Federalism and Local Politics in Russia

18 Vladimir Gel'manfall in the average scores of those regions that had previously been consideredmore politically open and pluralistic. 74 Of course, dependence ofpolitical processes on electoral preferences does not in itself guarantee effectiveregional government – on the contrary the regions were also subject topolitical cycles, electoral populism and state capture by economic interestgroups. 75 Nonetheless, the subsequent separation of governors from dependenceon the electorate has meant there is even less incentive for effectiveregional government: accountability to the electorate has been entirelyreplaced by accountability to the federal authorities. 76At the same time the Centre proved unable to solve the principal-agentproblem in its relations with the regions. It has no possibility of gaining anaccurate assessment of the effectiveness of regional administrations (experiencethus far has shown that the Presidents’ representatives or the Ministryof Regional Development have insufficient capacity to perform this role), nordoes it have workable instruments for improving the situation (beyond thepower of appointment). In this situation the Centre is pursuing a dualcourse. On the one hand, it invests its resources in expensive but not particularlyprofitable initiatives aimed at securing control over the more problematicregions (the extreme case being the republics of the North Caucasus);one the other, it becomes hostage to systematic distortion of information byregional authorities and regional branches of federal services, all exclusivelyserving their own interests. This has given rise to massive abuse of power inthe regions, which could become mere fiefdoms, delivered to the whim oftheir governors by informal agreements with the Centre, offering ‘non-interferencein return for loyalty’. The run-up to the federal elections of 2007–8has brought this scenario nearer, to the degree that federal election resultsdepend to a certain degree on the behaviour of regional elites.One way of solving the principal-agent problem would be for the Centre tostimulate competition between different agents, thereby reducing the existinginformation asymmetry. In particular economic growth encourages regionsto compete with each other to attract investment, including foreign directinvestment. 77 However, if we leave out of the analysis the specialized sectoralprofile or special geographical location of particular regions and look atregions overall, it is clear that the Centre is still, as in Soviet times, the mainsource of economic benefits, the distribution of which partly reflects politicalinterests rather than the pursuit of greater effectiveness. In the 1970s, for example,the rapid development of automobile and aerospace manufacturing inUl'yanovsk (which had previously seen only modest development) was driven bythe Federal authorities’ wish to create a ‘shop window of socialism’ in Lenin’shome city. 78 For similar reasons, in 2005 the building of a Toyota assembly plantwas launched not in Nizhnii Novgorod (at the site of the GAZ automobile factory,as originally discussed) but on a vacant site in a St Petersburg suburb thathas become a showpiece for market development in Putin’shomecity.The non-competitive political and economic environment draws theregional elites and the Centre into informal bargaining with each other, so