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We are "concerned that recently our country was divided into seven federal districts," declared Mikhail Prusak, Governor, Novgorod' Oblast, at a 7 February 2002 Director's Forum at the Woodrow Wilson Center. While the idea may have seemed attractive at the time, argued Prusak, it actually represents a return to the ideas and practices of the Soviet era and will eventually weaken rather than strengthen the state.

During the 1990s, Russia's regions gained considerable autonomy in setting their own economic and development policies. Prusak described how, for over a decade, his administration promoted the economic development of the Novgorod region without help or hindrance from Moscow, instead focusing on attracting foreign investment with tax incentives and progressive policies. "For over ten years," according to Prusak, "the Novgorod region has been able to shed 50 percent of central government subsidies--even without oil or gas. Our only natural resource was the intellectual capacity and will of the people to work."

Shortly after his election, Russian President Vladimir Putin sought to reverse the devolution
of power to the regions by creating seven federal districts to harmonize federal and regional laws
and reassert federal authority. The reasons President Putin provided for establishing the districts--promoting law and order, combating separatism, etc.--were seen as legitimate, and the slogan "we need order to live better" convinced many of the necessity of that reform. The reality, according to Prusak, is troubling in its conception, its implementation, and in its results.

Prusak suggested that Putin's federal districts lump together diverse regions without regard
to culture, history, or economic development. According to Prusak, "This brings back memories
of the Soviet period when republics and populations were shuffled around as the state saw fit." In fact, the idea of dividing Russia into large districts originated with former KGB Director Yuri Andropov, who proposed converting the Soviet Union into 13 districts in the 1980s. "The idea," continued Prusak, "was born of the Soviet realization that the regime could not hold together the disparate areas of the country, so they decided to subdivide the country into thirteen federal districts to better control the country."

Of special concern to Prusak is that of Putin's seven federal districts, individuals with a
military or KGB background head five. "If the federal districts were designed to conduct war,
these people could be trusted," Prusak argued, "but when ex-generals attempt to manage the economy, you can see immediately that they are absolutely incompetent." The former generals
may claim Eisenhower or de Gaulle as precedents of military figures as successful government
leaders, Prusak continued, but the Chechen war campaign demonstrates the "real proficiency" of
their leadership.

One concrete result of the federal districts has been the diversion of tax flows away from the
regional governments. "Under the pretense of law and order," Prusak claimed, "eighty percent of
the [tax] money went to Moscow for its own needs, and the remaining 20 percent has been left to
the federal districts." Prusak expressed concern that over time the existence of the federal
districts, and their control over regional funds, will return regional administrations to the
Soviet-era strategy of seeking subsidies from the center rather than working for economic growth.

Prusak predicted that this return to centralization would ensure the continued dominance of the five or six financial industrial groups that seized a great portion of Russian industry during the 1990s. "There is a risk of monopolization; not of one resurrected Gosplan [state planning agency], but of five groups that would own the entire economy, each group controlling a broad array of sectors of the economy," warned Prusak. Under such circumstances, the growth and development of a small business sector would be impossible--a consequence that would ironically undermine the reform's goal of strengthening the Russian state. Western states, Prusak pointed out, derive 40-60 percent of their state budgets from the small business sector, while in Russia that figure is between 5 and 10 percent. "For the country to be stable and for the people to prosper, it absolutely necessary that the people be given the opportunity to earn their living rather than depend on handouts from the government," Prusak argued.

Prusak concluded by declaring that President Putin enjoys unprecedented support from the Russian people. His international diplomacy and handling of relations with the United States are
especially admired. But that support does not translate into faith in his government--only Putin
himself is respected. If Putin continues to rely on the powerful figures that helped bring him to
power and persists in his drive to centralize power, in Prusak's estimation, faith in the
government will erode even further. "That is a situation fraught with danger," Putin warned,
"because if a financial crisis should arise, Putin will have no one to rely on and there will be a vacuum of power."

About the Author

F. Joseph Dresen

F. Joseph Dresen

Senior Program Associate
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Kennan Institute

The Kennan Institute is the premier U.S. center for advanced research on Russia and Eurasia and the oldest and largest regional program at the Woodrow Wilson International Center for Scholars.┬áThe Kennan Institute is committed to improving American expertise and knowledge of Russia, Ukraine, and the region. Through its residential fellowship programs, public lectures, workshops, and publications, the Institute strives to attract, publicize, and integrate new research into the policy community.  Read more