Rethinking Europe, EconoMatters

Russia’s Elites and the “Crowded Streetcar Effect”

To preserve their gains, will Russia’s oligarchs now demand a strong rule of law?

Credit: Clay Gilliland www.flickr.com

Takeaways


  • The struggle for property is one thing, and its legitimization is a totally different matter.
  • New elites champion rule of law once it will preserve their new position achieved under lawlessness.
  • A divided elite cannot effectively implement positive programs to implement the rule of law.
  • Russia's oligarchs suddenly emerged as champions of rule of law. It is now a tool that serves them.

The “crowded streetcar effect” is a well-known rush hour situation in everyday life. It begins with a crowd of passengers that is trying to delay the departing train. They attempt to make it wait in order to enable them to squeeze aboard.

But as soon as an individual gets inside, the lucky passenger’s objective standing (and his or her subjective perception of the situation) changes significantly.

Once aboard, he is suddenly impatient for the doors to close and the streetcar to leave the station because he does not wish to be late.

In some cases, the passengers begin to hurry the driver: “Do not wait for all to board. Close the doors and drive off!”

What you want depends on where you sit

This effect, which captures a shifting set of interests for the very same actor – depending on one’s location inside or outside the streetcar has broader applications. It is a possible model for how interest groups, including newly-minted elites, evaluate their own position and adjust their demand for more lawfulness.

Outside the streetcar, a person wants the driver’s flexibility, which benefits him. Inside, he prefers the opposite — strict enforcement — because that now benefits him.

This highlights the importance of the question: Who generates the demand for law – its creation or consistent application? Which social class advocates for that?

There is little doubt the demand for the effectiveness of the criminal law is universal. But in Russia, there is wide variation in attitudes toward – and demand for – other areas of the law. This is especially true with regard to business enterprise and the economy among bureaucrats and corporations.

Different interests shape and pivot the demand for creation and enforcement of new laws. This does not just apply to the broad demand to end the post-Soviet atmosphere of Wild West lawlessness. It also applies to specific legal provisions.

Battle over rule of law

Specific interest groups seek specific elements. This poses a very different challenge from mere opposition to the establishment of the rule of law. A divided elite cannot effectively implement positive programs to implement the rule of law, even when they want it in broad terms.

The reason is that there is immense division and separate factions view each other, often in a fight for survival.

They do not just seek to guard (and preserve) their status against non-elites, but also against one another.

They feel compelled to monitor constantly the impact of proposed positive legal changes within institutions and politics on the elite’s dominant position overall and the relationship of competing elite groups’ positions.

The most important practical conclusion is that the elites, in principle, do not operate on the basis of pure rationality.

An important aspect of the evolution of the elite’s interests is the struggle for property is one thing, and its legitimization is a totally different matter.

If a ruling elite loses its control of society and property (as a result of lost wars, revolutions, etc.), then the question arises about the rules of redistribution (seizure) of property. This extends to the recognition of control and management rights, paving the way for its use and possession.

That is a pattern well familiar to Russians via the various socio-political upheavals of the 20th century. That historical legacy continues to have a direct bearing on today’s course of events regarding the battle over the rule of law in Russia.

On the legitimacy of ownership

Legitimacy of ownership provides a basis for investment and sustainable economic development. The question of legitimacy of control and ownership can be considered the key one in terms of completion of any large-scale transformational process. It involves a fundamental change of the whole ownership system or the systemic replacement of owners.

The task of transformation is to create political and economic institutions that ensure not only some kind of economic growth, but also dynamic development of institutions fitting into today’s highly competitive world.

Of course, in general, the elite will seek to legitimize — that is, assert in practice and in law — a system of institutions that satisfies its needs. These can extend either to stimulate or inhibit growth.

In this pursuit, the elite has a double-vectored interest – implementing a positive program that improves its absolute material position and maintaining its dominant relative position.

Delays in making decisions to reform institutions create additional problems for the institutional system and affect the given country’s development potential.

Behavior of elites

After the end of a long period of “roving bandits and robber barons,” financial elite was to take control of key assets (including the post-Soviet ones).

In fact, this process has not quite been completed yet. From time to time, elites are still fighting for property, some redistributions still go on and state companies are looking for assets.

Still, the new elite has crossed the threshold into the streetcar — and now its primary interests are changing.

Now that it is inside the streetcar, this new elite wants protection of its domain, so that it is able to maintain regular operations via the consistent rule of law. Its previous preference for lawless skirmishes and blatant property seizures is diminishing accordingly.

More specifically, property fights can now be transferred to a legal and legitimized venue: the stock exchange. There, seizures of assets occur by means of legally-endorsed collusion, hostile takeovers, etc.

This is the way it is done in the West. In its brand of law-governed capitalism, the 21st century’s tycoons defend and extend their assets via the ruled by law.

Rule of law — elite’s power tool

One can imagine how the elite, once inside a “crowded streetcar” manages to close the doors. It especially wants to block new admissions to the elite.

This is how Russia’s oligarchs suddenly emerged as champions of rule of law. It is now a tool that serves them.

Elite renunciation of illegal business seizures and the practice of artificial criminalization leads to improvements in economic legislation (= a better investment climate de jure) as well as a pronounced improvement in the practice of law enforcement (= a better investment climate de facto).

This is the natural outcome of the period of the massive redistribution of assets in the Russia of the 1990s. That helter skelter process was based on rules of the past that were very far removed from any meaningful sense of justice.

This transition is inevitable from the historical point of view. The establishment of the protection of property rights and the creation of conditions for investment and growth in Russia from now on depends on one major factor that is how quickly and how radically a ban will be imposed on undermining someone else’s business and on collecting bribes from those who stay unprotected outside the “streetcar.”

Retroactive use

Now that they have become responsible owners and engines of economic progress, the former “barons” can be expected to legitimize – in the legal sense, but not the public opinion sense – their own past actions retroactively.

The streetcar in this analogy, then, is not the vehicle for economic ascension. Rather, it represents the club of Russia’s new elites who managed to get in quickly when the prior economic order was overthrown (circa 1991).

If they have their druthers, this elite will now be moving down the tracks and out of the station before anyone else can get aboard.

Those left on the “platform” should be aware that:

  • “the streetcar” is gone,
  • the chaotic free-for-all period of trying to board it has passed and
  • there are now only general rules of upward mobility.

Shoving through the crowd and forcing one’s way into the elite car is no longer an option, however unfair the denial of access to the previliged may be.

The Russian elite expressed and enforced demand for the rule of law is a long-term choice of a course towards the stability of society — and, of course, of the elite’s position in it.

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About Leonid Grigoryev

Leonid Grigoryev is Chief Adviser to the Head of the Analytical Center for the Government of GF and Professor of the Higher School of Economics, Moscow.

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