Russian Roulette | Page 9

Shmuel Vaknin
crisis is bound to become more
ominous. Russia is on the verge of opening itself to real competition
from the West - including (perhaps especially so) in the financial sector.
It is revamping its law books - but does not have the administrative
mechanism it takes to implement them. It has a rich tradition of
obstructionism, venality, political interference, and patronage.
Foreign competition is the equivalent of an economic crisis in a country
like Russia. Should this be coupled with domestic financial mayhem -
Russia may be transformed to the worse. Expect interesting times
ahead.
The Russian Devolution
The Regions
Russia's history is a chaotic battle between centrifugal and centripetal
forces - between its 50 oblasts (regions), 2 cities (Moscow and St.
Petersburg), 6 krais (territories), 21 republics, and 10 okrugs
(departments) - and the often cash-strapped and graft-ridden
paternalistic center. The vast land mass that is the Russian Federation
(constituted officially in 1993) is a patchwork of fictitious homelands
(the Jewish oblast), rebellious republics (Chechnya), and disaffected
districts - all intermittently connected with decrepit lines of transport
and communications.
The republics - national homelands to Russia's numerous minorities -
have their own constitutions and elected presidents (since 1991).
Oblasts and krais are run by elected governors (a novelty - governors
have been appointed by Yeltsin until 1997). They are patchy fiefdoms
composed of autonomous okrugs. "The Economist" observes that the
okrugs (often populated with members of an ethnic minority) are either
very rich (e.g., Yamal-Nenets in Tyumen, with 53% of Russia's oil
reserves) - or very poor and, thus, dependent on Federal handouts.
In Russia it is often "Moscow proposes - but the governor disposes" -
but decades of central planning and industrial policy encouraged capital
accumulation is some regions while ignoring others, thus irreversibly
eroding any sense of residual solidarity. In an IMF working paper
("Regional Disparities and Transfer Policies in Russia" by
Dabla-Norris and Weber), the authors note that the ten wealthiest
regions produce more than 40% of Russia's GDP (and contribute more
than 50% of its tax revenues) - thus heavily subsidizing their poorer

brethren. Output contracted by 90% in some regions - and only by 15%
in others. Moscow receives more than 20% of all federal funds - with
less than 7% of the population. In the Tuva republic - three quarters of
the denizens are poor - compared to less than one fifth in Moscow.
Moscow lavishes on each of its residents 30 times the amount per
capita spent by the poorest region.
Nadezhda Bikalova of the IMF notes ("Intergovernmental Fiscal
Relations in Russia") that when the USSR imploded, the ratio of
budgetary income per person between the richest and the poorest region
was 11.6. It has since climbed to 30. All the regions were put in charge
of implementing social policies as early as 1994 - but only a few (the
net "donors" to the federal budget, or food exporters to other regions)
were granted taxing privileges.
As Kathryn Stoner-Weiss has observed in her book, "Local Heroes:
The Political Economy of Russian Regional Governance", not all
regions performed equally well (or equally dismally) during the
transition from communism to (rabid) capitalism. Political figures in
the (relatively) prosperous Nizhny-Novgorod and Tyumen regions
emphasized stability and consensus (i.e., centralization and
co-operation). Both the economic resources and the political levers in
prosperous regions are in the hands of a few businessmen and "their"
politicians. In some regions, the movers and shakers are
oligarch-tycoons - but in others, businessmen formed enterprise
associations, akin to special interest lobbying groups in the West.
Inevitably such incestuous relationships promotes corruption, imposes
conformity, inhibits market mechanisms, and fosters detachment from
the centre. But they also prevent internecine fighting and open,
economically devastating, investor-deterring, conflicts. Economic
policy in such parts of Russia tend to be coherent and efficiently
implemented. Such business-political complexes reached their apex in
1992-1998 in Moscow (ranked #1 in creditworthiness), Samara,
Tyumen, Sverdlovsk, Tatarstan, Perm, Nizhny-Novgorod, Irkutsk,
Krasnoyarsk, and St. Petersburg (Putin's lair). As a result, by early
1997, Moscow attracted over 50% of all FDI and domestic investment
and St. Petersburg - another 10%.
These growing economic disparities between the regions almost tore
Russia asunder. A clunky and venal tax administration impoverished

the Kremlin and reduced its influence (i.e., powers of patronage)
commensurately. Regional authorities throughout the vast Federation
attracted their own investors, passed their own laws (often in defiance
of legislation by the centre), appointed their own officials, levied their
own taxes (only a fraction of which reached Moscow), and provided or
withheld their own public services (roads, security, housing, heating,
healthcare, schools, and public transport).
Yeltsin's reliance on local political bosses for his 1996 re-election only
exacerbated this trend. He lost his right to appoint governors in 1997 -
and with it the last vestiges of ostensible central
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