Denis Sokolov
Denis Sokolov
Denis is an expert at Free Russia Foundation, a visiting fellow at CSIS. He focuses on North Caucasus informal economy, land disputes, and institutional foundations of military conflicts
Bandits vs. Chekists. Do Regional Elites Support Modernization?

On May 19, 2018, in Moscow, supporters of Alexei Navalny founded a new party “Russia of the Future” (Россия будущего). Navalny himself is under an administrative arrest for a “repeat violation of the law pertaining to the organizing of a public event” which refers to his May 5, 2018, countrywide demonstration under the slogan “He is Not Our Czar”. Around 1500 demonstration participants have been arrested throughout Russia.

Around the same time, on May 21, 2018, about 15,000 Circassians joined a memorial march dedicated to those who lost their lives fighting for the independence of Circassia. This is the largest turnout since the march originated in the early 90’s. Circassians clearly are harboring historic and contemporary grievances against the Russian government.

From the video coverage of the two events, it is evident that the majority of participants of both, the Navalny demonstration, as well as those in Nalchik, have been born after the mid-80’s and grew up using social media and smartphones. Today they constitute about 30% of Russia’s working age population, and by the end of Putin’s current term will amount to about 60%. This population wants to live in a different Russia.

If they are to realize their vision of living in a different country, those fighting for democracy, those fighting for a free Circassia, and many other groups, must make deals with each other. This has to be done directly, without Kremlin intermediaries. Moreover, in order for this to happen, the new social contract must involve regional elites, — those who control the financial flows, assets, and violence within the various regions of the Russian Federation.

Regional business owners, criminal bosses and law enforcement officials— in essence, all former or still active bandits—can gain political and economic sovereignty only with the support of the population at large.  This piece is an attempt to explain three points: 1. Why the entrepreneur strongmen must be involved in modernization efforts; 2. Why they should be interested in getting involved; and 3. How this process would look in practice.

 

Well-Armed Gentlemen

Simply passing good laws is not enough for political modernization to take place. Armed elites must be compelled to observe these new laws. And up to now, this has only happened, crudely speaking, in two ways:

  1. As described by the American sociologist Charles Tilly, the modern state is created by organized crime as a way to settle military and political competition among more or less equal opponents. This has been the case in Western Europe and North America. Mature democracy, therefore, is a product of competition between stationary bandits and institutionalized organized crime through political mechanisms, including labor unions. This is a long and expensive process; the pioneers that took this approach did so due to the lack of alternatives, and, thereby, willingly or unwillingly, created a contemporary open society.
  2. As a result of the absorption of one entity by another already mature jurisdiction (including ones created by means described above), with simultaneous acceptance of rules by all social groups (including strongmen) integrating them into the democratic society. This can happen as the result of an occupation and removal of military aristocracy from power (the way it happened in Japan when it was occupied by the U.S.) or voluntarily, for example, the way it happened during the secession of the three Baltic States from the U.S.S.R. The Norms and institutions in the newly independent Baltic States were, for the most part, borrowed from the E.U. National elites; and almost all of the social groups perceivedsaid transition to denote the country’s return to its original historically ordained path. By the early 2000’s, former criminals and strongmen of the Russian-speaking Narva in Estonia had cleaned up their act and turned into law-abiding entrepreneurs and politicians. Some have even agreed to serve prison terms in order to remain within European jurisdiction.

Georgia is a telling example of a policy reversal, after the political defeat of Mikheil Saakashvili, exposing the social mechanics of such a transition. During his time in power, Saakashvili succeeded in consolidating parts of the Georgian elite around the idea of importing good institutions and integrating into the European Union. He even managed to temporarily usurp the monopoly on violence, sidelining organized criminal networks. However, to Moscow’s satisfaction, his successor Bidzina Ivanishvili managed — with the help of the revanchist old political and criminal elites with ties to Russian organized criminal networks, the Georgian clergy; and by using the institution of elections, capitalizing on his opponents’ crude mistakes as well as on the post-Soviet infantilism of certain civil activists — to freeze Georgian reforms and push the Saakashvili team out of Georgian politics.

At this point, Ukrainian reforms also look like forced concessions by the Petro Poroshenko Administration to civil activists and business associations in wartime and under pressure from Europe and the U.S. Criminals networked with Russian organized crime as well as law enforcement officials remained in the camp of the corrupt bureaucracy.

In Russia, the rut is even deeper, yet there are practically no real forces outside of the ruling class similar.For example; to the networks of entrepreneurs in Ukraine, the only functioning political mechanism in Russia is the FSB, whose regional directorates control investigations, law enforcement agencies, courts, criminals, bureaucrats (including governors sitting atop financial flows), and large business enterprises. Its structure and culture is similar to organized crime which has taken control of the state, society, and even international businesses.

Therefore, paraphrasing Benjamin Franklin, conditions of political modernization are equal to the conditions of change in rules of behavior of well-armed gentlemen in this society.

A question follows: why would the armed gentlemen accept such a change?

 

Why Bandits Need Democracy

This “Chekist Order” that has subjugated courts, the police and organized crime in Russia is a completely new state, no longer the U.S.S.R, nor a criminal post-Soviet Russia.  It’s a police state in which the monopoly on violence, in fact, is delegated by the FSB regional directorate heads. With the threat of criminal investigations, they keep a firm grip on everyone, from governors to owners of gas stations. When direct physical violence is required to deal with activists, they turn to the Department of Countering Extremism and when violence is needed to deal with public figures, even with representatives of the law enforcement bureaucracy, they turn to private paramilitary forces.

Neither business owners nor criminals like this arrangement. As an entrepreneur from Dagestan put it, “when in Moscow even the smallest commercial entities started increasingly to employ people who introduced themselves as former officers of the KGB, FSK, FSB, GRU, and others, or who were even on active duty, it has become clear that capitalism would not be taking hold. Instead, there would be banditry served under different sources (in law, outside of the law), but not capitalism. There is no point in trying to think in economic terms.”

Russia’s regional business is hemorrhaging. In the early 2000s, carbons, ferrous and non-ferrous metals, lumber and fertilizers were taken away from the regions. In the decade after that, the manufacturing of vodka, local electric power networks, and gas pipes were taken. As we speak, the regions are losing control over chain retail, agricultural production.  New tariffs are being levied on long-haul truck drivers, and ideas are floated on taxing the self-employed.  My friend who owns a small chain of stores used a metaphor to describe the situation: “it is as if your bloodstream was open with a small cut. The blood flows, and you are slowly growing weaker and weaker. There are fewer resources and no means to fight back.”

As small and medium-size business is degraded, the income of the corrupt system itself at regional levels is dropping as well. The only remaining source of profit is government contracts. But Moscow meddles with a heavy hand even there. More or less powerful governors and mayors that cannot be controlled from Moscow are imprisoned and their replacements are sent from the capital — young bureaucrats trained by the Kremlin’s Personnel Reserve Program or former law enforcement agents. This is a result of a generational change within Putin’s circles, which has entered the indefinite stage of the political golden years.

All of this is part of Putin’s attempt to raise the stakes by taking the Russian world hostage and securing his rule indefinitely.  He is walking on thin ice, however, and the current regional policy is more dangerous for the regime than even a moderate drop in oil prices or protests against toxic landfills.

Owners and beneficiaries of liquid assets in Russia’s regions— electrical power companies, retail, natural resources and agricultural complexes— are losing assets as well as the ability to pass property on to their heirs. They either run, like Akhmed Bilalov and Yevgeny Chichvarkin; or sell their assets, like Sergey Galitsky, vodka manufacturers and intensive garden owners from Kabardino-Balkaria, and owners of private oil service companies from Khanty-Mansi Autonomous Region; or they are already in detention or prison, like Vyacheslav Derev and the Magomedov brothers; or they have just been released from prison like Magomed Kaitov.

Whether they understand it or not, the only way for regional elites and large businesses not only to preserve their assets but to survive and keep something to pass down to their children is by taking down the political system. This process can notionally be divided into two phases.

The first phase— decentralization. Large land-owners in Southern Russia could easily strike a deal with rural communities; organized crime can do the same with mayors, governors and labor unions. They need each other’s support. Regional politicians and civil activists would not survive without the protection of the well-armed gentlemen. This was a lesson learned long ago in the North Caucasus due to the traditional importance of familial and communal ties. But other regions, little by little, will come to the same realization.

The Second Phase entails the transfer of functions of safeguarding persons, private property, contract, civil liberties and transparent elections to independent judiciary and law enforcement institutions. Today, due to advances in communications technology, a wholesale direct import of institutions is possible. The only political issue to resolve is what choices to make from an array of good institutions. Open and just courts, the protection of property and civil liberties, are not policy issues but prominent features of contemporary society, akin to a smartphone connected to the internet.

Russian Guard soldiers in riot gear or Cossacks with whips may personify state authority only for the older generations, but Young Russians see them as a zoo with extinct specimens, and demonstrations as a dangerous safari. Modernization of the Russian mind has already taken place. What is needed to be available on the market, are institutions such as property registries, contract enforcement systems, good educational and health care systems, and financial services. It is not necessary for each village to invent its own iPhone.

If this does not happen, regional elites and corporations will be forced to flee, the way the Baltic Republics once fled from Russia’s atavistic tentacles and to a modern jurisdiction. They, along with the FSB generals keeping tabs on them, will either run or vanish into obscurity.

 

Contract to Occupy

Putin’s Administration has been forced to replace seasoned regional politicians with the boy scouts from the Personnel Reserve Program and former bodyguards in order to create a safe environment for their own heirs. However, these local powerhouses are supported by desperate people with nothing to lose, or with youth with their own political aspirations. They are also supported by local mafia bosses whose assets are being expropriated; by former mayors and municipal heads kicked out from their posts and unable to find a spot in Putin’s United Russia party; and by bankrupt entrepreneurs. In fact, there is a handful of other protest movements that could be mobilized with ease.

The well-armed gentlemen, business owners, and opposition movement leaders already possess a full spectrum competence in order to take over control of any regional assets and entities— from municipalities and agricultural production facilities to aluminum plants and oil processing companies. De Soto’s contract for the takeover of political, industrial assets and infrastructure would work well as the action plan for economic decentralization and secure the monopoly on violence.

In the Kabardino-Balkar Republic, for example, it can happen in the following manner.  Let’s suppose there are several million acres of land formerly a part of a collective state farm and now leased for 49 years to an entrepreneur with connections within the local government. With government funds, this entrepreneur has built intensive gardens on this land and leased those too poor local farmers to operate. The local community is unhappy they have lost the collective land. The landowning entrepreneur faces a real threat of a raid takeover by federal law enforcement agents— they initiate criminal investigations against him, attempt to impound his property, and their ransoms demands keep growing.

One way for this entrepreneur to liberate himself from the direct pressure of the strongmen would be, together with civil activists, to organize mass demonstrations, and with the pressure from the local population to take the land out of the jurisdiction of the Republic. For example, the land can be turned into a shared ownership property and a collective venture could be created. In such a scenario, of course, the large landowner would have to make deals with the local community. But there he is likely to have relatives, he would have enough money for such negotiations, he is known by local farmers, and his small security detail would turn into the core of a national movement.

There are real-life examples of municipalities in Dagestan receiving compensation for land flooded for hydroelectric power station reservoirs as the result of the municipal leader airing the issue with the local community. In this case, neither strongmen nor the mafia dons were willing to go against several thousand angry men and women.

In theory, RUSAL’s aluminum plants and northern oil companies from Western Siberia are not that different from collective farms. The young bureaucrats from the Personnel Reserve Program would have a hard time dealing with the armed men if they all of a sudden side with labor unions or with those protesting new landfills. Several such scenarios playing out throughout Russia would amount to a de-facto decentralization.

It is, therefore, precisely regional criminal networks and associated entrepreneurs and protest movement leaders that hold the potential to launch a decentralization process. The paradox here is that the only measure available to Moscow in such a scenario would serve to facilitate the takedown of the police state.

Trillions of rubles that Putin has promised to support infrastructure and social services, such as healthcare, education, and construction, will, no doubt, be expropriated (i.e. stolen). Regional actors would either transfer these funds offshore or use them for re-privatization of assets into their own private property. The balance of forces will inevitably shift.

Sanctions against Russian companies brought about by the foreign policy adventurism of Putin’s government, as well as the Russian counter-sanctions, are destroying corporate control over finance, decreasing the value of assets, facilitating the takeover of regulatory control as offshore funds return to Russia, and making devalued assets more attractive to investors. For example, the much cheaper shares of RUSAL (РУСАЛ) and Rosneft (Роснефть) now can be bought by regional players along with the global businesses and thereby protected by both, the international law and the “bayonets” on location.

Technological progress with its global education, market, Internet and the invincible Telegram erase borders and devalue local political sovereignty. Contemporary financial and legal instruments allow almost anybody to go to the global market and a more transparent jurisdiction. Insurance companies, retirement funds, property ownership registries, educational programs and even healthcare companies now can be headquartered in any spot on the globe. The less a government meddles in redistribution of collective resources, the less cost is imposed on its population. Regions and networked communities that join the global market and global jurisdiction would lower the cost of political institutions, compared to old democracies. Old democracies, in turn, would successfully sell their jurisdiction globally.

To end on a positive note, profit can be made from the modernization of the post-Soviet space. This motivation, in practice, is much stronger than any higher humanitarian goals. The moment this huge (and still with a future potential to expand a hundredfold and by hundreds of billions of dollars) market of the gentrification of institutes and infrastructure opens up, it will be impossible for any archaic criminal regime to counter free capital.

This article first appeared in Russian at the Republic site

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