Panel I :

Sheet of
Reforms in

Economic Reforms in Russia

Vladimir Gimpelson

Vladimir Gimpelson asks whether Russia will survive as a united country, or fall apart like the former USSR. The collapse of central planning has revealed the vast differences between Russia's regions. The gap between regional priorities and federal interest may provide just the opening that separatists can exploit. But Dr. Gimpelson concludes that the hard-line proponents of regional autonomy are too weak, and too closely identified with the old order. In the regions, support for economic reform outweighs the support for separatism. His verdict is that separatists have too much to lose from the break-up of Russia - and they know it.

Dr. Gimpelson is Head of Department, Institute of World Economy and International Relations, Russian Academy of Sciences, Moscow.

Russian Reforms in Regional Dimension

A balance-sheet of reforms has many aspects: political, financial, social, moral, etc. I would like to focus my short presentation on the regional dimension of the Russian transition. The Chechen war highlighted once again that successes and failures in reforming Russia are, to a considerable extent, regionally dependent. A threat of separatism proved to be rather efficient in squeezing special privileges from the centre. The weak Federal Government is forced to be very sensitive to local elites which have strong control over their localities and population. The forthcoming Parliamentary elections can strengthen this influence even more.

One of the key questions often raised is whether Russia will survive as a united country or fall to pieces as happened with the Soviet Union. I think this is a very important issue with obvious implications not only for the Russian reforms but for international security as well. I want to pinpoint right now that I do not believe in the most pessimistic scenario; nevertheless I consider policy on the relationship between the centre and the regions as very important for future development.

Structural Aspects of Regional Policy

Vast inter-regional economic differentials in Soviet Russia used to be mitigated by the strong centre that redistributed resources and incomes between regions. The collapse of the party-state system weakened the centre and destroyed this redistributive mechanism. This increased the gap between the rich and poor regions depending on their structural profiles. The liberalisation of prices and the tendency to integrate the Russian economy into the world market multiplied the existing structural differences.

If the "rich" regions seek to avoid redistribution to the "poor" ones and thus to increase their incomes, the latter (with the strong elements of traditionalism) would like to avoid reforms. The reforms threaten the existing traditionalism and, correspondingly, the power of ruling elites. This is true, first of all, for the poor ethnic republics.

One can divide all Russian regions into five major types that differ in their economic profiles. Roughly speaking, there are those which are competitive and adaptive on the world market (primarily due to their mining and extractive industries), and those that lack these advantages. (1)

These groups are the following:

  1. The resource-rich regions with mining and extractive profile (mostly the Northern and the Far-Eastern regions).
  2. The urbanised industrial areas combining heavy and light industries, the military industrial complex (the central European part of Russia, and parts of the Urals and Siberia).
  3. The export-oriented regions - financial capitals (Moscow and St. Petersburg) or border regions with maritime ports - (the North and the Far-East).
  4. The regions with developed agriculture oriented towards the domestic market (many regions from the Black-Earth zone and Povolzhye).
  5. The ethnic regions.

Each of these structural profiles requires a different adjustment strategy.

  1. The resource-rich areas, the financial capitals and the maritime regions Groups (a) and (c) would benefit from a liberalisation of the economy and free trade. These regions relying on export of mineral resources, on geographic location or on financial capital are inclined to back the more liberal foreign-trade-oriented policy. The centre is trying to regulate these activities to guarantee its "cut" for the federal budget. Therefore, these regions [groups (a) and (c)(maritime ports)] are likely to try getting more independence from Moscow to reduce tax transfers to the federal funds. The domestic economic links are replaced by foreign trade ties and the enterprises' interest in the domestic market declines. This is true for Moscow and St. Petersburg as well. The incoherence between regional economic priorities and federal interests may boost separatist tendencies.

    The most explicit case of this policy is shown by the Far Eastern regions:

    • The extremely remote location (combined with high transportation and energy costs) makes local production uncompetitive even on the domestic market; the weak infrastructure breaks traditional inter-regional links with the European part of Russia.

    • The weakening of old links is accompanied by the strengthening of new export-import ties with the Asia-Pacific countries (Japan, China, Korea, etc.); the migration of the Russian population to other Russian regions and the influx of Chinese migrants is affecting demographic structure in the region. (2)

    • The region plays a special, monopolistic, role in Russian foreign trade: 50 percent of Russian exports move through its ports and railways. (3)

    The strengthening integration into the international economy is typical for other regions from (c) as well. Of course, transportation costs do not play so decisive a role here as in the Far East. Nevertheless, the transportation capacities and geographic position stimulate more free trade policy orientations. The same is true for Moscow and St. Petersburg where the bulk of financial capital is concentrated.

    The special policy opposing the federal one is pursued by the Moscow government, which uses the status of the city as the capital to keep a much stronger grip over the economy, privatisation and ownership transfers, and entrepreneurship development than anywhere else in Russia. Although Moscow does not look like a separatist city, it shows many patterns of policy that can lead to a kind of isolation. The current attempts to establish the Moscow municipal bank may be considered as a step towards much greater financial and fiscal independence from the federal centre. (4)

    Kaliningrad (former Königsberg) illuminates a special case in the group. Being located on the Baltic coast, it is separated from the main territory of the Russian Federation by Lithuania. This former German city is attracting now native Germans from Povolzhie and Kazakhstan. The growth of the German population may significantly increase the orientation of the regional economy towards Germany. There are two likely alternatives for the region: either being developed as a Russian military base (this would require a heavy budget investment which makes it unrealistic even in the case of special political pressure from the Russian superpower proponents) or as a free economic zone with liberal custom and tax regime and oriented towards Germany, Poland, or Scandinavian countries. This option is much more feasible.

  1. The traditional industrial regions (the (b) group, consisting of machine-building including military-industrial enterprises, and light industry) are oriented towards the domestic market. This group of regions probably faces the most serious difficulties in the structural adjustment. The liberalisation of the economy makes the enterprises located here uncompetitive and doomed. The total industrial decline in these regions is the most remarkable.

    These regions have very limited resources for an active foreign trade policy. Therefore, they are interested in close ties with the federal centre, budget support and getting their financial "cut" through the redistribution from rich areas. Dependent on state subsidies, these regions prefer stronger control from the centre over regional economies that would allow redistributive manoeuvring. Being strongly oriented towards the domestic market they would favour protectionism and advocate not only the integrity of Russia but even the restoration of a united post-Soviet economic space.

  2. The regions with self-sufficient agriculture.The (d) group may seek to form regional self-sustained food markets administratively providing a low level of prices (such as, in the region of Ulyanovsk). The main policy goal here is to preserve social and political stability and, therefore, to maintain the power of local elites. This is accompanied by administrative barriers blocking the free movement of goods and ultimately leads to autarchy. These regions may search for more independence from Moscow to protect themselves from more radical economic reforms imposed by the central government.

  3. The ethnic regions constitute two different sub-groups:

    • The depressed areas (mostly from the North Caucasus) where separatist ethnic factors dominate economic ones.
    • The resource-rich areas (like Tatarstan, Bashkiria, Komi, or Karelia) where the ethnic and cultural identity may amplify economic interests, provoking regional elites to seek more independence from the federal government. For example, this resulted in the special agreement between Moscow and Tatarstan that provided the latter with more authority than other members of the Russian Federation.

    These speculations are confirmed by special calculations. (5) The computations show that five regions from Central and Southern European Russia (North-West, Central, Volgo-Vyatsky, Black-Earth and North Caucasus) have minimal preconditions for economic separatism. Their economies are strongly oriented towards the domestic market and linked within the country. The potential for foreign trade and external expansion is minimal here. The regions are interested in the integrity of the country.

    The Urals, Western Siberia and Povolzhye might get some economic benefits from the regional free trade strategy and, correspondingly, from political sovereignty. Nevertheless, social losses for this option are too high, which makes this scenario likely only in the case of deterioration in the general economic and political situation. This could be called "smouldering" sovereignty.

    The Northern, the Eastern-Siberian and the Far-Eastern regions are more likely to benefit from the policy of economic sovereignty for economic, social and geographical reasons.

    The structural inter-regional differentials determine the division of regions into those who give to the state budget and those who receive from it. Being aggravated by political factors, this division launches the complicated and contradictory process of bargaining between regions and the federal centre over budget issues.

Political Factors of Economic Separatism

The attitudes and behaviour of regional elites can strongly influence the region-to-region and centre-to-regions relationships. The collapse of the Soviet state has created an institutional void and allowed local leaders to increase their power at the expense of the diminished power of the central government. The squeezing of more independence and the threat of separatism have become powerful tools in the political and economic bargaining over taxes, subventions, privatisation rules and other sensitive issues. Boris Yeltsin's offer of sovereignty to local elites in 1991 did much to provoke their political and separatist ambitions. He did this to win in his struggle with Gorbachev but now it is working against him.

The regional leaders are preoccupied mostly with keeping and strengthening their power. This has a stronger impact on their policy than any initial pro-market or anti-market attitudes. For example, among the regions with the most rapid privatisation there are those led by reformists and those led by communists as well. Moscow, which is considered as one of the most pro-reformist territories, has moved at a very moderate pace in large-scale privatisation and has been disputing the general privatisation approach with the government. Moscow's Mayor, Yu. Luzhkov, who opposes the radical privatisation approach, has managed to get almost full control over ownership transfers in the city.

The same tendency can be seen in the case of price control policy. The Ulyanovsk pattern is probably the extreme one; nevertheless, in the majority of regions their authorities use elements of the same price control policy. The fact that the regional leaders are to be elected only strengthens the populist element in their strategies, provoking them to claim a "better" economic and social policy than Moscow.

Political preferences of the local elites are tied in with the attitudes of the population in these regions. Several elections (from the 1989 elections to the December 1993 elections) confirm the stability of electoral behaviour and show that different patterns of support for and opposition to the reforms are concentrated in specific geographic areas. This geography largely resembles the structural division of the country.

The political attitudes may be illustrated by the results of the December 1993 elections. The votes cast for the different parties show the variation between pro-liberal versus pro-conservative approaches on the one side, and federalist versus centralist attitudes on the other side. (6) The statistical analysis of the vote shows four major clusters of regions.

The first constellation of regions illustrates the disposition towards a more liberal economic policy. It includes the capitals (Moscow and St. Petersburg), the Northern areas that are rich in natural resources, the Far-Eastern regions and the most developed regions of the Urals. This is mostly groups (a) and (c) according to the structural classification developed here.

The second cluster is made up of the ethnic Russian and industrially less- developed regions with a relatively high rural and agricultural population. These regions oppose the pro-liberal economic policy and favour economic interventionism. At the same time, they support the idea of the strong centre dominating weak regions. This group includes some traditional regions in the South of European Russia and corresponds with group (d). (7)

The third cluster is characterised by the "Strong Control Over the Economy" plus "Strong Regionalism" attitude. A number of autonomous units favour this model of development. This group is led by Tuva, Kabardino-Balkaria, Ingushetia and Altay republic. As we see, it includes from the economic point of view the weakest regions with a strong element of traditionalism. They reject the rapid economic transformation and strive toward a local power which can defend them from the economic reforms pushed by Moscow.

The fourth group includes the remaining areas which are largely the industrial ones and belong to group (b). They have shown no specific preferences. The picture showing different clusters of regions may tell us about the nature of potential conflicts between them. The most fundamental political divergence is likely to happen between three groups of regions.

First, between the proponents of "strong periphery/liberal reforms" and "strong periphery/anti-reforms". This shapes up as a struggle between rich oblasts and autonomous republics (mostly the Northern) and the conservative Southern regions. The regional nature of conflicts between the various lobbyists, governmental officials and interest groups representing these regions has been already visible. However, the danger of a collapse of Russia due to their separatism is not great. Those regions inclined towards "strong periphery/anti-reform" attitude lack resources and are scattered throughout Russia. For the "strong periphery/pro-reform" regions, the level of support for economic reform tends to outweigh the support for a weak centre. Thus, these regions seem to have an agenda that would prevent them from cooperating with those who tend to support communists/agrarians.


  1. Regiony Rossii v perechodny period, RSPiP, Moscow,1993.

  2. Kommersant- Daily, 26 May, 1994.

  3. Ibid.

  4. Kommersant- Daily, 16 March,1995.

  5. Suverenitet regionov Rossii: politichesky mif ili ekonomicheskaya realnost? (Sovereignty of Russian regions: political myth or economic reality?), Delovoy mir, 31 March, 1994.

  6. See: D. Slider, V. Gimpelson, S. Chugrov, Political Tendencies in Russia's Regions: Evidence from the 1993 Parliamentary Elections, Slavic Review, Vol. 53, No. 3, Fall 1994, pp. 711-732.

  7. This area was characterized by strong backing of both the Communists (and Agrarians) and Zhirinovsky's party.

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