INTRODUCTION

Jack F. Matlock, Jr.*

When Mikhail Gorbachev had introduced glasnost to Soviet society and perestroika was under way, I was sometimes asked by Soviet citizens how long I thought it would take before the Soviet Union could be a "normal" country. (By "normal," they meant to be like Western democracies.) My stock answer was, "two generations," which always brought signs of disappointment to the face of my questioner. I would hasten to explain: "You're going to have to create a system that in many respects is the opposite of what you have today. You will have to create democratic institutions. You will have to restore private property. You will have to develop the institutions and rules that make a market economy work. Most important of all, you will have to change the way people think, the way they deal with each other, and their attitude toward authority and personal responsibility. All these things take time, and nobody has a road map showing how to go from where you are to where you want to be. Inevitably, there will be much trial and error, steps forward and steps back. If your country is where you would like it to be in 40 years, you'll be lucky."

This, however, was not the prevailing view among the reformers who suddenly metamorphosed out of once subservient academics, professionals, and even some Communist Party apparatchiks. The King--the Soviet system--had no clothes. Throw him out and, presto, we'll have the opposite, capitalism with all the freedom it has protected and affluence it has created elsewhere. Five hundred days of the right policies would do the trick, they thought. And, of course, even temporary sacrifice was out of the question. "We will not carry out reform on the backs of the Russian people!" thundered Boris Yeltsin in the fall of 1990, as he attacked Gorbachev for not moving faster. It was going to be quick and painless, particularly if Russia could rid itself of those non-Russian Soviet republics that were considered drains on its economy and drags on its reconstruction. By the end of 1991, Yeltsin and his supporters had their way: no more Gorbachev, no more Soviet Union, no more communism. The road ahead seemed clear and unfettered. Free up prices, privatize state property, and then everything would fall into place, they reasoned.

The euphoria of 1991 of course could not last, and as problems developed it evaporated even faster than it had arisen. It was replaced by varying degrees of cynicism mixed with resentment and despair. "Democracy is not for us," many concluded. "Nothing but high prices, unemployment, a government of thieves, and constant change." And yet elections were held as scheduled, people kept coming out to vote, and few seemed to marvel that, for the first time in anyone's memory, they could say anything they wished without being thrown in jail, could form whatever associations they desired, and could travel anywhere they wanted, so long as they could afford the fare.

Following a few heady, optimistic months in 1992, Russia has been getting a bad press. Stories of organized crime, rampant official corruption, disastrous health conditions, a deteriorating education system, and pensioners on the brink of starvation were daily fare even before the 1998 financial collapse and renewed war in Chechnya exacerbated many problems.

* Jack F. Matlock, Jr., is George F. Kennan Professor at the Institute for Advanced Study, Princeton, New Jersey. He was U.S. Ambassador to the Soviet Union from 1987 to 1991 and is the author of *Autopsy on an Empire: The American Ambassador's Account of the Collapse of the Soviet Union*.

The privations and horrors are real, but they are not the whole story, for they fail to encompass
changes that are underway in Russia, changes that may have a greater impact on the future than
the sensational events that capture the headlines. The problem of comprehension is more than an
unfortunate propensity to generalize from the sensational; it is also a matter of historical
amnesia. Many observers remember only what has happened in the past few months, or even in
the past few days. For some, it is as if Russian history began in 1992, all the problems since then
being the product of bad government or--a few would even suggest--the innate depravity of the
Russian people.

In fact, nobody can begin to understand what is happening to Russia today unless they
grasp the enormous damage seventy years of communism inflicted on the country, the economy,
the society, and the mores and mentality of the people. Totalitarianism exacted a toll in many
dimensions, not just by its irrational and inefficient economic system, designed to feed a military
behemoth rather than provide a better life for its people. It also atomized society, uprooting the
fragile shoots of a civil society that had begun to sprout before the Bolshevik Revolution. It
mocked legality with its "telephone law," exercised by Communist Party apparatchiks dictating
to government officials, courts, and legislators as organized criminals would: behind the scenes,
secretively, protected by vows of silence. It created a system that not only inhibited creativity
and change, but encouraged the proliferation of economic enterprises that absorbed more
resources than the value of the goods they produced. It became, ultimately, an economy of
negative value. As the late Mancur Olson remarked in his insightful *Power and Prosperity:
Outgrowing Communist and Capitalist Dictatorships*, "As communism devolved, it was bound
to collapse."¹

Russia's political leaders in 1992 inherited not only the rubble of the collapsed economic
system, the institutional fragments of totalitarian rule, and a society already mired in organized
crime and corruption, but also a population conditioned to believe that prosperity and a better life
depended on government, not on themselves. To become free and prosperous, Russia required
simultaneous revolutions at the top of government and society, in the way the government ruled,
in the structure of the economy, and, indeed, in the way the people thought. Not adjustments or
modifications, but *revolutions*. Furthermore, if these revolutions were to succeed at all, they had
to be peaceful. A country chock full of weapons of mass destruction could hardly have survived
a violent revolution that brought on a civil war.

One can argue whether economic or political reform should have come first, and also
whether either is possible in a society full of special interests determined to resist change. But
this is a chicken-and-egg argument, since one revolution could not occur without the others. One
can argue whether privatization of the economy was too fast or too slow, or whether it was
conducted fairly.² But one cannot reasonably argue that Russia could have created a democracy
and a market economy without privatization. At least there is no evidence that any country has
been able to do that, and there are sound theoretical reasons that explain why this is so.

None of the required revolutions could be completed in months, or even a few years. The
time they require is measured in generations. In a process that could only be gradual, steps along
the way to reform the political system created barriers that delayed or blocked change in the
economic structure. Increasingly, people came to blame the miseries caused by the Soviet
economic collapse on the policies necessary to save them from that collapse. Their attitude
created a hostile environment for the changes that were needed. Nevertheless, short-circuiting the
democratic process rarely brought lasting results. A civil society cannot be built top down, but
must develop out of the successful efforts of individuals to form associations and groups to

satisfy their interests and their needs. While adopting appropriate laws is an essential element in any transition, the laws a market economy requires to function efficiently (for protection of property rights, enforcement of contracts, and disinterested resolution of disputes) do little good if their enforcement is subverted by corrupt bureaucrats or if they are flouted by the rich and the criminal. Russia's transition leaders faced a multitude of contradictions and vicious circles as they tried to create several revolutions simultaneously, none of which could be totally successful until they all were.

We are now almost half way through the first transitional generation, and it is time we paid some attention to voices from that generation, rather than those of the gaggle of foreign journalists and self-styled "experts" whose vision rarely reaches past the newsworthy event, and whose historical perspective, in the words of American scholar Leon Aron, is that "of a fruit fly." The purpose of this collection of articles is to give voice to that generation.

What do we find? Not extended arguments about the past, or about who is responsible for the problems of today, subjects that seem to preoccupy many of the older generation of Russian intellectuals. Also absent is any penchant for facile theorizing, or of praising or blaming the "impenetrable Russian soul," topics that have of late absorbed so much attention of the chattering classes, East and West. This is not a place to look for grand schemes or transcendental speculation. What we have are descriptions of specific efforts in many different fields to create a Russia in the future that will differ greatly from that of the past, yet preserve the enduring values of the Russian tradition. Scholars, a provincial governor, federal officials, bankers, an entrepreneur, union leaders, lawyers and judges, journalists, educators, leaders of fledgling non-governmental organizations, a young Russian Orthodox priest--these authors cover a gamut of professions and present a variety of points of view. They are doubtless exceptional, but not unrepresentative of their generation.

These authors neither gloss over difficulties nor yield to despair. They simply describe what is happening in their lives and their professions, and what they are contributing to their society and nation. Each story, each study, each interview is interesting and important in itself. Collectively they provide us with insights into today's Russia that are usually ignored in our periodical press. What impressed me most in this varied cornucopia of ideas and experience is the implicit confidence most of the authors have in the future. They seem to understand--in contrast to many of their elders--that the future is in their hands. They have set about the job of taking control of it, without bombast, without unreasonable expectations, and yet with confidence that what they do can make a difference. This does not mean that all their messages are comforting. Iurii Plusnin's study of rural attitudes in Novosibirsk oblast is distressing in many respects, yet just such thoughtful and objective studies are necessary for an informed public policy. The sort of policies Governor Prusak has introduced in Novgorod Oblast seem designed to prevent the preoccupation with mere survival that Plusnin's research revealed among peasants in Siberia, but whether Prusak's policies are working to that effect or not cannot be determined as yet.

One thing, however, is certain. Russia is so vast and so varied that examples can be found of almost anything. There have been atrocities in Chechnya by soldiers in uniform and also the encouraging growth of voluntary welfare agencies in many of Russia's cities. These opposites neither balance nor justify one another, but in the first instance (the war in Chechnya) conditions are--one would hope--unique, while in the other (poverty and homelessness), more general. The new Russia is a work in progress, and its success will depend on its ability to diminish the role of violence, and expand the role of social service, whether private or public. This will not happen

without a healthy, productive economy, a strong, though limited and honest, government, and a
civil society with a significant proportion of public spirited citizens.

The authors of this volume are busy creating just such a society. If they are typical of
their generation, a "normal" Russia of the sort my questioners in Gorbachev's Soviet Union
sought may not, in fact, take all of the 40 to 50 years I predicted.

NOTES:

¹ Mancur Olson, *Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships* (New York: Basic Books, 2000), p. 153.

² Those who debate the timing rarely address the question: How can privatization occur and also be “fair” if there is no legitimate private capital, and many of the “assets” themselves are not assets but burdens? The attempt to transform the economy in the former German Democratic Republic, which was beset with less severe problems than the Soviet economy, has cost the German Federal Republic hundreds of billions of Deutsche Marks, and even after ten years many in Germany’s eastern Laender are dissatisfied with the result. Most the industrial enterprises were in fact not viable in a market economy and rather than representing value to an investor required a greater infusion of capital that an entirely new enterprise would have.

A New Russia--or the Same Old Russia?
An Alternative Worldview in the Making

Yurii Plyusnin*

"Our life is like a tear trembling on the tip of an eyelash." For almost the entire past decade, this maxim has now proved to be true for most ordinary Russian citizens. During this time we have all lost a great deal and we have acquired a great deal.

A great many people have said many things about the losses and acquisitions of the last decade, which (following Nikolai Berdiaev's well-known periodization), I would call the Sixth Great Turning Point in Russian history. If we were talking about changes "external" to the lives of ordinary people--the economic, social and political transformations in Russian society-- there would be little I could add. My aim, though, is to talk about the "internal" changes that have occurred, and are still occurring, in the psyche, consciousness and behavior of the ordinary people of this nation. And here there is much that is not known--either by the broad public or by specialists—including social scientists, politicians and government officials. These issues--the personal life, feelings and experiences of the common man--are usually ignored, considered immaterial against the backdrop of global social processes.

Which changes am I planning to discuss here? First: the magnitude and direction of emotional changes, the nature of the psychological experiences undergone by the general population, those engendered by the crisis of Russia's social and governmental system. Second: The transformation of social attitudes, changes in value systems, and the ensuing slow evolution of the worldview and stereotypes held by ordinary Russians. Third: the particular, often situationally adaptive changes in the Russian people's behavior in response to changes in the external, the "big" life.

Of course, in this essay I will only be able to examine superficially a few of the numerous and diverse adaptations Russians have made to the new conditions in their lives. As a social psychologist, I was able to record these changes during the 1992-1999 period, when I organized and conducted 19 sociological expeditions, studying problems in towns, regions, and the nation generally.

I began my observations of the changes occurring in the very depths of social life in 1992, the first and perhaps the most difficult year of "shock therapy," whose consequences our society experienced suddenly and painfully. At first my observations were episodic and unsystematic, partly because I lacked funds and partly because local officials had no interest in my work. But by 1995, the research became more systematic, thanks almost entirely to the assistance of the Russian State Foundation for the Humanities in Moscow, and later the Novosibirsk municipal administration as well.

In order to make the picture of changes taking place in Russia objective and complete, I chose as subjects for permanent observation members of three social-professional strata sharply differentiated by lifestyle and type of work (and who therefore reacted differently to external changes and understood the prospects of the social reforms and their own place in society in different ways). These groups were: (a) **professional scholars**, who are more capable than others of reflecting on the changes taking place in society; (b) **the work force of a major industrial city** as the "locomotive of contemporary history"--the main driving force of any social change (here I was limited to research only in Novosibirsk, population 1.6 million); and (c) **ordinary folk living in the villages and small towns** of provincial Russia. This last groups comprises most of Russia, not only in the quantitative sense (no less than 60 percent of the population¹), but also as the most extensive social substratum. In this essay I will primarily

* Yurii Mikhailovich Plyusnin - Born in 1954 in a village near Kostroma, Plyusnin studied zoology and sociology in Tomsk State University and has lived in Novosibirsk since graduation. He holds doctorates in both biology and philosophy, has had a long academic career, and is now a professor of sociology at Novosibirsk State University. The author of over 150 publications, Plyusnin sits on the editorial boards of several academic journals. His research and writing focus on human behavior in differing physical and social environments.

discuss the results of my observations of the third category of the population. From my point of view, it is precisely the changes that remain hidden, or go unnoticed by those at the "heights" of society, those taking place among society's ordinary members, which will create, sooner or later, what will be the "Sixth Russia."

To be sure, the risk of error in extrapolating a multitude of individual facts is always great, but (to paraphrase Goethe) a fact, even when confirmed many times, is worth nothing without intellectual intuition. That is why, relying exclusively on my own research--on interviews with more than 5,000 people conducted over the course of the last eight years--I will permit myself to suggest several general observations about the "internal flow of life" in Russia and give my highly subjective prognoses about its future direction.

Which changes, from my point of view, in the psyche of the ordinary Russian are most important to consider? Three points seem essential: 1) how well-adapted people feel to the new life; 2) how they plan their personal futures; and 3) their everyday emotional states.

## Adaptation to the New Life

A significant number of my compatriots, in spite of a decade of changes, simply cannot adapt to the "new life" yet. There are far too few people in society who consider themselves well adapted or completely adapted to present-day economic and even social conditions. Scholars lacking empirical data about public opinion and self-evaluation usually assume that in Russian society approximately one fifth of the population is well adapted to the new life ("the favorites"); approximately one fifth to one fourth is poorly adapted ("the outsiders"); while the remaining one half to three fifths remain in an uncertain transitional state.

However, according to my observations based on annual surveys of the population of "provincial" Russia, not of major Russian cities or the capital, the picture turns out to be much more dismal. No more than one out of every ten persons (one tenth, by no means one fifth of the population) considers that he is one of "the favorites" of the new life and has already completely adapted to it. No less than five or six out of every ten persons simply cannot adjust to it at all (three fourths are "outsiders," not one quarter, as is commonly thought, although only about 10 percent consider that they are completely incapable of mastering the new rules of the game). The remaining three to four out of every ten persons (from one third to two fifths) are in an uncertain state: they themselves are not entirely sure whether or not they have adapted to this life over the past 10 years.

Thus there are grounds to think that up to 90 percent of the ordinary people in the nation not only do not consider themselves "masters of their lives," but do not even expect the slightest success. The reasons for this are numerous. The primary and most obvious reason is economic.

Perhaps the paradox of present-day life of ordinary people in Russia will be more understandable to the reader if I say that up to 60 percent of them are "Thoreaus" who live in more dangerous and remote woods than Henry David Thoreau. In his classic book, *Walden, or Life in the Woods*, Thoreau mentions with some pride that he managed to spend only about $62 during the eight months he voluntarily spent in the woods in the cabin he built on the shores of Walden Pond.

If you accept the accuracy of an estimate made by the Federal Reserve Bank of Minneapolis calculating the level of inflation from the 1860s to our time, one dollar in 1860 is equivalent to $19.44 in 1999. Thoreau's expenses would thus be about $1,200 today, or nearly $150 a month (excluding food he grew on his own, such as potatoes, beans, peas, and corn). Measured by this standard, most of my countrymen in Russia's villages and small towns far outstrip the great American romantic on a scale of thriftiness and endurance alike. Because, when it comes to hard cash (not money which accrues as unpaid wages and remains only "paper money" for years--people have many thousands of paper rubles, but this is akin to an interest-free loan to the government), these rural people have only 20 to 100 rubles in cash each month--not $150, but only $1-4 per person in a family per month. And they have lived the Walden recluse's life (I have in mind only its material side) not for two years, but for nearly a decade. And like him, they grow and process their own food themselves. (So that the reader does not reproach me

for making overly low quantitative analyses, I'll add that according to my estimates, for the past
two years the monthly income of a resident of the major city of Novosibirsk has averaged
between $45 and $80).

Sadly, it is significant that the number of people who consider themselves adapted to the new life has not increased throughout almost the entire decade. In surveys from 1994 on, their percentage remains within the five to ten percent range. The number of people who do not consider themselves capable of fitting into the new economic and social conditions is not decreasing, neither.

However, simple straight line reasoning assumes that an increasing number of people will feel comfortable in the new socioeconomic conditions as they "enter the market." Perhaps this outcome was to have been expected if the reforms had been sustained and positive, and if they had ultimately promoted the stabilization of society. Unfortunately, the chaos of reforms and complete uncertainty about the future causes people to choose behavior strategies which are adaptive only in the short term, and may even turn out to be maladaptive over one or two year periods. This is why people feel unable to adapt. They understand this well, they see that "external life" tosses them ever newer surprises, each more unpleasant than the last, in the form of contradictory laws and government directives. For this reason they are not at all certain that the weapon they chose to use in the battle for their existence today will be as useful tomorrow.

Planning the Future and Emotional Stress

People always want peace and stability. And many are irritated and disoriented by the fact that in Russia most of us must constantly invent numerous, diverse, but essentially the most basic survival strategies and tactics in the battle for existence. The immediate reaction to this dilemma is that people sharply cut back long-range planning in their personal and professional lives. Their emotional state, the background of their everyday moods, suffers a steady decline.

My observations, especially since 1994, give, on the whole, a highly pessimistic picture of how drastically people's ability to plan ahead has been curtailed. According to the estimates of social psychologists, ordinary people in the Soviet period planned their futures one to three years ahead on average, and many planned five and more years ahead. The onset of the economic crisis, the emergence and growth of unemployment, and the government's nonpayment of wages, threatening everybody with the loss of all means of survival, caused most Russians (not only, say, factory workers or village dwellers, but even professional scholars) to cut back on their advance planning, especially of work activities, to periods of months and even weeks. It can be said with certainty that people's prospects for their lives diminished greatly within a very short period of time. By 1996-1998, a short but steady increase in long-term advance planning occurred; in some social groups the average estimates approached eight to ten months and one year. Starting in 1999, however, people found their prospects illusory once again and sharply curtailed advance planning to time periods similar to 1994.

I will cite some facts that sum up the mood during the last two years. Up to half of the population (more than 49 percent) completely refuses to plan their lives ahead in any fashion; another 15 percent plan no farther than six months in advance. It turns out that almost three quarters of the population does not see any long-term personal prospects under the still evolving social, political and economic conditions. Only one fourth of the population evaluates life prospects as either normal (from one year to three to five years) or extended (from five to ten or more years).

The situation is somewhat better when it comes to advance planning for work. Here one third of the people (36 percent) refuse to plan their future work in any way, and another 14 percent plan their work activity from a month up to half a year in advance--exactly half the population. Of the remainder, a third of the population (34 percent) view their work plans in segments of from one year to three to five years ahead, and twelve percent see even farther into the future.

A sharp reduction in the time segments of life planning is, in my view, one of the most reliable markers of social instability. As soon as instability increases, most people cut back these

3

time segments. The life perspectives I record among ordinary people attest to the depth of the psychological crisis in Russian society.

The second psychological reaction I have noted is a deterioration in the previous emotional state. People feel badly. But how badly? Here sociologists, psychologists, and physicians all agree in their opinions and in quantitative estimates. I'll cite my own survey data for the past year (1999). Only one person in every ten (more precisely, about nine percent throughout the entire sample) responded that he is usually in a good or fine frame of mind (naturally, this group closely corresponds with those who consider themselves as having more or less successfully adapted to the new life). Less than 30 percent describe themselves as being in a normal psychological state. Thus, just under 40 percent now feel normal or good, i.e., are not experiencing emotional stress. But nearly two thirds of the populace, about 62 percent, evaluate their frame of mind pessimistically, while thirteen percent consider that they are experiencing very severe emotional tension.

The same group of respondents, however, when asked to characterize the moods of kith and kin in their immediate surroundings, gives a less favorable evaluation. In their opinion, only one in every seven persons close to them (comprising nearly thirteen percent) lives with feelings of certainty about the future and with optimism in their hearts. Six out of every ten (63 percent) are seen as experiencing tension and uncertainty, while every fourth person (nearly 25 percent) is judged to be on the edge of a nervous breakdown (respondents refer to alarm and fear, irritation and aggression, apathy and ennui).

An increase in the level of emotional stress in the population was observable almost as soon as the economic reforms began in 1991-1992 (actually, at that time such research was episodic). Emotional tension appears to have reached its most severe level in 1995 and 1996. To use medical language, observations showed that from one-half to two-thirds of the population was in a state of acute emotional tension, while one-fifth to one-quarter and more was in a stage of chronic tension capable of developing into the most diverse somatic illnesses and neuro-psychic disturbances. Over time, as they adapted psychologically, those experiencing acute emotional tension began to decrease in number. To this day, however, no less than one quarter of the population has a pathological emotional reaction to stress characterized by depressive phenomena. Moreover, the two methods for assessing the level of chronic emotional tension in society, public opinion surveys and psychological testing, coincide, registering 25 and 24 percent, respectively. To put it in dramatic terms: a quarter of the population of the nation is on the edge of breakdown. This is the sorrowful reality.

*The Importance of Being Human: Spontaneous Safety Nets*

But, given Russian society's present extremely gloomy and dismal psychological state, is there at least something reassuring on the horizon?

Of course there is. Positive, favorable psychological aspects of our lives do exist, and they are just as obvious and visible as the signs of emotional stress. I'll direct my readers' attention to only two facts, which from my point of view are very significant.

First is the support which a person receives from family, close friends and colleagues at work. In our society (naturally, first and foremost in the environment of ordinary people, different from that in Western society in many ways), an individual gets tremendous moral, emotional and material support from his kith and kin. After all, it's very important to know that you won't perish if something happens to you and that many people will come to your aid, lend you a helping hand and pull you out of the abyss.

What proportion of our society, then, is confident of help and support from their family and close friends? According to my observations, no less than three-quarters (75 percent). Only a handful of individuals (up to five percent) admit that they do not receive any material help or moral support at all from their close ones. Less than ten percent of non-elderly adults in our society feel lonely. As far as I know, this is a much smaller percentage than, say in Western Europe, where up to 40 percent of people in that age group consider themselves lonely.

4

And a second positive fact: respondents everywhere, no matter where they live, note that their relations with their neighbors remain normal and sincere, no matter what difficulties and cataclysms the "external" life brings their way. Their community of neighbors, be it a small village or town, rural district or major city, retains its cohesion, mutual altruism and people's willingness to help one another. For more than four fifths of all those I polled, the immediate social environment they inhabit is genuinely native and close, and relations between people are friendly and well-meaning. Less than fifteen percent note that they live in a tense relationship to their immediate surroundings. And only a few individuals, less than three percent, consider relations between people in their communities bad or tense.

From my point of view, these two circumstances--the considerable psychological support people give one another and the high degree of social cohesion in communities of neighbors-- stand out as the most crucial factors which support and hold together our society at its deepest, most grassroots level, no matter what disasters the outside world may bring.

The issue of change in the worldview and the socially instilled values of contemporary Russian society, which social philosophers have interpreted as a structural crisis of values in a society in crisis and undergoing reform, is gradually losing both acuteness and novelty. Everybody already knows that something is occurring in the mentality of Russian society. But what is it specifically? In what direction are the shifts in the worldview moving, especially where it concerns the "ordinary man?" The opinions of researchers reflect uncertainty and conflict in direct proportion to the multitude of studies. Nearly all the social psychologists direct their attention to studying the transformations in the consciousness of the general population living in mid-size and large cities. But this is by no means the same thing as the mentality of those living in small towns and villages. I will introduce the reader to several areas of change in everyday consciousness (mentality) which have emerged, primarily changes in the hierarchy of basic values and meanings of life for ordinary people in provincial Russia. In fact, knowledge of these changes makes it possible to predict, at least to some degree, our society's tendency to move either in the direction of modernization and structural renewal or toward an increase in traditionalism and further disintegration.

## Subtly Changing Kaleidoscope of Values

Studies of the structure of peoples' value preferences are usually based on the well-known concepts of Abraham Maslow.² Five categories of values are present in each individual's basic value system, ranging from the simplest values, related to biological needs and physical safety, and the values of social ties, to the highest values of the individual's self-realization and self-actualization. Although clusters of values are ordered hierarchically on a social-normative scale, each person has his own hierarchy of preferred values. Society's ideal is for the normative and the individual hierarchies to be in accord with each other or to coincide. But the higher groups of values are dependent on the extent to which the lower values are satisfied. If the lower values are not satisfied, the individual will prefer them to the higher values.

This significant implication of Maslow's theory, although logically obvious, has not been verified in a mass sampling, since it is impossible to create experimentally the conditions in which significant groups of people would be simultaneously deprived of opportunities to satisfy their higher needs. Inglehart's widely known research,³ which deals specifically with the stable societies of Western Europe, demonstrates the distinct shift in the individual hierarchy of values of Europeans away from the material (generally speaking, lower values) and toward the post-material ones (higher ones).

In my research into the dynamics of basic values, I have used the uniquely sad situation in my country where virtually everyone is forced to think primarily about obtaining the means for obtaining nourishment and securing safety for oneself and his family on a daily basis. My observations confirmed that the decrease in opportunities for satisfying their lower needs has forced people to alter their individual value systems. From year to year, during the entire period of my observations (begun in 1995), a rapid shift in this structure occurred for both men and women. Larger numbers of people began to find the values of physical safety and material well-

5

being more important. The intensification of the economic crisis in August 1998, unexpected by many, influenced this shift especially strongly. For example, by the end of 1998 the number of people who considered the values of material well-being and safety most important had risen from 42 percent in 1995-1996 to 81 percent for women and to 74 percent for men.

The cluster of values associated with man's primary social status (social relations with family and close friends, family, love), which should occupy a significant place in the individual's value structure, now retreats farther and farther into the background. (The number of people in the population for whom these values remain most important in their individual hierarchy does not change, however; their percentage remains at 25 to 30 percent.) Above all, the relative importance of such values as freedom, beauty, understanding, creativity, equality between people, and social justice, declines. These values are all pushed lower and lower, to the very bottom of the list of the individual's values, and become insignificant.

What immediate consequences can such a shift in the value hierarchy have for most Russians, a process which apparently is moving in a direction opposite to that which Inglehart records for Western societies? The hypothesis of "social swings of values," which I developed in 1995 may help answer the question. When social structure is stable, society strives, with the aid of socio-regulatory mechanisms (above all education), to attain an uninterrupted and steady movement "up" the scale of values and to secure the most favorable conditions for individual growth. When stable social development is disrupted, however, "social swings" occur. Regulating and controlling mechanisms begin to weaken; traditional socializing arrangements begin to fail; and the individual receives fewer incentives to make "positive social efforts." During the shift of priorities downward in the values hierarchy, the values of physical safety gradually move to the fore.

But the downward movement cannot last indefinitely, nor can it be massive, since that would threaten society's very existence. As a self-organizing system, society is forced either to sue more powerful methods of control and regulation or to form analogous new ones (such contingencies are extremely rare and always leave scars in the social consciousness; witness the Inquisition, the Fascist and other dictatorships). These instruments are switched on as the final means to accomplish a mass "homecoming" of a society's members to an acceptable level of ritual and social behavior. If the mechanisms prove to be ineffective, the process evolves to its extreme point, which leads to the destruction of that society.

But just as the "lower" pole brings with it the destruction of societal structure, so the "higher" pole means social stagnation. In attaining of the level of "socially valuable individuality," society turns into a system organized along lines of expediency, as described in Plato's *Republic*. We do not know whether there are examples of societies that possessed mechanisms powerful enough to achieve an "ideal state" for their members. Since the meaning of life is defined only in ideological and religious terms, this "ideal" state eliminates the goals of life for each person. In a real society, however, the individual is in a state of "stable disequilibrium," forced by virtue of "social drive" to move up the scale of values, but constantly aiming to roll downhill because of natural factors. The instability of social development which periodically arises in any given society forces most of its members to balance on the "social swings" of values development. We are now witnessing such a pendulum swing in Russian society, where these "swings" have essentially reached their lowest point.

## *The Transformation of Life Meanings*

Another important sign of the transformation of social consciousness in Russia is the change in the meaning of life. C.W. Morris's classical culture-independent typology of life meanings,⁴ supplemented in the 1960s and 1970s by Carl R. Rogers,⁵ provided the methodological basis of my research into the meaning of life for ordinary people in this country. I initially planned to study only the structure of people's preferences with respect to the meaning of their private lives. However, the recorded structure proved to have a certain temporal trend. The observations made during 1995-1996 indicate that, in four cases, a completely definite direction can be traced thanks to reasons of a social nature.

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There is a definite increase in the number of people in Russian society who consider that a simple, uncomplicated life based on the satisfaction of basic organic and material needs is most important in life. The proportion of those thinking this way has grown from seventeen to twenty percent over the past several years. An obvious interpretation suggests itself: the pushed-to-the-limit difficulties related to the necessity of physical survival increasingly force people to re-evaluate the meaning of life in favor of the most simple forms of existence.

At the same time, the number of people in Russian society for whom the meaning of life is found in activity, in an individualistic striving toward success, toward the achievement of a result, irrespective of difficulties, is also increasing. This goal, often considered not particularly characteristic of Russians (in our mentality it is usually associated with the "American individualistic model of life"), turns out to be a priority now for every fourth person! I do not possess reliable data for any period earlier than 1995 but, by indirect estimates, this life meaning was a priority then for only about seven to ten percent of ordinary people. One can believe that the reform years, in spite of all the negative consequences for the vital activity of people, have influenced this two- to three-fold growth in the number of those who rely primarily on themselves in their choice of life direction, rejecting the usual paternalistic patterns of our socialism.

At the same time, public preference for a paternalistically determined life direction, such as living for the sake of other people and aspiring to be of service to society, is decreasing. The number of people who identified this direction as most important element in their lives has decreased over the past five years by a factor of two: from ten to eleven percent to five to six percent.

Another socially oriented goal, to live in good conscience and honorably, participating responsibly in the affairs of society, has also declined in importance. According to my 1995-1996 research, those who indicated a preference for such goals comprised fifteen to sixteen percent. By the end of the 1998-1999 period, however, their number had decreased to less than ten percent.

All these changes and preferences in central life goals (impermanent and reversible, I think) can be interpreted rather obviously. The internal social ties that support Russian society's stability through the deep programming of its members' worldview are weakening. People feel less and less obligated to make unconditional sacrifices for the sake of society and its prosperity. At the same time, external circumstances, such as material hardships and the undeniable appeal of ideologies once unacceptable or forbidden also exert a most powerful pressure on people's consciousness and force them to re-evaluate life's meanings and priorities.

Meanwhile, I cannot ignore another important aspect: Russians, especially those living in villages and small towns, show a marked preference for what might be called a "Rogerian" meaning of life. In his day, the great psychiatrist Carl R. Rogers suggested adding to Morris's list of five basic life meanings a sixth and very important category: "to be who you actually are, to remain yourself under any and all circumstances." This meaning of life is precisely the one preferred by nearly 40 percent of ordinary Russians (although residents of major cities express a substantially lower preference).

I think that the explanation is easy to find here as well. During years of social instability and disorder, individuals are subjected to many tests and dangers threatening their dignity. Under these circumstances, it is essential to maintain respect toward oneself as an individual and to remain who one really is. Indeed, that is why preserving their own uniqueness and personality is now a primary aim for many Russians.

## Media Addictions and an Archaic Religious Revival

Although it is extremely complicated and sometimes even impossible to record changes in the worldview of my compatriots, I will focus on three superficial, and thus easily observable aspects: the mentality of ordinary Russians; their susceptibility to the influence of the mass media; and their religious and ecological awareness.

Russian perceptions of the world are now powerfully influenced by the mass media; compared to the Soviet period, this influence has even increased. An average Russian whose perception of the world was formed in a "homogeneous" information environment, who has in his blood a reverence for the printed word (and a comparable respect for the word as spoken from the television screen), is now often incapable of responding critically to the pluralism of opinions. In the flood of highly distorted news broadcasts carried over the various mass media channels, he has lost his reference points. The ideological vacuum, now over a decade old, coupled with the lack of objectivity and prevalence of disagreement in the news, offers ordinary Russians a less integrated perception of a world increasingly subject to market forces. This difficulty especially affects the young, the under-thirties. Moral traditions and ideological prisms for perceiving the world are being increasingly destroyed through the rise of deviant (addictive) forms of behavior, which are widely advertised in the mass media (smoking, alcoholism, drugs and sexual promiscuity).

Russians themselves concede that their immersion in the mass media is excessive, and may be harmful. More than half (53 percent) of the inhabitants of villages and small towns admit that they watch television and listen to the radio constantly every day (they hardly ever subscribe to newspapers now). Only about one quarter of the people "immerse themselves" in the mass media "from time to time"; no respondents said they were not involved with the mass media at all. Without exception, everyone watches two types of programs: the news and soap operas. News programs support the sense of participating in the world and a feeling of not being too isolated; soap operas help makes people to "forget themselves," become distracted from distressing experiences and the need to engage in activities required for survival.

Russians admit that the influence of the mass media is harmful. The most striking example which ordinary people everywhere in the country cite in support of this conclusion is the presidential elections help on the summer of 1996. Right after the elections and as long as twelve to eighteen months later, I was told again and again in interviews that most people were opposed to the then president, but voted for him under the massive influence of the mass media. They then immediately regretted their choice. In nearly every local community the electorate was divided virtually in half, irrespective of age or sex. In almost all the interviews, the respondents who had voted for the president expressed regret about it, thereby providing an indirect indicator that no less than half of the population is subject to the influence of the mass media.

Most ordinary people equate religiosity with devotion to the Russian Orthodox Church and in this form, religion ranks very low. But true believers are also few in number. Many respondents are certain --as far as they and their fellow-villagers are concerned--that there is no true faith. If something of that order does indeed exist, then it belongs more to the realm of new-fangled superstitions and remnants of pagan notions. Judging from the opinions of the people themselves, as well as from external evidence, it should be acknowledged that the level of religious feeling in Russia has not significantly increased over the past decade, notwithstanding the well-known church restoration projects undertaken by the authorities.

Extremely little authentic religious activity (attending churches and praying--matters about which it is possible to judge by the presence of icons in people's homes) takes place either in small towns or in villages. On the basis of certain episodic observations, it is possible to conclude that genuine, actively religious believers comprise only two to five percent of the Russian population.

The active religious propaganda of the past few years notwithstanding, the number of true believers has apparently not grown at all. It has become fashionable, however, to be a believer not only in an urban setting, but even in a peasant one; as a rule, the younger a person is, the more likely it is that he will draw attention to his religiosity.

The decline of religious feeling and the unexpected lack of receptivity to Orthodoxy can be explained to some extent by the fact that religious "surrogates" are developing in the public consciousness. First and foremost among these new forms is what might be called "ecological feeling."

This feeling, or, as it is customarily termed, "ecological awareness," is another indication of the nascent and radical change in the Russian worldview. In Soviet times, public indifference

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to ecological problems was as great as "ecological activism" became in the late 1980's and early
1990's. In my opinion, this turnaround was caused by the superficiality and "political
correctness" of the ecological views that were shaped principally by the mass media. This
relativity of ecological notions brought about a rapid change in these notions themselves. The
public's ecological awareness derived primarily from utilitarian, and to a lesser degree, ethical
attitudes to nature as a private domain (I would say, more precisely, to Nature as a private pantry
and warehouse of useful items). Russians see nature from the standpoint of its usefulness, profit,
and harmfulness; less often, from the standpoint of its preservation and protection against
destructive human activities. By the early 1990's, the ecological awareness of most village
dwellers was based on the dichotomies of "pollution-purity" and "usefulness-harmfulness."

In recent years, however, the ecological awareness of ordinary Russians has changed
perceptibly. The aesthetic and ethical components of relating to Nature have grown in
significance very rapidly and have become dominant, sharply diminishing the significance of the
utilitarian component. Nowadays, for example, up to 50 percent of Russians consider esthetic
principles, and another 28 percent ethical principles, as the primary determinants of their attitude
to Nature and their interaction with it. Only about ten percent hold utilitarian or negative
principles. Relating to Nature as to Beauty and Peace, not just as to something that is useful, is
becoming increasingly important for broad circles of ordinary people. In this trend I see an
indication that formerly suppressed religious feelings are undergoing a renaissance.

It would probably be accurate to say that the needs felt by many Russians for religion and
religious feelings finds expression not so much in seeking out the Church (this is why, in spite of
all the official efforts, the level of people's declared religiousness is so low), as in expressing a
renewed ecological sensibility, one that profoundly appeals to the Russian sense of archaic unity
with Nature. Given the vacuum of a worldview in Russia, especially a religious one, and given
the absence of the Orthodox Church's essential authority (not only the Christian church, I think),
it is entirely possible that these ecological notions can in future serve as the foundation on which
a new worldview will be constructed.

Even the examples I have described of the changes that have occurred in the three aspects
of societal consciousness over the last decade seem to me sufficient grounds for appreciating
how profoundly the Russian mentality has changed and for sensing how latent these processes
still are.

*The Decline in Government Authority in the Provinces*

Over the past decade, fundamental changes in Russian attitudes toward state power and in
political preferences have occurred. Until 1994, one could say with assurance that among
ordinary people, especially in village society, nearly everybody sympathized with Communist
ideology. But by 1996-1997 a strong political polarization had developed, leading nearly half of
the members of any given community to remain loyal to the former ideology, and the other half
to gamble cautiously on the new organizational and political formations and move over to the
camp, if not of the democrats, then of the "pluralists."

The political bacchanalia of 1997-1998 fostered among ordinary Russians an almost
complete loss of interest in politics. The conflict between the Communist and democratic
mindsets, in all its magnitude, disappeared into the depths of society: neither philosophy was
popular any longer. However sharply the popularity of Communism has declined, sympathy
toward its ideology and the Party still remains, whereas a deeply negative attitude has now
developed toward democratic goals. This attitude is everywhere. One can grieve, but that's
exactly what things have come to: the word "democrat" has become a bugaboo in the provinces.
This is why practically every local politician who hopes to succeed diligently avoids practically
all democratic slogans. The overwhelming majority of Russians in rural areas and small towns is
now completely apolitical. They intend to support whichever political movement that can offer
them, above all, strong authority.

During these years Russian attitudes toward state power developed along the same lines
as their political passions. Throughout the entire decade, government, both local and federal,

steadily lost authority, and in the eyes of ordinary people continues to lose it. If fear of the government was strong until 1993-1994, when memories of Soviet times were fresh and when people expected a swift change in the economic and political situation, by 1996-1997 an attitude close to indifference predominated. At the local level the government possessed ridiculously little authority, or none at all.

The power of the state wound up quietly and imperceptibly in the hands of the "brigadiers," the foremen--both in the literal and metaphorical senses of the word: foremen of agricultural cooperatives, which succeeded *kolkhozes* and *sovkhozes*, and leaders of criminal organizations. "Nature abhors a vacuum." Although their actual relations toward the local authorities are complicated, in general ordinary Russians see the semi-criminal, semi-production organizations in every region and district as the reference points of real power.

As far as recent years are concerned, the attitude of ordinary Russians toward central government authority has even become contemptuous, which never used to be the case. The complete impotence of the government is seen not just in the fact that people do not take it into account (even if local officials do not rely on the authority and power of criminal structures); rather, it is as if the government does not exist at all. (An amusing paradox: the executive branch in most regions has completely lost its power, but the number of its representatives has grown two- or three-fold almost everywhere: now there are as many as 80 staff members in almost every regional administration).

Very frequently (I think that this has now become the rule, although it is rather difficult for the outside observer to ascertain), regional leaders are tightly linked with local industrial and commercial firms and through them--to shadow organizations. At least, respondents everywhere often allude to such a chain of influence linking local officials with the shadow economy and in turn with the criminal world. In the eyes of the people, such relationships, that have had a chance to develop, consolidate and take root, are justified. More than that, from their point of view, these relationships are even expedient. In one of his final interviews, one middle level entrepreneur from Tver Oblast expressed himself in frank terms: "Why should I be afraid of racketeers? They are not the same as they were five or seven years ago; now they are people with understanding, they are always ready to see things from your point of view, make concessions, even help you. But when it comes to our government, that is the main racketeer, and the cruelest one, any one of us is the enemy: give it everything and it will strip you, deceive you, kill you." And this opinion is not unique, it is fairly typical for those who try to do business in the provinces. People have no positive expectations at all from the present government.

But state authority and order are undeniably necessary, and many people emphasize this in their interviews. The dominant theme in people's political preferences remains the same as it was at the beginning of the decade: "Give us a Boss--then we'd make an effort." People don't care in the least about specific parties and programs. They need central state authority. Strong and consistent. Punitive, but also able to protect the ordinary person.

There is no state authority like that now. That is why people give in to two customary choices. In the first and simplest case, they appeal to representatives of the criminal world; finding protection and patronage there, they increasingly gravitate toward them. Although only a "pseudo-authority," criminal organizations are consistent and effective. Locally the criminal world is more powerful than the actual governmental authority. Worse than that, with the passage of time the criminal authorities in the regions (where they are often major businessmen and merchants) are beginning to realize that they have become invested with a new function, one that has been imperceptibly transferred to them by government authorities. Frequently there are situations in which not just ordinary people but regional bureaucrats openly take pride in their connections with the criminal "authorities": this increases their influence and power. How can this situation not be compared with the Sicily of old or with present-day Colombia? But only within the last two to three years has this process accelerated and become evident.

*In Self-defense: The Appeal of Local Self-government*

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The population's second choice, in a situation where there is either little government authority or none at all, is the aspiration toward local self-governance. This trend emerged very clearly between 1992 and 1994. One of the most important reasons for it was the disintegration of collective and state farms, when Russians, especially in small villages, found themselves suddenly confronted with the necessity of assuring their physical survival, without either the money or an adequate farming system to do so.

The objective of supporting life with one's own efforts gave rise to an entirely natural aspiration: to regulate the life of the community independently of local governmental authority. In 1994, during my research in the Altai Mountain region, the resident of one village (Saidys) told me how, thanks to the self-rule organization which had formed in the village, they were protecting their rights in the face of hostile government authorities. This was a time of illegal activity by corrupt officials, who aided "shadow businessmen" in solving their problems at the expense of the local population. One of these businessmen, who was breeding Siberian reindeer in order to sell their antlers abroad illegally, tried, with the support of regional officials, to fence in an enormous stretch of woods which belonged to two neighboring villages. This land was the people's source of life, in the literal sense of the word. The conflict, in which ordinary rural dwellers opposed the combined forces of the "criminal world," the local administration and the militia, was resolved when the villagers dispatched two mounted detachments of young men armed with rifles to defend their territory. For a week, armed men from both sides stood at the boundaries of the forested area, until the businessman finally gave in. Does the reader feel here the romanticism of the Wild West? But this case had a happy ending. And that was as unusual back then as it is now.

Most residents of small communities are turning to the idea of self-rule slowly, but with ever-increasing attention. The degree of sympathy for the idea is, naturally, directly proportional to the weakness of the legally constituted local officials and the arbitrary rule of their criminal deputies. In the past few years no less than two thirds of our respondents stated that self-governance is either desirable or essential for their village or small town. Less than one fifth of the population opposed the idea of local self-rule. There are very few actual steps in this direction, however. Judging by the survey responses, less than one inhabited locality in every ten has put together the operational elements of self-governance; institutions necessary for it to function normally are lacking everywhere.

This deficiency is understandable. Only a handful of individuals have an idea of what really constitutes self-governance, or what political, social and economic conditions are needed if a small Russian town or village should want it. Not a single respondent expressed any notion whatever about specific mechanisms for implementing the idea of self-governance. At the present time we see only that the need for it is acknowledged, but that its implementation is not understood. The need is great, however. How long will it take to design an effective organizational model?

*Survival Tactics in a Time of Troubles*

Foreign scholars err when they talk about the low standard of living and the low quality of life in this country. What they actually should be talking about is survival, simple biological survival, a problem that much of the nation's population has faced for many years now. Survival means creating the minimal conditions that ensure the basic physical preservation of the individual. These minimal conditions at present are a small plot of land on which a family (a household) can grow potatoes, vegetables and fruit, as well as store hay for domestic cattle and fowl. In addition, a no less important task for many is stockpiling fuel (firewood or coal) for the long and cold winter. And, naturally, for all this one must have the strength to grow, store, process and preserve one's natural products. Most of the life energy of a great many Russians are now being expended in this way.

During the first years of the economic reforms many people found themselves utterly unprepared for supporting themselves and their families almost entirely autonomously. In that period quite a few people starved, entire settlements of people--you see, many families lived only

11

on their salaries and had no possibility of setting up farm plots right away. According to my data, in 1994-1996 up to one third of the children in the provinces were starving--not only in the forest settlements (where personal farm plots were not traditionally cultivated and people lived on their earnings and from hunting and fishing), but even in the villages (where personal plots had always been maintained). (The data on children was easier to obtain, but it implies that the adults in every third family were also starving). For example, in the Russian North, where economic activity was based on the large fishing communal farms, the population traditionally had no personal plots: on the average they had about 0.01 hectares of arable land per person and less than 0.3 head of any type of domestic cattle (in 1996 I counted only six pigs for 2,400 rural households).

The catastrophic state of household economies felt everywhere in the first half of this decade was offset rather quickly-- it couldn't have been otherwise--by the active search for new forms of life support. Many diverse methods of autonomous survival were discovered and put into practice in every settlement and region. In one case, people began to prepare and sell hay because a neighboring oblast experienced a bad harvest. In another case, they joined together into something resembling a cooperative for a time to raise calves or pigs so that they could sell their meat in town in the winter, bypassing middlemen. In a third case, people acted as impoverished landlords, renting out their fishing boats for a minimal price or hiring crews from among the even poorer workers from the Ukraine or Estonia.

## *Natural Farming: A New Life Support Model?*

There are a great many new forms of economic activity. They are all extremely simple. And the simplest, as well as the most widespread (and the most astonishing) is the model of life support based on a return to natural farming, which provides a full life cycle for a family. Within one or two years many Russians went from industrial large-scale agricultural production to the form of natural farming described by historians as typical during the sixteenth to eighteenth centuries and recorded in chronicles of twelfth and thirteenth century Russia! An enduring image of our contemporary socioeconomic life took shape long ago. During the Soviet period, society resembled a massive, durable, homogeneous platform created over almost completely uniform economic activity, like congealed fat in a cast iron pot. In our difficult time of crisis, the fat has melted, come to a boil and is roiling, a multitude of bubbles constantly forming and rising to the surface--new, hitherto unseen forms (more accurately, models) of life support. Nearly all these bubbles burst instantly and disappear; but after all, the pot will stop boiling at some point--crises pass--and some of the newly formed bubbles--new models of life support--will not burst, but will have a chance to set, harden and become a point of crystallization for a new economic, and perhaps also societal, order in Russia.

What is the nature of these possible points of economic growth? Will they be justified politically, socially and morally? The question is no joking matter. With each year I observe the appearance or development of a new "models of survival" which increasingly make me apprehensive. You see, for example, communities of entire settlements and towns, including women and children, beginning to support themselves by participating in transporting and dealing in drugs. And if this "model of survival" spreads widely and takes over nearly the entire population of even a small community, the government will be powerless to eliminate it. Isn't it better, while it's not too late, to promote the dissemination of other models for living?

## *Beyond Present Tribulations: A Heroic Legacy*

I am not inclined to make prognoses or study the long-term prospects for the development of Russian society. In writing this essay, I saw my objective as merely to record empirically the changes taking place in our society. Changes had to occur in any case because they constitute the fertile ground of any social development. It's another matter that these changes have turned out not to be the ones which we (I have in mind not the politicians, but the scientific and creative

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intelligentsia) enthusiastically forecast as long ago as 1989 and even 1991. Truly, it's like the old
saying, "We wanted to do better, but it turned out to be just the same."

And at the same time, all these changes are a completely explainable reaction of society to its own disease (and perhaps a predictable one, if only we could have known ahead of time). And because these changes can be explained, we can draw one seemingly trivial conclusion. We see that Russia is changing, changing hastily; without getting its bearings. But what is the nature of these hurried changes? New political and economic institutions. Perhaps the elements of a new morality. But we discover that everything born within the depths of society, apparently out of nothing, had always existed there in its potential form. In any new political constellation, the same prototype of the national spirit that defines both the uniqueness of a people and the transformations they are undergoing reveals itself--independently of whether society experiences good times or tribulations during these transformations.

It is often the case that sorrowful times for the people living through them turn out to be heroic times for their descendants. A changing Russia still remains the same Russia.

NOTES:

¹ In Russia major cities have populations of 500,000 and more; smaller towns have, as a rule, populations of 12,000 to 100,000 people; residents of worker and resort settlements are included in city populations.

² Abraham Maslow, *Motivation and Personality*, N.Y.: Harper & Bros., 1954

³ Ronald Inglehart, *Culture Shift in Advanced Industrial Society*. Princeton: Princeton University Press, 1990

⁴ C.W. Morris, *Varieties of Human Value*, Chicago: University of Chicago Press, 1956

⁵ Carl R. Rogers, *On Becoming a Person. A Therapist's View of Psychotherapy*, Boston: Houghton Mifflin Co., 1961

*Translated by Anya Kucharev.*

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Protecting Fair Competition in the New Russia:
A Revolution in Thinking, Not Just Economics

Natal'ia Fonareva*

Probably no single piece of economic reform legislation has had more trouble taking root in Russian soil than the law on competition. Throughout the twentieth century and right up to the 1990s, the national economy of the USSR and therefore of Russia followed the principle of "One country, one factory." And the Soviet economy, in turn, was built on the highly monopolized industrial base of pre-Revolutionary Russia. The organization of a manufacturing system based on a strictly centralized system of administrative command and on the totalitarian control of state property required well-trained personnel. Drawing upon the old imperial mindset, therefore, a management corps was formed in a relatively brief time, and these people were well adapted to the tasks of vertical planning and centralized management.

World War II, which created the need for swift mobilization and extreme centralization of human and material resources, strengthened the centrist and monopolist thinking of the management corps. The tendency was reinforced during the postwar years, when the devastated wartime economy was being repaired, virgin lands conquered, the space program launched, a transcontinental railroad constructed, and the arms race launched. Nor should we forget that the habit of state patronage, ingrained over many decades in the populace, led to a lack of experience in making independent decisions and developing private initiatives.

Thus, when economic reforms began, it was hard to find people who knew the basics of entrepreneurship or managers in any field who could function in a decentralized market economy under conditions of competition.

I should add that a centrally planned economy is characterized by a total and stable shortage of everything--except money. As a result, no director of an enterprise had ever faced a real problem of moving the product to market. Almost everything was sold as it came off the assembly line. Coupled with the monopoly on foreign trade, this system led to a lack of interest in the development of a distribution system, marketing services, strategic planning, modernization of production, or lowering production costs. The price that Russian manufacturing has to pay today for almost a century of "hothouse conditions"--that is, the absence of competition--is enormous. Therefore it is no accident that the enterprises that had exported a significant part of their production (raw materials, arms, military technology) were in much better shape once the Russian market opened up.

These preconditions determined the great difficulties faced in drafting and enacting legislation governing competition and in executing that legislation. Nevertheless, despite the relatively short period of its existence, several stages in the history of Russian competition legislation are already notable.

**Preliminary stage.** The passage in 1991 of the Russian Federation Law "On Competition and Limitation of Monopolistic Activity in Trade Markets" marked the beginning. This law

* Natal'ia Evgen'evna Fonareva - Born in 1957, Fonareva studied economics at the Plekhanov Economics Institute and earned her doctorate on the topic of consumer demand. Following a decade-long academic career in a research institute affiliated with the USSR Ministry of Trade, she worked in various government bodies tasked with economic reform, until in 1997 she was appointed chair of the State Antimonopoly Committee, which later became a ministry. After earning another advanced law degree from the Presidential State Service Academy, Fonareva was appointed in November 1998 First Deputy Minister for Antimonopoly Policy.

determined the basic positions of government policy on competition, including antimonopoly policy aimed at preventing and stopping abuses of a dominant position in existing markets, forms of unfair competition, and limits on allowable economic concentration of production and sales.

In July 1991 the government began establishing antimonopoly agencies. The Supreme Soviet of the RSFSR promulgated a resolution on the creation of a "State Committee of the Russian Federation on Antimonopoly Policy and Support of New Economic Structures." Its essential powers were defined by the Law on Competition.

In its first version this law existed until May 30, 1995. It drew upon the broad legislative and practical experience in regulating antimonopolistic actions acquired in countries with developed market economies: the US, Canada, Great Britain, Germany, among others. However, despite the common principles of antimonopoly regulation, every country has its own historical traits in the formation of the economy. For the Russian Federation, one of the most important is the extreme monopolization of the economy. The Law on Competition revealed its inability to deal with the economic processes in Russia that were to be subjected to antimonopoly regulation. By 1993, therefore, it was clear that the law needed to be revised. A new draft of the law, enacted in 1995, retained the initial policy concept, even though almost every article had been changed to some extent.

**The second stage.** This was the formation of a constitutional foundation for competition law. The new Constitution of the Russian Federation, ratified on December 12, 1993, guaranteed a single economic space, free movement of goods, services, and financial methods, *support of competition*, and freedom of economic activity. This constitutional norm was also supported by another: no economic activity directed toward monopolization and unfair competition is allowed.

**The third stage.** This stage in the development of competition legislation began in October 1994 and was related to the development and passage of new civil legislation. Article 10 of the Civil Code of the Russian Federation stated that the claim of civil rights could not be used in order to limit competition, nor could a dominant position in the market be abused.

Today on the average, Russian antimonopoly agencies examine each year roughly one thousand cases dealing with abuse of dominant market positions, approximately 30-40 cases of cartel arrangements and coordinated actions, and 200-300 cases of unfair competition. These agencies are working intensively to control economic concentration and counteract the monopolization of the economy (8,000-9,000 appeals a year on the average).

Along with the introduction and implementation of special legislation on competition, the government throughout the years of economic reform has tried to affect the fluctuations of prices and tariffs of the most important goods and services, particularly in economic sectors that influence organizational changes. This can be considered a special, **permanent stage** in the formation of a competitive environment.

The beginning of economic reform was characterized by an extraordinary upsurge in prices. The basic problem was that the increase in prices in individual branches and at individual enterprises was unequal. This provoked a crisis in sales for some enterprises and simultaneously a crisis of payments for others. Inflation inevitably led to a precipitous decline in production and the withering away of entire branches of industry. As early as 1992, therefore, the government considered whether to introduce price regulation for enterprises holding dominant positions in the market. In 1992 a special decree of the Russian Government was passed, "On State Regulation of Prices and Tariffs on Production and Services of Monopolistic Enterprises in 1992-1993."

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In practice, however, this kind of price regulation only stimulated higher operating costs among enterprises and reduced to zero their interest in developing a competitive edge, while also undermining the tax base. In 1994 the decree was not renewed. However, the government did not reject completely the implementation of its own price policy. At the present time, policy is being implemented primarily mainly as it affects the energy and raw materials monopolies, under the authority of the Federal Law "On Natural Monopolies" as well a number of special laws (for example, the Federal Law "On State Regulation of Tariffs on Electric and Fuel Energy").

Passage of the Law on Natural Monopolies proved extremely difficult. The legislative drafters encountered enormous counter-lobbying from the enterprises affected. As a result, enterprises in the housing system were stricken from the category of natural monopolies during the stage when the Duma was seeking to overcome the president's second veto. Thus, housing reform in Russia began in 1997 without adequate legal support at the federal level. Nowadays it is the local authorities who regulate housing construction and services, often resulting, as audits have shown, in unjustified rent increases, unequal progress in housing reform from one region to another, limited use of competitive bidding for municipal contracts, alienation of the public, and insufficient public control over the actions of local government officials.

To implement the Law On Natural Monopolies, presidential decrees in 1996 established federal services to regulate the electricity, communications, and transport monopolies. However, by 1998, during the Primakov government, two of the three regulatory agencies (transport and communications) were abolished by presidential decree and their functions handed over to the newly created Ministry on Antimonopoly Policy and Support of Entrepreneurship (MAP). This Ministry assumed the responsibilities of the abolished State Committee of the Russian Federation on Antimonopoly Policy (GAK) and the State Committee of the Russian Federation on Support of Entrepreneurship (GKRP). Of the three agencies, originally regulating natural monopolies, only the Federal Energy Commission of the Russian Federation (FEK) has remained independent, even though there have been numerous attempts to abolish it and turn its functions over to MAP.

Foreign specialists in competition law, including experts from the World Bank, severely criticized this reorganization on the grounds that a single executive branch agency cannot be both controller (antimonopoly agency) and controlled (agencies on regulating the activity of subjects of natural monopolies), without leading to the destruction of the checks and balances system in establishing prices and tariffs. Moreover, the critics argued, the political independence of a collegial organ--the Board, which takes all important decisions on prices and tariffs for the production and services of the natural monopolies--could not be guaranteed within the framework of a federal ministry: a change in government could occur before the expiration of the four-year term set for Board members.

In 1999 the government of the Russian Federation promised to reinstitute independent agencies to regulate the natural monopolies in transport and communications. Government regulation of the natural monopolies has led to a significant reduction in the rate of growth of prices and tariffs for these products and services as compared to the general index of industrial prices. However, this sphere of regulation is so large that many of its parts remain virgin soil, so to speak. This applies in particular to the activities of ports, transport terminals, and so on. There are many problems in devising modern accounting methods for these prices and tariffs.

Once competition developed, advertising began to play a greater market role. The content of advertising, aimed at servicing commercial turnover with the aim of stimulating sales, disclosed in the early 1990s excessive generalization and an obvious disregard of the norms on

unfair competition, specified in Article 10 of the Law "On Competition." Therefore, with the aim of protecting consumers against unfair competition in advertising, preventing and stopping inappropriate advertising that could deceive or harm consumers, the Federal Law "On Advertising" was passed in July 1995. The passage of this law can be considered the **fourth stage** in the development of competition law in Russia.

The need for such a law had become obvious by 1993. Particular alarm was caused by the sharp activation of so-called financial pyramids, which promoted business through a kind of "agitational" advertising that was unrestricted because of a legal vacuum in that area. The State Antimonopoly Committee did not manage to get serious funding from the federal government then, so the draft law was developed in its early stages by members of the Committee under my leadership. I should like to take this opportunity to thank Mrs. S. Reynolds and Mr. B. J. Phillips, experts from the Organization of Economic Cooperation and Development (OECD), for the interesting materials on legislation governing advertising in various countries that they kindly provided. Foreign experts from the United States, Germany, France, and Great Britain, as well as members of leading international organizations, especially OECD, the United Nations Conference on Trade and Development (UNCTAD), and the European Commission, have given us invaluable and multifaceted support in developing and implementing specific legislation throughout the years of economic reform.

By late 1993 a more or less balanced draft of the law on advertising was shown to representatives of the advertising business. Their reaction was unexpectedly strong and childishly egoistic. "We don't need a law like that!" We had to explain long and patiently that the law's main goal was to find a balance between the interests of advertisers, consumers of advertising, and the government. The law's framers, headed by me, spent a long time persuading the people in advertising and the mass media that the role of advertising in Russian society had grown so much that it was impossible to continue without legislative balancing of interests. Having accepted this unhappy circumstance, the advertising business decided to take the textbook approach: develop an alternative draft law and present it through deputies in the State Duma. This alternative version, naturally, had a rather declarative character.

At the same time, activities of the financial pyramids were assuming threatening proportions. As an emergency measure to fill the legal void, a version of the law in the form of a presidential decree was proposed: "On Protecting Consumers from Unfair Advertising." Promulgated in June 1996, the decree played a significant part in putting a brake on the financial pyramids, but it could not change the situation radically, since limitations on the legality of legal entities, as required by the legal measures that could be applied in these cases, could only be effected by federal law, as specified by the Russian Constitution.

In August 1996, the government of the Russian Federation approved a draft federal law on advertising and sent it to the State Duma as a legislative initiative. Mikhail Poltoranin, then head of the Duma Committee on Information Policy and Communications, presented the alternative draft law as a legislative initiative at the same time. The government draft was presented in the Duma by Leonid Bochin, chairman of GKAP. The battle was fierce. A major role was played at the Duma session by Sergei Kalashnikov, chairman of the Duma Committee on Labor and Social Policy (he is now Minister of Labor and Social Development), who, in a brilliant speech, put the issue plainly: If you are for state control over advertising--vote for the government draft; if you are for business control over advertising - vote for the alternate. The government version won. M. N. Poltoranin was invited to join the expert group for further work

on the government draft, but he replied with a sharp refusal, calling the government draft a "police law."

At the same time, the mass media started a propaganda campaign against the government draft law and its drafters, including me personally. We were inundated by direct and veiled accusations of corruption. One newspaper and one journalist had to be taken to court in order to defend our name and integrity (we won the suit, naturally). However, even after this, the war in the press did not abate. Among the "opponents," there were several authors of the alternative draft law who were quite vociferous. Despite everything, in July 1995 the Federal Law On Advertising was signed by the president of the Russian Federation, published officially, and became law. Thereafter, according to reports in the Russian mass media, the law on advertising received high marks from experts in the European Community and the Trade and Industry Chamber of the Russian Federation.

Like all laws in the system of competition law, this law on advertising had a difficult life. In order to inculcate its basic tenets into business practice and to teach the entrepreneurs the new rules of the game, the Antimonopoly Committee had to deal with quite a few precedent-setting investigations and win a series of difficult arbitrations. In 1995-97, the most painful, in terms of obtaining conformance with the law, was advertising of services relating to the use of financial resources of juridical and physical persons (including advertisements for the so-called financial pyramids), as well as television advertising for alcoholic drinks and tobacco products. Nevertheless, this stage in the formation of advertising legislation passed successfully.

However, we could not rest on our laurels. Advertising belongs to a sphere where too many people consider themselves experts (most people agree that in the past this expertise was confined to economics, teaching, and medicine). Therefore, soon after the Law on Advertising was passed, various laws (on medical preparations, regulation of the production and sale of ethyl spirits and alcoholic products, and others) prescribed advertising standards that contradicted the Law on Advertising. This trend complicated not only the work of the advertising business but of the antimonopoly agencies as well, because they monitored observance of the requirements of advertising legislation. Moreover, several regional legislatures tried to pass their own laws on regulating advertising initiatives, a practice not envisaged by federal legislation. In order to obtain unified rules of market economics in the production and distribution of advertising, we had to go through the Constitutional Court of the Russian Federation (the Moscow City Duma and the Legislative Assembly of Omsk Oblast had asserted the rights to regulate advertising). We won the case, but some regional governments did not drop their attempts to interfere illegally in the legislative process. Many illegitimate normative acts had to be rescinded through the procurator's office and the judicial system.

I had a reason for writing at length about the drafting, passage, and implementation of the Law on Advertising. Its history is typical of all laws that are part of the system of Russian competition law. Unremitting attempts by the business community to revise competition legislation present a real problem; businessmen are trying to delete the standards that do not suit them, despite the fact that these standards are just, meet the goal of balancing social interests, and conform to international practice.

Although they do not directly regulate competitive relations, Article 55 of the Constitution and Articles 1 and 49 of the Civil Code are important provisions designed to stop any illegal and unjustified limitations of the rights of organizations and individuals as well as to guarantee the normal development of entrepreneurial activity. Without such legal instruments, especially in a state with a federative structure, the effective safeguarding of such constitutional

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guarantees as support for a single economic space, the free movement of goods, services, and financial assets across the national territory, and the free use of one's assets and property for entrepreneurial and other economic activity not banned by law would be impossible.

In attaining the goal of supporting a single economic space, the antimonopoly agencies face formidable obstacles. When we turn to foreign experts in competition law, we often find that they do not understand the specifically Russian problems in applying legislation on competition. For instance, foreign agencies find that the main difficulty (and spend a significant share of their man-hours) is in applying "classic" antimonopoly (antitrust) legislation to detect, prove, and prevent anti-competitive (cartel) agreements. Russian antimonopoly agencies find that the lion's share of their time and effort goes into the struggle to surmount administrative barriers placed on the path of entrepreneurship. These barriers are the various actions and agreements of the federal executive branch, the executive branches of regional administrations, and the local government agencies that all limit competition. On the average, the Russian antimonopoly agencies review around fifteen hundred applications a year relating to such violations. The source of these difficulties is the federative structure of the state and the weakened influence of the federal center over the regions under conditions of economic crisis and budgetary deficits.

Just as executive branch agencies are establishing standards in a more orderly fashion, legislative branch agencies are enacting more laws limiting competition. Because this activity falls outside the jurisdiction of antimonopoly agencies, we must turn to the procracy and the judicial system for help. However, these court trials are prolonged and often result in significant losses for Russian or foreign business.

This state of affairs confirms the reason for the title of this article. It is not enough for the government to proclaim a transition to a market economy (even though it would be more accurate to speak not of a "transition" but the legalization of market relations that had been smothered by the administrative command system. Market relations are objective and they cannot be repealed or changed like day into night. However, when market laws are suppressed or ignored, the economy begins to function with negative results and becomes a losing proposition). Nor is it enough to develop and pass good laws and to form an appropriate governmental apparatus. In order for these laws to work steadily and throughout the country, there must be a revolution in people's minds. They must rid themselves of the psychology of dependence that was imbued by a system of total state ownership and state patronage.

Overcoming such an all-encompassing social defect has two aspects. One the one hand, it is important for people to learn to count primarily on themselves. On the other hand, people with power should stop using that power, whether by design or in error, for evil purposes: that is, by creating illegal benefits and advantages for "their" enterprises (enterprises in their region, or where relatives work, or where they have other connections) and squeezing out the outsiders. The government agencies must be reliably separate from business and must take fair decisions, without violating anyone's legal rights or interests.

It is no accident that both the Law of the Russian Federation "On Competition and Limiting Monopolistic Activity" and the Federal Law "On the Bases of State Service in the Russian Federation" prohibit entrepreneurial activity on the part of government officials. But is this ban always observed in practice? The experience of the antimonopoly agencies shows that it is not. What seems understandable and obvious in countries with a developed market economy often is not seen the same way in Russia. The use of inside connections between the authorities and individual enterprises, groups of enterprises, and even entire branches of industry and the habit of solving personal issues without caring about the legal interests of market competitors

(c4)

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leads to the destruction of economic ties, unfair competition, unjustifiable losses, and limitations on the progress of reform. One could easily find politicians who say (especially during elections) that they support the concept of a single nation, strengthened statehood, the development of market principles and assistance for Russian manufacturers--but who in fact behave in a completely different way. As a result, the problem of regional separatism today is just as acute as it was during the Tatar-Mongol invasion of the thirteenth century.

It is important for the country to have a broadly developed system of civilized rules and mores in business. Russian traditions in this area are extremely rich and interesting. However, the economic crisis, an unbearable tax burden, mass nonpayment of salaries, corruption and racketeering force many entrepreneurs who truly wish to live and work honestly to function in the shadow or semishadow economy. Until these problems are solved, the best-written codes of business ethics, loudly and publicly supported by everyone, will be nothing more than good intentions.

In speaking today of Russia's future, I would like to believe that it will be preserved as a single state, with an economy reborn on market principles, with a population that will feel worthy and respected not only at home but abroad. Without solving the problems of political unity and corruption, and without endowing a new generation with a fundamentally different mentality, this goal will be impossible to achieve. Therefore the government officials in Russia's antimonopoly agencies see their main tasks as developing healthy competition in the economy, overcoming regional separatism, helping Russia join the world economy, and creating a stable and flourishing state.

Translated by Antonina W. Bouis.

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Reform in Russia's Regions: The View from Novgorod

Mikhail Prusak*

Seven years of Russian market reforms have led to a number of serious and fundamental changes in the landscape of Russia's sociopolitical and socioeconomic system.

The transition from a centralized distribution system to market methods of managing the economy is almost complete, even though the market medium that has been created as a result of that transformation, its methods of functioning, and the legislative and legal base regulating it all still require perfection.

Russia's economy has taken on such market characteristics as free price formation, a two-level banking system that includes commercial banks, and competition among manufacturers; a majority of Russian enterprises have taken on true economic independence.

A sweeping privatization of state property has taken place in all regions of Russia, as a result of which the corporate and private form of property predominates in the means of production. Property has been divided into federal, regional, and municipal forms.

Conditions have been created for the primarily territorial management of the economy and the social sphere. Regional organs have taken on significant capabilities for self-government.

Private enterprise in small, medium, and large forms has been given legal shape and has significantly developed.

All these transformations were not goals in themselves; reform was meant to produce social results, manifested first of all in guaranteeing an economic upswing and the growth of people's wealth. In the first stage, these results have been modest; results have been more negative than positive. This, however, is typical for the early stages of radical socioeconomic transformations in most post-socialist countries.

The positive results of the first stage of Russian reforms include:

* Practically total eradication of the chronic shortage of goods and services that was prevalent under the Soviet system, which many experts called "the shortage economy";

* Suppression of inflation, which had reached critical levels in 1992-1994, reduction of the level of inflation to approximately 10 percent annually, a relative price stabilization and the equalization of price levels in the regions of Russia;

* Transfer of the greater part of housing into personal property of citizens;

* Appearance of a real opportunity for citizens and families to own land, the expansion of personal farms, and the introduction of the private farm system;

* Significant expansion of the opportunities to express personal work and entrepreneurial initiatives;

* Easing of opportunities to move, to change one's residence within the country and to travel abroad;

* Mikhail Mikhailovich Prusak - Born in 1960 in Ukraine, Prusak worked briefly as a schoolteacher before launching his career in the Komsomol in Novgorod. After a few years as director of a collective farm near the city, he was elected to the first freely elected Soviet parliament in 1989, where he quickly joined forces with the reformers. In October 1991 he was appointed governor of Novgorod Oblast and in 1993 was elected to the Federation Council. After completing his advanced degree from the Academy of People's Economy in 1994, Prusak was elected governor of Novgorod Oblast in December 1995 and reelected in September 1999.

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* Retention of free school education and medical services, state and municipal subsidies for housing and communal services, transport subsidies;

* Preservation of a low retirement age compared to international norms (55 for women, 60 for men), and state support of pensioners' security.

Among the acceptable economic results of the first stage are: stabilization of the exchange rate of the ruble, reduction in the fall of industrial production, partial restructuring of the branches of production, preservation of most of the functioning assets in life-support branches (energy, transport, and so on), an increase of exports over imports, and the accompanying creation of hard currency reserves.

At the same time, economic reforms require a more mature approach. Russian socioeconomic reforms of the last decade typically were introduced "from the top down." The reforms were conceived, implemented in programs and legislative decisions taken in Moscow, and then sent out to the regions of Russia. The federative principle clearly predominated in the first stage of the implementation of reforms, which dealt first of all with management on the federal level. The regions, by which I mean the 89 subjects of the federation (oblasts, krais, and republics), were forced to reproduce on their subfederal level the legislative and other normative and legal acts and resolutions that determined and regulated the course of reform, based on the decisions taken at the federal level. In a number of cases, the federal acts and resolutions had no regional continuity at all and simply became the general rule for all regions--a procrustean bed.

While recognizing that centralizing principles are necessary to reform the economy and that only a common federal policy can implement reforms regionally, it is important to understand the dangers of misinterpreting true federalism, underestimating regional differences, and overlooking regional interests. The Soviet system of managing the economy, which was organized along both territorial and industrial branch lines, was actually branch-oriented, under a management chain of "state-branch-enterprise." Overlooking the regional factor was in my view one of the main factors in the unsatisfactory development of reforms in Russia and in their loss of momentum.

Relying on foreign experience was inherent in the initial reform strategy. No one should think that this strategy was imposed by "evil forces" from abroad in order to send Russia down a false and destructive path, as opponents of the reforms contend. The opinions of foreign advisors played an important part in developing a reform program. Alas, these highly qualified specialists did not understand deeply nor did they take fully into account the nature of Russia's history, the low starting point of its command economy, the political situation in the country, the motley regional fabric, or the habit (ingrained over years of Soviet rule) of using command methods administered by the Party and state leadership in order to control all socioeconomic processes. Knowing well what the modern market system was like in Western Europe and the United States, the foreign advisors convinced Russian reformers to impose that model upon the Russian economy as quickly as possible.

Whenever public dissatisfaction and outrage over those national policies that affect state property or local industry are directed at the regional agencies, we are the ones who must try to ease social tensions, find ways of localizing conflicts, and do away with socially unacceptable consequences.

Any movement forward requires a clear picture of the departure point. What were the starting conditions in Novgorod?

I admit that very frequently we acted on intuition. But there were a few key principles which we took to arm us in our first steps, and we have tried not to betray them since. The first

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is to encourage **broad dialogue**. We agreed from the start that not a single strategic decision would be made without discussion with the heads of *raion* (district) administrations. If even one objected, we would not take the decision. It may seem that we complicated the taking of operational decisions, but practice has shown that having the right to veto, members of the team used it with a great sense of responsibility.

The second principle we used was that of **de-ideologizing**. We refused from the start to divide people into "former" and "present," "Communist" and "Yeltsinist." Instead we cared about professionalism. Thanks to that principle, we brought in the best people from the former CPSU Oblast Committee, the Executive Committee, and the legislative Soviet. At the same time we worked closely with the "marketers," bankers, and representatives of small and middle business. The officials had practical experience and knowledge of local conditions, while the business people had new work methods and the ability to find their way in the rapidly changing economic milieu.

A third important point: realizing that the basis of stability in every modern society is the **middle class**, which was only nascent at that point, we tried to concentrate on its formation. We defined our point of view as healthy centrism--the commonsense middle way, rejecting all radicalism, be it left or right. I must admit that sober common sense is my strongest human quality.

Of course, we know that there can be no swift or major economic results from privatization. The change of property forms by itself solves nothing. Therefore we developed an array of measures to support entrepreneurship. We also took steps, now well known throughout the country, to attract foreign and domestic investment, and we created an informed and innovative infrastructure.

What were the first steps in creating a beneficial investment climate?

How could we attract investment to our oblast, which had few natural resources, a weak infrastructure, a militarized industry, and a crisis in agriculture? In economic potential Novgorod ranked 63rd out of 89 subjects of the Federation. Our trump cards were only two: a favorable location on the Moscow-St. Petersburg route, and qualified people. But other regions had similar trump cards. To beat out the others, we had to create exceptionally attractive conditions for investors.

And then we came up with the bold idea of tax holidays, freeing investors from local and oblast taxes until the project had paid itself off, but no longer than a stipulated term. The idea was controversial; let us not forget that this was taking place in very difficult times, when the oblast treasury was empty. In those conditions, voluntarily giving up the collection of taxes from wealthy companies seemed almost blasphemous. There were accusations that we were selling the homeland down the river. People started adding up the alleged lost revenues. But if we had not decided to grant those benefits, there would never have been any revenues.

The Oblast Duma approved the draft bill on tax breaks for investors much more easily than could have been expected. Most of the Duma representatives were practical people, and they had come to understand a good deal about market economics. It was much harder to create the methodology for calculating the break-even point of a project. What seemed to be an uncontroversial working document triggered protracted disputes with future investors. We then turned to a respected auditing company, Arthur Andersen, and commissioned them to design the accounting methodology--thereby eliminating half the problems in our negotiations with investors, and shortening the long process of reaching an agreement.

By now Novgorod's investment legislation is known in business circles in Russia and abroad. The World Bank ranks our oblast among the top six regions of Russia in terms of beneficial investment climate.

The oblast law of December 1994, "On Tax Benefits for Enterprises and Organizations Located on the Territory of Novgorod Oblast," exempts enterprises benefiting from foreign investment which are producing and are registered on oblast territory from paying regional taxes until they break even.

Regardless of the size of foreign investment new enterprises are partially exempted from paying the territorial road taxes. They also receive a rebate of that portion of the value added tax that goes into the oblast budget.

The legislation also provides for:

* Reducing the profit tax for marketing costs;

* Excusing banks from paying profit taxes on assets allocated to direct investments;

* Preserving the same legislative conditions provided when the enterprises made investment decisions.

In January 1997 four regions of the oblast were declared economically preferential zones enjoying special tax regimes.

A system of guarantees for investors was created, with a Guarantee Insurance fund in the oblast budget.

Investors can now choose among a wide selection of unused manufacturing space, equipped with infrastructure matching the investor's technical specifications (gas, water, electricity, pollution controls and so on). They can use a databank called Free Industrial Spaces covering all the cities and districts in the oblast.

Administrators of the oblast, cities, and districts follow up on prospective projects, help solve problems and coordinate with federal agencies.

Liaison officers from the oblast and local administrations help projects get underway without interfering in the company's internal affairs and work with investors from project inception through the registration of the enterprise until the start of production and beyond.

There are different ways of seeking foreign investment. You can advertise yourself in the mass media, you can knock on the doors of various companies, you can simply sit and wait. In my opinion, the most effective way is to invite an intermediary or a matchmaking company that knows potential investors well. That approach suits us because their staffs are usually Russia.

A classic example of a successful investment project is the construction in Chudovo of the Cadbury's chocolate factory. The British company is one of the largest in the world, with twenty-six factories in 16 countries. The founding fathers came from an old Quaker family with strong religious traditions and high moral standards. When Cadbury's decided to build one of Europe's largest chocolate factories in Russia, they were flooded with proposals from various regions. And yet Cadbury chose Novgorod. The deciding factor was the system of benefits for investors we had already introduced. The site for the future chocolate giant is Chudovo, a small town happily situated at the crossroads of major transportation lines.

The basic reasons for the passivity of Western investors in the Russian market include: the desire of various agencies to improve their lot at the expense of a rich Western "uncle," bureaucratic red tape, the absence of a business culture, the unreliability of potential partners,

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and occasional ordinary bribery. If a region wishes to attract foreign investors, it must act forcefully and ruthlessly to remove bureaucratic barriers, whoever created them.

The Chudovo factory was built in one year with an investment of $151 million and today is one of Russia's most modern factories. Dirol, which manufactures Stimorol gum, is completing construction of a factory in Novgorod costing over $100 million. Taking Cadbury and Dirol as examples, we are convinced that we chose the right strategy for attracting foreign investment. And now, after several years, we can talk about the results.

As of 1 March 1999, the oblast had registered 170 enterprises with foreign capital amounting to $264 million and employing 18,600 people. The average salary at these enterprises is twice the oblast average. They produce almost 62.4 percent of the total volume of industrial production. These enterprises manufacture goods that are acceptable by world standards, meet consumer demand, and help the oblast attain a positive foreign trade balance.

Foreign investments over the 1994-1998 period have grown from $153 million to $552.5 million.

Industrial enterprises are implementing 47 investment projects supported by the oblast administration, with time frames for recouping the investment ranging from one to six years. In effect, the oblast is acting as an investor. The enterprises will be able to use over the period of the realization of these projects (1997-2003) around 585 million rubles saved from taxes they otherwise would have paid. We expect 36.1 million rubles to be paid in taxes from completed projects whose recoupment period comes in 1998-1999, while the tax benefits for investment projects are valued at 24.6 million rubles.

The events of 17 August 1998 did not affect the attitude of foreign investors towards us. Even in this extremely difficult crisis of confidence in Russia, none of our partners started packing their bags. And now around thirty new projects with a total cost of $500 million are being developed. The fact that the World Bank placed us in the top six most attractive regions of Russia for investment, sharing first place with Moscow on investment dollars per capita, helps us. The American Chamber of Commerce recognized us as the Region of the Year.

Although we have been discussing foreign investment, I must stress that our approach toward domestic investors is almost exactly the same. The nationality of capital should not matter, as long as it works for the oblast. Thanks to this approach domestic investors have fundamentally changed their attitude toward us. In 1996 the volume of financial resources derived from domestic manufacturers exceeded the level of budget financing for the first time. The investments of such famous companies as the Cherkizovsky Meat Processing Plant and Dovgan Corporation added up to 73 million denominated rubles in just eighteen months. For instance, the Novgorod Meat House received tax breaks in the first half of 1997 in the amount of 10.4 million rubles, and it invested 62 million in the reconstruction of the plant. This allowed them to start production of sausages at such a level that 10 percent of their products suffices to meet the demand of the oblast, and the rest will be sold outside. Domestic enterprises in 1997 alone spent 532 million rubles of their own money on modernization.

Thus, if we were to place tax breaks for investors on one end of the scale and economic benefits for the region on the other, it would be clear that both win. I would like this point to be clear to everyone involved in establishing a beneficial investment climate for the country as a whole.

Investment may be the most important link in the chain of economic reform, but it is not the only one. There are a few other key components without which we cannot move further. First of all, it is full-scale privatization. Much has been said about the so-called voucher

privatization; unfortunately, the "young reformers" chose far from the best way for reviving private property, leaving out most of the country's population. By the way, I do not rule out the possibility that a certain part of state property that was hastily handed over into private hands will be returned sooner or later to the state. But the main mistake the privatizers made was not establishing a link between privatization and the real sector of the economy.

We at the local level smoothed out the processes, but we could not have decisive influence, even though we did try to involve a greater part of the population than was the case in the country as a whole. Be that as it may, in just five or six years the regional program of privatization begun in 1992 had switched the proportions of state and non-state sectors in the economy.

In parallel we were dealing with another strategic goal--the formation of the so-called middle class, a stratum of the population that understood and accepted market conditions, adopted them, and at the necessary moment will support those who guarantee those conditions--thereby assuring its own existence. Throughout the world the middle class is a pillar of society, a guarantor of its stability. In our country it is just finding its legs; without government support may take decades to develop. Here I must add that we decided to support not just the future bourgeoisie, who don't care how they make money as long as they get rich. We focused instead on the manufacturers--small, middle, and large--everyone who was involved in productive business and not in clipping coupons.

If we had not systematically decided to support small business from the start, I doubt we would have had a stable social situation today. New jobs don't appear on their own.

Investment in small business is more effective, it requires fewer expenses, it recoups quickly, and it responds to demand more flexibly. The best example is a network of small bakeries that helped us solve perhaps the most painful problem in Novgorod.

When we appealed to entrepreneurs to submit proposals to deal with the "bread problem," we were inundated with projects for creating bakeries. With financial support, small businesses were able to furnish bread to every town and village in the oblast within two years. Today almost one hundred bakeries operate in the oblast; instead of the five or six types of baked goods we used to have, they provide the tables of Novgorod with fresh baked goods in a wide assortment.

In order to ensure effective contact between the local authorities and business, the Chamber of Commerce and Industry helps entrepreneurs get started, consolidate, and feel as if they exert real social power. Our Chamber today plays a notable role in developing economic strategy and regularly participates in almost all negotiations with foreign and domestic business partners.

Developing infrastructure to support small business development is another priority. A network of twelve infrastructure systems comparable to those in Moscow and St. Petersburg supports both new and established businesses, and has earned the oblast a ranking among Russia's top five regions in this category. The Novgorod State Fund for Support of Small Business and the Novgorod Leasing Company in 1997-1998 gave financial support to 190 projects for a total of 16.9 million rubles. This, in turn, had a marked effect on the revenue base of oblast and municipal budgets. Every fifth ruble of income in the oblast was earned in 1997 by small businesses.

Of course, these results are hard to obtain and just as hard to maintain. In this connection, we have to seek methods and means of support for business from within the region. We have stopped giving interest-free subsidies for small businesses, but we tripled the portion of

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budget resources for insuring small businesses through the oblast investment insurance fund--a
measure that will help solve the problem of securing collateral for a needed loan.

Small businesses provided more than 50 percent of new jobs during 1997-1998--affecting
about 70,000 people. For our region, a serious number. But there is something else. Investors,
particularly foreigners, are sensitive to the attitude of regional authorities to the development of
small business. After all, the economy of the entire world is grounded in the 40 to 60 percent
(and perhaps more) constituted by small business. Investors seek out these oases of stability.

So small business, I want to stress, is a strategic instrument for Novgorod's policy of
attracting investments. The more people are involved in entrepreneurship, the higher the
business activity of the territory. And if we do not have development resources in the form of
rich mineral deposits, we do have people with initiative who can use their hands and their heads.

The administration is also working on bringing in foreign resources for the development
of small business. For instance, together with three regions in Germany, Scotland, and Ireland
we are creating the International Center for Regional Development designed, in particular, to
promote the development of small and medium businesses. Financing is planned to come
entirely from foreign sources.

We have developed a land cadastre that will give a complete picture of land resources
and therefore prospects of activity. A logical step that followed was the creation of an ecological
cadastre.

How do we make money?

In the oblast we earn money principally from exports: mineral fertilizers and weapons,
vodka (legal business), timber and wood products, construction materials, and manufactured
products for the domestic market.

I would like to draw attention to a few new aspects of our economic policy.

Our priorities in allocating organizational and financial support for branches of the
economy favor enterprises that pay taxes on time, reliably contribute to the oblast budget, and
have sound development programs.

In particular, this priority ranking applies to timber processing enterprises, which are
planning to create in the year 2000 several plants for processing lumber and producing new
products for the oblast: plywood, large format veneer, and medium-thickness planks, as well as
new models of upholstered furniture.

Orientation on the lumber industry will lead in the near future to an increase in the
profitability of an important natural resource of the oblast. Even now this is happening because
we introduced timber auctions and leasing of forests, and we promote development of
entrepreneurship in wood processing. Last year the annual decline in the area of cleared timber
changed to an increase. The timber auction brought in more than 20 percent of the total clearing
and was ten times higher than in 1997.

In the year 2000 we plan to introduce mandatory certification of timber at the root and of
secondary forest resources, measures that will help increase lumber exports.

A very important factor in increasing product competitiveness is quality. In order to
stimulate an increase in the quality of production and services, and to help introduce effective
quality management, we have instituted an annual Quality Prize, the winners of which can for
compete in the national quality contest.

Industrial enterprises are hampered not only by unfavorable economic conditions but also
by outdated management. For example, the restructuring of the Splav company as the financial

and industrial group Kontur has allowed the firm to perfect its wares, expand its client list, and
conquer new markets.

But any financial support of enterprises has to have the support of the banking system.
Since cooperation with financial credit institutions depends on agreement on both sides, there is
a Coordinating Council for banks. In order to reduce risk on the part of financial credit
institutions who want to give long-term credit to Novgorod enterprises, the oblast budget
includes an investment insurance fund, now in its third year. We plan to form a tax fund for
oblast and municipal property in order to secure the collateral of oblast, city, and regional
administrations.

At the turn of the century, Russia is moving from one kind of state to another, a transition
that affects everyone in every city and village. How it will take place and how painless it will be
depends in great part on the people working today in the regions. The role of the "human factor"
is rising rapidly, as is the role of administrators and the teams they head. And the price of
mistakes is rising, too, especially strategic mistakes.

We have encouraged the development of new means of communication. Today
Novgorod is one of the few cities in the country that has practically every modern form of
communications such as Moscow and St. Petersburg have. Cellular phones, speedy fiber optic
lines, electronic mail, the internet, digital systems for processing and transferring information are
helping our business partners adapt to Russian conditions.

After infrastructure comes the analytical base necessary for modern business. An
information and analytical center quickly handles all incoming economic information and a geo-
informational system offers a database on land, forest, water, raw materials, and the ecology.
With this system in place, an electronic map of the oblast can instantly retrieve a full description
of any geographical point. We can now move from an intuitive approach to reforming the
economy toward a fully thought-out and instrumental approach.

It is a slow, painfully slow, process, but the traditional Novgorod industries are coming
back to life. The young designers at the Kvant corporation have developed a competitive
seventh-generation television. Armatures for atomic energy, produced by Splav, are back on the
world market. Producers of chemicals and alcohol and wood products have stood up under
intense competition. Each enterprise has had its own recipe for survival, but one factor they all
have in common--they are headed by talented, enterprising people.

And the reverse is true. Some enterprises did not enter the market economy;
management could not or did not want to take initiative, and wasted time waiting for someone to
come along and solve their problems. The company Volna, once known throughout the country
for its professional television equipment, wasted resources, let qualified personnel depart, and
lost unique technologies. That is the price of inertia.

In the early 1990s, following the collapse in prices, another collapse occurred--one of
public confidence. In an instant people lost the all-encompassing care of the state. This
paternalism had irritated and confined people, but without it, a great many people felt
uncomfortable. Previously the state, in taking away almost everything from its citizens, gave
them a pathetically small but at least a guaranteed minimum of support, from cradle to grave.
Now people were forced to take their lives into their own hands; the state retained merely a
subsidiary role in guaranteeing - and not always - the targeted support for social strata unable to
take care of themselves. For our population, which had grown up in a fundamentally different
society from that of Western Europe, this was a powerful psychological shock. Russians saw
that the government, without any explanation, was shedding one social obligation after another:

8

housing, free medicine, compulsory free education. Realizing that they could expect nothing
from Moscow, people turned their eyes to the local authorities. We became hostages to a
situation that was exacerbated by an obsolete and imperfect legal base.

It was clear that if we wanted to keep the oblast governable, we had to take care of local
government first. But in order to make local government a real entity, rather than something that
existed in name only, it had to have four components: legal, organizational, property, and
financial security.

Under federal law any settlement, be it city, town, or village, regardless of the number of
residents, could have property, elected organs, and a budget. In principle all 278 localities of
Novgorod Oblast could have declared themselves independent.

But we could not allow responsibility to be blurred through endless disputes among
various agencies about which had primacy and which cared more about the populace. While
giving regional administrative heads greater powers and making them key figures in local self-
government, we retained a necessary counterbalance in the form of an elected Duma.

The question of property arose in the very first months after my appointment. At one of
my first meetings with the district administrative chiefs, the question arose: Who would be in
charge of the former state property located on the territory of the districts? I responded almost
intuitively, by inviting the districts to take as municipal property whatever they felt was
necessary for normal activity. On receiving this unexpected gift, the administrators, who had
been prepared to battle for the property, paused to think. They saw that no one was planning to
pull the wool over their eyes, that the oblast wasn't trying to take the lion's share but was inviting
them to make the decision from below. The ball was in their court. The matter ended with the
districts getting almost everything they had asked for as municipal property: industrial and
agricultural enterprises, schools, hospitals, stores, sports complexes, houses of culture, transport,
and so on. A short time later, without any particular enthusiasm I might add, the districts took
over as their property all housing and communal services as well as children's institutions, which
had previously been divided among various agencies and therefore had become seriously
dilapidated.

Once they had assumed responsibility for almost the entire social sphere, however the
districts immediately raised the question of revenue. Once you say A, you have to say B. In
reforming the local self-government system, we had to make radical changes in the regional
budget. First, it became the real budget of the region, developed and confirmed there, and not
sent down from above. Further, it became a single budget, not a consolidated one, and no longer
was broken down into small "baby budgets" of village and town councils. The result: In 1995
we had nearly 300 budgets for local councils of various levels; in 1997, only 22, one for each
district. The strengthened oblast budget gives much more opportunity for reallocating resources,
particularly important when there is a deficit. It has a more stable revenue base and allows
decisions to be made on a single administrative level.

The next decision - giving the districts a significant part of their own revenues from the
oblast budget - was particularly difficult. The oblast is federally subsidized and has no spare
cash. But we realized that the districts could not support social services on their own, and we
decided to share honestly. We increased the quota of revenues diverted into the budgets of cities
and districts, including revenues from taxes on the property of enterprises and personal incomes,
as well as from educational institutions. For institutions that were not helped by transferred
revenues, we planned direct subsidies from the oblast budget.

9

Once they began receiving real income, local authorities felt like they could take on the
responsibility of paying salaries and supporting schools, hospitals, and cultural institutions. Now
the residents of districts do not have to seek what they want in Novgorod. Here is your money,
we said, now you handle it. Today the local authorities work much more clearly and
professionally than they did two or three years ago.

Another important shift has occurred in the relations between the oblast and district
administrations. Now there is a high level of mutual trust, allowing us to solve problems without
resorting to bureaucratic procedures. For instance, all the heads of administrations who
supported our investment policy have announced the same tax holidays for investors in their
local budgets, an action that has greatly heightened the attractiveness of the oblast as a whole.
Some districts, however, for all their desire to do so, could not guarantee even the

local budgets, an action that has greatly heightened the attractiveness of the oblast as a whole.
Some districts, however, for all their desire to do so, could not guarantee even the
minimal budget expenditures with their own revenues. In order to assure the disbursement of
salaries (for those working in the public sector), pensions, child allowances, and other protected
categories, we created a stabilization fund of subsidies. This fund, formed from oblast revenues
and donations from two of Russia's donor regions, has helped reduce social tensions in the
oblast's less developed areas and has helped to buffer these areas from the uncertainties of the
extremely irregular payments from the federal budget.
Federal officials in Moscow, unfortunately...

extremely irregular payments from the federal budget.
Federal officials in Moscow, unfortunately, are ready to share power with the regions but
unwilling to share money. Their second mistake is to have artificially separated local self-
government from the vertical hierarchy of state power. They have put fancy clothing on a bare
skeleton.
The Russian countryside has lived through a painful evolutionary period accompanied by

skeleton.
The Russian countryside has lived through a painful evolutionary period accompanied by
many shocks. The new village must be born naturally, without any Caesarian sections, and the
authorities must help, like an experienced midwife. Until there is a new peasantry capable of
working in market conditions, we need a transitional period during which the state- and
collective-farm structure will gradually yield to the private farm system.
Here is what this means in practice. The agricultural infrastructure developed over past

collective-farm structure will gradually yield to the private farm system.
Here is what this means in practice. The agricultural infrastructure developed over past
decades (tractors and other equipment, granaries, workshops, gas stations, that is, the basic
production resources except for animal breeding farms) will remain indivisibly in the hands of an
agricultural group - it doesn't matter what it will be called: association, fraternity, cooperative.
That infrastructure cannot be privatized and divided up.
Livestock belonging to unprofitable farms should be parceled out among private

agricultural group - it doesn't matter what it will be called: association, fraternity, cooperative.
That infrastructure cannot be privatized and divided up.
Livestock belonging to unprofitable farms should be parceled out among private
holdings. At first this will lead to a reduction in the general number of animals, but then this
number will be restored and grow. The farmers will decide for themselves how many livestock
they want to keep - cows, pigs, sheep, chickens, and so on. In my opinion, the optimal number
for a personal farm in our zone is three to five cows. That is the number that a peasant family
can service, it corresponds to the conditions of a Novgorod village with its pastures, feed base,
and mean of small mechanization. And that is the number that guarantees the profitability of a
small farm.
In essence the process of transferring public livestock to private farms in the oblast has

small farm.
In essence the process of transferring public livestock to private farms in the oblast has
become irreversible. Today more than half of the meat and milk produced in the oblast come
from the private sector. As for efficiency, a cow pastured in a private farm yields two and a half
times more than one in a collective farm.
The real challenge lies in combining the efforts of these small family-run farms, inducing

times more than one in a collective farm.
The real challenge lies in combining the efforts of these small family-run farms, inducing
them to coordinate their efforts, since it is obvious that they cannot function alone. That is the
role assigned to the former collective farms, which retain extensive infrastructure but have been

10

(c)

transformed into classic agricultural cooperatives - production, marketing, processing--based on the models of farming cooperatives through the world. Management, freed of inappropriate functions, can be reduced to five or six specialists who work on contract. Housing, communal, and social services are now the responsibility of the local government. The president of the cooperative and the specialists deal exclusively with production.

And what work could such a cooperative do? Why, almost anything. It can prepare hay for privately owned cattle. It can produce seed for its own use and for sale, it can grow flax, it can hire out to work other people's land with the equipment it has retained. There would be no salaries paid as such, but a distribution of their produce or the money obtained from its sale.

The next level of cooperation is regional. It is important to preserve the existing stockbreeding, seed developing, and soil improvement stations, transferring them to modern market conditions. We must allow the former state and collective farms to determine their specialization themselves. We tell them: If you decide to concentrate on planting flax, fine-organize yourselves around a flax processing factory. If you want to concentrate on meat products, good-consolidate around a dairy or meat processing plant. But no coercion and no help! Whatever help is necessary must come to the village in the form of tax breaks, reduced tariffs on electricity, and low-interest loans, as well as through the state's participation in creating the infrastructures of the village, schools, and medical and veterinary institutions.

As to whether buying and selling land should be made legal, I agree with the necessity of such legislation, but I have three essential caveats. First, the price of land must include the added value in fertility created by its former owner. For this we need a comprehensive but absolutely essential land cadastre. In our oblast this work is almost complete, and this gives us the right to consider the issue on a practical level. Second, agricultural land, once sold, should not be removed from agriculture. This point must be an inalienable part of any land contract, since we are dealing here with the country's strategic interests. I nonetheless support in every way the idea of selling land to foreign partners for industrial construction, which for the present is not allowed in our country.

Therefore, the key points in our approach to agrarian reform are:

* The evolutionary character of reform;

* A comprehensive approach, including a full selection of the governmental, legal, organizational, financial, and technological measures intended to be applied over the entire period of reform;

* The retention of indivisible ownership of equipment by state and collective farms for their joint use;

* Supporting the private farm as the basic social and production nucleus in the village;

* The transfer of the entire rural social complex to the local government authorities;

* The creation of a system of government support for all viable forms of agricultural production as well as of enterprises engaged in manufacturing equipment for villages; stimulating investments in this sphere and creating a network of processing enterprises for villages;

* Land reform legislation that retains agricultural land for those who work it;

* Training and education of farmers both in local schools and abroad (internships, exchanges, and so on);

* Stimulating low-cost housing in the villages for local residents and migrants; and

11

* Creating mortgage mechanisms for loans in the villages, bringing in Russian and foreign banks.

The question arises: why didn't we force the implementation of agrarian transformations before? I reply: the conditions were wrong and above all, people in the villages were not psychologically prepared to take their lives into their own hands. Now we sense that readiness.

If we wish to create a modern society, and we do, then the regional and federal authorities must be interested in a lively, resilient, and dynamic sociopolitical life. Political parties, unions, non-governmental organizations and movements, religious communities, and the press must all function legally and freely. Their relationship with the government must be built not on arbitrary bureaucratic rule but on a civilized, constitutional basis.

Close cooperation and mutual understanding among all government agencies, political parties and movements, trade unions, and manufacturers, regardless of the forms of property, have allowed our Novgorod team to develop a single economic policy, set priorities, and guarantee consistency and continuity in the transformation process.

In fact, how can one not be interested in politics if it is everywhere? Politics flows out of the television screen and newspaper page, lurks at election polls, and turns every friendly chat among friends onto its well-worn paths. And people who work in government cannot escape from politics at all, since politics is nothing more than relationships among people with respect to power. Any even slightly serious administrative decision has political ramifications, since it touches on the interests of some strata of the population and therefore can determine their future social behavior.

Of course, that is a rather vague sentiment with which few would take issue. But in practice, when different interests clash and the authorities are threatened with losing their power, the temptation arises to create under some excuse a régime that is extremely beneficial for some and much less so for others. From my own experience I can state that you have to overcome that temptation, because an illness that hides will make itself known later in a much more virulent form. Sometimes political opponents deliberately provoke the authorities to take hostile action, knowing that once government gets into a blind exchange of blows, it loses the trust of the people as it lowers itself to the level of irresponsible elements. To keep that from happening we must have not only well-considered tactics but a style of human behavior that allows us to maintain a normal dialogue with everyone, regardless of their views.

And how does the present sociopolitical situation look in our oblast? Over four hundred public organizations are registered, including fifteen regional branches of national Russian political parties and ten branches of public movements. Almost the entire spectrum of the country's political life is represented on the local level.

We see no fundamental differences in strategy and tactics between these local branches and their central headquarters, but judging by their behavior and their relations with local government, I think there is a more articulated desire for dialogue than on the federal level. We have had almost no extremist forms of political competition, even though we can't speak of some universal consensus, either. During personal contacts with representatives of various political parties, they tell us directly about their desire to get rid of us, in order to carry out their policies. Of course, we tell them just as frankly about our desire not to permit that, naturally, within the framework of a civilized political process. During elections various coalitions form: for instance, all the parties and movements of a democratic orientation formed a "United Democratic Center." And the leftwing parties and movements formed their own bloc.

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(c) 1987

In recent years nonpolitical public organizations have been quite active: a veterans' committee, a women's council, a consumer association, a committee of veterans of foreign wars, and a regional human rights center. Entrepreneurial associations are quite influential, for instance the Chamber of Trade and Commerce, the manufacturer's foundation, the association of peasant farms, a public council of entrepreneurs, and a league of businesswomen.

The nationality question has become more acute, and the migration of forced refugees from areas of the former Soviet Union has given additional impulse to the formation of ethnic cultural societies, such as the German Union, the Russian Congress, the Jewish Culture Society, the Armenian Community, and the Chechen-Ingush center "Vainakh." But even here the situation is quite stable, with no extremist manifestations.

We place great stress on relations with trade unions. Despite all the shocks of recent years, unions remain the largest and consequently the most influential social organizations. I cannot say that there is total unity between the oblast administration and the unions, as there was in Soviet times, when the unions were called the "schools of Communism." Society has changed, and so has the role of unions. Today they are in opposition to the authorities. And at first, our relations with the unions developed along lines of conflict. The unions peppered the administration with demands, without thinking about realities. The administration, on the other hand, tried to weaken the role of the unions, seeing them only as a source of unconstructive opposition.

This confrontation continued until we understood that the axis of resistance had to be converted into a triangle of cooperation. Now it looks like this: government-unions-employers. With the appearance of this geometric figure, our relations changed sharply. We have a three-sided agreement, there is a permanent commission on regulating socioeconomic relations. When a hotspot of social tension appears in a particular enterprise, we all go there together to deal with the specific situation and find a solution.

Of course, it's not all sunshine. Even with apparent calm the potential for the growth of socioeconomic tension exists. And even though we almost never have strikes, and people do not lie down on railroad tracks or go on hunger strikes, we feel acutely that if the economic instability continues, this calm may be misleading. Only when the economy is strengthened, only when we guarantee stable incomes for people can we have a guarantee against the social conflicts that have already cost our country so much.

And yet, no matter how important the economic transformation may be, the main changes must take place in the minds of people. Only here can there be a guarantee of the irreversibility of change. The success of reform will come only when people believe in it.

In conclusion I would like to note the following.

The guarantee of economic development lies in international integration. As for Russia's foreign policy concepts, I think that there is no point for the time being in inventing some new global strategy. It is much more important to start cleaning up the old piles of debris, come to terms with foreign partners on the simplest things, establish normal mutually beneficial relations, remove unnecessary barriers in international relations, guarantee our citizens the right to trade and travel, create conditions for bringing in capital, and cooperate more on the people's diplomacy level. Once we solve such purely practical goals, we will advance along the path to strategic partnership. Why should someone aim his missiles at Novgorod Oblast, where hundreds of millions of dollars of foreign capital is invested? In other words, the building of international cooperation must be built brick by brick from the bottom. The trouble with our diplomacy is that it is so focused on broad policies that it pushes specific issues into the

13

background. Yet it is the small problems that could hinder the development of relations between
enormous countries.

Traveling as I do to various countries frequently, I see that more and more ordinary people are freeing themselves of the "Russian threat" syndrome. Farsighted politicians understand this and will help improve conditions for Russia's return to the international home. And yet, much can be done for integration by developing direct international contacts in the regions. For instance, Russia's long-awaited entry into the Council of Europe was a success not only for the government's diplomacy but for people's diplomacy as well, thanks to the commercial, economic and cultural ties among regions, which could not be ignored. We are particularly proud that the Banner of the Council of Europe in 1997 was awarded to our oblast for special contributions to the development of European cooperation. It was great honor for me to be elected deputy chairman of PACE (Parliamentary Assembly of the Council of Europe).

Blair Ruble, director of the Kennan Institute in Washington, DC, invited me to give a lecture on Russian reform, and in analyzing our situation, wrote: "With a renewed interest in the Russian market, the Russian regions will be in strong competition for investment and trade dollars. The winners of the competition will be those regions that create the best legal and stable environment for investment. Some regional leaders are creating their strategic groups, have concentrated on that, and it is the leaders of these regions who are the rising stars in today's Russian politics. Other oblast leaders are paying more attention to domestic problems, and these regions continue to be backward. In the Soviet system power was centralized and more importantly reduced to homogeneity. Like the housing built for people, local Soviet authorities were also standardized and weak. The post-Soviet Russian experience of governance on the regional level is amazingly varied. The regions are getting a greater ability to set their own course. In trying to measure the successes and failures of market reforms in Russia as a whole, it is important to look at individual regions because of the differences in the economic policies of the regions."

I apologize for using this long citation, but I do so because it reflects a fundamentally different approach to dealing with Russia. In the past, foreign investors focused almost exclusively on the federal level, a completely understandable approach given the extremely centralized Soviet system. Now these investors are selective, preferring to work directly with the regions—but not with all of them, only with those which have created beneficial market conditions. And that strategic shift on their part has served as yet another stimulus for our efforts to advance reforms in Novgorod.

Federalism, Local Self-government in and National Renewal in Russia

Aleksandr Voronin*

*The Making of the Russian State*

Russian statehood owes its genesis above all to factors of climate and geographic space. Situated on a vast but lightly populated land mass that embraces many different climatic conditions and economic arrangements, and is home to over 180 ethnic groups, each with its own traditions, language, and culture, Russia throughout its history has been more the exception to the rule than the rule itself.

The making of the Russian state reflected a profound contradiction.

On the one hand, its enormous area meant relatively great autonomy for the territories from the very beginning. On the other hand, its geopolitical orientation toward both Europe and Asia and its lack of natural boundaries such as mountains or seas constantly generated internal threats that in turn required a relatively harsh central authority. According to military historians of the ninth through eighteenth centuries, Russia was at peace only twenty-five years out of each century. The rest of the time it was forced to defend its borders against invaders.

For example, in most of the southern princely states of ancient Rus', which were constantly at war with nomads, monarchical or princely regimes emerged, whereas in the north the Novgorod Republic invited a prince only to assume military leadership against a foreign enemy.

Under Ivan the Terrible, the administrative system combined harsh despotism and relatively broad local autonomy. The "feeder" system functioning at the time obliged the official (*voevoda*) sent out to govern each territory to pay a fixed sum into the tsar's treasury and to maintain a number of tsarist institutions. In all other respects, though, the territorial administration was organized at the discretion of the ruler himself in accordance with local conditions.

This system of state administration lasted until the guberniya reforms of Peter the Great, which introduced some uniformity in the administration of Russia's regions, although the guberniya (province) system acquired its final form only in the first half of the nineteenth century. At the time, Mikhail Speransky, Alexander I's favorite statesman, succinctly formulated the basic principle of the relationship between the center and the regions: "Leave them enough to survive and just a little more."

The guberniya reforms completed in the nineteenth century did not establish uniformity of rule. The Grand Duchy of Finland, the Kingdom of Poland, and the Cossack troops occupying an immense territory in southern Russia, Siberia, and the Far East enjoyed incomparably greater rights than any guberniya. Central Asia, whose traditional despotic regimes were retained as the

* Aleksandr Gennad'evich Voronin - Born in 1962 in Kostroma, Voronin studied to be a history teacher at the Kostroma State Pedagogical Institute, where both of his parents had taught. After many years of teaching history in Kostroma secondary schools, Voronin ran for city council in 1990 and in 1991 became its chairman. After he helped found the Union of Russian Cities in 1992, Voronin represented this organization during the Constitutional Convention, helping draft the Constitution of 1993. In March 1994 he was recruited to the Ministry of Federal and Nationality Affairs to start and head a special department on local self-government. In July 1996 Voronin was promoted to Deputy Minister in charge of local government issues.

region joined the empire in the late nineteenth century, was more a protectorate of Russia than a part of it.

The democratic reforms carried out by Alexander II significantly adapted the system of administration to the demands of the huge state. The main reason for changing the entire state structure was the agrarian reform of 1861, which abolished serfdom, produced a large number of small property owners and accelerated the emergence of a free market in goods. Social relations became more complicated and called for a fundamental change in the system of administration, a change that gave the new estates access to central authority and led to the devolution of many government powers.

The urban and land reform carried out in the 1860s and 1870s created institutions of popular representation at the regional and local levels. The reform most consistently granted affected municipal self-administration. Towns received their own sets of authorities and responsibilities and also acquired extremely broad economic rights and property. Thus, in 1913, on average in Russia only 50 percent of municipal budgets came from the collection of taxes; the balance came from the towns' own economic activities.

The main form of local self-government in rural areas was the village commune. In accordance with the 1861 Manifesto, the rural commune was "one or more settlements bound together by common economic interests." The commune bore immense responsibility for regulating all of life in the local community; it also performed a number of legal and administrative functions.

The model for local self-government that took shape under Alexander II proved unexpectedly resilient. Attempts to destroy the rural commune during the Stolypin reforms of 1907-1910 and under the Provisional Government of 1917 failed. Even the Bolsheviks could not wipe out urban and rural self-government until the early 1930s.

The Bolsheviks' assumption of power fundamentally changed the approaches to governance. The 1917 Revolution interrupted the natural process of forming a Russian state based on regional and local autonomy.

By 1919 the work of the special commission established in 1903 to determine the best model for Russia's guberniya system was for all intents and purposes complete. The commission envisioned changing the administrative arrangement of the state to conform with the principles of the highest economic efficiency. It proposed a sharp expansion of economic rights for the regions and a smooth transition to broad regional autonomy.

The Bolsheviks held other views of the state when they came to power, however. At the core of their notions of power were two fundamental postulates:

* the state is a means of violence perpetrated by one social group, the dictatorship of the proletariat, against another; and

* all economic life is based on the dominance of publicly held property.

Several basic conclusions followed from this approach.

First, given the dogma of just one property owner as personified by the state, all of Russia was transformed into a single unified enterprise, administered on the principles of centralized coordination and industrial branch management.

2

Second, this approach made it possible to ignore economic factors in determining administrative-territorial arrangements. Hence the ease with which entire territories were transferred during the Soviet period from one administrative subordination to another--the reason why there are today many conflicts in the Caucasus, the Crimea, and other former Soviet territories. For example, the criteria for designating a rural district included the principle that a specific number of Communist Party members must reside in the given territory.

Third, under this approach, any local political organ was a branch of central power. In other words, hyper-centralization, since only the highest echelon of power could make the final decision on any matter.

Public interest in self-organization persisted nonetheless and found an outlet in various forms of community self-administration, which achieved their greatest popularity in the 1930s, when the Stalinist model of the state was being shaped.

I would also like to say something about one extremely important consequence of the Soviet reforms. Because economic factors had lost their significance in determining administrative-territorial arrangements, Stalin in 1922 proposed putting the ethnic factor at the center of the national government system. It was during this period that many of our existing Russian Federation subjects--the republics and the autonomous okrugs--were established.

In this manner, the Soviet model envisioned a strictly hierarchical system of authority. Federal relations were reduced mainly to consideration of the factors in nation-building.

Reforms in the State Structure, 1985-1993

The political and economic reforms that began in the mid-1980s also bore the stamp of the Soviet world view. The first allusion to changes in the political course came in 1985. The logic of the first-wave reformers' ideas wholly corresponded to the logic of the system that produced them: an unlimited faith in the power of the state. In simplest terms, the entire reform movement relied on the thesis that a change in state power and strengthened public controls would lead to the increased effectiveness of state activity and, in turn, would fundamentally alter the very essence of the political and especially important the economic system.

Determining the effectiveness of the economic model was thus linked directly with developing civic institutions. However, this model almost wholly rejected the fundamental concept that government exists to serve specific interests of society and especially to regulate particular processes rooted in economic motivations. What is most interesting is that this model ignored a fundamental tenet of Marxist ideology, the correlation of the "base" and the "superstructure."

In the process of the subsequent search for a state model, the country was drawn into an endless series of reforms affecting the vertical lines of power in the state as well as the economy. Characteristic of such experiments were attempts to democratize industrial production activity itself. This boiled down not to liberalizing economic relations but to introducing democratic procedures in factory management.

Every successive change divorced the state system more and more from the system of economic relations, with results that were increasingly untenable. As a result, a paradoxical situation arose: the state, as the largest property owner, voluntarily removed itself from administering its property by giving the enterprises to themselves--or rather, by giving it to an absolutely uncontrolled caste of directors for plundering.

As it gradually lost its grip on the levers of the economy, state power seemed to hang suspended in mid-air. The Gaidar and Chubais privatizations that followed were an extremely awkward attempt to bring these two discordant systems into alignment. Both of their attempts were accompanied by a centralization of political power and a decentralization of economic relations. In other words, the power pyramid was turned upside down, then flipped back on its base, and once again back on its apex. The power vertical based on co-subordination, which was strictly centralized in 1993, proved incapable of administering a decentralized economic system.

These contradictory processes manifested themselves especially vividly when the new Constitution of the Russian Federation was being drafted. The main discussions once again revolved around the state model. Unconsciously, many regional leaders began to understand the need to decentralize the power vertical, but each level of government felt, for completely subjective reasons, that decentralization had to stop at their own level. As one participating governor remarked, "The people can elect me, but I'll appoint the rest."

Ultimately, because its provisions were so nonspecific and relatively abstract, the Constitution approved in 1993 made it possible gradually to begin constructing an integrated system for structuring society through the process of legislation.

*The Fates of Russian Federalism: Contemporary Views*

The historical retrospective given in condensed form above is not arbitrary. Russian notions about the best method of administering their country have been significantly influenced by the unitary tendencies of the Soviet period as well as by democratic principles. This whimsical combination, enriched by the political interests of various social groups, has engendered disparate patterns of interpreting a given social phenomenon or aspect of public life.

Even today in Russia there are still many supporters of the "firm hand," who perceive the changes under way as just more "playing at democracy," and who see federalism and local self-government as artificially introduced from abroad. Such moods have been actively exploited by opposition parties and movements in their struggle with the existing political regime.

However, a return to the previous model is hardly possible. Even the Communists would not dare propose a blind return to the old system; instead they have limited themselves to appeals for a more balanced parliamentary republic and the partial nationalization of former state property.

All the current errors and myths about Russia's state structure are rooted in its history. As a rule, these views exaggerate the role of one of the factors in the formation of a state model.

Let us examine this observation, using modern conceptions of the federative structure as an example. There are three basic groups of conceptions:

* the ethno-state approach to the construction of federative relations;

* economic federalism and local autonomy;

* a symmetrical federation.

The first conception stems from the idea that the federation should be founded on ethnic boundaries for the settlement of the ethnic groups residing in the Russian Federation. This

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assumes a distinction in the state structure between the ethnic republics and the Russian oblasts. This conception is the legacy of the Stalinist idea of the ethno-state structure.

Supporters of the second concept assume that only economically self-sufficient territories have the right to regional autonomy. This approach, as is well known, was propounded throughout the nineteenth century.

The third approach is based on the postulate that all subjects of the federation are equal among themselves and in their relations with the center. This approach has been inherited from Soviet times, when the legislation of the union republics was copied from the legislation of the Soviet Union.

As can be seen from the example cited, all the points of view are extreme and none could be implemented in pure form.

It is impossible to make federation subjects equal in the full sense of the word when the richest and poorest regions differ in wealth by as much as a factor of 17.

It is impossible to base the federation's construction on the ethnic principle when representatives of the Russian people comprise 87 percent of the population and in many ethnic republics make up an absolute majority.

On the other hand, it is impossible to ignore the fact that many ethnic groups that inhabit Russia had their own statehood before becoming part of it; it would be extremely dangerous to build the federation on the principles of pure self-sufficiency for a territory.

Consequently, the only path to constructing a stable state model is to consider all three of the above-cited conceptions. It is this path that the authors of the 1993 Constitution followed when they put at its core the primacy of human rights and property rights.

In addition, the Constitution assumed the existence within the federation of both administrative-ethnic subjects and administrative-territorial subjects. In formal legal terms, they are equal among themselves and in their relations with the federal center. However, the national republics have their own attributes of statehood and under their constitutions are explicitly recognized as states within the Russian Federation.

Constitutional reinforcement of the diversity of property forms predetermined the economic model, which is based on the decentralization of territorial administration. Anything else, in a state as big as Russia, would be impossible.

The federal structure that was proposed as a model for Russia's governance was not merely the only feasible solution to the turmoil after the breakup of the Soviet Union; it was an objective necessity: This is how Russia preserved its unity.

Disputes over the forms and degree of autonomy appropriate for the subjects of the Russian Federation were most contentious when the Constitution was being written and continue even now. The 1993 Constitution still has its share of critics. For example, Vladimir Zhirinovskii, leader of the Russian Liberal Democratic Party, proposes reviving the guberniya as the basic administrative unit for Russia. Leaders of the Russian Regions faction in the parliament, on the other hand, talk about expanding the rights of the regions and prescribing the rights of federation subjects in the Constitution.

Unfortunately, both of these ideas are extremely dangerous.

Re-examining the territorial boundaries between federation subjects would be a very risky business. Not that long ago, in the early 1990s, the Supreme Soviet passed a law "On Territorial Rehabilitation for Repressed Ethnic Groups." This law had extremely harmful consequences. One can say with complete confidence that the subsequent conflicts in the

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northern Caucasus were a consequence of this law. Under current conditions, when local and regional elites have already staked out their claims, any re-division of territory or property is fraught with grave potential upheavals and conflicts.

A revision of the Constitution's articles to reallocate authority along different political levels is no less dangerous. Compromise between the center and the regions was the fruit of a prolonged and very sharp discussion at the Constitutional Conference and afterward, during the treaty negotiating process. This Gordian knot cannot be cut at one stroke. Prescribing a single standard of competence for all federation subjects would hardly succeed if only because of the huge economic, spatial, and other disparities among the federation subjects themselves.

Most important, we have not yet exhausted all the methods of improving the Constitution, notably by devising legislation that can reflect a consensus on defining the authorities of federation subjects. No less important are the treaty negotiations between the center and the federation subjects that have been going on for six years. These treaties and related accords can ensure that the individual characteristics of each territory are taken into account.

The distribution of legal and regulatory authority by treaty arrangements is closely connected with the legislative process. When the treaties and accords are drawn up, some points get repeated from accord to accord, from treaty to treaty. This is the first signal that the legislator has introduced the given norms into the corresponding law.

On the other hand, the development of federal legislation constantly acts as a constraint on treaty-based governance. In the long term, it may become necessary to add to the text of the Constitution a number of powers exercised by subjects of the Russian Federation.

For the time being, however, proposals to revise the Constitution seem strange. Not even six years have passed since the document was ratified. Fundamental legislation vital to its development have not yet been passed; the system of power envisaged in the Constitution has not been established; yet some are again proposing that we drag the country through another redivision of power.

It also seems to me that today, at least on issues affecting the state's federal structure, the statement that "Russia is burdened with a new Constitution," as a number of politicians declare, is not appropriate.

## Local Self-government in Russia: An Eclectic Mix

At the beginning of 1997, after spending a long time shaping our own Russian model of local self-government, the Russian Federation adhered to the European Local Self-government Charter. In contrast to the way regional autonomy developed in Russia, this process proceeded logically and gradually.

Unlike the more sluggish evolution at the central and regional levels of power, the organs of local self-government which were elected in 1990 under the new law have come a long way from the Soviet system and are moving toward an understanding of the role and place of local self-government.

During this period, I was working as chairman of a city council. I remember very well how in the first council sessions each agenda would center on "The political crisis in the country" or "The current moment." City councils were utterly politicized. But a year later such issues had given way to problems of running the municipal economy, administering municipal property, and providing social assistance for the population.

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City council leaders quickly realized the enormous potential of local self-government. It was during this period municipal politicians quickly came forward and later defined quite clearly what local self-government should be like in Russia.

Any attempt to characterize briefly the constitutional model of local self-government must take note of its eclecticism. The right of the population to determine independently the structure of local organs of self-government is borrowed from the American model, the independent determination of the territory of local self-government, from the Japanese experiment of the mid-1950s; and broad economic independence, from pre-revolutionary Russian experience.

Russian local self-government is regulated at two levels of legislation--federal and regional. This dual legislative purview, combined with fairly simple procedures of dividing up and combining territories at the local level, assumes that territorial characteristics are taken into account.

As a result, different models of local self-government have taken shape. Most Russian Federation subjects (about 70 percent) have preserved the town and the rural district as the basic municipal entity. Many large federation subjects, such as Tyumen Oblast, Tatarstan, and Bashkortostan, where one *raion* (district) can dwarf some European states, have introduced local self-government through a smaller rural unit--the *volost* (made up, as a rule, of one or a few small settlements).

However, one can hardly say that the process of instituting local self-government is complete. On the one hand, given the stagnation of Russia's economy, the economic interests of the population of each specific municipality have yet to be determined. On the other hand, in many federation subjects that have retained the old administrative divisions inherited from Soviet times, the processes of decentralizing *raion* structures are still under way.

Once these processes are stabilized, the federal center will have decide how to refine the procedures for combining and dividing municipalities under a more permanent arrangement.

A number of problems the municipalities had never encountered before. Previously they had merely implemented decisions sent down "from the top"; now they are being forced to look differently at their territory, especially from the standpoint of identifying resources.

*Giving organs of local self-government the right to make independent decisions affecting a fairly wide range of issues has defined most of the problems they are encountering today.*

And when we try to solve these complex questions, we encounter a large number of errors and myths held over from the past.

## Regional and Local Finances: Intelligence vs. Myth

The struggle over the allocation of resources is the most painful and complex issue in the interrelations among levels of power. Because federal legislation makes no precise distinctions among the powers and responsibilities to be exercised at the central, regional, and local level, it is a complex matter to ascertain and justify decision-making processes on resource allocation.

The thesis advanced everywhere is that budgetary payments are not supported by equivalent receipts. In other words: "There isn't any money." And this despite the fact that Russia is unusually rich in virtually every type of resource.

Russia is indeed a very rich country. And difficult as it is to admit it, we have been corrupted by this wealth. According to calculations made in 153 municipalities of various types,

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there is a 30 percent cushion in the expenses section of local budgets. That is, if intelligent management were up and running, expenses could be cut by one third, perfectly calmly and in absolutely any municipal formation.

The income section, of local budgets conceal no less of a reserve. For example, in implementing work on the Federal Program of State Support for Local Self-Government in Bologoe, Tver Oblast (one of the most backward municipalities in that region), the following results were achieved in a year and a half simply by organizing intelligent administration: savings in the expenses section of the budget of 27 percent, and an increase in the income section of 37 percent. By investing 600,000 rubles in science and training, the direct economic impact totaled 15 million rubles.

Without question, such unutilized resources exist at every administrative level. But what is also interesting is that the residents of Bologoe never did feel the beneficial effects of this work because everything earned went into the budget of the federation subject, not their own.

This absence of economic and psychological stimuli is the reason that economic management in the territories is ineffective.

Unfortunately, we inherited our tax system for the most part from the Soviet unitary state. Graphically, it looks like this:

## TAXES

## POPULATION

This chart clearly shows that each level of power has one way to acquire additional income--by taking it away from another level. Tax reform legislation which is proceeding very slowly in the Duma, envisions boosting income levels at each administrative level so that other levels can stimulate development of their income base.

No less complex is the problem of leveling out budgetary income. This problem has been exacerbated by the tremendous differences I've already mentioned in the economic development of the territories. In this situation, the aggregate of funds not being redistributed by the federal center is significant. For this reason, it is of fundamental importance that we ensure transparency and clarity in the procedures for redistributing those funds. Otherwise, "budgetary wars" among different administrative levels are inevitable.

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The myth about the shortage of budgetary funds stems from the absence of stimuli for efficient economic management in the system of resource allocation. If to this problem we add the lack of a solution to the land question and the multiplicity of social benefits granted various groups of the population (70 percent of the urban population, for example, enjoys benefits in the form of low cost public transit), then the reasons for the shortage of budgetary funds become obvious.

*The Myth of the "National Legacy at Risk"*

One of the errors of inherited Soviet economics is the notion that the basis of economic potential consists of fixed capital, in other words, buildings and installations. However, in the postindustrial society in which we live, property that cannot produce income or satisfy society's demands has no value.

This phenomenon is understandable over the entire Soviet period, the industrial potential we have today was created through an immense concentration of effort by entire generations of Russians. They have an emotional stake in those bricks and mortar.

On the other hand, though, such notions constitute the most powerful of brakes on attracting investments to the productive sector of the economy. Because:

* local politicians look on foreign investors as "buying up the national legacy," and consequently from day one they try to extract as much income as possible from a business that has not yet started;

* local officials see their main task as the creation of fixed capital, not jobs;

* local officials have a hard time understanding ideas and projects that are not aimed at obtaining direct economic effects (energy conservation, among others);

* local officials concentrate on obtaining state investments in viable projects rather than investing in projects that will create favorable conditions for business;

* local officials fail to evaluate properly the firms engaged in consulting and banking services and telecommunications, for example, and in organizing business infrastructure.

Unfortunately, such misconceptions create unfavorable public attitudes toward foreign entrepreneurs, since most people think they are not providing jobs but "appropriating the national legacy."

*Casting Illusions Aside, Restoring Faith in the Future*

A Japanese proverb says: "God forbid you come to live in a time of change." It is in this phase of its development that present-day Russia now finds itself. But I'm not so sure this Japanese proverb is correct. You have to pay for everything in life. It seems to me that another, Russian proverb suits modern Russia better: "The only free cheese is in the mousetrap."

It is a time of change, a time when we must part with the illusions inculcated in us during the Soviet period. It is a time when we should make sense of our journey, when new elites can emerge, when thousands of talented people will have the chance to rise to the top of the political and business elite.

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But this is also an extremely difficult time. It's not easy to let go of your habits, especially your convictions and hopes. For seventy years we believed blindly in the might of the state. Now we have to believe in ourselves.

What is hardest, after all those years when they tried to convince you that the state was supposed to take care of you and your family, is realizing that there is no one to do that now but you.

Nonetheless, life is experiencing a revival. As we understand, eternal truths about the value of labor and our responsibility for our own life, and with the rebirth and development of Orthodox values, Russia will take its proper place among the nations of the world and will provide, at last, decent living conditions for its citizens.

The main thing is not to be sucked into changing the government structure again and rocking the boat, which, however slowly, is sailing forward.

In this respect it is hard to exaggerate the importance and the role of expert and intelligent public administration for the country. It is also hard to exaggerate the role of federalism and local self-government, which are exactly what Russia needs.

Translated by Marian Schwarz.

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# The New Stage of Economic Reforms in Russia: Thoughts on Policy and Practice

## Sergei Vasil'ev*

The crisis of August 17, 1998 signified a kind of intermediate termination of the economic reforms in Russia that beginning in November 1991, had lasted almost eight years

It would be no exaggeration to say that public opinion in Russia, and not only in Russia, perceives that period in large measure to have been a time of frustrated hopes. In fact, after the early period of high inflation and political instability from 1992 to 1995, the country found in the years 1995 and 1996 a certain stabilization in political and economic life, a rise in living standards, and a surge of hope for an exit from the crisis.

### Causes of the August 17 Crisis

The crisis of August 17, 1998 shattered these hopes. The initial credit of trust that the reformers had enjoyed for quite a long time, despite the many problems that arose in the course of reform-- a credit that was reaffirmed in the presidential elections of 1996--was now completely exhausted.

And it does little good to refer to the objective difficulties of the reform process. The main difficulties occurred during President Yeltsin's first term, when the reforms encountered the fierce opposition of the Supreme Soviet, the Central Bank executed its own policies at cross purposes with the Government, and the war in Chechnya began. It was nonetheless during this time that the basic achievements in economic policy were made.

In President Yeltsin's second term, objective conditions were much more favorable, yet the reforms bogged down. I cannot cite a single major achievement in reform policies during 1996-1999. Moreover, it was in that very period after 1996 that the conditions were created for the financial crisis of 1998. Notwithstanding many recommendations made by the IMF as well as leading Russian and foreign experts, for several years in succession national budgets burdened by huge deficits were approved and implemented.

In order to cover the deficits, the government assumed enormous domestic and foreign debt at very high interest rates. The national debt rose at a rate that made the August crisis inevitable, whatever the developments in world financial markets.

The "vacuum cleaner" of government borrowing, switched to full power, sucked out money from current cash flow. After a decrease in 1994-1995, nonpayments rose again, as did barter operations. The Ministry of Finance compensated for the undercollection of taxes by the emission of various surrogates for money, and the use of such offsets became widespread. The money that the state could not raise in the form of taxes it borrowed at high interest rates.

The country's debt problems were magnified by the irresponsible policies of the major Russian banks, which set out to attract money from abroad on a large scale, and by the equally

* Sergei Aleksandrovich Vasil'ev - Born in 1957, Vasil'ev holds a doctorate in economics from the St. Petersburg University of Economics and Finance. One of Anatolii Chubais' fellow reformers in the St. Petersburg city administration, Vasil'ev followed Chubais to the government in 1991 as the head of the newly established Working Center for Economic Reform, which drafted the legal foundation for the new market economy. Until August 1998 he held various high level posts in the national government, including Deputy Minister of the Economy. He is now chairman of the International Investment Bank and holds a chair in economic theory at the Higher School of Economics, as well as board seats in various foundations and research centers.

irresponsible policies of the Central Bank, which in effect exercised no control over the credit policies and risk exposure of the leading Russian banks.

## *The Results of the First Stage of Reform*

Now, more than a year later, when the short-term consequences of the financial collapse have been exhausted, we can take stock of what was accomplished during the eight years of reform.

The first and fundamental result was the construction of a market economy. The most important evidence of that is the functioning of the Russian economy in the post-August period. Although the exchange rate of the national currency declined sharply and the domestic financial market disintegrated, the Russian economy adapted rather quickly to the new conditions, and a compensatory upswing began much sooner than expected. In fact the economy resumed functioning normally within six months.

On the other hand, we see that throughout the entire reform period the dynamics of the basic economic indicators remained negative. Even though the estimates of domestic decline and fall of the GDP (-53% and -42%) seem strongly elevated in comparison with, say, the dynamic of retail trade (-13%), the decline continues. Data on capital flight are particularly striking--around twenty billion rubles a year, a figure that appears to be almost totally independent of fluctuations in the exchange rate and changes in macroeconomic and structural policies. Those twenty billion rubles each year constitute a real reserve of investment in the national economy, a reserve of economic growth. The government's inability to halt that capital outflow characterizes the first stage of reform.

Analysts of the Russian economy also note that against the background of a small decrease in the average standard of living (I believe that with the increase in the quality of consumption, there actually was no decrease in consumption), the disparity in living standards of the populace increased sharply. The coefficient measuring the income gap between the 10 per cent of the richest households and the 10 per cent of the poorest ones grew from 5 to 14--and this figure reflected only reported income, without including consumption in the shadow economy. Thirty-six percent of the population is below the poverty line. And because basic natural resources are being used up, the inequality in income becomes inequality in wealth.

This problem to a great extent derives from the structure of the Russian economy. Most of the added value in Russia occurs in a limited number of industries related to natural resources. In the course of creating a market mechanism, enterprises exploiting natural resources retained most of the income.

Moreover, the system of allocations to social support functions operates in a way that benefits those social strata who are better off rather than the poor. Such an inequitable system of transfers cannot be changed easily because the local interests who profit from the existing system block all attempts at change in the parliament.

To some degree the increased stratification of Russian society according to wealth is a fiction. In the Soviet era, the privileged strata of society received basic (but scarce) goods at reduced prices. Now that system has almost withered away, and the former elite has converted its privileges into property and income. So even if their standard of living has not changed, statistically their wealth is growing.

In general, I feel that the problem of income or property stratification is secondary. As soon as the Russian economy begins to grow, poverty will decrease and new opportunities to

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(c)

help the needy will arise. Naturally, the system of social allocations will have to be restructured
at that time.

One of the long-term problems of Russia's social development is the problem of
degradation of its human resources base. Historically, in comparison with the technological
level of the economy, the quality of human resources in the USSR was higher than in other
countries under comparable levels of development. Moreover, the quality of human capital was
(and still is) the most important factor compensating for the low technological and organizational
levels of the economy. Naturally, most of this human capital was focused on the needs of the
military-industrial complex (MIC). At the same time, the MIC stimulated the development of
many fundamental sciences and assured a very advanced level of higher education.

The extended and persistent cutbacks of the MIC has had an extremely adverse effect on
the financing of fundamental science and higher education and has led to the disintegration of
entire scientific schools--reducing the country's scientific-technological potential that will be
needed once economic growth resumes.

Along with the underutilized investment potential caused by capital flight, the serious
national problem of individual savings is related to the workings of the Russian banking system.
While most middle-sized and small banks grew to meet the needs of current payments (which is
natural and normal), the principal large banks increased their potential by operating with monies
from the state budget.

For it was these large commercial banks who were "empowered" by the Ministry of
Finance to handle government accounts. As a result, these banks did not look for resources in
the commercial sector but spent their time lobbying for money from the state. Incidentally, a
significant part of the chronic delay in budget payments was due to the "use" of government
funds by commercial banks. In a later period, the government represented not only most of the
major banks' liabilities but also most of their assets in the form of domestic loans.

It is not surprising, then, that the largest Russian banks had a very weak relationship with
the real sector of the economy, whether in attracting resources or in placing them. The resulting
crisis of internal loans was to be expected. Most of the large Russian banks went bankrupt, the
banking system was set back several years, and the public's trust in Russian banks was severely
undermined.

A basic reason for the 1998 crisis was the prolonged retention of significant budget
deficits that were financed by domestic and foreign loans. Russia's partial default on foreign and
domestic debt in 1998-1999 made it possible to balance current revenues and payments not tied
to servicing and paying debt. However, a situation in which Russia does not fulfill its foreign
debt obligations cannot continue for more than eighteen months to two years.

At the end of that period, the payments on foreign debt will rise again sharply, and efforts
will have to be made to balance the budget, through reducing expenditures as well as by
balancing payments and hard-currency deposits into the budget.

## *The Balanced Budget as a Political Problem*

The problem of a balanced budget is not a technical one. Nor is it a purely political one--as it
now appears to certain advocates of liberal reforms, who maintain that the "good reformist
Government" tried everything to balance the budget, while the Communist-dominated State
Duma tried everything to keep them from doing it. In fact, the Government played up to the

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leftist majority in the Duma by regularly introducing very soft draft budgets and the Duma almost always approved the government proposals.

The deeper problem lies elsewhere--in the relations between society and the state that have been inherited from socialism. Under socialism the state is totally separate from society, neither subordinate to it nor wholly responsible for the well being of its citizens. As a result, social demands under socialism never became extensive.

As long as the Communist repressive apparatus remained in place, these demands never surfaced. The political collapse of Communism, however, permitted growing social expectations to be openly expressed through a democratic political process, the election of a populist parliament.

In Russia, the situation is complicated by the fact that under the Constitution, the executive branch is independent of the legislature, while the parliament bears no responsibility for its own economic policies responsive to social demands. The formerly hidden conflict between society and state is now expressed in an open conflict between parliament and government.

Understandably, this conflict is a sign of the immaturity of civil society in Russia, a sign that citizens as a whole are not yet prepared to be responsible for the welfare of the country as a whole. But it is also clear that this conflict can be resolved only within the framework of the democratic process, through educating society and its elected representatives and giving parliament the responsibility for the formulation and implementation of economic policy.

In that sense, the experience of the left-of-center government of Evgenii Primakov is instructive. Primakov passed no populist measures and took an extremely hard monetary and budget line. It was the majority support of the parliament that helped his administration pass harsh measures that much more rightwing governments could not have passed. (This phenomenon is not a purely Russian one; similar effects can be observed in Central Europe and Latin America).

## *The Reformers' Political Mistakes*

In that sense, we can speak of the political mistakes and failures of the reformers. Excessive dependence on the president's power was a mistake. Yes, presidential power did guarantee for several years the continuity of the course of reform and its swift execution through the system of edicts. But at the same time, the permanent conflict between the reformers and the parliament led to an extremely narrow and unstable legislative base for reform. A number of key issues in building a foundation for a market economy--private ownership of land, for example, and the creation of a rational tax system--remain as far from solution as they were five years ago. As for failures, the worst was the inability to create a large rightwing political party calling for the creation of an effective market economy.

The rightist liberal party Democratic Choice of Russia, strong enough in 1993-1994, lost the parliamentary elections in 1995 and now has minimal support. The right-centrist party Our Home is Russia, which managed to create a rather large faction in the parliamentary elections of 1995, no longer has enough support in society. Yabloko, the largest democratic party, has the support of approximately 15 percent of the voters. However, that party alone is unlikely to be able to push through pro-market ideas in parliament; besides which, in Western terms, Yabloko is a social democratic party.

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The weak political support for rightist parties comes from the reformers' virtual defeat in the battle for public opinion over the results of the first stage of Russian reforms. Almost all the myths imposed by the Communists--the confiscation of the population's savings during price liberalization, the thievery of privatization, and the stifling of domestic industry--have by now become ingrained in the public consciousness.

The reason for this defeat was that the reformers paid too little heed to explaining their strategy. The successful post-Communist transformations and reforms in other countries show that society's acceptance of reform is almost more important than the actual content of the reforms. Society must receive information about what is happening directly from the main players. In Russia, unfortunately, the reformers always found policy more important than explanatory work. Their dislike of all ideology and propaganda, as vestiges of Communism, also played a role.

The period of stalled reforms in 1996-1998 has made it clear that reforms based primarily on the exercise of presidential power are no longer an option. The essential condition for continued progress is the formation of a government based on a majority in the State Duma. Even if that government should not be overly reformist, the real conditions of work will force it to take steps in the right direction, and the results achieved, grounded in legislation, will be more solid.

## Priorities of Mid-term Economic Policy for Russia

### 1. The Problem of State Debt

In light of the foregoing, the priorities of Russian economic policy for the mid-term period become clear. Bearing in mind the relatively successful functioning of Russia's economy at the end of 1998 and the beginning of 1999 under conditions of freezing the foreign debt, the key issue becomes debt restructuring. In my opinion, the key to renewing economic growth in Russia is not so much writing off part of the debt as limiting the annual payments of the debt so that they correspond to the economy's true capacity.

The technical problem lies in the fact that the usual amortization schedules are made with equal payments every year, while Russia's ability to pay its debts depends primarily on how world prices for energy and raw materials correlate. Under those conditions, an unorthodox measure, such as tying the schedule of Russia's foreign debt service to the dynamics of world prices for oil, gas, and other exported products, might be appropriate.

In turn, domestic producers of export goods could be assessed a special tax, the rates of which would depend on the levels of export prices. A similar scheme is already in use in Russia for determining the level of customs duties for oil exports.

A flexible method of servicing Russia's foreign debt would solve many domestic economic and social problems. Currency policy and the exchange rate is one. The financial crisis of 1997-1998 showed, among other things, that no policy of fixed or tied exchange rates can be established in Russia. A sharp change in foreign trade conditions immediately made the "currency corridor" introduced in 1995 indefensible.

In the near future, therefore, while the basic Russian exports remain energy and raw materials, Russia will have to maintain a floating exchange rate for the national currency. At the same time, in terms of guaranteeing beneficial conditions for investments, especially foreign investments, the government must keep fluctuations in exchange rates to a minimum. A special

5

currency tax would be enough to do this, since it would withdraw part of the exporters' added
profit related to increased prices.

Another function of that tax would be the smoothing out of differences in per capita
income in various branches of industry. If the special tax removes a significant part of the
natural rents, it will lead to the equalization of income as between industries exploiting natural
resources and those processing them.

## 2. The Role of the West in Solving Russia's Debt Problems

No matter which scheme for Russian debt restructuring is considered, the process of developing the necessary political conditions will not be easy. First of all, this process cannot begin until after the presidential elections in Russia in March 2000. Secondly, after a series of unsuccessful IMF programs in 1998, the West will want specific guarantees that an agreement on the restructuring of Russian debt truly will be the last in a series of debt agreements between the West and Russia and that the world community will no longer have to pull Russia out of a financial hole.

What would be an appropriate instrument for achieving such an agreement? Neither the IMF nor the World Bank could be this instrument: they are primarily technical organizations and are well-suited for solving technical problems. In my opinion, the failures of numerous IMF programs in Russia are precisely because the G-7 countries expected the IMF to solve political tasks for which the IMF was generally not designed.

If the West seriously desires to solve Russia's debt problem in a radical way, therefore, it will have to create a separate instrument. Whether through the designation of a special representative or the establishment of a working group, the Seven will have to enter into a direct economic and political dialogue with Russia.

For now, we can only imagine the rough outline of a future agreement. Most likely, it will involve legislative or constitutional amendments tied to non-deficit budgets at all levels; a total ban on foreign loans for all state or para-state institutions; the introduction of strict budgetary procedures; and an increase in banking controls.

One way or another, the agreement on restructuring foreign debt should guarantee certain external--and minimal--conditions for the development of the Russian economy. No less important will be efforts to solve domestic problems.

## 3. Balancing the Budget and Tax Reform

The key issue is balancing the state budget. At present, revenues of the expanded government (in IMF terminology, expanded government includes federal and regional budgets and nonbudget funds, primarily the state pension fund) are at a level slightly below 30 percent of the GDP, while expenditures are slightly higher.

Even though some Russian liberal economists insist that the budget of the expanded government in relation to GDP should be significantly reduced, in my opinion there is no possibility of that. Most expenditures of the expanded government are for social purposes: state pensions, education, and public health. Even though all these areas need reform, the reforms will not lead to a reduction of expenditures over the next few years. The reduction in inefficient government allocations will permit an increase in targeted assistance for the most needy.

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It is also unlikely that in the next few years there will be a decrease in defense spending, another large part of the budget. A third budget sector--subsidies for housing and municipal transport--does, however, offer room for cutbacks. The scale of subsidies is close to four percent of GDP, of which three percent could be saved. This sector is probably the only single large reserve for reducing budget expenses.

As for revenues, under a relatively low level of taxation by European standards--less than 30 percent of the GDP--they are derived from an extremely inequitable system of taxation. Honest taxpayers pay a very high (up to 70 percent) portion of their income, but a significant number pay no taxes at all. Therefore, the aim of reform of the tax system must be not so much a change in the tax rates as the creation of a simple, just, and effective tax system.

What should be the framework of that system? Since the most important goal of a tax system, besides the mobilization of revenues, is the stimulation of economic growth, the tax system must focus on those mechanisms of economic growth that will be functioning in Russia in the next few decades.

However, the current situation in that sphere does not inspire optimism. The most important element in the mechanism of economic growth is the transformation of savings into assets through the national financial market, the most important element of which is the banking system. Yet people's trust in commercial banks has been undermined, and most savings are kept in foreign currency or held as deposits in the largest state savings bank (Sberbank). Moreover, both hard currency and Sberbank ruble accounts are effectively kept out of investments. Sberbank, which has preserved its Soviet structures is incapable of handling its assets in a flexible manner, much less giving credits directly to the economy. Even if Sberbank should do nothing but attract the savings of the population, all decisions on its use of the money would be taken under powerful pressure from state organs.

In any case, given the absence of an inter-bank loan market and the extreme instability of the securities market, using the assets of Sberbank for the investment needs seems highly unlikely. The only direction in which there could be progress is mortgage lending.

The resources of commercial banks, formed by guaranteeing the payment flow for enterprises, could be used as investments, although by their nature and scale they are useful only for investing in working capital. Investment into basic capital in the near future will be accomplished by a highly limited number of methods.

The first such method is financing from personal profit. Under the conditions of a developing market, the norms of profit in successful companies will be very high for a lengthy period. This will allow them, first of all, to expand and modernize the existing plant, and secondly, to diversify their profile. The presence of this mechanism is seen in practice--a period of high profit in industry after the August 17 crisis did in fact lead to a sharp revival of investment activity.

The second method is secondary emissions of shares for strategic investors. In essence, this is the direct sale of enterprises under investment conditions. The investor receives a large (controlling or blocking) package of shares as a condition of his investment, because it is only then that he can influence the enterprise's management. In today's undeveloped stock market, buying small packets of shares is attractive only for a limited number of blue chip equities, but by the same token the ability of the blue chips to attract investments is much greater. There is a third method: construction of an enterprise from scratch, greenfielding, which is much more typical for foreign investors.

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In this manner, the main source of assets will be the enterprises and not the population at large. In this case, the tax system must be oriented to give maximum relief from the tax burden for enterprises and to increase the actual collection of taxes from the populace. And this does not mean an increase in the personal income tax.

Research done by the Bureau of Economic Analysis in 1998 shows a striking disparity between the data on income taken from the balance sheets of income and expenditures of the population and the total of personal income tax actually collected. The balance of income and expense is based on surveys of families; thus the amount of income of the population in this balance sheet reflects the income that the population readily declares and consequently does not take into account the significant shadow economy income.

So, if the shadow economy income were to be taxed even at a minimal rate, the income tax collection in the country would increase by two-and-a-half times.

The reasons for the low collection of income tax are rather simple. First of all, it is a system in which supplementary income is taxed through a mechanism of filling out tax declarations. Despite the technical development of the Federal Tax Service, it is unable to keep track of all the numerous sources of income. Secondly, at present Russia has a system of progressive personal income tax, with a limit of 45 percent, which is quite tolerable by European standards. However, because the size of a paid salary determines the allocations to the social funds (pension, social security), the top limit is actually 75 percent. With tax rates like this, the stimuli to evade taxation become very strong, especially since successful businesses have the greatest incentives for not paying taxes in the first place.

There are dozens of schemes for tax evasion. Using purely administrative methods to combat them is pointless, because in Russia the people are more inventive that the state. Therefore I propose dropping the progressive scale of taxation and the entire system of tax declarations. There should be only two tax rates: 0 percent and, say, 20 percent (Russians will not pay more than 20 percent anyway). The 20 percent must be deducted at every source of income. The poor will have a minimum that goes untaxed. The entire Federal Tax Service should work not on discovering people's income but on recovering excess monies that were written off through tax loopholes created by legislation.

This scheme would at least double personal income tax collection.

It must be noted that a similar approach was considered for the Tax Code of 1997, but it was rejected by the State Duma as too liberal and not conducive to the deputies' aim of taxing the rich to the maximum. In that sense, restructuring the tax system will be one of the most serious challenges for the new president, parliament, and government. The degree to which these bodies can resist populism in reforming taxation will be an important indicator of the readiness of Russian centrists to execute a responsible economic policy.

Increasing the collection of income tax from the population will also lighten the tax burden on manufacturers. This is now a heavy burden not because of the high tax rate on profit (30 percent), but because of all the other taxes that have to be paid on the entire manufacturing process--taxes on maintaining the local social infrastructure, for example, or payments to the road fund. Even though each of these taxes may be only small percentage of revenues, they may in the aggregate represent 50 percent or more of the profit. The liberal version of the Tax Code of 1997 proposed doing away with these taxes. That proposal, too, was rejected by the Duma.

In principle, the problem of taxation is not only a problem of rates but also of procedures. The rather strict procedures of working with taxpayers employed in developed countries will not work in Russia. Unfortunately, the concepts of human rights and freedom of enterprise are not

8

generally accepted here. Legislation giving broad powers to the tax inspectors and tax police have created a situation in which regional authorities use these agencies to put political pressure on entrepreneurs, while semi-criminal businesses use them to destroy competition. Thus, the legal and judicial protection of enterprises must be an important element in Russian tax legislation.

## *The Development of Russian Democracy: Scenarios*

The coming decade will be a trial for Russian democracy. Here we see several scenarios. The optimistic scenario: the new Duma and the new government achieve consensus on fundamental issues; an agreement is reached on the restructuring of foreign debt; the reforms continue, albeit not very swiftly; and the democratic government is strengthened and stabilized. In such a political scenario, a rapid return of economic growth is feasible.

In the second scenario, there is no consensus among branches of power, economic policy leans toward populism, and long-term restructuring of the debt has not been achieved. This scenario means stagnation in the economy and destabilization in political life.

Chronic inability of the existing government to bring order to the economy and growing instability in society could lead to a transition from the second to a third scenario--the scenario of "the strong hand." It presupposes the emergence, most likely through legitimate means, of a strong leader, one who at least for a time will change the rules of the game and secure the political authority to solve numerous problems that cannot be solved through democratic procedures. The consequences for economic policy could be either beneficial or catastrophic. Bearing in mind Russia's long authoritarian tradition, this scenario is highly likely, but extremely dangerous.

Thus, the politicians of the new wave have an enormous responsibility. The continuing decline and contentiousness in political life could plunge the country into a lengthy period of economic and political stagnation. Attempts to change would be blocked by interest groups tied to various sources of income. Geopolitically, Russia would turn into a Third World country.

## *Who Determines Russia's Future, and How*

This collection of essays seeks to show the future of Russia through the eyes of young Russians. This reminds me of the rebukes addressed to the reformers in 1992-1993, when they were accused of not knowing (or knowing, but refusing to tell) what kind of a society they wanted to build. To tell the truth, the very thought that we reformers were supposed to show the path to society irritated me. For the previous seventy years Russia had built a society according to a general blueprint--and nothing good came out of that.

The idea that the leaders choose the path of a society's development is profoundly alien to me. Society chooses its own path of development--sometimes unconsciously, sometimes through public ideology and the political process. The Russian reformers of the 1990s naturally had, and still have, their own ideas about a desired future for Russia. But they did not want to impose their ideas on society. Their goal was different: as the socialist economic system disintegrated, they wanted to create the basic conditions for a market economy and more broadly, for political democracy.

The key word for us was "freedom of choice." In economics, that meant freedom of pricing, freedom of choice of a business partner, freedom of selection of a contract type, freedom

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in foreign trade, and freedom in creating enterprises--economic freedom as the sole form of survival for the Russian economy, which had been almost choked to death by the former planned economy system.

In politics, it was freedom of information, the priority of human rights, and democratic government--political freedom as the ability of society as a whole to choose the path of its development.

These are things without alternatives. If there is no economic freedom, there will be economic collapse. If there is no political freedom, then society has no voice. Therefore, economic and political freedom are not elements in a picture of Russia's future, but the conditions of its creation, and in that sense they are beyond ideology.

However, life played a cruel trick on the reformers. The reformers saw themselves as technocrats, the creators of the foundations of civil society, not of civil society itself. It was understood (without being said) that other people, politicians, would work on the development of an ideology. Moreover, it was thought that the first ideological push for Russian reform would come from the intellectuals of the older generation, whom the reformers viewed as teachers and older comrades and whose priorities in questions of ideology and politics they accepted without hesitation.

But it turned out that many of the liberals of the first wave were unprepared morally for the reforms they had demanded. The dramatic political dynamics of the transition period had disoriented them severely. Many of the "engineers of perestroika" took rather conservative position. Some returned to academia, others moved abroad.

Therefore at the decisive moments of political battles the reformers were literally shoved out onto the political proscenium and forced to head a political party for reform. They had a rather clear economic program, but had no developed views on any other issues: organization of government, federalism and municipal self-government, international relations, social policies, and Russia's international situation. And this, of course, is one of the reasons for the weak performance of the party of reform in the elections in 1993 and 1995.

## *The Crisis of Communication in a Post-Communist Society*

However, the inability of the reformers to formulate their ideology is merely part of the larger informational crisis in Russian society. I attribute that crisis to the sharp changes in the structure of society that have occurred in the process of reform.

## *The Role of a "Parallel" Information Field in the Collapse of Communism*

As we know, one of the goals of the Communist regime was to achieve the social homogeneity of society. And to a significant degree this was achieved.

During the 1970s, a large middle class, with a good education and a rising standard of living, formed in the major cities. The intellectual demands of that class kept outgrowing the informational field of socialist society: the lies of official propaganda, the hypocrisy of social life, the low standards of official literature and art.

These people experienced a real informational hunger, greedily devouring everything that was the least bit different from the positions of official information channels. Since the Communist regime was gradually degenerating, the ideological pressure on the public did not remain absolute: occasional critical articles appeared, ideologically incorrect authors published

their books (albeit in small editions), unorthodox films were shown (on small screens). And
because of this informational hunger, every new article, book, and film became an event and then
a fashion.

Even under Brezhnev's style of socialism a parallel non-Soviet subculture had formed.
And since it was fashionable, this subculture involved ever-growing parts of the population, even
those who were not so inclined by virtue of their social position (part of the Soviet bureaucracy,
the most educated part of the workers). The growth of that stratum is reflected in the following
example: the print run of the only non-Soviet literary and political journal, *Novy mir*, at the peak
of the early Brezhnev thaw (1967) was 150,000 copies, while at the start of *perestroika* the
circulation of *Novy mir* and similar journals ran into the millions.

In this non-Soviet subculture, an elite evolved: the people who read *samizdat* and the
forbidden Western publications, whose creative work, even though it was subject to censorship,
took place in a noncensored context, a context that was obvious to its intended audience. These
people were not simply non-Soviet, they were anti-Soviet.

By the mid-1980s Russia had a well-educated and comfortable stratum of people living in
a single information field (of both official and nonofficial culture), reading the same books,
sharing the same non-Soviet values, and being ideologically oriented toward the anti-Soviet
intellectual elite.

In fact, the appearance of this class paved the way for *perestroika* and the death of
socialism. In the eyes of the educated class, the Brezhnev regime had died as early as 1980.
When censorship was lifted, the intellectual elite began speaking directly to the middle class,
without resorting to Aesopian language. All the new ideas were disseminated through the
information channels that existed already and were immediately absorbed by society.

## The Disintegration of the Parallel Information Field

However, the moment of complete triumph for the alternative culture became, as often happens, the moment of the beginning of its disintegration. First of all, the basis for that culture had vanished--the social unity of its bearers. Under socialism the entire middle class had been equal in its lack of rights and its helplessness before the socialist Leviathan. But when a minority part of the middle class, the most active one, went into business, its standard of living rose.

The other, larger part of the middle class, affiliated with the defense industries, the
fundamental sciences, and other sectors paid by the state budget, found itself in dire straits. Both
the absolute and relative standard of living for that part of the middle class fell, as did its social
status.

In any case, both groups became too busy (the one with business, the other with survival) for additional intellectual activities: they basically fell out of the former subculture.

And finally, a significant number of members of the middle class chose to emigrate--their
"non-Sovietness" had made them internal émigrés much earlier.

At the same time, the channels of informational interaction began dispersing.
Representatives of the non-Soviet cultural elite had absolutely dominated the mass media during
perestroika. In that period the mass media truly were independent and guaranteed reliable
communications between the elite and the middle class.

Beginning in 1992, however, the mass media, under pressure of circumstances, began
commercializing rapidly--not in itself a threat. Worse was the fact that journalists as well as

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publications became commodities. The mass media turned into loudspeakers of influence for interest groups. The public trust was lost. Independent journalism was marginalized.

And the disintegration of the intellectual elite followed.

In fact, this was a total collapse of the cultural environment that had given birth to perestroika and had guaranteed the fall of socialism. In the unverbalized plans of the reformers, this cultural environment was to have become the base for the development of a national reformist ideology and the foundation for further political action.

As a result, Russian post-Communist society obtained in the form of the market a standard mechanism of economic communication but it lost the ability to reflect, lost the common tongue in which public concepts of Russia's future had been formulated, and lost its socio-cultural unity.

Over the last few years I had the opportunity to discuss Russia's economic problems with the most diverse people--governors, businessmen, Federal officials, and academic researchers. The problems were always the same--but the interpretations were so varied that I had the impression that my interlocutors were speaking different languages and talking about different countries. Theoretically, their solutions of some particular problem might coincide, but their motivations were different. Therefore, it is harder for them to concur on ideology than to solve a practical problem together.

In that sense, for the near future, all the actions of the government authorities as well as the political groups in Russia will be either reactive or modified by group ideologies. In these conditions, the feasibility of formulating and implementing long-term policies is dubious. A typical conversation about Russia's future will sound like this: Here is what we would like to achieve--but things will develop in their own way.

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# Building Houses for the Newly Affluent Near Moscow: An Entrepreneur's Perspective

Kirill Gorelov*

Interview
Monday, 24 May, 1999
Moscow Oblast

"... our Corporation is working to create a new kind of product--quality of life. We see our goal not to build more houses, but to create a living habitat. In doing so, we are trying to combine a modern quality of life, the Russian worldview, and urban habits."

- From the Podmoskov'e Corporation's mission statement

I am 29 years old and was born in Moscow, where I went to a special English language high school. After graduation I started working in a bank, and a year later entered the Moscow State Institute of International Relations (MGIMO), where I studied international economics at night, while continuing to work at the bank. In 1987 I left the bank and entered graduate school at the Foreign Economic Relations Research Institute, where I had the good fortune to work in the department that helped develop the concept and practice of joint venture enterprises. This was a cutting-edge theme in a very interesting time, during the very beginning of economic reforms. Thus, I had a chance to work with the people who were at the beginnings of the new Russian economy, and the contacts and knowledge I acquired there helped me throughout the rest of my career.

I spent one and a half or two years there, learned a great deal, and in 1990, together with a friend started my very first company. Our firm worked with information technologies, mostly selling electronic publications. At that time it was a difficult business, since there was no culture of selling this kind of information. Growth was slow. I left and began another career, in real estate, another new area that emerged at that time. We started with simple land deals, buying and selling plots of land. Of course, at that time you could not legally buy and sell land. Instead the negotiating parties would draft contracts for provision of services, and one of the clauses would specify unlimited access to the land. In fact, using just such legal loophole, many people were buying and selling land. We made some good money on these deals, but eventually it got tedious and was no longer challenging. Aside from financial gain, there was no intellectual satisfaction from this business.

That is when I decided to move from land deals to comprehensive land development. This was a new topic at that time and even now remains relatively unexplored. Until very recently land development fell within the sole purview of the state; private companies never ventured into this field. When in the Soviet days people would get their long-awaited apartment, they could expect to have it come with infrastructure, the stores, roads, gas stations, kindergartens, and everything else that people need for normal life. After the privatization of 1992, however, the state withdrew from these activities and private firms began working in construction, road building, retail trade, sale of gasoline, and the like. There was no comprehensive approach to residential living. We realized that this was a niche for us to fill.

* Kirill Igorevich Gorelov is the president of Podmoskov'e Corporation.

We started in one of the subdivisions of Moscow, working with the local administration, which was receptive to our plan. With the help of scholars, sometimes from as far away as Novosibirsk, we put together a development program, which was subsequently approved. After that we approached the Moscow Oblast administration with a similar plan, but with the emphasis on construction of suburban houses and development of entire suburbs. Our firm was a pioneer in the movement to suburbanize Russian cities, an undertaking that is still in the early stages.

Because of its large and relatively affluent population, Moscow Oblast is a leading region in the construction of private houses. Although people would build their own houses, there was no engineering or social infrastructure to support them. Our goal, therefore, was to give our clients, beyond their homes, everything else they would need, ranging from plumbing, sewage and electricity to schools, hospitals, gyms, churches and shopping centers. Ideally, our customer should be able to live a full life in his neighborhood, instead of having to commute to Moscow for every kind of errand. In 1994 we submitted a comprehensive proposal to the Moscow Oblast administration, and after it was approved, we became the main subcontractor in this project. Thus was created the Podmoskov'e Corporation** an open joint stock company.

The main challenge that we encountered at first was the lack of familiarity among our people with the technologies of suburban house construction. In Soviet times most urban dwellers lived in high-rise concrete buildings, though some had custom-built dachas outside the city. People simply did not know what kind of private houses could be built using modern technologies. The challenge was to create an educated market of consumers; marketing became our number one goal. We started by creating an outdoor exhibition of model houses, where people would come and we would collect information about consumer preferences and the range of potential prices.

The next challenge was to set up mass production of houses. Of course, domestic industry could not supply us with the necessary parts, so we had to import pre-fabricated housing kits for assembly from Sweden, Germany, the Czech Republic, and Finland. Eventually we realized that this was too expensive, and we built a plant to make our own kits, using Western technologies. Before that we had visited many countries, including the United States, Canada and Europe, and we eventually decided to adopt the technology used in Sweden.

Simultaneously, we had to find money to back up this project. Fortunately, the Ministry of Finance received a World Bank credit, part of which we borrowed from the government, and we used the money to build the plant in May 1998. Today we are the largest borrower from the World Bank's residential housing credit program. We have taken out three loans of $5 million each and have already paid off part of them. The plant is now producing about 200 houses a year, and simultaneously began building whole suburban townships. Today our corporation has two such plants, as well as its own procurement service, an architectural design bureau, a uniformed security service division, our own advertising agency, as well as a subsidiary which provides our townships with support services. We employ about 400 people. Land development is a booming industry; we are not the only company involved in it, there are 10-15 others. However, we are the only company that has a comprehensive set of services and all the processes integrated in-house.

We have a very close relationship with the government. The firm helped create and is implementing two government programs: "Comprehensive Land Development" and "People's Housing." Among our largest clients are: the Ministry of Defense, the Ministry of Emergency Situations, the State Committee on the North, and several regional administrations. The Moscow

**Translated from the Russian, *Podmoskov'e* means the region immediately surrounding Moscow.

Oblast administration is one of our founding shareholders, together with the local administrations of several districts in the city and several construction companies. No single party owns a controlling stake, nor does the staff own any part of the company.

The Ministry of Defense uses our services to build houses for retired officers. In 1999 we built about 50,000 square meters of houses, including 25,000 square meters which were built by us, and the rest by secondary contractors. Usually we ourselves build whole townships, but sometimes clients invite us to work in existing subdivisions, where we build a private house for them. About half of our orders come from government agencies. We mostly work in Moscow Oblast. If in 1995 our sales volume reached $700,000, in 1998 it totaled $20,000,000. At the same time, the price of a square meter of living space has halved, from $1,600 to $750 today.

In addition to servicing the domestic market, we are also exporting our product to Kazakhstan and negotiating an export contract for Germany. German clients find our products to be on the level of European standards, but much cheaper than what they can find on their own market.

If Russia is to develop a truly mass market for individual housing, we must introduce the institution of mortgage financing. Although Podmoskov'e Corporation is not a financial institution, we have drafted several mortgage system plans, but without much success. The main obstacles to mortgage financing are high interest rates, the lack of long-term credit practices, and the absence of legislative framework. This is why there has been little or no development in the area of mortgage financing. Everybody likes to say that we need mortgage financing, but nobody wants to move beyond political statements.

Another even more fundamental problem is the legacy of the Soviet mentality. We have no laws today that would make it possible to evict a person from his house if he should fail to make his mortgage payments. To be sure, St. Petersburg has adopted a progressive law and even has built special housing for those who cannot keep up payments on their houses. In fact, the Russian mindset renders such a law useless. In the West people think of their house both as real property and as a source of investment, perhaps to be sold at a later date. In Russia, on the other hand, people perceive housing as virtually a constitutional right and as a social prerogative. Thus, any Russian banker, even were he to be armed with an appropriate law, would think twice before kicking a family out on the street. Morally and psychologically, eviction would be very difficult. And in today's economic conditions, when people have lost much of their savings, as happened in August 1998, you can imagine that suddenly hundreds and thousands of people could find themselves unable to make their mortgage payments. How can a banker take on himself the burden of evicting all these people? After August 1998, when people lost their money and could not make payments on the houses we were already building for them, we did lose some of our customers. However, without mortgage financing, we cannot make private housing available to the public, and here the state must take a leading role and adopt appropriate legislation that can create conditions for this market to develop. Our clients today have to put down 30 percent of the price in advance and then can make payments over the course of construction.

At one point the United States Congress considered granting Russia $5 billion to help mortgage financing. However, this initiative bogged down in the State Duma. Congress naturally wanted to have the Russian government guarantee this project with a special line in the federal budget, which must be approved in the State Duma. However, given the current budget deficit, when the government does not have the money to pay public sector employees and

pensioners, it is not realistic to expect the State Duma to approve such a "luxury" item as
mortgage financing.

On the whole, private housing construction has made huge inroads in the last several
years. Despite deficient legislation, harsh economic conditions, and rigid public mentality, you
can notice that people's ideas about housing are changing. Five years ago wealthy people would
build huge mansions to show off their wealth. Today the same people prefer to build medium-
sized homes. Before people would only consider the price of the house at the time of purchase,
but today they tend to be more concerned with the cost of its upkeep. Thus, our consumer is
changing very rapidly. Perhaps the greatest obstacle today is the low purchasing power of the
mass market.

We are targeting the so-called middle class, a long-term vision for us. Both of our plants
together could produce over 100,000 square meters of living space annually, enough for about
1,000 houses and apartments. We cannot limit ourselves to the very rich. However, the middle
class today is economically strapped, not to mention the rest of the population. A square meter
in one of our townships costs $750, so a typical apartment in one of our duplex houses costs
$75,000. Today our typical clients are relatively young (35-40 years old), usually leaders of
firms or organizations, second tier managers of larger companies, well-known journalists,
sportsmen, pop stars and some state officials.

We own 350 hectares of land in Moscow Oblast. When we look for new home sites, we
already know all the landowners around, as well as everything about the land, for instance, its
value in a given location, the approximate cost of laying engineering infrastructure, and people's
preferences as to distance from Moscow and landscape. We buy land from various landowners,
mostly local administrations, although there are more and more private owners, including
collective farms. With some collective owners, like the collective farms, we have to strike
special deals, because land ownership comes in different shapes and sizes these days. Some
collective farms privatized all of their land and made each member a private landowner, free to
sell his land or continue farming. In other instances, if a city dweller wants to farm, he can
petition a local rural administration to sell him land at a low price. When we build houses for
our clients, they also become owners of the land on which the house stands.

Very much like housing, considered to be a social right, people regard land as part of the
public domain and a source of their livelihood. Russians are strapped for money today, and if
the state were to allow the simple sale and purchase of land, very rich people or foreign
companies could come in and buy up most of the land. Russians, especially our impoverished
peasants, are victims of a system that has prevented them from making money and has rewarded
financial speculators. Russian society as a whole puts a premium on social justice.

In fact, there already is a functioning market for land in Russia. When in 1998 Governor
Dmitrii Ayatskov of Saratov Oblast signed a regional law allowing the sale and purchase of land,
he was lionized as a pioneer in this area, especially since the State Duma had failed to adopt any
federal legislation on the subject. In fact, it was just a populist gesture that is largely
meaningless today.

In our management approach we try to borrow some best practices from the West. For
example we have a mission statement that our entire staff helped draft. Because we operate on
very thin profit margins, it is important for people to have non-monetary incentives to work; one
such incentive is making them take ownership of the company's mission. All new staff members
have to undergo a psychological assessment process, which we developed with the help of our

partner, RHR International. Before we launched our plant, we sent staff members to study in Germany how to build houses. Our managers attend seminars on leadership development.

Many obstacles face our company, for example the lack of a coherent tax policy relating to housing construction. I think the government should stop taxing profits and added value, and instead start taxing property and land. It is also important to give people incentives to invest in housing by granting appropriate tax benefits. We have avoided conflicts with organized crime because we have kept our business completely clean and free of illegal operations.

We welcome Western investments in the Russian economy and in our industry in particular. Unfortunately, we have not seen much direct investment because of high risk and low levels of return. We operate with minimal profit margins. Foreign investment is not likely to pour in until the country has attained a degree of stability, and this will not take place until after the presidential elections. As to our own activities, we plan to continue to work hard and thus contribute to the process of transformation.

Interview recorded and translated by Natan M. Shklyar.

Where Society Must Rein In Government:
Restorative Justice and Preservation of the Community

Rustem Maksudov*

*Judicial Reform: An Elusive Ideal*

Professional attitudes toward the judicial reforms implemented from 1991 to 1995 in Russia can be divided into three points of view. The first is that judicial reform is under way, although attended by great difficulties. That is the view most frequently espoused by progressive jurists in the educational system.¹ The second is that judicial reform is complete because there no longer is a government agency charged with implementing the basic policy document, *The Conception of Judicial Reform in the Russian Federation*.² The third point of view is that held most often among the higher echelons of the Ministry of the Interior and the Procurator's Office: the steps taken in judicial reform have been a series of ill-considered actions all violating the normal operation of law enforcement agencies and encouraging crime.³ But one rarely finds in any of these viewpoints an analysis of judicial reform activity that addresses the ideal of justice that is inherent in the *Conception* document and the problems associated with making this Ideal a reality under the conditions prevailing in Russia today.

In analyzing the *Conception of Judicial Reform in the Russian Federation*, we can distinguish between the goals set for transforming the law enforcement system (internal goals) and those set externally for the government and society. The following words express the external goals well: "Into the arena of public life there comes an independent court that is free of selfish interests, political sympathies, and ideological prejudices, appearing as the guarantor of legality and fairness, and summoned to play the same role in society as conscience does among people".⁴ In fact this *Conception* has the goal of introducing Western judicial practices to Russia. According to the reformers' thinking, Party and administrative controls must give way to legal regulations. Western judicial practices, however, exist in the context of the rule of law and in the light of legal, social and cultural traditions.

Efforts to implement *The Conception of Judicial Reform in the Russian Federation* encounter the absence of the rule of law in:

* the structure of governmental agencies;

* the functioning of law enforcement agencies;

* the decision-making processes of governmental agencies; and

* the conditions in which the Russian population lives.

It is the last factor, in my opinion, that is the main brake on judicial reform (along with the absence of a new Alexander II). As the legal scholar V. Pastukhov notes, "The search for justice in the West is the search for decisions grounded in law. And that means a definite respect for both form and formality. A consequence of that is the undeviating observance of rules and

* Rustem Ramzievich Maksudov - Born in 1959 in Tatarstan, Maksudov studied history in Kazan State University, where he worked for ten years as a researcher. After becoming an activist in the area of criminal justice reform, Maksudov has trained in Western mediation techniques, which he has applied in numerous projects, as an expert and facilitator. He works with juvenile delinquents, has published numerous articles and teaches civil rights in the Sakharov Center in Moscow.

procedures and on the whole a reverential attitude toward procedural issues. In the
consciousness of the Russian people as a whole and in the professional consciousness of the
Russian legal caste, in particular, the identification of law and justice has not been made".⁵ For
Pastukhov, the way out of this dilemma is to work on reshaping the rule of law values that are
held by judges and the population alike. This approach, however, rules out developing an
alternative approach to legal reform that includes an analysis of patterns in the evolution of the
Western legal tradition and reflects the traditions of Russian life as well. Stressing the need to
form public awareness of the rule of law overlooks the fact that this awareness occurred in the
West not because it was "formed," but because it resulted from a long historical evolution; it was
not something that mass media specialists could artificially impose. In Russia, we will never
build a state based on the rule of law in the Western sense. Not because we are so uncivilized,
but because it is impossible to retrace someone else's historical path. At the same time, while
rejecting any direct transplanting of historical experience, we should:

* restore the operation of the legal system in our society and develop significant social and cultural forms for making it work;

* analyze the effectiveness of the judicial system as now organized; and

* describe the organizational structures needed.

Legal systems offer citizens a choice of civilized methods for settling social conflicts. In that sense, the right to oppose coercive and uncivilized forms of pressure (bribes, blackmail, manipulation through mass media) is a method of social control. But the Western rule of law as it is now organized judicially, at least in the opinion of some legal theorists and criminologists, is undergoing a crisis.

The most important change is what Professor Harold Berman (Emory University) calls the introduction of all-pervasive government control over basic aspects of citizens' economic and social life and the legal consolidation of that control.⁶ In Berman's view, these changes "endanger the objectivity of the law, since they make the state an invisible party to most legal actions among citizens and juridical persons".⁷ The crisis of the Western legal system is manifested in:

* The perception that contemporary law in theory and in practice is less an integrated entity of codes, an organism, a *corpus juris*, than a hodgepodge of short-term decisions and contradictory regulations, connected only by general methods and techniques;

* The perception that law does not have its own history;

* The perception that changes in the law occur only in response to external pressures;

* The perception that law is increasingly an instrument of the state; and

* The tendency, widely observed, to subordinate many separate jurisdictions and systems to a single central program of legislative and administrative regulation.⁸

The most important problem of all is that justified methods of state control and their technical inclusion in bodies of existing law⁹ lead to consequences destructive to human collectivity.¹⁰ As legal scholar Nils Christie observes, "Contemporary systems of controlling crime illustrate a lost opportunity to include citizens in solving problems that are of direct importance to them. Our society is a society of monopolists in problem-solving".¹¹ In almost

every Western country there is a tendency for the growth of an enormous army of specialists, whose role consists of overseeing and correcting human behavior.¹² These specialists *know* how to solve problems and often solve them in an authoritarian way. Depriving people of the chance to participate in finding ways to solve conflicts and reduce criminal behavior, however, destroys basic social connections and relationships.

How does contemporary justice work toward the destruction of human collectivity? To describe this, we will use an analysis done by Professor Howard Zehr.¹³ His approach concentrates not on the internal procedures of justice but on its functions in society. For instance, when most people characterize the Western legal tradition, they speak of judicial procedures. For Zehr, however, the most important aspect of justice is its social and cultural significance. The role of modern criminal justice is to punish the individual who violates the law--punitive justice.

Crime in the existing justice system is understood as an action forbidden by law. Violation of a specific law leads to a punishment. The process of justice focuses on establishing innocence. Determining whether a person is guilty or innocent is accomplished with the help of appropriate legal procedures. If commission of a crime is proved, punishment is meted out, the severity of which is also determined by law. The most important role in this process is played by specialists--investigator, judge, prosecutor, and defense attorney. The real feelings of people, their desire to find their own solutions and the impact of the criminal process on relationships remain in the shadow. Only if such feelings help them solve their tasks (establishing guilt and imposing punishment) are they of interest to the justice professionals. The direct participants are in fact "extras" in a professional competition. The existing system of justice, with its competitive procedures, deepens the conflict between people and leads to an escalation of cruelty in society. Added to this are the consequences of having very large numbers of people in prisons, where they learn criminal behavior.

The lobbying efforts of law enforcement agencies and corporations that profit from expanding the "war on crime," as well as the rhetoric of politicians and the mass media, depict this situation as normal.¹⁴ Gradually a significant part of the population begins to support efforts directed toward increasing criminal sentences, expanding the staff of law enforcement agencies and the courts, and constructing new prisons. A vicious circle is created and exploited by certain politicians and representatives of law enforcement agencies who maintain that their efforts are in response to public opinion.¹⁵

*The Crisis of Collectivity: Starting Point for Transforming Russia's Judicial System*

In considering the judicial structures for resolving social conflicts that would not lead to the destruction of social ties, we can learn from the methods used in Russia's pre-revolutionary *obshchina* or commune. Formal judicial conflict resolution never did take hold in Russia as a historically significant principle. Even the rural district courts that appeared after the emancipation of the serfs in 1861 did not become the basic form of conflict resolution. In the opinion of Nikolai Pavlov-Sil'vanskii, "In establishing the regional courts, the law chose a unit that was too large; therefore the regional court did not satisfy the needs of life and the village *obshchina* court continued to exist side by side with it".¹⁶

What models were used to resolve conflicts in the *obshchina*? One example relates to the life of the Russian peasantry in the late nineteenth and early twentieth centuries. At the start of the century, on instructions from the Russian Senate, young barristers were sent to rural areas in

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order to learn what was happening in villages with regard to legal decisions affecting the
majority of the population. One of the lawyers described the following event: "The elders
judged the case of two peasants who had an argument over a piece of land. As a result, the
following decision was taken: 'A is right, and B is not right. Therefore A will get two thirds and
B only one third of the parcel of land.' To which the young lawyer said, 'If A is right, he should
get all the land, and if he's not, then he shouldn't get any land at all. How can you take such
decision?' The elder replied, 'Land is only land, but they have to live in the same village to the
end of their days'".¹⁷

The elders in prerevolutionary Russia resolved conflicts by considering collective life as
an unconditional value. Communal methods of conflict resolution existed parallel with the work
of official justice, limiting the sphere where punitive measures applied. The Bolshevik
Revolution destroyed this mechanism of preserving collectivity. The Communist collective
expressed first and foremost the supremacy of communal relations. ¹⁸ Under Communism,
communities organized along true collective lines became obsolete. The basic form of life
became the communal nucleus, where mutual hostility, denunciations, the desire to survive at the
expense of others, and the basest of human instincts reigned supreme.

After the revolution, Party committees at various levels took over the functions of the
organs that had resolved conflicts before (especially in the cities). Administrative and repressive
measures linked to the pursuit of political and economic goals were the principal method for
regulating conflicts and combating crime. In the USSR, the courts were only one of many
mechanisms for executing Party decisions. ¹⁹ The judicial reforms of the 1960s, reflected in the
Criminal Code of the RSFSR, sought to strengthen the integrity of investigations and to
eliminate the Stalinist habit of falsifying cases. But even in the post-Stalinist period, the
functions of the courts remained essentially the same. Suffice to say that right up until 1989 a
people's judge in Russia was not allowed to have a legal education.

In the early 1990s, the Soviet system of Party control collapsed, and with it the
established methods for regulating conflicts.²⁰ And economic reforms gave rise to many new
kinds of conflicts. Today we can see the ubiquitous destruction of normal human ties and
convivial contacts. The absence of effective methods for resolving conflicts, such as those
cultivated in pre-revolutionary Russia, has led to the decline of significant social innovation, the
atomization of society, and the absence of adult role models for future generations. The
government's attempts to re-create a system of social control through force have only made
matters worse and led to serious consequences for the state and society.²¹

* * *

Although today there is no hope of re-establishing the *obshchina* (especially in urban centers), I
believe that the experience of communal methods of conflict resolution helps to define the social
and cultural goals of any transformation in the judicial system. These are, first and foremost:

* The restoration of social relations that may have been violated in consequence of a crime;

* The mobilization and use of local community resources in resolving criminal situations and adopting measures of prevention and rehabilitation; and

* The limitation of punitive measures.

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*"Restorative Justice" in Russia: The Idea and the Methodology*

Even in the West, there has been an increase in the use of conciliatory and peace-making procedures designed to resolve conflicts without recourse to the courts. Throughout the world, the ideas and methodology of "restorative justice" (reconciliation programs, family counseling, counseling between victim and offender) are spreading and helping to restore the broken tissues of human relations.

The central idea behind restorative justice is a completely different understanding of crime.²² A crime is first and foremost an act of violence affecting people and their relationships. Those who suffered from the crime as well as those who perpetrated it should participate in the judicial process. In pre-Revolutionary Russia, as noted above, both the creation and the defense of collective values took place in collective forms--councils, circles, and the peasant *mir*, or council. In my opinion, it is this aspect of the methodology of restorative justice that is important today. Placing the offender into a relationship among the participants in a meeting gives him a positive impetus to change, and encourages the other participants in the meeting to assume responsibility to bring that impulse to life.

Following are three conditions for setting this methodology in motion:

First, group understanding of the criminal act.

* A criminal case can involve the parties concerned (offender, victim, their social circle) when the police and courts limit their actions to apprehending the offender and sending the case to restorative justice programs. For the offender, the victim, and his family and friends, participation in these programs is the result of a free and conscious choice. If they do not wish to make this choice, they can go through the usual judicial procedures.

* A special meeting of the participants with a group leader can often achieve good results. The leader stimulates an exchange of opinions about the criminal act that would ultimately lead to a picture of its consequences acceptable to all participants. This is the first element of comprehending the situation from a collective viewpoint.

In the course of the discussion the **second element** occurs: the offender makes a proposal for resolving the matter to be discussed and accepted by all participants.

The **third element** is a discussion among all participants on how to change the offender's behavior, for example, by getting a job or undergoing a specific rehabilitation program. This dialogue creates the conditions for *changing the behavior of the offender*. Whether there will be a real change or not depends on the individual himself, of course, but restorative justice programs give a better chance for that change to take place that do juvenile detention colonies and prisons.

Today the traditions of repentance, charity, and forgiveness have not vanished from Russian life. The accused person often repents and performs actions to compensate for the damage he caused. For victims struggling with psychological trauma, the attitude of the accused toward what he did and the prospect of receiving compensation for damages are important. And many victims are not determined to impose punishment. Without the restorative justice that takes place today, even in a truncated and fragmented way, the existing judicial system and the law enforcement agencies could not function.

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At the same time, the focus on reconciliation often is elusive: meetings and counseling often cannot be arranged, owing perhaps to mutual distrust or fear of pressure. When some aspect of reconciliation does take place (for instance, compensation for damages), it is rarely seen as completing the administration of justice. Sometimes the victim cannot get answers to questions that would help relieve a stressful situation, or the offender fails to understand the real consequences of his actions and does not utilize special rehabilitation programs.

To overcome these problems, special programs for reconciling victims and offenders have been created. Victim and Offender Reconciliation Programs have been spreading throughout the world for the last twenty-five years. In Europe, these programs are most prevalent in Austria, Belgium, Great Britain, Germany, Norway, Finland, and France. Poland and the Czech Republic, after successful experimental programs, have switched to legislative endorsement and administrative expansion of reconciliation programs.

Starting in the summer of 1997, I have been working with Mikhail Fliamer to promote and implement the idea of restorative justice in Russia. At the present time, we are working on the creation and testing of reconciliation techniques in cases involving minors in accordance with Russian law. We offer a brief description of the elements of this technique and the first steps in its implementation in Russia:²³

**Obtaining case materials.** In the reconciliation program under way in the Tagansky District of Moscow, the investigator in cases involving minors sends notification of the possibility of using a reconciliation program to the agencies for preventing juvenile crime (OPPN). The notification shows the data of the file and the addresses of victim and defendant. The notification is sent after the evidence on the charges is compiled and the victim has been questioned. It is necessary that the defendant admit either guilt or the fact of committing the given action and that he not be under arrest.

**Having preliminary meetings.** After the leader receives the materials, he speaks with the offender and the victim separately. First he determines their readiness to participate in the reconciliation procedure, their attitude toward the crime, and their willingness to compensate and accept compensation for damages. In the cases of minors this applies to their legal representatives as well. At these meetings the leader hears out each side's version of the incident. Even at this stage, the reconciliation process is significantly different from the criminal procedures. The leader begins to create beneficial conditions for a future dialogue between the victim and the offender. He is interested in the feelings and needs of the victim and the offender, their attitude toward the situation. With the victim, the leader discusses the consequences of the violation, the problems that have resulted, and the capabilities of the reconciliation program to solve them. Dealing with the offender, the leader refrains from making value judgments of his actions. The goal of reconciliation is to recognize the unfairness of the incident and to compensate for the damages caused by the crime, not to label the offender for his actions. Only by dealing with the offender as a responsible adult can one expect him to behave as such. One of the most important social and psychological results of reconciliation programs is overcoming the labeling of victim and offender. After the preliminary meetings, the leader prepares the victim and the offender to play roles in which they themselves will propose a solution. In this way, the leader, unlike an attorney, does not defend the specific interest of anyone in the process. Both sides may reject reconciliation simply because the process is unfamiliar. The would prefer "not to face the problem." The leader then explains the process of reconciliation and its advantages. If the leader reaches the conclusion that both sides are ready and secures their consent, he brings them together.

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**The meetings.** The next stage presupposes a meeting in the presence of the leader and the acceptance of a mutual decision with a binding conciliation agreement. After introducing the participants, the leader must explain the procedure and his role as a neutral facilitator. He states the rules of the dialogue (for instance, no interrupting the speaker, no swearing). An important rule is preserving the confidentiality of the profoundly personal aspects of the meetings.

After the leader's introductory statement, the crime victim recounts her version of the event, focusing not so much on *what* happened as on *how* it affected her life. This emphasis is most important. This stage differs from a criminal investigation, which seeks to find out every detail of what happened. If the offender tries to whitewash himself, the leader explains that this is neither an investigation nor a court hearing to determine who is guilty and that it is important to learn how the criminal incident affected the victim.

Then the offender has the opportunity to explain his actions: why he committed the crime, what prompted him. Experience in similar sessions has shown that the offender often apologizes. As a rule, however, the victim is not ready to forgive. The participants can ask each other further questions. The leader gives them the opportunity to communicate as naturally as possible, interfering only when necessary. When both sides have formulated a common picture of the incident, the leader brings up the questions of compensation. He asks the victim what the offender can do to make up for his action: pay money or do some work. After a general discussion the sides take a decision on the method of compensation. The next topic is the future life of the offender: what is to be done to keep such a crime from recurring. The offender could be asked, for instance, to take treatment for alcoholism or drug addiction, to get a job, and so on. A written agreement is then drawn up and signed by all the participants.

**Composing the reconciliation agreement.** The meetings (in complicated incidents the process is not limited to a single meeting) are considered to be concluded successfully if the victim and offender manage to move on from emotions about the criminal event to the writing and signing of a reconciliation agreement. This agreement has the following sections:

1. Description of how the situation is perceived by victim and offender;

2. Compensation to the victim for material damages;

3. Special requirements relating to the future behavior and regime of the offender, including undergoing addiction treatment, counseling, or therapy;

4. Procedures to monitor the execution of the agreement.

**Sending the reconciliation agreement to the court.** At the court session the victim requests that the reconciliation agreement be appended to the case dossier. The judge decides the issue in consultation with the two sides.

**Checking on the execution of the agreement's terms.** Reconciliation is not considered to have been achieved until all the terms of the agreement have been fulfilled. In our technique, we prefer to arrange additional meetings in order to evaluate the execution of the agreement's terms and conditions.

**Judicial Regulation of Reconciliation.** Reconciliation of accused and victim requires a statement from the victim in proper format dropping charges against the person who committed the crime (Article 76 of the Criminal Code of the Russian Federation). For instance, the statement might drop the request to have him brought to criminal responsibility (if the case has not yet been started) or it might halt a case instigated by the victim. And for the reconciliation to have legal effect, it must be preceded by measures to compensate for damages suffered by the

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victim. Such measure could include compensation in financial or other forms for property
damage, elimination of material damage through the offender's own efforts, financial
compensation for moral damages, or guarantees for compensation to be made within a certain
time period. In criminal cases of light and medium gravity, the results of reconciliation
procedures could be the basis for dropping the case, while in graver crimes a reduction in
sentence might ensue.

**Who can perform the part of leader in reconciliation procedures?** Representatives of social and public organizations (if they have been properly trained), can be leaders in reconciliation procedures and can operate within the framework of social and legal defense for the least protected groups of the population (women, adolescents, refugees, and so on) who fall into the orbit of criminal justice.

In Russia, criminal justice, with the exception of jury trials, operates with the public interest often being replaced by the government's interests (and most frequently, by the interests of the most influential executive branch agencies). As Dimitrina Petrova writes about the Communist ideological context, "It was assumed that part of the public, even if it could speak about having its own interests, would have to sacrifice them for the sake of state interests, just as personal interests had to be subsumed voluntarily to the interests of the group and, in the final analysis, to the interests of the state".²⁴ It was assumed that in the Soviet system of law and order, the public interest was expressed first of all by the law enforcement agencies themselves and the "social" structures they sanctioned (people's militias, "comrade" courts, and so on). This assumption, natural enough in the context of Communist practice and ideology, is today an extremely persistent and dangerous anachronism.

Another such stereotype is the bias of many legal scholars against public human and civil
rights organizations. Jurists as a whole expect nothing constructive to come from these
organizations. One lawyer expressed it in a colorful way: "Filthy, ragged civil rights activists,
who understand nothing in jurisprudence, are getting in the way of justice." What is behind this?
At best, the desire of professional lawyers to have a monopoly on justice.

What prompts social workers and other members of public organizations to work in the field of criminal justice? They are moved by the tragedies of thousands caught in the maw of the criminal justice system and by the fact that the existing system does not solve the problems of defending the rights of the poor and preventing torture in police precincts and investigation isolation cells.²⁵ Many judges still accept the tasks given them by the executive branch without caring about the social consequences of their decisions, merely repeating old slogans about increasing the war on crime and so on. This attitude re-creates the former political conditions, where justice was a leash to keep people in line.²⁶

At the same time, we do not reject the possibility of representatives from law
enforcement agencies taking part in the reconciliation process. The orientation on increasing
punitive practice, however, keeps these structures from changing their activity in a direction that
would combine both criminal procedural and social rehabilitation aspects and would thereby
draw upon the expertise of the professions in the humanities.

The institution of reconciliation as a form of restorative justice can effectively defend the public interest in criminal cases. In my opinion, the main obstacle to the development of this institution in Russia is the prevalence of the principle of statism²⁷ in law enforcement agencies and the courts. On the other hand, even if jurists were to reject that principle, another obstacle is the lack of preparation of social workers themselves to deal constructively with the new opportunity to cooperate. Representatives of social organizations will have to learn new

techniques and how to defend and apply them.²⁸ The issues that must be solved within the framework of reconciliation (growth of awareness of rule of law among the population, the organization of compensation for damages, help in rehabilitating the offender and victim, and so on) can be resolved only on the basis of cooperation between social workers and jurists (advocates, investigators, prosecutors, judges). The institution of reconciliation must, therefore, bear a mixed state and public character. Expanding opportunities for conducting reconciliation programs within the practice of Russian jurisprudence is the first step in the transformation of jurisprudence itself.

## *The First Reconciliation Meetings: Impact and Problems*

The opportunity to express feelings, speak out and get answers has been the most important element of the reconciliation meetings and has led in all cases to positive results.

Reconciliation meetings have had socializing, rehabilitating, and psychotherapeutic effects. Such meetings helped restore an eleven-year-old mugging victim's sense of personal security; the boy had suffered great anxiety before the meeting. Once having expressed their emotions and feelings, many victims stopped feeling anger, and hatred turned into a desire to participate in changing the fate of the offender for the better. The meetings led some adolescents and their parents to a profound recognition of their own problems--an important basis for complete rehabilitation.

The meetings have also helped establish the social skills that must be learned by the offenders in order to handle situations in a noncriminal way. These skills include "putting yourself in another's place," "solving interpersonal problems without violence," "self-control," "relationship building with peers and other people," "creating your future," and "being autonomous and not depending on the behavior of others."²⁹ Families in which adolescents did not learn these skills are a fertile soil for the growth of criminal behavior.

The absence of these skills in adults and corresponding gaps in the socialization of children lead to incessant family conflicts (which often have a criminal aspect - children stealing from parents, parents abusing children). A promising direction for reconciliation programs is holding such meetings in families and school groups.

Cooperation between the program leaders and representatives of various rehabilitation services and programs is also important. More representatives of state organs should be included in the management of this process. This inclusive approach requires work on changing the mindset that reigns in law enforcement agencies and courts and on gaining broader understanding of reconciliation programs in the criminal justice system and within executive branch agencies.

## *Support of Social Initiatives of the New Type in Criminal Jurisprudence: A Promising Direction for State and Charitable Organizations*

As far as many charitable foundations are concerned, the role of society and the public in administering criminal justice is embodied primarily in human rights organizations and their networks. For them, the sphere of criminal justice itself is highly politicized, has a repressive character, and at first seems simply dangerous for those who want to make positive changes.

At the same time, without public participation, we will not be able to stop:

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* Arbitrary behavior by law enforcement agencies and judges;

* A punitive approach in administrative decisions regarding deviant and criminal behaviors, an approach particularly intolerant of crimes committed by adolescents.

Although the human rights movement has focused on the first problem, there is still no general public movement or appropriate social initiatives to deal with the latter. This circumstance, combined with the government's repressive policies on crime, is the most important reason for the terrible situation in investigation isolation cells and youth colonies and for the enormous prison population.

An important condition for such work is the analysis of the functions and effective forms of work of society in criminal justice, as well as the creation of programs to support existing associations and initiatives (training, educational program, methodology work, and seminars that orient and initiate).

Representatives of law enforcement agencies cannot function without creating conditions for the work of public and social workers and the expansion of that work. Social control in society can be supported through repressive measures only in a totalitarian state. Today in Moscow, two public organizations are dedicated to include reconciliation and rehabilitation programs into work with juvenile offenders and children at risk (The Court and Judicial Reform Public Center and the Russian Foundation "No to Alcoholism and Drug Addiction."). We have observed a positive shift in attitudes toward this problem among many public organizations in Russia. To a certain extent this work is supported by representatives of the General Procurator's Office, the Moscow Procurator's Office, the Criminal Investigation Department of the Moscow police, and law enforcement agencies in various regions (Kazan, Petrozavodsk, Tomsk, among others). Significant work in this area is also being done in St. Petersburg, initiated by the municipal court. This is heartening evidence that government agencies are interested in collaborating with public organizations. Today it is particularly important to develop techniques, on the basis of the ideas and programs of restorative justice, for further joint action by public organizations and government agencies that will make Russia's judicial system more responsive to society's needs and more effective in satisfying them.

NOTES:

1. Interestingly, in opposition to this viewpoint, Chairman of the Supreme Court Vyacheslav M. Lebedev today prefers to speak not of judicial reform but of the creation of an independent court system and the establishment of judicial authority. (See *Sudebnaia reforma: itogi, prioritety, perspektivy. Materialy konferentsii* [Judicial Reform: Achievements, Priorities, Prospects. Conference Materials]. Moscow, 1997, pp. 7-20.)

2. The department of judicial reform and courts of the State Legal Department of the President of the Russian Federation, headed by Sergei A. Pashin, was disbanded in 1995.

3. According to the administration of the Scientific Research Institute on the Problems of Strengthening Law and Order under the General Procurator's Office of the Russian Federation, many steps taken in the sphere of criminal justice in accordance with the "Conception of Judicial Reform in the Russian Federation" have been a crime-generating factor. (See *Osnovy gosudarstvennoi politiki bor'by s prestupnost'iu v Rossii*.

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*Teoreticheskaia model*' [Bases of the State Policy of War on Crime in Russia. A Theoretical
Model]. Moscow, *Norma*, 1997, p. 17.]

4. *Kontsepstiia sudebnoi reformy v Rossiiskoi Federatsii* [Conception of Judicial Reform in the Russian Federation], Moscow, *Respublika*, 1992, p. 6.

5. V. Pastukhov. *Rossiiskoe pravosudie: vzgliad izvne i iznutri (Tezisy doklada)* [Russian Jurisprudence: A Look from Outside and from Inside (Outline of a Report)]. Round Table "Monitoring Judicial Reform in the Russian Federation," 29 May 1988. Center for Constitutional Research. Moscow, 29 May 1988.

6. This state of affairs made it possible for Giles Delese to call modern society the society of control. (See Giles Delese. *The Society of Control* (Postscriptum). *Elementy. Eurasian Review*, No. 9, 1999.)

7. Harold Berman. *Zapadnaia traditsiia prava: epokha formirovaniia* [Western Tradition of Law: The Era of Formation]. Moscow, MGU, 1994, p. 51.

8. *Ibid.*, pp. 52-53.

9. When we speak of justice, we mean criminal justice in this article.

10. The term "collectiveness" I use in the sense of Toennies's *Gemeinschaft*. "According to Toennies, *Gemeinschaft* is the bearer of qualities that are highly esteemed both by the ordinary consciousness and by many moral systems: they include first of all human closeness, readiness to help .... A social system based on *Gemeinschaft* does not have 'accounts,' and those who are included in it feel secure, protected, but at the same time connected by moral responsibilities to the individual members and the entire group" (A. N. Malinkin. *O zhizni i tvorchestve Ferdinanda Tennisa* [The Life and Work of Ferdinand Toennies], *Sotsiologicheskii zhurnal*, 1998, No. ¾, p. 205.)

11. Nils Christie. *Konflikt kak sobstvennost'*[Conflict as Property], *Pravosudie po delam nesovershennoletnikh. Perspektivy razvitiia*. Issue 1. Moscow. Sudebno-pravovaia reforma, 1999.

12. "It is quite obvious that a high level of crime and other manifestations of antisocial behavior serve as indices of a lack of order: it is much less accepted that large number of police, the financial inspectors, and auditors is also an index of the fall of morality, even if the manifestations of antisocial behavior are limited." (Amitai Etzioni. *Novoe zolotoe pravilo. Soobschestvo i nravstvennost' v demokraticheskom obshchestve* [The New Golden Rule. Community and Morality in Democratic Society] *Novaia postindustrial'naia volna na Zapade. Antologiia* [The New Post-Industrial Wave in the West. An Anthology], Moscow: Akademiia, p. 323.

13. See Howard Zehr. *Changing Lenses: A New Focus for Crime and Justice*. Herald Press, 1990. In Russian, published by Sudebno-pravovaia reforma Center (Howard Zehr, *Vosstanovitel'noe pravosudie: novyi vzgliad na prestuplenie i nakazanie*. Moscow: Tsentr "Sudebno-pravovaia reforma," 1998.)

11

14. The situation in the USA in this regard is examined in Nils Christie. *Crime Control as Industry. Toward GULAGS, Western Type?* Routledge, London and New York, 1993.

15. The achievements of mass media today are so high that some human rights activists maintain it is necessary to create a new generation of human rights--the right to protection from information.

16. Nikolai Pavlov-Sil'vanskii. *Feodalizm v Rossii* [Feudalism in Russia], Moscow, Nauka, 1988, p. 194.

17. Cited from Theodor Shanin. *Kuda idet Rossiia?* [Whether Russia?], Moscow, Aspect Press, 1996, p. 170.

18. See Aleksandr A. Zinov'ev. *Kommunizm kak real'nost'* [Communism as Reality], Moscow, Tsentrpolgraf, 1994.

19. This is how Sergei A. Pashin looks at the functions of the judicial system in Soviet society: "First of all, the usual attitude, which remains today, sees the court as an appendage of the executive power and as an organ that must 'produce,' deciding some political or economic issue. In those periods when construction sites, steel mills, and chemical factories were empty, the courts had to send labor there. In those years, when, they maintain, there is a greater problem with crime, the courts have to fight against crime, with that variety that is on the tongue of the authorities and in the hearing of the population. In various years the courts fought with theft of wheat from the fields, lateness for work, speculation, hooliganism, and lathe operators and taxi drivers getting tips. This perception is so strong that some judges, whom I have the honor of teaching evidentiary law at the Russian Law Academy, often exclaim in bewilderment: 'Probably everything you tell us is correct, but in this situation of crime wave how can we keep to the formalities! Because of some trifling mistake in gathering evidence, a criminal might get away with the crime, and that cannot be permitted!' That is, these colleagues of mine do not perceive themselves as protecting the interests of the law but as servants of an interest outside the justice system, in this case, the goal set for the law enforcement agencies to stop crime." (Sergei A. Pashin. *Mekhanizmy reformy i kontrreformy: Sudebnaia reforma: problemy analiza i osveshcheniia* [Mechanisms of reform and counterreform. Judicial reform: problems of analysis and interpretation], Moscow, 1996, p. 40.)

20. I do not want to be seen as supporting the re-creation of structures analogous to Party ones. I share the opinion about their totalitarian and inhumane nature.

21. In connection with this tendency, issues of defense from justice and law enforcement agencies as instruments of irrational state policy have taken on greater urgency in Russia. The idea of presenting law as an indivisible part of human rights teaches that law is a defense against repressive state instruments--police, courts, prosecutors. Rights protection, methods for protecting ones rights in the police and in court are becoming more popular in law education. But the idea of human rights, concentrated on vitally important aspects for many people, does not give an understanding of the *sociocultural* functions of law systems in society and their place in the *mechanisms of supporting the wholeness of society*.

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22. A more detailed look at the philosophy of restorative justice in Howard Zehr.
   *Vosstanovitel'noe pravosudie: novyi vzgliad na prestuplenie i nakazanie.* Moscow: Tsentr "Sudebno-pravovaia reforma," 1998.

23. The description of this technique is done jointly with Mikhail G. Fliamer. See also: Rustem Maksudov and Mikhail G. Fliamer. *Programmy primirenii po delam nesovershennoletnikh-po puti prakticheskoi realizatsii idei vosstanovitel'nogo pravosudiia v Rossii* [Reconciliation Programs in Juvenile Cases--On the Path to a Practical Realization of the Ideas of Restorative Justice in Russia], *Pravosudie po delam nesovershennoletnikh. Perspektivy razvitiia*, issue 1, Moscow, Tsentr "Sudebno-pravovaia reforma," 1998; and Rustem Maksudov, Mikhail G. Fliamer. *Primirenie v ugolovnom pravosudii Rossii* [Reconciliation in Criminal Justice in Russia] (upcoming).

24. Dimitrina Petrova. *Politicheskie i pravovye prepyatstviia na puti razvitiia prava obshechestvennykh interesov* [Political and legal obstacles on the path of the development of a law of public interests], *East European Constitutional Review*, 1997, No. 1 (18), p. 25.

25. Lately, this fact has been admitted by the leadership of the Ministry of Internal Affairs and the General Procurator's Office. In the near future, a draft of the federal program for stopping torture in law enforcement organs will be brought into compliance with the European Convention on Stopping Torture and Inhumane or Humiliating Treatment or Punishment, ratified by the Russian Federation.

26. As Sergei A. Pashin notes, the phenomenon of "people being mauled by the 'law-enforcement mechanism' today is inevitable, not because we lack democratic laws or because Stalinists, Partycrats, and hard-liners are at the helm of that huge machine, but because state repression of people is not an excess but a normal production technique." (See Sergei A. Pashin. *Sudebnyi kontrol' za pravil'nost'iu arestov* [Court control over correctness of arrests], *Pravozashchitnik*, 1995, No. 1 (3), p. 53.

27. *Statism* (from the French *etat*), the system of political thought that sees the state as the highest result and goal of social development (*Great Soviet Encyclopedia*, vol. 30, p. 289).

28. See Marina Liborakina, Mikhail G. Fliamer, Vladimir N. Iakimets. *Sotsial'noe partnerstvo* [Social Partnership], Moscow, Shkola kul'turnoi politiki, 1996, p. 114.

29. See also: Friedrich Lesel. *Vospitanie-nakazanie-pomoshch;--v chem nuzhdaiutsia molodye narushiteli? Deti i iunoshi v konflikte s zakonom.* [Education-Punishment-Help--What Do Young Offenders Need? Children and Adolescents in Conflict with the Law]. Report to a Regional Seminar of the Baltic Republics. Urmala, Latvia 30 May-2 June 1994. Published by ICCB, 63, rue de Lausanne, CH-1202 Geneva, Switzerland.

*Translated by Antonina W. Bouis.*

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# The Legal Profession and Civil Society in Russia: Problems and Prospects

Vladislav Grib*

All legal reforms in Russia today, whether already enacted or under active consideration, hinge upon the passage of the Constitution in December 1993, for this Basic Law reinforced and undergirded the most important principles and institutions of our country's social, cultural, economic, and political development.

By no means all of Russia's many laws and regulations have been brought into conformity with the Constitution, as will be discussed further in this article, but what has been accomplished represents important work of both the executive and legislative branches, acting separately or jointly. The President signed two edicts, that of December 24, 1993, specifying measures to bring existing laws into conformity with the Constitution, and that of July 6, 1995, elaborating the concept of legal reform in the Federation. For its part, the State Duma, between 1994 and 1997, approved the Civil Code (parts I and II), the Criminal Code, the Family Code, the Tax Code (general section), and the Arbitration and Procedural Code. Other codification legislation under active consideration includes those on civil procedure, criminal procedure, and labor. All this legislation has great significance for the formation of Russia's new legal profession: it defines new approaches, procedures, and operational principles for lawyers practicing in different spheres of social relations.

At first glance, it might appear that judicial and legal reform in Russia is in full swing. Unfortunately, this is far from the truth. The political and economic instability in the country, of course, have not created conditions for the further development and deepening of legal reform. Moreover, the historical, social, ethnic, psychological, and political characteristics of the Russian people and government have not been propitious--a point I shall pursue below. When examining recent reforms in Russia, Western observers usually point to the "two Russian miracles--the free press and the independent system of justice." Indeed, the judiciary has come a long way from being an instrument of the totalitarian regime. Legal and procedural changes have strengthened the guarantees of judges' independence; raised the status of the judiciary; reformed the system of arbitration courts, general jurisdiction courts, and military courts; and introduced the institution of Justice of the Peace. Non-judicial organs, such as "comrade courts" and trade union committees, which in the Soviet era used to adjudge many labor and other disputes, have been virtually eliminated. As a result of the government's ratification of the European Conference on the Defense of Human Rights and Basic Freedoms, Russian citizens now have the right to appeal to the European Court of Human Rights if they consider that their rights have been violated or that they have been denied adequate protection under domestic legislation and in the national courts.

* Vladislav Valer'evich Grib holds a kandidat degree in law and is the dean of the Law School of Moscow State University of Culture and the Arts. He is the founding president of the Russian Union of Young Lawyers. He is also editor-in-chief of the Jurist publishing group, which produces more than twenty legal journals targeted at every specialty within the legal profession (for example, judges, prosecutors, investigators, defense attorneys, public notaries, and the like). Grib also serves as chair of the executive committee of the Russian Academy of Legal Sciences and directs a number of federal programs and projects in the area of legal reform in the Russian Federation.

At the same time, the restructuring of the judicial system has entailed significant complications. In its present form, at least, Russian federalism clearly does not favor an independent judicial system. For example, a number of regional leaders--governors, heads of administrations, and presidents of republics--are trying to re-subordinate the judiciary to themselves and win the right to appoint judges within their regions (in Russia, judges are appointed for life by the president). With each passing year, federal authority has a harder time restraining these attempts. In early 1999, a special law was passed on financing the courts; although this eased some of the problems of financing the judicial system, budget shortfalls continue to undermine the judiciary's independence and efficiency. Legislative changes have often been insufficiently thought through and remain incomplete.

Nonetheless, we are reforming the judiciary and legal procedure and creating a new judicial community--not altogether smoothly, but actively and successfully. Judicial reform is indissolubly linked with reforming the bar association and the notarial system as well as the agencies of justice themselves.

If the constitutional principle proclaiming the Russian Federation a rule-of-law state is to be implemented, it is the Ministry of Justice that must formulate legal policy and oversee its execution. The Ministry of Justice has been transformed from an agency of the second rank into one of the most important agencies in Russia, exercising substantial rights and authority, including administrative oversight of legislation, legal policy implementation, intellectual property law, judicial decisions, and the activities of political parties, public and religious associations, and correctional institutions. President Yeltsin made the Ministry of Justice report directly to him, thus confirming the agency's authoritative standing within the executive branch. Nonetheless, the Ministry's authority has not been undergirded with administrative and personnel resources, especially in the regions. Even so, the Ministry of Justice is coming into its own as the executive branch's lead agency for legal and legislative reform, coordinating the work of all other agencies. The authority and standing of all law enforcement officials, including those specializing in new functions, such as bailiffs and registrars of state property rights, have increased accordingly.

Like many other institutions in our recent past, the Russian bar association hardly qualifies as an institution of civil society in the full sense. Since the Soviet state had no real system of justice, there was no prospect that a bar association could ever defend the interests of civil society. Lawyers were not even allowed to engage in professional activity. If the courts were not needed, a real bar association was needed even less.

Today we must structure a new, totally independent bar association--not an easy job because the principal obstacle to reform is not our imperfect laws but the imperfect sense of the law among the Russian legal profession itself. Our Soviet-era legal culture and professional mindsets are the very elements that cannot soon be reformed. We must admit that Russian lawyers, especially those of the older generation, unwittingly bear the burden of the past: pseudo-professional thinking, a rigid pseudo-system of administering justice, pseudo-defense, and pseudo-prosecution.

In the early 1990s, the problem of drafting legislation affecting the bar association became acute. As the first draft laws appeared, we had illusions that the legislation would be enacted swiftly, but it was not. Although legislation on the police, investigative operations, and the General Prosecutor's Office exists, there is still no law on the bar association.

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The bar association of Russia differs from that in the United States. America is a country of lawyers (according to statistics, about 60 percent of all the lawyers in all the countries of the world live and work in the United States), where issues of access to legal counsel and legal practice are well regulated. Russia, on the other hand, is in the midst of the complicated and difficult process of regulating legal practice and access to it. Various groups of Russian lawyers frequently lobby for diametrically opposed concepts of determining bills for legal services. The most authoritative of these bodies are the Guild of Russian Lawyers and the Federal Union of Lawyers. The former group supports a single association of lawyers as a very manageable arrangement. Critics note, however, that Soviet and Russian lawyers have suffered severely in recent decades from the dictates of Party and state. That is why representatives of the Federal Union of Lawyers, for their part, regard a cohesive lawyers' community not as a monopoly but as a civilized form of organization for the legal community comparable to those elsewhere in the world.

In spite of the legal problems in developing the Russian bar association, the legal profession has become one of the most respected. Moreover, among the public and entrepreneurial circles, trust in lawyers has increased, while media coverage has intensified. Although de jure the bar association lives by the Soviet laws that still regulate its activities, de facto it has become a civilized legal institution by the use of procedural and administrative measures. Only one final obstacle remains: enactment of new legislation on the bar association.

The institution of the notary public has undergone even greater changes. During the Soviet period, from 1917 until 1993, notaries were incorporated completely within the Party and governmental system. (For this reason, our country never joined the Latin notary system, which includes only independent notaries.) Notaries were either a part of the court system and subordinated to oblast-level courts or were components of law enforcement agencies.

With the passage on 11 February 1993 of the Russian Federation's basic legislation on notaries, however, notaries acquired the right to perform public legal functions under conditions that approximated world standards, acting as independent legal professionals bearing full responsibility for their actions. At present, notaries do not belong to the executive branch and are neither government officials nor public sector or municipal employees. They are understood to be officials executing the law and performing and attesting to legal acts in the name of the government. Before 1993, the notarial profession had the bleakest of futures. Extremely low prestige (notaries needed only the lowest level of legal education), low wages, monotonous work, and bad working conditions placed the profession at the very bottom of legal specialists.

But after 1993, all this underwent a complete turnabout. The 1993 law on the notary profession made it possible for a notary to earn a good and stable salary. Their authority and prestige rose sharply. Highly qualified legal professionals, who had gone through rigorous competitive selection, entered the profession. Working conditions for notaries as well as their organizational and technical support improved noticeably. Lines waiting in front of notary offices disappeared as notarial services became more widespread.

Today notaries are the only representatives of the legal profession who are required to take out insurance for their activities and who bear responsibility for their professional and other errors. Thus, from a ranking at the bottom of the legal profession, the notary has taken a big leap into the top echelon, especially because he has an opportunity to earn a high and stable income(the number of notaries is limited, as a rule, to one notary for every 25,000 persons).

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Unfortunately, though, this propitious change did not last long. Not all governments officials and legislators recognized how useful the profession was, in economic as well as strictly legal terms. The 1993 legislation governing the notary system proved to be incomplete and contradictory, and an amended law could not pass the Duma. Moreover, with passage of the new Civil Code in October 1994 notaries lost their main source of income, certification of real estate transactions. Then fees for notary certification were lowered, the list of transactions requiring notarization was shortened, and income taxes on notaries were raised. Today, all one can say is that the Russian notary is not going through the best of times. The heyday of the new notarial profession has passed, although its utility and necessity remain incontestable.

We should bear in mind that substantial savings are made possible when the courts are freed from handling uncontested cases that can be resolved within the notary system and when a vigorous notary profession can reduce the number of legal disputes. In the Anglo-Saxon legal system, in particular the United States, where the notarial profession is relatively undeveloped, expenditures in support of the legal system are approximately three to seven times higher than those in European civil legal systems.

By the same token, the development of the notary system in Russia would facilitate the preliminary monitoring of the legality of actions involved in civil litigation and would lower the number of disputes on the court docket, thus reducing the budgetary allocations needed to implement judicial reform.

At present, many Russian legal professionals are working in the law enforcement agencies (Russian Ministry of Internal Affairs, Russian General Prosecutor's Office, Federal Security Service, Federal Tax Policy Service, and others).

Russia's law enforcement system is going through a period of active reform. For both objective and subjective reasons, however, this reform is not going smoothly. On the positive side, the law enforcement system is shedding Soviet stereotypes and operational habits. Legislative reforms are proceeding actively and productively. Investigators, investigative agencies, and the prosecutor's office are becoming increasingly independent as their role and place in the legal and judicial system are defined more precisely. The system of training qualified law enforcement personnel is being reformed. New specialties have appeared, for example, the tax police. Space does not allow me to describe to a sufficient extent the more negative trends and problems characterizing Russian law enforcement today. Briefly, they are the following.

First, low salaries give rise to dissatisfaction and to a low moral and psychological climate in the law enforcement ranks. Second, the frequent change of senior officials in the federal prosecutor's office, police, and security services lead to a kind of staff fever within the departments, which naturally cannot have a positive effect on performance.

Unfortunately, both federal and regional leaders attempt to take advantage of law enforcement agencies. Nonetheless, every year they become more efficient, especially in the fight against corruption, organized crime, and new types of economic crimes. Every year the number of legal professionals in the law enforcement system increases; this in itself improves the quality of overall performance and facilitates changing the guiding administrative principles inherited from the Soviet era. In particular, we are shifting from the defense of class and government interests to the defense of the rights of the Russian citizen and private property.

In discussing the development of the legal profession in our country, we must not ignore traditional notions of law, rights and justice characterizing the Russian sense of justice viewed in

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a historical perspective. Many lawyers feel that we have to create a normal sense of justice in the country so that lawyers themselves do not doubt the importance of the law. To Russia's misfortune, it used to be considered more correct to focus only on one's personal sense of justice rather than on what were considered dry laws. Often the Russian public has perceived this proclivity as a victory of natural law over positive law, contending that strictly logical conclusions can flow from applying the basic principles of natural law and thus resolve legal disputes. In "the very nature of things," the public tends to believe, there are indications relevant to the legal canon governing interpersonal relations. On this view, a subjective sense of justice is a reliable guide to the law. As the Russian lawyer Karl R. Kacharovsky observed, "It [the sense of justice in Russia] pays principal attention to the very essence of the given legal relation, to the factual state of affairs; it is guided by established [legal] form only when that does not contradict the essence and content of the given phenomenon of the social environment."

Another characteristic of the Russian sense of justice draws upon elements altogether outside a legal framework, including morality, religion, and social goals. Legal scholars stress the religious dimension of the Russian sense of justice: a law existing outside a moral framework and based on non-religious principles is not considered binding. It is the collapse of religious ideals in Russia, these specialist argue, that has brought about the crisis in the sense of justice. Probably no Russian legal scholar has paid more attention to the correlation between the sense of justice and religion that Ivan A. Il'in. "Legal consciousness and the Kingdom of God live together as part of one and the same emotional fabric. They find their expression in one and the same spiritual milieu," he wrote. Il'in notes that at the present time Russia does not enjoy that unity between religion and the sense of justice. Il'in does not simply argue that the large gap between the sense of justice and religion led the country to catastrophe (he means the Revolution); he does not simply describe how over the course of many decades the spiritual principle had dimmed and vanished in men's souls, how Russians had ceased to be guided by the spiritual authorities, to the point where their sense of justice had become barren and sere. More than that, Il'in was shouting about all this, calling upon his fellow citizens to come to their senses and realize that only a religious sense of justice could help lead the country out of its crisis.

A third feature of the popular sense of justice is a utilitarian or expedient approach. If certain actions are considered useful to society, then people will ignore the government's prohibitions. Occasionally a community that considers it useful to do so may take decisions that, from the standpoint of assuring legal guarantees for the individual, are plainly immoral.

Research conducted recently by a laboratory at Russia's leading law school, Moscow State University Law School, attests to the persistence even among the new generation of lawyers of all three features of the Russian sense of justice. One in every four students at the law school stated that he was prepared to commit a crime deliberately, the most common motive being the poverty and lack of prosperity of their loved ones, that is, involuntary reasons for criminal conduct. More rarely cited is the desire for personal enrichment or a commercial career. One in every three future lawyers believed that the law, in principle, affords an opportunity to defend one's rights, and 42 percent thought that the law must be observed, whether it is good or bad. At the same time, 45 percent considered it justifiable to break the law under specific conditions. The proportion of those who hold extremely negative attitudes toward observing the law was high: 41 percent of those surveyed hold the view that an intelligent person will always find a way to circumvent the law if it hampers him, while 28 percent thought that surviving in the current situation in the country without breaking the law is virtually impossible.

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As a result, we have the following picture. Priorities are equally divided along three basic lines: unconditional observance of the law (34.4 percent); provoked nonobservance of the law (30 percent); and unconditional violation of the law (35.6 percent). Thus two-thirds of the law school students fall into one or another group of individuals oriented toward breaking the law, and only one in three lean toward its unconditional observance.

The conclusion: the level of education for future lawyers does not meet the high moral and ethical requirements necessary for representatives of the legal profession. Educators unjustifiably stress the acquisition of primarily legal knowledge, overlooking the fact that creating a sense of morality and justice, a personal legal discipline, and a code of professional ethics cannot be achieved by a narrowly legal curriculum, especially considering that law school graduates will be working in the most diverse spheres: jurisprudence, economics, and administration.

Legal education needs to receive special attention from the government and society. During the Soviet period, legal education was a relatively autonomous and closed system reflecting all the contradictions of the political order. From today's vantage point, Soviet legal education was plagued by loss of historical continuity, a unilaterally ideologized context, excessive harshness and administrative centralization, a focus on training practicing lawyers (rather than scholars), the criminological bent in its training programs, and its divergence from foreign educational systems.

Today the situation has undergone a profound change. Russia is experiencing a boom in the legal profession, now popular among young people because of its new-found prestige. It has become both profitable and prestigious for both government and non-state institutions of higher education to open law schools. At one point, the government almost lost control of the process: law schools were being established by institutions of higher education that lacked both technical resources and qualified instructors. Russia now has fifteen times more law schools than the Soviet Union had and many times more law students.

These statistics can be examined in different ways. On the one hand, the executive and legislative agencies, the judicial and law enforcement systems, finance and business, and the bar association need tens of thousands of legal professionals to meet the demands of a democratic, rule-of-law state with a market economy. On the other hand, the Russian educational system has proven itself unprepared for administering so many law schools, monitoring the training of legal personnel, and initiating a major reform in legal education. Strict control must be maintained over the quality of legal education so that it meets the requirements of modern jurisprudence.

Law-oriented noncommercial organizations (NGOs) have had a significant influence on the development of civil society in Russia and the shaping of the legal profession. From the start of the current reforms, voluntary associations of active, altruistic citizens guided by the principles of humanism and justice have replaced the largely politicized public organizations that were under the direct guardianship of Party and government agencies. The NGOs arising in Russia in the late 1980s and early 1990s were designed to defend the rule of law and educate the broad public about the law. The historical role of NGOs in the rise of a rule-of-law state would be difficult to overestimate. They have stimulated this process "from below," bringing to social relations new elements of self-government, emphasizing the primacy of legal values, and creating confidence among citizens that they have equal status with the government and public institutions. This is a difficult but important step in divesting the public of the ideological mindset the former authoritarian state had imposed.

Today, Russia's NGOs are called upon to:

* Introduce a fundamental shift in citizens' consciousness from the values of authority (power) to the values of equality before the law;

* Prod government agencies to reject administration by directive, improve lawmaking, and divide the functions of executive power and legal institutions;

* Help organizations and citizens reject informal and often contradictory legal standards in resolving disputes and appealing to the courts for remedy;

* Educate citizens about their legal relationship with the government and the importance of observing human rights;

* Assist in making legal values of primary importance in relations among citizens, especially now that private property is developing in Russia and the number of property disputes is increasing; and

* Help engender a sense of mutual legal responsibility among citizens for protecting the natural environment, closely interweaving legal and ecological education.

What are Russian NGOs today? How and under what conditions are they fulfilling their mission to reshape the public's sense of law and legal culture? Nowadays noncommercial organizations that have little technical potential and few human resources, but are mobile and can work to meet the most urgent demands of Russian society, predominate. Over 86 percent of noncommercial public law organizations functioning in Russia were established between 1989 and 1998 and on average have been active for seven and a half years.

The formation of NGOs in response to the growing demand of Russia's population for legal protection during the economic and political crisis falls into two periods: 1991 to 1993, during which 29 percent of them were formed; and 1996 to 1997, during which 29.1 percent of the currently functioning NGOs emerged. The former was the period of economic crisis provoked by the breakup of the Soviet Union and the start of the fundamental reform of production relations in Russia; the latter was the beginning of the collapse of the financial pyramids and the profound financial crisis in the country. During these periods, the demand for legal protection was particularly acute.

Among Russia's public initiative organizations today, the most numerous are the legal defense NGOs, as well as those implementing multi-level legal initiatives. This is natural in a conflict-ridden society. According to our estimates, based on research conducted in January and February 1999, Russia' today has more than 2,500 noncommercial public organizations engaged in legal defense and legal education for various groups of the population or in the implementation of various legal programs.

Unfortunately, though, by no means all noncommercial public organizations active in the legal sphere are authoritative. Many have projects and programs intended to address a broad spectrum of legal problems rather than to meet the needs of specific regions or population groups. One of the most authoritative, dynamically developing, and promising organizations is the Union of Young Lawyers of the Russian Federation (MSIu RF). Unlike other organizations, the initiative for its founding in September 1993 came from the law students themselves. The MSIu RF has become Russia's largest association of legal professionals, bringing together thousands of attorneys, law teachers, investigators, judges, legal consultants, graduate students,

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and law school students. A financially and politically independent public organization, the MSIu RF has the goal of promoting an entirely new status for Russian legal professionals that meets the demands of a democratic, rule-of-law state.

From the start, the creation of such an organization evoked much interest in Russian society, especially in legal circles. In presenting the MSIu RF certificate of registration, the Russian Minister of Justice wished the young lawyer's success in their principal goal: creating a new generation of legal professionals free of Communist and Soviet legal dogma. Since its inception, the MSIu RF has organized and offered *pro bono* legal consultations for the public throughout the Russian Federation, from Vladivostok to Kaliningrad. For law students this work has been a test of their civic and professional maturity. In 1996, an MSIu RF initiative, a legal support program for regional legislatures, provided each deputy with a legal aide chosen from among the most talented upper-class law students. Legislatures in the oblasts and republics of Russia have endorsed the program, which is being successfully implemented in Moscow, Volgograd, Rostov-on-Don, and other cities. For the first time in the history of Soviet and post-Soviet Russia, legislative drafting has been done not only by legal scholars and government officials but also by regional associations of young lawyers. In 1997 the State Committee on Youth Affairs instructed the MSIu RF to draft a federal law, "On the Foundations of State Youth Policy in the Russian Federation."

With the assistance of the MSIu RF, twenty-two law journals and one newspaper covering military law, *The Law and the Army*, have appeared. The Supreme Court, the Higher Arbitration Court, the Ministry of Internal Affairs, the General Prosecutor's Office, and a number of other government departments have sponsored such publications as: *The Lawyer*, *The Russian Judge*, *The Russian Investigator*, *The Notary*, and *Legal Education and Science*.

One of the most interesting programs of the MSIu RF is the Corporation of Russian Lawyers. We know that in the United States and other countries with a developed legal system there are dozens of the most varied associations of lawyers, depending on their legal or professional specialization. In Russia, we are only starting to see this trend, although there is an urgent need to defend the rights of all kinds of legal professionals. In December 1996, the MSIu RF organized and founded the Russian Association of Licensed Legal Professionals. (In 1996, more than 10,000 licensed legal professionals in Russia held official licenses but had no right to participate in preliminary criminal investigations and, unlike attorneys, had no right to tax benefits.) The Association's goal: to extend the professional rights of licensed legal professionals and to develop the law profession in Russia.

In March 1999, the MSIu RF was one of the organizers of the Russian Academy of Juridical Sciences, which brought together legal scholars and law professors from hundreds of law schools in fifty regions of Russia.

A number of MSIu RF programs and initiatives are being carried out with the support of foreign partners, including the Charles Steward Mott Foundation, the Ford Foundation and the Open Society Institute. *Pro bono* legal counseling has risen to a higher level, especially in Moscow, and in a special resolution the Moscow municipality supported the opening of MSIu RF consultations in district offices, where young lawyers assist not only needy citizens but also advisors of the district legislatures.

A top priority for MSIu RF in 1998 and 1999 has been the fight against corruption. With the support of the Soros Foundation, the Eurasia Foundation, and the federal government, these programs assess measures to fight corruption. Especially interesting in this connection is the

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collaboration between the MSIu RF and the Soros Foundation on the "Future Without Corruption" project, which supports competitions, summer schools, and research involving young lawyers.

An important MSIu RF partner is the Russian Legal Reforms Fund, a Russian government agency which allocates budgetary funds as well as those from World Bank loans designed for legal reform in Russia.

The MSIu RF has helped organize and found dozens of federal and regional public youth associations. For example, the MSIu RF president is the deputy to the president of Russia's National Council of Children's and Young People's Associations (which brings together most federal and interregional associations). Many of yesterday's and today's leaders of Russia's federal departments in the areas of education and youth policy were or are members of the board of the National Council.

In six years the MSIu RF has seen its leaders grow in professional stature. Fourth- and fifth-year law students in 1993 had become by 1999 directors of law firms and attorney's offices, deputies in municipal and regional legislatures, law instructors, entrepreneurs, government officials, judges, and investigators. Its members have helped implement hundreds of legal initiatives, programs, and projects; write dozens of laws; organize new professional associations of legal professionals and legal publications. They have provided free legal assistance to thousands of Russian citizens and hundreds of noncommercial public youth associations.

Participation in MSIu RF activity, one can't help but think, is a kind of school of professional experience and education in civic responsibility; after young lawyers go through it, they become worthy citizens of our country.

Like most of my generation, who were born in the early 1970s and went through the Soviet school of education, I was a Pioneer and a Komsomol, a typical representative of my generation of young Soviet citizens. Everything that happened in the late 1980s and 1990s evokes in me, my friends, and my colleagues an ambivalent response. Constructing a democracy is inextricably linked with two major losses: the breakup of the Soviet Union and the socioeconomic and political instability in Russia. The United States won the Cold War. Thirty year olds, forty year olds, and the other older generations of Russia well remember the terminology of the Cold War: the "arms race," the "aggressive NATO bloc," "the United States, world policeman," and so forth.

Although years have passed since the end of Communism in Russia and many Soviet concepts now evoke only memories in our generation, one important aspect should never be forgotten: the historical, cultural, and ethnic characteristics of Russia. For example, the NATO bombing in Yugoslavia evoked negative emotions toward the United States among people of every generation, religion, and political affiliation. These emotions were evoked not only by the fact of the rocket and bomb attacks but by the fact that the United States did not consult with Russia or take the decision through the UN Security Council, where Russia has a veto. The NATO military operation was carried out in a region of the world and against a nation with which Russia has had long historical and cultural ties. All it would have taken was to have worked flexibly and closely with Russia on this problem, especially in light of the fact that the issue has now been resolved jointly.

It is no accident that I have dwelt on this problem. You can invest in a country's economy, render humanitarian assistance, administer philanthropy, and create a positive image of

countries and corporations--and then, with one ill-considered political step, you can nullify so much.

As for cooperation with the West in the legal sphere, Russian lawyers are unquestionably interested in the experience and assistance of their foreign colleagues. America, for example, is the "legal superpower." More than 60 percent of all the lawyers in the world work there. The U.S. legal system has a rich historical experience in the most diverse areas, including the legal profession, the justice system, legal education, and public associations of lawyers.

We have made use of many American ideas, especially the People's Law School project and *pro bono* legal consultation. We have received financial support from many American foundations. We work with the American Bar Association's South East Europe Legal Initiative. Such assistance could be even more effective, though, if it were not limited to financial support but encompassed information programs. We need not only Western foundations' grant programs for Russian organizations but closer ties between our law schools, law firms, and associations of lawyers and those of the West.

Russia still has to shape a legal profession with its own traditions, ethics, and professional concepts and principles. According to sociological surveys, the legal profession is the most popular one among young people. However, as already noted, it has its problems, which can be briefly summarized as follows:

* The imperfect system of legal education;

* The lack of sufficient legislative regulation of the activities of attorneys, notaries, lawyers in private practice, and a number of other legal professions;

* The ineffective system of self-organization among Russian lawyers; and

* The inadequate economic and financial base for the Russian justice system.

Until these problems are resolved, we cannot build a rule-of-law state. Russian lawyers even tried to create their own political organization. In 1995 the Russian Association of Lawyers, a political movement, took part in the State Duma election, but it garnered less than two percent of the votes and thus failed to cross the five percent threshold. In 1998, "Lawyers for Human Rights and a Decent Life" was created, but it too, unfortunately, failed to win representation in the Duma.

We have confidence, however. Today, as a new century begins, a new generation of lawyers is taking the place of the older generation. For our generation, the concept of democracy, a rule-of-law state, and freedom are not new words in the legal lexicon but principles of life. Our generation must make these principles comprehensible not only to legal scholars but to every Russian citizen who can appreciate their significance.

Much remains to be done. First, we must create more effective mechanisms for formulating and executing laws--a serious problem that undermines public trust in the law. Second, we must make sure that the law is not used as a political instrument if we are to ensure equality for all before the law and the primacy of the law in all spheres of life, for all public, political, and entrepreneurial organizations. Third, we must improve the legislative process and legal proceedings on the regional and local as well as the federal level. Fourth, we must raise the moral, ethical and professional authority of the legal profession--judges, attorneys, prosecutors, and other legal specialists--as representatives of a profession without which a democratic, rule-

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of-law state cannot function. And finally, we must work to overcome the legal nihilism of the
Russian people, their lack of faith in the law and in the institutions of governmental authority.

I am certain that in the next few years Russia will become an economically flourishing,
democratically developed country. I base this certainty on Russia's rich historical, intellectual,
spiritual, cultural, and economic potential, as well as on my own legal practice, in the course of
which my colleagues and I are helping civil society develop in different corners of Russia.

Unquestionably, we will welcome assistance from the West in the legal field if this
assistance is sincere and is rendered on a partnership basis. Western experience is useful to us,
and we are grateful for the advice and recommendations of our foreign colleagues. Russia needs
investments, but investments directed more to actual production of goods and services rather than
to financial speculative undertakings. From the sad example of August 1998, we know where
this latter activity can lead.

Russia has an interest in developing equal economic relations with the West and in
acquiring equal conditions for transacting business in these countries. Russia will not accept the
language of force in international affairs. Moreover, in its foreign policy, Russia has its own
special position--and this too has to be taken into account. Our country must still define its own
guidelines in international affairs. This does not just apply to relations with the West: Russia is
a socioeconomic, cultural, and historical symbiosis of Europe and Asia. I think Russia should
expand and deepen its influence in Asia as well as in Europe. And it is in Asia that the most
unexpected political and economic alliances could arise.

It seems to me that the tendency in the West to overlook Russia and deprecate its role in
world politics is dangerous. I invite anyone who has fallen under the influence of that tendency
to take a look at the map and leaf through economic and statistical references and history
textbooks, meanwhile recalling the words of the French scholar and writer Blaise Pascal: "The
past and the present are our means: only the future is our goal."

Translated by Marian Schwarz.

11

Freedom of Speech and the Rule of Law

Andrei Richter*

This book will be published in the year 2000, ten years from 1990. And for the Russian press, it was the year 1990, not 1989 or 1991, which marked the real turning point toward freedom and independence.

It was in that year that the USSR Statute "On the Press and Other Mass Media" was adopted. Though short-lived (it died with the death of the Soviet Union one year later), this statute subsequently served as a model for legislators in all the former union republics. An elaborate document, containing some sections phrased in socialist rhetoric (for easier passage by the Supreme Soviet) and others studded with complex legal terminology (designed to undermine the Party's monopoly on the mass media), it has nonetheless defined the environment of the press in my country. The main objectives of its drafters--to confirm the ban on press censorship and create favorable conditions for the establishment of independent mass media--have been attained.

As a result, Russian newspapers and periodicals today are in many respects the freest in the world. I can read opinions from the entire political spectrum; Watergate-type scandals cry "Foul!" from newspaper pages almost on a weekly basis; and journalists are not fined, exiled, or sent to jail for expressing views that contradict Kremlin policies.

Moreover, the gentlemen of the press are free of many restrictions typical in Western societies: they often use language that would be inadmissible in civilized political debate, mud-slinging is a common means of argument, and so-called national interests are sacrificed for the benefit of political calculations or group interests.

The issue of dubious press ethics and its implications for public life is extremely acute. During the first Chechen war, to take one example, the Russian media showed the charred remains of Russian troops and naked Russian soldiers covered with battle wounds and on the point of death. Initial public shock turned to callousness toward suffering...

Although aware of Western standards regarding the portrayal of violence and the graphic depiction of death, Russian media bosses believe that it is "absurd" to impose moral limits upon themselves. More than once Russian psychiatrists, worried by the increase of mental disorders, have warned of the dangers of television programs that "intensify feelings of fear, instability and aggression." A striking example of a flagrantly irresponsible attitude to ethics was the television broadcast in September 1999--as part of the regular evening news program Segodnia (NTV channel)--of the execution of a Russian hostage by beheading as well as the torturing of other Russians by Islamic terrorists. NTV did the program despite its oft-proclaimed adherence to Western norms of humanism and human values.

While violence leads to callousness, does slander lead to lawsuits? In fact, libel suits are the most frequent media-related cases considered by Russian courts: in 1998 there were 4,158 of them, a sharp increase from 1,140 in 1990.¹ But most plaintiffs seem motivated more by the hope of fetching court judgments as high as 15 million rubles than by the aim of restoring their

* **Andrei Georgievich Richter** - Born in 1959, Richter studied English language and literature and for many years worked as university instructor and interpreter for the Soviet government. He completed his doctorate in journalism from the Moscow State University, where he remained to teach journalism. The author of numerous scholarly and journalistic publications in several languages, Richter has been a visiting scholar at Columbia University and a visiting professor at Belmont University, Tennessee. He is currently Director of the Media Law and Policy Center and teaches journalism at Moscow State University. He serves on the boards of numerous professional organizations and journals.

reputations.² In a September 1999 interview, Moscow Mayor Yurii Luzhkov said he had scored 40 to zero in his libel suits against the media, all held in Moscow courts, of course. Does Luzhkov look cleaner today than, say, five years ago? I doubt it. Has his litigation stopped the anti-Luzhkov press from comparing him with Mussolini? Not in the least.

The liberated press has not only achieved the status of the "fourth power", the Russian equivalent of the "fourth estate" notion; the "watchdog" wants to be (and already is) a catalyst. The press has become an active second (if not the first) power: the press sets the agenda for the government and society, actively suggesting and even demanding ways that political issues should be resolved. The press creates politicians and destroys them. Take the case of General Aleksandr Lebed. Among the score of army commanders, who was known to the public in the early 1990s? None. But the commander of the 14th Army was constantly in the limelight; his ideas on anything--from the advantages of Pinochet's dictatorship to the weak points of Kremlin politicians--were praised by uncritical journalists. And just when Lebed's career was about to take a sharp upturn, the press attacked him with dubious accusations of attempting to seize power... and sent him into political oblivion only hours after his dismissal from his post as Secretary of the Security Council. But not for long. How many Siberian governors get a national audience today, the chance to present their views on everything? Governor-General Lebed, period.

A counter argument could naturally be that the government does not pay adequate attention to the investigative disclosures of corruption and other crimes committed by its own functionaries. That is true, though only in part. The government uses only those accusations that benefit the Kremlin at a particular moment. The long press campaign that implicated Defense Minister Pavel Grachev in corruption activities resulted in his resignation, when almost nobody thought that President Yeltsin would sacrifice his old buddy. In early 1999 businessmen Boris Berezovskii and Anatolii Bykov were subpoenaed by the Prosecutor-General's Office in the wake of press revelations about their illegal business schemes--but later, despite the continuing wave of journalists' investigations, the subpoenas were annulled.

The obvious lack of public reaction to press revelations is not the fault of government. It is rather the fault of society: while the public is in deep political apathy it is all too easy to disregard public opinion (or is it non-opinion?).

The mass media have become instruments of a struggle between different industrial groups and political clans: television newscasts and newspapers often target not the general public, but rather the audience at the top of the political hierarchy. The most vivid example is an extremely rare case of breaking news on the NTV channel--and it was caused not by an illness of Boris Yeltsin or the crash of an airliner. It happened in June 1996, at about midnight, almost immediately after the arrest of two persons unknown to the public, pro-Yeltsin activists, who were detained by security officers when leaving the White House (offices of the Russian Government) with $500,000 in cash. Within hours--and much to the amazement of millions of Russians--the media inflated the case to help one group of politicians compromise another. As a result, leaders of the latter group lost their Kremlin jobs.

Of all the forms of mass media, television remains the key factor in Russia's changing politics. As in the West, the flagship of every national TV channel is still its news program. The clear tendency here is to find ways to adapt the CNN style of broadcasting the news to Byzantine Russian politics and to the traditional tastes of the audience. Because national news and current affairs programs concentrate on what happens in Moscow, it is hard to grasp what goes on in Russia at large or to get news from the provinces (with the exception of natural disasters and

dramatic political or military conflicts).

According to a recent study of national news reporting, the provinces are portrayed as a source of all kinds of dangers and threats. Life there is depicted as not only hard, but without prospects, sometimes even fearful and horrible. Provincials are unpredictable, their behavior is bizarre; they do not live, they exist. When interviewed in newscasts, provincials typically ask or demand something, they complain about different things, they suffer, but they seldom do anything constructive. As Moscow TV would have it, the provinces are hostile to the capital city, consider it the main source of their hardships and their principal exploiter. At the same time, they still hope that salvation will come from "the Center," from the national government. Such newscasts ignore any feelings Russians may have that they share a common life and destiny; instead they stress a distinct theme: the struggle of everyone with everyone. This kind of coverage leads to the alienation of Moscow from the rest of the country. That is only one example of how there is no programming policy in the public interest. The media's goals of promoting stability and prosperity, which have been proclaimed many times in presidential decrees as well as in declarations of media moguls, turn out to be false.

Media coverage of local news, to the extent it exists at all, is of poor quality and tends to editorialize on current affairs either from the points of view of provincial administrators (in the case of the state-run TV) or of owners of private media holdings. When they do not editorialize, the news media sensationalize the local criminal scene, natural disasters, and major accidents.

Media coverage of military conflicts like the war in Chechnya has led to a split in the Russian national identity, the public's acceptance of violence, and a wide-spread distrust of all politicians. Russian society was so shaken by the Chechen war coverage that it had little left to believe in. Such a degree of public despair and cynicism could result in anarchy. Social conflicts, such as strikes, labor unrest, and demonstrations, do receive media coverage, but the emphasis here is: There is no way out for the protesters, no future and no exit. The damaging effects such conflicts have for the economy and the well being of the general public dominate the coverage; the actual grievances of the protesters are downplayed.

Media coverage of political debate typically reinforces the "enemy" image of the Communists and their allies in the national parliament, instead of the need for compromise and consolidation. Mud slinging and cynicism are the main methods used. As elsewhere in the world, television dominates Russia's election campaigns and has become an important and sophisticated image-making instrument. Despite a declared commitment to balance different political views, the *Vremya* news program (on Channel 1) strongly favored Boris Yeltsin during the presidential campaign of 1996 (the same was true of other national broadcasters).³ Along with a lack of balance in the quantity and quality of coverage of favored candidates is a bias against the opposition. Information broadcast about political opponents or competitors can never be regarded as a presentation of hard news. To quote a respected source, "Businessmen invest in television as an industry, but even more as a condition for the existence of their own businesses".⁴ Whenever private businesses cannot directly influence the content of information carried on television, they sponsor public affairs programs that provide such influence indirectly.

Ratings and profits have become the new passwords in television. About eight hundred TV broadcasters have licenses to operate in Russia, and most of them aim to entertain. Most do not air new, current affairs programs, educational programs for children and adults, or documentaries. Their listings resemble menus of cheap American B-movies, cartoons, and video pop-charts. In 1996, as a reward for assistance in conducting a pro-Yeltsin election campaign, the private NTV company completely took over the only national educational and culture

3

television channel, *Rossyiskie universitety* (Russian Universities). As a result, except for the *Kultura* channel described below, there are no educational programs on the national TV.
Expanded commercial opportunities have led to an increase in imported entertainment programs: soap operas, imitations of American entertainment shows (Wheel of Fortune - *Pole chudes*, The Late Night Show - *Dobryi vecher*), and packages of Western movies.

More and more it appears that television does not support the development of Russian
national identity or culture, but serves the narrow interests of corporations. Such corporations are
a natural product of the profound social, political and economic changes associated with the
introduction of the market economy in the late 1980s. Despite a strong Russian flavor, the
market economy is seen by many as an introduction to modernization, American style. Among
other things, that means a change in the hierarchy of values and cultural symbols. A perverse
interpretation of these values by broadcasters has led to a hostile attitude of the public to the
Western way of life, and has made the transition period characterizing my country over the past
decade last for an indefinitely long period of time.

In these ten years several private banks and companies have shown an interest in controlling the mass media. Those companies passed the short distance from rivalry to cooperation, at least in order to achieve some political stability, in 1996-1998, and then back to rivalry in 1999. Political stability is the only chance for Russia to get out of the current economic crisis, receive foreign credits, and revive domestic industry. And if the mass media help to promote this goal and do not take the authorities too much to task for their mistakes, then perhaps this is all to the good.

But herein lies the danger. When millions of people suffer from wage arrears, corruption is rampant on all levels, thousands are killed in ethnic conflicts and terrorist bombings, the president is sick, and the opposition is strong,--and when the mass media (above all, the major TV channels) show unshakable unanimity in their desire to preserve the status quo--then there is something wrong in the way the principles of democracy are applied to the media.

Of course, in no country are broadcasters entirely independent from the political
establishment or big business. But in Russia, the lack of independence is aggravated by such
factors as the small number of television channels, the high cost of print media, the undeveloped
market economy, the lack of paid-subscription TV and the clannish relationship between
business and the government. The borders between free and politically engaged media, and
between private and state media, are still too fragile. And there is no doubt that it is dangerous
for the future of both the mass media and the nation if these circumstances do not change.

Only when the stability of society is seen not from a partisan but from a national standpoint will it be possible to move toward the ideal of media programming for the sake of a fruitful public and political life. The President's decision to establish in 1996 a national TV channel *Kultura* (Culture), designed to promote national cultural values and educational programs, is a rare positive sign to others that might follow this path.

In 1990 and the years immediately thereafter, the Russian press gained a level of freedom unprecedented in almost three centuries. Some even call the *perestroika* years the "golden age" of Russian print media. Since then, though, the condition of the press has deteriorated as a result of the economic crisis of 1998 and its growing dependence on government subsidies. By now, only a handful of publications have retained their financial independence, either from the state or from politically biased groups that view them (in the hallowed Russian tradition) as their pipelines to the public and their instruments of political control. Constructing and strengthening a democratic society, the prerequisite of the nation's real and lasting freedom, is a more

4

responsible and consequential task than destroying the Communist machine. This is the biggest
challenge for Russian journalists. Whether we will be as proud of our press a year or two hence
as we were until recently, only time will tell.

I began this essay by referring to the adoption of the mass media statute in 1990. And I should like to conclude by referring once again to the law. Is a press law so important? Yes. What we see today in Russia is what will shape our society in five or ten years. The all-too-familiar power-hungry young politicians (and those not so young), will receive their places in the social science textbooks. Tired of under-the-table fighting, they will start to resolve their problems in the parliament and at political conventions. Industrial moguls, now obsessed with their security, will settle scores, not in Chicago-style shoot-outs, but in the courts of justice. Common citizens will stop thinking about empty food baskets and unpaid wages and will voice their concerns about the education of their children, environmental issues and other matters affecting their interests. That may sound like a dream, but what other scenario could we wish for our homeland? What else is worth living for?

That entire future will evolve around the laws of the country. Most of these laws are already there, on the books. Most of them will fit the civilized Russia of the future, no doubt about that. The future of the mass media will evolve around the laws as well. Today we view these laws--and with good reason--as empty words. But they are not empty promises. If society itself is ruled by law, there will be no other choice for the press but to be law-abiding. True, a long road lies ahead. A market society is not-yet here, real democracy is still over the horizon. Getting used to the spirit of justice, educating ourselves about the need to follow the letter of the law, is a way to approach the twenty-first century without encountering new shocks and revolutions along the road.

We should also focus on fighting for the embodiment of democratic principles in legislation. Although the original mass media statute has passed the test, other laws fail, either in part or as a whole. Only now are new laws being drafted to fill the tremendous gaps in media legislation. The whole universe of broadcasting is not regulated: issues of licensing, public control, foreign ownership, and advertising are subject to lobbying by businesses, government officials and parliamentary factions--although, unfortunately, not by our public organizations. Freedom of information will be governed by another bill now under consideration by the Duma. These and other laws are of great importance not just for the freedom of speech and of the press in Russia; they are crucial for the future of our society. It is time for the public, at least for its most responsible and active elements, to become aware of this and have a say in what seems to be the empty practice of law-making.

NOTES:

1. Lawsuits actually adjudged by the courts are much fewer in number, 435 and 1,571, respectively, in 1990 and 1998.

2. As in the case of Aleksandr Lyubimov vs. "Izvestia." Judges, however, are usually sympathetic with the journalists and, if they feel it necessary to satisfy the plaintiffs, award much lesser sums.

3. For example, during a sample period from March 22 to April 10, 1996, Yelstin's name was mentioned 103 times in the Channel 1 news, while candidate number two, Communist Gennadii

5

Non-Governmental Organizations:
Building Blocks for Russia's Civil Society

Andrei Topolev and Elena Topoleva

Freedom of speech is one of the most important and notable accomplishments of Mikhail Gorbachev's perestroika. The free exchange of information and ideas created the torrent that swept aside the Iron Curtain, and then the Berlin Wall as well. Transforming Russia's economy and introducing a market economy has always encountered resistance from a significant part of our population, whose views are reflected primarily by the left-wing parties. Nonetheless, the general concept of human rights and freedoms finds support among virtually every element of society. The efforts undertaken by the international community to make these concepts a reality in Russia must be properly appreciated as well.

In the wake of the new ideas, a stream of Western loans, investments, and grants flooded into Russia. This assistance, we believe, had its most significant result in shaping the third, non-governmental, sector. Programs supporting business fared less well: the new entrepreneurs were unable at the outset to apply foreign experience to Russia's specific conditions, and the government verbally welcomed small and medium size business initiatives, but in fact choked them with unreasonable taxes and bureaucratic tyranny. But the third sector--the non-governmental, non-profit organizations (NGOs), which received significant organizational and financial support from abroad--developed in relatively more favorable conditions. These organizations, virtually unmonitored by government officials, depended for their success wholly on the fact that people were trying to protect the rights and freedoms of their fellow citizens through philanthropy, charity, and volunteerism at the grass roots. Note, however, that these ideas were by no means new for Russia, nor were they imported from the West solely.

The first public organizations appeared in our country as early as in the eighteenth century. To be sure, public organizations were never numerous, and in the Soviet era they were almost wholly subordinated to the state machine. Nonetheless, civic associations have long existed in Russia. The same can be said about volunteerism as well. Even in Soviet times, voluntary labor existed not only in the form of the "mandatory voluntary" Saturday workdays (subbotniki), but also in less distorted manifestations. Teams of enthusiasts would sally forth on Sundays to restore historical and cultural monuments--churches, noblemen's estates, and private homes. Many state agencies took children's homes and boarding schools under their wing. State employees helped the children during their free time on their own initiative. The "Timur Teams" of teenage volunteers (so named after the Young Pioneer hero of a novel by Arkady Gaidar) assisted helpless and lonely old people. We could cite many such examples. Traditions of patronage and philanthropy also have a centuries-old history in our country. Russian merchants

* **Andrei Viktorovich Topolev and Elena Andreevna Topoleva** - Born in 1959, Elena met her future husband Andrei (born in 1954) in high school, where both were active members of an unofficial student organization. Andrei earned his degree in history and philology at the Patrice Lumumba University of People's Friendship in Moscow. After studying Russian philology in the Moscow State University, Elena followed her husband to Africa, where he taught Russian and worked as a translator. After returning to Russia, Andrei pursued a research career. In 1993 they both began working at Postfactum, a news agency, until they co-founded the Agency for Social Information in 1994, which both still lead.

and entrepreneurs always considered it their charitable duty to help their neighbor. They contributed huge sums of money to support culture and art and to build churches and hospitals.

The foreign seeds that NGOs brought to Russia during the 1980s therefore fell on fertile soil. Generously "fertilized and watered" with Western money and cultivated with the best American and Western European technology, these seeds quickly yielded good shoots. The leaders of the new wave of public organizations, moreover, for the most part had higher educations, initiative, and honesty. Many of this generation, now between thirty-eight and forty-five, were "cast overboard" after perestroika, no longer needed by the state and unable to organize their own businesses under conditions of "wild" capitalism. They willingly studied Western experience, not simply mastering it, but creatively adapting it to Russian conditions. In the early 1990s dozens of experts and trainers came to Russia from the United States, Great Britain, and Germany. By the mid-1990s, teams of Russian specialists had emerged and began to teach their colleagues, fellow countrymen, and representatives of NGOs from other countries of the former Soviet Union. Accordingly, the demand for foreign specialists in the third sector quickly declined.

Take the case of Evgenia Alekseeva, the co-director of Focus, a non-profit organization in Moscow. Evgenia recently turned forty-five, but you would undoubtedly include her among Russia's modern young leaders: she is full of energy, looks marvelous, and "feels like twenty-five." At one time she studied medicine and worked as a pediatrician in a hospital. On her miserable salary, she had to accept an unmanageable workload and in addition do all the housework herself--she was raising two daughters. Then an encounter with Americans and America completely turned her life around. This happened after perestroika, when the frontier had opened and contacts with the mysterious West became possible. Evgenia discovered a new world and new possibilities for herself. In a short time, almost from scratch, she learned English, read a mountain of books, and attended training seminars. What influenced her the most, though, was her personal acquaintance and close contact with Americans, some of whom later became her close friends. She came to see the world and her place in it differently. She realized how much depended on her and how she could completely change her life.

And that is what she did. She cut her medical career short and together with friends from Russia and the United States founded Golubka, a public organization that fights for peace and democracy, advocating the methods of nonviolence. She even changed her personal life. Now she no longer bears all the domestic cares alone; all the family members share them equally. Evgenia has become a highly professional manager, she directs very important social projects, and she can without exaggeration be called one of Russia's best NGO trainers and consultants. She has conducted hundreds of seminars on organizational development and strategic planning, social marketing, and conflict resolution. Her special subject of interest is empowerment seminars for women. Evgenia was able to rid herself of the dependency syndrome and build her life anew and make it vivid and interesting--and this is what she tries to teach others.

As for Western financial assistance to the third sector, it has proven fairly effective. If you compare the funds the West puts into supporting Russian NGOs with those directed to governmental agencies or invested in business, it is obvious that relatively small investments in civil society undertakings have yielded incomparably greater results. Thanks to assistance from the West, many Russian public organizations representing the third sector have become well known both in our country and abroad (for example, the Glasnost Defense Foundation, the Committees of Soldiers' Mothers, and the "Rainbow Keepers") for their professional and

2

effective work. At the same time, most of the small, grass-roots organizations operating primarily at the local or regional level often have not received a piece of the grant "pie." In recent years, however, even these have become noticeably stronger and more visible, in the final analysis also thanks to Western assistance, in the form of seminars organized by Russian specialists who themselves were taught by Americans or Western European experts. In recent years, the system of administering aid through making subgrants to grassroots NGOs has become more widespread. Russian umbrella organizations allocate project funds based on a system of competitions, evaluations and monitoring.

According to the latest research, the principal funding source for NGOs is Russian business, as well as in-kind support from local authorities, typically in the form of office space and discounts for utility services. Nonetheless, the large and well-known organizations, such as those mentioned above, continue to survive only on Western money, a situation that seems unlikely to change soon. It is on these umbrella organizations that the third sector critically depends. They train grassroots NGOs, prepare legislation, lobby state agencies, supply information, and publish textbooks and technical manuals. They make an invaluable contribution to the development of a professional community of third-sector organizations.

By "NGO community" we mean those organizations that not only exist on paper but function actively and see themselves as part of Russia's third sector. They include: human rights defenders, ecologists, participants in the women's movement, philanthropic foundations helping various categories of the needy, associations of scholars and specialists, youth and children NGOs, and recreation clubs. According to various experts, there are 50,000-60,000 such organizations. Ten years ago, many of them did not even exist, and those that did, knew nothing about one another. Today, this is a real community united by common tasks and interests, with recognized leaders and even a professional jargon that outsiders cannot understand.

Herein lies both the strength and the weakness of the non-profit sector. On the one hand, thanks to Western assistance, an NGO community has taken shape that has clearly recognized its own role and positioned itself in society. On the other hand, this community is becoming increasingly self-sufficient; rather than advancing genuine social change, it often concerns itself with the tactics of self-perpetuation. Moreover, a broad stratum of the population does not understand what the terms "third sector" and "non-profit organization" mean. Many of these organizations themselves pay little attention to involving citizens in their work. They do not work systematically with volunteers and seldom engage in collecting private donations. To be sure, one can understand their dilemma. Just try to convince someone who is crushed by need and no longer believes in anything good to help out a public organization! On the other hand, though, an NGO in Russia will never become a real social force if it does not rely on citizens.

Of course, it will take years, perhaps decades, to change the consciousness of a people who for seventy years were told that public conduct should chiefly mean obedience to the regime. They have forgotten how to make decisions, to think through their own individual opinions, to say nothing of standing up for those opinions. But until people's consciousness changes and they accept personal responsibility, especially for their own lives and those of their families, but also for the society in which they live, we believe that serious economic growth will not begin in Russia.

In order to loosen the residual chains of post-Soviet thinking in Russia and encourage personal initiative and a sense of civic responsibility, we must involve the third sector more deeply. Here, Western assistance could play an invaluable role. Allocating funds for NGO

projects designed to involve citizens in community problem's can help, but new approaches are
also needed. The time has come for other kinds of experts and technologies. Today, the Russian
third sector no longer needs Western trainers for organizational development and strategic
planning; by now these NGOs are fairly well developed and know how to plan their activities
themselves. A new, but no less important, task is to involve citizens directly and work with
them. We recognize and articulate this task more often now, but we are still unclear about how
to do it.

At least one of the Russian third sector's accomplishments is clear: the formation of our
own information space. Thanks to Western assistance, non-profit organizations in our country
pioneered the use of e-mail and then the Internet. Now hundreds of organizations scattered
across our enormous country can gain access to information and have an inexpensive outlet to
contact each other. Today our information networks link women's and educational organizations,
environmentalists and human rights activists. They exchange data and help shape public
opinion. Witness, for example, the public campaigns led by human rights activists and
environmentalists in defense of the military journalist Gregorii Pas'ko, who was accused of
espionage for having disseminated accurate information about radioactive waste contamination
of the Pacific coast. Witness, too, the public campaign to change the tax code and help make
NGOs more stable financially. Although the number of NGO organizations that have access to
the Internet are relatively few, the importance of this information resource cannot be
underestimated.

The Social Information agency (ASI), established in 1994, was expressly designed to
inform the Russian public about successful initiatives taken by their fellow citizens.

Co-founder Elena Topoleva describes the change in their life in these words:

After perestroika began and life around me began to change in a decisive way, I felt the desire to undertake something serious myself, to stop being a cog in the political machine, a rank-and-file employee of a state organization. The first step I took was to resign from a large state publishing house, Russky Yazyk [Russian Language], and start working in the publishing department of Amstron, a joint Russian-American enterprise. This was an amusing period in my professional career. For those times of "wild" capitalism, Amstron was quite typical. It did everything from selling shoes to publishing books. There were two of us in the publishing department, and we had many plans, but we only managed to publish one pamphlet, *The Prophesies of Nostradamus*. What was most important for me was that I stopped being just an editor and independently learned all the stages of the book publishing business: editing, designing, printing, and distributing. It was unfamiliar and difficult, but incredibly exciting.

Later there were other jobs and other activities, for instance, a private business
designing presentation materials and typesetting books. At the time, hardly anyone knew
how to do this on the computer, so I had plenty of orders, and my husband Andrei and I,
having begun working together for the first time, made a success of it.

For two years we both worked at the Postfactum information agency, where there
was an unusual atmosphere of creativity and an extraordinary team of talented,
intelligent, and bold journalists, editors, and managers. Together with the Interlegal
philanthropic foundation, Postfactum published bulletins that discussed various areas of

4

public life in Russia. I began editing one of them, *Philanthropy and Humanitarian Aid*. And so, for the first time, I came in contact with the world of nongovernmental organizations before I was even completely aware of what they were. Later, Interlegal consolidated all the bulletins into one publication called *The Third Sector*, which I was responsible for producing. Until then my work was essentially to select and summarize existing materials from the Postfactum information base. But now I had nothing ready-made; I had to figure out this third sector for myself and understand the real-life organizations that represented it.

This is where my fate was decided. The people I met along the way--the leaders of the most vital and active non-profit organizations--turned my life around. I discovered for myself a completely new world that was inhabited by unusually interesting and passionate people who were excited about what they were doing. At the time it seemed to me that even outwardly they differed from others--they were so colorful and attractive, albeit quite varied. I immediately wanted to become part of this world and understand what brought these remarkable individuals together. Thus editing *The Third Sector* became a serious avocation and later my vocation.

After plunging into the world of Moscow NGOs and getting to know the foreign organizations then working in the capital, I finally made my choice--in favor of the third sector. I didn't want to be the only one to discover it; I wanted my fellow citizens who certainly had no suspicion of its existence to find out as well. I got the idea of creating a specialized information agency (similar to Postfactum) that would inform the population through the press about the activities of Russian NGOs. Evidently the idea was timely, because simultaneously some of my new colleagues had the same thought, and the leaders I had met the year before backed it eagerly. From the very beginning my husband Andrei also took an active part in the creation of ASI, the Social Information Agency. The directors of Postfactum at the time had no objections to creating ASI, using the Postfactum premises for office space, and in the fall of 1994 we began publishing weekly information bulletins and sending them out to the newspapers, television, and radio.

In October of that year ASI was officially registered as a non-profit organization and I became its director; Andrei became its co-director. Six months later we left the now moribund Postfactum and began our own separate existence. Today ASI is a weekly compilation of news and announcements for the media, weekly issues for NGOs, information and analytical bulletins on acute social topics, coverage of regular public activities for journalists and activists in the third sector, roundtables and press conferences. ASI goes to the fifteen branches in the regions of Russia and to our partners in Russian cities and abroad.

ASI's principal means of disseminating news is e-mail and the Internet. Strange as it may seem, the new media for disseminating information includes the thoroughly old-fashioned radio. Many surveys, especially in the provinces, show that because of price increases for print media, radio is becoming an increasingly popular source of information, and not only for the socially vulnerable strata of the population. In this regard television recedes into the background, since TV news programs focus on major political and economic events, while the broadcast network features entertainment. Taking this trend into account, ASI recently took part in two projects aimed at radio listeners. The first, conducted jointly with Radio Russia, envisages a series of radio

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broadcasts on the defense of human rights. The second, produced together with the BBC, is a cycle of radio shows involving representatives of regional NGOs and professional journalists.

* * *

ASI reports on initiatives and how non-profit organizations are putting them into practice. What is a civil society? Very simple. It is a society of *citizens*--people who take an active public stance, defend their rights, have their own position and articulate it, and monitor the actions of those in positions of power. We feel that a civil society will take shape in Russia only when there are a critical number of such Russians. The non-profit organizations must help achieve this goal. At the moment there are only individuals, many of whom are in fact leaders of NGOs--but they are not transmitting their activism to others; they are not attracting and training people who share their ideas.

It is our deep conviction that the main public function of an NGO is to educate citizens, to assist them in formulating and defending their rights and in bringing their demands before the authorities, and to render the most effective assistance to people in need through mobilizing human resources. Unfortunately, the third sector in Russia today is fulfilling this function to only a very limited extent. In part this is the reason for the absence of a civil society.

Everyone now realizes that a return to the totalitarian past is impossible. Slowly but surely, the Russian ship of state is changing course in order to follow the same direction as all the civilized countries have. However, the absence of democratic traditions that characterizes Russia's history (and not just its recent past) will long be a brake on progress. In order to provide for a better future, it is not enough to elect a government that enjoys the trust and support of the majority in society. Mechanisms for the smooth transition of presidential and governmental administrations, and for effective civil oversight over the functioning of government, must be worked out precisely. In addition, in a country where there have always been enough good laws that were never executed, new generations of citizens must grow up who will respect the law and who will guard democratic values as the natural basis for civil life. And in this process, the third sector will have a decisive role.

Translated by Marian Schwartz

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