Reform versus policy: changing the system
The most fundamental line of reform in Russia, for the reasons set out above, would be a strengthening of property rights. This would not be just a matter of passing a few new laws. In reality, that would be the easy part. It would require a change of arrangements of an order that would substantively alter the informal norms and rules of the game observed by thousands of Russian regulatory, judicial and law-enforcement officials.
Three practices incorporate these norms and rules: the krysha (meaning ‘roof’, or protection), kormlenie (which directly translates as ‘feeding’), and covert patronage.
Property rights reform would require a change of arrangements of an order that would substantively alter the informal norms and rules of the game observed by thousands of Russian regulatory, judicial and law-enforcement officials.
Krysha can mean the protection provided by criminals to individuals or businesses in exchange (usually) for money. But it has mainly been used in recent years to denote the protection provided by well-placed officials to other officials, individuals or firms. Protection in this second sense can come at different levels – from a municipal official covering a small local firm, to a top national official looking after a ‘strategically important’ corporation. And it can come in various strengths, from a senior official of one of the security or law-enforcement agencies downwards. The protected business stands ready to show its appreciation, not necessarily in money and not necessarily at once.
Kormlenie, or ‘feeding’, is a term that dates back to early Russian history. It refers now to officials extracting material benefit, over and above their pay, from those they regulate or supervise. This could take the form of bribery. It is in a general sense the quid pro quo for protection, but the two do not necessarily match case by case. Indeed, it is the firm with a weak krysha – or no krysha at all – that risks losing out to a combination of a better-protected rival and officials on the make.
The practice of covert patronage is almost undocumented. Much less can be said about it with confidence than can be said about krysha and kormlenie. It appears likely that oligarchs, as part of an understanding with the authorities, secretively provide very senior state officials with substantial personal wealth, not as a bribe for any particular action but to mark them as ‘made men’ and perhaps to immunize them against anything so middle-class as backhanders.
One possible example is Igor Shuvalov, the former first deputy prime minister. His family’s Sevenkey company and an affiliate reportedly made loans to the oligarchs Alisher Usmanov and Suleiman Kerimov that were astronomically profitable: the former brought in a rate of return in dollars of more than 30 per cent a year in 2005–07. It is hard to find evidence that covert patronage is a standard practice. However, something like such patronage is needed to account for the assets personally controlled by a number of senior politicians, including Prime Minister Dmitry Medvedev.
In most countries most of the time, money is a route to power and power is a route to money. Russia, like other ‘limited-access social orders’, has this characteristic in a brazen and extensive form, including widespread bribery. More to the point, it exhibits patterns of corrupt behaviour, including asset-grabbing, that are unpredictable. These present a disincentive to investment. Predictable bribes can be planned for. Having your company taken away from you is a contingency that doesn’t lend itself so well to project management.
Kormlenie, krysha and (probably) covert patronage are part of the way things are done in Russia at present: part of what Alena Ledeneva calls simply ‘sistema’. Introducing the rule of law and therefore stronger property rights would entail a change in sistema. How would the necessary reforms of the judiciary and law enforcement come about?
One thing is clear: the political elite has three powerful incentives not to develop the rule of law:
First, very many mid- and lower-level officials are supported by the present informal rules of the game. The political elite, under a rule-of-law state, would risk losing the allegiance of the great mass of officialdom.
Second, it would also lose a key means of control over officials – and indeed over people in general. As long as the powers that be can use the law selectively, officials, activists and business figures are in a state of, to borrow another term from Ledeneva, ‘suspended punishment’. Anyone can always be arrested for something.
The third disincentive arises from the prospects for the political elite themselves under a rule of law. They may be beyond routine bribery now, but they have a past at lower levels that could be investigated. And currently, as top officials, they have an exalted system of kormlenie, in the form of covert patronage, that could also come under legal attack.
These are disincentives for everyone within the political elite. The pragmatic modernizers who dominate the machinery of economic policymaking will be aware of the benefits of a rule of law and the costs of its present weakness. But the motivation to acquiesce in the present state of affairs – even if they could prevail on the siloviki (officials of the security and law-enforcement services) to change it – is powerful.
The existence of these disincentives to fundamental reform does not make reform impossible. It does, however, make it unlikely in the medium term. A Russian shift to the rule of law will more probably come about through gradual evolution and accumulation of institutional changes.
There is one change currently being pursued that may make a contribution. This is the digitization of government services. In principle, operating online entails more transparency than do more manual processes. Notably, it allows records to be checked more easily. For example, the planned transfer (from mid-2019) of the privatization of local state-owned enterprises to a wholly electronic platform could help foil the insider dealings that currently prevail. But entrenched norms and informal rules will not give way to the internet alone.
Might they give way to presidential exhortation? In April 2019 First Deputy Prime Minister Anton Siluanov, speaking at the HSE, explicitly connected the fulfilment of the national projects with the pressure put on business by the law-enforcement agencies: ‘[T]he law-enforcement organs must also take part in the targets and aims set by the president, and create the necessary conditions and comfort for the work of entrepreneurs’.
This is a discreet way of saying that asset-grabbing hinders a presidential campaign. It goes beyond an appeal to team spirit by implying presidential displeasure. But it comes from a ‘mere’ first deputy prime minister. To make a difference, it would probably need to come from the president himself.
Boris Titov, the presidential ombudsman for business, continues to seek Putin’s involvement in moves to reduce asset-grabbing. On his initiative, an interdepartmental working group on ‘the systemic problems’ of business has been set up, to report to the president in late 2019. The working group was to be overseen by Andrei Belousov, an economic aide to Putin, and was reported as including representatives of the economic ministries but not the security services. This could be a challenge to the siloviki and a step towards reform, but only if Putin acts on its recommendations and decriminalizes at least some ‘economic’ offences.