A Road Map for Russian Reform
No. 3 2005 July/September


Russia is
once again witnessing an aggravation of political struggles.
Although this time it is not a struggle against the Communists, but
between clans – specifically between the clan of old oligarchs
(those individuals who acquired large chunks of property, including
mass media, during the privatization schemes of the 1990s which
allowed them to become directly involved in politics and running
the country) and the clan of new oligarchs (those who, following
Putin’s advent, acquired “law enforcement” clout and other means of
leverage for redistributing property, shaping policy, running the
country, as well as controlling parliament, the judiciary, media
and the electoral process).


The old
oligarchs – who replaced politics with behind-the-door intrigue,
manipulation, ballot rigging and corruption in all branches of
government, and ultimately delivered the incumbent president into
the Kremlin – are now trying to cast themselves as “democrats.”
Meanwhile, the new oligarchs, who are continuing the same policies
as their predecessors but in the interest of another group that
calls itself the “State,” are attempting with little success to
implement the so-called “authoritarian modernization.”


presence of “career liberals” on one side or the other – be that
public politicians hired by old oligarchs or economists pushed by
new oligarchs to prominent positions – makes no real


In setting
out to seize or maintain power, neither the old oligarchs nor the
new oligarchs formulate any socially significant objectives for the
country’s development for the next decade. They fail to
substantiate their status in the world, and lack a value system
that could enable Russia to finally find its own identity. This
compels us to revisit the issue of economic and political reform,
and present a new plan of action.




From the
first tentative attempts at social transformation in the second
half of the 1980s, known by the untranslatable euphemism
perestroika, until now, talk about “reform” and its urgency has
dominated virtually all political debate within both the political
elite and society at large. At the same time at least two
fundamental questions remain unaddressed, namely: First, what is
the essence of reform, the need for which is recognized by nearly
all active forces in society? Second, can the changes taking place
in Russian society be regarded as reform, or at least a preparation
for reform?


Not every
social change constitutes reform. First of all, reform –
‘reformation’ in the generally accepted sense of the word – is
basically a conscious, target-specific transformation of society
according to some coherent, well-conceived plan. This does not
necessarily have to be a plan in the bureaucratic sense of the
word, with deadlines and officials responsible for its execution
(although, in my opinion, there is nothing wrong about a detailed
elaboration of measures and steps for which I and my co-authors of
the ‘500 Days Program’ drew heavy flak). In any case, however, it
is vital to have a clear vision and understanding of ultimate
objectives, of what needs to be done, for what purpose, how, and in
what order of priority. Otherwise, the end result will not be
reform but just a series of changes, random or planned, occurring
without the participation of the political class or even contrary
to its intentions.


Even if
changes are brought into existence by design, according to a plan,
this is not sufficient to call them reform; there must be a goal to
modernize society, make it more advanced and responsive to some
positive, historically recognized goals and ideals. Otherwise, we
could just as well be talking about reform, for example, in Nazi
Germany, or Cambodia under the Khmer Rouge.


From this
perspective, there is no reform in Russia today. There are ruling
authorities who talk a great deal on reform. There are changes in
society. But there is no reform per se. The reason is because the
present authorities are not conducting any purposeful activity to
modernize Russian society or the State. The measures that they call
reform fail in principle to change the situation in the respective
sectors (military, administrative, judicial, tax, social service,
housing and utilities, etc.) from the point of view of their
modernization – that is to say, making them more effective and
targeted toward social tasks, ideals, and so on. In the best case
scenario, positive changes occur with passive acceptance on the
part of the ruling establishment, oftentimes contrary to the logic
of its activity and even in the presence of actual resistance to
the changes.


At the
same time, the need for social reform is becoming increasingly
pronounced. This may not be so obvious at the very apex of the
social pyramid, where the pursuit of private interests creates the
illusion of advancement in the right direction. At the lower and
even intermediary levels, however, the acuteness of social problems
can no longer be obscured by petty private gains or success




social requirement will be coming to the forefront despite a
worsening stagnation in society, which is leading to conformism and
evasion of active protest. For all the civic backwardness and
passivity of Russia’s main social groups, the establishment still
fails to enjoy a monopoly on political activism. Eventually, the
most discontented and dynamic groups within the socially and
economically active strata are bound to emerge with a new political
force with a positive agenda.


And then
the question will arise: What needs to be done to avoid a crisis
scenario and ensure that Russia’s economy and society enjoys
modernization? Another question is: How should Russian society
accomplish these tasks? Today, without waiting until crisis
strikes, there needs to be a road map for Russian reform that takes
into account both national and international characteristics, not
to mention the actual, as opposed to imaginary, capabilities of
Russia’s ruling establishment.


What needs
to be done? First of all, we must identify the ultimate objectives.
It is not possible to tolerate a situation where abstract slogans
of “greatness and prosperity,” or an amorphous and toothless
ideology of centrism, are replacing a coherent and consistent
concept about Russia’s future. It is critical to decide what values
will be propagated in a country whose past and present are full of
contradictions; what place will Russia occupy in a world that in
the foreseeable future – in 10 or 15 or 25 years – will remain
internally divided?


Whether we
like it or not, the reality is that the world remains extremely
heterogeneous: alongside those countries which make up the bulk of
the most valuable economic resources (above all intellectual and
technological, as well as financial and military resources), there
is, and will continue to be, a vast global periphery that is
deprived of access to most benefits that result from the use of
these resources. Russia, which is situated in the “gray zone,” has
only two paths of movement: either integrate into the core
capitalist economies (this path can conveniently be described as
the “European option” for Russia), or opt to be on the periphery. A
good case can be made for either options, but one thing should be
clear: There is no “third,” “Eurasian,” or any other “unique” path,
and there never will be. The fear of Russia losing some of its
sovereignty as an argument against it choosing the “European” or
“Euro-Atlantic” path is understandable. The only alternative,
however, is to accept a place on the periphery of international
processes. It also perforce implies a limitation of state
sovereignty – not necessarily on a formal level, but this
limitation is even more substantial since sovereignty and
independence only exist insofar as there are opportunities for
their realization. (The sovereignty of the weak and dependent is
like freedom without money: it seems to exist in principle but
actually cannot be enjoyed.)




If we look
at how the countries of the first group differ from all other
countries, we find that they all share a set of basic values –
above all, the priority of human rights, including property rights,
individual freedoms and a concept of social justice. The jury is
still out on which comes first – these values or economic
effectiveness. I personally believe that the truth, as usual, lies
somewhere in between. What really matters, however, is that while
admitting it would be counterproductive and downright foolish to
try to amend social relations in strict compliance with the above
values at one swoop, one cannot fail to see that without adopting
them as social objectives, as a guideline to formulating a
strategy, no reform as a means of modernizing Russian society is
possible. Modernization of the State without the individual,
without proclaiming and ensuring the actual priority of individual
interests, is bound to lead our nation to poverty and lawlessness –
that is to say, the exact opposite of modernization


Thus, the
first step toward real modernization, and effective reform as its
instrument, must be the adoption of such fundamental values as
human rights and freedoms; the individual’s right to property and
social justice; and the priority of law over considerations of
political expediency and self-interest on the part of the
propertied and power-wielding class. In other words, the rule of
law, civil rights, freedom and social justice must serve as a kind
of compass for the road map for Russian reform.


Next, we
must realize that true reform, which has yet to begin, will not
start from nothing. Russian society today is not tabula rasa – it
has its own history. Reform has a history of its own, too, and was
preceded by one-and-a-half decades of rather controversial
developments which evolved against the backdrop of the
pre-revolutionary Russian imperial and Soviet totalitarian
tradition. Therefore, before going ahead with reform per se, we
must weigh the conditions and, most importantly, draw a line under
the present period of Russian history with all of its political,
social, and economic consequences and implications.




First and
foremost is the question of power. Russia’s present ruling
authority (here I mean not only the head of State, but the entire
system of State governance on all levels) is a product of the past
one-and-a-half decades which experienced colossal political
upheavals (suffice it to recall the events of 1991 and 1993),
repeated breaks with political tradition, behind-the-scenes
dealings and the de-facto imposition of constantly changing rules.
Furthermore, the political establishment has been lying to society,
manipulating and juggling with concepts, and reneging on its
obligations. These factors necessarily affect society’s perception
of the State in terms of its legitimacy – even if not by directly
and publicly challenging the latter (such things are relatively
easy to control and keep in check), but through the public’s
skeptical, cynical and indifferent attitude to State institutions
and its readiness to subvert and sabotage any of their decisions.
At the same time, the political establishment fully inherited the
traditions of the past era as established by Stalin.


This setup
leaves us with a major, if not insurmountable, impediment to real
reform. For creative reform to have any chance for success, the
credibility of State institutions, the authority of law, and
respect for State decisions in general must be considerably higher
than they are now. In other words, government needs greater
legitimization by granting representatives of particular political
and public groups broader opportunities for accessing the levers of
governance in exchange for guarantees to respect the foundations of
the Constitutional system and the immutability of the principles of
state governance. Furthermore, it is necessary to adopt, on a
compromise basis, a package of laws that would curb the political
influence of big property owners (“de-oligarchization of the
establishment”). This may be achieved by sharply enhancing the
transparency of decision-making in the executive and setting
clear-cut rules that would not be subject to interpretation. This
would annul state decisions made in the interest of particular
groups or individuals in circumvention of the procedures
established by law, and hold perpetrators to account.




Second is
the issue of property – above all, the large property holdings –
that somehow materialized from the privatization of former
“socialist” property and which remains a source of major
controversy in Russian society. Obviously, the level of its
legitimacy remains insufficient to ensure the active participation
and cooperation of big business in the modernization process. On
the other hand, it is equally obvious that the issue of
legitimizing privatization, together with the evolution of property
relations, does not have a simple and unequivocal solution since in
this case the protection of property rights runs counter to
considerations of social justice – a major element in the social
consensus that is crucial for successful reform. This factor calls
for the adoption of a special package of laws.


The first
part of this package should recognize the legitimacy of
privatization deals (with the exception of those involving murders
and other felonies directed against individuals) and introduce a
one-time compensatory windfall tax. The amount and assessment of
the tax would naturally be the subject of another discussion. The
second part of the package should comprise viable anti-monopoly and
fair-competition laws, as well as laws limiting the concentration
of capital. The third part comprises laws on the transparency of
political party funding and the transparency of lobbying in the
State Duma and other bodies; laws on public television, and a
number of anticorruption laws, including sanctions against
businessmen, state officials, and Cabinet members who took
advantage of dubious privatization schemes in the 1990s.


Just as in
the case of state power, the issue of property rights should be
resolved on a compromise basis. It would, on the one hand,
guarantee the inviolability of the rights of property owners,
provided that they observe the letter of the law; on the other
hand, it would establish – in the interest of society – rules for
using assets that were acquired as a result of bureaucratic
privatization schemes – that is to say, through essentially
non-market mechanisms and procedures. These rules should be
differentiated (for example, rules for the turnover of such assets,
participation of shell companies or non-resident structures or any
non-transparent structures in managing these assets, etc.), and it
is important that they minimize the risks for property owners,
while guaranteeing the effective utilization of assets under their
control. Also, it should be possible to retain a certain level of
supervision over their use, as well as compliance with public


The same
principle should be applied to the legitimization of property
acquired not only in the course of privatization, but also with
substantial violations of tax legislation. The guarantee of
property rights to money and/or assets acquired by non-criminal
methods – but without payment of the appropriate taxes – may be
granted in exchange for some restraints on their use (obligatory,
if only temporary, transfer of funds to the Russian banking system,
payment of back income taxes with official amnesty on tax
violations, etc.).


In light
of the recent events in Ukraine, the term “de-privatization” has
been gaining currency. The situation there, however, is different
from the situation in Russia; Ukraine’s experience, however
positive it may appear, will not be applicable in Russia.

Yet a law on de-privatization procedure in Russia must be adopted
to establish mechanisms for the seizure of property from any owner
who has committed especially grave crimes – murder, for example –
to obtain it.




The third issue is the development of
arbitration courts as an independent economic and political
institution. Just as no sport can be organized without independent,
neutral refereeing, so the economic and political system of a
developed society cannot function properly without the institution
of independent arbiters – state and arbitration courts – that may
not be subject to any sanction on any grounds other than deviation
from the law in the adjudication process.


Russia’s judiciary system is a product
of diverse social relations. It is an institution that has been
operating by different principles for a long time. It employs
people who are accustomed to being dependent on powerful political
and economic interests as opposed to the principles of the law. It
would be utterly wrong to ignore this factor in planning any
reform, yet the total replacement of the law enforcement and
judiciary agencies is a technically and politically unfeasible
proposition. So it is critical that we seek to close the book on
the past and grant a kind of amnesty on the past “sins” of the
judiciary/law enforcement system. At the same time, however, it is
important to sharply increase the responsibility of these agencies
against any possible departures from the letter of the law which
must be regarded as serious crimes. This “amnesty” should, for
example, apply to judges for any wrongful verdicts they may have
delivered in the past. At the same time, a review system to
re-examine such verdicts should be put in place: their numerous
victims are still either in confinement or deprived of basic civil


Once the aforementioned prerequisites
are in place, the process of modernization reform may begin. Its
principal objective is largely self-evident and does not require
extensive commentary or substantiation. The basic lines and
principles of this reform could be as follows.




The primary sphere of a viable reform
program should be the institutional infrastructure of a developed

Just as in the case with basic values,
the question of what comes first – the high level of economic
development or the accompanying infrastructure; the base or the
superstructure – does not have a simple and unequivocal answer. The
process should of course develop simultaneously. It would be absurd
to attempt to build modern, progressive institutions and expect
them to operate effectively in a poor, stagnant society. Yet it is
just as absurd to hope that at some stage economic growth will
automatically lead to the creation of an effective and
incorruptible State apparatus, an independent and efficient
judiciary, armed forces and special (security and intelligence)
services worthy of a developed State; furthermore, every developed
state requires a modern education system, economic policy
institutions, government agencies designed to supervise the banking
and financial system, a fair and effective social service system,
etc. So the first priority on the agenda should be institutional
reform, which must become a condition for, not a result of,
doubling GDP and fulfilling other ambitious economic goals set by
the government. This applies in particular to the reform of the
civil service – not “administrative reform” with the latest
merging/breakup of government ministries and agencies with
attendant personnel reshuffles – but a real reform of the civil
service. This reform would work to drastically change the system of
incentives for civil servants, making civil service more attractive
for gifted, creative and energetic people, while significantly
raising the requirements for their qualitative and professional
integrity. In addition to significantly higher pay scales, this
reform should include the creation of a special system of social
guarantees for civil servants, which would include an effective
evaluation system, attractive incentives for career advancement,
and special clauses for the violation of clearly stated rules and
ethics. The operation of Russia’s civil service agencies must be
subject to strict regulation. It should also be made more
transparent and open to civil and parliamentary supervision.


The next priority is a far-reaching,
comprehensive reform of the judiciary. Once a line has been drawn
under the past performance of the judiciary branch, the degree of
its accountability for unlawful or wrongful decisions must be
greatly increased, as must be the responsibility for attempted
bribery or exertion of pressure on judiciary bodies, on the part
of, among others, the executive. The severity, and more
importantly, the inevitability, of punishment for any wrongful or
unlawful judicial decisions should far outweigh any possible
benefits or cozy relations arising from these positions, while
court rulings should preclude the domination by any one group of
interests or political force over another. At the same time, judges
should be granted fair and effective immunity. A smooth-running
judiciary mechanism to review wrongful verdicts delivered in the
past is another essential element.


Next, it is imperative to devise
mechanisms for the implementation of a host of laws designed to
counter corruption and organized crime. Today, it is obvious (and
this is borne out by the experience of other countries) that this
vice, especially such a long-neglected vice, cannot be rooted out
by ordinary, universal methods. To this end, it is vital to
establish duly empowered agencies, equipped with the requisite
tools and legal expertise, together with the responsibility for
their performance. The know-how and practical experience is out
there, as we have seen in other countries. The only element
required to set this process in motion is the political will.


Another highly important sphere of
institutional reform concerns mechanisms that would protect the
freedom of information, while at the same time enhancing
responsibility for abusing it. As in many other spheres, there is a
pressing need to devise clear-cut and unambiguous criteria for
limiting the dissemination of information and access to
information, on the one hand, and instituting liability for the
violation of the norms of law and professional ethics in using this
information, on the other. Otherwise society will never be able to
break out of the vicious circle of the non-transparency of
information where the media are used as political and economic
weapons. This vicious circle can effectively nullify even the most
promising of efforts to carry out political and economic


The next priority involves the long
overdue reform of the natural monopolies, as well as the housing
and utilities sector, which mistakenly or deliberately has been
only exposed to simple reorganization. The essence of this
indispensable reform – i.e., to ensure the openness and
transparency of the relevant structures and their exposure to
outside controls – is being replaced by endless discussions about
organizational restructuring (the merging and breaking up of these
structures, the creation of new ones, regrouping them and
associating them into holdings, and so on). This will hardly result
in the greater transparency of financial flows in the corresponding


Finally, reform of the social security
and pension system, as well as of labor relations, which are
designed to lay the groundwork for a modern and socially oriented
State in Russia. The importance of these reforms must not be
downplayed with references to the generally low level of incomes,
the State’s financial constraints, the specifics of the
“transitional period,” etc. I am convinced that the existence of a
robust socially-oriented State is not only a product of economic
development but its prerequisite: an employee without a safety net,
who fears an unexpected dismissal, financially devastating illness
and/or a poverty-stricken old age, cannot be a fully-fledged actor
in a post-industrial economy of the 21st century.




The second sphere of the proposed road
map should be a system of incentives for long-term investment and
complex, cutting-edge forms of modern economic activity. Today, I
need no convincing that excessive economic regulation is an
economic and social evil, a source of ineffectiveness and abuse,
and a cause of irrational business behavior and substantial decline
in economic growth rates. Still, it is equally obvious that the
provision of effective incentives to ensure the funneling of
resources and entrepreneurial energy into sectors that depend on
the use of technically and organizationally complex schemes,
presupposing long-term business planning and enhanced risks, and
therefore predicated on the State’s goodwill and the confidence
that this attitude will last, is a key to the evolution of a new
national economy and its competitiveness in the global economy. The
elimination of incompetent bureaucratic meddling is an essential
but clearly insufficient precondition for Russia to join the ranks
of the advanced post-industrial economies.


Another such prerequisite is the
existence of a large civilized business sector, not so much
independent from the State as interacting with the State. This
interaction would occur in areas where business’ competitiveness in
a global economy is directly contingent on the competitiveness of
the State, its ability to reduce long-term risks and protect
domestic businesses against the negative impact of non-market
factors. From this perspective, the creation of effective
mechanisms for interaction between State institutions and business,
the provision of positive incentives for the latter and
opportunities to adapt to the rapidly changing global economic
environment should become a separate and critical area of
accelerated modernization.




The third sphere of reform includes
substantial transformations in sectors that can and must provide
resources for future economic and social development. These include
education, science and research as a sphere providing the required
intellectual resources, and the state financial sector, which
provides the necessary capital. Discussion about the need for
serious reform in these sectors has been proceeding for a very long
time; the number of programs that have been drafted runs into the
dozens; yet the quantity – and most importantly, the quality – of
measures that have been implemented thus far is lamentable. As a
result, the status of these spheres, which are critical to future
development, is absolutely inadequate to the scale of the tasks
that are facing the country, and is already a hindrance to economic
development. It is also obvious that these spheres, due to their
intrinsic nature, cannot function or develop outside State policy
and should, therefore, be the focus of any modernization


Of course, the list of spheres requiring
the application of modernization efforts is not confined to the
aforementioned. Thus, political reform is a separate subject. Nor
has anything been said about the long overdue reform of national
security, foreign policy or health care. Furthermore, each of the
spheres that have been addressed calls for further detailing with
specification and breakdown by the tasks and measures needed to
fulfill them. Still, the bottom line is: The claim that the main
reforms are already behind us and now, to ensure the country’s
sustained development, they only require some fine-tuning and
resolution of minor matters is false from beginning to end. Reform
in the true sense of the word has yet to begin. A long and tortuous
path lies ahead. To get the reform process off the ground, we need
to come to terms with reality and demonstrate unwavering political


I also think that unless real reform is
implemented in a comprehensive way within the next five to ten
years, Russia will irretrievably lose the chance to become a modern
developed country, while disintegration trends, as was the case
with the Soviet Union, will become irreversible.