/2Q03/ll/05-67-02.html.
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Operatives
Low-level bureaucrats, known in the current table of ranks as specialists, are the largest, most deprived and most miraculous species of the vast Russian federal bureaucracy. Their salaries are small in queries of 595 operatives at four federal agencies, 56% stated their income as $50-100 per month. Another 42.3% acknowledged that their incomes were above $100 per month.^^"^ Their bureaucratic privileges are few: they have access to free medical care in the health clinics of their agencies, and they may or may not (depending on seniority) receive a free apartment somewhere in low-valued property on the outskirts of Moscow. Their excess numbers and lack of work to do is visible: one must only enter a room of an agency on a typical afternoon to see that playing computer card games is their primary engagement. Wherever the author went, the scene was the same: out of five bureaucrats in one room, two were playing computer games, one was talking to a relative on the telephone, one was speaking with a visitor regarding some private business, and yet another was in the smoking room at the end of the corridor. Still, according to my research, the majority of them do not see themselves anywhere else but in the state service. When asked what career they would choose if they were given a chance to start a new life from scratch, 60.2% stated that they would again choose employment in an agency. And once and again, the same question flies: Why? Why those low-level and badly paid bureaucrats prefer job in the state
Satarov et al, in their study of salary and corruption in the Russian federal bureaucracy, suggest that the average salary of operatives, including bonuses, is about $141 per month (4382.39 rubies). To be sure, executives are well aware how their bureaucrats spend their workdays. I asked five executives from five different agencies the same question: How many bureaucrats in their agencies are needed, and how many could they fire tomorrow? The answer was that only 10-30% of the current workforce was needed (in the opinion of these executives) in order for the work of the agency to be done.
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administration over everything else? Unlike executives, they lack status, status symbols and quasi-money supplements to their incomes. Unlike managers, they do not have input in the decision-making process, nor access to the inside information that provides for extra gains. Still, less then one-third of respondents contemplate or even acknowledge the possibility of moving into the private sector.
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Table 5.12: Advantages of a job
in
the administration for low-level bureaucrats

Number of answers 268 114 269 66 163 244 % 45.0 19.2 45.2 11.1 27.4 41.0
Menu of answers (choke of three)

The job is relatively stable The job is prestigious The job is interesting There are chances for promotion There are possibilities for increasing qualification The job gives valuable experience that in the future can be used both in govemment and private sector jobs One can make useful connections It provides better retirement compensation
R espon dents w ere
80 163
13.4 27.4
instructed to g ive no more than three answers
Table 5.13: Why do low-level bureaucrats to stay at their jobs?

Menu of answers (choice o f three) Number o f answers
% 42.9 16.6 30.1 25.5 2.5 21.2
1 am accustomed to the job It is hard to find another job in my field of specialty 1 am afraid to move into the private sector due to the lack of stable employment in most firms I am afraid to move into the private sector since work there often violates the law 1 am afraid to move into the private sector due to the heavy workload in private firms It is worthwhile to first get experience in state service, and then seek employment in the private sector I am interested in staying until retirement Other reasons
255 99 179 152 15 126
176 79
29.6 13.3
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My study of operatives is somewhat hampered by the absence of personal interviews. The questionnaires unfortunately do not allow one to read between the lines, decode words and identify real information. Therefore we are deprived of a
true in-depth analysis. Given the traditional secrecy of the Russian state service, respondents may have feared that their superiors would discover their identities, despite the anonymity of the questionnaire, and punish them for being honest. Therefore, we must face the danger of misinterpretation. Nevertheless, a good data sample provides opportunity for statistical analysis. In order to identify the incentives that make low-level bureaucrats stick to their less-than-rewarding jobs, I chose an individuals willingness to take a job outside the realm of state as the dependent variable in the calculation.
The essential part of the research consisted of the word-to-word transcription of the tapes of the personal interviews. Decades of the totalitarian regime developed the culture of Aesopian language; e.g., the kind of language that allowed one to conceal anti-regime, anti-authority sentiment. In that language, nuances become essential.
Table 5.14; MNL Model of factors that affect bureaucrats willingness to move to the private sector, with Unwilling to Move as the reference group
Intercept Demographic Factors Age Gender Socio-economic Factors Salary Family income Length of tenure in the state administration Attitudinal Factors Dissatisfaction with salary Perception of potential for career growth Perceived probability of job loss Job dissatisfaction Willingness to choose the same career path again Risk aversion Attitude towards transparency Log likelihood Pseudo N *p<0.1, **p<.05, ***p<0.01
Estimated Coefficients and standard errors for Willing to Move group -.30 (.94) -.37 (.12)*** .18 (.24) -.03 (.07) -.04 (.10) -.15 (.08)**
Estimated Coefficients and standard errors for Uncertain group -.88 (1.2) -.19 (.15) .83 (.28)*** -.15 (.09)* -.15 (.12) -.14 (.10)
.21 (.12)* -.11(.13) -.42 (.15)*** .31 (.13)** .68 (.12)*** .10 (.15) -.11 (.11) -501.778 0.11 595
.25 (.15)* -.48 (.18)*** .14 (.20) .23 (.17) .35 (.15)** .08 (.18) -.14 (.14)
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Table 5.15:Total Effects on a Bureaucrats Willingness to Move to the Private Sector

Independent Variables Demographic Factors Age Gender Socio-economic Factors Salary Family income Length of tenure in the state administration Attitudinal Factors Dissatisfaction with salary Perception of potential for career growth Perceived probability of job loss Job dissatisfaction Willingness to choose the same career path again Risk aversion Attitude towards transparency **p<.05 Differences in predicted probability of willingness to move to the private sector -.13** .002 .002 -.01 -.14 .14 -.002 -.18** 1 1 ** .25** -.005 -.033
The statistical analysis first proved the obvious: those who regret that they ever became employees of the state administration (26.2% of 595 people questioned, or slightly more than one-fifth) and who would not seek a career in the bureaucracy if given the opportunity to begin their professional lives anew are more prone to quit the administration. They are also more prone to consider employment in the private sector as a viable and attractive option (Table 5.14). Clearly, some negative experience in the administration (such as a bad working relationship with their immediate supervisors or the failure to secure a rent-free apartment) had a significant impact on these operatives professional motivation. Those dissatisfied with their current job (18.7%) are also inclined to look for new options. However, professional dissatisfaction did not represent a significant factor in the probability that a bureaucrat would move to the private sector. This suggests that
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regardiess of bureaucrats likes or dislikes, there are other more important variables that tie them to the office . The regression also revealed a substantial fear on the part of some bureaucrats of loosing their jobs: those who perceived that dismissal was imminent appeared to be the most critical of moving to the private sector. Those who displayed such fear are 18% less likely to move to the market realm (Table 5.15). However, these results may also reflect bureaucrats doubts about the confidentiality of the questionnaire, and a fear that their superiors would discover their identities and punish them for being honest. There is a statistically significant correlation between age and the lack of desire to make a career change. Younger respondents are more willing to pursue a different career path. Conversely, when all other variables remain constant, bureaucrats over thirty years old (e.g., those who were entering the workforce at the time the USSR collapsed) are less likely to move than those under thirty. As with managers, seniority has a direct impact on retirement compensation; thus, for those who have spent more than eleven years in the administration (41.6% in our questionnaire), it is simply not rational to quit. Still, retirement compensation was a much less significant factor for operatives than for managers: slightly less than one-third stressed that factor as a reason for remaining in public service. This is understandable. In my study, one-fifth of the operatives were under thirty years old. No one under thirty exists in the executive class, and among the managers, they are extremely rare. Furthermore, retirement compensation is calculated based on the salary the worker received while employed. Because operative-level salaries are so low, the benefits that come with seniority are not substantial.
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Gender was also not a statistically significant factor for employee job retention. Given that women are dominant in low-level jobs (68.2% in our study), and given that career promotions are likely to be given to men, one would expect that a significant percentage of women would aclcnowledge a desire to change careers. expectations proved false. As with managers, job stability was acknowledged as one of the greatest advantages to state employment (see Table 5.12). Among the explanations that respondents gave for their negative attitudes toward career change, privichka (habit) championed over everything else (see Table 5.13). Many respondents also cited the risks that are inherent in private-sector employment. Such risks include the generally higher risk of getting fired, possible bankruptcy (and subsequently, layoffs) of the firm, and the risk that some of the companys activities may be in violation of the law.^^* However, the results of both the the multinomial model and logistical regression refuted what many consider to be the most obvious explanation for operatives attachment to public service: that bureaucrats are risk-averse by nature, and are thus disinclined to seek employment outside the public sector. In both tests, aversion to risk produced no correlation whatsoever (see Table 5.14 and Table 5.17). That conclusion was further confirmed by the probability test. One might expect that monetary factors (e.g., the low salaries paid to operatives) would urge low-level bureaucrats to at least consider pursuing a job in the private sector, where salaries are several times higher. In the questionnaire only two people said that
327
But such
In my questionnaire, the possibility of promotion was acknowledged by a miniscule li.1 % . It is, of course, impossible to know if those risks would have been cited if they had not been listed as possible answers in the questionnaire.
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they were satisfied with the compensation they receive, while 528 (88.7%) asserted that they are terribly underpaid, and claimed that their salaries should be two to ten times higher than the sum that they actually receive. However, two separate tests proved that neither actual salary nor the family income has a significant impact on bureaucrats willingness to quit their low-paying jobs. Thus, either we must believe that factors other than materialism keep bureaucrats in state service, or we must assume that there are ways in which bureaucrats supplement their low salaries. Further analysis of the data makes the story much more interesting. The first surprise came while considering the variables that define respondents attitudes towards greater transparency in the public administration. The majority of those questioned expressed negative attitudes toward openness in the administration (see Table 5.16).
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Table 5.16; Attitudes toward transparency

Menu of answers (choice of one) It will lead to increased responsibility in state institutions and will reduce corruption. It will improve the image of state institutions. It will lead to useless interference in the activities of state institutions. It will bring disorganization to the routine of the agencies, and will overload bureaucrats with additional obligations. Dont know Total Number of % 16.8 21.8 18.2 32.3
answers
100 130 108 192
65 595
10.9 100
In this respect, operatives are no different from bureaucrats of the managerial level. Further more, logistical regression suggests that those who have negative attitudes towards transparency are more willing to move into the private sector than those with positive attitudes (see Table 5.17) However, the correlation is not very strong (the estimated coefficient was -.409 at p< 0.05).
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Table 5.17 t Factors that affect a bureaucrats willingness to take a job in the private sector
Independent Variables D em ographic Factors Age Gender
Estimated Coefficients (standard errors)

- 440*** (.272)
.230
(.272)
Socio-economic Factors
Salary .000 (.000) -.035 (.109) -.023 (.017) .153 (.129) -.106 (.143)
Family income Length of tenure in the state Administration

A ttitudinal Factors
Dissatisfaction with salary Perception of potential for career growth

Perceived probability o f job loss Job dissatisfaction W illingness to choose the same career path again Risk aversion Attitudes towards transparency
-.388**
(.165) .304** (.144) .653*** (.132) -.064 (.158) -.409** (.237)
Log likelihood 455.329 .179 Pseudo 421 N *p < 0.1, ** p<0.05,*** p<0.01
Conversely, the multinomial logistical regression did not confirm the result of the logistical regressions. One of explanation for the discrepancy between the binomial and the multinomial test is that the first one tests people who are clear about the desires (either they say yes or they say no), whereas the multinomial logistical regression includes those who dont know (or dont want to recognize) their opinions and intentions.
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Attempts to identify the factors that affect bureaucrats attitudes toward transparency were not helpful as w e ll: neither age, gender, socioeconomic nor attitudinal factors had any affect (see Table 5.18 and Table 5.19). The most obvious explanation is that negative attitudes toward transparency are the legacy of the Soviet Union and its closed and unaccountable system of governance. Still there is something lacking in this explanation.
208
Table 5.18: MNL, model of factors that affect bureaucrats attitudes toward transparency (with Negative Attitude as the reference group)
Estimated coefficients and standard errors for Positive Attitude group .42 (.82) .09 (.11) -.17 (.20) -.07 (.06) -.07 (.08) .03 (.07) Estimated coefficients and standard errors for Uncertain group -1.04(1.30) .35 (.16)** -1.58 (.44)*** -.27 (.11)** .07 (.14) -.17 (.10)
Intercept Demographic Factors Age Gender Socioeconomic Factors Salary Family income Length of tenure in the state administration Attitudinal Factors Dissatisfaction with salary Perception of potential for career growth Perceived probability of job loss Job dissatisfaction Willingness to choose the same career path again [ZHENIA: SEE ABOVE TABLE] Risk aversion Log likelihood Pseudo N *p<0.1, **p<.05, ***p<0.01
-.07 (.10) .17 (.12) -.24 (.13)* -.20 (.12) .12 (.11)
11 (.17) .27 (.17) -.11 (.22) .11 (.17) .14 (.17)
.17 (.12) -539.316 .05 595
-.35 (.20)*
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Independent Variables
Differences in predicted probability of having a positive attitude towards transparency .03

.0 1
Demographic Factors Age Gender Socioeconomic Factors Salary Family income Length of tenure in the state administration Attitudinal Factors Dissatisfaction with salary Perception of potential for career growth Perceived probability of job loss Job dissatisfaction Willingness to choose the same career path again Risk aversion **p<.05
-.04 -.09 .07

- .1 0 .1 0
-.11 -.10
- .0 0
.10
The missing element became evident after I considered the number of bureaucrats who indicated a willingness to leave their federal agencies and move into the bureaucracy of the executive branch of the Moscow municipal govemment. In the questionnaire, 50.8% expressed that they would make such a move, if given the opportunity. Both the logistical regression, and the multinomial model showed a correlation between negative attitudes towards transparency and the willingness of operatives to work for the Moscow city government (see Table 5.20 and Table 5.21).
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Table 5.20; MNL, model of factors that affect bureaucrats willingness to move to the Moscow city government (with Willing to Move as the reference group)
Estimated coefficients and standard errors for Unwilling to Move group -.38 (.86) .002 (.11) 1 . 0 (.2 1 )*** .06 (.06) .24 609)*** -.12 (.07)* Estimated coefficients and standard errors for Uncertain group -.1.1 (1.3) -.49 (.17)*** .23 (.33) .18 (.10) .37 (.12)*** -.15 (.11)
Intercept Demographic Factors Age Gender Socioeconomic Factors Salary Family income Length of tenure in the state administration Attitudinal Factors Dissatisfaction with salary Perception of potential for career growth Perceived probability of job loss Job dissatisfaction Willingness to choose the same career path again [SEE ABOVE] Risk aversion Attitude towards transparency Log likelihood Pseudo N *=p<0.1, **p<.05, ***p<0.01
-.04 (.11) .04 (.12) -.19 (.14) -.18 (.13) -.27 (.11)**
.13 (.16) -.04 (.18) .03 (.21) -.04 (.17) -.30 (.17)*
.03 (.13) .19 (.10)* -533.457 .08 595
-.37 (.19)* .25 (.15)*
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Table 5.21; T otal effects on bureaucrats willingness to move to the Moscow city government
Independent Variables Demographic Factors Age Gender Socioeconomic Factors Salary Family income Length of tenure in the state administration Attitudinal Factors Dissatisfaction with salary Perception of potential for career growth Perceived probability of job loss Job dissatisfaction Willingness to choose the same career path again [SEE ABOVE] Risk aversion Attitude towards transparency p<.05 Differences in predicted probability of willingness to move to the private sector .08 -.21**
-.11 -.31** .19**

.01 -.01 .07 .07 .13** .03 -.10**
As is evident from the tables, disdain for transparency in public office determines a willingness to sacrifice the prestige of federal service for a job in the city administration. Bureaucrats who fear openness do not necessarily prefer the private sector. Rather, they prefer a bureaucratic structure that is run like a tightly closed, private corporation, as is the Moscow city government. Hereto the argument. Please, recall how the managerial-level bureaucrats articulated their rejection of greater transparency and accountability. In personal interviews, managers expressed the view that their offices were akin to private shops i.e. not public. The rhetoric of the last decade about bringing accountability to the administration, and revelations of rampant corruption in the executive branch, seems to bureaucrats like an infringement on their
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rights as owners of their bureaucratic offices. In this respect, the risks that accompany work in the private sector seem like the lesser of two evils: the comfort of worldng in a corporate environment, which is closed by nature and open only to company employees and insiders, outweighs the risks. The degree to which the public agencies are quite like private businesses is illustrated by a simple fact from Goskomstat, the state statistical agency. In a single year, Goskomstat made $27 million, according to the senior official with the access to the information by selling its products on the market. In the same year, the official budget of the agency for covering its operating expenses was almost 14 times less: $2 million. Clearly, running a state office as a private enterprise is a very profitable affair. As a state agency, Goskomstat suffers few operating expenditures: no rent on their office space in their valuable downtown Moscow location, no utility bills, etc. But most importantly, there is no financial outlay to obtain or manufacture their product. As an official state agency, they have a warrant to collect data from commercial and public institutions nationwide. Given the scope of their mandate, they have no serious competition. It is no wonder that the salary of the average directorate head in the agency is comparable to the salary (before bonuses) of the first deputy prime minister of the government $1200 per month (Ibid.). The same proved to be true for the whole range of agencies. In fact, the degree of success that bureaucrats have achieved in the commercialization of their public duties is evident from an analysis of the data on average salaries, and discrepancies in salaries, across different agencies. The agencies that were acknowledged both in the press, and in our interviews with executives, as running a high volume of commercial activities
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(which, remember, is against the law) pay officiallytheir bureaucrats anywhere from 27% (in the Ministry of Press and Information) to 53% (in the Ministry of Railroads) more, on average, than those that are less commercially active. Commercial potential comes from two major resources: the regulatory, distribution and supervisory functions that an agency has, and inside information, otherwise not accessible, that an agency has in its possession. According to the latest findings by the Ministry of Economic Development and Trade, the agency in charge of administrative reforms, fifty-seven agencies of the federal government have 5,600 legal and supervisory functions. When the ministry scratched its head and suggested cutting off some twenty-three functions, the agencies responded by acknowledging that only six functions were s u p e r f l u o u s . O b v i o u s l y , opening bureaucratic offices to public examination is a real danger to the practice of running shadow businesses out of governmental agencies. If transparency was achieved, taxpayers might request a share of the profits acquired by such practices. Further, the law enforcement agencies would be required to investigate whether bureaucrats paid taxes on the profits eamed in those businesses. And of course, such openness would interfere with the monopoly on inside information that agencies rely upon for their commercial activities. Moscow municipal govemment perfectly fits the logic of treating public office is a source of private gains. Salaries in the Moscow municipal govemment are 1.4 times higher on average than salaries in the federal govemment (Satarov et al 2002). This explains why operatives with low family income would like to switch to the city
Satarov et al., 2002. A. Kashirin, V Zalozhnikach U Burokratov, (Hostages to Bureaucrats) Ekonomika iZ h izn September 2003, #37.
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government, even though it canies less prestige. However, higher salary is not the determining factor in this preference. Moscow is not just the capital of the country, but the unrivaled center of the countrys financial and business activities as well. It is like Washington D.C. and New York City combined. Moscow holds 44% of the nations commercial enterprises, almost one-third of the nations financial institutions (Goskomstat 2002) and allegedly 80% of its financial resources. The relationship between the Moscow authorities and business has long been characterized as a patron-client relationship; for instance, rent extortion by city authorities has been institutionalized. To put it bluntly, the executive branch of the capital, closed and unaccountable, is regarded as the best in terms of corruption opportunities in the nation (Albats 1997,^^^ Gaidar 1998^^^). As one researcher who specializes in the foreign investment community stated, Most companies [in Moscow] depend on municipal bosses and regulative bodies. In other words, you have to spend a lot of time and money to open a cafe or boutique in Moscow and you have to be ready to spend a lot more in the future to pay various officials (Russian Economic Overview 2002).^^^ Therefore, it is no surprise that those operatives, who were concerned about the introduction of transparency to the federal administration, look very favorably on a move
Yevgenia Albats, Statent li Kepka Luzhkova Zhapkoi Monomacha, (Will [the mayors] Luzhkov cap becomes Monamachs Crown) 27 September 1997; Teni Vokrug Luzhkova, (Shadow Figures Surrounding Luzhkov), Nov ay a Gazeta, 6 October 1997. Yegor Gaidar, Pochemu v Moskve Zhits Chorosho, (Why it is Nice to Live in Moscow), Moskovskiye Novosti (1998). Interactive Research Group, Russian Economic Overview, M oscow (2002). Available from http://www.koma.ru.
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into the municipal administration, where the business of running a business out of the public office has been developed to a state-of-the-art level. Why, though, does the Moscow city govemment look more attractive to female operatives than male operatives, as the regression shows? Obviously while Moscow Mayor Yuri Luzhkov is hardly a sex symbol, he himself does symbolize the success story of turning a bureaucratic office into a highly profitable affair. The hint to understanding the correlation is provided in the answers to the question, It is known that the salary of those employed in the state service is small, especially judging by Moscow living standards. How do you think your colleagues make ends meet? Two-thirds of the respondents (76.5%) stated that they are capable of meeting everyday needs and paying bills because of the income of other members of the family (see Table 5.22). It is reasonable to infer that those members of the family must be running, or employed in, business; Moscow is considered by various reports to be the second most expensive city in the world, and no other sphere of activity but business (whether private or a bureaucratic one) can provide for a decent living in the capital. In R ussias maledominated society, the man is considered to be the primary provider. Thus, in order for these female operatives to have a husband who is successful in business (and/or to succeed in doing business outside the office herself) a job in the Moscow city govemment, which can provide both protection to the business as well as necessary connections, is a dream.
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Table 5.22: Supplemental income of low-level bureaucrats

Menu of the Answers(choiee of three answers) I Income of other family members Renting out apartment Occasional incomes from other jobs (outside the office) Regular income outside the office Connections that are helpful in resolving everyday problems Restricted my budget for major necessities
Number of Answers
455 61 125 57 42 383
% 76.5 10.3 21.0 9.6 7.1 64.4
The logic behind turning a public office into a private business allows us to understand another contradiction as well. As was noted at the beginning of the sub chapter, several former executives acknowledged to the author that their agencies could fulfill their tasks with as few as 10-30% of their listed employees. However, active executives are known to fight fiercely for the number of employees they have, and to reject even a modest reduction in the number of their subordinates. Until the secrecy imposed by the regime of President Putin on affairs inside the state bureaucracy became especially tight, several telling scandals occurred involving top-ranking executives, precisely regarding the size of the agencies. In 2001, when the rhetoric about administrative reform was still high, Alexei Ulukaev, the first deputy to the Minister of Finance (which provides the budget for each and every federal agency), made a report to the cabinet on the possible reduction of state expenditures on staffing levels in the central agencies. Among his suggestions was a proposal to cut 200 people from the Ministry of Economic Development and Trade, which by then had become the second largest civilian agency, with 2,150 listed employees, 44 directorates and 159 official supervisory and
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regulatory f u n c t i o n s . T h e minute Ulukaev ended his speech, the head of the agency proposed for reduction virtually blew up in anger, and immediately suggested that the cabinet assign me to check the employee listings of the Ministry of Finance, which had some 1,657 employees (Ulukaev 2001). It would not have been such a surprise had that angry response come from any other minister but the head of the Ministry of Economic Development, German Gref. Gref was known as the driving force behind the program of liberal reforms during the first presidency of Vladimir Putin, and the one who argued most in favor of reducing bureaucratic pressure on society. Of course, German Gref probably had other concerns in mind besides the commercial activities of his agency. As was noted earlier in the chapter, each agency has a number of dead souls which help secure a larger budget for the agencys expenses. It is also true that in the Russian culture of bureaucratic games, proposing cuts in someones agency is seen as disrespect, and may serve as a signal to other bureaucrats that the minister in question is losing his influence, and is no longer a favorite of the President. However, it seems reasonable to state that the desire of bureaucratic agencies to combine two duties, public and private, under one roof is the reason both for the constant growth in the number of state employees as well as for the fierce fight against any attempts (and subsequent failures) to cut the bureaucratic ranks. Given that bureaucratic businesses, unlike private firms, have soft budgets, profitability is not a measure of their effectiveness, and therefore they have no reason to seek cost effective solutions. The existence of a semi-public/semi-private federal administration has become an unbearable burden for a country in transition.
Naturally, they had unofficially acquired many more such functions for themselves.
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Conclusions One of the definitive features of the Russian bureaucratic system is that it is divided into castes (executives, managers and operatives), unlike western counterparts, who are divided along task lines. Employees within the same agency are divided along those caste lines as w e ll: they receive different housing, different medical care, even their lunches are served in different canteens so as to underline the division between the castes. Obviously, in such a caste system, it is difficult to ascertain the mission of an agency, or its ability to fulfill a critical task as James Wilson once defined the driven force of the well organized civil service (Wilson 1989: 25). Thus, it is no surprise that reforms in Russia were stalled almost from the onset: though the reformers may have had good incentives, there did not exist then (and there does not exist now) the means to translate those ideas into practice. The problem is not just that lower-level bureaucrats (managers and operatives) have had a difficult time understanding the language of the new economy even though, as research shows, that has been an issue as wellbut also that the caste-type organization of the bureaucracy has prevented normal communication between the high-level and lower-level bureaucrats as well. It is like the story of the Russian Tsar who wrote three words regarding one of his servants, but forgot to use punctuation inside the words. The subordinates treated the order the way they wished. The three words were 'K aznits N e lzya PomilovaC translated, the one should not be executed pardoned. If a comma was to be put after the second word, the order would read as clemency: K aznits N e zya, Pom ilovat translated, one should not be executed, [but should be] pardoned. If the comma.
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however, was to be put after the first word, the order meant death to the servant: K aznit, Nelzya P o m ilo va f translated, one should be executed, but not pardoned (Tynyanov 1992).^'"^ Thus, whenever reformers said liberalize (pardon), bureaucrats heard: tighten the grip over society (execute). In other words, liberal reforms ran by Soviet bureaucrats were doomed. By conducting interviews and administering questionnaires to individuals on each level of the system, I was able to see whieh incentives inspire bureaucrats of separate castes. One important observation is that the rewards received by bureaucrats of all three levels, are in no way connected to their performance, but depend rather upon their loyalty to their superiors, be they president, prime minister, minister of an agency or simply a nachalnik. Given that monetary compensation comprises only a small part of the total compensation package that executives and managers get, the latter lack any notion of obligation to the tax-payers (i.e., the public). Operative-level bureaucrats do interact with the public, and thus, may feel a certain sense of allegiance to it. However, their compensation is so small, they lack any meaningful incentive to serve the public well. . Contrary to the conclusions of many past academic and nonacademic studies, bureaucrats in the federal govemment (except for operatives) are compensated quite well. Executive compensation rivals that of executives in the private sector, and manager compensation corresponds to, or is higher than, the average income in their locale (e.g. in the capital). Still, the instability of executive-level jobs force top-level bureaucrats to seek support and guarantees for the future outside the state administration. Therefore, they get engaged in performing all kinds of favors to big business, that is capable of
Yury Tynyanov, Lieutenant Kije. Translated from Russian and with an introduction by Mirra Ginsburg (London: Quartet, 1992).
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providing support for the future in the form of payoffs and/or jobs within their firms. This favored treatment serves to stigmatize competition., and thus leads to inefficiency in the economy. It also prevents the development of small and mid-size businesses, which are unable to sustain competition in such an environment. In contrast, managers and operatives do enjoy Job stability. However, the gap in compensation between managers and executives (as much as
2 0 0 0 %)
and the non-transparency and informality of the
system make it simply rational for them to tum their public offices into a private business, selling public services to enlarge their incomes. As for operatives, their salaries are so small that running a business out of the office is simply necessary for survival.
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Chapter 6; Rales of the Game
Michel Crozier, author of The Bureaucratic Phenomenon, once noted that bureaucratic organizations should be understood as a product of the interaction of formal stractures and informal relationships. They interpenetrate and complete each other. If one wants to understand them, one must study them together along with the system of power relationships that helps integrate them (Crozier 1964: 164). In the case of the Russian bureaucratic system, the importance of informal relationships cannot be overestimate: they effectively dominate the formal structure and formal lines of authority. That is what makes the bureaucracy of present-day Russia so different from the one that existed in the Soviet Union. There, the means of coercion and the absence of choice (e.g., the choice of finding comparable employment outside the state administration) helped reinforce formality and authority in the process. One can argue that when the means of coercion were abolished, the rule of law should have come at place. In fact, in Russia today, there are laws in place that define the formal rules, to the extent that they exist on paper, are published and are accessible to anyone interested in reading them.^^* The problem is that for one, some key details, like the salaries assigned to a specific positions as was noted in the previous chapter are hidden from the public eye or are not outlined at all (as is the case with the privileges enjoyed by executive-level bureaucrats). Furthermore, some laws that are meant to apply to all bureaucratic organizations and govern their relationship with society, arbitrarily exclude certain types of organizations. Or they may violate or contradict other laws, thus allowing bureaucrats to
See; Gosudarstvennaya Sluzhba, Sbornik Normativnych Documentov (Moscow: Dele, 2000).
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choose which law they will comply with. For instance, in July 2001, the State Duma (the lower chamber of the Russian parliament) passed a new federal lav/ on the licensing of business activity.^^ ^ That law was key to President Vladimir Putins program to further liberalize the economy and reduce bureaucratic pressure over society. Yet, despite the fact that the laws stated purpose was to establish uniform rules of issuing licenses and permits to businesses on the tenitory of the Russian Federation (article III), it effectively excluded from its jurisdiction a whole range of agencies which had successfully managed to lobby for such exclusions. Viktor Khristenko, deputy to prime minister, noted this discrepancy and acknowledged it in his official expert o v e r v i e w . R e g a r d l e s s , all agencies that report directly to the president (known as agencies with an asterisk, meaning that they do not report to the prime minister) as well as the Ministry of Finance, Ministry of Transport, Ministry of Education, Ministry on Press and Information, the Central Bank and several other agencies that regulate the Russian Wall Street, found themselves exempt from the new law, and regulated instead by other, special laws or executive orders (see Chapter V I ) . T h i s exclusion alone quadruple the amount of business activities that are subject to bureaucratic control; from 104 stated in the law to at
Federal Law # 128-FZ, Lizenzirovaniie otdelnych vidov deyatelnosti, passed by the State Duma on Julyl3, 2001, approved by the Federation Council on July 20, 2001. Available from http://konkordat.useful.ru. V. Kristenko, Oficialnii otziv po proektu federalnogo zakona; O lizenzirovanii ontelnich vidov deyatelnosti, # 3453, p-P5, July 8, 1998; Photo copy available from author. In accordance with Chapter 4 of the Russian Constitution, the President o f the Russian Federation has control over the agencies that enforce mandates concerning state security. The Constitution does not list these agencies; they were stipulated by the 1996 Presidential Executive Order #1176. These agencies are all law enforcement agencies and agencies in charge of national security, customs and the Ministry of Foreign Affairs. Because these agencies are marked with * in the executive order that outlines the official structure of the Russian government, they became known as agencies with an asterisk in both official and informal language.
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least 484 (Pleskachevskii, 2002),^"^ and placed these agencies above public scrutiny (Auzan, 2001).^ ^* Officials acknowledge that such exclusions are based on necessities of national security; however they failed to explain why agencies such as the Ministry of Education and the Ministry on Press and Information (sic!) were placed in this category alongside the law enforcement agencies, the transportation ministry and the bodies that regulate the financial market, which are understood to be connected to national security. To make matters worse, a judiciary review conducted by the Dum as in-house experts, prior to the third and last reading of the law by the chamber, found yet another contradiction embedded in the law: a general provision prohibiting the licensing of the outcomes of intellectual-type activities. However, in article XVII, which lists all business actions that must be licensed, included several products of intellectual activities, such as the public screening of audio and video works in a cinema or theatre, as well as the copying of audio and video works, which is under the protection of the copyright law. (Regardless, these judiciary contradictions were not expunged from
the text of the regulation that the President signed into law a month later. Thirdly, besides the contradictions that appear between laws or within the same law, which are treated by bureaucrats the way they see it right informal rules, at the
Viktor Pleskachevskii, the Chairman o f the State Duma Committee on Property (the very committee that was in charge o f the law). Interview with Yevgenia Albats, Boston, October 2002. Alexander Auzan, Chairman of the Confederation of the Unions of Consumer Societies. Interview with Yevgenia Albats, 21 July 2001. V.B. Isakov, Head of the State Duma Judiciary Directorate, Zaklucheniie p o i proektu federalnogo zakona, #76645-3; O lizenzirovanii otdelnych vidov deyatelnosti; I po proektu sootvetstvuyezhego postanovleniia Gosudarstennoy Dumi )iii chteniye), (Conclusion on the federal law ... and order of the State Duma (the third reading), #2.2/2769, July 12, 2001; Xerox copy o f the document available from author.
343
President Putin signed the law on August 8, 2001.
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expense of formal rules, are gaining momentum. This is an effect of the multitude of inhouse governing documents that must be registered with the Ministry of Justice by the agencies that issue those documents, but as a rule they are kept secret by agencies. The Ministry of Justice requires this registration as an effort for public oversight, but few agencies ever comply. In 1996, 0.3%of the governing documents of required agencies were registered. In 1997, the figure was only 0.2% (see Table 5.9.9). Since then, none of the data of that sort has been available to the public. Fourthly, informal rules are sometimes de facto imposed over the formal ones. For instance, the procedures of the federal govemment of the Russian Federation are outlined in Standing Orders o f the Govemment o f the RF by the executive order of the cabinet #760, dated October 5, 2000, as well as by the Statutes o f Apparatus o f the Govemment o f the RF passed by the executive order of the cabinet #604, dated June 18, 1998 June 1998 (the existence of a number on an executive order is a sign that a document was registered accordingly with the Ministry of Justice). But along with these official documents, which are public, there exists an internal standing order that bears the mark Classified. Among other things, this one regards how the physical document itself should be handled from the time it is conceived to the time it is sent to the archive: how the document should look, who is allowed to refer it to the higher authorities for consideration, with whom the document should be coordinated (both inside and outside the apparatus of the federal govemment), who is to sign the document and how quickly the document should be reviewed. Why, one might wonder, is this standing order so secretive? How would the national security of the state be endangered if the public were to see that booklet?
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Interviews with former and current executive-level bureaucrats regarding the rules of the game that exist in the Russian bureaucratic system make it clear; knowledge of the language used in the documents, the real meaning of the words used on the document by top executives, the t)ê of order an executive gives to his subordinates, the sequence of steps in the decision-making process, the wording of a decision already passed by the cabinet and the way the decision comes out in the form of an executive order all those things mean business for particular bureaucrats and each of it has a price in real currency. The price may be as low as $1,000, as much as several hundred thousand dollars, or may even be a percentage (from 5 to 10%) of a multi-million dollar deal. For example, Deputy Prime Minister rales in favor of the company Antei, and thus,
Rosvoorazheniiye loses the deal with the prospective partner. The deal is worth $200 million, the total kickback amounts to $ lOmillion, and Deputy Prime Minister M. collects $3,700,000 that is his share, one executive in the apparatus of the federal govemment explained to me. Knowledge [of the bureaucratic language and paper work] is power, knowledge is the source of authority. Knowledge is money: if everyone knew how the document should be presented, then no one would be seeking the help of the knowledgeable bureaucrat. This is the A BCs of bureaucracy, explained another former executive. The general rule [of bureaucracy] is a very simple one: anyone can get one DSP document [dly sluzhebnogo polzovaniye a document that can only be reviewed by those who work in the apparatus], but no one can get all such documents. Thus, the more
The author can identify the real name o f the deputy to the PM in question. However, the absence o f any documented proof of the kickback discourages me from stating it openly. The author has confirmed that the deal did happen. It should also be noted that the source that provided the information is beyond reproach: many years of interacting with the source have proved the validity and authenticity o f information provided by this person.
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classified documents produced by the apparatus, the less transparent its work is, (Vasiiiev 2000). But it is not just the language of bureaucrats that one must know, also who calls whom, who sits where at the meeting of the cabinet, the level of access had by any given agency head (access to deputies to the prime minister, the PM himself, or the President), the knowledge of the daily and weekly schedule of a top executive, familiarity with the places an executive frequents or where he likes to drink: all those seemingly meaningless things hold great value to outsiders and mean very profitable business to enterprising bureaucrats.
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Table 6.1: Number of governing documents issued by state agencies compared to the number approved by the Ministry of Justice of the RF, 1996-1997
Agency Number of governing documents issued Number of documents registered in the Ministry of Justice 1996
-
1996 Ministry of Atomic Energy Ministry of Foreign Economic Affairs Ministry of Nationalities Ministry of Health Ministry of Science Ministry of Education Ministry for Natural Resources Ministry of Railways Ministry of Agriculture and Food Ministry of Cooperation Ministry of Transport Ministry of Labor Ministry of Finance Ministry of Economy State Anti-Trust Committee State Committee for Arctic Region State Committee for Construction, Architecture and Housing Policy State Committee for land Resources State Committee for Environmental Protection State Committee for Communications State Committee for Standardization State Customs Committee State Property Committee
Total
915 644 314 438 3613 567 58 1349 393 6917 39 81 112 138 5843 9135 254
1997 (first 6 months) 516 361 232 259 1471 1367 215 1246 304 3644 24 34 58 82 2900 2951 140
1997 (first 6 months)

-
2
-
1
-
6
-
8
-
1
-
5 3
-
2 2
-
3
-
19 28 3 4
1
3 4 18 2
1
131 551 356 413 335 87
49 343 190 201 201 24
4 3 8 26 2
7
1 2 21 -
79 113 (0.15%) (0.3% ) Source: Analytichiskaya Zapiska Administratcii Presidenta (Analytical Report of the Administration of the President), 1997 32683 49495
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The Laneuase
The most valuable word in the bureaucratic lexicon of executive-level bureaucrats bares an almost child-like connotation, as if it were the name of a toy'pepeshka. In fact, it is an abbreviation of two words porucheniye pravitelstva, meaning a mandate from the govemment, stipulated on a slip of paper (ugolok) attached to the left comer of the document, bearing a printed signature, in bold letters, Govemment of the Russian F e d e r a t i o n . H o w e v e r , it should not be mistaken for an ordinary porucheniye, which a managerial-level bureaucrat gives to an operative. Rather, it refers to the costs involved in getting an assignment of the govemment, and the price that the individuals concerned, and nation as a whole, would incur in case any mistakes made were much too big. Thus, the wording in which a mandate is written is a must-know for those who work inside the bureaucratic system. The reformers who came into the govemment in the early nineties learned the hard way how expensive the wrong wording could be and how could it backfire in the form of lawsuits, or accusations by the law enforcement agencies of misbehavior or misappropriation of funds: charges which could hunt them for years, even after they quit the govemment. Every month and sometimes more the Procurator Generals Office summons me for yet another questioning regarding the distribution of quotas on oil, ferrous metals and aluminum back [in the early 1990s], when I was a deputy to the minister of economy, Yakov Urinson, who ended his career as a deputy to the prime minister told me in an interview in Moscow, in 2000. The first thing a newly-appointed
There are four types of governing documents: governmental decrees (postanovleniye pravitelstva), governmental executive orders (rasporyzheniye pravitelstva), presidential decrees and presidential executive orders. Even though in English they are all synonymous, in Russian they describe four unique types of documents that mean different things both for bureaucrats and for those to whom they apply.
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deputy to the prime minister should team is what they can and cannot write in the pepeshka,"' a bureaucrat with two decades of experience in the Council of Ministers of the USSR and, later, in the Russian govemment, explained. For instance, a deputy to a prime minister must not record a decisive order [on that.special slip of paper attached to the left com er of the document]. Only a prime minister can issue a decision, and thus record it. Or, if the prime minister delegates that power to his deputy, he [the prime minister] must detail exactly the terms of the assignment (Arefiev 2001). During the first weeks of her tenure, one newly-appointed deputy to the PM, Valentina Matvienko,^'^'^ who had had a distinctive career as an ambassador but had never worked in the govemment before, sometimes recorded very decisive orders such as Submit the decision. One would think this to be a quite normal action for an executivelevel bureaucrat. Apparently it is not. Apparently, she violated several rales of the game at once. First, by using irregular wording she greatly confused her subordinates about what she really wanted them to do. Secondly, she left no room for bureaucratic maneuvering and bargaining. Thirdly, she exhibited the desire to take responsibility in a system where the abdication of functions is the rule (e.g., her wording did not leave room for second guesses, which put her in very hot water. She though that [after she recorded her instructions] everything would be fine, that her subordinates would exercise the necessary expertise, coordinate the issue with the appropriate agencies, and then come back with the task complete. But that is not the way it works; we had to explain to her
'* * Valentina Matvienko, 1998-2003 deputy to the prime minister in charge o f welfare. Before coming into the government she was ambassador to Greece. In the summer of 2003, she becam e the presidents representative (governor general) to the Northwest Region, and later, in October, was elected governor of St.Petersburg.
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[the way things work]. Since then, she has complied [with the rales], and has listened to what the apparat tells her (Arefiev 2001). As explained by Yevgenii Arefiev, the deputy chief of staff of the apparatus of the federal govemment, bureaucrats of the apparatus serve to protect the top executive from maldng a wrong decision. Quite likely it is so. But simultaneously, it makes a top executive susceptible to bureaucratic tricks, and their likes and dislikes especially conceming decisions that may threaten their survival. It is much easier for chinovnikiXo devise an argument why this or that should not happen, than why it should happen. If they feel that an executive doesnt have substantial power, they will find ways t to prevent the decision from being enacted. For instance, they will send a paper to a minister for coordination and, with the help of friends there in the respective ministry, it will be buried in coordination for ever (Vasiiiev 2000). Vladimir Potanin, one of Russias o li g a r c h s ,a n d first deputy to Prime Minister Viktor Chernomyrdin in 1997, was stunned after he personally experienced the efficiency of lower-level bureaucrats in resisting top-level ones, and their capability of blocking decisions made by top-ranking officials. Once I had visitors from Credit Swiss Boston, a leading group in the consortium that won a tender on being consultants to the sale of 8.5% of RAO United Energy Systems [Russias energy monopoly]. They came with the complaint that regardless of the executive order signed by President Yeltsin, the Ministry of Fuel and Energy and the bureaucrats of the state-owned company were resisting the sale. I summoned the bureaucrats and asked them, The president has made a decision;
Natalia Yefimova, Russia No. 4 on Forbes Billionaires List, The Moscow Times, 4 March 2003. According to Forbes Magazine, Vladimir Potanin, the owner o f Norilsk Nikel, the largest producer of non-ferrous metals in Russia, is worth $1.8 billion, and is ranked 222 on F o rb e s Billionaires L ist..
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how, on earth, can you oppose that? They responded by saying that they considered that decision to be wrong for national security. I was speechless. In corporate governance, a subordinate who refuses to fulfill the order of the executive must resign or he is fired. Not the case with bureaucrats. True, I could get to Chernomyrdin, and make him fire the one particular bureaucrat, but should I approach him a second time with the same request, he would most likely deny it. Thus, I learned the lesson: I had to find ways to get around [those bureaucrats]. I tried hard, but there was also a head of a directorate who refused to sign my orders he considered them bad for the nation, and there was another one who had other reasons to resist, and the third on e... And each had his old pals in the agencies below, who would not push a necessary document regardless of if I yelled at them or, on contrary, pleaded with them (Potanin 1999).^ ^* Irina Xachamada, a one-time, non-cabinet member of the Russian govemment (head of the State Committee for Support and Development of Small Business), and a well-known politician confirmed: A politician who happens to get into govemment cannot get around bureaucrats. He or she is fully dependent upon them: only they know how things happen in this system, and what [a top executive] really means by writing two words and it is rarely more than two words in the com er [of the document]; whether it is an order to make things happen or, on the contrary, to make sure that they never happen (Xachamada 2000).^^ There are at least three types of instmctions that prime minister his deputies and the members of the cabinet may infer in a mandate. As a rale, these mandates never
Vladimir Potanin. Interview with Yevgenia Albats, Moscow, March 1999. Irina Xakamada, Head of the State Committee on Support of Entrepreneurship, 1997-1998. Interview with Yevgenia Albats, M y 2002.
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contain the language of a demand or order. Rather, they take the form of a polite request, always beginning w ith proshu, or I ask you.... What follows is the key. If the executive writes, [I] ask to resolve the issue, it means the order should come into being. If prime minister records the resolution in his own hand writing, and/or establishes a time frame (immediately, in one week, etc.) he signifies that he does in fact mean what he states in the document: A document bearing prime ministers personal handwriting requesting immediate action raises the status of the document (Vasiiiev
2000).
If the executive writes, I ask [you] to help, I ask [you] to consider or I ask [that you] investigate the issue thoroughly, and it is type-signed by the chairman or one of his deputies, the order is a little weaker, but it still implies serious attention. However, if the executive writes, I ask [you] to review and decide in accordance with the code of law [sic!], it means forget about it, (Vasiiiev, 2000). The worst order is I ask [you] to review and coordinate [with an unspecified number of agencies].That is to say that subordinates should bury the issue, explained Mikhail Kasyanov during an interview with the author in 2000^^, when he was the newly-appointed prime minister. Coordination of an important document, that is become an order o f the cabinet, always happens, and its a necessary thing to do.Anatoli Chubais, a long-time minister and a deputy to a chairman, explains the issue: The difference is whether you must coordinate it with three or four agencies or with twenty five. The latter is hard to do, and will take at least three months. However, the worst comes if, after you collect the signatures of all
Mikhail Kasyanov, Prime Minister o f Russia 2000-present. Interview with Yevgenia Albats, Moscow, March 2000,
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those ministers, who each have interests at stake, you get back to the chairman [ for instance, Viktor Chernomyrdin] and he writes something iike Consider suggestions [of other ministers]. I see the need for supplemental reviewing; well, you are dead. It means you are to start everything from the very beginning (Chubais 2001).^^* Why not state negative intentions in plain wording? After all, all those ambiguous orders are a waste of time for dozens, if not hundreds, of bureaucrats. A boss should always play the good cop. Thus, he rarely uses harsh words like deny or dismiss. He leaves the unpleasantries to lower-level bureaucrats, says Oleg Sisuev, another one time deputy to the prime minister (Sisuev 2000). In addition to those three types of written orders, there are special types reserved solely for the prime minister and the president of the country. First, there are the oral orders that a chairman or president may give to a minister. Yakov Urinson recalls the story of how he once complained to prime minister Viktor Chernomyrdin that his agency (the Ministry of Economy) had been getting far too many requests from the prime ministers office, which the agency was unable to fulfill due to a lack of resources and money. Chernomyrdin responded by saying, Did I call you [on the telephone ] and tell you to do these things? When Urinson responded that no, he did not, Chemomyrdin replied, Then, why do you twitch? (Urinson, 1999). Boris Yeltsin was also known for giving orders orally, and not just in writing. There were two types of such orders that his subordinates recognized as soft orders and strict orders. Soft orders usually came when Yeltsin had a visitor (usually a governor) who had come to ask a favor. If Yeltsin had reasons to bargain with him, or wanted to play good tsar, he would not insist on his
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Anatoli Chubais, Interview with Yevgenia Albats, Moscow, July 2001.
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request later, thereby signaling to you that you could pass on it, explained Alexander ShoHiin, a deputy to the prime minister in Viktor Chernomyrdins government. However, if Yeltsin said in a strict way I request that this issue be resolved, using all kinds of harsh v/ords, then you knew that it had to be done (Shokhin 2001). Apparently, Vladimir Putin follows suit. Once, shortly after he was elected president, he visited a nationally televised meeting of the Ministry of Finance. Alexei Kudrin, the minister of finance, complained to Putin that he was getting too many requests for money from the Administration of-the President. Putin responded by saying, I never insist on any request I only ask you, Please, look into the issue again, or Please, consider [this]; and no more than that. He meant that if he really wanted the specific request to be financed, he would find other, more specific, ways to make it clear to his minister beyond writing down some meaningless words. To conclude, we may safely assume that the ambiguity of the wording used by high-level executives serves at least three purposes: one, to avoid taking responsibility for a decision; secondly, to leave space for further bargain, with both subordinates and clientele; and third, to purposely conceal the decision-making process from the public.
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Table 6.2 Types of written mandates given by executives

They say ... I ask to resolve the issue. I ask to help... to consider ...to investigate the issue thoroughly. I ask you to look into the issue again.
They m ean ...

Do it! I do not care if you do it now or later
Effect Positive Positive
I ask [you] to review Negative and decide it in accordance with the code of law I ask [you] to review Bury it, and never address the Negative and coordinate [with issue again outside agencies] Source: Yevgenia Albats, interviews with top level executives o f the fed e ra l govem m ent
It is your decision, I do not care, but if it happens it may not do harm Forget about it!
Neutral
The Logistics Knowledge of how a bumaga, a proposal for a governmental decree or order, moves through the hierarchy is very important as well. A document is almost always initiated by an agency. In this first step, the time involved depends upon many factors, of which the most important is access to the head or deputy head of the agency. Experienced people know that a new head or a deputy to the PM in charge for the problem is not capable of making things happen quickly. W hy is that so, given that one would expect a new boss to be ambitious and eager to prove his ability? Two reasons; first, a newcomer does not yet have enough administrative capital to bargain as an equal with those on the upper levels of the hierarchical ladder. Vladimir Potanin learned this in a quite painful way. Despite the fact that he ran R ussias largest bank (Uneximbank) before becoming a top-ranking official, and had a personal net worth of several hundred
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million dollars, he mattered little on the bureaucratic scale. I was an alien [to the bureaucrats], and I was made aware of that right away. Shortly after President Yeltsin signed a decree confiiming the new government, Chernomyrdin invited us to his office: there, vodka was served to everyone. I dont drink vodka during the day time, and I didnt [at that reception]. That was a mistake. Later on, the PM had a reception at his dacha I was not invited. Chernomyrdin mentioned to someone: Potanin... You know, he speaks English and doesnt drink vodka. That assertion, that I was not one of them, an outsider, immediately became known, and gave bureaucrats the understanding that they could resist orders from me (Potanin 1999). The second reason for inefficiency of a newcomer to the government is that he/she is often afraid to make any decision or to sign any document. There is an informal bureaucratic law that says one should learn from the experienced people who came before: never sign anything [that has to do with budget money] until you understand what your subordinates are all about, what interests they have, and what consequences might arise if you put your signature on a document. Otherwise, you may sign some document that sounds perfectly fine, but has some hidden or dubious meaning, and, voila, you end up in jail, one such newcomer explained (Xachamada 2001). Fear of signing a document that was prepared by a subordinate prompts executives to make a rubber facsimile (so that, in case of trouble, he can claim that it was stolen), or even hire a close subordinate who is willing (perhaps for personal interests) to take risks. This is done not only by agency heads; even Prime M inister Chernomyrdin had a rubber facsimile with which to stamp documents (Xachamada 2001 and Vasiliev 1999).
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Once the document is signed by the head of the agency, he sends it to the office of the prime minister. Usually, it does not immediately reach the intended address, but rather gets redirected to the apparatus of the federal governmentusually to the desk of one of the deputies of the chief of staff, who in turn sends the document to one of thirteen or so directorates in the apparatus. Bureaucrats in the directorates are not supposed to make any decisions on their own; their function is to dispose of trash, and to attach legs to a document e.g., they verify that all the necessary symbols are present in the correct places, send it to other agencies for expertise and coordination. When all is complete, and the proper signatures are collected, they submit the document to the office of a deputy to the PM in charge. They are middlemen: very important ones, and sometimes quite expensive. The joy of working in the apparatus [of the federal government] is that one has lots of bureaucratic power, and little if anyresponsibility (Vasiliev 1999). As the document moves through the bureaucratic circles and between various agencies, its chances of surviving the coordination process depend upon the skills of the deputy to the minister who is lobbying for the document. In each agency, there is one deputy whose primary function is precisely to coordinate the document with other agencies (Ibid.). As a general rule, any serious document that has the support of a top executive must acquire as few as twelve or as many as twenty-five stamps of approval from various agencies (Ibid.; Chubais 2001). Regardless of the nature of the issue involved, the ministries of finance and the economy, and often the Ministry of State Property, must approve it. This rarely, if ever, goes smoothly; once again, there are intermediaries in place (usually from the apparatus of the federal government) to settle whatever problems may and do arise.
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In some cases, a personal call from the ranking bureaucrat in the apparatus to a bureaucrat of the same rank in the hesitating agency helps to resolve difficulties. Once again, this involves knowledge here, an awareness of the hierarchy of calls is required. For instance, a bureaucrat of a higher rank should not call a lower bureaucrat directly, even if he has a question to discuss. The secretary of the higher bureaucrat will call the secretary of the lower one, and request that she call her back (Illarionov 2001).^^^ However, if a ranking bureaucrat calls a bureaucrat of a similar level directly, bypassing his secretary, it is almost impossible to say n o (Vasiliev 1999). But if a mistake is made, and a request is posed to the secretary, that is a sign of the low status or low informal authority of the bureaucrat making the request; the bureaucrat of whom the favor is asked will simply direct his secretary to reply with the meaningless I ll get to you later. O f course, the deputy to the minister who is in charge of coordinating the document must be perfectly aware of the hierarchy of calls. His success or failure depends upon his ability to play the game, and push the right buttons with the right people. Otherwise, it may take as much as two years for a document to clear all its hurdles (Ibid.). When and if-the document returns from circling the various agencies, the next stop is the chief of the office {secretariat) of the deputy prime minister. He is the one obliged to deliver a document to a top executive, and obtain his signature before the proposal reaches its final destination the meeting of the cabinet. The position of chief of a top executives office is a very respectable one; an acquaintance with such a person, and with assistants to vice prime ministers, is very valuable for businesspersons, though it
Andrei Illarionov, economic advisor to President Putin, 2000 - present. Interview with Yevgenia Albats. Moscow, August 2001.
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is not cheap. According to a reliable source, one multinational co.rporation involved in diamond operations allegedly paid about $2 0 , 0 0 0 to an assistant to a deputy prime minister in order to obtain a favorable decision. And allegedly, that sum was a fraction of the expenses ($ 2 0 0 ,0 0 0 ) that this diamond dealer incurred before it finally lost the deal due to the success of a different top-ranking bureaucrat. In another well-documented case, an executive order lobbied by Mr. Andrei Vavilov, first deputy to the Minister of Finance from 1993 tol997, effectively led to a $275 million loss of taxpayer money.^^^ O f course, very few of the documents that are prepared by agencies ever reach the top of the decision-making process. Often, the conflicting interests of different ministries are impossible to reconcile. In the government of Viktor Chernomyrdin, there existed some 300 different commissionsbargaining institutions attached to the federal government, which were assigned to reconcile those interests. Eighty of those commissions were presided over by deputies to the chairman (Vasiliev 1999 and Arefiev
2001).
The final step for a document to become a decree or an executive order is the meeting of the cabinet. At least, it is meant to be the final step. To an outsider, a meeting of the cabinet resembles an academic discussion various ministers present their points of view regarding whatever issue is at hand, some agree, some disagree. However, the rale of the game is that a decision should be made by consensus there is no voting procedure. Thus, experienced bureaucrats, like Anatoli Chubais, know that all discontent should be resolved prior to the meeting. If the PM sees that there is too much
Sergei Dubinin, Chairman o f the Central Bank, 1995-1998, Executive letter to Viktor Chernomyrdin, then Prime Minister, June 30, 1997, #01-10/500. A copy o f the set o f documents is available from the author.
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disagreement, he prefers to postpone the issue, unless he is willing to take full responsibility for the decision (Vasiliev 1999). Viktor Stepanovich Chernomyrdin, who served as prime minister for over five years, always chose to acknowledge his own opinion in quite ambiguous terms that came to be known as Stepanichs gibberish. Insiders insist that though Chernomyrdin had problems with literal Russian; ambiguity was a tool that he, as a long-time Soviet bureaucrat, used in a very skillful way, avoiding any acknowledgement of group or personal interests in the issue while at the same time giving clear signals to his closest subordinates. If a certain proposal wins a consensus at the meeting of the cabinet, there is still no guarantee that it will result in the form of an executive order: it can still be buried in the follow-up procedure. This procedure known as protokol or minutes of a meeting of the government, is a secret procedure by executive-level bureaucrats of the apparatus of the government, carried out behind the closed doors. No ministers or chairmans deputies are allowed in. One would think that this procedure would be nothing more than a translation of the opinions and decisions expressed at the meeting into the bureaucratic language that, after signed by the prime minister, will phrase the final executive order. In reality, the writing of the minutes is an art, meant to preserve the ambiguity of the decisions made, so as to leave room for bureaucrats to interpret the order the way they see fit, explained one official who often presided over this procedure (Vasiliev 1999). No part of the procedure is inconsequential. Each part the language, the sequence of paragraphs, the conclusions is very important, and each part details the consequences, which translate into millions of dollars.
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After the document is signed by the prime minister, its wording cannot not be changed. Therefore, it is imperative that the deputy to the chairman who lobbied and supervised the issue read the minutes very carefully. Anatolii Chubais gave the following example: As a result of the meeting of the cabinet, the language of the final resolution was to state: "Chubais is to do further revisions and prepare the fin a l document. Translating into pure Russian, that means the decision is taken. Period. However, twentyfour hours later [after the cabinet meeting], when I got the minutes prepared by the apparatus, I read: "Chubais is to do further revisions and submit them to the cabinet fo r review. It is like the difference between saying Your Majesty or merely Sir. The phrase submit to the cabinet for review means to begin the whole procedure over again: coordinate with the agencies, coordinate with the directorates of the government, review, reconcile etc. Translated into time, it means another three or four months of work for dozens of people in order to reach the decision that, in the present conditions of reform, should be taken quickly (Chubais 2001). Of course, such misinterpretation of the cabinets decision is not just a ploy of corrupt bureaucrats, but a reflection of a bigger problemwar of clans which has underlined the operations of the Russian government since the early nineties. The existence of two executives inside the same branch, namely the president and the prime minister along with their bureaucratic apparatus, has been the source of constant battles over every decision taken. Thus, unlike with many w esterntype govemments that are also known for grandiose bureaucratic procedures, decisions by the top Russian executives reflect not the reconciliation of competing interests, but rather the discord that exists between the executive bodies and their respective clienteles. One may argue rightly so that the bureaucratization of the decision-making process is
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necessary it provides some form of insurance from arbitrary rule and otherwise harmful decisions. But in the case of Russia, I would argue that it serves primarily a different purpose: ambiguity is embedded in the decision-making process from start to finish in order to allow bureaucrats at various levels of the hierarchy to make discretionary rulings with no accountability or public scrutiny.
Administrative Weishts An obvious question arises: if common bureaucrats feel that they have such power that they dare to fool around with the deputies to the prime minister, then what control is possessed by executives such as agency heads with much less administrative capital at their disposal? As gleaned from the interviews, official position in the hierarchy is often less consequential than unofficial position. The latter derives from what in a bureaucratic jargon is called resurs. Literally translated, it means resources. However, it more accurately means sources of authority, because it refers to both the monetary power possessed by an agency and/or the personal authority of a top-level bureaucrat. For instance, the person who holds the position of personal assistant to the prime minister does not have any material or monetary resources for distribution, as does an agency head. Still, he is much more important than a minister is and carry more weight on the bureaucratic scale. The source of his power is his access to the prime minister, knowledge of his schedule and his capability of obtaining in total violation of procedure a required signature from the prime minister directly, as opposed to going through the lengthy, time and money consuming bureaucratic circles (Vasiliev, 1999). Several former deputies to pime minister Viktor Chernomyrdin asserted to me that Gennadii Petelin, the
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personal assistant to the prime minister and chief of his office, had greater administrative weigh than most of vice prime ministers. He fully controlled the prime ministers schedule. Thus, it was up to him to decide who was to see the PM and who was not. If Petelin didnt want something [some decision] to happen, it would not happen, no matter what you did: you met with Chernomyrdin once a week, he saw him several times each day. That made the entire difference, one former deputy explained (Vladimir Potanin 1999). Another deputy confirmed his defeat by the bureaucrat who, in the official bureaucratic table of ranks, were well below him: There was a decision made by the cabinet regarding Gazprom, a decision which I supervised as a deputy to the prime minister. Petelin just made that document disappear. Chernomyrdin was against it also, but he could not resist it openly. Thus, they used a pure and simple bureaucratic trick: the document got lost, (Nemtsov 1999). However, it is not just access to a top executive that makes the power of a lower bureaucrat to overcome the authority of the higher one. Another source of control over bureaucrats of the government is the power to distribute perks among them. Vladimir Babichev, a long-time chief of the apparatus of the federal government possessed the rank of federal minister. But in the unofficial hierarchy he was much more than that. Babichev had the authority to decide which head of the directorate, or his deputy, received a free apartment, and which did not. He decided who would have a nice dacha for their summer vacation, and who would not. Given that the non-material rewards received by executive and managerial bureaucrats comprise the greatest share of employment compensation packages (as was discussed in the chapter on executives), the head of the apparatus carries much greater administrative weight than even deputies to prime minister (Potanin 1999).
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As was noted in the previous chapter, the administrative weight of any given agency head is determined by the resources available to him for distribution among the market agents as well as for exchange with bureaucrats from other agencies in the bureaucratic market. Thus, for instance, the position of Head of the State Fisheries Committee (which was valued very low in the bureaucratic market in the USSR) weighs more in contemporary Russia than the position of Minister of Foreign Affairs, which was of the highest importance in the Soviet Union. Thus, when the former governor of the Far East region, Yevgenii Nazdratenko, who left his elected office under special arrangements with President Vladimir Putin, needed to choose between the top positions in the two agencies named above, he chose the Fishing Committee over the Russian version of the U.S. State D e p a r t m e n t . T h a t choice, which raised the eyebrows of outsiders, was acknowledged as perfectly rational by bureaucrats. What does Ivanov (the Minister of Foreign Affairs) have? A bunch of impoverished diplomats. What does Nazdratenko get? Distribution of fish quotas [among the fishing companies]. We are talking about millions of dollars (Maslennikov, 2001).^^^ Such a resourceful position provides not just opportunities for corruption; that is another story. The point is that position allows for successful bargaining on the
Vladimir Nikolaev, Nikolai G ulko, Yevgenii Nazdratenko Zakonchil Partiu: Riba, (Yevgenii Nazdratenko finished the game, he chose the fish [industry]). Kommersant Daily, 15 February 2001. Here is another example o f the little administi'ative weight carried by the Ministry of Foreign Affairs. In the spring of 1997, Anatolii Chubais was moved from his position as Chief o f Staff of the Presidential Administration to the position of first deputy to the prime minister o f the federal government. That led to a fierce fight for every cabinet position between Chubais and the prime minister, Viktor Chernomyrdin, who represented the interests o f the bureaucrats and the business (Gazprom) associated with him personally. According to Nikita Maslennikov, a personal assistant to Chernomyrdin, President Yeltsin insisted that one of his proteges, [Valerii Serov], be given a position in the government. Chernomyrdin could not refuse the request o f the president; therefore, because in the presidents protege lacked the skills necessary to be a deputy to the prime minister, he suggested, lets get him to the Ministry o f Foreign Affairs it means little. There, Chernomyrdin implied, an unskilled bureaucrat cannot do much damage (Maslennikov 2001).
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bureaucratic market. He has a better chance of getting things done than one who lacks such a source of power. For instance, Irina Xachamada, once in charge of the agency for support of small businesses, bitterly describes her endless, and eventually hopeless, attempts to get an executive order for the funds needed by her constituency. What did I have? One hundred and forty low-paid bureaucrats and no money at all. I had nothing to offer to those sharks. I felt like I was morally dying. I worked 24/7, and still nothing: I just could not get through. Once, at a reception on the occasion of the W omens Day, [Prime Minister] Chernomyrdin approach me to say congratulations. I told him: Viktor Stepanovich, if you want to present me with a gift, please give me ten minutes of your time to discuss issues [of my agency]. He looked at me, and said: Fine, lets go. And we were off to his headquarters. His retinue his guards, his assistants, the chief of staffall of them they were looking at me as if they were looking at an enemy: I violated the rules, I went around them. And I was never excused for doing that.^^^ This system of informal lines of authority based on the exchange of administrative capital has had a direct impact on the development of the reform process in Russia. Even reform-minded bureaucrats were persuaded to acquire regulatory functions over businesses within their agencies domain, in order to acquire bargaining power with bureaucrats in other agencies or in the apparatus of the federal government. I was a bad agency [in the M inistry of Economy]. I saw it as the headquarters of reform, and didnt fight for valuable functions [on the bureaucratic market]. W hen [Yakov] Urinson replaced me, the first thing he did was acquire [from the federal government] the rights for distribution of capital investments [in industry]. And tactically, as a minister, he was
The State Committee for Support of Small Business ceased to exist in November 1998.
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right; that made other [high-ranking] bureaucrats take into consideration his interests, the interests of his agency and the reforms he lobbied for, said Yevgenii Yasin, a wellknown liberal economists, acknowledging that for the purpose of liberalizing the economy, these control functions where more bad than good (Yasin, 2001). Reformers have had to learn and many other rales of the bureaucratic game. These rales may seem bizarre and pointless to an outsider, but apparently they have had a profound effect on their ability to survive in the bureaucracy, to govern and, hence, to move reforms foreword to whatever extent they could. Here is the example. After President Boris Yeltsins successful reelection in July 1996, Anatolii Chubais needed to make a choice of near-strategic importance according to him regarding which office he would occupy. There were two options: one, head of the Office of Assistants to the President, recently vacated by the all-powerful Viktor Illushin, and two, the position of Chief of Staff of the Presidential Administration, recently vacated by Sergei Filatov (after Chubais took over, two positions were merged into one, that of the Chief of Staff). In the unofficial hierarchy of the time, the position of chief of staff was of lesser value than that of head of the Office of Assistants. I didnt doubt for a second what choice ought to be made. Illushin was a real boss in the Kremlin; Filatov was regarded as, well, just a nice man. Thus, there was only one choice: Illushins office, regardless of the remodeling that was going on inside it (Chubais 2001). Apparently, his choice was a sign to all other bureaucrats that the real boss not just a temporary substitutehad come to run them.^^ It may sound ridiculous, but if you dont do it
Vladimir Potanin turned out to be a less experienced bureaucrat than Chubais. Thus, he made a mistake by refusing to order some remodeling in his office. It tuned out that the bureaucrats interpreted that as a
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right [position yourself among the other bureaucrats] from the first minute, it will take half a year to overcome the image of a handicapped boss. This system of conveying an image of authority to subordinates through status symbols is clearly reminiscent of bureaucracy of the USSR. Chubais agrees: Yes, it is purely Tzk (Central Committee) CPSU nothing has changed in that respect. However, the point is, either you learn the system and manage to work within it, or you are done. You are out. You will not be able to do anything, to pass any important document. These are rules, and either you abide by them or you had better look for a job somewhere else (Ibid.). As many others have noted, nothing in that system is inconsequential. Bureaucrats are watch closely where each member of the government sits in the oval office where the meetings of the cabinet are held. They notice if someone who was once seated at the right hand of the prime minister (a deputy that sits at the right hand is the most important one) is suddenly two chairs away: if someone is moved down the table, it means he is losing a favor, and thus, there are less incentive to fulfill his orders. The same is true of the office space given to a particular vice prime minister: it is a direct indication of what kind of responsibilities (and hence, administrative capital and authority) that deputy does and does not have. Offices on the fourth floor of the governmental building known as the White House are the first among equals, but the office on the right side of the corridor is more important than the one on the left: a deputy from the right-side office should not go to his colleague in the one across the corridor; he is more important (Vasiliev 1998); offices on the fifth floor are of lesser value (Sisuev 2001).
sign that I would be in office only temporarily. That was the way they treated such a very simple thing: Tf he doesnt want his office to be renovated, than he is not going to stay for long. (Potanin, 1999)
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God forbid that anyone should violate these informal rules in any way: it can lead to serious disturbances and grave consequences. For instance, though skillful in, and knov/ledgeable of bureaucratic tricks, Anatolii Chubais felt himself victimized by mistakes of his own making. Once in his capacity as deputy to the prime minister, he was running late as usual to meet some important foreign official at the airport. The car of Oleg Soskovetz, the then first deputy to the prime minister, was traveling in the same direction. Chubais car passed Soskovetz, and arrived at the airport first. As a result, Soskovetz, who was only one level higher than Chubais, refused to talk to him; moreover, he summoned his chauffer and yelled at him for half an hour, threatening: Fll fire you, I ll destroy you... (Chubais 2001). In another instance, Viktor Chernomyrdin himself made a similar mistake that apparently proved to be one too many by President Yeltsins count, and led, according to his close assistant, to his dismissal as head of the government. The mistake was the following: Chernomyrdin attended a soccer game, which was won by a popular Moscowbased team called Spartak. The PM went down to the team locker room to congratulate them personally. Networks reported that the star soccer players greeted him with a standing ovation. Traditionally, that is considered to be something the president does, and thus no one else should, including the prime -minister; it is even more of an indiscretion if it gets reported in the news. (Kolesnikov 2001)^^. Viktor Chernomyrdin was fired, in March of 1998: his resignation contributed to instability in the Russian market, sped up the flight of investors, and eventually led to the full-scale financial
Sergei Kolesnikov, Viktor Chernomyrdins aide until 1998. Interview with Yevgenia Albats, Moscow, July 2001.
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collapse of August 1998. This crisis was the most vivid demonstration of the inefficiency of the closed, non-transparent bureaucratic system that exists in Russia today, and it illustrates the degree to which such a system, based on informal rules and regulations, can doom the whole society. The August 1998 financial collapse destroyed the emerging middle-class those natural consumers of democratic politics by dissolving their savings and placing thousands of businesses in jeopardy. However, it changed nothing in the system of state administration, which saved itself by the exceptional survival skills of its bureaucrats^remarkable skills known to no other institution in Russia. It is difficult to reject Anatolii Chubais point of view, that once one enters the system it is important to leam its rules and tricks, in order to work the system in the right way. However, it is also clear that these bureaucratic games consumed reform-minded bureaucrats, made them hostage to the system, and made it impossible for them to consider their real constituency, e.g., supporters of the liberal economic reforms the broad range of business. The infamous 1995-1996 Loans for Shares deal (which resulted in the sale of some of Russias most valuable natural resource holdings to a few well-connected businessmen for a fraction of their value) was an attempt to create such a constituency that would allow reformers to fight the bureaucratic system with the help of big money. The outcome was the opposite of what was desired: an oligarchy was created, which became yet another tool of the state, and led to the further corruption of the reform process. This system of non-transparency presupposes corruption and the theft of public funds. Those who didnt steal had zero weight, zero influence, because they had nothing to share with other bureaucrats. This system is based on that type of sharing: a boss gets a good package, he gives a little bit to each of his subordinates, and that makes them
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loyal to him. If he gets nothing, he gives away [to others] nothing. He has no power (Vasiliev 1998). Having put all their eggs in the bureaucratic basket, refonners had no choice but to play by the rules of the system: they were playing by foreign rules on a foreign field, doomed to failure by the overwhelming number that opposed them. Several people in the apparatus of the federal government confirmed to me that listening devices had been placed in every office of the government by the powerful, one-time head of the apparatus, and old Soviet apparatchik, Vladimir Babichev. Boris Nemtsov, then deputy to the chairman, grew angry when he learned that his office was bugged. He complained to Viktor Chernomyrdin. So what? Chernomyrdin replied. You do know where you work, dont you? The fact that a top executives office is bugged by a lower ranking bureaucrat was just another rule of the game that reformers had to comply with. And so, they did. Establishing clear and transparent rules of the game were the reformers best, and possibly only, chance. They chose differently. Do you know why the reforms failed? one oligarch-tumed-top-rankingbureaucrat asked me. The responsibility of implementing the reforms was given to people who were against the reforms, he said, referring to the bureaucrats with whom he happened to work side-by-side (Potanin 1999). In my 2001 survey o f top-level bureaucrats, I posed the same question to each: Why did reformers fail? Half (47.8%) said that reformers did not have enough power to implement the reforms; 34.7% claimed that the failure to conduct administrative reform (in order to turn the bureaucratic system of the USSR into a modem one) was the greatest factor; 13% pointed out that reformers underestimated the ability of the bureaucrats to resist liberal reforms; 8% pointed to
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political opposition and underdeveloped democratic institutions as the primary reason for the unfortunate outcome of liberal reform in Russia.
Conclusions The bureaucratic system created in post-Soviet Russia is, in many respects, nothing but a reincarnation of the Soviet system in the new market environment. The same competing institutions exist inside the executive branch: on the one hand, the Administration of the President (akin to the Central Committee CPSU of the USSR), and on the other hand, the federal government (akin to the Council of Ministers in the USSR). And the same institutional redundancy also exists: departments within the Apparatus of the federal government have a say over specific areas of the economy (as did the departments within the Central Committee of the CPSU) while more than fifty federal agencies compete with the Apparatus of the government for the same economic controls. Besides competition for control among the top levels of the bureaucracy, the same competition (as evidenced by interviews with managerial level bureaucrats) exists among the lower levels, both inside one and the same agency as much as between the respective levels of the different agencies. Obviously, competition for control between bureaucrats is exactly what provides fertile ground for murky deals to take place. The existence of the old-style organization of the bureaucracy in the new market environment is not just a peculiar remnant of the deceased USSR, or a living monument to it rather, it is a lid on the body of Russian society, which prevents it from growing and developing, as a shoe that is too small will disfigure a growing childs foot. This oldstyle organization of the bureaucracy simply does not fit the new political and economic
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organization of the country, and thus, mutates the latter to fit its ov/n needs. The Soviet bureaucratic system was created in conditions when coercion was the language of the bosses with their subordinates; coercion made the system, based on wrong incentives and motivations, work. As far as the language and I would argue the only language suitable for that type of bureaucratic organization was abandoned as a result of liberalization during the perestroika times, the system effectively and quickly collapsed. In its revitalization in the conditions of the new Russia, it took full advantage of the new political (i.e., absent coercion), and economic (market) environment. If under the old order, it could exercise some degree of governance (ineffective as it was), in the new one it lost that capability completely. As my research shows, the presence of the market changed the incentives of bureaucrats solely and explicitly to the extraction of rents. It could not be otherwise given that bureaucrats are rational human beings who have been struggling to survive in the turmoil of transition just like everyone else. Also ruined was the bureaucratic hierarchy of the USSR that existed by means of coercion and by the absence of alternatives outside the system. As my research shows, if anything sustains the current hierarchy, it is the distribution of rents along the hierarchical lines. Informal rules and regulations are the essence of the Russian bureaucratic system. Therefore, a closed, non-transparent system is a prerequisite. Thus, accountability of the system is out of question. Those rules of the game create incentives for bureaucrats to keep their jobs at all costs. Given that liberalization of the economy would necessitate paring down the control and regulatory functions of the bureaucratic agencies, thereby depriving bureaucrats of their jobs, the three million strong army of Russian bureaucrats do (and
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can be expected to do) their best to prevent true liberalization from happening. To behave differently would be against their best interests, and would make them into the idealists v/ho they are not: fifty-seven agencies of the federal government have over 5,600 control and regulatory functions. When the Ministry of Economic Development and Trade, responsible for administrative reform, made a weak suggestion to cut some twenty-three (out of 5,600!) functions, the agencies agreed to cut only six, according to Mikhail Dmitriev, deputy to the minister who supervises reform.^^^
Whereas big business resolves its issues directly with the executives, small and mid-size businesses become the primary victims of bureaucrats: unable to sustain competition with the state favorites and unable to placate or pacify the bureaucrats, they either die, or escape into the unofficial economy outside the bounds of the law. In so doing, they cease to be political players, and are forced to rely on protection from the same bureaucrats. It becomes a vicious circle: in order to develop their businesses, they are in desperate need of getting rid of the bureaucratic grip; however, in order to merely survive, they must seek the protection and support of the bureaucrats, thus empowering them. In the next chapter I will present the mechanics and details by which this vicious circle operates.
Kashirin, V Zalozhnikach u burakratov [Hostages to Bureaucrats]. Economika i Zhizn, # 37, September 2003.
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Chapter 7; Shakedown State
The M ayor^^^ fto th e S h o p k e e p e r s ] : Y ou w a n t to c o m p la in ? A n d w h o h e lp e d y o u in y o u r tric k s w h e n y o u w e r e b u ild in g a b rid g e a n d c h a r g e d tw e n ty th o u s a n d f o r w o o d w h en y o u d id n o t u se a h u n d r e d ru b le s w o rth ? I h e lp e d you, y o u g o a t s b e a rd ! H a v e y o u fo r g o tte n it? I f I h a d in fo tm e d o n yo u , I m ig h t h a v e s e n t y o u to S ib e ria !
O n e o f the S h o p k e e p e rs: W e a re te rr ib ly to blam e, Anton Antonovich! The d e v il lured us. We sw e a r we will never complain ag a in . Ask what you like, only d ont be angry!
Nikolai Gogol, The In s p e c to r General (1835)
J. Imagine, you decide to start a small business in M oscow .

Imagine that this business is a downtown restaurant in the busy political and business part of the city with lots of people that would love to spend money there, for lunch and dinner. Given that Moscow is roughly the size of New York but has only onetenth of the number of restaurants (Chernov 2003),^^' you might expect your start-up to find a market. Given that Russian consumers tend to spend almost half of what they make on food, you might consider that type of small business to be a smart investment as well (Table 7.1).^^^ You might even expect city authorities to be happy about it: greater
Gorodskoi Golova jmayor of a city) was an appointed, not elected, position in Tsarist Russia. Sergei Chemov, Restoraimii Rating.PutevoditeV po Restoranam (Moscow; 2003) Rosinter Restaurants, part of Rostic Group, has opened several restaurants in Russia, the CIS and Europe. The company claims that the average payback period for one restaurant with 250 square meters of trade area and an initial investment of $300,000 is 2 - 2.5 years, which represents a very high return. Russian Economic Overview, (IRQ, 2002): 228.
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competition means lower prices, more customers, and thus, more tax revenue in the city coffers, right? Wrong.
Table 7.1: Consumer Spending in Russia and the Czech Republic in 2001
Russia Total spending 100% Obligatory payments and non-consumer spending 10.5% 45.6% Food 30.8% Non-food products Utilities and housing 4.6% Transportation 2.2% Communication Services 1.1% 5.2% Other services S o u rce : Interactive Research Group: R u ss ia n Economic O v erview , Czech Republic 100% 22.3% 20.5% 29.9% 14.2% 1.5% 2.2% 9.4% 2002
In this chapter, I will show the ways and means by which bureaucrats exercise pressure and impose control over small business, pushing them underground into the grey economy. I will argue that there is a logic in how bureaucrats treat small business, which in turn derives out of incentives to stay in the state administration. Bureaucrats are not opposed reforms in general; on the contrary, in the initial stages of reform, the interests of the reformers and bureaucrats closely coincided. However, further in the transition, their interests require getting control over the nations economy even at the expense of sacrificing some rent-extraction opportunities: they do it so to safeguard their partial property rights. I argue that they behave in a very rational manner, in accordance with their interests and motivations, and in accordance with the rules of the game that exists in the current Russian state administration. They do nothing ad hoc, strange or unexpected: they behave in agreement with the experience they obtained in the Soviet era, when they
According to observers o f the restaurant business, this market has had a tendency for steady growth at a pace of roughly 15% per quarter over the last couple of years. Its potential is estimated at $150-200 million.
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felt safe and comfortabie, and at the same time utilizing and accommodating some advantages of the new market environment. .. ..So, what should you expect to face if you decide to open a start-up business in Moscow? A two-inch thick bound folder of official documents required to open a restaurant was presented to me by the owner (who will be known hence as Maxim) of a start-up restaurant. This folder consisted of twenty-eight different types of documentsdeeds, titles, certificates, licenses, permits, resolutions, you name it issued by agencies of the four different levels of authority (block, district, municipal, and federal) plus two law enforcement agencies, seven specialized agencies and five different hybrid institutions called GUP (gosudarstvenniye unitamiye predpriyatiya, the name given to semi-state semi-private organizations). Some agencies issue just one permit, some issue as many as six; some require many documents to obtain just one stamp of approval, and some require as many as six signatures from six different agencies of the three levels of authority (Table 7.2).
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Table 7.2: Agencies involved in granting approvals necessary to open a restaurant in Moscow (2001)
Type of Agency
Ministry of Economic Development, Trade Inspection
Law Enforcement
Ministry of the Interior, State Fire Authority
Specialized (GUP)
1. Ministry of Health, State Sanitation Inspection 2. State Statistical Agency_________ 1. Moscow Energy Utility 2. Sanitation Inspection 3. Fire Inspection 4. Administrativetechnical Inspection 5. Moscow Communal Buildings Project 6. Moscow Committee on Architecture 7. Directorate of Underground Communications District Sanitation Inspection 1. GUP, Center for the state sanitationepidemiological authority
M unicipal
U T
1. Moscow City Government (Department of Consumer Services) 2. Moscow City Government Licensing Chamber
Moscow Tax Inspection
R I
1. Moscow cash register production c control plant 2. Moscow Advertising Center 3. Directorate of Commercial Police 4. GUP Moscow Committee on Architecture 5. GUP Enlakom
T Y
District
Office o f the District Authority
Block
Office o f the
block authorities
Department of Communal Services (garbage collection)_______
Following is a list of signed documents that must be obtained by a prospective restaurant owner:
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Figure 7.1 : Required Documents to Open A Restaurant in Moscow

A. Safety issues; 1. Report on the safety of electrical wiring in the building (Moscow Energy Utility). 2. Conclusion on the state of fire safety in the building (Ministry of the Interior, State Fire Authority). 3. Resolution on the state of security of the building [from possible burglary] (Directorate of Commercial Police).
B. Sanitation Issues; 4. Deed of pest extermination and overall hygiene (District Sanitary Inspection). 5. Resolution on meeting the conditions to put business into operation (Municipal
Sanitary Inspection). 6. D eed on sanitation-epidemiological expertise (District Sanitary Inspection) 7. Sanitation-epidemiological conclusion on compliance the rules and norms of
sanitation to protect public health (GUP, Center for the state sanitationepidemiological authority).
8. Conclusion on the state o f ventilation (District Sanitation Inspection).
C. Zoning Requirements;
9. Permission to open a restaurant in an apartment building (M oscow Communal Building Project). 10. Conclusion regarding the appropriateness o f the interior o f the business (District Sanitation Inspection). 11. Lease or title o f property ownership (Office o f the District Authority). 12. Conclusion regarding the street appearance o f the business (M oscow Committee on Architecture). 13. Certificate o f permission to place advertising [such as a signboard] (GUP, M oscow Advertising Center). 14. Colorist title (GUP, M oscow Committee on Architecture) 15. Confirmation o f the establishment o f a signboard (GUP, M oscow Advertising Center). 19. Passport on materials used in the building (Artist at Large, GUP Enlakom o f the M oscow Committee on Architecture).
D. Everyday Oneration Issues:

20. Conclusion on the validity o f the official seal on the cash register (GUP, M oscow cash register & control plant). 21. License for conducting restaurant operations (Office o f the District Authority). 22. Certificate o f compliance [with norms] (M oscow City Government, Department o f Consumer Services). 23. Deed o f acceptance [of the business] (a) Ministry o f the Interior, State Fire Authority; (b) Ministry o f Health, State Sanitation Inspection ; (c) GUP, M oscow Advertising Center; (d) Office o f the District Authority; (e) O ffice o f the block authorities; (f) M oscow Administrative-technical Inspection). 24. License to sell alcohol products (M oscow City Govemment, Licensing Chamber) 25. Confirmation o f tax status (M oscow Tax Service)
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26. Agreement for garbage collection (Block authoritys Department of Communal Services). 27. Approval of menu (assortimentniy maximum) (Doctor at Large, Office of the District Authority). E. Other; 28. Confirmation of having submitted statistical information & obtained statistical codes (State Statistical Agency).
As may be inferred from the list, the pu,rpose of this multitude of documents is to ensure: (a) compliance by a prospective business with norms and regulations, (b) protection of consumers and (c) control over everyday operations. There is certain logic to the types of agencies involved. Specialized state agencies as well as hybrid agencies (GUP) serve to provide expertise on proper compliance with rales and norms, be it the safety of the electrical wiring or merely the businesss street-side appearance. Managerial offices grant permission to open and conduct business based on expertise provided by the specialized and hybrid agencies. Finally, the law enforcement agencies as well as the control departments of particular agencies (such as the Trade Inspection Agency) oversee the proper conduct of business on an everyday legal basis. As they say, however, the devil is in the details. First, there is the overlap of functions among the various levels of authority and the various types of agencies. For instance, confirmation of compliance with sanitation rules requires five different deeds and resolutions that are issued by state agencies of two levels of authority and two types of agencies. One might argue that when it comes to protecting consumers from food infected with deadly viruses, no control is too g r e a t.H o w e v e r , a similar pattern is seen
Obviously, I allude here to the public interest theory of regulation, which argues that a govemment protects public against self-interested markets by imposing such a system o f screening, which precludes market failures and ensures consumers rights to buy high quality products and services. Simeon Djankov et al, in Regulation on Entry (2001) convincingly argue against such an approach.
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regarding other issues. For instance, concerning zoning laws, the street appearance of a restaurant requires permission from the municipal Committee on Architecture as well as its commercial counterpart, or GUP. It is all about money: you pay [fees plus bribes] in both places even though both oversee the same issues; and the one [GUP] is just a commercial branch of another [bureaucratic agency], Maxim explained. Furthermore, the rules and norms imposed by bureaucrats are so detailed and strict that it is nearly impossible to comply with them. For instance, the Colorist Title of the building (Figure 7.3: document C.14) states the precise tone of the color. In the case of M axim s restaurant, it was pink. However, pink has several hundred different tones. Thus, the Colorist Title states the precise tint of pink that Maxim must maintain unless he applies for a new Colorist Title. Also, the details stated in the permits are so precise that they allow for endless and unlimited control by bureaucrats. Any new dish added to the certified menu requires permission from the Doctor-at-Large of the District Office Authority. A deviation in the size and weight of the meal may incur penalties. The everyday pain is finding hens of the same size and weight. Should the Trade Inspection officer come and find that one portion is 200 grams and another is 230 grams, we must pay penalties. It is even harder with fish; but requirements are such that, for example, each trout must be of the same weight, the owner complained. One might think that consumers are capable of judging the quality of food and service no worse than the Trade Inspection judges. But apparently they are not trusted for such a responsibility. It is easy to understand why: leaving it to consumers means depriving bureaucrats of the ability to extract rents. As it was noted before, 61% of gains accrued by many various bureaucratic
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agencies comes from giving expert resolutions of the kind outlined above.
Generally,
the under the table price of opening a restaurant in Moscow is thirty times higher than the official price. Whereas the complete set of necessary fees and stamps officially amounts to $300-500, the same set of required documents obtained via a middle-man (e.g., a company that works the bureaucracy and finds the right people to accept the right bribes) costs between $15,000-20,000 (the price paid by Maxim). Still, this is not the end of the story. All the documents specified on the list expire after one to three years." Access to a high-top nachalnik (official) (sure, it w ont be free), but it will help to get the permits for three years. If you lack such access, you are stuck going through the whole process every year, said the owner (who has had two other highly successful restaurants). Thus, whether the owner of a restaurant must renew his deeds, certificates, licenses and other permits every one, two or three years, depends on the type of connections he has. Given that bureaucrats possess endless tricks to extort rents for instance, an office in the local tax agency, where a business is required to be registered, may be open for as little as ten minutes twice a week, as one empirical study revealed (Tambovtsev, 200Ib)^^ it is obviously easier to pay off a bureaucrat in authority rather than try to fulfill the requirements via legal means. Of course, these hardships are not unique to the restaurant business. For instance, opening a small bakery requires permission from eight different agencies, twenty types of documents, at least 270 hours of dealing with the bureaucracy, and several hundred
Anastasia Onegina and Boris Grozovski, Nastuplenniye na Kontrolerov, (Attack on Controllers), Vedomosti, 3 February 2003. Vitali Tambovtsev (2001b) Podchody k sovershenstvovaniu sistemy regulirovaniya predprinimatelskoi deyatelnosti, (Ways for Perfecting the System o f Regulation of Entrepreneurial Activities); Analytical report prepared for a meeting o f the government of RF. Copied from the original. Part of that research can be found in; Vitali Tambovtsev, ed., Economicheskii Analiz Nomiativnich aktov,{ Moscow: TEIS, 2001).
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dollars in bribes. A small kiosk selling cigarettes and other miscellaneous items demands thirty-two stamps of approval and various other permissions. The list of documents necessary for a larger business^such as a family operation that makes sausages consists of 105 various regulatory and permit documents (Auzan 2 0 0 1 ) . On average, according to estimates, a start-up business in Moscow requires the solicitation of 20-30 various bureaucratic agencies, and as many as 50-90 approvals or an intermediary, whose fee can be as little as $400 or as much as $20,000 and over (Tambovtsev 2001b). Nevertheless, let us imagine that you manage to secure enough capital and establish enough connections to open your restaurant you have a great manager, a good cook and attractive decor to face the competition of the market. All of these good things are still, by no means, a guarantee of success, because success also depends on your relationship with bureaucrats from the various law enforcement and oversight agencies that supervise everyday operations. A report issued in 2003 by the Ministry of Economic Development and Trade outlined sixty-five different oversight bureaus in forty-three federal agencies. These bureaus employ 800,000 inspectors (in addition to police). To illustrate how meddlesome such a force can be, in the year 2000 each small business was inspected on average ninety times by police, twenty times by Sanitation Inspection, and four to ten times by other oversight agencies. In the case of restaurants, police, trade,
sanitation and tax inspectors are the most frequent extractors of rents typically more
Large, and even very large, businesses are not exempt from bureaucratic taxes. For instance, the Sakhalin Energy Investment Company Ltd. (Sakhalin Energy), a multi-billion dollar oil and gas consortium of subsidiaries o f such giants as Shell, Mitsui and Mitsubishi, needed to acquire 1,117 permits over a threeyear period at a cost o f $5 million (Auzari, 2001). Obviously, the difference between big business and a small business is that the former has enough cash for a down payment, whereas a small one does not. Onegina and Grozovski, 2003
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than once per month (Maxim 2001). Police look for the presence of illegal labor and violations o f liquor and cigarette codes, and trade inspectors review kitchen cleanliness and food safety, and by doing that they have ample ability to make trouble for the business if their terms are not met. Interviews with small business owners also reveal that pay-outs to criminal gangs, which collect their share of rents in exchange for protection from other gangs, is comparable or just slightly less than the fees extorted by bureaucratic agencies (Table 7.3).
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Table 7.3: Frequency of control visits to small businesses

Less
than
Annually
Each
Q uarter
Each Month
once a Fire
Authority Sanitation
year 19.9 30.4 63.6 55.6 70.6 30.4 25.5 19.9 24.5 10.1
More than once a month

2.8 4.2 1.0 1.7 0.7
Dont remember
36.7
19.9 3.1 7.0 3.5
6.6 15.7 0.7 2.1 1.4
3.6 4.3 11.7 9.1 13.7
Inspection Registration Chamber

Licensing Chamber Directorate of Architecture Tax Inspection Police Customs Pension Fund Criminal Rackets
15.4 35.7 69.6 43.4 35.0
30.4 16.4 4.9 28.3 1.4
27.6 15.7 2.8 15.4 8.7
8.4 11.2 2.4 4.2 34.3
14.0 14.0 1.7 1.7 2.8
4.2 7.0 18.6 7.0 17.8
Source: Russian Independent Institute o f Social & National Problems, 1999
Criminal rackets use a clear-cut timetable for rent extraction: 34.3% of such gangs come less than once per month and 35% come less than once per year. For a business owner, such predictability allows time to budget for such expenses. Conversely, however, bureaucrats from the police, sanitation and tax inspection prefer more frequent and chaotic visits. Furthermore, criminal rackets at least provide protection from other similar groups, whereas bureaucratic agencies do not coordinate their visits between each other. Also, rackets extract comm issions based on the volume and profitability of the particular business, whereas bureaucratic fees are based on 60,000 different regulatory documents (Tambovtsev 2001a). A cafe owner in Ufa, a city in the provincial Russia, gives the following description of what life is like:
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A sanitation inspector comes and says here you need an additional dividing wall, and there you need something else, etc., or I am going to close down your cafe. Later, over a bottle of vodka, the inspector herself confesses that no one can and no one does comply with all those GOSTs [gosudarstvenniye standarti, or state standards]. Then, the fire inspector arrives, and he claims that the walls in my cafe are made out of the wrong materials. I tell him: this cafe existed under the Soviet Union [hence, was owned by the state, which outlined those regulations]. Back then those walls were considered OK. I asked him right away: How much do you want? He does not say, but claims, instead, that the lamps in the cafe also do not comply with standards... Once again: I am going to close your cafe based on violations of the fire safety norms. You weep, you beg... Finally, he has a free dinner and a free drink with us, and he walks away, Everything now is OK with the norms until he or another inspector comes back. (Klymkin and Timofeev 2000) Consequently, this abundance of overlapping and contradictory norms and regulations makes dealing with the mafia and other illegal channels less chaotic, more predictable and generally more attractive to small business owners. I find it cheaper to pay krisha in order to deal with all those controllers [who come to inspect the business]. At least the price of kryshi is well defined, the owner of a small pub in St.Petersburg told a r e p o r t e r . R e c e n t research suggests that small businesses spend $6 billion annually on bribes to bureaucrats, and the same amount as payments to various krisha, e.g., protection services performed both by mafia and by bureaucrats in epaulets (Shestoperov 2003). Another study, conducted in 61 regions of the Russian Federation by an association of
I. Igor Klymkin and Lev Timofeev, Tenevaya Rossia )the Shadow Russia), Center on Study the Illegal Economic Activity (Moscow: Russian State Humanitarian University, 2000): 402-03 Onegina and Grozovski Oleg Shestoperov, Head o f the Institute o f Systemic Research o f Entrepreneurial Problems. Transcripts o f a round-table discussion Russian Small Business: Questions and Answers, Liberal Mission Fund, September 30, 2003. Available at: http://www.liberal.ru/sitan.asp?Num=396
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small and mid-size businesses called OPORA, supports these claims; less than half (45%) of businesses questioned trust the legal system (i.e., the courts) as a means to defend their rights. H alf ask for help from different authoritative people, meaning protection services, lobbying groups, human rights groups, etc. (Borisov 2003)^^^ Even businesses that are eager to work within the legal framework if only because bribes and protection services make everyday life far too risky cannot do so: Right from the beginning, when we opened our [family] business, we decided that we were going to be legal. We tried very hard, but four years later, we gave up, and hired an intermediary company to deal with the authorities. We were told: Whether you want this or not, $300 monthly cash is your fee just to the Office of the District. They said that if we didnt pay, you will not be able to work in our district, the owner of a family retail business from St. Petersburg told the researchers. It is easy to see why they do not choose legal channels
to defend their rights: a price tag is already attached to many decisions dealing with business disputes, be it for an investigation of the case or for a judicial hearing.
Sergei Borisov, President o f the All-Russian Organization of Small and M id-size businesses OPORA Rossii. Transcripts o f a round-table discussion Russian Small Businas; Questions and Answers, 2003. Ibid. Ella Poneych, Pravila Igri: Sam Dolzhen Ponimats, (Rules of the Game: One Should Understand Them), Vedomosti, 18 November 2003.
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Table 7.4; Price of judicial favors (selected cases)

Suspension of investigation $1,000 Release from custody $10,000 20,000 Dismissal of case $ 25,000-50,000 Arrest of the competitor accompanied by $ 10,000 30,000 planting false evidence (usually heroin) Victory in a case that is otherwise doomed $ 100,000 Source: Coudert Brothers L a w Firm, Y e v g e n ia Albats, Global A c c e s s Project, 2003
So how does small businesses in general, and the restaurant business in particular, survive? To put it bluntly, rather badly. In 2001, ten years after the start of economic reform in Russia, the number of small businesses is roughly the same as it was in 1995, and has yet to reach the number that was registered in 1994 (see Table 7.5). In the following pages, I suggest that the poor performance of small business in Russia can be blamed directly on the control aspirations of bureaucrats.
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Table 7 3 : Number of small businesses in Russia

Year"-'^ 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Small & mid-size businesses (thous.) 64.0 560.0 865.0 896.9 877.3 841.7 861.1 868.0 890.6 890.6 875.5
Number o f people employed in small businesses (mill.)
2.2 8.6 6.6 8.5 8.9 6.3 6.5 6.2 6.4 6.6 6.3
S o u rc e : Goskom stat, Working C enter o f Econom ic R eform under the G overnm ent o f the Russian Federation
How does M axim s restaurant survive? High prices, was the firm answering of the owner. Taxing the consumer by imposing high prices is the way of survival: in Moscow, where the average monthly income is $300, customers can expect to pay $4050 per person at most restaurants (Chernov 2003). Establishing cheaper restaurants is only feasible by big businesses, which can get protection from high-level city and federal bureaucrats and which can maintain profitability by sheer volume: Rosinter Restaurants, a franchise of the U.S. chain TGI Fridays, and M cDonalds have 100 and 48 locations respectively, and earn over $50 million dollars annually (Russian Economic Overview
The break in the table between years 1995 and 1996 meant to address the problem that exists regarding coherence of statistics. From 1992 - 1995, small businesses were defined as those employing no more than 200 people (Executive Order of the Government o f the Russian Federation # 446, May 11, 1993). Beginning in 1996, small businesses were defined as those employing no more than 100 people (Federal Law #88-F3, June 14, 1995). There are no statistics for 1996 - 2001 on the number of small businesses with 200 employees. Experts believe that because the 1996 law deprived small businesses with 200 employees o f some important tax exemptions and benefits, some o f those businesses split in two and registered as two small businesses in the respective governmental organizations. Others simply moved outside the legal realm by not registering at all (Vasiliev, 2000). Thus, this table first and foremost represents the trend (i.e., decline) in the number of small businesses in Russia.
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2002). Taxing consumers through the imposition of higher prices on products and services is practiced all across the nation. This tax is estimated at 10% on average e.g., the price of goods and services are 10%higher than they would be if there were no such bureaucratic barriers to business (Tambovtsev 2001b). The political implications are obviously negative. Observers conclude that the Russian experiment with parliamentary democracy is more or less dead.
True, in 2001 the government of newly elected President Vladimir Putin passed several laws aimed at reducing bureaucratic pressure over business. Among the most acclaimed measures was the 13% flat tax on profits, a licensing law that reduces the number of permits that businesses must obtain from bureaucratic agencies. There was also a law creating a one-window process for registering businesses-instead of the usual 20-30 windows as well as some initiatives of lesser consequence. Two years later, however, observers have reached some poor conclusions. The number of required permits is again on the rise, and it is harder than ever to get licenses and certificates. The one-window registration rule does not work; a prospective business owner must deal with at least six or seven different agencies, and spend at least one month waiting in queues. Thus, the demand for middlemen has not suffered. Though the government fired a couple thousand inspectors and controllers, the reduction amounted to less than 0.25%
'^^The Economist, The Russian Elections, Putin's Way; Russia's experiment with parliamentary democracy, never full-hearted, is more or less dead. The country's wellbeing now depends more than ever on one man, December 13-19, 2003. In the paper written six weeks before the 2003 parliamentary elections, Andrei Shleifer and Daniel Treisman argued that Russian transition, in fact, has been relatively successful. They further argued that by 2003 it had become a normal country: A typical middle-income capitalist democracy, which had secured its place among other countries of its category, such as Argentina and Mexico. (Andrei Shleifer and Daniel Treisman, A Normal Country, (2003). Available from : http://post.economics.harvard.edu/faculty/shleifer/shleifer.html)
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of the total. Regardless, a law that sought to constrain different types of inspectors and controllers did not include law enforcement agencies such as police, tax inspection and FSB that disturb small businesses the most. Furthermore, the new Administrative Code increased the number of agencies that are allowed to exercise control functions over businesses from forty-three to s ix ty .F o llo w in g is an example, of how bureaucrats are capable of turning progressive laws to their own ends. On January 1, 2001, Russian Customs introduced a new, more business-friendly system of taxing imported goods. The primary goal of the new system was to reduce corruption and make the process less time consuming. In accordance with the new regulation, five tariffs were introduced, ranging from five%of the total value of goods to 30%. Naturally, Andrei Illarionov, the presidential economic advisor, argued that the existence of five tariffs as opposed to two was in itself a road to corruption (Illarionov 2000). Still, businesses were quite encouragedfor two days. On January 3, two days later, the State Custom Committees central directorate issued Order #2, which decreed that all goods claiming the lowest tax rate (5%) were required to obtain an approval stamp either from the head of directorate or from his deputy. As a result, the queue to get that approval stamp became as long as several months, and thus, implied a higher bribe. Retail storage facilities in nearby states got stuck with unshipped goods, and the price for home electrics in Moscow and other
2 7 0
cities in the central region went up 15-25%.
Irina Xachamada, Maliy Bisnes: Chto v Davose Chorosho, to v Rossii, (Small Business: What is Good for Davos, for Russia [is Bad]), Vedomosti, 10 February 2003; Elena Vichucholeva and Elena Zagorodnaya Poterya Lica, (Loosing the Face), Izvestia, 13 December 2003. Yuri Ryzhski, Tamozhny Vzyla Dobro, (Customs Took Over Goods), Moskovski Komsomoletz, 21 February 2001.
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To cut the long story short, in a study of small business conducted in the summer of 2003, 50% of owners confessed that the situation has not improved, and 46% claim that it has become worse (Borisov 2003).
2. The L o sic o f Bureaucratic Action Obviously, rent-seeking aspirations on the part of bureaucrats is not a purely Russian phenomenon. As James Buchanan argued quite some time ago, no administrative system is immune from these types of pitfalls (Buchanan et al. 1980).^^^ It is also reasonable to accept that bureaucratic corruption is sometimes helpful, and that bribery may be socially requisite for the survival of a society crushed by the incubus of an overpowering bureaucracy (Riggs 1964: 263).^^ In fact, the entire existence of the gray economy in the Soviet Unionread, survival of the entrepreneurial talent of the nation would not be feasible without bribery. Economic reforms in the early 1990s led to a democratization of bribery, whereas earlier bribery was a privilege: a faculty of access to the relatively few in the Soviet bureaucracy who had attained the benefit of a free hand in the system of strict control and who allowed corruption (Yakovlev 2001: 289-290).^^' This democratization of the system of bribery contributed at large to the blossom of small business through the politically (and otherwise) chaotic years from
James Buchanan, Robert Tollison & Gordon Tullock, Toward a Theory o f the Rent-Seeking Society (College Station: Texas A & M University Press, 1980). Several other authors also argue that the optimal level o f corruption is positive. See, Samuel Huntington, Political Order in Changing Societies, New Haven, CT: Yale University Press, 1968); Andrei Shleifer, Robert Vishny, Corruption, The Quarterly Journal o f Economics, 108:3 (August, 1993): 599-617. Available from: http://links.istor.org/.
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Alexander Yakovlev, Omut Pamyti: Ot Stolupina Do Putina, Vol. 1 (Moscow: Vagrius, 2001).
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Reproduced with permission of the copyright owner. Further reproduction profiibited witfiout permission.
1991 to 1995, creating ever better rent-extracting opportunities for bureaucrats of all levels (Table 7.5). Yet, with the regime approaching a more stable phase, the situation has, counter intuitively, begun to turn for the worse for small business. Instead of nourishing this golden goose, bureaucrats, rather irrationally, have been consistently reducing its ability to give golden eggs. Using Mancur Olsons analogy, the roving bandits, (e.g., the multitude of bureaucrats and criminals engaged in robbing businesses) have been replaced by a stationary one: the executive himself, who was supposed to constrain the bandits so as to preserve future harvests for himself (Olson, 2000).'^^ However, the life of small business has not become any easier, but rather more difficult, and consequently the number of small businesses plummeted. Criminal rackets, despite all their side effects, apparently continue to be more users friendly. Conversely, efforts by the executive to conceal bureaucratic corruption in the years of President Vladimir Putins authoritarian regime (beginning March of 2000) evoked an outcry from those who were to benefit the most from those efforts. Bribes (for entry and ride tickets) have again become a privilege, gained either through important connections or through a high price tag. As told by an owner of a small business, the tougher the laws, the higher the prices that middlemen charge; if before one could get away with giving one hundred dollars directly to a fire inspector, nowadays one must find a middleman who will ask you to buy a fire extinguisher for a price three times higher than the real one [which is
Mancur Olson, Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (New York: Basic Books, 2000).
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camouflage for the b r i b e ] . A t first it sounds bizarre: a strong executive should be able to kick out all the middlemen and to collect the bribes for himself, as Olson said. By doing so, he would reduce transaction fees incurred by businesses. This is true if an executives support base lies outside the bureaucracy: in the military, for instance. However, if his main constituency lies with the bureaucracy and he depends upon their support (which he does, because he is at odds with the other interests groups around him), then he has share the bribes with them, and he must allow corruption. In other words, in the same way that merely partial reforms can be almost as bad as no reforms at all (Hellmann 1999), the same is true for efforts of coercion: an executive must choose to play the role of Stalin or he has to allow others to participate in bribes as well. If he chooses the latter case, small and middle size businesses by virtue of being easy targets suffer the most. As the price of operating in the legal realm becomes far too excessive, businesses
O Q4
are prone to move into the gray zone of the unofficial market (De Soto 1989),
thus
depriving at least some bureaucrats of rents that they would otherwise have been able to extract. Owners may even close the business, thereby reducing the bureaucratic rent harvest even further. A paradox? No, I would argue that there is no paradox. Rather, there is a clear-cut logic to the actions of bureaucrats. After all, the business of extracting bribes is risky: there is the imminent threat of populist clean hands campaigns, as the one conducted in Russia during the 2003 election cycle that resulted in the arrest of several top-level police officers precisely for
Ella Poneych, Pravila Igri: Sam Dolzhen Ponimats (Rules of the Game: One Should Understand Them), Vedomosti, 18 November 2003.
384
Hernando De Soto, The Other Path (New York: Harper and Row, 1989).
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imposing and extracting rents from businesses.'*^ It is especially dangerous for the large majority of bureaucrats on vaiious levels of the hierarchy who do not have the option of leaving public service and investing their accumulated bribe money in the market. Thus, control, and again control, as Vladimir Lenin proclaimed at the beginning of the construction of the Soviet bureaucratic state. To be sure, control does not preclude bribery, but rather gives security to the process. It involves sharing bribes with both the superiors and subordinates, and thus provides for protection and allows one to avoid competition for bribes from the side of intruders. Moreover, control secures the option of moving to a private firm, if prosecution is threatened. However, control over many is a huge task: the bureaucratic machine of the USSR, with its enormous capacity for coercion, failed the task. As noted earlier, illegal business activity accounted for approximately 10% of the economic activity of the entire nation in the late 1980s. Therefore, killing small business via imposing barriers to entry, or through the heavyhanded regulation of operations, is a rational choice: first, by the rule of supply and demand, bribery becomes a privilege (the stricter the control, the more demand for
In June 2003, an anti-corruption campaign was started, which became known in the media as the wolves in sheeps clothing campaign. This was part o f the election strategy o f the pro-Kremlin party United Russia, led by Boris Gryzlov, who happened to be the Minister o f Interior, besides being the leader o f the party. Because o f this campaign, at least seven top-level police officers with the rank of colonel and higher were arrested on charges o f extortion. The list o f items found in just one apartment of a police officer speaks for itself; among other things, it included $3,320,000 in cash, 20 various pistols, 45 key chains from cars like Mercedez and BMW , special surveillance equipment, lots o f expensive jewelry, and twelve expensive ($4,760 - 23,000) Patek Filippe watches. This list suggests that the colonel under arrest did not collect all those valuables himself, but merely sat on top o f the chain o f police officers that supervise businesses: the kind of officials described in the first part of the chapter. Thanks to this campaign, some price tags for the position o f top-level police officers in the city have become known. It ranges from $25,000 for the post o f mayor or colonel, to $120,000 for the post o f police general. Zinaida Lobanova, et al, 2003. Menti bez Grima (Policemen without Makeup), Komsomolskaya Pravda, 24 June 2003; Available from: http://www.kp.ru/daily/23057/4544; Accessed December 22, 2003.
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bureaucratic favors) and thus, the price goes higher. Secondly, big business will fill the void. Consider again the list of documents that must be obtained in order to start a restaurant business in Moscow. It is evident that bureaucrats may exercise their power over business through three types of activities: (1) selling various permits to enter the market and then to operate in it (licenses and certificates), (2) providing expertise on compliance with rules and regulations (GUPs), and (3) by conducting regular check-ups of everyday business operations (law-enforcement and other control agencies). Each of these practices was bom and tested in the Soviet bureaucratic system, and each one was reinstituted by the new laws (e.g., they are not leftovers from the USSR-type rule of law, but have undergone adjustment to the new economic environment). Each activity in itself provides an opportunity for extracting bribes. But when taken together, the three practicesinterdependent upon each otherprovide for something much more promising than a petty, one-time bribe: they establish control over the market field, which in turn ensures the constant flow of rents and de facto property rights over businesses. Following is discussion of controlling institutions, presented in ascending order, from those least harmful to business to those capable of imposing the greatest burdens and/or exercising the greatest control over the wider range of entrepreneurial activity: GUPs, certification, licensing.
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GUPs State property enterprises {gosudarstvenniye unitarniye predpriatia) are the kind of creatures in which the property belongs to the state but the managers enjoy the profits. They originated in the last two decades of the Soviet Union, the outcome of the thenquasi market reforms known as xozrachet (self-supporting or self-financing enterprises) which were meant to bring efficiency to state enterprises by creating additional incentives for the state-appointed managers (Yasin et al. 2002).^^ In the reality of the Russian transition, GUPs (identified by various labels such as privately-traded company, Ltd., openly-held company, etc.) have become a form of gratitude bestowed upon federal
and local bureaucrats by the federal executive as a reward for loyalty. In the chaotic and politically uncertain autumn of 1992, Boris Yeltsin, in a special presidential decree, spelled out the right of bureaucrats to create semi-private organizations: the property would belong to the state, but the profits would be private. This has resulted in a convenient way of selling state services in commercial packaging, or, in other words, a way to legitimize bribery. This became much more necessary for bureaucrats after the 1995 federal law on state service prohibited bureaucrats from conducting commercial activities out of their offices: GUPs have been organizations which stood apart from the state administration. (Of course, any law in Russia allows for exceptions. Thus, for example, the Kremlins Business Administration Directorate (which provides benefits to executive-level bureaucrats) enjoys special presidential decrees be they from Boris
Yevgenii Yasin, et ai, Bremya Gosudarstava I Ekonomicheskaya Politika(Burden of the State and Economic Policy), Liberal Mission Fund, October 22, 2002; Available from: http://w'ww.liberal.ru/sitan.asp ?Num=276 'Îbid.
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Yeltsin or Vladimir Putin that allow the directorate to engage in commercial activity despite being an office of the state administration?^ The heads of the respective agencies federal or local appoint managers of GUPs thus creating incentives for managers to share the profits and for agencies to protect their existence?^^ There are over 22,000 such enterprises in existence across the nation, of which almost 10,000 (9,810, to be exact) belong to the federal administration (Yasin et al. 2002).^' GUPs, as is often acknowledged in the government documents, are a burden on federal and local budgets: according to official statistics, 40% of those enterprises are operating at a loss, and an additional 20% have a profitability close to zero.^ In December 2001, President Vladimir Putin signed a federal law requesting a drastic reduction in the number of GUPs.^"^ However, two years later, in 2003, ninety-
Presidential Order #1230, October 14, 1992; Sobraniye Aktov Presidenta and Pravitelstva RF (Collection of Acts o f the President and the Government of the RF), 1992, #16, p. 1237.
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See, for example: Presidential Decree #1444, Voprosi Upravleniya Delami Presidenta RF, (Questions o f the Business Administration Directorate), August 7, 2000. Igor Nikolaev, Ivan Shulga, Firma po imeni GUP, (Firm under the name GUP), Moscovskiye Novosti, 23 September 2003, #37. Yevgenii Yasin et al., 2002 On May 23, 1994, then-President Boris Yeltsin signed a presidential order On reform o f the State Enterprises, which acknowledged the necessity o f concealing the practice o f the establishment o f new GUPs, and to proceed with the privatization of the existing ones. It had little if any effect. In 2002 alone, twenty-seven different governmental orders were issued, including two federal laws regarding privatization o f GUPs. See: official website o f the Ministry for State Property (http://www.mgi.ru/base/privat). Alexander Braverman, Deputy Minister for State Property, as quoted in: Gosudarstenniye Unitraniye Predpriyatia Zhdet Mashtabnaya Reforms, (GUPs are to be Reformed at Large), strana.ru, 2 June 2002. Available from: http://www.strana.ru/stories/02/02/06/2463/170857 .html Federal Law #178-FZ, O Privatizatzii Gosudarstvennogo I Munitsipalnogo Imushestava, (On Privatization of Municipal and State Property), December 21, 2001.
394
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two new federal-level GUPs v/ere c r e a t e d , a n d an additional seventy or more have been created under the auspices of local administrations.^^^ That study also reveal that in more than half of Russias regions, local authorities have increased their presence in private firms. Thus, the size and volume of state presence in the economy via GUPs and other bureaucratic businesses is on the rise.^^'^ Why? As learned from interviews, as well as documents and publications in the press, there are two major reasons for this. For one, because the operating expenses of bureaucratic businesses are paid from the state budget, they are quite profitable for their managers and the officials who establish and supervise them. Unlike businesses in the private sector, GUPs do not pay tax on income, they enjoy special discount utility rates, and they do not expend funds on their primary sources of production, which are provided by the state. Nor do they incur costs on property rental, guards, etc. We may assume that they are also excused from the bribes extorted by control agencies: the state itself serves as their krysha. Thus, the estimated net profit (which almost never reaches the owner of the property i.e., the state) of some GUPs is $5 million Following is one example of such a business. In accordance with a governmental decree,^^^ beginning January 1, 1999, nearly all consumer products imported to Russia from cheap tea to electronics were obliged to obtain a special stamp in the form of a
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Pomogiti Putinu, (Help Putin), Vedomosti, 6 February 2003.
Research was conducted by the Standard and Poor international credit agency. Results o f the growth of bureaucratic businesses are for 27 out o f 89 regions of the Russian Federation. Cited in: Tatyana Kordukova, Pavel Kochanov, Neprozrachnoye Vmeshaterstvo (Non-Transparent [State] Intervention), Vedomosti, 9 April 2002.
'Ûbid.
398
Estimation of the Treasury Chamber as cited in: Igor Nikolaev, Ivan Shulga, 2003.
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hologram.^^ Supply and distribution of these holograms were assigned to a privatelytraded company called Specznak, a subsidiary of the State Committee for Standardization and Metrology, with $300 (sic!) in start-up capital. The net price of each hologram, which the company did not produce (but rather bought from companies outside the country, thereby avoiding production and labor expenses), was only 0.8 cents. However, the price charged to retailers was 19 cents for each stamp. Thus, given transportation and other probable costs involved, the bureaucratic business had an estimated profitability of 4000%, according to a special report prepared for the cabinet of ministers (Tambovtsev, 2001b). Given that 40% of the privately-traded company, Gosznak was the property of subsidiaries registered o f f - s h o r e , o n e may assume that the profits ended up in the bank accounts of the bureaucrats involved in the business.'*'^ The state budget did not benefit one cent from the hologram stamps, even though the initial calculations suggested that the federal budget would gain $200-300 million from
^^^Decree of the Government o f the Russian Federation #601, May 17, 1997. In July 1999, liquor was excluded from the list of products obliged to carry the hologram stamps. Given that one of the reasons for instituting the hologram stamp system was the protection o f consumers from illegally-produced products, (Ibid.), it is yet another example that anything but the public interest drives the multiplication o f bureaucratic barriers to businesses. Yuri Ryzhskii, Nenapisannyi Doklad (Never Written Report), Moskovskii Komsomolets, 21 February
2001 .
This new tax on business evoked an outcry from the side of the entrepreneurial community as well as liberal politicians. The battle lasted for three years, until the stamps were abandoned by Governmental Decree #82, February 6, 2002. In between, there were three other decrees issued by the federal government and signed into law by three different prime ministers: Viktor Chernomyrdin, Yevgenii Primakov and Sergei Stepashin. None had the guts to cancel the obviously harmful decision, but each apparently was lobbied by different types o f business: Viktor Chernomyrdin, who originally took responsibility for the decision, moved the date o f instituting the hologram stamps from January to April 1999; Yevgenii Primakov moved the date from April 1999 to July 1999 (Governmental decree #1223, October 20, 1998); Sergei Stepashin, who held the office for only two months, moved the date to October 1999, and excluded alcohol from the list. One may assume that transactional costs and favors were involved. However, the profitability of the bureaucratic business was such that three prime ministers responding to business lobbies could do nothing more but move the date.
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the practice. An investigation found that all proceeds from the deal went to a company called Interstandart (Kruchkova 2001:11). Additional spice was given to the story when it was learned that Gosnak was closely associated with Gennadii Seleznev, the thenspeaker of the lower chamber of the Russian parliament, who became an MP on the Communist Party ticket."^^ The second reason for the rise in the number of GUPs despite their burden to state and local budgets is that these bureaucratic businesses are an essential element in the states control over business. In fact, an open-ended questionnaire administered by analysts from Standard and Poor, the intemational credit-rating agency, revealed that 80%of bureaucrats considered state presence in private firms as a necessary means to control the economy."^*^
Certification Certification of products and services is yet another remnant of the Soviet bureaucratic state. In the USSR, there existed gosudarstenniye standarti (state standards), or GOST, which prescribed standards for the majority of products and services that existed in the country. In the new Russia, a system of certification was re-introduced in 1993 by the federal law On Certification. The reasoning for this was nothing new: public interest, and the necessity of protecting consumers from dangerous products and services. Since then, certification has apparently expanded into a profitable industry: there are approximately 4,000 firms (special agencies and test laboratories) that conduct
" Yuri Ryzhskii, 2001. Tatyana Kordukova & Pavel Kochanov, 2002.
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certification of goods in the name of the state. Without this certification, no business may conduct their activities, be it a grocery, restaurant or electronics retailer '
(Tambovtsev 2001a). As of 2003, 80% of ail consumer goods are obliged to obtain a certificate of compliance with state-imposed standards (Kruchkova 2001:7). For the sake of comparison, in the countries of the European Union, only 4% of consumer goods are subject to obligatory certification;'^^ moreover, the EU has just ten agencies (compared to the 4,000 that exist in Russia) involved in certification.'^^ Critics denounce the public interest justification of the certification system as nonsense. They argue, for instance, that 60% of the state standards in existence are leftover from the Soviet-eras Gosstandart (the Ministry for Standardization in the USSR). Given the notoriously ill quality of goods and services that existed in the USSR, it is hardly possible to apply those standards to the current merchandise, much of which is produced in the European Union and the US (Tambovtsev 2001b). Furthermore, statistics suggest that state-assigned certification agencies and firms reject only about 2% of goods, whereas 30% of already-certified goods are rejected as bad by traders: apparently, the market is much more cautious than the bureaucrats and their colleagues in the certification business (Kruchkova, 2001:7). Researchers from the Moscow-based magazine Spors a publication of the national Confederation of Consumers conducted a test of twelve of the most popular kettle-boilers on the market. It was discovered that eight brands and models did not comply with fire protection rules. However, each brand and model received an approval
^ Ibid.
^ Boris Alyshin, Deputy Prime Minister o f the Russian government (2003-present) as cited in: Ekaterina Katz, Vzyatki Budut, no Ich Stanet Menshe, (Bribes will Keep Existing, but there will be a Little Bit Less [of bribes]), Gazeta, 3 February 2003.
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certification stamp prior to the research. When the Ministry for Standardization was given the results of the test, they reacted in a remarkable fashion: they denied any responsibility for the appearance of the dangerous products on the market. Instead, the retailers who sold kettle-boilers (and who, again, had obtained the states permission to sell those products) were fined.'*^ Another highly acclaimed example concerns the production of illegal vodka. In the early 1990s, the market was overwhelmed by the intrusion of dangerous substitutes, which subsequently led to a sharp rise in the death rate from alcohol poisoning. The government issued literally hundreds of documents regulating the industry, to no avail: illegal vodka kept arriving on the market, mostly from the provinces in the Northern Caucuses. [The] State found itself totally powerless, until the Association of Alcohol Producers [an umbrella lobbying organization for producers of alcohol] put their guards on each and every train coming from the Caucuses. W hatever means they employed and I am sure there were some violent ones as wellthe reduction in the volume of illegal vodka was stunning: it virtually disappeared, a top-ranking official told the author (Pavlenko 2001).'* Unlike with the mafia, businesses find themselves helpless when it comes to bureaucratic control; either they must pay their way through or attempt comply with the impossible rules. There is no way to fight [with imposed regulations] including via the judiciary, Vitali Tambovtsev, a professor in the Economics Department at Moscow State
^ '^ 'Spws, #10, 1999; # 2, 2001. Sergei Pavlenko, Head o f the Department, Administration o f the President, 1997-1998, chief of secretariat of the First Deputy to Prime Minister Aleksei Kudrin, 2000-present. Interview with Yevgenia Albats, May 2001.
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University, and a long-time scholar of the problem, told the author. There exist some 60,000 documents that describe the states demands for the quality and safety of goods produced or imported. Thus, [should business sue bureaucrats] there always will be a document that will find bureaucrats right and business wrong. As was the case with a start-up restaurant, it tuned out that the size of the kitchen table, on which meat is cut, was specified in the certificate as well. As for the meat itself, there is a certificate that the seller of the meat must obtain, and there is a certificate for turning that meat into a dish (Maxim 2001). Overall, the estimated volume of the business of certification is around $120-150 million, of which only a fraction is paid to federal and local budgets (Kruchkova 2001:8). In 2002, a year after the Russian government approved a much-acclaimed program on reducing bureaucratic pressure over business, the Ministry for Standardization came out with yet another new set of norms. This time, bureaucrats had developed state norms for janitors. In accordance with these new norms, office cleaning was classified according to four types: primary, daily, weekly, and the major one. While exercising the latter type, a cleaner should perform twenty-five duties described in a list. Next, there are prescribed rules conceming how to check the quality of the job done. Thus, from now on, any firm that sells cleaning services must obtain a certificate on cleaning services, and comply with the standards prescribed by the federal administration (Auzan 2003). Sound ridiculous? Not exactly for one who lived in the Soviet Union: bureaucrats of the Russian state administration behave the way they leamed and became accustomed to back in the times when they felt secure and comfortable, and they had control over Russian citizens birth, death, and everything in between.
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Licensing This is the most effective and most harmfultoo! possessed by bureaucrats for control over entrepreneurial activities. Licenses are special permits that start-up businesses must obtain from the bureaucratic agencies in order to begin operations. By denying a permit, or by demanding a prohibitively high price for the permit, bureaucrats resolve the problem of efficiency of control: they reduce the number of businesses that may operate in the legal realm. Those businesses that dare to start activity without an entry permit are doomed to operate in the gray zone of the unofficial economy: by doing so, they deprive themselves of both legal protection (and thus are forced to pay bribes to law enforcement agencies and krysha) and political opportunities to lobby their interests. As Simeon Djankov et al showed in their comparative study of regulation of business start-ups in eighty-five countries, high official costs of entry correlate closely to higher corruption and higher unofficial economies, but not better quality of public or private goods, (Djankov, La Porta, de Silanes and Shleifer, 2001).'^^ Russia is described in the study as one of the worst cases. The myriad of licenses promotes bureaucratic businesses such as GUPs (which are not required to obtain a license or are granted one at creation), gives a boost to certification (a license stipulates compliance with standards and regulations outlined by the state) and creates fertile ground for the extraction of rents by all kinds of controllers who, among other things, are obliged with the task of checking the permits. In previous chapters, I have referred several times to the problem of licensing as a signature example
Simeon Djankov et al., The Regulation o f Entry, Quarterly Journal o f Economics, no. (February
2002 ).
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of the reform ers failure to overcome the bureaucratic stranglehold on the nations economy and on small business, the most hopeful and promising component of the prospective civil society, in particular. This failure has led in turn to: the development of non-market competition; the creation of a market dominated by monopolies; high prices on everyday goods; the practice of rent extraction by bureaucrats of the executive and managerial levels who have incentives to protect the system of regulation of entry despite its known harm to the nations economy and general economic transition, acknowledged even by the nations leading politicians including the chief executive. The existence of a somewhat coherent and consistent set of data on licenses (unlike it is the case with other types of regulations) spanning the decade-long period of Russias economic transition allows for more than just the recitation of anecdotes acknowledging the effect. It allows us to see how and why the whole system of bureaucratic control, once destroyed with the collapse of the USSR, managed to revive, evolve and thrive in the new political and economic environment. There are two sets of data that can be used for this analysis. One set describes the type and number of business activities that have been affected by entry regulations throughout the years of transition, and the impact that those laws have had on the transition process (Table 7.6). Unfortunately, this data is not really operational: it is based on approximations, compiled from the work of numerous (though reliable) experts, and it does not show the impact of politics on the development of the system of control. Still, it shows three important trends. First, it shows that the mere existence of laws does not provide for the rule of law: the return of licenses eliminated by the laws in the same (or slightly different) wording was as high as 75%. Second, except for the very first
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period of transition (1991-1993), the pace of the bureaucratic encroachment on business has been quite stable.^^^ Third, there is a tendency for secrecy: if we consider that, under the 1998 law, 51% of licenses were outside federal law and were rather in the form of secret presidential and governmental decrees, and then three years later, in
2001,
the
number of secretive rules went up by almost 20%, thereby accounting for 78.5% of licenses. In the same period, the total number of business activities that require licenses decreased by just 3.2%, compared to the 1998 law. Given the increasing secrecy, that has been a landmark of the presidency of Vladimir Putin, I doubt that any accurate data will be available in the future, and Russian specialists will have to rely on the techniques of data estimation used by their predecessors, the Sovietologists.'*' Another value of this data set is that it allows one to see a complete cycle from beginning to end, and then the transition to the next cycle. For instance, by the time the first coherent law was passed to constrain bureaucratic activities in the field of licensing, in 1994, there were 2,500 types of business activities that required a permit on entry. The law specified just 495 such activities, assuming that bureaucrats were going to follow the
The beginning o f the system o f licensing is usually attributed to the Soviet law, O Kooperatcii v SSSR {On Cooperatives in the USSR), dated May 26, 1988. This law allowed for the existence o f private enterprise in the Soviet Union. This law clearly stated that the state has control over those new enterprises. Next came the 1990 law, O Predpriyatiyach i Fredprinimatelskoy Deyatelnosti (On [commercial] Enterprises and Entrepreneurial Activities, which stipulated the right o f the state to regulate business activity via permits on entry (licensing). However, the law did not acknowledge any clearly defined rules. The next law came in 1993: Federal Government Executive Order #492, May 27, 1993. This law acknowledged the right o f local authorities to regulate entry to the market, and gave a free hand to federal and local bureaucrats to issue all kinds of licenses. (See: Olga Makarova, O Sostoyanii Licenzionnoy Deyatelnosti v Rossiyskoi Federatsii, (On the State of Licensing Activities in the Russian Federation), Vestnik of the W orking Center of Economic Reforms # 101, June 2000. Beginning in 2001, complete data compiled by the State Committee for Statistics once again became a privilege. According to the agencys executive, who spoke on condition o f anonymity, some 15 top officials both in the Krem lin and the Federal Government, receive the complete data; another 150 or so officials have access to limited data, while everybody else gets the kind o f data published by the agency. Of course, the source did not mean the data that has always been classified by virtue o f national security concerns.
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new rule. However, by 1998, when yet another law was passed aimed at exactly the same purpose to bring order to bureaucratic regulations there were already 2,000 business activities that required a permit on entry (e.g., 1,505 new regulations had appeared since the previous law). The 1998 federal law passed by the government of Yevgenii Primakov marked the beginning of yet another cycle; it reduced the amount of licensing activities by the agencies in the following two years, but the volume of regulations remained the same despite the wording of the new law. Finally, another much more detailed and supposedly efficient federal law was passed in 2001, in accordance with the program of further economic liberalization proclaimed by the newly elected President Vladimir Putin. Thus, 2001 was the beginning of the new cycle. No data is yet available to evaluate the difference between the language of the new law and its effectiveness; reports in the media and in some databases show that still new regulations have been passed since 2001. In fact, the day after the new law was passed by the State Duma, a new permit was bom; the federal govemment decided to impose control over businesses engaged in auditing activities."^^^
Four months later the decision took the form o f yet another federal law On Auditing Activities, # 164FZ, December 14, 2001. Ministry of Finance has been the agency benefited the most out that set of controls.
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Table 7.6; Number of business activities under licensing with respect to laws on licensing
Year when law was passed Type of legal document
1994
1998
2001
Executive Decree of the Federal Govemment #1418 Prior to the law Stipulated by the law Total (including agencies not in the law) No data
Federal Law #158
Federal Law #128
Prior to the law
Stipulated by the law
Total (including agencies not in the law) 500
Prior to the law
Stipulated by the law
Total (including agencies not in the law) 484
Number of business activities under licensing
2500
495
2000
215
2000
104
Source: Working Center o f Economic Reforms under the Govemment o f the RF; Olga Makarova(2000), Yevgenii Yasin(1999), Viktor Pleskachevskii (2002)
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The secoBd set of data, which I compiled from databases of official documents, deals with regulations produced in different formats (laws, presidential decrees, and executive orders) that were issued over the course of eleven years'by various institutions of the federal authority: the president, the federal govemment, the legislature and the federal agencies. These documents established new licensing requirements (adding to the pile developed over previous years), made additions to existing ones, or reconfirmed and/or redirected old ones.^^^ Unexpectedly, the total number of documents that comprised the data set (2278) referred to the estimated number of business activities (2000-2500)'^^'* which had been under licensing until 2001 (Table 7.7).
This data was compiled by the author from two Moscow-based information databases of official documents, namely Labas and Consultant. The first one served as the primary source. The choice was inspired by the fact that Labas has been used by the Working Center o f Economic Reforms, which has been researching and analyzing the problem of licensing start-ups since 1992. My data was picked from a set of some forty thousand documents. Two important notes: (1) my data set does not include documents issued by local authorities. Until recently, the Russian Federation consisted o f 89 regions and, beginning in 1992, each local body had the same right as federal agencies to issue permits on entry. However, there is no consistent data inclusive of all regions. (2) Russian licenses are like Russian matreshka: inside each one, there is another. For instance, there exist licenses on fire fighting activities. Inside are several others: on making fire fighting equipment (such as fire extinguishes and ladders), on making fire fighter clothing, on providing fire fighting services, etc. I have attempted to reflect that multiplication o f licenses in my data set. The truth is that no one institution, researcher or official in the country knows the real numbers (Yasin, 2000; Makarova, 2001).
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Table 7.7: Licensing by year and institution President

1988Nov. 199X415
Federal Government
Legislature
Agencies
Total
25 72 121 174 132 155 199 214 164 155 88 1499
40 133 195 243 229 251 262 308 236 217 164 2278
Nov. 199115 34 12 1992 17 49 8 1993 9 57 3 1994 34 8 55 1995 10 23 63 1996 39 15 9 1997 7 59 28 1998 7 44 21 1999 4 51 7 2000 2 69 5 2001 162 TOTAL 88 529 Source: Labas database, Consultant data base, Yevgenia Albats
Two things arrest our attention right away. One is that elected institutions such as the executive and the legislature"'^^ (e.g., institutions that depend upon constituency, and hence should be especially concerned about protecting the constituency from market failure) are the least involved in issuing rulings aimed at controlling businesses. Taken together, these two institutions are responsible for slightly less than 10% of all existing regulations. Furthermore, the federal govemment which is somewhat accountable to the constituency by the fact that the prime minister is appointed through the dual action of the president who nominates the candidate and the legislature which approves that choice accounts for only 23%. Instead, the entities responsible for 66% of established
On November 6,1991, the first reform govemment (known as Yegor Gaidars government) was born. Until then, Ivan Silaev was the chairperson of the government of the Russian Federation. During the eleven-year period described in the table, the Russian legislature had two names. Until September 21, 1993, it was the Supreme Soviet o f the Russian Federation. Since December 1993 it has been known as the State Duma. For the purpose o f coherence, I use the term legislature.
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regulations are the federal agencies: using the loopholes in laws and executive orders, the non-transparency of their agencies and the weak and corrupted legal system, bureaucrats who have no constituency whatsoever issue in-house regulations that inhibit the development of small business.
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Figure 7.2iLicensing 1988 -2001

Licensing 1988-2001
Agencies Legisiature
1499 162
Govemment
529
President
500
1000
1500
2000
number of licenses
We may conclude from this data that anything but public interest has served as a reason for imposing controls over the market field.'^^^ Interestingly, this data somewhat contradicts the common sense perception that the Russian legislature, which was dominated by nationalists and communists all the way from the onset of reform in November 1991 through December 1999, was at large responsible for the failure to liberalize the nations economy. At least in one instance namely, the right of bureaucrats to control entry to the market the legislature is much less guilty than the federal government and the agencies. These findings also dismiss ideological bias on the part of Russian bureaucrats (e.g., that by virtue of having been indoctrinated by communist ideals, they are prone to greater state involvement in the economy to ensure a more egalitarian distribution of the national wealth) as a plausible explanation for bureaucratic behavior. Should it be otherwise, their fellow communists in the legislature would have been expected to behave accordingly, whereas they did not.
This finding fits predictions by the public choice family of models, which argue that strict regulations have little if anything to do with the public interest, but rather with a desire by politicians and bureaucrats to extract benefits for themselves (De Soto, 1990; Djankov et al., 2002).
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The data set also suggests that the development of the system of bureaucratic control went through three distinct periods, which correspond somewhat to the three phases of transition outlined in my theoretical model. Consider for that Figure 7.3:
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Figure 7.3; Dynamics of Licensing Activities.
D ynam ics of Licensing A ctiyties

350 300 250
CO
C D C O
200
150
100
50
m 1 p 1
1
m 'wS H li 5 is iiw 1m i I1
years
af K<r
oN
The first period lasted from the onset of entrepreneurial activity in 1988 through 1992. This phase was characterized by rather low licensing activity on the part of bureaucrats, as if they were in sleep mode. The second period, from 1993/1994, saw a torrent of regulations, which resulted in a peak of licensing activity in 1998, the year of the financial collapse."^^^ During this period, approximately 250 regulatory documents were passed each year (not including 1998, when such documents reached a historic high of 308). The third period, which began in 1999, has been marked so far by a decrease in licensing activity. Given that the ratio of open regulations compared to those outside public oversight in 2001 was 1 to 4.7, that decreasing trend should be reversed pretty ' soon by increase in secretive regulations.
It may seem that the difference between the 133 documents that established licenses in 1992 and the 195 documents in 1995 is not too big, unless you keep in mind that such regulatory documents were issued each year, adding dozens o f businesss activities to the list o f those already under the bureaucratic control. Even in 2001, the j'ear when the new law on licensing, highly advertised as the most liberal one yet, came into being, 164 documents were issued, not counting an unknown number of orders issued by the secretive agencies.
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Obviously, there should be reasons why the three periods are different. The simple (and valid) answer is that the development of the market simultaneously drove bureaucratic activity; more business actions (even if not agents) implies more possibilities to impose new regulations. It sounds perfectly reasonable, except for at least two obvious factors. First, in the initial years of reform, there were plenty of subjects to regulate. However, bureaucrats seemed to be concerned with something else. Second, it is not clear why there was a decrease in licensing activity in 1999, which continued through the following years. Even if my suspicions are right, and much of this information has become classified, still there should be an explanation of why fewer new executive orders were issued during the election cycle of 1999-2000, whereas during the 1995-1996 parliamentary elections the trend was just the opposite. Is it because bureaucrats became rational, and realized that they were killing the golden goose? Or they were unable to digest any more regulatory activity? Both possibilities imply a degree of unity on the part of bureaucrats, which as was described in the previous chapter, does not exist. So, what explains the difference between the three periods?
1988-1992: Grabbing the State Though the first law that allowed for private entrepreneurship in the USSR was established in 1986 ^^, the real start of private economic activity in the Soviet Union came with the May 26, 1988 law On Cooperation in the USSR (Radygin, 1994). In less
The 1986 USSR Law Ob Individualnoy Trudovoi Deyatelnosti (On Individual Labor Activity) allowed the extraction o f profits from de facto private property. Basically, this law was an attempt to legalize the market o f non-government services that existed by the mid 1980s in the Soviet Union, which had come to involve approximately 18 million people (Radygin, 1994:25). By 1989, approximately 672,000 people were registered as private interpreneurs. The large majority o f those first businessmen were either in the field o f hand-made goods or in services such as laundry, cleaning and tailoring.
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than two years, there were officially registered 245,000 cooperatives, plus almost the same number operating unofficially; in addition, there were 672,000 private e n tre p re n e u rs .B y 1990, private enterprise accounted for 6.1%of the Gross National Product (Radygin, 1994:25)"*^^ Therefore, the base for extracting rents already existed between 1988-1991. Yet, licensing activity on the part of bureaucrats barely existed. Only some forty documents were issued back then. Of course, state bureaucracy was perfectly aware of the possibility of controlling businesses via permits on entry and operation: the language of the laws always spelled out the rights of bureaucrats to intervene in business activity. Still, one of the first regulations that listed the kind of business activities that required a permit from the state appears to be extremely modest, and even reasonable, compared to what came later in the course of economic reform. The fields of regulation were clearly defined and were concerned with weapons production from simple explosives to chemical and biological weapons. Next came regulations concerning energy supply in a country as cold as Russia it seemed like a reasonable concern on the part of the administration. Further came regulations concerning access to natural resources (such as oil and gas), operations involving precious stones and radioactive materials, and issues dealing with transportation, communications, cryptology, and finally d r u g s . A p p a r e n t l y , Soviet (and later, Russian) bureaucrats did not see the business of licensing as worth their time and effort.
Narodnoye Xozyistvo SSSR v 1989 goduJ/Finaci I Statistika) National Economy in 1989: Finances and Statistics), Moscow, 1990; Radygin, 1994:25. Alexander Radygin, Reforma Sobstvennosti v Rossii: na Puti iz Proshlogo v Budushee (Reform of Property in Russia; on the Way from Past toFuture) (Moscow: Respublika publishing house, 1994). Resolution of the Supreme Soviet o f the USSR #2195-1, May 28, 1991.
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There were several reasons for this. First, in the final years of the USSR there was no need to officially define state control over private business. The majority of new private enterprises (which were cooperatives and amounted to 80% of all private business) were created under the patronage o f managerial bureaucratsthe directors of state-owned enterprises (Radygin 1994; 26). Thus, bureaucrats did not yet see these new private businesses as competitors. Second, bureaucrats from the state administration industrial agencies, first and foremost were busy converting state property into semi-govemment/semi-state organizations (Chubais 2001 and Radygin 1994^^^). Thus, they were not interested in imposing regulations that might also apply to their own future businesses.**^ However, the most important reason was that back in the dying years of the USSR, bureaucrats were busy with something else. The early 1990s was a period of almost spontaneous privatization of state property and resources, of which the financial resources of the nation were the most desirable commodity. As Mark Kramer wrote, it was a time of a massive de facto privatization of cash flows that previously had been under the control of
Dr. Alexander Radygin, an academic from the Moscow based think tank Institute of the Economy in Transition and the countrys foremost expert on the development o f private property in the USSR and Russia, claims that as many as 1000 associations o f state enterprises were created under the patronage of the ministerial bureaucracy. The tragedy o f those bureaucrats (which they never realized) was that they assumed that the enterprises and the goods they produced had value on the market, whereas they did not. That became clear much later, when the USSR opened its borders, and the inflow of westem-made goods took over the domestic market, leaving little if any space for the domestic producers. (Alexander Radygin in an interview with Yevgenia Albats. Moscow, June 2001). In 1989, the Supreme Soviet of the USSR and the Council o f Ministers o f the USSR issued two executive orders, which were followed by the law allowing citizens to rent state property for the purpose of private gain. As a result, directors of the state enterprises were allowed to turn their plants into rented ones, while preserving managerial and financial control over the enterprises. Those laws allowed the directors to strip the assets o f the enterprises, while making the state responsible for the well being (salary, social security, etc.) of the employees (Chubais, 2001).
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the Soviet g o v e r n m e n t . O b v i o u s l y , gaining possession and control of the hundreds of millions of dollars that had accumulated in state-owned hard currency accounts in domestic and foreign banks was much more attractive than the routine of extracting rents from newly emerging businesses. An analysis of documents in the Special Files of the Politburo of the CPSU, as well as investigations conducted by the author and other journalists over the last decade, reveals at least four ways by which Soviet (and later, Russian) bureaucrats managed to acquire, and then make use of, financial resources they happened to control in the last years of the USSR. The first way came into being in the mid 1980s, when the Soviet govemment abandoned its monopoly over intemational trade, and allowed twenty-one federal agencies, as well as specified enterprises, to engage in foreign trade. Managerial bureaucracy, particularly the directors of the oil, gas, timber, aluminum and other similar sorts of companies, stood to benefit the most from the privatization of export deals. Given the disparity between very low domestic prices and very high intemational prices for natural resources, such deals were extremely profitable: domestically, a liter of crude oil was priced the same as a liter of carbonated water, which of course meant that it was many times cheaper than the world price (Urinson 1998). That was the time when the first Soviet mega millionaires with houses and accounts in places like Cyprus came into being, a researcher of the subject told the author (Radygin 2001). No wonder that the
Mark Kramer, Russia, the Demise o f the Soviet Banking and Financial System, and the Collapse of the USSR, unpublished manuscript presented at the Davis Center for Russian and Eurasian Studies at Harvard & the Intemational Economics Program o f the University o f Houston conference Performance and Efficiency in the USSR: New Measurements and the Bergson Legacy, Cambridge, MA, November 24, 2003, In this paper Dr. Kramer described the idea o f privatization o f the Soviet banking and financial system in 1990 by bureaucrats of the government o f the Russian Federation, which effectively led to the collapse of the USSR.
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number of enterprises allowed to conduct foreign trade skyrocketed from 213 in 1988 to almost 20,000 in 1990 (Aslund 1991: In addition to top-ranking officiais from
the oversight agencies and managerial bureaucrats, such deals were also beneficial to the gate keepers: bureaucrats in epaulets (the KGB, first and foremost) who controlled the borders and supervised, or served as middlemen, for deals outside the country. Thus, they were also able to share in the profits (Albats 1994: 247).'^^'^ Borders were closed only for those who didnt pay, a then-trader said in an interview (Kiselev 2001).'^^^ The second way of privatizing cash flows was performed via the creation of joint ventures with foreign firms usually associated with the communist parties of the respective countries, and thus named in the official CPSU documents as friendly f i r m s . B a s e d on documents made available in the early 1990s, I compiled a list of 145 such firms, created through the 1980s on all continents and engaged in a variety of business activity, from publishing and retail apparel to oil trading. O f course, initially those firms were created to provide financial support to communist countries across the globe, but as the USSR began to crumble, they were used as a means of smuggling hard currency reserves out of the country. Even though few documents contain specifics, some do allow us to understand the means by which those cash operations were performed. For instance, one top secret document a resolution of a Politburo meeting.
Anders Aslund, Gorbachev's Struggle fo r Economic Reform, Second ed. (Ithaca: Cornell University Press, 1991). Yevgenia Albats, The State within a State: The KGB and Its Hold on Russia Past, Present, and Future, trans. Catherine Fitzpatrick (New York: Farrar, Straus, and Giroux, 1994). Oleg Kiselev, CEO o f Impex Bank in the late 1980s, was one of those heavily involved in import/export deals. Interview with Yevgenia Albats, Moscow, July 2001.
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addressed to the then Minister of Foreign Trade directs that agency to sell approximately 600,000 tons of crude oil and 150,000 tons of diesel to the Italian company Inter expo at a price 1% less than its commercial value, so that after [reselling it] our friends can get approximately $4 million.'^^ According to estimates made by the Procurator Generals office, which conducted a now sealed and classified investigation,'^^^ in the early 1990s as few as 300 and as many as 500 commercial enterprises were created outside the USSR by bureaucrats from party and state institutions over the course of the preceding decade.'*^^ There are no consistent estimates of the volume and size of operations in those firm s. However, documents found in special safe boxes in the offices of former party officials, discovered after the collapse of the attempted coup in August of 1991, at least indicate the volume of cash available; $14 million in ready money was discovered in just one office. Other means such as foreign branches of the Soviet Gosbank were used to channel party money to anonymous safe havens abroad. As one top secret 1990 party document states, the worlds experience shows that this is the most mobile and reliable way of preserving p r o p e r t y . F o r instance, an offshore financial management
On long-exceeded time limits on debts to firms o f the friendly parties, memo by Valentin Falin, Head of the International Department of the Central Committee o f the CPSU, to the Politburo; October 12, 1990. Protocol #94, Resolution of the Politburo Meeting; January 18, 1983. Case #18/6220-91 of the Office o f the Procurator General, On financial and commercial activities of the Central Committee of the CPSU, was investigated by 29 operatives and eleven special investigators until the end of 1993. Since then 200 volumes, which describe the case, have been classified as top secret. Andrei lllesh & Valeri Rudnev, Foisk Deneg KPSS, (Pessimistic Ending: Search for the CPSU money ends in fiasco), Izvestia, national edition, 1 April 1994; Available at: http//www.flb.ru/material.phtml?id=4910 U bid.
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company, Co. Ltd (FIMACO), was created under the auspices of the Paris-based arm of the Soviet State Bank, Eurobank (the predecessor of the current Bank of Russia), located in the tax free Jersey Island of the British Crown. It was used as a safe haven for loans and credits granted to the Soviet government by foreign states."^^^ In 1990, before Desert Storm, the Persian Gulf states unanimously decided to grant credits to the USSR. Saudi Arabia, Kuwait and UAE gave collectively about $1.75 billion (the Western press claimed that this was the price they paid for the USSRs refusal to veto a resolution against Saddam Hussein in the UN Security Council). Some of the funds ($250 million, according to well-informed sources in Vnesheconombank) were passed through Eurobank to FIMACO. There has been no trace of that money since."^^^ Obviously, toplevel party officials, bureaucrats from the KGB, the Ministry of the Foreign Affairs and various other financial agencies were the beneficiaries of this activity. Finally, the fourth way of privatizing the nations financial resources was through investing money in the private domestic banks and businesses created by officials from the party and state administrations. Such transactions became especially active beginning in 1990"^^^ and were directed by the Directorate of Business Affairs (the predecessor of
KGB Colonel Leonid Veselovskii in his 1990 special memo to Nikolai Kruchina, then Head o f the CC o f the CPSU Directorate o f Business Affairs. FIMACO was used in the same manner later by the Russian Govemment and the Russian Central Bank: at least $ 2.5 billion of the nations hard-currency reserves, including some loans from the Intemational Monetary Fund, found their way to the offshore company between 1992 and 1996. See Yevgenia Albats, Chernaya Kassa Strani (Black Cash Box of the Country), Kommersant Daily, 21 April 1999. Ibid. In March 1990, the 3 ^ Congress o f People's Deputies voted for the cancellation o f Article 6 of the Constitution that held the CPSU monopoly. Among other things, it meant that the CPSU had to share its property with other parties and movements, which it did not intend to, at all. The then Head of the Department of the Central Committee's Directorate of Business Affairs, Nikolai Kruchina (who committed suicide under mysterious circumstances soon after the failed coup o f 1991) became in charge o f a campaign called On urgent measures to organize the party's commercial and foreign economic activities.
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the K rem lins Directorate of the same name, which is responsible for the same activities and provides for the well being of the bureaucratic elite). As Sergei Aristov, one of the investigators who searched for the party money at the onset of liberal reform in Russia, stated, while the majority of the country still lived under socialism, the Directorate of Business Affairs of the CC of the CPSU had already moved to the market economy and installed themselves there, where they had power. Documents suggest that party
officials created a wide variety of banks and businesses."^^^ According to investigators, no less than $ 2.5 billion was invested as start-up capital in approximately 100 banks and firms across the nation.'^*^ Other estimates suggest that Soviet bureaucrats successfully created as many as 600 to 1,000 firms in the final years of the Soviet regime.'^'^ Some even suggest that these large and successful businesses (which were later in the possession of the oligarchs) became the front-runners due to the infusion of the capital authorized by top-level Soviet bureaucrats. For example, the bank Menatep, which was registered in 1988 by Mikhail Khodorkovskii as the first ever commercial bank (and which later evolved into a conglomerate of companies, with the oil giant Yukos as its crowning jewel) was closely associated with the Directorate of Business Affairs of the CC of the CPSU. According to long-time insider Gennadii Razumovskii, a former
Agency of Federal Investigations, Zoloto Partii - Desyt Let Spustya, (Party Gold: Ten Years Later), Moskovskii Novosti, 8 May 2001. According just to one certificate On deposits o f funds from the account o f the Department of the CPSU CC Business in other banks, associations, and enterprises in 1990-1991, some 22 existing or newly created banks and firms benefited from those deposits. For example, 1 billion rubles went to Autobank, 150 million to Tokobank, 200 million to Unikombank, etc. (Document from the archive of the Constitutional Court o f the Russian Federation). Agency of Federal Investigations, 2001. lllesh & Rudnev, 1994.
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member of the Politburo of the CC CPSU had been receiving a regular monthly payment from Yukos until at least 2001, though he was never an employee. I provide this list of facts and arguments in order to make two points. The first point is that bureaucrats of the federal institutions of the former Soviet Union were busy acquiring control over the financial resources and assets of state-owned enterprises in the final years of the existence of the USSR, and they were investing this capital in pre-existing and newly formed businesses both inside and outside the country. Thus, their control aspirations were deferred for a while by those activities. This allowed small businesses to develop and flourish in the first years of the transition, reaching a peak in 1994 of approximately 897,000 officially registered small businesses ( Table 7.5). The second point is that bureaucrats of the former USSR were engaged in market activities long before Yegor Gaidar and his govemment initiated economic reforms in Russia in 1992. Thus, the argument made by some theorists that the Soviet bureaucracy objected to proposed reforms (see Chapter 2 for a discussion of the issue) holds little weight. To the contrary, evidence suggests that the interests of the former Soviet elite coincided with the interests of the reformers; Soviet bureaucrats were not adverse to the market because they were in bad need of legitimizing their property rights, and thus had to be of only small concem to reformers during the initial phase of transition.
Viktor Ivanenko, retired KGB general and long-time Head of the Security Department of Yukos. Interview with Yevgenia Albats, Moscow, July 1998. In fact, I believe Yegor Gaidar realized the fact very soon: in 1992, the Russian government hired the New York based firm Kroll Associates, the risk consulting company known for its intelligence and investigative services, to search for the party money. Allegedly, the Russian government paid $1,500,000 to the company for their services. However, the results of that investigation if in fact it was ever really conducted and was not just a PR affair on the part o f the reformers, never became known. Moreover, none o f the members o f the first government are willing to discuss the subject even off- the- record. Logic suggests that by giving up on attempts to find several billion dollars of allegedly communist party money.
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1993-1998: Getting Back Control As described by one Russian liberal economist, 1993 was the year of yet another great bureaucratic revolution in Russia (Dlarionov 1997). Looking at the plethora and dynamics of licensing activity on the part of the bureaucracy, it is hard to disagree. It is obvious that bureaucrats exercised a free hand in acquiring control over the market field. By 1998, there were few business activities left that did not require a permit for start-up and/or additional ones to operate in the market. Consider the following example, which would seem like a joke if we did not know it to be true: at some point, businesses that operated resorts were required to obtain a license for measuring the temperature of the water in the sea, because, as the resort owners were told, all oceanographic measurements are subject to regulation and require a license (Tambovtsev 2001b). The course of Russian transition definitely reached a turning point in 1993. And so did the story of its bureaucrats. For one, 1993 signified the end of the govemment of reform: in December of the previous year, Yegor Gaidar was replaced as prime minister by Viktor Chernomyrdin, a career Soviet apparatchik, whose appointment satisfied the aspirations of different groups from the former Soviet nomenklatura i.e. managerial bureaucrats (who became known as red directors), state officeholders and the powerful energy lobby (Baturin et al. 2001). Chemomyrdins appointment inspired old career Soviet bureaucrats to seek office again. Galloping inflation, which was the key feature of the first years of reform (Aslund 2002), ate much of the cash that they had grabbed earlier. Besides, experience of many
reformers were buying themselves a peace pact with bureaucrats, hoping that the latter would use the acquired resources for the purpose o f establishing a market in Russia. Roman Shleinkov, Udavi I Kroll, Novaya Gazeta, #41, 10 June 2002. Available from: http//www.2002.novayagazeta.ru/nomer/2002/41n/n41n-s08.shtml.
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acquired in the private sector V(/as rather tough: many didnt survive the competition. However, since no law precluded soviet bureaucrats from reacquiring their positions in top Soviet institutions, such as the Central Committee of the CPSU and the KGB, they became eager to get back into the safety net of state service. My analysis of the spravochniki (lists of employees by year) of the apparatus of the central administration shows that by 1995 the number of former elite apparatchiki of the Central Committee of the Communist Party quadrupled in the ranks of Chemomyrdins govemment compared to that of Yegor Gaidars govemment. Subsequently, the total number of bureaucrats in the apparatus doubled from 591 in the second half of 1992 to 1,189 in August 1995. We can safely infer that the trend was mimicked throughout the federal agencies. These new/old Soviet bureaucrats brought back the experience and methods they had acquired from their years in the Soviet regime, reintroducing regulation and control of the economy and of the public sphere in general. In the new market environment, that experience manifested itself in the issuance of hundreds of documents establishing control in the form of start-up and operating permits, certificates and the creation of bureaucratic businesses such as GUPs. Rents naturally came along. In fairness to bureaucrats although they may and do have their personal interests they merely do what they are allowed to do by politicians. A profound political crisis that endangered the survival of President Boris Yeltsin himself also occurred in 1993. In September of that year, Yeltsin dissolved parliament, which refused to comply with the order. The situation evolved into a mini civil war in Moscow, ending with the bombardment and storming of the parliamentary palace (Colton and Hough, 1998: 6-7). That crisis brought about new parliamentary elections two months later,
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which delivered yet another blow to Yeltsin and reformers: the liberal party Russias Choice, led by Yegor Gaidar, lost to LDPR, the extreme nationalist party of Vladimir Zhirinovsid (Ibid.: 22). As a result, Yeltsin lost whatever beliefs he may have had about civil society and its role in Russian transition. The events of that autumn and the outcome o f the elections had a profound negative impact: further reforms were put on hold, Yegor Gaidar said in an interview with the author (Gaidar 2000). Yeltsin was frightened by that situation [unrest in Moscow and the loss in the elections], he was afraid of loosing control over the country, and he wanted the old Soviet bureaucracy to take over. And it did, confirmed a long-time govemment and Kremlin insider from liberal economic circles (Pavlenko 2001). Yeltsin had to give the old Soviet bureaucrats, perks and favors to make them loyal to him. Giving them a free hand to extract rents from the market via control over all kinds of permits was the way to satisfy them. As early writings acknowledge, an important reason why many of these permits and regulations exist is probably to give officials the power to deny them and to collect bribes in retum for providing the permits (Shleifer and Vishny 1993)."^ Thus, the system of rents and permits did not arise simply because bureaucrats themselves were eager to expand their rent-extraction opportunities. O f course, they were. However, at least as importantly, it was because the political leadership of the country had made a choice in favor of the bureaucrats as their primary support base instead of the civil society that was then represented by small and mid-sized businesses. The following graph illustrates this conclusion.
Andrei Shleifer and Robert Vishny, Corruption.'
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Figure 7.4: Dynamics of Licensing Activities and Political Events

360
3 00
250
200
1938- 991
N ov.19911993 1992 (F^riiament (R eform is dissolved, governm ent election appointed, io s s e s to Nov. 6) th e nationalists)
1994
1995
1996 (Boris Y eltsin is r e elected )
1997
1998 (Financial co llap se, appointm ent of proc o rrm in is t g o v ern m en t of Y evgenii Prinrekov)
19S9
2000 (Viadirrir Putin electe d p resid en t, i\(ferch 2000)
2001
As Figure 7.4 shows, the beginning of the licensing activities coincided with the unleash of entrepreneurial activities: apparently, some regulations were needed as it was stated in the previous pagers. Reform govemment of Yegor Gaidar tried to play both the good and the bad cop: the ratio between promised benefits and those delivered was 1:4, e.g., approximately 20% of promises made to agencies came into being (Pavlenko 1993b).'^^ However, with Viktor Chemomyrdin, the career Soviet bureaucrat instituted as a prime minister, any constrains existed before disappeared and business of bureaucratic regulations flourished.
445
Sergei Pavlenko, Pravitelstvo Reform u Dotatcionnogo Korita, M oscovskii Novosti, 1993.
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Finally, 1999-2001. The decline in licensing activity , which, oddly, occuixed in conjunction with another election cycle, that of December 1999 to March 2000has several explanations. (To be surenone of those explanations is in the realm of ideology. In that respect, govemment of Viktor Chemomyrdin was no more liberal than the govemment of Yevgenii Primakov who came into being after the August 1998 financial collapse, and which assumed leftist rhetoric and had some members of the Communist party of Russia at the key positions in the cabinet). First, the election cycle in question was a short period between two new laws on licensing one passed in 1998 and the other in 2001 which were aimed at constraining bureaucrats and reducing administrative corruption. It was the time when the new elite, which arrived with the newly elected President Vladimir Putin, had begun a battle with the old elite, which remained from the presidency of Boris Yeltsin. (In a country dominated by bureaucracy, a fight between elite clans within it is always helpful to outsiders: they are finally left alone, even if for a short while.) As a result of this healthy battle inside and among bureaucratic agencies, some who were closely associated with the Yeltsin regime lost their privileges. For instance, Gosatomnadzor, the oversight arm of the Ministry of Atomic Energy, held the rights to issue as many as 400 permits before 2001. However after its head was dismissed by the new president, that number was halved (Auzan 2001). By comparison, agencies associated with issues of national security, defense and political police, by virtue of having a KGB colonel as President, managed to preserve and in certain cases even increase their rights of control. However, I believe there is also another reason for the decline: oil prices. By 1999, oil prices began to rise, which was something that Russia had last experienced in the 1970s
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and early 1980s. Thus, bureaucrats from the new elite were more preoccupied with acquiring control over oil and gas, rather than dealing with small and mid-sized businesses that, in any case, w'ere half dead.
3. Sm all Business: Dead M en W alkine Given the scale of bureaucratic control, it is no surprise that 1994 was the last year that statistics acknowledged a growth in the number of small businesses. Thereafter, there was never so high a number of registered small businesses operating in the legal as opposed to gray, unofficial economy. I decided to conduct a statistical test to check the relationship between the licensing activity of bureaucrats and the decline in the number of small businesses. The simple correlation between the number of small businesses over the period of ten years (1991 2001) and the number of licensees issued over the same period appeared to be strong and significant (R=.S49, p<0.01 level), but the conclusion that follows out of the result was that licensing greatly promotes creation of small businesses. That contradicts both the common sense and the qualitative analysis, and suggests that outburst of business activity went along with licensing activities. To put it in plain English, the initial spur of small businesses in early 1990s was due to the opening of the gates effect, e.g., that many of these businesses had been operating in the unofficial economy during the final years of the USSR, and so were newly legal rather than newly established; besides that permission to conduct entrepreneurial activities gave an exit option to many those young and energetic Soviet people who were unable anymore to tolerate the boredom of the Soviet enterprises and institutions: regardless of restrictions they were eager to start a
new. Thus, it makes sense to disregard these first years of business and social optimism, and to look at the correlation between the number of licenses at time t and the number o f small businesses at time t+1. The correlation between the one year lag of the number o f licenses and the number of small businesses is lower, but nonetheless positive and significant (Pearson R =.778, p< 0.01). After the initial spur in small business development (1991-1993), licenses, as it was predicted by the qualitative analysis, indeed seem to harm small businesses. The negative correlation (R= -.205, p< 596) suggests that the increase in the number of licenses is associated with a decrease in the number of small businesses. However, the correlation is not significant, so we cannot be too certain about it. In order to overcome the problem, we decided to create a new variable (LICECHNG) which records whether the license burden increases or decreases from year to year.'^^ This regression shows that a decrease in the number of licenses leads to an increase in the number of small businesses (see Table 7.8). The relationship is not too strong, but we could be at least 86% confident that this relationship does exist. The results suggest that each additional license may lead to the disappearance of 941 small businesses nationwide (in the regression small businesses are counted in thousands, therefore, the number in the table is .941). We can be also 80% confident that anywhere from 97 to 1,780 small businesses are affected by issuing just one additional license. Our uncertainty is obviously the result of the small number of observations (just over ten years), but we can state that at least the fifth of the variation in the number of small businesses nationwide can be explained by licensing activities
To compute the individual observations the number of licenses in each year was substracted from the number of licenses in the subsequent year. For example, in 1992 there were 77 more licenses than in 1991, so the value for LICECHNG for 1992 is +77.
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Table 7.8; OLS Model of the Relationship between Licensing and the Number of Small Businesses
Independent Variables OLS coefficients and 80% confidence intervals 855.465 (812.597; 898.333) -.941(-1.784; -.097)
Constant Change in number of licenses from previous year (LICENCHNG) R =.23,N =10,p<.16
There are of course other factors, but licensing has had an impact on the decrease of small businesses. The impact of GUPs, system of certification, myriad of controllers have been presented earlier in the chapter. The existence of state monopolies and large oligarchic businesses that enjoy special treatment from the state is also important: they deprive the free market of its most important characteristic competition (EBRD 2003). Small business has always been treated as unwelcome child by its foster parents, the federal government. Instead of easing the burden on start-ups, the government of Viktor Chernomyrdin for instance, consistently did the exact opposite. For example, in 1995 the government changed the definition of small business, lowering the number of employees that satisfied the definition from
200 to 100 people.
That measure alone effectively
stripped thousands of businesses of tax exemptions they had had under the old definition of small business (Kuznetsov 2001)."^ ^^ The pro-Communist government of Yevgenii Primakov, which came into power in autumn 1998 following the financial collapse,
Pavel Kuznetsov, Deputy to the Head of the Working Center of Economic Reforms under the Government of the RE. Interview with Yevgenia Albats, June 2001.
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continued down the same path; it eliminated the State Committee for Support of Small Businesses et al. Thus, in one way or another, bureaucrats not just ensured their control over business, but by reducing the number of small businesses, have made that control more efficient. For whatever it is ultimately worth, it was a smart morê on their part. After all, small business as a basis for civil society poses a potential danger to bureaucrats. Should such businesses happen to be successful as they are in the countries of Central and Southern Europe they would become the driving force of civil society and, by extension, a political force capable of demanding accountability and transparency of the government. Absence of that force further unties the hands of bureaucrats. Conclusion Bureaucrats are not devils. On the contrary, their behavior in post communist Russia is very rational. Democratic politics, with its demands for accountability, is a threat to their survival and well-being. Thus, even at the expense of losing some rents (and with the hope of filling the void with big business and oil profits), through the decade of economic transition, they have consistently exercised increasing pressure over small business which, as I argue in my model, is the biggest consumer of democratic politics in post-communist states, as well as the biggest resource of the potential social capital in countries in transition
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Conclusions
On December 7, 2003, the Russian people voted in yet another parliamentary election. For the first time in modem Russian history, none of the liberal parties made it into the legislature'^^: almost two-thirds of the seats in the Duma were won by United Russia, the party of the Kremlins creation, universally labeled by the media as the party of the Russian bureaucracy. The remaining seats were shared by the nationalists, who ran under the promising slogan Russia for [ethnic] Russians, and the communists. Out of approximately 59.3 million Russians who went to the voting booths, slightly less than 5 million'^ cast their ballots in favor of democratic p o l i t i c s . U n l i k e in 1999, there was no financial crisis prior to the elections. Then, many professionals and businessmen, the main constituency of the liberal parties, their savings, and liberals were expected to fare miserably in the elections (see Table C l). However, over the three years preceding the 2003 election, as oil prices reached a ten-year high, the Russian economy had shown signs of healthy growth. There had also been no recent pri vatization scandals, which in 1995 brought dissolution and distrust to liberal politicians. There was also no hyperinflation, which in 1993 bred uncertainty and fear, and gave rise to such ultra nationalist figures as Vladimir Zhirinovskii: in 1993, Zhirinovskiis party won a majority in the Duma (Colton and Hough ed. 1998) leaving democrats with a second-place defeat. In short, the 2003 parliamentary elections were marked by none of the factors, often
Parties must gamer 5 percent of the vote in order to get into the lower chamber o f the Russian parliament known as the State Duma. Official results o f the 2003 elections provided by the Central Election Commission of the RF. Available from http://www.izbirkom.ru. To be precise, a combined total of 4,992,417 people voted for the Russian Democratic Party Yabloko and the Union o f Right Forces (SPS).
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described in the literature on transitional states that cause people to lose trust in democratic politics. Rather, the results of the 2003 elections demonstrated the failure of reform in Russia to create a significant number of consumers of democratic politics, and instead, the results demonstrated the success of bureaucratic politics. Given that there are only slightly more than six million people employed in officially registered small businesses e.g., businesses that comprise the core of civil society the outcome of the 2003 elections is no surprise. Liberal-minded politicians finally reaped the fruits of their handiwork: their policy of making deals with bureaucrats giving them perks and favors in exchange for their loyalty, at the expense of small business proved self-defeating. Managing to win the support of only five million voters nationwide, they were turned out of one of the few public institutions left in Putins Russia. And they have no one to blame but themselves.
Table C.l: Voting for liberal parties, 1993-2003 1993

% of votes gained by liberal parties
1995 16.83
1999
2003
23.4
15.43 8.29
Source: Colton & Hough, ed., 1998, Colton, McFaul, 2003*^\ Central Election Commission
Before embarking on this study, I never thought much about the importance of properly assessing the interests and incentives of the different political forces that exist in countries in transition prior to and/or at the beginning of reform. The current unfortunate
Timothy Colton and Michael McFaul, Popular Chocie and Managed Democracy: The Russian Elections o f 1999 and 2000 (Washington, DC: The Brookings Institution, 2003).
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state of Russian democratic development is largely an outcome of mistakes made in such an assessment more than a decade ago. As I argued in the theoretical portion of this study, contemporary literature on transition identified the general population as the main obstacle to reform. Political science experts assumed that the pain associated with change and the abolition of the communist welfare state eventually would become so unbearable that the reformers would be kicked out and replaced with stalwarts of the previous regime. Liberal, socially democratic descendents of former communist parties have achieved power in some post-communist countries (such as Poland) as a result of popular elections. However, nowhere in the post-communist world have reforms led to the subversion of reform and democratic politics in general. Also, nowhere have reforms faced mass popular resistance. In the case of Russia, the tolerance on the part of the population was rather amazing: polls consistently registered low protest activity, even during the hyperinflation and mass impoverishment of 1992-1994. For this we should give credit to the Communist Party of the USSR, which created a strict formal system of politics that excluded demonstration as a form of protest. Thus, popular discontent was the least of the dangers associated with post-communist transition. The bureaucracy of the previous regime was also a major concern of Western experts. Some (predominantly scholars of post-colonial transition) suggested that bureaucrats of the old regime might become the driving force of change, by virtue of being the only coherent force still in existence. Theories to the contrary assumed that bureaucrats would be fiercely opposed to market reforms as a dissolution of the statusquo and power that they had enjoyed under the old regime. Thus, be they friends or foes
316
of reform, bureaucrats of the old regime were the major stakeholders in the enterprise of reform and, hence, reformers would be forced to achieve an alliance with them. An analysis of the Russian federal state administration contradicts the basic models of transitional theory as it regards bureaucrats in times of change. My findings suggest that bureaucrats are neither foes nor friends of change; rather, they behave in accordance with their own self-interests. In my model, the most blatant characteristic is
the desire of bureaucrats to enjoy the best of both situations: to preserve the safety net provided by the office, as it was preserved in pre-transitional times, and to acquire and enjoy the benefits of regulating a market environment. In my model, I argue that the assessment that viewed bureaucrats as the only hope for transition was dead wrong. Even though post-communist countries on average lacked western-type civil societies, it was wrong to assume that that they lacked civil societies entirely. There existed prototypes of civil societies based on the businesses that developed in the underground during Soviet times and on those entrepreneurs who appeared during the final years of the old regimes. Although such elements often lacked good manners and they could not recite Dostoevskii for breakfast, they had experience of great importance to a post-communist society; the ability to survive outside the patronage of the welfare state, and the ability to take responsibility for their businesses, their employees, their families and themselves. These small businesses were natural allies of the reformers: their survival required de-monopolization and de-bureaucratization of the nations economy. Their survival demanded removing control from the bureaucrats. The reformers, in turn, were interested in supporting this new entrepreneurial class because the entrepreneurs were capable, through the practice of democratic politics, of making
317
bureaucratic agencies transparent and accountable. Small businesses, which have the guts to operate in the legal realm, are natural consumers of democratic politics; unlike big business, small business lacked the resources to buy off bureaucrats, and thus was doomed to promote their interests through the development of democratic institutions.
It was also wrong to assert that only bureaucrats of the old regime were capable of providing governance during the time of reform. That conclusion developed largely by scholars of post-colonial transition was based on the study of countries that never underwent modernization, unlike post-communist countries. Universal literacy, and the presence of thousands of graduates of technical universities not brainwashed by
communist propaganda, could have allowed for the creation of an entirely new
bureaucracy. Thus, the old guard could have been freed from the pressure to behave against their interests and make irrational choices. They did not need to be the arms and legs of the reformers, who were opposed to bureaucrats and their right to control the economy first and foremost. Furthermore, the alliance between the reformers and the old guard made the former hostages to the latter. Reformers were forced to make constant concessions to the bureaucrats, giving them the rights to control entry to and operation in the market. This alliance led to the creation of a closed, corrupt and highly ineffective state administration that operated like a de-facto private business. The empirical study of the federal public
administration in Russia revealed that it is neither public (e.g., accountable to the

taxpayers) nor administration (e.g., it governs only the business of extracting rents from society).
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The study, v/hich was the first of its kind ever conducted in Russia, showed that the Russian federal administration recreated much of the system, which was developed by its Soviet forefathers. Non-transparency and non-accountability, division along caste lines, fealty to bosses, abdication of responsibilitiesthese features of the current state administration are the legacies of the Soviet administration. They were brought into the new system because the same bureaucrats who served in the communist administration
became the servants of the new one: no attempt whatsoever was made to change the system during the period of transition. The Russian state administration is probably one of the most anachronistic institutions of contemporary Russia that comprises one of the most serious obstacles to Russian development. Although the Soviet bureaucratic system was inefficient and corrupt in nature (as is widely acknowledged by Sovietologists), the existence of the means of coercion by Soviet rulers and the lack of comparable opportunities outside the administration kept bureaucrats somewhat in line. With the collapse of the Soviet Union, and the development of outside opportunities, politicians found themselves lacking the tools to deal with bureaucrats. Politicians have become highly dependent upon bureaucratic tricks, and have found that they need to allow corruption and the selling of public goods in order to insure the loyalty of the bureaucrats. The study refuted the widely-held assumption that the key problem of the current Russian administration is the low salaries of its bureaucrats. Research showed that this assertion was entirely wrong for executive-level bureaucrats, and partially wrong for
managerial-level bureaucrats. However, even in the case of lower-level bureaucrats

(operatives), whose compensation packages are quite small, salaries did not play a
319
determining role in the incentives and motivations of bureaucrats. The study helped resolve the question of why supposedly low-paid bureaucrats still prefer to keep their office at all costs, and why jobs in the municipal and federal administrations are considered attractive even to candidates coming from high-paying jobs in the private sector. Apparently, the rights of control that bureaucrats have managed to gain over the years of transition have turned public office into a highly profitable enterprise: control rights assure partial property rights, while lowering the risks that exist in the market sector.
The study also showed that bureaucrats could not be regarded as a coherent force of reforms because bureaucrats are not coherent at all. There is no unity among them. The system of state administration is divided along caste lines, with a separate work and life environment for executives, managers and operatives. These divisions do not allow an agency to behave as a group of people driven by a joint task. If driven by anything, the system is driven by corruption: the distribution of corrupt opportunities and the sharing of bribes along hierarchical lines define the coordination of the state administration. Opportunities for corruption have replaced the coercion that existed under the Soviet regime as a guarantor of loyalty. Small business has become the easiest and therefore, primary target of the multitude of federal and municipal bureaucrats. Unlike big business, small business is unable to match the competition from the bureaucratic offices that have become de facto private businesses. The extraction of rents is only part of the problem. Due to the desire of bureaucrats to regain at least the partial control they had over the economy under the Soviet regime, small businesses are disappearing from the legal realm: bureaucrats have
320
decided that control over many is less efficient than control over a few, and the rents lost through the disappearance of small businesses from the market can easily be replaced through the regulation of big business. As a result, beginning in 1994, the number of registered (i.e., legal) small businesses has been in constant decline. This in turn has led to the subversion of democratic politics. In my model, I portray Russian transition as a game between two teams: the state
and society. I suggest that the ideal goal of transition is the creation of arrangements that will allow for a fair game between the two. An analysis of the incentives and motivations of bureaucrats, the rules that exist in the state administration, and the negative impact that those incentives and rules have had on the development of small business and, by association, civil society in Russia, explicitly shows that one party in the game (society) has lost and the other party (state) has won. However, the ability of bureaucrats to manipulate liberal reforms to suit their own interests, to the extent that it has led to the subversion of reform, is not a purely Russian phenomenon. The model is applicable to a wide range of cases. It explains the difference in the outcome of transition in the post-communist countries of Central Europe and the Baltics, on the one hand, and the twelve republics of the CIS (the former USSR) on the other. Scholars of the post-communist transition have been perplexed by the stunning difference between this group of countries. Neither the political culture approach, which assumes differences in historical institutional arrangements across the post-communist world, nor the consideration of initial conditions at the onset of reforms, explains why one group of post-communist countries (such as Poland, Hungary, the Czech Republic, Slovakia, Estonia, Lithuania, etc.) are happened to become success
321
stories, while others (such as Bulgaria and Romania) have been failing. Simultaneously, others, namely the twelve former Soviet republics, either have rejected the democratic path of development or are undergoing the subversion of democratic politics. An explanation would be easier if al! fifteen former republics of the USSR had rejected the democratic path from the very beginning. In that case, an appeal to the legacy of the communist state and its success in discrediting any ideas of liberty and freedom that had
previously existed would be credible. However, the three Baltic republics of the former USSR (which did not have a history of democratic development prior to the Soviet occupation) does not allow for such an easy conclusion. A review of the bureaucratic politics undertaken by reformers across the postcomraunist world suggests that countries that underwent a reform of their state administrations earlier in transition and/or had a radical approach that precluded the old guard from taking over public office (such as in the Czech Republic, Hungary, Poland, and the Baltic states) were more successful in transition. They avoided lots of turbulence, and are progressing (to various degrees) toward consolidated democracy. However, nations that underwent only partial reforms of their bureaucracies (such as in Bulgaria) or avoided those reforms entirely, enjoy authoritarian regimes and have had much less success (if any) in their economic development (Table C.2).
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Table C.2t V ariation in the outcome of transition across the post-communist world
Political Freedom(200 1-02) CSB A lbania Bosnia & Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Macedonia Poland Romania Slovak Republic Slovenia CIS Armenia 2.8 3.4 5.4 1.3 3.2 1.2 1.2 1.2 1.2 1.2 4.4 1.2 2.2 1.2 1.2 5.8 4.4 Economic Freedom (2003) 2.84 3.35 3.80 3.35 2.50 1.80 2.65 2.45 2.35 2.90 3.75 2.90 2.85 3.62 2.65 Gini Coeff* (for income) Real GDP 2000 (1990 = 100%)
28.3 27* 38.3 29.0 21.8 33.8 23.0 36.4 34.2 30.0 26.5 19.7 26.2 43,0 49.0
106.5 110 81 87 99 85 109 61 67 112 144 82 105 62.7 62.7
^Source: Freedom House : Freedom in the World Country Ratings 1972-73 to 2001-2002, New York, 2002. Rating ranges from 1 to 10. The smaller the number - the higher the rating. The first number is the state o f political rights in a given nation, the second states the situation with civil liberties. For instance, the score for the United States is 1.1 (1 - for political rights, 1 - for civil liberties, whereas for North Korea it is 7.7). Countries whose combined score for political rights and for civil liberties fall between 1.0 and 2.5 are designated as Free; between 3.0 and 5.5 partly Free, and between 5.5 and 7.0 Not Free. The USSR had a score o f 5.4 in 1990-1991, i.e., it was better than that o f the 2002-2003 Russia. Source: 2003 Index o f Economic Freedom, The Heritage Foundation, Washington, DC, 2002 Rating ranges from 1 to 5. The smaller the number - the higher the rating. For instance, the score for the United States is 1.80, whereas the score for North Korea is 5.0. Gini coefficient is a standard measure o f inequality. Source : Mark Kramer, 2003. * Source for Tajikistan : World Bank (f02). A consumption Gini was used because o f a lack of data incomes. Source: M aking Transition Work for Everyone, World Bank, 2000. ^ Source: The International Bank for Reconstruction and Development/ The World Bank: Transition The First Ten years: Analysis and Lessons for Eastern Europe and the Former Soviet Union, Washington, DC, 2002, Table 1.1.
323
Azerbaijan
Belarus
6.5
6.6 4.4
Georgia
Kazakhstan Kyrgyz Republic
6.5 6.5
2.4 5.5 6.6 7.7 4.4 7.6
Moldova Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
3.35 4.30 3.40 3.50 3.35 3.20 3.70 3.95 4.15 3.65 4.25
47.0 28.1 51.2 37.3 46.7 43.1 44.1 47.0* 39.7 48.8 34.0
67 55
29
90 66
35
64 48 76 43 95
Twelve former Soviet republics, including Russia, which rejected a fe a r factor
strategy with regard to their own Soviet-era bureaucrats and adopted a co-opting approach, share more or less the same path. In some CIS countries, like Turkmenistan and Belarus, repressive bureaucratic politics are once again the only game in town; in
others, such as Ukraine or Armenia, transition still has not passed the period of disarray; in still others, like Moldova, reforms just never got started, and the Communists are back where they used to be. In other words, as far as I am concerned, a study of bureaucrats, choice of politics with regard to them, and their impact on outcomes of transition based on the case of Russia bears external validity and may serve as a predictor for the course of development in other CIS countries. After all, office holders in twelve countries of the former USSR are nothing but bureaucrats of the Soviet breed and background. Yet, in the set of post-communist countries that have diverted from the democratic path, there is substantial variation that cannot be entirely explained by my model. For instance, both Russia and Turkmenistan are oil rich states. However, one (Russia) has been undergoing transition from pluralist politics to authoritarian politics, whereas Turkmenistan is transitioning from communist authoritarianism to a Stalinisttype regime. One may argue that the difference between the mostly Orthodox Russia and
324
the Muslim, nations of Central Asia can be explained by the difference in traditions. However, there is also much diversity between the three predominantly Slavic states of the former USSR as well; Belarus, Russia and Ulcraine. The media describe Belarus as the last dictatorial state in Europe, while various interest groups has tom Ukrainian politics apart, as was the-case in Russia before 2000. Apparently, strict dictatorship, like that which exists in Turkmenistan and Belarus, should not be in the interest of their
bureaucrats. The unpredictability of their rulers makes it too dangerous for bureaucrats. Moreover, a strict dictatorship is unprofitable because of the very narrow base for
extracting rents (especially in countries poor in natural resources, like Belarus).

The model may have even more general applicability outside the former Soviet Union and the post-communist world, given current developments in Afghanistan (with its absence of developed state institutions) and Iraq, which had quite an expanded and
powerful bureaucracy during the years of dictatorship. The study of bureaucrats and the
role of the state in transition is a must if we wish to understand the peculiarities of transition in the contemporary world.
325
List of Interviews'*^^
Yevgenii Arefiiev, Deputy Chief of Staff, Apparatus of the Government, 1991 - present.
Alexander Auzan, Chairman of the Confederation of the Unions of Consumer Societies. Peter Aven, Minister of Foreign Economic Relations, 1991-1992, CEO, Alfa bank, 1993present Kaxa Bendukidze, CEO, United Machine building Company, 1994-present Boris Berezovskii, CEO, Sibneft oil company, 1996-2001
Maxim Boiko, Deputy Chief of Staff, Administration of the President, 1996-1997 Alexander Braverman, Deputy Minister of State Property, 1993-present. Interview with Yevgenia Albats, Boston, October 2002. Gennadii Burbulis, First Deputy Chairman of the Government, 1991- 1992 Yevgenii Chazov, the Minister of Healthcare of the USSR, 1987-1989 Viktor Chernomyrdin, Prime Minister, 1996-1998, Deputy Head of Goskomstat, 1999 present Anatolii Chubais, Head of the State Property Committee, 1991- - 1995, Chief of Staff, Administration of the President, 1996-1997, Deputy to Prime Minister, 1997-1998, CEO, United Energy Systems, 1998-present Sergei Dubinin, Chairman of the Central Bank, 1995-1998 Arkadii Dvorkovich, Deputy M inister of Economic Development and Trade, 2001present Sergeii Filatov, Chief of Staff, Administration of the President Boris Yeltzin, 1993-1996
Yegor Gaidar, Deputy Prime-minister, 1991-1992

Viktor Gerashenko, Chaiman of the Central Bank, 1992-1994, 1998 - 2002 Grigorii Glazkov, Head of the Directorate, Ministry of Finance, 1998-2003 Anatolii Golovkov, Chief of Staff, Apparatus of the Government, 1991-1993 Yevgenii Gontmacher, Deputy M inister of Labor, 19931994Head of the Directorate, Apparatus of the Government, 1997- 2003
Position indicated that is the most relevant to the topic o f the interview.
326
Andrei Grachev, Deputy to the Head of the International Department of the Central Committee of the CPSU of the Soviet Union until 1990, Press Secretary of Mikhail Gorbachev, 1990-1991 Vladimir Gusinskii, founder and the CEO, Media-Most, 1997-2002
Sergeii Ignatiev, Deputy to Minister of Economy and Finance, 1991-1992, Deputy to
Minister of Economy, 1992-1996, assistant to the President Boris Yeltzin, 1997, Deputy
to M inister of Finance, 1997-2002, Chairman of the Central Bank, 2002-present Andrei Illarionov, Economic Advisor to the President, 2001-present Viktor Ivanenko, General, Head of the Russian KGB (Agency of the Federal Security), 1991-1992, founder and CEO Yukos oil company, 1993-1996
Yurii Kabaladze, General, a former top-ranking intelligence officer, Spokesperson for the
Russian Intelligence, 1991- 1999 Mikhail Kasyanov, prime minister of Russia 2000-present Sergei Kirienko, Prime Minister, 1998 Oleg Kisilev, CEO, Impexbank, 1994 - present Alik Koch, Deputy Minister, the State Property Committee, 1991- 1997, Deputy Prime Minister, 1997 -1998 Konstantin Kogalovskii, Special representative of the government (under Yegor Gaidar) to the world financial institutions, 1991-1992, CEO, Yukos oil company, 1996 - present Sergei Kolesnikov, assistant to Yegor Gaidar, 1991-1992, assistant to Prime minister Yaroslav Kuzminov, President, Moscow School of Economics, 1994 - present Pavel Kuznetsov, Deputy to the Head of the Working Center of Economic Reforms under the Govemment of the RF Vladimir Lopuchin, Minister of Fuel and Energy, 1991-1992 Igor Malashenko, Employee of the Central Committee of the CPSU of the Soviet Union until 1990, President, NTV, 1994-2001 Nikita Maslennikov, Aide to Prime Minister Viktor Chernomyrdin, 1993-1998 Andrei Nechaev, Deputy Minister of Economy, 1991-1992
327
Boris Nemtzov, Governor, Nizhnii Novgorod, 1991- 1997, Deputy Prime Minister, 19971998 Sergei Pavlenko, Head of the Department, Administration of the President, 1997-1998, chief of secretariat of the First Deputy to Prime Minister Aleksei Kudrin Viktor Fleskachevskii, Chairman of the State Duma Committee on Property, Boston,
October 2002
Vladimir Potanin, First Deputy Prime Mini ster, 1996- 1997, founder and the CEO
Uneximbank, 1991-1998, CEO, Interros, 1998-present Yevgenii Primakov, Prime Minister, 1998-1999 Alexander Schokhin, Deputy to Prime Minister, 1991- 1994 Oleg Sisuev, Deputy Prime Minister, 1997-1998, Deputy Chief of Staff, Administration of the President, 1999-2000 Pavel Tepluchin, CEO, Troika-Dialogue Brokerage, 1993-present Yakov Urinson, Minister of Economy, 1995-1997, Deputy to Prime Minister, 1997-1998 Aleksei Ulukaev, First Deputy to Minister of Finance, 2001 - present Sergeii Vasiliev, Deputy Minister of Economy, 1993-1997, Deputy Chief of Staff, Apparatus of the Govemment, 1997-1998, CEO, Mezhdunarodni Bank, 1999-2000, member of the Federation Council (the upper chamber of the Russian parliament), 2001 present Oleg Vugin, Deputy to Minister of Finance, 1995-1999, First Deputy Chairman of the Central bank, 2002 - present Irina Xakamada, Head of the State Committee on Support of Entrepreneurship, 19971998 Yevgenii Yasin, Minister of Economy, 1994-1995, member of the Cabinet, 1995-1998 Dmitri Zimin, CEO, Vympelcom Some other sources who held executive-level position in the Govemment, and/or Administration of the President provided invaluable information on the off-record basis.
328
Chair of the Dissertation Committee was informed about those whose names are not on the record. Interviews with the managerial-level bureaucrats were conducted on the basis that their names will be withdrawn, unless otherwise noted. Official position at the time of the interview, the age and the sex of those quoted are provided in the footnotes.
329
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HARVARD UNIVERSITY THE GRADUATE SCHOOL OF ARTS AND SCIENCES

Date; January 29, 2004

Bureaucrats and the Russian Transition: The Politics of Accommodatioii, 1991-2003

Harvard University Cambridge, Massachusetts January 2004

UMI Number: 3131781

Copyright 2004 by Albats, Yevgenia Mark

All rights reserved.

2004 - Yevgenia Mark Albats All rights reserved.

vi vii vii 1 13 46 106 113 222 255 315 326 330

19 21 259 293 295 308

To my late father, Mark Yefremovich Albats

Chapter One: The Puzzle

the Russian president issued a much less publicized executive order

seeking protection from, it, as John Stuart Mill (1848)

noted some 150 years ago, has

John Mill, On Liberty (Orchard Park, NY: Broadview Press, 1999).

Twenty percent of the people in Russia survive on less than

Chapter 2: At The Crossroads

presents bureaucrats as non-economic individuals

Figure 2.1: Progress in Policy Reforms, 1990s

nU <,i^ih 1.1996): EBRO { 2 K > 0 ).

Figure 2 . 2 : Democracy and Economic Reforms

Walter Pintner ed., 1988, p. 373 Ibid.

It is the universe inside which people of each

Area Studies 1. Victims or Executioners?

That fact alone reflects the confusion in the field.

Adam Przeworski, Democracy and the Market.

Boycko, et al., 1995.

Chapter 3 ; The Model

There are several theoretical prerequisites that should be

B. Guy Peters, The Politics o f Bureaucracy.

than those who

Table 3.1: De-Communization in Post-Communist Countries (selected cases)

Baltics Bulgaria Czech Rep. East Germany Hungary

Indictment of former communist leaders No

Dismantling of political police Yes

& accountability Yes

on the year (Goskomstat 2000:

As much as opposition leaders in Russia tried to

Table 3.2: Strikes

1992 1993 1994 1995 1996 1997 1998 1999

0.5 0.2 0.2 0.7 1.0 1.4 0.8 0.4

Source; State Statistical Committee o f the Russian Federation (Goskomstat), 2000

Table 3.3: The unofficial economys share of total output

21.9 40.9 30.6

69.9 34.5 71.4 49.8 47.8 45.6 56.5 28.5

Source : Alexeev and Pyle 2003: 158,165

Table 3.4: Russian State Administration (civilian and in uniform)

Bureaucrats 3, 851 600 2,682000 2,804 000

2,934 000 2,963 000

Source; Russia in the Changing World, Institute of Economic Analysis, 1997.

Vedomosti (27 July 2002).

The heir, a former

Yevgenia Albats, Oil for the President, Izvestia, March 1995.

C h ap ter 4; The Case

theory, I would describe as E xe cu tives, i.e., b u re a u c ra ts w h o se j o b is to co o rd in a te

Chapter 5: Turning Public Office into Private Businesses

She explained that this was because after finding a mistake in a

Table 5.1: Gender R epresentation among bureaucrats surveyed (percentage)

98.4 59.6 31.8

S o u rce : Y e v g e n ia A lb a ts, P a v e l K u d u kin , O lg a K iric h en ko , 2 0 0 1

Table 5.2: B ackground of bureaucrats surveyed (percentage)

34.4 10.6 No data