Alena V. Ledeneva
HOW RUSSIA REALLY WORKS
The informal practices that shaped post-Soviet politics and business
270pp. Cornell University Press. $59.95 (paperback, $22.95);
distributed in the UK by NBN. £31.95 (paperback, £12.50).
978 0 801 44346 6
When the Communist system ended in 1991, the Russian economy disintegrated and, in the chaotic period that followed, the State itself came near to collapse. An underground economy replaced the planned economy, and shady deals and mafia-like executions were substituted for ineffective law enforcement. Other countries in the grip of scarcity and breakdowns of order have exhibited similar traits: gangster wars in the United States during Prohibition; the black market in wartime Britain; Albanian blood feuds. But Russia’s recent experience has been more extensive and intense, involving political turmoil, legal uncertainties, and shortages and dislocations of all kinds. The spontaneous remedies generated in reaction to these circumstances penetrated almost every sphere of life.
Such resorts offend against today’s holy trinity of the free economy, democracy and the rule of law, and they need to be understood because they threaten Russia’s successful adaptation to the modern world. But they belong to an underworld hidden from official records and statistics, so are difficult to study. Hence scholarly literature on the subject tends to be thin and unreliable. Alena V. Ledeneva, however, has not only observed Russia’s transition at first hand, but is also a resourceful researcher. Her first book, The Russian Economy of Favours (1998), dealt with usages which arose in the later Soviet period, particularly blat – payments made in favours between friends and associates. Since then she has broadened her focus and developed her tools. In How Russia Really Works she manages to prise open the cover over the secret world a little more to peer at the scurrying life beneath.
Her findings concentrate on six characteristic, but overlapping, practices – the deadly sins of the post-Communist age. The first, “black PR” and manipulative campaigning, involves negative advertising and the use of disinformation against individuals for political purposes. These are consequences of what, for Russia, is a new kind of politics in which image-makers, political technologists and consultants of all kinds try to manipulate opinion. The free press obligingly provides a tariff of charges for publishing such material. It can be a useful counter to political skulduggery and serve the purposes that lustration did in some former Soviet bloc countries. It can, however besmirch honest people and undermine trust in the democratic process.
The second “sin” is the collection and use of compromising information – in effect blackmail – to silence political rivals and keep restive subordinates in line. It is also popular as a form of insurance: most players of modern Russia’s political and economic games equip themselves with protection in the form of information which they can use against competitors, to guard against betrayal and to retain the loyalty of associates. The third is more insidious: mafia-like associations of mutual dependence to circumnavigate official obstacles and provide a protective shield against the agencies of government and law. Ledeneva reproduces a cartoon by Vladimir Romanov to illustrate some of the implications of this new collectivism. It shows a ring of purposeful men moving in the same direction, each threatening the next with a pistol or knife.
The fourth category concerns barter deals and associated stratagems which burgeoned in the 1990s as means to evade taxation and facilitate money-laundering and the flight of capital. By 1998, not only oligarchs but eight out of ten Russians owed tax, and the government was becoming impotent for lack of funds. Nevertheless, Ledeneva argues, there were positive effects too: such practices filled gaps in the market and established a conduit for foreign investment in Russia. Ledeneva savours paradox and her subject is rich in it.
Her fifth sin is financial scheming, including accounting tricks such as double book-keeping. These facilitated barter deals and tax evasion but Ledeneva regards them as a rational response to excessive taxation, deficiencies in market institutions, and an inadequate banking system. On the other hand, false returns also allowed wages to be paid in “black” cash to avoid pension contributions, tax and social insurance, and the inclusion in accounts of as yet uncompleted output, originally a device of Soviet times to meet planned targets.
Worse was the proliferation of front companies, scam corporations and “monkey firms” with “dead souls” on their boards. Such contrivances allowed assets to be channelled to insiders, money to be laundered for export, and ownership to be concealed. However, it may be unwise to make too much of Russia as the antithesis of Western openness and integrity. As Ledeneva points out, the chief difference between the Yukos and Enron affairs was that the former under-reported its profits to defraud the State, whereas the latter exaggerated its profits to defraud its shareholders.
The sixth case concerns the privatization of justice. By the mid-1990s, private fixers, security companies or criminal gangs were enforcing informal contracts, providing alternative means of redress to conventional, legal means. Their methods ranged from arranging for officials to inspect a targeted enterprise to the application of financial pressure, and from blackmail and the threat of violence to contract killing. Such tactics compounded the inefficiency of the law but helped to fill spaces left by an inefficient post-Communist state. Indeed, all the practices Ledeneva describes had positive as well as negative effects, helping to sustain the economy and society while simultaneously undermining them.
The fact that Ledeneva’s most recent survey was conducted in 2001 suggests that her book may already be to some extent outdated. She concedes that black PR is less effective now that Russians are less interested in scandal; that monetization has confined barter deals to the margin; and that reforms and more effective enforcement are restricting the scope of, and indeed the need for, other shady tricks. The era of informal arrangements prevailing over the rule of law may have passed. Even so, many of the tendencies defined in this illuminating and important study are still in play; and one observes, sadly, that recent reforms are also paradoxical.
Transparent rules may help to maintain the rule of law, but they make it more difficult to steer the country through crises. Economists may be right to conclude that centralization is incompatible with a market democracy, but devolution undoubtedly encouraged corruption. Worse, the underworld which had created Russia’s oligarchs eventually stretched out to touch the State. Vladimir Putin declared the rule of law to be his highest priority, yet in order to rein in the oligarchs who threatened it he himself had to resort to measures of dubious legality. Perhaps it is for this unspoken reason that Ledeneva’s sturdy ambivalence finally gives way to a certain pessimism.
Most economists are as gloomy as ever about Russia’s prospects of “Westernization”. A recent OECD survey reports that “business-friendly legislation has been slow to reach the statute books”; that “considerable uncertainty” surrounds the application of new administrative reform: that privatization has progressed slowly; and that the managers of state-owned enterprises are still convinced that their directives will get better results than market forces. Such problems are usually attributed to the Communist legacy, but Alena Ledeneva knows that many date back long before the Revolution and are rooted in stunted legal development and the Russian mentality. She might have added the State’s chronic poverty, which inculcated habits of corruption, and poor literacy, which impeded the application of law and nurtured disrespect for it. Much more recently the grave consequences of Boris Yeltsin’s ill-advised rush to reform compounded these problems, engendering popular distrust of democracy, market reform and Western prescriptions generally. Putin himself may turn out to be only the latest in a distinguished line of frustrated reformers that stretches back at least as far as Tsar Aleksey Mikhailovich in the mid-seventeenth century.
That said, Russia’s economy is still growing strongly, energy revenues continue to pour in and the Truin model for development may just work. It used to be said that the situation in Russia was serious but not hopeless. Now wits say that the situation is hopeless but not serious. There may be truth in this gnomic foolery.
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Philip Longworth's most recent book was published last year in the United States as Russia: The once and future empire. He is formerly Professor of History at McGill University, Montreal.
