The Hindu http://www.hinduonnet.com/
Tuesday, Mar 28, 2006 Opinion Russia in the grip of its bureaucracy http://www.hindu.com/2006/03/28/stories/2006032805500800.htm Vladimir Radyuhin The bureaucracy has emerged as Russia's only ruling class, which controls key businesses, lobbies its interests in Parliament, and dictates its will to the judiciary. PRESIDENT VLADIMIR Putin has warded off the threat of the Russian state being privatised by oligarchs and unruly regional barons only to see it being gradually taken over by corrupt bureaucracies. When six years ago Mr. Putin was plucked from obscurity by President Boris Yeltsin to succeed him, he looked desperately for a power base from which he could wage the battle to reassemble the country that was falling to pieces. As the political party system was (and still is) incipient, Mr. Putin had little choice but to fall back on the bureaucracy to reassert the Kremlin's supremacy over semi-independent provinces and the oligarchs, who had become omnipotent powerbrokers during Mr. Yeltsin's chaotic rule. Bureaucrats helped Mr. Putin counter separatism and politically ambitious moneybags, but in the process gained more power than they had even in the Soviet Union. There are 18 million civil servants in the Russia of 144 million today, compared to 12 million civil servants in the Soviet Union with a population of 300 million. In the old system, the civil service was under the constant scrutiny and control of the Communist Party. After the Communist system collapsed, no new system of checks and balances replaced it. With the President being the source of ultimate power in Russia, the bureaucracy is free from control either by a compliant Parliament or the judiciary. "Russian bureaucrats are still largely a closed and arrogant caste which perceives state service as just another kind of business," Mr. Putin said in his 2005 state-of-the-nation address. He accused Russian bureaucrats of using economic growth to line their own pockets at the expense of public well-being and vowed to cut the bureaucracy to size. "We have no plans to hand over control of the country to inefficient and corrupt bureaucracy," he warned. However, the bureaucracy has already emerged as Russia's only ruling class, which controls key businesses, lobbies its interests in Parliament, and dictates its will to the judiciary. The rise of the bureaucrats' economic power began during the Yeltsin era's sweeping privatisation, when government officials awarded state-owned factories and oil companies to businessmen in exchange for a share in the assets. The most glaring example was the case of the former Deputy Prime Minister, Vladimir Potanin, who after leaving the government gained control of Norilsk Nickel, the world's biggest platinum producer. Under President Putin, the bureaucrats have further consolidated their hold on the economy, presiding over a massive redistribution of private assets through a semi-criminal mechanism of bankruptcy, the rules for which they wrote themselves. "There are good reasons to believe that by appropriating the political and administrative rent the civil servants have become the second biggest owner of big private assets after the corporate sector," said Sergei Peregudov of the Russian Institute of World Economy and International Relations. His research showed that only a section of bureaucrats left government jobs to become regular businessmen, while a majority stayed on. "They are rentier-businessmen, who do not contribute to economic growth, but live off it," says Prof. Peregudov. Despite Mr. Putin's diatribes against the Russian bureaucracy, its symbiosis with the corporate sector has almost become official. Cabinet members openly engage in business activities through their next-of-kin. The wife of Healthcare and Social Development Minister Mikhail Zurabov, for example, controls a number of wholesale companies that supply medicines under social security programmes run by her husband's Ministry. The only Russian woman to appear on this year's Forbes magazine list of world billionaires was Yelena Baturina, owner of a booming construction business and wife of Moscow Mayor Yury Luzhkov. Regional officials are taking the cue from their federal colleagues. The former head of the Southern Federal District, Viktor Kazantsev, was in the news recently when he went to court to claim part of his business empire from his estranged wife and daughter. Factories and chain stores Mr. Kazantsev acquired during his official tenure were registered to members of his family as government officials are formally banned by law from doing business. When he divorced his wife she refused to part with the assets. The court, instead of putting Mr. Kazantsev in the dock for breaking the law, heeded his arguments and awarded him some of the contested assets. Even though it is typical for Russian civil servants to have business interests, hardly any of them have been convicted for abusing official position to enrich themselves. The feeling of impunity has pushed government corruption in Russia to staggering proportions. A study conducted last year by Indem, an anti-corruption think tank, found that businesses were paying about $316 billion a year in bribes, a nearly 10-fold increase from four years earlier. The total amount of bribes government officials took from businesses in 2005 exceeded all federal budget revenues by 2.7 times. Two years ago President Putin set up a Kremlin anti-corruption watchdog with the Prime Minister as its head. Inaugurating the Presidential Council for Combating Corruption in January 2004, Mr. Putin lambasted the Government for lack of progress in fighting corruption. "The government in Russia repeatedly and loudly proclaimed the need to fight corruption, wrote programmes and took isolated harsh measures, but frankly speaking these have not yielded much effect," Mr. Putin said. However, the new body was never heard of again after its first and only meeting. A little later Mr. Putin made yet another attempt to reduce corruption and improve the efficiency of bureaucracy through a Cabinet reform. He slashed the number of Ministries from 24 to 13, and turned them into policy-making bodies, delegating their other functions of implementation, enforcement, and regulation to "agencies" and "services." But the reform created more confusion and red tape, as Ministries contrived to retain control of agencies and services. To all appearances, the Kremlin has since given up on the anti-corruption fight. What really bothers corrupt Russian bureaucrats today is how to legalise their enormous fortunes. A few days ago, the Finance Ministry submitted for Cabinet approval a tax amnesty bill that purportedly seeks to encourage the repatriation of tens of billions of dollars Russian businessmen have stacked overseas. However, experts are sceptical that businessmen will take advantage of the amnesty, as there are many cheaper and safer ways for them to bring their money back to Russia. The bill may be more useful for government officials who may want to declare their multi-million dollar property and assets and win immunity from prosecution by paying a flat 13 per cent income tax. Economy stifled Rampant corruption and the merger of bureaucracy and business are having a stifling effect on the Russian economy. While big corporations have learnt to oil the greedy bureaucratic machine, small and medium businesses are the most to suffer. A survey of small and medium businessmen last year revealed that they feared bureaucrats more than the Russian mafia. Two-thirds of entrepreneurs said they had no chance of upholding legitimate interests if they ran afoul of local government. Suffocating bureaucratic pressure is the main factor behind the stagnation of the small and medium sector. It has registered almost no growth over the past 10 years and accounts for a modest 10 to 12 per cent of Russia's gross domestic production. Russia's aged industrial infrastructure, health, and education sectors are in urgent need of investment, but Finance Minister Alexei Kudrin has dug his heels in against spending from the overflowing stabilisation fund, the country's rainy-day pot of windfall oil revenues, which is set to touch $80 billion this year. His two main arguments are that government investment will drive up inflation and that it will be "ineffective" because is likely to be squandered by corrupt officials. "The Russian state machine is one of the least reformed institutions in this country," says Mikhail Dmitriyev, head of the Centre for Strategic Studies, the Kremlin's main think tank. "In many respects government efficiency in Russia remains at the level of African countries." In an effort to overcome the bureaucratic hurdles to economic modernisation, President Putin has opted for centralisation of economic power in the hands of his most trusted aides to steer Russia's economic modernisation. He has appointed his former Kremlin administration head, Dmitry Medvedev, as Deputy Prime Minister in charge of overseeing key social projects, which involve pumping an additional $4.6 billion in budget funds into health care, education, agriculture, and residential housing in 2006. Another close confidant of Mr. Putin, Defence Minister Sergei Ivanov, has headed a new defence industry committee tasked, among other things, with tightening Kremlin control over the corruption-prone sphere of defence contracts. However, Mr. Putin seems aware that a long-term solution to the problem of a corrupt and inefficient bureaucracy lies down the road of democratic reform. "We believe that it is not only imperative, but also economically profitable to have developed democratic procedures in our country," the Russian leader said in his 2005 state-of-the-nation address. Russia's dynamic growth propped by high oil prices gives the hope that an increasingly powerful middle class will eventually create an institutional framework for political competition, which alone can rein in the bureaucracy.
