05.09.2009
Russia’s Modernization: At Another Fork in the Road
№3 2009 July/September

The need to modernize has become one of the most important
topics in the internal political debate in Russia in the past year.
Other important problems ranging from the quality of state
governance, to corruption, to the depth of the economic crisis and
to the prospects for democracy are discussed either as tied up with
modernization or in its context.

The intensity of these discussions is easy to explain, as the
state power has made a bid – at least verbally – to convert the
idea of modernization into a national development project for the
next ten to fifteen years.

FROM STABILITY TO DEVELOPMENT?

The Kremlin made an attempt to re-brand the mechanism for the
transition and continuity of power during the 2008 presidential
election. The term “stability” rapidly receded into the background
in official rhetoric, although it did not fully lose its sense or
meaning. Along with the very same continuity, stability turned into
a required – albeit insufficient – condition for a successful and
efficient transition of power and the further development of the
country.

In addition to those phrases about a markedly new stage, calls
for new challenges and tasks for the country began to sound louder
and louder. A development program for the period up until 2020 was
made public. It declared the customary goals such as economic
growth and boosting economic prosperity, as well as new ones like
diversification and structural reform of the economy along with
social modernization and changes in the structure of society.

The ideologeme of the four I’s – Institutions, Innovation,
Investment and Infrastructure – and projects for improving the
judiciary system, curbing corruption and eliminating “nihilism
towards the law,” which Russian President Dmitry Medvedev stated as
the priorities of his presidential term, do not have any close link
to modernization rhetoric, yet they embody a de facto full list of
the basic components of any modernization project.

It is not accidental, however, that we have to speak here about
the re-branding of the power transition process, since in the first
half of 2008 we witnessed only political declarations of the new
course, but no practical action. The declarations about the
importance of furnishing the country with a decade of rapid and
uninterrupted development and the very architecture of the Russia
2020 program sent clear signals that a changeover to a
modernization policy – if any at all – would be based on the
pattern of a gradual, durable and compromise-orientated strategy to
transform the former strategy of the maximum capitalization of
opportunistic benefits gained during the first decade of the 21st
century into a modernization plan.

Attempts are still being made to review this situation in the
traditional categories of Russian red-tape and clan policies. There
is a search for contradictions between Dmitry Medvedev and Vladimir
Putin and the interest groups linked to them. No one can deny that
such factors may indeed have an impact, and yet the surfacing of
the modernization rhetoric in mainstream Russian policies and the
use of this rhetoric by both Medvedev and Putin can hardly be
explained exclusively by a new style of intra-elite political
games.

It is very likely that Russia’s ruling tandem took a pragmatic
view of the very fact of the transition and renovation of power as
a window of opportunity to launch essential social, economic and –
to a much smaller degree – political changes. Along with this,
Medvedev’s first four-year term would be perceived as a “slow
start” of the new policy unfolding amid favorable economic
conditions and the continued accumulation of resources. As for the
final solution to the problems of power and the future destiny
and/or dynamics of modernization, it was put off until the 2012
election, when the final choice of the parameters of future
development could be determined by either Vladimir Putin’s return
to the Kremlin or Dmitry Medvedev’s continued presidency.

However, two vital factors – the five-day war between Russia and
Georgia in August 2008 and the ongoing economic crisis – have had
an impressive impact on the logic of the “slow start” – which the
Russian authorities must have initially put into the political
planning of the state power – and have made it practically
impossible.

In the new situation, the opportunities for modernization are
viewed differently and the range of assessments is very broad. Some
experts say that the process of forming a modernization coalition
by the elite and the public at large has become irreversible and,
consequently, the launch of the modernization project can and must
be brought forward. On the other hand, people who claim that Russia
has missed the opportunities for a real transition to modernization
policies, which it had in 2008, have their arguments as well. They
say the crisis and the new dangerous tendencies arising from it
(the further spread and increase of the role of the state in the
economy, the emerging prerequisites for a new repartitioning of
property in Russia, etc.) may throw the objectives of modernization
away. Thus it has been suggested that the window of opportunity,
which is slightly open now, is not opening further and might be
shut at anytime instead.

The discussion also includes other serious problems that affect
the assessment of modernization opportunities and specific plans of
action. Specifically, there are problems concerning the correlation
of economic and political aspects in the modernization strategy,
interconnection between and consistency of the economic and social
change, and development of democratic political instruments. Of no
smaller importance is the clarity on the issue that has a special
significance for today’s Russia: the correlation, volume and order
in which the tasks of late industrial modernization (the
re-industrialization and super-industrialization of the economy)
and the post-industrial innovative transition should be solved.

Still, the most critical issue remaining on the agenda is
whether the idea of modernization and its discussion (which
unfortunately may turn out to be endless) can turn into a real and
well-thought-out nationwide development project for the next
several decades. There is no doubt that such a nationwide project
can only be initiated by the state. Simultaneously, it should rest
upon a consensus inside the elite and in broad public quarters on
two issues. The first is recognizing that Russia has fallen behind
other countries and that this has to change, and that the
competitiveness of its previous development course has decreased.
The second is tapping realistic modernization objectives and the
fair price that all social groups and sections of the population
will be ready to pay for achieving them.

For Russia there are several vital clues to this basic and
multi-dimensional problem.

20 YEARS LATER… THE END OF THE POST-SOVIET ERA

Modernization as a search for new resources in order to achieve
rapid economic growth, eliminate backwardness and become
competitive has been a task for the Soviet Union and Russia for the
past 30 or 40 years at least.

The Soviet Union succeeded in becoming industrialized in the
1930s, albeit in an inefficient, socially destructive and
politically repressive way, but it shamefully missed the next
economic and technological transition in the 1960s and 1970s. This
resulted from many factors of the Cold War and the bipolar world.
Coupled with the arms race and the Iron Curtain, these factors
played the role of anti-modernization instruments in exhausting the
country. Those were weighty factors indeed, and yet it was the
Soviet system itself that made the choice in favor of the oil
revenues curse that is typical of an economy that relies on exports
of natural resources instead of moving towards modernization.

After the breakup of the Soviet Union, Russia spent the 1990s
and the first decade of the 21st century conducting a long and
painful test of numerous prerequisites for, scenarios of and
limitations on transition to a modernization strategy.

The stimulating potential of values like freedom, democracy and
the market that could be perceived as a resource for an accelerated
social and economic transition at the end of the 1980s and the
beginning of the 1990s was squandered rather quickly. The reason
was not so much the depth of the economic collapse and the social
crisis, but Russia’s economy and policies in the 1990s that were
defined as just a phase of a redistribution of power and property,
while strategic development goals moved into the background.
Privatization and market reforms lost their social legitimacy quite
rapidly.

In addition, an objective feebleness of the state, scattering
tendencies, a real danger that the country could break apart and
the importance of keeping up its integrity through bargaining with
regional elites and the practical use of force in the North
Caucasus all worked against the task of development.

Moreover, Russia did not have the two strategic policy lines or
basic points of an intra-elite and social contract that were
present in all Eastern European countries and in many post-Soviet
states at the time, or else they looked totally different in
Russia.

The Russians would perceive the breakup of the Soviet Union and
the empire’s disappearance as a painful collapse and not at all as
liberation. Moreover, the idea of modernization as Westernization
and a clear strategy for joining the West and the European Union
could not prevail because of Russia’s historical, socio-cultural
and political factors.

The transition to new policies starting in 2000 had a profoundly
echeloned social and political basis closely linked to the
dominance of the ideas and values of strengthening unity and
restoring the viability of the state. This transition envisioned
limiting redistributive competition between elitist groups; “the
pleasant revival of being a traditional superpower” on the
international stage and identifying the start of rehabilitational
economic growth and quality of life after the 1998 financial crisis
that had summed up an entire decade.

Nonetheless, the nascent signs of a simultaneous return to the
limelight of the tasks of development and modernization (that were
quite plainly seen in the so-called Gref program and resembled at a
certain point an exotic “catching up with Portugal”) became
blurred. The idea of accelerating the rate of economic growth and
doubling GDP remained the catchwords throughout the first decade of
the 21st century, offering a supply of figures instead of a
solution to a completely different task – understanding the
problems of economic development.

This accelerated growth model gradually evolved towards the
maximum benefits – in the political, economic and foreign relations
spheres – inherent in a natural rent-orientated economy dominated
by mineral exports. Domestic policy and social environment factors
(ranging from the start of a second wave of property distribution
and control over revenue to the social and political risks of deep
reforms) played a certain role here, as well as foreign policy and
the global economy.

A combination of favorable developments on international
commodity markets, a rapid global expansion of financial
speculations, the “beefing up” of corporate capitalizations and the
effects of energy geopolitics that intensified sharply after the
start of the U.S. military operation in Iraq in 2003, set the scene
for an increase in the government’s role in the Russian economy
(above all in the fuel and energy sector). The same factors made it
possible to accept the idea of an “energy superpower” as a
development strategy.

In short, there was a revival of strategic thinking concerning
development issues, but its formula remained bent on the maximum
capitalization of dividends in the rent-oriented economy connected
to mineral exports. This meant that there was a consolidation of
social and political stability of the consumer society, the
accumulation of reserves and an increase in the capitalization of
national corporations. There was also a possible expansion to
foreign markets and greater participation of state-run “national
champions” and businesses close to the government in the rise of
multinationals and the sharing of their profits; access to new
assets and foreign technologies; and expansion of opportunities for
political influence in individual countries and regions.

However, the economic crisis in 2008 has considerably changed
views on the prospects for development. The elites now emphasize
the low competitiveness of the economy, the failures in economic
reform and diversification, and Russia’s strong dependence on
foreign markets over the past decades. Taken per se, these factors
do not make transition to a new development strategy and a
modernization scenario mandatory, though.

Still, the current economic decline may mark a watershed that
could bring an end to the long and intensive period of Russia’s
post-Soviet development.

This period not only saw the downward slide of the economy into
the pitfalls of the 1990s and its subsequent re-emergence, but also
its shameful de-industrialization and an increase in dependence on
imports and on the export of raw materials. The opportunities of
the rent-oriented model of development waned and a cycle of a rapid
and sporadic democratization began in the political system. This
was followed by a post-revolutionary reaction and restoration of
state-controlled centralization. Transitional processes filled the
social sector. They were marked by generational shifts in the elite
and society and the exhaustion of reserves accumulated in
education, public health and science back in the Soviet era. Russia
became accustomed to living in the consumer and information
society.

This period is over now and the very awareness that the Soviet
phase of history has ended, while the exploitation of the
tapped-out economic, social and even political resources of the
past is not possible anymore, may play the role of an important
stimulus for accepting the idea of modernization and working out a
relevant national project. In this sense, the upcoming years will
not be post-Soviet anymore, as they will determine Russia’s
development for decades in the future. Furthermore, they will
furnish us with new definitions and characteristics of today’s
Russia that will not have the “post-” prefix.

THE POLITICAL CONTRACT FOR DEVELOPMENT

Many researchers believe that democracy follows in the footsteps
of prosperity; that is, democracy matures and becomes steady once
its per capita GDP hits a certain level.

Frankly though, this GDP-centric approach to modern economics
and politics is losing some of its popularity among scholars today,
since it is impossible to draw a direct and unequivocal line of
dependence between a country’s democratization and the size of its
GDP per citizen. Nor is it possible to state unconditionally
whether democracy speeds up or slows down economic growth. More
than that, the so-called resource-intensive economies have a
specificity which, according to economists Jeffrey Sachs and Andrew
Warner, may put the brakes on economic and political development.
In the final count, much depends on the stage of development when
the country discovered the wealth of resources for itself and the
type of political regime it had at that moment.

Still, there is an old thesis by Seymour Martin Lipset that a
rich country has a better chance to build a stable democracy that
will reproduce itself. Adam Przeworski and Fernando Limongi showed
in a number of research works at the end of the 1980s and in the
1990s that democracy is rarely defeated in countries where per
capita GDP is higher than $6,000.

One way or another, the Russian authorities still find that this
approach is twin to their own ideas. After all, for many years the
country has lived under the slogan of doubling GDP and, as for
political development, Russians have always believed in its natural
slow pace and gradualness, saying the things that are destined to
happen will happen anyway.

For instance, Russian policy has been sending out quite a few
democratic signals, as measured improvements have been achieved in
electoral and political party legislation. The authorities do not
rule out that the vote threshold may be lowered in the future.
Moreover, the fact that the political system should become more
complex and rest upon high-quality institutions has both been
recognized and declared as an objective. Russian officials stress
that the rise of a rich information society (together with the vast
penetration of the Internet and digital television) will boost the
future technological expansion of democracy and freedom of
speech.

Dmitry Medvedev’s campaign statement that the country needs a
decade of steady, rapid and unabated social and economic growth
clearly stands behind this picture. If this turns out to be true,
the Russia of 2020 would certainly be a democratic country with an
annual GDP of around $30,000 per capita, the middle class would
account for 50 to 60 percent of the population, and Russia would
have a diversified innovative economy, not one pegged to rent or
resources.

So the only thing left to do was to wait and see the strategy
materialize and genuine democracy flourish at the appointed hour
owing to objective circumstances. Yet the financial crisis erupted
right at the time when, according to the above-mentioned view on
democracy, Russia was in a zone of uncertainty with its GDP at
$13,000 to $14,000 per capita. It appears that even though an
irreversible and steady democracy seems to be at the threshold, far
from everything is preordained and the authoritarian tendencies may
be fairly strong.

Moreover, it may take a long time to emerge from the crisis and
the rate of economic growth will likely remain slow for quite some
time, while the uniquely advantageous market situation of recent
years will scarcely be seen again for decades. All of this only
means that Russia may have to stay in this zone of uncertainty for
awhile. Quite understandably, however, it is much better to pass
through such periods quickly or at least avoid getting stalled
there, as stalling creates additional political risks.

The latter is even more important considering that the economic
boom and an almost accomplished doubling of GDP in the first decade
of the 21st century took place in the framework of the very same
resource-intensive economy and rent-targeted/distributive policies
that have a traditional tendency towards authoritarianism and
create additional complications for translating modernization plans
into action. From the political point of view the current situation
in Russia reveals two key problems.

The first problem is fairly obvious. A part of the elite
considers the upkeep of the previous rent-oriented model after the
crisis as an acceptable and, more than that, a preferable
development scenario. Before the crisis all the calls for
modernization came up against impressive inertia. It is possible
even now to emerge from the crisis by going astern and the ongoing
discussion about the role of the state in the economy, state-run
corporations, the priorities of economic modernization, the role of
the energy sector and the future bolstering of innovations thus
turns out to be a discussion of the future of democracy.

The second problem is closely linked to the first. The elite –
and society in many ways, too – is split not only into ardent
proponents of modernization who necessarily call for a democratic
way of development, and strong advocates of natural resource
revenue who abide by more authoritarian ideas with regard to the
prospects for political development. One can find adepts of a tough
authoritarian modernizing arm (an approach having a profound
tradition and broad practice worldwide), as well as supporters of
broad democratic procedures for redistributing natural resource
revenue. It is the latter group that is quite capable today of
speaking out in favor of rapid democratization because it has been
pushed out of the crowd of fighters for the earliest possible
access to the distribution of resources.

The presence of these two problems pushes to the foreground of
public discourse the content of the so-called social contract as
concerns the prospects for Russia’s development. This discourse
started a long time ago, but it overshadowed the actual existence
of two separate contracts.

The first one was indeed concluded between the powers that be
and the population, or the so-called Putin majority. The parties
signed it at the beginning of the 2000s, bypassing a large number
of elite groups. It enjoyed mass support and had a high public
ranking. The state (that is, supreme power) thus got a legitimately
high rating so as to pacify the elite, the nobility of our time. In
the light of it, the majority of the public took a generally
encouraging stance on the infringement on the powers of regional
elites and oligarchs.

A supplementary agreement to the contract concerned the
country’s growing prosperity. It was drafted in the recent fat
years and it envisioned the exchange of political rights for a
better standard of living. This is not surprising. Given the very
low level of trust that Russian society has in market institutions,
economic and political competition, the main demand to supreme
state power remains a paternalistic one. It boils down to a high
degree of nationalization of natural resources and their further
public redistribution so that the elites would not have a chance to
use the tool of “democratic dough-chopping” and thus deny the
public access to profits from rent revenues. Whether or not much
has changed in this sphere during the crisis remains an open
question.

The second contract was signed by the supreme state power and
the elites. Drawing on mass support from the people, the government
demanded a high level of loyalty from the elites in exchange for
giving them a free hand in the administrative market (representing
a symbiosis of power and property held together by the corrupt
practices of converting one into another). The contract opened the
doors to the elites for grabbing, “dough-chopping” and “fronting
for interests,” thereby providing for their own prosperity.

Those who did not swear their loyalty or withheld it later
destroyed their opportunities, while the rest of the lot –
bureaucrats, businessmen and regional chieftains – continued to
make their careers. Quite naturally, this went hand-in-hand with
the redistribution of power and hierarchic positions. Take, for
instance, law enforcement agencies – guardians and inspectors of
loyalty – who clearly raised their status and felt pretty good in
the markets of power and property.

All of this highlights the importance of revising, first and
foremost, the intra-elite contract and uniting the supreme power
and the elites in a new pact. Loyalty alone is not enough for
modernization, as the latter requires a different degree of
efficiency, competence and ability to act on the part of the
elites. Furthermore, the paradigm of the convergence and permanent
transfusions between state power and property creates a perfect
environment for simple operations like addition, subtraction and
division, but not multiplication, which means the creation of
something markedly new and more qualitative.

However, this intra-elite contract should envision
self-containment on the part of the elites, too. The latter can be
discussed and reached in the form of a slow evolutionary movement
(it stands in line with the idea of cultivating an “inner culture”
in the elite, which Dmitry Medvedev has said on a number of
occasions), or an amassed rapid “coercion of the elite.” This
tradition has much deeper roots in Russian history than the former
one. It has taken the form of Ivan the Terrible’s oprichnina
(purges with the aid of the tsar’s personal bodyguards), Peter the
Great’s forcible Europeanization or Stalin’s repressions. But the
political and social costs of this approach are unacceptable today,
while the evolution strategy may take too much time to
implement.

It is obvious that a search for a compromise and the presence of
a political resource for resolving the tasks of self-containment
and tightening the rules and norms of life for the elites, as well
as their responsibility and efficiency, has become a key problem in
Russia’s changeover to the modernization strategy.

THE CLOSED CIRCUITS OF EVERYDAY SOCIAL ROUTINE

The question about the possibility of Russia’s modernization
has, apart from the political aspect, a broader social
dimension.

Today’s Russia is in many ways the land of triumphant
bureaucracy. The bureaucratic state is revealing its corporative
traits more and more boldly. It issues meticulous regimentations
for everything. It builds hierarchies and verticals, actively
intervenes in the economy and there are social redistribution
mechanisms in the face of persisting huge proprietary and social
imbalances.

The tradition of having massive state machinery that handles an
enormous volume of issues is not new and has various explanations.
Some of them allude to the traditions of statehood and political
culture, thus leading to the idea that this state of things should
stay intact here “for ever and ever.” This, in turn, entails a very
narrow conception about the ways of and resources for further
development. It would be rational therefore to look at the
principles of reproduction that the system has in the social
sphere.

Russians do not trust closeness much or society on the whole and
its institutions (including market ones), or competition as such.
It is no wonder then that “the big state”’ and its permanent
meddling work towards preserving this situation. There are other
factors as well, like the difficulties of the transition and the
state of society over the past two decades.

Another important issue is the decreasing number of channels for
social vertical mobility that underpin the current phase of
society’s development. Career-making processes are slowing down,
the prospects are diminishing and the lifts taking social climbers
up have been shut down because they are of no use. The slowdown of
social dynamics after the profound social transformations of the
1990s is an objective factor, but this does not make life any
easier for office workers or young professionals who represent
socially significant trades, but which are currently discriminated
against, such as scientists. This is especially true if the rules
of the game suggest tough and inequitable career growth
restrictions that have a proprietary, clan or corporate nature and
are often sized up as being unfair.

In the face of the low level of trust in society the state has
to constantly issue expansive regimentations for public and
economic life, strengthen state-run distribution mechanisms and
build a hierarchy of social groups and, speaking figuratively,
their class rights. This is not a uniquely Russian situation
however, as similar tendencies can also be seen in other nations
that are properly developed, as Yann Algan and Pierre Cahuc have
shown it in their works using the example of France.

The rent-related nature of wealth only intensifies corporate
tendencies, inequality and the impression of unfair redistribution
and the “rein of privileges.” Paternalism on the part of the state
continues to erode the opportunities for public cooperation and
social solidarity and fuels mistrust. It makes different social
groups (classes and corporations) engage in a struggle with the
state and with each other in order to gain more privileges and
bigger slices of the pie, rather than to achieve freedom, equal
opportunities or justice.

Another important factor is the higher degree of “monetarism”
found in social relations in today’s Russia. A lack of trust and
value-related links in society makes it very difficult to maintain
mutual understanding and interaction between various social groups,
generations, subcultures and sub-systems of values. Money often
happens to be the only equivalent of social relations or a
surrogate substitute for a unified system of values that turns the
price of the issue into an element of social communication of an
overblown dimension.

The absence or insufficient development of efficient formal
institutions in society does not at all mean that anarchy, the law
of the sword or a war of everyone against everyone else reigns in
society instead. On the contrary, informal shadow structures and
practices (bribes, kickbacks, fronting and loopholes for private
arrangements) come into play in lieu of formal visible ones. They
ensure a certain level of trust and predictability and operate the
technologies of competition, efficiency and communication.

The rampant corruption of the past few decades does not signal
any deviation from or the corrosion of the system – it itself has
been transformed into a system-building component. The system is
functioning as a mechanism for the redistribution of resources,
rent and status not only between the government and business, but
also between various social groups. Money is instrumental in
securing government support and, in addition, competitive
advantages in society. Representatives of some professional
communities use illicitly obtained revenues or the exchange of
services to increase their status or living standards to a level
that matches the social significance of their work, which is
measured inadequately in their official wages or has been devalued
by the market.

Corruption is an element of the social contract, too. For
instance, having leeway in buying oneself off or evading the law
often works as an important mechanism to justify society’s
non-interference in government affairs. On the other hand,
status-bearing elitist groups consider the struggle against
corruption in these circumstances to be an illegal competitive
advantage.

We are witnessing a vicious circle; a system where the root
causes have been mixed up with the consequences and where they
reproduce each other with the vigor of a perpetual motion machine.
The mechanisms for the everyday functioning of this broad-format
social contract – and not only the contract between the state and
society – appear to be the biggest obstacle in the way of the
country’s development today.

This proves again and again that Russia’s modernization project
depends not only (and often not as much) on political
liberalization, but also on social therapy – the removal of the
monetary peg from values, the elimination of corporative and class
imbalances and inequality from social communication, the
restoration of social dynamics and mobility, and a return of the
principles of trust and public solidarity to the social
contract.

This set of objectives brings up the importance of the role
played by the quality and meritocratic principles of forming the
elite and nurturing effective institutions for the protection of
people’s rights and property – above all an effective and
independent legal and judicial system.