Learning from Bankruptcy

A close examination of how bankruptcy works in Russia yields further evidence of the mechanisms that sustain collusive relationships between regional businesses and regional governments against the interests of the central state. There is a federal bankruptcy law on the statute books in Russia, but many a regional government is well paid (in one way or another) to see that it is not really enforced, at least not against the enterprises doing the paying. In direct contravention of the 1998 bankruptcy law's clear intent, this kind of "collusion between regional governors and [local-enterprise] managers leaves external creditors [including the federal government] without effective legal mechanisms for collecting claims." By effectively excusing managers from the need to restructure firms or improve less-than-profitable operations, moreover, this cozy collusion between local business and local government is placing a drag on the national economy as a whole. It amounts to a form of de facto protectionism, which in turn tends to promote "hothouse enterprises" ill-suited to cope with the rigors of competition in a globalized world.

Plainly, bankruptcy laws should protect creditors (that is to say, investors) as well as encourage the effective restructuring of inefficient firms and force managers to live within the firms' means or else increase those means by finding better ways of doing business. But Ariane Lambert-Mogiliansky, Constantin Sonin, and Ekaterina Zhuravskaya have found that Russia's regional governors, by using their considerable influence over the judges of regional arbitration courts, have been able consistently to manipulate the bankruptcy process in order to protect regional enterprises from creditors, including the federal government and its tax-collection agencies. As they explain the process:

Governors may benefit from their influence on the courts in various ways: they may extract rents from the managers of insolvent firms in exchange for protection from losing control in bankruptcy. Regional authorities may also receive benefits from the managers of profitable enterprises who fake insolvency. The latter use bankruptcy procedures (under regional influence) to avoid federal taxes and debt repayments to creditors outside the region. Governors may also use their influence to prevent the bankruptcy of large enterprises for political reasons.

While Russia has experienced a rise in the official numbers of bankruptcies since the bankruptcy law was adopted in 1998, a close examination of the companies which went bankrupt reveals that bankruptcy often did little to induce restructuring or managerial changes. As a result, it did little to harden managerial budget constraints or to improve firms' performance. This was largely due to the discretion afforded arbitration-court judges during bankruptcy proceedings, in which these judges could decide whether to restructure, to liquidate, or to dismiss bankruptcy cases altogether.

Significantly, Lambert-Mogiliansky, Sonin, and Zhuravskaya find that firm liquidation tended to happen more often to small enterprises, while the imposition of external-management procedures (where a team of managers comes in from outside to take over the bankrupt firm) "is positively related to the size of a firm, profitability of the industry, strength of the governor in the region where the firm is operating, tension between the governor and the federal center, federal tax arrears in the region, and opacity of the tax collection system in the region." Yet external management apparently did not result in employee layoffs or significant restructuring. Indeed, this group of authors characterizes the external-management option as "incumbent management" because "in reality the 'external management' procedure does not result in management change." They show that it tended to happen in large firms with large cash flows for several reasons: The tax possibilities were good for the regional governor; there was a potentially steady source of bribes and side payments to be had by actually retaining the incumbent management in the process; and high employment at these firms was significant for the governor politically (after all, employees are regional voters). A big firm, in other words, is likely to be treated delicately, as a cash cow and a vote bank, and any "external management" imposed on it will likely be more fictional than real.

All of this, however, has worked against the establishment of the rule of law and political pluralism in Russia. The federal government's authority has suffered too, as its laws are effectively evaded and snubbed. In the absence, since February 2005, of broader accountability to both a political party and voters in competitive elections, the continued dominance of corrupt local cronies over provincial politics and economies appears all but assured. There is no reason, then, to share Putin's assumption that freeing regional leaders of the need to answer to voters will boost the prestige of central authority or make provincial officials more accountable to the federal government and its laws. On the contrary, Putin's attempt to strengthen central control over provincial politics by limiting democratic elections may have merely consolidated the hold of hundreds of "mini-oligarchs" scattered across the length and breadth of Russia and its 89 provinces.

Boris Yeltsin tried to make the bricks of democracy without the straw of accountability. Equally futile is Vladimir Putin's project of building authoritarianism without authority. The horrific ordeals of Beslan and Nalchik have shown that, without functioning political and administrative institutions which heighten accountability between central and local government actors, a weakly institutionalized authoritarian state may be less able than even an imperfect democracy to provide the Russian people with reasonable political stability and enhanced personal security.

 

1. to be immune from smth. – быть защищенным от чего-л., обладать иммунитетом от чего-л.

2. to take smb. hostage – взять кого-л. в заложники

3. to bring into line with – убедить (кого-л.) согласиться (с кем-л.), убедить(кого-л.) сотрудничать (с кем-л.); заставить подчиняться; приводить в соответствие

4. to ail smb./smth. – беспокоить; причинять боль/страдания; мучить, томить

5. recasting of a (political) system – реорганизация, перестройка системы

6. an incumbent – лицо, занимающее должность; исполняющий обязанности; лицо, занимающее должность и баллотирующееся вновь; правящий, занимающий выборную должность; занимающий пост в данное время

7. an edge over smth. – серьезное (конкурентное) преимущество над чем-л.; сильная сторона (в конкурентной борьбе)

8. an inept official – некомпетентный, неспособный чиновник

Ex: inept management – неумелое управление

inept criticism – неуместная критика

inept interference – бессмысленное вмешательство

9. to strip of smth. – лишать чего-л.; отбирать, отнимать что-л.

10. to trample rights and freedoms – попирать права и свободы граждан

11. a hallmark of smth. – признак, символ чего-л.

12. to be on the wane – пойти на спад

13. to shore up a system – поддерживать, укреплять систему

14. to devolve authority from, the center to the regions - передать полномочия/функции центра регионам

15. defiance of central authority – полное пренебрежение, деионстративное, открытое неповиновение центру

16. overted flouting (зд: of central authority by elected regional governors) – откровенное неподчинение

17. to repeal legislation/ a law – отменить закон

18. to disburse federal funds – расходовать федеральные средства

19. to attend to the implementation of smth. – следить за исполнением чего-л.

20. to spearhead a campaign – возглавить кампанию

21. a thorn in smb's side – источник постоянного раздрпажения

22. a plum job – «теплое местечко» (о работе, должности)

23. to deal a blow to smb. – нанести удар кому-л.

24. to keep in line - держать в узде, строгости; сдерживать

25. to stymie the growth of smth. (зд: parties) – препятствовать росту чего-л.

Ex: to stymie a plan – сорвать план;

Negotiations became stymied. – Переговоры зашли в тупик.

26. collusive relationships – отношения, в основе которых лежит сговор

27. contravention of law – нарушение нормы права, правонарушение

28. insolvent firms – неплатежеспособные, обанкротившиеся фирмы

29. to go bankrupt – обанкротиться

30. to induce changes – приводить к изменениям

31. to impose external management – назначить внешнее управление

32. tax arrears – задолженность по налоговым платежам

33. incumbent management – действующее руководство; руководство, несущее ответственность за что-л.

34. to make the bricks without the straw – работать, не имея нужного материала; затевать безнадежное дело