Streetwise Professor

Back in January I was reading North, Wallis and Weingast’s “The Natural State: The Political Economy of Non-Development” and came across a passage that captured modern Russia to a T:

A natural state is a specific way of structuring political and economic systems so that the economic rents created by limited entry are available to secure credible commitments among politically powerful groups. Potential rivals in a natural state stop fighting (or fight less when the economic rents they enjoy depend on continued existence of the sate and of social order. Natural states limit economic entry to create rents and then use those rents to credibly commit powerful groups to support the state. In other words, natural states use the economic system as a tool to solidify the stability of the ruling coalition.

Natural states create property rights to the exclusive use of land, labor and other valuable resources, as well as rights to perform valuable economic functions, such as trade. These rights are only available to members of the dominant coalition. Limiting access to rights increases economic rents . . . . The rents bind particular constituent groups to the ruler because they have something to lose if the ruler is replaced. Creating a wide range of rents allows the ruler to create a support constituency potentially capable of both maintaining power and supporting the wealth associated with specialization and exchange. . . .

The natural state is natural because it is based on personal exchange: privileges are granted to specific gbroups and differ across groups. These exchanges are enforced by the same type of mechanisms used in the primitive order, namely, face to face repeat play mechanisms. Moreover, economic exchange is also based on personal exchange mechanisms: the natural state cannot sustain impersonal exchange associated with open access orders. . . .

[T]he state is self-limiting in that it cannot honor rights to individuals outside of the narrow set of constituents. . . .

[T]he natural state is self-limiting with respect to the economy. . . . The natrual state’s systematic “market intervention:” is not the result of mis-guided policymaking, but fundamental to how [it creates] political order and stability. Natural states therefore cannot support competitive markets based on open entry. This logic also implies that natural states view markets as instruments of political control, not sources of citizen welfare.

North, Wallis and Weingast do not discuss post-Soviet Russia in particular, but their natural state is an apt characterization of it. A recent article by Celeste Wallander in the Spring 2007 Washington Quarterly does not mention North et al, but presents an analysis of post-Soviet Russia that mirrors their argument almost exactly:

Patrimonial authoritarianism is a political system based on holding power in order to create, access, and distribute rents. It is well known that Russia is deeply corrupt, but corruption in the Russian system of patrimonial authoritarianism is not merely a feature of the system; it is essential to the very functioning of political power. The political system is based on the political control of economic resources in order to enrich those within patron-client clans. The patron remains in power by rewarding clients, and the clients are rewarded by supporting their patron. The patron requires support from his clients, and he must access and distribute rents for that support. Without the creation and control of rents, political power disappears. At the top of the political system, Putin manages relations among competing patron-client clans headed by top government and business figures, such as Development and Trade Minister German Gref, Deputy Prime Minister and Gazprom chairman Dmitry Medvedev, Gazprom president Alexei Miller, and Igor Sechin, deputy head of the presidential administration and chairman of Rosneft. Each of these individuals in turn has his own set of clients, who are in turn patrons of their own clans, and so on, creating a complex web of relationships that sustain political power and distribute patronage rents.

Obviously, patrimonial authoritarianism is wholly inconsistent with transparency, rule of law, and political competition. The true purpose of the political system is not to mediate among citizens, businesses, or interest groups but to manage and control them so that they do not impinge on the ability of the patron-client clans to use their political power to generate, access, and distribute rents. Patrimonial authoritarianism requires a nontransparent, nonaccountable, nonpermeable, vertical, and centralized political system.

Wallander calls this system Patrimonialism, and asserts that it is “Transimperial,” in contrast to “neoimperial” and “postimperial” alternatives. Interestingly, Wallander does not cite Pipes’s analysis of Patrimonial Russia, although there are some strong similarities between the historical Russian patrimonial state Pipes analyzes in his Russia Under the Old Regime and Property and Freedom and the new patrimonial state that Wallender describes.

One source of concern: natural/patrimonial states are extremely brittle. They rely on a balance between contenting forces in a rent seeking battle. When a shock upsets the balance of forces, or when one faction deems that it has a preponderance of power and therefore should get a greater share of the rents, a battle can break out–and it can become very brutal. Indeed, since natural/patrimonial states have underdeveloped institutional means for settling and mitigating conflict, breakdowns in cooperation can lead to open warfare. The threat of violence in the event of a breakdown in the system is what sustains the cooperation. It is a political system sustained by MAD. But (analogous to mutually destructive price wars in a cartel) cooperation can break down, and when it does–look out.

If you need a mental model of what can happen in this kind of system, think of Chicago, Capone, Moran, and the St. Valentine’s Massacre. One shudders at the prospect of that happening in Russia, but it is not an idle fear. This fear is the driving force behind attempts to find a way to keep Putin in command, de facto if not de jure. But this course holds its own perils. There are no doubt those who think that it should be their turn post-2008, and may resort to resistance (carried out mafia style, no doubt) if the Putin regime is extended by hook or by crook.

The current uncertainty over the post-Putin transition will put incredible strain on the Russian natural/patrimonial state. This uncertainty will only increase in the coming weeks. And with it comes the prospect for an explosion. Not that it will happen, but it is a serious possibility.