Home inFocus Russia: Inside the Enigma (Fall 2017) Frozen in Backwardness: How Russia Underachieves

Frozen in Backwardness: How Russia Underachieves

Stephen Blank Fall 2017
The Kremlin, Moscow.

“Something else that is an extremely important thing and distinguishes Russia from the other powers is that we have preserved the important resource of our historical heritage. With all the revolutionary changes, its historical matrix was reproduced.” – Vyacheslav Nikonov, Russian politician and grandson of Vyacheslav Molotov

“The dead hand of all the generations of the past weighs upon the brain of the living like a nightmare.” – Karl Marx

Backwardness has characterized Russia throughout its existence. Repeated and often herculean – if not also epically tragic – attempts to overcome this backwardness in a single bound have repeatedly failed, leaving Russia essentially as backward as it was before. This trajectory is the case today and will continue into the future. Thanks to Western sanctions and the structurally embedded defects of Russia’s economy, even if growth is occurring according to Russian officials (whose testimony is of dubious value) Russian economists admit that backwardness will last well into the 2020s ensuring another period of stagnation. Russia only returned to its 1990 GDP in 2008 after the depression of the 1990s and the oil-driven boom after 1998-99, then to enter into what has been another decade of virtually no net growth. We clearly are dealing with a repeated pattern of Russian history and an economy dominated by recurrent cycles of boom-and-bust.

But why does this pattern reassert itself with depressing monotony? This essay offers a brief answer with the understanding that fully accounting for this phenomenon requires a much longer composition and study. Stated briefly, the answer to this question is that Russia’s political system and the culture based upon it are at fault. Russia’s culture is arguably a “frozen” one, to use the renowned anthropologist Claude Levi-Strauss’ term.

21st Century Neo-Tsarism

Both Nikonov and Marx are right. Russia has regressed to a neo-tsarist facsimile with an admixture of Leninism that prevents it from moving forward and escaping its nightmare of autocratic rule. Many foreign and domestic commentators – from Richard Pipes in the 1970s to Ian Bremmer, Richard Hellie, Peter Baker, and Susan Glasser more recently – have noticed this trend and its impact on the state. Not only do we see an autocratic ruler but we also see the trademark economic backwardness of Russian history and state control of the economy vested in leader Vladimir Putin’s entourage. Indeed the state owns about 70 percent of the overall economy. Moreover the structure of the economy bears a remarkable resemblance to tsarist and Soviet patrimonialism as described by Steven Rosefielde and Stefan Hedlund. Today’s Russia constitutes the latest replication of the patrimonial state discerned by Max Weber and subsequent Russian and Western historians. Weber wrote:

Russia does not and cannot efficiently operate according to the neoclassical economic principles (democratic free enterprise) claimed by many to assure its eventual entry into West-utopia, a Shangri-la where everyone completely and competitively maximizes his and her utility in the private, public (democracy) and civic (civil empowerment) domains. The institutions which thwart Russian Pareto optimality are – autocracy, primacy of autocratic freehold ownership, edict over constitution, the supremacy of autocracy over private rights (hence servility), and primacy of command and administratively supervised rent-granting governance over free enterprise, democracy and civil liberty. From the neoinstitutionalist perspective, Russian governance (including the state, politics, economics, and civil society) boils down to autocratic rent-granting, rent-seeking, rent-creating, rent-controlling, and rent-management rather than individually empowered, complete and competitive utility seeking.

Patrimonialism means the Tsar (Putin) owns the state and national economy, while there are no property rights under law. Rather, property is held only on condition of state service. Therefore there is no market, though there are individual markets, and there is no concept of property rights, human rights, or a state under law. Law is an arm of the state and we have rule by law rather than rule of law.

Although some misguided Western analysts believe that Russia has built a market economy, in fact Russia cannot follow China or the West as long as it retains what Nikonov called its “historical matrix,” namely the conjoined system of political and economic power that now firmly grips the country. Indeed, this system actually represents the antithesis of a market economy because there is neither an unconditional right to private property under law, nor any authority answerable to law. Law merely drapes the state’s use of force. The essence of Russia’s continuing autocracy is precisely that the tsar and his minions are not accountable to any law or institution other than their conscience or, as Dmitry Trenin has said, “Russia is ruled by the people who own it.” Moreover, as long as this system prevails, Russia will be consigned to a diminishing position in Europe and to the status of China and Asia’s raw materials appendage. Indeed, this is already happening, according to Trenin. Russia’s control over the countries of the Commonwealth of Independent States (CIS, also known as the Russian Commonwealth) has long been slipping because it is inherently uncompetitive. 

The System is Corruption

Since power and property are fused, as is the case under feudalism, the system is not corrupt. Rather the system is corruption. Consequently Putin’s cronies from the KGB, FSB, other police organs or other forms of the “old school tie” have been granted or will gain control over lucrative sectors of the economy for their private control. Furthermore these corporations cannot be privatized and foreign participation is severely restricted. Apart from the defense sector, the state sectors in which these controls are imposed represent the major state-controlled firms in the energy sector, the four largest state-controlled banks, strategic communications companies, the media in television and radio, the new nanotechnology company, and priority programs in healthcare, housing, education, agriculture and the wood processing industry.

Thus Kirill Rogov, cited by Brian Whitmore in Whither Russia, Inc.? writes:

By and large, the state corporation is an ideal economic form for a bureaucratic and oligarchic state. It lays the legal foundations of bureaucratic absolutism and breathes new life into Louis XIV’s famous formula “The state is me.” It also brings the principle of a “controllable market” to life: authorized bureaucrats (the new oligarchs) can manage state property almost like private property, whereas private owners (the old oligarchs) must coordinate their actions with the state.

The resemblance of this to the Muscovite service state is obvious.

Thus experts see both rent-granting and rent-seeking elites with resulting political struggles among elites for control over rents, a preference for rent-seeking over investment, massive corruption, asset stripping and corporate raiding, etc. External observers may call this system state capitalism but analysts who know Russian history will recognize in this system an updated and wholly corrupted version of Muscovite patrimonialism and its accompanying service state that therefore bears certain resemblances to Soviet practice. Alternatively we could call it industrial feudalism. Thus Dmitry Furman wrote, “Managed democracies are actually a soft variant of the Soviet system.” And that system in turn was at its heart a new form of Russian autocracy and patrimonialism.

Obviously in this politicized economy political outcomes trump economic results, rendering the former inherently sub-optimal over the short and long-term. Since this system fuses political and economic power, along with ideological power, all efforts to modify, let alone transform, this system and its accompanying structure of relationships and thought about politics and economics are politicized. For substantive economic and political reform to occur, the  “mass mind” must change as well. Political, economic, and ideological reform are all inherently and structurally linked as necessary factors of genuine progress, as the Gorbachev years showed us. As Maya Eichler wrote in 2005:

Post-communist transformations are fundamentally about conflicts over restructuring political and economic power in society. The transformation path adopted is not simply a question of common sense (of “market and democracy”); it is inherently political and hotly contested by economic and political actors. Struggles over the form property should take, the control of economic resources, and government policy take place not only at the economic and political level but [also] in the ideological realm. The main issue for those groups seeking power and stability therefore becomes how to legitimate a particular path of transformation and make it appear incontestable.

Absent coherent concurrent reforms in all these areas we get, as we did in 1990-93, systemic breakdown. But this also means that the state and economy exist in a permanent condition of instability, even crisis, whether it be an urgent or a slow-burning, long-term crisis. Yet reform is so contrary to the interests of this deeply entrenched elite that it does not take place absent an urgent, as opposed to slow-burning, crisis.

A “Limited Access Order”

Worse yet, Putin’s Russia remains a paradigmatic example in our time of what Douglas North, Barry Weingast, and John Joseph Wallis call a “limited access order” or natural state in their book Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. Such orders are based on personal or personalized norms of rule. They are weakly developed in regard to social organizations and cannot therefore rely on third-person enforcement of legal norms or contracts. Long-term economic growth in such states approaches zero, meaning that for every period of growth there is one of decline in per capita income. The deficiencies of such orders with respect to forming impersonal and binding institutions also mean that they are much more permeated by violence unless potentially violent elements are bought off by rents. As the authors note:

Systematic rent-creation through limited access [to assets] in a natural state is not simply a method of lining the pockets of the dominant coalition; it is the essential means of controlling violence. Rent creation, limits on competition and access to organizations are central to the nature of the state, its institutions, and the society’s performance. Limiting the ability to form contractual organizations only to members of the coalition ties the interests of powerful elites directly to the survival of the coalition, thus ensuring their continued cooperation with the coalition.

Thus in such circumstances, the rent-granting state with a rent-seeking elite is not just a major attribute of the system, rather it is an essential precondition of its survival. At the same time war and militarization are inherent in the state’s structure. Reforms from above and markets, though not A Market, are not ruled out and economic growth can occur, albeit under severely limiting conditions. But those reforms are invariably circumscribed lest they jeopardize the foundations of the system. These are concentration of power at the top and in the capital, extreme centralization, an unlimited autocrat ruling over and through his chosen oligarchs (Boyars)  – who are granted rents on condition of service that allows them to gain rents thereby – the service state, the absence of contractual guarantees of property, and the lack of accountability of officials to the law. These attributes, along with the propensity to violence, are all hallmarks of the natural state or limited access order and of both Putin’s Russia and the classic tsarist Russian service state.

The Problem of Evolution

Undoubtedly such states can evolve toward “open access orders” that characterize the modern democracies of Europe, America, and Asia. But they can also regress, and indeed North, et. al. state explicitly that Putin’s Russia is regressing. We can see that these trends in Russian economic policy all but guarantee stunted growth, the inability to innovate technologically, low productivity and thus a high cost of labor, hostility to foreign technology and investment, as well as massive corruption and diversion of resources to excessive militarization of the economy. Russia cannot presently move from the natural state or limited access order to the modern state and open access order. Only when sufficient steam has generated in the boiler will that happen but it is likely to happen either as upheaval or as a process of further decay and entropy not unlike the destruction of infrastructure and losses of life and capital that characterized the 1990s.

The ongoing demographic disaster presents the clearest indicator of regression and pressure build-up. In the past, many observers of Russia have characterized it as resembling Chichikov’s Troika in Gogol’s Dead Souls, riding off into heavens knows where. But while we cannot predict where and when the long-term consequences of the current regression will manifest themselves in an explosive way, it is quite unlikely that without major change Russia will escape the decay it is so assiduously promoting, whether it is domestic or geopolitical decay or both. In this respect neither Chichikov’s Troika nor contemporary Russia is an off-road vehicle. Barring further change, the consequences of the current path will make themselves felt and Russia will find it ever harder to alight from the road to nowhere that it has all too often traveled in the past and is again traversing in the present.

Stephen Blank, Ph.D., is a Senior Fellow at the American Foreign Policy Council and a is a former MacArthur Fellow at the U.S. Army War College.