In its quest to maintain the loyalty of local actors, the political leadership is forced to use both carrots and sticks. The multiple tools of control include not only the appointment, dismissal, and replacement of officials, but also exclusion from access to rents and “contracted” criminal investigations against officials and businessmen, or threats thereof with the use of kompromat.52 These instruments not only maintain loyalty to the power vertical but are also used as an additional mechanism of control. Almost every actor can easily be accused of criminal acts, and the threat of criminal prosecution is an even more efficient tool for maintaining control than its actual use. Consequently, actors are genuinely interested in the successful implementation of policies that serve both the goals of political leadership and their own self-interests. One should note that punishments take place under two kinds of circumstances: either because actors’ rent-seeking activities contradict the policy goals of the political leadership or (more rarely) because their poor performance and/or voracious rent-seeking appetites undermine the legitimacy and stability of the politico-economic order (as the case of Yakunin tells us).
Thus, the power vertical is a relatively cheap (in terms of agency costs) and successful (in terms of incentives) solution to the principal-agent problem: the principal informally offers conditional rent access to loyal and capable agents. This mechanism maintains state capacity in governing multiple political and socioeconomic arenas. The state serves both the collective interests of the power vertical’s insiders as a group and the private interests of all its agents, ranging from presidents and prime ministers to local school directors who are allowed to steal public money designated for renovation of the school building if during elections they will deliver votes at the polling station located at their school.53 As for outsiders to the power vertical, the opportunity to access rents is a major incentive not only for political loyalty but also for personal career choices: for example, many graduates of Russian universities admit that the goal of their pursuit of higher education was a chance to get jobs in the state apparatus or in major state-owned companies such as Gazprom.54
Within the post-Soviet context this mechanism of governance demonstrates some specific features. They include, inter alia, the specific divisions among and between the layers and corridors of the state machinery and competition between various agencies and informal cliques for rent access and for positions in the informal hierarchy of decision-making. For example, Russian law enforcement agencies experience stiff competition between the Office of the Prosecutor General and the Investigative Committee, even though the latter agency is formally subordinated to the former.55 Russian big business demonstrates a rivalry between Gazprom and Rosneft, which emerged almost by chance,56 and so forth. But these contradictions are mostly structural, because both state agencies and state-owned companies are affected by sectoral power verticals that link lower-level actors to their patrons at higher levels of authority or even in the top leadership. This mechanism plays a powerful role in the informal system of governance because it cannot be bypassed in the process of appointments or dismissals in the lower echelons of the power vertical, and it is important for the survival of all actors in their behind-the-scenes struggles against powerful competitors.
In the media discourse, these phenomena are often regarded as the “new Politburo” or the “struggle between the Kremlin’s towers,”57 but such labels are rather superficial. Parallels between the power vertical under the post-Soviet politico-economic order of bad governance and the Soviet hierarchical model of governance do not touch upon the basic differences in goal-setting, institutions, and incentives. In the Soviet Union, the Communist Party exerted control over the state apparatus, was able to impose sanctions on violators of formal and informal rules of the game, and in a sense, imposed limits on the spread of bad governance. In the post-Soviet environment, the personalist nature of the political regime and the interests of powerful members of winning coalitions establish other constraints: all personnel decisions must include the maintenance of the balance between sectoral power verticals and cliques, and the use of “divide and conquer” tactics for prevention of open intraelite conflicts. The emergence of informal alliances and rivalries between actors who compete for rent access is an unavoidable side effect of the informal distribution of resources among agents. This competition drastically increases agency costs and worsens rather than improves the quality of governance. Although the fruits of economic growth may satisfy the appetites and interests of the most powerful rent-seekers and diminish their rivalries, these contradictions cannot be eliminated.
If the power vertical did not receive demands for policy reforms from the top leadership, and only reproduced the status quo, then even given a minimal inflow of resource rent and very sluggish (if not zero) economic growth, this model of governance could reproduce itself similarly to that of some Third World countries.58 However, the imperative of “narrow” modernization (outlined in more detail in chapter 3) drives the political leadership to launch numerous policy reforms, which are to be implemented by agents of the power vertical at various layers of authority. These reforms imply not only structural changes (such as the establishment of new agencies) but also changes of goals and criteria for policy evaluation. Bureaucrats and officials must demonstrate “efficiency,” which is broadly understood as the achievement of certain formal indicators, ranging from mandatory conducting of auctions and tenders in the state procurement system to a certain quantity of scholars’ publications in journals listed in the Web of Science and Scopus databases. Policy reforms often destabilize the power vertical, but their effects on the quality of governance are not so obvious. Sometimes the state of affairs even degrades vis-à-vis the previous status quo, as in the case of the replacement of old Kaganoviches with new Yakunins. Why do the policy reforms sometimes have such dismal results?
The Challenge
of
Policy Reforms
The symbiosis of the informal core and the formal shell of bad governance, which outwardly seems to share features with advanced states and markets, ranging from formally independent courts to the commercial operations of state-owned companies such as RZhD, maintains a stable yet inefficient equilibrium. This fact explains a contradiction that has been described by scholars of African politics: in theory, under conditions of bad governance, the state of affairs in a given country should inevitably worsen, but in fact disequilibrium is relatively rare.59 Formal institutions are not the only reason for this. The stable increase of rent in Russia in the 2000s has also helped to maintain the status quo despite short-term economic troubles.60 Unlike the states and regimes in sub-Saharan Africa which that are widely perceived as “dictatorships of stagnation,”61 Russia until the 2010s displayed an opposite trend—the drive for economic growth in the 2000s served as the main source of maintenance of this politico-economic order. It was only after 2014 that the priorities of Russia’s leadership changed, and economic growth was sacrificed for the sake of “stability” (the preservation of political status quo).62 Nevertheless, Russia’s ruling groups were (and to some extent still are) interested in growth and development not only to increase the amount of rents and to satisfy the appetites of numerous rent-seekers but also because of the need for both domestic legitimation of the political regime63 and the legitimation of foreign policy in international arenas. In addition, visible and internationally recognized achievements of successful development, such as global mega-events (like the Olympic Games, the G8/G20 summits, or the inclusion of Russian universities in the top 100 of world ratings) serve as a source of conspicuous consumption and of status rent both for Russia’s ruling groups and for society at large.