Reexamining Russia: Institutions and Incentives

Abstract

Reexamining RussiaInstitutions and Incentives Peter C. Ordeshook (bio) Can Russia become a stable liberal democracy? Are there ways to end the conflicts that seem a permanent feature of Russian politics? Will the new constitution adopted in December 1993 bring order to relations between the executive and legislative branches and to the making and enforcement of law? Does the bloody strife in Chechnya, where Soviet flags once again fly from tanks and armored personnel carriers, presage a repeat of Russia’s historical experience with political reform, with democrats once again driven into authoritarianism’s iron embrace? At present, pessimistic answers to these questions seem better grounded than optimistic ones. Democratic reformers, stunned by their poor showing in the December 1993 parliamentary elections, seem unable to coalesce, while nationalists and fascists marshal their forces to seize power through Russia’s infant democratic institutions. Political maneuvering proceeds in a manner barely contained by law; even some of those once counted among democracy’s staunchest defenders have resorted to undemocratic tactics when it suited their purpose. No longer are people concerned with lofty democratic ideals: instead they focus on mere survival, with those able to do so grabbing all the wealth they can. The anarchy of day-to-day business dealings is tempered only by the mafiya, whose contract-enforcement capability, though based on criminal violence, goes unchallenged by the state. With plummeting production fueling demands for subsidies to inefficient industry, comparisons with Weimar Germany are not entirely far-fetched. [End Page 46] Indeed, the marvel of the December 1993 elections is not that democratic reformers did so badly while Vladimir Zhirinovsky did so well, but that the fascists, ultranationalists, and hard-core antireformists somehow failed to secure outright control of the new legislature. 1 Is Russia trapped in some terrible equilibrium that can only be escaped by a passage through more dangerous turmoil or a retreat from liberal democracy? Even the possibility should be enough to impel democrats in Russia and abroad to start looking for another way out. Although most of those concerned with ex-Soviet states pay lip service to the proposition that economic reform and political reform are tightly interdependent and must proceed together or not at all, the two are in fact often dealt with as though different principles guide each. This is a grave mistake, for the same basic principle must guide both. The economic reformer formulates strategy in terms of laws regarding private property, banking, and contracts, as well as government policies regarding tariffs, taxes, privatization, borrowing, and subsidies. Economic reformers of every stripe understand that changes in law and policy must be guided by a common principle—namely, that socially desirable outcomes cannot be wished into existence, but depend on the ways in which governmental actions and the structure of economic institutions channel individual self-interest. Decrees and exhortations cannot make people work, save, invest, or invent. Instead, they need incentives (Adam Smith’s “invisible hand”) to do these things in natural and self-sustaining ways. Intelligently designed public policies and economic institutions are needed if reform is to give people an immediate self-interest in working, saving, investing, and inventing. The Significance of Self-Interest Although the methods for best applying the principle of self-interest in economics may be imperfectly understood, they seem pellucidly clear when compared to knowledge of political reform. Like the transition to markets, the transition to democracy depends on the design and handling of institutions—in this instance, rules of legislative representation, electoral laws, and constitutional allocations of power—that give people an immediate self-interest in pursuing certain types of actions and outcomes. For a democracy to be stable, moreover, its institutions must be crafted to give those who might destroy them an incentive not to do so. The Framers of the United States Constitution had a keen sense of the political (to say nothing of the economic) significance of self-interest that contemporary Russian leaders would do well to emulate. James Madison displayed this famously in Federalist 51 when he wrote that “the great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each [End Page...