Low on capacity

As timelines in Russia’s war against Ukraine are shifting, the war has highlighted Russia’s low state capacity. Military mobilization and the state’s reply to the economic disruptions created by the war offer two recent examples. This will become a much bigger problem as the government has to face another issue: shrinking regime capacity.

In recent years, the system of multi-level governance that has emerged in Russia has been defined by a couple of core distinctive features. The most important of these would be strict top-down accountability (expressed, among other things, in the key performance indicators or KPIs that measure governors’ effectiveness), the outsourcing of responsibility, and a continuing centralization of fiscal and political power (most recently through a public administration reform). In practice this has meant that regions, which were tasked to deal with most, potentially unpopular policies, especially in the context of the constant crises of the past years, increasingly had to rely on federal transfers that they were not free to use: subsidies and so-called “other” transfers, all while they generally had to interpret and operationalize vaguely defined goals, all of which weighed on the efficiency of policy implementation. A recent study (Ross, Turovsky and Sukhova, 2022) found only two circumstances that positively affected it: the time a governor has spent in office (a proxy for elite cohesion) and “influence ratings”, a fixture of Russia’s domestic Kremlinology market – and a proxy for having additional eyes and ears in Moscow to glean insights, guidance and often, money.

State capacity, much like the more narrowly defined coercive capacity of the state and economic efficiency, does exist in Russia, but it is either in isolated pockets (e.g. the Gosuslugi system or the Central Bank) or usually just enough to implement targeted or performative actions (e.g. targeted repression to project power and discourage active dissent). In general, in spite of a conscious effort to make the state more efficient and forward-looking, governance often falls back on manual control and short-termism.

Struggling to mobilize

Take mobilization, in which governors play an outsized role, often going beyond their duties defined in the relevant presidential decree. This is both because of the importance of mobilization for domestic political dynamics, which forces regional leaders to try and make up for the failures of the military and the central government, and because governors are trusted with knowing where and how much pressure the state can put on non-state actors.

By design, this should not be the case. To complement regular polling, in 2020 the government set up a system called “Centers of Regional Management” (TsUR), to allow the federal center to keep a tab on emerging challenges in the regions because it was worried that governors would only report developments that strengthen their standing (which is a hard-coded consequence of top-down accountability). The system had two components. One aimed to institutionalize Putin’s yearly call-in show, Pryamaya Liniya, where the president addressed a carefully curated selection of grievances, but officials collected a much larger number of them in the run-up to the show, in order to have a realistic picture of what people are worried about. According to deputy prime minister Dmitry Chernyshenko, complaints collected via these regional TsURs prompted 500 decisions in 2021, and the government had a strong desire (expressed in quantified targets) to use the system more. The other part was an increasingly ambitious system of social media monitoring – as we now know, the state communications agency Roskomnadzor actively participated in this – which should have allowed the government to keep its finger on the pulse of all regions, bypassing even governors.

Somehow, however, it seems that in the context of mobilization – a significantly larger issue than potholes or even conservationist movements, which TsURs would usually handle – this system either wasn’t excessive enough or did not work. Anecdotal evidence suggests that the government picked up wrong signals about mobilization: according to a piece in Meduza, published shortly before mobilization started in practice, officials thought that since most Russians had expressed support for the “special operation”, just telling them that mobilization is necessary due to NATO’s role in the war should be enough. As we now know, it was not, and for weeks, many regional governments were going back and forth between mobilizing whomever they could and issuing correctives. As for TsURs themselves, their contribution to this seems to have been setting up Telegram chatbots to answer questions about mobilization – a measure of dubious value when the population is under the impression that the state’s assurances are not worth much and people are looking for other ways out.

Mobilization has also further stretched the fiscal capacities of regions, and, crucially, highlighted vast pre-existing differences between them. Mobilization weighs on regional budgets in a number of ways. First, it takes people out of work, causing further economic disruptions. Georgy Bovt estimated that drivers and service sector employees will be hit the hardest, but I’d also stress the ripple-on effects of the increasingly backed up Far Eastern maritime trade, the importance of which has grown significantly this year due to Western sanctions. Fiscal revenues will suffer not only if people are taken to Ukraine, but also if, as expected, more people enter the shadow economy. This will hit either of regions’ most important revenue sources, personal income taxes or profit taxes, depending on who ultimately foots the bill (there are indications that the state is nudging companies to assume part of the costs), in turn forcing the regions to rely on subsidized loans or other transfers from the center even more. Second, there is a range of direct costs associated with mobilization, which regions are asked or expected to finance. Some regions, for instance the Tyumen Region, assumed part of the costs of buying equipment for draftees, after it turned out that mobilized men are often forced to do it themselves. Tyumen, which has a peculiar budgetary arrangement with its two associated, oil and gas producing autonomous districts, can reliably afford this. Others, such as the Komi Republic, can find the funds by cutting the budget elsewhere, e.g. social payments, putting pressure on local businesses, or, like the mayor of Novokuznetsk, via a fundraiser on the VK social network.

Issuing payments to support the mobilized and their families is left up to regions, and the differences are vast, reflecting not only the different fiscal spaces, but likely also the political importance of the regions. Moscow pays 50,000 rubles monthly, and between 500,000 and 3 million rubles if the mobilized is injured or dies. Other regions are much less generous. The oil-rich Khanty-Mansi Autonomous District issues a one-time payment of 100,000 rubles, and the Kemerovo Region, which enjoyed a temporary windfall from coal prices before sanctions and transit bottlenecks effectively ended its coal exports, hands out 200,000. Contrast this with one-time payments amounting to 50,000 rubles in the Republic of Mari El, 42,000 in the Tomsk Region, 20,000 in the Chelyabinsk Region, or 5,000 in the Republic of Tuva (with an occasional barnyard animal thrown in for good measure). Some regions, such as Oryol and Bryansk, give nothing.

The federal government is reacting to these problems with considerable delay and with precious little detail. Putin’s spokesman, Dmitry Peskov promised to “solve” the problem of payments to draftees only when the governor of the Omsk Region, Alexander Burkov publicly said that his region – and at least two others – did not have the funds to finance payments, after draftees in his region mobilized themselves against the governor. Burkov also highlighted that this is not an unexpected problem: the amount of money that his region has received in budgetary grants – which regions are free to spend – had dropped from 17.7 billion rubles to 10.9 billion over the past three years, amidst galloping inflation.

The governor’s complaint also draws attention to the fact that this is just one small part of a much bigger problem, the real scale of which will become increasingly clear as Russia’s budgetary system runs low of fiscal space to finance the major restructuring of the economy, which would require the state to finance several major investment projects with costs frontloaded as timelines shift, long-term costs that seemed avoidable months ago (e.g. the loss of European gas export markets without a short-term alternative) become unavoidable; all this while the budget prioritizes ballooning security and military expenses and will need to subsidize growing social expenses in cash-starved regions.

This problem has been increasingly visible in the past months in budgetary planning, as the government’s options seem to be between cuts of “unprotected expenses”, which would hit federal investment flows, and spending the National Welfare Fund, which under current conditions creates inflationary pressures. Even stimulus plans announced months ago are being scrapped: in June, for instance, Putin said that regions should build more gas stations to support the domestic automotive industry, which was hit hard by sanctions early on; the government’s fiscal plans, however, cut subsidies for this by 42 percent.

A shrinking circle

Declining or low state capacity will not necessarily lead to open rebellion or political change in autocracies, however, as long as the political elite remains broadly united and is able to balance low state capacity with repression, at least at crucial moments and at places that matter. In Russia, this has been the case until recently: most of the political, security and business elite remained united around certain core goals, of which the continued ability to control and distribute money flows was likely the most important one. Meanwhile, a combination of steadily growing securitization of domestic politics and the increasingly ambitious digitization of government ensured that, even under the circumstances of economic stagnation and with a repressive machinery stretched thin, the government was still able to exercise repression and project power when and where it deemed necessary. Some recent developments however indicate that apart from state capacity, regime capacity – the ability of the government to provide favorable outcomes for the group whose active cooperation it needs to govern – is also declining.

The February invasion did not change the situation outright, but over time it did create situations of conflict, which suggest that the circle is tightening. The illegal annexation of the occupied Ukrainian territories is a drag on regional budgets and a risk for public employees sent to the war zone, while it is an opportunity for financial and political gain for businesses lapping up assets there and politicians organizing the land grab. Western companies are causing economic disruption by divesting from Russia, mostly in regional and local economies, but this creates opportunities for well-connected figures in the business elite to take over assets with the help of the government. Import substitution creates similar opportunities, often at the expense of efficiency. The recently resigned head of the Association of Russian Developers and Manufacturers of Electronics, Ivan Pokrovsky for instance claimed that the Ministry of Industry and Trade caters to domestic cartels, instead of having a strategic vision about import substitution.  

One of the most telling details in Farida Rustamova’s recent report on the state of the Russian political elite was the indication that minor or even mid-level officials are struggling to get their children and acquaintances out of military service. (The situation is similar in key industries, in spite of the government’s assurances of exceptions.) This is crucial, since these are the officials whom the Kremlin relies on to vote for laws, organize elections, implement decisions – including mobilization itself – and run regional and local institutions. The steady increases in wages and other perks that they have relied on over the past decade, even as other development policies were shelved, may soon be over too: some regions, e.g. Yaroslavl, are already cutting administrative positions to free up funds for costs incurred due to mobilization.

With regime capacity shrinking, three groups of officials seemed to be untouchable: broadly defined security services, the military and the Presidential Administration. The budgetary allocations for all three are growing steeply, as does their relative influence domestically, and they are still able to provide perks such as “get out of war free” cards. But even this seems to be unraveling: Ukraine’s military successes have led to an “open season” on the leadership of the military and in certain cases the security services, with the active participation of not only Telegram pundits, but also establishment politicians such as Chechen leader Ramzan Kadyrov or Duma defense committee head Andrey Kartapolov. This brings elevated risks for the system, given that the military is – deservedly or not – one of Russia’s most trusted institutions.

Lastly, there appears to be growing disquiet about the end game in Ukraine, as elites and the population are forced to face the realization that Russia may very well lose the war and thus the costs that the Kremlin is asking them to assume may not be worth it. This does not only – indeed, primarily not – refer to money already lost, such as the dozens of billions of dollars shaved off of the nominal wealth of the business elite since the beginning of the war; but future, long-term costs: the loss of oil and gas rents that officials control, the loss of export markets, the loss of assured returns that props up capital expenditures, even as companies are forced to invest, etc. In 2018, when the government wanted to make observing Western sanctions a crime – thus mandating companies to assume unspecified long-term costs on behalf of the government, the business elite pushed back. Repression is much harsher now, but it does not mean that stakeholders stopped caring. As the prospect of victory fades, these concerns may still surface.  

Changing perspectives

This is when Russia’s low state capacity becomes important. Since July, in several pieces I have tried to explain how the shifting timelines of the war put strain on state capacity and change the calculus for the people who inhabit the system. If war victory is the only possibility, however distant, it will encourage proponents of the regime and discourage opponents from acting, thus propping up the regime. As long as it looked like long-term costs may be avoided and the state will be able to tide businesses and citizens over, sanctions, while they did make the war effort more difficult, did not shift the ground fundamentally. These circumstances are now changing, and will, with the launch of the G7 oil price cap in December, change further.

These developments create two conditions that are signs of trouble for the regime: holes in the state’s coercive capacity; and a split in elites that can build on social discomfort, either locally or on higher levels. It is unclear how this will pan out in practice: the regime’s capacity to repress and control information flows is still rather strong, which makes organizing difficult, making open rebellions and palace coups less likely. Some will still try: Alexey Navalny’s team is planning to tap into widespread dissatisfaction with mobilization by relaunching its regional network; spaces created by regional and local protest movements, however narrow in focus originally, have spread reliable information about the war since February. Attempts to rock the boat will of course not always be directed at the regime as a whole: the statements of the likes of Kadyrov and Prigozhin very clearly target only some senior figures in the government. But even short of positive actions such as successful grassroots movements or coups, passive acts of non-acquiescence can also erode whatever is left of the legitimacy of the regime.

Prioritizing regime capacity over state capacity has already cost Russia a lot. Nowhere was this more obvious than in its senseless war against Ukraine, as it relied on a poorly prepared army riddled with corruption to subjugate a vast and better-prepared neighbor. As this realization sinks in and the regime is trying to draw on resources that do not exist, low state capacity will come back to bite Russia again.

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