Sergey Valentey – Doctor of Science in Economy, the Head of the Center of Social/Economic Problems of Federalism.

Problems and Prospects in the Development of theFederative Situation in Russia

Two problems are essential to foreign federations: perfection of the legislation and perfection of the inter-budgetary relations (transfer of a part of the incomes of one region to the others, increase or reduction of the taxable base etc.). I believe that those who attempt to apply the given scheme to the Russian realities are not right. They, softly speaking, simplify the situation.

In the beginning let me make some preliminary remarks. The development of the market is indifferent to the form of statehood. The market can develop both in unitary, in federal and in confederal states. However the secret is that federal relations cannot develop beyond the market. The collapse of the Soviet Union and the collapse of Yugoslavia unequivocally have proved it. These countries were pseudo-federations that was why they were unstable. The stable federation exists only when its subjects are economically interested in the existence of the uniform state. Thus, today for us the problem of democracy is simultaneously the problem of formation of the market, and the problem of development of the federal relations.

Now let us say some words about Russia’s peculiarities.

Its first peculiarity is connected with its thousand- years history, connected not simply by a unitary form of statehood, but also by the history of the state developing within the framework of a command control system. We had small periods, for example, the period of Boris Godunov, "seven boyars time" etc., where attempts were undertaken to introduce some democratic principles of management. But, I repeat, as a whole, our history is connected with these or other variations of the command system.

Here we approach the second peculiar feature of Russia. The thing is not that our population does not know how to live in conditions of federal relations. The problem is that our officials, both at the center and in the regions, think using the categories of the unitarian state and categories of management. And when we speak about the oppositions between the center and the regions, then to the most part these are oppositions between bureaucracies, sharing the power among themselves.

Let me give just one example. If one analyses our literature, then with the rare exception we will meet the concept " the relations of the Russian Federation with the subjects of the Federation "in it. In the absolute majority of works the concept "the relations of the federal Center and the subjects of the Federation" is used.

There is a large meaning behind these discrepancies. In fact it is established that in search of the Russian pattern of the federal relations it is not Russia and the regions, constituting it, which participate in it. This search is conducted by the federal Center, represented by the government, ministries and departments, on the one hand, and the bodies of executive and legislative authority of the subjects of Federation, on the other. Or else, " the first fiddle " in this process is played by the central and regional bureaucracy.

It is obviously important for me to show that the Russian society is now starting to create the federal relations. It is forming only the basis of the federal relations, and therefore the schemes successfully realized today in foreign federations, whose history counts tens and hundreds years, are not applicable to Russia.

One more question, to which nobody has given the answer yet (by the way I have been engaged into the questions of federal relations in our country for fifteen years, and I am not ready to answer it unequivocally). The speech goes about what pattern of federal relations needs to be realized in Russia. The Swiss pattern is distinct from that of Germany; the German is distinct from the North American, which, in turn, is distinct from the Indian. So how should the Russian pattern differ (and how be similar) from that listed above?

Much is spoken about the fact that, for example, it is necessary to divide the taxable base between the budgets of various levels fairly. It is obvious. However it is not less obvious that the section of the incomes depends on the concrete pattern of the federal relations. But, probably to be defined with this pattern, it is necessary to offer a conceptual vision of the construction of the federal relations in the country.

Unfortunately, no government from the times of Gorbachov has ever put forward the problem of the development of the named concept. We are building a federation, not having even the approximate understanding of what we are doing. The design of the plane is entrusted to the appropriate research institutes, i.e. professionals. With us it is the political commands that are engaged with the formation of principles of federalism, i.e. not the professionals. By the way, there is no scientific establishment in Russia, funded by the state, with the name “Institute of Federal Relations”.

The population chooses this or that form of statehood, as it believes, it is this form that exactly guarantees the possibility to realize its economic and other interests with a maximum completeness. I am going to analyze the situation in Russia in the context of such statement.

On a number of items, the level of development of some subjects of the Federations is 60 – 80 times higher than in others. 15 regions are absolutely budgetary inadequate and will not be capable to support themselves at any conditions.

But if the given regions are recognized as the subjects of the Federation, then it means that appropriate responsibility is distributed to them. Let us take, for example, the maintenance of the power bodies. It requires additional expenses that even more aggravate a situation with the formation of the regional budgets.

The stalemate situation arises. On the one hand, the Constitution of Russia states the existence of 89 subjects of the Federation. On the other, 15 of them are not capable to provide work places and to support their own population. Don’t we have the situation where following the law, we conflict with its federative spirit, and fighting for democracy, we undermine it?

What decision at such situation would be more democratic? To my point of view, first, it is the integration of these subjects of the Federation. Secondly, giving them the status of national (territorial) autonomies, with the guarantees on the part of the state to finance their socio- economic development. Such decisions would be really democratic.

The difference in levels of development of the regions of Russia is in many respects a heritage of the past.

The Russian Federation and the Swiss Confederation are formed on the ethnic-cultural principle. However there are qualitative discrepancies between them. I see them first of all in the fact that the cantons of Switzerland initially were economically self-sufficient, that is provided the population with work, guaranteed realization of everyday needs of the citizens etc. In Russia, the national-regional principle of formation of the country was not combined with a principle of economic self-sufficiency of the regions already from the times of the Soviet Union. This is, by the way, the main reason why 15 regions cannot support themselves.

Here again there is one more problem. The situation is such, that the one who will offer to build the Russian pattern of federal relations based only on the principle of economic feasibility (demanding integration of regions, or giving them a  "lower" status than the present one), will immediately be accused of antifederalist and antidemocratic aspirations. However, if we leave everything as it is, the Russian society will receive the definitively "broken off" economic space, and, thus, the collapsing state.

One more question. There is the discussion in Russia as to what the inter-budgetary relations in the Russian Federation should be. The trick is that our legislative acts are far ahead of the economic realities. The modern domestic legislation is a certain science fiction.

Some time ago in the USSR it was fashionable to write fantastic novels whose heroes, arriving on a planet inhabited by primitive tribes, created there communist society within one decade. Today similar "novels" are written by the jurists.

Let us compare the situation in Russia and Switzerland.

Today we were shown the precise scheme of distribution of tax revenues between the Swiss Confederation, cantons and local government. In Switzerland the horizontal pattern of the inter-budgetary relations is implemented and this (by virtue of "being horizontal") meets the principles of federalism. The vertical pattern of inter-budgetary relations continues to work in Russia, i.e. a pattern characteristic of the unitarian state. So, for example, the last year scheme of distribution of incomes of the budget of the Russian Federation was reviewed three times. Three times corrections were made to it. Let me give one more example. In the Budgetary Code the division of the incomes of the budgets of the Russian Federation and regions is stipulated in the proportion 50 to 50. This year the proportion 70 to 30 for the benefit of the center has been affirmed.

This is enough to understand why our legislation in the sphere of development of the federal relations is fantastic. Only a science fiction writer can keep perfecting the legislative acts as the laws, which are valid only for one year, are not executed, (Law on the Budget of the Russian Federation).

The situation with the local government is even more "interesting". The local self-government, according to the Tax Code, has received only three kinds of taxes: the tax on advertising, the tax on succession or donation and the local import and export license fees, that constitute less than 2 % (last year this figure constituted 10 %) of the needs of the local self-government. It is easy to understand that such a Tax Code actually will liquidate the local self- government as a public institution. It is not clear how there can ever be a unitary democratic state without the local self-government.

Modern Russian federalism is built by the bureaucracy, not by the state and the regions. And all above said reconfirms it. It happens that not the state builds the relations with the subjects of the Federation, but the Ministry of Finance defines what is necessary to make here. But such situation is absurd taking into account a high level of socio-economic diversity of the regions of Russia.

The discrepancies between regions are the following: in density of the population - 10,6 thousand times -, in birth rate -3,7 times -, in death rate - 3,7 times -, in the number of economically active population – 160 - times; in average duration of work search - 1,8 times -, in losses of working hours due to strikes - 220 times -, in the average pecuniary incomes - 14,1 times -, in a retail turnover - 46,7 times -, in personal services per capita - 28 times -, in number of working in conditions which are not adequate to social - hygienic standards - 44,2 times.

The list can be continued. However if we recognize that the stability of the federal relations in many respects is provided by the condition that equal associates enter into a union named federation, then it is necessary to recognize that in Russia this demand is not realized yet. For it to be fulfilled it is necessary to generate the economic pattern allowing, at the first stage, as the minimum to bring the levels of socio- economic development of the regions of Russia closer to each other.

What must be undertaken already today for this purpose?

First of all, to interest the regions in earning money. The today's pattern of inter-budgetary relations is such, that the subject of the Russian Federation is not interested to increase its incomes: the more it will earn, the more the state will take from it. They have been talking about abnormality of such a situation for 8 years already. But the situation does not only improve, - it is becoming worse. The example that I have given you today, speaking about the practice of distribution of the incomes of the budgets between the subjects of Federation and the Russian Federation, is rather indicative. It is logical to set the question, why, despite a long-term critic, the Government of Russia continues to realize the obviously incorrect pattern of inter-budgetary relations? The only possible explanation, which I can accept as an argument “for” it, is that Russia needs to pay the external debts today. There are no other arguments.

If we speak about prospects of the Russian statehood, I consider that federalism has the future. However, being an economist, that is why a sceptic, simultaneously I cannot but see the high probability of development of events according to three scripts. They are:  the formation of a unitarian state with a command control system; the strengthening of the basis of the unitarian state with the wide rights of the regions; and last, the formation of a federation. As far as the confederation is concerned, its appearance is unreal. It is possible to consider the given theme closed from the moment that Mister Putin became the President.

However the probability of this or that event is not adequate to its expediency. So, for example, the knowledge of history of Russia allows speaking about extreme danger of the return to the unitarian state. However a number of the largest businessmen offer to realize the Chilean pattern here. Their interest is clear. The given scheme will allow them to be at the wheel further and to realize redistribution of the property within the framework of the market pattern. But such a development of the market will result in the reproduction of the system of relations, which took place during the existence of the Soviet Union. It won’t be the CPSU, but the Political Bureau of the Oligarchs, which will start to rule us.

I criticized the federal center very much. However, one should not build illusions in the estimation of the situation, which develops at the level of the subjects of the Federation. I will note only one thing: the attitude of the regions towards the local self-governments is the same as the one of the federal center towards the subjects of the Federation. When we fairly accuse the center to try to generate a certain oligarchic capitalism, it is impossible to forget that a similar policy is conducted at the regional level. In any subject of the Federation, the government has a bank under its patronage; it has favorite businessmen who enjoy the most favorable treatment etc. At the same time, and this is one more specificity of the situation, in a number of Republics there is and attempt to cover the economic interest of the regional bureaucracy in the field of sharing the distribution rental and other incomes by the interest of the so-called « title (core) nations”.

What can one do?  First, I believe, it is necessary to stop running in an unknown direction. It is necessary for all concerned parties to get together (I mean both Moscow and the regions) to define what state we are building. Here again it is necessary to address the question of the bilateral treaties and agreements. For some time I was the chairman of a housing cooperative with 170 flats. How long would this co-operative have lasted, if the board had concluded bilateral agreements with each tenant, distinct from each other, about the conditions of payment for the electric power, heating and water supply? I believe that its roof would have leaked in one year.

The given example can be expanded also on the practice of the formation of the federal relations. For the federation to be formed, it is required not to follow the way of the bilateral treaties and agreements, and first of all, I repeat it, to be clear about the concept of development of the federal relations. And what it most important, in this concept, it is necessary to concretize for what the state bears responsibility before its citizens, and only then to define, for what the subjects of the Federation answer. I must say that, being engaged in the problems of Russian federalism for many years, I cannot tell with confidence on what questions, I as the citizen of Russia, should address the Government, on what regional authorities, and on what the local self-government authorities.

Second. I do not support the line, which is being pursued now, on the complete ban of the agreements. The agreements are necessary, but it is also necessary to define what cannot be a subject of the bilateral contracts between the Russian Federation and its subjects. Today anything can be the item of these agreements.

Third. In conditions of crisis we should really follow the provision of the Constitution about the property of the state on deposits of mineral wealth of national significance. According to the calculations of the expert of our Center today there are up to 15 billions dollars of the natural rent wandering somewhere. Thus, we deal with an amount comparable to the budget of our country.

I do not call for that all this money subside in the federal budget. Naturally, the part of the rent should remain in the regions. However it is necessary to change the rules of the game. The provision along which the state transmits to the unattended control of the regions diamond mines, oil deposits and other objects referred to as the state ownership, is not normal. It is an economic nonsense.

Normal is the situation where the state transmits objects of its property to the control and use of the manufacturer, who, using deposits rationally, pays the taxes to the state, pays the taxes to the subject of the Federation, pays the taxes to the local self-government, pays wages to the workers, conducts geological prospecting, protects the environment.

I believe that the domestic law should follow the way of sharpening the economic legislation, but reasonable sharpening, rather that directed, for example, at over-taxation of the manufacturers.

Fourth, and, I believe, the most important. All activity directed to the development of the federal relations in Russia should be based on the understanding that within decades Russia will still remains a federation founded on a nation-state principle. There is no other way. To follow the other way means to cause bloody chaos. As an economist, I do not like it, but it is the fact.

And some words about the federal districts. The formation of federal districts was a necessary step. The districts can appear viable under the condition that they will fulfill the functions, which cannot be realized either at the federal, or at the regional level. In particular, there are state programs (power, transport etc.), realization of which requires both ensuring of interrelation of the subjects of the Federation with one another, and accomplishment of the control of expenditure of the money of the federal budget on these purposes. Thus the districts should not interfere into the terms of reference of the subjects of the Federation. What is fixed as a responsibility of the regions should be carried out independently by them. Unfortunately, there is a difficult problem here too. The presence of Article 72 in the Constitution “Joint jurisdiction” dilutes the understanding of what the responsibilities of the regions, and what the responsibilities of the state actually are. If Article 72  "is not cleaned" (that is reduced to the minimum), one cannot talk either about any normal inter-budgetary relations, or about any normal relation between the Federation and its subjects.