At the beginning of the 2000s, favorable political conditions for policy reforms appeared to emerge in Russia. Due to rapid economic growth after a long and protracted recession,21 Putin gained significant popular support. After the 1999 parliamentary election, the Kremlin was able to establish a pro-presidential majority in the State Duma that approved almost all of the Kremlin’s initiatives.22 Strengthening state capacity23 and recentralizing state governance24 allowed the Russian government to reduce the influence of rent-seekers in policy-making. But the major driver of policy reforms at that time was Putin’s unequivocal support for implementing socioeconomic changes. These circumstances opened a window of policy opportunity25 that had been closed in the second half of the 1990s.26
The concept of the reform program (“the Gref Program” or “Strategy 2010”) was developed in the first months of 2000 by the experts at the Center for Strategic Research (CSR, Tsentr strategicheskikh razrabotok). Under Putin’s patronage, this center aimed to develop the previous decade’s policy proposals. The choice of policy options and Putin’s policy positions were influenced by the previous experience of the 1990s. Putin prioritized27 building a strong and efficient state that would provide long-term economic growth based on financial stabilization and a successful fiscal policy. Improvement of the quality of governance was also listed as one of the priorities of the Strategy 2010 program. Indeed, the weakness of the Russian state and its fiscal crisis are justly considered to be the ultimate cause of policy failures and poor quality of governance in the 1990s.28 Therefore, major reforms in these policy areas became the key points in the reformers’ agenda at the beginning of the 2000s. At the same time, social policy changes that would contribute to societal development in the medium-term perspective were not declared to be top priorities, even though half of Gref’s program was devoted to policy changes in these areas. Under electoral authoritarian regimes, social policies are often perceived not as a strategic goal of government but as a means of providing electoral loyalty.29 The experience of both the 1990s30 and the 2000s demonstrates that the Russian case is not an exception.
Despite the CSR’s role as a think-tank, there was no headquarters that managed or even coordinated various reforms. They were implemented as a set of inconsistent measures controlled by specific ministries. Mikhail Kasyanov, the prime minister from May 2000 to February 2004, did not participate in preparing Strategy 2010. His views often contradicted the policy ideas of key ministers that developed this program.31 His successor Mikhail Fradkov did not become a significant political actor. In practice, all important decisions (including large-scale reorganization of the Russian government in 2004) were made by the president. In some cases, the responsibilities for reforms were concentrated in one governmental agency, but often they were divided between several ministries and agencies in both the center and the regions. While some reforms required only the one-time adoption of a package of legal acts, others included a sequential chain of actions that required coordination of various actors over a long period of time. Theoretically, one can expect that inconsistent and protracted policy changes will be implemented in an inefficient way,32 especially under conditions of an electoral authoritarian regime; as such, without immediate positive results in the short term, these reforms may be blocked and ultimately fail.
Thus, the features of the Russian bureaucracy and the institutional design of the executive imposed major constraints on the implementation of reforms in the early 2000s. The possibility of overcoming these obstacles depends, in my opinion, upon three factors: (1) the strategic priority of certain reforms for the president; (2) implementing a given reform by reformers who are concentrated in a single powerful agency; and (3) reform requiring one-time governmental actions that are implemented within a short period of time (see table 3).
Table 3. Factors of Success of Policy Reforms
Factors of policy reforms
Contribute to success if:
Contribute to failure if:
strategic priority of reforms for the political leadership
high
low
concentration and cooperation of agents of reforms during policy adoption and implementation
high concentration of reformers in a single governmental agency; major cooperation among reformers
responsibility for policy changes dispersed among several governmental agencies; limited cooperation among reformers
process of adoption and implementation of policy changes
single-stage reform; short period of adoption and implementation of policy changes
multi-stage reform; long period of adoption and implementation of policy changes
How and why have these factors influenced specific policy reforms and what was the impact of these reforms on bad governance in Russia? To answer this question, I will analyze the experience of policy changes in Russia in the first half of the 2000s.
Successes and Failures
of
Reforms: Case Studies
Tax Reform: A Major Success
The tax reform implemented in the early 2000s in Russia became a model example of the most successful policy changes of that period. In the 1990s, the emergence of the modern tax system in Russia was accompanied by a weak state capacity, a spontaneous decentralization of governance, political instability, and the obvious imperfections of many legal regulations.33 As a result, Russian authorities had major difficulties with tax collection causing a major fiscal crisis. The widespread use of numerous tax exemptions, nonmonetary payments in the form of different offsets and money substitutes, and the proliferation of legal, extralegal, and illegal schemes of tax evasion, combined with the high taxation rates and the large number of taxes, made the government’s fiscal policies inefficient.34
From a formal viewpoint, the tax reform involved the development, adoption, and implementation of the Tax Code, which established unified rules of taxation and fiscal governance in Russia. Its first chapter, which defined the foundations of the country’s tax system, was adopted in 1998. But the development of the second chapter took five more years. In 2000–2004, a new set of taxes and tax rates was established that replaced previous ones. As a result, on the one hand, the tax burden on individuals and businesses was drastically reduced (especially due to the changes in the taxation rates of value added tax and profit tax and the introduction of the unified social tax). On the other hand, the fiscal revenues of the state budget increased. This was achieved by adopting a flat rate of personal income tax (13 percent), instead of the “progressive rate” that stimulated tax evasion among relatively well-to-do taxpayers.35 As a result, between 2000 and 2007, extra revenues for the Russian budget reached an overall level of 1 percent of the GDP (excluding oil revenues).36