Thus, post-Soviet bad governance implicitly assumes the aspiration of ruling groups to successfully implement policy reforms. They aim to achieve a high degree of socioeconomic development and to accomplish at least some policy reforms oriented toward attaining these goals. This agenda is shared not only by the ruling groups of post-Soviet Russia but also by significant parts of the citizens. However, under the conditions of bad governance this agenda faces numerous obstacles. First, policy reforms must be implemented by the state bureaucracy with all its problems and vices (analyzed in chapter 4). Second, policy reforms that may infringe on the interests of influential rent-seekers will be curtailed, especially if their implementation is not endorsed by a powerful coalition of supporters. The failure of police reform in Russia under the presidency of Dmitry Medvedev may serve as a prime example in this respect.64 Third, in these circumstances policy reforms often lead to unintended and undesired consequences. These consequences depend not only on specific policies in certain areas but also to a great degree on the hierarchical mechanism of governance within the framework of the power vertical and its institutional constraints on policy reforms.
The role of the power vertical in bad governance is important for an understanding of the pattern followed by socioeconomic policy reforms. The top political leadership is the sole mastermind of reform programs and plans: although alternative policy programs are proposed by independent experts from time to time, they usually remain ignored by political leaders. As demonstrated in chapters 5 and 6, these programs are developed both by ideationally driven experts contracted by the power vertical and by career-driven policy entrepreneurs from among the mid-range officials, and sometimes even by invited foreign consultants.65 Reform programs are implemented by various layers and hallways of the power vertical, while the political leadership retains a monopoly on policy evaluation, which is not an arbitrary personalist choice by political leaders: it takes into account the interests of the members of the winning coalition as well as public opinion. But under the conditions of authoritarianism, political leadership enjoys more room for maneuver than in most democracies. These conditions favor an “insulation” of reforms and reformers from the pernicious influence of interest groups,66 yet they also impose almost unavoidable constraints on policy reforms in virtually all areas. The main constraint is related to the fact that the informal institutional core is untouchable by any reform: at best, reforms can affect only formal institutional shells. No wonder that many reform proposals are already planned to be partial, incomplete, and compromise measures even at the preparatory stage (not to mention further decision-making and implementation). Initially good intentions are emasculated and perverted by rent-seekers who are interested in privatization of gains from policy reforms and in socialization of their losses. These problems are acknowledged by reformers themselves, who often already expect these negative outcomes at the beginning of policy planning.
But the main problem of post-Soviet bad governance for policy reforms is related to its informal institutional core, which not only inhibits changes to the formal institutional shell but also exerts a distorting influence on the directions and effects of policy changes. In essence, any policy reforms cause major distributive consequences. In political terms, policy adoption and implementation implie a process of building coalitions of potential beneficiaries of the reforms and the accommodation of their interests with those of the potential losers. These negotiations often damage the quality of policy-making because of the influence of “distributional coalitions,” which may block any positive changes.67 In the wake of democratization, these tendencies often contributed to populist policies (as in Latin America in the 1980s), and these risks were among the main concerns of Russian reformers in the 1990s.68 However, the politico-economic order of bad governance is also compatible with distributional coalitions, and their influence has increased over time:69 the major beneficiaries of the politico-economic order of bad governance are small privileged groups of rent-seekers. Thus, the power vertical became a mechanism of rent-sharing among members of winning coalitions who transferred the costs of policy reforms to other actors and/or to society at large. They do not face the constraints imposed by formal institutions; rather the informal institutional core is deliberately tuned for distributive effects of this kind. Thus, the privatization of gains and socialization of losses have become inevitable effects of policy reforms under bad governance. The rapid economic growth of the 2000s in Russia to some extent diminished these effects, but later these contradictions of policy reforms became explicit. The sharp increase in military expenditure and simultaneous cutting of expenditures on public health and education was a logical extension of this approach to policy reforms. Furthermore, these effects may increase until the potential decline in the inflow of rents causes major conflicts between rent-seekers.
The reform of RZhD clearly illustrates these tendencies. Yakunin, being CEO of the holding and one of the key members of the winning coalition, maximized benefits for RZhD and for himself. The company became a monopolist holding, managed by Yakunin on behalf of the Russian state in the manner of a fiefdom, without any external control over its operations. The benefits of the reforms for the company were apparent: RZhD no longer had to subsidize unprofitable commuter trains, was able to unilaterally set tariffs, received outstandingly high fees for the use of its assets by its own subsidiaries, and prevented competition on the market. Costs were transferred not only to passengers (individual consumers of monopolist services) but also to all taxpayers. As long as regional budgets were able to satisfy RZhD’s appetites, this situation was considered unacceptable only by opposition activists like Navalny and did not attract major public attention, and further transferring of costs from regional to federal budgets may have diminished the salience of this problem but did not change its causes.
The other problem of policy reforms under bad governance is related to the fact that the hierarchical power vertical is the only instrument for their implementation and an imperfect one. Reformers and their patrons among the top political leaders assume nearly by default that without strict and tight top-down control, the lower layers of the power vertical have no incentives even for their routine performance (let alone policy changes). In other words, they expect that schoolteachers will not teach students and police officers on the ground will not combat street-level crime. Given the lack of other mechanisms of accountability (fair elections, free media, civil society NGOs, influence of public opinion, and so forth), these concerns are quite reasonable. The good intentions of efficient governance are opposed by the weak incentives for policy changes in other political and institutional contexts,70 and post-Soviet Russia is by no means exceptional in this respect. Yet the politico-economic order of bad governance is the least likely environment for successful implementation of major policy reforms. Since the list of beneficiaries of these changes is limited to a narrow group of rent-seekers, reformers must force other actors to conduct reforms that may not bring them any benefits. At the same time, policy programs and plans of reform are based on the logic of “high modernism”:71 the criteria for successful implementation of changes by the lower layers of the power vertical are reduced to a limited number of formal quantifiable indicators (widely used across the globe within the framework of the “new public management” approach). The formalization of these requirements to some extent aims to reduce excessively high agency costs within the framework of the power vertical. However, this approach contributes to the spiral of overregulation: virtually every new policy change results in a drastic increase of the scope and density of regulations of almost all routines at the lower layers. Hence, the amount of paperwork and related costs skyrockets—police officers, schoolteachers, medical doctors, and all personnel on the ground in many organizations (both state and private) are mired in producing numerous reports to state inspection agencies instead of conducting their primary job functions. As a result, the goals of policy changes are replaced by the attainment of required numbers in reports at any cost: these reports become the main if not the only criterion of evaluation of policy performance.