WAR, BUSINESS AND POLITICS: INFORMAL NetworKS AND ForMAL Institutions IN ARMenia Alexander Iskandaryan, Hrant Mikaelian and Sergey Minasyan Yerevan • 2016 UDC 32.001:330:355/359 WAR, BUSINESS AND POLITICS: INFORMAL NETWORKS AND FORMAL INSTITUTIONS IN ARMENIA. – Alexander Iskandaryan, Hrant Mikaelian and Sergey Minasyan. –Yerevan: Caucasus Institute. 2016. - 144 p. The volume presents the results of a study of formal and informal groups and mechanisms within Armenia’s political, economic and military elites, aiming to reveal trends in formal institution-building and the changing role of informality in Armenia’s power system since its independence from the USSR. The study relies on data from over 50 interviews with elite actors, backed up by archive materials, media stories, and expert opinions. A separate case study looks at the emergence and evolution of the Armenian army. Research team: Liana Avetisyan, Luiza Ayvazyan, Gayane Baghdasaryan, Ani Grigoryan, Johnny Melikyan, Tatevik Sargsyan, Marina Saryan, Naira Vardanyan Editing by Nina Iskandaryan Copy editing by AJE Cover design by Matit / www.matit.am Layout by Collage / www.collage.am ISBN 978-9939-1-0464-5 © Caucasus Institute, 2016 The present study was conducted with the support of the Academic Swiss Caucasus Net (ASCN), a programme aimed at promoting the social sciences and humanities in the South Caucasus (primarily Georgia and Armenia). Its activities foster the emergence of a new generation of talented scholars. Promising junior researchers receive support through research projects, capacity-building, training and scholarships. The programme emphasises the advancement of individuals who, thanks to their ASCN experience, become better integrated in international academic networks. The ASCN programme is coordinated and operated by the Interfaculty Institute for Central and Eastern Europe (IICEE) at the University of Fribourg (Switzerland). It was initiated and is supported by the Gebert Rüf Stiftung. The views expressed in this publication are those of the authors and do not necessarily represent opinions of the ASCN, the Gebert Rüf Stiftung, the University of Fribourg or the Caucasus Institute. CONTENTS Introduction ...............................................................................................................................................................................5 Methogolody ...........................................................................................................................................................................15 Political Elites in Armenia: A Change of Generations ...........................................................31 The Ideological Groups in the Armenian Elite ...........................................................................31 Continuity and Discontinuity in Post-Soviet Armenian Elite ....................................42 Armenia’s Informal Economy and Economic Elites ...............................................................60 Clientelism and Institutional Sustainability in Armenia ...................................................74 Military Reform in Armenia: From Network to Corporation ......................................99 The Armenian Army: The Initial Stage of Development .................................................99 Informality in the Armenian Military ................................................................................................111 Institutionalisation of the Armed Forces of Armenia .......................................................118 Conclusion ............................................................................................................................................................................129 List of Tables .......................................................................................................................................................................141 List of Figures ....................................................................................................................................................................142 About the Caucasus Institute ..........................................................................................................................143 INTRODUCTION THE Concept OF INFORMalitY IN Political Science All major political scientists have included informality in their theories, albeit without setting it apart as a separate field of study. In Economy and Society, Max Weber proposes the concept of patrimonialism (Weber 1978). In describing three types of legitimacy – legal-rational, traditional and charismatic – Weber argued that patrimonialism characterizes the traditional type of legitimacy. Patrimonialism implies the use of political and economic power for private purposes and to build mutually beneficial relationships within the elite. United around a leader whose power has legitimacy of the traditional type, the ruling elite, according to Weber, consists of either traditional ‘mates’ or ‘subjects’ who have personal loyalty to the leader. At the very top of this elite, we expect to find the ruler’s family members, direct dependents, such as clients, vassals or favorites, and possibly some independent officials who have personal loyalty to the ruler. A wave of decolonization and establishment of new states in the 1960s created a need for new insights into informality within other social sciences as well as political science. In 1968, World Politics published a paper by Günther Roth called “Personal Rulership, Patrimonialism, and Empire-building in the New States” (Roth 1968); five years later, Keith Hart wrote a paper on informal practices in the economy of Ghana (Hart 1973). Both studies examined data from newly established and developing countries where informality manifests more vividly. Roth believed that patrimonialism is not necessarily endemic to archaic forms of political regimes. According to Roth, some pre-modern forms of social organization can survive to modern times even though the traditional legitimacy on which they rely gradually disintegrates. The development of Weber’s ideas by Roth and, subsequently, by Robin Theobald (Theobald 1982) and their adaptation to modern conditions has become known as neo-patrimonialism. 6 Introduction Interest in informality among political scientists grew significantly in the 1990s when it became clear that the politics of developing countries could not be fully understood using existing scholarly concepts. A new approach was summarized in a working paper by Helmke and Levitsky called “Informal Institutions and Comparative Politics: a Research Agenda” (2003). In the areas of social, ethnic and cultural studies, informal practices and informalities have long been scrutinized on a case-by-case basis, chiefly at the micro level. Now, however, informality is being treated as an important concept in political science and other social sciences, including economics, management and urban studies. It has also become the object of multidisciplinary research and is currently one of the main concepts used to study elites and group interactions, especially in middle- to low-income countries and newly independent countries. The concept of informality is closely linked to the problem of institutional sustainability. Formal institutions are governed by rules set down in forms such as laws, regulations, constitutions, and agreements. However, written regulations do not guarantee the efficiency of an institution and are not, as a rule, the only basis for its functioning (Carey 2000). In a study of the origins and effects of institutions, Knight views institutions as the formalization of informal orders and norms (Knight 1992). Informal institutions are thus viewed as cultural phenomena. Economic historian Douglass North considered informal institutions to be the products of informal rules that form part of the cultural code. In contrast to formal rules, North considers informal rules to be much more inert, although subject to change under the influence of formal rules (North 1990). In political science, informality has become a framework concept tied to other key concepts, such as patronage, clientelism and fuzzy legality. The power of informal institutions is in inverse proportion to the extent of democratic consolidation. In many cases, authoritarian, especially totalitarian states, try to suppress informality. In modern societies, informal institutions become particularly powerful and widespread in hybrid regimes or those characterized by electoral authoritarianism (Stokes, Dunning, Nazareno and Brusco 2013). Transition economies and hybrid political regimes do not, as a rule, have sufficient institutional capacity to practice rule of law consistently, especially when the individuals in question belong to the first generation of the political and economic elite. The weakness of formal institutions leads to the phenomenon of fuzzy legality; Margit Cohn described six types of fuzzy legality that are all, in one form or another, present in newly established and developing states (Cohn 2001). Informality in the Former Soviet Space as an Object of Study 7 Alongside the type of political regime, poverty and economic depression are strong predictors of the emergence and development of informal institutions. The size of the informal sector and the spread of corruption are inversely proportional to the welfare of a country (Schneider, Buehn and Montenegro 2010).1 Poor countries are caught in a vicious circle: lacking funds