Actors, Institutions, and Incentives
The key ingredients of successful developmental projects and programs in the public sector in Russia and beyond are top priority support from the political leadership, effective efforts by policy entrepreneurs (ministers, governors, city mayors, university rectors, company managers, and the like), and the competent provision of these projects with material, financial, and personnel resources. However, all of these components often bring contradictory results. The incentives for both the political leadership and policy entrepreneurs are mixed at best, and resources, even if their concentration is high enough to achieve some success stories, are insufficient for subsequent multiplicative effects and further dissemination of best practices.
The political leadership under conditions of bad governance is interested in success stories for two main reasons. First, as stated above, some policy achievements help to legitimize the political status quo: despite the well-known argument that bad policy is almost always good politics,36 many political leaders are interested in the economic growth and development of their countries, and Russia is not an exception. Second, even though rent-seeking is the main goal and substantive purpose of state governance in Russia, this fact does not prevent leaders and elites from pursuing developmental goals that may also contribute to rent-seeking. Several major state-led projects and programs accompanied by large-scale embezzlement of funds (such as the 2014 Sochi Olympics) may illustrate this combination of rent-seeking and developmental goals.37 These projects are not limited to rent-seeking and are also aimed at bringing some returns in terms of development, although these returns are often relatively small because of the high costs imposed by corruption. Similar to the political leaders’ demand for successful technocratic managers, who have to provide effective policies in key sectors of the economy and finance (analyzed in chapter 5), these leaders also need policy entrepreneurs who are capable not only of routinely implementing top-down directives but also of successfully advancing their own initiatives. Pet projects and programs directly supported by political leaders become the main sources of several success stories, paving the way for investment of major resources (both public and private) into these ventures and opening possibilities for special state regulations of given projects and programs well beyond the general practices and routines of decision-making. Such rules of the game were typical both for the Soviet space program and for the Skolkovo project. The conditions of informal deals between patrons (political leaders) and their clients (policy entrepreneurs) imply top priority resource endowment and carte blanche for policy entrepreneurs on virtually all initiatives in their respective fields in exchange for promises of quick and highly visible policy successes. However, the list of such top priorities for any given political leader is limited practically by definition, and this is why policy entrepreneurs are often forced to compete with one another for scarce state resources and for meaningful attention from political leaders. Moreover, a change in the leaders’ policy priorities (let alone a change in leaders themselves) threatens to put an end to these projects and programs (as happened with the Skolkovo project) or at least put a large question mark over success stories (as happened with the Soviet space program).
One of the central problems of the politico-economic order of bad governance in Russia is the lack of incentives for long-term development among political leaders. As I noted in previous chapters of this book, their time horizon is limited by the terms and conditions of personalist rule and by the risk of losing power, while the chances for dynastic succession are low,38 and this is why political leaders tend to behave similarly to “roving” rather than “stationary” bandits.39 In doing so, they choose those policy priorities that may bring quick and visible returns accompanied by a number of demonstrative effects, even at the expense of achieving long-term strategic goals. This approach may contribute to policy successes in some fields but decreases the chances of successfully implementing policy changes in other areas. The experience of Russia’s policy reforms in the 2000s (analyzed in chapter 4) and subsequent implementation of strategic policy programs in the 2010s40 suggests that while the incentives of political leaders are oriented toward short-term successes, these incentives also affect policy entrepreneurs.
Top managers and major implementers of key state projects and programs, even if they are willing and able to improve performance in their respective fields, are not sure that their intentions will be implemented given frequent personnel replacements, the ever-changing formal and informal rules of the game, and the shifting priorities of the political leadership. These circumstances also determine the incentives for would-be policy entrepreneurs. At best, they invest major efforts into short-term projects with limited reach at the expense of long-term outcomes and consequences, or in the worst case, they prefer personal enrichment over the developmental success of their sectors, organizations, or territories. The problem of creating an appropriate set of incentives to shape the behavior of state officials remains unresolved as the political-economic order of bad governance in Russia places a large question mark over the incentives. Unlike Russia, present-day China provides certain incentives for policy entrepreneurship among top-and mid-level bureaucrats. Such incentives are provided by the institutional systems for career advancement of the Communist Party’s regional leadership based on performance evaluation, including interregional mobility of personnel and such major prizes as chances of obtaining jobs in the Central Committee. Chinese provincial officials have to put effort into the successful socioeconomic development of their territories, while their fierce internal competition for career advancement diminishes the risks of systematic misreporting and fraud given the mutual policing among bureaucrats.41 For Russia’s regional leaders, however, the incentives are rather different—as Ora John Reuter and Graeme Robertson convincingly demonstrated, Russia’s governors more often lose their jobs for poor political performance and failure to deliver votes than for poor economic performance in terms of developing their areas.42 To summarize, if a Chinese regional boss may achieve success by building new roads and hospitals and combatting air pollution, his Russian counterpart has to inflate voter turnout and crack down on regional protests. These different incentives aggravate rent-seeking behavior in Russia and are hardly conducive to development; in a sense, they also underline the inefficiency of electoral authoritarianism in Russia compared to its hegemonic version in China.
It is no wonder that incentives for policy entrepreneurship in Russia are so heavily distorted, and not only due to insufficient positive incentives for improving policy performance and limited chances for upward career mobility in the public sector. The effects of negative incentives, driven by the set of formal and informal rules of the game and practices of their enforcement within the framework of the “overregulated state” in Russia,43 are even more important in this respect. The combination of high density and low quality of state regulations in various sectors and policy fields on the one hand, and of its arbitrary and selective enforcement by the state apparatus on the other, is inimical to policy entrepreneurship. The Russian state reasonably expects that without top-down pressure the lower layers of the power vertical will not invest enough effort to effectively implement state policies. This is why the government delegates wide-ranging and sweeping powers to regulatory agencies responsible for monitoring and auditing any organization in various sectors. Furthermore, the government has established multiple indicators to report on and impose severe sanctions for noncompliance, at all levels of governance. In other words, instead of involving regulatory agencies in the activities of both state-led and private organizations only in cases of extraordinary misconduct (the “fire alarm” model), the Russian state has imposed comprehensive monitoring and tight control over all organizations (the “police patrol” model).44 To some extent, such an approach results from an overreaction by the political leadership to rent-seeking behavior of officials in the state apparatus and public sector. Its excessive conduct contributes to a major rise in agency costs, distorted practices of oversight and monitoring among various agencies, and the increasing dysfunctionality of courts, police, and other state organizations.45 These practices of the “overregulated state” provide incentives for overproduction of reports in many state and private organizations, and response to possible attacks from state agencies has even changed to be the primary function of their activities. The overregulated state stimulates top managers at all layers of the power vertical not to policy entrepreneurship and improvement of performance in their fields, but rather to risk aversion and avoiding possible punishment for any formal or informal violations of rules, which are highly likely in the case of development-oriented initiatives. This is why top managers do not aim to establish new pockets of efficiency without strong support and the patronage of the political leadership. The problem is that the number of beneficiaries of patronage is limited by its very nature, and the pool of potentially successful policy entrepreneurs is shrinking over time. Moreover, patronage is a necessary condition of success stories, but it is far from being sufficient. For example, the significant development of a major Russian bank, Sberbank, which greatly improved the quality of its service and performance, was a side effect of the appointment of German Gref, a close ally and trusted expert of Vladimir Putin, as its CEO.46 At the same time, chapter 2 presented the case of another close ally of Putin, Vladimir Yakunin, who upon being appointed as CEO of another major Russian company, Russian Railways, changed the company strategy and turned it into a major channel for rent extraction. The strengthening of the hierarchy of the power vertical has contributed to the fact that the investment of resources into the projects lobbied for by several top managers has brought insufficient returns and/or resulted in a massive misuse of funds. As a result, these tendencies make the power vertical even more stable and rigid at the expense of developmental goals.