RUSSIA - The System.

Powerful business interests are not key to explaining the ineffectiveness of the reform process in Russia since the early 1990s; even less so now. None of the reforms launched under Putin except for the flat income tax has been a success so far. The state's hierarchy is based on favouritism and without defined lines of authority.

Under Boris Yeltsin, the president's bodyguard and, later on his daughter had more power and influence than any prime minister. The same is true under Putin, when a KGB colleague can have better access to the president's ear and thus is capable of dismissing the prime minister.

This system of personal favourites is reproduced from top to bottom within government agencies at the federal, regional and local levels. But favouritism is not a modern Russian creation. It emerged under Stalin and flourished up to the Soviet collapse, only to be reinstituted in the post-Soviet era.

There are no clear lines of authority and responsibility due to the existence of competing power centres within the executive branch. Under Yeltsin, these were the Kremlin and the government. Under Putin, there has emerged a third such centre - the so-called siloviki which combines the secretive FSB leadership and close Putin aides in the Kremlin with some power ministers (see Part 1).

Mainly since Putin won another term last March, the three power centres have been engaged in constant turf battles with one another: The government has economic resources but few political ones; the Kremlin lacks money but has political resources to recruit loyalists; and the FSB enjoys powers of prosecution and access to the president, but wants to have more say over wealth redistribution. As a result, no one can define the rules of the political or economic game, and enforcing those rules. The events surrounding the Yukos are one example.

The existence of three power centres inside the executive provides a breeding ground for corruption. It makes policy consistency or coherence impossible. The failure of the pension system and judicial reform, chaos in government agencies as a result of ambiguous administrative reform have a single root cause: the existence of rival power centres inside the executive branch and the inability of any other branches to correct mistakes. Bureaucrats' survival or promotion at all levels of the state hierarchy depends not on their effectiveness in executing policy, but on their ability to choose the right patrons at the right time and to dump them before they fall out of favour.

A state agency is a conglomeration of bureaucratic officers engaged in business, trading permits to enter the market and operate on it. They sell inside information and access to their bosses, the distribution of budgetary resources and favourable decisions; they sell success to some well-connected companies and/or bankruptcy to their competitors. Failure to execute the order of an executive may not result in a job loss, but failure to extract bribes and share the loot will.

Critics say Putin has reintroduced more elements of the feudal Soviet state and given them power over the few reformers who are left. They say this feudal bureaucracy cannot be reformed from within; outside forces are required for this purpose.

Vladimir Ryzhkov, one of the few liberals left in the Duma compares Putin's stability to that of Leonid Brezhnev, the Soviet leader who dies in the early 1980s. Ryzhkov was recently quoted as saying: "It's the illusion of stability. In reality, it is not a stable country".

The second elected president in Russia's history, Putin won 52.5% of the popular vote on March 26, 2000. His nearest rival, Communist Party boss Gennady Zyuganov, fared worse than expected as he got 29% of the vote and liberal Yabloko leader Grigory Yavlinsky came third. His tough handling of the war in Chechnya and the image of a well educated and disciplined young judo wrestler earned Putin popularity. Despite his clear courting with authoritarianism, by Aug. 12, 2000 Putin had become "the most popular ruler in Russia's history", as one of his aides put it. His background as KGB spy had virtually disappeared (see his background in Vol. 59, No. 14).