07.06.2009
Dynamics of a Social Contract
№2 2009 April/June

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.

*   *   *
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.