This post was originally published in Presidential Power and is available here
On February 14, Vladimir Putin met with Alexander Shokhin, the head of the main lobbying group for Russian business–The Russian Union of Industrialists and Entrepreneurs (RSPP). In this tete-a-tete in the presidential residence of Novo-Ogarevo, outside of Moscow, Putin listened quietly to Shokhin’s lengthy assessment of the state of Russian business and to his ideas for improving business activity. The Russian President then made an announcement that surprised the country’s political and economic establishment: the formation of an ad hoc presidential committee to resolve disagreements between the business community and law enforcement.
To be chaired by the president’s chief of staff, Sergei Ivanov, who is widely regarded as the second or third most powerful man in the country–either just ahead or behind the prime minister, the working group will include representatives from law enforcement and the business community.[i] Putin called for the group to meet once a quarter, with Shokhin encouraging the President to attend some sessions when needed to iron out disagreements between the two sides. As one newspaper observed, the President’s move was a tacit admission that the existing arrangements were not working, and that the Procuracy, charged with the oversight of legality, among other functions, was incapable of protecting businessmen and women from shakedowns by law enforcement agencies. As in so many other areas of public policy, the formation of this forum for business and law enforcement confirmed that Putin’s regime was moving increasingly toward what the Russians call “manual steering” [ruchnoe upravlenie], where the President is constantly behind the wheel, and away from rule-based governance.[ii]
Apparently responding to the economic crisis occasioned by Western sanctions and the collapse of oil prices, Putin has in recent months been more attentive to the barriers impeding business development outside the energy sector, especially barriers imposed by law enforcement organizations. In his annual State of the Union message in November, he noted that criminal investigative agencies opened 200,000 cases of economic crimes against businessmen and women in 2014, yet only 46,000 of these made it to court, and of that number 15,000 cases were thrown out or resulted in an acquittal, an unusually high percentage of failed cases by Russian standards.[iii] Putin left little doubt about why so few convictions resulted from this police activity. “[Law enforcement] pressured, worked over, and then released [the suspects],” which meant, for those unfamiliar with justice in much of the developing world, that police, prosecutors, and investigators used these cases to extort money from the suspects or to destroy their businesses so that others might take them over.[iv] Putin noted that 83 percent of entrepreneurs who were subjected to criminal prosecution in 2014 lost all or part of their businesses. At a moment when the “commanding heights of the economy” are under strain from global developments, the self-imposed sanctions on Russia’s business community, especially its vulnerable small and mid-sized enterprises, which often lack the political patronage [krysha] available to large firms, represent an intolerable strain on the country’s economy.
Numerous institutions already in place are supposed to provide forums for the airing of business complaints against the abuse of law enforcement power. These include a business ombudsmen’s office, headed by Boris Titov, a co-head of Business Russia and the Kremlin-friendly Right Cause [Pravoe delo] political party, as well as business representatives on public advisory boards attached to law enforcement agencies.[v] The failure of these recently-created organizations to reduce the problem of shakedowns and selective prosecutions reflects the difficulty of restraining the self-serving instincts of officialdom without the direct intervention of the President or the presidential apparatus.
Since Putin’s accession to power in 2000, the regime has launched periodic campaigns against corruption and abuse of office in executive agencies. Revealing his openness to liberal and not just law enforcement solutions to the problem of corruption, Putin championed new legislation in the early 2000s that sought to “de-bureaucratize” the system, for example by reducing the barriers to entry for small businesses. The result was a “single window” [odno okno] reform that greatly simplified and expedited the registration of businesses by making it more difficult for state officials to extract bribes from applicants.[vi]
Despite these initiatives, and periodic public attacks by Presidents Putin and Medvedev on corruption in the justice system that undermines business development, Russia continues to lag well behind developed countries in the formation and survival of small and medium-sized businesses. Where such businesses hire from 50 to 80 percent of all workers in the United States, the European Union, and China, the figure is only 20 percent in Russia; likewise small and mid-sized firms account for 50 to 80 percent of GDP in the US, EU, and China, and only 27 percent in Russia.[vii]
Many scholars have argued that countries that are heavily dependent on the energy sector lack incentives to democratize their polities or liberalize their economies. When prices for oil and gas are high, these rentier states have little need to diversify their economies or make the political leadership more accountable, given that energy profits can be used to pay for social services and keep taxes relatively low. For the last year, however, Russia has faced a mounting economic crisis, which appears to have strengthened the hand of those in the political establishment who wish to unleash the potential of Russian business. Putin’s formation of the new working group with representatives from business and law enforcement may be a signal–along with proposals to decriminalize some economic infractions and the recent dropping of charges against the Russian billionaire, Vladimir Evtushenkov–that the Kremlin is willing to serve as the business community’s protector in order to revive and diversify the economy. Speaking at a conference of judges the day following his announcement of the formation of the working group, Putin urged the judiciary “‘to place barriers’ in the path of those who are using criminal prosecutions in corporate disputes or to gain control of property.”[viii]
The question now is whether such a small working group, meeting only quarterly, will be able to go beyond symbolic acts of redress to more systemic changes in the relationship between Russian business and the law enforcement agencies, which have traditionally seen economic enterprises as a source of income to be squeezed rather than a national resource to be protected. Even if the President or his team can push the two sides to agree on reforms that would restrain the use of criminal law for the enrichment of officialdom, there is little evidence that such reforms could be implemented. Without the enabling institutions that serve as checks on bureaucratic self-dealing, such as independent courts and media, the new working group in the presidency is unlikely to be more than an informal, and short-lived, court of arbitration between business and law enforcement interests.
Notes
[i] More specifically, the members will be, from one side, the deputy heads of the Procuracy, the Ministry of Interior, the Federal Security Agency (secret police), and the Criminal Investigative Committee), and from the other, the leaders of business associations like RSPP, Business Russia, the Foundation of Russia (Opora), and the Trade and Industrial Chamber (TPP). Note that all of these law enforcement agencies answer directly to the President rather than the Prime Minister, a distinct feature of semi-presidentialism in the post-communist world.
[ii] Vstrecha s prezidentom Rossiiskogo soiuza promyshlennikov i predprinimatelei Aleksandrom Shokhinym, Kremlin.ru, 15 February 2016. Anastasiia Kornia, “Putin prismotrit za biznesom,” Vedomosti, 11 February 2016. https://www.vedomosti.ru/politics/articles/2016/02/17/629971-kreml-otreguliruet-spori-biznesmenov-silovikami-ruchnom-rezhime
[iii] Aleksandr Dmitriev, “Bratva, ne streliaite drug v druga…,” Trud, 19 February 2016. http://www.trud.ru/article/19-02-2016/1334385_bratva_ne_streljajte_drug_v_druga.html
[iv] Ibid.
[v] Titov noted recently that every sixth complaint coming into his office was about an illegal criminal prosecution. Ibid.
[vi] Eugene Huskey, “De-bureaucratizing the State,” in Lena Johnson and Stephen White (eds.), Waiting for Reform under Putin and Medvedev (Palgrave MacMillan, 2012); and Eugene Huskey, “The Challenges to Deregulating Russia: Business Registration Policy and Practice under Putin,” in David Linnan (ed.), Legitimacy, Legal Development & Change: Law and Modernization Reconsidered (Ashgate, 2012).
[vii] E.A. Laricheva and E.N. Skliar, Sravnitel’yi analiz razvitiia malogo i srednego predprinimatel’stva v Rossii i za rubezhom (2014). http://webcache.googleusercontent.com/search?q=cache:http://www.science-bsea.bgita.ru/2014/ekonom_2014_22/laricheva_sravnit.htm The number of small businesses has not been growing in recent years.
[viii] Kornia, “Putin prismotrit za biznesom,” Vedomosti.