Reacting to the Bush Administration's promise of "realism" in dealing
with Russia, a former Clinton Administration official observed that
"the issue is what is reality." Indeed it is.

Clinton Administration officials had their reality: Russia was on the
path to liberal democracy, albeit stumbling occasionally; it was
building the institutions for an effective market economy, although
suffering periodic setbacks; its large arsenal of nuclear weapons
entitled it to major power status, but at the same time the United
States could help to reduce significantly the number of operational
Russian warheads and to improve the security of Russian nuclear
weapons and materials. This assessment prompted the Clinton
Administration to believe that Russia could be induced to play a
constructive role in the Balkans, with NATO, in Iran, and elsewhere.

The Clinton reality also implied alternative futures, partly
depending on U.S. policy choices. Although never voiced as an
official view, defenders of the Clinton policy outside the
administration emphasized that Russia's progress toward liberal
democracy and economic recovery required constant U.S. support, both
with technical assistance and by encouraging generous IMF and World
Bank loans on relatively easy terms. If such support were not
provided, it was intimated, a "red-brown" Russian dictatorship would
emerge, analogous to Weimar Germany's transformation into Hitler's
Third Reich. The assumption in either case was that Russia would soon
return to the ranks of the great powers, and prudence dictated making
an effort to avoid getting on Moscow's future enemy list. If one
accepts this line of reasoning, then it can be claimed that the
Clinton Administration's assistance programs to Russia made political
sense despite their questionable economic results.

What different reality might the Bush Administration see if it takes
an unvarnished view of contemporary Russian realities? It will see a
Russia that has indeed become a "normal country", which is to say a
member of that large majority of states in the world that are weak,
poor, and ambling along their own paths headed nowhere in
particular--certainly not to liberal democracy or effective market
economies. It will also see that the security of Russia's nuclear
arsenal is beyond significant U.S. influence but, nonetheless, that
nuclear weapons do not make Russia a great power. It will see that
Russia can engage in trouble-making diplomacy in the former Soviet
republics along its periphery, but that it is not capable of major
military operations.

More broadly, it will also see that Russia cannot be expected to act
constructively in international affairs because most of its elite
class angrily blames the West for Russia's drop to third rank
status--although the real culprit is the legacy of seven decades of
Soviet rule. Western magnanimity cannot change Russia's foreign
policy behavior for the better; it is far more likely to make it
worse. Moreover, Russia as a "normal country" in this special sense
of the term may remain in a sharply reduced condition for a very long
time. It is liable to become, in Jeffrey Tayler's colorful phrase,
"Zaire with permafrost."

What if we were reasonably certain that Russia will not soon return
to great power status, either as a liberal democracy or a
dictatorship? What if we knew that no amount of aid and assistance
will produce a dynamic and effective Russian economy? What if, in
other words, Russia simply cannot "make it", with Western help or
without it? What is the evidence for this possibility, and what would
be the implications for U.S. policy?

Russia's Institutional Deficit

Formally speaking, of course, Russia is "making it" to democracy in
the sense that it holds periodic elections in which opposition
parties participate--as long as their chances of winning are scant.
Russia has not yet, however, seen an incumbent president voted out of
office. If "making it" means achieving "liberal" democracy, then
evidence accumulates that Russia is not making it and may not do so
for many decades.

Its formal democracy notwithstanding, Russia lacks genuine
constitutionalism. A true constitutional system requires a durable
elite consensus on: rules for making rules; rules for deciding who
rules; and individual rights that no ruler can violate or abridge.
Russia is developing no such consensus. President Vladimir Putin's
carefully managed succession to President Boris Yeltsin made clear to
all but the most obtuse observers that a genuine breakthrough for
constitutionalism in Russia is not about to happen. Most of Putin's
key programs--taking all effective political power away from the
Federation Council (the upper chamber of the parliament); imposing a
new administrative level over the regional governments; conducting a
genocidal war in Chechnya; and methodically reducing media
freedoms--appear to violate the Yeltsin constitution of 1993, calling
to mind the Russian proverb that "paper will put up with anything
written on it."

The unreconstructed optimist will object, insisting that all this
signifies merely a temporary setback on a difficult road, a claim
frequently made by Clinton Administration officials as well as
numerous analysts and scholars in think tanks and universities. In
truth, however, Russia is on some other road altogether, and this
truth really should not surprise us.

If in 1992 one had taken the best theories available on how liberal
democracies come to be, and what kind of state institutions are
required for effective economic performance, one would have known
that Russia's chances of taking the liberal path were poor. After a
decade of post-Soviet experience, one should now conclude that the
chances are trivial to none, barring a major dislocating shock such
as a major war or revolution, or the very improbable emergence of the
kind of elite consensus that produced the Meiji restoration in Japan.
Russia is now locked into a mix of old and new institutions that
daily becomes more costly for the Russian elite to escape than to
perpetuate. This predicament is neither unusual nor abnormal; most
countries are trapped in the "weak state" syndrome and locked into
economically ineffective institutions. Abnormal countries are the
wealthy liberal democracies located almost exclusively in North
America, western Europe, and a few rim-land states in Northeast Asia.

Political theory, and not just Russia's experience, supports these
observations. It does so by clarifying the link between political
institutions and economic performance.

Clearly, all liberal democracies have market economies where, despite
sometimes large welfare programs, prices are set largely by supply
and demand. But the reverse is not true; not all market economies
exist within a liberal democracy. Indeed, the rim-land economies in
Asia, some of their leaders have insisted, perform well precisely
because they do not have liberal democratic governments. Thus, the
connection between good economic performance and liberal political
institutions has been a disputed one, and the mixed empirical
evidence allows disparate views their day.

Mainstream Western economists have shed little empirical light on
these disputes, preferring instead the many simplifying theoretical
assumptions of neoclassical economics. This is why individual Western
advisors to the Russian government in 1992-93, including officials of
the IMF and World Bank, ignored such complications. Ironically, the
winner of the Nobel Prize for economics in 1993, Douglass C. North,
who had published the last of several books in 1990, confronted
directly the question of the connection between political
institutions and economic performance. In his 1993 acceptance speech,
he called attention to the relevance of his work for the Russian
case--evidently in vain.

A few of this Nobel laureate's central ideas should have given pause
to U.S. policymakers as well as to those economists advising Russia.
First, North observed that if neo-classical economics could explain
economic development, then all countries, whatever their level of
development, would be moving on converging axes toward a common
efficiency level. But, as North's research shows, they do not converge. The
reason, he suggests, is that they have different institutions, and
institutions greatly affect economic performance. Looking at the
historical record, those institutions arising from the Glorious
Revolution in 17th-century England--especially stable property rights
and a judiciary largely independent of royal power--work best because
they greatly lower transaction costs, facilitating profitable
commerce and investment.

North stresses that effective "third-party enforcement" is critical
for achieving sustained, long-term economic growth. In his words,
"third-party enforcement means the development of the state as a
coercive force able to monitor property rights and enforce contracts
effectively, but no one at this stage in our knowledge knows how to
create such an entity." This should have been a chastening
observation for those Western advisors and policymakers who marched
with such confidence to help Russia. Did they "know how to create
such an entity"? These economists clearly did not, and as U.S.
policymakers funded hundreds of technical assistance programs for
implementing the rule of law, privatization, accounting methods, and
so on, it soon became clear that neither did they.

Even as the importance of institutional reform began to dawn on many
observers, certain critics of the Clinton Administration's policies
insisted that there was a "better" or a "right" way to help Russia.
But they, too, failed to show how one can induce the Russian state to
perform an effective "third-party enforcement" role. It is difficult
to see how the key Western governments, even had they pursued some
wiser set of aid policies, could have overcome Russia's political and
economic development problems without an extremely intrusive overhaul
of virtually the entire institutional structure of the Russian state.