DAS SOCIAL KAPITAL INSTITUTIONS AND ENTREPRENUERIAL NETWORKS IN RUSSIA’S EXIT FROM SOCIALISM Promotor: Prof. dr. ir. Niels G. Röling Hoogleraar in de Kennissystemen in ontwikkelingslanden Wageningen Universiteit Samenstelling promotiecommissie: Prof. dr. ir. Jan Douwe van der Ploeg, Wageningen Universiteit Prof. dr. Henk Flap, Universiteit Utrecht Dr. ir. Niek B.J. Koning, Wageningen Universiteit Prof. Jean-Philippe Platteau, Université de Namur, Belgique Dit onderzoek is uitgevoerd binnen de onderzoeksschool MGS. DAS SOCIAL KAPITAL INSTITUTIONS AND ENTREPRENEURIAL NETWORKS IN RUSSIA’S EXIT FROM SOCIALISM David William O’Brien Proefschrift ter verkrijging van de graad van doctor op gezag van de rector magnificus van Wageningen Universiteit, Prof. dr. M.J. Kropff, in het openbaar te verdedigen op maandag 2 oktober 2006 des namiddags te vier uur in de Aula. O’Brien, David William Das Social Kapital: Institutions and Entrepreneurial Networks in Russia’s Exit from Socialism PhD thesis Wageningen University ISBN: 90-8504-489-8 © Copyright, David O’Brien, 2006 All rights reserved. The material in this work is copyrighted. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or inclusion in any information storage and retrieval system, without the prior written permission. FOREWORD Within hours of arriving in Moscow on my first trip, a seasoned officer of the Canadian diplomatic corps met me. He had arranged to brief me on what I should know as the Director of the Yeltsin Democracy Fellowship Program. I would be spending the next four years directing Canada’s first large-scale technical assistance program in Russia. The program had been running for several years when I joined and had alumni across seven time zones and in influential positions in the public, private and social sectors. Given the profile of the program, I suspect that that late night meeting was part interview and part information. The interview component was short lived and then I listened to a generous review of Russian history and its contemporary political, economic and social challenges. My interlocutor had been a student in Russia during the 1970s and had returned decades later to manage Canada’s cooperation program. In any other country, his portfolio would have been referred to as a development assistance program but his Russian counterparts did not take kindly to the notion that Russia was a recipient of development assistance. After all, the Soviet Union had been an imperial power. To accommodate for the uniqueness of Russia’s case, Canada and many other Western donors established ‘cooperation programs’ to assist with Russia’s triple transition (i.e., political, economic and social) to a democratic market economy. As our conversation progressed, the theme of Russia as a special case repeated itself. It was probably a conscious decision on his part after I revealed that this was my first physical encounter with Russia. Presumably, the more I understood how unique Russia was, the sooner I would abandon any preconceived notions that I might have held. Whereas Winston Churchill famously referred to Russia as a riddle wrapped in a mystery inside an enigma, my host likened Russia’s uniqueness to an onion. The analogy had nothing to do with the tear inducing or supposed blood pressure reducing qualities of an onion. Rather, the metaphor referred to the layered complexity of Russian society. Indeed the name of project I was to direct, the Yeltsin Democracy Fellowship Program (YDFP), seemed to me then to fit this metaphor nicely. On the outside, President Yeltsin had endeared himself to the West and Western leaders viewed him as their best hope to establish a liberal democratic order. Many Russians shared this view as well but with time, and as successive layers of the onion were peeled off, new qualities emerged that questioned Yeltsin’s ability to create a capitalist economy through democratic means. It was not without irony that my Russian history lesson took place on the first anniversary of President Yeltsin’s transfer of power to his heir apparent, Vladimir Putin. The transition was smooth but I was reminded that President Vladimir Putin’s first decree gave Yeltsin life-long immunity from criminal prosecution. Do democrats seek immunity? I left the hotel bar that night wondering how many layers there were to the Russian onion. Subsequent meetings and conversations with hundreds of YDFP Fellows cast Russia’s triple transition as an extraordinary period in the context of its tumultuous history. The personal accounts of plant closures, social dislocation and political instability had been amply covered in the literature but I had not fully grasped the enormity of the changes or the challenges. To call Russia a country in ‘transition’ during the 1990s, as many analysts did, seemed far too innocuous. My primary interest in directing the YDFP, and the decision to write this book, was to better understand how national policies and international assistance affected Russia’s state capacity and economic transformation. Once I became involved in the program, I was curious to know how the Yeltsin Fellows from the private sector navigated Russia’s chaotic environment to advance professionally, restructure their firms and promote economic development. After five years of researching these questions, I cannot state with any certainty how many layers I have peeled off the Russian onion. The YDFP program was designed to empower young private sector entrepreneurs and reform- minded policy leaders by exposing them to management tools, policies and strategies employed by counterparts in Canada. Over the duration of the training program, more than 600 Russians visited thousands of Canadian organizations to study, work with, and to exchange experiences. It was a rich and varied interaction. For many Yeltsin Fellows, Canada was their first exposure to a liberal democratic country and it proved to be a life-changing experience. Life-changing as it may have been, the impact of the training program played out very differently. My interest in understanding the reasons behind divergent program outcomes at the individual, firm and societal levels, led me to revisit theories of institutional change. In this pursuit, I was aided by my training in political science and applied research on the political economy of development. In previous studies and fieldwork, I had examined the politics of state-society interaction in framing agendas for local development. In that work, I had largely ignored the role of the private sector. This book corrects that oversight as I became particularly interested in the strategies employed by the private sector Fellows to advance professionally, restructure firm operations and build institutions for economic development. The private sector YDF Fellows came to Canada in search of management solutions for their companies. With the reverberations of Russia’s 1998 financial crisis still at play and the frequent signs of economic disorganization, the pursuit of management solutions seemed of little significance to me. I wondered why the private sector Fellows, as the next generation’s business elite, were so intent on learning micro-level business techniques when the business environment was relatively so much more pressing. Why, for example, were not these Fellows working more closely with YDFP public sector Fellows, other government officials and political parties to overhaul public policies that erected barriers to economic development? As it appeared to me, the causes and solutions to Russia’s economic crisis were political; firm-level technical skills seemed insignificant and perhaps irrelevant. The intellectual task of framing my inquiry was aided by another early conversation in 2000. In the fall of 2000, I was asked to host Professor Niels Röling, the International Development Research Centre’s Hopper Lecturer, who was to give a presentation on how western science misunderstands the ecological challenges of our time. His interest in ecology at first seemed far removed from the issues I was becoming immersed in. However, Röling’s work on collective action, knowledge systems and on how communication and communities influence innovation spans decades. These interests were likely sources of his inquisitiveness in the issues I was grappling with. My early views on the challenges facing Russia’s first generation entrepreneurs and their tendency to act independently and avoid rather than engage government in a dialogue all spoke to Röling’s interest in the potential of platforms and social learning to facilitate collective action. By the end of his visit, he had offered in principle to be my PhD supervisor, should I be interested. While Niels was a major influence behind this book, he is not alone. I owe a special gratitude to Professor Asit Sarkar who was the ‘father’ of the YDFP program. Asit hired me to direct the YDFP in its final years and to work with him to internationalize the research and learning environment at the University of Saskatchewan. Asit’s interests trespass disciplines and geography, and his commitment to research without borders was an inspiration to me. In researching and writing this book, I also benefited from numerous collaborators in Canada and in Russia. As the penultimate director of the YDF program, I was responsible for organizing a ten year program evaluation (University of Saskatchewan & Universalia 2003). This evaluation was informed by three separate initiatives. First, an association of YDF Fellows called the Russian-Canadian Club of President’s Fellows coordinated the Profiles in Transition project (Mikheev, O’Brien, et al. 2003). The objective of this book project was to give space to YDF Fellows to reflect on how the program impacted their personal and professional lives. Many YDF Fellows contributed articles and opinion pieces to this project. Second, a public sector conference and three private sector workshops brought together YDF Fellows and partner organizations in structured forums to assess the design and the impact of the program.