Explaining Bad Governance in Russia: Institutions and Incentives

Explaining Bad Governance in Russia: Institutions and Incentives

Policy Memo: 634
Publication Date: 01-2020
Author(s): Vladimir Gelman, Margarita Zavadskaya

(PONARS Eurasia Policy Memo) Why are some countries governed worse than others?
In particular, why is contemporary Russia governed so much worse than one would
expect given its degree of socio-economic development? As demonstrated in
numerous recent assessments, Russia exhibits many major features of bad
governance, including lack and/or perversion of the rule of law, rent-seeking,
corruption, poor quality of state regulation, widespread abuse of public funds,
and overall ineffectiveness of government. In 2018, for example, Russia ranked
138th out of 180 countries in the annual Transparency International Corruption
Perceptions Index. In 2019, the composite evaluation of the Rule of Law Index by
the World Justice Project ranked it as 88th out of 126 countries. According to
the World Bank, the average indicator of corruption control in Russia in the
period from 1996-2015 was -0.86 on a scale from -2.5 (lowest possible grade) tо
+2.5 (highest possible grade).

What are the sources and mechanisms of governance in Russia? Is bad governance
doomed to persist endlessly under authoritarian rule, or can the quality of
governance be improved over time by certain policies? Recent discussions
attempting to explain good and bad governance in various countries, regions, and
policy areas have been quite extensive. How can we place present-day Russia onto
this global governance map? And should we consider Russia as an outlier or,
rather, as a laggard vis-à-vis many other developed states? We argue here that
the Russian political regime provides insufficient incentives for good
governance, and that attempts to improve the quality of governance without
democratization will not ultimately prove fruitful.

Sources of Good and Bad Governance

Many scholars have sought to explain the sources of good governance and reasons
for its failure. Although the conventional wisdom among experts is that
authoritarian states are often governed poorly due to predatory political
leaders who abuse their offices for the sake of political survival, there is a
shortage of explanations for how effective and efficient governance can persist
under non-democratic regimes. Meanwhile, the real practices of governance in
post-communist Russia are more complex than one might expect judging by global
indexes alone. Russia demonstrates several varieties of governance, including
numerous instances of better-than-expected governance in various policy areas
and geographical locations. Certain policy reforms conducted in the early 2000s
had positive impacts on patterns of governance throughout the country. Many of
these, including some “success stories,” have been sustained over the last
decade. Yet many proposals to improve the quality of governance either failed
completely or were implemented partially and inconsistently.

At the macro-level of analysis, there are several major explanations for
varieties of governance, ranging from the powerful institutionalist approach to
the macro-level societal approach. These explanations tend to emphasize the role
of social capital, social embeddedness, and personal networks—all of which
impact levels of social trust—as major essential components of the quality of
governance. Overall, however, there is a dismal consensus among specialists, who
perceive bad governance in Russia as a long-term pattern that emerged in the
Soviet period (if not earlier) and continues to persist over time. At best,
scholars express some hope for the long-term effects of economic growth, which
may lay down favorable conditions for improving the quality of governance in
Russia some decades (if not centuries) from now.

Meanwhile, empirical analysis of changing patterns of governance in Russia after
the Soviet collapse requires a more in-depth understanding of the mechanisms and
drivers of changes in different policy fields. In times of institutional
changes, the effects of political leadership and policy ideas are especially
important. Nevertheless, some of the ideational approaches to patterns of
governance in Russia tend to portray them as a Manichean struggle between
technocratic policy reformers and rent-seekers, blaming the latter group of
actors for the building of “kleptocracy,” “crony capitalism,” and “mafia
states.” While the factual grounds for such criticism are often correct,
normatively-driven explanations of this kind are insufficient. The same actors
who endorse policies aimed at improvement of the quality of governance may also
adopt measures with potentially devastating effects on governance—Vladimir Putin
might be considered a prime example of this.

Uncovering Mechanisms of Governance in Russia

In theory, if rulers of any given country face little or no constraint, then bad
governance will be the norm, and good governance will be the exception. If and
when rulers’ time horizons are short, they tend to behave as Mancur Olson’s
“roving” rather than “stationary” bandits, governing their domain in a predatory
way. In contrast, good governance does not emerge by default but is developed in
response to major domestic and international challenges. Historically, these
challenges emerged as effects of international rivalry and/or from domestic
political pressure. Rulers need to improve the quality of governance in order to
mitigate the risks of foreign conquest or domestic power loss through
revolutions and civil wars. Nowadays, however, these risks are not as high as
they were in the past, thus offering authoritarian rulers a larger degree of
freedom in developing various mechanisms of governance. Still, not all modern
autocracies necessarily result in comprehensive bad governance, although
examples of authoritarian good governance are relatively rare. As summarized by
one bitter statement: “for every President Lee Kwan Yew of Singapore there are
many like President Mobutu Sese Seko of Zaire (now called the Democratic
Republic of the Congo).”

From this perspective, present-day Russia resembles neither Singapore nor Congo.
Russia’s authorities pursue ambitious developmental goals in various policy
areas and promote a number of state-directed programs and projects intended,
inter alia, to improve the quality of governance. The results of these
initiatives have been mixed. In our view, the contemporary Russian state has
failed to produce sufficient positive incentives for good governance for several
reasons.

First and foremost, widespread suspicions of top-level officials about the
behavior of their subordinates lead them to assume, almost by default, that
without strict control, the lower layers of the “power vertical” have no
incentives for improving their performance. As a result, legal frameworks, set
up by countless laws, decrees, and instructions, have contributed to the
phenomenon of the “over-regulated state,” which combines a very high density of
poor-quality state regulations with the sweeping discretion of regulatory
agencies and state watchdogs. Against a background of weak independent media,
professional communities, and self-regulation mechanisms, and in the absence of
electoral democracy, separation of power, and the rule of law, state regulations
serve as substitutes for other mechanisms of accountability. These practices are
not only very costly in terms of resources and agency costs, they also
contribute to further aggravation of the principal-agent problem. Mechanisms of
“manual control” cannot work effectively, therefore the top layers of the “power
vertical” are forced to rely upon a limited number of easily quantifiable
indicators that serve as targets for subordinates. In turn, the lower layers of
the “power vertical” consider these targets the major (if not the only) criteria
for evaluating their performance, and pursue the achievement of these goals at
any cost.

The second reason for the failure of incentives for good governance lies in the
electoral nature of Russia’s authoritarianism, which is heavily dependent upon
the political rather than economic performance of the “power vertical.” The
performance of regional and municipal authorities is judged by election results,
not by socio-economic achievements. Furthermore, state enterprises and
organizations perform functions of workplace electoral mobilization for the sake
of the Kremlin and its sub-national agents. The mechanism of accountability
within the “power vertical,” based upon prioritization of such political
indicators as “degree of popular trust in the president” in a given region, is
institutionalized. In other words, the delivery of votes can become a more
important task for Russian local governments than the delivery of local public
goods. Placing political loyalty above professional efficiency serves as the
Achilles heel for a number of authoritarian regimes, and Russia is by no means
an exception.

Thirdly, the focus on building multiple regulatory barriers as “sticks” against
the spread of bad governance coincides with a major shortage of “carrots,” or
positive incentives for good governance. A heavy regulatory burden coupled with
permanent risks of punishment for real or imagined legal violations, in the
context of increasing repressions against elites, puts mid-range officials in an
ambiguous position. Rank-and-file officials face limited incentives for policy
entrepreneurship aimed at improving institutional performance and may prefer the
preservation of the status quo as an instrument to avert these risks. The
excessive use of “sticks” rather than “carrots” may close the path to
improvement for institutional performance. Positive incentives (e.g. strong
reputations, official rewards, opportunities for upward career mobility) may not
be efficient enough for the promotion of good governance. The lack of
competition between agents for better performance only increases the
arbitrariness of evaluations within the “power vertical.” Thus, it is hard to
expect systematic cultivation of long-term incentives for policy
entrepreneurship and the promotion of good governance in Russia.

This constellation of factors diminishes possibilities for the advancement of
good governance. Is there any chance of improving existing practices of good
governance under the current political regime, or, rather, is this mission
impossible in the absence of major regime changes?

Countering Bad Governance in Russia: Imperfect Recipes

Russia’s top leaders are well aware of the country’s poor quality of governance
and often raise this issue in their agendas. They have offered several recipes
for improving the quality of governance, which may be summarized as a
combination of three major directions, or 3D—deregulation, digitalization, and
decentralization. However, these recipes, as well as their actual
implementation, appear to be imperfect approaches to countering bad governance.

Deregulation as an instrument for the improvement of quality of governance is
vigorously advocated by liberal economists. The problem, however, is two-fold.
Firstly, despite the loud rhetoric of state officials who have called for a
“regulatory guillotine,” the outcomes of many revisions of numerous by-laws and
governmental decrees are selective, partial, and insignificant as of yet.
Entrenched bureaucrats and special interest groups have few incentives to revise
the existing status quo. It is hard to expect that deregulation of Russian
education, public health, or academia will be effectively conducted by the same
actors who previously contributed to their overregulation and imposed dubious
practices of evaluation on them. Moreover, as deregulation remains a matter of
the discretion of regulators themselves, such efforts may even result in some
perverse effects such as “regulatory capture.” Secondly, deregulation can, at
best, reduce the risks for policy entrepreneurship created by negative
incentives within the “power vertical.” It cannot provide positive incentives
for the improvement of the quality of governance per se, given the lack of any
transparent meritocratic mechanism for rewards and career advancements within
the state structure.

Digitalization became a new catchword among Russian state officials and
technocratic experts in the mid-2010s. The advancement of “algorithmic
governance” is widely perceived as a mechanism for constraining the rent-seeking
aspirations of special interest groups, as well as for the improvement of the
effectiveness of government. Techno-optimists even consider online platforms an
instrument of accountability that may serve as a viable alternative both to the
“power vertical” and to representative democracy. The evidence, however, does
not fully support these optimistic expectations. Against a background of
isolationist trends and the obsession of Russia’s leadership with threats to
sovereignty, digitalization faces numerous political constraints, which have
contributed to attempts to “nationalize” the Russian Internet. Furthermore, the
government cannot resist special interest groups, which tend to adjust
algorithmic governance to serve their own purposes. This approach is hardly
compatible with the ideas of effectiveness and impartiality promoted by
crusaders of digitalization. In the end, algorithms and online services can
improve the quality of governance only if these mechanisms are complementary to
impartial and effective offline governance, but not if they are aimed at
substituting it.

Lastly and importantly, decentralization remains the most problematic part of
the current agenda, related to the consequences of the major political,
economic, and administrative recentralization that Russia underwent in the
2000s. Following this turn, most of the country’s regions and localities became
heavily dependent on the central government, and their autonomy was greatly
reduced. This is why many projects and programs, aimed at the advancement of
regional socio-economic development, are almost doomed to be very centralized.
One temporary solution is the creation of specialized political and geographical
areas that enjoy preferential treatment as well as a certain degree of
decentralization and deregulation granted by the central authorities.

Given the consequences of recentralization amid Russia’s sluggish economic
growth in the 2010s, only a handful of Russia’s wealthier regions, being
relatively independent from federal funding and driven by proactive leadership,
can afford their own large-scale development programs and major innovation
projects, such as the housing renovation program in Moscow. Most recently, the
Russian government has actively promoted projects on participatory budgeting and
other forms of public engagement across various localities. While critical
observers have dubbed these tendencies “participatory authoritarianism,”
promoters of participatory budgeting in Russia argue that even small-scale local
funding has promoted grassroots enthusiasm and offered local activists new
opportunities to improve their communities on the basis of joint responsibility
shared between municipalities and local citizenry. These controversies may
reflect a more fundamental issue of grassroots mass participation in the absence
of democracy: public engagement promotes good governance only by being
complementary to electoral accountability and separation of power at the local
level, but not by being substitutive to them.

Conclusion

The 4D solution, which goes beyond recipes of deregulation, digitalization, and
decentralization and puts democratization as the number one item on the agenda
of advancing good governance, remains beyond the current menu of Russia’s
authoritarianism. This is why all other recipes for countering bad governance in
the country may be considered at best partial and temporary solutions. Yet as
the recent experience of Ukraine suggests, even the democratization of Russia’s
political regime as such could not guarantee the diminishment of bad governance
within the country. Nonetheless, without major political changes, there is no
way to improve the quality of governance. Without these changes, Russia most
likely will be doomed to muddling through numerous pathologies of bad governance
while preserving certain “pockets of efficiency” in strategically-important
priority sectors and policy fields, selectively picking up good apples fallen
from the bad trees of ineffectiveness and un-rule of law. The question is to
what extent these pathologies of bad governance could turn into chronic
diseases, not curable under any treatment, and whether or not the “vicious
circle” of bad governance in Russia may be broken in the foreseeable future.

Vladimir Gel’man is Professor of Political Science and Sociology at the European
University of St. Petersburg and Professor of Russian Politics at the
Aleksanteri Institute, University of Helsinki.

Margarita Zavadskaya is Research Fellow at the European University at St.
Petersburg and Postdoctoral Researcher at the Aleksanteri Institute, University
of Helsinki.

www.ponarseurasia.org/memo/explaining-bad-governance-russia-institutions-and-incentives