How Russia Really Works: The Informal Practices That Shaped Post-Soviet Politics and Business

by Alena V. Ledeneva

During the Soviet era, blat―the use of personal networks for obtaining goods and services in short supply and for circumventing formal procedures―was necessary to compensate for the inefficiencies of socialism. The collapse of the Soviet Union produced a new generation of informal practices. In How Russia Really Works, Alena V. Ledeneva explores practices in politics, business, media, and the legal sphere in Russia in the 1990s―from the hiring of firms to create negative publicity about one's competitors, to inventing novel schemes of tax evasion and engaging in "alternative" techniques of contract and law enforcement. She discovers ingenuity, wit, and vigor in these activities and argues that they simultaneously support and subvert formal institutions. They enable corporations, the media, politicians, and businessmen to operate in the post-Soviet labyrinth of legal and practical constraints but consistently undermine the spirit, if not the letter, of the law. The "know-how" Ledeneva describes in this book continues to operate today and is crucial to understanding contemporary Russia. On December 6, 2009, Alena Ledeneva discussed her book on the BBC Radio program Forum. Here's the

Genres: Politics, Russia, Nonfiction, History, Social Science, Economics

288 pages, Paperback

First published December 1, 2006

Reviews

[Dmitry · Rating 5 out of 5]

(The English review is placed beneath the Russian one)

Мы на тысячу веков здесь одни
Запутаны сами собой и оставлены гнить
Чей-то голос выбивается и еле поёт -
«Всё, что ты себе создашь, то и твоё»

Во-первых, эта книга часто упоминается другими авторами, пишущими о современной России. После того как я прочитал книгу, я понимаю почему её так часто цитируют. Мне кажется, больше никто ничего подобного о России не писал, хотя для многих россиян в книге нет ничего нового и удивительного. Тем не менее, для понимания, почему в РФ не получилось построить демократию и почему всё в итоге вылилось в мафиозное государство, эта книга важна.

“Democracy” became associated with outbreaks of kompromat, the media were not independent, and the public was not likely to object to the political regime’s curtailing media freedoms.

Во-вторых, книга читается тяжело, т.е. текст в книге довольно сложный, что кажется мне довольно странным в силу выбранных тем. Да, автор постаралась обхватить весь материал, описав максимально детально, но если первая половина книги читается легко и понятно, то вот вторая половина книги читается невероятно сложно. Если быть честным, то из второй половины книги я мало что понял. К примеру, Double Accountancy (Dvoinaia Bukhgalteriia) или Post-Soviet Tolkachi или Shadow Barter (Tenevoi Barter). Для этих тем потребуется более простое объяснение, если читатель захочет понять все темы, что поднимает автор. Впрочем, вышеназванные темы не такие важные, в смысле их влияния на постсоветское строительство нового государства, новой России. Я всё же считаю, что другие темы, которые так же рассматривает автор и которые более понятные, как например, Black PR, Kompromat и Sustaining the Ties of Joint Responsibility (Krugovaia Poruka) повлияли на строительство государства в большей степени, нежели Tolkachi или/и Double Accountancy (Dvoinaia Bukhgalteriia). Впрочем, я думаю, правильнее было бы сказать, что мы имеем дело с синергетическим эффектом, когда все поднятые автором вопросы в совокупности повлияли на то, почему в России установилась такая (ельцинско-путинская) власть.

Насколько эти явления периода правления Ельцина важны для понимания путинской России? Я считаю, что они очень сильно важны. Путин появился не как бывший полковник КГБ, а как чиновник санкт-петербуржской администрации которой свойственны все перечисленные автором явления или практики. Другими словами, именно эти практики объясняют психологию Путина, его взгляд на мир, а не его работа в качестве сотрудника КГБ в Дрездене.

Vladimir Iakovlev, the governor of St. Petersburg, has long been mentioned in connection with the work of organized criminal groups in the “criminal capital of Russia.” Iakovlev was elected governor of St. Petersburg in June 1996, and during his first years in office, a number of high-profile murders occurred in that city. However, it was not until the spring of 1999 that Iakovlev himself began to come under direct attack for his alleged involvement in a number of criminal cases, including the murders of Viktor Novoselov, the St. Petersburg lawmaker, and Galina Starovoitova, the State Duma deputy.

Вот про Путина говорят, что он не верит в независимых журналистов. Я думаю, он действительно в такое явление не верит, ибо в России, как пишет автор, все СМИ имели свою цену, заплатив которую вы могли ожидать, что ваш материал появится на страницах газеты, с которой у вас есть договорённость. Какое это имеет отношение к закону? Никакого! Это не только аморально, но и не законно. Однако Ельцин построил такое государство, в котором за нарушение закона, если ты богатый и влиятельный человек, тебе ничего не будет. В книге приводятся цены за услуги, которые предлагали СМИ в то время. Трудно сказать, где начиналась законная оплата за рекламу, а где - проплаченный материал.

Argumenty i Fakty: The most popular weekly with a circulation in the millions. The most expensive for publication of kompromat, $18,000 per page. Regardless of the fee, the final decision to publish is taken by the editor in chief, who is financially independent and keeps no political alliances, a situation ensuring that any material can be published.
Izvestiia: Maintains the status of a serious and conservative newspaper. It belongs to Potanin’s media holding, with a growing proportion of ownership held by Lukoil. All “sponsored” articles are framed with a discreet border.
Novaia Gazeta: From the mid-1990s supported and was supported by the National Reserve Bank, Iabloko, and more recently, Sibirskii Aliuminii. Its editor in chief is considered principled. Officially, Novaia charges $3,800 per page; kompromat costs $5,000, while urgent orders and guarantees of future editorial policy on the same matter amount to $8,000–10,000.

Как я понял, предлагали свои услуги по публикации чёрного PR и компромата все или почти все СМИ, что существовали в то время в России. Конечно, это не значит, что автор кого-то обвиняет, но что таковы были правила существования СМИ в ельцинской России. Что же теперь удивляться тому, что не только Путин и его чиновники не верят в независимую журналистику в России, но и население.

Однако на самом деле, это мелочи. Главным было отсутствие правил, т.е. закона, что в итоге создало условия появления негласных правил, т.е. понятий, по которым жила и живёт России. Опять же, это появилось не при Путине, а при Ельцине.

Each agent active in the battles of the 1990s exhibited some expertise in the unwritten rules and ability to capitalize on a certain know-how.
<….>
-The rules of the game are nontransparent and frequently change because the existing legal framework does not function coherently.
-Anybody can be framed and found guilty of some violation of the formal rules because the economy operates in such a way that everyone is bound to disregard at least some of these rules.
-Because of the pervasiveness of rule violation, punishment is bound to occur selectively on the basis of criteria developed outside the legal domain.
-“Unwritten rules” compensate for defects in the rules of the game and form the basis for selective punishment.

И кто скажет, что эти правила в Российском государстве не актуальны при Путине, хотя появились ещё при Ельцине? На ум сразу приходит дело ЮКОСа, но на самом деле, все громкие политические дела подходят под данную характеристику неписаных правил. Опять же, именно благодаря такому понятийному правилу жизни в РФ, мы имеем и войну в Украине и пытки в России и беспредел как таковой. Не при Путине всё это появилось. И вот это является главной проблемой – полное игнорирование закона как такового и подмена закона непрозрачными и очень подвижными неофициальными правилами игры. Тот же Березовский отлично умел играть по таким неофициальным правилам, только вот у этих неофициальных правил есть один недостаток – они не обязательны для того, у кого есть военная сила, т.е. кому подчиняются силовики.

Далее автор хорошо описывает природу компромата в России, всю порочность которого мы увидели во время противостояния Семьи (Ельцина) и прокурора Скуратова. Этот кейс хорошо показал, что для элиты закон не писал и что любого представителя прокуратуры можно скомпрометировать, обезвредить, нейтрализовать. Это означает, что элита не живёт по официальным законам и что она, по сути, не подконтрольна ни государственным структурам, ни обществу. Меркель сказала про Путина, что он живёт в другой реальности и в каком-то смысле она права, в том смысле, что вся российская элита живёт в совсем другой реальности, нежели остальная Россия.

For Soviet bureaucrats, violating the unwritten rules was in a way more serious than violating the written ones (Ledeneva 2001b, 12–13). In other words, the biggest risk lay not in breaking the laws themselves but in “losing a sense of proportion,” or “feel for the game” (or sens pratique, practical sense), an understanding of what they could and could not get away with (Bourdieu 1989).
<…>
Every “big boss” had his own people in local positions upon whom he depended, whom he trusted, and who were personally devoted to him. If they had good relations with those higher up, the local bosses could avoid accountability for serious misbehavior and even crimes.

А вы говорите Путин, Путин. Дело не только в Путине, дело в политической системе, которая, благодаря Ельцину, не сильно изменилась после крушения СССР. И вот это – главная проблема России.

Although the Soviet system of power was radically reformed in the 1990s, its dependence on krugovaia poruka changed little. Many scholars explained the strength of the Soviet legacy by the continuity of elites in post-Soviet Russia, especially in contrast with the experiences of Central European countries such as Poland, Hungary, and the Czech Republic in the 1990s (Kryshtanovskaya and White 1996). Yergin and Gustafson (1994, 50–51, 61, 204–5) argued that the former party nomenclature has successfully managed to establish itself in the new society. A typical example is the former party official who creates a company in which the shareholders are his former colleagues, still employed in the state apparatus. From them he obtains a license to export wood. This wood is then bought at low state prices by another former colleague and another shareholder who is the director of a local paper factory, and they become rich together.

---

First, this book is often cited by other authors writing about modern Russia. After I read the book, I understand why it is so often quoted. It seems to me that no one else has written anything like this about Russia, although, for many Russians, there is nothing new or surprising in the book. Nevertheless, this book is important for understanding why democracy was not built in Russia and why everything ended up in a mafia state.

“Democracy” became associated with outbreaks of kompromat, the media were not independent, and the public was not likely to object to the political regime’s curtailing media freedoms.

Secondly, the book is hard to read, i.e., the text in the book is quite complex, which seems quite strange to me because of the topics chosen. Yes, the author tried to cover all the material, describing it in as much detail as possible, but if the first half of the book is easy to read and understand, then the second half (of the book) is incredibly difficult. To be honest, I didn't understand much from the second half of the book. For example, Double Accountancy or Post-Soviet Tolkachi or Shadow Barter. These topics would require a simpler explanation if the reader wants to understand all the topics the author raises. However, the above-mentioned topics are not so important in terms of their influence on the post-Soviet construction of a new state, a new Russia. I still believe that other topics, which the author also discusses and which are more understandable, such as Black PR, Kompromat, and Sustaining the Ties of Joint Responsibility (Krugovaia Poruka), influenced the construction of the state to a greater extent than Tolkachi and Double Accountancy. However, I think it would be more correct to say that we are dealing with a synergetic effect when all the issues raised by the author together influenced why such (Yeltsin-Putin) power was established in Russia.

How important are these phenomena of the Yeltsin period for understanding Putin's Russia? I think they are very important. Putin emerged not as a former KGB colonel but as an official of the St. Petersburg administration, which is characterized by all the phenomena or practices listed by the author. In other words, it is these practices that explain Putin's psychology and his view of the world, not his work as a KGB officer in Dresden.

Vladimir Iakovlev, the governor of St. Petersburg, has long been mentioned in connection with the work of organized criminal groups in the “criminal capital of Russia.” Iakovlev was elected governor of St. Petersburg in June 1996, and during his first years in office, a number of high-profile murders occurred in that city. However, it was not until the spring of 1999 that Iakovlev himself began to come under direct attack for his alleged involvement in a number of criminal cases, including the murders of Viktor Novoselov, the St. Petersburg lawmaker, and Galina Starovoitova, the State Duma deputy.

It is said about Putin that he does not believe in independent journalists. I think he really doesn't believe in such a phenomenon because in Russia, as the author writes, all media outlets had their price, after paying which you could expect your story to appear in the pages of a newspaper with which you had an agreement. What does this have to do with the law? It has nothing! It is not only immoral but also not legal. However, Yeltsin built a state in which, if you are rich and powerful, you will not be punished for breaking the law. The book quotes prices for services offered by the media at the time. It is difficult to tell where the legitimate payment for advertising began and where the paid material began.

Argumenty i Fakty: The most popular weekly with a circulation in the millions. The most expensive for publication of kompromat, $18,000 per page. Regardless of the fee, the final decision to publish is taken by the editor in chief, who is financially independent and keeps no political alliances, a situation ensuring that any material can be published.
Izvestiia: Maintains the status of a serious and conservative newspaper. It belongs to Potanin’s media holding, with a growing proportion of ownership held by Lukoil. All “sponsored” articles are framed with a discreet border.
Novaia Gazeta: From the mid-1990s supported and was supported by the National Reserve Bank, Iabloko, and more recently, Sibirskii Aliuminii. Its editor in chief is considered principled. Officially, Novaia charges $3,800 per page; kompromat costs $5,000, while urgent orders and guarantees of future editorial policy on the same matter amount to $8,000–10,000.

As I understand it, all or almost all media that existed in Russia at that time offered their services in publishing black PR and kompromat. Of course, this does not mean that the author is blaming anyone, but that these were the rules of media existence in Yeltsin's Russia. So what wonder now is that not only Putin and his officials do not believe in independent journalism in Russia, but also the population.

However, in reality, these are trifles. The main thing was the absence of rules, i.e., the law, which eventually created the conditions for the emergence of unspoken rules, i.e., the concepts by which Russia lived and still lives. Again, this appeared not under Putin but under Yeltsin.

Each agent active in the battles of the 1990s exhibited some expertise in the unwritten rules and ability to capitalize on a certain know-how.
<….>
-The rules of the game are nontransparent and frequently change because the existing legal framework does not function coherently.
-Anybody can be framed and found guilty of some violation of the formal rules because the economy operates in such a way that everyone is bound to disregard at least some of these rules.
-Because of the pervasiveness of rule violation, punishment is bound to occur selectively on the basis of criteria developed outside the legal domain.
-“Unwritten rules” compensate for defects in the rules of the game and form the basis for selective punishment.

And who will say that these rules in the Russian state are not relevant under Putin, although they appeared under Yeltsin? The Yukos case immediately comes to mind, but all high-profile political cases fit this characterization of unwritten rules. Again, it is thanks to this conceptual rule of life in Russia that we have war in Ukraine, torture in Russia, and lawlessness as such. All of this did not appear under Putin. And this is the main problem - complete disregard for the law as such and substitution of the law with opaque and very fluid unofficial rules of the game. The same Berezovsky was perfectly able to play by such unofficial rules, except that these unofficial rules have one disadvantage - they are not obligatory for the one who has military power, i.e., to whom the security forces are subordinated.

Further, the author describes well the nature of the kompromat in Russia, and all the viciousness of which we saw during the confrontation between the Family (Yeltsin) and prosecutor Skuratov. This case (well) showed that the law was not written for the elite and that any representative of the prosecutor's office could be compromised, disarmed, and neutralized. This means that the elite does not live according to official laws and is essentially not under the control of either state structures or society. Merkel said about Putin that he lives in a different reality, and in a way, she is right, in the sense that the entire Russian elite lives in a very different reality than the rest of Russia.

For Soviet bureaucrats, violating the unwritten rules was in a way more serious than violating the written ones (Ledeneva 2001b, 12–13). In other words, the biggest risk lay not in breaking the laws themselves but in “losing a sense of proportion,” or “feel for the game” (or sens pratique, practical sense), an understanding of what they could and could not get away with (Bourdieu 1989).
<…>
Every “big boss” had his own people in local positions upon whom he depended, whom he trusted, and who were personally devoted to him. If they had good relations with those higher up, the local bosses could avoid accountability for serious misbehavior and even crimes.

And you say, Putin, Putin. It's not just Putin - it's the political system, which, thanks to Yeltsin, hasn't changed much since the collapse of the USSR. And this is the main problem of Russia.

Although the Soviet system of power was radically reformed in the 1990s, its dependence on krugovaia poruka changed little. Many scholars explained the strength of the Soviet legacy by the continuity of elites in post-Soviet Russia, especially in contrast with the experiences of Central European countries such as Poland, Hungary, and the Czech Republic in the 1990s (Kryshtanovskaya and White 1996). Yergin and Gustafson (1994, 50–51, 61, 204–5) argued that the former party nomenclature has successfully managed to establish itself in the new society. A typical example is the former party official who creates a company in which the shareholders are his former colleagues, still employed in the state apparatus. From them he obtains a license to export wood. This wood is then bought at low state prices by another former colleague and another shareholder who is the director of a local paper factory, and they become rich together.

[Graham Seibert · Rating 5 out of 5]

She sheds a great deal of light on things in Ukraine, where I live.

The strangest contradictions in Ukraine are between the very high level of kindness and trust among people in certain circumstances, and the fraudulent manipulation and absolute lack of trust on the other. Ledeneva, a woman of Siberian extraction living in England, conducted several series of interviews from representative regions of Russia to provide ethnographic description of what actually goes on.

Her chapter titles pretty much tell the story. The first is entitled "Black PR." There is real democracy in Russia, in the sense that votes are counted and therefore matter. Public relations is important to influence the selection of candidates in an election, and to influence whether or not the populace gets upset about the treatment of a given person. Here in Ukraine, for instance, there was a strong black PR campaign during the elections of January 2010. Yulia Timoshenko was painted as Jewish, among other things, in her stronghold in western Ukraine. She is now on trial on what most Western observers believed to be trumped up charges of abuse of office, stemming from a gas contract renegotiated to end the impasse with Russia three winters ago. The Yanukovich government appears to be using whatever force is it can muster to smear her reputation during the course of the trial. The evidence of my eyes is that the numbers of her supporters who show up daily in downtown Kiev is small and diminishing. The public seems to be tiring of the show, which means that the president is winning.

The second chapter is entitled "Kompromat," an acronym for compromising material. The legal system in Russia and Ukraine is so confused that almost everybody can be found to be in violation of some law or another at any point in time. Moreover, just about everybody involved in business has to resort to questionable practices just to get things done. Compromising material can be indications of such semi legal business practices, sexual improprieties, hidden wealth, or anything else that might be embarrassing. The interesting thing is such material is relatively rarely used in public; instead it is used to coerce a person to some desired course of action.

The third chapter is entitled "Krugovaya Poruka," or circular support. The concept dates back 1000 years, to times in which it was easier for overlords to hold entire villages responsible for the behavior of individuals within them, and to assess taxes at the village rather than the individual level. This practice was ended, by degrees, in the last years of the czar, only to emerge in Soviet times among the more powerful. Everybody needed to keep their back covered, and in order to survive in the system when needed friends. This concept evolved into circles of friends, mutually compromised, and therefore in need of mutual support. There is a Russian expression "better 100 friends than 100 rubles." In an environment in which everybody is in constant violation of the law, as the book expresses "temporarily out of prison," one absolutely needs protection.

The fourth chapter is entitled "Tenevoi Barter," or shadow barter. Because the official laws, especially the tax laws, are so confiscatory in nature, every business feels obliged to avoid reporting profits and to pay people, as they say here in Ukraine, "in an envelope" to avoid paying payroll taxes and withholding. The devices that they use include myriads of shell corporations and phony loans. Because few of these arrangements are documented, as their very nature is illegal, the system depends on a high level of trust among participants. These barter schemes are often used to move profits offshore.

The fifth chapter is entitled "Dvoinaia Buchgalterii," or double bookkeeping. An odd fact about Ukraine is that there are 1 million accountants in a land of 40 million people. It is an absurd number. However, these people are essential for making sure that the tax authorities did not rob the company blind. To make it all work, they need several sets of books. There are the books that they show to the government, books that they may show to external investors, and internal books reflecting the real estate of the business. There may be different books for different government entities. In any case, the entire system is quite complex. A bookkeeper has to be intelligent enough to stay on top of everything, and has to have nerves of steel. Interestingly enough, when the authorities go after a company it is usually the chief executive and the chief accountant who are the primary targets.

Finishing this book, one would think that it was impossible to do business in Russia, and by extension, Ukraine. Everyday observation contradicts this conclusion. A number of Western businesses operate reasonably successfully in Ukraine. A number of small businesses, even run by Westerners, succeed one way or another. The key seems to be recognizing the importance of personal relationships and the fungibility of legal systems and requirements. In any case, this is a book that belongs on the bookshelf of anybody doing business in the former Soviet Union.

[Kristin]

Had a lot of, honestly, very interesting info. But it was also incredibly, incredibly dense, especially for someone who has little background in Russian history/politics/economics beyond the broad strokes.

[GreyAtlas · Rating 4 out of 5]

I had the fortune of meeting this author, who gifted me this copy, and this book is a solid piece of work. At times I felt the wording was heavy and repetitive, but the chapters were organized, nice charts were included and the back pages had explanations and further info.

[Thomas Ray]

Library-of-Congress JN6695 A55 C639 2006 College Library Rm 1191 and Memorial Library

[Chase · Rating 4 out of 5]

Ledeneva knows what's really going on in this country. My professor required this as one of the texts for the class and I thoroughly enjoyed it. If you are curious about the internal activities of Russia or find international politics/business interesting, you'll love this book.

[Akshay]

great book

[Emma · Rating 3 out of 5]

I liked the Russias Economy of Favours a lot so I was hoping for something similar, but got a bit dissapointed. I am doing the research in this field, but the book didnt help me as much as I hoped.