Quality of governance, globalization and regional inequality: the Russian case1
Irina Busygina2 and Mikhail Filippov3
Introduction
Briefly, our argument is that globalization promotes higher regional inequality in
countries with low quality of governance. Low quality of governance reduces national
competiveness while globalization increases the importance of being competitive – in
combination these two lead to growing significance of other comparative advantages.
Recent economic studies show that in global economy firms with level of technological
productivity below certain threshold could not sold their products or services for any price. More
generally, it means that a minimum level of competiveness is necessary to participate in world
economic competition. Firms located where quality of governance is low (e.g. where corruption
is high) either must have other special advantages or cannot compete in global economy. Our
premise is that the overall competiveness of firms located in different nations, regions and
localities depends on quality of governance provided as nation-wide public good and a
combination of other territorially specific factors. Where quality of governance is low, the
significance of those territorially specific factors increases. Thus, one could expect that in
countries with low quality of governance territorial distribution of competitive economic
activities is more concentrated than in countries with high quality of governance. In the Russian
case, the low quality of governance makes most of the regions unable to compete in the global
economy, depriving them an opportunity to attract domestic and foreign investments.
Importantly, literature linking globalization and growing inequality argues that there were
“very different effects on participants and non-participants”.4 The excluded non-participants
have lost the most from globalization and this effect contributed to the increase of inequality
both at national and sub-national level. In the Russian case it means that if the current nondemocratic regime is responsible for the low quality of governance in Russia, it could also be
1
Prepared for presentation at the 2013 Annual Meeting of the Midwest Political Science Association, Chicago, IL,
April 11-14.
2
Professor of Political Science at Moscow State Institute of International Affairs (MGIMO University), Russia;
email: ira.busygina@gmail.com
3
Associate Professor of Political Science at Binghamton University (SUNY); email: filippov@binghamton.edu
4
Peter H. Lindert and Jeffrey G. Williamson ‘Does Globalization Make the World More Unequal?’ in Michael D.
Bordo, Alan M. Taylor and Jeffrey G. Williamson (eds) Globalization in Historical Perspective, Chicago:
University of Chicago Press, 2003, p. 229.
2
blamed for the growing inequality of economic opportunities across the Russian regions. In order
to create political conditions stimulating more equal distribution of economic opportunities
among the Russian regions Russia needs better quality of governance. In turn, the desirable
quality of governance requires incumbent politicians to initiate genuine political competition that
would stimulate their commitment to modernize the state, strengthen institutional rules and
reduce corruption.
Our paper has the following structure. Section 1 examines the role of good governance in
globalization (including the question of why it is important for inequality). Section 2 outlines the
main argument. Section 3 is devoted to the role of the national state as the key condition for good
governance (including the role of federal government in Russia). Section 4 examines two case
studies providing different responses to globalization that are trans-border regions and the city of
Moscow. Section 5 emphasizes spatial asymmetries in Russia. Section 6 discusses the thesis that
as it faces global competition Russia needs different state.
The role of good governance in globalization
In a recent major study of economic competition under globalization John Sutton (2012)
points out: ‘Ever since Adam Smith wrote the Wealth of Nations, one of the central questions of
economics has been why some countries are richer or poorer than others? Answers abound: in
the 1960s, the standard response was that rich countries had more capital stock (i.e. machinery)
than poor countries; and this larger capital stock had its origin in the savings made by earlier
generations. In the 1990s, the standard response was that rich countries had a better set of legal
and social institutions, which provided an environment within businesses could thrive, and the
roots of these institutions ran deep into a country’s history.’5
Since the 1990-s scholars and practitioners have learned a lot more about the importance
of good governance for economic development.6 In particular, a growing number of studies
identified the process of globalization as an important factor increasing the role of good
governance. In other words, it is not only good governance is important; it is also important how
5
John Sutton, Competing in Capabilities: The Globalization Process, Oxford: Oxford University Press, 2012, p. 11.
For a review of the concept and the indicators of governance see D. Kauffman and A. Kraay, ‘Governance
indicators: where are we, where should we be going?’, World Bank Research Observer, 23, 2008, 1-30.
6
3
governance helps national business to perform in global interconnected economic competition.
Furthermore, some scholars argue that the concept of governance is directly related to the rise of
contemporary globalization with public administration as a central moderator.7
Another popular position in the literature is that demands of globalization stimulate
changes the governance. Importantly, since 1990s there were significant reductions in the cost of
moving capital across countries accompanied by escalating availability of information about the
economic and political conditions within all countries. Scholars stressed that in a globalizing
world with mobile capital and freely available information, the states would be forced to get
disciplined and to improve governance.8 The most intuitive version of this idea was presented by
the New York Times columnist Tomas Friedman as a story of Electronic Herd of global investors
putting Golden Straitjacket on sovereign nations:
‘When your country recognizes … the rules of the free market in today's global
economy, and decides to abide by them, it puts on what I call the Golden Strait Jacket.
[…] Those countries that put on the Golden Straitjacket and keep it on are rewarded by
the herd with investment capital. Those that don't put it on are disciplined by the herd either by the herd avoiding or withdrawing its money from that country. […] In the end, it
always responds to good governance and good economic management.’9
In particular, Tomas Friedman stressed that the problems of the Russian economic
development are directly related to the gap between the expectations of the global investors and
the prevailing practices of the Russian governance.
Kose et al10 surveyed the extensive literature and concluded that the indirect effects of
globalization on institutions, governance, and macroeconomic stability are likely to be far more
important than any direct impact via investment capital accumulation. This result could explain
the failure of most cross-national studies to confirm the expected positive effects of globalization
A. Farazmand, ‘Globalization: a theoretical analysis with implications for governance and public administration’,
in Ali Farazmand and Jack Pinkcowski (eds) Handbook of Globalization, Governance, and Public Administration.
Boca Raton, FL: Taylor & Francis, 2009.
8
A. Brunetti and B. Weder, More Open Economies Have Better Governments, 1999. [Electronic Version].
Economic Series, 9905. Online. Available HTTP: <http://www.wiwi.unisb.de/economics-wp/pdf/wp9905.pdf>
(accessed 27 November 2012).
9
Thomas L. Friedman, The Lexus and the Olive Tree: Understanding Globalization, New York:
Ferrar, Straus, Giroux, 1999, pp. 86-88.
10
M. Ayhan Kose, Eswar Prasad, Kenneth Rogoff and Shang-Jin Wei, Financial Globalization, A Reappraisal,
Washington, DC, International Monetary Fund Staff Papers 56, 2009, 8-62.
7
4
on economic development and points to the conditional nature of the globalization effects. In
other words, the available statistical data suggest that first a nation needs to invest in a set of
stronger institutions and better governance to ripe the benefit of globalization. This why, argues
Bates: ‘expenditure of time, effort and money in the creation of institutions represents a form of
investment’ and it is no less important than traditional investments into technology,
infrastructure and education.11
However, apparently many countries (including Russia) are reluctant to invest into
institutional changes and improved governance. In such countries the state remains inefficient,
weak and corrupt for decades. Since the 1990-s a growing number of studies focused on
explanations why did inefficient ‘bad institutions’ persist while some states even fail.12 In
particular, scholars argue that for the political incumbents ‘the logic of political survival’ often
contradicts the needs of national prosperity.13 In non-democratic settings especially the logic of
survival motivates incumbent politicians to provide by all available means ‘political stability’
even at the cost of institutional and economic stagnation14. For example, several prominent
Russian scholars argue that Russia is such a state unable to modernize itself due to the perverse
incentives of the non-democratic regime.15
Thus, the current consensus among scholars is that better institutions and governance
leads to economic success in the global economy, but many political regimes fail to improve
their governance. This begs an important research question: ‘what are the consequences of the
failure to improve governance in the global economic?’ Apparently, this is a multi-dimensional
question as there are likely to be multiple consequences. It calls for serious statistical
investigation, a task beyond the scope of this paper, but here we could discuss one possible
hypothesis and support it by some data from the Russian case.
R.Bates, ‘Institutions as Investments’, in S. Borner and M. Paldam (eds) The Political Dimension of Economic
Growth, New York: St. Martins Press, 1998, p.18.
12
D. Acemoglu, D. Ticchi and A. Vindigni, ‘Emergence and Persistence of Inefficient States’, Journal of the
European Economic Association 9, 2011, 177–208; D. Acemoglu and J. A. Robinson, Why Nations Fail. The
Origins of Power, Prosperity, and Poverty, New York: Crown Business Publisher, 2012.
13
B. Bueno de Mesquita and A. Smith, The Dictator's Handbook: Why Bad Behavior is Almost Always Good
Politics, New York: Public Affairs, 2011.
14
P. Keefer and S. Knack, ‘Political Stability and Economic Stagnation’, in S. Borner and M. Paldam (eds) The
Political Dimension of Economic Growth, New York: St. Martins Press, 1998.
15
E. Zhuravskaya and S. Guriev, ‘Rethinking Russia: Why Russia is not South Korea’, Journal of International
Affairs 63, Spring/Summer 2010, 125-39.
11
5
The Argument
We build on premise that competiveness of firms in global economy depends on quality
of governance and a combination of other factors. In general, the combination of factors
promoting competiveness includes cheap labour, favourable exchange rates, low interest rates,
investment in technological advancements, the availability of natural resources, low
transportation cost etc.16 Here, we focus on competitive advantages due to the locations in which
the firms are based.
First, we assume that various factors substitute each other – for example, the low quality
of institutions could be compensated by low transportation cost or by abundance of natural
resources. This assumption guarantees that in each nation at least some favourably located firms
could successfully compete in global economy. Second, we rely on the theoretical results
presented in the recent book by John Sutton (2012) that in the global economy there is a critical
minimum level of technological capability and any firm with capability below this critical level
will have zero sales (revenue) at equilibrium. This result leads to the notion of a “window” of
capability for a firm to be viable while globalization causes the bottom of the window to move
up, rising the threshold of participation.
Sutton (2012), in particular, focuses on those firms and countries that were more or less
left behind by global markets during the 1990s and who now face the challenge of ‘getting into
the window’ of global competition. For Sutton the focus is on the conditions favourable for
technological transfers, e.g. investments. Instead, modifying the Sutton’s argument, we suppose
that in all nations firms could use the same technological equipment as it is available on the
global market. Still, one could extend the notion of production capability by considering factors
related to good governance and to competitive advantage due to the locations in which the firms
are based. In other words, one could argue that both quality of governance and territorial
competitive advantage influence the “window” of capability in the global competition. Then, it
follows that in nations and regions where quality of governance is low firms either must have
other special advantages or cannot compete in global economy.
16
M. E. Porter, The Competitive Advantage of Nations: With a New Introduction, New York: The Free Press, 1990.
Porter focuses on four groups of determinants forming a “diamond”: firm strategy, structure, and rivalry; factor
conditions (e.g., natural resources); demand conditions; and related and supporting industries. The “diamond” is
further influenced by chance events and government action.
6
R. Camagni reminded that: ‘it is obvious that individual companies are the entities that
compete and act in the international market … but these companies and these entrepreneurs are
to a large extent generated by the local context.’ Therefore ‘it does not seem unreasonable to
claim that territories compete with one another, both to attract direct foreign (or external)
investment and in defining a productive role for themselves within the international division of
labour, without any automatic assurance of such a role.’17 Thus, in nations with low quality of
governance we should observe unequal distribution of successful economic activities across
regions. In such nations, most regions finds themselves excluded from opportunities to compete
in global economy. Building on this argument we argue below that most Russian regions are
indeed “excluded” from opportunities of globalization.
Globalization presents opportunity for economic growth, the inflow of foreign capital and
investments. However, in Russia as in many other developing counties “for some, globalization
is a central reality; for others, it is still on the margins of their lives. In short, there is no one
experience of globalization. That, in itself, is an important aspect of the process”.18 This is
important, because globalization has different effects on participants and non-participants,
increasing inequality among them. Peter H. Lindert and Jeffrey G. Williamson found clear signs
of income convergence among countries and regions that integrate more fully into the global
economy, but divergence between active participants and those who remain isolated from global
markets.19
The state as key to good governance
Above we argue that globalization increases importance of good governance. The
development of globalization also stimulates debates about the changing role of the national
states in governance. On one hand, ‘the state itself is in its death throes, we are constantly told.
For this is the era of “civil society” and “postmodernity,” of “global society” and the
transnational market. [...] Wherever we look across the social sciences, the state is being
weakened, hollowed out, carved up, toppled or buried. We have entered a new era of “state
R. Camagni, ‘On the concept of territorial competitiveness: sound or misleading?’, Urban Studies 39, 2002, p. 2396.
18
F. J. Lechner and J. Boli (eds) The Globalization Reader. Carlton: Blackwell, 2004, p. 123.
19
P. H. Lindert and J. G. Williamson, op. cit., pp. 227-75.
17
7
denial”.’20 On the other hand, the role of the state became even more important in the global
economy. Under the forces of globalization, ‘the role of government is progressively shifting
toward providing an appropriate enabling environment for private (corporate) enterprise.’21
Moreover, modern good governance is not just about the state. It is also about political parties,
parliament, the judiciary, the media, and civil society.22 Yet, although the practice of governance
changes over time, the role of the state in the protection of property rights and providing the right
stimuli for economic agents remains crucial. Thus, Carlos Bresser-Pereira pointed out: ‘given the
competition that characterizes globalization, nation-states have become less autonomous, but, as
a trade-off, their role has become more strategic.’23 Most importantly, the state must be willing
and able to be proactive in providing good governance and competent to set effective and
attainable economic goals.
Ever since the time of J. Buchanan’s and G. Tullock’s The Calculus of Consent, 24
economists have known that while market mechanisms often lead to efficiency losses from the
societal point of view, state intervention does not always guarantee an improvement. Whether it
does so or not depends on the characteristics of the state and who controls it. A state focusing on
the general provision of some unspecified public good is an abstraction, a theoretically
unacceptable oversimplification. In practice, politicians and bureaucrats are motivated by either
their own interests or by the interests of their constituencies, thus even if we could know what
the true public interest might entail, they would be unlikely to champion it.
In fact, in many countries ‘politicians have insulated themselves from popular control,
acting on behalf of special interests, including interests in their own power, privilege, and
financial gain.’25 When governments are guided by such private interests, state economic
intervention generates economic inefficiencies even though it benefits the interests in question. It
is also important to remember is that ‘only rarely are those in power accountable to no one, the
20
L. Weiss, The Myth of the Powerless State, Governing the Economy in a Global Era, Cambridge: Polity Press,
2004, p. 2.
21
UNCTAD (1996) pp. IC1 – 22, quoted in A. Farazmand, ‘Sound governance in the age of globalization: a
conceptual framework’, in A. Farazmand, Sound Governance, Policy and Administrative Innovations, Westport and
London: Praeger, 2004: p. 41.
22
For a review see S. Holmberg, B. Rothstein and N. Nasiritousi, ‘Quality of government: what you get’, Annual
Review of Political Science 12, 2009, 35-61.
23
C. Bresser-Pereira, Globalization and Competition: Why Some Emergent Countries Succeed While Others Fall
Behind. Cambridge: Cambridge University Press, 2010, p. 2.
24
J. Buchanan and G. Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy, Ann
Arbor, MI: University of Michigan Press, 1962.
25
A. Przeworski, ‘A Better Democracy, a Better Economy’, Boston Review, 21, 1996, p. 9.
8
issue is to whom they are accountable, how much, and for what.’26 Thus in practice the nonaccountability of the state means only that it has become an instrument of some narrow groups
and special interests, and it does not serve the interests of a broader public, so that it is said that
the economic policies have been “privatized.” The excessive role of special interests is
problematic, because it causes distortion of both democratic accountability and policy objectives
away from economic efficiency. This is why, argues Adam Przeworski, ‘improving economic
performance requires political reform. … to ensure that government conduct is subject to vigilant
oversight by citizens. We should, in short, reform our economy by improving our democracy,
ensuring that citizens can effectively hold governments accountable for their economic
activities.’27
States with effective economic policies are not only accountable to citizens and the
private sector but they are decisive and have administrative capacity. In other words, such states
are both motivated (state accountability) and capable to provide good governance (state
capability). The literature seems to increasingly recognize the importance of state capacity as a
fundamental ingredient for effective governance.28 A recent major work by T. Besley and T.
Persson defines state capability (capacity) in terms of two major characteristics that enable the
state to act effectively.29 The first focuses on the state’s capacity as an efficient tax collector and
the second – on its capacity as an effective provider of public services (e.g., security, law,
transportation, education etc). Such effective states represent however a minor fraction of
modern nations.
The fundamental dilemma in regard to the state is that the more it is capable, the more
likely it to become unaccountable and abusive in relation to citizens and businesses.30 In theory,
the necessary safeguards are provided by a balanced system of democratic rules and constraints
to protect the people from the politicians' inclination to abuse their powers. Democratic
26
J. Fox, Accountability Politics: Power and Voice in Rural Mexico, Oxford: Oxford UP, 2007, p. 8.
A. Przeworski, op. cit., pp. 10-11.
28
A. Savoia and K. Sen, Measurement and Evolution of State Capacity: Exploring a Lesser Known Aspect of
Governance, Effective States and Inclusive Development Research Centre Working Paper 10, April 2012. Online.
Available HTTP: <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2141901.htpml> (accessed 2t November
2012).
29
T. Besley and T. Persson, Pillars of Prosperity: The Political Economics of Development Clusters, Princeton:
Princeton UP, 2011.
30
B. Weingast, ‘The economic role of political Institutions: market-preserving federalism and economic growth’,
Journal of Law Economics and Organization 11, 1995, 1-31.
27
9
constitutions, freedoms of speech and assembly, human rights and citizens’ rights are all
institutions that constrain politicians and state officials.
In this regard, a well designed constitutional contract between the citizens and the state
creates a government that is strong but limited. Investing efforts in institution-building is
premised on the fact that the choice of democratic institutions matters for the policy outcome,
and that institutions themselves are in turn variables, subject to deliberate evaluation and to
explicit choice.31 The important parameters of institutional choice are the main constitutional
principles, the form of government (presidential or parliamentary, federal or unitary), electoral
rules, the level of taxation, the independence of the judiciary and the Central Bank, and so forth.
But, of course, institutional choice is not the only important factor influencing democratic
performance: history, culture, levels of economic development, social fragmentation, the nature
of civil society, and international influences also affect the enforcement of rules and the social
outcomes that those rules produce. Moreover, economists readily admit that ‘the chief problem
may not be so much to identify good institutions as to implement them and keep them.’32 Most
often successful implementation depends on finding a harmonious and synergetic
correspondence between institutional and non-institutional factors for a particular society.
Political incumbents in Russia both lack accountability and do not have a continuing
means of sustaining state capacity. In principle, state capacity can have two sources: from above
(where authoritarian regimes have a relative advantage because of their hierarchical structure and
repressive resources), and from below where democracies are more effective due to a
combination of electoral and societal accountability, media freedom, as well as institutional
checks and balances which create “horizontal” or intrastate accountability. As far as state
capacity is concerned, states in the middle (like Russia), with weak democratic institutions, find
themselves the most vulnerable. They do not have the tight top-down hierarchy due to the
weakening of the authoritarian order, nor do the institutions of democratic control from function
at a sufficient level, being still underdeveloped.33
If the central state in Russia is not willing or capable to provide good governance and
thus to cope with globalization challenges, maybe there are regional and local authorities who
J. Buchanan, ‘The Domain of Constitutional Economics’, Constitutional Political Economy 1, 1990, 1-18.
G. Brennan and L. Lomasky, Politics and Process: New Essays in Democratic Thought, Cambridge: Cambridge
UP, 1993, p.225.
33
H. Bäck and A. Hadenius, ‘Democracy and state capacity: exploring a J-shaped relationship’, Governance 21,
2008 1-24.
31
32
10
could govern more effectively? However, in the Russian case lack of real federalism and overcentralization deprives the regions and local governance legal and financial opportunities to
reach a higher level of governance locally. In other words, regional and local authorities even if
they wanted could not significantly compensate the insufficient quality of the state at the national
level. More specifically, in Russian case the experts point out a number of obstacle the regional
and local authorities: legislative barriers (that even heightened after adoption of the notorious
Federal Law N94 strictly regulating how regional and local governments could spend their
money); activities of federal security services (“siloviki”) in the regions upon which the governor
has no influence; numerous enclaves of federal property in the regions that are governed from
outside, i.e. from Moscow (by Ministry of Defence, Rosimushestvo, Gazprom, etc.) and that
actually hinder proper development of the cities; groundless federal targets and priorities in the
regions, i.e. lists of binding tasks imposed by federal center that in the regions are considered as
either of minor importance or even false. And besides all this, let us not forget about the “key
priority” that the center is imposing on the regional leaders: to deliver regional political stability
and votes for the ruling party United Russia during elections.34
Two responses to globalization in Russia: border regions and the city of Moscow
As we argued above, low quality of governance at the national level could be
compensated by unique territorial advantages. The compensation provides few Russian regions
and cities with opportunities to participate actively in global economy. Thus, globalization
changes territorial structure of the state: the regions and localities that successfully compete and
benefit from globalization have either natural resources or favorable geographic locations.35 In
this section we examine two types of territorial communities with such favorable locations –
border regions and “global cities.”
In the case of border regions the competitive advantage lies in developing more or less
institutionalized functional (based on practical needs and non-political) transborder cooperation.
The phenomenon of “global cities” is of principally different kind. “Global cities” form informal
34
Online. Available HTTP: <http://slon.ru/russia/pochemu_v_rossii_nelzya_postroit_anti_chechnyu-789869.xhtml>
(accessed 27 November 2012).
35
M. E. Porter, ‘The economic performance of regions’, Regional Studies 37, 2003, 549-78; I. Begg, ‘Cities and
competitiveness’, Urban Studies 36, 1999: 795-809.
11
transnational networks, thus creating new structure of not national but global space. This
however leads to increasing of territorial asymmetries within the state as well as social inequality
within “global city.”
(a)
Transborder cooperation
Makarychev highlights four models of transborder cooperation in Russia:
(1)
North-Western model based on creation of transborder regions and the
advantages of developing various networks.
(2)
The model of transborder cooperation with neighbouring CIS countries is
based on geopolitical imperatives. The only institution supporting this model is the
Council of border region leaders of Belarus, Russia and Ukraine.
(3)
The “Southern model” of transborder interactions also experiences the lack
of institutional support, the only working organization is the Black Sea Economic
Cooperation.
(4)
Finally, the “Far Eastern model” of transborder cooperation is built on the
consideration that development of external links have good economic perspectives;
however the questions of protective functions should be also taken into consideration.36
The Russian practice indicates that border regions could indeed have competitive
advantage under globalization. Among Russia’s border regions one can find relatively open,
dynamically developing regions. The North West region takes advantage from geographic
proximity to the EU. The EU Northern Dimension (ND) initiative represents the most
“advanced” form of multi-level cooperation with participation of the Russian border regions.
Initiative embraces the territories of Finland, Sweden, Norway, Island, Poland and the Baltic
States as well as nine regions of Russia’s North West. Development of transborder cooperation
between neighbouring administrative units of different countries is the most important
constituent part of the ND. The ND could be understood primarily as an attempt of interested EU
members to avoid growing political cleavage of “high politics” between the EU and Russia and,
36
Online. Available HTTP: <http://www.archipelag.ru/ru_mir/ostrov-rus/rus-regions/regions/html> (accessed 27
November 2012).
12
instead promote cooperation by solving practical functional problems. Security and political
issues were either excluded from the agenda or were discussed to a limited extent. For example,
involved European participants agreed not to discuss within the ND framework the problems of
oil and gas supplies. Correspondingly, only issues of nuclear security and energy efficiency were
included into Environmental partnership within the ND. The success of ND proves that small EU
countries can achieve a lot by conducting “smart small policies.”37
While Northern Dimension is “success story”, it is typical example of transborder
cooperation that is in the Russian practice face many – objective and subjective – obstacles.
Development of effective transborder strategies by regions and cities is seriously limited in
today’s Russia. First, of all, in its current form the federal government provides the regions with
neither incentives nor capacities for such activities. Second, serious obstacles are related to the
fact that neighboring regions (with the exception of the North West regions) are economically
weak and too peripheral.
(b)
Global cities
Globalization dramatically increases scale, speed and complexity of transactions,
providing powerful impulse for development of central functions: cities become key localities for
services production. After 2008 majority of world population live in cities. Major cities in the
developing world have become centres of economic growth, political and cultural influence.
Today major cities have also come to represent nationalist ambitions of their countries’ claims to
global significance.38
Researchers use the term “urban revolution” that considers the city as a site for radical
economic, political and social change. This means studying cities as spaces of change and
innovation. Urban revolution is also analyzed in terms of the growing importance of cities in the
global economy. Moreover, globalization gave birth to the phenomenon of “global cities” that
I. Busygina and M. Filippov, ‘EU – Russia relations and the limits of the Northern Dimension’, in M. Emerson
and P. Aalto (eds) The New Northern Dimension of the European Neighbourhood, Brussels: Centre for European
Policy Studies (CEPS), 2008.
38
A. Ong, ‘Worlding cities, or the art of being global’ in A. Roy and A. Ong (eds) Worlding Cities: Asian
Experiments and the Art of Being Global, Oxford: Wiley-Blackwell, 2011, p. 2.
37
13
function as driving force for their country and region and are important elements of world
economic system.
But what is a “true” global city? For example, in 1996 Manuel Castells argued that “the
global city phenomenon cannot be reduced to a few urban cores at the top of the hierarchy.”39
Since, urban scholars had expanded the range of cities which they examined in relation to
processes of globalization beyond the three archetypes of leading “global cities” (London, New
York, Tokyo) proposed by Saskia Sassen 20 years ago. In fact, it was Sassen who suggested to
introduce the cities of “the Global South and the cities in the mid-range of the global hierarchy”
into the analysis.40 Whereas Sassen's “mid-range” was determined in relation to presumably
higher and lower-range cities, researchers connected with Globalization and World Cities
(GaWc) group began by identifying “alpha”, “beta” and “gamma” world cities on grounds of
their levels of connectivity and control functions. The assumption of hierarchical relations
continues to present alpha (or, most recently, “alpha++”) cities as the leading edge of urban
innovation, dynamism and aspiration.41 Thus, the phenomenon of global cities is spreading but
what has not changed much, however, is the tendency for scholars to order the cities that they
examine in a hierarchical fashion.
As an example, consider the Global Cities Index. It was elaborated in collaboration
between Foreign Policy magazine, management consulting firm A. T. Kearney, and The Chicago
Council on Global Affairs. The Global Cities Index provides a comprehensive ranking of the
leading global cities from around the world. The 2012 Global Cities Index ranks 66 cities. New
York and London top the list, followed by Paris, Tokyo, Hong Kong, Los Angeles, Chicago, and
Seoul. Each of these cities excels across multiple dimensions; the cities were evaluated by 25
political, economic, social and cultural criteria grouped into five main categories:
39
(1)
Business activity;
(2)
Human capital;
(3)
Information exchange;
(4)
Cultural exchange;
M.Castells, The Information Age; Economy, Society and Culture, Vol. 1: The Rise of the Network Society, New
York: Blackwell Publishers, 1996, p. 380
40
S. Sassen, The Global City: New York, London and Tokyo: Princeton UP, 1996.
41
Preface by T. Bunnell and J. D. Sideway, Xiangming Chen and A. Kanna (eds) Rethinking Global
Urbanism: Comparative Insights from Secondary Cities, London and New York: Routledge, 2012.
14
(5)
Political “weight.”
Importantly, the leading cities proved to survive global economic crises of 2008-09 much
better than it was forecasted – arguably, due to their economic influence and resources they were
more prepared for solving the challenging economic issues.
This is worth to mention the rapidly changing geography of global cities: while capitals
of big economies remain crucial players, Asian economies have skyrocketed, and the Asian
world has witnessed the stunning emergence of cities of international consequence.42 Today,
residents of Asian cities large and small like to think of their hometown as having some degree
of global significance, or having attained some level of “world-class” standing. ‘Emerging
nations exercise their new power by assembling glass and steel towers to project particular
visions of the world.’43
At the same time, in the list of 2012 Global cities there is only one city of the Russian
Federation – Moscow occupying 19th position. Among European cities Moscow gives ground not
only to London and Paris, but also to Brussels, Vienna and Madrid. However, unquestionably the
ranking recognizes Moscow as an important global city.
One of the explanations for the “global status” of Moscow is that, in Russia geographic
proximity to “central” politicians and officials contributes to success of foreign direct
investments. Indeed, according to Tsenrobank, in the first quarter of 2012 almost half of direct
foreign investments that came to Russia were concentrated in Moscow.44 As Betschinger shows
opportunities to establish important personal connections with political and regulatory authorities
improve economic indicators of foreign subsidiaries.45 Location of business in the capital is
worth it – in particular if political system has weak checks and balances and autocratic.
It is important to emphasize that while maintaining high own growth rates, global cities
seldom become “poles of growth” for surrounding territories, on the contrary, global cities often
42
A. Ong, op. cit., pp. 1- 26.
Ibid. , p. 1.
44
Online. Available HTTP: <http://www.eg-online.ru/article/185795/html> (accessed 27 November 2012).
45
M.-A. Betschinger, ‘Political Geography and Foreign Direct Investment: Is Spatial Proximity to Central
Government Politicians and Bureaucrats of Capital Value?’, Working paper 9-24, High School of Economics,
Moscow.
43
15
strengthen spatial polarization in the state.46 First of all, global cities attract the most creative,
energetic and young people. As a result the gap between global city and other cities and regions
does not only increase – it becomes insurmountable. This is especially true for centralized states
like Russia where global cities have no competitors in the territorial structure. Competitive
advantages of global cities create inertia – e.g. stable spatial development pattern that strengthens
already existing asymmetries of the state’s territorial structure.
Second, besides horizontal territorial asymmetries global cities sharpen vertical social
ones. Sassen argues that global cities are not only “wealth producing machines,” they also
produce and strengthen inequalities within each of them. Just as the model of capitalist worldsystem splits the planet into core and periphery regions, so it fragments the global cities within
into differentiated urban spaces: with high and limited real estate values; where jobs are hightech or low-tech; where residents have high and low incomes etc. Sassen shows how dangerous
could this influence be: tens of thousands employees of transnational companies virtually
colonize the city creating new disparities between rich and poor, new standards, new value and
fashions.47 For example, in 2010 more than 3 000 companies with foreign capital with around
half a million employees were registered in Moscow.48 In her analysis of the Brazilian “global
cities” Teresa Caldeira describes São Paulo as a “city of walls,” providing rich ethnographic
accounts of how the rich increasingly barricade themselves against the poor.49
In Moscow the city authorities can hardly cope anymore with the increasingly tense
relations between local population and migrants, the newcomers. Migration and ethnic tensions
are mixed in perceptions of many Muscovites. Ethnic Diasporas actively use existing systemic
corruptness of city authorities, compensating the absence of legal social lifts for migrants by
exploring illegal, corruption lifts.50 Thus, from the social perspective “globality” of Moscow
often takes the form of greatly increased xenophobia. This is definitively not a good precondition
M. Chevrant–Breton, ‘Selling the World City: a comparison of promotional strategies in Paris and London’,
European Planning Studies 5, 1997: 137-61; P. J. Taylor, Pengfei Ni, B. Derudder, M. Hoyler, Jin Huang and F.
Witlox (eds) Global Urban Analysis: A Survey of Cities in Globalization, London: Earthscan, 2011.
47
S. Sassen, op. cit.
48
Online. Available HTTP: <http://www.investmarket.ru/NewsAM/NewsAMShow.asp?ID=536055.htnl> (accessed
27 November 2012).
49
T. Caldeira, City of Walls: Crime, Segregation and Citizenship in São Paulo, Berkeley: University of California
Press, 2000.
50
Let us give an illustration: at the Dagestan marriage that took place at the end of September 2012, the guests
started to shoot at the very centre of Moscow. Police punished only one of them – he had to pay a penalty of 2,000
roubles (50 Euro).
46
16
for global city status, since this significantly decreases attractiveness and competitiveness of the
city.
Apparently, the Russian leadership has acknowledged that the whole Moscow city could
not be sufficiently attractive for investors. Instead, since the Medvedev’s presidency the focus
was on the creation of more attractive conditions in a special economic zone “Skolkovo.” The
new gated community will be one of the world’s biggest high-tech cities. Vladimir Putin, the
current president, has promised to host the summit of the G8 in 2014, when Russia holds the
group’s presidency, at Skolkovo. The Economist reported that some 20 multinational giant
companies have already signed up, including Cisco, IBM and SAP. On the other hand, as the
Economist pointed out ‘for Skolkovo to work, Russia would have to change so much that it
would no longer be necessary.’51
Asymmetric Russia
The image of Moscow as a giant pole sucking all financial resources of over centralized
Russia is a standard item of the Russian regional development studies. Indeed, Moscow as the
capital city plays an exceptional economic, social, cultural and political role in Russia.52 This
spatial pattern has been reproduced in Russia throughout her history. After the Soviet collapse
Moscow has further “monopolized” the functions of a mediator between the country and the
world economy and has become by far the most important national node of financial flows.
However, as John O’Loughlin and Vladimir Kolossov stress, this is almost paradoxical that
democratization, federalization and market reforms did not lead to reduction of the role of
Moscow within Russian space.53
It is well known that since the Soviet collapse Russia`s success in attracting Foreign
direct investment (FDI) has been rather modest. Another important but less discussed problem is
‘Innovation in Russia: Can Russia create a new Silicon Valley? Sergey Brin is still in California’, The Economist
14 July 2012.
52
J. H. Bater, ‘Moscow’s changing fortunes under three regimes’, in J. Gugler (ed.) World Cities Beyond the West.
Globalization, Development and Inequality, Cambridge: Cambridge University Press, 2004, pp. 191-211.
53
J. O'Loughlin and V. Kolossov, ‘Introduction - Moscow: post-Soviet developments and challenges’, Eurasian
Geography and Economics 43, 2002, 161-69, special issue devoted to Moscow, John O'Loughlin and V. Kolossov
(eds).
51
17
uneven distribution of FDI within country.54 In 2010 over 40 percent of all FDI projects were
concentrated in the Federal cities of Moscow and Saint Petersburg. The sales and marketing
sectors attracted 33 percent of the total FDI projects in Russia and more than 80 percent of these
projects were concentrated in Russia’s two largest cities – Moscow and St. Petersburg.55
Correspondingly, in 2010 93 percent of the total investments in the Russian commercial real
estate were made in Moscow and Moscow region. Another 3 percent of the real estate
investments were made in St. Petersburg, and only 4 percent - in the rest of Russia.56 In 2010
Regions located in the South and the North Caucuses got $22 and $4 per capita Foreign Direct
Investments while the Central federal district (mostly Moscow city and Moscow Region) - $220
per capita.57
Since 1990 Russian politicians had to deal with political consequences of significant
interregional inequalities in living standards – for example, there is at least sevenfold difference
in the Gross Regional GDP per capita between the poorest and the richest regions.58 The political
significance of interregional disparities has forced Kremlin to increase interregional
redistribution and it was relatively easy with abundant oil export revenues before the 2008 global
crises.
Though it is true, that all territorially extended countries have interregional disparities in
the Russian case the problem is that the regional disparities have already reached the point
making it is plausible to argue that from spatial perspective there is no single “Russia” anymore.
As political geographers point out there is three or even four distinctive entities under the same
label “Russia”: “Russia-1” of the large cities (“modernization brigade”). These are twelve cities
with the population over one million people and two smaller cities (Perm and Krasnoyarsk) with
a total of around 20 percent of the country’s population; “Russia-2” of industrial cities; “Russia3” – huge periphery of village settlements and small towns, and finally, “Russia-3” of ethnic
republics of Northern Caucasus and Southern Siberia. With regards to their interests, priorities
54
S. Ledyaeva and M. Linden, Testing for Foreign Direct Investment Gravity Model for Russian Regions, Working
paper 32, University of Joensuu.
55
Online. Available HTTP: < http://www.ey.com/GL/en/Issues/Business-environment/Positioned-for-growth---TopFDI-sectors-and-regions.html> (accessed 27 November 2012).
56
Online. Available HTTP: < http://www.arendator.ru/articles/2/art/45503/pg/3/html> (accessed 27 November
2012).
57
Online. Available HTTP: <http://www.nisse.ru/work/projects/monitorings/investment/investment_5.html>
58
L. Grigoriev, N. Zubarevich and G. Khasaev, Rossiiskie regiony:ekonomicheskiy krizis i problemy modernizatsii.,
Мoscow: “TEIS”, 2011, p.37.
18
and values they represent four different “worlds”.59 Political observers support the concerns of
the political geographers: popular columnist Kirill Rogov talks about ‘three parts of Russia’ as
oriented towards distinctive socio-economic models and political demands. Again, first of all
there is “Russia” of the large cities. Kirill Rogov believes that the agenda of political protests
will continue to play increasing role in shaping of large cities political demands and priorities.
Second, there is provincial “Russia” of small towns and countryside where majority of the
Russian population lives. Finally, another “Russia” is represented mostly by ethnic republics and
very poor regions.60 Scholars of the Russian public opinion argue that the inequality of economic
opportunities and expectations of population in these distinctive parts of Russia determine
inconsistent political demands and political actions across the nation. In particular, the
population of small cities expects from Kremlin more and more budget subsidies, while the
population of large cities demands more accountable, transparant, less corrupt, build on the rule
of law governance.61 If globalization is indeed going to sharpen interregional inequalities then –
as a consequence – the level of political polarization in Russia will further increase.
Russia needs a different state if it wants competitive economy and low level of
regional inequality
Domestic and foreign investors have a number of incentives to direct their capital to the
Russian regions – among them are the abundance of primary resources relatively low labour
costs, available telecommunication networks and educated population. However, most
investments are allocated to Moscow and few other regions. Furthermore, without investments
most Russian regions would not be able to compete with the current economic leaders. The
argument above suggests that in order to create conditions stimulating more equal distribution of
economic opportunities among the Russian regions Russia needs better quality of governance.
We view quality of governance at the national level as a set of contextual variables which
influences the competitive performance of firms and industries in the global economic
competition.
N. Zubarevich, ‘Chetyre Rossii’, Vedomosti, 30 December 2011.
K. Rogov, ‘Szenarii “Rossiya 1”’, Vedomosti, 8 February 2012.
61
Interview of the President of Centre for Strategic Research, Mikhail Dmitryev, RIA Novosti, 14 March 2012.
Online. Available HTTP: <http://ria.ru/interview/20120314/593787664.html> (accessed 27 November 2012).
59
60
19
The recent global economic crisis has contributed to launching debates on state
modernization and turning to innovative type of development in Russia – these goals were
declared by the federal centre as the highest priorities for the country. In fact, much of the
Russian debates about the prospects of economic modernization were centred on the role of the
state in providing favourable conditions for economic development. Already at the Global Policy
Forum (Yaroslavl, September 2010) the consensus has emerged among the Russian experts and
practitioners to recognize an active role of the state as imperative for success of the
modernization project. The experts have argued that the Russian state today has to be the main
driving force of innovative processes in the country; it must break the status-quo of the raw
material orientation of business and economy as a whole. However, different types of state
would play different roles.
In order to assess the role that the existing state or, more precisely, the current political
regime might play in the Russian economy, one needs to review how and on whose behalf that
state articulates and protects what is often labelled the “public interest.” Indeed, even in
homogenous and small countries the state represents a variety of opposing economic and social
interests. The likely beneficiary of the state’s efforts is the long-term winning coalition that
maintains incumbents in power. The size and shape of that coalition is, of course, affected by the
rules of political competition and government that are in place in a country in question. In the
Russian case, those mechanisms include elections, but also business lobbies, special interest
groups, and such routine and therefore expected institutional violations as campaign
manipulation, disinformation, electoral fraud, media control, and political corruption.
Countries like Finland, Norway, Ireland, Canada, Austria, Switzerland, Singapore or
France are often presented as examples of states exerting a positive influence on the innovation
climate. If it works there, could it work in Russia too? It could, if the Russian state bore enough
similarities with theirs. However, in reality it could hardly be more different. All countries on the
list have very low levels of political corruption. And economic theory insists that what the state
could and should do in the countries with the lowest corruption in the world (Singapore, Finland,
Sweden), cannot be done in the countries where the state is more corrupt and less effective.
Instead, one could say that for each country there exists an optimal level of state intervention in
the economy. A meta-regression analysis of the sample of 483 estimates derived from 84 studies
on democracy and growth indicated that democracies might be associated with larger
20
governments.62 At the same time, cross-national evidence indicates that in many cases state
intervention in the economy had negative results. The examples where the state managed to
conduct effective economic modernization are rare – for every successful case there are multiple
cases of failure.
The more effective and less corrupt the state, the higher is its optimal level of intervention
in the economy. In certain countries the states is so weak, inefficient, influenced by special
interests and corrupt, that any attempt by political regime to improve economic conditions would
lead to wasting resources and even more corruption. So the message seems to be that attempts to
influence the innovation climate in Russia are doomed to be of very limited success unless the
state itself is modernized. One could even say that in order to succeed in innovative development
Russia needs a different state – modernized, more efficient, less corrupt, and having a vested
interest in success of innovative businesses across Russia.
The Russian state in its current form is inefficient, ridden by corruption, lacks
accountability and is unpredictable. Most importantly, it cannot credibly commit to respect
property rights and sustain the institutional rules. Thus, the Russian state is at once the main
obstacle to economic competition as well as the necessary promoter of political and economic
modernization and technological innovations.
Unfortunately, any practical measures to modernize the Russian state would require
considerable effort and time. Given the country’s territorial make-up, existing centre-periphery
model and economic asymmetries, political change is wrought with high risks for its territorial
integrity as well as for political stability. Increased political risks would in turn inevitably
decrease investment and innovative attractiveness of Russia. In other words, although in the long
run innovation climate in Russia needs the state modernization, and therefore, political reforms,
in short and medium terms the modernization attempts would lead to a temporary decline in
investment attractiveness. Thus it comes as no surprise that although the democratic political
reform, in ideal, could modernize the Russian state and make an effective agent of economic
modernization, the same Russian leadership that sees and proclaims the vital importance of the
economic modernization is reluctant to engage in political reform, attempting instead to improve
governance by administrative methods.
H.Doucouliagos, M.Ulubaşoğlu, ‘Democracy and economic growth: a meta‐analysis’. American Journal of
Political Science 52, 2008, 61-83.
62
21
While the observers note that ‘Medvedev has struck a more liberal tone, pointing out the
need to create better incentives for innovation rather than just increasing the role of the state’,
there are important similarities between the statements by Vladimir Putin and Dmitry Medvedev
on the subject.63 Medvedev, like Putin and other key Russian officials, discuss the improvements
to the current governance practices, not any substantive change to a political system. They call
for the Russian political leadership to play a more active and decisive role in promoting
effective, predictable, corruption-free and low-cost governance, which in turn would boost
technological innovations and high quality economic growth in the country. If to follow the
public pronouncements of the Russian officials, one might start believing that such an
improvement in governance is feasible without undertaking the risk of any significant political
reforms.
Yet despite all the financial and leadership efforts the results remained quite modest. As
Vladimir Putin had to admit, the economy remained non-receptive to innovations: ‘Our main
economic shortcoming is resistance to innovation. Everything we do seems to go to waste. There
is little progress (emphasis added).’64 By 2013 both the state bureaucracy and the economy at
large continued to treat the appeals of Russia’s leadership to technological innovations and
economic modernization as something alien and prescribed from above. The term ‘coercion to
innovations’ became popular in the Russian press. As it happened many times in Russian history,
nobody dared to contradict this pressure from above, waiting it out instead. The critics
meanwhile have repeatedly prophesised that modernization hopes would fail without a genuine
political reform that would democratise the government. They argued that only a democratic
political system could create effective governance in Russia and earn investors’ trust for the
state.
63
Innovation seen as crucial to Russian economy, 18 April 2008. Online. Available HTTP:
<http://www.forbes.com/2008/04/17/russia-innovation-economy-cx_0418oxford.html> (accessed 27 November
2012); see also Russia’s leaders split on pace of reform by Neil Buckley Financial Times online edition, 8
September 2010.
64
Prime Minister Vladimir Putin attends a joint meeting of the Ministry of Finance and Ministry of Economic
Development Boards, 14 May 2010. Online. Available HTTP: <http://premier.gov.ru/eng/events/news/10586/html>
(accessed 27 November 2012). In Russian: “Ведь в чем главная проблема нашей сегодняшней экономики невосприимчивость к инновациям. Ну, казалось бы, чего ни делаем - все не в коня корм. Нет резкого
движения в этом направлении.”
22
In modern Russia, for economic development to succeed declaring the “right” intentions
is not enough – creating incentives that lead to the implementation of that policy is no less
important. Organizational and administrative inefficiency in the state does not just happen
because corrupt and unprofessional individuals find their way into its apparatus. Were this the
case we could simply start looking for better officials. One systemic cause of bureaucratic
inefficiency is because political incumbents allow it to be that way. Competition for political
office either forces incumbents to properly supervise their bureaucrats and select them with care,
or it does not. Competition for office, in turn, is structured by political institutions, and some
institutions are better than others in making incumbents responsive and accountable to the
preferences of the broader society.
In the absence of regime’s capability to evolutional adaptation, the gap between existing
institutional condition and those, that would match demands of rapidly developing globalization,
will eventually increase. Thus, the current economic and political model is unsustainable in a
long run. It does not help preserving the status of Russia at the international arena and
maintaining investment climate necessary to compete in the global economy.
These are the problems emerging “at the junction” of Russia’s relations with the outside
world. Russia cannot control or even restrain globalization, so the latter questions the possibility
of preserving Russian current economic and political model in a long run. The necessary
institutional changes in economy and politics of Russia will not happen under the influence of
“invisible hand” of the global market. On the other hand, over time the accumulating institutional
lag will demand more and more radical changes accompanied by higher short and medium term
political losses and risks.
Since positive results will come only in medium or long-run, it means that incentives to
reform the regime could be only strategic, motivated by long-term goal of preserving Russia’s
status in the international arena and global markets. That is why the most optimal agent of
reforms would be stable political parties with their long-term interests of political survival.
Although some autocratic regimes without competitive elections could act as having long-term
economic interests, however political motivation to reform is shaped by political competition and
the logic of political survival. Unfortunately, Russia’s political regime does not face political
incentives to reform itself.
23
This is peculiarity of the “Russian case” and this makes necessary reforms especially
difficult, enduring and risky. From one side, this is extremely difficult to start reforms and to
seek support from society when everything is not yet “very bad” and there is no articulated
political pressure towards changes. From the other side, the positive results of reforms could be
felt only in the future and only if they run successfully. The probability that difficult and
unpopular reforms will once again cut down half way is high. However, if the regime sets
reforms aside till “better times” come, the problems will increase exponentially and their
possible future solutions will require accepting even high risks.
Territorial inequalities badly sharpen Russian problems. Already in 1997, stressing the
growing significance of the differences across Russian regions, Professor Philip Hanson has
exclaimed: “How Many Russias?”65 Since then, these differences have significantly
accumulated. Today, with Moscow, Saint Petersburg and few resource regions dominating
Russian economic and political life, the disparities between the regions have reached the point
when researchers stress existence and significance of three or four economically and politically
distinctive parts of Russia. The inequality of economic opportunities and expectations of
population in these distinctive parts of Russia determine inconsistent political demands and
political actions across the nation.
Above we argue that an important factor of the regional inequality is low quality of
governance and view the process of globalization as an intermediate mechanism. Globalization
and low quality of governance work, so to say, in the opposite directions: the former increases
the importance of being competitive while the latter leads to the increasing importance of
territorial comparative advantages. In the Russian case, low quality of governance makes most of
the regions unable to compete in the global economy, depriving them an opportunity to attract
domestic and foreign investments. Even in the most promising cases – border regions and city of
Moscow – the local potentials to assimilate advantages of globalization are highly limited. Thus,
we expect that the combination of globalization and low quality of governance in Russia is going
to sharpen interregional inequalities and – as a consequence – the level of political polarization
in Russia.
P. Hanson, ‘How Many Russias? Russia’s Regions and their Adjustment to Economic Change’, The International
Spectator 31, 1997, 39-53.
65