A number of events in 2008, including the outbreak of the global and Russian economic crisis, the war with Georgia and amendments to the Constitution, have had a dramatic impact on the status and dynamics of the core of the institutional environment – informal rules at a high level. In order to assess these changes, one should first characterize the general context of the fifteen-year drift of Russia’s constitutional institutions and then explain how conditions have changed and how the choice of values impacts the real prospects for Russian modernization and what kind it will be.

CONSTITUTIONAL INSTITUTIONS: AVAILABILITY AND DEMAND

A social contract is not a swap of liabilities; it is an exchange of expectations concerning rights and freedoms and it is rarely formally expressed. A social contract regulates informal rules at a very high level; the ones economists call supra-constitutional rules. A country may have a perfect constitution, but when formal rules clash with informal ones, the latter often triumph. As a result, whether or not a constitution will work depends on whether there is a consensus under the social contract.

What is Russia’s 1993 Constitution? It is the product of a compromise that was reached during a severe crisis bordering on civil war. It was adopted in a state of emergency and could not be the result of a social contract. However, several provisions in it were the result of compromises. For example, the Constitution includes values – goodness and justice – that we inherited from our ancestors. It also contains provisions for several institutions based on individual freedom, institutions of a social state, and institutions of the division of powers. This means that an attempt was made when drafting the Constitution to take account of the track Russia was moving along, as well as an attempt to leave this track and formulate a new proposal for democratic statehood.

Now we move over to the demand. It is important to remember that all well-established democracies today have passed through the stage of eligibility democracy, or limited voting rights, as the right to vote spread gradually among the citizens. None of the unstable democracies today have passed through the eligibility phase.

How can this be explained from the economic angle? Research shows that demand for democracy varies from one country to another depending on two factors: the level of material security and education. Why? Because democracy is a complicated and expensive thing, a kind of luxury item; and participation in its institutions demands much time and intellectual effort.

And what happens when demand for democracy is low? The 1993 Constitution provides for a democratic method of decision-making. If a person has a below average income and if that person makes a small contribution to the formation of the state budget, then he thinks it is rational to demand assistance from the state – that is, the citizens make a decision that someone should pay for public goods, thereby apportioning all responsibility to others instead of shouldering the burden themselves.

The seesaw starts to move in this situation – populist proposals alternate with bribing the electorate with monetary disbursements. Just imagine: a person who has never learned to drive gets a car as a present. Then it is quite appropriate for him to bargain away the car for a promise that the buyer will take him in that car into a bright future. In other words, this situation suggests either populist promises or the selling of votes. All systems of this kind suffer such illnesses.

All further logic of the development of Russian democracy after 1993 is an attempt to react to the low demand for democracy and the seesaw emerging from this situation. A number of solutions were possible for Russia in the past fifteen years, but the country experienced two constitutional crises: proposals to amend the Constitution in 1995-1996 and 2007-2008 and the ensuing public debates. Remarkably, the aftereffects of the latter crisis are still lingering. Also, Russia has seen two systemic crises over this time – the financial default of 1998 and the Yukos case, rigged elections and a turn towards totalitarianism in 2003. How is this related to the problem of demand for democracy?

The 1995-1996 crisis was successfully resolved. The Constitution was preserved thanks to interference by the oligarchs, for which they would receive compensation in the form of shares-for-loans auctions. Thus the second option – investment in the election system – was chosen then. That decision was not the best possible one for two reasons. First, Russia had to pay for it with the 1998 default. It is important that the default was not a regular financial crisis that Russia would have emerged from by devaluating the ruble. In 1998, Russia faced for the first time clashing interests between two oligarchic cartels – the natural monopolies and banks. The latter feared devaluation, while the natural monopolies would benefit from it. The way out of the situation was to declare a default, to annul financial obligations, and to send the system of contracts down the drain.

Did the country have any other ways to bypass those crises? Russia’s case history provided evidence of a typical politically-oriented privatization. However, since the 1993 Constitution contained a compromise between liberal values and the socially-oriented state, it would have been much more appropriate to choose the social option – by keeping a high level of education and wealth as the foundation of a broad demand for democracy.

The 1998 crisis fueled a conflict between demand for and supply of democracy, and there was a struggle between monetary and administrative resources to influence democracy. Neither system is ideal for democracy, but monetary resources struggled in their own circle, while administrative resources acted as a monopoly. This brought to life a system of authoritarian government and managed democracy.

It was a reaction to the low demand for democracy that predestined a poor balance of forces. The supply of democracy decreased and continues to move downwards. Meanwhile, the supply of democracy is a factor of demand (in this context, the ten items for the development of democracy that President Dmitry Medvedev laid out in his state-of-the nation address in 2008 are quite symbolic as they signal a departure from the position that produced the poor balance). If people do not know how to drive cars, this does not mean that motorcycles or bicycles cannot be used. Similarly, the presence of problems in the national constitutional system does not mean there can be no local self-government. The U.S. experienced very much the same situation in the second half of the 19th century when the rich influenced national elections, but the Americans did not concede the election of judges and sheriffs because demand for such elections had grown substantially by that time and it continued to grow afterwards as well.

Strange as it may seem, managed democracy has grown into a major problem for the Russian government, as this type of democracy eliminates, among other things, the separation of powers. Feedback does not work in this situation, while serious reforms or transfers of power become extremely problematic. It is enough to look at how the crisis of clashes between the elites of 1999-2000 was untangled. The losers secured for themselves governors’ positions and a faction in the State Duma. When there is no separation of powers, there are no “branches” on which various elitist groups can “nest.”

A constitutional crisis took shape in 2007, marked by minimal demand for political institutions. There were personal guarantees in that situation, but the issuer of guarantees entitled by the Constitution had to leave the post. This is not a system of coordinates in which tasks are resolved. That was how Russia got a construct in which the shell remained in place and the president left but remained on the scene. The Russian Constitution remained unchanged in 2007 too, but the 2008 global financial crisis changed the conditions for making the choice.

In the summer of 2008, Russia passed a fork in the road that could have led to modernization. That turn seems to be no less important than the fork Russia passed in 2003-2004. This time it was another fork and yet another missed opportunity. Was there a real opportunity for modernization or were the signs of the thaw Russia saw in the spring nothing more than wandering lanterns?

THE EROSION OF THE RULES AND THE CHOICE OF VALUES

Let us now compare 2003 and 2008. The first division of Russia’s assets had been completed by 2003 and Russia had found itself at a fork in the road. Models built by Martin McGuire and Mancur Olson back in the 1980s show how the social contract is made. The state takes on the role of a “stationary bandit,” while the interest groups that are using the country split the assets. After the major assets are divided up, there is a question whether to launch a new division of property or try to devise a new system of rules so as to make the divided assets work. This question persisted in 2000 through 2002, but with the seizure of Yukos and the 2003 parliamentary elections the problem was resolved – not in favor of the new system of rules. The same McGuire-Olson models show that new rules are accepted only if no new “hungry” groups laying claims to big assets emerge. But they did emerge, and the game continued in a new cycle that ended in 2006-2007, after which Russia found itself at the same road fork.

The political construct that emerged in April and May 2008 showed that the problem had been acknowledged. While the Putin government was rounding up the division of assets, the Medvedev administration was building an agenda aimed at fixing the existing ownership rights. There were apparent signs that some were demanding a change in the rules, but the cycle flopped again. Why? Was it because new “hungry” groups emerged? Not likely. I daresay the causes were different.

In 2007, the crisis surrounding a third Putin term and amendments to the Constitution ended in favor of the Constitution. I think this came about because the domineering groups thought it was important to maintain the capitalization of their assets in Russia and – above all – abroad; the groups needed to integrate into transnational projects. By the summer 2008 all of this had lost its importance – the global crisis exploded and foreign assets could lose their capitalization regardless of whether or not Russia observed the rules. The redistribution game in favor of the rules of asset operation was not given up – it moved into new territory. It turned out that one could play this game in the international arena and continue to accumulate assets amid the erosion of the economic rules on the international market and the political institutions of the post-Yalta system.

One can hardly claim that the situation was designed by the Russian authorities – they have always upheld the post-Yalta system (this holds little promise of success, though, as too much has changed in the world in the more than 60 years since World War II). The West was the primary eroding power – Belgrade, Iraq and Kosovo had set a precedent for not playing by the rules. And what could work well amid a total absence of rules? – Russian bureaucratic capital, of course. These conditions were its natural environment, since a game without rules is a Russian national sport. This makes it clear why the domineering groups discarded the idea of a demand for lawfulness.

And why did the people at the bottom fully accept it? Opinion polls show that a very powerful patriotic consolidation of society took place during and after the Georgian war. In 2003, freedom as a value, which had played the central role in the 1990s (in spite of causing intense debate), gave way to the value of stability. As a result, an authoritarian regime was set up (reaction often comes after revolutions, and reactionaries have their own positive functions when they have to restore law and order).

What happened next? Stability began to ebb away. First, problems emerged with keeping inflation under control, then the level of savings started falling in Russia in February and March 2008 for the first time in eight years. While previously the public would save eagerly in the anticipation of stability, now they sensed the beginning of a departure from it – even before the blows of the global crisis, and a demand for other values emerged. Opinion polls showed quite distinctly that the value which had been second in importance – justice – was now foremost in people’s minds. Notably, back in 2003 it had become handy in manipulations surrounding the Yukos case and parliamentary elections. It appears that the demand for justice stands close to the demand for lawfulness (understood in this case as equality before the law) made by business and domineering groups. However, justice lost the competition – the choice was made in favor of the idea of a great power.

This is what really requires a thorough analysis. A patriotic consolidation on the scale that was seen in August 2008 had never been registered since the start of sociological polls in Russia. What does this choice mean? It really creates the basis for a change in the situation and influences the social contract. I will try to offer some analysis of how it can affect changes in internal relations and the prospects for modernization.

There is a well-known phrase by the political philosopher Nikolai Berdyaev: “From February to October 1917, all the parties and ideas imaginable marched past the eyes of an astounded Russian. And what did he choose? The same thing that he had before – a tsar and great power.”  This seems to have worked again: Russia elected a tsar in 2003 and state power in 2008.

Ethnologists and sociologists are right in saying that there is no longer any peasant community or a large patriarchal family in Russia. However, there are other institutions capable of relaying the tradition – cultural ones. Yuri Lotman, in his article The Contract and the Committing of Oneself as Archetypical Models of Culture, wrote that, unlike Western culture, Russian culture relies not on a social contract, but on personal commitment. It is true that modernization is pulling the social contract into Russian culture, but there is also the relaying of an archetype tradition through cultural institutions, above all, language. Let us take as an example the Russian word gosudarstvo, which means “the state.” Its meaning embraces not only the establishment and the government, but also the entire country. Hence, there is the general belief that the state can and must do everything. I think this is precisely a manifestation of the archetype of “committing oneself” as relayed by language. The notion of a great power as the highest value has several quite unexpected consequences: first, it alienates people from the state; second, there is a need to compensate for this alienation in an outward expansion of influence; and, third, it establishes limits for modernization.

About a year ago I came up with a somewhat debatable hypothesis that ethnic stereotypes are balanced by national values. The state is a sort of a conservation agent, a typical traditional value. Generally speaking, the state is perceived as a value only by new ethnoses that have survived an existential crisis and have faced the prospects of destruction. The Great Russian ethnos went through this ordeal too, but that was in the distant past, during the Mongol yoke when The Tale of the Downfall of Russia was written. From that perspective, the emergence of this value was natural then.
There are unexpected results when one regards the state as a value, not as an instrument. If the state is an instrument, it is natural to adjust it to the requirements of social evolution; and if it is a value, it is unchangeable. Paradoxically, this results in the alienation of society from the state and historical evolution has shown this to be true many times.

In this context it is useful to look at the expectations that people may have regarding the state’s behavior.

Let us take the attitude towards prisoners or bushrangers, for instance. Russians have treated them with mercy for centuries. If people in the U.S. find out that someone has escaped from jail, they take up guns and hunt the fugitives. In Siberia, people would leave milk and bread on their window sills for escaped convicts in the 19th century, because they realized that the prisoners would most likely not be guilty of anything.

Or look at the way people treat delation – Europeans view it as a way to defend their civil rights, but it is morally banned in Russia. Arseny Roginsky, a member of the Memorial Human Rights Center, says that no more than 6 percent of the arrests during the Great Purges of the late 1930s were made upon delation, even though Stalin demanded that the NKVD raise “the level of popular support.”

“Nihilism towards the law,” which is often described as being typical of Russians, does not reject the law as such; it disregards the norms promulgated by the authorities.
However, there is a reverse side too. And that is what people expect from the state.

First, the people have a permanent apprehension of possible expropriation. The presence of a vertical contract makes the ruler disinterested in seeing his subjects attain the maximum affluence, as this will strengthen their negotiating power and protest potential (political scientists call this De Tocqueville’s law), and that is why confiscation reforms are needed from time to time.

Second, embezzlement of state property is permitted. Here is a quotation from the Russian historian Yevgeny Tarle, who cited an anecdote from the economic rise of the 1880s. “A person comes to a high-ranking official and says: ‘I’ll give you three thousand rubles and not a single living creature will know about it.’ ‘Give me five thousand and feel free to tell anyone you like about it,’ the official says.” The current climate in Russia is no different. There are heaps of compromising documents on every official. So what? No one expects the authorities to stop stealing – let them stay away from killing. This is how a negative social contract emerges: the state assumes tax evasion by the people and the people assume embezzlement by state officials.

Naturally, efficiency and morality do not suit this kind of social contract very much; so the only positive vector is external expansion.

It is quite understandable why expansion suits the elites. But why does it suit the masses? The reason is that compensatory mechanisms become helpful here: expanding space while slowing down time produces a certain balance and provides some great emotional sensations. Also, expanding space increases the costs of control over every single unit in it, while pressure on these units decreases. Former competitors are included in the system of the rules that can be controlled by the empire.

Yet more important shifts occur at the level of values. A feeling of affiliation with a great power makes up for the absence of human dignity inside the country. Furthermore, it generates a feeling described by the Russian word volya, which means “free will” and “free expanse” at the same time – a value-related notion, but not the equivalent of freedom. Volya only involves freedom in space, a possibility of escape into the expanse.

Finally, linking authoritarianism with expansion creates harmony and positive expectations – an anticipation that the empire will get down to the business of modernization. The Russian poet Alexander Pushkin described this hope as “The government is the only European in Russia.”

INSTITUTIONAL TRAPS OF MOBILIZATION MODERNIZATION

Let us return to the prospects for modernization, as hopes for it may grow both with the public at large and in the rhetoric of state leaders – even in a global crisis.

What kind of modernization can there be given the choice of values like this? This is a modernization through mobilization that Russia has gone through many times. All these instances have had similar trajectories – a breakthrough with the aid of mobilization, the undermining of human resources and demobilization.

Here is where the problem of the “track” comes out into the open. A country makes a jump, hits the ceiling and falls down. The result gained is the same as in evolutionary development – not very good, but not very bad either. The problem is it is achieved through huge losses and disillusionment.

Now let us look at the mechanisms used to keep up this trajectory, taking the economy first. When the state fights for modernization, it uses its competitive advantages, since it is an organization that has relative advantages in the use of force – and this is a real advantage. But how can it be used in the economy? You can modernize it by way of mobilization – by relocating funds, people and property. Such methods prove efficacious at times.

This mechanism actually fuses state power and property that can yield positive results at some stages of development. The problem is what will happen in the future. Such a fusion implemented in the institutions of serfdom and tsarist autocracy made it possible to achieve a breakthrough through redistribution. But eventually it would undermine the human resource – the most flexible and hence the most vital element of the “breakthrough.”

Supersoft budgetary restrictions related to the fusion of state power and property make efficiency inaccessible in principle and the overuse of resources inevitable. This situation produces short-term growth and a mid-term decline, plus a need for demobilization. The latter can take various forms. Yuri Lotman was right in pointing out that Russia absorbed the idea of a social contract along with European culture. As the Russian nobility received their freedom in 1762, then it was important to free the serfs as well, albeit in 1861. The post-Stalin era saw several demobilization steps, as well. First, prisoners were released from labor camps, then the nomenclature was freed from the repressive mechanism, and finally passports were handed to farmers, which gave them a considerable reserve of freedom.

Each new step towards demobilization is accompanied by attempts – sometimes successful – to carry out a social and cultural modernization of the country. But why do efforts to go from demobilization to a different mechanism of development – that is, efforts to pull oneself out of the track and change the trajectory – always fail?

First, public action during periods of liberalization or democratization proves to be dramatically insufficient. The accumulation of social capital (i.e. the fostering of the norms of mutual trust) falls during reforms. This trust has a group structure based on isolated small clubs. Small groups that start to engage in the redistribution instead of the production of public goods rise faster than others. Broader groups spring out of negative stimuli, which intensify the growth of mafias or state machinery.

Second, accumulation of trust relies on values, but the search for new values is always accompanied by fake substitutions. A new state model is placed on the old pedestal – now it is Soviet power and then it is democracy. The form in which the state becomes a value does not matter. Democracy is not a value, it is an instrument. You can develop democracy somehow only if you understand this.

The state brought to the level of value attempts to formulate modernization objectives, and this explains why it succeeds in attaining not only extensive results along the way of modernization, but intensive ones, as well. All economists share an axiom suggesting that creative labor cannot be controlled. The fear of death is not decisive here – it is the factor of ideology that matters. Douglass North showed in his book “Institutions, Institutional Change and Economic Performance” that ideology is an institution of short-term or mid-term utilization. While the accepted set of values continues working, the well-known economic laws can be encroached on and a country can float against the tide.

Where does state power retrieve values from that form the ideology of mobilization? Remember that values are products of a nation as an active living organism. But in this case there is no active nation; there is an active state power. Where should it take values from? It should borrow them, and such borrowings may differ considerably: the modernizations carried out by Peter the Great and Josef Stalin differ greatly.

What did Peter do? When he saw the Netherlands, he realized that Russia badly needed Dutch practices. Peter found that they were complementary, and he solved the task in a radical move – by “stealing” Europe. He simply wedded Russia and Europe by inviting Europeans, and Peter himself married Martha Skavronska, who would become Empress Catherine I. This was an attempt to bring in modernization values. Some of them were actually introduced, like the values of European-style civility, education and work ethic. Yet this “marriage” turned out to be unsuccessful.

Russia still has a complementary relationship with Europe and a conflict of values, and this conflict is rooted in what Russia had during Peter the Great’s rule. Why? Because a child was born in that marriage, and this child was the great Russian culture. This culture had a carrier – the intelligentsia. Russian culture is both a matter of national pride and recognition. But it would be too far-fetched to claim that it is a value that governs behavior in Russia. Culture as such contains values, including some of them copied from Mother Europe. The closer people stand to culture, the bigger the measure in which they become the carriers of these values. In the meantime, the latter do not match the values of mass groups. Here is where the spiritual field splits.

And what about Soviet modernization? This was a marriage to Europe without a bride. It consisted in taking over European ideology, an alternative system of socialist values (social justice, universal education, international solidarity) and concluding a marriage amid complaints about the absence of a European proletariat that would be the most desired party in that marriage contract. And what happened to these values next? They worked for some time, yet the value of state power – Soviet power – remained dominant.

The achievements of that modernization were manifest in the general literacy of the population and a rise in the level of education, which produced a phenomenon that Alexander Solzhenitsyn labeled as obrazovanshchina (pseudo-intelligentsia).

The problem, however, is not confined to the quality of this product. The problem lies in a new split in the spiritual field. It differs from the previous one in that the educated community now has a restricted frame for conduct, as loyalty becomes very important – hence the problem of external emigration (to foreign countries) and “internal” immigration (within oneself). Yet the most deplorable fact is that when yet another demobilization occurs, it turns out that this class feels awful in conditions of freedom.

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Modernization through mobilization is a probable (especially if the global crisis brings about fragmentation and protectionist wars) but not an inescapable option. Shifts in the structure of the social contract persist and they may alter the terms for the choice of a strategy.

The formula of Putin’s social contract suggesting “stability for political freedoms” that has been observed for the past five years can scarcely be renewed. The projected duration of the crisis leaves little hope for a restoration of stability and people’s economic affluence within a timeframe acceptable to broad sections of the population. The spilling of the crisis from the banking and financial sectors over to the real sector and prospects for an outbreak of a social crisis will most likely eliminate some essential attributes of the previous formula, including the “virtual” and “tax-free” relationship between the state and the people. An urgent restoration of institutional mechanisms of interaction with various sections of society will be needed. The distribution of the crisis’ costs will raise the demand for justice and solidarity as potential values of a new social contract. A new hypothetical formula – “a just order in exchange for taxes and civil involvement” – may considerably increase the likelihood of an institutional modernization.