We're in for a wild ride. Exponentially accelerating technological, cultural, and socioeconomic evolution means that every year will see more developments than the previous one. More change will happen between now and 2050 than during all of humanity's past. Let's explore the 21st century and ride this historic wave of planetary transition with a confident open mind.

Thursday, October 8, 2009

Putin Administration and State Building Patrimonialism

Getting reform, stability, and economic growth in in 2000-2008 period was only possible with Putin's methods

Vladimir Putin has come on the Russian political scene when the country was in a weakened state and not yet fully consolidated. Legalistic reforms to improve state effectiveness and economic grounding have proven difficult until Putin began to build and use client patron networks with Russia's power elites. This allowed him to finally stabilize the new country through centralization and at the same time reinforced the need to continue using and expanding the informal networks of power. The byproduct of this was Russian state's return as key player in domestic industry and emergence of new class of self enriching bureaucrats who rely on interpersonal connections for advancement rather than well defined regulation. Russia began to be seen in the West as a less free country due to increased role of the state but it did not impede business opportunities and its attempts at bringing traditional patrimonial relations into the global scene. The tensions between modernity and ancient ways of getting things done might bring a new wave of destabilization in the near future.

The Russian Federation has just completed its second transfer of power this year, as President Vladimir Putin has stepped down in accordance with the constitutional limit of two terms. At the end of his second term the legislative branch and the judiciary have been subordinated to the Kremlin and amount of elected offices has been dramatically reduced. This concentration of political power in the executive, along with selective assertiveness of the state over private businesses such as television stations, has nudged Russia's assessment from partly-free to not free, as reviewed by Freedom House International in 2005. The change under the Putin administration is illustration of government's inability to work outside of Russia's traditional patrimonial way of conducting effective politics.

Existing literature on the resurgence of the state throughout the 2000-2008 period largely clusters on four broad challenges that the administration faced. One is the complicated center-periphery power struggles between the Kremlin and the numerous localities within the Russian Federation. This is framed within the context of Russia being a new federal country trying to function under strenuous conditions of poverty and war, while trying to balance the needs of Kremlin with regional desires for autonomy. The second challenge consists of an evolving struggle over property, primarily resource-rich national assets such as gas and oil infrastructure. This struggle involves newly empowered private entities and the historically dominant state. The third is one of self-interested bureaucratic factional competition, ending with the security services winning and rapidly expanding their influence over society under the Putin administration. Finally, there is the challenge of Russia being an energy-rich country trying to develop, while trying to avoid the danger of over reliance on energy exports. This is complicated by threat of political stagnation and elite enrichment, much like in other energy exporters such as Saudi Arabia and Venezuela.

A pattern that I saw emerge, from these four problems facing Putin, is the significant role of informal networks of interpersonal relations in accomplishing objectives. Like numerous Russian leaders that preceded him, Putin has built his authority using a system of patronage that leads back to him. This type of system, patrimonialism, is one where the political center is organized around the division of spoils such as jobs, economic aid, access to resources, and legal privileges, and where factions are played against each other with these spoils to prevent real opposition from crystallizing. I will divide this paper into four sections, each dealing with a problem that faced the administration, and see how Putin tried to mitigate each problem using patron client relations. The President has restructured the already existing relations to fit his purposes better. Patrimonialism is the chosen concept because it is the preferred way of doing business in Russia due to the long despotic tradition of the ruler being the supreme land owner. For hundreds of years there were no autonomous groups below the Tsar but classes of people serving as instruments of implementing the Tsar's will. These people had to be dealt with on a personal level in absence of rule of law or feudal contractual obligations.

Structural Framework of Center-Periphery Relations: 2000-2008

Conditions at the Start of Putin's First Term

Upon assumption of office, Vladimir Putin found himself at the head of a rather impotent federal government that followed years of Yeltsin-era policies which devolved substantial amounts of power to all eighty-nine of Russia's regions. This was due primarily to the inability of the Kremlin to properly finance regional projects and services, which prompted the regions to look after themselves any way they could and become more autonomous. The federal government was very weak from a lack of internal cohesiveness, influence from particular external interests, poor delivery of basic goods and services, and a declining ability to coerce compliance. One solid example of a region defying the Kremlin was the resource rich Muslim republic of Tatarstan, which issued its own passports, was able to pardon prisoners, and refused to send its young men to fight in Chechnya. Like many regions, it was run like a fiefdom with the local president, Mintimer Shaimiev blatantly appointing family members to political posts and refusing to privatize local economy in contradiction to Kremlin's wishes.

The Kremlin's paralysis in power projection over the localities had its roots in early Soviet efforts to rapidly consolidate the new Communist state. Soviets created their own local patron client networks of personalities that rewarded each other for ideological loyalty. The Center's capacities have suffered ever since from increased costs of monitoring and enforcing in such a corruption-stimulating environment. The country's fragments were stronger than the receding links holding them. Following the Soviet collapse, the structure of the local governments was not scrapped or reorganized like in Poland, former GDR, and Hungary, and many regional leaders were Brezhnev-era holdovers intent on consolidating devolved power. Yeltsin era federalism did not result in power sharing between Moscow and the regions as intended, but instead led to constant local obstructionism, economic hindrance, and the prevention of the formation of mass national parties focused on issues and not individual personalities. The informal self created norms by which sub-national political units had operated in the 1990's (out of necessity and self-interest) became entrenched and were now impediments to legal national integration. Some regions even erected trade barriers to protect ruling alliances of local politicians and business. It was estimated that up to 75% of federal laws were successfully prevented from being implemented throughout Russia's remote areas.

Putin's Reforms

Immediately after his inauguration, Putin created seven federal districts with seven Kremlin representatives to overlook and reign in the outlaw peripheries. The concept of a strict vertical chain of power began to be used as Putin's appointed district leaders could now, in theory, overrule and punish democratically elected governors and presidents of regions for incompetence and criminal intent. The ongoing Chechen conflict at that time provided an additional justification - and sense of urgency - for Putin's efforts at reasserting central authority in the name of stability, territorial integrity, and suppressing anti-war activists, the media, and NGO's in the overall effort. In August 2001, Putin also set up a commission to reform the civil service with the primary goals of ensuring predictability and order in professional advancement and linking financial incentives to improved system of qualifications. This was a fight against regional units of patrimonial relations that weren't operating in Kremlin's best interest.

The Kremlin had suffered setbacks on nearly all fronts. Fears that Moscow wanted to go beyond normalizing federal power sharing by striving towards a more unitary state proved premature. Almost none of the allegedly corrupt regional leaders were removed from power, even those who were very obstructionist in the past. An example of a punitive measure that was taken was the transference of undeniably corrupt Yevgenny Nazdratenko from the Russian Far East to a relatively comfortable post as head of the Federal Ministry of Fisheries. The Kremlin seemed unable to muster the energy beyond sending a message of recentralization. The commission's work to modernize the civil service also ran into staunch resistance that, as early as 2002, Putin complained of foot dragging, infighting, and creative reinterpretations of the commission's suggestions. Another setback was two constitutional court rulings against regional term limits and powers of federal prosecutors. The Kremlin did not choose to challenge the court's decisions in a sign of retreat from initially ambitious plans. One success was the expulsion of regional leaders from the Federation Council (the upper house of Parliament) on the grounds that, as local executives, these politicians should not have a say in the legislature. They were replaced with nominated representatives. Even in this case, the governors were compensated with membership in a newly created advisory body called the State Council. For the most part, the project of overlaying tighter federal laws over the vast country had failed.

Putin's Patrimonial Solution to Reasserting Control over the Regions

The problem of pulling many heterogeneous cultural and political units into a national framework is one that many new underdeveloped states face around the world. For that reason, bureaucracy guided by patrimonial allocation of rewards at the national level may be very effective as an integrative state-building exercise. Russian history saw fifteenth century Muscovite rulers pursuing this approach to subdue territorial princes through land allocation.

The public outrage over the Beslan school hostage crisis, in which over a hundred school children perished in part due to poor coordination and communication between authorities, allowed the Kremlin to exercise control in a new way, and served as a pretext to completely abolish eighty nine elected regional offices by 2005. They were replaced with Kremlin-appointed posts. Interestingly enough, rather than removing many of the corrupt local politicians and replacing them with his own loyal cadres, Putin chose to re-enlist 22 out of 26 incumbents in 2006. This showed his switch in emphasis from reform to manipulation through control of job appointments.

The post-Beslan opportunism was more about sending a message and seemed to have stemmed from the frustration of the President in having to deal with headstrong and nationally irresponsible local elites. Just like Yeltsin before him, Putin realized that if he wanted to make political progress, his personalized power had to be balanced and shared with the power of the bureaucracy. The post-Beslan change of regional leaders' job security depending on Putin rather than local electorates had the effect of creating a more nationally integrated network of codependence. The results were remarkable with only 3-6% of the federal laws blocked from taking effecting at the regional level.

Evolution of Struggle over National Assets: 2000-2008

Putin's Use of the State for Property Acquisition: The Yukos Affair

The collapse of the Soviet Union unleashed an intense competition by a number of powerful actors over vast natural resources and Soviet-built infrastructure which was made more intense by very weak and constantly changing property rights. Although this competition has gone through a number of stages since the 1980's, my focus is on the later stages under the Putin administration that were made possible by the new bankruptcy law passed in 1998. It was hailed as a step to normalize property rights, but allowed debt to be used as an instrument for asset acquisition.

In 2003, Yukos, a large oil company headed by Mikhail Khodorkovsky, stood as an example of a large, independent private corporation that used increasingly Western norms and practices. Khodorkovsky himself had begun to get involved in politics and private promotion of democracy and political pluralism to create better conditions for his very successful business empire. This set him on collision course with Putin, as the President just finished subordinating unruly business-connected politicians and was not about to allow interference with his vision of stability from powerful private individuals. In October 25, 2003, Khodorovsky's plane was blocked by trucks of armed police and he was arrested in a manner of a dangerous criminal as well as sentenced to a nine year prison term. This development signaled an end to the confident flow of influence from the private to the public sector, or at least influence incongruent with regime's designs. Most of the powerful tycoons in the Russian Federation, the oligarchs, had acquired their empires under dubious means and thus were vulnerable to arbitrary punitive measures by the Kremlin if they fell out of line.

What stood out in the Yukos affair were the extra predatory steps that the Kremlin employed against the company, not just arbitrarily and retroactively enforcing the law but making unreasonable demands concerning debt, preventing Yukos from meeting them, and using courts to approve a major asset grab. This was exemplified by an announcement by the Justice Ministry that Yukos' main productive asset, the oil production complex of Yuganskneftegaz, was be sold off to pay outstanding debts even before the debt repayment deadline arrived. Other less forceful oligarchs with political ambitions got the message and threw their support towards the center much like their 18th century aristocratic predecessors. In return, they were allowed to intertwine and expand their wealth in parallel with government projects. The oligarchs became patrons rather than independent private actors and control over them was through Kremlin's decision on who gets to keep, lose, or expand their business ventures.

Fallout and Implications of Renewed State Assertiveness over Property

What is telling is that Yuganskneftegaz was forcefully sold off not to a private competitor and ally of the Kremlin, but directly to a state company, Rosneft, that paid under the market price for the shares. Re-nationalization was afoot in a rather crude way, and even Putin's economic advisor at the time, Andrei Illarionov, called it the scam of the year. The wedding of political power and financial wealth set Russia on a path to state capitalism and rapid accumulation of wealth by bureaucrats overseeing massive financial transfers. The use of incentives, such as opportunities for participation in state-guided business projects when dealing with powerful actors in society is a classic patrimonial method of breaking and co-opting potential opposition in the absence of the ability to deter all of them physically.

Acquiring a major energy asset was not completely smooth for the Kremlin and constraints on its freedom of action were exposed. Observers expected the number one state energy giant, Gazprom, to acquire Yuganskneftegaz and then merge with fellow state-dominated company Rosneft during the process of renewed nationalization. However, Yukos filed a lawsuit in Houston, Texas, complicating and delaying the Kremlin's acquisition plans. The Kremlin had to rely on murky financing and a different company, the completely state-controlled Rosneft, to make their buy so as to not unnerve Gazprom's shareholders and to prevent an international legal crisis. This demonstrated a key weakness within a patrimonial regime operating in a globalizing world. Unlike the relatively enclosed Soviet Union, the new elites living off the perks of working with the Kremlin have a lot of their fortunes invested abroad in banks, joint ownership in foreign companies, stock markets, and various real estate. They thus can be affected by foreign pressure and aftershocks from actions taken domestically.

The Kremlin exploited mass public resentment of oligarchs' influence and rapid enrichment in the 1990's as cover to eliminate one of the few large companies that was trying to become more transparent and presented an alternative way of doing business. A more open, Western way of running a large, influential enterprise in line with international standards became an unacceptable domestic challenge. The bureaucratic desire to remain in control of the direction of the private sector was successfully covered up by labeling the process as a fight against corruption. One independent patrimonial pyramid of behind-the-scenes influence was consumed by the national one that followed its own logic of expansion under Putin. This is not a new historical development in Russia as in 1900 up to 45% of all large modern enterprises of industrial production were either owned directly by the Tsar or indirectly through licensing.

The Rise to Dominance of Security Services in State Bureaucracy: 2000-2008

Early Reliance on Security Personnel for Reasons of Functionality

The beginning of what came to be a heavy presence of former security officials in the highest level of government began with Yeltsin appointing a former director of F.S.B. (Russian equivalent of F.B.I. that grew out of K.G.B.), Vladimir Putin, to the position of prime minister and hand-picked successor. Putin acquired the post through blind loyalty and dogged defense of Yeltsin when the former president was accused of corruption in 1999 by Parliament and the public prosecutor's office. Putin was a career bureaucrat and his relation to Yeltsin was that of a client to a patron and the rent he received for good work happened to be the highest position in the land. Yeltsin and his clan of supporters were disturbed by rising centrifugal forces of populism, a weakened state, and oligarchic influence and wanted somebody with a security background to safeguard their personal gains after the transition of power. Immediately after becoming the second ever elected leader of Russia, Putin granted Yeltsin and his family total immunity from prosecution.

Max Weber defined non-patrimonial bureaucracy as one with clearly defined spheres of competence subject to impersonal rules and regular system of appointments. The appointments that occurred in the first presidential transition period were complete opposite and that trend continued into the Putin administration. Friendship, trust, loyalty, and assurances of protection mark the reshuffling within Russian ruling networks.

It took a while for Putin to start getting used to his new role as the top power patron. This was demonstrated in his slowness to fully cut interpersonal ties to Yeltsin's former circle. By the end of 2000 however, Putin began to bring his former KGB colleagues from St. Petersburg into his cabinet. Some of them had persecuted political dissidents in the past. These individuals were from secret service and intelligence ministries and were dubbed siloviki (Russian for forceful people). The siloviki faction enjoyed the most trust and access to Putin in his cabinet compared to the other two factions, the technocrats and liberal economists. This was in part because siloviki were tasked with the most important function of the new administration - the consolidation of the president's power and the strategic analysis and resolution of impediments to it. The siloviki organizational hierarchy was a series of concentric circles with core, secondary, and tertiary layers based on control over resources and departments, seniority, and overall influence. The core has the closest contact with the President and thus exercises the most direct influence over national affairs. The enormous amount of spoils available to the core members, in terms of control over major enterprises, bribes, and political power, often lead to bitter friction among them needing the President as interpersonal mediator. In this fluid, precarious dynamic that is primarily dependent on one leader, the state as a concept disappears and is completely replaced by informal network right below the top ruler.

Siloviki Expansion During Putin's Second Term

Putin's reliance on security services to instill hard-fought stability had come at the price of security personnel increasingly marginalizing the liberals within the cabinet and becoming increasingly difficult manage. In classic patrimonial fashion this allowed siloviki to get ever closer to Putin and therefore to greater access in determining policy and control over resources and institutions. The current or former members of the force structures such as FSB, the narcotics agency, and other security networks control more than ten government agencies and have partially exerted influence over a few more. The president's only means of control over his own top officials became implied threat that access to his attention can be cut off for disobedience.

Tight informational control by the Kremlin makes it difficult to gauge the exact size of rents granted for proper behavior. Jobs with the government rather than the private sector are now seen as the quickest way towards personal enrichment. Traditionally this has been the case as one foreign observer in imperial times remarked how Russian nobility stand apart from their Western counterparts in that they had no interest in agriculture and were eager to live in urban areas to enter public service.

The Dynamic of Current Top Government Structure

The combination of the above-mentioned factors creates a unique situation where one of the world's biggest security apparatuses is checked only by itself while it rules over a vast energy rich country in the process of finding itself. The collective body of officials in charge of the Russian state presently do not have their actions constrained by a well-defined ideology and are very pragmatic when defending their interests. In sharp contrast to the recent past, the post-Soviet Russian regime stands as one of the least ideological ones on the planet.

Max Weber failed to appreciate the degree to which bureaucracies struggle for influence, not just internally, but in the roles of political actors when possible as well.

The Russian Federation is a more modern patrimonial system where weak rational-legal tendencies co-exist within the shadow of large informal networks. Rules and regulations are followed as a form of default mode. The Kremlin does not obligate itself to follow the rules it lays for society at large. This leads to a constant flux of informal rules and behind-the-scenes deals that give the regime an arbitrary threatening feel as well as opportunities for massive internal infighting without regulation to channel power struggles. Russia, being a developing and technologically expanding society, exists in a state of tension as friction between modernity and patrimonial arrangement is irreconcilable. The practical need is too great for a system that tries to approximate Weberian bureaucracy of clearly defined spheres of competence subject to impersonal rules, rational ordering of relations of superiority/inferiority, regular system of appointments and promotion on basis of free contract, and fixed salaries paid in money. Putin has been able to contain his own people but not stop their enrichment. This remains a developing problem to be dealt with by the next president.

Energy Resources and their Use to Preserve the Patrimonial State: 2000-2008

The state has made the most consistent attacks on the private sphere when it came to the petroleum industry. In January 2004, the government decided to re-auction ExxonMobil and ChevronTexaco's rights to develop vast oil fields in the Far East and then moved on to prevent majority foreign-owned companies from developing major fields completely. Such moves may have been surprising to some due to continued presence of liberal reformers in Putin's cabinet at this time, but seizure of strategic assets did not go against Putin's character. His vision of a strong Russian state included part of the Soviet period and trappings, but without the collectivist economic system, which he rejected only in that it did not lead to prosperity.

Putin believes that private economic activity is the key to growth but that the state also has a major role to play to help Russia catch up with leading technological countries. Since Russian economic growth and ability to pay back international debts ahead of time was mostly due to high prices of gas and oil, taking direct control of these powerful assets conformed to Putin's idea of long term development and national revival. Perhaps more importantly, the state's control over energy infrastructure allowed Putin to get favorable treatment in international negotiations and use veiled threats of supply disruptions or investment denial to achieve national aims that would not be possible otherwise.

The state as the sole negotiator over key energy treaties, has allowed Putin to develop warm interpersonal relations with key heads of state such as Gerhard Schroeder, Jacques Chirac, and Silvio Berlusconi. That in turn allowed numerous bilateral agreements to be made promoting the interests of major Russian energy companies on a case by case basis. An interesting case study was when Chancellor Schroeder agreed to build a Northern European Gas Pipeline from Russia to Germany that bypassed all the countries in between. Gazprom, which was to provide the gas, then created a subsidiary company where minority German ownership was chaired by Schroeder after he stepped down from office. The subsidiary created an environment in which German interests had a direct financial stake and thus got persuaded to go through with the project. Geopolitically this makes Europe even more dependent on Russian gas exports, and highlights potential conflict of interest on the part of the chancellor. Although Europe is not political opposition to be played against each other, the high demand for energy supplies allows Russian leaders to use old patrimonial techniques on an international level to develop relations of favor exchange with the client states mingling their energies with Kremlin's. Since the Russian state maintains majority share ownership in strategic industries, the rent generation is geographically anchored in Russia forcing the more fluid western companies to deal with Kremlin on its home turf.

Russian investment abroad has followed similar patrimonial patterns and does not conform to liberal norms of integration as practiced by Western non-state affiliated companies. Moscow uses political connections for leverage and makes efforts to prevent international oversight of transactions and to stifle public transparency. This has a logic of its own since the domestic situation is a system of murky corporate statism in which power holders act as if they are the real legal owners and where the real owners are hidden and partaking with the power holders in joint decision making. An environment like that is difficult for western investors and businessmen to understand, operate in, and trust and thus it's best kept hidden. More importantly shining light onto the true functioning of the domestic structures undermines them and risks unraveling the very stability Putin fought so hard to establish. Attempting reform of entrenched client patron relations in Russia to integrate it into the world economy like a free market western state risks stability. Closing the country off poses same risk since further development and national/elite enrichment demands increased contacts with the world economy. That is an inherent contradiction that is also a major national threat.

This quest for political stability may explain the dynamic expansionist nature of the regime. The regime recognizes the risk of over reliance on energy exports and the vulnerability that comes with drops in energy prices, and it created a stabilization fund to mitigate potential shocks. As of today, the Russian state, like a man running downhill is strategically compelled towards finding trading partners that are also unhindered by preconceived values on how to organize society and do business. If it is successful in integrating the interests of its elite networks with those of other countries while maintaining lack of transparency and international accountabilty, then for the first time in history we will see international patrimonialism emerging which will co-exist with the free trading globalizing world. It may replace communism as a new Russian national export as well as preserve the regime indefinitely. Putin has been successful at the close of his term at expanding traditional way of doing business without facing too much international or domestic pressure to reform.


It appears that the ancient way of doing business through power relations within the Russian Federation is very difficult if not impossible to reform in a few short years. It is very possible that Vladimir Putin's energetic legalistic efforts in his first term were genuine attempts at ending the patrimonial inefficiencies and lawless self interested arbitrariness of Russian politics. If that is the case, Putin was up against insurmountable national force of habit and millions of intertwined resisting self interests from every sector of society. To be able to accomplish anything with any degree of success during his term in office, Putin subsumed himself to the very patron client way of doing things he was fighting against. The lasting achievement of the 2000-2008 efforts was to pull together scattered patrimonial regional segments of society into one personalistic pyramid of power which allowed Putin to embark on grand national projects. More research is needed on the types of local regime types that exist within Russia and their level of tolerance for liberalism compared to Kremlin's to see whether things have really become less free.

Serious extralegal abuses of power have occurred once Putin consolidated support and started acquiring strategic real estate for developmental reasons. It is unclear but unlikely that the value of these acquisitions became apparent after massive flow of oil revenue into the country boosted economy year after year during Putin's first term. Considering that the Yukos dismantling occurred right at the cusp of Putin's consolidation of power over the regions, it is more probable that as the administration was growing in confidence it became more likely to engage in statist measures. The lack of coherent long term plan or ideology in Putin's first term, emphasizes the improvisational approach that was adopted. Increasing wealth within the country gave the Kremlin more carrots to offer to political clients and thus get more support for various national projects.

A major and most likely unintended consequence of focus on stabilizing the country and the economy has been the take over of most of the key government ministries by former security personnel. The self enriching siloviki within Putin's administration are a wild card and are operating their own informal patrimonial networks that are better hidden than most. Putin has been able to play his cabinet members against each other but risk of instability exists whenever Russia acquires a weak ruler.

The role of the state in negotiating business deals abroad follows a long tradition of it being a main actor in ownership of national property and this demonstrates reluctance of letting go. Comparison of Russian way of doing businesses abroad to China's would provide a contrast in how traditionally mass land owning governments operate in a globalizing world.

Patrimonial ways of achieving political goals in Russia appear to be very effective and the more the clients are integrated into the patron's plans the quicker things get done. Whether the tension between the personalistic system and an open society in the western mold will slowly resolve itself or create bursts of instability remains to be seen.


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