The Italian Marxist thinker Antonio Gramsci wrote that hegemony is exercised through the combination of force and consent. Ideally, rule by consent is preferred, though force is always waiting in the wings. Gramsci, however, mentioned a third form of rule, one that is often skipped over because it is buried in a footnote of his classic essay “Notes on Italian History.” That third is rule by corruption and fraud. “Between consent and force,” he wrote, “stands corruption/fraud. This consists in procuring the demoralization and paralysis of the antagonist (or antagonists) by buying its leaders—either covertly, or, in cases of imminent danger, openly—in order to sow disarray and confusion in his ranks.”
It would be beneficial to keep rule through corruption and fraud in mind when thinking about the nature of the Russian state. In many ways, it is not a traditional liberal state with independent branches of government, though it professes itself to be as such. It is also not a state solely based on vertical flows of power. While one may view Putin’s centralization of power as a sign of the state rotating on a singular axis, this view is more a mystification than anything else. To be sure, Putin specifically and Russia in general would like to be perceived as a unipolar state. The ubiquity of photos of Putin personally meeting with officials strives to reproduce a common theme in Russian history: a strong, competent Tsar at the center who subordinates his functionaries for the safety and benefit of the people.
But Putin’s photo ops also engender another interpretation. Putin must personally meet with his functionaries because he can’t trust the state apparatus to run itself. It is and can only be held together through a widespread network of personal connections. Therefore, I would argue that the Russian state is a network state where power is located in concentric circles that are held together by an axis personified by Putin himself. The words “held together” need to be emphasized here. The figure of Putin is not so much for benefit of himself, but more for the benefit of the rulers of the fiefdoms that make up the circles. Putin keeps the peace. He prevents the competing power centers from killing themselves.
This geography of the Russian state has its social manifestation in corruption. Much of this corruption is illegal in that it violates Russian law; some of it is not. However, it is ubiquitous because it is socially legitimized. Corruption gets its legitimacy because the ruling classes rule through personal connections, clans, and networks. As Owen Mathews writes in an article in Newsweek called “The New Feudalism,”
These days, any transaction of value—from getting your kid into university, to arranging visits to doctors, to starting a business—depends upon the whims of the king, his knights in the Kremlin or the legions of vassals who live off their patronage and in turn pay them tribute. From the mightiest oligarch to the lowliest common citizen, every aspect of every Russian’s life—their right to a home, their car or work—increasingly presupposes some form of crooked relationship with the state and its servants.
While I think Owen overstates the issue by implying a straight line from the Kremlin down to its lowliest municipal servant, in a sense he is right. The problem is that corruption in Russia mostly appears benign. There is a saying there, “?????? ?? ????????,” or “forbidden but possible.” Combining two seemingly contradictory worlds captures the essence of corruption. And that corruption is not necessarily located in monetary bribes. There is a recognition in Russia that “?????? ?????,” or “personal connections” open doors, get things done, thereby making the forbidden possible. This doesn’t mean that personal connections are rooted in illegality. It merely functions according to long standing traditions of customary law which in the flow of everyday life trump juridical law.
Being a friend of a friend matters. As a Russian researcher explained to me the other day, “You can’t survive in Russia with just your immediate family. Therefore you have to make your family larger. When a person climbs the economic or social ladder, the rest, the “?????,” has an interest in that person too. Your benefit is also theirs.” Though ???? (pull or influence) is becoming increasingly monetarized, as you go up the class ladder, the connections widen. It is trickle down economics ?? ??????????? (that is person to person)
My own experience in this has been minor though rewarding. I’m too small of a fish to be privy to any real corruption. Since I tend to have good relations with archivists (or know people who do), my orders get filled quicker than others, I am warmly greeted when I arrive, and sometimes I get privileges that others don’t, namely working in the archive when it is closed for others, discounts on photocopying, and other advantages when they stretch the rule.
It also would be wrong to charge that blat is immoral or corrupt. As one observer Alena Ledeneva quotes in her book, Russia’s Economy of Favours:
“You of course will think that . . . the behavior of [the] Homososes [that is Homo Sovieticus—Sean] in such a situation is amoral. But we look at it differently. It is easy to be moral if you live in conditions which do not force you into morally reprehensible actions. You are well fed and clothed; you have a nice house with books and other ways of enjoying yourselves. And it seems to you that to be moral is natural and not in the least bit difficult . . . Everything is simple and clear cut. But if a man finds himself below the bread line, beneath the minimum that is indispensable if morals are to be considered applicable in real life, then it is senseless to apply moral criteria to his behavior. A man in such a position is not only freed ipse facto from normal norms; he is freed from them by these moral concepts themselves. It is immoral to expect a man to be moral if he lacks the minimum living conditions that permit society to demand morality from him . . . Homososes are born, are educated and live in such conditions that it is just ridiculous to accuse them of immorality.”
While this quote was from the Soviet period, I think it still can be applied today in terms of how blat is understood by its practitioners. It does however raise the question that if Russia is structured around a multiplicity of personal networks, does that necessarily make the Russian state feudal as Owen suggests?
Forgetting the fact that Owen doesn’t provide a definition of feudal in his article, to suggest that Russia is also implies that it is a) not modern, and b) states based on the rule of law are devoid of such corruption. The latter is rather easy to dismiss. Most liberal states have a measure of corruption and personal connections that make them work. Liberal blat exists up and down the social food chain in various degrees. More doors open when you know someone than when you don’t. The difference between Russia and liberal states is one of quantity than quality.
Still, at some point quantity becomes quality. The social and cultural importance of connections in Russia suggest that there is a qualitative difference between how things are done there than in liberal societies. This is where the issue of modern comes in. Liberal states became “modern,” the argument goes, by eliminating the importance of personal connections, and by extension corruption by establishing the rule of law. On a cultural level most citizens in liberal states believe, rightly or wrongly, that the law stands above society. In Russia, however, the law is understood by most as merely a tool of the powerful. In this way, many observers place Russia next to “third world” countries in Latin America, Africa, and Asia rather than in the modern pantheon of the West.
It seems that the Economist shares this latter point. Citing the Transparency International’s “corruption perceptions index”, it reports that “Russia has fallen to rank alongside Niger, Sierra Leone and Albania. A recent survey by Indem, a Russian think-tank, found an enormous hike, since 2001, in the number and size of bribes given by young men and their families to avoid conscription and, relatedly, in those paid to get into universities. (Fixing a court case, Indem found, has got a bit cheaper.)”
All of this reflects on the nature of the Russia state. From the upper circles of the Russian state to the lowest rungs of society, Russians can only rely on others in their circle for mutual aid. That means that the institutions that the Russian state provide: security, legal recourse, social welfare, education, and more importantly stable rule, gives way to a system that is inherently centralized but at the same time dispersed. The result produces what the historian Alfred Rieber said of Alexander II, a managerial tsar that keeps the warring clans from eating themselves. The “autocrat,” therefore, finds himself not in hegemonic control, but constantly playing a careful game of placating the powerful whose patronage allows him to rule in the first place.
Wonderful subject, Sean. I have been on the “Russian is a feudal society” bandwagon for a while now, I do have a definition, however: state ownership of means of production. The state controls it as demesne or alienii via the vassal-sovereign pyramid, where chunks of the state property are given to various people on the feudal ladder similar to leasehold to control and generate income for the state and themselves.
From this point of view, though, the difference between the current “neo-feudal” arrangement in Russia and the communist USSR is largely cosmetic. USSR even had de facto serfdom when peasants were not allowed off the land.
I will study your article in more detail and will likely make it one a part of my radio show about Russia this coming Sunday on KSCO AM 1080 in Santa Cruz.
Cyrill, the difference between modern Russia and the USSR is not cosmetic, but immense. Modern Russia has a market economy, and that makes all the difference. The actual ownership of the means of production is largely irrelevant. You might want to examine the French state capitalism for comparison, where at some point state-owned enterprises accounted for up to 60% of GDP. But despite high state ownership of the economy, the Soviet and French economic models were different as night and day.
That’s not to mention the fact that whatever the Russian government chose to privatize is private property, period. It is not “leasehold”.
Putin avrebbe perso la faccia,
dopo questa sua carpita dichiarazione
se non controllasse tutti i media più popolari del suo paese.
Noi ci sforziamo, davvero
ma proprio non riusciamo a non collegare questa battuta del deposta russo
con l’efferato stupro adottato come tecnica di repressione
dall’esercito russo su donne, anziane e bambini Cecene.
http://guerrillaradio.iobloggo.com/
viK
italian blogger from milan
Market economy? Sure, a small portion of Russian economy is market based and it is probably bigger then the black market of the USSR. However, agricultural land has not been fully privatised. Ownership of anything entails two basic abilities – sell or use as collateral. What proportion of Russian economy can be sold and bought or can be mortgaged? According to a Newsweek’s article 7 men from Putin coterie control 40% of the economy via state owned companies. Some market. A bunch of grocery stores and car dealerships do not make a market economy. They make a small sector of import distribution.
French. At some point almost all of French GDP was state controlled. Colbert’s textile mills for example. And a good example of fuedalism too. After a long while, Europe seems to move steadily away from dominance of state ownership and control of means of production. Russia is moving in an opposite direction. It is moving towards Mussolini or Peron. Mostly because it does not have the fundamentals for capitalism yet.
As for differences, it depends on what you are comparing. If you look at the fundamentals of property ownership that determin the type of economy, then the differences are superficial.
The primary feature of a market economy is that prices are determined by the balance of supply and demand. As opposed to Soviet-style planned economy, where prices were determined by the balance of supply and opaque political considerations. Your comparison of economies based on ownership of assets is like stating that there are only “cosmetic differences” between humans and dogs because both have two eyes… While disregarding the fact that everything else is quite different.
It doesn’t matter who owns what — what matters is that the entire economy is based on market principles (or not).
As for you other assertions, I really don’t know where you get your information from. Land in Russia can now be sold or mortgaged, and it has been that way for several years now. You could’ve checked it by googling first, before making such outlandish claims. I don’t know who Newsweek thinks Putin’s coterie is, but once again I have to ask, what is wrong with appointing government officials to the boards of companies where the government has a stake? This is the right way to address issues of corporate governance — a company must work for the shareholders.
Finally, the Russian service sector is not “a bunch of grocery stores and car dealerships”. Had you ever bothered to do your research, you could’ve found out that services were the biggest driver of growth of the Russian economy — e.g., trade grew by 12.4% in 2005, hospitality business — 15.6%, telecom — 6.2%, financial industry — 6.4%, real estate — 9.0% Not to mention that most of industry is also in private hands (at least by the number of enterprises, not by revenue), or in the form of public companies whose shares can even be traded in the form of ADRs or GDRs. WBD comes to mind…
Totally agree with f. kriukov.
I think Cyrill is a perfect example of Western ignorance towards Russia. Absolutely no knowledge of the subject, yet so many conclusions on what is “right” or “wrong”. If you have any real interest (apart from doing pseudo-philosophical blah-blah’s on your radio show), try actually studying Russian life INside Russia, instead of googling all the time in California.
Best regards, D.
Cyrill you call state ownership and monopoly “feudalism”, but what capitalist economy is not based on monopoly? I don’t see any difference between if the state owned the “means of production” or if corporations do. Monopoly is monopoly however you cut it. So in this sense to say that Russia doesn’t have a market economy because wealth is so concentrated, raises questions for most countries with market economies, although at various different degrees. Though, I would never argue that the concentration of wealth in say the US is equivalent to Russia.
And this is why I raise the whole validity of feudalism in the first place. It seems to me that it is just another polemical term to make Russia into a static society that hasn’t “advanced”. Hence the reason why I raised the modern question in the original post. According to this line of thought, Russia was feudal in the 16th, 19th, 20th, and now the 21st centuries. It has stood frozen for a variety of reasons while the rest of Europe has gone forward. All you need to do is slap the proverbial “neo-” to give some semblance that things have changed a little, but not that much.
On the vassal issue, do you really think if the Russian state started stripping the 7 men you say control 40% of the GNP of their property, the Putin presidency would survive? I mean really. The argument of my original post was exactly the opposite: Putin is in power at their behest, not the other way around. Putin manages the Russian state, and that is a balancing act between competing power circles.
I also agree with F. Kriukov on the Russian economy. It seems that services and telecom are the most dynamic sectors, though I would have to say that I don’t think these would stand independent without the oil and gas money. But still, these are the sectors of employment for most Russians, as it is for most Americans. Economies based on service sectors are problematic in my opinion—they are low paid jobs with little security and the goods that are exchanged are either products of affective labor or are imported goods. In this sense Russia produces very little consumer products. But they are not alone in this. In fact, it allows them to join the pantheon of “advanced” first world economies that have seen their manufacturing sector dwindle and their service sectors rise. Some say that this process is the hallmark of a post-industrial society. I can’t help to be skeptical about the social characteristics that will accompany it.
Upon further consideration, I would also like to challenge the quoted figure of 40% of Russia’s economy being controlled by seven men.
The reality of this figure, as originally reported, is that the assets of nine largest state companies “controlled” (although that’s not the right word) by seven government officials have assets whose value equals 40% of Russian GDP.
Here I have to point out that this factoid is devoid of any real meaning. Comparing the value of assets to the GDP (which more closely corresponds to revenues) on a national scale is comparing apples to oranges. You either have to compare their revenues to GDP, or their assets to the value of all economic assets in Russia.
Thus, the statement about the control of 40% of the economy is false.
Anonymous, I lived there for 30 years…
Sean: I would challenge the traditional view of capitalism that stems from Marx’s assertion that what Marx (and later Lenin in his Imperialism…) described was capitalism. If capitalism really is defined by private ownership of production, all its stages until recently in the US and other Western countries were either very early capitalism, or more likely, it was feudalism. Especially what Lenin calls State Monopolism – state ownership or large chunks of economy is hardly capitalist.
I am not aware of any case where a monopoly survived over any significant period of time unless it was sanctioned and protected by a state. From this point of view, in answer to your question, monopoly and real capitalism are mutually exclusive in general. Obviously, there is no pure capitalism and pure socialism, feudalism, whatever it is called. Over the last century we saw a clear trend away from State Monopolism but not towards communism as Lenin predicted but in the opposite direction.
You mention 16th-21st centuries as if it is a long period for feudalism. It took Western Europe more then 15 centuries to go through early feudalism to now. Russia is quite clearly less advanced. I am not sure why this is even a question. It is not the only country that lags behind. As for proverbial “neo” – I do not think there is a need for it and Newsweek authors clearly missed with their article, suggesting that corruption somehow equals feudalism, for which you quite appropriately chided them. As for the vassal issue, I completely agree with you, but this was true about most of the feudal rulers – they could not survive without the coterie. It was a symbiotic relationship.
To make it clear, the 40% figure is not mine, but Newsweek’s. And it specifically states that it is 40% of GDP, not assets. Another factoid is 20% of GDP spent on bribes in 2005. So now we are at 60%…
But it only really speaks of consolidation, you are correct. If 100 people controlled as much there would be no difference in substance. It would still mean that at least 40% of the economy is controlled by the state. I suspect the percentage is actually quite higher. What proportion of GDP of Russia is public sector? Yes, of course, you and F. Kriukov give examples of booming private sectors: telecom, retail, hospitality, construction. These are what I place my wildest hopes on, but what of energy, heavy machinery, metallurgy, transport – these industries that build up a strong economy? And those semi-privatised 51/49 % “companies” do not count as private. The rule of thumb again is – if a company can be sold of mortgaged freely, it is private
Cyrill, I dare you say you had lived for 30 years in the USSR, not Russia. It is your knowledge of modern Russia that is problematic.
You did not understand what I wrote about the 40% figure. In case you haven’t realized it, I looked up its origin, and found it in many Russian media outlets. Originally, it was specifically stated that assets (?????? in Russian) of the 9 state companies controlled by the said 7 men amounted to 40% of Russia’s GDP in 2004 (and it’s not even clear, total assets or net assets?). Newsweek stated that “seven men from Putin’s inner circle control state-owned companies that directly account for 40 percent of Russia’s gross domestic product”, which is a distortion, since it leads one to believe that these companies produced 40% GDP, not to mention that the data was for 2004, and the ever so honest Owens wrote his article in 2006 and used the present tense. You further modified it to “7 men from Putin coterie control 40% of the economy via state owned companies”, which distorted Owens’s distortion even further, and turned this into a patently false statement. In short, the original factoid is meaningless, as I’ve already mentioned. After the double distortion through your and Newsweek’s broken telephone, it became patently false.
Now, the 20% figure for bribery, could you please provide a source for it? I’m surprised you didn’t quote from Owens, who claimed it was 50% and didn’t even blink an eye. Regardless of that, I’ll have to point out that bribes are not counted as part of the GDP, since they are not a final product that state statistical services can account for. Thus, your exercise in additon 40% (based on a double distortion) to 20% (based on lack of knowledge of macroeconomics) is completely futile. Unless, of course, it serves propagandistic rather than scientific purposes.
Now, it is really difficult to say what percentage of GDP is produced by companies where the govt has at least a 51% stake and thus controls them. But a comparison by sectors can be made. Rosstat uses OKVED classification of economic activities (OKVED = Common Russian Classificator of Economic Activity Types) based on the European NACE (Classfication of Economic Activities in the European Community). Based on Rosstat data, the added value from industrial activities (OKVED and NACE sections C, D, E) accounted for 27.6% of Russian GDP in 2005. The sectors that I mentioned, sections G, H, I, J and K, accounted for 42.3% of GDP. However, there are many government enterprises in both in the industry and the services sectors. It is pretty much impossible to state using the published data how much of the Russian GDP is produced by government-controlled enterprises. Plus some of section G (trade) should rightfully belong in section C (raw materials), due to the use of transfer pricing schemes, for which Yukos paid heavily.
But I would like to emphasize once again that it really doesn’t matter. As long as the economy, including the parts of it owned by the government, functions along the market principles for the most part, we can safely say that the economies of modern Russia and the former USSR are different as night and day. And feudalism has absolutely nothing to do with either of those economic models.
(the blog server seems to be sluggish, so if I double posted, Sean, please delete offending posts)
The bribery figure comes from INDEM. They claim about $319B. Naturally, Pravda disagreed, but I also saw the number on Russian TV when I was there this past May (I actually spent 1/6th of my time there recently). When I read the original INDEM claim, all I did was to google Russian GDP – the number that came back was roughly 1.4 Trillion. 300B is about 1/5 of it, hence 20%. Now, looking it up today to verify, I found a discrepancy. US State Department claims Russian GDP to be about 700B, half the size of the original number I saw. I guess there is where Ownes got his 50%. INDEM report came in mid 2005 and the 319 number was a projection for 2005. I remember commenting then that even if it were gross exaggeration, even 10% of GDP would be a damn horrible number.
As for market principles, if a market is dominated by government monopolies, it is hardly capitalist market. Just like it was in the US in telecom before 1982. In monopolized markets prices only reflect a skewed supply and demand equilibrium. When long distance markets in the US were demonopolized unlike local across LATA calls, it was several times more expensive to call Los Angeles from San Francisco then to call New York.
That was a feudalistic relic in US economy and it only recently went away, so don’t get all wind up when Russia is called feudal.
As for the 40%, you still are not hearing what I am saying. It does not matter, if it is 7 people controlling 40% or it is 1000 that control 30%, I asked for the proportion of government sector in the GDP. Strangely, this data is not available but there is plenty of other irrelevant numbers that can be used to drown any discussion.
Add to this extortion capabilities of the government in terms of (at the least) skewing competition even if a sector is not monopolized. Add to that selling of job positions, completely distorted system of redistribution of wealth through bribes rather then through taxation and market set prices. This does not look like a market economy. It will get there some day, but not yet.
INDEM figures are not reliable, and have been criticized on numerous occasions. Basically, their methodology consisted of conducting a poll among various companies to find out the amount of bribes they paid, calculate the average, and then multiply it by the number of companies registered in Russia. This resulted in $319 bln. Unfortunately, this methodology is so deeply flawed that it is more akin to outright falsification. First of all, there is the biased selection of companies to be polled — they were larger companies, who can afford to pay more in bribes, and in fact pay more. Secondly, they completely disregarded the fact that up to 2/3 of registered Russian companies are actually inactive and thus don’t pay any bribes at all. Therefore, the nominal volume of bribery ended up being inflated by several-fold. So the answer on the allegations on bribery is: a) we still don’t really know how much bribery there is going on in the Russian economy; b) INDEM’s claims are worse than useless.
As a side note, there is one reliable indicator in the INDEM study which showed that corruption in Russia is actually decreasing (which certainly wasn’t Satarov’s goal). It was found that the average size of a single bribe increased by a factor of 13 (IIRC). Since the economy certainly did not grow that much in the same period, the only explanation for the increase in average bribe amounts is the shift in the balance of supply and demand. That is the demand from the bribe-givers far outstripped the supply of the bribe-takers. In other words, taking bribes became more risky and some officials chose to either withdraw services or increase prices to compensate for the extra risk.
Now, why do you claim that the Russian market is dominated by government monopolies? There are only certain sectors that are monopolized. E.g., Gazprom is the gas monopoly (even though 49% of it are privately owned, including by yours truly
). Power generation is monopolized, but that’s a natural monopoly — and it’s getting privatized anyway little by little, at the usual Russian pace. RAO EES is already 49% privately owned, I believe. Oil production is dominated by private companies, but oil transportation is again a government monopoly. Rail transport is a monopoly, and it should stay that way. No other sectors are monopolized. Government enterprises may dominate some of them, but that doesn’t prevent private interests from competing (often very successfully). As I’ve already mentioned on numerous occasions, it doesn’t really matter who owns the assets — what matters is how the assets are operated, whether based on market principles or not.
On the issue of feudalism, this term has a specific definition, which involves relations between monarchs and warrior nobility. That’s why I take exception to the attempts to apply this term to modern states, be they Russia, France or the US. If you want to talk about monopolization or government ownership, talk about monopolization and goverment ownership, and keep feudalism where it belongs — in the history books on medieval Europe.
Finally, you asked a good question about why the data on the percentage of GDP produced by government controlled entities is not available. And I have a very good, even if unexpected, answer: this sad situation arose precisely because people like you choose to bandy about the utterly erroneous “40%” figures instead of going out and calculating the real number. Methodologically, it’s a rather straightforward exercise — you make a list of government controlled enterprises, calculate how much added value each of them generates based on their financial statements, add them up, and divide by the total GDP figure. Voila! But for some reason proponents of “neo-feudalism” never bother to do so. I guess because the misunderstood “40%” is so much more convenient and makes for a great sound bite.
As another side note, I can explain the “discrepancy” between the two figures for Russia’s GDP that you’ve found. The reality is that Russia’s GDP doesn’t amount to either $1.4 trln or $700 bln. In 2005, Russia’s GDP came to 21,598 bln rubles. That’s the only real figure. Now, if you want to convert it into dollars for comparison purposes, there are two ways: you can unscientifically divide the GDP in rubles by the current exchange rate, which should give you something like $771 bln (assuming 28 RUR/USD) — this is the easy way which most journalists use. Or you can do it the correct way and calculate what the purchasing power of the ruble is in US dollars. That is, how many rubles you need to spend in Russia in order to buy the same basket of goods and services that $1 buys in the US. For 2005 that comes out to 13.98 RUR/USD. This gives you Russia’s GDP of $1,544 trln by PPP (purchasing power parity). The reason for the wide gap between the market exchange rate and the PPP rate is mostly Central Bank policies and the perception of risk. CBR is trying to keep the ruble low in order to protect domestic manufacturing, and ruble is certainly a less popular currency to keep one’s investments in — hence lower exchange rate than its real purchasing power would imply. In fact, most world currencies except the main ones (USD, EUR, JPY, GBP) have a higher purchasing power than the market exchange rate.
Cyrill: If you lived there for 30 years, that must’ve been during the Soviet days. Unless you were under a rock the last decade, Russia is a whole different country now for 15 years. So if you have any real knowledge of it, then discuss things as they were in USSR (which you do, since you’re comparing Russia to USSR all the time), rather than how they’re now. Sorry, we’ve moved on a long time ago, you should too.
D.