The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran (International Political Economy Series) 3031040546, 9783031040542

Table of contents :
Contents
List of Figures
List of Tables
1 Introduction
1.1 Welfare State Theories and IPE
1.2 The Political Economy of Sanctions
1.3 The Political Economy of Russia and Iran
1.4 Book Outline
References
Part I Theoretical Identification of the Mechanisms of Sanctions
2 The Welfare State Regime as a Theoretical Account: From Welfare State to Gramsci
2.1 First Theoretical Adaptation: From Functional Representation of the Welfare State to ‘Regime’ Approach
2.1.1 Regime Approach
2.2 Second and Third Theoretical Adaptations: Global Dimension and Structural Power Relations
2.2.1 Global Dimension
2.2.2 Structural Power Relations
References
3 The Welfare State Regime as an Analytical Tool: From Gramsci to Welfare
3.1 Contextual Settings: Capitalism and ‘Integral’ State
3.1.1 Capitalism
3.1.2 The Role of the State
3.1.3 Hegemonic Projects
3.2 Hegemonic Rivalry and Counter-Hegemonic Mechanisms
3.2.1 Sanctions as a Tool of Hegemonic Rivalry
3.2.2 Counter-Hegemony
3.2.3 The Welfare State Regime
3.3 Conclusion to Part I: Completing Theoretical Merger
3.3.1 Self-Protection of Society
References
Part II Institutional Design
4 Russia: Institutional Design
4.1 De-commodifying WSR Function
4.1.1 Labour Market: Pension Legislation
4.1.2 Households: Benefits-in-Cash and Benefits-in-Kind
4.2 Redistributive WSR Function
4.2.1 Primary Mechanisms for Income Distribution
4.2.2 Secondary Mechanisms of Income Distribution
4.3 Connecting WSR Function
4.3.1 Macro-Level Arrangements
4.3.2 Micro-Level Arrangements
References
5 Iran (Institutional Design)
5.1 De-commodifying WSR Function
5.1.1 Labour Market: Pension Legislation
5.1.2 Households: Benefits-In-Cash and Benefits-In-Kind
5.2 Redistributive WSR Function
5.2.1 Primary Mechanisms for Income Distribution
5.2.2 Secondary Mechanisms of Income Distribution
5.3 Connecting WSR Function
5.3.1 Macro-Level Arrangements
5.3.2 Micro-Level Arrangements
5.4 Summing Up…
5.4.1 Decommodification
5.4.2 Redistribution
5.4.3 Connection
References
Part III Material Capabilities
6 Russia (Material Capabilities)
6.1 De-commodifying WSR Function
6.1.1 Labour Market Precarisation
6.1.2 Households’ Dependence on the Market
6.2 Redistributive WSR Function
6.2.1 Primary Distribution: Trade and Production
6.2.2 Secondary Distribution: The Effect of Macroeconomic Management on Poverty and Inequality
6.3 Connecting WSR Function
6.3.1 Macro-Level: Investment Opportunities
6.3.2 Micro-Level: Informal Connections
References
7 Iran (Material Capabilities)
7.1 De-commodifying WSR Function
7.1.1 Labour Market Precarisation
7.1.2 Households’ Dependence on the Market
7.2 Redistributive WSR Function
7.2.1 Primary Distribution: Trade and Production
7.2.2 Secondary Distribution: The Effect of Macroeconomic Management on Poverty and Inequality
7.3 Connecting WSR Function
7.3.1 Macro-Level: Investment Opportunities
7.3.2 Micro-Level: Informal Connections
7.4 Summing Up…
7.4.1 Decommodification
7.4.2 Redistribution
7.4.3 Connection
References
Part IV Cultural Leadership
8 Russia (Cultural Leadership)
8.1 De-commodifying WSR Function
8.1.1 Labour Markets: Ideology, National Security and ‘Cadre’ Formation
8.1.2 Households: Consumerism and Human Values
8.2 Redistributive WSR Function
8.2.1 Primary: The Moral and Ethical Aspects for Accumulation of Wealth and Ideological Drivers for ‘Modernisation from Above’
8.2.2 Secondary: People’s Attitudes to Distributional Practices
8.3 Connecting WSR Function
8.3.1 Macro-Level the Ideology of Statecraft
8.3.2 Micro-Level: State—Civil Society Complex
References
9 Iran (Cultural Leadership)
9.1 De-commodifying WSR Function
9.1.1 Labour Markets and Ideological-Political Fluidity
9.1.2 Households: Consumerism and Human Values
9.2 Redistributive WSR Function
9.2.1 Primary: The Moral and Ethical Aspects for Accumulation of Wealth and Ideological Drivers for ‘Modernisation from Above’
9.2.2 Secondary: People’s Attitudes to Distributional Practices
9.3 Connecting WSR Function
9.3.1 Macro-Level: The Ideology
9.3.2 Micro-Level: State–Civil Society Complex
9.4 Summing Up…
9.4.1 De-commodification
9.4.2 Redistribution
9.4.3 Connection
References
Part V Welfare State Regime Reproduction
10 WSR Reproduction
10.1 Introduction
10.1.1 De-commodification
10.1.2 Redistribution
10.1.3 Connection
10.2 Counter-Hegemonic Trends
10.2.1 Power Centralisation
10.2.2 Modernisation and Optimisation
10.2.3 Strategic Partnership and Diversification
10.2.4 Para-Constitutional Reform
10.2.5 Cadre Formation
References
11 Concluding Remarks
11.1 Hobbesian Contender States?
11.2 Lockean ‘Heartland’?
11.3 Some Thoughts for Future Research
References
Correction to: Introduction
Correction to: Chapter 1 in: K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_1
Appendices
Appendix I. Russia
Appendix II. Iran
Bibliography
Index

Citation preview

The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran Ksenia Kirkham

International Political Economy Series

Series Editor Timothy M. Shaw , University of Massachusetts Boston, Boston, USA; Emeritus Professor, University of London, London, UK

The global political economy is in flux as a series of cumulative crises impacts its organization and governance. The IPE series has tracked its development in both analysis and structure over the last three decades. It has always had a concentration on the global South. Now the South increasingly challenges the North as the centre of development, also reflected in a growing number of submissions and publications on indebted Eurozone economies in Southern Europe. An indispensable resource for scholars and researchers, the series examines a variety of capitalisms and connections by focusing on emerging economies, companies and sectors, debates and policies. It informs diverse policy communities as the established trans-Atlantic North declines and ’the rest’, especially the BRICS, rise. NOW INDEXED ON SCOPUS!

Ksenia Kirkham

The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran

Ksenia Kirkham Department of War Studies King’s College London London, UK

ISSN 2662-2483 ISSN 2662-2491 (electronic) International Political Economy Series ISBN 978-3-031-04054-2 ISBN 978-3-031-04055-9 (eBook) https://doi.org/10.1007/978-3-031-04055-9 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022, corrected publication 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: © Rob Friedman/iStockphoto.com This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

1

Introduction 1.1 Welfare State Theories and IPE 1.2 The Political Economy of Sanctions 1.3 The Political Economy of Russia and Iran 1.4 Book Outline References

1 5 7 10 13 17

Part I Theoretical Identification of the Mechanisms of Sanctions 2

3

The Welfare State Regime as a Theoretical Account: From Welfare State to Gramsci 2.1 First Theoretical Adaptation: From Functional Representation of the Welfare State to ‘Regime’ Approach 2.2 Second and Third Theoretical Adaptations: Global Dimension and Structural Power Relations References The Welfare State Regime as an Analytical Tool: From Gramsci to Welfare 3.1 Contextual Settings: Capitalism and ‘Integral’ State 3.2 Hegemonic Rivalry and Counter-Hegemonic Mechanisms

33

33 37 46 49 49 61 v

vi

CONTENTS

3.3 Conclusion to Part I: Completing Theoretical Merger References

67 70

Part II Institutional Design 4

Russia: Institutional Design 4.1 De-commodifying WSR Function 4.2 Redistributive WSR Function 4.3 Connecting WSR Function References

89 89 98 110 120

5

Iran (Institutional Design) 5.1 De-commodifying WSR Function 5.2 Redistributive WSR Function 5.3 Connecting WSR Function 5.4 Summing Up… References

127 127 135 147 153 159

Part III Material Capabilities 6

Russia (Material Capabilities) 6.1 De-commodifying WSR Function 6.2 Redistributive WSR Function 6.3 Connecting WSR Function References

177 177 188 202 212

7

Iran (Material Capabilities) 7.1 De-commodifying WSR Function 7.2 Redistributive WSR Function 7.3 Connecting WSR Function 7.4 Summing Up… References

217 217 225 235 244 248

Part IV Cultural Leadership 8

Russia (Cultural Leadership) 8.1 De-commodifying WSR Function 8.2 Redistributive WSR Function 8.3 Connecting WSR Function References

271 271 284 293 302

CONTENTS

9

Iran (Cultural Leadership) 9.1 De-commodifying WSR Function 9.2 Redistributive WSR Function 9.3 Connecting WSR Function 9.4 Summing Up… References

vii

309 309 315 325 333 338

Part V Welfare State Regime Reproduction 10

WSR Reproduction 10.1 Introduction 10.2 Counter-Hegemonic Trends References

345 345 354 382

11

Concluding Remarks 11.1 Hobbesian Contender States? 11.2 Lockean ‘Heartland’? 11.3 Some Thoughts for Future Research References

387 387 391 394 398

Correction to: Introduction

C1

Appendices

401

Bibliography

419

Index

455

List of Figures

Fig. 3.1 Fig. 3.2 Fig. 4.1 Fig. 4.2

Fig. 4.3 Fig. 4.4

Fig. 5.1 Fig. 5.2 Fig. 5.3 Fig. III.1 Fig. III.2 Fig. 6.1

Self-protection of society (Source Author’s diagram) Matrix of regime reproduction (Source Author’s diagram) Federal Budget Tax Structure, 2020, % of total =P 21 trillion ($274 billion) (Sources Ministry of Finance, 2021) Federal budget Expenditures, % of total: =P 13,343 bn. in 2013, =P 16,709 bn. in 2018, =P 22,822 in 2020 (Source Ministry of Finance 2021, https://minfin.gov. ru/ru/statistics/fedbud/execute/) National Projects financing in 2020 (% of total) (Source Ministry of Finance 2021) Foreign currencies and gold of the CBR (% of market value) (Source Authors calculations, the Bank of Russia, 2015, 2019) The share of taxes and oil revenues in general budget revenues, % (Source Statistical Centre of Iran, 2019) Tax structure, % (Source Statistical Centre of Iran, 2019) The share of social welfare in total budget expenditure, % (Source Statistical Centre of Iran, 2019) Top 100 TNCs by countries, $ of total profit (Source Author’s Calculations, Data from Forbes) Percentage of world millionaire by country, % (Source Credit Swiss 2018) Most common breaches of open-ended contracts, % of respondents (Source Author’s Interview with a HR manager, 2017)

67 69 104

107 109

109 142 143 146 166 169

179

ix

x

LIST OF FIGURES

Fig. 6.2 Fig. 6.3 Fig. 6.4 Fig. 6.5

Fig. 6.6

Fig. 7.1 Fig. 7.2 Fig. 7.3 Fig. 7.4 Fig. 10.1 Fig. 10.2 Fig. 10.3 Fig. 10.4 Fig. 10.5

The structure of a household income (Sources GKS 2018, 2021) GDP structure in 2020, % (Source GKS, 2021) FDI flows into Russia and out of Russia: 1997–2019, US $million (Source CBR [2022]) The average wages in science and education in Russia and the United States, in US$ (Sources The US Bureau of Labour Statistics, Ria Rating, GKS) Migration to Russia from selected states, number of people (Source GKS 2021 https://rosstat.gov.ru/sto rage/mediabank/dem21.pdf) GDP by sectors, % (Source Statistical Centre of Iran) The structure of household expenditures. Urban vs Rural, % (Source Statistical Centre of Iran) FDI flows into Iran and out of Iran, selected years, US$ million (Source UNCTAD [2020]) Major trade partners with Iran, 2018–2019 (Source UNCTAD [2020]) Power centralisation (Source Author’s diagram) Modernisation and optimisation (Source Author’s diagram) Strategic partnership and diversification (Source Author’s diagram) Para-constitutional reform (Source Author’s diagram) Cadre formation (Source Author’s diagram)

183 191 206

207

211 229 234 236 241 355 361 367 372 377

List of Tables

Table Table Table Table

2.1 4.1 6.1 6.2

Table 6.3 Table 6.4 Table 9.1

Welfare state regime—theoretical development Taxes Dynamics of income, wages and pension in 2013–2020, % Sample household budgets for a pensioner, single parents and families with 3 + children in Moscow, Tambov and Omsk, 2017–2018 Income disparities across regions IS in selected industries, the share of import in total consumption, % Political factions in Iran

44 104 182

186 193 195 317

xi

CHAPTER 1

Introduction

Sanctions in IPE The obligation of subjects to the sovereign is understood to last as long, and no longer, than the power lasteth by which he is able to protect them. —Thomas Hobbes

The use of sanctions in international political economy has increased dramatically in recent years. Sanctions are now arguably the most important instruments of US foreign policy towards ‘contender’ states such as Russia, Iran, China, Venezuela, and Cuba, to name a few. Indeed, more sanctions were enacted during the first three years of the Trump administration than under all previous ones. The Biden administration does not seem to be willing to reverse this course of action any time soon. Tightening, not easing, of sanctions policies is a more likely scenario.

The original version of the chapter has been revised. A correction to this chapter can be found at https://doi.org/10.1007/978-3-031-04055-9_12 © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022, corrected publication 2023 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_1

1

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K. KIRKHAM

This is especially true in the case of sanctions against Russia and Iran. IN September 2021, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the US Department of State in cooperation with the UK Government announced a new round of sanctions against Russia in response to the poisoning and then imprisonment of opposition leader Alexei Navalny by Russian security services. In the case of Iran, according to the Treasury Department, the recent de-listing of Iranian entities (Mammut Industrial Group and Mammut Diesel) by OFAC, ‘have nothing to do’ with JCPOA—2015, the Iran Nuclear deal, abandoned by the Trump administration in 2018; the Department spokesperson stressed that the United States ‘will continue to counter Iran’s destabilising activities’ through sanctions (Al-Monitor 2021). This book draws on a comparative analysis of Russia and Iran under sanctions to back up a famous argument that the very emergence and existence of contender states has been a result of counter-hegemonic struggles, which have prompted the adoption of ‘Hobbesian’ regimes (van der Pijl 1998). Notwithstanding the relentless enactment of sanctions, target states have become more self-reliant, less democratic and have taken a more aggressive posture towards the West. This research addresses a crucial puzzle: why, even as sanctions have taken their toll on targeted states and induced economic problems and trade disruptions, have they been largely ineffective in terms of their stated objectives, such as political deterrence, foreign policy change, public mobilisation against contender governments, or a regime change. Despite initial economic grievances in the short run, in the longer run, the effects of sanctions have been paradoxical: the target states have managed to adjust to external pressures, to develop internal self-protection mechanisms, and to mobilise domestic resources and remodel income and wealth distribution. The aim of this comparative study is to make an original contribution to the understanding of the welfare state as a phenomenon, at the national and transnational levels. The analysis of human welfare is central to a holistic understanding of the contradictions inherent in the modern capitalist system that manifest themselves at times of crises. The development of welfare states should be understood not only as an element of deindustrialisation (Iversen and Iversen 2010), social power resources (Baldwin 1996; Esping-Andersen 1985; Korpi 1983) or economic competitiveness (Rieger and Leibfried 2003), but also as the consequence of Cold War confrontation, the post-9/11 new world order (Cerami 2009), and more broadly the long-term geopolitical competition between ‘contender’ states and the ‘Lockean heartland’ (van der Pijl 2012). This is not the first historical materialist account of the welfare state (Gough

1

INTRODUCTION

3

2016; Jessop 2016; Offe 1985). However, it is the first attempt to integrate welfare state research with structural analyses of counter-hegemonic evolution in the international system and with global power dynamics. This book closes this gap by developing a theoretical framework for analysing counter-hegemonic mechanisms of the welfare state, and by applying this framework to the cases of Russia and Iran under sanctions. The contrast between Lockean heartland and Hobbesian contender states provides a contextual ground for assessing the following questions: – What are the mechanisms by which sanctions operate? – What are the counter-mechanisms that make target states resilient to sanctions? In pursuit of these research questions, this book focuses primarily on the ‘moment’ of sanctions and relates these to the Russian and Iranian welfare state regime dynamics within the context of the longue durée of state formation and geopolitical rivalry (Braudel 1958). The contribution to such a pursuit departs from the Amsterdam School conception of a historical dialectic between a ‘Lockean heartland’ of the capitalist global political economy emanating from the ‘Anglosphere’ and ‘Hobbesian’ contender states (Gamble 2009). Power in the ‘Lockean heartland’ is based on the ability of a property-owning class to govern itself (Macpherson 1954). However, this ‘self-government’ is subjugated to the grand strategy of ‘opening up the contender state–society complexes, dispossessing the state classes and replacing them by a governing class submitting to liberal global governance’ (van der Pijl 2012). Economic sanctions have become an important instrument of this grand strategy, so the current period of sanctions provides a promising contextual background for analysing contender states. The analysis will be structured upon a novel Welfare State Regime approach (hereafter WSR) that combines welfare state functionality with neo-Gramscian institutional, economic and cultural structural dimensions to capture the long-term social power dynamics in Russia and Iran. WSR distinguishes such mechanisms by tracing socio-economic and cultural processes that evolve in Russia and Iran under sanctions, and by comparing a recent case of Russia to a relatively long-standing experience of Iran. Interestingly, despite cultural differences, Russia and Iran reveal important structural, political and economic commonalities. To

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confront the Lockean ‘heartland’, Russia and Iran increasingly internalise the features of a Hobbesian-type of governance, such as power centralisation, para-constitutional reformation, economic diversification and optimisation, human resource development and cadre formation. Although the Russian and Iranian WSRs have been strengthened in response to sanctions, the contradictory nature of counter-hegemonic settings might significantly constrain further consolidation. What are these contradictions? The book guides the reader through counter-hegemonic mechanisms (hereafter CHM), assesses their strengths and weaknesses and provides an effective summary table. The contradictions reside in institutional instruments of social control (assessed in Part II), in material capabilities of the state and the market (Part III), in strategies for human resource development and social engineering when the regime attempts to harmonise religion, democracy and private property (Part IV). The apparent coincidence in the usage of the term ‘mechanism’ for both sanctions and counter-hegemony is not accidental: the ‘mechanisms’ of sanctions are only workable if they manage to rupture the counter-hegemonic settings of the regime, therefore, both sanctions and counter-hegemony will be analysed using the same operational variables. Also, it is important to distinguish between counter-hegemony against the US-controlled Western institutions (neoliberal at present) and counter-hegemony against neoliberalism per se,1 as these are not the same things; current research is focused on the former rather than on the latter. Overall, by telling a critical story of late modernity where nonWestern countries, such as Russia and Iran, cease to be ‘silent spectators, marginal both historically and analytically’ (Pasha 2005), the analysis of their welfare regimes contributes to welfare state theory in particular and critical theory in general. The book aspires to contribute to the current literature in three ways:

1 Neoliberalism is ‘an economic policy regime whose objective is to secure monetary and fiscal stability and that is legitimised by an ideology that holds markets are best treated as self-regulating. This has allowed the restoration of class power’ (Harvey 2014), and also a dramatic redistribution of wealth and income in favour of the rich’ (Callinicos 2012: 67). Neoliberalism is ‘pro-supply-side’ state intervention’ by means of financialisation, privatisation, and ‘new forms of authoritarianism from above, such as strict budgetary discipline and regimes of permanent austerity’ (Fouskas and Gökay 2019: 151).

1

1.1

INTRODUCTION

5

Welfare State Theories and IPE

The WSR approach expands the comparative predominantly Westerncentric welfare state literature, by adding the cases of Russia and Iran, and by addressing the shortcomings of the mainstream welfare state accounts, as defined by Ian Gough—functionalist, economic and pluralist. Although there are some valuable insights that are borrowed from these theories (especially from functionalists), WSR approach suggests three ways of how to transcend them: first, by providing a holistic understanding of human history to reduce the risk of siding with either subjective or objective representations of welfare states as most mainstream theories do, second, by examining the mechanisms of societal transformation, omitted in most papers and third, by conceptualising welfare states within the configuration of transnational forces. The first direction implies borrowing Wood and Gough’s ‘middle paths’ theory for analysing welfare states (Wood and Gough 2006) that conceptualises the notion of power not only as the objectivity of capitalist structures of social inequality but also as a subjectivity of ideologically articulated political struggle over hegemony that has been successfully applied by neo-Gramscian scholars to the study of European integration (Cafruny and Ryner 2003). The second limitation is addressed by incorporating useful insights offered by functionalists (Wilensky 1975) that were further developed by power resource theorists (Esping-Andersen 1990; Korpi 1983) by employing functional parameters of redistribution, commodification and stratification as important mechanisms of social transformation. Finally, the third theoretical shortcoming is overpassed by placing the analysis of the WSR under sanctions, or a ‘target’ state, into a neo-Gramscian framework that enables a broader conceptualisation of transnational forces within the welfare–sanctions nexus, with a particular focus on contradictions inherent to global capitalism as a point for theoretical departure, and on the contradictions of the WSR counterhegemonic mechanisms as a final point of theoretical inquiry. In other words, a ‘welfare state’ theory is no longer just a static analysis of socioeconomic policies and practices, but also a holistic and dynamic portrait of a society within a specific historical and geopolitical context that shapes its further evolution. The WSR approach contributes to the current IPE literature by refocusing the long-standing debate over the effects of globalisation on the changing role of the state (Althusser 1969; Burnham 2001; Cox

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1981; Jessop 1982; Poulantzas 1974, and many more) to the notion of welfare, which becomes a central binding category of the state as an ‘integral’ entity. The WSR approach reconciles the views concerning the contentious concept of the state in contemporary IPE thought, where ‘many Gramscis are on offer’ (Germain and Kenny 1998: 8). WSR does not position itself as an overwhelming substitution for the theory of the state and rejects the possibility of the development of a general, ‘fully determinate’ theory, as a reductionism of one kind or another is inevitable’ (Jessop 1982: 211). It rather proposes the ‘method of articulation’, according to which the analysis of the state is set in a particular historical conjuncture (such as economic sanctions) to understand the conditions under which specific causal chains and contradictions (the mechanisms of sanctions) might produce ‘contingently necessary effects’, the welfare state regime outcomes (the counter-hegemonic mechanisms). Moreover, it helps to integrate and to further develop the most valuable functionalist and power resource insights into the neo-Gramscian dimension, which parallels with Robert Cox’s concept of a ‘historic bloc’ that presents structural power as a blend of three categories of ‘potentials’—material capabilities, ideas and institutions (Cox 1981: 136). The theoretical merger proceeds through a multidimensional concept of ‘Self-protection of society’ (in Part I), which conflates power structures (institutional, material and cultural) with welfare state functions (de-commodifying, redistributive and connecting) to arrive at the final point of theoretical inquiry—counter-hegemonic mechanisms of the WSR that constitute welfare state regime reproduction. Van der Pijl’s aforementioned conception of a geopolitical dialectic between a ‘Lockean heartland’ and ‘Hobbesian contender states’ offers the most propitious point of departure for this, but WSR amplifies and extends the conception of the welfare state implied therein. Although van der Pijl advances in capturing the main dynamics of the internal evolution of states, sometimes this happens at the expense of overlooking the countertendencies. This book covers this, first, by viewing the heartland as heterogeneous and internally variegated, which at times of crises perhaps has become more Hobbesian, and second, by suggesting that the nature of contender states might vary a lot owing to the particularities of their state–society configurations.

1

1.2

INTRODUCTION

7

The Political Economy of Sanctions

Second, the book aspires to add to the literature on the political economy of sanctions. Despite sustained debate about the adverse effects of sanctions on social stability, there has been little evidence of their effectiveness: sanctioned states maintained their foreign policy course and became economically more self-reliant (Jerin 2015). Lee Jones in ‘Societies under Siege’ maintains that the analysis of sanctions should go beyond the mainstream theories, classified as the liberal, public choice, institutionalist and neo-Weberian accounts, because they ignore the mechanisms by which sanctions are ‘supposed to operate’ (for a detailed analysis, see Jones 2015). ‘Mainstream’ are ‘problem-solving’ theories grounded in foundational ontology and positivist epistemology: by separating fact and values, and claiming to avoid normative judgements and interpretive characterisations, mainstream theories develop the notion of empirical causation that aims at ‘establishing laws and certainties like those established in the natural sciences’ (Savigny and Marsden 2011: 24–6). The application of the neo-Gramscian concept of the state to the study of the mechanisms of sanctions by Lee Jones has been a productive move away from the mainstream accounts: the social conflict analysis (SCA) succeeded in identifying the socio-political coalitions contesting state power, the distribution of the economic impact across social groups, and the political consequence of the response of the main social formations to the economic impact of sanctions (Jones 2015: 39). Jones conceptualises state capacities and functions as not ‘possessed’ by the state but as emerged historically and contingently, ‘reshaped and constrained by societal power relations’ (Jones 2015: 36). Not only classes and class fractions but also ethnic, religious and state-based groups are crucial for social conflict analysis. The assessment of socio-economic and political reactions of leading social groups to the economic impact of sanctions has been a very informative and valuable contribution to the understanding of the mechanisms of sanctions. However, these mechanisms in Jones’ analysis continue to be defined at a high level of abstraction: further analysis of the ‘effectiveness’ of sanctions requires a specification (definition) of mechanisms and an assessment of their contradictory nature. With this aim, this book replaces the SCA with the welfare state regime as the central focus of the investigation, considering it to be a more powerful analytical tool in distinguishing the ‘mechanisms’ of

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sanctions being the same operational variables as the counter-hegemonic settings of the regime. There are several reasons why the welfare state regime rather than the SCA is a more suitable framework for analysing the ‘mechanisms’ of sanctions in Russia and Iran. First, the focus on the labour/capital contradictions, embedded in welfare, reveals the institutional dynamism of contender states. Jones maintained that by following Jessop’s and Poulantzas’ historical reasoning (Jessop 2012; Poulantzas 1974) he could move beyond the scope of structural power mechanisms into the complexities of societal power relations. However, Jessop and Poulantzas had different visions on the theory of the state (Jessop 1982: 181), and it would have been more precise had Jones specified which account he prioritised. For instance, in the case of Iraq, Poulantzas-like conceptualisation of the state at the structural level (Burnham 1994: 229) results in the author’s focusing on the external linkages between sanctions and national social groups, rather than on the dynamics of class conflict within the global flow of capitalist social relations. In the case of South Africa, Jones’s assessment of class struggle bears features of Structural Marxism, as social formations obtain quite a static character and the future of the sanctioned states is already contained in the dynamics of the present class struggle (Booth 1985: 773). Jones rightfully suggests that through ‘conditioning ruling groups’ strategies, sanctions can indirectly alter the coalitional basis of the state, its institutional arrangements, its economic and ideological programmes and its wider policies’ (Jones 2015: 39–43). However, there is a potential problem that an abstract coalitional ‘ruling block’ will predetermine the institutional, economic and ideological programs of the state. Technically, this makes the assessment of the static apparatus of ‘state managers’ problematic, as it does not take into account the dynamism of its members’ interests, ideas and strategies in response to sanctions. Moreover, Jones believes that state institutions play a secondary role in Gramscian theory, and that this is what fundamentally distinguishes Gramscians and neo-Weberians (ibid.). However, referring to the analysis of Risorgimento, it seems difficult to prioritise and delineate the institutional power of state apparatus from the Gramscian understanding of state formation as the institution of political form of a ‘bourgeois’ state, ‘suitable to the expansion of capitalism’, that gained popular support across Europe (Morton 2007: 65). With the aim of exploring the institutional dynamism of contender state development, Jones’s analysis could be complemented by considering the ‘shifting sands’ behind the process

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of state and class formation that lie in the labour/capital contradictions (Burnham 1994), embedded in welfare (Gough 1979). Second, Jones fairly stresses the importance of consideration of the impact of transnational capitalist development on the composition of social forces (Jones 2015: 41). However, his analysis of the effect of sanctions upon various social groups seems to be taken out of neo-Gramscian geopolitical contextual settings of hegemonic rivalry. It was a massive social conflict within the state in South Africa that predetermined the regime formation and domestic unrest that ‘drove the imposition of sanctions’ (ibid.: 66). Interestingly, the Anglo-American heartland abstained from the process: in 1985, Britain did not join the Commonwealth’s decision to adopt trade, investment and tourism embargoes, and again, in 1987, the US and British governments resisted the pressure from some European states to impose anti-South Africa sanctions unilaterally (ibid.). Therefore, sanctions played a supplementary rather than a leading role in the internal process of the regime’s transformation, as sanctions were the product of internal mass mobilisation, aided by anti-apartheid forces driven abroad. Alternatively, the WSR approach will examine sanctions within a broader geopolitical concept of capitalist rivalry. Third, the SCA could be complemented by elaborating the counterhegemonic mechanisms for the formation of public ‘consent’. It remains unspecified how the ideological orientation might make some social groups ‘resign itself passively to its losses’ (Jones 2015: 43), especially in a situation when the local responses to sanctions are ‘structurally constrained by pre-existing social power relations and conflicts’. And lastly, it is difficult to identify ‘the immediate economic impact of sanctions on the target society’, the second step of the SCA, and almost impossible to distinguish it from the effect of other factors (business cycle, situation in the global markets, macroeconomic situation, etc.). Jones outlines, that the intensity of the effectiveness of sanctions is identified via its influence on society’s basic compositions (giving rise to some social groups while marginalising others) and on resources available to ruling groups for ‘coercing, co-opting, or gaining consent from subordinate groups’ (Jones 2015: 45). However, it would be interesting to see how these two things correlate, as they are mutually dependent: the resources that the ruling class requires depend on the composition of society, while the way the society is ‘composed’, depends not only on the effect of sanctions, but also on many other factors that this research is planning to include into the welfare state regime settings. Therefore, the impact of sanctions on various social groups would depend on the welfare state regime layout.

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1.3

The Political Economy of Russia and Iran

Third, the WSR approach contributes to the literature on the political economy of Russia and Iran. Current accounts on Russia under sanctions, due to its recency mainly address the effects of sanctions on Russia’s political economy (Golikova and Kuznetsov 2017; Mau and Leonard 2017), suggesting that Russia has been quite successful in adapting to the effects of sanctions (Connolly 2018). However, the mechanisms through which sanctions operate and the spectrum of transnational relations are underexplored. Although some papers succeed in bringing global component into analysis (Connolly 2018), the target country and the ‘wider global economy’ remain separate entities where the domain of ‘international’ is external to domestic social power relations. The inclusion of an analysis of geopolitical forces in relation to counter-hegemonic mechanisms, along with a supranational dimension into the concept of the welfare state regime, shall complement the analysis. Also, there have been few, if any, publications related to a holistic analysis of the Iranian’s and Russia’s welfare state under sanctions, as non-Western accounts fall outside the theoretical categorisations of the welfare states. Comparative welfare state literature mainly focuses on Western capitalist states: most papers are either narrowly focused on particular issues, such as health care, education, poverty, inequality, etc., or are too extensive and assess welfare policies in a macroeconomic context. The Iranian case is far older and longer term (imposed since 1995 by the US, and since 2006 by the UN) than the Russian case (imposed since 2014 by the US, the EU and some other states). Therefore, while the impact of sanctions on Russian socio-economic development is still under research, the amount of literature concerning Iran is substantial. All the blame for Iran’s vulnerability to sanctions is laid on economic mismanagement: over-reliance on oil revenues, insufficient economic diversification, uncompetitive subsidised industries, a regressive tax regime, the lack of foreign investment, unemployment, the brain drain, the marginalisation of the private sector, the prioritisation of Shia ideology over national economic interests, corruption and the expansion of the black market (Ghadar and Sobhani 2011: 23; Karshenas and Hakimian 2005: 90). Furthermore, sanctions are seen as the primary trigger for the dramatic growth of the informal economy with the aid of the foreign exchange market. There are opposing opinions regarding the effects of the black market on Iranian welfare. Some authors admit that the black

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market has negatively impacted economic growth by contributing to the budget deficit. However, a ‘moderately sized’ informal economy may have improved political stability by providing job opportunities for young people, thus reducing income inequality (Farzanegan 2013: 32). For some, however, sanctions have not only failed to achieve their goals, i.e. regime change and ‘democratisation’, but have instead contributed to the regime’s empowerment, which might contribute to a contender geopolitical posture and to the consolidation of the regime (Hakimian 2012; Naghavi and Pignataro 2015: 3). This view is supported by the mainstream literature: it is believed that sanctions cause a more destabilising effect on democratic rather than on non-democratic governments (Lektzian and Souva 2007). Some authors (Escribà-Folch and Wright 2010), however, warn that ‘the extent to which sanctions destabilise a non-democratic government depends on the type of authoritarian rule’ (Oechslin 2014: 25). Russia’s role as a ‘contender’ has exemplified after the imposition of sanctions in 2014. The impact of sanctions on Russian socio-economic development is dynamic and still under research. If we consider the literature on the causes of the anti-Russian sanctions, most authors acknowledge that the imposition of sanctions was a ‘culmination of the long-term crisis’ (Haukkala 2015: 25) that could be either blamed on Russian aggression (McFaul et al. 2014), or on Western institutional expansion, accompanied by the EU’s failure to establish a new framework for military and security cooperation with Russia (Mearsheimer 2014), or by the push by the United States to isolate Russia from Europe (Sakwa 2015). There is no debate in Western academia that the EU sanctions were the ‘result of the illegal annexation of Crimea’, as recorded by the UN General Assembly Resolution 68/262 (Milano 2014). Some authors see Vladimir Putin as a ‘gambler’, who has become more ‘willing in recent years to take major strategic risks to counter seemingly limited and manageable threats to Russian interests’ (Treisman 2016). Others, by contrast, justify Russia’s ‘aggressive regionalism’ by making historical evaluations and questioning the legitimacy of Nikita Khrushchev’s decision in 1954 to transfer Crimea from the RSFSR to the Ukrainian SSR, the leader’s first steps after acquiring power (Müllerson 2014). Müllerson refers to the fact that Crimea had been part of Russia since 1783, as the result of the defeat of the Ottoman Empire by Queen Catherine the Great. Since then, the port of Sevastopol has become Russia’s military base on the Black Sea and remained so through a lease agreement between Russia and

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Ukraine after the break-up of the Soviet Union. These historical evidences made the author call Ukraine the ‘victim of geopolitics’ (ibid.: 141). There is no agreement on the effects of sanctions on Russia, either. As in the literature on Iran, some authors attribute the negative impacts of the sanctions to government economic regulation flaws: (1) overreliance on oil revenues amid technological retardation of some upstream and downstream oil and gas companies, highly dependent on the export of pumping equipment, catalysts and applied software (import share of 50–80%) (Nureev and Busygin 2017), (2) insufficient economic diversification, corruption, uncompetitive subsidised industries, a regressive tax regime, the lack of foreign investment, financial and technological shortcomings and the brain drain (Golikova and Kuznetsov 2017), (3) growing budget financing of non-productive operating expenses (i.e. on state administration, defence, law and order) that diverts resources away from industrial modernisation and innovation (Mau and Leonard 2017). However, a growing number of papers underline positive effects of sanctions and counter-sanctions on the Russian economy. As observed by Roger Munnings, the chairman of the Board of Russo-British Chamber of Commerce (RBCC), sanctions ‘initially had the effect of depressing economic growth in Russia, particularly as a result of limiting liquidity in the economy through restricted availability of short and long term credits for companies’, but later ‘the Russian corporate sector and banking system has largely worked through this issue’, and ‘there has been the positive effect of localisation of manufacture of goods and provision of services provoking a more diversified and balanced economy than hitherto and one in which small and medium sized enterprises have the opportunity to prosper’.2 In fact, in the agricultural sector, as in some other sectors of economy, import substitution policies have been successful in ensuring the country’s security of food supplies (Polyanin and Moiseev 2016). Richard Connolly believes that the adaptation to sanctions in Russia was quite effective, because it was ‘overwhelmingly state-led’—permitting the country’s leader to promptly utilise institutional, financial and diplomatic tools and reallocate resources to minimise the negative impact of sanctions (Connolly 2018: 189). The author rightfully points to ‘modification’ and diversification of Russia’s foreign policy, import substitution and ‘Russification’ of the military and the energy sectors, as well as to ‘sanitisation’

2 Author’s interview with the chairman of the Board of RBCC.

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and ‘securitisation’ of the financial sector and other adaptive fiscal and monetary measures that permitted the country to evade a ‘full-blown credit crunch’ (ibid.) For some, due to Russia’s ‘economic resilience’ sanctions have not only failed to achieve their goals, i.e. regime change and ‘democratisation’, but have instead lead to the regime’s empowerment, which might contribute to a contender geopolitical posture and to the consolidation of the regime (Littlejohn 2018; Volodin 2018). Overall, there are three main flaws in the current accounts analysing the ‘effects’ of sanctions on the Russian and Iranian political economy that explain why the mechanisms of sanctions, as well as CHMs that reproduce and protect the systems from collapse, remain underexplored. First, current accounts aim to solve a problem of ‘if sanctions work’, not to understand in what sense they might transform current socio-economic arrangements. Second, they do not explicitly recognise the contradictory nature of the impact of sanctions on the Russian and Iranian political economy, which explains why the views concerning the effects of sanctions appear so polarised. Third, Russia and Iran are analysed as entities, separate from the processes that evolve in the global political economy. Therefore, to better define the mechanisms, the theoretical scope of the accounts on the effects of sanctions should be widened with reference to the contradictory nature of the welfare state development and to geopolitical forces other than the sanctions themselves. The inclusion of an analysis of geopolitical forces in relation to counter-hegemonic mechanisms, along with a supranational dimension in the concept of the welfare state regime, shall complement the analysis.

1.4

Book Outline

Part I indicates the theoretical background for the analysis and explains why the notion of welfare has become central to the understanding of Russia’s and Iran’s counter-hegemony under sanctions and why the neoGramscian perspective will be applied for analysing the welfare state. The contender state’s self-protection constitutes the core of counterhegemony and is exercised through the regime’s reproduction alongside its structural and functional terrains. Functional modes evolve through its de-commodifying, redistributive and connecting capabilities, while structural modes are secured by strengthening the institutional mechanisms of social control (institutional), by securing the future potential

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of the socio-economic base (material) and by transforming the modalities of social behaviour and attitudes (cultural—ideological). As the WSR approach is considered both a theoretical framework and a powerful tool for analysing counter-hegemonic mechanisms, Chapter 2 examines the welfare state regime as a theoretical account, following the consistent path from functionalists, structuralist accounts, from Wood and Gough’s Institutional responsibility matrix (IRM) and the authors’ conceptualisation of the interrelation between transnational forces to the neo-Gramscian analysis of counter-hegemony (Wood and Gough 2006). Chapter 3 introduces a reverse logical sequence, from Gramsci to welfare, to justify the centrality of the concept of welfare state regime when assessing CHMs within the moment of sanctions as a ‘situation’ in the Gramscian sense (Gramsci 1971). This self-reinforcing trajectory will complete the theoretical consolidation between the Gramscian and welfare state accounts arriving at the merger point, located in the notion of counterhegemonic mechanisms, to initiate the exploration of the main theoretical research question: ‘What are the counter-hegemonic mechanisms embedded in welfare state regimes that make ‘contender’ states resilient to sanctions?’ This theoretical adaptation will be followed by operationalisation of analysis through the concept of the Self-protection of society, gradually developed and applied throughout core empirical Parts. Part II assessed how the counter-hegemonic structural mode of WSR reproduction has been secured in Russia and Iran via strengthening the institutional mechanisms of social control. The part demonstrates how centralisation of state and civil institutions, monopolisation of the strategic sectors of the economy and para-constitutional settings in Russia and Iran have become counter-hegemonic mechanisms that, on one side, enabled the accumulation of resources necessary to restore decommodifying capabilities of the pension system and to reverse the monetisation reforms, while on another side, intensified institutional dualism and its stratifying effect on social formations. The institutional power structure of the welfare state regime that is responsible for the dynamism of contender state development. The analysis will be focused on the institutional arrangements: (a) the role of the country’s legislation and state institutions in overall welfare coverage (decommodification); (b) the institutionally grounded shifts in class and status disparities (wealth redistribution); and (c) legislative and institutional WSR arrangements that restored or impeded the formation of social solidarity (connection). All

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three (a, b, c) are the variables that constitute the institutional mechanisms of social control, in an attempt to harmonise religion, democracy and private property. Part III considers how the counter-hegemonic structural mode of Russia and Iran has been secured via enhancing the material capacity and future potential of the socio-economic base, in the face of uneven development of global capitalism and the country’s dependence on global markets. In both Russia and Iran, financial consolidation, the course of technological modernisation, economic diversification and active regionalism have been productive steps in building up the material capacity of the regime. However, the reliance of large businesses on state support and ‘patron–client’ relationships ultimately limits business efficiency, induces corruption and in some cases disrupts incentives for creativity and innovation. The WSR material capabilities are determined by: (a) households’ dependence on the market in overall welfare coverage (decommodification); (b) wealth creation and wealth distribution: the poverty and inequality dynamics (primary and secondary wealth distribution); and (c) formal and inf ormal channels for cooperation and investment opportunities (connection). All three (a, b, c) constitute material capabilities of the WSR. The processes, generated from the material power structure of the WSR triggered the following counter-hegemonic mechanisms, to name a few: modernisation of the economy, import substitution programs, counter-sanctions, the optimisation of socio-economic policies, including some austerity measures, further consolidation of the budgetary system (intra-budgetary redistribution), enhanced state control over capital flows, tax reforms, with the aim of creating fiscal stimuli for technological modernisation and domestic demand formation. Part IV examines the cultural power structure of the welfare state regime that corresponds to the ability of contender states to transform the modalities of social behaviour, practices, personal orientation and attitudes. The ideology of statecraft in Russia, with its discourse of ‘otherness’ and new cadre formation, and Shia political system in Iran, with its communitarian postulates, partially helped to consolidate society at the macro-level and to obtain public support for economic centralisation. However, civil society hierarchy, familialism and other forms of informal relationships in both states disrupt labour bargaining power and cohesion, while further centralisation of control over civil society institutions might make state–civil society dialogue excessively bureaucratised and inflexible. The analysis is focused on the following cultural

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arrangements: (a) people’s perception of their dependence on markets (decommodification); (b) interpersonal tolerance to income, class and status disparities (wealth redistribution); and (c) social interactions based on shared values that form national identity (connection). All three (a, b, c) are the variables that constitute the cultural mechanisms of social control, based on ideology, strategies for human resource development and social engineering. Part V is an integral chapter of the current research: Russia’s and Iran’s welfare state regime reproduction is a synthesis of the processes that unfolded within these societies during the period of economic sanctions, previously identified in the main empirical chapters. This is a comparative analysis that discloses, clarifies, defines the character of the counter-hegemonic mechanisms in Russia and Iran and assesses the strengths and weaknesses of the counter-hegemonic settings. This part is accompanied by an effective summary of CHM and its contradictions (in Appendices I and II ). The answer to the question of ‘what are the counter-hegemonic mechanisms embedded in welfare state regimes (WSR) that make ‘contender’ states resilient to sanctions?’ distinguished counterhegemonic mechanisms for Russia and Iran. The answer to the question of ‘how strong are the counter-hegemonic settings of the Russian welfare state regime?’ implied further analysis of the contradictory nature of CHMs that unveiled five common trends in the Russian and Iranian WSR evolution: power centralisation; economic modernisation and optimisation; strategic partnership and diversification; para-constitutional reformation; human resource development. Both the Russian and the Iranian welfare state regime under sanctions have become more Hobbesian in nature, to render collective self-protection of their sovereignty against the ‘evils’ of the state of nature and geopolitical pressures. Overall, the book reinstates the relevance of the Hobbesian/Lockean dichotomy for analysing societies in transition, as it touches upon the grounds of political philosophy that might produce valuable arguments to challenge the status of the dominant ideological paradigm of the modern global political economy. It also concludes that the Russian and the Iranian WSRs have been strengthened in response to sanctions, however, the contradictory nature of CHMs significantly constrains further consolidation.

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References Al-Monitor. 2021. “Intel: US Lifts Iran-Related Sanctions, Says No Connection to Nuclear Deal.” Retrieved October 9, 2021 (https://www.al-monitor. com/originals/2021/10/intel-us-lifts-iran-related-sanctions-says-no-connec tion-nuclear-deal). Althusser, Louis. 1969. For Marx. Harmondsworth. Harmondsworth: Penguin Books. Baldwin, Peter. 1996. “Can We Define a European Welfare State Model? London: Macmillan.” In Comparative Welfare Systems. London: Palgrave Macmillan. Booth, David. 1985. “Marxism and Development Sociology: Interpreting the Impasse.” World Development 13: 761–87. Braudel, F. 1958. “JSTOR: Annales. Histoire, Sciences Sociales.” Annales Histoire 13 (4) (October–December): 725–53. Burnham, Peter. 1994. “Open Marxism and Vulgar International Political Economy.” Review of International Political Economy 1 (2): 221–31. Burnham, Peter. 2001. “Marx, International Political Economy and Globalisation.” Capital & Class 25 (3): 103–12. Cafruny, Alan and Magnus Ryner. 2003. A Ruined Fortress?: Neoliberal Hegemony and Transformation in Europe. Rowman & Littlefield. Callinicos, Alex. 2012. “Commentary: Contradictions of Austerity.” Cambridge Journal of Economics 36 (1): 65–77. Cerami, Alfio. 2009. “Welfare State Developments in the Russian Federation: Oil-Led Social Policy and ‘the Russian Miracle.’” Social Policy and Administration. Connolly, Richard. 2018. Russia’s Response to Sanctions: How Western Economic Statecraft Is Reshaping Political Economy in Russia. Cambridge University Press. Cox, Robert W. 1981. “Social Forces, States and World Orders: Beyond International Relations Theory.” Millennium: Journal of International Studies 10 (2): 126–55. Escribà-Folch, Abel, and Joseph Wright. 2010. “Dealing with Tyranny: International Sanctions and the Survival of Authoritarian Rulers.” International Studies Quarterly 54 (2): 335–59. Esping-Andersen, Gøsta. 1985. Politics against Markets: The Social Democratic Road to Power. Princeton, NJ: Princeton University Press. Esping-Andersen, Gøsta. 1990. The Three Worlds of Welfare Capitalism. Cambridge: Polity Press. Fouskas, Vassilis and Bülent Gökay. 2019. The Disintegration of Euro-Atlanticism and New Authoritarianism. Global Power-Shift. London, UK: Palgrave Macmillan.

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Farzanegan, Mohammad Reza. 2013. “Effects of International Financial and Energy Sanctions on Iran’s Informal Economy.” SAIS Review. Gamble, Andrew. 2009. The Spectre at the Feast: Capitalist Crisis and the Politics of Recession. London, UK: Palgrave Macmillan. Germain, Randall D., and Michael Kenny. 1998. “Engaging Gramsci: International Relations Theory and the New Gramscians Request Permissions: Click Here Engaging Gramsci: International Relations Theory and the New Gramscians *.” Review of International Studies 24 (1): 3–21. Ghadar, Fariborz, and Rob Sobhani. 2011. “It’s the Economy, Stupid. Trials and Tribulations of the Iranian Economy.” Harvard International Review 33 (1): 22–6. Golikova, Victoria, and Boris Kuznetsov. 2017. “Perception of Risks Associated with Economic Sanctions: The Case of Russian Manufacturing.” Post-Soviet Affairs 33 (1): 49–62. Gough, Ian. 1979. The Political Economy of the Welfare State. London: Palgrave Macmillan UK. Gough, Ian. 2016. “Welfare States and Environmental States: A Comparative Analysis.” Environmental Politics 25 (1): 24–47. Gramsci, Antonio. 1971. “The Modern Prince” Selections from the Prison Notebooks. London: Lawrence and Wishart. Hakimian, Hassan. 2012. “The Last Straw for Iran’s Economy?” World Today 68 (3): 27–8. Harvey, David. 2014. Seventeen Contradictions and the End of Capitalism. Profile Books. Haukkala, Hiski. 2015. “From Cooperative to Contested Europe? The Conflict in Ukraine as a Culmination of a Long-Term Crisis in EU–Russia Relations.” Journal of Contemporary European Studies 23 (1): 25–40. Iversen, Torben, and Torben Iversen. 2010. Capitalism, Democracy, and Welfare. New York: Cambridge University Press. Jerin, Mathew. 2015. “‘Western Sanctions Encouraging Russia to Build “Independent Financial Structure”.’” International Business Times, UK, June 23. Retrieved July 4, 2019 (www.ibtimes.co.uk/western-sanctions-encouragingrussia-build-independent-financial-structure-1507552). Jessop, Bob. 1982. The Capitalist State: Marxist Theories and Methods. Oxford: Martin Robertson. Jessop, Bob. 2012. “The World Market, Variegated Capitalism, and the Crisis of European Integration Routledge.” In Globalisation and European Integration. Critical Approaches to Regional Order and International Relations, edited by P. Nousios, H. Overbeek, and A. Tsolakis. Routledge. Jessop, Bob. 2016. The State: Past, Present, Future. Cambridge: Polity Press. Jones, Lee. 2015. Societies Under Siege: Exploring How International Economic Sanctions (Do Not) Work. Oxford University Press.

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Karshenas, Massoud, and Hassan Hakimian. 2005. “Oil, Economic Diversification and the Democratic Process in Iran.” Iranian Studies 38 (1): 67–90. Korpi, Walter. 1983. The Democratic Class Struggle. London: Routledge Kegan Paul. Lektzian, David, and Mark Souva. 2007. “Institutions and International Cooperation.” Journal of Conflict Resolution 45 (1): 61–79. Littlejohn, Gary. 2018. “Russian Economic Resilience.” Retrieved July 4, 2019 (https://thesaker.is/russian-economic-resilience/). Macpherson, C.B. 1954. “The Social Bearing of Locke’s Political Theory.” The Western Political Quarterly 7 (1): 1–22. Mau, Vladimir, and Carol S. Leonard. 2017. “Economic Crises in PostCommunist Russia.” Russian Review 76 (4): 652–666. McFaul, Michael, John J. Mearsheimer, and Stephen Sestanovich. 2014. “Who Started the Ukraine Crisis.” Foreign Affairs 93: 167. Mearsheimer, John. 2014. “Why the Ukraine Crisis Is the West’s Fault: The Liberal Delusions That Provoked Putin.” Foreign Affairs 93: 77. Milano, Enrico. 2014. “The Non-Recognition of Russia’s Annexation of Crimea: Three Different Legal Approaches and One Unanswered Question.” Questions of International Law 35. Morton, Adam David. 2007. Unravelling Gramsci. Hegemony and the Passive Revolution in the Global Political Economy. London: Pluto Press. Müllerson, Rein. 2014. “Ukraine: Victim of Geopolitics.” Journal of International Law 13 (1): 133. Naghavi, Alireza, and Giuseppe Pignataro. 2015. “Theocracy and Resilience against Economic Sanctions.” Journal of Economic Behavior & Organization 111: 1–12. Nureev, Rustem M., and Evgeniy G. Busygin. 2017. “Economic Sanctions against Russia: Short and Medium Term Consequences for the Oil and Gas Industry.” Journal of Economic Regulation 8 (3): 6–22. Oechslin, Manuel. 2014. “Targeting Autocrats: Economic Sanctions and Regime Change.” European Journal of Political Economy 36: 24–40. Offe, Claus. 1985. Contradictions of the Welfare State. Cambridge: The MIT Press. Pasha, Mustapha Kamal. 2005. “Islam, ‘Soft’ Orientalism and Hegemony: A Gramscian Rereading.” Critical Review of International Social and Political Philosophy 8 (4): 543–58. Polyanin, A.V., and V.V. Moiseev. 2016. “Modern Agricultural Policy of Import Substitution and Management in Agricultural Complex of Russia.” Russian Journal of Agricultural and Socio-Economic Sciences 11 (59): 38–45. Poulantzas, Nicos. 1974. Classes in Contemporary Capitalism, London: New Left Books. London: New Left Books.

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Rieger, Elmar, and Stephan Leibfried. 2003. Limits to Globalization: Welfare States and the World Economy No Title, 1st ed. Cambridge: Polity. Sakwa, Richard. 2015. “The Death of Europe? Continental Fates after Ukraine.” International Affairs 91 (3): 553–79. Savigny, Heather and Lee Marsden. 2011. Doing Political Science and International Relations. Theories in Action. Basingstoke: Palgrave Macmillan. Treisman, Daniel. 2016. “Why Putin Took Crimea: The Gambler in the Kremlin.” Foreign Affairs 95: 47–54. van der Pijl, Kees. 1998. Transnational Classes and International Relations, 3d ed. London: Routledge. van der Pijl, Kees. 2012. “Is the East Still Red? The Contender State and Class Struggles in China.” Globalizations 9 (4): 503–16. Volodin, Vyacheslav. 2018. “Noviye Sanctsiy Privedut k Esche Bol’shei Konsolidatsii Obschestva.” Retrieved July 4, 2019 (https://ria.ru/20180130/151 3588543.html). Wilensky, Harold. 1975. The Welfare State and Equality: Structural and Ideological Roots of Public Expenditures. Berkeley: University of California Press. Wood, Geof, and Ian Gough. 2006. “A Comparative Welfare Regime Approach to Global Social Policy.” World Development 34 (10): 1696–713.

PART I

Theoretical Identification of the Mechanisms of Sanctions

Abstract Part I develops the ground for the theoretical merger and shows how it is correlated to the structure of the empirical Parts II, III and IV, devoted to institutional, material and cultural capabilities of the WSR, consequently. The welfare state regime approach (WSR) is considered both a theoretical framework and a powerful tool for analysing counter-hegemonic mechanisms. Chapter 2 examines the welfare state regime as a theoretical account, following the consistent path from functionalists, structuralist accounts, from Wood and Gough’s Institutional responsibility matrix to the neo-Gramscian analysis of counter-hegemony. Chapter 3 introduces a reverse logical sequence, from Gramsci to welfare, to justify the centrality of the concept of WSR within the moment of sanctions as a ‘situation’ in the Gramscian sense. This self-reinforcing trajectory completes the theoretical consolidation between the Gramscian and welfare state accounts arriving at the merger point—the concept of the Self-protection of society,1 gradually developed and applied throughout core empirical chapters.

1 The contender state’s self-protection constitutes the core of counter-hegemony and is exercised through the regime’s reproduction alongside its structural and functional terrains. Functional modes evolve through its de-commodifying, redistributive and connecting capabilities, while structural modes are secured by strengthening the institutional mechanisms of social control (institutional), by securing the future potential of the socio-economic base (material), and by transforming the modalities of social behaviour and attitudes (cultural—ideological).

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PART I:

THEORETICAL IDENTIFICATION …

Keywords Welfare state regime, Counter-hegemony

Introduction to Part I Theoretical identification departs from existing mainstream and critical welfare state theories, to consider what insights could be helpful for defining the mechanisms of sanctions, and consequently, the counterhegemonic settings of Russia and Iran. The most consistent subdivision of welfare theories was offered by Ian Gough, who divided them into ‘economic theories of government policy’, ‘pluralist theories of policymaking’ and ‘functionalist theories of the welfare state’ by simply following the logic of their scientific genesis—economics (classical liberals), political science and sociology, respectively. As the capitalist system has expanded, ‘globalised’ and became more complex, so have the theories, and these boundaries have become blurred. Classical liberals (‘economic theorists’) are located further away than other welfare state theories from the effective conceptualisation of the counter-hegemonic mechanisms, as the analysis of economic development is isolated from ‘social relations and from specific social structures’ (Gough 1979: 6). Also, transnational forces are ignored, even when some authors refer to a global dimension when analysing integration and Europeanisation (Kvist and Saari 2007), or globalisation (Deacon 2007; Swank 2005), the interrelation between transnational forces and welfare state regimes (global dimension) remained unformulated. This is because liberal accounts tend to subjectify the evolution of capitalism. For them, the alteration of attitudes in the wake of technological progress is the main driving force behind welfare state evolution rather than increasing needs of the global capitalist system to sustain social reproduction as the result of its expanded exploitative powers. Richard Titmuss, who examined the principle of universalism as an outcome of the horrifying experience of more of a century of ‘turmoil, revolution, war and change’ believed that the changing philosophy of welfare in the minds of people, the fear of the risk of military conflict and mass destruction, rather the changing forces of production lead to the emergence of the welfare state, as the base for prevention of ‘the vicious descending spiral of poverty, disease, neglect, illiteracy and destitution’ (Titmuss 1958). As a result, when analysing the welfare state, classical liberals mainly focus on the change in public sentiment towards poverty, the development of welfare philosophies, and the

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transformation in tastes and expanding needs of the working class as the main factors that affect welfare legislation (Briggs 1961). Pluralists contribute to the understanding of the welfare state with their subjective interpretation of what might constitute general principles of action in light of human values, therefore recognising the creative role of individuals in human history. The comparative analysis of capitalism and the welfare state-centred on the micro-level of the private sector. For instance, Hall and Soskice bring the action-oriented individuals, firms, trade unions, and other ‘business associations’ back into their analysis, to discover relationships among these actors in the political economy (Hall and Soskice 2001: 4). Pluralists share the individualistic methodology expressed by classical economists (Friedman 1962; Hayek 1944), according to which capitalism in its pure sense was an inherently stable social system based on individual freedom and private ownership, and therefore is a self-regulating system, as objective psychological human factors were the natural driving force towards economic equilibrium, while governmental intervention is blocking the action of these natural regulators. Pluralists adopt the liberal definition of the welfare state that would generally refer to the forms, procedures, rules and instruments, but not to state functions (Offe 1985a: 88). Welfare state is seen as an undemocratic and inefficient development of modern capitalism that needs to be forgone, as it is inconsistent with the liberal conceptualisation of human freedom (Hayek 1944). This neo-classical visualisation of capitalism as a ‘free to choose’ nation of individuals, where everything obeys the will of man (Friedman and Friedman 1980), and the underexplored functionality of the welfare state, evades going deep into the objective laws of hegemonic (and counter-hegemonic) mechanisms that predetermine not only the functioning but also the evolution of capitalism. In other words, pluralists are mired in actor-based definitions and conflict case studies, which subjectify social reality and downplay the role of institutions and other material structures. This pluralist insistence on the subjective element in understanding human history had been successfully overcome by functionalists in their search for the technological, industrial or modernising backgrounds of the welfare policy in response to meet the emerging needs of society (Flora and Heidenheimer 1981; Marshall 1950; O’Connor 1973; Wilensky 1975). An example of such objectification is the revelation of a central paradox of capitalism by T.H. Marshall: the rights of citizenship are ‘the foundation of equality on which the structure of inequality could be

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built’ (Marshall 1950). Another positive result of this objectification is the observation of Harold Wilensky (1975) that the welfare state is a structural tendency of different modern societies that could be explained by economic and bureaucratic factors, with a warning that ‘public bureaucracies are by nature self-expanding, self-aggrandising, and thus impossible to phase out when they have outlived their usefulness’ (Wilensky 1975: 114). However, some critics maintain, functionalists tend to omit the role of human beings and see policy developments ‘as a passive response’ to social forces: as a result, they distinguish only one side, the objective, of the contradiction of capital—the forces of production, leaving no room for humans as active interest groups (Gough 1979: 8). At the same time, despite the recognition of a visible convergence of bureaucratic practices among various advanced societies, functionalists, nevertheless, pointed out ‘many indications that things are not the same everywhere’ (ibid.: 113), which, however, are underexplored due to the ‘lack of comparative data’ (Wilensky 1975: 107). Costa Esping-Andersen replenished this gap in comparative analysis of the welfare state by creating a genuine framework in ‘Three Worlds of Welfare Capitalism’ and expanding the welfare state functionality by relevant variables of economic liberalisation and ‘working-class mobilisation’ (Esping-Andersen 1990: 19). Overall, however, despite all the useful insights, functionalist vision of welfare suffers from ‘technological determinism’: by bypassing the role of class conflict as a ‘revolutionary rupture in human history’, it ignores the role of the welfare state ‘as a controlling, repressive agency’ (Gough 1979: 8). Nevertheless, functionalist accounts provided important insights for the development of the concept of the welfare state as a product of contradictions and shifts in industrial development, complemented by an institutionalised ‘powerful societal mechanism which divisively shaped the future’ (Esping-Andersen 1990: 221). Another important step forward by functionalist and structuralist welfare state theories, be they industrialisation (Kerr et al. 1960; Myles and Quadagno 2002; Rimlinger 1971; Wilensky 1975), globalisation, deindustrialisation (Iversen and Cusack 2000), modernisation (Marshall 1950, Wilensky 1975) or integration (Cary 1974), is the recognition and the explanation of some important aspects of the welfare state’s evolution. The problem with these theories, however, lies in their underlying logics that is not capable of separating internal and external mechanisms for change and differentiation. For instance, the ‘industrialisation’ thesis that attributes the welfare state’s expansion to sustainable economic

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growth (Kerr et al. 1960) fails to explain the diversities within the welfare state regimes of similar economically developed states, and most importantly, do not investigate the mechanisms of transformation, central to the understanding of the CHMs and the mechanisms of sanctions, aimed at breaking these counter-hegemonic settings. Furthermore, the ‘modernisation’ thesis, the most prominent of its time, maintains that the transformation of the population from ‘subjects’ to ‘citizens’ with the assistance of the welfare state was necessary for the formation of a system of social equality based on civil rights (Marshall 1950). The mechanisms of change—the development of social rights—however, were invalidated by the effects of market-generated inequalities. A smooth transition to a socially just society, which the modernisation theory proposes, is further challenged by the Korpi’s power resource model, which places the welfare state in the battlefield of social classes, mobilised through distributive processes within society (Korpi 1983, 1989). Despite being criticised for downplaying the role of the middle class in its analysis of social democracies (Baldwin 1996), power resource theory introduced useful analytical insights insofar as it stresses the importance of considering the balance of class power as a determinative for social reforms. Esping-Andersen made a considerable step forward in the conceptualisation of the welfare state by introducing the parameters of commodification and stratification into Korpi’s power resource model. These key indicators are central to his genuine typological division of Western capitalist societies into conservative, liberal and social democratic (Esping-Andersen 1990). To sum up, functionalist theories and power resource accounts provide us with important functional dimensions that would be incorporated in the welfare state regime approach. However, there are three reasons why the capacity of mainstream theories to identify counter-hegemonic mechanisms of welfare state regimes is limited. First, such theoretical approaches suffer from narrowness, ‘fatally weakened by the insistence on either the objective or the subjective element in understanding human history’ (Gough 1979: 10). Second, the underlying logics of most functionalist, structuralist or classical economic welfare state theories, can explain some aspects of the welfare state’s evolution, but have not been capable of separating internal and external mechanisms for change and differentiation, an ‘immense diversity of social policies which any comparative survey will reveal’ (Gough 1979: 9). Third, mainstream welfare state theories consider transnational forces as an isolated parameter that might affect the formation of the welfare state, but they never see global dimension as

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integral to the concept of welfare state regime. Overall, the visualisation of the processes outlined by mainstream authors, such as industrialisation, modernisation, urbanisation and technological change, lacks structural identification that is essential for discovering a historical-materialistic ground for the welfare state, and for understanding the CHMs. As Göran Therborn once suggested, ‘lots of theories have been used to try to explain the rise of welfare states, but little theoretical effort has been used to capture the various meanings and structural implications of welfare states’ that are central to the formation of the counter-hegemonic mechanisms (Therborn 1987: 238). The following passages will consider how these three limitations have been overcome by alternative welfare state theories.

Alternative Welfare State Theories or How to Overcome Existing Limitations The investigation of the counter-hegemonic processes that evolve in Russia and Iran requires an alternative interpretation of the welfare state that sees the emergence and transformation of the welfare state as a constituent of capitalist spatial and worldwide temporal reach. This section addresses the puzzle of how existing critical accounts might help to elaborate the ‘structural implications’, mentioned by Therborn, for the analysis of counter-hegemonic mechanisms, with respect to three previously outlined theoretical drawbacks (objective/subjective duality, mechanisms of transformation and global dimension). The first step in capturing CHM of the welfare state is to address the first critical remark against the mainstream theories concerning the insistence on either the objective or the subjective element in understanding human history. Departure from this deadlock has been successfully established by neo-Gramscian scholars (van Apeldoorn and Hager 2010; Cafruny and Ryner 2003; Wood and Gough 2006). Drawing upon the existing literature on the welfare state, this departure will proceed in two stages. To begin with, the research will follow Wood and Gough’s ‘middle path’ theory, a mediator between teleological functionalist and post-modern stances, as the authors themselves have suggested (Wood and Gough 2006: 1697). The ‘middle’ ground means the use of methods of historical materialism by applying the analysis of the capitalist mode of production to the object of the study—the welfare state; Ian Gough

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suggested that the ‘only satisfactory resolution to this dilemma’ is encapsulated in Marx’s dictum: ‘Men make their history… but not under circumstances of their own choosing’ (Marx, cited in Gough 1979: 10). The next step will be to apply Gramscian reasoning to surpass the subjective–objective duality by uncovering ‘the social power relations that shape the socio-economic content’ of the welfare state regime (van Apeldoorn and Hager 2010: 213). An example of a successful conceptualisation of power, not only as the objectivity of capitalist structures of social inequality but also as the subjectivity of ideologically articulated political struggle over hegemony, can be found in Cafruny and Ryner’s study of European integration (Cafruny and Ryner 2003). Their analysis of the European Union encapsulates both the highest level of abstraction that identifies the interests of distinct capitalist class forces, ‘which constitute the structural basis for hegemonic projects’, but also moves to a more concrete empirical level, where these structural interests are transformed, ‘changing the balance of class forces within any historical conjuncture’ (van Apeldoorn and Hager 2010: 213). This objective-subjective synergy came as a crucial departure from the functionalist conceptualisation of the European welfare state as the outcome of the EU’s institutional dynamics. The second step to identify the CHM is to respond to the critical remark concerning the inability of mainstream accounts to delineate internal and external mechanisms for change when analysing the welfare state’s evolution. Once again, neo-Marxist and neo-Gramscian accounts provide us with a solution: counter-hegemonic mechanisms are located in the conflictual area of social power relations (internal), and the contradictory nature of global capitalist development (external)—they are ‘laws of social transformation’ that are to be understood as tendencies and probabilities rather than ‘iron laws of history’ (Marx 1973 ed., cited in Hartwick and Peet 2009: 157). Therefore, the analysis of the welfare state should begin with the study of the contradictions inherent to capitalism, as shifts in social power relations generate internal and external mechanisms for change. The welfare state in itself is such a ‘shift’, or development that evolves in response to the paradoxes of capital. However, as observed by James O’Connor (1973), Ian Gough (1979), Claus Offe (1985), instead of resolving the tensions inherent in capitalism, the welfare state develops contradictions of its own, ‘trying to fulfil two basic and often mutually contradictory functions – accumulation and legitimisation’ (O’Connor 1973: 6). Moreover, ‘subsidiary

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contradictions’, hidden in the planning failures in the fiscal and in mass loyalty problems, systematically restrict the effectiveness and the legitimacy of the welfare state (Offe 1985a). The analysis of the basic contradictions at the heart of the capital relation worked very well in understanding and predicting the crisis in contemporary Europe. On the threshold of the crisis, a group of scholars expressed their concern with accumulation strategies, state projects and hegemonic visions and their social bases as ‘their particular forms of appearances’ questioned the legitimacy of the finance-led neoliberal mode of European governance ‘from Lisbon to Lisbon’ (van Apeldoorn, Drahokoupil, and Horn 2009). Internal and external mechanisms for change in Europe are guided by post-industrial ‘new Malthusian re-articulation’ that substituted the credible political project with structural–functional objectivity that pressures for retrenchment of the ’mature’ welfare states (Ryner 2009: 45). As such, as the welfare states change and modify over time, a continuous study of the contradictions is vital not only for understanding how sanctions affect the target sates, such as Russia and Iran, but also for assessing the dynamics of modern social policies in various societies, as it enables the policymakers to see why these arrangements sometimes fail to meet public expectations (Kirkham 2017). The third move to capture the CHM of welfare states is to formulate the interrelation between transnational forces and welfare state regimes. In the desire to include non-Western societies in their research, Wood and Gough (2006: 1697) extended four domestic domains (state, market, household and community) to their supranational equivalents (international governmental organisations, global markets, NGOs and internationalised households), which constitute the Institutional Responsibility Matrix. What are Wood and Gough’s contributions to the comparative study of non-Western social policy experience? First, as previously mentioned, Wood and Gough extended the concept of the welfare state regime by introducing the global dimension that links four domestic domains (state, market, household and community) to their supranational equivalents. Second, Wood and Gough developed a ‘new conceptual framework within which to consider a wider range of institutions than is normally acknowledged in social policy discourses’: the authors add an analytical focus on community to the traditional triad of state, market and household (Wood and Gough 2006: 1697). Admitting that neither markets, states nor families alone can provide sustainable arrangements for meeting human needs,

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their intervention is to integrate these three categories, and their international equivalents, into a new conceptual framework. This allows them to broaden the parameters of Esping-Andersen’s welfare state regime typology and thus address the welfare dimension of ‘informal security’ as well as ‘insecurity’ regimes. This step is particularly crucial for analysing the informal welfare provisions in Russia and Iran, to see whether people in these countries heavily rely upon communal relationships to meet their security needs. Third, the authors extended the Esping-Andersen’s functional representation of welfare state. The function of de-commodification was amplified by a parallel criterion of ‘de-clientelisation’, which embraces non-state-centred actors, recovering the rights and entitlements from the ‘informal domains of social relationships and cultural expectations’ (ibid.: 1697). The function of stratification has become a derivative of the ability of the system to reproduce itself. The welfare state functionality is the connecting juncture between theory and research procedure of the current project. To summarise, two features of Wood and Gough’s ‘welfare mix’— the communal and global dimensions—are especially innovative: the first being the transformative step from the Esping-Andersen’s triad of state– market–family into a square by adding the ‘community’ domain; the second being a ‘supranational equivalent of the four domestic components’. An attempt by Wood and Gough to conceptualise the interrelation was a significant achievement, when they broadened the parameters of Esping-Andersen’s welfare state regime typology and extrapolated it to the supranational level. This move, though one of the most remarkable over the past decade, is not sufficient, since their understanding of the ‘international’ has been reduced to a linear extrapolation of social power relations into the supranational terrain, without reference to the historical context. A conceptualisation of the dialectics between transnational forces and welfare state regimes is required. The novelty of the current framework is to combine Wood and Gough’s regime approach with the neo-Gramscian perspective for analysing national and transnational dimensions of the welfare state regime. The WSR approach is seen as both a theoretical framework (direction one) and a powerful tool (direction two) for analysing counter-hegemonic tendencies in contender states. Thus, the theoretical Part I consists of two short chapters: Chapter 2 will examine the welfare state regime as a theoretical account, following the consistent path from functionalists,

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structuralist accounts, from Wood and Gough’s Institutional responsibility matrix (IRM) and the authors’ conceptualisation of the interrelation between transnational forces to the neo-Gramscian analysis of counterhegemony. The main goal is to further develop the institutional, functional, structural and global dimensions, departing from functionalist accounts, and via Wood and Gough’s regime approach—arrive at neoGramscian supranational articulation of the structuring role of geopolitical pressures, including but not limited to sanctions, to understand how global economic integration (or the lack thereof) affects welfare state regimes in non-Western social formations. Chapter 3 will introduce a reverse logical sequence, from Gramsci to welfare, to justify the centrality of the concept of welfare state regime when assessing counter-hegemonic mechanisms within the moment of sanctions as a ‘situation’ in the Gramscian sense (Gramsci 1971). This self-reinforcing trajectory will complete the theoretical consolidation between the Gramscian and welfare state accounts arriving at the counter-hegemonic mechanisms - a merger point which is located in the notion of ‘consent, backed by coercion’.

References Baldwin, Peter. 1996. “Can We Define a European Welfare State Model?” In Comparative Welfare Systems, edited by Bent Greve, 29–44. London: Macmillan. Briggs, Asa. 1961. “The Welfare State in Historical Perspective.” European Journal of Sociology 2 (2): 221–58. Cafruny, Alan, and Magnus Ryner. 2003. A Ruined Fortress? Neoliberal Hegemony and Transformation in Europe. Lanham: Rowman & Littlefield. Cary, William L. 1974. “Federalism and Corporate Law: Reflections upon Delaware.” The Yale Law Journal 83 (4): 663–705. Deacon, Bob. 2007. Global Social Policy & Governance. London: Sage. Esping-Andersen, Gøsta. 1985. Politics Against Markets: The Social Democratic Road to Power. Princeton, NJ: Princeton University Press. Flora, Peter, and Arnold. J. Heidenheimer. 1981. The Development of Welfare States in Europe and America. London: Transaction Publishers. Friedman, Milton. 1962. Capitalism and Freedom. Chicago: University of Chicago Press. Friedman, Milton, and Rose Friedman. 1980. Free to Choose—The Classic Inquiry into the Relationship between Freedom and Economics. New York: Harcourt Brace Jovanovich.

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Gough, Ian. 1979. The Political Economy of the Welfare State. London, UK: Palgrave Macmillan. Hall, Peter, and David Soskice. 2001. An Introduction to Varieties of Capitalism. Oxford: Oxford University Press. Hartwick, Elaine, and Richard Peet. 2009. Theories of Development: Contentions, Arguments, Alternatives, 2nd ed. New York: Guilford Press. Hayek, Friedrich. 1944. The Road to Serfdom. London: Routledge & Kegan Paul. Iversen, Torben, and Thomas. R. Cusack. 2000. “The Causes of Welfare State Expansion: Deindustrialization or Globalization?” World Politics 52 (3): 313– 49. Kerr, Clark, John T. Dunlop, Harbison Frederick, and Charles A. Myers. 1960. “Industrialism and Industrial Man: The Problems of Labor and Management in Economic Growth.” Cambridge: Harvard University Press. Korpi, Walter. 1983. The Democratic Class Struggle. London: Routledge Kegan Paul. Kirkham, Ksenia. 2017. “An Overview: From Contradictions of Capital to the History of Contradictions of the Welfare State.” Zhurnal Issledovanii Sotsial’noi Politiki 15 (2): 309–22. Kvist, Jon, and Juho Saari. 2007. The Europeanisation of Social Protection. Bristol: The Policy Press. Marshall, T. H. 1950. Citizenship and the Social Class and Other Essays. Cambridge: Cambridge University Press. Myles, John, and Jill Quadagno. 2002. “Political Theories of the Welfare State.” Social Service Review 76 (1): 34–57. O’Connor, James. 1973. The Fiscal Crisis of the State. New York: St. Martin’s Press. Offe, Claus. 1985a. Contradictions of the Welfare State. Cambridge: The MIT Press. Rimlinger, Gaston V. 1971. Welfare Policy and Industrialization in Europe, America, and Russia. New York: Wiley. Ryner, Magnus. 2009. “Neoliberal European Governance and the Politics of Welfare State Retrenchment: A Critique of the New Malthusians.” In Contradictions and Limits of Neoliberal European Governance: From Lisbon to Lisbon, edited by L. Van Apeldoorn, B. Drahokoupil, and J. Horn, 44–63. Basingstoke: Palgrave Macmillan UK. Titmuss, Richard. 1958. Essays on the Welfare State. London: Allen & Unwin. van Apeldoorn, Bastiaan, and Sandy Brian Hager. 2010. “The Social Purpose of New Governance: Lisbon and the Limits to Legitimacy.” Journal of International Relations and Development 13 (3): 209–38. Wilensky, Harold. 1975. The Welfare State and Equality: Structural and Ideological Roots of Public Expenditures. Berkeley: University of California Press. Wood, Geof, and Ian Gough. 2006. “A Comparative Welfare Regime Approach to Global Social Policy.” World Development 34 (10): 1696–1713.

CHAPTER 2

The Welfare State Regime as a Theoretical Account: From Welfare State to Gramsci

2.1 First Theoretical Adaptation: From Functional Representation of the Welfare State to ‘Regime’ Approach The welfare state functionality—one of the central components of the counter-hegemonic mechanisms—has been developed in response to the contradictions of capital inherent not only to advanced Western societies but also to states with transitional economies, such as Russia and Iran. Functionalist theories are at their most valuable in their ability to specify the mechanisms of transformation of the welfare state regimes, vital for the assessment of the dynamism of the counter-hegemonic mechanisms. This dynamism partly materialises through the main functions of the welfare state. The first important function is de-commodification, as for functionalists, the evolution of the welfare state was a response to the emerging needs of the ‘Industrial man’, increasingly dependent on wages in the society that progressed to the ‘stage of total industrialisation’, in which patrimonial agrarian traditions were in decline (Kerr et al. 1960). De-commodification was playing an important role in ‘ensuring the smooth functioning of industrial societies’ that became an unquestionable ‘weaker’ theoretical version of the evolution of the welfare state (Myles and Quadagno 2002). This view significantly overlaps not only with the ‘power resource’ discourse related to the societal need for the © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_2

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tools of de-commodification (Esping-Andersen 1990), but also with the analysis of the role of the state as the main guarantor of social stability through reconciliation of rival structural necessities of capitalism, ‘conditioned by the continuous requirements of the accumulation process’ (Offe 1985a: 121). Possibly, this is due to the significance of Karl Polanyi’s reflection of the Great Transformation of market societies on increasingly commodified labour power (Polanyi 2001/1944). These functional industrial pressures on the modern capitalist state have been exemplified by demographic changes, characterised by an ‘increased proportion of old people in the population, which has become the most powerful root of welfare spending’ (Wilensky 1975: 47). According to functionalists, these demographic changes should be analysed alongside other no less important factors that affect ‘spacial landscapes’, such as the rate of economic growth (Wilensky 1975), the nature of class relations and urbanisation as the product of industrialisation of the capitalist, but also post-socialist and Islamic societies, such as Russia and Iran, respectively. The function of redistribution became the second important parameter of the welfare state. Highly functionalist in their essence, power resource models institutionalised the balance of class power as a central driver for social reforms and wealth distribution. Esping-Andersen recognised class coalitions as vehicles of wealth redistribution in social democratic states, such as Sweden (Esping-Andersen 1985). Also, the class structure analysis integrated the role of the middle classes in the development of social democracies (Baldwin 1996). The third parameter of stratification was also introduced by Esping-Andersen in his further conceptualisation of the Korpi’s power resource model. Thus, commodification and stratification became key indicators for his genuine typological division of Western capitalist societies into conservative, liberal and social democratic. The distinctions are drawn from two central questions: how nations respond to the pressures of commodification via the three most important social programs, i.e. pension, sickness and unemployment cash benefit (ibid.: 49), and what effects stratification achieves on the articulation of social solidarity. In response to commodification, ‘conservative’ regimes developed ‘corporativist’, ‘etatist’ and ‘pre-capitalist’ arrangements, which differentiated social insurance according to occupation or status. The ruling class feared that ‘the onward march of liberalism, democracy and capitalism would destroy the institutions upon which social power and privileges were based’. ‘Liberal’ regimes promoted residual meanstesting principles, which limited the effect of decommodification; the

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marginal propensity of the stigmatised population to refer to welfare aid was very low. Social democratic regimes, with their universalist logic, kept differentials in benefits at the lowest level, maximising the capacity of the individual by providing the highest standards of social services (Esping-Andersen 1990: 41–69). 2.1.1

Regime Approach

The welfare state typology, however, remained focused on the national historical-cultural transformation of advanced capitalist societies. As a result of typologising, which Peter Baldwin considered the ‘lowest form of intellectual endeavour’ (Baldwin 1996: 29), power resource approaches appear to be not extensive enough to analyse the mechanisms through which transnational forces affect the development of welfare states, as the delineation for the welfare state regime categories lies at the national level and is analytically bound to the historic development of the social formations domestically, without much articulation of international forces upon this process. At the same time, functionalists do not explore the contradictory nature of de-commodification, redistribution and stratification. The initial theoretical adaptations imply modification of the welfare state functionality: the WSR overcomes these theoretical limitations, by modifying the functional representation in two ways. First, the analysis is placed in a geopolitical context. Second, the regime functionality is formulated, following a ‘middle path’ theoretical endeavour, balancing between ‘instrumentalism’, on one side, and ‘hyper-functionalism’, on another, in a manner, proposed by Ian Gough (1979) in the ‘Political Economy of the Welfare State’, and advanced by Wood and Gough’s (2006) in a comparative study of the non-Western welfare state ‘regimes’ (Wood and Gough 2006: 1697). The second theoretical adaptation implies substitution of ‘stratification’ with the function of connection, given that counter-hegemony presupposes the welfare state consolidation through socialisation and mobilisation of different social classes, while stratification is the constraining force, or in some cases a by-product of this contradictory process. The connecting function of the WSR will trace counter-hegemonic mechanisms embedded in new forms of ‘emancipatory struggles’ within civil society that could no longer be reducible to class conflicts alone (Jean Cohen, quoted in Pierson 1984: 568). These three functions—de-commodification, redistribution and connection will become functional modes for the welfare state regime reproduction.

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Wood and Gough’s framework, specifically designed for a comparative analysis of the non-Western societies, has become a valuable contribution to the current research. The authors placed themselves ‘within the historical-institutional’ school of social research (Wood and Gough 2006: 1697), and their ‘middle ground’ approach became a ‘mediator’ between teleological functionalist and post-modern stances (Laclau and Mouffe 1985). This school integrates structures and actors within socio-economic systems (structures are socially constructed and reproduced through the human actions), different in stages of development and in positions in the world system (Wood and Gough 2006). Regimes are conceptualised as a ‘set of rules, institutions and structured interests that constrain individuals through compliance procedures’ that emerge formally (imposed from above), or informally (out of face-to-face practice), and are endowed with the ability of self-reproduction. Most importantly, the regime approach overcomes the separation of the political from the economic. Speaking in Jessop’s terms, alongside the political and the ideological ‘regions of a social formation’, Wood and Gough ascribe a crucial role to the economic ‘region’ in considering how capital relations ‘impose distinctive structural constraints on the functioning of the state’ (Jessop 1982: 182). Therefore, the tendency towards ‘politicism’, which ‘combines the Gramscian concept of hegemony with Althusserian concept of the “relative autonomy” of the state, is overcome’ (ibid.: 210). The notion of ‘regime’ with its inherent ability of self-reproduction is an important, if not central, component for the analysis of the CHMs. For the ease of representation, Wood and Gough used a ‘matrix’ as a tool— the Institutional Responsibility Matrix that helped them to overcome the ‘inchoate and troublesome’ separation of the national institutional structure separately from its transnational extension. By borrowing the ‘regime’ approach, the analysis of the counter-hegemonic mechanisms secures the inclusion of the interconnections between ‘informal and formal rights and correlative duties extend beyond the domestic arena’ into analysis (Wood and Gough 2006: 1702). As a result, it takes into account such important issues, as the dependence of key social players of the contender welfare states on its global connections, networks and communities, the reliance of households upon foreign aid programs, the dependence of domestic markets on FDI. Along with the IRM, the Wood and Gough’s analytical framework comprises the forces of social reproduction and welfare state outcomes. The authors recognise that transitional

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countries ‘have a greater over-reliance in all four domains upon international actors and transfers’ (ibid.), yet without any reference to a historical background for this ‘over-reliance’. This work proposes a conceptualisation of CHMs as the reinforcement mechanisms between transnational forces and welfare state regimes. This dialectic, however, does not reproduce the philosophical self-justification of the historical process in a Hegelian way, but rather fractures the reality, making it more meaningless and fragmented, as contradictions of capital do not seem to be reconcilable. The ‘regime’ approach is expanded by incorporating different facets of social power relations: the ‘matrix’ is transformed from a simple representation of the welfare state institutions into a visualisation of three cumulative dimensions of political conflict—a matrix of regime reproduction: first, the ‘arena’ of political conflict and decision-making, second, the ‘agenda’ of politics that reveals ‘the relative priority of issues and solutions’, and third, encapsulating all three—is the ‘matrix of social power relations’ that reflects the covert power struggle, that ‘shapes and re-shapes political reality, opens or closes the political agenda’ (Offe 1985a: 159). Also, the welfare–sanctions nexus is integrated into the structural analysis of counter-hegemonic evolution to explain the patterns of the WSR structural resilience to rising geopolitical challenges. The mechanisms of sanctions are designed to rupture Russia’s and Iran’s counter-hegemonic settings, by intensifying the impact of the contradictions of global capitalism on the regime’s reproduction. Further development of the ‘regime’ approach presupposes a modification of two criteria: first, of the supranational dimension and second, of the structural power relations.

2.2 Second and Third Theoretical Adaptations: Global Dimension and Structural Power Relations 2.2.1

Global Dimension

The second theoretical adaptation implies changes in what Gough and Wood define as a ‘supranational’ dimension. The introduction of a ‘supranational’ component to the ‘welfare mix’, along with the inclusion of the ‘position in the global system’ as a parameter of the institutional structure, provides the conditions for a delineating counter-hegemonic mechanism in non-Western societies. However, Wood and Gough’s framework is insufficient for integrating a truly supranational dimension into the

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concept of the welfare state regime: the IRM is constrained by a linear extrapolation of domestic social power relations to their ‘supranational equivalents’: global markets, international governmental organisations, donors and international NGOs and the ‘internationalised household’ (Wood and Gough 2006: 1703). In contrast, the long-term geopolitical competition between ‘contender’ states and the ‘Lockean heartland’ (van der Pijl 1998), the uneven development of global capitalism, and of counter-hegemonic tendencies, constitute the historical context for the study of the welfare state regimes. For centuries geopolitical competition manifested itself through various forms of imperialism, from ‘mercantilist imperialism’ lasting from the fifteenth to the nineteenth centuries and ‘imperial colonialism’ with its direct political supervision—to neo-colonialism that secured domination by economic means of control, and to ‘US-led neo-imperialism’ that ‘does not envision long-run direct control by the State Department’, but rather aims at ‘controlling spaces, resources, and specified people indirectly via multinational corporations, international financial institutions, and other global governance mechanisms’ (Hartwick and Peet 2009: 165). Imperialism is not a thing of the past, however, there are some variations in the contemporary understanding of post-Cold War international politics of how the category of inter-imperialist rivalries should be revised and redeployed. David Harvey, Peter Gowan and Alex Callinicos are among the most famous contributors to a ‘broad description of the new imperialism’ (Pozo-Martin 2007: 552). Despite their differences, they share ‘the same dialectical logic—external imperialism serves to relieve internal social and environmental contradictions’ (Hartwick and Peet 2009: 164). Analysing the contradictory unity between centralisation and decentralisation in political-economic life, David Harvey pointed to sectoral and geographical projections of the ‘inner relation between monopoly, centralisation, imperialism and neo-colonialism’, or ‘spacial fix’ (Harvey 2014: 142–43). From this perspective, American new imperialism is based upon cultural and traditional values that are mobilised to accomplish the ‘construction of consent’ to neoliberal ideas and to ‘the shock therapy path of instant privatisation’ from post-Communist states, such as Russia (Harvey 2005: 122). Peter Gowan analyses the ways the West used this ‘shock therapy’, popularised by the Harvard professor Jeffrey Sachs, as the plan for social engineering ‘to reshape the life of the entire East European region’ (Gowan 1995: 3–5). However, this plan for social engineering did not work for Russia, and it would not work for Iran, either, because,

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as Alex Callinicos would put it, both Moscow and Tehran obtained ‘new assertiveness’, bolstered by vast foreign currency reserves, accumulated as a result of inflated prices for oil and gas. This new assertiveness resulted in the rise of ‘authoritarian capitalism’ that ‘challenged both American hegemony and the neoliberal economic model it championed’ (Callinicos 2010: 5). Van der Pijl’s historical narrative of geopolitical competition and the formation of state–society complexes departs from the Glorious revolution of 1688 that entailed a ‘restoration’ of human rights, and the emergence of a genuine ‘civil’ society that ‘sealed’ the Lockean state– society complex. This ‘complex’ began its transnationalisation in the eighteenth and nineteenth centuries and eventually took the form of Pax Britannica in the period from the 1840s to the First World War, and later of Pax Americana (van der Pijl 1998: 65–77), after ‘the Commonwealth surrendered the lead to the United States’ at the Washington Naval Conference in 1921 (Hall 1971: 469). A detailed history of the heartland’s expansion by transnational penetration and integration falls out of the scope of this work; we shall, however, recall the latest era of state–society complex formation (van der Pijl 1998: 86). Since the late twentieth century until the present, the ‘hyperliberal’ heartland with the aid of the Bretton Woods ‘infrastructure’ that ‘directly pertains to capital accumulation’ and reproduces highly secretive ‘patterns set by the Commonwealth experience’ has penetrated the international terrain commercially and culturally, constraining the ability of contender states to determine their future development (van der Pijl 1998: 78). Capital plays a pivotal role in this penetration: the heartland capital is in constant ‘need’ of ‘military-diplomatic power… to open up spaces otherwise closed to it’, by means of ‘the internationalisation of the US treasury’ (Fouskas and Gökay 2012: 87–96), and ‘economic diplomacy and other less conspicuous forms of coercion’, or through actual violence; at the same time, the West is in ‘need’ to keep ‘certain states outside its own orbit’ (van der Pijl 2007: 620). Extraterritorial economic sanctions that affect not only the target states but also third parties have become one such form of coercion. The global financial crisis of 2008—the result of the ‘failure of financial statecraft’ (Fouskas and Gökay 2012)—has not reversed this development, as ‘neoliberal capitalism by all appearances has entrenched instead of being displaced’ (van der Pijl and Yurchenko 2015: 495). The contender state responded to this penetration with a pre-emptive formation of a ‘social substratum’ from above—a state class,

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supported by the corporatist organisation of the ‘interventionist’ state and by Hobbesian authoritarianism (van der Pijl 1998: 82). At the same time, it would be erroneous to see the Lockean/Hobbesian dichotomy as a straightforward international contest between the liberal approach to ‘governance’, based on human rights and citizenship, and a ‘confiscatory’ state. The heartland expansion to the former contenders went alongside welfare state dismantlement that replaced entitlements to full employment and social provisions by strategies of equal chances and participation: Hobbesian collective protection by the state was substituted by the individual protection from the state, the concept of citizenship of the state has been diluted by the individual ‘freedoms of body and conscience’, and Hobbesian socio-economic rights for work and welfare—by private property (van der Pijl 2006: 392). This Lockean/Hobbesian distinction, as well as a differentiation between the states within the heartland itself, demonstrates that even though capitalism is global, the development of each state within the system ‘proceeds differently’, as it ‘runs in the interest of capital’ and is involved in the unequal transformation of capitalism (Choonara 2009: 126), facing distinct international contexts that determine its place within the IPE (Gough 1979: 30). Most importantly, the dynamism of the global capitalist system should become the point of departure for welfare state regime theorising, where the supranational dimension is not just a parameter of institutional structure but becomes a contextual setting for a broader conceptualisation of capitalist power relations alongside institutional, material and ideological structures. Departing from the dynamism of the system WSR approach arrives at the formulation of CHM as processes—which is vital for portraying Russia’s and Iran’s counter-hegemony not as a static domain, but as a constantly contested ‘alliance of social class forces’ (Morton 2007: 97) that is never complete because of ‘contradictory elements in the internationalisation of capital’ (Gill and Law 1989: 475). An alternative conceptualisation of supranational dimension departs from Gramsci’s ‘inclusive’ definition of the state as a ‘complex of practical and theoretical activities’, which aids the ruling class in winning public consent and maintaining its national and, when consolidated domestically, international ‘hegemony armoured by coercion’ (Gramsci 1971: 244, 261). The reference to the Gramscian formula in this context is not accidental. The explanation lies in the geographical projection for the development of capitalism as the outcome of competitive accumulation

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that generates and exacerbates contradictions between mobile and fixed capital (Harvey 2007). The recognition of the state as a modal mechanism for capitalism’s existence is supported by two key arguments. The first is the inherent tension between ‘globalised’ financial capital and its immobile fixed counterpart, such as investments in new equipment, real estate and infrastructure (Roccu 2013: 424). As outlined by Roberto Roccu, the ‘management of this contrast between mobile and immobile capital requires the emergence of forms of territorial organisation and governance’ (ibid.: 424). The second is that the over-accumulation of capital rests upon its territorial concentration in nation states associated with civil society entities. This territorial differentiation gives rise to reintegration under ‘spheres of influence’, which results in uneven geographical development (Collinge 1998). Yet how the functional parameters of this ‘territorial organisation’ could be synthesised to reproduce counter-hegemonic mechanisms of the welfare state regime? The incorporation of this structural and functional representation of the welfare state into neo-Gramscian framework could be completed by deriving reproductive (or stabilising) function, out of the analysis of the previous three: de-commodifying, redistributive and connecting (socialising and mobilising). The first welfare function—decommodifying—measures the independence of households and people from market forces in their well-being maintenance. It reflects the natural response by the capitalist governments to the contradictions of capital, to the commodification of labour power, the main trigger for capital accumulation worldwide. The second welfare state regime function— redistributive—claims to render an equalising and universalising effect on peoples’ well-being. The third WSR function—connecting—determines the ground for socialisation and mobilisation of class and non-class formations in the realm of interpersonal connections and linkages. The integral welfare state regime function—reproductive—is the dominant criteria for maintaining the regime’s stability and encapsulates counterhegemonic mechanisms of the state that derive out of regime functionality in response to transnational pressures and ‘triggers’, such as economic sanctions. The ‘success’ of a WSR in reproducing, reinforcing and, if needed, in transforming itself in response to the geopolitical, economic, security, institutional and cultural challenges is the ability of the state to secure the reproduction of the labour force, the institutional welfare arrangements, but also the reproduction societal values and knowledge, essential to maintain social stability and support the materialistic ground

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for common ‘consent’. The effectiveness of the reproductive function lies within all three dimensions. To estimate the welfare state regime’s counter-hegemonic strength, three functional evaluations must be made. The first one is the ability of the institutional mechanisms of social control, the second is the future potential of the socio-economic base, and the last one is the ability of the state to transform the modalities of social behaviour and attitudes. 2.2.2

Structural Power Relations

The WSR approach overcomes institutional fundamentalism of existing accounts by extending the representation of structural power: the ‘institutional responsibility matrix’ will be supplemented by the structures of material capability and cultural leadership. The value of the IRM is that it introduces novel domains of informality and latency into the analysis of societal relationships to capture the complex interrelations between social formations, the welfare state and transnational forces. However, it is important to distinguish the ‘culture and values’ and ‘commodity markets’ as the parameters of the institutional structure in Gough and Wood’s framework from the cultural and materialistic structures in the Gramscian concept of hegemony. The former are the elements of the predominant institutional structure upon which social reproduction is constructed. The latter form part of a system of structural dialectics. These structures are hosts for not only the driving forces for social reproduction, but also for the reproduction of knowledge, material capabilities and security design within the capitalist system. By referring to structural power this book follows Gramsci’s idea of a structure as a social organisation of capital accumulation that constructs a hierarchical capitalist system. The visualisation of a reciprocal relationship between structure (socio-economic relations) and superstructure (the ethico-political sphere) in Gramsci’s thinking has been further developed in Cox’s concept of a ‘historic bloc’, which presents structural power as a blend of three categories of forces, or ‘potentials’—material capabilities, ideas and institutions (Cox 1981: 136). Cox’s ‘method of historical structures’ sees structures as ‘limited totalities’, which reflect a particular sphere of human activity rather than ‘the whole world’ (Cox 1981: 137). The author maintains that reference to the structural power sets the goal of understanding the nature of conflict and ‘power in production, power in the state, and power in international relations’ (ibid.: 134). At the

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structural level, hegemony secures the ‘unity of contradictions’, the ‘construction and deconstruction’ of ‘consent’, which originates and processes at a ‘conscious’ level, ‘whereby ideas are conceived’ (Worth 2011: 383, see also Joseph 2002). After examining how the ‘sets of collective images constitute the intersubjective meanings of the different modes’ of production, we need to explore cultural determinants of ideology to see how ‘internally accepted norms of conduct’ shape different ‘characteristic attitudes’ towards CHM. In doing so, the WSR approach replaces Cox’s reference to the ideas by ‘cultural capabilities’ to see how ideas are being formed within human resource development strategies by social engineering. As such, in Russia, the ‘acceptance’ of the dominant ideological direction by the wider population is reinforced by structural power that resides in ‘high educational status, relative economic security, and employment in personal-service occupations’ (Offe 1985b: 833). This structural power is mediated by the neo-Machiavellian ‘cadre stratum’ (Van der Pijl 2001, 2005), who aim not only at securing public consent domestically, but also at driving Eurasian integration and long-term strategic cooperation with Russia’s main trading partners. In Iran, cadre formation and mobilisation through various divisions of paramilitary Basij Association became one of the major top-down mechanism for securing the quiescence of population to the political system (nezam). Nezam’s legitimacy was secured by disciplining citizens through the system of meritocracy, the distribution of merits, disactivating them for the political contestation. The term ‘regime’ embodies ‘the relationship between sets of rights on the one hand and the performance of correlative duties on the other’, which is a product of history that reflects ‘the interrelation in different epochs between domestic institutions and the global economy’ (Wood and Gough 2006: 1700). The regime integrates structures and actors within a comparative framework for analysing ‘socio-economic systems at different stages of development and different positions in the world system’ (Gough 2000, cited in Wood and Gough 2006: 1698). Structures are socially constructed and reproduced, and they are ‘empirically related to issues of power, conflict, domination and accommodation’ (ibid.). This representation of the WSR will demonstrate how the different facets of power relations contribute to the transformation of counter-hegemonic mechanisms and reproduction of counter-hegemony (Table 2.1). In sum, counter-hegemonic mechanisms substitute to what Wood and Gough call the ‘welfare outcomes’ in regard to human development, need satisfaction and subjective well-being. In this respect, the neo-Gramscian

Functionalists and power resource

State Market Household

Institutional Political Social

De-Commodification Redistribution Stratification

Actors

Structures

Welfare functions

De-Commodification Redistribution Stratification De-Clientelisation Mobilisation ‘Reproduction consequences’

Institutional Political Social Socially constructed ‘Institutional conditions’

State Market Household Community Formal, informal and illegal players International equivalents

‘Middle path’ Wood & Gough

Welfare state regime—theoretical development

Theories/ components

Table 2.1

Institutional Political Social Socially constructed ‘Institutional conditions’ Material Cultural De-Commodification Redistribution Stratification De-Clientelisation Mobilisation ‘Reproduction consequences’ Stabilisation (Consent vs coercion)

State Market Household Community Formal, informal and illegal players International equivalents Intellectuals Historic bloc

Gramsci

State Market Household Community Formal, informal and illegal players International equivalents Intellectuals Historic bloc ‘Heartland’ vs ‘Contenders’ Institutional Political Social Socially constructed ‘Institutional conditions’ Material Cultural De-Commodification Redistribution Stratification De-Clientelisation Mobilisation ‘Reproduction consequences’ Stabilisation (Consent vs coercion) Socialisation Connection

Welfare state regime approach

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Conservative Liberal S.-Democratic

WF regimes

Source Author’s elaboration

Functionalists and power resource

Theories/ components Conservative Liberal S.-Democratic Informal security Insecurity

‘Middle path’ Wood & Gough

Welfare state regime approach

Conservative Liberal S.-Democratic Informal security Insecurity ‘Contender welfare state regime?’

Gramsci

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perspective provides an ideal anchoring for Wood and Gough’s modification of the ‘three worlds’ welfare state regime typology (Esping-Andersen 1990), which on its part addresses the ‘fatal weaknesses’ of existing welfare theories by referring to the historical-political development of the socio-economic base (Gough 1979: 10).

References Baldwin, Peter. 1996. “Can We Define a European Welfare State Model?” In Comparative Welfare Systems, edited by Bent Greve, 29–44. London: Macmillan. Callinicos, Alex. 2010. Bonfire of Illusions. Cambridge: Polity Press. Choonara, Joseph. 2009. Unravelling Capitalism: A Guide to Marxist Political Economy. London: Bookmarks. Collinge, Chris. 1998. Spatial Articulation of the State: Reworking Social Relations and Social Regulation Theory. Birmingham. Cox, Robert W. 1981. “Social Forces, States and World Orders: Beyond International Relations Theory.” Millennium: Journal of International Studies 10 (2): 126–55. Esping-Andersen, Gøsta. 1985. Politics against Markets: The Social Democratic Road to Power. Princeton, NJ: Princeton University Press. Esping-Andersen, Gøsta. 1990. The Three Worlds of Welfare Capitalism. Cambridge: Polity Press. Fouskas, Vassilis, and Bülent Gökay. 2019. The Disintegration of EuroAtlanticism and New Authoritarianism. Global Power-Shift. London, UK: Palgrave Macmillan. Fouskas, Vassilis K., and Bülent. Gökay. 2012. The Fall of the US Empire: Global Fault-Lines and the Shifting Imperial Order. London: Pluto Press. Gill, Stephen R., and David Law. 1989. “Global Hegemony and the Structural Power of Capital.” International Studies Quarterly 33 (4): 475–99. Gough, Ian. 1979. The Political Economy of the Welfare State. London: Palgrave Macmillan UK. Gowan, Peter. 1995. “Neo Liberal Theory and Practice for Eastern Europe.” New Left Review 213 (October): 3–60. Gramsci, Antonio. 1971. “The Modern Prince” Selections from the Prison Notebooks. London: Lawrence and Wishart. Hall, H.D. 1971. Commonwealth. A History of the British Commonwealth of Nations. London: Van Nostrand Reinhold. Hartwick, Elaine, and Richard Peet. 2009. Theories of Development: Contentions, Arguments, Alternatives, 2nd ed. New York: Guilford Press.

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Harvey, David. 2005. A Brief History of Neoliberalism. New York: Oxford University Press. Harvey, David. 2007. “Neoliberalism as Creative Destruction.” Annals of the American Academy of Political and Social Science 610: 22–44. Harvey, David. 2014. Seventeen Contradictions and the End of Capitalism. London: Profile Books. Jessop, Bob. 1982. The Capitalist State: Marxist Theories and Methods. Oxford: Martin Robertson. Joseph, Jonathan. 2002. Hegemony: A Realist Analysis. London: Routledge. Kerr, Clark, John T. Dunlop, Harbison Frederick, and Charles A. Myers. 1960. Industrialism and Industrial Man: The Problems of Labor and Management in Economic Growth. Harvard University Press. Laclau, Ernesto, and Chantal Mouffe. 1985. Hegemony and Socialist Strategy: Towards a Radical Democratic Politics. London: Verso. Morton, Adam David. 2007. Unravelling Gramsci. Hegemony and the Passive Revolution in the Global Political Economy. London: Pluto Press. Myles, John, and Jill Quadagno. 2002. “Political Theories of the Welfare State.” Social Service Review 76 (1): 34–57. Offe, Claus. 1985a. Contradictions of the Welfare State. Cambridge: The MIT Press. Offe, Claus. 1985b. “New Social Movements: Challenging the Boundaries of Institutional Politics.“ Social Research 52 (4): 817. Pierson, Christopher. 1984. “New Theories of State and Civil Society Recent Developments in Post-Marxist Analysis of the State.“ Sociology 18 (4): 563– 71. Polanyi, Karl. 2001. The Great Transformation: The Political and Economic Origins of Our Time, 1944. Boston: Beacon Press. Pozo-Martin, Gonzalo. 2007. “Autonomous or Materialist Geopolitics?” Cambridge Review of International Affairs 20 (4): 551–63. Roccu, Roberto. 2013. The Political Economy of the Egyptian Revolution: Mubarak, Economic Reforms and Failed Hegemony. London, UK: Palgrave Macmillan. van der Pijl, Kees. 1998. Transnational Classes and International Relations, 3d ed. London: Routledge. van der Pijl, Kees. 2001. “From Gorbachev to Kosovo: Atlantic Rivalries and the Re-Incorporation of Eastern Europe.” Review of International Political Economy 8 (2): 275–310. van der Pijl, Kees. 2005. “Gramsci and Left Managerialism.” Critical Review of International Social and Political Philosophy 8 (4): 499–511. van der Pijl, Kees. 2006. Global Rivalries From the Cold War to Iraq. London: Pluto Press.

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van der Pijl, Kees. 2007. “Capital and the State System: A Class Act.” Cambridge Review of International Affairs 20 (4): 619–637. van der Pijl, Kees, and Yuliya Yurchenko. 2015. “Neoliberal Entrenchment of North Atlantic Capital. From Corporate Self-Regulation to State Capture.” New Political Economy 20 (4): 495–517. Wilensky, Harold. 1975. The Welfare State and Equality: Structural and Ideological Roots of Public Expenditures. Berkeley: University of California Press. Wood, Geof, and Ian Gough. 2006. “A Comparative Welfare Regime Approach to Global Social Policy.” World Development 34 (10): 1696–713. Worth, Owen. 2011. “Recasting Gramsci in International Politics.” Review of International Studies 37: 373–92.

CHAPTER 3

The Welfare State Regime as an Analytical Tool: From Gramsci to Welfare

3.1 Contextual Settings: Capitalism and ‘Integral’ State 3.1.1

Capitalism

The conceptualisation of CHMs departs from the analysis of capitalism, hegemonic rivalry, globalisation and the role of an ‘integral state’: the correspondence between international space and a specific national context is key to our understanding of the evolution of the Russian and Iranian welfare state. Capitalism is a historically determined antagonistic global system that involves territorial organisation to secure internationalisation of uneven development of the relations of production (Gramsci 1971: 69–72), that ‘can be conceived of as a totality’ (Pradella 2016: 583), while each state occupies a distinct place within the IPE (Gough 1979: 30). A series of publications under the label of ‘new imperialism’ consider rivalry among powerful nation states to be an essential element of capitalist power relations that rests on the intersection, or is the product of two modes of power accumulations: the capitalist and the territorial logics of competition (Harvey 2003; Pozo-Martin 2007: 551–53). It is hard to disagree with the statement that any kind of ‘theoretical disassociation’ between the two, as well as the separation of the economic from the political, would undermine conceptualisation of a ‘stable category of agency’ of the state in imperialist rivalry, as it seems implausible © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_3

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to distinguish the interests of state managers from the interests of capitalists (Gowan 1995). As rightfully observed by Gonzalo Pozo-Martin, a much more detailed research is required on ‘the contending capitalist centres of power’, on their foreign policy structure and ideology in order to distinguish between rival modes of imperialism (Pozo-Martin 2007: 562). The analysis of the WSR within Van der Pijl’s rough categorisation of such modes as ‘contender’ states and the ‘heartland’ seems to be the most suitable framework for fulfilling this task. Since the end of the Cold War the application of sanctions has become a ‘central means to establish dividing lines within the new world order’, the main tool of Western governments against ‘rogue states’, the successors of the ‘axis of evil’ (Jones 2015: 3). The most refined definition for this dividing line could be found in Kees Van der Pijl’s (2006b) application of the Lockean/Hobbesian standoff in political philosophy, named after the Enlightenment philosophers Thomas Hobbes and John Locke, into a contemporary Atlantic heartland/contender state rivalry.1 According to this view, the history of capitalism is the history of geopolitical rivalry between the Anglo-Saxon ‘heartland’ and ‘contender states’. Previous contenders—France, Germany and Japan are believed to have integrated into the broader heartland, leaving countries, such as Russia, China and Iran as emergent contenders. This rivalry is believed by some to reflect an ideological fracture of the conceptualisation of human justice and the rights of the individual in relation to the social contract (Hobbes 2018; Locke 1690/ 1980; van der Pijl 2006b), rooted in the long-lasting debate over the philosophical concept of liberty and the state of nature— the nature of pre-social human existence prior to the formation of society (Skinner 2002). The contraposition of Thomas Hobbes and John Locke as proponents of a strong central authority versus liberal parliamentarism, consequently, has become symbolic in the political philosophy. Both accounts, though in a different manner, applied the notion of a social contract—the progenitor of the welfare state—to the analysis of state power mechanisms. It has

1 Van der Pijl is called ‘one of the founding members’ of the Amsterdam School (AS).

His contribution to the school includes further development of the set of concepts, grounded in the (neo-)Marxist tradition: transnational ruling class, hegemony, comprehensive concepts of control, and the Lockean heartland versus Hobbesian contenders (to which he mainly attributed Iran, Russia, China, and some states in Sub-Saharan Africa and South America).

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been argued that the heartland has incorporated the Lockean notion of sovereign equality into the experience of state formation, while geopolitical pressures pushed contender states to adopt a Hobbesian-type social agreement, to constrain atomisation of society under the ‘centrifugal force of privatisation and commercialism’ (Van der Pijl 2006b: 6). Thomas Hobbes is considered an advocate of a ‘concentric development’, a revolutionary ideology and a militarised foreign policy, necessary to guard the state’s sovereignty and social base mobilisation. However, Hobbes’ sympathy with absolutism has been an erroneous interpretation of his theory: repudiating both the absolutist and the populist theories, he developed a ‘fictional view’ of the state, in which the ‘sovereign’ was an authorised representative of ‘the person of the state’, a fictional body that substituted ‘the multitude of peoples’, as for Hobbes, there is no such thing as a people’s representative for the existence of a multitude of wills (Skinner 2011). It is essential to point to two conceptual dichotomies concerning the state of nature and the relationship between the state and civil society in order to advance Jones’ SCA to the global domain, where hegemonic transitions are evolutionary processes rather than states of affairs. These philosophical predispositions partly explain the consolidation of an Atlantic ruling class (1984) through ‘the transnational moment in class formation’, enhanced by the ‘Wilsonian impulse’ in US foreign policy offensives and ‘strong expansionary forces in the American economy’ (van der Pijl 2001: 277). Nevertheless, in its simplest form, the most widely acknowledged distinction between Hobbes and Locke is that for Hobbes, as he hypothetically describes in Chapter XI of Leviathan, the state of nature is an imminent threat of ‘war of all against all’, in which individuals are egoistic, while their lives are ‘nasty, brutish and short’ (Bruner 2018: 1–2), as ‘in the nature of man, we find three principal causes of quarrel. First, Competition; Secondly, Diffidence; Thirdly, Glory’ (Hobbes 2018). Human society is unable to ‘prevail and exist’ in peace without a sovereign authority, as ‘the natural condition of mankind is not a social condition’ (Skinner 2011)—therefore, individuals transfer their natural liberties in exchange for protection and social order; in other words, the constitution of a state system is a formation of an ‘entity to which rational individuals would have hypothetically covenanted to subject themselves, as a solution to the ills of the state of nature’ (Fisher 2010: 435–36). In contrast to Hobbes, in John Locke’s ‘Two Treatises of Government’, the state of nature ‘is not characterised by a legal vacuum’, but

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rather by the ‘reign’ of the law of nature, according to which ‘human beings deduce this law by human reason’ (ibid.). For Locke, individuals are obliged to obey the law of nature and are ‘entrusted with the right to preserve the human race’ (Fisher 2010), therefore ‘tranquillity and peace’ are made possible in a moralised state of nature (Bruner 2018: 1–2). It is believed that Locke portrays individuals as being equal, free from being harnessed and free in social and political relations, thereby following the ‘positive’ understanding of liberty that ‘derives from the wish on the part of the individual to be his own master’ (Berlin 1969: 8), while the Hobbesian concept of liberty is predominantly ‘negative’, as individuals are free ‘from the fetters of the law of nature’ (ibid.). The distinctions between positive and negative freedom, though being a simplification in the case of a scrutinised analysis of Hobbesian and Lockean ‘liberties’ is nevertheless useful when assessing the possibility of harmonising human interests. Locke’s optimism contrasts with Hobbesian ‘jungle or a wilderness’ in a sense that ‘social harmony’ is ‘compatible with reserving a large area for private life over which neither the state nor any authority must be allowed to trespass’ (Berlin 1969: 7). For Locke, the constitution of a state system is not a formation of a ‘fictional’ state, in which a fictional body of the state is detached from the sovereign, but rather a subordination of state power to civil society, when the society is self-regulating and exists under the rule of law. The application of this philosophical dichotomy to the current geopolitical context could be done through ‘a differentiation between two main types of ‘state/society complexes’ (Cox 1987: 205). The Lockean liberal state allows ‘civil society’, ‘leaving behind the Hobbesian idea of a Leviathan imposing itself on society and instead recognises the ability of a property-owning class to govern itself’ (Macpherson 1962, cited in Van der Pijl 2012). However, as previously stated, the Atlantic ruling class, subjugated this ‘self-government’ to the grand strategy of ‘opening up the contender state–society complexes, dispossessing the state classes, and replacing them by a governing class submitting to liberal global governance’ (van der Pijl 2012). Economic sanctions are a new instrument of this grand strategy. Contender states respond to these ‘opening-up’ pressures by adopting a more Hobbesian-type form: the state class ‘confiscates its society from above’, and brings social forces under a single authority, leaving no power ‘superior to those actually in government’ (ibid.). By pulling together resources, necessary for the development of the economic and military assets to shield a state’s sovereignty, this

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Hobbesian posture at times appears to be quite successful in societal self-protection. Van der Pijl’s ‘Transnational Classes and International Relations’, published in 1998, pioneered in developing a comprehensive and synthetic analysis of the Lockean/Hobbesian divide in the international political economy (van der Pijl 1998), becoming a valuable contribution of the Amsterdam school (AS) to international relations theory. The framework of this dichotomy has been successfully applied by van der Pijl in a ‘Transnational class analysis of the current crisis’ in 2018, where he reinstated the AS tradition when assessing the contemporary post2008 crisis condition of global capitalism (Overbeek 2018: 11). Van der Pijl suggests that neoliberalism managed to survive the financial crises and reinstated its position through a renovated concept of control. The empowerment of neoliberalism as an ideology evolved in two stages: ‘neoliberalism Mark I’—the process of ‘systemic neoliberalism’, directed by the asset-owing class to radically deregulate financial markets, and all constraints on production; and ‘neoliberalism Mark II’—‘predatory neoliberalism’ that marked the ascendancy of money dealing capital alongside an increasingly authoritarian mode of capital accumulation (Pijl 2018: 241). The Lockean/Hobbesian differentiation is a systematic analysis of the historical formation of the capitalist class, its role in the domestic and global production regimes, and ultimately—the crystallisation of class formation and capitalist production in a particular state–society complex (van der Pijl 1998: 65). The analysis draws from three key authors: Antonio Gramsci, Robert W. Cox and Duncan Hall (Cox 1987; Gramsci 1971; Hall 1971). From Gramsci he borrowed valuable ideas concerning the designation of ‘state class’ and authoritarianism of the Hobbesian state; from Cox—a definition of state–society complexes, upon which a distinction between Lockean and Hobbesian historical chronology for 1800–1900 has been developed; from Hall—the ascendance of American power and the formation of a ‘loose and highly flexible structure of sovereign states’ (Hall, cited in van der Pijl 1998: 73) that secured ‘AngloSaxon world hegemony’ (Gramsci, quoted in van der Pijl 1998: 74). The historical context of geopolitical rivalry between an ‘original constellation of an English-speaking West’ and contender states has been developed and used for analysing various cases and countries, in the Middle East,

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Asia and Latin America, in a series of van der Pijl’s subsequent publications (van der Pijl 2001, 2002, 2006a, 2012; van der Pijl and Yurchenko 2015, and many more). Acknowledging that a ‘pure Lockean or Hobbesian state has never existed’, as well as ‘the Lockean state–society complex by itself would be superior to its Hobbesian counterpart’, van der Pijl draws a distinction between Lockean and Hobbesian complexes under five main criteria: privileged terrain of social action, framework for interest articulation, the characteristics of the ruling class, of the modes of regulation of the economic activities and the modes of expansion (van der Pijl 1998: 66, 70). For a Hobbesian state, the privileged terrain of social action would be the state, while for a Lockean–civil society, a framework for interest articulation in a Hobbesian state would be an explicit doctrine of national interest and the ruling class would be the ‘state class’, while for a Lockean—a ‘transcendent comprehensive concept of control’ and a bourgeoisie (with governing class), respectively. Therefore, the mode of regulation in a Hobbesian state would be a ‘centralised administration’ with an ‘international mode of expansion, while in a Lockean state—it would be a Self-regulating market (civil law) that expands transnationally’ (ibid.: 84). Superiority of the Lockean complex is attributed to its better suitability for a capitalist system, to its ability to create favourable circumstances for capital accumulation. The English system of law with its ‘feudal elements and guild-like professional structures’ is believed to be more advanced than the continental ‘rational-institutionalised’ counterpart2 (Weber, cited in van der Pijl 1998: 70) in that it is more flexible, more ‘permeable to the outside world’ and from the outside world, and, most importantly, its constitutional arrangements and internationally operating hegemonic ‘comprehensive concepts of control’ (Holman 1998: 25) subjugate a changing global material constellation of forces to the reproduction of the hegemonic status quo of existing regimes of accumulation. In contrast, in a Hobbesian state–society complex highly bureaucratised state class holds power to ‘forge national/ state unity and demarcate

2 As suggested by van der Pijl, Max Weber maintains that ‘contrary to the idea of progressive rationalisation, the English system of law with its many feudal elements and guild-like professional structures, in terms of its suitability for a capitalist system has proven superior to the continental, rational-institutionalised system of law, and has crowded out the latter wherever the two could compete directly’.

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its territory’ and to protect the ‘integrity’ from the transnational permeability of the Lockean hegemon; this is done by driving forward social formation, pre-emptively shaping revolution from above in which ‘capitalist firms relate not to the self-regulating market’, but to the state first (van der Pijl 1998: 80–81). Successful in short-term mobilisation of resources, in the long run this state-centred Hobbesian configuration is vulnerable, as it ‘exhausts the ‘country’s creative energies’, as the social base is not self-reproducing but is subjugated to ‘bureaucratised vanguard’ (ibid.). This leads to another significant problem—‘the capacity of a Hobbesian state to digest social tensions in a flexible way is severely constrained by its confiscation of the social sphere’ (van der Pijl 1998: 83). Moreover, as the country is ‘closed off’ from the transnational processes of the heartland and the state class cannot ‘hide behind a governing class as the ruling class in the heartland can’—these political interconnectedness might lead to a constitutional crisis in case of a change of government; also, the tension is high, because ‘while the heartland has expanded by transnational penetration and integration, the Hobbesian contenders have necessarily operated on their own, fighting each other’ (ibid.: 83–85). The presentation of contemporary world history as a systemic ‘contender-heartland’ rivalry, permits us to define the ‘transnational space’, internal to the heartland, but external to each state if taken separately, as the states retain their formal autonomy (van Apeldoorn 2002; van der Pijl 2006a: 13). Placed within a geopolitical configuration, the welfare state regime is seen as an inherently global, as the ‘product of the logic’ of capitalist geopolitical confrontation, which transcends the explanation wrongly attributed to Marx of the origins of the welfare state as the result of class conflict alone (Pradella 2016). International aspects of Marx’s theory of value see the world market with its expansionist tendencies for capital accumulation as logically primary to domestic political and socio-economic developments. In the case of Russia’s and Iran’s response to Western institutional expansionism, the reference to a Hobbesiantype regime is not unintended, as the country’s stake in global capital accumulation is lagging behind advanced capitalist societies: Russia and Iran are passing through a monopolistic phase of capitalist development, which implies, borrowing Robert Cox’s lexicon, an extensive government involvement in leading the developmental process through enterprise and state corporatism (Cox 1987: 101). The centralisation of power mechanisms is a counter-hegemonic response to ‘foreign economic penetration’

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(ibid.), intensified under sanctions. Although it could be argued that capitalist rivalry and geopolitical pressures contribute to the development of some Hobbesian features in the contender states, it would be erroneous, however, to label Russia and Iran ‘Hobbesian’ states in its pure sense, as the contradictory nature of the WSRs bear some Lockean, and in places some contrasting Machiavellian, characteristics. 3.1.2

The Role of the State

The formulation of the changing role of the state has been a stumbling block in the modern theoretical debates on globalisation of capitalism (Jessop 1982). For some, the idea of intensification of globalisation, where the state plays a secondary role, is a ‘neoliberal myth’ (Mayo 2011: 61), which has been systematically used by the United States and their allies since the late 1970s to ‘justify the imperial and neocolonial domination of much of the world’, disguised as protection of liberty and freedom (Harvey 2014: 201). Structuralists (Althusser 1969; Poulantzas 1974) conceptualised the state as an objective structure, which has been ‘internalised’, as it is founded on ‘the perpetuation’ of world class contradictions, which is linked to global capital through heterogeneous relations, which are internal to the state, and are ‘induced by class antagonisms’ (Poulantzas 1974: 170). Globalisation is a mediation of class struggle ‘through the institutional forms of capitalism’ that does not suppose the expansion of capital outside the nation state, but ‘signifies a process of internalisation within which interests are translated between various fractions of classes within states’ (Bieler and Morton 2003: 28–31). The role of the state in this context is structural in so far as state institutions support the long-term interests of capitalism, reproducing existing legal, political and economic power mechanisms, rather than following the short-lived wills of the capitalist class. The debates over globalisation produce important insights for the analysis of counter-hegemonic mechanisms. For instance, despite accusations of an ‘abstract, ahistorical’ nature to these arguments, Structural Marxism contributes to the understanding of mechanisms by offering a valuable understanding of the ‘semiotically’ hypothesised unconscious dimension of structural change and the representation of social formations as a blend of different modes of production, which encapsulates tendencies and counter-tendencies in developmental processes (Althusser and Balibar 1970). These hidden structural facets of power relations

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should not be neglected when integrating the concept of the welfare state regime into the terrain of IPE. However, Structural Marxism is criticised by Open Marxists for its determinism and its static visualisation of class struggle (Burnham 1994; Holloway 1994): for them, class is not a ‘descriptive term’, but ‘rests on the shifting sands of the contradictory labour/capital relationship’ (Burnham 1994: 225). Moreover, ‘global class relations are nationally processed’, and instead of searching external linkages between the state and globalisation, the nation state should be positioned within the global flow of capitalist social relations, where the relations of production are the starting point of analysis (Bieler and Morton 2003: 10; Burnham 1995: 149). When assessing the CHMs, what should be borrowed from Open Marxism is its ability to ‘de-fetishise’ the notion of the state by understanding it not as a thing in itself, but as a form of social relations (Burnham 1994: 226). The neo-Gramscian approach is the most suitable for theorising counter-hegemonic mechanisms, as their conceptualisation of the state not only overcomes the shortcomings of Structural Marxism, such as determinism and its static visualisation of class struggle (Althusser 1969), and Open Marxist’s (Burnham 1994, Holloway 1994) tendencies to prioritise the dominant reproduction of capitalism over resistance (Bieler and Morton 2003: 4), but also implements some of their most useful aspects. From Structural Marxism the neo-Gramscians borrowed the definition of material structures, but in doing so they expanded the origins of these structures by referring to their dialectical nature, which depicts the synergy effect, not just the arithmetic sum, of this structural interplay: the main focus of investigation lies on the reciprocal relationship between production (in its broader sense that involves the production and reproduction of knowledge) and power that gives rise to certain social forces and shapes world order (ibid.: 13). Moreover, the neo-Gramscians widen the structural representation by including a cultural dimension to complement material capabilities and institutions (Cox 1981: 141–44). From Open Marxism, they adopt the centrality of the contradictions between capital, the state and labour within the context of the global character of capital accumulation, admitting that nation states are influenced, if not fully subordinate, to world money (Burnham 1995: 148). Also, neoGramscian incorporate horizontal class structure in the analysis of social terrain, or what social constructivist call the ‘communication realm’ that constitutes the network society. The hierarchical power (i.e. the disciplinary institutions) in these ‘network societies’ is constantly challenged

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by horizontal ‘mass self-communication’ networks of civil society and selfreflective non-institutional actors that dominate the cyberspace (Castells 2013). What unites the neo-Gramscians is their vision of the state not as a thing in itself but as a social form, as an attribute of global capitalism. However, by seeing the state as a social construct we need to avoid our analysis becoming ‘excessively society-oriented’, when the state is ‘merely the arena in which social conflicts are waged (Barkey and Parikh 1991: 524). This is overcome by referring to the analysis of global capitalism, where the state is the major guardian of the existence of capital accumulation, as it offers geographic anchoring and territorial protection. As defined by Gramsci, the state is a ‘complex of practical and theoretical activities with which the ruling class not only justifies and maintains its dominance but manages to win the active consent of those over whom it rules’ (Gramsci 1971: 244). From this perspective, globalisation is an ideological construct of neoliberal policies which rests on the capitalist contradiction between freedom and domination, which involves a formulation of ideology around neo-liberal economics (Gill 1995). This construct rests on the uneven global spread of the power of capital and sees states as ‘forms of social relations through which capitalist hegemony is expressed’ (Bieler and Morton 2003: 20). However, in what way is this uneven global development perpetuated by ‘the actual historical difference among forms of state’ and their unequal positions in the world economy? (Cox 1981: 127–33) To answer this question we shall turn to the notion of hegemony as to the following stage for our understanding of counter-hegemonic mechanisms. 3.1.3

Hegemonic Projects

After the collapse of the Soviet Union, global capitalism has entered a new epoch of neo-revisionism, which brought about new neoliberal authoritarianism, when the political terrain ‘was conscientiously and deliberately divided by the new American imperial project in order to assert primacy within an ensemble of other members of the core’ (Fouskas and Gökay 2019: 9). There are different definitions for the post-Cold War era: for some, international global order is a US-led hegemony, rooted in American monetary seigniorage and the country’s global financial dominance, ‘on the basis of its expansive claims to global leadership, and the implicit

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claims of a certain tutelary relationship with the institutions of international society’, some of which ‘were generated by the liberal order itself’ (Sakwa 2017: 51). For others, US hegemony is not total and is not complete, as it fails to fulfil the requirements that a ‘truly global imperial power’ must obtain—primacy in ‘every single domain’ alongside ‘global fault-lines’ or social ‘tectonic plates’: geopolitical-geographical, political, economic, ideological and cultural-civilisational (Fouskas and Gökay 2019: 3). As such, the followers of the World Systems Theory (Wallerstein 1974) conceptualise the imperial order as premised upon the division between the core, semi-periphery and periphery, driven by ‘intra-imperialist’ (concerning core-core relations, i.e. North America, Western Europe, Japan Australia) and inter-imperialist (between the core and semi-periphery, such as Russia) contradictions. What is hegemony? Most conventional positivist neoliberal, institutionalist and structural realist approaches define hegemony as the notion that bears a problem-solving capacity in securing geopolitical stability. Realists maintain, that the relatively uneven distribution of power provides some states with a military, economic and strategic dominance within an anarchic world system: world stability rests on the power of a hegemon (Gilpin 2001; Waltz 2010), structural realism develops this idea further by adding the long-term evolution of the world system, within which the discontinuous distribution of economic and military power acquires longcycle variations (Konrad 2012). For liberal institutionalists, the existence of a hegemon is also vital for maintaining peace. However, power resides in institutional structures, governed by co-thinker liberal agents, willing to co-exist peacefully, and capable of creating interdependence, transferring the heart of power relations away from states (Keohane 1984; Nye 2004). The neo-Gramscian concept of hegemony transcends mainstream approaches in three ways. It no longer rests on the state-centric view of hegemony as the outcome of the distribution of relative power; it overcomes the orthodox definition of power relations as purely rational, and it introduces new components of Gramsci’s absolute historicism into the concept of hegemony (Gill 1991). These components are ‘transience’, where the formation of hegemony cannot be replicated as it is a cumulative process; ‘historical necessity’, which stresses the constraining power of prevailing social structures upon hegemony; and finally, ‘dialectics’ of structure–agency relations, which integrates the notion of consent of social agency to formation of hegemony (ibid.). The contradictions of

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capital drive capitalism into crises and portend its transformation, pushing the interstate relations into a dangerous self-reinforcing spiral, reducing the scope for dialogue and mutual concessions: these crisis tendencies are the next point for conceptualising the counter-hegemonic mechanisms designed to protect the state the destructive forces of rival hegemonic projects that comprise regimes of accumulation, and ‘modes of regulation’ (Ryner and Cafruny 2017). Hegemonic projects—responses to the contradictions of capital, to mitigate crisis tendencies (though, aggravating them instead)—are the main drivers for the transformation of capitalism, sustained by ‘creating permanent tension and authoritarian control’ (van der Pijl 2015). It has become increasingly difficult to detach hegemonic projects from other processes in the global political economy, as alongside traditional imperialism, rooted in military campaigns, capital transnationalisation and expansionary integration policies, there emerged new forms of financial and normative imperialism, such as economic sanctions, based on institutionalisation of international practices that promote the interests of a hegemon. Regimes of accumulation are based upon (1) the attractiveness of the country’s sovereign debt and national currency-denominated securities and financial instruments, that are ‘happily absorbed’ by central banks and private institutions worldwide, as in the case of the United States (Eichengreen 2004: 4); (2) upon the role of powerful lobbying groups, funded by financial organisations that enjoy massive protection and governments support (e.g. in the military sector); (3) upon the access and control of the natural resources and geopolitics that shape it, such as the routes for transportation in the energy sector (Yergin 2012: 6). Modes of regulation imply normative imperialism (Manners 2002), backed by institutional expansion, closely linked to the hegemony in the neo-Gramscian sense, as it presupposes territorial and institutional expansion to match the formula of ‘consent, backed by coercion’ (Gramsci 1971). With the rise of neo-liberalism in the 1980s, the United States has turned into ‘empire by invitation’, according to which the transnationalisation of production was copied from an ‘American template’ (Lundestad 1991). In the heartland, US hegemony is reproduced not only through ‘interiorisation’ of the foreign modes of regulation that legitimised American norms, subordinating other states’ political and ideological formations to transatlantic imperialism (Poulantzas 1974), but also through extraterritoriality of US law (e.g. ‘secondary’ sanctions).

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3.2 Hegemonic Rivalry and Counter-Hegemonic Mechanisms 3.2.1

Sanctions as a Tool of Hegemonic Rivalry

The first step from an abstract neo-Gramscian analysis of hegemony towards a more detailed conceptualisation of the welfare state regime’s counter-hegemonic mechanisms is the assessment of sanctions as a tool of hegemonic rivalry. The new epoch of capitalism has seen the transformation of sanctions from their original goal of war prevention tools into a weapon of geoeconomic warfare. Over the last 50 years, sanctions have become a dominant and increasingly powerful non-military tool in the neo-imperial struggle: the number of sanctions reached over 160, with more than 70% unilaterally by the United States. The extraterritoriality of sanctions is maintained by the World’s subordination to the US policy of financial liberalisation and to US regimes of accumulation that constitutes the country’s hegemonic project. Socio-economic and political hardships that emanate from untimely and insufficient protection of society from the corrosive effects of the contradictions of capital on social well-being— are mechanisms through which sanctions work: by exacerbating those contradictions, sanctions target already unstable welfare state regime selfprotective arrangements. In other words, the mechanisms of sanctions could be traced through the assessment of the following contradictions of capital, intensified within the ‘target’ state: First, sanctions perpetuate the contradiction between transnational capital and national labour: declining real incomes of the most vulnerable social groups challenge stable consumption and increase demand for public spending, while channels to finance labour reproduction by borrowing in the global financial markets, are narrowing due to the ‘denial of any credit, credit guarantees, or other financial assistance by any department, agency, or instrumentality of the United States government’ (NTI 2010). Second, economic sanctions, projected to make the split of capital into national and international more feasible, might disconnect the target state from global value chains, undermining the state’s economic and fiscal capacities and ultimately its de-commodifying abilities. Third, sanctions might intensify the ‘contradiction between freedom and domination’ (Harvey 2014) and push the wider population in opposition to the government of the sanctioned state, which inevitably takes measures to resist centrifugal democratic tendencies in society and hardens its grip over strategic sectors

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of the economy. Forth, sanctions might trigger the impact of contradictions, associated by ‘disparities of income and wealth in global economy’, on redistributive abilities of a target economy, leading to the organisation of domestic production that favours ‘a small band of oligarchs’ (Harvey 2014: 165), inevitably redirecting investment flows away from the ‘target’ state, exacerbating its neo-colonial status, damage the state’s abilities for the primary distribution of wealth, distort secondary mechanisms of wealth distribution and rupture external and internal supply–demand relations. Fifth, sanctions might further intensify struggles over distribution of wealth that are interlinked with the other forms of inequality, such as inequality before the law, inequality of political representations, inequality of educational and employment opportunities. Sixth, sanctions might instigate the contradiction of ‘a revolt of human nature: universal alienation’ (ibid.: 74), by fracturing social solidarity and undermining trust in institutions of the target state worldwide. The danger is that social ‘multiple alienation’ intensifies geopolitical rivalries, gives rise to nationalism in its extreme and spills-over across Western societies, transforming and fracturing social solidarity. Lastly, sanctions might disturb the connecting abilities of the target welfare state through the mechanism inherent to the contradiction between private property and commonwealth by intensifying class and non-class rivalries, and tension between democratisation and capital accumulation.

3.2.2

Counter-Hegemony

The second step in progressing towards the WSR’s counter-hegemonic settings is to consider counter-hegemony in general. A valuable contribution to the analysis of the counter-hegemonic mechanisms is Robert Cox’s three ‘spheres of activities’ through which counter-hegemony is developed within a historical structure: first, social relations of production (material capabilities, knowledge and institutions); second, forms of state, where power rests on the configuration of social forces and third, world order, a domain where hegemony is expanding to the international stage through a particular configuration of social relations of production, which have been domestically consolidated and supported by mechanisms of international organisation (Cox 1987). The theoretical significance Robert Cox accounts for the analysis of CHMs is the recognition of resistance in the ‘periphery’, which makes the spread of neoliberal hegemony problematic (Pasha 2005: 549–51). However, to synthesise world order with transnational class formation when conceptualising the international dimension of counter-hegemony, there is always a risk of travelling

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a closed theoretical circle (Germain 2007: 131). The trail will depart from Gramsci via Cox’s World Order to Gill’s transnational classes, then, following the idea of engaging with Open Marxism, to Burnham’s denial of IPE study ‘in terms of Poulantzean structural ‘levels’ (Burnham 1994: 228), and through Bieler and Morton’s overemphasis on class struggle and global character of accumulation, reverse back via structural Marxism to Gramsci. This trail, however, might not be impassable, if we stop shifting the priorities from one concept to another, but rather reposition them according to the two levels or forms (coercive or consensual) of their interactions with social formations, as all concepts, be they of hegemony, world order, the state or capitalist class, can be generalised as ‘concepts of power relations’. The welfare state regime approach has a potential to break this closed circle: the repositioning can be done by seeing the WSR as the mirror image of all the power-related processes that penetrate society from within and from outside and fuel counter-hegemonic mechanisms at two levels of interaction. The first level is defined by purely coercive power mechanisms: a capitalist state has a monopoly of coercion, such as the police and armed forces. The second level is the coercive structural and functional mechanisms of consent: it is important to acknowledge that coercion is a constitutive base of consent. The coercive mechanisms, combined with cultural power, produce a ‘force of social control and extraordinary resilience’, as in a sociological sense, production is both material and mental (Fulton 1987: 198). The inclusion of the coercive elements into the formation of consent will help to avoid the critique that neo-Gramscians tend to ‘downplay the coercive foundations of contemporary IR practice’ (Pasha 2005: 546). Despite the fact that the notion of world order helps to understand the construction of counter-hegemony within an international dimension, it is difficult to disagree with Owen Worth (2011) that hegemony at the international level would not gain a hierarchical representation similar to that of a state, which makes it difficult to extrapolate the logic of hegemony formation from the national to the international level (Worth 2011: 378–81). This critical argument works for counterhegemony as well: a more generic understanding of counter-hegemony would not necessarily be what ‘Gramsci himself would have in mind when looking at the international’ (ibid.: 380, 392). Any attempt at ‘transposing Gramsci’ to the international level needs to be supported

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by positioning the concept of ‘class struggle as the engine of production’, which in our case will be empirically developed through the analysis of the welfare state regime, in which the ‘state’ is an integral domain, where the realms of political and civil society are inseparable (ibid.). This ‘integrity’ presupposes the connection of a national and international contextual setting for the ‘self-protection of society’ (Polanyi 2001: 136), and, as previously mentioned, the core counter-hegemonic objective of the state is social protection through functional and structural self-reinforcing mechanisms that secure the regime’s reproduction. The coercive and consensual CHMs, combined with cultural power, produce a ‘force of social control and extraordinary resilience’, as in a sociological sense, production is both material and mental—this view, originated in Marx’s writings, was strongly supported by Cox and Van der Pijl (Fulton 1987: 198). To sum up, the WSR approach overpasses the main critical claims against the neo-Gramscians. Among the most substantial accusations are (1) the empirical pluralism that considers ideas as independent explanatory variables equal to production (Burnham 1991), (2) a reductionist’s vision of the state as a simple ‘transmission belt’ (Panitch 1994) and (3) a neglect of patterns of resistance to the dominant world order (see Bieler and Morton 2003; Drainville 1994). Concerning the first critical argument, the focus on the WSR in the context of counter-hegemonic evolution helps to uncover the materiality of ideas through a concrete trajectory of social policies, framed by a particular ideology: ideas are not distinguished from, but integrated into the productive terrain of human relations. The second critique concerning the reduction of the state’s functions to a ‘transmission belt’ between transnational forces and social formations could be downplayed by focusing on the ‘integral’ nature of the welfare state regime. The ‘integrity’ presupposes understanding the welfare state regime as a binding category that connects the internal ‘national point of departure’, and the external, international context: internal and external contradictions lead to regime transformation (Hartwick and Peet 2009: 146). The third critical claim against the neo-Gramscians regarding the absence of patterns of resistance to the dominant world order could also be resolved by referring to the WSR ‘arrangements’ that are located within institutional, material and cultural power structures and are the products of the welfare functions.

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The Welfare State Regime

The third move towards the counter-hegemonic mechanisms of the WSR is to emphasise the importance of the concept of welfare for a holistic understanding of a contradictory terrain of state formation. As the concept of the state is the most contentious point, it would be important to outline in what way the welfare state regime as a theoretical tool helps to respond to some critical arguments that these debates engender. Firstly, the WSR approach follows Bob Jessop in rejecting a possibility of the development of a general, ‘fully determinate’ theory of the state, as a reductionism of one kind or another is inevitable (Jessop 1982: 211). Instead of referring to ‘reductionism, empiricism or subsumption’ to construct a general theory it would be useful to apply the ‘method of articulation’. According to this method, the analysis is set in a particular historical conjuncture (i.e. economic sanctions and the heartland/contender divide) and the conditions under which certain causal chains might produce ‘contingently necessary effects’ (the welfare state regime outcomes). From this perspective, the WSR functionality enables a complex synthesis of multiple determinations that are combined in a concrete conjuncture. In other words, referring to the different levels of abstraction (empirical, actual and real), the focus on the welfare state regime lets us avoid the erroneous attempt to cover the totality of social relations at the general theory’s ‘empirical level of abstraction’. Alternatively, a ‘particular explanandum’ of the concept of the welfare state regime could be developed at the ‘actual’ level of abstraction (‘the level of specific ‘agents’ or ‘events’ on the surface of domain’); and later brought to the ‘real’ level, where specific mechanisms generate actual events (Jessop 1982: 176). This is what distinguishes dialectical research from non-dialectical (Ollman 1993), as it proceeds from the whole inward to the part, ‘conceiving all parts as processes in relations of mutual dependence’ (Burnham 1994: 227). It would be wrong, however, to suggest that the WSR approach becomes an overwhelming substitution for the theory of the state. Nevertheless, the analytical framework which places the WSR at the core of the study helps to overcome a considerable number of accusations addressed against the neo-Marxist approaches to the analysis of the state. First, it does not methodologically distinguish between political and economic features of society, it does not award the economy a

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primacy when studying social formations, it does not reduce the capitalist mode of production to its materialistic structure alone and cannot be accused of economic reductionism when the existence of the state is reduced to the economic base. Second, the regime approach avoids exposure to excessive structuralism, when the structures are given an unconditional primacy over the class struggle, when ‘real world events are automatically generated by the laws of motion within capitalism’ (Hartwick and Peet 2009: 182). Moreover, it encapsulates both the public sphere of politics and the private sphere of civil society, and at the same time the political ‘region’ is not independent of the economic ‘region’, as the ‘concept of social relations establishes the contradictory unity of the political and the economic’ (Burnham 1994: 228). This means that the regime is an integral whole and doesn’t proffer an ‘isolation effect’ in the private sphere to mutually independent individuals of ‘rational-legal administration’ (Poulantzas 1974). Third, the concept of the welfare state regime cannon be accused of class reductionism, as classes are not only political forces pre-constituted by the mode of production (vertical class formation) but also horizontally formed ‘nonclass’ ethnic, religious networks and gender-based social groups, as well as various dispersed power networks. Moreover, the political constitution of social groups depends on the institutional articulation of their interests and their ability to mobilise (through class struggle mechanisms or through multiple virtual information networks), while the ideological terrain is not an exceptional creation of the dominant class, but also contains some other non-class elements of its formation. Due to the rise of the Internet over the last twenty years, the power of the latter has dramatically risen, and is challenging the government’s monopoly over information space. Fourth, the state is seen as a social construct, which makes the regime approach to avoid an instrumentalist vision of the state as a neutral mechanism of power that could be equally managed by various social groups who get access to it. And lastly, institutional formalism, which conceptualises state functionality exclusively through the institutional power structure, could be overcome when these functions acquire social contextual settings, and the structural interrelation of de-commodification, redistribution, socialisation is conceptualised vis-avis material and ideological cast as well. Also, the institutional domain combines state with other actors such as households, markets (private sector) and communities (churches, charities, etc.) when analysing the institutional setting for social welfare provision.

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3.3 Conclusion to Part I: Completing Theoretical Merger 3.3.1

Self-Protection of Society

The WSR approach presupposes the realisation of ‘self-protection’ of the target state against the negative consequences of economic sanctions in particular and hegemonic rivalry in general. The mission of the state of protecting its peoples can be traced to the Fifteen century in the ‘semantic drift’ of the term ‘state’ into English from the Italian stato, or ‘status’, ‘standing’ of the ‘civil association’ in which the community of people live in subject to the sovereign authority’, the most famous example being Machiavelli’s II Principe, who had to keep the body of the people ‘in good health, in security and in prosperity’ in order to mantenere lo stato of the head of the state (Skinner 2011). Thus, the notions of welfare and of the state are inerlinked through this head-body methaphor in the history of political philosophy. In the present historical conjunction, this methaphorical categorisation of human welfare is no longer workable: the complexity of modern capitalism requires a more sophisticated definition of the WS, which could be developed through the notion of self-protection of society (Fig. 3.1):

Fig. 3.1 Self-protection of society (Source Author’s diagram)

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This self-protection constitutes the core of counter-hegemony and is exercised through the regime’s reproduction alongside its structural and functional terrains. As stated earlier, functional modes for the regime’s reproduction evolve through its de-commodifying, redistributive and connecting capabilities, as the logic of the presentation of contemporary world history as a systemic contender/heartland rivalry opens up the opportunity for positioning the welfare state in the global dimension as a guarantor of the reproduction of the labour force (de-commodification), of the sustainability of purchasing power in support of capitalist economic cycles (redistribution), and the reinforcement of legitimacy of the regime by securing of social consent and the appeasement of mess discontent by creating entitlements to social benefits (connection). The paradox is that to reproduce and to adjust itself to the contradictions of capital, the welfare state regime might develop contradictions of its own. Structural modes of WSR reproduction are secured by: strengthening the institutional mechanisms of social control (Institutional), securing the future potential of the socio-economic base (Material), and by transforming the modalities of social behaviour and attitudes (Cultural—Ideological). In confronting the ‘Lockean heartland’, especially during the active phases of geopolitical rivalry, such as in the periods of economic sanctions, the contender states aim at securing social protection. The objective and subjective terrains of social security are linked through the ‘self-protection of society’—an ‘umbrella term’ that captures the ‘integral’ understanding of the state as a political and a civil entity, and links the welfare state regime and counter-hegemony through the Matrix of Regime Reproduction that encapsulates the ‘arena’ of political conflict and decision-making, the ‘agenda’ of politics that reveals ‘the relative priority of issues and solutions’, the covert power struggle that ‘re-shapes political reality’ (Offe 1985: 159) (Fig. 3.2). The WSR is analysed as a multidimensional concept integrating three power structures (institutional, material, and cultural) and three functions of de-commodification, redistribution and connection. To address the empirical research question, the methodology of process-tracing has been proposed as a solution for developing robust accounts of macro-processes such as the ones investigated in this project. The welfare state functions comprise ‘intensive’ micro-processes, capable to inductively generate theory and to uncover causal mechanisms of counter-hegemony: the overall sequential pattern of global capitalist development, the linking

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Fig. 3.2 Matrix of regime reproduction (Source Author’s diagram)

causal mechanisms of welfares state regime, and their temporal effects— will explain the degree of resilience of Russia and Iran to geopolitical pressures. The idea to place the analysis in a particular historical moment of economic sanctions bears a symbolic distinction between the rapid political and socio-economic changes (sanctions), and the ‘long-durée’ of human relationships (ibid., see also Braudel 1958). It also enables the process-tracing of the welfare developments that precede and follow the imposition of sanctions. From this standpoint, the hint to the answer to the main question could be formulated as follows: the SWR counterhegemonic mechanisms are policies and practices, institutional settings, ideological propagandistic measures, and cultural configurations that have been developed in society to strengthen the resistance to geopolitical pressures and build up a consensual tolerance to possible coercive actions (such as austerity measures, economic hardships, authoritarian tendencies and so forth). Further specification of CHMs is the target of the following empirical Parts.

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References Althusser, Louis. 1969. For Marx. Harmondsworth. Harmondsworth: Penguin Books. Althusser, Louis, and Étienne. Balibar. 1970. Reading Capital. London: New Left Books. Barkey, Sunita, and Karen Parikh. 1991. “Comparative Perspectives on the State.” Annual Review of Sociology 17: 523–49. Berlin, Isaiah. 1969. Two Concepts of Liberty. Four Essays on Liberty: Oxford University Press. Bieler, Andreas, and Adam David Morton. 2003. “Globalisation, the State and Class Struggle: A ‘Critical Economy’ Engagement with Open Marxism.” The British Journal of Politics and International Relations 5 (4): 467–99. Braudel, F. 1958. “JSTOR: Annales. Histoire, Sciences Sociales.” Annales Histoire 13 (4) (October–December): 725–53. Bruner, Justin P. 2018. “Locke, Nozick and the State of Nature.” Philosophical Studies 177 (3): 705–26. Burnham, Peter. 1991. “Neo-Gramscian Hegemony and the International Order.” Capital & Class 45: 73–93. Burnham, Peter. 1994. “Open Marxism and Vulgar International Political Economy.” Review of International Political Economy 1 (2): 221–31. Burnham, Peter. 1995. “State and Market in International Political Economy: Towards a Marxian Alternative.” Studies in Marxism 2: 135–59. Castells, Manuele. 2013. Communication Power, 2d ed. Oxford: Oxfor University Press. Cox, Robert W. 1981. “Social Forces, States and World Orders: Beyond International Relations Theory.” Millennium: Journal of International Studies 10 (2): 126–55. Cox, Robert W. 1987. Production, Power, and World Order. Social Forces in the Making of History. New York: Columbia University Press. Drainville, André C. 1994. “International Political Economy in the Age of Open Marxism.” Review of International Political Economy 1 (1): 105–32. Eichengreen, Barry. 2004. “Global Imbalances and the Lessons of Bretton Woods, Global Imbalances and the Lessons of Bretton Woods, Working Paper 10497.” Retrieved June 16, 2019 (http://www.nber.org/papers/w10497). Fisher, Talia. 2010. “Separation of Law and State.” Journal of Law Reform 43 (2): 435–96. Fouskas, Vassilis, and Bülent Gökay. 2019. The Disintegration of EuroAtlanticism and New Authoritarianism. Global Power-Shift. London, UK: Palgrave Macmillan. Fulton, John. 1987. “Religion and Politics in Gramsci: An Introduction.” Sociology of Religion: A Quarterly Review 48 (3): 197–216.

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Germain, Randall. 2007. “Critical Political Economy, Historical Materialism and Adam Morton.” Politics 2: 27–31. Gill, Stephen. 1991. “Reflections on Global Order and Sociohistorical Time.” Alternatives: Global, Local, Political 16 (3): 275–314. Gill, Stephen. 1995. “The Global Panopticon? The Neoliberal State, Economic Life, and Democratic Surveillance.” Alternatives: Global, Local, Political 20 (1): 1–49. Gilpin, Robert. 2001. Global Political Economy. Princeton: Princeton University Press. Gough, Ian. 1979. The Political Economy of the Welfare State. London: Palgrave Macmillan UK. Gowan, Peter. 1995. “Neo Liberal Theory and Practice for Eastern Europe.” New Left Review 213 (October): 3–60. Gramsci, Antonio. 1971. “The Modern Prince” Selections from the Prison Notebooks. London: Lawrence and Wishart. Hall, H.D. 1971. Commonwealth. A History of the British Commonwealth of Nations. London: Van Nostrand Reinhold. Hartwick, Elaine, and Richard Peet. 2009. Theories of Development: Contentions, Arguments, Alternatives, 2nd ed. New York: Guilford Press. Harvey, David. 2003. The New Imperialism. Oxford: Oxford University Press. Harvey, David. 2014. Seventeen Contradictions and the End of Capitalism. London: Profile Books. Hobbes, Thomas. 1651/2018. Leviathan. edited by R. Tuck, 3rd ed. Cambridge: Cambridge University Press. Holloway, John. 1994. “Global Capital and the National State.” Capital and Class 52. Holman, Otto. 1998. “Integrating Eastern Europe, International.” Journal of Political Economy 28 (2): 12–43. Jessop, Bob. 1982. The Capitalist State: Marxist Theories and Methods. Oxford: Martin Robertson. Jones, Lee. 2015. Societies Under Siege. Oxford: Oxford University Press. Keohane, Robert. 1984. After Hegemony: Cooperation and Discord in the World Political Economy. Princeton: Princeton University Press. Konrad, Anne. 2012. “Theorizing Realist and Gramscian Hegemony.” Retrieved (https://www.e-ir.info/2012/09/02/THEORIZING-REALISTAND-GRAMSCIAN-HEGEMONY/). Locke, John. 1690/1980. Second Treatise of Government. Indianapolis: Hackett Publishing Company, Inc. Lundestad, Geir. 1991. “Empire by Invitation? The United States and Western Europe, 1945-1952.” In The Cold War in Europe: Era of a Divided Continent, edited by C. Maier, 143–65. New York: Markus Wiener Publishing.

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Manners, Ian. 2002. “Normative Power Europe: A Contradiction in Terms?” Journal of Common Market Studies 40 (2): 235–58. Mayo, Peter. 2011. “The Centrality of the State in Neoliberal Times.” International Gramsci Journal 1 (3): 57–71. NTI. 2010. “India Nuclear Chronology.” Retrieved July 10, 2019 (https:// media.nti.org/pdfs/india_nuclear.pdf). Nye, Joseph. 2004. Soft Power: The Means to Success in World Politic. New York: Public Affairs. Offe, Claus. 1985. Contradictions of the Welfare State. Cambridge: The MIT Press. Ollman, Bertell. 1993. Dialectical Investigations. London: Routledge. Overbeek, Henk. 2018. “Introduction—Political Economy, Capital Fractions, Transnational Class Formation. Revisiting the Amsterdam School.” In Transnational Capital and Class Fractions (RIPE Series in Global Political Economy), edited by B. Jessop and H. Overbeek. London: Routledge. Panitch, Leo. 1994. “Globalisation and the State.” In The Socialist Register: Between Globalism and Nationalism, edited by L. P. R. Miliband. London: Merlin Press. Pasha, Mustapha Kamal. 2005. “Islam, ‘Soft’ Orientalism and Hegemony: A Gramscian Rereading.” Critical Review of International Social and Political Philosophy 8 (4): 543–58. Polanyi, Karl. 2001. The Great Transformation: The Political and Economic Origins of Our Time, 1944. Boston: Beacon Press. Poulantzas, Nicos. 1974. Classes in Contemporary Capitalism, London: New Left Books. London: New Left Books. Pozo-Martin, Gonzalo. 2007. “Autonomous or Materialist Geopolitics?” Cambridge Review of International Affairs 20 (4): 551–63. Pradella, Lucia. 2016. “Postcolonial Theory and the Making of the World Working Class.” Critical Sociology 43 (4–5): 573–86. Ryner, Magnus and Alan Cafruny. 2017. “Core and Periphery in an Enlarged European Union.” In The European Union and Global Capitalism. London, UK: Palgrave Macmillan. Sakwa, Richard. 2017. Russia Against the Rest The Post-Cold War Crisis of World Order. Cambridge: Cambridge University Press. Skinner, Quentin. 2002. Visions of Politics: Volume 3, Hobbes and Civil Science. Cambridge: Cambridge University Press, ProQuest Ebook Central. Skinner, Quentin. 2011. A Genealogy of the State, Lecture Transcript. Available at: https://cluelesspoliticalscientist.wordpress.com/2017/05/18/a-gen ealogy-of-the-state-by-quentin-skinner-lecture-transcript/ van Apeldoorn, Bastiaan, Jan Drahokoupil, and Laura Horn. 2009. Contradictions and Limits of Neoliberal European Governance from Lisbon to Lisbon. New York: Palgrave Macmillan.

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van Apeldoorn, Bastiaan. 2002. Transnational Capitalism and the Struggle over European Integration. London: Routledge. van Apeldoorn, Bastiaan, and Sandy Brian Hager. 2010. “The Social Purpose of New Governance: Lisbon and the Limits to Legitimacy.” Journal of International Relations and Development 13 (3): 209–38. van der Pijl, Kees. 1998. Transnational Classes and International Relations, 3d ed. London: Routledge. van der Pijl, Kees. 2001. “From Gorbachev to Kosovo: Atlantic Rivalries and the Re-Incorporation of Eastern Europe.” Review of International Political Economy 8 (2): 275–310. van der Pijl, Kees. 2002. “Globalization or Class Society in Transition?” Science & Society 65 (4): 492–500. van der Pijl, Kees. 2006a. Global Rivalries From the Cold War to Iraq. London: Pluto Press. van der Pijl, Kees. 2006b. “Lockean Europe?” New Left Review 37: 9–38. van der Pijl, Kees. 2012. “Is the East Still Red? The Contender State and Class Struggles in China.” Globalizations 9 (4): 503–16. van der Pijl, Kees. 2015. “A Crisis of Ends: Kees van Der Pijl Interviewed.” Retrieved (https://www.opendemocracy.net/en/crisis-of-ends-keesvan-der-pijl-interviewed/). van der Pijl, Kees. 2018. “A Transnational Class Analysis of the Current Crisis.” In Transnational Capital and Class Fractions (RIPE Series in Global Political Economy), edited by B. Jessop and H. Overbeek, 241–62. London: Routledge. van der Pijl, Kees, and Yuliya Yurchenko. 2015. “Neoliberal Entrenchment of North Atlantic Capital. From Corporate Self-Regulation to State Capture.” New Political Economy 20 (4): 495–517. Wallerstein, Immanuel. 1974. The Modren World System. New York: Academic Press. Waltz, Kenneth. 2010. Theory of International Politics. Chicago, IL: Waveland Press Inc. Worth, Owen. 2011. “Recasting Gramsci in International Politics.” Review of International Studies 37: 373–92. Yergin, Daniel. 2012. The Quest: Energy, Security, and the Remaking of the Modern World. New York: Penguin Books.

PART II

Institutional Design

Abstract Chapters 4 and 5 in Part II are the first empirical chapters that assess how the counter-hegemonic structural mode of WSR reproduction has been secured in Russia and Iran via strengthening the institutional mechanisms of social control. Chapters demonstrate how centralisation of state and civil institutions, monopolisation of the strategic sectors of the economy and para-constitutional settings have become counterhegemonic mechanisms that, on one side, enabled the accumulation of resources necessary to restore the de-commodifying capabilities of the pension system and to reverse the monetisation reforms, while on another side, intensified institutional dualism and its stratifying effect on social formations. Both Russia and Iran suffer from institutional welfare dualism. Informal welfare structures are identified when assessing the emergence of subcontractor welfare state structures. In Russia, social welfare institutions comprise two parallel hierarchies: surviving communist legacies and newly created institutions, which lack well-structured systems and are sufficiently efficient in reaching the poor. In Iran, the dual institutionalisation of social welfare is a recurrent social outcome of the country’s development, in which different political factions (conservatives, reconstructionist, reformists) have utilised various para-governmental social welfare institutions to win support from segments of the population. Keywords Monopolisation, Institutional Dualism, Informal Welfare

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Introduction to Part II: Global Dimension Part II is devoted to the institutional power structure that is responsible for the dynamism of contender state development, for its adjustment to the ‘shifting sands’ that lie in capitalist social relations. The geopolitical context of sanctions is perfectly suitable for analysing the Russian and the Iranian WSR’s self-protective measures. Sanctions are seen as a tool to resolve specific structural contradictions in Lockean societies,1 first, by weakening the positions of the contender states in the neo-imperial rivalry, and second, by undermining the legitimacy of the reformist policies and counter-hegemonic mechanisms (CHMs), deployed to protect the contender states’ ‘formal autonomy and a wider space organised under the sovereignty of property and contract’; this contract is believed to be of a Hobbesian nature (van der Pijl 2006: 37–38). However, as ‘contradictions have the nasty habit of not being resolved but merely moved around’ (Harvey 2014: 4), CHMs that are supposed to protect the target state, paradoxically develop contradictions of their own. The problem is that these reformist policies not always ‘unequivocally ’serve’ the collective interests of the capitalist class’, nor are designed to secure continuity of the state’s policymaking ‘instruments’, such as ‘regulations, infrastructure investment and mutual accommodation’ (Offe 1985: 126). Therefore, the assessment of the nature of the counter-hegemonic settings implies the revelation of contradictory tendencies in a contender WSR itself. The institutional domain is an effective starting point for an engagement of welfare state analysis within historical geopolitical configuration, as it examines the legal base for structural power relations. Part II will begin with an assessment of the institutional power structures of the global political economy (global dimension) in the Introduction, followed by an analysis of the CHM that were undertaken in Russia and Iran in response to geopolitical pressure, in Chapters 4 and 5 respectively. Institutional arrangements comprise (a) the role of the country’s legislation and state institutions in overall welfare coverage (de-commodification); (b) the 1 see Part V on Welfare State Regime Reproductions (Self-Protection of Society) for

a detailed analysis of contradictions: socio-economic and political hardships that emanate from untimely and insufficient protection of society from the corrosive effects of the contradictions of capital on social well-being – are mechanisms through which sanctions work: by exacerbating those contradictions, sanctions target already unstable WSR selfprotection arrangements.

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institutionally grounded shifts in class and status disparities (wealth redistribution); and (c) legislative and institutional WSR arrangements that restored or impeded the formation of social solidarity (connection). All three (a, b, c) are the variables that constitute the institutional mechanisms of social control, in an attempt to harmonise religion, democracy and private property. De-commodifying, redistributive and connecting components of the reproduction of the institutional WSR structure are necessary for the system’s survival, as they set preconditions for cooperation and collective action by securing a tolerable level of individual existence and by providing for the legitimacy of the regime. There are at least three ways in which geopolitical pressures and growing global uncertainties have had an impact on the institutional transformation of ‘contender’ states, such as Russia and Iran. First, the shift in the global economic paradigm in the 1980s, from Keynesian welfarism to neoliberalism, spurred new global trends in welfare state restructuring. Second, global institutional arrangements are managed and controlled by national and international Western institutions of the Atlantic system, from which contender states are systematically excluded. The third factor is the consequence of the second one: economic sanctions have increasingly become an effective instrument of institutional and legal domination of the dollar-backed financial system. The following passages will consider these factors in greater detail. Russia and Iran have succumbed to global trends in welfare state restructuring, such as privatisation, financialisaton, means-testing and austerity. These trends were framed, firstly, by industrial and postindustrial capitalist market relations that replaced the communal and family entities with state and market institutions in the provision of welfare, secondly, by the balance of power among different social forces that helped to withhold, but not to resolve, the contradiction between capital and labour in the post-world war period, and thirdly, by the worldwide neo-liberalisation. The pressure of financial globalisation had a global spread: even the ‘ideal-type’ Scandinavian social democracies have been affected by the asset-bubble-based components in housing and pensions (Ryner and Cafruny 2017: 118). Russia was not an exception: the transition from socialism to capitalism, the collapse of central planning and a reckless embrace of the market in the 1990s, placed the country in a very vulnerable situation: to maintain the sustainability of the regime, increasingly challenged by the instability of the international

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financial system, on one side, and by the interests of transnational political forces that promoted the tactics of re-commodification, on another. Global competition, resurging neomercantilism, a sharp deterioration of the communist welfare regime, combined with a hasty liberalisation of the Russian market in the 90 s, left little chance for a transitional and consistent WSR transformation. In Iran, economic devastation as the result of sanctions and the Iran–Iraq war put the government under popular pressure for market liberalisation and other reforms to potentially reconcile Islamic doctrines with economic modernisation. For instance, intense political debates evolved around the revision of Article 44 of the Iranian Constitution of 1979 that secured state control of strategically important sectors, such as mining, finance and utilities. Factional conflicts intensified over contentions matters, such as economic privatisation and subsidy reform. Several global institutional arrangements secure the subordinate position of Russia and Iran, as capitalist development is not a stochastic process: it is managed and controlled by national and international Western institutions of the Atlantic system, such as the IMF, World Bank, the OECD, military and integration alliances (NATO and the EU), and most importantly, national agencies, such as the US Federal Reserve System. So, the first arrangement is the exterritorial character of the US legal system—the so-called ‘legal colonisation’ which implies that the decisions taken in the US courts, designed to protect US interests in global markets, could be harmful for international agents. There are multiple cases, when the US Department of Justice imposed multibillion-dollar fines on Barclays, Credit Suisse, Deutsche Bank, HSBC, RBS and UBS for mis-selling of mortgage-backed securities in the runup to the financial crisis of 2008 (DB eventually settled claims for $7.1bn in 2017 and RBS for $4.9bn in 2018) (The US Department of Justice 2017). When the US Treasury fined BNP Paribas $8.9bn for violating US sanctions against Iran, Cuba and Sudan, a new way to raid the capital of foreign banks had been found, by invoking the global reach of the jurisdiction of US law and penalising a foreign bank for transacting with a company in a sanctioned country. Especially this is true in case of a dramatic enactment of the US sanctions against Iran, especially after the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in 2018, which considerably hit Iran’s European and Asian trade partners. While the US-Iranian trade was just $200 million in 2017,

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EU-Iranian trade had reached over 20 billion euros, with German companies accounting for 60% of EU investment and 40% of total industrial equipment in Iran (Brüggmann 2018). The second institutional factor that suppresses the position of contender states is institutionally reinforced trade liberalisation, especially WTO membership (as has been the case for Russia and China), whose impacts on a developing economy might be controversial. On one hand, it enhances competition and trade between states, and is believed to have a positive impact on the domestic investment climate, on the other, it cements contender’s status as a ‘raw material appendage’ of the developed states, as infant industries protection and import substitution become extremely problematic (Fortescue and Hanson 2015). That is why the prospects of Iran’s future membership in the WTO were met with suspicion by the country’s political elite. Third, global financial centres, such as New York and London, are ‘international’ only in a way that they control the global financial system; in terms of wealth distribution, these centres are ‘national’ and generate profit for certain jurisdictions, which in their turn take considerable protection measures to preserve their leadership. Also, the role of the leading rating agencies, such as Standard & Poor’s, Fitch, Moody’s that provide markets with countries’ long-term credit ratings, which in reality are ‘political verdicts’ rather than economic forecasts; such ‘rating wars’ has been a powerful tool against contender states (Katasonov 2015: 102). The situation in Russia and Iran was perpetuated by the use of economic sanctions. Since the 1979 Revolution, the US government has imposed numerous sanctions against Iran, as previously ‘symbiotic relations’ between the Pahlavi monarchy and the United States were no longer mutually beneficial: the former no longer secured the economic and political interests of the United States in the Persian Gulf, and the latter could no longer help the Shah to preserve his power (Fayazmanesh 2003). Another devastating factor that transformed the institutional structure of the Iranian WSR was the hugely costly Iran–Iraq war: almost 70% of the country’s income was redirected from the welfare state to the military needs (Amirahmadi 1990: 67). Economic warfare against Russia had started long before the official imposition of sanctions in response to Russia’s annexation of Crimea in 2014. In fact, some Western observers believe that the Cold War never ended, it had just been put on hold: the crisis in Ukraine is the consequence of NATO’s expansion, backed up by EU enlargement (Sakwa 2017a, b), as Russian state officials had warned

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that ‘Ukraine or Georgia joining NATO could lead to a colossal shift in global geopolitics’ that threatened Russia’s sovereignty (RIA Novosi, 2006, cited in Tsygankov 2013). De-commodification Capitalism is a global system that spreads unevenly across societies, transforming non-market human activities and pre-capitalist interactions into interchangeable commodities. In Iran, where the post-revolutionary restructuring coincided with a dramatic shift from Keynesianism to neoliberalism in Western societies, the four presidents, Akbar Hashemi Rafsanjani, Mohammad Khatami, Mahmoud Ahmadinejad and Hassan Rouhani (each one served two terms) were under constant political pressures for pro-market liberal reforms. For societies in transition, such as Russia and other former Soviet states, a hastened and inconsiderate introduction of capitalism ‘was bound to come as a bit of a shock’ to its peoples (Gowan 1995). A ‘shock therapy’ (ST), popularised by Harvard professor of economics Jeffery Sachs, implied a unification of capitalism for the benefit of the humanity by means of fracturing commercial, political and ideological ties within Comecon, and by reintegrating Eastern Europe into the market system through the opening of markets to foreign direct investment and economic recovery through trade (Jeffrey Sachs 1990). In practice, Sachs’s call for a ‘decisive and rapid’ transition program based on privatisation, FDI, grant aid (however, mentioning that ‘most proposals from Western Europe were for loans’, and the ‘set of market-clearing relative prices’ (ibid.23–27) had serious institutional repercussions—‘a sudden, dramatic weakening of the social power of the industrial working class: the end of state subsidies while wages are controlled involved a large fall in living standards’ (Gowan 1995). On a larger scale, the relationship between the ‘Shock Therapy’, transnational ‘disciplinary neoliberalism’ and US dollar-backed supremacy implied the institutional promotion of ‘legal or constitutional devices’ for global financial, production and trade regimes (Gill 1995, cited in Morton 2007). There were two principal causes for the neoliberal retreat from the Keynesian welfare state that resulted in re-commodification and precarisation of labour power. First, the structural deadlock of the Bretton Woods monetary system that required both more and less US dollars at the same time: more—for deficit financing of domestic social spending and foreign military operations (the Vietnam war), and less—to maintain

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the credibility of the currency (see the Triffin Dilemma in Cohen 2002). Second, the contradiction of the capitalist system: welfare state acceleration was both a cornerstone of and a fetter on capital accumulation. The empowerment of workers escalated the tension between ’production and realisation’, reduced the capacity to maximise surplus value through lower labour costs, intensifying global rivalry and competition (Harvey 2014: 40). The institutional solution to this stalemate was found in the American ’minimal hegemony’—the organisation of financial power that ’systematically favoured the United States’, temporarily mitigating the contradictions by the means of financialisation, securitisation of assets and credit expansion (Cafruny and Ryner 2005: 8). A replacement of the ‘entitlements’ to social welfare and full employment policies by the ‘strategies of equal chances, participation, and employability’ (van der Pijl 2006: 392), required a re-commodification of human activities, and a structural transformation of not only the interstate relations, but also of domestic power systems. The institutional de-commodifying pressures were reinforced by the fact that the terms for domestic transformation of states were designed to serve the interests of nations that governed those institutions; the terms were frequently met with opposition by contender states that resorted to centralisation of power mechanisms, which in their view was a precondition for survival. Overall, monopolisation and a high concentration of capital—the characteristics of modern capitalism—were responses by national elites to the neoliberal transformation coupled with ‘foreign economic penetration’ (Cox 1987: 101) that constitute fertile ground for the formation of counter-hegemonic settings. In Russia, one of the drivers for economic power centralisation was an increased subordination of constitutional order to public administration, reinforced by Putin’s charismatic leadership, by the restoration of the authority of the state and by dual political practices that ‘operate at two levels, the formal constitutional and the nominal para-constitutional and para-political’ (Sakwa 2008: 891). Monopolisation of the strategic sectors of economy and para-constitutional settings have become counterhegemonic mechanisms that permitted the accumulation of resources necessary to restore de-commodifying capabilities of the Russian pension system and to reverse the monetisation reform. In Iran, we can also witness the centralisation of control over strategic sectors of the economy, which, however, proceeded not through direct public ownership, but rather by means of a controversial privatisation program that spawned a

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quasi-privatised economic order. At the same time, the para-constitutional institutional design in Iran was much more complex than in Russia: it accommodated multiple parallel institutions and overlapping power structures of Iran’s ‘diffused-power semi-autocracy’ (Brumberg and Farhi 2016: 11). At the same time, neoliberalism, charged with the ideology of globalisation and the monetarist toolkit of inflation targeting, austerity, ‘independent’ central banking and so forth, was partly embraced by contender states that applied austerity measures in time of crises. It would be erroneous, however, to argue that Russia, and especially Iran, are neoliberal states; also, it is important to distinguish between counter-hegemony against the US-controlled Western institutions (neoliberal at present) and counter-hegemony against neoliberalism per se, as these are not the same things; current research is focused on the former rather than on the latter. Redistribution The welfare state ‘institutional materiality’ of national and international class interests, founded on the ‘perpetuation of class contradictions’ and on the understanding of society as a totality (Poulantzas 1973: 256), permits to set the causal links between the sphere of work, or ‘primary’ income distribution, and the sphere of citizenship, or ‘secondary’ distribution of wealth (Offe 1982: 13). This totality is globally processed: the redistributive function of the WSR is dependent upon global practices of income distribution and is guided by the resurgence of global inequality over the past three decades as the outcome of financial liberalisation and tax reforms. Since the end of WW2, the United States ‘unleashed’ hegemonic ability to ‘convert debt into capital accumulation’ (Ryner 2010: 559) led to the large capital outflows from the developed countries, directed towards the purchases of US Treasuries. Inequality between states and between classes stems from the global imbalance—from the US–China counter-balance of payments, backed by the ‘US “exorbitant privilege” of issuing the currency used as international reserves and a ‘tendency to live beyond its means’ (Eichengreen 2004). Following the liberal belief that growth is a rising tide that lifts all boats (Kuznets and Jenks 1953), some peripheral states adopted an export-led growth strategy, maintained an undervalued exchange rate, accumulated lowyielding dollar-denominated international reserves, pushing the global economy towards greater divergence. The perpetuation of this divergence

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in the distribution of wealth in a globalised world can be best explained by Piketty’s ‘fundamental inequality’ formula (r > g): for a long period of time the rate of return on capital significantly exceeded the growth rate of an economy, ‘making inherited wealth grow faster than output and income’ (Piketty 2014). In Russia in the 1990s, speaking in Peter Gowan’s terms, the ‘Shock Therapy’ liberalisation that fostered the elimination of export subsidies and the breakage of the COMECON trading ties resulted in a ‘sudden dramatic weakening of the social power of the industrial working class’, in a deterioration of long-term economic welfare, and in a ‘profound depression of the internal market and living standards’ (Gowan 1995: 11–12). At the same time, globalisation has not led to a retreat of the state (Morton 2007), nor to a retreat of a hegemon, whose interests are institutionally protected. There are three types of institutions that reproduce the US supremacy, making the country the leading ‘redistributor’ of global wealth. First, international institutions that protect the US interests in different spheres of IPE, such as the IMF and World Bank in finance, OECD, WTO and G7 in trade, NATO in the military sector. Second, private business institutions and transnational corporations (TNC) that possess administrative and technological capacity to centralise control over global production: from research and development to investment and resource allocation. In fact, the US TNC’s domination in the global media, telecommunications, computer, oil sector equipment, health care and pharmaceutical markets question their ‘transnationality’: these corporations should be defined as ‘American’ rather than ‘transnational’ (Panitch and Gindin 2013: 37). Third, institutions that promote ‘polyarchy’, or ‘low intensity democracy’ in the peripheral capitalist states (see Robinson 1996: 49; and Morton 2007), such as the National Endowment for Democracy and US Agency for International Development, with the aid of the multitude of non-governmental organisations, financed by powerful funds and industrial and lobbying groups, such as Human Rights Watch, the Project for a New American Century, and so forth. These institutions preserve the status quo of the global capitalist elites, without trying to mitigate the destructive consequences of global imbalances created in the international political economy. In Russia, the problem of unequal primary income distribution was initially a product of an uncontrolled liberalisation and privatisation of the Soviet assets in the 90s, later in the 2000s, the reversal of this trend was complicated by

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the centralisation of control over strategic sectors of the economy that led to a redistribution of already accumulated rent across power elites. In Iran, despite the fact that the expansion of the public health and education sectors contributed to a more equal distribution of economic growth in the 1990s and 2000s, and also decreased absolute poverty, wealth inequality has perpetuated. Therefore, current international institutional order might constrain the formation of a more egalitarian society for two main reasons: first, foreign pressures lead to the accumulation of reserves in the hands of the elites, second, monopolisation and centralisation of economic power affect the institutional WSR arrangement in the workplace, impeding the breakage with the legacies of enterprise paternalism. The redistributive practices worldwide were fuelled by a consumer-led boom in the American economy and some other states and by the rise to dominance of the ‘New Wall Street System’ that ‘played the central role in ensuring debt-fed growth’ as it helped to disguise the accumulation of consumer debt as the productivity gains in the US economy (Gowan 2009: 25). This type of a growth model was fomented by the expansion of China and other Asian exporting economies, whose role ‘extended beyond their large export surpluses of consumer goods to the United States’, as they were ‘recycled back into the American financial system via the purchasing of US financial assets’, providing for liquidity and cheap debt and thus contributing to the dramatic rise in indebtedness within the financial sector (ibid.). Connection US hegemony rests on not only the country’s privilege to remain the global liquidity provider but also on an efficient institutional design that secures ideological control over populations. At the same time, some authors believe that the United States cannot be called a ‘truly global imperial power’, and empire, as it fails to ‘master primacy in every single domain’,2 and especially in the cultural-civilisational (Fouskas and Gökay 2019: 3). From the ‘global fault-lines’ perspective, the rise of China as the result of the ‘combined development boosted by the transnationalisation of capital accumulation on a global scale’, truly signalises that the 2 These five domains are ‘geopolitical-geographical, political, economic, ideological and cultural-civilisational’ (See Fouskas and Gökay 2019).

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United States has lost its chance to consolidate its total hegemony, and to ‘exercise primacy in every domain of the social whole’ (ibid.4); the rise of new authoritarianism today3 and ‘the recovery of Asia’ suggest that there is growing evidence of the ‘global power shift’—a wide range of economic activities have shifted from the core to the emerging powers (i.e. China, India, South Korea, Indonesia, Turkey, Brazil, Mexico, Russia, etc.) that have the potential to ‘effectively break-up Western supremacy and challenge the US institutional leadership (Fouskas and Gökay 2019: 37–39). Nevertheless, despite the evident ‘crisis in the Heartland’ (Gowan 2009) it would probably be premature to report its economic and cultural-civilisational decline, as the neoliberal ideology has a strong capacity to bind people by ‘spreading certain consumption habits, lifestyle patterns, media orientations, celebrity worship, electoral ambitions, and all the “good” things that people everywhere have already’, and by diffusing a worldview through socialisation into every area of daily life that, when internalised, become ‘common sense’ (Gramsci 1971, Peet and Hartwick 2015: 187). This is partly achieved through people’s feeling of global interconnectedness rested on the promotion of the ideals like democracy, individual freedoms, equality of rights and opportunities. In the 1990s, Russia was initially willing to embrace neoliberalism, but the country’s efforts faced institutional resistance in the form of the expansion of Western institutions, which did not offer viable institutional mechanisms for future economic and security cooperation between Russia and the EU (Sakwa 2017). Also, the deterioration of communal and family values, of an unprecedented rise in social inequality, income disparity, corruption and fraud that put the nation at a risk of social degradation, alienation and conflict, caused the disillusionment with ‘liberal’ transformation in Russian society. The Iranian political elite has also been very cautious about liberalisation, which is considered to be a concession to Western institutional expansion, a side effect of technological modernisation. This wariness could be best described as a ‘modernisation dilemma’: how to adopt Western technology and cooperate with Western political

3 ‘New’ authoritarianism, according to Fouskas and Gökay (2019: 13) is a type of authoritarianism which ‘tries to contain the unravelling of the Eurozone and the entire transatlantic bloc at a time when Chinese penetration of US-led globalisation further saps the primacy of the USA and the cohesion of Euro-Atlanticism as a whole’.

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institutions without losing the authentic link between human identities and local cultures (Ringer 2001). The Russian and Iranian WSRs are framed by global institutional and legal arrangements for the reproduction of binding categories upon which social relationships are being formed. There are three main channels through which international institutions affect the connecting WSR function. First, through hierarchical organisations and alliances that regulate different aspects of state’s activities: from trade and spacial integration, to sports and culture spheres. For instance, Russia’s membership in the EAEU, in the SCO, or in the WTO predetermines the formation of domestic institutions that promote cooperation not only of high-ranked officials, but also of the wider public involved in activities that have a binding effect on individuals. Second, transnational corporations and market institutions that incur social division of labour and commodification of human activities: the spread of the ‘corporate culture’, the welfare provisions that employees get through work, the team-building activities and so forth result in socialisation of labour and in the formation of a transnational collective agency. However, the current global division of labour does not favour either Russia or Iran, as it reinforces their ‘natural resource appendages of the West’ status. Third, WSR is exposed to the activities of powerful horizontal networks—non-governmental, nonprofit or charitable institutions, whose methods and practices often go beyond the manifested goals of promotion of higher values (i.e. democracy and human rights), and their real target is to have a disruptive impact on social stability and to undermine a regime’s legitimacy from within. In its turn, the legitimacy of a regime is specified by the convergence between formal and informal welfare agencies; too much divergence between the two might lead to institutional dualism. To reduce the impact of informal regime arrangements, Russian systems of tripartism (at a macro-level) and of social partnership (at a micro-level), created with the aim of strengthening the regime’s connecting capabilities, have become important counter-hegemonic arrangements that are, however, frequently challenged by residual, but increasingly powerful, enterprise paternalism with its multiple network arrangements. In Iran, institutional dualism did not impose any considerable challenge to the legitimacy of the system itself, as it was constrained from above by the developed set of laws and practices that can be described as controlled or ‘guided competition’ (at the macro-level), or ‘limited contestation’ (at the micro-level) (Alem 2016: 169).

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References Alem, Yasmin. 2016. “Electoral Politics, Power and Prospects for Reform.” In Power and Change in Iran Politics of Contention and Conciliation, edited by D. Brumberg and F. Farhi, 166–94. Bloomington: Indiana University Press. Amirahmadi, Hooshang. 1990. Revolution and Economic Transition. The Iranian Experience. Albany: University of New York Press. Brüggmann, Mathias. 2018. “Trump’s Threats on Nuclear Deal Hit German Business in Iran.” Retrieved July 10, 2020 (https://www.handelsblatt.com/ today/companies/cold-feet-trumps-threats-on-nuclear-deal-hit-german-bus iness-in-iran/23580752.html?ticket=ST-6231638-IJo1ST9rUpkSwp0UCk AP-ap5). Brumberg, Daniel, and Farideh Farhi. 2016. “Introduction: Politics of Contention and Conciliation in Iran’s Semiautocracy.” In Power and Change in Iran Politics of Contention and Conciliation, edited by D. Brumberg and F. Farhi, 1–36. Bloomington, IN: Indiana University Press. Cafruny, Alan, and Magnus Ryner. 2005. Europe at Bay. In the Shadow of US Hegemony. London: Lynne Rienner Publishers. Cohen, Benjamin J. 2002. “Bretton Woods.” In Routledge Encyclopedia of International Political Economy, edited by R. J. B. Jones, 95–101. London: Routledge. Cox, Robert W. 1987. Production, Power, and World Order. Social Forces in the Making of History. New York: Columbia University Press. Eichengreen, Barry. 2004. “Global Imbalances and the Lessons of Bretton Woods, Global Imbalances and the Lessons of Bretton Woods, Working Paper 10497.” Retrieved June 16, 2019 (http://www.nber.org/papers/w10497). Fayazmanesh, Sasan. 2003. “The Politics of the U.S. Economic Sanctions Against Iran.” Review of Radical Political Economics 35 (3): 221–40. Fortescue, Stephen, and Philip Hanson. 2015. “What Drives Russian Outward Foreign Direct Investment? Some Observations on the Steel Industry.” PostCommunist Economies 27 (3): 283–305. Fouskas, Vassilis, and Bülent Gökay. 2019. The Disintegration of EuroAtlanticism and New Authoritarianism. Global Power-Shift. London, UK: Palgrave Macmillan. Gowan, Peter. 2009. “The Crisis in the Heartland. Consequences of the New Wall Street System.” New Left Review 55 (January–Febuary): 5–29. Gowan, Peter. 1995. “Neo Liberal Theory and Practice for Eastern Europe.” New Left Review 213 (October): 3–60. Gramsci, Antonio. 1971. “The Modern Prince” Selections from the Prison Notebooks. London: Lawrence and Wishart. Harvey, David. 2014. Seventeen Contradictions and the End of Capitalism. London: Profile Books.

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Jeffrey, Sachs. 1990. “What Is to Be Done?” The Economist, Historical Archive, 1843–2014, 23–28. Katasonov, Valentin. 2015. Stalinskiy Otvet Na Sankcii Zapada: Economiceskiy Blizkrig Protiv Rossii. Moscow: Knijnyi Mir. Kuznets, Simon, and Elizabeth Jenks. 1953. “Shares of Upper Income Groups in Income and Savings.” Morton, Adam David. 2007. Unravelling Gramsci. Hegemony and the Passive Revolution in the Global Political Economy. London: Pluto Press. Offe, Claus. 1985. Contradictions of the Welfare State. Cambridge: The MIT Press. Panitch, Leo, and Sam Gindin. 2013. The Making of Global Capitalism: The Political Economy of American Empire. London: Verso. Piketty, Thomas. 2014. Capital in the Twenty—First Century. Cambridge, MA: The Belknap Press of Harvard University Press. Poulantzas, Nicos. 1973. Political Power and Social Classes. London: Duckworth. Ringer, Monica M. 2001. Education, Religion, and the Discourse of Cultural Reform in Qajar Iran. Irvine, CA: Mazda Publishers. Robinson, William. I. 1996. Promoting Polyarchy: Globalization, US Intervention, and Hegemony. Cambridge: Cambridge University Press. Ryner, Magnus. 2010. “An Obituary for the Third Way: The Financial Crisis and Social Democracy in Europe.” The Political Quarterly 81 (4): 554–62. Ryner, Magnus, and Alan Cafruny. 2017. “Core and Periphery in an Enlarged European Union.” In The European Union and Global Capitalism. London, UK: Palgrave Macmillan. Sakwa, Richard. 2008. “Putin: Character and Consequences.” Europe-Asia Studies 60 (6): 879–97. Sakwa, Richard. 2017a. Russia Against the Rest The Post-Cold War Crisis of World Order. Cambridge: Cambridge University Press. Sakwa, Richard. 2017b. “The Age of Eurasia?” In The Politics of Eurasianism. Identity, Popular Culture and Russia’s Foreign Policy, edited by M. Bassin and G. Pozo, 201–20. New York: Rowman & Littlefield International, Ltd. The US Department of Justice. 2017. “Deutsche Bank Agrees to Pay $7.2 Billion for Misleading Investors in Its Sale of Residential Mortgage-Backed Securities.” January 17. Retrieved April 20, 2020 (https://www.justice.gov/ opa/pr/deutsche-bank-agrees-pay-72-billion-misleading-investors-its-sale-res idential-mortgage-backed). Tsygankov, Andrei P. 2013. “The Russia-NATO Mistrust: Ethnophobia and the Double Expansion to Contain ‘the Russian Bear.’” Communist and Post-Communist Studies 46 (1): 179–88. van der Pijl, Kees. 2006a. Global Rivalries From the Cold War to Iraq. London: Pluto Press.

CHAPTER 4

Russia: Institutional Design

4.1

De-commodifying WSR Function

The analysis of the global context suggested that the neoliberal institutional transformation brought about two counter-hegemonic developments in the Russian WSR that affect its de-commodifying abilities: first, the monopolisation and the concentration of capital in the strategic sectors of economy, and second, the application of monetarist policies, such as austerity, to stabilise the economy. The aim of this section is to examine the legal and institutional framework of political and economic reforms in Russia to determine the WSR capacity to protect people from the social risks that derive from national and global markets that reduce their chances to survive outside the market. The following passages will focus on pension legislation; on state services to the non-employed population; on the health care, education and housing state provision that influence people’s choices to enter or exit the labour force. 4.1.1

Labour Market: Pension Legislation

Russia entered the 2000s with a stagnant welfare structure that was ‘progressively defunded in a rapidly stratifying society’ (Cook 2013: 114). The country’s welfare system was in an institutional deadlock: the infrastructure of social transfers in health care, education and housing © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_4

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that existed in the Soviet Union was no longer functioning, while the proposed liberal reforms were blocked by strong bureaucratic opposition. The WSR de-commodifying power was critically low, while the blackmarket institutions and arrangements served only a small proportion of the population. New Year’s Eve 1999 was a moment of high societal instability, when President Boris Yeltsin in a traditional TV Presidential speech resigned in favour of Vladimir Putin, a new political figure, not much understood by the wider public. Very soon, however, Putin demonstrated what some analysts regard as ‘effective leadership’1 and a strong determination to transform government-business relations that helped him gain support in parliament to implement the program of welfare state reforms (Remington 2011: 75–76). Putin’s administration saw social welfare liberalisation and privatisation as the only vital way to commodify the black-market labour relations, as the time for gradual reforms had been lost by Yeltsin’s polarised team. Therefore, at the beginning the new government actively supported re-commodification of the labour force, initiated in the 90s: Gref’s Reform Plan—2000, formulated by the new Minister of Economic Development and Trade German Gref (2000–2007). The reform aimed to renovate pension system, the Labour and Housing Codes and to restrain an unlawful and uncontrollable privatisation of the previous decade that undermined national interests. Importantly, this was a commodification of shadow, informal relations, not a re-commodification of de-commodified Soviet labour: the communist regime was not a ‘blueprint for de-commodification’, but rather a Marxist ‘ability-needs’ nexus that targeted poverty eradication but was not protected from the socialist labour market (Esping-Andersen 1990: 47). Most of the mechanisms of the current pension system were formed in 2002–2010. Four main Federal Laws were adopted in 2002, regulating labour pensions, introducing an obligatory social insurance scheme and defining the investment procedures for the accumulated part of pension contributions.2 Gref’s Reform aimed at stimulating four trends in the Russian WSR institutional transformation: privatisation of provisions, individualisation of risks, monetisation of access and decentralisation 1 CHM R.1 , see Appendix I. 2 Federal Laws: Zakon o Trudovykh Pensiyakh, Zakon o Pensionnom Obespechenii,

Zakon ob obyazaelnom pensionnom strakhovanii, Zakon ob investirovanii sredstv dlya finansirovaniya nakopitelnoy chasti pensii.

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of management (Cerami 2009: 107–9); and pursued three macroeconomic goals: to introduce insurance mechanisms, by linking the actual payment to salary and to work experience, to increase pension payments and to improve the financial sustainability of the system (Maleva and Sinyavskaya 2007). The introduction of the Single Social Tax increased tax collection that expanded the de-commodifying capacity of the pension system. In 2010, the Federal Law of Insurance Payments (Federal Law N212-FZ 2009) further enhanced tax collection, when the Single Social Tax was substituted with non-regressive insurance payments to non-budget funds—the Pension Fund, the Social Insurance Fund and the Medical Insurance Fund (Fond Obyazatelnogo Meditsinskogo Obrazovaniya). Initially, the aggregate rate of the new taxes was equal to the marginal rate of the Single Social Tax—26%, but in 2011 it was increased to 34% (comprised of 26% to the Pension Fund, 2.9% to the Social Insurance Fund and 5.1% to the Medical Insurance Fund) (Rossiyskaya gazeta 16 December 2010). The government considered an increase in pensions to be an important anti-crisis mechanism and the consequences of the reform were rather positive for Russian pensioners; in 2010, pension payments grew in real terms and amounted to 8–9% of GDP; yet, in real terms the value of this increase was not substantial enough to claim a strong de-commodification capacity of the pension reform. The upward dynamic of pension payments has not been reversed by economic sanctions and the contraction in oil revenues nor by COVID19: in 2014–2021, full indexation of pensions to inflation was maintained, except in 2016 when indexation was 4% lower than inflation (12,9%), and working pensioners were excluded from the indexation. Since 2022, the government will be indexing pensions at a rate above the inflation (over 8.6% in 2021), while the average pension of a non-working Russian will be P = 18,984 per month (approx. $250). Further centralisation and monopolisation of ‘strategic’ sectors of the economy,3 financial and military sectors, enabled the government to enhance state control over capital flows, increasing the resources available in the state budget and Sovereign Wealth Funds to restore the de-commodifying capabilities of the Russian pension system and to meet increased demand for public expenditures. If in 2000–2006, the average pension remained below the subsistence level, while wages grew faster than inflation, in 2014–2019, the federal

3 CHM R.2 , see Appendix I.

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budget assigned a significant amount of funds (i.e. P = 99.7 bn. in 2017) to equalise pensions to the subsistence levels for 3.9 million recipients, and the growth level of pensions, 4.5% y–o-y, exceeded the inflation rate (3.7%). In 2019, again, the pension rose by 7.05% (P = 1,000 a month on average) exceeding the previous year’s inflation rate of 4.3%, as the government changed traditional indexation to a new rule, according to which the pension growth rate should exceed inflation. According to Minister of Finance Anton Siluanov, this pension reform would allow pensions to be adjusted for inflation more efficiently, reaching P = 20,000 a month (approximately $350) in 2024 (Pensiology.ru 2019). Moreover, in March 2019 the Duma passed a law on raising pensions above the subsistence minimum: before the annual pension indexation took place without considering the subsistence minimum, as the gap between pensions and subsisting level (P = 8,400 in 2018) was covered by a social ‘supplement pay’, so with each increase in the size of the pension, the amount of social supplement decreased, leaving the total amount of pension income at the same level; since March 2019, the amount of the monthly supplement to the subsistence minimum is no longer subject to revision in connection with the current indexation and lump sum payments (Kommersant 2019). However, despite its positive effect on the pension system, the overall effect of centralisation and monopolisation of ‘strategic’ sectors of the economy has been quite contradictory: on one side, it enhances state control over resources available to restore the de-commodifying capabilities of the Russian pension system, on another, it increased the system’s overall vulnerability to sanctions (see the Chapter on Material Capabilities for more details ). For instance, Rosneft, which is under sanctions, by taking over a 50.08% stake in Bashneft for P = 329.69 billion ($5.30 billion) in 2016 (Reuters 2016), inevitably spills the regime of sanctions over a company that might not have fallen under sanctions. In this respect, the long-term consequences of privatisation, launched by the Russian government ‘to raise cash to plug budget holes amid low oil prices and Western sanctions’, are dubious. This is also true in case of sanctions against individuals: sanctions aim at affecting not only individuals directly, but mainly their businesses, therefore by acquiring new assets, which have not been included in the sanctions list, oligarchs automatically become transmission mechanisms for sanctions across Russian assets. Moreover, despite all the efforts to foster the de-commodifying effect of pensions, further increases

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in payments in the negative macroeconomic context faced a major institutional constraint of the pension system: its excess dependence on the state budget. Also, the decline in the working population made further changes in pension reform, such as the rise in retirement age, essential. According to Mr Putin, ‘any further delay would be irresponsible’, as it would threaten the stability of Russian society’ (BBC 2018). Yet, as life expectancy upon retirement for both men and women in Russia is much lower than in Western states, public protests in 2018 pushed the government to ‘soften’ the parameters of the pension reform that presupposes a gradual increase in the retirement age for women from 55 to 60 (with life expectancy of 77), and for men, from 60 to 65 (with life expectancy of 66) over the period 2019–2028. Furthermore, the value of the minimum pension provision remains low—it ranges from 21.8 to 24% of the employee’s average earnings (that corresponds to the pensioner’s subsistence minimum), while in OECD this ratio is 25.6% of the average employee’s earnings, also the wages calculated at purchasing power parity are very low compared to the average of OECD countries (Terentieva 2019). Nevertheless, the reform of the retirement age was partly aimed at reducing the demographic burden (the ratio of pensioners to working age population). According to Rosstat, if in 2020 there were 477 citizens older than able-bodied per 1,000 people of working age, by 2031 it could increase to 528 per 1,000 (Kommersant 2020). Another problem lies in the lack of clarity and in places of transparency of the pension system. Lots of amendments, complementary laws and new state social programs that have been adopted since then make the legal system in the social sector hard to understand by the public. The lack of clarity as well as an emergence of lots of private insurance schemes and intermediary services explain why pensioners so often move their savings from one organisation to another, which led the state Duma to consider a bill to block unauthorised changes of non-state pension funds in October 2020 (Regnum 16 Secptember 2020). The interviews with pensioners show that pension system efficiency is reduced by the fact that constantly changing legislation, as well as complex formulas used to calculate pensions, make it difficult for them to understand how the system works and it is impossible to make decisions about their individual pension scheme.4 For instance, in 2013 the Federal law on Pension Insurance

4 Interview with pensioners, conducted by the author.

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(Federal Laws N424-FZ & N400-FZ 2013) introduced a new formula that included parameters of work experience of minimum 15 years (a gradual increase from 5 years), of wage amount, of retirement age and of an individual pension coefficient. Pensioners’ failure to understand what lies behind the ‘individual pension coefficient’ makes them feel increasingly insecure. Uncertainty is aggravated by the ‘temporary’ changes to pension legislation—a moratorium on the transfer of the savings component (the ‘accumulated’ pension)5 to non-state pension funds, an episode that coincided with the time of imposition of sanctions against Russia. In 2017, the moratorium was prolonged until 2020, and later to 2023, leaving pensioners deprived of a chance to get a return on almost a third of their pensions in future. For some, this controversial legislative act diverted ‘cash flows in the pension domain and allowed the creation of a “presidential reserve” fund’ (P = 350 bn. in 2016) to cover the Pension Fund deficit and to restructure the Crimean economy (Khmelnitskaya 2017: 467). Back in 2017, this freeze was expected to reduce budget spending by P = 551.3 billion a year by 2020 (TASS 2017). Moreover, since the ratio of working Russians to pensioners is constantly changing in favour of the latter, this is an additional burden on both the budget and the pension system, as all employers’ transfers are directed to the payment of pensions to current pensioners. Demographic ‘load factors’ (i.e. the ratio between the number of children and the elderly and the number of economically active population) are continuously deteriorating in Russia. 4.1.2

Households: Benefits-in-Cash and Benefits-in-Kind

Other important factors that have a de-commodifying effect on the population and influence decisions to enter or exit the labour market are unemployment benefits, free education, health care and housing benefits. Unemployment benefits are very small in Russia and vary from P = 1,500 to P = 8,000 per month in 2019, leaving no incentive to remain outside the labour force. The level of unemployment in Russia is low—around 5%— 5,6% in 2019–2020, compared to 9% in 2010, with the lowest rate in the Central region—3.1% (1% in Moscow), and the highest in the North Caucuses—10.5%. In the 2000s, the ‘residual system of protection against 5 22% of wages is an employee’s contribution of to the Pension Fund. 16% of which is an ‘insurance’ part of the pension, and 6%—‘accumulative’ part. Before the moratorium, it was possible to transfer the accumulative part into a private, non-state pension fund.

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unemployment’ (Cerami 2009: 107) was supported by the Stabilisation Fund created in 2004 out of the oil revenues and accumulated currency reserves that enabled the government to raise unemployment benefits even in the period of crisis, as well as to maintain demand by increasing social spending, and to allocate P = 43.7 bn. ($1.3 bn.) to retrain workers, create temporary jobs and support start-up businesses (Remington et al. 2011: 73–76). In 2008, the Stabilisation Fund was split into the Reserve Fund and the National Wealth Fund. The Russian National Wealth Fund 6 — (Fond Nazionalnogo Blagosotoyaniya Rossii—FNB) played a key role in supporting the growth of social transfers during the period of economic sanctions and became not only an insurer for the Pension Fund budget, but also a ‘balancer’ for the Federal budget (covering the deficit). The role of the RNWF is nevertheless contradictory: on one side, its reserves permit to refinance large business corporations at the time of crisis, not directly from the Government budget, or via quantitative easing, spurring inflation and destroying the value of assets, but from its profitable ‘mixed portfolios of foreign currencies, government bonds, real estate, precious metals’, acting ‘as repositories for excess foreign currency earned from the export of commodities’ (Bremmer 2009: 40), on another side, this reliance of the large businesses on the state funds perpetuates ‘patron–client dynamic’ that ultimately limits business efficiency and profitability, and eventually might have a commodifying effect on labour, as state bureaucrats, not proficient business managers, become the main decision-makers, while the motivation of the business elites behind investment decisions is mainly political rather than economic, therefore some projects might not lead to expected returns, reducing the firm’s capacity to invest in human resources. Nevertheless, in November 2018, the assets of the RNWF, which integrated $17.05 billion (P = 994.6 bn.) of the remaining assets of the Reserve Fund, liquidated in January 2018, grew from $76.20 bn. (P = 5 trillion) in January 2018 to $182,594 bn. (P = 13,56 trillion.) by the end of 2021. In 2017, the minimum wage rate (MROT—the base for the calculation of the benefits-in-cash) grew 20.7%, to P = 9,489 and became 85% of the subsistence threshold in 2018 (P = 11,163 for the working population), and in 2019 it reached 100% of the subsistence level in 2018 (P = 12,130 for the working population) (Federal Law-FZ421 2018). Also,

6 CHM , see Appendix I. R3

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the amount of state social payments has been constantly growing (in real terms): from P = 4,247 bn. in 2009 (11% GDP), to P = 8,628 bn. in 2014 (11,5% GDP), and to P = 9,800 bn. (12% GDP) in 2016 (HSE 2017). However, despite the growth of the total amount of social spending, the aim of the government is to make it more ‘means-tested’, to decrease the number of recipients. A survey shows that people don’t rely much on the state in times of financial difficulty: only 4% of the respondents expect help from the government, while 42%—count on themselves, 26% of the respondents rely on savings, and, a high percent of respondents, 28%—on relatives and friends. Even though people in Russia find ways to adjust to economic hardships and their subjective expectations are rather positive, around 19 and 21% of respondents in urban and in rural areas accordingly estimate their financial situation as ‘unsatisfactory’, 26% in cities and 44% in rural areas consider themselves ‘poor’ (HSE 2017). In the 2000s, there were a series of institutional changes in the education and health sectors: partial decentralisation and privatisation was aimed at bringing money transaction out of the black market and restructure the Soviet system of state-funded benefits. In health care, partial privatisation resulted in the distortion of the centralised state model and the appearance of the mixture of public and private institutions. While free state social assistance provision still exists, the amount of informal payments in state hospitals has increased, as government spending does not cover the needs of the population: Obligatory Medical Insurance Scheme (OMS Obyazatel’noye Meditsinskoye Strakhovaliye) (Federal Law N326-FZ 29 November 2016) covers the ‘per capita normative payment’ (Government Decree N1403 19 December 2016), which has been constantly reducing, and the Ministry of Healthcare estimated that they managed to save P = 3,000 bn. in 2015 (Medportal 2017b). Before the pandemic, the expert of the All-Russia National Front (Obsherossiiskii Narognyi Front ) Guzel Ulumbekova had warned that the healthcare sector was underfunded, 85% of funding went to cover wages leaving no reserves for other expenses, while more than one third in the system’s expenses—were paid by the population (Medportal 2017a). Nevertheless, de-commodifying effect of the state health system remains relatively low, enforcing people to join the labour market. However, the centralisation of management and control over the healthcare system overall allowed for a relatively efficient response to the COVID-19 pandemic, in terms of transferring the necessary material resources from other sectors to health care when needed and for the

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construction of 16 new specialised hospitals in two months, opened in May 2020 in different regions, with the aid of army construction brigades (Rossiyskaya gazeta 17 May 2020). As such, Federal expenditures on health care (excluding construction, i.e. articles, such as ‘sanitary and epidemiological means’, ‘emergency medical care’, ‘inpatient care’, etc.) for seven months in 2020 increased more than twofold compared to the same period in 2019, from P = 371 billion to P = 811 billion. Moreover, health spending by the Russian regions almost doubled, by 88%, from P = 536 billion to P = 1 trillion. At the same time, however, expenditures on medical personnel grew by only 3% compared (Kommersant 15 September 2020), with some unfortunate reports of hospital management retaining those transfers for what they considered to be more urgent needs. Overall, in 2021, the national project ‘Health care’ was fulfilled by 95.2% (P = 243.35 bn. of federal budget expenditures). Another problem for Russian citizens is ‘the poor state of housing and persistent increases in housing charges’ (Khmelnitskaya 2017: 461). According to the report by the Commissioner for Human Rights, there has been a huge amount of funds accumulated in the housing sector, but the population has been systematically robbed by the housing management companies (Upravlyaushiye Kompanii) (Report of the Commissioner 2017). This situation made State Duma to adopt a new Federal Law in 2018 that deprives the housing management companies of their rights to collect payments for water and gas and introduces subsidies for veterans, some groups of pensioners and the disabled (Rossiyskaya Gazeta 22 March 2018). Another problem in the Russian housing market, dubbed ‘deceived investors’ (‘obmanutyie dolschiki’ ), is related to the ‘Ponzi’ schemes in construction, when people’s investment in new housing projects are not secured. To address this problem the government initiated a transition to a new financing model based upon project financing that uses ‘escrow’ accounts7 that became mandatory from July 2019. Nevertheless, according to official data, among the national projects, the realisation of the ‘Housing and urban environment’ (99.8%, or P = 262.97 bn.), ‘Safe high-quality roads’ (P = 364.2 bn.), and ‘Education’ (89.8%, P = 131.52 bn.) was highly effective (MedVestnik 2022).

7 Buyers do not give the money directly to the developer, but transfer is to a special escrow account. The developer receives a bank loan and gets access to money only when all obligations are fulfilled and residents receive the keys to the finished property.

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In contrast to the housing sector, the de-commodifying effect of the education system is high: according to the Minster of Education Olga Vasilyeva, primary, secondary and tertiary state institutions amount to 93% of the market, due to their universal accessibility and the low income of the population. They are free of charge and provide a high-quality education (Rossiyskaya Gazeta 15 November 2017). Welfare state liberalisation, however, has been partly reversed since 2005, when it reached its limit after the monetisation of benefits-in-kind (Federal Law N122FZ 2004) that aimed at reducing the role of the welfare state, primarily for the most vulnerable categories, but resulted in excessive government expenditure at all levels and was met with massive public protests across the country. The reform affected more than 30% of population and had a strong commodifying effect: the extensive Soviet system of in-kind benefits, such as subsidies to housing and utilities, free access to public transport, free medicine, was substituted by cash payments. Placed at maximum risk of poverty, veterans, the disabled, pensioners and parents with young children were pushed to join the labour market. As twothirds of cash payments had to be made from regional budgets, while only one third from the federal budget, the regional governments that lacked necessary funds saw reversal of the reform as the only resolution. For example, in February 2017 the Rostov legislative body abolished the benefits-in-kind monetisation, calling the reform ‘a mistake’ (RBC 18 February 2016). Therefore, the Russian welfare state cannot be called ‘neoliberal’, as most of the proclaimed reforms have been reversed or adjusted to the Russian specifics.

4.2

Redistributive WSR Function

The redistributive mechanisms of the Russian WSR are dependent upon global practices of income distribution, which are reproduced through institutions that sustain US supremacy. In Russia, the reversal of the problem of inequality that was largely a product of an uncontrolled liberalisation in the 1990s faces a contradiction: the centralisation of control over the strategic sectors of the economy in response to the expansion of neoliberal institutions that preserve Russia’s status as an outsider is essential for the accumulation of resources necessary for the WSR development, but at the same time, the centralisation of control preserves the system of social provision obtained through the workplace, perpetuating the disparities across industries.

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The following passages will, first, consider legislative and institutional settings for ‘primary’ income distribution mechanisms—privatisation, organisation of production that shape government–business–labour relations, and then, the institutional framework for ‘secondary’ distribution of wealth, located in the pension–taxation nexus (the redistributional function of the welfare state regime). 4.2.1

Primary Mechanisms for Income Distribution

There are at least three institutional factors that triggered a sharp rise in income inequality in Yeltsin’s Russia in the first decade after the dissolution of the Soviet Union. The first is the deterioration of the socialist welfare state arrangements, due to the national economic mismanagement, internal political rivalry, legislative deadlock and the lack of financial assets that placed the country at a risk of social collapse. Second, market liberalisation, combined with massive gaps in legislation that fuelled the growth of the informal sector of economy, reduced the redistributive power of taxation and spurred uncontrollable capital flight into more stable jurisdictions. Third, the program of quasi-legal ‘voucher privatisation’ by the State Committee for State Property Management (headed by Anatoliy Chubais) in 1992–1994 that resulted in accumulation of vouchers purchased at a fraction of their actual value by former nomenklatura and state officials from impoverished Russians (VCIOM 09 October 2017). The state monopoly of foreign trade and production was dismantled and new ‘tycoons’ obtained foreign support from Western financial institutions to battle for the most profitable state assets (over 200,000 enterprises), mainly in the oil sector and metallurgy, creating the system of monopoly capitalism. By the 2000s, according to Forbes, the fortune of some of the ‘winners’ exceeded $1 bn. (M.Khodorkovsky—$8 bn., R.Abramovich—$5.7 bn., M.Fridman—$4.3 bn., V.Vekselberg— $2.5 bn., etc.) (van der Pijl 2006: 353). This was the peripheral Russia inherited by Putin in 1999, with 50 million people being poor and 10 million unemployed (World Bank 2002), soon after the country’s default and financial crisis in 1998 that had ‘exploded naïve ideas’ about privatisation and liberalisation, and marked the turning point in Russian history towards welfare states regime restoration (Van der Pijl 2006: 356). In the 2000s, these trends in the institutional power formation have been reversed, with the aim of reducing absolute poverty, creating a strong middle class, and elaborating efficient legislative mechanisms for

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income redistribution. The first institutional development was to return the most important strategic budget revenue-generating assets back under state control, then to reform labour legislation, and lastly to develop transparent and efficient pension and taxation systems to increase tax collections and reduce the incentives to cheat. Since 2000, Putin’s administration has been pursuing the contradictory tasks of fostering economic development to enhance social stability while counterbalancing representatives of the oligarchy and the security and law enforcement agencies (‘siloviki’); the latter consolidated the ‘vertical power’ of federal bureaucracy and impeded the development of small businesses and the formation of a strong middle class (Yakovlew 2014: 10). To finance the welfare state regime transformation, ‘modernisation from above’, the restoration and centralisation of state control over strategic sectors of the economy has become the primary goal of a series of Concepts for socio-economic development: Strategy-2020 in 2006–2007 (Consultant.ru 2018), Strategy-2030 in 2008, and Strategy2035 in 2017, and of industry strategies developed by ministries, such as the Long-term Energy Strategy—2035 in 2014 (RF Ministry of Energy 2017). These documents initiated a de facto nationalisation of major corporations, such as Yukos, and a takeover of Russian and foreign assets in strategic sectors of the economy. For instance, a $55 billion acquisition of TNK-BP in 2013, then a P = 330 bn. ($5.6 bn.) re-established state control over production, from 10% in 1998 to over 55%, which reached 285,5 million tonnes in 2018, making JSC Rosneft, ‘the world’s largest publicly traded oil producer by output’ (TASS 5 February 2019b). The restoration of state control over strategic sectors of the economy revived neo-corporate settings for primary income distribution in the workplace. It allowed for a more effective control over capital flows 8 and increased strategic businesses access to resources to refinance activities, thus reduced the system’s overall vulnerability to external chocks. This happened, however, at the expense of small and some mediumsize businesses, which continued to suffer from a limited access to credit, corruption and inefficient usage of funds. The importance of the federal budget and state institutions in the welfare state provision in Russia is inherited from the Soviet system, where the employees were heavily reliant on workplace-based benefits

8 CHM R.4 , see Appendix I.

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(Remington et al. 2011: 42–52). This peculiar form of enterprise corporatism has not been easy to dismantle, as it would have required a dramatic shift in income distribution, and therefore in class relations. Quite the reverse has happened under the pressure of economic sanctions: enterprise corporatism was reinstated in the form of enterprise paternalism 9 (i.e. neo-corporatism) that has become a CHM, acquiring a new ‘strategic’ role of protecting employees from precarious tendencies, mobilising and managing human recourses, in order to address the dilemma between ‘simultaneous need for labour flexibility and consumer confidence’, to increase the purchasing power of the working population (Crouch 2009: 385). At the same time, however, the distribution of social provision through the workplace might create income disparities across industries within the same sector of the economy, which is represented by both national and foreign companies, across executive power structures, such as Ministries (i.e. Ministry of Defence, Ministry of Foreign Affairs, etc.), and across regions as the result. As such, enterprise paternalism in Russia remains heterogenous and a substantial proportion of the population stays outside the system. Foreign companies used to provide higher salaries than in domestic private firms, and they also have very attractive compensation packages, promotional and educational schemes, free food and sports facilities, private health insurance to all family members, pension funds and offer lax credits. At the same time, Russian monopolies in transport and oil companies, and civil servants also detect certain institutional and structural social class differentiations that derive from access to benefit entitlements. For instance, most of the ministries have their own high-quality healthcare facilities, such as outpatient clinics (polyclinika), hospitals, kinder-gardens, sanatoriums, as well as state housing and many more. To keep young talented people for longer, some companies offer special discount mortgage programs and cover the initial payment, given that the worker will stay with this company for 10 plus more years. Some ministries share their welfare facilities with state companies: for instance, Rosneft’s employees used to get their health treatment in the policlinic of the Ministry of Defence that possesses high-tech medical equipment and employs highly experienced medical personnel. Some of these institutions, especially sanatoriums, are partly privatised and offer services to the wider population at

9 CHM R.5 , see Appendix I.

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market prices, but their affiliation with state institutions and corporations remains in place and they are assigned a quota of people they serve at ‘budget price’, a massive discount rate. However, there is a significant proportion of the population that suffers from this institutional disparity in the workplace: the differentiation of monetary earnings is high, the access to social benefits is unequal, but still worse, there has been an emergence of a new class of ‘working poor’, composed of blue-collar workers, skilled specialists, women or elderly (Cerami 2009). An investigation of poverty rates by household composition shows that poverty in Russia increased among part-time workers, single-headed households, single parents, single women with children, households with unemployed, with elderly or young members, households with ethnic minorities, migrants (Ibid.:109–111). In 2017, some alarming data was published by the Federal State Statistics Service (GKS): the wage of almost 2 million Russians (7,3% of working population) is below the subsistence level; the amount of the working poor in the state sector is 4 times higher than in the private sector (Vedomosti 2017). Moreover, the estimated subsistence level (the cost of living) remains very low—P = 12,392 ($164) for the working age population, P = 9,422— for pensioners, and P = 11,423—for children (RBC 2020b). At the same time, income inequality in Russia has been constantly increasing: the Gini coefficient rose from 0,289 in 1992 to 0,395 in 2000, and to 0,410 in 2017 (GKS 2018). 4.2.2

Secondary Mechanisms of Income Distribution

The new set of tax legislation in the first decade of 2000s, aimed at the reduction in fiscal pressures on the private sector, at consolidation and decreasing payroll taxes by adopting a unified social tax system that regressed against wages, proved efficient in terms of tax collection, and made income redistribution in Russia possible through the Federal Fund for Financial Support of the Regions, budgetary payroll rises, and the increase of real public social transfers in health, education until 2013 (Cook 2013: 150). At the same time, and most importantly for the redistribution of wealth, the tax burden in the energy sector is the highest in Russia, varying from 19% (Gazprom) to 27,3% (Rosneft), or even 43% (Slavneft), which could be mainly attributed to a very heavy Mineral Extraction Tax for oil (NDPI) that amounts 18% of the total tax contributions to the state budget (in 2020, 65% of total contributions to the

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federal budget came from taxes), while the tax burden on trade, chemistry and security is minimal (REA 2021). Therefore, Putin’s administration managed to find a compromise with business and improve the unworkable Tax Code of the 90 s by reducing unrealistic tax rates that ‘drove firms to avoid paying by resorting to a number of quasi-legal schemes, such as using offshore subsidiaries and transfer pricing’ (Remington 2011: 61). Further consolidation of the budgetary system and tax reforms (i.e. VAT, NDPI) allowed for increased efficiency of tax collections. For instance, in 2018, tax collections grew by 23% (or by P = 4 trillion—to P = 21.3 trillion) compared to 2017. In 2019–2020, despite a slight reduction due to the pandemic (a 6–7% decrease in real terms), tax revenues remained high—R21 trillion. According to Vladimir Putin, more than 50% of tax increase was attributed to the non-energy sector (1TV 2018). Increase in budget revenues was further enhanced by the ‘New Budget Rule’—2017: the ‘marginal budget expenses’ formula comprised three factors: (1) oil sector revenues based on $40/bbl Urals, (2) non-oil sector revenues, as forecasted by the Ministry of Economic Development, and (3) expenses to public debt financing (Federal Law N262-FZ 2017). According to this new ‘fiscal rule’, ‘any revenue from oil prices higher than $40 per barrel’ is accumulated in the National Wealth Fund, ‘which is part of Russia’s gold and foreign exchange reserves, held by the CB’ (Reuters 2018). This rule, along with other changes in legislation was believed to ‘quadruple the size of the Fund to P = 14.2 trillion ($216.1 billion) or 12% of GDP in 2021, which is close to the total government expenditure, planned for that year 16.9% of GDP’ (Ibid.) However, in 2020, as the tax collection slowed down due to the pandemic, the government increased the mineral extraction tax (MET) for the production of fertilisers, ferrous and non-ferrous metals to make up for the budget’s need for additional resources for the anti-crisis plans (RBC 2020a) (Fig. 4.1 and Table 4.1). The institutional peculiarity of the Russian fiscal system is the accumulation of main financial resources, such as the basic VAT (for most operations), which increased from 18 to 20% in January 2019, and Oil Extraction Tax (NDPI) in the federal budget, before their redistribution through intra-budgetary transfers to the regions: substantial funds have been redirected to the regions via this centrally managed system

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Mineral Extraction Tax

18%

22%

VAT Individual Income Tax 21%

19%

Corporate Income Tax Other

20%

Fig. 4.1 Federal Budget Tax Structure, 2020, % of total =P 21 trillion ($274 billion) (Sources Ministry of Finance, 2021)

Table 4.1 Taxes Federal

Regional

Municipal

VAT (0, 10, 18%, 20%) Corporate Income Tax, 3% (out of total 20%) Individual Income Tax (NDFL), progressive (0, 9, 13, 15, 30, 35%) Mineral Extraction Tax (NDPI) Tax on Water Single Social Tax Excise tax and Customs duty

Transport tax Corporate Income Tax, 17% (out of total 20%) Other

Tax on Land Individual Property Tax Tax on Advertising

Tax on Gambling Other

Sources Tax Code; Nalog.ru

of transfers, or intra-budgetary redistribution,10 with additional institutional mechanisms, such as the Fund for Financial Support of the Regions. Since 2010, and especially after the worsening of the geopolitical situation in 2014–2020, the impact of the internal contradiction of the institutional structure of the Russian budgetary system on the

10 CHM R.6 , see Appendix I.

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welfare state regime redistributary capacity has become more evident; the growth of social expenditures has been slowed down. On one side, intra-budgetary redistribution makes Russian regions highly dependent on this transfer and increases the regional disparity in income distribution. Income disparity between some regions has perpetuated, as responsibility for financing social programs has been partly put on regional budgets. On another, in 2018–2020 the share of intra-budgetary redistribution on social programs in all budget spending grew from 32 to 39%, with the growth in real terms from P = 5358,2 bn. (5.1% of GDP) to P = 8881,6 bn. (8.3% of GDP) https://minfin.gov.ru/common/upload/library/2021/ 03/main/Ispolnenie_2020_god.pdf. Overall, the stability of the system has increased, as the federal system, based on intra-budgetary redistribution has become a valuable CHM that enabled accumulation of sufficient revenues and tax payments, reduced regional corruption and vulnerability to external shocks, and strengthened the capacity of the pension regime, which the analysis of pension reform in the previous passage has demonstrated. The problem of regional disparity and the welfare of the population were addressed in the ‘May Decrees’ in 2012 that formulated the main tasks of the country’s socio-economic development for the six-year presidential terms and set the ground for significant institutional changes; a specially created Council for Strategic Development and Priority Projects was made responsible for coordination and execution of twelve ‘National Projects’: ‘demography, health care, education, housing and urban environment, ecology, safe and quality motorways, labour productivity and employment support, science, the digital economy, culture, small and medium enterprises and support of individual business initiatives, international cooperation and export’. In 2018 Vladimir Putin, after taking back office from Dmitri Medvedev (2008–2012), continued the tradition of the May Decrees. The Decree of May 7, 2018 N204 titled ‘On National Goals and Strategic Objectives of the Development of the Russian Federation for the period up to 2024’ claimed to make Russia one of the world’s five largest economies by 2024, by stimulating economic growth and keeping inflation stable (below 4%). This document marked a shift in the government’s priorities, from social policies and the military in 2012, to infrastructure, health care and digital issues in 2018 (Deprez 2019). The task was to ensure sustainable growth in real incomes, pension provisions, population growth, an increase in life expectancy to 78 years (by 2030—up to 80 years), the improvement of living conditions and poverty

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reduction. It also prioritised the introduction of digital technologies, the increase in the share of technologically innovative organisations up to 50% of total businesses, and the development of competitive export-oriented manufacturing and agro-industrial complexes (Presidential Decree N204 2018). The ‘Digital Economy Program-2024’, which covers five areas: ‘normative regulation, education, personnel, cybersecurity, formation of research competencies and IT infrastructure’, and to which the Russian government allocated $53,14 million in 2018, got maximum attention. As Putin put it, the program ‘created a stable and secure ICT infrastructure for high-speed transmission, processing and storage of large amounts of data accessible to all organizations and households’ (TASS 2018). To finance national projects, the government restructured the banking sector, consolidated non-oil and gas revenues and introduced austerity measures. As the result, the amount of ‘freed’ funds reached 3.8% of GDP (P = 3.84 bn in 2018). This regime of strict economy implied not so much the stagnation of budget spending but rather a redirection of funds into the most dynamic and strategically important fields of the economy. As such, short-term austerity measures in 2014–2018 (i.e. expenses decrease) have become counter-hegemonic mechanisms: optimisation of socio-economic policies,11 by raising the effectiveness of welfare institutions to reduce public spending on social provisions, by improving their quality, has been an unavoidable step to meet increased demand for public services and income distribution and to respond to re-commodifying pressures, enhanced by industrial modernisation at times of sanctions and capital outflows. It would be informative to compare the structure of the Budget expenditures in 2013, or prior to the introduction of sanctions, to 2018 (to the pre-pandemic year). The most important fact, as already mentioned, is that in 2013 there was a budget deficit of P = 323 bn., in 2018, the budget surplus was a record P = 2,745 bn. (2011 was the last time it was in surplus—P = 442 bn.). Among the tools (or austerity mechanisms) that allowed an effective fiscal consolidation in 2014–2018 to reduce the budget of non-oil and gas deficit from 9.8 to 6% of GDP, were a 1.7% cut in budgetary expenses, and 2.1% growth in tax collection. Figure 4.2 demonstrates that before the pandemic (2013–2018) the growth of the share of components such as national defence, national economy and national issues, and a considerable increase of expenditure

11 CHM R.7 , see Appendix I.

4 0.00

5.00

10.00

RUSSIA: INSTITUTIONAL DESIGN 15.00

20.00

25.00

30.00

107 35.00

National issues National Devfence Social Policy National Economy Security & Law enforcement Inter-budget transfers Healthcare Education State & municipal debt Housing & communal services Environmental protection Culture, Cinematography Mass media Physical education & Sport

2013 2018 2020

Fig. 4.2 Federal budget Expenditures, % of total: =P 13,343 bn. in 2013, =P 16,709 bn. in 2018, =P 22,822 in 2020 (Source Ministry of Finance 2021, https://minfin.gov.ru/ru/statistics/fedbud/execute/)

on servicing debt and inter-budget transfers, while the share of social policies such as health and education has declined. The institutional changes introduced by the Budget-2020 were in line with austerity mechanisms that prompted the reduction of the number and size of the Federal social programs (Federalnykh Tselevykh Program) from 33 in 2017 to 14 in 2020. Notably, even the secret budget article that formed 17% of budget spending was reduced by 7%, to P = 2,896 trillion (3% GDP) in 2018. Overall, the regime of strict economy has reduced the dependence of the state budget from global financial market fluctuations, however, it has been achieved at the expense of redistributive capacity of the welfare state regime. Moreover, monetarist-like policies of the Russian Central Bank that introduced a floating exchange rate and is successfully keeping inflation at a precedential lower level (declined from 12.9% in 2015 to 5.4% in 2016, and to 2.5% in 2017, and to 4.3% in 2018), might have a negative long-term effect on the middle class, the main debtors in the economy, as the politics of cutting inflation is nothing but a form of a ‘class-specific tax’ that restores the ‘real’ value of money to support domestic creditors (Blyth 1967/2014). Even though the rise in VAT to 20%, along with the sanctions risks and lower oil prices, increased inflationary pressures (Est. 5.5% in 2019), the Bank of Russia might ‘return to monetary easing’ (Bloomberg 2019). As such, the efforts to insulate the state budget from

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the fluctuations in global financial markets in 2013–2018 came at the expense of real incomes and the purchasing power of the population. At the same time, the effectiveness of budget consolidation, institutional reforms, more efficient economic policies and changes in legislation (i.e. an increase in the VAT by 2%, from 18 to 20% and an increase in the retirement age for women to 60 years, for men to 65 years) cannot be interpreted as a dismantling of social policies. It allowed to redirect funds on health and social policy: in 2019–2020 expenses on social policy grew by more than 50%, while expenses on health care—by 140%. In absolute terms, in 2013–2020, expenditures on important social policies have grown: from P = 502 bn. to P = 1,334 bn. on health care and from P = 3,833 bn. to P = 6,990 bn. on social policies. In 2019 alone, a P = 3.29 trillion increase, including budget transfers, was used to raise pensions, while the budgetary reform overall aimed at freeing funds for the realisation of the national projects. The federal budget is the main source to finance these National Projects, especially such projects as ‘International cooperation and Export’ (100% is financed from the state budget), Culture, Demography, SME support, Education, Digital Economy, Health care and Housing, with more than 80% coming from the federal budget. Other sources are regional budgets, with the highest share for the financing of the ‘Road Safety’ project (over 80% coming from the regional budget), and also investments by non-governmental organisations (80% for Ecology, and 50% for Infrastructure). Most actively technological modernisation has been implemented in several areas: (1) agriculture; (2) mechanical engineering, with active support of manufacturers by the Ministry of Industry and Trade; (3) information technology, by transferring state institutions, state education and medical organisation to a newly created register of domestic software; (4) public procurement, by directing and restricting the purchases of goods by public institutions (e.g. during the pandemic Russian hospitals were only allowed to purchase Russian personal protective equipment) (Fig. 4.3). In 2021, the federal budget of Russia was executed with a surplus of P = 515 bn., or 0.4% of GDP (instead of the expected deficit of 2.4% of GDP), as budget revenues reached P = 25.287 trillion (134.8% of the level expected), with oil and gas revenues—P = 9.057 trillion, and non-oil and gas—P = 16.230 trillion. (RF Ministry of Finance 2022). Compiled with a constantly declining sovereign external debt—P = 19.7 trillion in April

4

Science, 2% Education, 3%

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Small & Medium business 2%

Intenational cooperation & Exports, 4%

Infrastructure 25%

Housing & Urban 4% Digital economy 6% Healthcare 7% Demography 12%

Road safety 19% Ecology 16%

Fig. 4.3 National Projects financing in 2020 (% of total) (Source Ministry of Finance 2021) 2018

2014 0 10 20 30 40 50 60 70 80 90 100

€

$

Gold

¥

£

Other

Fig. 4.4 Foreign currencies and gold of the CBR (% of market value) (Source Authors calculations, the Bank of Russia, 2015, 2019)

2021, or 17% of projected GDP, these numbers are in excess of what is needed to ensure the stability of the economy (Fig. 4.4). Overall, the Russian financial system is becoming more diversified and less vulnerable to external shocks. This is reflected in the Balance

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sheet of the Central Bank of Russia (CBR). Since the introduction of sanctions, over the period of 2014–2019, the share of US dollar and Euros-denominated assets in total Bank’s assets decreased from almost 80% to just over 50%, while the share of gold grew from 9% to over 17%, the share of Yuan, Yen and other currencies grew from 3 to 23%. In June 2018, the geographical distribution of assets by the place of counterparties’ registration was the following: 16.9%—was the gold, held in the Bank of Russia, 15.5%—assets in France, only 9.6% in United States, against 32.5% a year earlier (TASS 2019a). The CBR is planning to increase its gross international reserves (GIR) to $500 bn. ($487 bn. as of March 2019), bringing reserves back to the level they were at before the sanctions regime. According to CBR governor Elvira Nabiullina, ‘recent rouble and oil price stability allows the CBR to top up reserves without risking a disturbance in the currency market’, and that the ‘CBR reserves already fully cover Russia’s public and private external debt with cash that stands at about $470 bn.’, even without further accumulation (The Moscow Times 4 April 2019).

4.3

Connecting WSR Function

Neoliberal institutional settings have a contradictory impact on the WSR: on the one hand, the expansion of transnational business structures and non-governmental institutions connect people around the world, on the other, globalisation distorts existing pre-capitalist communal ties, disuniting people. The following passage will be devoted to analysing the institutional WSR arrangements that restored or impeded the formation of social solidarity, interconnectedness and mutual commitments. The institutional connecting settings will be assessed, first, at a macro-level: the system of Russian tripartism; and second—at a micro-level: the system of social partnerships and the Russian institutional dualism grounded in enterprise paternalism. 4.3.1

Macro-Level Arrangements

Globalisation and financial liberalisation deprive the population of wealth necessary for human reproduction as it transforms transnational institutional arrangements in a way that undermines welfare state regimes, by creating channels for capital outflows and for capital accumulation in

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offshore jurisdictions. It is important to revoke institutions that interconnect business and power elites, providing them with legal mechanisms for securing, protecting and accumulating their wealth. Another challenge that derives from global institutional settings emerges in the cognitive sphere: information ‘wars’, led through non-governmental institutions, target regime transformation from within. Since the introduction of sanctions in 2014, the consolidation of Russian institutions in order to face these challenges has been developed in two directions: first, through the Russian system of tripartism and second, through the system of control of NGOs and ‘foreign agents’ that operate in Russia (Federal Law N129-FZ 2015). According to the new Strategy for economic security—2030, signed by the Russian president in May 2017 (in place of Strategy—1996), ‘not enough efficient’ state management and the ‘reduction of the quality of human resources’ were in the list of immediate ‘economic threats’, that could be mitigated by a ‘more balanced regional development’, and a ‘unity of economic space’ across Russia (Presidential Decree N208 May 2017). A stable government–labour–enterprise relation is the centrepiece for a consolidation of ‘economic space’ and setting of the rules of the game that would make businesses serve domestic interests and somehow reduce capital flight. From the early 2000s, Putin’s achievement was a greater cohesion between state power institutions and large enterprises. The Russian Union of Industrialists and Entrepreneurs (RSPP), founded in 1991 by Mikhail Gorbachev’s counsellor Arkady Volsky, became a leading institution that connected big businesses and regional and sectorial governmental bodies. RSPP is a consultative body that gathers regularly to coordinate government–business relations, to formally and informally agree on various important issues, such as investment, subsidies and taxation, production and employment, social obligations and responsibilities; also, the Union is ‘proactively engaged in cooperation’ with Business Councils of BRICS, SCO, APEC, BIAC, B20, etc., and serves as a platform for a dialogue between foreign and Russian businesses with Russian authorities through The International Council for Cooperation and Investment (ICCI), established by the RSPP in February 2008 (RSPP 2017). However, after the crisis of 2008 and in the period of economic sanctions, it became clear that big businesses and federal bureaucracy could no longer ‘balance regional development’ by timely adjusting of wages to inflation and keeping employment at a natural level, and that the only way to avoid further social stratification was to invest

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in human capital, to consolidate the middle class and to protect mediumand small-size private firms from the arbitrariness of the ‘siloviki’. The foothold for a new institutional design became a ‘Russian Tripartite Commission’, a network of different types of regional and local agreements between companies, state authorities and labour, created by Boris Yeltsin in 1991. In most of the cases, the bargaining between government, employers and employees over wages and social welfare had little influence over decision-making, and these agreements remained statements of intention that lacked enforcement mechanisms rather than binding commitments (Remington et al. 2011: 55). However, there were some positive developments in the long-run; for instance, as we have seen, the principle that the minimum wage should be brought up to the subsistence minimum, incorporated into the Labour Code-2001, has become finally in effect in 2017. Also, in the post-crisis period there was a ‘shift towards more open representation of interests and bargaining’; for instance, the RSPP lobbied to add some flexibility to the Labour Code articles, such as an extension of maximum working hours from 40 to 60 hours a week and a removal of limitations on short-term and agency ‘non-standard labour contracts’ (Vinogradova et al. 2015: 200). Also, the government’s efforts to bring the earning out of the black market increased the workers bargaining leverage vis-à-vis employers. Moreover, the system of Russian tripartism was designed to address the problem of capital flight: for instance, as a result of a ‘friendship’ between the Russian political ‘elite’ and billionaire Alisher Usmanov, the oligarch redirected his cash flows back to Russia (i.e. shifted USM Holding from Cyprus to Russia, sold his stake in Arsenal football club, etc.) (Financial Times 11 September 2018). At the same time, the indicator of ‘net capital outflow’, cannot be identified with ‘capital flight’ alone: it relates not only to capital withdrawals by Russian oligarchs, but also to the current account surplus, which reflects the positive balance of foreign trade (RBC 13 March 2018). At present, the system of tripartism 12 is one of the most efficient counter-hegemonic mechanisms for social protection, a base for future government–business–labour agreement to develop a private insurance market in social protection. The role of the state’s fiscal and regulatory policies is crucial in this respect, as the history of some European welfare states suggests. For instance, in the inter-war period, the British

12 CHM R.8 , see Appendix I.

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government granted tax privileges for insurance contributions to help induce private entrepreneurship in the field of social protection (the 1921 Finance Act); further development of private insurance schemes was based on ‘discouraging the traditional discretionary-gratuity principle and encouraging the rise of regular, negotiated, and contractual fringebenefit plans’ (Esping-Andersen 1990: 95). Something similar is being discussed in the Russian parliament: a Draft Individual Pension Capital Law (Zakonoproyekt o systeme individualnogo pensionnogo kapitala—IPK ) has been developed by the Ministry of Finance and the Central Bank in 2016. It is suggested to introduce a new pension system in 2019, based on individual responsibility in the formation of pension capital that will be fully managed by non-state (private) pension funds (NPFnegosudarstvennye pensionnye fondy) (RBC 24 May 2017). The future of the reform, however, is still uncertain, as the moratorium on pension accumulation discussed previously is not over yet. Overall, as a counterhegemonic mechanism, the system of tripartite agreement is not only seen as an executive law enforcement mechanism for future restructuring of welfare state institutions, but also as an instrument of social control, as it permits the government to monitor labour relations, to create a visionary effect, being in close connection with different social strata, responding to their claims and needs (especially in the energy sector and in metallurgy), and to prevent open conflict. This agreement and cooperation between businesses and power elites helped to avoid any considerable restructuring and centralisation of the various security and law enforcement structures, such as the merger of the Russian Federal security service, Russian foreign intelligence service and Russian Federal security service, into one Ministry of Federal Security, despite speculation and expectation in the mass media in this regard (Kommersant 23 June 2018b). However, despite the ability of tripartism to strengthen the partnership between government and firms, the overall effect is quite contradictory, as the system is biased towards capital rather than labour and is becoming less ‘legitimate in terms of the market’ (Crouch 2009). The model of ‘responsible corporations’ in Russia brings firms to prominence, making them political subjects, which are ‘not just lobbies’, but ‘makers of public policy, either alongside or instead of government’ (Ibid.)—such a model undermines future prospects for electoral democracy by closing possibilities for grassroot mobilisation of any opposition in support of democratic transition. At the same time, the power of organised labour in this tripartite settlement remained very small, and in most of the cases, the

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bargaining between government, employers and employees over wages and social welfare had little influence over actual decision-making, and these agreements remained statements of intention that lacked enforcement mechanisms rather than binding commitments (Remington 2011: 55). Apart from the tripartite system, the strong power vertical 13 in Russia became another counter-hegemonic mechanism that predetermines the connecting capacities of the WSR, synchronises the regional and federal legal systems, empowers the executive branch, while it weakens the legislative (Sakwa 2010), curtailing the independence of mass media and foreign non-governmental organisations. Reinforced by the dualism of the WSR, the power vertical in Russia is rooted in para-constitutional settings, in the system of enterprise paternalism, in the hierarchical order of civil society, and above all, in the leadership of Vladimir Putin. One of the most significant institutional implications of this leadership were constitutional amendments in 2020 that made it possible for Putin to seek two more terms as president and, if re-elected, to stay in power until 2036. The constitutional changes also included ‘a belief in God’ as a core value, a guaranteed minimum pension and a ban on same-sex marriages. Also, to implement the new constitutional amendments the new legislation, drafted at the time of writing (October 2020), secures lifetime immunity for former presidents (i.e. Vladimir Putin and Dmitry Medvedev), basically giving them the right to violate the nation’s Administrative and Criminal Codes without any risks of prosecution. But what is the most serious amendment is to the Article 83 of the Constitution, which gives the president the power to submit to parliament (to the Council of Federation) requests to terminate the powers of judges of the Constitutional Court; furthermore, the judges of the Constitutional Court are no longer allowed to publicly criticise the actions of the Supreme Court. Some analyses suggest that these constitutional reforms were ‘unconstitutional’, as they breach the fundamental principle of independence of the Judiciary: ‘the president’s new right essentially annuls the principle of irremovability of judges and puts an end to the puny remnants of judicial autonomy in Russia’ (Mishina 2020). Another point is that the referendum, or a ‘constitutional coup’, was held in the middle of a pandemic (in June 2020), when ‘endorsing a new Constitution may well be the last thing on Russian

13 CHM R.9 , see Appendix I.

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minds’, thereby using the COVID-19 pandemic ‘for a power grab’ (BBC 2020). In fact, despite Putin’s previous claims that ‘the very process of amending the Constitution is a destabilising factor’ (in June 2003), these were not the first constitutional changes: in 2008, the terms of the President were prolonged from four to six years, and of the State Duma from four to five years. Overall, the effect of the enhancement of strong power vertical in Russia has been quite contradictory: although it set some specific ’rules of the game’ and partly subordinated corrupted constituents under state control, the element of ‘dual-adaptation’, enhanced through the informal networks and clientelism, undermined constitutionalism and induce corruption, as the power vertical with its mechanisms of ‘revolving doors’ weakens the morals of state officials and brings corruption to higher power echelons. Moreover, such power vertical—if reaches its extreme form—is potentially dangerous for the security of individuals that find themselves in opposition to this vertical, as the absence of the system of checks and balances opens avenues for political repressions. Additional system of social control that predetermines the connecting capacities of the WSR was introduced in 2015, through the amendments to the ‘Foreign Agent Law’ of 2012, by the Federal Law N129-FZ (Federal Law N129-FZ 2015). The new law compiled existing obligations for NGOs to register ‘as “foreign agents” if they receive funding from abroad and engage in vaguely defined political activities’, with the legal powers to close down organisations that Russian authorities consider ‘undesirable’ (The Moscow Times 22 July 2015); in case these organisations fail to shut down in due course, the law imposes administrative and criminal measures of persecution. According to a representative of the Russian judiciary, some organisations, funded by foreign (not only Western) funds, operate in various spheres and have distinct objectives: from creating doctrinal and informational propagandistic schemes to organising physical activities, from peaceful demonstrations to subversive military actions.14 The source provided an example of ‘undesirable’ organisations that promote ‘civilisational’ reforms in Russia: the Institute of Modern Russia, the US Russia Foundation for Economic Advancement, the Open Society Foundations, the Open Society Institute Assistance Foundation (the last two are financed by George Soros’ charity network).

14 Authors’ Interview.

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Unsurprisingly, the new law caused public discontent in the West, however, the reaction in Russia has been polarised: some see this law as a violation of human rights and a step to re-erect the ‘iron curtain’, others believe some NGOs should be shut down as they challenge Russia’s integrity. As of March 2018, the official list of active ‘foreign agents’ was reduced from around 100 to 79 organisations, as the Russian authorities removed its ‘foreign agent’ tag from over 20 groups, acknowledging that they had stopped accepting foreign funding’ (Human Rights Watch 2018). According to Ella Pamfilova, the Head of the Russian Electoral Committee and a well-known human rights advocate, the law contradicts the Russian Constitution as the power to tag NGOs as ‘foreign agents’ is given not to the court but to the Genprokuror, the General Prosecutor (Bellona.org 2016). In 2018, a group of NGOs appealed to the European Court of Human Rights in Strasbourg (Kommersant 13 March 2018a); and also to the Russian Constitutional Court. 4.3.2

Micro-Level Arrangements

To better understand the institutional arrangements that connect people at the micro-level (as the tripartite system mainly operates at a macrolevel process, where the dominant role is that of the government), we shall now turn to the system of social partnership, where employers’ involvement in collective bargaining might have a real effect on legal agreements that in the case of poor adherence can be defended in court (Vinogradova et al. 2015: 199). As it is suggested by one of the state officials, in Russia most of the labour disputes are related to wage deferrals (roughly 500,000 cases per year), and most of the claims are satisfied; the second large category of disputes—the claim to restore to work (around 20,000 cases), is mostly resolved in favour of workers, as companies allow gross violations in the layoff process; she maintains that in her practice there have been many complaints against the Pension Funds, settled in favour of pensioners (an example: the reduction of the definition of the length of service for sailors in the Far North, which gives them right for an early retirement).15 However, the bargaining mechanism for workers is weakened by the Labour Code reform that increased flexibility of labour relations and made the Federation of Independent Trade Unions

15 Authors’ interview.

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of Russia (FNPR) a factual governmental agency that monopolised the position of employee’s protector, leaving the embryonic unions with little chance for developing, as people see no rationale for their involvement in forming independent labour organisations. With Labour Union power being low in Russia, workers are mainly dependent on their employers for the stability of their jobs, wages and the social packages that they acquire through the workplace, which as we have seen in the previous section, creates income disparities and worsens social stratifications. Activities of transnational corporations and non-profit organisations have a controversial effect on social stratification: on one side, their activities, such as the TNCs’ team-building, or NGOs’ political cooperation, have a strong capacity to unite people that represent different social segments; on another side, some people might be left out or disunited, as some previously strong ties might be disturbed. As for national corporations, in Russia the managerial strategy based on enterprise paternalism is very wide-spread and remains an integral part of the economy, predominantly in the industrial sector. Enterprise paternalism in Russia exists in the form of the venture ownership of ‘much of the housing stock of the country, the preschool and recreational facilities’, and other in-kind social provisions that in the periods of economic hardships become vital substitutions for government transfers (Remington et al. 2011: 41). It is a counter-hegemonic mechanism as it improves the quality of social environment preventing complete social stratification, reducing the feeling of alienation, vulnerability and anxiety, related to income inequalities and labour market precarisation. At the same time, these shared facilities that workers of the same enterprise use, have a certain connecting effect not only on the employees, but also on their family members; kids that go to the same kindergarten, to the same concerts and events and spent two or three month a year in the common summer camps, sanatoriums, state dachas, form certain connections and ties that they maintain into adulthood. This connecting function of the WSR is inherited from the Soviet Union, and bears features of traditional conservatism that favours a strict hierarchy and ‘familialism’ and retain traditional status relations ‘for the sake of social integration’ (Esping-Andersen 1990: 58–59). Russian enterprise paternalism is conditioned by the creation of new cities and towns in sparsely populated remote regions alongside industrial development and the emergence of big industrial complexes. In Soviet times, the share of the ‘mono-towns’—towns, created to serve one industrial complex, in the

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total amount of towns reached 40%. There are over 300 mono-towns in Russia that have a ‘city-forming’ enterprise (Gradoobrazuyushiye predpriyatiya), among them: Norilsk (JSC Nornikel or Norilsk Nikel until 2016, LSE: MNOD), Magnitogorsk (JSC Magnitogorsk Iron and Steel Works, LSE: MMK), Novokuznetsk, (JSC ZSMK, belongs to JSC EVRAZ, LSE: EVR), a famous port Nakhodka (Port Nakhodka and Port Vostochnyi), and many more (Governmental Decree N1398 2014). The community ties in these cities are strong, as people are interconnected not only through the workplace, but also through sports, cultural and artistic clubs. In fact, not only in mono-towns, but all across the Soviet Union, a multitude of Palaces of Culture (Dvorets Kultury) used to form a net of institutions that connected people not only of the same industry, but also of different professions and status. To revive this institutional legacy, with the aim of uniting people and fostering their cultural and physical development, there has been a series of state programs, financed from the federal budget, among them the Program of Centres of Culture Development by the Ministry of Culture (RF Ministry of Culture 2014), and the program of Physical culture and sport (Parlamentskaya Gazeta 2017), adopted in realisation of the Strategy for the Culture and Tourism -2020 (Government.ru 2014). These programs, however, might face some cuts in financing, as according to the Project of the Federal Budget 2017–2020, there will be a reduction from R95,5 bn. to R84,5 bn. of the spending on Culture and Cinema, and from R93,8 to 38,9—on Physical culture and Sports; however, the latter sharp decline is explained by the termination of financing the 2018 Football World Cup (RF Ministry of Finance 2017). Notably, the federal budget will assign R4,7 bn. for the support of mono-towns (it was zero in 2017). At the micro-level the already mentioned strong power vertical in Russia can be defined as strong as it has been consolidated by a multitude of power networks that become binding counter-hegemonic mechanisms by maintaining frequent contacts and stable ties through institutions and social media platforms, associated with family, inner circles, and ‘institutional affiliations’, such as professions (e.g. siloviki, lawyers), corporations (i.e. employers of Rosneft, or Gazprom), memberships (hunters society, veterinary), alumni associations (odnoklassniki.ru), or compatriots (‘zemliachestva’) (Ledeneva 2013: 54). Institutional dualism of the welfare state regime, which partly derives from the existent personalised social relations between managers and workers that result in big wage differentials across employees, could be

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a good explanation of why the welfare state aimed at providing services and income security, can also become an ‘agent’ of social stratification’ (Esping-Andersen 1990: 55). In this respect, enterprise paternalism in Russia has a controversial effect on social unity and solidarity: on one hand, it provides an institutional framework for maintaining people’s interconnectedness through recreational, housing, cultural and sports activities; on another, it introduces the system of class hierarchy, grounded in clientelism, familialism, and other forms of informal relationships, that disrupt labour bargaining power and cohesion. Recently, the informality of some institutions turned from a ‘short-term solution in the years of transition’, into a long-term ‘persistent culture that is undermining the institutional bases of labour relations and corrupting the work environment’ (Vinogradova et al. 2015: 198). At present, this institutional dualism is reinforced by a para-constitutional and hierarchical structure of civil society, formed via dialogue between the state and civil society, reconstructed with the active participation of the Civic Chamber of the Russian Federation, and of newly created platforms, such as the Russian Social Forum, and the Forum for Social Innovations. Institutional dualism is a feature inherent to the Russian welfare state institutions and reflects the ‘tension between the intrinsic features of a political institution and the way that it operates in interaction with exogenous political practices, culturally patterned modes of behaviour, and policy framework’; in other words, it is a tension between the formal constitutional order—the ‘normative state’, and ‘administrative’, para-constitutional, informal political practices (Sakwa 2010: 185). The subordination of constitutional order to public administration 16 has a contradictory impact on the Russian WSR. Despite the fact that it contributes to the restoration of the authority of the state by increasing public accountability and control over civil society with the aid of paraconstitutional means of social control, it nevertheless leads to ‘the rise of parallel power networks that cross-cut the formal organisation of the state, involving links among industrial and financial elites’ (Jessop 2015: 489). In the social sphere, this duality can be distinguished in such areas as education and health care and goes hand in hand with the notion of corruption. According to a survey by VCIOM, medics have become

16 CHM R.10 , see Appendix I.

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the leaders in corruption in 2016 (27% of respondents), surpassing the anecdotal leader in this respect—the Russian transport police (GAI, or GIBDD, 23% of respondents); the rise in corruption in health care is mainly attributed to a 18% reduction of public spending, from P = 466 bn. in 2016, to P = 381 bn. in 2017, and the planned P = 364 bn. in 2019 (VCIOM 03 July 2007). In turn, the rising level of informality in the health care is not only the result of underfunding, but also of the institutional impotence of the labour unions that cannot efficiently protect the rights and demands of medical personnel. According to a member of one of the Russian independent labour unions17 : the paradox is that in Russia there are some large independent unions, such as the Union of Health Workers (PRZ), which unites more than 2.5 million people across the country, but their influence, however, is institutionally constrained by the current legislation. For instance, the Labour Code (Article 413, B), according to which the organisation of mass protests is forbidden in the ‘life-supporting’ organisations (i.e. utilities supply, hospitals, transport communications, etc.), if these actions ‘undermine social security’; in fact, this clause enables interpreting any strike as illegal’ (Labour Code 2019).

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17 Authors’ interview with medical personnel and a member of a labour union, Moscow, 2017.

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CHAPTER 5

Iran (Institutional Design)

5.1

De-commodifying WSR Function 5.1.1

Labour Market: Pension Legislation

The contemporary Iranian social welfare policies, as well as the pension system, have been shaped by dramatic institutional transformation following the Iranian revolution of 1979. The dramatism was the result of complex and contradictory continuities and discontinuities of internal and external political dynamics. Over almost 40 years of being under economic sanctions (with only a brief respite for the duration of the JCPOA in 2015–2018), there have been several ongoing shifts in pension policies that implied various institutional modifications. The major continuity stemmed from the inherited Pahlavi monarchy corporatist social welfare structure, with its bureaucratic and exclusionary ‘orientation’ to narrow elite politics and a limited reach to a ‘circumscribed segment of the population’ (Harris 2017: 15). Discontinuities derived from new external and internal challenges that pressured the post-revolutionary government to revise the social welfare compact. Among the most vital external factors were economic sanctions, the intensification of the Cold War and the continuous antagonism of the Sunni world to Shia populations, especially of the triad of Saudi Arabia, Qatar and Turkey, alarmed by Tehran’s promise to ‘export the revolution’. This intense international

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_5

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antagonism to the new regime culminated in Saddam Hussein’s invasion of Iran in September 1980, followed by a bloody war that lasted until August 1988. In some respects, these external existential threats explain the ‘antipathy’ and ‘paranoia and hostility’ of the Iranian leadership towards the ‘international system’—the most widely used lexicon to characterise the Iranian foreign policies towards the West (Maloney 2015: 141–44). The most important internal challenge stemmed from the contradictory nature of Iran’s ‘diffused-power semi-autocracy’ 1 that ‘crystallised’ under external pressures in the mid-1980s. Postrevolutionary rulers had a difficult task to reconcile two opposing tendencies—political competition and power centralisation. On one side, a weak party system and intense elite competition reinforced popular mobilisation as a crucial method of maintaining institutional legitimacy (Brumberg and Farhi 2016: 11). On another, economic power centralisation was dictated, at first, by the needs of the Iran–Iraq war and the subsequent post-war reconstruction; second, after the death of Ayatollah Khomeini in 1989—by the effort by a less charismatic successor, Ali Khamenei, to preserve the power of the Office of the Supreme Leader and third, by the ‘modernisation dilemma’ of the need to adopt Western technologies and secure national self-sufficiency owing to economic sanctions, without a loss of ‘authentic selves’ and local cultures (Ringer 2001). In contrast to Russia, ‘the making and remaking of a social welfare compact’ in Iran ‘has hardly been a top-down method of state control’, but rather a product of ardent factional rivalries and internal pressures from different population groups (Harris 2016: 71). Yet, there are state-run top-down welfare institutions that play leading roles in social insurance, i.e. the Social Security Organisation (SSO, created in 1975) that provides social insurance to the majority of the workers of the public and large private companies and the Civil Service Retirement organisation (CSRO) that covers government employees. At the same time, external threats and internal political competition are fetters on social welfare monopolisation—the system has gradually transformed into a ‘dual-welfare regime of overlapping organisations and fragmented coverage’, due to the emergence of new ‘non-contributory’ para-governmental organisations or Foundations (i.e. Bonyads ) with new activities and

1 CHM , see Appendix II. I.1

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multiple power centres with parallel functions, making the system more inclusionary than during Pahlavi’s times (Harris 2017: 15). For instance, the Imam Khomeini Relief Committee (IKRC) parallels the functions of the Ministry of Health and Health Education and is one of the most important para-governmental institutions in supporting the most vulnerable (e.g. the Martyr Rajai Program, one of the IKRC funds, named after the assassinated president Ali Rajai, provides pensions for elderly and poor in rural areas) (ibid.: 109). Therefore, the new welfare system in Iran incorporates state, para-governmental, religious, charitable and other formal and informal organisations that ensure social protection services to Iranian citizens. The institutional settings for pension legislation are very complex, as alongside state and parastatal bodies, such as the Management and Planning Organisation (MPO, former Ministry of Planning and Budget), there are revolutionary organisations, such as the Economic Mobilisation Force, that are also involved in pension planning. Also, the functions of the Ministry of Cooperatives, Labour and Social Welfare and the SSO are duplicated by the revolutionary Martyrs and Veterans Foundations, the Fifteenth of Khordad Foundations (1981) and the Foundation of War Refugees (1981). Nevertheless, the role of the MPO in decision-making is substantial, as it develops a medium-term program, proposes necessary reforms and assesses the effectiveness of social protection (i.e. monitors the functioning of the SSO and the CSRO). There are 24 pension funds in the country—public pension funds, such as Armed Forces Pension Fund, the Civil Servants Pension Fund, Rural and Nomadic Insurance Fund that operate alongside the SCO and ‘exclusive funds’ for those who work in the oil industry, banks or are employees of Islamic Republic of Iran Broadcasting, Central Insurance of Iran and municipalities (Rossiyskaya Gazeta 6 September 2018). The strength of the current pension system is a wide scope of coverage and increasing payments to the elderly and other vulnerable groups over time. The system is ‘extraordinarily generous’ in comparison with other states and the de-commodifying effect for the most vulnerable population is substantial (Harris 2017: 165). The majority of Iran’s working population is covered by the SCO. The average retirement age is very low—55.3, as women and men with 30 years of employment can retire at 45 and 50 and those with 16 years of employment at 55 for women and 60 for men. Whereas the average retirement age in other countries

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is typically between 60 and 65. Moreover, the payments are considerable: e.g. in March 2019–2020 (year 1398 of the Iranian calendar), the average pension benefit from the Civil Servants Pension Fund was IRR 27 million/month ($173), the Armed Forces Pension Fund paid IRR 31 million/month ($198) and the SCO paid IRR 19 million/month ($121) (Financial Tribune 2020). Unfortunately, these advancements have certain limits. Economic sanctions and other external challenges have had a detrimental impact on the pension system’s liquidity, while domestic factors, such as high inflation, unemployment and ageing population, have led to a rise in the number of beneficiaries. The demographic factor is becoming one of the most significant challenges to the system’s sustainability due to two historical developments. At first, the post-revolutionary welfare expansionary policies contributed to a baby boom in mid-1980s, which, however, was later reversed by successful family planning and control services that, coupled with further expansion of the health care, dramatically slowed down reproduction rates in urban and in rural areas and increased life expectancy. In other words, the positive trend of the rising number of contributors to the pension funds will soon be reversed due to the growing proportion of the population of pensionable age. In 2018, according to Rasoul Khezri, a member of Majlis Social Commission, 18 out of 24 pension providers in Iran, with the exception of the Social Security Organization and its affiliates, were in a state of bankruptcy, while the ratio of pension receivers to the contributing workforce fell to 1:5, with a stable ratio estimated at 1:6, according to international standards (Financial Tribune 2020). Another detrimental factor to the stability of the system has been partial economic liberalisation, with some pension funds adopting more diversified investment strategies. Over the period between 1989 and 2000, the SCO through SHATSA, its in-house investment company created in 1986, moved almost 70% of its investment from risk-free bank deposits to riskier assets (Harris 2017: 166). Another problem is corruption. In November 2016, the former Tehran Prosecutor Saeed Mortazavi, 49, who served as the head of a social welfare organisation under President Mahmoud Ahmadinejad was found guilty of ‘seizing and wasting public funds’ and sentenced to prison and 135 lashes for financial fraud on a particularly large scale. Even the human rights groups that believe that flogging is barbaric and inhumane, called for Mortazavi to face justice over his links to the deaths in custody of the protesters

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after the disputed 2009 presidential election that gave Ahmadinejad a second term as president; Mortazavi was then the prosecutor general of Tehran (2003–2009) (The Guardian 2016). Overall, despite its high decommodification potential, the sustainability of the pension system is not high due to its generous payments, universal coverage and low retirement age, on one side, and growing unemployment rates, fiscal constraints and underfunding due to economic sanctions, intensified despite the COVID-19 pandemic, on another. 5.1.2

Households: Benefits-In-Cash and Benefits-In-Kind

This section considers the following factors that have a de-commodifying effect on the population: free health care and education, unemployment and housing benefits. Following the Islamic Revolution, considerable investments in public health led to the development of a strong, rural and primary healthcare (PHC) system, ‘with a network of sophisticated outpatient specialty services’, as well as improved secondary and tertiary services through its hospital network (World Bank 2008). At times of profound hardship during the Iran–Iraq war, the creation of a universal network was characterised by the WHO as an ‘incredible masterpiece’ for its skilled community health workers, for the efficient monitoring, immunisation and referral systems and for the advanced family planning that led to a rapid decline in birth-rates from 7 to 2 children per mother on average (Ameli 2020). As of 2020, there are 1,500 hospitals with 150 thousand physicians and 140 thousand hospital beds to address the needs of the country’s 82 million population, which is 1.7 beds per 1,000 people (ibid.) The Ministry of Health was one of the most important bodies in leading the country’s institutional transformation, with social insurance organisations (i.e. the SCO and the Civil Service Insurance Organisations) being under the Ministry’s supervision, until 1989. In 1986, the Ministry of Health was transformed into the Ministry of Health and Medical Education (MoHME), and its functions expanded into the sphere of state medical education. The centralisation of medical schools and research centres has been successful—Iran ranks 16th in global medical research output. Another development was the expansion of medical insurance, which became universally available to the population with the adoption of the Comprehensive Welfare and Social Security Law, or ‘Basic Insurance Act’

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in 1994, and with the creation of the Medical Service Insurance Organisation (MISO) in 1995 (Harris 2017: 150–51). In 2005, insurance schemes were extended by the Rural Inpatient Insurance Scheme that introduced generous subsidies for secondary health care. In 2011, several health insurance funds were merged into the Basic Insurance Fund (BIF). Half of the BIF’s payments are subsidised by the government and the remainder (10% of anti-poverty transfers to the most vulnerable groups)— by the Imam Khomeini Relief Committee, (IKRC), the largest Bonyad.2 Also, the goal of self-sufficiency made Iran a producer of a wide range of medical equipment and drugs, turning Iran from a net importer of medication (before 1979, 80% of drugs were imported) into a manufacturer (in 2000s, Iran’s producers cover 97% of domestic needs). Yet, 3% of the country’s need for a limited number of raw components and vital medication for children and patients with advanced and rare diseases is still imported. The supply of some important drugs and components, however, has been continuously disrupted by US sanctions (Ameli 2020). In 2014, President Rouhani’s administration launched another institutional change in the healthcare system, which is the new ‘Health System Transformation Plan’ (HSTP), developed by the MoHME. The Plan set multiple goals, such as the reduction of the rate of co-payments for hospitalised patients in hospitals affiliated with the MoHME, a more equitable distribution of specialists across regions, an improvement of the quality of provisions, etc. According to a group of experts, the reform succeeded in limiting informal out-of-pocket payments, in extending insurance coverage, in improving the efficiency in services and in modernising some hospitals (Olyaeemanesh et al. 2018). However, the main weaknesses of the HSTP, especially the efficiency of financing, remain unresolved (i.e. a lack of strategic purchasing and allocation of financial resources, delays in payments, insufficient dialogue with the insurance and private healthcare sectors, increasing debts to pharmaceutical companies, etc.) (ibid.). Overall, it can be argued that the Iranian healthcare system has a high decommodification potential due to its universal accessibility to high-quality services, however, there are still some shortcomings, such as insufficient funding in some instances and practices of informal payments.

2 Bonyads are parastatal military organisations, their role in Iran’s social welfare system is marginal. The main welfare organisations as measured by welfare coverage are aforementioned SSO and MSIO (Harris 2016: 75).

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After the Revolution, the new government put a substantial effort into widening access to free primary and higher state education to alleviate adult illiteracy and to increase the number of specialists in different proficiencies. At first, this was a top-down expansion of secondary education, driven by the government’s aim of securing Iran’s self-sufficiency in essential jobs, such as medical workers, engineers, etc. Also, for the government, state universities formed part of ‘the state’s strategy for securing the quiescence of Iranian youth’, given the emancipatory effects of schooling on young minds (Malekzadeh 2016: 102–3). Later, after the Iran–Iraq war, higher education was further extended as the result of the push from below: war veterans had higher expectations and claimed privileges in compensation for their sacrifices. From the 1990s onwards, public university systems expanded into rural areas, ‘given that many families were reluctant to send their children to Tehran or other provincial capitals, the educational system increasingly came to them’ (Harris and Kalb 2019: 480). In other words, a substantial proportion of university slots in rural and urban areas were allocated to young people who had returned from the war front and saw this increasingly meritocratic system of secondary education as an opportunity for upward social mobility. Over the period from 1979 to 2010, the number of private and public universities grew from 341 to 2,390. The higher education system is comprised of 119 prestigious tuition-free state universities (daneshgahe sarasari, or ‘Sarasari schools’), managed by the Ministry of Science, Research and Technology (MSRT), more than 300 universities under the purview of various profile ministries (i.e. Ministries of Foreign Affairs, Roads and Transportation, Post, Telegraph and Telephone, etc.) and also religiously oriented universities of Imam Khomeini, Imam Baquer and Imam Sadeq, that are ‘uniquely insulated from the dynamic of merit’ and mainly train the future cadre for the Islamic system—Islamic nezam, such as the Office of the Supreme Leader, with close collaboration with the Qom seminaries (howzeh) (Malekzadeh 2016: 105–6). There is also a distance learning university system ‘Message of Light’ (Payam-e nur), established in 1988, a specialised Applied Science and Technology university (daneshgah-e jame’ ‘elmi karbordi), founded in 1992, to educate the future technical cadre for the industrial and agricultural sectors of the economy all across the country (with campuses and learning centres in 1,289 locations) and also a network of several private universities (gheire dolati), created under the pressures of the demographic boom, such

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as Islamic Azad, the admission to which is much easier than to Sarasari schools (ibid.). Considering its de-commodification potential, a rapid expansion of education 3 has become an important counter-hegemonic mechanism at times of sanctions. Its effect, however, has been contradictory: on one side, it contributed to the country’s self-sufficiency by supplying highly qualified cadres, where needed, on another, an increasing demand of the population for higher education (due to social and demographic factors) led to overproduction of cadres (as labour markets cannot absorb all the newcomers), and as a result to higher unemployment among graduates (with youth unemployment in the range of 25–29%). Overall, in other words, a strong de-commodifying effect of free education for students and their parents is likely to be dampened by rising youth unemployment. In the 2000s, the level of unemployment in Iran fluctuated from 10% in 2004 to 14% in 2010, the latest data at the moment of writing was around 11% in mid-2020 (Statista 2020). There are two factors that contribute to this high level of unemployment: the ‘youth bubble’ on one side and the high protection of older workers to stay in the workforce longer than the official retirement date (Salehi-Isfahani 2017). Unemployment benefits in Iran, however, are decent—55% of the average earnings in the final 2-month period plus 10% for each of the first four dependents, the minimum benefit equals the minimum wage of an unskilled worker—i.e. IRR 3,030 thousand ($368 a month), the maximum benefit is 80% of the insured’s average earnings (i.e. $535 a month) (SSA 2010). Unemployment insurance to state personnel is covered by already mentioned funds of the SSO and the CSRO. These funds, however, are quite often underfunded by the state, leading to a funny situation when the ‘government is in debt to itself’, as a result, some sectors (i.e. oil and gas, TV, Armed Forces and its elite branch—IRGC, etc.) rely on their own separate social insurance funds (Harris 2017: 163). Moreover, the negative effects of unemployment have been reinforced by neoliberal policies. For instance, privatisation of the real estate sector in the 2000s provoked a ‘housing crisis’ in urban areas where highly profitable speculation resulted in soaring real estate prices and unaffordable rents (Povey 2019: 370). Given the high level of unemployment among graduates (around 40%), a great number of young people live at home

3 CHM , see Appendix II. I.2

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with their parents before they find a job. For them, the de-commodifying effect of the housing sector with rising real estate prices is negative. The position of university graduates is very precarious: a high desire to enter the labour market, reinforced by the housing bubble, is combined with difficulty in finding a job. Some of them have no alternative but to join the revolutionary and military organisations that still have a corporatist nature and provide their employees with state-funded accommodation.

5.2

Redistributive WSR Function

The following passages will consider, first, the legislative and institutional settings for ‘primary’ income distribution mechanisms in Iran—the organisation of production, the Land reform that reshaped the structure of land ownership in Iran and privatisation that determined government–business–labour relations and second, the institutional framework for ‘secondary’ distribution of wealth, such as budget policies, taxation, investment and subsidy reforms (the redistributional function of the welfare state regime). 5.2.1

Primary Mechanisms for Income Distribution

There are several institutional factors, inherited from the Pahlavi monarchy, such as the corporatist and elitist features of welfare that favour some groups over others, as well as ones acquired through postrevolutionary reforms, such as economic liberalisation and privatisation, that have contributed to high levels of income and wealth inequality in contemporary Iran. There were, however, some developments with a mitigating effect on social disparities that gave opportunity for upward social mobility: i.e. the aforementioned universalism and expansion of education, the considerable improvement of health care with its high de-commodifying potential for the most vulnerable groups, but also the consolidation of the new middle class with raised political demands (the outcome of the Pahlavi Land reform and the social base for the Iranian revolution of 1979, which increased bottom-up pressures for reform and modernisation). Both the Pahlavi monarchy (1925–1979) and the Islamic Republic implemented land reforms, with distinct goals for the reforms and implications for wealth redistribution. The Shah’s Land reform in the 1960s

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formed part of the top-down modernisation strategy of the ‘White Revolution’, elaborated in cooperation with the United States to eliminate feudal elements in the regions and to reduce popular and Communist threats to the monarchy. In the early 1960s, more than 80% of Iran’s arable land was owned by large landlords who ‘used extra-economic forms of coercion to compel labour from the peasants’ when they let their lands to nasaq-holders (villagers with traditional rights to cultivate some plots) (Amid 2009: 75). At the core of the reform was the redistribution of these ‘inefficient’ large land possessions to small rural landowners and the expansion of the state apparatus into villages at the expense of local communities and institutions, such as the ‘village chief’ (Harris and Kalb 2019: 472). However, despite its appeal ‘Land to the tiller’, the Pahlavi reform resulted in unequal and inefficient land distribution: most nasaq-holders received less than the minimum parcel required for subsistence production, landless sharecroppers received no parcels at all and there was ‘considerable evidence that landlords used a variety of tactics to circumvent the law’ and retain more land than that to which they were legally entitled (Amid 2009: 75), while the real beneficiary was ‘the state itself, since power became further centralised in Tehran’ (Harris 2016: 64–65). The reform reshaped the social landscape in various ways. First, it unsettled the relationship between the monarchy and large and mediumsized landowners, who possessed 36.5% and 13.4% of the country’s land, respectively, as ‘the concentrated landed wealth of the landlord class was disbursed’; religious institutions, however, kept their long-standing endowments (awqafs ) (ibid.) This had a detrimental impact for the ruling elites, as large landowners, along with the military, had been the main supporters for the monarchy. Second, it widened wage differentials between the urban and the rural areas and fostered the county’s urbanisation (i.e. the migration of the highly commodified labour force from the countryside to cities). And third, it extended the socio-economic status based on the possession of land to two-thirds of the rural population compared to just over a quarter prior to the reforms (Amid 2009: 76). As such, the reform laid the foundation for the formation of a new middle class: the analysis of the survey by Harris and Kalb suggests that the reform favoured not those who stayed in rural agricultural production, but those who ‘utilized landholdings as a means to transfer status and opportunities to their children’ after the revolution; in other words, landholding assets could be converted into new forms of social capital

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‘via educational expansion and other policies of social levelling’ (Harris and Kalb 2019: 467). Ultimately, the reform led to the convergence of popular, nationalist, leftist and Islamist opposition to the monarchy and ultimately—to the revolution. After the Revolution, there was a direct link between the Pahlavi Land reform and upward social mobility through the rapid expansion of the education system. In 1980 the Land reform 4 became one of the issues of institutional legitimacy and authority and was one of the most contentious grounds for political battle between the ‘republican left’ and the ‘theocratic right’ and one of the causes of the split and disbandment of the Islamic Republican Party (Mohseni 2016: 45). It was a hard task of reconciling Islamic jurisprudence, i.e. Shari’a law that protects the empowered clerical landholdings (‘charitable endowments’) and rejects the state expropriation of vaqf property, on one side, with the post-revolutionary heated demands for ‘just’ economic management with ‘broad-based support for a radically populist agenda’, on another (Maloney 2015: 156–57). Demands for land redistribution were at the heart of the revolutionary movement and were disseminated into the villages by political activists from the Construction Crusade (Jehad-e Sazandegi) or various Marxist groups, fighting against the penetration of exploitative capitalists into the countryside, ‘supported by imperialism’ (Amid 2009: 81). In 1988, these contradictory political goals led to the establishment of a supra-national institutional design,5 constitutionalising and empowering the Expediency Council ‘to overrule the canons of both Shari’a law and the Constitution, depending on the urgent needs of society’ (ibid.). By 1992, almost 1,400,000 hectares of land (i.e. wasteland, confiscated land, ‘excess’ private land) had been redistributed and as a result more peasants became landowners; however, their landed properties had been decreased. Land redistribution affected the agricultural system in Iran, which consists of large commercial farms, medium-size farms and a high proportion of small self-sufficiency farms agricultural system. Farming land distribution is very unequal: in 2014, 75% of the farmers own less than 19% of agricultural land, while 5% of big farmers own 45% of land; cooperatives own 5% of land and commercial companies—14% (WFP 2016). Nevertheless, one of the most important achievements of the

4 CHM , see Appendix II. I.3 5 CHM , see Appendix II. I.4

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post-revolutionary Land reform, coupled with the country’s strategic goal of self-sufficiency at times of sanctions, was that Iran turned from a net importer into a producer of some vital agricultural products; it was also efficient in alleviating poverty in the countryside. However, the reform was not that successful in eliminating wealth inequalities overall: social inequalities were transmitted from land inequality in the Pahlavi monarchy into urban inequality in the Islamic Republic ‘via the relative acquisition of educational credentials’, as ‘differences in relative educational mobility endured among the descendants of rural families depending on their household situation after the Pahlavi-era land reforms’ (Harris and Kalb 2019: 476). Another important institutional factor for wealth redistribution at the macro-level is privatisation. The state’s leading role in the strategic sectors of the economy, such as the financial, energy and mining sectors, was enshrined in Article 44 of the new Iranian Constitution of 1979. The Pahlavi regime was seen as despotic and undemocratic. The new Constitution was designed to combine more practical, liberal and democratic principles with the patriarchal interpretations of Shari’a law, by reestablishing the power of the Shi’a clergy and by reversing the Shah’s ‘secularisation of society and legal reforms in the absence of democracy’ (Mir-Hosseini 2012). The Iranian political system is a hybrid regime, its institutional structure combines the features of democratic competition with theocratic dictatorship. The epicentre of theocratic power is the Office of the Supreme Leader (Beut-e Rahbari), who was initially Grand Ayatollah Ruhollah Khomeini (1979–1989), and since 1989, Ali Khamenei, indirectly elected by the eighty-six members of the Council of Experts. This theocratic power is increasingly supported by paramilitary and economic organisations, such as the Islamic Revolutionary Guards Corps (IRGC) and its affiliated military branch, the Basij Resistance Force—quasi-private organisations (e.g. Foundation for the Oppressed and Injured, the Reconstruction Crusade, the Martyr Foundation, etc.) that are still included in private sector statistics, as they are ‘basically outside government control’ (Askari 2004: 659). The democratic structure is represented by the president, the parliament—the Majilis, where the political power is diffused among competing factions. No wonder, in a ‘diffused-power semi-autocracy’ (Brumberg and Farhi 2016: 10), a political consensus over privatisation and over ‘just’ wealth distribution is so difficult to attain.

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After the failure to create a one-party system, the sole candidate for the ruling party—the Islamic Republic Party (IRP)—was eventually abolished in 1987, and a factional landscape has been formed along two dimensions: ‘the theocratic republican regime divide and the left–right economic scale’ (Mohseni 2016: 42–44). The first dimension refers to the source of legitimacy for the regime: for theocrats, it is the institution of the Supreme Leader (velayat-e faqih), while for republicans, ‘the ultimate authority rests squarely with the people’. The second dimension is economic—those on the right are proponents for market liberalisation, privatisation and economic modernisation, while those on the left are critical of capitalism and support the state’s leading role in the redistribution of wealth. These two dimensions allow a conceptual classification of four political factions in Iran: theocratic right (e.g. the clergy and Bazaari merchants), theocratic left (e.g. urban poor, lower-middle class, war veterans, the IRGC and Basij Militia), The republican right (e.g. rich Bazaari merchants, Westerneducated technocrats) and the republican left (e.g. urban middle classes, more secular-minded university students, women’s rights groups, etc.) (ibid.). Given this fierce internal competition, it took the Expediency Council nine years (sixty-five sessions from 1998 to 2006) to enable privatisation by completing the amendment to Article 44 of the Constitution of 1989 (an updated Constitution of 1979), according to which the state preserved formal control over strategic sectors of the economy, i.e. finance (banking and insurance), energy (oil and gas, power generation), large-scale industries (e.g. mining), transportation, telecommunications and mass media and foreign trade (Mohseni 2016: 55). Initially driven by the reformist agenda, these amendments, however, had religious grounds as well. In Shari’a law, cooperative and private properties (predominantly in agriculture, services and small-scale manufacturing) co-exist with state ownership, the accumulation of private capital is allowed with the purpose of future (re)investment for the sake of economic prosperity and common well-being; there are also very strong mechanisms of secondary wealth distribution (e.g. taxation, transfers and charities). The idea is that capital must not lie idle: unfettered capital accrual, unjust enrichment (riba) and speculation are outlawed by Article 49 of the Constitution. Privatisation in Iran became a political option in the late 1980s, once centralised state control of economic resources for the war with Iraq was no longer needed. The first privatisation plan appears in the first Five-Year Plan that aimed at reducing state control in the economy

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and was developed by Akbar Hashemi Rafsanjani in 1989 (the president in 1989–1997), who was a representative of the republican right and the main proponent of the ‘China model’ of economic growth and modernisation. In March 1994–1998, Rafsanjani’s second privatisation campaign redistributed state assets worth IRR3.32 trillion (Financial Tribune 2019). However, in practice, over half of the shares of privatised corporations went to parastatal organisations (Harris 2013: 52). In March 1998–2006, the next government of President Mohammad Khatami, a member of the republican left who managed to form a stable alliance with the republican right (the alliance of the republicans, wellknown as the ‘reformists’ (Mohseni 2016: 45), oversaw privatisations which covered additional IRR 25.15 trillion ($221.58 million) worth of state assets that were not protected by Article 44 of the Constitution (Financial Tribune 2019). However, privatisation policymaking led to political deadlock, when Khamenei halted privatisation on the grounds of national security implications (i.e. low competitiveness of Iranian firms and foreign access to strategic resources). It was possible to restart privatisation only after the completion of the revision of Article 44 during the administration of President Ahmadinejad (March 2006–2013), supported by Supreme Leader Ali Khamenei’s announcement of economic ‘jihad’ in the form of privatisation of 80% of state assets. Initially, Ahmadinejad, a representative of the theocratic left, was very hostile to privatisation, however, when president, he ‘quietly borrowed’ privatisation and other economic policies from the previous administrations as means to fulfil his electoral promise to expand his dividend program of ‘justice shares’ and to bring the country’s oil wealth ‘to people’s dining table’. In practice, however, the nation’s wealth went to the dining tables of a new class of mid-level revolutionaries and government administration functionaries that had brought him to power. Despite the high volume of redistributed state assets IRR 1,026 trillion ($9.03 billion), the primary goal of the privatisation campaign has not been fully achieved, as in most of the cases, the state preserved its decision-making power (e.g. strategic planning, appointment of management, etc.), while only 13.5% of the shares went to the private sector (Harris 2013: 46). This quasi-privatisation gave rise to a ‘subcontractor

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state’,6 by empowering parastatal, pseudo-state and military organisations, such as the IRGC, the Basij and the parastatal foundations (the bonyads) to increase their stakes in strategic sectors through their affiliated companies. However, private capital has not been wiped out completely—a new ‘particular form of capital development’ appeared in Iran, where ‘private entities co-existed with public ones, emerging out of organizational networks linked to previous state-building efforts in the industrial sector, as well as networks of diaspora and domestic capital’ (Harris 2013: 54). In 2013–2019, this hybrid form of ownership, based on private–public network collaboration, was reinforced by President Hassan Rouhani by a IRR 480 trillion ($4.22 billion) privatisation program. This subcontractor state did not emerge in Iran out of a vacuum, it smoothly evolved on the historical basis of enterprise corporatism in Iran, as the distribution of income in wealth through the workplace was common practice before the revolution. These work-related distributional practices were reinforced with the ‘rise of a subcontractor state’, as parastatal organisations offered generous welfare coverage for their personnel. Furthermore, their role in the distributional practices has strengthened, as they supported various social groups, other than their members, such as war veterans and their families. However, the overall effect of this counter-hegemonic mechanism has been quite contradictory: on one side, it reduced the state’s direct ownership in economic entities and on another, the participation of the state in the decision-making of private firms has been increased, making their legal status quasi-private, which paradoxically has led to further centralisation rather than diffusion of state control. 5.2.2

Secondary Mechanisms of Income Distribution

The government plays an important role in financing social welfare in Iran, directly and indirectly by supporting the main parastatal foundations (e.g. bonyads ) and subsidising a wide range of economic activities. A quarter of Iranian government revenues originate from oil revenues (95– 98% of disposal of non-financial assets) and around 30% from direct and indirect taxes (see Fig. 5.1). Taking into account the reserves of the Oil Stabilization Fund (OSF), created to insulate the national budget from

6 CHM , see Appendix II. I.5

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1397 (2018-2019), IRR 4,439 trillion

2% 1%

2% 26% Disposal of non-financial assets (oil revenue)

6% 24%

9%

Disposal of financial assets Government special resources Taxes

30%

Government ownership Services and sales of goods 25% 7%

14%

32%

Other 13%

Fig. 5.1 The share of taxes and oil revenues in general budget revenues, % (Source Statistical Centre of Iran, 2019)

oil market fluctuations, as well as the government’s stake in public major corporations, the significance of the oil and gas sector in the political economy of Iran is much higher. With many years of budget deficits and a fiscal gap as a result of a generous welfare system, taxation has been the focal point of attention since 1979. The redistributive potential of Iran’s tax system has not been used in full and experts have called for the state’s dependence on oil revenues to be reduced by relying more on taxes in the government’s income structure. In the 1990s, 60% of value-added product was exempted from taxes, while 40% of economic activities were carried out underground (Pars Times 1999). For many years, valued-added tax (VAT) has been very small: 3% on large corporations; smaller businesses and the bazaaris have not been charged it at all. Ahmadinejad’s administration increased the VAT rate from 3 to 6%, and the Rouhani’s administration, which took office in 2013, has made some further steps to broaden tax revenues by increasing VAT to 9%, strengthening tax enforcement mechanisms and reducing exemptions. As a result, the share of the tax on goods and services in the overall tax structure in Iran has increased from 17% in 2012 to 35% in 2019. However, Iranian fiscal policy remains unsustainable, with lots of loopholes, tax evasions and many taxpayers charged a reduced rate or fully exempt from corporation tax and many products are not subject to VAT, i.e. some bonyads, firms registered in free trade zones cooperatives operating in less-developed regions and in some ‘sensitive’ industries (e.g. agriculture, fisheries, fertilisers, carpet market, medical treatment and equipment, public transport, research and education, pharmaceuticals, non-bank credit institutions, etc.). In 2021, the

5

0% 20%

2006/7

2011/12

49.4

42.6

IRAN (INSTITUTIONAL DESIGN)

2015/16

2018/19

33.5

28.3

35.2

34.9

Tax on goods and services Tax on imports Wealth tax Income tax Corporate tax

40% 60% 80% 100%

8.9

143

16.9

Fig. 5.2 Tax structure, % (Source Statistical Centre of Iran, 2019)

fiscal deficit is projected to widen as revenues fall short of targets and COVID-19 adds to expenditures (World Bank 2020) (Fig. 5.2). Traditionally, the most important taxes in Iran were corporation tax (25% for most corporations and 22.5% for firms listed on the Stock Exchange and Commodity Exchange) and income tax, regulated by Corporate Income Tax and the Direct Taxes Law, respectively. In 2015, according to a new progressive scale of the Labour tax law, workers who earn less than e4,090 per year are exempt from payment, wages over e28,600 per year are subject to 20% tax and over e32,500 to 35% (Nomoretax.eu 2020). There is no wealth tax in Iran, while inheritance tax is progressive as well, with rates varying from 5 to 65%. These tax laws have no relation to Shari’a: the religious taxes on Muslims, such as zakat and khoms, are paid voluntarily; these contributions are sustainable as Ali Khamenei increased state control over seminaries and other institutions that pay khoms, when he became the Supreme Leader in 1989 (Mir-Hosseini 2012). Subsidies have been another sensitive issue in Iranian politics as they played a marginal role during the Iran–Iraq war, by enabling the efficient redistribution of essential groceries, public utilities and fuel. During the post-war ‘reconstruction jihad’ subsidies reached 20% of GDP by 1997–1998 (the subsidy of energy consumption alone reaching 11% of GDP). Subsidies 7 did not only serve the purpose of ‘political expediency’ or ‘buying domestic support, as most analysts suggest (Askari 2004: 662), but rather were the mechanism for the development of 7 CHM , see Appendix II. I.6

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the manufacturing sector as part of Iran’s economic self-sufficiency goal, set by the First and Second Development Plans (1989–2000). Given its prominence in Pahlavi Iran, China, India and the Soviet Union, Fiveyear development plans (FYDP) became an important component of Iran’s legislation in setting the direction for economic policy optimisation. Factional alliances on the right during the presidentship of Akbar Hashemi Rafsanjani (1989–1997) and later the alliance of the republicans (i.e. the reformists) during Mohammad Khatami (1997–2005), to some degree sympathised with the China model and the supremacy of the five-year planning ‘paradigm for rapid development in the Third World’. Along with ‘domestic self-sufficiency’, the FYDPs advocated for privatisation and trade liberalisation to curb inflation and high unemployment, growing income inequality and a weakened national currency. However, paradoxically, generous explicit (directly budgeted or fiscal) and implicit (via price mechanisms that do not involve cash) subsidies, necessary for some industries to reach their break-even point, as well as the previously mentioned political deadlock over Article 44 and the distributional consequences of privatisation, were the main obstacles for these reforms to be effective. Eventually, growing mass discontent over subsidies and economic mismanagement amid the inflationary pressures of rising global energy prices, when the gap between the costs of oil production and consumption reached its limit,—all these factors led to the shift of power from the ‘reformists’ to the theocratic left, culminating in the election of Mahmoud Ahmadinejad in 2005. Quite hypocritically, the Targeted Subsidy Reform (TSR) that started in December 2010—a replacement of price subsidies with universal cash transfers to households, as well as other ‘liberal-technocratic plans’, such as privatisation, so ‘ferociously opposed by conservative-mercantilists’ in the 1990s, became a priority of the Ahmadinejad administration (2005– 2013) (Harris 2016: 91). The indirect subsidy package to goods and services (e.g. to imported petrol that was sold at home below international prices) was regressive by effectively favouring those who consumed more, in particular, petrol, diesel, petrochemicals, gas, electricity, etc. (Meskoub 2015: 16). If the distributional consequences of subsidies were highly criticised for benefitting the rich, not the poor, the distributional effect of subsidy liberalisation was even more contentious. Mass discontent over the three-income-clusters approach, designed by the new Subsidy Reform Organisation, according to which most of the lowermiddle class were placed into the ‘wealthiest’ category to receive the

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lowest possible amount of cash transfers, resulted in mass protests in 2009. The government responded to political pressures by amending the TSR plan. Finally adopted in 2010, Subsidy Reform Law converted 50% of revenues from government energy products (with prices much higher after the removal of subsidies) into universal transfers of IRR 450 thousand per head per month ($45), the remaining 30% went to financial support to industrial and agricultural producers and 20% to compensate higher energy costs to state institutions (Habibi 2015). Initially, TRS contributed to poverty alleviation, as more than 64 million people received cash transfers and had some positive effect on income disparities (although the positive effect was short-lived and was mainly attributed to the decline in incomes of the richest Iranians). However, as anticipated, the quick implementation of the first phase of the reform (on key articles, such as electricity, petroleum, water, bread, etc.), coupled with intensification of economic sanctions, resulted in surging utility costs, fuelled inflation in the industrial sector and reduced consumption; high production costs combined with new price controls for producers and wholesale retailers, which were seen as inevitable steps to curb inflation, put private business in distress, followed by declining output and layoffs of workers. In 2013, the Rouhani’s neoliberal shift to a more targeted approach to cash transfers considerably reduced the number of recipients. As cash transfers fell short on the adjustment to skyrocketing inflation, the purchasing power of population was declining. Moreover, the TRS’s aim to reduce the consumption of energy has been soon reversed: ‘as the inflation caused a decline in real energy prices the consumption of energy went up again’ (WFP 2016). These policies undermined the country’s economic autarchy (Fig. 5.3). Subsidy liberalisation was continued by the next president, Hassan Rouhani, a technocrat and ‘reformist’, who managed to stabilise the economy and to curb inflation from 45% in 2012 to 15% in 2014. The overall share of subsidies in budget expenditures has fallen from 16% in 2006 to 3% in 2019, while the share of social welfare increased from 18 to 35%. Yet most energy prices continued to be subsidised by the state, with petrol costs of 28 cents a litre until November 2019, when gasoline increased threefold as a result of the elimination of fuel subsidies. Intensification of sanctions during the COVID-19 pandemic was a further blow to the economy when in conditions of scarcity bureaucratic price controls in some sectors, such as health care, lead to ‘hoarding and black-market profiteering’ and to further shortages and soaring black-market prices for some vital goods (Ameli 2020: 52).

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K. KIRKHAM Budget expenditures 1385 (2006-2007) IRR 378 tn. 14% 31%

Employees compensation

Budget expenditures 1397 (2018-2019) IRR 2,940 tn. 25%

25%

Utilisation of goods and services Subsidies

18%

Grants 9%

Social welfare 9% 12%

Other

35%

3% 3%

16%

Fig. 5.3 The share of social welfare in total budget expenditure, % (Source Statistical Centre of Iran, 2019)

According to the IMF, overall, subsidy reform and the universal cash transfer program had a positive impact on income distribution and a ‘remarkable’ effect on poverty reduction in the period 2009–2013, which, however, was soon reversed by the declining value of transfers in real terms: rampant inflation and depreciation of the rial sharply cut the purchasing power of Iranians (IMF 2020). However, as the subsidy bill remained high in 2019–2020—$25 billion, or 5% of GDP, Iran continued to be very vulnerable to economic sanctions that undermine the most important source of budget revenues (i.e. oil exports) and reduce Iran’s access to its foreign reserves, putting the country at risk of a balance of payments crisis and recession (The Economist 2019). The new head of Iran’s Central Bank (CBI) Valiollah Seif’s switch from loose to tight monetary policies by lifting interest rates will not resolve the situation, as it might lead to lots of bankruptcies. In fact, Iran’s loose monetary policies 8 had been one of the counter-hegemonic mechanism at times of sanctions for many years, with contradictory consequences: on one side, low interest rates stimulated economic growth by maintaining liquidity and making it less expensive to borrow, on another, over-borrowing increased speculation and spurred inflation. Overall, again, as was the case in 2001, ‘the budget shortfalls and borrowing needs of the money-losing state entities’, financed by the ‘bureaucratically run nationalized banking system’ under Islamic (interest-free) system exacerbate inflationary pressures and put many businesses at the risk of default (Amuzegar 2001).

8 CHM , see Appendix II. I.7

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Connecting WSR Function 5.3.1

Macro-Level Arrangements

There are two contradictory political dynamics in post-revolutionary Iran. On one side, there is centralisation of political power around the Office of the Supreme Leader (Beit-e Rahbari), marked by constitutional changes, introduced by Ali Khamenei who succeeded Ayatollah Khomeini in 1989, e.g. the integration of the Leader’s advisory Expediency Council (Majma’ Taškh¯ıs Mas.lah.at Nez¯ am) into the Constitution, and also by the economic empowerment of the IRGC, a constitutional ‘defender of the revolution’ (Article 150). On another side, the president and members of parliament (Majlis ) are democratically elected, and they can be differentiated according to the previously mentioned ‘four-part factional map’ of the theocratic left and right and the republican left and right, which make the system highly competitive and dynamic (Brumberg and Farhi 2016: 2–22). The Leader is not elected directly, as the president is, but selected by the eighty-six members of the Assembly of Experts (Council or, Majlise Khebregan), a clerical body with a duty to supervise the Leader. Thus, the nature of the Iranian regime can be characterised as a ‘competitive authoritarian’, or a ‘hybrid’, as this ‘two-headed executive’ peculiarity undermines the development of a fully competitive democracy (ibid.: 12, 22). Moreover, the democratic composition and the legislative mandate of the Majilis are constrained by the veto power of the twelve members of the Guardian Council (Shora-ye Negaban-e Qanun-e Assassi)—six experts in Islamic Law (faqihs ), appointed by the Leader, and six jurists, elected by the Majlis from the nominees selected by the Head of Judiciary (also appointed by the Leader). The functions of the Guardian Council include approving the bills of the Majlis (with a veto power), interpreting the Constitution, screening all legislation with regard to its constitutionality and congruence with Islamic law, and interpreting Shari’a law and Islamic doctrine ‘in accordance with the needs of people with respect to the requirements of time and location’ (i.e. itjihad) (Kar and Pourzand 2016: 204). Also, the Guardian Council supervises elections, qualifies the candidates for elections to the Majilis and to the Assembly of Experts, etc. (Iran Data Portal 2020). Despite intense factional rivalry and the possibility of dramatic power shifts, such as during the parliamentary elections in 2004 and the presidential elections of 2006, when the ‘reformists’ gave way to ‘hardliners’

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(the election of Mahmoud Ahmadinejad), but then regained their political weight with the victory of Hassan Rouhani in 2013, the complex institutional arrangements of Iranian domestic politics are quite stable. The relative socio-political stability is secured by the system of ‘checks and balances’,9 according to which the responsibility for policymaking is shared among veto players and multiple power centres (the Supreme Leader, the Expediency Council, the Council of Experts and the president). Moreover, at times of acute elite conflicts, the Leader acts as an ‘ultimate arbitrator’, or a ‘guardian jurist’ (vali-ye faqih), despite his sympathy with the theocrats (Mohseni 2016: 41). Therefore, at the macro-level, the Leader’s main target is to reassure the connectivity between the rival parties and to prevent extreme confrontation that would undermine the legitimacy of the regime. There were several episodes when the Leader openly promoted the reformist agenda despite the opposition of his soulmates. For instance, in 2013, Khamenei backed Rouhani’s intention to reduce tensions with the West by initiating the president’s ‘historic telephone conversation’ with US President Barack Obama, aiding the EU’s mediatory efforts to conclude the JCPOA (Haji-Yousefi 2018). Also, it was the Supreme Leader, who pushed Ahmadinejad to begin privatisation in 2006, by issuing an executive order to approve the ‘reformist’ plan to sell 80% of state-owned corporations and by ratifying Article 44 (Mohseni 2016: 57). Also, as previously mentioned, the results of privatisation that led to further empowerment of the IRGC, were far from desired by the republicans. Overall, paradoxically, the system of checks and balances that maintains the legitimacy of the regime has the potential to undermine this same legitimacy, if the already unstable equilibrium tilts more towards hardliners, failing to restrain their economic and social empowerment. So far, the existence of multiple power centres has impeded the monopolisation of political power. Nevertheless, the position of the Office of the Leader has been continuously strengthened since the death of Ayatollah Khomeini in 1989 through ‘constitutional augmentation’, bureaucratisation of the Friday Prayer institution, the dilution of the power of the rival Shiite Ulama, informal politics and reliance on security forces (Boroujerdi and Rahimkhani 2016: 135). The problem was that new Leader

9 CHM , see Appendix II. I.8

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Khamenei lacked the charisma of Ayatollah Khomeini, so vital for political mobilisation. In 1989, the amendments to the 1979 Constitution expanded the power of the Supreme Leader, who was made responsible for resolving internal political conflicts (the role previously assigned to the president, for appointing a single Head of the Judiciary, instead of the five-member Supreme Judicial Council), and appointing the manager of Islamic Republic of Iran Broadcasting, etc. Another factor that secured the political support of the clergy for Khatami was the wide scope of social welfare, provided to over 160 thousand households through the Theological Seminaries Centre for Services, created in 1991 (ibid.: 138–42). These constitutional and organisational changes reinforced existing institutional parallelism, which according to David Harris, occurred in Iran for three reasons. First, the co-existence of Pahlavi-era organisations with post-revolutionary institutions; second, the creation of special institutions to ‘silence, or absorb competing groups’ and third, the proliferation of new welfare institutions into various regions through ‘personal face-to-face horizontal networks to subdue existing local elites’ and to ‘harness popular mobilisation’ (Harris 2016: 78). Two more reasons could be added here. Fourth, institutional dualism in Iran emanates from the ‘two-headed executive’ mechanism, reinforced by the creation of the Supreme National Security Council and of the Expediency Council in 1988. In 1989, the power of the Expediency Council was constitutionally strengthened and it turned from an advisory into a legislative body: a veto verdict of Guardian Council could be reconsidered by the Expediency Council, if 2/3 of parliament disagreed with the verdict. In other words, the Council ‘may then decide to pass the law in the version as forwarded by the Majiles, or with the changes demanded by the Guardian Council, or in yet another version’ (Iran Data Portal 2020). Fifth, institutional dualism reflects the tension between formal organisational practices and informal social power relations, rooted in enterprise paternalism, personalised relationships between employers and employees and between civil society institutions. Overall, Iran’s dualistic institutional structure 10 is counter-hegemonic for two reasons: first, the parallel parastatal and civil organisations, such

10 CHM , see Appendix II. I.9

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as the Construction Crusade (Jihad’e Sazandegi), have a strong mobilisation and unification effect on various social groups that are interconnected through their engagement in the country’s reconstruction and development programs; second, complex social welfare organisations, as well as multiple civic institutions with parallel functions unite people of various political factions, making any foreign mediation quite problematic, as each group would have members that share conservative political views and would resist any foreign agency. At the same time, the overall effect of ‘the parastatal expansion’, as Suzanne Maloney put it, is contradictory, as it ‘exacerbated growing problems for the new regime: institutional redundancy, competition and waste’ (Maloney 2015: 147). Institutional parallelism slows down decision-making, therefore, the Iranian multicentre power mechanism can be quite counterproductive and inept in responding to crises (military, social and economic). One of the institutions that secure the interconnectedness at the macro-level (and at the micro-level as well) is the Organization for Mobilization of the Oppressed (S¯ azm¯ an-e Basij-e Mostaz’afin), known as The Basij Militia (‘mobilisation’ in Persian). Founded in 1979, the ‘army of 20 million’, as Ayatollah Khomeini used to call it, has a mission to defend the Islamic revolution against external and internal threats. Initially comprised of volunteers who joined during the Iran–Iraq War, with time the Basij transformed into a top-down mechanism of religious and political interconnectedness and control, hierarchically subordinated to the IRGCs. There are three different criteria for ‘mobilisation’: the first one is geographic, with the Tribal Basij Organization and the Basij Neighbourhood and Mosques Organization enrolling volunteers based on their residency. The second one is professional—branches such as the Worker Basij Organization, the Employee Basij organisation, the Guilds as well as the multiple ‘career-specific groups’ that connect people based upon their speciality (e.g. engineering, health care, education, arts, sports, journalism, etc.). The third criterium is physiological (i.e. based on age, gender, etc.) with branches, such as the Women’s Society Basij Organization, the Pupils’ Basij Organization, the Students’ Basij Organization, the Babies Basij Organization and the Retirement Basij Organization (Golkar 2012b:457). Most members are volunteers and receive no salary from Basij, there are around 90,000 full-time and uniformed permanent members, as well as 300,000 reservists, who receive a payment from Basij (BBC 2009). Active members and ‘special’ Basijis get a wide range of social privileges, such as quotas for higher education, public jobs, travel discounts, legal support and reduced terms of military services (Golkar 2012a).

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Micro-Level Arrangements

The institutional arrangements that connect people at the micro-level are intertwined with the activities of the Basij militia, which can be characterised as a corporatist parastatal body for three reasons. First, its associations are partly sponsored by the state and unite various social categories (workers, peasants, women and students), with a ‘monopolistic claim to representation in a single industrial sector or social class’; second, the organisational boundaries of Basij ‘overlap strongly with sectoral or class boundaries’, extended to a variety of social groups that include, but are not limited to, labour (i.e. environmental activists, indigenous groups or professionals); third, while Basij associations are membership-based, their leaders are not elected directly and one of their core functions is to ‘discipline members’ (Kalb 2019: 469). Basij has a vast clustered network organisation that operates at various levels, performs a broad range of functions that parallel those of civil society institutions and penetrate into different spheres of social life. Basij’s eighteen branches are responsible for ‘recruiting, indoctrinating and organizing’ people at different levels, i.e. ‘regular’, ‘active’ and ‘special’, for the four main targets: first, engagements in local defence, second, conducting surveillance, third, policing society and fourth, suppressing dissidents (Golkar 2012a). The Basij enjoys a wide grassroot support, which is continuously reinforced through various activities that promote Islamic values. According to its former leader, General Mohammad Hejazi (from 2004 to 2007), the number of Basij ‘forces’ grew from 10 million to almost 13 million (about 20% of the total population of Iran), with 5 million women and 4.7 million schoolchildren (Aryan 2008). At the same time, the empowerment of Basij has a contradictory effect on the system’s connecting capabilities at the micro-level: on one side, its activities reinforce social control, on another—its sometimes policing and cruel behaviour, especially during the street protests in 2009, alienated some of its potential members, when young followers who had sympathetic to the Basij reconsidered their plans to collaborate with the organisation. However, the activities of Basij militia have not eradicated the interpersonal ties and grassroots connections that have been formed in post-revolutionary Iran with the aid of institutional paternalistic practices that expanded with the growth of state and petty economic activity. In

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the 1980s–1990s, enterprise paternalism 11 was reinforced by the ‘bureaucratic and petty bourgeois nature of the growth in employment, and the dependence of the middle class on state employment’: in the first two decades of the postrevolutionary period, almost 44% (2.6.million people) of the total increase in employment occurred in the state sector, with more than one third of this increase (898 thousand) being the employees from the middle classes, another 41% the employment growth was attributed to the ‘petty-commodity economic activity’ (Farhad and Behdad 2006: 171). Moreover, the state’s pursuit of economic modernisation and the expansion of education widened the grounds for informal connections and possible interactions, by reversing the post-revolutionary ‘status order’: if in the 1980s, prestige and status were associated with the commitment to the revolution, by 1990s—it was increasingly associated with technical expertise, while the growing technocratic middle class ‘affected and reshaped ideologies and alignments within the country’s political elite’ (Harris 2016: 87). Therefore, from the 1990s onwards, it became ‘impossible to rule a society that comprises millions of educated people by suppressing it’ (ibid.). Despite a crackdown on the demonstrators in 2009, the Green Movement postelection protests against Ahmadinejad’s retreat from a liberal-technocratic agenda did not pass unnoticed, and the government faced political pressure to resuscitate privatisation and subsidy liberalisation plans. However, popular dissatisfaction with the outcomes of the reforms that were far from liberal resulted in 2013 in the loss of the presidentship by the ‘hardliners’ and the victory of Hassan Rouhani. Therefore, overall, enterprise paternalism in Iran has a contradictory effect on the system stability overall: on one side, it aids institutional control over the population through the net of parastatal institutions; on another, its high connecting potential enables mass mobilisation of those who are discontent with government policies. Despite its strong mobilisation potential, the power of Labour unions in Iran is quite limited. After the revolution, austerity programs and the ‘exigencies’ of the Iraq–Iran war ‘made the labour demand a political liability’ and undermined the aspirations of the Islamic Republican Party, to empower worker’s councils. In 1982, the leadership banned the very idea of workers’ councils (Dorraj 2017: 301–5). However, despite the

11 CHM I.10 , see Appendix II.

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discouragement of unionisation by the government, a continuous mobilisation of labour throughout the revolution and after the war made strikes commonplace. There were some results, though not very satisfactory, as the influence of labour unions in Iran ‘was confined to the expropriation of some major industries, and the struggle for better wages, better working conditions and more power in hiring and firing’. For instance, Rafsanjani’s government adopted a new Labour Law in 1990, with ‘conciliatory’ concessions to workers, such as the right to organise and to collective bargaining, extension of job security, outlawed child labour, introduced paid maternity leave and higher wages, to keep up with spiralling inflation (ibid.: 301–5). The new law made large corporations responsible for the provision of housing and sports facilities, for the organisation of training for their employees, but most importantly, it ‘imposed stringent restrictions on firing workers’ (Maloney 2015: 207). These regulations considerably improved the conditions of those who already had a job; however, they had a detrimental effect for jobseekers, as a significant increase in labour costs decreased the incentives to hire; moreover, as some critiques suggest, the ‘new labour law undermined privatisation efforts’, as ‘limits on abrogating labour contracts foisted bloated payrolls on private buyers of new firms’ (ibid.)

5.4

Summing Up…

The Russian and Iranian WSRs were presented as inherently global, reflective of the global trends in welfare state restructuring, such as privatisation, financialisation, means-testing and austerity and responsive to the global challenges and external pressures, intensified by economic sanctions. International institutions abandoned their conflict resolution role, diplomatic ties and normal dialogue deteriorated. Both Russia and Iran were trying to (a) enhance their de-commodifying capabilities with the aid of monopolisation and economic power centralisation, as a shield against global market fluctuations and foreign economic penetration; (b) adopt more efficient legislative mechanisms for income redistribution to reduce absolute poverty, by introducing various quasi-liberal reforms and strengthening neo-corporatist practices and (c) reinforce the formation of social solidarity, interconnectedness and mutual commitments with the aid of coercive and consensual, formal and informal institutional arrangements, based upon enterprise paternalism and the system of checks and balances.

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5.4.1

Decommodification

In Russia, further centralisation of ‘strategic’ sectors of the economy enabled the government to enhance state control over resources to restore the de-commodifying capabilities of the Russian pension system and to meet increased demand for public expenditures. Partial privatisation of social provisions was a productive effort to move the economy out of the shadows, however, the de-commodifying function of the health care and housing sector institutions remained relatively low, forcing some of the most vulnerable social segments to enter the market when they would otherwise prefer not to: retired workers, single parents with small children, the disabled, etc. Also, unemployment benefits are too insignificant to discourage people from work, therefore the demand for labour is sufficient, keeping the unemployment rate low. In some individual cases, constantly growing expenses on housing, and the informal payments in state medical institutions, undermine a de-commodifying effect of a relatively strong pension regime. Also, counter-hegemonic mechanisms were enhanced by the activities of the Russian Sovereign Wealth Funds, which became not only an insurer for the Pension Fund budget, but also a ‘balancer’ for the Federal budget (covering the deficit), since January 2018. The Russian welfare state can no longer be defined as ‘neoliberal’, as some of the liberal initiatives of the 2000s that proved unworkable for the Russian institutions were reversed: monetisation of the benefits-in-kind was partly or fully abolished; the new legislation in the housing sector in 2017–2019 deprived private housing companies of their rights to collect some utility payments, the promotion of the private pension system was suspended by the moratorium on the transfers of the savings component to non-state pension funds in 2014–2020. In Iran, the restoration of de-commodifying capabilities of the WSR was not driven by top-down state mechanisms of social control, as in Russia (although, there is no doubt these mechanisms are very active in Iran), but by ardent factional rivalries and internal bottom-up pressures from different population groups. At the same time, state institutions, such as Social Security Organisation and Civil Service Retirement Organisation, as well as para-governmental organisations (i.e. Bonyads ), such as Imam Khomeini Relief Committee, were taking the lead in responding to these pressures. The pensions system in Iran is very generous in comparison with other contender states and the de-commodifying effect for the most vulnerable population is substantial. However, the system’s

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long-term sustainability is challenged by external factors, such as fiscal constraints and underfunding due to economic sanctions, as well as domestic factors, such as high inflation, unemployment and an ageing population that have led to a rise in the number of beneficiaries. The decommodification potential of education and universal healthcare systems is also very high, but again, it is not sustainable in the long run due to insufficient funding and informal practices. Indeed, a rapid expansion of education contributed to the country’s self-sufficiency by supplying highly qualified cadres, where needed, however, an increasing demand of the population for higher education led to overproduction of labour force, and as a result to higher unemployment. Overall, de-commodifying capabilities of the post-revolutionary institutions in Iran have been enhanced, compare to the Pahlavi regime: a more inclusive social welfare system offers a much wider coverage to a greater amount of people. The impact of institutional dualism on de-commodification is also positive: parallel institutions with overlapping functions complement rather than undermine each another. 5.4.2

Redistribution

The institutional factors that halted the redistributional function of the WSR in the 1990s—the deterioration of the socialist welfare state arrangements, the growth of the informal sector of the economy and quasi-legal ‘voucher privatisation’—were addressed by Putin’s government with the aim to reduce absolute poverty and adopt more efficient legislative mechanisms for income redistribution. The institutional changes, aided by the favourable macroeconomic situation in 2000–2007 were quite successful: first, the most important strategic budget revenue-generating assets were returned to state control, which enabled the accumulation of revenues in the Stabilisation Fund, a socio-economic buffer that secured social stability in times of economic hardship; second, pension and tax system reform increased the collections of payments at all levels and third, Putin’s leadership permitted his government to find compromise with big businesses over social responsibility, over tax reform and over the state’s strategic development targets. The imposition of sanctions solidified primary mechanisms of income distribution and strengthened the status quo of the power elites, embedded in enterprise paternalism that protects employees from precarious tendencies and mobilises and manages human recourses. Secondary mechanisms of income distribution were affected by

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the target of ‘making Russia one of the world’s five largest economies’, with the aid of twelve ‘National Projects’, reinstated in May 2018. The realisation of these projects was made possible due to budget fiscal consolidation of non-oil and gas revenues, austerity mechanisms and the system of intra-budgetary redistribution that have become counter-hegemonic tools that enabled the accumulation of reserves and tax payments, reduced vulnerability to external shocks and strengthened the capacity of the pension regime. At the same time, however, the concentration of the main budget revenues and tax payments at the federal level, along with austerity measures, might exacerbate income disparity across regions and sectors of the economy, risking future declines in social expenditures and the emergence of a new category of poor among the working population. Post-revolutionary regime in Iran inherited from the Pahlavi monarchy some corporatist and elitist features of welfare that favoured some groups over the others and were the prime reasons for income and wealth inequality. Although Land reforms in the 1960s did little in mitigating social inequalities in the short run, in the longer run they reshaped the social landscape by favouring those who could later utilise landholdings as a means to gain status and new opportunities that arose with the expansion of education. In contrast to Pahlavi land reforms that did not benefit those who stayed in the agricultural production, land reforms in the 1980s were more successful in attaining the goal of poverty eradication in the countryside. However, social inequalities were not eradicated: social inequalities were transmitted from land inequality in the Pahlavi monarchy into urban inequality, due to ‘unequal acquisition of educational credentials’ (Harris and Kalb 2019: 476). Privatisation was another factor that was expected to improve redistributional practices with the aid of Ahmadinejad’s program of ‘justice’ shares. However, despite the promise to bring the country’s oil wealth to the dining table, the results of privatisation were far from desired by the reformers. Privatisation led to the empowerment of a new class of mid-level revolutionaries and state administration and gave rise to a ‘subcontractor state’, rather than to the reduction of income inequalities. The impact of subsidies liberalisation on redistribution capacities of the Iranian WSR was also controversial. Elimination of subsidies aimed at correcting unjust distributional consequences, and universal cash transfer program as a part of subsidy reform had a positive impact on income distribution. This positive effect, however, was short-lived, as soon it was reversed by a declining value of transfers in real terms. The problem was that surging utility costs

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fuelled inflation in the manufacturing sector, which, combined with new price controls put businesses in distress and led to rise in unemployment. 5.4.3

Connection

In Russia, the WSR connecting function, determined by relationships within four institutions (state–business–household–communities) has been examined alongside the arrangements that restored or impeded the formation of social solidarity, interconnectedness and mutual commitments. The structure of Russian tripartism, the enterprise paternalism introduces duality in the welfare state institutions, which if not properly balanced and converged, might question the legitimacy of the whole system. The disillusionment with ‘liberal’ ideas in the 1990s was the underlying factor that led to the WSR transformation in the 2000s. Russian state elites were increasingly dissatisfied with the deadlock in NATO-Russia relations and distanced themselves from international governmental institutions that fostered the spread of neoliberal ideas, such as the World Bank and the IMF, whose recommendations had almost no effect on the state’s socio-economic policies. Furthermore, with the centralisation of state control over the strategic sectors of the economy, and close government–business relations, big businesses were left with no alternative but to become strategic allies of the state bureaucratic machine that in its turn deprived them of their freedom to align with international institutions, without carte blanche from the Kremlin. Since the early 2000s, most of the intra-state linkages were monopolised by the RSPP, a leading institution that connected big businesses and regional and sectorial governmental bodies at the national and international levels. After the global financial crisis, oil price collapse and the imposition of sanctions this business—bureaucratic tandem was no longer seen as efficient mechanism to ‘balance regional development’ and a ‘Russian Tripartite Commission’, or the system of tripartism, is seen as one of the most efficient counter-hegemonic mechanisms for social protection, as a base for future government–business–labour agreement to develop a private insurance market in social protection. At the micro-level, among the institutional arrangements that connect people, the system of social partnership has been considered as significant, as in most cases, employers’ collective bargaining influences legal agreements; collective bargaining is, however, weakened by increased flexibility of labour relations, introduced by the Labour Code reform and the weak

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power of the independent labour unions. The working population in Russia stays mainly interconnected through the system of enterprise paternalism—a counter-hegemonic mechanism as it improves the quality of the social environment preventing complete social stratification. This system is, nevertheless, contradictory: on one hand, it strengthens community ties and unites people through recreational, housing and cultural organisation, on another, it gives the impetus for maintaining class hierarchy and fosters personalised informal social relations that undermine labour bargaining power and cohesion and might lead to the WSR stratification. The connecting capabilities of the Iranian WSR are constrained by two contradictory political dynamics: centralisation of political power around the Office of the Supreme Leader, on one side, and factional competition and a democratically elected president and members of parliament, on another. So far, the existence of multiple power centres has impeded the monopolisation of political power, however, the democratic composition of the political landscape is constrained by the veto power of the Leader and of the Guardian Council. Also, despite its strong mobilisation potential, the power of labour unions and various civil institutions in Iran is quite limited. At the same time, the complex institutional arrangements of Iranian domestic politics are quite stable due to the high connecting potential of the system of checks and balances at the macrolevel, where the Leader’s role is to reassure the connectivity between the rival parties and to prevent extreme confrontation that would undermine the legitimacy of the regime. At the same time, the overall impact of the system of check and balances on the regimes connecting capabilities is contradictory, as it has a potential to both maintain and undermine the legitimacy of the regime, in the case of the unrestrained economic and social empowerment of hardliners. Moreover, the constitutional expansion of the power of the Supreme Leader might intensify the tension between formal organisational practices and informal social power relations. It also might reinforce institutional parallelism, and eventually slow down decision-making, making the Iranian multi-centre power mechanism counterproductive and inept in responding to various crises. The empowerment of Basij Militia was another institutional factor that secured people’s interconnectedness at the macro-level (and at the micro-level as well). Basij enjoys a wide grassroot support, which is continuously reinforced through various activities that promote Islamic values. Overall, the impact of activities of Basij on the regime’s connecting function is complex: it reinforces social control; however, its coercive methods

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alienate some of its potential members and spur the interpersonal ties and grassroots connections that have been formed in post-revolutionary Iran with the aid of institutional paternalistic practices that expanded with the growth of state and petty economic activity.

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PART III

Material Capabilities

Abstract Chapters 6 and 7 consider how the counter-hegemonic structural mode of the Russian and Iranian WSR reproduction has been secured via enhancing the material capacity and future potential of the socio-economic base, in the face of uneven development of global capitalism and the country’s dependence on global markets. The main argument is that financial consolidation, the course of technological modernisation, economic diversification and active regionalism in Russia and Iran could become productive steps in building up the material capacity of the state. However, the reliance of large businesses on state support and ‘patron–client’ relationships ultimately limit business efficiency, induce corruption and in some cases disrupt incentives for creativity and innovation. Moreover, income inequality and poverty are outcomes of the immaturity of ‘civil society’. In Russia, there is no competition between parties which limits democratic pressure for the development of the welfare state. Iran’s welfare state regime suffers from an excess politicisation of ‘civil society’: despite its successful anti-poverty endeavour of the creation of an efficient network of semi-public charities, with a generous system of subsidies for food, medicine and fuel, the success of the Islamic Revolution did not extend to inequality. Keywords Inequality, Income Distribution, Investment, Sanctions, Counter-Sanctions

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Introduction to Part III: Global Dimension Part III is devoted to the material structure of power relations and considers how the counter-hegemonic structural modes of Russian and Iranian WSR reproduction have been secured via enhancing the material capacity and future potential of the socio-economic base. The material capabilities are determined by a) households’ dependence on the market in overall welfare coverage (de-commodification); b) wealth creation and wealth distribution: the poverty and inequality dynamics (primary and secondary wealth distribution); and c) formal and informal channels for cooperation and investment opportunities (connection). All three (a, b, c) constitute material capabilities of the WSR. De-commodification There are two material global arrangements that affected the decommodifying WSR function of contender states the most: transnationalisation of production and labour precarisation. Neoliberal policies led to profound changes in the organisation of production and in the structure of global labour markets. The commitment to inflation targeting and, after the global financial crisis, to austerity, budget balancing and spending constraints, was reinforced by industrial strategies of profit maximisation and cost reduction, causing severe tensions between winners and losers. Industrial strategies were supported by labour market flexibility, enabled by the transformation of work—the generation of ‘higher-quality jobs’, the creation of ‘less-regulated’ jobs and stricter constraints on the unemployed (Taylor-Gooby, Leruth, and Chung 2017). Advocated by Western neo-classical economists, this ‘flexibility’ had many dimensions: ‘wage, employment, job, skills flexibility’, which made employees less secure and gave rise to a new phenomenon—the ‘precariat’ (Standing 2011: 8–13). The precariat is not defined as the working class, nor the proletariat, nor the working poor—for it comprises social groups that belong to various classes: precarisation penetrates the conventional global class structure at all levels, fragmenting it, so that even those closer to the elite, the ‘salariat’, can suffer from ‘precarious existence’. The counter-hegemonic mechanisms of Russia and Iran are expected to build up protection against these trends to secure people’s well-being. The integration of contender states into international markets was disproportional: unfettered financial liberalisation was coupled with

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increasingly restricted labour mobility, which exacerbated the precarious stance of workers, reproduced predatory positions of some contenders in the global division of labour, and spurred re-commodification of the previously de-commodified labour force that was pushed back into markets in order to survive. At the same time, the tax burden on capital and on consumption decreased, while the tax burden on labour increased. Attempts to reverse this capital–labour correlation, such as by the ILO’s ‘Decent Work Agenda’, were fragile: on one hand, enterprises were expected to adhere to core labour standards, on another, no law enforcement mechanisms were created (Selwyn 2015). The difficulty in settling the capital–labour contradiction derives not from the ‘retreat of the state’, ‘the diffusion of power in the world economy’ (Strange 1996), but rather by ‘fractionalisation’ of labour and capital into national and transnational, and also by the conflict between workers of TNCs and national companies that ‘shadows the split of capital’ (Morton 2007: 112). The ‘split of capital’ affects WSR de-commodifying abilities as it shapes the state’s position in the global division of labour and in the national anchoring of transnational corporations—chief global wealth creators and distributors. In 2017, the total revenues of the top 2,000 companies amounted to $35.3 tn. (net profit $2.5 tn.), and a combined value of assets was $169.1 trillion, twice higher than global GDP ($74 tn.) (Forbes 2017). However, not surprisingly, over 12 months of pandemic in 2020, their collective revenues decreased by 6% to $39.8 trillion and profits fell by 24% to $2.5 trillion. At the same time, the asset values were up 11%, to $223 trillion. (Forbes 2021) TNCs control more than half of the world’s production and trade of natural resources, such as oil, gas, bauxites, iron, copper, they also dominate in banking, machinery, electronics, pharmaceuticals and in the trade of agriculture products, such as wheat, coffee, corn or bananas. Russian companies are losing their position in the Forbes Global-2000 rating. In 2017, twenty seven of the 2017 Global-2000 TNCs were Russian firms (1.3% of global sales, less than 1% in total assets); their share of the profit of the top 100 was insignificant (2%), compared to American (45%), and Chinese (22%) companies (see Fig. III.1); in 2020, only 15 companies joined the list of top 2000 (there were no Iranian firms in the list). American and Chinese TNCs are the absolute leaders in size, earnings and geographical spread. In 2017, the list of the top 10 comprised five American (Berkshire Hathaway, JP Morgan Chase, Wells Fargo, Bank of America), four Chinese (ICBC, China Construction Bank, Agricultural Bank, Bank of China) and

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Fig. III.1 Top 100 TNCs by countries, $ of total profit (Source Author’s Calculations, Data from Forbes)

one Japanese company (Toyota Motor). In 2020, China (ICBC, China Construction Bank, Agricultural Bank of China, Bank of China, Ping An I.G.) overcome America (JP Morgan Chase, Berkshire Hathaway, Bank of America, Apple), while Japan’s Toyota Motors was ousted by the Saudi Arabian Oil Company (Saudi Aramco). The share of Russian companies in the Top 100 by profit shrank from 2 to 1%. The US hegemony is constantly renewing its material base, reshaping the relationship between industry and finance and diverting corporate funds from potentially productive activities to speculative investment (to maximise ‘shareholder value’). The US government ‘has given unprecedented support to the military-industrial complex not only through increases in spending’ (i.e. a $716 billion military budget for 2018, $753 billion for 2021) but also through ‘assisting weapons exports’ with the aid of the ‘Buy American’ initiative (Cafruny 2019). Over the next decade the US ‘military Keynesian’ spending is expected to reach $6 trillion that ‘overshadows the $200 billion proposed by Trump for infrastructure’, with the final goal of overcoming the US dependency on Chinese technologies, discovered in the study of the Defence Industrial Base under the supervision of Peter Navarro, the nationalist White House Economic Advisor (Ibid.) As was the case during Nixon’s administration, Joe Biden’s

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team realises that even though US power has declined ‘in material or basic force terms’, it still remains very great and uses its power in ways that reflect national interests and the main objective of maintaining its ‘minimum hegemony’ (Cafruny 2019: 101, 112). Economic sanctions have increasingly become one of such ‘ways’, or mechanisms, that enable the United States to constrain centrifugal tendencies away from the dollardomination hegemony, by redefining and redirecting economic corporate strategies and trends, sometimes at the expense of its allies. A shift to high-tech manufacturing production in many industries, from telecommunications to aerospace and pharmaceuticals, is accompanied by the creation of new jobs in services, and by reorganisation of workplaces to facilitate ‘lean’ production and outsourcing (Panitch and Gindin 2015). The most important characteristic of this transformation is the leadership of the American companies that control global supply chains and ‘the highest value aspects of production’ (Ibid.). As a result, China, the second global leader in production, still needs to overcome its subjugated position to the US hegemony. In fact, ‘¾ of China’s top 200 exporting companies are foreign owned’ (Cafruny and Ryner 2017: 2011). The Russian position in the global division of labour is much worse than that of China, for the country’s status of a natural resource ‘appendage’ to the West is reinforced by wage-driven competition in global markets, increased labour commodification, and the rise in ‘informal employment’ rates (35% of workers in 2017) that limit chances for industrial restructuring and economic diversification (ILO 2018). Increased commodification of labour leads to greater insecurity and ‘contingency in the character of contemporary work as well as persistent inequalities’ (Bandelj, Shorette, and Sowers 2011: 808). The position of Iran in the global division of labour is inconsiderable due to economic sanctions and the country’s retreat from the globalisation process, despite the government’s recognition of the importance of trade and access to foreign direct investment for economic growth. Redistribution The redistributive mechanisms of contender states are shaped by global imbalances, rising income inequality and their position in the global flows of goods, services and investment. Since the 1980s, financial deregulation and innovation were the main drivers for wealth inequality, with the highest rates of return for financial portfolios managed by sophisticated

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strategies of investment groups (e.g. Ivy League universities in the United States enjoy 7–9% rates of returns) (World Inequality Lab 2022: 95). Apart from that, global income distribution has been affected by activities of international organisations, transnational corporations and NGOs, and increasingly, by the extraterritorial reach of the US legal system, with the aid of secondary sanctions. Global imbalances emerge out of capital’s tendency to accumulate, which has accelerated with the aid of financial liberalisation. Wealth concentration enables large-scale investment and economic growth in some states. However, despite the neo-classical belief in growth to be ‘a rising tide that lifts all boats’ (Kuznets and Jenks 1953), there has been no automatic decrease in income inequality at the advanced stages of capitalism. Quite the opposite, income inequality increased within states, where divergence between the rich and the poor has widened: the top 10% of population accounts for 30–60% of national income all over the world. Global inequalities are even greater than they were ‘at the peak of Western imperialism in the early twentieth century’, as today the poorest half of the world’s population only possesses around half of the share of income compares to the poorest half of the population in 1820. (World Inequality Lab 2022: 12). Income inequality between states is also striking: 8.6% of the world’s adult population owns 85.6% of global wealth, with over 40% of the richest individuals (out of 36,051 world billionaires) being US citizens. US nationals accrue half of the global wealth increase, of $280 trillion, which is ‘27% higher than a decade ago at the onset of the financial crisis’ (Credit Swiss 2018) (Fig. III.2). International trade in goods, services and foreign investment are vehicles for global wealth distribution and for the subsistence of accumulation regimes: the material structure for hegemony is framed by global production and consumption and empowered by trade and investment flows, organised and reinforced through hierarchical and horizontal state and non-state networks. As such, economic sanctions with their increasingly disruptive effect on trade and investment of the target state have become a powerful tool in hegemonic rivalry. Sanctions and counter-sanctions are the new form of economic nationalism, the nature of which has changed beyond recognition over the last 50 years. Economic nationalism is theorised differently in realist, mercantilist and constructivist traditions, but one thing is obvious: it can no longer be equated to traditional protectionism (e.g. subsidies and tariffs), as it has acquired distinctive forms that could be related to both—economic openness and closure (Pryke 2012:

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Percentage of world millionaire by country, % (Source Credit Swiss

283). Globalisation was slowed down, first, by the global financial crisis in 2008, and more recently, by the COVID-19 pandemic. Although neoliberalism eliminated some forms of nationalism by extending competitive markets into existing economic arrangements, new protectionist policies succeeded in combining novel barriers to free trade with economic openness. Extraterritorial legislation, such as economic sanctions and countersanctions, coupled with other security-based forms of export controls have become such mechanisms, disruptive for long-term international trade partnerships, global supply chains, and flows of goods and services. In other words, a specific blend of economic nationalism and neoliberalism gave rise to neo-protectionism. Neo-protectionism is different from traditional protectionism in several ways. First, neoliberalism and economic nationalism are no longer antithetical: neoliberalism is reinforced by new sophisticated economically interventionist approaches. In contrast to traditional protectionism, neo-protectionism is not equated with being nationalistic and ‘antiglobalisation’, while neoliberalism is no longer being anti-globalisation

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or pro-free market (Harmes 2012: 61). The thing is that most advanced neo-protectionist policies are disguised as defenders of fair and ‘free trade’ and of democratic ideals (the measures are far from democratic—but they are supposed to penalise non-democratic behaviours and defend liberal democratic principles). As such, the rhetoric of laissez-faire, freedom of choice, individualism and trade liberalisation obscures the rise of neoprotectionist and regulatory trade instruments. The ‘invisible hand’ of the market has been substituted by an ‘invisible hand’ of the state. Second, as ‘the integration of markets and international jurisprudence put pressure on the instruments available to governments’ (Clift and Woll 2012: 317), neo-protectionist tools have become very complex and much more difficult to detach. Nevertheless, their effects on global trade are tangibly real and substantial. Third, along with the ‘rise of the state’, neo-protectionism also sees a political ‘rise of businesses’: struggling to increase their control over markets, the most powerful corporations revise their legal practices (traditionally, the sole prerogative of the state) in a way that benefits their positions most. National legislations have become more commercialised, as governments have not lost (as some analysts argue) but rather reoriented their command over national economies by rearranging macroeconomic regulations to prioritise corporate interests. Fourth, neo-protectionism has become more closely intertwined with the concept of national security and is no longer limited to trade or commercial security considerations alone. The conceptualisation of national security has been dramatically expanded; it underpins most extraterritorial acts, related to sanctions, export controls and other traderegulating measures. Fifth, if the traditional instruments of protectionism were available to all the states involved in global trade, neo-protectionism is an ‘elite club’ (or maybe a one-member or two-members club?), as the most effective neo-protectionist mechanisms with high extraterritorial potential could be available only to a very powerful state, which either enjoys ‘exorbitant privilege’, such as the United States (e.g. benefit of a state from having its own currency as an international reserve currency) (Eichengreen 2011), or dominates some vital global supply chains, such as China (e.g. a country that sees other states as highly dependent on its own production processes). Sanctions and intensification of geopolitical confrontation inspired Russia and Iran to launch a series of strategies in import substitution and technological modernisation (IS-TM), aimed at self-sufficiency

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and technological modernisation, that has had some successful practical results. Another important factor that influences global distribution of wealth is the growing importance of the service sector, as a result of fractionalisation of production, financialisation, and the rise of a ‘network society’ that brings about a non-linear transformation of space–time that challenges a hierarchical state-centred order with a rapid and constant technological change (Castells 2013). The world’s largest exporter of services, the United States, benefits immensely from the overseas opportunities in banking, insurance, information technology, telecommunications, express delivery, audio-visual and energy services. According to the US Chamber of Commerce, services that relate to automation and information technologies help American manufacturers enhance their global competitiveness; overall, services reached 40% of all the US’s exports (The US Chamber of Commerce 2018). The positions of Russian and Iranian companies in the global services markets are weak, the countries’ shares in the trade of manufactured goods are also not significant. In 2017, electrical equipment (15%) and machinery (12%), and mineral products (11%) were leaders in international trade of manufactured goods. With an exception of the oil and gas sector, Russia’s and Iran’s share in the global export of electrical equipment and machinery, as well as of other high value added products remains very low, leaving the strategic sectors of these contender economies are dependent on imported equipment and vulnerable to external shocks. In both Russia and Iran, these concerns gave rise to the programs of import substitution, to the realisation of infrastructure and construction mega-projects as counter-hegemonic priorities for economic development. Connection Investment activities are one of the main material aspects of WSR connecting function: mutual financial obligations and financial dependency unite individuals at all levels, serving as an impetus for the formation of global communities. Material aspects are framed by legal arrangements: this section will continue to explore three main institutional channels for international cooperation: integration initiatives and international alliances, transnational business structures (TNC’s and joint investment projects), and networks of non-governmental organisations.

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Within the context of heartland/contender divide, regional integration could be seen as a response to the crisis tendencies in capitalism, to either reproduce hegemony or to launch a counter-hegemonic initiative. Thus, some observers see European integration as a reconstitution of the material base for American hegemony, ‘based on the subordination of European capitalism to American neo-imperialism’, as ‘interiorised’ EU capital became increasingly interconnected with American business practices (Poulantzas 1974). In its turn, the Eurasian Economic Union (the EAEU) appeared as a counter-hegemonic response to the threedimensional expansion of Western institutions—financial, military and spatial. A 2017 revised Russian National Security Strategy (Presidential Decree N683 2015) reflected the shifts in Russia’s domestic and foreign policies, though not in the direction desired by sanctions sender-states: instead of softening its counter-hegemonic posture, Russia has sought to promote Eurasian integration and closer trade cooperation with China and Iran (Kirkham 2016). Along with integration projects, another significant factor that affects the connecting function of WSR is the mergers and acquisitions M&A activities that unite people across territories and create highly integrated value chains. Administrative and technological capacities enable TNCs to ‘centralise the crucial functions related to control’, such as strategic planning and research and development (R&D) that ultimately affect allocation 2015). For developing countries, foreign direct investment (FDI) is one of the major sources of external finance (45% of total external sources), more significant than official development assistance (i.e. ODA, 13%), remittances (29%) or portfolio investments (8%). FDI mostly takes place through the global market for M&A that reached all-time records in 2021 - $5 trillion (for comparison, $3.48 trillion in 2017), higher than the pre-financial-crisis record of $4.4 trillion in 2007, with American companies continuing to dominate, nearly doubling their volume to $2.61 trillion ($1.5 tn. In 2017), Europe’s M&A deals surged by 47% to $1.26 trillion, and Asia Pacific up by 37% to $1.27 trillion (with the biggest transactions being the$43 billion merger between AT&T Inc’s and Discovery, and the $34 billion leveraged buyout of Medline Industries. In 2013–2021, American TNCs were involved in around 50% of the top 100 global deals (on average), while the share of Russian TNCs in deal volume was no more than 2% (Reuters 2022). Chinese companies have been active in buying assets across the world, since 2013, reaching a peak in 2016 ($200 bn), however in 2021 they became purposely less

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visible though not less powerful in cross-border M&A, as they decentralised their global business to concentrate on ‘smaller mergers and acquisitions that do not attract attention’; nevertheless, Chinese FDI reached $133bn in 2021, making the country the world’s biggest global investor, especially in high-end technologies. (The Economist 2021a). Along with TNCs and national governments, other important players in the global flows of financial resources are non-governmental organisations and social media networks. In contrast to official FDI, remittances and other types of external sources of finance, financial transactions between and within non-governmental organisations are not summarised in any statistical yearbook. Nevertheless, some analysts acknowledge the ‘remarkable growth’ in NGOs over the last several decades, as ‘the result of interactions between secular trends, ideas, and technology’ (Werker and Ahmed 2007: 3–5). Some of these organisations are nongovernmental only theoretically, while technically they receive funds from national state institutions. For instance, the US government funds for NGOs are channelled through frameworks, such as the United States Agency for International Development (USAID), the National Endowment for Democracy (NED), The Middle East Partnership Initiative (MEPI), and United States Institute of Peace (USIP) and many more (NGO Monitor 2018). The diversity of nature and the range of activities of NGOs is immense: along with declared humanitarian assistance and other commendable goals (goods delivery, environment protection), there are organisations created to promote liberal values and democratic institutions by the means of regime change, as was the case with the ‘Orange revolution’ in Ukraine (Sakwa 2016). Overall, the exact amount of funding is difficult to estimate as data is limited, however, some evaluations are still possible. For instance, in 2018, President Donald Trump proposed a 32% ($19 bn.) cut in foreign funding to NGOs, suggesting that in 2017 the minimum amount of financial aid financed from the US state budget was around $60 bn. (Mowbray 2018). In Russia, in 2013, before the Foreign Agent Law that renders protection against destabilising activities of foreign NGOs was amended,1 there were 654 NGOs that received funding from abroad (around $2 bn.) (RIA Novosti 2013a,

1 Foreign Law adopted in 2012, modified in 2021, requires non-commercial ‘civil’ organisations that engage in political activity and receive foreign financial funding to be registered as ‘foreign agents’.

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b). In Iran, NGOs with foreign participation are treated with suspicion, while Amnesty International listed Iran among the fifty countries using ‘bullying techniques and repressive regulations’ and alleges that Iran ‘exploits provisions in the Islamic Penal Code to criminalise the activities of NGOs’ (Amnesty International 2019).

References Amnesty International. 2019. “Global Assault on NGOs Reaches Crisis Point.” Retrieved January 13, 2022 (https://www.amnesty.org/en/latest/news/ 2019/02/global-assault-on-ngos-reaches-crisis-point/). Bandelj, Nina, Kristen Shorette, and Elizabeth Sowers. 2011. “Work and Neoliberal Globalization: A Polanyian Synthesis.” Sociology Compass 5 (9): 807–23. Cafruny, Alan. 2019. “Can the United States Contain China?” Russia in Global Affairs. Retrieved July 8, 2019 (https://eng.globalaffairs.ru/number/Canthe-United-States-Contain-China-19991). Castells, Manuele. 2013. Communication Power, 2nd ed. Oxford: Oxford University Press. Clift, Ben, and Cornelia Woll. 2012. “Economic Patriotism: Reinventing Control over Open Markets.” Journal of European Public Policy: Economic Patriotism: Political Intervention in Open Economies 19 (3): 307–23. Credit Swiss. 2018. “Global Wealth Report 2017: Where Are We Ten Years after the Crisis?” Retrieved July 8, 2019 (https://www.credit-suisse.com/cor porate/en/articles/news-and-expertise/global-wealth-report-2017-201711. html). Eichengreen, Barry. 2011. Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. Oxford: Oxford University Press. Forbes. 2017. “2017 Global 2000: These Are the Largest Companies in Russia.” May 24. Retrieved July 8, 2019 (https://www.forbes.com/sites/maggiemcg rath/2017/05/24/the-2017-global-2000-these-are-the-largest-companiesin-russia/#54cfe53562af). Forbes. 2021. “No Title.” Retrieved January 13, 2022 (https://www.forbes. com/sites/elizahaverstock/2021/05/13/inside-the-global-2000-the-valueof-the-worlds-largest-public-companies-soar-as-sales-and-profits-falter/?sh= 7486427426d4). Harmes, Adam. 2012. “The Rise of Neoliberal Nationalism.” Review of International Political Economy International Political Economy 19 (1): 59–86.

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ILO. 2018. “World Employment Social Outlook.” Retrieved July 8, 2019 (http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/--publ/documents/publication/wcms_615594.pdf%09). Kuznets, Simon, and Elizabeth Jenks. 1953. “Shares of Upper Income Groups in Income and Savings.” Morton, Adam David. 2007. Unravelling Gramsci. Hegemony and the Passive Revolution in the Global Political Economy. London: Pluto Press. Mowbray, Sean. 2018. “IUCN, UN, Global NGOs, Likely to See Major Budget Cuts under Trump.” January 8. Retrieved July 9, 2019 (https://news.mongabay.com/2018/01/iucn-other-global-ngos-un-lik ely-to-see-major-budget-cuts-under-trump/). NGO Monitor. 2018. “Country Profile: United States.” Retrieved July 9, 2019 (https://www.ngo-monitor.org/funder/united_states/). Panitch, Leo, and Sam Gindin. 2015. “Rethinking Production, Finance and Hegemonic Decline in IPE.” In Handbook of the International Political Economy of Production (Handbooks of Research on International Political Economy Series), edited by K. van der Pijl, 23–42. Chentelham: Edward Elgar Publishing Ltd. Poulantzas, Nicos. 1974. Classes in Contemporary Capitalism. London: New Left Books. Presidential Decree N683. 2015. “Strategiya Natsionalnoi Bezopasnosti.” December 31. Retrieved June 20, 2019 (http://www.consultant.ru/cons/ cgi/online.cgi?req=doc&base=LAW&n=191669&fld=134&dst=100014,0& rnd=0.6300912278244553#05029034613039329). Pryke, Sam. 2012. “Economic Nationalism: Theory, History and Prospects.” Global Policy 3 (3): 281–91. Reuters. 2022. “Global M&A Activity Smashes All-Time Records to Top $5 Trillion in 2021.” Retrieved February 4, 2022 (https://www.reuters.com/ markets/europe/global-ma-activity-smashes-all-time-records-top-5-trillion2021-2021-12-20/). RIA Novosti. 2013a. “Putin: My Dolzhny Berezhno Otnositsya k Konstitutsii Nashei Strany.” December 9. Retrieved June 24, 2019 (https://ria.ru/pol itics/20131209/980567465.html). RIA Novosti. 2013b. “Svyshe 650 NGO v RF Finansiruyutsya Iz-Za Rubejha, Zayavil Putin.” April 5. Retrieved July 9, 2019 (https://ria.ru/society/201 30405/931217902.html%09). Sakwa, Richard. 2016. Frontline Ukraine: Crisis in the Borderlands. London and New York: I.B. Tauris. Selwyn, Benjamin. 2015. “The Grapes of Wrath: Social Upgrading and Class Struggles in Global Value Chains.” In Handbook of the International Political Economy of Production (Handbooks of Research on International Political

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Economy Series), edited by K. van der Pijl, 98–114. Cheltenham: Edward Elgar Publishing Ltd. Standing, Guy. 2011. The Precariat: The New Dangerous Class. London: Bloomsbury Academic. Strange, Susan. 1996. The Retreat of the State: The Diffusion of Power in the World Economy. Cambridge: Cambridge University Press. Taylor-Gooby, Peter, Benjamin Leruth, and Heejung Chung. 2017. “Liberalism, Social Investment, Protectionism, and Chauvinism. New Directions for the European Welfare State.” After Austerity: Welfare State Transformation in Europe After the Great Recession, 1–24. Oxford Scholarship Online, Oxford University Press. The Economist. 2021a. “Chinese Firms Are Quietly Pursuing a New Global Strategy.” Retrieved February 4, 2022 (https://www.economist.com/theworld-ahead/2021/11/08/chinese-firms-are-quietly-pursuing-a-new-globalstrategy). The US Chamber of Commerce. 2018. “Benefits of International Trade.” Retrieved December 25, 2018 (https://www.uschamber.com/international/ international-policy/benefits-international-trade%09). World Inequality Lab. 2022. “World Inequality Report 2022.” Retrieved February 4, 2022 (https://wir2022.wid.world/www-site/uploads/2022/ 01/WIR_2022_FullReport.pdf). Werker, Eric, and Faisal Z. Ahmed. 2007. “What Do Non-Governmental Organizations Do?” Journal of Economic Perspectives. Retrieved July 9, 2019 (https://www.hbs.edu/faculty/PublicationFiles/08–041.pdf).

CHAPTER 6

Russia (Material Capabilities)

6.1

De-commodifying WSR Function

The assessment of the global context in the previous part suggested that two global ‘material’ arrangements affected de-commodifying WSR function of contender Russia: transnationalisation of production and labour precarisation. To analyse the effect of these global developments upon decommodifying potential of WSR, this section will address labour market precarisation and then will provide an empirical study of households’ dependence on the market, based on information collected through interviews and providing sample household budgets. 6.1.1

Labour Market Precarisation

Starting from the 1990s, most Russian enterprises adopted strategies for shareholder value maximisation, which was essential in the context of increased financialisation of businesses, raising capital through extensive borrowings from global financial markets and involvement in initial-public offerings (IPOs). Since the introduction of sanctions, which ‘effectively shut out’ Russia from capital markets, the importance of IPOs for Russian companies increased: following a decline of IPOs in 2014–2017; in 2017, Russian companies raised up to $2.8 billion in Moscow and London, while in March 2021, the Russian retailer Fix Price raised almost $2 © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_6

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billion, making it the biggest Russian IPO since sanctions were introduced (the biggest Russian offerings to date is Rosneft’s $10.7 billion IPO in 2006, followed by VTB Bank’s $8 billion offering in 2007) (Reuters 2021). The shareholder value of Russian public companies and the success of the listing is partly determined by corporate human resource strategies,1 based upon labour market ‘flexibility’ (optimisation of employment, wage, job mobility and skills adjustment). Although flexibility reduced production costs of some Russian companies, the position of employees has become more precarious, making them look for additional job opportunities, including in the black market, to feel more secure. Also, headcount reduction during public listing, privatisation and M&A were normal practices. The effect of such publicly driven HR strategies to increase market ‘flexibility’ is contradictory: on one side, it stimulates technological modernisation from above, on another, it increases the role of state agencies in the labour market, enhancing different forms of control over the population and constraining individual freedoms. At the same time, according to the Head of HR of one of the Russian TNCs, in contrast to Western Europe, the source of precarisation of the Russian labour market is not so much in the growing amount of fixed short-term employment contracts, as the share of stable long-term or open-ended employment contracts in Russian large and medium-size businesses remains very high—around 80%, and more than 34% of men and 38% of women have been in their current job position for more than 10 years—but rather in working conditions and the systematic breakages of these contracts. According to an anonymous survey of staff opinion, conducted by the labour union of the same Russian company in 2017, only 5% of respondents admit no breach of their contracts, while 8% complained about illegal dismissal and more than half of employees complain of overtime work with no pay (Fig. 6.1). The precarisation in some labour market segments in Russia is not only the product of strategies of national and transnational corporations but also is the product of some imperfections in macroeconomic management, including government legislation that affects the labour market and income security in state companies and institutions (adequate stable income), as well as ‘presentation security’ (collective voice), which is relatively weak in Russia (Standing 2011). As discussed,

1 CHM R.11 , see Appendix I.

6 0

RUSSIA (MATERIAL CAPABILITIES) 10

20

30

40

50

179

60

No remuneration for overtime work Increase in amount of work with no pay rise Holiday delay Wage reduction Wage payment delay Illegal dismissal No breaches

Fig. 6.1 Most common breaches of open-ended contracts, % of respondents (Source Author’s Interview with a HR manager, 2017)

the new Labour Code reform weakened the employment rights of Russian workers and lowered the unions’ capacity to constrain precarisation: as a result, ‘Russia was left with a liberalised labour code and one major, weak, pro-government union federation’ (Cook 2013: 169). The epidemic of a ‘precarious mind’ in Russia spreads quite dynamically across different sectors of the economy, and across social classes, as they were defined by Guy Standing (2011): the precariat (in the bottom), manual employees, ‘proficients’ and the ‘salariat’ (the second highest, after the elite). In fact, paradoxically, in Russia, the concentration of production and the restoration of state control over strategic industries, resulted in precarisation of the top ‘salariat’, and even ‘elite’, as their employment security—the protection against arbitrary dismissal and against the imposition of fines—has been reduced. For instance, in 2017, the chief executive of state-controlled diamond miner Alrosa Andrey Zharkov was fired after disputing Alrosa’s 2017 budget with the finance ministry; Sergey Ivanov Junior, 36, a senior vice president of Sberbank and a son of the former head of the Kremlin administration, was appointed for this position (Reuters 2017). In 2016, there were about 30 dismissals of top managers in telecommunications (i.e. Megafon, MVideo), banking (Uralsib, Vnesheconombank), oil and gas (i.e. Bashneft, Udmurtneft), machinery (AvtoVAZ), retail (Dixy, Magnit) and electric power industries (OGK-2) (Vedomosti 2016). According to the newly created 2014 informal Russian portal for business and financial elites— www.finparty.ru—that covers some recent news and events of the business

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community, including resignations and appointments, the labour market for senior and top managers in the Russian private and public corporations, especially in the financial sector is very dynamic, the mobility of personnel is very high. Interestingly, the amount of young people (around 35 years old) and women in recent appointments (winter-spring 2019) is substantial, which contrasts with the cadre policies in the Soviet, and even in the President Yeltsin’s times. Counter-hegemonic tendencies, such as the highly subsidised program of import substitution 2 in some core sectors of the economy (e.g. metallurgy, agriculture, chemicals and textile), succeeded in making the Russian labour market less precarious, at the same time, however, the effect might be very short-term, as in the long run, firms accustomed to subsidies and little competition might lose stimuli for innovation and further investment in human resources. The degree of precarisation of labour markets across Russia’s regions is quite distinct and is closely correlated with de-commodifying services provided by state institutions (health care, kindergartens, schools, etc.) and also with the arrangements of the labour market itself, such as the benefits that the employees get through work (social insurance, social assistance, subsidies and transfers). In order to attract young specialists, or to keep highly experienced workers, and also to minimise the costs incurred by the high mobility of employees, some corporations develop human resource strategies aimed at reducing psychological and material pressures on workers. For instance, the pharmaceutical producer Evalar, apart from good pay of P = 25,000 per month for young specialists (considered relatively high for the Altay area) offers substantial welfare coverage, including a kindergarten that accommodates 210 children up to the age of 7 for the employees of its Biysk plant (Vedomosti 2015). The employees of Evalar pay only P = 1,600 a month per child (the fee for non-employee is P = 15,000). In fact, the Russian system of enterprise paternalism plays a significant role in some industries and regions. However, its uneven development is one of the core reasons of welfare state territorial and sectoral divergence; therefore, the comparative analysis of household budgets and regional labour markets in the following section will demonstrate that the level of de-commodifying potential across regions can vary.

2 CHM R.12 , see Appendix I.

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181

The positive image of IS in the wake of sanctions promoted by the Russian government meets public support and affects the way Russians estimate the effects of sanctions on their personal well-being. According to an independent poll by the Levada Centre in 2020, the percentage of Russians who believe that sanctions have not created any problems for them or for their households grew from 57% in 2015 to 87% in 2020, while only 10% of respondents point to some sanctions-related problems (34% in 2015). Russians became used to sanctions and quite promptly switched to domestic alternatives. During 2014–2020, Russia’s sanctions-induced loss was about $50 billion, however, the IS program that forced the country to ‘turn on its brain’ compensated for that loss in full (Vedomosti 2020a). The latest round of US sanctions on Russia’s sovereign debt in 2021 was less severe than expected, as they affected only the primary bond market, and could be easily circumvented through the secondary market. Also, Russian companies that were sanctioned had no exposure to the US financial system. Most Russians agree with Agathe Demarais from the Economist Intelligence Unit, that this ‘was a mostly symbolic exercise’ that had a more positive than negative effect on the domestic investment climate: new sanctions removed uncertainty and reduced investment risks. However, in the long-run the practical prospects for such optimism remain unclear, as Russia’s IS-TM program remains under-financed. The views regarding the future of IS in Russia are polarised—some argue that Russian businesses will be doing well, while others complain about potential inflationary pressures and the low quality of domestic alternatives. 6.1.2

Households’ Dependence on the Market

The WSR de-commodifying abilities, shaped by institutional arrangements, influence people’s decisions to enter or exit the labour force. Chapter 4 assessed the importance of the benefits-in-kind and the benefits-in-cash, provided by state institutions. This section will add numerical evaluations of this aid and also consider the benefits an employee can get through work or communities. This will be done by examining sample household budgets, based on the data collected throughout interviews in different regions. Moscow, Tambov and Omsk regions have been selected to represent high, medium and lower than average incomes as reflected in the official rating of living standard: out of 78 Russia’s regions, Moscow holds the leading position (N1),

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Tambov is in the middle range (N34), while Omsk in closer to the bottom (N54). The sample population includes the most vulnerable social groups: pensioners, sole parents and multi-children families. The assessment of the individual budgets of the most vulnerable groups is essential to reveal situations where the commodifying pressures are at maximum and people are forced to join the labour force to avoid absolute poverty. Household incomes are analysed using the concept of ‘social income’ that consists of six elements: the self-production (goods and services that are produced directly, including the products from the household plot); money wage received from labour; support provided by the family (including remittances); support from local communities; enterprise benefits and state benefits (social insurance, social assistance, subsidies and transfers) (Standing 2011). After the imposition of sanctions in 2014, real incomes of Russian citizens were initially declining, for three consecutive years, despite the 7,2% growth in nominal wages and 3,5% in real wages (see Table 6.1). The negative real income dynamic was mainly caused not by the effect of economic sanctions, by rather by the rouble depreciation and temporary fall in oil prices in 2015 to mid-2017 (>$30/bl. Brent.). In 2018 oil prices partly recovered, reaching $78/bl., and real incomes stabilised for a short while—until 2020, when the positive tendencies in the Russian economy were disturbed by the coronavirus pandemic, which became the determinant factor for socio-economic trends not only in Russia but worldwide. The peak of the decline in revenues occurred in the spring of 2020, but by the end of the year the situation slightly improved. Nevertheless, the decline in the standard of living of the population was an inevitable consequence of quarantine measures. Although the government Table 6.1 Dynamics of income, wages and pension in 2013–2020, %

Income Wages Pension

Nominal Real Nominal Real Nominal Real

Source GSK 2020, 2021

2013

2014

2015

2016

2017

2018

2019

2020

11.7 4 11.9 4.8 9.7 2.8

6.7 −1.2 9.1 1.2 8.8 0.9

10.4 −2.4 5.1 −9 11.2 −3.8

2 −4.5 7.9 0.8 3.4 −3.4

3.3 −0.5 6.7 2.9 4 0.3

4 0.1 11.6 8.5 3.7 0.8

6.1 0.8 7.5 2.9 6 1.5

4.3 −3.5 6 2.5 5.8 2.3

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183

undertook measures to support the population, such as direct cash transfers to families with children, those measures were not enough to ‘fully compensate for the losses in living standards caused by the COVID-19 pandemic’ (HSE 2021: 4). Not surprisingly, the pandemic affected the structure of consumer spending as well, with the share of expenses for the purchase of goods and payment for services decreasing by 4.7%, and the share of savings increasing by 4.5%, despite the drop in income, as the result of the forced restriction on consumption due to quarantine measures. At the same time, average wages in Russia increased, especially in finance and insurance, and natural resources sectors, while income from property declined, as business was stagnating, and wages in small businesses and in the shadow economy were declining. As a result, the share of social payments in total household income increased, while the share of property income (interests, dividends, etc.) reduced. Overall, labour commodification remains high, which is reflected in the structure of household incomes, where wages hold the lead—around 60% (Fig. 6.2). According to official data, the level of absolute poverty (below the subsistence level) remained high—13% in 2017, and in 2020—12.1% of the country’s population (17.8 million people) (HSE 2021). The subjective evaluations by population, recorded in the HSE’s Survey, were a bit more optimistic—in 2017, as less than 9% of respondents have difficulties in getting enough food (11% in 2016). However, 38% of respondents struggle to provide for decent clothes (41% in 2016) (Ovcharova et al. Income from property 5%

Other 2%

Social payments 20%

2017 Business activities 8%

Wages (inc. black market) 65%

Income from property 4%

Social payments 21%

Other 11%

Wages (inc. black market) 59%

2020

Business activities 5%

Fig. 6.2 The structure of a household income (Sources GKS 2018, 2021)

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2017). There is no reason to suppose that the situation improved in 2018–2021. According to a Survey, a third of respondents believe that ‘their quality of life has deteriorated over 2020–2021’ (Levada-Center 2022). Talking about poverty, the most disadvantageous heritage that Russia gained in transition from communism to capitalism is the emergence of the ‘working poor’, which reached one-sixth part of the working population that cannot fully provide for the needs of their families: according to official statistics, the earnings of 2 million people, or 7.3% of employees are below the subsistence level (Vedomosti 2017). According to ILO, however, the working poverty rate in Russia is even higher than the official number—10.8%, and as the employment to population ratio is 59.5, the amount of the working poor reaches 9.4 million people (ILO 2017). Therefore, in some regions the labour market does not save people from poverty even after they ‘recommodified’ and rejoined the labour force, leaving them with no alternative but to look for other sources of income: self-production (i.e. from land plots), aid provided by communities, family members, friends or the black market. It is difficult to calculate the exact amount of the ‘working poor’. For example, in 2017, an employee of a scientific research centre in Moscow, with 15 years of work experience after graduating from a prestigious Bauman University with a Ph.D., received a monthly pay of Rub 19,650 (net), which was around $4,000 a year. As his salary exceeds the minimum pay in Moscow by Rub 908, or $14 (min pay is Rub 18,742, or $30),3 he did not receive any allowances or benefits; the employee’s income did not cover his monthly expenses on housing and food (minimum subsistence level), so he ‘managed to survive only because of the help provided by his brother’. Also, an important factor is the ownership of the place of residence. For instance, in Tambov region, which is considered to be a much poorer region than Moscow but is located in a highly productive ‘black soil’ area, a family with two children worked in the city and had to rent a flat for Rub 15,000 a month, while their total income was around Rub 29,000, leaving them with only 14,000 a month to cover other expenses; therefore, they were ‘saved’ by the land plot outside the city centre that provided 60% of their food.4

3 Author’s interview with an employee for a state-funded research centre, 2017. 4 Author’s interview with a manager of a local store, 2017.

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The following data contains information on household budgets for a pensioner, a sole parent and a family with many children (3+) in Moscow, Tambov and Omsk (see Table 6.2). The aim of these sample budgets was not a comparative analysis of diversification of the living standards across Russia, as these families have different backgrounds and belong to distinct population samples, the idea was to understand some material aspects of WSR de-commodifying opportunities offered to the most vulnerable social groups, based upon examples from real life. This was collected before the pandemic, so there is very little chance that the situation has improved since then. For instance, it has become clear from the interviews that in spite of the efforts by the government to inflation-index pensions (paid in 2018 in a lump sum), a large proportion of pensioners in Russia were struggling to cover their expenses and cannot afford any leisure or holidays. In cases when the state was expected to cover trips to sanatoriums, it did so post-factum or with delays, if it covers at all. Also, ‘free’ drugs were of very limited choice, and according to the retirees, the quality of drugs was not high. There are, however, some very good experiences with healthcare practices, when a patient gets the treatment of a very high standard free of charge. However, the quality of health care varies across regions and from hospital to hospital, and there are some appalling cases of cancer patients dying without painkillers provided. As well as pensioners, single parents also have very ‘tight’ budgets and struggle to find additional income, a second job or refer to the black market to cover their needs. Some families with more than three children are better off, as they get substantial benefits-in-cash, such as the subsistence level monthly pay, plus allowances of up to Rub 23,000/month ($370), also a oneoff birth allowance of P = 453,000 ($7,260), a P = 15,000 ($240) one-off payment to ‘prepare for children for school’, a P = 10,000 ($160) present for ‘family day’, etc.; among benefits-in-kind are free school meals, free medical services and public transport, also there are some tax allowances and subsidies. Nevertheless, the data in Table 6.2 does not show statistical averages, and the situation in some families with many children might be below the level expected. What Table 6.2 does show is that the vulnerable groups in Russia experience immense commodifying pressures: without entering the market they will not be able to cover their minimum expenses; also, their status is very precarious and they fall within the category of the ‘working poor’, which is partly alleviated by family assistance, self-reproduction or in some cases by income gained from the black market.

12,500 4200 3000 4000 1400 1500

Income 1000 12,500 700 2600 400 10,000 7000

Income

Self-production Pension State benefits-in-kind State benefits-in-cash A. Support from local communities B. Support from the family C. Money wage received from labour Balance without A, B, C and D

Expenses 30,500 2736 3500 4600 8000 5500 3000 15,000

MOSCOW Income 0 57,550 4600 1000 400 0 10,000 0

Single parent, school teacher

Income

Self-production Wage Allowance for single parent State benefits-in-kind Other benefits-in-cahs A. Support from local communities B. Support from the family C. Black market

−8300

Expenses

MOSCOW

Pensioner

300 26,940 10,300 400 200 750 4500 4000

Income 19,500 1860 1500 1900 5000 3200 1600 5000

Expenses

−200

700

7500 2400 2000 3200 800

Expenses

TAMBOV

3000 3000

3500 10,300 600 1300 500

Income

TAMBOV

500 23,350 13,500 500 500 600 4800 2500

Income

OMSK

5000 1500

2200 13,500 400 1500 350

Income

OMSK

21,500 3288 2500 2200 5400 3500 700 6500

Expenses

−250

800

8500 3500 2400 2800 650

Expenses

Food Child-care Education (free) Housing and Utilities Clothes Health care Transport, communication D. Leisure

Expenses

D. Leisure

Food Housing and Utilities Clothes Health care Transport, communication

Expenses

Table 6.2 Sample household budgets for a pensioner, single parents and families with 3 + children in Moscow, Tambov and Omsk, 2017–2018

186 K. KIRKHAM

Income

Income

53,000 1400 6000 4690 12,000 2400 2500 25,000 22,560

Income 4000 67,550 23,000 1500 8500 2000 0 0

Income

Self-production Wage Allowance for kids State benefits-in-kind Other benefits-in-cahs A. Support from local communities B. Support from the family C. Black market Balance without A, B, C, D and E

Source Data collected by the author, in interviews

Expenses

MOSCOW

5714

Expenses

Multi-children family, one parent works

Balance without A, B, C, D and E

MOSCOW

Single parent, school teacher

4500 7000

6000 35,540 18,393 500 4800 0

Income

TAMBOV

Income 3580

Expenses

1800 6000 14,883

32,500 0 4500 1750 8000 1800

Expenses

TAMBOV

0 10,500

3500 42,800 21,000 700 5900 750

Income

OMSK

Income

OMSK

1100 5000 10,370

48,500 0 3000 2730 6000 2200

Expenses

−738

Expenses

Transport, communication D. Leisure

Food Child-care Education (free) Housing and Utilities Clothes Health care

Expenses

Expenses

6 RUSSIA (MATERIAL CAPABILITIES)

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6.2

Redistributive WSR Function

The analysis of institutional settings of the WSR redistributive function in Chapter 4 analysed how different forms of inequalities across Russia, including income inequality, developed as a result of primary and secondary mechanisms of income distribution in the period of transition (1990s) and afterwards (2000s). Welfare arrangements that deteriorated in the 1990s, market liberalisation, capital flight, voucher privatisation, followed by monopolisation, ‘modernisation from above’ and restoration of state control over strategic sectors of economy were the factors that shaped primary income distribution. Secondary mechanisms of income distribution included the system of intra-budgetary transfers between the federal and regional budgets, fiscal policies and tax accumulation strategies. The following passages will continue exploring the effects of organisation of production on primary income distributions across sectors and regions and the mechanisms of secondary income distribution. 6.2.1

Primary Distribution: Trade and Production

Income inequality in Russia is high, as the top 10% of the population accounts for 46% of the share of national income and 3% of the world’s millionaires are Russian nationals. This is partly explained by the concentration of control and monopolisation; the impact of these changes in the organisation of production on income disparities has been perpetuated by financialisation of different aspects of economic life and by inefficient control over capital movement. The following passages will be devoted to the trends and statistics of trade and production across regions (macro), followed by sectoral and regional disparities of labour markets (micro). Given the complexity of the geopolitical and geoeconomic factors, any estimation of a ‘pure’ effect of sanctions on Russia will be speculation. Growing insulation of Russia’s core businesses from dollar-based technologies and credit revealed the limits of the oil-led redistributive capacities and the urgency of resolving technological retardation in value added strategic sectors that remain vulnerable to sanctions. Among those are telecommunications, machinery, electrical equipment, upstream oil and gas and other manufacturing industries. The shock of the US secondary sanctions had a ‘cold shower’ effect on the Russian economy, much ‘colder’ than the financial crisis of 2008. However, in the long run, the shower might have a healing effect: the short-term depressing initial

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effects of sanctions (e.g. limited profitability and liquidity, financial instability, capital flight, restricted availability of technologies, etc.), would give way to a positive transformation of the Russian economy to become more technologically advanced, industrially self-sufficient and financially insulated from global shocks. At the same time, the healing process could be paradoxical: technological advancement and mobilisation could be hampered by the same processes that were initially the driving forces: institutional power centralisation and accumulation of resources induce bureaucratisation and corruption. The introduction of sanctions, and especially counter-sanctions, led to some shifts in the organisation of production in Russia that had a contradictory effect on wealth redistribution. Further concentration of production in oil and gas, banking and security sectors supported the status quo of the managers and the elite, whose income greatly exceeded the incomes of the ‘salariat’ and professionals; this concentration, however, along with the increased tax burden in those sectors, including oil export duties, permitted to accumulate enough funds for realisation of pension reforms and financing social programs. Concentration of production was reinforced by the top-down technological modernisation,5 which shifted income redistribution across sectors, as a growing tax burden in the energy sector allowed the redirection of tax revenues for technological modernisation of other sectors, such as the military. In other words, the renewal of the army and the technological renovation of military facilities led to a temporary redistribution of national wealth towards the military sector, the expenditures grew from 3.8% of GDP in 2010 to 5.4% of GDP in 2015, but declined in 2017 to 3.1% and is planned to be further reduced (from 2.8% in 2018 to 2.5% in 2020) (TASS 2017). The military sector, however, did not divert resources away from other sectors, as expenses were covered by income from exports, which amounted to $15 bn. in 2017 (20% of the world weaponry market) (Rossiyskaya Gazeta 2018). Moreover, economic militarisation is counter-hegemonic per se: historically, R&D in defence industries (e.g. systems automatisation) spilled over into other sectors of economy, driving global industrial modernisation and renovation. Thus, in Russia, research activities related to the digitalisation of military sites and projects spurred the digital innovation in other sectors of the economy (such as oil and gas). As President Putin puts it,

5 CHM R.13 , see Appendix I.

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‘the digital economy is not a separate industry, in fact it is a way of life, a new basis for the development of the system of public administration, economy, business, social sphere, the whole society’ (TASS 2018). Second, counter-hegemonic tendencies, such as the elaboration of the program of import substitution, the realisation of infrastructure megaprojects, the creation of some middle-size businesses, along with various joint programs within the EAEU, reshaped income distribution across sectors. For instance, over 2013–2020, nominal wages in agriculture and fishery, in manufacturing industries, such as electric equipment and leather production, grew more than 8%, or 3% in real terms, while the growth in wages in finance and construction was negative (i.e. 4%, equal or lower than inflation of 4–5%). This dynamic was a continuation of a long-term trend: over 2000–2020, there has been a growth in wages in public and military sectors, fishery, vehicle and equipment manufacturing that raised higher than the average. At the same time, the oil and gas sector and finance remain leaders, with wages exceeding the mean by more than twice; the share of the labour force occupied in these sectors, however, is no more than 10%, while in trade, health care, education, agriculture combined, where salaries are below average—more than 40%. In oil and gas, salaries in downstream grew faster than salaries in upstream, which reflected the increasing importance of segments with higher value added products in the country’s programs for strategic development. The structure of the labour force is correlated with the structure of GDP, as the majority is occupied in trade—19% (contributing 13% of GDP), followed by manufacturing—14%, transport and communication—13% and education—9% (see the structure of GDP, Fig. 6.3). The labour force in Russia is highly educated and skilled and covers all the country’s needs in varieties of specialities and jobs. In some sectors, however, the positive developments and the improvement of the investment climate were hampered by an increased role of the regional state and municipal corporations, the amount of which has tripled over the past four years. According to the Federal Anti-monopoly Agency (FAS), the share of state corporations—‘federal state unitary enterprises’, or ‘FGUP’ in Russian, in GDP grew from 25% in 1998, to 35% in 2005 and to over 60% in 2018 (TASS 2019). The share of the state companies in the profit of the Top-500 biggest Russian corporations exceeds 40%. Regional markets are controlled by unitary state corporations or large or medium-size private companies. In 2016, The head of

6

Healthcare 3%

Electricity 2%

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Transport 6%

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Trade 13%

Agriculture & Fishery 4%

Science & Education 7%

Finance & Insurance 5%

Manufacturing 13%

Other Services 12%

Construction 5% Mining 8% Security & Culture & Sports 1% Administation 9%

Information & Communication 3% Real Estate 9%

Fig. 6.3 GDP structure in 2020, % (Source GKS, 2021)

FAS Igor Artemiev complained that ‘the state’ has created multiple corporations in different spheres of the economy that monopolised the market: ‘over the last 1.5 years the monopolisation of road works has tripled, so that the same companies win the tenders for the road reconstruction, as if private companies ceased to exist’ (Koroleva 2016). These companies ‘do nothing to minimise their variable costs’ that are covered by consumers: materials, electricity and so forth are purchased from other state companies at prices three times higher than the market price, ‘sometimes these costs include absurd articles, such as 500 bottles of wine, or jewellery’ (ibid.). At the same time, private businesses are not fully independent from state control and are forced to buy materials from state corporations. According to the manager of one of the medium-size agrarian firms, most of the Russian companies that are formally private are in fact

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‘quasi-private’ as they develop their businesses with the aid of ‘administrative resource’, and sometimes are dependent upon state officials in their business decisions, or even fully controlled by state structures.6 Primary income distribution across regions varies and is predetermined by the regional composition of production, and the ownership and residence of the main owners of the means of production. However, to draw any statistical comparison of that sort would be problematic, as some of the owners of the major regional companies do not reside in those regions but are registered in offshore jurisdictions. This foreign-owned and non-transparent structure of the ownership of major businesses is a peculiarity of primary income distribution in Russia, as it leads to considerable outward investments that decreases the WSR material potential; still worse, these companies fail to strengthen their business positions in global markets. A very good example of this kind would be the Russian steel companies—Evraz, NLMK, Severstal, MMK, Metalloinvest and Mechel, which are domiciles of Cyprus and the British Virgin Islands. Despite the significant overseas operational activity, these companies fail to become serious world players, as ‘their ownership structures make them too dependent on debt for expansion’ that limits their ability ‘to provide equity in the volumes required over the long term to build a truly global company’ (Fortescue and Hanson 2015: 303). Income disparities across regions could be demonstrated by using the official wage statistics and independent ratings in 2018. In Table 6.3, the list of three regions, Moscow—the capital, Tambov—an agrarian region and Omsk—an industrial region (chemical and machinery), is expanded by Khanty-Mansy region (KhMAO) to represent one of the major oil extracting areas, Nizhny Novgorod—a centre of scientific, research and high-value production industries, by Tatarstan, a Muslim region, with a high level of cultural and economic autonomy, by Primorsky Krai to represent the Far East, by Krasnodar from the South and by Dagestan as one of the most troublesome regions that is at bottom of the list for most of the ratings. As we can see, income disparities are highest in big cities, like Moscow, and are lowest in the agrarian area, like Tambov. Moreover, in most of the regions, except Moscow and Tambov, household expenses exceed average wages; also, the minimum pay, which correlates with the subsistence

6 Author’s interview with entrepreneur in agrarian business, 2017, Tambov.

Region

0.8 12.1

19.8 6.2 17.8 34.8 11.3

11.8 2.3

0.6

3.7

1.3

0.4 4.1

Sources Rosstat, Rossiystkaya Gazeta, RIA, 2019

1.5 1.3 12.1

100,000 rub/m, %

0.33 0.37

0.32

0.33

0.29

0.33 0.33

0.38 0.32 0.31

Jini

Income disparities across regions

Moscow Tatarstan Krasnodar Region 9 KhMAO 14 N. Novgorod Region 34 Tambov Region 48 Primorsky Krai 54 Omsk Region 73 Dagestan 85 Russian Federation

1 4 6

N

Table 6.3

13,500 13,700

10,839

11,500

10,300

20,100 11,600

12,400 11,600 10,037

Average Pension

19,633 35,845

26,693

34,439

21,441

55,990 28,424

73,486 29,645 28,174

Average Wage

9,404 10,573

9,567

13,074

9,077

14,623 10,219

19,453 8,987 11,094

Subsist./Adult

7,461 8,078

7,530

10,181

7,293

11,375 7,847

12,320 6,904 8,494

Subsist./Pensioner

9,077 9,603

9,105

13,147

8,122

13,253 9,642

14,409 8,278 9,834

Subsist./Child

28,646 38,124

29,885

40,693

20,253

61,929 35,417

69,806 29,885 38,091

H/hold Expenses

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level, is very low, therefore, the most vulnerable social groups are highly commodified, which has been already witnessed when analysing household budgets earlier in this chapter. Also, higher than average wages in KhMAO correspond to higher household expenses, which is true for most regions in Russia’s North, where, due to their remoteness, the costs of living are high, and so are the salaries. At the same time, disparities across some regions are continuously widening, as ‘those regions paying higher wages are seeing faster growth in wages’ (Remington 2011: 69–72). 6.2.2

Secondary Distribution: The Effect of Macroeconomic Management on Poverty and Inequality

Three institutional arrangements, outlined in Chapter 4, are particularly important when analysing material WSR redistribution capacity: first, the slowdown in the growth of social expenditures and the emergence of a new category of poor; secondly, the regions’ dependence on the state fiscal system and on the intra-budgetary system of transfers and thirdly, IS-TM programs that go hand in hand with Eurasian integration, with the formation of a single EAEU labour market. With these factors in mind, the following passages will focus, first, on Russia’s long-term development strategy, which after the introduction of sanctions has accelerated towards import substitution, self-sufficiency and technological modernisation as counter-hegemonic measures; and second, on the macroeconomic problem of effective demand formation,7 which is crucial for the realisation of IS, as well as on financial reserves accumulation and social funds sustainability, which was made possible as a result of enhanced state supervision of capital flows (in extreme cases—via direct state control). Technological retardation lowers the efficiency of secondary mechanisms of income distribution, as low productivity and low profitability in manufacture not only hamper primary income growth but also impede efficient tax collection. Until recently, the technological retardation of some upstream oil and gas companies (i.e. pumping equipment, catalysts and applied software), as well as electrical equipment and machinery and other high value added products remained one of the core problems for Russian economic development, making strategic sectors vulnerable to secondary sanctions (See Table 6.4).

7 CHM R.14 , see Appendix I.

6

Table 6.4 IS in selected industries, the share of import in total consumption, %

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Machines and Equipment Heavy Machinery engineering Civil Aircraft Engineering Equipment in oil and gas Equipment in electric energy Equipment for the food industry Car manufacture Gear boxes Eyres with an increased load capacity Light diesel engines Agriculture Meat Milk and milk products Fruit and Vegetables

195

2015 (%)

2020–2035 (%)

70

50

80 60 50

60 40 30

85

25

100 100

30 20

93

50

30–60 40 40–70

10–15 10 10–20

Sources IS Strategies, elaborated by Ministries and Federal Agencies

However, sectorial sanctions, and especially secondary sanctions, have had a mobilising effect on the Russian energy sector, stimulating the investment in the technological modernisation of services. Since 2014, the Ministry of Energy of Russia has been working on the implementation of the IS plan in the energy sector, in both upstream and downstream. There are several Action Plans (or roadmaps) for the development of oil fields, petrochemical complexes, the electric power industry and liquefied natural gas (LNG) projects. There are more than 60 IS projects for the technological modernisation of the energy sector. Among those is the Digital Deposit project by Rosneft, for which all software was developed in the company’s corporate research centre, the manufacture of centrifugal compressors by REP Holding JSC for the Cryogaz-Vysotsk LNG plant (the first in Russia and the third in the world to manufacture compressor equipment of this type); the manufacture of the first domestic heat exchanger for Yamal LNG plant by PJSC Machine-Building Plant ZIO-Podolsk; a plant for the production of anti-turbulent additives for oil transportation in Tatarstan by Transneft PJSC (RF Ministry of Energy 2020).

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Among other positive developments were the release of a hydraulic fracturing simulator (version 1.0) by Russian scientists, the implementation of a pilot project of ‘smart well’ (Industrial Internet of Things, IIoT—technology) at the Uspenskoye field by Lukoil-Perm that allows remote operation of the well (pressure, temperature, gas content), reducing oil production losses by 28% (Neftegaz 2019), a P = 14 billion project of construction of gas turbine plant, with a minimum output of 22 medium- and high-capacity units by 2032 (P = 7 bn. comes from the budget and the rest from private investors) and development of Russia’s first methane-hydrogen gas turbine plant by Power Machines (Silovye Mashiny) in partnership with Samara National Research University named after famous scientist S.P.Korolev (RBC 2021). Also, sanctions pushed the Russian companies to diversify the suppliers of oilfield equipment. Russia’s ‘pivot to the East’ boosted cooperation with China in the field of technology, limited to the military-industrial complex for many years, and the share of oil and gas equipment from South Korea and Singapore has also grown. Moreover, the US sanctions fail to halt foreign participation in some projects. For instance, despite the US’s ‘sabotage’ of Novatek’s Arctic LNG 2 project, France’s Total nevertheless joined in, Italian Nuovo Pignone, owned by General Electric, signed a $500million contract for the supply of gas turbines, while Italy’s Saipem and Turkey’s Renaissance Services signed contracts for the construction of a $2.2 billion-cost platform (Europebreakingnews 2019). There were some positive results in other sectors as well. In petrochemicals, in the period from 2014 to 2019 the share of IS catalysts used by refineries rose from 32 to 66%, by petrochemical from 43 to 73% and the share of large-tonnage polymers also grew from 83 to 94% (RF Ministry of Energy 2020). Among successful IS projects are the construction of a new high-tech chemical polymers plant in Tobolsk by ZapSibNeftekhim LLC (2 million tons of polyethylene and polypropylene per year), the construction on other chemicals plants in Perm (plasticizer dioctyl terephthalate, 100 thousand tons/y), the key components in construction (for floor and roof coverings, wallpaper, cable plastics, etc.), which not only cover Russia’s needs but also enhance Russia’s export capacity of high value-added products. Another example is the reconstruction of the terephthalic acid (TFC) plant in Blagoveshchensk with an increase in capacity from 275 to 350 tons per year (used for synthetic fabrics, plastic and packaging for the food industry and medicine). The

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increase in production capacity will allow Russia to cover 60% of domestic demand (40% in 2014). The realisation of new petrochemical projects was essential for the realisation of Russia’s mega-projects in construction that have been driving Russia’s socio-economic development in 2014–2021. Among the most prominent projects are a high-speed railway between Moscow and Kazan ($41 bn.), a new airport in Simferopol ($0.5 bn.), the Crimea bridge ($40 bn.), a bridge over the Volga in Nizhny Novgorod, a new gas pipeline to China ‘Sila Sibiri’ ($55 bn.); in construction, the 462-m tall ‘Lakhta Center’ in Saint-Petersburg ($1.4 bn.), the highest building in Europe (a new office for Gazprom), the park ‘Zaryadie’, park ‘Ostrov Mechty’ in Moscow ($1.5 bn.), a residential complex ‘Ostrov’ on the Russkii Island in Vladivostok, the biggest real estate project in the Far East region and many more. Import substitution in the IT sector succeeded in stimulating digital transformation in various sectors. The annual conference on ‘Import Substitution 2021: Real Experience’ revealed some successful players in IS in information technologies. Among the most prominent firms were (1) ‘Delta Computers’ that specialises in IT equipment and software (e.g. servers, storage systems, power systems and PCs.), the first Russian company to be a member of the OCP consortium, and a major partner of the largest companies that operate in transport and logistics, telecommunications, retail, health care and energy sectors of the Russian economy, (2) ‘Greenatom’—a leading IT partner of State Atomic Energy Corporation ‘Rosatom’, that developed modern solutions for the digitalisation of Rosatom (e.g. IT systems, software robots, IT for project management, artificial intelligence, machine learning, etc.). (3) ‘F + data’, a manufacturer of business infrastructure equipment (i.e. servers, data storage systems, network equipment and engineering infrastructure), (4) Baikal Electronics that specialises in the design of energy-efficient computer systems (e.g. integrated circuits, ARM and MIPS chip systems, etc.) and many more (see Tadviser.ru, 2021). Sanctions were used as a momentum to foster IS-TM programs by introducing counter-sanctions 8 (a complete ban on imports) in 2014, to reduce dependence on imports and minimise currency-related risks, to develop new, and modernise old, industries. In August 2014, a ban was

8 CHM R.15 , see Appendix I.

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imposed on the import of meat, dairy products, fish, vegetables and fruits from the United States, the EU, Canada, Australia, Norway and some other states (extended to Albania, Liechtenstein, Iceland and Montenegro in 2015). Counter-sanctions were coupled with stimulating measures, such as preferential loans (i.e. ‘soft loans’), subsidies, various forms of legal support. In May 2020 to ‘motivate’ manufacturers to ‘localise’ production, the Government issued a ‘Resolution’ (i.e. the Procurement law for state-owned companies) that banned purchases of foreign industrial goods (excluding the EAEU) and introduced a ‘Confirmation Certificate’ of the country of origin. Public institutions were not allowed to import a vast spectrum of goods (from clothes, shoes and furniture to telecommunications equipment, machine tools, cars, locomotives and helicopters). The import of other goods (not listed in the Resolution) was limited by a ‘third extra’ (tertyi lishnyi) rule: foreigners were not allowed to bid if two Russian manufacturers are bidding as well (stationery, fertilizers, radiators, musical instruments, medicines, medical products, etc.). Also, the government directly supported complex IS investment projects from the sources accumulated in Russia’s Industrial Development Fund (FRP), created in 2014; in 2020 the amount of subsidies from the fund reached 40 billion Roubles (15 billion Roubles on radio electronics alone). Along with counter-sanctions, there were two more drivers for socio-economic development: first, the realisation of mega-projects and second, Eurasian integration that demonstrated some practical results of the working of the ‘Road Maps’, such as joint projects (e.g. Mutual Digital Space or Joint satellites and space technological cooperation), multiple agreements (e.g. the new Customs Code-2018, the Common market in pharmaceuticals and Common marking, labelling and packaging requirements), facilitated by the formation of the Single Payment Space in 2019, on the base on the Russian system ‘MIR-2014’. Agriculture and IT technologies are believed to be the sectors of the economy where IS modernisation has been most successful, due to a direct positive effect of counter-sanctions and public procurement. State support was substantial: agricultural sector financing from the federal budget grew from 190 bn. ($1.5bn) in 2014 to P = 224 bn. ($2.6bn) in 2017 and to P = 242 bn. in 2018; also, the state covered 20–35% of investment in modernisation and reconstruction of farms, greenhouses, factories and other facilities; and further, there were multiple schemes and mechanisms for preferential credit financing. Some companies that get state support, such as ‘Russkoye Pole’ in Nizhny Novgorod, ‘Koral’

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in the Tver region or ‘Tambov Farmers’, although acknowledging that state support is substantial and very helpful, point out some problems and delays with subsidies and compensations, which ‘are not very transparent’, and therefore, it is hard to do the planning for future periods (AgroInvestor 2017). From 2014 to 2019 food production has increased in most positions. For instance, the domestic output of poultry meat grew from 3.9 to 4.7 million tons, of pork from 1.6 to 2.8 million tons, while imports of meat and meat products from the EU countries fell from 2.5– 3 million tons to 600 thousand tons (Aliyev and Ermilova 2021). The overall value of imports of sanctioned products (i.e. meat, dairy products, fish, vegetables and fruits) decreased by 41%, to USD 13.4 billion (from $22.8 billion in 2013). In 2019–2020, this trend continued with a 5% decrease in the value of imports and 4% reduction in volume. Other factors, such as cross-border restrictions due to the COVID-19 pandemic and rouble depreciation contributed to the decline in imports in money terms (Kemeisho 2020). As a result, during the pandemic, in 2020, Russia not only managed to achieve self-sufficiency in domestic food provision but also support countries experiencing food shortages, becoming a net exporter of food. However, the achievements were still below the levels expected: by the end of 2020, the volume of import of dairy products decreased by 20% instead of the expected 30%, the import of fruit and vegetable by 11% (expected 20%), of vegetables by 27% but not 70% as expected (RBC 2020). Despite all these success stories, the realisation of IS industrialisation and the implementation of the presidential National Projects has been behind its declared targets. Among the problems are the absence, low quality or high prices for Russian analogues, insufficient funding or state support, compatibility issues for replacement of foreign software, incompetence of IT specialists, unwillingness to innovate, etc. According to the Accounts Chamber of the Russian Federation, the main auditing and monitoring body, in the first-half of 2020, the execution of national projects slowed down, project’s execution rate was only by 35%, as the government focussed on the fight against coronavirus. In the first-half of 2020 three national projects—‘Digital Economy’ (execution of 11%), ‘International Cooperation and Export’ (15%) and ‘Ecology’ (22%)— had the lowest levels of realisation, while the ‘Healthcare’ project got the highest level of 55%, for quite understandable reasons, followed by ‘Science’ (48%) and ‘Small and medium-sized entrepreneurship’ (44%)

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(Gazeta.ru 2020). However, a more serious obstacle for the implementation of the plans is not the pandemic but rather non-competent management decisions and corruption. Some experts believe that the pandemic has nothing to do with the slowdown and put the blame on slow bureaucratic processes: deferred contractual agreements (between the funding authorities and businesses), slow legislation procedures to regulate project’s implementation, etc. (ibid.) In the agriculture and food industry, the effect of counter-sanctions has not completely reached their target of switching to IS, as some banned goods were imported from alternative countries. For example, Belarus has become the main supplier of dairy products and China and Ecuador of vegetables. Due to the climate conditions of most of Russia’s regions, it is not easy to cover the demand by increases in domestic production, and the country will remain a net importer of fruit and vegetables for many years to come. With IS in the fish industry the situation is quite interesting: the supply of Norwegian fish to Russia decreased, replaced by supplies from Chile and the Faroe Islands, but at the same time, supplies from Norway to Chile have tripled. Another problem is the usage of imported raw materials. Russian farmers will be successful in IS, once they start using domestically producing seeds and genetic materials. For example, in 2018, Russian sugar producers achieved 95.6% self-sufficiency in this segment, however, they imported more than 90% of sugar beet seeds that they used to grow beetroot (MeatInfo.ru 2020). Similar situation is in the production of sunflower oil, potatoes, etc. Also, another problem is the black market of sanctioned goods, or sale of sanctioned products via third countries, such as EAEU members. There are lots of jokes regarding ‘Belarusian’ shrimp or oranges in Russian markets. It is important to distinguish between long-term and short-term effects of IS in food production, as it could spur inflation in the short run. According to a study of 15 food ‘commodity groups’ by the Russian Academy of National Economy and Public Administration (RANEPA), the success of IS cannot be attributed to the growth of the share of domestic products in the domestic market alone, the market price should also be taken into consideration. In other words, a successful IS program is when both producers and consumers are better off. IS in the food industry has been successful for three products—pork, poultry and tomatoes, as the growth in domestic supplies was coupled with significant price drops (to the levels below the presanction period), therefore the estimated net gains for consumers were 75 billion Roubles a year (RANEPA 2019).

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For the other 12 commodity groups, however, consumer losses totalled 520 billion Roubles a year (in 2013 prices). Thus, the total negative result from counter-sanctions for consumers amounted to estimated 445 billion Roubles per year ($14 billion), or 3000 Rub for each Russian citizen, ‘equivalent to a 4.8% increase in food expenditure for those who are close to the poverty line. Out of this amount, 84% is distributed towards producer gains, 3% to importers, while the deadweight loss amounts to 13%’ (ibid.). The IS in information technologies and electronics does not go so smoothly either. Although Russian software is now leading in public procurement, accounting for more than half of the volume, IT has still a lot to do to become self-sufficient, as Russia’s imports of technologies exceeds exports (predominantly from China). For some imported goods there are still no Russian analogues. According to Arseniy Brykin from RosElectronics, state companies do not want to buy Russian goods and adopt specific technical requirements to match foreign products and require proof of the country of origin, which is getting difficult to obtain. If previously the Chamber of Commerce and Industry automatically issued certificates of origin to all firms registered in Russia and Eurasia, since July 2020 this procedure has been complicated, as producers must apply for such approval to the Ministry of Industry and Trade that issues a permit for 18 months which has to be renewed (Vedomosti 2020b). According to Kirill Dmitriev, the CEO of the Russian Direct Investment Fund (RDIF), among other problems that impede the realisation of IS are a bad investment climate, low level of trust between financial institutions and manufacturers and increased bureaucratic pressures on businesses (Roscongress.org 2019). A serious obstacle for successful economic modernisation and a comprehensive import substitution program in Russia is increasing economic inequality, the decline in real incomes and the problem of the working poor. During the period of economic sanctions, the formation of domestic demand is vital for Russia’s future economic sustainability. However, in 2020, real incomes fell by 3.5%, leaving the average Russian’s income 10% lower than in 2013, while Food prices have risen by 7.7% since February 2020, i.e. the cost of basic products such as sunflower oil (grew by 27% and sugar 48%) (The Economist 2021). Apart from the realisation of infrastructure, construction and other investment projects that create jobs and therefore stimulate domestic demand, the Russian government has considered introducing fiscal measures, to redistribute

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wealth not through income taxes, but through increased taxing of consumption (e.g. a rise in VAT from 18 to 20%), as ‘income can be hidden, whereas with expenses it is a thing which it is impossible to hide’ (RIA Novosti 2017). However, these measures are not sufficient for the formation of effective demand and for addressing income inequalities: taxation can be considered as a short-term solution, while ‘greater attention should be paid to equalising the endowments with which people enter the market, in terms of financial wealth and education: not only access to education, but also the returns of education’ (Milanovic 2011).

6.3

Connecting WSR Function

Chapter 4 distinguished the following institutional connecting settings: first, at the macro-level, the system of Russian tripartism is an executive law enforcement mechanism for future WSR restructuring and also is an instrument of social control that, along with the new ‘Foreign Agent’ Law, shapes government–business–labour relations; secondly, at the micro-level, the systems of social partnership and enterprise paternalism that have a contradictory effect on social stratification. The material base of the connecting WSR function manifests itself through investment activities—the core binding, but at the same time, disuniting category. The following passages will, first, consider investment activities at the macro-level, and then turn to investment channels and linkages at the micro-level. 6.3.1

Macro-Level: Investment Opportunities

The main task for the connecting WSR function at the macro-level is to keep financial capital and human capital within its jurisdiction, creating incentives for its future development, preventing capital flight and brain drain. Therefore, the material base for the WSR connecting function at the macro-level is predetermined, first, by investment activities and, second, by the country’s human resource development. The next passages will assess investment resources in Russia, followed by strengths and weaknesses of human resources. The WSR self-protection and sustainability presupposes stable and long-term connections and partnerships with existing and potential investors. The realisation of the IS programs aimed at mitigating the pressures of sanctions on the economy requires not only state support

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of investment and infrastructure projects but also the improvement of the investment climate by increasing transparency of control and ownership protection to reinforce the refinancing activities of Russian and foreign corporations. The Russian government realises that successful implementation of the country’s modernisation strategy is not possible without creating a favourable climate for domestic capital reinvestment.9 Certain measures have been taken to improve the investment climate and support local ‘infant’ industries in particular regions and market segments with high value added capacities—the expected new drivers of Russian economic development (machinery, electronics, communication, agriculture, pharmaceuticals, construction, etc.). Also, a series of new scientific centres have been opened to stimulate investment in innovation. Financial support of the Government took the form of tax breaks, state-subsidised credits and programs supported by the Industrial Development Fund for the modernisation of Russian industry. The Fund ‘offers preferential conditions for co-financing projects aimed at the development of new high-tech products’, such as 7-years loans of up to P = 750 million, at low interest rates of 1, 3 and 5% (http://idfrf.com). The realisation of multiple mega projects 10 signalled that Russia started to recover from the ‘investment drought’ of 2013–2015, characterised by the lack of capital expenditures that not only supressed domestic demand and inhibited economic growth but also ‘preserved existing structural imbalances and technological gaps in the Russian economy’ (Berezinskaya 2017: 75). However, despite these measures, the disruptive effect of the financial crisis, capital outflow and temporal decline in investment activity in 2013– 2018 led to bankruptcies in the small and medium-size banking sector and as a result to the restructuring of the banking sector. To decrease the system’s vulnerability to external shocks, to address uncertainty and to provide liquidity in the banking sector, enhanced state control over the banking sector, the consolidation of leading Russian stock exchanges RTS and MICEX and informal agreements with oligarchs to increase the transparency of their investment flows were seen as counter-hegemonic measures by the Russian government. In the period 2013–2018, more than 40% of banks lost their licences and the profitability of the sector declined by 20%; the number of credit organisations

9 CHM R16 , see Appendix I. 10 CHM R17 , see Appendix I.

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decreased from 623 to 561 (compared to 978 in 2012), 230 of which are big banks (Bank of Russia 2018) and the assets of the major Russian private banks, such as FK Otkrytie, Binbank and Promsvyazbank were transferred to the direct control of the CBR, in accordance to a newly adopted bailout mechanism, which ‘signified a decisive step towards nationalisation’ (Mau 2018: 103). There is a tendency for capital consolidation in the sector through M&A, not only through consolidating banking businesses, such as the integration of wholesale and retail activities (i.e. the merger of VTB and VTB24), but also the acquisition of insurance companies and the integration of high-tech technological (digital) companies (i.e. the purchase of Vision Labs by Sberbank) (The Wall Magazine 29 December 2012). Another important development was the creation of the Infrastructure Investment fund in 2019 by the Ministry of Finance and the Ministry of Economic Development with assets of over 3% of GDP (Vedomosti 2018). However, sanctions have drastically transformed the impact of globalisation on the Russian banking sector, with the most concerning factor to be ‘uncertainty surrounding what future action might be taken by a US administration’ (FT 2018), as even the expectation of sanctions has a disturbing effect on asset prices. In the case, the United States deploys ‘the most drastic version of the sanctions on transactions with Russian banks’, such as Sberbank, VTB Bank, Gazprombank, Promsvyazbank, Rosselkhozbank and Vnesheconombank, the ramifications would be significant for the entire Russian economy, ‘even more painful than sovereign debt measures’ (Bloomberg 2018). Therefore, banking sector restructuring had a controversial impact on financial security: on one side, it increased the accountability of the system, but it has made it more vulnerable in case the US secondary sanctions come into force. Also, the risk of appearance of new informal networks in the context of increased state expansion might ‘undermine state capacity to channel investment towards industrialisation’ (Viktorov and Abramov 2016: 8). Despite sanctions and the contradictory tendencies in the banking sector, in 2016–2018 the position of Russia in global M&A activity started recovering, the geography of investors diversified, and new opportunities opened as a result of counter-sanctions. Not only foreign medium-size operators in the Russian market (i.e. German Toennies Lebensmittel, Ekosem-Agrar, French Louis Dreyfus) boosted their businesses but also investment giants, such as Italian Intesa Sanpaolo were willing to invest in the agricultural sector, as well as in energy, transport

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and infrastructure projects. The growth of investors’ interest in Russia was evidenced at the Economic Forum (PIEF, or PM F), the ‘Russian Davos’ that has been held annually in Sant-Petersburg since 1997. In 2018, in just three days of the Forum, the participants signed 550 agreements for the total sum of P = 2.3 tn. ($37 bn.), while in 2021, despite the pandemic the number of deals grew to 800 for P = 3.86 tn. (over $50 bn.); the real sums, however, were much higher as the details of some agreements were not fully disclosed. For instance, the cost of the project between Tenex, RosAtom’s overseas operator and Electricite de France for recycling regenerated uranium from France, seems to be much higher than the declared $1 bn. The largest M&A deals reflect trends in the Russian strategic sectors of economy that evolved in response to intensification of external pressures and tightening of sanctions: first, centralisation of control (in banking sector and in communication and media) and secondly, the search for strategic investors in the energy and mining sectors (such as CEFC China Energy Company Ltd., OMV AG, Qatar Investment Authority, Schlumberger Ltd.). For instance, in 2018, Qatar Investment Authority acquired a 9.18% share in Rosneft from Glencore for $4.4 bn., Total SA purchased a 10.0% share in Arctic LNG 2 from Novatek for $2.5 bn. and Japan Tobacco Inc. bought 100.0% of Donskoy Tabak from Agrocom Group for $1.58 bn. (KPMG 2019). Activities in M&A are reflected in the dynamics of foreign direct investment. Despite the pandemic, when in 2020 FDI flows dropped by 35%, from $1.5 trillion in 2019 to $1.0 trillion (20% below the 2009 financial crisis level (UNCTAD 2022). In 2021 FDI inflows into Russia have returned to its prepandemic levels (see Fig. 6.4). According to UNCTAD, the government aims at offering more protections for large international investors, such as loans, subsidies and covering costs on infrastructure: in 2021–2024 it is planned to sign over thousand agreements to cover (reimburse) $185 billion worth of investment. (UNCTAD 2021). Capital outflows remain the major threat for the Russian economy, as it threatens the realisation of strategic plans and industrial restructuring, for which income reinvestment and capital expenditures are essential. Some Russian businessmen suggest that if the legal practices and behaviour of Russian investors were similar to those in Kazakhstan, where profits are kept within the country and are reinvested in the domestic economy—the Russian economy would have tripled its investing capacity. Despite the positive trend in FDI, Net capital outflow (mainly the portfolio investments of non-residents) from Russia is high and grew by 1.4 times in

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75000

Outbound in Russia

50000

25000

0 1997

2000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Fig. 6.4 FDI flows into Russia and out of Russia: 1997–2019, US $ million (Source CBR [2022])

2021. At the same time, net capital inflow could be attributed to capital repatriation as the result of sanctions, rather than to market transactions. To mitigate the impact of capital outflow, in 2014–2019, the Russian government initiated a ‘turn-to-the-East’, by promoting the FTA agreement between the EAEU and Vietnam (signed in 2017) and Singapore, India, Egypt, Israel, Serbia and Iran (expected to be signed 2019–2020), through a closer cooperation with some Asian states, a series of ‘strategic’ partnerships with non-Western institutions and agreement between Chinese and Russian companies. These measures led to an increase in the number of non-Western investments into the EAEU, changing the geography of the FDI inflows. Japan, China, Saudi Arabia, India, UAE, Singapore, Vietnam and Turkey have already become the main sources of investment inflows into Russia, facilitated by the efforts to ‘de-dollarize’ international transactions. Along with capital flight that decreases investment potential, the ‘brain drain’ is another challenge for the connecting WSR function, which is supposed to be strong enough to preserve human resources within Russia’s borders. Russia has lived through several periods of ‘brain drain’ that started in the 1980s, accelerated in the 1990s and reactivated after 2014. Cross-border migration has been facilitated by consolidated and expanded migration nets and Russian communities in countries, such as the United States, Israel and Germany. Mass migration of the highly professional labour force is one of the security threats to Russia, therefore, the Kremlin administration considers the development of human resources as one of the main strategic priorities of the state strategy

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for economic development. According to research by the Academy of National Economy (RANEPA), the geography of migration has widened and now includes central and south Europe and Australia: around 2.7 million former Russians citizens live abroad, only 1.5 million preserve their citizenship (RBC 2018). According to the survey, more than a third of respondents deny their willingness to return to Russia: they explain their decision by the worsening of the economic situation after 2014, the reduction in wages and in career possibilities (ibid.) The Russian administration is aware of this problem and recognises the importance of boosting investment in education, in R&D, in the formation of new technological, innovative research centres that would attract young specialists not only by offering good career opportunities but also by high pay. Otherwise, despite the good quality of higher and special technical education, the country runs the risk of becoming the world’s leading exporter of intellectual human resources. Average wages in science are too low and are incompatible with Russia’s strategic goal for innovative development (Fig. 6.5). For instance, in the United States, an average wage of a scientist is over $7,000 a month, in Moscow, in a private commercial company its around $2,000 a month (if he works for a state institution, then it is considerably lower). Disparities in earnings between Russian and American professional engineers will be even 9000

8000

Pre-school

7000

School

6000

Higher education Senior medical personel

5000

Junior medical personel 4000

Scientists and Researchers 3000

2000

1000

0 United States

Moscow

KhMAO

Primorskyi Krai

RUSSIA

Tatarstan

Krasnodar region

Nizhny Novgorod region

Omsk region Tambov region

Dagestan

Fig. 6.5 The average wages in science and education in Russia and the United States, in US$ (Sources The US Bureau of Labour Statistics, Ria Rating, GKS)

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deeper: a petroleum engineer in Russia earns $2,100 a month ($12,900 in the United States), and a computer engineer earns only $750 (around $10,000 in the United States). Overall, in 2017, Russia was only 45th in the international rating for innovative development, while the United States and Germany were 4th and 9th , respectively (Global Innovation Index 2017; Solovyova and Galanina 2017). At the same time, the share of state investment in overall R&D in Russia is the highest, 69%, while in the United States and in Germany it is only 27–28%, which points to the inefficiency of state financing, to the importance of attracting private investment and stimulating private businesses to develop their R&D bases. There are, however, some positive developments in Russia. Several new scientific centres were opened on university campuses, hospitals and commercial companies in different regions across Russia, including Siberia and the Far East, also, many more centres, such as the new Centre for innovative medical instrument engineering in Nizhny Novgorod created 860 new jobs and cost P = 14 bn., out of which P = 2 bn. was financed from the state budget (NTA-NN 2017). Another good example is the centre of nuclear medicine for oncology in Nizhny Novgorod. Overall, the projects of this kind are realised according to the state program for Scientific and Technological Development for the period 2013–2020. Some of the new scientific centres are international and created with the aim of connecting researchers not only from the EAEU countries but also from neighbouring China, Azerbaijan, Tajikistan and Ukraine. For instance, in 2018, a new International Academy of Science of the Silk Road will start operating in Moscow (Nezavisimaya Gazeta 2018). 6.3.2

Micro-Level: Informal Connections

The strength of the connecting WSR function at the micro-level is predetermined by the possibility of creating profitable enterprises, not only by means of ‘administrative resource’ but rather with the aid of legal institutions that coordinate government–business–labour relations. The following passages will consider the activities of small and medium-size enterprises, with a focus on their ties with the legal authorities, local communities and other businesses, and their effect on migration. In the 1990s, the formation of mega-companies and the rise of the first echelon of Russian oligarchs took place with the aid of illegal practices, ‘blat ’ and corruption. The period was not one of ‘liberalisation’ but

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was in fact a period of mass looting of the national wealth by foreign and Russian corporations, while the state lost control over the black markets and illegal activities of major corporations. This chaos has been put under some legal control by the presidential administration, which has been quite successful in setting agreements with businesses, with the aid of interpersonal negotiations. There is no secret that large businesses in Russia, as well as in all other states, develop and expand with the aid of interpersonal connections, set through personal linkages and acquaintances, as well as at intra-governmental economic and political conferences, exhibitions, forums and other events. At present, most of the agreements in the strategic sectors of the economy, such as military, high technologies, energy or in other highly monopolistic markets (i.e. pharmaceuticals or aircraft engineering) are reached with the direct involvement of governments (or require approval from state administrations). Overall, the Russian government has been successful in setting business connections, however, an excess of state control over some businesses pushes market players to develop informal practices that are difficult to reverse. The growth of small and medium-size businesses is predetermined by interpersonal business relations, which are hidden from the public view and are less easy to detach. A series of interviews by the author with managers and employees of Russian companies reveal the following specifics of doing business in Russia. Among ‘sensitive’ business activities that require excellent interpersonal connections with other businesses, regulative institutions and regional administrations are financial activities, ‘privileged crediting’, licensing, ‘privileged taxation’, access to businessinformation and so forth. According to one of the managers of a private construction firm, to survive, a medium-size business has to set ‘warm’ relationships with the regional administration, local police, customs, banks and tax authorities: ‘the factor of interpersonal linkages remains the main guarantor for business stability in the vulnerable environment of economic volatility and imperfection of the legal framework’.11 One of the forms of setting ‘good relations’ with the administration is to finance the electoral campaign. A manager of one agrarian company admits that his company is ‘forced into non-formal connections’ not in order to ‘cheat and gain competitive advantage’, but rather because ‘the formal legal practices are

11 Author’s interview with a manager of a construction firm, Krasnodar 2018.

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not efficient or even non-existent in some fields’.12 As a result, the agreements reached by the company with its trading partners are either not legally issued, are not supported by any official documentation or signed with severe delays. These facts correlate with survey results: more than 40% of deals are reached as the result of personal acquaintance with the partner, with the maximum of such deals reached in construction and trade, the lowest—in the financial sphere. Also, personal connections are one of the dominant factors in the labour market: according to the survey, about 24% of population believes that it is impossible to have a successful career without good connections, especially in the service sector (52%), in law (49%), medicine (49%) and in transport and logistics (40%) (VCIOM 2011). According to state officials, the importance of the medium and small businesses for the welfare of local populations is immense, and over the last five years there have been adopted a series of legal measures of support, such as the facilitation of registration procedures, the reduction in frequency of various inspections (technical and fiscal), the income cap for tax discounts has been raised, ombudsman services for resolving consumer complaints have been set up, also, small and medium-size businesses often receive public procurement orders for their services.13 The interrelation between small businesses has been increasingly set through internet resources that enable small and medium-size businesses to get in touch with their partners from different regions, as well as to get valuable information on legal and administrative procedures for business start-up and development. One of the examples of that kind is the Information Resources Portal, available in Russian and in English at: https:// smbn.ru/msp/main.htm, elaborated by the federal JSC RSMB Corporation. At present, companies from more than 171 cities are registered at the portal, with more than 1.8 million permanent visitors. The businessnavigation catalogue comprises more than 300 different business plans, elaborated for 90 different types of business, contains information on credit, legal and other important organisations, as well as on BTB websites for product internet promotion (i.e. ‘Potok’ launched in 2017).

12 Author’s interview with entrepreneurs in the agro-sector, Krasnodar, Tambov, Moscow 2017–2018. 13 Author’s interview with local state officials, Krasnodar and Moscow in 2018.

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160000

211

Ukraine Kazakhstan Uzbekistan Tajikistan Armenia

120000

80000

40000

-

2013

2014

2015

2016

2017

2018

2019

2020

Fig. 6.6 Migration to Russia from selected states, number of people (Source GKS 2021 https://rosstat.gov.ru/storage/mediabank/dem21.pdf)

RSMB in planning that the amount of new businesses registered in Russia with the aid of their portal will reach 280,000 in 2018. Successful development of small businesses accelerates migration between the regions, which also plays an important role in the WSR connecting function. Over the last 10 years, inbound migration to Russia from the EAEU members has been quite stable (see Fig. 6.6). In this respect, Eurasian regionalism 14 has a considerable counter-hegemonic power, as integration strengthens relationships between businessmen, state officials and communities at all levels, and facilitates the interchange of specialists and migration. However, there are some limitations for the affordable share of the foreign labour force in some sectors of economy. For instance, no more than 50% in agriculture, 30% in transport and 15% in trade of alcohol production. Nevertheless, in the more recent years, due to the development of the common market in some fields and the elimination of barriers for labour migration between member states, migration from the EAEU regions to Russia has increased. The amount of remittances from Russia to the EAEU members is growing, while the size of remittances to Uzbekistan and Tajikistan are declining (by 17 and 14% in 2017, respectively), as the labour legislation towards migrants from non-EAEU states has been hardened, obliging them to obtain a ‘patent’ (Shustov 2016), and imposing restrictions on them to work in some strategic sectors of

14 CHM R18 , see Appendix I.

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the economy, such as oil and gas, fishery, etc., therefore the amount of migrant from Uzbekistan and Tajikistan has a tendency to decline. However, the migrants from Ukraine as the result of the crisis do not face restrictions and for them the procedure to get Russian citizenship has been facilitated; thus, the Russian authorities are planning to improve the demography in some regions. In 2015–2020, despite certain obstacles for future economic integration of the EAEU, such as the asymmetry in economic size (Russia holds 88% share in total GDP), structural homogeneity of its two main partners that results in a low level of mutual trade (6.5% of overall), asymmetry of gains and losses from common external tariffs, and insufficient funds to finance production development plans (ibid.), there have been positive moves in Eurasian integration. The EAEU developed a strategic planning program, encoded in the ‘White Paper’, which is being successfully implemented through scheduled ‘Road maps’. The ‘priority megaprojects’, such as road and railway construction and modernisation (i.e. between Moscow and Kazan, Moscow and Shanghai, China-KyrgyzstanUzbekistan and Armenia—Iran), the formation of the ‘Mutual Digital Space’ and the integration of space technologies, all strengthened relationships between businessmen, state officials and communities and improved current remoteness across vast borders. Mega-projects are financed by national governments, the Eurasian Development Bank (EDB), the Eurasian Fund for Stabilisation and Development (EFSD) and by the private sector. In 2017, the share of Russian companies, such as Gazprom, Lukoil, Transneft and MTS, in the accumulated direct investments in the EAEU reached 78% ($26.76 bn.) (EDB 2017). Also, the alternatives to SWIFT, such as MIR, have proven to be successful: 25% of the population in Russia is using this payment system, which is rapidly expanding into the Eurasian space and is projected to cover India, Turkey, the UAE and Thailand in the near future.

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The Economist. 2021. “The Kremlin Has Isolated Russia’s Economy.” April 24. Retrieved October 25, 2021b (https://www.economist.com/briefing/ 2021b/04/23/the-kremlin-has-isolated-russias-economy). The Wall Magazine. 2012. “Sliyaniya i Poglosheniya: Samiye Vajhniye M&A Sdelki 2017.” December 29. Retrieved (http://thewallmagazine.ru/sdelkim-and-a-2017-v-rossii/). UNCTAD. 2021. “World Investment Report.” Retrieved January 21, 2022 (https://unctad.org/system/files/official-document/wir2021b_en.pdf). UNCTAD. 2022. “Handbook of Statistics.” Retrieved January 13, 2022 (https://unctad.org/system/files/official-document/tdstat46_en.pdf). VCIOM. 2011. “Na Rabotu Cherez Svyazi: Blat Kak Sposob Trudoustroystva.” Retrieved June 23, 2019 (https://wciom.ru/index.php?id=236&uid=1700). Vedomosti. 2015. “Rossiyskiye Kompanii Otkruvayut Korporativniye Detskiye Sadi.” August 7. Retrieved November 9, 2018 (https://www.vedomosti.ru/ management/articles/2015/07/08/599649-rossiiskie-kompanii-otkrivayutkorporativnie-detskie-sadi%09). Vedomosti. 2016. “Samye Yarkiye Otstavki i Naznacheniya 2016 Goda.” December 29. Retrieved July 9, 2019 (https://www.vedomosti.ru/manage ment/articles/2016/12/29/671690-otstavki-naznacheniya#/galleries/140 737493079761/fullscreen/1). Vedomosti. 2017. “Eksperty Pravitel’stva Nazvali Tochnoye Chislo Bedny’kh Rabotayushikh Rossiyan.” October 31. Retrieved July 20, 2019 (https:// www.vedomosti.ru/economics/articles/2017/10/31/739932-tochnoe-chi slo-bednih-rabotayuschih). Vedomosti. 2018. “Minekonomrazvitiya i Minfin Cosdayut Infrastrukturnyi Fond.” May 24. Retrieved (https://www.vedomosti.ru/economics/articles/ 2018/05/25/770679-infrastrukturnii-fond%09). Vedomosti. 2020a. “Bol’shinstvo Rossiyan Ne Chuvstvuyet Problem Ot Zapadnykh Sanktsyi.” March 17. Retrieved October 25, 2021 (https://www.ved omosti.ru/society/articles/2020a/03/17/825343-bolshinstvo-chuvstvuet). Vedomosti. 2020b. “Gosudarstvo Ispol’zuyet Krizis Dlya Importzameschenoya.” June 2. Retrieved October 25, 2021 (https://www.vedomosti.ru/econom ics/articles/2020b/06/02/831670-krizis-dlya-importozamescheniya). Viktorov, Ilja, and Alexander Abramov. 2016. “The State Capture of Russian Non-Bank Financial Institutions and Markets after the 2008 Crisis.” Competition and Change 20 (1): 3–20.

CHAPTER 7

Iran (Material Capabilities)

7.1

De-commodifying WSR Function 7.1.1

Labour Market Precarisation

Contrary to the Pahlavi monarchy that was supported by a small number of loyal state cadres, the Islamic Republic relied on popular mobilisation, closely intertwined with elite competition. As the famous analyst of the political economy of Iran, professor of economics Djavad Salehi-Isfahani put it, ‘the main shift in policy after the revolution can be characterised as from urban-biased and elite-centred to rural-biased and populist’ (SalehiIsfahani 2019). This bottom-up political competition has been a vehicle for the formation of an inclusionary social welfare compact, with the aid of new parallel state organisations reaching various segments of society (Harris 2017: 16). In other words, the generosity of the pension system, examined in the Institutional design of the Iranian WSR, as well as various ‘safety nets’ have partly been the product of processes that drove popular mobilisation that secured a responsiveness of the ruling elites to the needs and demands of citizens. This section is devoted to the issue of popular mobilisation as a driving force for socio-political reforms and to the labour protection legal mechanisms and their de-commodifying potential for the workforce.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_7

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Popular mobilisation 1 proceeds along various dimensions, such as status, occupation, residence, gender, political ethics, beliefs, etc., and in various directions, vertically and horizontally, from below and from above. Therefore, this phenomenon is critical for our understanding of the sociopolitical dynamics in Iran and of the de-commodification of labour force for several reasons. First, the Iranian revolution was preconditioned and secured by popular mobilisation that ‘traces its roots’ back to the events that occurred much earlier 1979—i.e. to 1963 White Revolution, to the Shah Pahlavi’s far-reaching reforms that were meant to modernise the country, but instead ‘created a large disparity between upper and lower classes and also alienated most of the religious elite’ (Sundquist 2013). Therefore, maintaining mobilisation and active mass participation in the political life of the regime through distinct mechanisms, such as the presidential and parliament elections, was vital for securing the regime’s legitimacy, ‘due to the regime’s identity as the product of a referendum and popular uprising’ (Alem 2016: 175). Second, popular mobilisation became the major component of the intra-elite confrontation, and various welfare programs were the core instruments of the political struggle for public votes. Third, mobilisation played a major role in the formation of the Iranian middle class in the post-war period, in the consolidation of the reformers during the Khatami presidency and in the emergence of a new parastatal managerial class during Ahmadinejad’s privatisation program. Fourth, popular mobilisation and the resurgence of right-wing populism, ‘related to the identity and legitimacy of the revolutionary republic’ (Povey 2019: 366), have been the counterforces that impeded neoliberal hegemony in Iran. And finally, the failure of the revolution to integrate the ‘already-mobilised committees, networks and other revolutionary groups under the full control of a unified state apparatus’, explains the institutional welfare dualism: ‘commandeering parallel groups’ consolidated post-revolutionary to ‘outflank contenders’, such as Marxists and other leftist parties (Harris 2017: 86). The expansion of education, health care and social insurance was pushed by the growing demands and expectations of the widening middle class that went ‘far beyond the alleviation of basic needs’, shifting debates from the politics of poverty alleviation to the politics of inequality. As Harris put it, ‘upwardly mobile social classes took advantage of the

1 CHM I11 , see Appendix II.

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expanding welfare policies of the government in order to acquire status credentials and occupations that allowed for increased consumption and incomes’ (Harris 2017: 167, 173). The bottom-up pressures to adopt universalising welfare policies and higher labour protection have been quite successful in obtaining political results. The threats of workers’ discontent and mobilisation during Iraq–Iran war period spurred heated debates over worker’s rights and status in the 1980s. The government struggled to incorporate ‘robust protection to workers while conforming to Shari’a’ that eventually culminated in a fatwa by Khomeini in 1987 that legitimised the state to intervene in the labour market ‘to unilaterally revoke any awful agreements with people if the agreement contravenes the interest of Islam and the country’ (Khomeini, cited in Maloney 2015: 160). The same fatwa (known as the maslahat decree or the expediency decree) supported the creation of the parastatal Expediency Council (see Chapter 3). Mir-Hossein Mousavi, the last Iranian prime minister (1981– 1989, the post of PM was later abolished) responded to these pressures by adopting a very employee-friendly new Labour Law in 1990 (which came to force in 1993). The new Code recognised the rights to organise and to collective bargaining, introduced paid maternity leave, outlawed child labour under the age of 15, demanded the provision of housing, training and sports facilities to the employees of large corporations, but most importantly, the law constrained labour market flexibility by making it very difficult to legally dismiss permanent workers: the reasons for dismissal were limited to disability, death and retirement, certified by the Islamic Worker’s Council. Popular mobilisation, especially among war veterans, students, women and the multi-layered reform movement who operated through formal and informal institutions, played a major role in the ‘solidarity economy’ which has been a vehicle for poverty relief and struggle against gender discrimination in the workforce (Bahramitash 2014). Apart from new Labour Law, one of the achievements was the partial revision by the Sixth Majiles in 2003 of some of the discriminatory amendments to the Family Protection Act of 1975 that had been introduced shortly after the revolution ‘in the name of Islam’ (Kar and Pourzand 2016: 216–17). For instance, the changes to the Civil Code improved women’s rights, granting the custody of both male and female children until the age of seven to mothers. Also, active grassroots participation in various labour movements contributed to the development of ‘formal or informal support mechanisms, designed to mitigate the risk of vulnerable groups

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falling into poverty and improving the economic status of the disadvantaged’, so called ‘social safety nets’. These mechanisms range from formal cash transfers, consumer subsidies, vocational training programs, unemployment insurance, to informal ‘community-based insurance’ schemes (Askari and Arfaa 2007: 178). However, despite the universal social insurance, new labour legislation with ‘high’ labour protection and various ‘social safety nets’, worker’s and women’s positions in most businesses remained precarious for several reasons. First, such generous welfare systems and labour market regulations favoured the existing labour force over new entrants, reproducing youth unemployment as a result, as ‘the record number of youths entering the labour market had to wait longer for a regular job or had to take up part-time and informal jobs’ (Salehi-Isfahani 2011: 789). Second, labour syndicates were in fact ‘either eliminated or co-opted into a broader regime-organised unions under state control’; therefore, popular mobilisation concentrated in state-owned or parastatal corporations and was ‘partitioned by the regime’s populist economic agenda’, with little incentive to initiate street protests (Haghighatjoo 2016: 237). Third, the Labour law was ‘limited in application’, as both private and public sectors increasingly used temporary contracts and other subcontractor schemes to maintain the flexibility of the labour market and reduce production costs. For instance, the construction sector almost fully relied on temporary labour contracts, moreover, in 2003 firms with fewer than ten employees were made exempt from the Labour Law, ‘if they engaged in a tripartite negotiation with their employees and state representatives’ (Harris 2016: 149). Fourth, the post-revolutionary patriarchal order reimposed Islamic religious requirements on women. The state’s repression of women’s rights is the norm. Moreover, women’s situation in the labour market, especially in urban areas, remains precarious, and women are hugely underrepresented in the labour market—just about 20% of the labour force in 2019 (UNCTAD 2021). Women’s access to ‘higher education does not open the doors to the labour market’ (Khosravi 2017: 355): despite the rising number of women finishing university, which is almost twice the number of men, women’s unemployment is more than double the rate for men (over 30% for women versus over 20% for university graduates, aged 25–34) (Salehi-Isfahani 2019). Finally, the precarious position of young people and women in the labour market is intensified by the changes in attitudes to the poor over the last 40 years: if in the 1980s, official discourse praised the poor citizen (mostazafan) as

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the central figure of the revolutionary nation, now, under the pressure of neoliberal tendencies that connect poverty to individual failures, the mainstream media portrays the poor as ‘unproductive’ or as a ‘burden on society’ (Khosravi 2017). According to Iran’s Ministry of Labour and Social Affairs, around 11 million people were in irregular employment. Young Iranians and the majority of the working class are among the most vulnerable groups, ‘stuck in a state of chronic insecurity’ due to high unemployment, irregular employment or discriminated temporary, informal labour contracts that are not covered by health or unemployment insurance (ibid.). As mentioned before, this partly happens due to the excess protection of the existing permanent labour force, resulting in the expansion of the informal labour market (which is true in many parts of the developed world too). As such, enhanced labour protection 2 has had a contradictory impact on the de-commodifying abilities of the Iranian welfare state: on one side, it secured the position of the existing permanent labour force and impeded its further commodification and on another, ‘the imbalance between entry and exit rates into the labour market’ resulted in growing youth unemployment and in the deterioration of career prospects for men in rural areas and women in general—the most precarious members of the society due to their growing reliance on temporary labour contracts. Also, another paradox of popular mobilisation on the system’s stability was in evidence: the expansion of the social contract in response to workers’ mobilisation temporarily resolved the class conflict, this, however, came at the expense of profitability of the economy, as the growing relative power of workers and inflexibility of the labour market in some segments, spurred inflation, induced youth unemployment and ultimately threatened labour market stability. As Claus Offe famously stated, ‘while capitalism cannot coexist with the welfare state, neither can it exist without the welfare state’ (Offe 1985: 153). 7.1.2

Households’ Dependence on the Market

This section is devoted to the assessment of the effectiveness of poverty eradication in Iran, as well as to the creation of the Martyrs’ welfare state that has an important mobilising and consolidating effect on society, to

2 CHM I12 , see Appendix II.

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see where the commodifying pressures are at a maximum and people are forced to join the labour force. Very frequently the analysts in the West draw a very pessimistic and catastrophic picture of the degree of poverty in Iran, with various speculations and estimates about the percentage of the population living in poverty exceeding 15–16%, with households’ incomes being less than $124 per month in urban areas and $112 in rural areas (Maleki 2009). At the moment of writing, such estimates do not seem surprising: the strain of COVID-19, combined with Rouhani’s neoliberal shift, ‘the endemic problems of governance and the tightening of the sanctions’, makes the argument of the country’s ‘nearing collapse’ true and sound (Jalalpour 2020). In fact, Donald Trump’s ‘maximum pressure’ on Iran with the harshest sanctions campaign led to a reduction of oil exports revenues, national currency depreciation (IRR lost two-thirds of its value), rising inflation (over 40% in 2019), interruptions in the supply of essential medical goods and eventually to ‘general macroeconomic chaos’; since the US withdrawal from the JCPOA, the average living standards of Iranians (measured by real household per capita expenditure) have declined by 13% (Salehi-Isfahani 2020). But has it always been the case? For more than forty years the country’s spiritual and secular leaders, regardless of their position on the factional ideological-economic division map (Mohseni 2016), have been proclaiming social justice as the main political objective. Poverty eradication has been one of the goals of the revolution and a major component of Iranian domestic policies since 1979. According to Djavad Salehi-Isfahani, ‘revolutionary Iran has been relatively successful in keeping poverty low’, with the aid of the ‘assortment of charities, large and small, as well as a welfare ministry that provides income assistance for about 10% of the population’ (Salehi-Isfahani 2020). In an interview with the Tehran Times on the 41st anniversary of the Islamic Revolution, he stated: ‘living standards in Iran are now about 60% higher than in the 1970s’ (Tehran Times 2020). Indeed, ‘contrary to popular belief’ poverty rates, after a short-term rise in the first years of the Iran–Iraq war, started to fall in 1984, thanks to economic reconstruction and market reforms. During the Khatami administration, this positive trend, briefly interrupted by the balance of payments crisis of 1994–95, was kept steady, with the urban and rural poverty rates moving down to the ‘enviable level for middleincome developing countries’, falling by 2% each year (Salehi-Isfahani 2009a). In 2005–2006, however, despite the global oil market boom that

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provided massive cash inflows into the Iranian economy, the achievements of the reformers were partly undermined by ‘macroeconomic mismanagement’ and by the toughening of economic sanctions, as urban poverty increased by 1.5% (rural poverty remained unchanged) (ibid.). In 2011, the program of universal cash transfers—one of the major practical outcomes of the subsidy reform, partly alleviated the problem, however, the neoliberal shift by the government of President Hassan Rouhani, ‘which opposed cash transfers, allowed their value to decline with inflation so that by the time the pandemic hit, the real value of the cash transfers had declined to less than one-quarter of their value in 2011’ (Salehi-Isfahani 2020). In 2019–2020, cash transfers comprised more than one-third of labour income, remaining one of the determining factors for poverty statistics, along with labour income in real terms (which has been also declining since 2018) (World Bank 2020). At the same time, according to the Iran Economic Monitor, published by the World Bank in 2020 with a special focus on the latest poverty trends, ‘extreme poverty is almost nonexistent in Iran’, still the recent dynamic of poverty is not very stable, as a slight poverty reduction in 2016–2018, was followed by an increase in poverty in 2018–2019 (World Bank 2020: 23), which is explained by the negative consequences of the reimposition of US economic sanctions in 2018, slow economic growth, macroeconomic instability due to the fall in export revenues and rising inflation and the introduction of more means-testing socio-economic policies (i.e. cash transfers). Despite existing internal and external factors that reduce the effectiveness of poverty eradication in Iran, ‘the anti-poverty endeavour’ in the country has been quite successful (Salehi-Isfahani 2009b). There are at least two major reasons for such success. First, as Michael Axworthy put it, ‘the revolution was a fusion of conservative and radical ideas, intimately mixed’, and the commitment of the post-revolutionary government ‘to the mostazafin, to raising up the lower classes, to improving their living conditions and access to education and health services, was not mere propaganda—it was genuine, and served to initiate real changes in improvement’ (Axworthy 2014: 242). Second, related to the first, is the transformation of the sacred Shi’a notion of martyrdom into a ‘routine act of government—a moral sign of order and state sovereignty’ (Kaur 2010: 443). This transformation proceeded in several stages. The first step was the creation of a ‘fixed’ category of martyrs ‘to consolidate the legacy of the revolution’, as praise of self-sacrifice played a central role in

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mass mobilisation (ibid.). The second one was dictated by the need of the military mobilisation during the Iran–Iraq war for the survival of the Islamic republic; the notion of ‘martyr’ as well as the number of people who fell into this status category was extended not only to those who survived, to war veterans and the members of their families, but also to the defenders of the revolution, such as the members of the Construction Jihad and IKRC (Harris 2017: 112). As noted by Harris, ‘war and welfare and often historically linked. Mass participation in war engenders an egalitarian sense of social justice, and war exigencies create new state organisations’, as Iran had to ‘maintain a labour-intensive military strategy’ (Harris 2016: 80–81). The third stage was the institutionalisation of this concept in various governmental practices and welfare policies, with the ‘martyrs’ and their families getting prioritised access to state services, such as housing, health care and education. As such, the notion of ‘martyr’ was designated as a political category, while institutions such as the Martyrs Foundation, the War Refugees Foundations, the Foundation of the Dispossessed and the like formed the ‘martyr welfare state’ that went far ‘beyond basic alleviation of hardships. It transformed the social compact between the state and society’ (ibid.: 81). The creation of the Martyrs’ welfare state 3 had an important mobilising and consolidating effect on the society, however, the extension of the category of ‘martyr’ to the members of new parallel institutions, such as the Basij militia,4 the IRGCs, the Construction Jihad eroded the original meaning of a ‘martyr’, caused some mistrust, annoyance and criticism among the population. Meanwhile, some economists question whether the government can afford generous welfare schemes, as well as the replacement of the subsidies with monthly cash payments. The problem of ‘empty stomachs’ still remains in Iran, forcing the Rouhani government to launch campaigns to distribute food packages of rice, chicken, eggs, oil and cheese; however, these steps were met with criticism by some parliamentarians, such as Qasem Jafari, who believe that food aid ‘added further to Iran’s soaring budget deficit’, which was approaching IRR 500 trillion ($20 billion) (The Economist 2014). Also, as mentioned previously,

3 CHM I13 , see Appendix II. 4 Basij, or Niru-ye Mogh¯ avemat-e Basij (in Farsi, Mobilisation Resistance Force), is one

of the forces of the IRGCs. Basij and IRGC are often used as synonyms.

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the generous welfare system in Iran does not seem to do much to alleviate the precarious position of the youth—those who graduated from universities and are looking for a permanent job. This in its turn results in the family crisis, as young Iranians, particularly young men, suffer from anxiety issues, as they remain financially insecure and dependent on their parents, causing ‘behavioural shifts in family formation’, changing attitudes towards marriage, divorce and social reproduction (Khosravi 2017). Most of the young people stay with their parents, putting additional pressure on household budgets. The total household budget consists of wages, pensions, benefits-in-cash (scholarships, other charity and welfare transfers), direct cash transfers (resulting from the subsidy reform), property income (interests, capital, land, rent) and income from the sales of various domestically produced goods (food, cloths, carpets, etc.). In some poorest rural areas and urban areas household cash inflows remain below subsistence level, but most of these households manage to keep afloat because of domestic labour. What is the most important factor that contributes to poverty alleviation in Iran? According to Roksana Bahramitash, it is women’s mobilisation, based upon grassroots solidarity building for gender equity, that ‘motivates the solidarity economy and makes the daily struggle for survival possible’ by ‘translating into a solidarity bloc necessary for social transformation’ (Bahramitash 2014). Her research in low-income neighbourhoods and shanty towns in Isfahan, Shiraz, Tehran and Zahedan demonstrates how women in Iran ‘make ends meet in their daily struggles to put food on the table, to make sure their children are educated and have decent health and nutrition, and to keep the household together in communities that must deal with such social problems as drug addiction, youth unemployment, and rising prices of basic needs’ (Bahramitash 2014: 376).

7.2 7.2.1

Redistributive WSR Function Primary Distribution: Trade and Production

In the first years after the revolution, the government’s efforts to reduce social disparities were quite successful for several reasons. First, favourable dynamics in the global oil market brought substantial export revenues, giving the government flexibility in macroeconomic management, helping to cover war expenditures. Second, the disastrous war with Iraq had an

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equalising effect on the population. Third, massive financial resources, accumulated by the Pahlavi regime, were nationalised and became available for redistribution (however, most of the $11 billion of Iranian foreign assets, seized by the United States in 1979 due to the hostage crisis, were kept frozen even after the adoption of the Algiers Accords in 1981). Finally, the populist and pro-poor rhetoric fuelled strong antimarket sentiments and encouraged the government to launch a massive modernisation campaign that comprised various welfare programs and mega-projects (Salehi-Isfahani 2019). However, after 1986, the collapse of oil prices and the destructive consequences of war with Iraq—infrastructure damage ranging from $97 billion to $1 trillion (Amuzegar 1992: 422)—dictated the need for economic ‘pragmatism’ that explains Rafsanjani’s and Khatami’s desire to promote pro-market reforms in the 1990s— Ahmadinejad’s pseudo-privatisation in the 2000s and the proneoliberal shift by Rouhani’s government (i.e. means-testing cash transfers). Growing income and wealth inequality was the side effect of these technocratic political developments. The following passages are devoted to the effects of modernisation and the economic self-sufficiency strategy on primary income distribution and to the class dynamic underpinned by pseudo-privatisation and the ‘solidarity economy’. Uneven income redistribution is the malaise of most oil-dependent economies. In 1996, Thomas Friedman’s finished his article for the New York Times with a quote of an Iranian woman: ‘Iran will never be a happy place as long as we have oil. We could be Japan if we didn’t have oil’. Like Friedman, most Western economists still believe that only the emergence of the ‘Ayatollah Gorbachev’ in Iran— ‘a cleric who will try to moderate Iran’s Islamic system in order to preserve it’, could save the country from inevitable social unrest (Friedman 1996). For them, Iran is a ‘rentier state’ that runs a high risk of an economic ‘crunch’ due to economic sanctions and declining oil revenues, on one side, and the steadily rising population, on another (Badiei and Bina 2002). True to some degree, this argument, however, does not reflect the real state of affairs for its vision of Iran as a rentier state, which, according to the definition, must get its income from external rents, out of sources ‘insulated’ from the domestic production, located outside the country (Shambayati 1994: 308–9). Theoretically, in the rentier state, the governing class is sealed off from domestic pressure groups and the potential for class conflict is eliminated: the elite is able to enrich itself through rent-seeking, therefore productive economic sectors stay underdeveloped and ‘the need for economic exploitation of

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the domestic population’ is minimum. Moreover, uneven income distribution and social stratification ‘cannot be the main organisational bases of challenges to the state’ (ibid.). Does this argument stand for Iran? No. First, Iran is a diffused-power semi-autocracy, with intense factional rivalry and dramatic power shifts, and the governing class is not isolated from domestic pressures. Second, the modernisation strategy in Iran was directed towards the development of the productive economic sectors, and the population is highly exploited (see Sect. 5.1.1 on labour market precarisation). According to the World Bank, in 1960–1977, ‘Pahlavi’s Iran’ showed some impressive rates of economic growth of nearly 10%, due to its development strategy which diverted lots of material resources to the elaboration of a military-industrial superstructure; however, modernisation under the Shah made the country even more ‘dependent on foreign raw materials, managerial know-how, technology and trade’, with widening gaps in income and wealth, leaving the regime’s socio-political foundations incapable of ‘withstand the onslaught of growing public dissatisfaction’ (Amuzegar 1992: 145). Indeed, enormous amounts of accumulated capital and the Shah’s previous investments in infrastructure and defence ‘enabled the Islamic regime that came to power in 1979 … to defend territorial integrity against the Iraqi invasion, to sustain its fast-growing population …, and to reduce its external debt’. The accumulated wealth, however, had shrunk very soon as a result of the devastating war with Iraq. In the late 1980s, the post-revolutionary government faced a multitasked agenda: to revive economic growth, to reconstruct houses, communications, industrial facilities, destroyed during the war and to address striking inequalities between regions, classes and individuals, inherited from the monarchy. All these targets would have to be achieved under the circumstance of massive external constraints: falling oil prices, instability in the Gulf, US economic sanctions, a French oil embargo, growing international isolation, large-scale capital flight, difficulties in securing foreign investment and import financing; these external pressures reproduced intense internal rivalry over the question of power transition after the death of Ayatollah Khomeini and over the course of future economic reforms. Internal rivalry gave some flexibility for economic political choices and legitimised an adaptable interpretation of Islamic law. The 1979 Constitution considers the economy to be not an ‘end in itself’ but rather ‘means’ of moving towards God (Amuzegar 1992: 416). If in the 1980s

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the main economic trends were the centralisation of the strategic sectors of economy, secured by Article 44 of the Constitution (see Chapter 3), and monopolisation of the state authority over foreign trade—an essential component of the country’s independence from the ‘imperialist influence over Iran’ (Maloney 2015: 158), in the 1990s the emerging economic pragmatism resisted the vision of capitalism as a betrayal of the revolutionary jihad, and backed up some necessary pro-market reforms, such as trade liberalisation and privatisation to advance the modernisation strategy as the ‘means’ towards the nation’s divine right of self-determination, independence and prosperity. Modernisation was expected to achieve national self-sufficiency and economic diversification by reducing the country’s dependence on the oil sector and on foreign scientific and technological advancements. Modernisation had a contradictory effect on the Iranian WSR. On one side, it drove the ‘self-sufficiency strategy’ under the frameworks of the ‘resilient economy’ and helped the nation to survive the severities of economic sanctions and war, on another, it led to the increased bureaucratic control over major economic developments, which eventually led to the empowerment of parastatal organisations. Quite paradoxically, some pro-market reforms, such as privatisation, in practice resulted in the empowerment of the national security-military institution and of a ‘class of bureaucratic and military state elites’— ‘IRGC, had the most to gain from liberalization and “open door” projects’ (Povey 2019). Modernisation was driven by several factors. The first vehicle was the Construction Jihad. This institution, created by Shah Pahlavi to promote rural development, was in fact reactivated only after the revolution, which made possible the mobilisation of thousands of activists and volunteers ‘undertaking an ambitious development campaign and spreading revolutionary and religious values throughout the countryside’ (Lob 2020). The campaign comprised multiple mega-projects in real estate and construction (e.g. schools, libraries, medical centres, policlinics, etc.), transport and communications (roads, bridges, utilities), agriculture (financial support to farmers), health care (medication and immunisation), education and Islamisation of the population (i.e. dissemination of revolutionary movies, the Qur’an and other Islamic texts, and the organisation of clerical sermons, prayer groups, etc.) (ibid.). By the 1990s, the construction Jihad had a positive effect on social inequalities (income and status), due to the narrowing of the centre-provincial gap, more ‘socially and spatially inclusive’ peasants, a rapid reduction in the average family size and in absolute poverty: ‘even Baluchistan, which most Iranians have

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100%

50% 63 32

30

25

17

10

2009/10

2013/14

0% 1969/70

1979/80

1989/90

1999/00

Services Industries and Mines Oil and Gas Agriculture, hunting, forestry and fishing

Fig. 7.1 GDP by sectors, % (Source Statistical Centre of Iran)

never visited, was not immune to its effects, while the “Iranianisation of social life” paved the way from “peasants to Iranians”’ (Harris 2017: 141–43). In 1989, in the post-war period, modernisation acquired of a new appeal for the ‘Reconstruction Jihad’ that necessitated ideological corrections in the direction of a more open and poor-market economy to rebuild the country. Five-Year Plans, introduced by Rafsanjani’s administration, served as the blueprints for Iran’s future development, as the government’s ‘manifestos for the reconstruction’ (Karshenas and Pesaran 1995: 89). Another vehicle was the ‘resistance economy’,5 with its efforts to develop knowledge-based high-tech industries, to reduce Iran’s dependence on imports of raw materials and to obtain self-sufficiency in many vital goods (Majidyar 2018). The IRGC’s role in Iran’s growing economy with its engineering arm set to execute 40 mega-projects, such as medication and food that in turn stimulated the development of the pharmaceutical, chemical, construction and other industries, as well as the service sector (see Fig. 7.1). The expansion of the services was predetermined by the development of transport, storage, communications and 5 CHM I14 , see Appendix II, the term ‘resistance economy’ is frequently used by the Iranian ruling elite to emphasise policies that help promote self-sufficiency to counter international economic sanctions (Majidyar 2018).

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real estate, while industrial growth is attributed mainly to the continuous growth in mining, manufacturing and utilities (electricity, gas and water supply). In some sectors, the results have been quite impressive. For instance, according to Mustafa Qanei, the secretary of the Biotechnology Development Headquarters of the President’s Office, Iran, achieved selfsufficiency in the production of bio-based raw materials (no raw materials are imported) (IranPress 2020). Another example is agriculture. The Ministry of Agriculture Jihad developed policies to increase farm productivity and launched food and nutrition security programs that eventually turned Iran from a net importer of grain to a significant producer of vital agricultural products, including wheat (11th in the world, accounts for 70% of the country’s grain production), vegetables (6th ), chicken (7th ), dates (2nd ) and potatoes (11th ). This transformation was quite stable, though not without temporary climate challenges, such as the draught of 2008, and the rising imports of some products (45% of consumed rice is imported, 50% of sugar and 90% of cooking oil) (WFP 2016). Overall, food self-sufficiency in Iran is relatively high (60–80%). The third vehicle was the increasing power of parastatal foundations 6 in the legislation and in socio-economic life that mobilised financial and human resources for the country’s industrial development, and the rise of the IRGC in the 1990s and especially in the 2000s, fuelled by Ahmadinejad’s privatisation campaign that precipitated parastatal structural transformation and the deformation of the class hierarchy, becoming ‘the most significant strategic change to the structure of the state since the revolution’ (Mohseni 2016: 60). Since the end of the war the IRGC have been expanding its for-profit economic activities as a contractor, starting from some infrastructural projects, such as highways and dams, to other sectors of the economy, such as oil and gas, telecommunication, banking, agriculture and even car manufacturing (Azadi 2019: 17). Further economic empowerment of the Revolutionary Corps was propelled by the rise of the ‘new Right’ and new conservative political organisations, such as the ‘Devotees’ (Isargaran), ‘Developers’ (Abadgaran), ‘Principalists’ (Usulgaran), in contrast to a ‘slow-motion reformist collapse’ over the failure to fulfil their agenda—in 2004, the reformists lost most of their seats in the Majilis elections (Maloney 2015: 310–11). The new Right

6 CHM I15 , see Appendix II.

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supported Ahmadinejad in the presidential elections, and later used any chance to influence privatisation, making the IRGC-affiliated companies the main beneficiaries. The economic power of the IRGC is indeed stunning. For example, the Khatam al-Anbia Construction Base, the main engineering arm of the IRGC, is participating in various joint ventures with more than 5,000 companies, working in information technology, oil and gas upstream and downstream projects, pipelines, ‘water management, railway and road construction, port and mine development’; the Oil Ministry is one of the company’s partners for the development of 10 projects worth $22 billion in total (Majidyar 2018). Despite the political debates over the IRGC’s economic role and the Rouhani assurance that ‘the IRGC should not dominate the Iranian economy’, in 2018 alone, the conglomerate completed 40 mega-projects (ibid.). Overall, the effect of parastatal expansion on the distributional function is paradoxical: on one side, it has allowed the centralisation and mobilisation of human and financial resources needed for the accomplishment of mega-projects, on another, it has led to ‘mushroomed bureaucracy’ (Amuzegar 1992: 423) to corruption that ‘inflicts significant risk on construction activities’, on the effectiveness of project management (Hosseini et al. 2020: 205), and might eventually become one of the most important impediments to economic reforms in Iran. 7.2.2

Secondary Distribution: The Effect of Macroeconomic Management on Poverty and Inequality

As in all oil-producing countries, natural resource rent distribution is the topic of political debates as it plays an important role in targeting income inequalities. According to the survey-based study of 36 thousand rural and urban households in Iran in 2009, Farzanegan and Habibpour concluded that ‘the direct distribution of resource rents among all citizens and the imposition of an additional direct income tax had a significant negative (i.e. decreasing) effect on the household Gini index. However, the targeted distributional policies are more effective in addressing poverty than resource dividend policy’ (Farzanegan and Habibpour 2017: 36), as ‘the expanded social contract looked generous on paper but remained unevenly implemented’ (Harris 2016: 82). Geopolitical pressures coupled with intense internal contestation over the course of macroeconomic management produced paradoxical results, when aspirations for economic liberalisation could not be fulfilled. The

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reforms, such as privatisation, when put in place by the conservative government lead to further empowerment of hard-line parastatal organisations, run by the clerics, strengthening the ‘economic muscles of the Supreme Leader’, turning multiple patronage policies and instruments of social control into a ‘vast religious machinery’ (Boroujerdi and Rahimkhani 2016: 146). State-run foundations and bonyads influence secondary income distribution through their access to so-called ‘rule by emergency’, or the rule by necessity, which allows the Guardian Council to ‘bypass the first-order Sharia principles on question of private property’, subsidies and taxation (Harris 2017: 102). The ‘rule by law’ gives flexibility to the ‘formulations of feqh’ (jurisprudence) not only in the circumstances that require private property expropriation and unequal access to state funds but also for emergency time limits and various temporary allowances for tax payment and the system of ratios and subsidies. This ad hoc governance reproduces fiscal parallelism,7 when parastatal organisations are frequently exempt from taxation, from parliamentary scrutiny and from Iran’s General Accounting Laws (Boroujerdi and Rahimkhani 2016: 146). Fiscal parallelism allows state and parastatal institutions to accumulate substantial financial resources (in 2012, the budget of the IRGC reached almost $9.5 billion, Imam Khomeini Relief Committee—$2 billion), launch parallel social welfare programs and ‘play an important social mobility function’, by redirecting distribution of incomes from general taxpayers towards loyal members of the lower-middle class and the poor. Furthermore, clerical organisations are allowed to collect the khums tithe, the alms tax from their followers; also, they administer the Pious Endowment Organisations (Owqaf ), involved in multiple charitable activities and manage confiscated assets and properties. For instance, since 1989, the Headquarters for Implementation of Imam’s Order (HIIO, Setad Ejrayi-e Farman’e Emam), the second largest economic cartel after the IRGC, has been operating assets worth $40 billion, confiscated from members of the opposition, high-ranking officials of the old regime, who fled the country and some foreign representatives. Interestingly, the relationship between the IRGC and the HIIO is competitive, ‘fluid and multifaceted’, with some members of the clerical establishment worrying that their power might be ‘outperformed by the rising power of the IRGC’ (ibid.: 148–151).

7 CHM I16 , see Appendix II.

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Given that four parastatal and clerical entities control 60% of Iran’s national wealth, but ‘none of them has any communication with neither the administration nor the Majlis’, their privileged fiscal status in the economy is an unacceptable luxury at times of a growing budget deficit (Katiraie 2020). These four institutions are Khatam al-Anbiya (affiliate of the IRGC), and the Execution of Imam Khomeini’s Order, Mostazafan Foundation and Astan-e Quds Razavi (under the direct supervision of the Office of the Leader). According to the estimation of the Majlis research centre, tax collection remains the major challenge in offsetting the deficit (131 trillion tomans, around $10 billion, in 2020–2021), as well as the lack of a progressive scale, a high proportion of goods that are exempt from VAT, together leaving more than 125 trillion tomans in tax evasions and exemptions (ibid.). Apart from the inefficiency of the tax system which impedes a more equal secondary income distribution, another contentious issue is price regulations. For instance, to offset the deficit, the Rouhani administration hiked gas prices and used gasoline prices controls and rationing in 2019. These policies provoked massive street protests, the purchasing power of households, already worsened by the subsidy cut that set inflationary pressures and negative economic growth, was lowered even further. Economic downturn due to international sanctions, subsidy cuts and soaring food prices, coupled with a growing refugee population and natural disasters, such as droughts, floods and earthquakes, has had a negative impact on food security for the poor. However, despite all these challenges, household food security has been stable and quite equal among various income groups in both rural and urban households (WFP 2016: 1, 21–22). Although the share of meat is a bit lower in the poorest households, the average consumption pattern is fairly similar. However, regional income inequality is reflected in consumption patterns of non-food goods, as urban households spend 26% of their income on food, while rural households almost 43%, or even higher in Sistan va Baluchestan, Khuzestan, Ilam, South Khorasan and Kohkiluyeh va Boyerahmad provinces (ibid.: 24–25). At the same time, these disparities are partly offset by higher housing expenditure in urban areas (45% of nonfood household income), compared to only 28% in rural areas, therefore it is important to account for differences in costs of living across regions to avoid exaggeration of rural–urban income inequalities (Fig. 7.2). As food expenditures of both rural and urban households are similar in real terms (the amount of money spent does not vary much), but

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Urban (outer circle) vs Rural (inner circle)

8.6 3.0

Housing

1.9 4.7

Transport and communication Health

26.0

4.4

Food

9.3

4.0 6.2

9.3

43.0

8.2

Clothes Home equipment Culture and recreation

11.4 10.6

16.0

Other 33.4

Fig. 7.2 The structure of household expenditures. Urban vs Rural, % (Source Statistical Centre of Iran)

percentage of food consumption in the total spending varies quite substantially (i.e. 43 vs 26%), simple calculations suggest that household incomes in urban areas are almost twice as high than in the countryside. The regional gaps ‘narrow in hard times, as they did during the war years in the late 1980s and after international sanctions tightened in 2011’; after 2011, as an analysis of 32 years of Household Expenditure and Income Surveys (HEIS) data (from 1985 to 2016) shows, cash transfers were quite successful in maintaining rural incomes at the very start of the reform unless inflation kicked in to destroy the real value of income (Salehi-Isfahani 2017: 129). Consumption inequality is one of the indicators of their forms of inequality (e.g. wealth and status), however, income inequality in Iran is much higher than consumption inequality (Noghanibehambari and Rahnamamoghadam 2020). In 2011, consumption inequalities were partly mitigated due to the direct cash transfers to many low-income families. In 2010, the poverty line for an Iranian household ranged from IRR5 million to IRR9 million per month, ($500–900 per month, or $3.4–$7 per day), therefore a $40–45 cash transfer per head would raise household income quite substantially (Meskoub 2015: 16). Another important issue that affects income distribution in Iran, as it fuels inflation, is the necessity to cover import imbalances that emerged

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during the 1990s out of the post-war growing demand for higher consumption of imported goods that ‘could not be easily supressed’, and Iran’s Central Bank was left with no choice but to print money to ‘fill the revenue gap’ that emerged because of the unfavourable geopolitical situation (Harris 2016: 84). This episode of skyrocketing inflation in 1993–1994 that resulted in economic crisis and mass protests taught the Iranian government a lesson: ‘it showed that state attempts to address middle class demands for higher consumption could lead to unrest from poorer citizens’ and eventually ‘break apart a temporary elite coalition’ (ibid.: 85). Moreover, import-fuelled consumption not only put the country on the verge of a foreign debt crisis but also all the attempts to finance these growing demands were at the expense of investment in productive activities and therefore diverted resources away from the target of modernisation and development.

7.3 7.3.1

Connecting WSR Function Macro-Level: Investment Opportunities

Since Rafsanjani’s presidency, the Iranian government has been trying not only to secure self-sufficiency in many goods and services by investing in various projects of import substitution and in infrastructure to facilitate the development of domestic production in order to lower the risks of sanctions-related disruptions in supply of core materials but also to attract foreign direct investment. The ‘reconstruction’ faced a difficult task of improving the investment climate amid political rivalry, constitutional ambiguities concerning the ownership of the strategic sectors of the economy, unwillingness to grant foreign investors major stakes in joint ventures and ideological resistance to potentially ‘dangerous’ enterprises, such as Coca-Cola, that could ‘corrupt Iranian culture’ (Maloney 2015: 232–233). Before the adoption of the Foreign Investment Promotion and Protection Act (FIPPA) in 2002 that allowed foreign investment in all sectors to be opened up for Iranian private companies, and the revision of Article 44 of the Constitution in 2006 that aimed at downsizing the government’s role in the economy, FDI in Iran was regulated by the Law of Attraction and Protection of Foreign Investment that permitted foreign investment on buy-back-contracts only (i.e. foreign investor gets a share in production but not in ownership). Therefore, before late 2000s, despite the attractiveness for its enormous mineral resources (i.e. oil,

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gas, iron, copper, sulphur, zinc and gold), highly educated labour force, substantial market size and devalued local currency that makes investments less expensive for foreign investors, FDI to Iran remained at very low levels (around $300–400 million per year) and was directed mainly to the oil sector (Fig. 7.3). To facilitate investment and to bypass factional disputes over foreign ownership, the government took a decision in 1989 to set up free-trade industrial zones (FTZ) and special economic zones (SEZ) in deprived regions, in which foreign investors were allowed to set up joint ventures (JV) with Iranian firms. The first zones were established on the islands of Kish and Qeshm in the Persian Gulf, where these JVs were exempt from taxes for the start-up period of fifteen years and from tough domestic labour market regulations. At the start, these FTZ ‘underperformed as compared to initial expectations and their potential’, as instead of creating dynamic hubs for export-driven investment, they facilitated imports (the value of imports was 10.5 times higher than export) (Maloney 2015: 232). The reason for such dynamic was a fuelled appetite from the population for imports, once the Iranian economy recuperated after the revolution and war. Moreover, instead of attracting foreign investment, the SEZs facilitated the rise of ‘new domestic business elites through import arbitrage rather than foreign-funded manufacturing’, becoming the entry points for some ‘basijis and Revolutionary Guard 5500

4500

Outbound

3500

In Iran

2500

1500

500

-500

1978

1980

1985

1990

1993

1999

2000

2005

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

-1500

Fig. 7.3 FDI flows into Iran and out of Iran, selected years, US$ million (Source UNCTAD [2020])

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corpsmen’ into business activities, paving the way to the emergence of a military-linked ‘subcontractor state’ in Iran (Harris 2017: 160–61). According to the ‘Vision 2005–2025 Plan’, Iran needed $3.7 trillion of investment, of which $1.3 trillion was expected to come from overseas (Ghahroudi and Chong 2020: 17). Over time free trade zones and special economic zones grew in number (7 FTZ and 25 SEZ), as their development, as well as the boost in non-oil exports, had become a political priority. The government expected that domestic and foreign investment in innovative and technological entities, in non-oil sectors, would facilitate exports and reduce unemployment. These efforts were successful in attracting domestic investment, but not so much FDI. According to the Iranian Free Zones High Council, in 2020 more than 2,200 industrial and mining units were registered and actively operating in the FTZs. In 2020 alone, despite the COVID-19 pandemic, currency fluctuations and sanctions, President Rouhani inaugurated 61 projects in production, infrastructure and trade, worth IRR 92 trillion (about $2.19 billion) and 3,200 new jobs, in special economic zones in Hormozgan, Gilan, Bushehr, Qom, East Azarbaijan and Markazi provinces. However, the share of FDI in total investment remained disappointing, as IRR 89.8 trillion ($2.01 billion) out of IRR 92 trillion came from domestic sources (TehranTimes 2021). These zones have played a significant part in boosting the country’s non-oil exports, accounting for 40% of Iran’s non-oil exports ($17 billion in 2019–2020). The major export destinations for most goods (i.e. dried fruits, nuts, plastic products, steel ingots, and production line machinery) are Azerbaijan, Turkey, Iraq, Kazakhstan, Afghanistan, the UAE, Armenia, Czech Republic and Uzbekistan. As such, free trade zones 8 became relatively efficient counter-hegemonic mechanism that facilitated trade and business interconnectedness among domestic and foreign partners. However, the underlying tendencies (i.e. economic power centralisation and the empowerment of parastatal enterprises) have not been beneficial for a truly competitive environment and a favourable investment climate to be established, as most of the initiatives to set up independent private enterprises were hijacked by paramilitary business entities. It is no surprise that foreign investors are increasingly more willing to form strategic partnerships within the special economic zones

8 CHM I17 , see Appendix II.

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with parastatal organisations, rather than with independent and smaller private companies. The most important constrains on FDI—political and macroeconomic instability and US sanctions, remain the main obstacles to attracting FDI to the free trade zones. However, despite these obstacles, the presence of TNCs in Iran has increased substantially over the past 20 years, mainly in oil and gas, vehicle manufacturing, copper production, petrochemicals and sectors less restricted by sanctions (though also interrupted), such as pharmaceuticals and groceries (Ghahroudi and Chong 2020: 34). Domestic mobilisation of resources, coupled with a desire to overpass multiple sanctions-induced restrictions by deploying complex (through third parties) and simple (via barter) payment schemes, Tehran has been successful in the realisation of mega-projects. On one side, these major projects 9 create new jobs and alleviate unemployment, but on another, project management is executed by large business conglomerates and further empowers paramilitary structures—the main investors and beneficiaries. Iran is the world’s second and fourth largest gas and oil reserves holder (1,191 trillion ft3 and 157 billion bbl., consequently). No wonder oil and gas is potentially the most lucrative sector for foreign investors. However, the National Iranian Oil Company (NIOC) is responsible for most upstream projects, and foreign investors’ hopes for signing PSAs (production share agreements) instead of buy-back schemes are weak. Moreover, the intensification of US sanctions after the country’s withdrawal from the JCPOA pushed third parties out of Iran for the sake of their operational capabilities, American bank accounts and their US market share. Large corporations from jurisdictions seemingly less dependent on US extraterritorial legislation at first hurried to fill in the gaps but later reversed their decisions. This was the case with South Pars gas project (a $4.8 billion Phase 11), with an estimated 14.2 trillion m3 of gas reserves and 18 billion bbl of gas condensate (40% of Iran’s total 33.8 trillion m3 ). In 2018, France’s Total, which had already invested around $1 billion, abandoned its 50.1% stake in Phase 11, ‘regardless of the EU’s efforts to avoid going along with the new US restriction on Iran’; China National Petroleum Corporation (CNPC) automatically took over Total’s share, increasing its stake from 30 to 80.1% (19.9% belongs to Iran’s Petropars) (Watkins 2020). However, in 2019, CNPC officially withdrew from Phase 11 and had to camouflage

9 CHM I18 , see Appendix III.

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its activities in Iran and Iraq, which ‘did not cease but merely changed appearance into a less high-profile and therefore less U.S. sanctionable form’ (ibid.). China, India, Oman and Russia are among the biggest potential investors in Iran’s mega-development projects. For instance, Indian corporations are attracted by a dynamically developing steel and aluminium sector. Iran is the world’s 18th largest aluminium producer (276 thousand mtpy), the world’s 10th largest steel producer (32 million mtpy) and the 19th largest steel ingot exporter ($564 worth of crude steel and steel products in 2020) (World Steel Association 2020). However, India’s National Aluminium Company (NALCO) plans to set up an aluminium smelter in Iran worth $2.6 billion have been put on hold amid an aluminium production glut and tariff wars between the United States and China. Russia and China have certain interests in investing in the petrochemical sector, which is a vehicle for Iran’s import substitution strategy, aimed at covering gasoline shortages and boost value added production in other sectors of the economy (e.g. tyres, pharmaceuticals, materials for construction, etc.). Three new refineries in Bahmangenoo (300 thousand bbl/d), Anahita (150 thousand bbl/d), Pars (120 thousand bbl/d), the Mokran Petrochamical Complex in Chabahar (18 petrochemical units) and five other petrochemical projects in Illam, Hamedan and West Azerbaijan worth $1.1 billion are among the seventeen strategic $11.5-billion ‘second leap’ projects, launched to lift the country’s production of petrochemicals to 90 million mtpy (TehranTimes 2020b). To create a production node for its One Belt, One Road initiative, in 2016, China updated its Strategic Partnership Agreement with Iran, committing to invest $280 billion in Iran’s petrochemical, oil and gas industries and $120 billion—in transport and manufacturing infrastructure. In return, China was promised to get a 12% discount in all the buy-back schemes, a 6–8% ‘risk-adjusted compensation’ and a possibility to denominate payment in ‘soft’ currencies (African and Central Asian) to ‘recycle foreign currencies reserves accrued from its trade surpluses’, bypassing the US-controlled international payment system (Global Construction Review 2019). As well as China, Russia’s interest in Iran’s mega-projects is noticeable, especially in the energy sector. In 2011, Rosatom completed Phase 1 of Iran’s sole 1,000 mw nuclear power plant in Bushehr and is participating in its Phases 2. Russia’s Technopromexport committed to invest $1.41 billion in the Sirik thermal power plant

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project (12 twh) near the Strait of Homruz. However, despite a broad range of potentially mutually beneficial areas for cooperation, expressions of interest and efforts by Russia’s giants, such as Gazprom, Lukoil, Rosneft, Gazpromneft, etc. to enter the Iranian market, it would be premature to expect some commitments (i.e. to invest $5 billion in infrastructure) to materialise, as most Russia’s firms are struggling to survive the US sanctions themselves. For instance, Russian Railways pulled out from a $1.3 billion project for electrification of a Garmsar—Ince Burun railway between Iran and Turkey. Nevertheless, the Iranian government succeeds in raising funds from domestic sources for the realisation of its strategic mega-projects in oil and gas (e.g. $1.7 billion into Azar oil field), in construction (e.g. $5.95 billion in 14 thermal power plant units), in ‘institutional construction’, such as health care and education services (e.g. three new hospitals in Mallard, Qods and Shahriar). These projects stimulate further development of transport infrastructure. In 2019, the government announced the plan to spend $22.3 billion to build and modernise 7,800 km of highways and roads in 2020–2023 (Research&Markets 2019). Other examples include the construction of the Jask Export Terminal in Hormozgan province (to bypass frequently clogged Strait of Hormuz), the development of the Chabahar Port in Baluchestan, which is seen as the ‘anchor for the expansion of economic relations between Iran and India’ (India has already delivered the first strategic loading equipment worth $8.5 million in January 2021), and the construction of a Khaf-Herat railway, a joint Afghano-Iranian project to link eastern Iran to Western Afghanistan, and many others. 7.3.2

Micro-Level: Informal Connections

Iran’s participation in the world economy at the macro and the microlevels ‘has been largely conditioned by its resources, geographic location, global market trends, domestic ideological and political concerns, the eight-year war with Iraq and the US economic sanctions’ (Salehi-Esfahani and Pesaran 2009: 196–97). Although authorities recognise the importance of trade and access to foreign direct investment for economic growth, the government policy ‘has been passive or non-innovative intervention, including significant withdrawal from the globalisation process, causing loss of important opportunities for economic growth’ (ibid.). The FDI inflows remain below the level desired by the Iranian government

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to successfully fulfil its program of import substitutions (i.e. $1.3 trillion according to the Vision 2005–2025 Plan), to diversify the economy, to boost the country’s non-oil exports in order to lower the country’s vulnerability to external shocks and sanctions. Under the pressures of sanctions Iran’s main trade partners (see Fig. 7.4), such as China (8.6% of total exports and 25.4% of total imports), the United Arab Emirates (6.3% of exports and 15.8% of imports), Iraq (6.1% of exports), South Korea (4.1 and 7.1%), Turkey (3.8 and 6.2%) and Germany (6% of total imports), not only reduce the volumes of oil imports from Iran (on 2018–2019, oil exports to China declined by 65% year-on-year and to India by 34%) but also remain cautious about their investment decisions. According to Iranian Industry, Mining and Trade Ministry, in 2019– 2020, FDI inflows were only $854 million, compare to over $5 billion in 2017 (the year after sanctions were lifted). A major part of FDI came from UAE, China and the Netherlands: $837 million (98%) went to the industrial sector, $16 million (2%) to trade and only $1 million (0.12$) to mining (TehranTimes 2020c). According to some observers, sanctions not only undermine the main goal of the state, to cover the fall in oil revenues by an increase in tax revenues, but also induce ‘corruption, rent-seeking, and illegal trade’, as the side effect of the contraction of inflows of petrodollars and decreased foreign exchange reserves (Farzanegan 2013). The expansion of the % of total Export

% of total Import

China 9% Iraq 9%

UAE 6% S. Korea 3% Turkey 3%

Italy 3% UK 3% Russia 3% S. Korea 5%

Other 24%

Switzerland 5% Germany 6% Turkey 6%

India 2%

Other 64%

Pakistan 1% Indonesia 1% Oman 1% Thailand 1%

India 6%

China 25%

UAE 14%

Fig. 7.4 Major trade partners with Iran, 2018–2019 (Source UNCTAD [2020])

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informal sector at times of distress is facilitated by institutional business arrangements, rooted in factionalism and patronage politics. Interpersonal connections are drawn upon various interests and relationships, such as family, occupation, education, clerical, religious, financial, etc. that traditionally serve as ‘levers of patronage, mobilisation, and dissent’ (Thaler et al. 2010: 40). Informal business practices constitute the essence of the functioning of both large conglomerates and of medium and smallsize enterprises (SME) that traditionally occupied an important niche in the Iranian economy. Post-revolutionary social class transformation went alongside vertical (traditional class hierarchy) and horizontal (network) dimensions. During the Shah rule, the leadership in network power politics shifted from thousands of bazaar entrepreneurs that ‘had historically dominated the country’s commercial, trade and financial networks’ (Mazaheri 2008) to a small group of elite technocrats. The revolution granted power network leadership to clerics, however, under Rafsanjani bonyads that had existed as traditional humanitarian institutions under the Shah, overtook the leading role the informal arrangements of the county’s economic sphere, ‘replacing the clerics as generators of wealth’ in the 1990s (Thaler et al. 2010: 57). In the 2000s, the leadership of clerics and bonyads was supplanted by empowered IRGC and affiliated paramilitary and parastatal groups, consolidated into a network of politically active and retired IRGC officers, who had been seeking to displace Khatami and ‘reformers’ from political power in the 1990s. For start-up businesses and for foreign investors it is essential to understand the dynamics in the informal power network politics,10 as to start a business or to minimise the risks of investment it is essential to identify the ‘right’ partner and to ‘seek out a powerful patron who could navigate the bureaucracy for the necessary licensure and enable smooth operations’ (ibid.: 55–41). Also, it is important to understand the tendency of economic power centralisation, as the informal power centres shifted away from bazaars (i.e. from traditional supporters of SMEs) to IRGC (i.e. to large business conglomerates). At the same time, the Revolutionary Guards is not a monolithic organisation, it comprises various competing power factions. Quite paradoxically, on one side, the informal power dynamics lead to mobilisation of resources, to consolidation of Basijis’

10 CHM I19 , see Appendix II.

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institutional leadership, while on another, informal and interpersonal relationships pose an incremental risk for the systemic cohesion, instigating further fracturing within the IRGC itself. Moreover, the existential risk to Basij emanates not only from within this fractious leadership, or from the ‘insiders’ (khodi) but also from the outsiders (gheyr-e khodi), who have become increasingly irritated with corruption: some members’ overt prioritisation of individual enrichment over public welfare undermine the legitimacy of IRGC as the guard of revolutionary ideology. The Iranian economy is dominated by public and semi-public enterprises, and the growing power of parastatal organisations impede fair competition and become an institutional barrier for an effective domestic and international cooperation between various small and medium-size enterprises.11 According to Deputy Industries Minister Sadeq Najafi, to stimulate economic growth and job creation, the government has been taking various measures to support and develop SME that constitute 92% of Iran’s 85,000 manufacturing enterprises. However, only 35 of 85,000 were set up as joint ventures with foreign investment, with a total of $2.8 billion of FDI (Financial Tribune 2018). According to the Parliament Research Centre, the country is facing ‘a Missing Middle Problem’ with a large number of small firms, but very few middle-sized enterprises. Moreover, the rate of the SME’s value added product is only 14% of the country’s total value added production; there are multiple reasons for such underperformance: the lack of a ‘constructive link’ with the banking sector (Financial Tribune 2015), inefficacy of tax and labour regulations, the weakness of investment protection laws, the underdevelopment of bankruptcy laws, of contract enforcement mechanisms, the lack of transparency in financial disclosures, in contracting and business monitoring (due to existing informal practices) (Shojaei et al. 2018). As a result, Iranian SMEs are struggling to form partnerships with foreign investors, and their success is highly dependent on informal networks. To attract foreign investment in small and medium enterprises and to facilitate interpersonal connections, the government established Iran Small Industries and Industrial Parks Organisations (ISIPO), responsible for managing 800 industrial parks across the country (33,800 SMEs are registered in industrial parks). According to the Head of ISIPO, in 2019–2020, industrial parks helped to attract more than $2.1 billion of

11 Small enterprise recruits 50 or less workers, medium—no more than 100 workers.

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FDI, to create more than 20,000 of new jobs and to sign 23 memorandums of understanding with potential foreign partners (TehranTimes 2020a). However, recognising the lack of liquidity as the main obstacle for the development of businesses in industrial parks, the Central Bank of Iran (CBI) instructed the local financial institutions to support SMEs to fulfil the slogan of the year (2021–2021)—the ‘Surge in Production’. However, the efforts to finance SMEs, i.e. Iranian banks contributed IRR 73.9 trillion ($1.76 billion) for the development of the industrial parks, were significantly undermined by rising production costs, inflation, sanctions and COVID-19 pandemic.

7.4

Summing Up…

Part III began with grouping global trends and developments that affect the material structure of the WSR alongside the regime’s decommodifying, redistributive and connecting abilities. The analysis of the geopolitical context within which the material base of the WSR has been formed suggests that the nature of state protectionism has changed the role of sanctions in the global political economy. Economic sanctions become an instrument of national protectionism that plays an increasingly important role in geopolitical rivalry. The efficiency of neoliberal advancement of ‘free trade’ in subordinating the contender states to the Western regimes of accumulation has reached its limits, and new forms of geopolitical rivalry are invented to respond to the capitalist tendency to run in order to stand still. The de-commodifying capabilities of both Russia and Iran were shaped by transnationalisation of production and the neoliberal policies that penetrated business practices and affected macroeconomic policies. The redistributive function was affected by fractionalisation of production and the global trade in goods and services, empowered by financialisation of all sectors of the economy and the liberalisation of investment flows that drove hegemonic expansion of Western accumulation regimes. Russia’s and Iran’s share in the global export of production with high value added characteristics remains at a very low level, leaving the contender states strategic sectors of economy highly dependent on imported equipment and vulnerable to external shocks. The connective function is highly dependent of global investment flows that predetermine the development of regional integration, the creation of international institutions and the realisation of joint projects that make nations highly interlinked. TNCs

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centralise crucial functions of control, such as strategic planning and research and development that ultimately affect allocation of investment. TNCs global expansion and control is accompanied by NGOs’ growing investment activities, which in fact transcend their declared strategic targets and have become increasingly politicised. 7.4.1

Decommodification

In Russia, the commitment to inflation targeting, austerity policies and industrial policies of profit maximisation and cost reduction, with the aid of labour market restructuring and ‘flexibility’, resulted in reduced labour security and in precarisation of different class formations. Also, the activities of the ‘nationally anchored’ transnational corporations that monopolised the most profitable markets and secured Russia’s subordinate position in the global division of labour have become one of the main global challenges to the state’s future development. The Russian government attempted to address the problem of labour precariousness with the creation of new job as the result of the highly subsidised program of import substitution, however the effect might be short-lived as further investment in human resources might be slowed down by the lack of impetus for innovation and managerial constrains due to continuous dependency of the state funding. At the same time, household’s dependency on the labour market (especially in the most vulnerable groups) remains very high, and, despite being in occupation, some families and individuals see themselves at the edge of survival and rely on the aid from their relatives or communities. Meanwhile, the most vulnerable population remain very passive and there are very little mechanisms through which they could signal to the central authorities about their needs. In Iran, on the contrary, the relative generosity of the welfare system has been the result of processes that drove popular mobilisation that secured a responsiveness of the ruling elites to the needs of the population. Growing demands and expectations of the widening middle class were driving the expansion of education, health care and social insurance, and the adoption of an employee-friendly new Labour Law in 1990. However, the ‘martyrs’ and their families remain the main beneficiaries of the welfare system: despite various social nets, young worker’s and women’s positions in the labour market remain precarious due to the development of the non-permanent contractual forms, black markets and the reimposition of patriarchal order after the revolution. As such the formation of the martyrs’ welfare state has a contradictory impact on the de-commodifying capabilities of the regime; on one side, it has a strong

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mobilising potential, necessary for the advancement of socio-economic benefits, on another, the recent tendency to expend this category to the members of new parallel institutions, such as IRGCs, erodes the original meaning of ‘martyr’ and causes social discontent. 7.4.2

Redistribution

In Russia, the imposition of sanctions made the government recur to counter-sanctions, using it as a possibility to apply protectionist measures to develop new businesses, giving a chance to obsolete and outdated enterprises to reindustrialise and restructure. However, the decline in real incomes and the problem of the working poor, which impedes the formation of domestic demand as a powerful counter-hegemonic force and hampers future economic sustainability—remains a serious obstacle for a successful IS program. The government is aware of this but believes that the problem of inefficient demand could be partly resolved by stimulating private small and medium-size businesses, as the prices for products will decline, while new jobs would improve the situation in the labour markets. In fact, government initiatives to support small and medium-size businesses with special tax regimes, subsidies and cheap credits for ‘infant’ industries, systems of compensation and state purchasing orders (‘goszakaz’) have had a positive effect on businesses and were very welcomed by communities that are becoming increasingly interconnected with the aid of federal internet platforms. However, these positive developments are indirectly hindered by the sanctions regime, as external pressures on the Russian economy led to the centralisation of control over the most profitable industries at all levels. As a result, excess growth of regional state and municipal corporations that supervise small businesses make them highly dependent on ‘administrative resource’. Overall, the economic downturn, aggravated by sanctions, had a ‘cold shower’ effect on the Russian authorities, who not only finally reassessed the strategy for the country’s socio-economic development but also elaborated practical steps and programs for its realisation. On another, sanctions had a negative effect on Russia’s redistributive capabilities: the resurgence of economic nationalism in the United States and across Europe, the redirection of trade flows as a result of the ‘primary’ sanctions, especially on Russian financial institutions, and the legal extraterritoriality of ‘secondary’ sanctions—all these factors resulted in a temporary ‘investment drought’ in Russia, pushing some companies out of business.

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In Iran, as in Russia, favourable dynamic in the global oil market and substantial export revenues gave the government flexibility in macroeconomic management, however, the downward trend in the oil prices in the 2010s dictated the need for economic pragmatism, pro-market reforms and industrial modernisation. Modernisation played the central role in the government’s strategic plan of the ‘resistance economy’ aimed at national self-sufficiency and the elimination of the dependency of the country’s redistributive capacities on oil revenues. There were some successful advancements of this program in agriculture, biotechnology, engineering, construction and petrochemicals, while pseudo-privatisation, launched by Ahmadinejad in mid-2000s led to the empowerment of parastatal foundations and IRGCs, and preconditioned the economic consolidation of the ‘new Right’. This parastatal expansion had a contradictory effect on the distributional function of the regime, facilitating mobilisation of human and financial resources for the accomplishment of various important economic projects, on one side, but corrupting the effective management and incurring governmental spending on ‘mushrooming bureaucracy’, on another. Moreover, fiscal parallelism granted various tax exemptions to parastatal enterprises, which ultimately undermined just income redistribution, as financial resources, accumulated by paramilitary business conglomerates, were diverted to parallel welfare organisations, redirected from general taxpayers towards loyal ‘insiders’. 7.4.3

Connection

In Russia, the recent amendments to the Foreign Agent Law, as well as the active promotion of Eurasian integration by the Russian authorities was a protective measure to consolidate resources to withstand military and economic imperialism that increasingly obtained an anti-Russia character. However, the most significant geopolitical challenge for Russia is not only related to its status of ‘resource appendage’ but rather to the conservation of this status by an unstoppable capital flight and ‘brain drain’. Russian authorities started realising that successful implementation of the country’s economic modernisation is not possible without a parallel investment in human resources and without the creation of a favourable climate for domestic capital reinvestment. The counterhegemonic mechanisms of enhanced state control over capital flows and fiscal measures to improve the investment climate are seen as measures to address these problems. The scale of protectionist policies, therefore,

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cannot be reduced to strategic modernisation and import substitution, but should be coupled with multitask programs designed to improve the welfare of the population. In Iran, like in Russia, the government was trying to develop various mega-projects to facilitate the development of the domestic production, to lower the risks of sanctions-induced disruption in the supply of core materials and goods and to attract FDI. To facilitate investment, the government set up free-trade industrial zones, special economic zones, established Iran Small Industries and Industrial Parks Organisations (ISIPO) and adopted the ‘Vision 2005–2025 Plan’. However, although the Iranian authorities recognise the importance of international trade and FDI for economic growth, the government policy has been passive to raise the efficiency of domestic legislation to withstand the obstacles for the development of innovative industries (i.e. black markets, informal practices and patronage politics). The growing power of parastatal and paramilitary organisations impedes fair competition and pose a significant threat to the survival of the various small and medium-size enterprises— an expected vehicle for domestic and international cooperation, for the diversification of the Iranian manufacturing sector.

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PART IV

Cultural Leadership

Abstract Chapters 8 and 9 examine the cultural power structure of the welfare state regime that corresponds to the ability of contender states to transform the modalities of social behaviour, practices, personal orientation and attitudes. The state’s domestic and regional domination is buttressed by the ideology of statecraft in the case of Russia and by a religious background in case of Iran. Russian state capitalism, combined with the geopolitical concept of Eurasianism, has become an ideologically driven hegemonic project. In the case of Iran, religion is the main driving force of the country’s hegemonic ambitions. Shia Islam underpins the formation of the Iranian state: it is not just a religion but also a social system, which exercises social rights through its system of law and justice. The ideology of statecraft in Russia, and Shia Islam in Iran with its communitarian postulates, along with the discourse of ‘otherness’ and new cadre formation in both states partially helped to consolidate society at the macro-level and to obtain public support for economic centralisation. However, civil society hierarchy, familialism and other forms of informal relationships might disrupt labour bargaining power and cohesion, while further centralisation of control over civil society institutions might make state–civil society dialogue excessively bureaucratised and inflexible. Keywords Sanctions, Culture, Civil Society, Ideology, Religion, Hegemony

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Introduction to Part IV: Global Dimension Part IV is the last of the core empirical parts of the book. It is devoted to the empirical study of how the cultural settings of the welfare state regime correspond to the ability of contender states to influence the modalities of social behaviour, practices, personal orientation and attitudes. The analysis is focused on the cultural arrangements of the de-commodifying, redistributive and connecting functions that constitute the regime’s self-protection. By ‘cultural arrangements’ this research means (a) people’s perception of their dependence on markets underpinned by ideological images and values, and by human resource strategies (de-commodification); (b) interpersonal tolerance to income, class and status disparities, predetermined by the moral and ethical aspects of accumulation of wealth (wealth redistribution); and (c) social interactions based on shared values that form national identity within the wider state– civil society terrain (connection). All three (a, b, c) are the variables that constitute the cultural mechanisms of social control, based on ideology, strategies for human resource development and social engineering. This part is going to investigate in what way the ‘acceptance’ of the dominant ideological direction by the wider population has been reinforced in Russia and Iran by structural power that resides in ‘high educational status, relative economic security, and employment in personal-service occupations’ (Offe 1985a: 833). To overcome institutional instrumentalism inherent to most papers on sanctions, sanctions should be assessed within the context of cultural and ideological building blocks of counter-hegemony. The de-commodifying, redistributive and connecting components of the reproduction of the cultural settings are vital for the WSR’s survival, as they provide for the legitimacy of the regime. The strength of a state’s dominant ideology depends on the communicative abilities of ‘organic’ intellectuals (Gramsci 1971; Mosca 1895/1939) alongside hierarchical (state and non-state institutions) and horizontal power networks such as social media, and on the elite’s cohesion, which translates into the intersubjective unity of social masses, essential for the welfare states regime’s survival. In Russia, the ideology of statecraft, with its communitarian postulates, the discourse of ‘otherness’ and new cadre formation1 partially helped to consolidate 1 The dominant ideology in Russia is referred to as the ‘Ideology of statecraft’, which suggests that it is quite contentious and abstract, as it comprises various features that

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society at the macro-level and to obtain public support for economic centralisation. However, consolidation of class hierarchy, grounded in familialism, and in other forms of informal relationships disrupts labour bargaining power and cohesion, while further centralisation of control over civil society institutions might make state—civil society dialogue excessively bureaucratised and inflexible. In Iran, indoctrination of Islam is a force with high potential to shape popular ideals and guide people’s behaviour; at the same time, the expansion in education and popular mobilisation that this indoctrination has entailed has increased people’s awareness of freedoms and rights—an ultimate challenge to their traditional beliefs and aspirations. The following passages will analyse the cultural structure of the Russian and Iranian WSRs within the global context: the passage on decommodification will assess the impact of the debate over world order and the civilisational discourse upon people’s perception of their dependence on market forces; the paragraph on redistribution will consider the geopolitical and historical-cultural settings that shaped the new ideology of ‘statecraft’ in Russia and directed religious indoctrination in Iran; this will be followed by a brief review of the connecting abilities of the liberal democratic tradition and the difficulties with social engineering at the global level. De-commodification The ideological debate in a simplified form is a juxtaposition of the unipolar and globalised world that ‘should’ be increasingly comprised of liberal democracies (Mead 2007), to avoid fracturing by a multitude of cultural conflicts (Huntington 1997), versus a multipolar world, where the co-existence of various civilisations in the form of sovereign states is possible, given that the states decide for themselves their modus vivendi under the aegis of international law (Silvius 2016). However, the application of the Locke/Hobbes division to the analysis of the modern heartland/contender divide is rather symbolic, as the contemporary Hobbesian state has obtained some Lockean features, while the

appear inconsistent at the first glance (e.g. it’s attempt to combine liberal ideology and modernisation with communitarian values); The word ‘statecraft’ stresses its statist nature and centralised elite-driven ideological support for Russia’s regional modernisation and militarisation.

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Lockean state has retreated from the original social contract upon which it had been constructed since WWII. As Magnus Ryner put it, a ‘compensatory neoliberalism’ in Europe, inscribed in the Maastricht treaty and in the Stability and Growth Pact, ‘prevented the realisation of a potential “developmental democratic” resolution of the crisis of the welfare state that would favour public goods promoting citizenship’ (Ryner 1998: 85). The symbolism of this dichotomy is rooted in the civilisational discourse. On one side, the proponents of the ‘liberal democratic’ global order maintain that the West—the United States and its partners—are obliged to ‘update the Westphalian liberal project order for a new era’ and enhance the ‘opportunities of Locke’, such as open and rule-based relations (Ikenberry 2011: 58). The problem, however, lies in the presentation of human rights ‘as being both universally valid and uniquely European in their origins’, which undermines the pluralist perspective, according to which, in the states where the socio-economic historical legacies are different from the Western model of liberal democracy, some distinct ‘ethico-political conditions need to be fulfilled in order for a regime to be qualified as just’ (Mouffe 2008: 456). As such the idea of human rights and freedoms ‘could play an important role, but on condition that it is reformulated in a way that permits a pluralism of interpretations’ (ibid.: 455). Nevertheless, the promotion of liberalism around the globe is believed to resolve the realist ‘problems of Hobbes’, such as anarchy and power insecurities, and to create stable and cooperative interstate relations (ibid.) The liberal West, an ‘epicentre of rational social development’, is contraposed to the rest of the world that is ‘mired in Hobbesian anarchy’, exists without rules and, therefore, should be ‘subjugated to the property-owning universal principles established in the capitalist heartland’ (van der Pijl 2016: 638). On another side, contender states resisted Western structural domination and ‘challenged aspects of globalisation paradigms by foregrounding multipolarity’ (Silvius 2016), by adopting their alternative path of development and legitimising their counter-hegemonic form of governance of an increasingly Hobbesian character to preserve their sovereignty at times of geopolitical pressures. In Russia, the great power narrative promoted the country’s ‘demarche from sovereign democracy to sovereign morality’ (Sharafutdinova 2014: 615), by means of social progress, not solely in economic or technical terms, but in what Carl Schmitt referred to as ‘humanitarian-moral belief’, or the ‘progress in culture, self-determination, and education: moral perfection’ (Schmitt

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1929/2007: 86). The emphasis was made on Russia’s cultural distance from the West, blamed for a hypocritical, ‘corrupt and decadent’ political ethics (Rutland 2015: 72). In fact, the neoliberal states are blamed for relying a lot upon unaccountable undemocratic institutions, such as the Federal Reserve and the IMF, ‘putting strong limits on democratic governance’ (Harvey 2005: 69). Some Russian analysts deny that ‘the United States won the Cold War and has taken its rightful place as the world’s sole superpower’, suggesting that Russia should regain its proper status, overcoming ‘its subordinate position as the illegitimate result of a never-ending US campaign to keep Russia down’, instead of attempting to integrate itself in the Washington-led post-war liberal international order (Lukyanov 2016: 36). This view was becoming more prominent as more people witnessed the ‘draconian impact of fast liberalisation’ on the Russian economy in the 1990s (Gowan 1995). Similarly in Iran the search for the alternative paths for development has had to accommodate the pressures of globalisation and modernisation, resulting in rising societal pressures for reforms and producing multiple cultural dualities along various ideological fault-lines. The detrimental result of the neoliberal ideological mix on domestic policies has been an erosion of the social contract: capital liberalisation pushed marketisation of social activities, drove transnationalisation of production, and, coupled with limited labour mobility, fostered wagedriven competition, labour commodification and precarisation (Standing 2011). Some Russian radical intellectuals on the right maintain that today’s world order resembles the one, encountered by the first Christians, with the power of a ‘proud and arrogant Roman empire’, on one side, and a ‘plethora of suffering humanity’, deprived of modern achievements of civilisation, on another (Panarin 2001). For them, commodification of labour was re-enforced by what van der Pijl called the ‘comprehensive concept of control’2 that legitimised collective action in the heartland and authoritarian power of capitalist-globalists (van der Pijl 2006: 278). To withstand further precarisation of its population, Russia’s new Strategy for economic security—2030, adopted in 2017 to replace the Strategy of 1996 (Presidential Decree N208 May 2017), proclaimed

2 For Van der Pijl ‘capital historically imposes its discipline over society through a definite configuration of classes’, committed to a ‘comprehensive concept of control’ (van der Pijl 2006: 278).

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‘the reduction of the quality of human resources’ as an immediate ‘economic threat’; since then, new strategies of human recourse development have been integrated in the system of enterprise paternalism. However, despite the official rhetoric and legislative efforts to prioritise human well-being as the main component of economic stability, some observers might still argue that ‘Putin seems to have chosen to define Russian national identity and interests in terms of geopolitical security rather than economic integration and well-being’ (Rutland 2015: 72). In Iran, many people have found themselves under strong ideological supervision by the clerical organisations, highly influential and able to shape ideals, guiding the behaviour of households, markets (including the labour market) and civil institutions. However, increasing stress on individualism in political Islam made the position of the most vulnerable even more precarious, as they were blamed for failing to contribute not only to the country’s production, but even to reproduction. Speaking about the de-commodifying abilities of the welfare state regime, it is important to distinguish between the impact of neoliberalism on a state’s domestic policies (i.e. austerity policies) from modern liberalism in foreign politics—liberal neo-imperialism. The current part focuses on the latter, questioning if a contender state’s WSR is ideologically and culturally strong enough to withstand the heartland’s legal extraterritoriality and military, economic, cultural and institutional expansion. Therefore, counter-hegemony should not be equated with the state’s opposition to neoliberalism per se, as domestic monetary, fiscal and social policies might in fact be neoliberal (i.e. austerity, RCB independence, etc.). In Iran, the political power contestation has been not a struggle of opposition against the regime, as is often portrayed, but rather an ‘intra-regime conflict’ (Mohseni 2016: 51). This conflict has had a positive effect on the de-commodification of the labour force: various factions use socio-economic programs as key political instruments to gain electoral support and to mobilise people. In Russia, the dominant political discourse is rooted in realist power block politics, according to which a ‘chaotic and hostile geopolitical environment’ is constrained by an ‘American-style globalisation’, in which the ‘national interest turns into the absolute of the US policy’ that, however, ‘has reached its natural limit’ (Losev 2018). In the United States, contrary to Russia, recent strategic directives, such as the National Security Strategy, while ‘invoking some of the language and symbolism of classical realism, are not fundamentally realist or mercantilist, but rather

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consistent within the doctrine of the “Open door” that has been the overarching objective of American foreign policy since the 1890s, and especially since 1945’ (Cafruny 2018). Initially, the anti-colonial character of the ‘open-door conception’ of the world attracted peripheral states, however, ‘within a generation they sensed that its minimum objective was to stabilise and freeze the status quo of Western supremacy and that its optimum goal was to institutionalise American expansion’ (Williams 1962: 300). Historical and cultural patterns of Russia’s development over the last decades reflect national ideas and values that have been selectively integrated into the state’s intellectual paradigm that could be called the ‘ideology of statecraft’; this is a multifaceted ideology, shaped by the conflicting intellectual developments: statism, civilisational regionalism, liberalism, Eurasianism and patriotic nationalism. This can be explained by the fact that historically, Russian political thought has been formed in several distinct schools of thought about the self and the world, among them ‘modernisers’ or Westernisers, ‘statists’, Slavophiles, Eurasianists and Communists (Tsygankov 2016: 149–50). To protect Russia’s integrity in the ‘situation of cultural ambivalence amid global uncertainty’ (ibid.: 149), the ideology of statecraft propagates the sense of the country’s uniqueness and ‘otherness’, and stresses the role of the state as a defender of a multipolar world order against the universalisation of Western liberal democracy with its specific understanding of human rights (Mouffe 2008: 455), to avoid ‘globalisation from above’ (De Sousa Santos 1995). This borrows from Eurasianists their emphasis on a ‘civilisational diversity’ of different politico-territorial poles, which is, however, not ‘an inherently anti-capitalist alternative’, but a Polanyian-type double movement that ‘could potentially lead to popular-democratic opportunities for Eurasian peoples’ (Gürcan 2013). Some Russian policymakers share Alexander Dugin’s axiomatic belief that Russia is a discrete civilisation that requires affirmation, consolidation, preservation and defence against the threat of ‘de-sovereignisaion’, dissolution or ‘disappearance in the global unipolar (or a-polar, ‘bezpolyarnyi mir’ ) world (Dugin 2015: 2). At the same time, these controversial ideological propositions inspired Russia’s counterhegemonic project in the Eurasian space, making the EAEU internally ambiguous: on one side, the Union is a ‘liberal imitation’, harmonious with the EU’s defence of its ‘four freedoms’, and therefore forms part of a neo-liberal global system, on another, Eurasian integration is a form of

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‘illiberal contestation’ of the existing world order, brought about out of the realist rather than liberal mindset (Makarychev 2018). Redistribution Global distributional practices are formed alongside the heartland/contender divide: the very emergence of a contender state has been a result of counter-imperialist struggle, which ‘had to defend itself from within and on the outside, strengthening the Hobbesian conception of human rights based on Hegel’s state-as-rationality, offering a collective protection of citizenship and socio-economic rights to work and welfare’ (Van der Pijl 2006: 392). However, the division line between Hobbes and Locke concerning distributional justice is not straightforward and somehow ambiguous, which is reflected in various conflicting interpretations of their works. At one end of the spectrum, Hobbes is either ignored or ‘acknowledged for his indirect influence on subsequent pioneers of political economy’, at the other end, he is recognised as ‘the champion of middle-class values and the herald of bourgeois society’, or even the ‘father of political economy’, for initiating a debate over self-interest and public welfare that culminated in Adam Smith’s work and the classical economics it initiated’ (Taylor 2010: 415). Despite the controversial argument that Hobbes favoured an absolutist monarchy, while Locke saw absolutism as a state of war on society (Gill 1995), liberal ideas in the Lockean constitutional model were inspired by Hobbes: the foundations of Hobbesian absolutism (although this point is debatable, see Skinner 2011) were liberal and ‘supplied the materials for the philosophy of individual rights and limited government pioneered by Locke and Jefferson’ (Taylor 2010: 416). This paradoxical co-existence of the liberalism and absolutism can be encountered in contender states, where the Hobbesian understanding of social justice parallels Polanyian societal ‘self-protection’ which sees the artificial separation of the economy from the government and political institutions to be a ‘stark utopia’; in this rival ‘state of nature’, any attempts to bring public goods, or what Polanyi called ‘social necessities’ or ‘fictitious commodities’, under the rules of the market endanger the very existence of human society (Polanyi 2001). For Polanyi, redistributive practices could be ‘just’ if the very idea of differentiation between markets and governments as autonomous institutions is forgone. Moreover, by bringing people back to the political terrain, the long-standing

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debate over distributional justice between communitarians and liberals could be reconciled, as ‘the separation of powers, which Montesquieu had meanwhile invented, was now used to separate the people from power over their own economic life’ (Polanyi 2001: 231). Speaking in Polanyian terms, with the rise of the dominant neoliberal worldview in the 1980s, further institutional separation of politics and economics became ‘a deadly danger to the substance of society, almost automatically producing freedom at the cost of justice and security: civic liberties, private enterprise and wage-systems fused into a pattern of life which favoured moral freedom and independence of mind’ (Polanyi 2001: 263). Neoliberalism assisted Western institutional expansion in preserving the status quo of the capitalist elites and constraining the formation of a more egalitarian society, as ‘the incredible concentrations of wealth and power that now exist in the upper echelons of capitalism have not been seen since the 1920s’ (Harvey 2005: 119). The ‘penal neoliberal workfare regime’ has also affected global distributional patterns and secondary income distribution, or redistribution, within nation states, not only by curtailing social programs and limiting public spending, but also by eroding moral and legal constraints upon capital accumulation, by stigmatising poverty, and by treating beggary as an individual rather than a social failure (Tyler 2013: 2). Inequalities and injustice at the global level have been intensified by the attempt by the American hegemony to appear both ‘minimalised’ to the financial sphere and extended to all other spheres of social activities. Neoliberalism as ‘an accepted dogma among US officials’ emerged as a ‘logically coherent and peace-promising ideology’ (Ikenberry 2011: 57) to ‘dominate the discourse about European security and NATO expansion’ (Mearsheimer 2014: 84). This worldview was believed to ‘solve the ‘realist’ problems of creating stable and cooperative interstate relations under conditions of anarchy’ (Ikenberry 2011: 57–58). However, the ‘need to pry open foreign markets and spheres of influence’ justified NATO’s strategic involvement—as a result, contender states were left in a subordinate position with highly commodified labour, or in some cases, like in the case of Iraq—in chaos, threatening the very existence of vast populations (van der Pijl 2006). A shock of the global financial crisis in 2008 inspired some intellectuals to suggest to ‘break from austerity and the rigid application of the Stability and Growth Pact’, to ‘recognise the burden-sharing’, as the crisis countries (especially in the EU) cannot bear the burden of adjustment alone, to address the ‘most pressing externalities’ and to ‘adopt a

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macroeconomic policy that works’ (that would shift to effective demand formation) (Stiglitz 2020: 50–61). Despite these calls to reconsider the benefits of globalisation and question the underlying assumptions of neoliberal economics, the dominant paradigm proved to be hard to alter; national discourses were inconsistent with chaotic policies that varied from austerity to stimulus packages, from free trade to economic nationalism (ibid.). The absence of moral limits on capital accumulation continues to erode the potential for a more egalitarian wealth redistribution, as a considerable part of global capital is taken out of productive circulation and lies idle in private accounts, as ‘internally, the neoliberal state is necessarily hostile to all forms of social solidarity that put restraints on capital accumulation’ (Harvey 2005: 75). Formed alongside ‘the Wilsonian impulses in American foreign policy’, the Atlantic ruling class has been increasingly active in promoting neoliberal ideology by means of social engineering, by disciplinary, legal extraterritorial means (i.e. economic sanctions), through globally projected ‘strong expansionary forces in the American economy’ and ‘transcendent universalist goals such as freedom, democracy and human rights’ (van der Pijl 2006: 277). Social engineering on a global scale is an extremely difficult task (Mearsheimer 2017), as it meets resistance from resurging nationalism, social groups that safeguard the nation’s self-determination and sovereignty, which imply that the national government preserves the power to determine domestic and foreign policy, in line with the state’s historical traditions and cultural determinants. Moreover, economic, political and cultural divergences, rather than convergences, are taking place, not only between the heartland and contender states, but also within the heartland itself, perpetuated by the recent post-crisis governance in the Eurozone (Stiglitz 2020: 48). This American model of civil society, capitalism and culture eventually became the leading model in the twentieth century, and America became regarded as the most modern society, the standard that others aspired to, however, a ‘formal political equality was accompanied by widening economic inequality’ (Gamble 2009: 25–26), perpetuated with the global pandemic crisis. Moreover, ‘where income differences are bigger, social distances are bigger and social stratification more important’ (Wilkinson and Pickett 2010: 27), as humans have always been sensitive to inequality and it exerts a major effect on their phycological well-being. The stage of a country’s economic development and cultural settings impact how people view and estimate their well-being and their level of

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happiness. Paradoxically, some studies reveal that people in the heartland, where the level of income inequality is high, in general tend to be much less satisfied with their lives (i.e. ‘Easterlin paradox’) (Easterlin and Angelescu 2009). At the same time, in poorer countries, where ‘economic development continues to be very important for human wellbeing’, improvement in people’s material standards results in ‘substantial improvements’ both in objective (e.g. life expectancy) and subjective measures of well-being (e.g. happiness), but when nations ‘join the ranks of the affluent developed countries, further rises in income count less and less’ (Wilkinson and Pickett 2010: 8). In Iran, labour market precarisation and urbanisation coincided with the expansion of the new middle class who had growing aspirations for better social welfare and secure jobs. These aspirations were not met in full, as many Iranians struggled to obtain financial security. Growing mass discontent over macroeconomic mismanagement set the ground for the formation of the Green Movement, fuelled by growing unemployment and urbanisation. In Russia, as capitalist development has advanced, Mr Putin acknowledged that ‘the entire globalisation project is in crisis’ and that ‘the tensions engendered by shifts in distribution of economic and political influence continue to grow’, and income inequalities create mutual distrust and limit the country’s ‘possibilities for finding effective responses to the real threats and challenges facing the world today’ (Putin 2016a). In fact, the real reason for Putin’s ‘language of civilisations’ and the advancement of the discourse of cultural distinctiveness by Eurasianists, neo-Soviet and Slavophile elites in Russia, cannot be reduced to the resistance to globalisation alone, but could also be explained as the result of ‘the elite complex of not being accepted by Western civilisation and West-centred globalisation’ (Tsygankov 2016: 155). The Russian political elite, despite their polarised attitudes towards the West, from modernisers, such as Russia’s former prime minister and president Dmitry Medvedev, who stresses Russia’s cultural similarity with the West, but at the same time proposes ‘to rethink Russia’s place in the world’ (Medvedev 2018), to Eurasianists, or to more radical Slavophiles,3 who believe that Russia

3 Both Slavophiles and Eurasianists ‘have sought to drive a wedge between Russia and the West’. However, ‘Slavophilism stresses the uniquely Slavic path toward nation-building that eschews etatism and relies on native commune’, while Eurasianism ‘affirms the common destiny of the Russian and Asian people and pins their hopes on the resurrection of imperial Russia’ (Paramonov 2012: 19).

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and the West have distinct system of values—share the view that the country should be consolidated into a new historic bloc, not ‘on ambitions to replace the dominant power system’, but on the ‘Grotian forms of solidarity’ and pluralism in international relations that will lead to a ‘more equitable distribution of influence in international society to reflect changed economic and geostrategic realities’ (Sakwa 2017a: 53). Connection Neoliberalism and ‘liberal’ democratisation, an ideological bedrock for US hegemony, have proven to have a connecting power over populations worldwide by institutionalising market power relations, universalising consumption patterns, lifestyles and habits through production process and by means of education, public and social media, cinema and art. As previously mentioned, neoliberal political philosophy is rooted in the concepts of ‘inalienable rights’ of individuals and universalism that make the promotion of liberal democracy4 a main foreign policy objective; its impact on international relations is normative: the anarchy of the world order should be constrained by means of social engineering for liberal democracies on a global scale, following regime change where necessary. The rationale for a universal democratic liberalism is threefold: to protect human rights, international peace and liberalism at home (Doyle 2005). However, the danger of this expansionary neoliberalism is that it implies that the ‘heartland’, backed by the idea of the world’s unipolarity, is free and responsible to pursue liberal hegemony to protect individuals from non-liberal governments that are in a state of aggression with their own people (ibid.); this liberal logic is accused of have led to unilateral and illegal military campaigns, launched following false accusations, such as the intervention in Iraq in 2003, which made some analysts admit that ‘the war in Iraq was not a blunder or a mistake. It was a crime’ (Jones 2016). Neo-Gramscian insights can complement critical remarks concerning the difficulty of social engineering in contender states. The Gramscian concept of ‘historic bloc’ is related to an often overlooked concept of 4 The basic democratic principles: popular control of public decisions and decision makers, and equality between citizens in relation to those decisions (i.e. participation, authorization, representation, accountability, transparency, responsiveness, solidarity, rights to participate) (see Beetham 2004: 6–7).

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subalternity that ‘exists on a broader scale’ than just ‘at the margins of society’ (Smith 2010:39). As such, Gramsci was ‘intensely aware’ of the way hegemony originates at a personal level ‘in the thoughts, beliefs and actions of everyday people who may or may not see themselves as part of organised groups’ (ibid.: 39). Though not politically organised, these groups are not disintegrated—they are interlinked through virtual social networks formed alongside a shared understanding of what constitutes a just society. This common sense of justice translates into intersubjective forms of consciousness, organising social hegemony of power elites (Gramsci 1971); in a wider context societal intersubjectivity enhances the leverage of organic intellectuals and the integrity of the state, making social engineering unattainable without breaking up these linkages. Therefore, WSR ideological strength depends not only on elite cohesion, but on the communicative abilities of ‘organic’ intellectuals to maintain the intersubjective unity of social masses, and on its ability for extraterritorial expansion. To be successful, social engineering should have a grassroots organisation, launched from within social groups with the aid of an intensive intellectual activity throughout civil society— a ‘material structure of ideology’. The material structure of ideology consists of ‘publishing houses, newspapers, journals, literature, libraries, museums, theatres, art galleries, schools, architecture or street names’ (Morton 2007: 93), and with the rise of a new informational paradigm of the ‘Internet galaxy’—of social media platforms (Castells 2013). For instance, despite the considerable financial efforts by Western government and NGOs involved in the institutional design of civil society, democratic social engineering has stalled in some states in the Middle East, such as Iraq, Libya and Afghanistan, and even in Ukraine, Georgia. The problem is that these states belong to a diverse civilisational ‘realm of intersubjectivity’ that ‘shape reality’, constructing people’s collective image of an ideal form of the state and of a stable world order (Cox 2002). In other words, these states possess a unique historically contingent state–civil society complex that has a specific religious, cultural and ethnic origin— their successful transition to liberal democracy could only happen from within, not by means of artificial external pressures, even when artificially diffused and articulated through a ‘set of interconnected nodes’ (Urry 2003: 9) on the most powerful and dynamic Internet platforms. Moreover, ‘larger external threats and pressures’, such as economic sanctions significantly delay democratisation in contender states and cause a ‘return to authoritarian rule’ (McAllister and White 2017: 78). This argument

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fits in the debate surrounding the relationship between democratisation and economic prosperity, with some believing in the precedence of prosperity over democracy (Moore 1966), while others suggest that despite the fact that economic development and the consolidation of the middle class might encourage democratisation, ‘no level or pattern of economic development’ is ‘necessary or sufficient to bring about democratisation’ (Huntington 1991: 59). In contender states, like Russia and Iran, the state–civil society complex has been increasingly subjugated to a ‘strong directive state’, to preserve its autonomy and to ‘shape the capacity to withstand the impact of internationalisation of British and Anglo-American capital’ (van der Pijl 2002: 497). More importantly, a hierarchical structure of civil society reinforced though what Manuel Castells called ‘self-organising’ horizontal networks, or ‘forces of resistance’ (Castells 1997) has become a counter-hegemonic mechanism that reconciled the needs of community ‘in the form of civic tradition’ with the ambitions, passions and vices of the men that ‘constitute the greater danger to the community’ (Bauer and Matis 1988: 128). This reconciliation between the private and the public, and between capital and labour, was found in a ‘non-articulated basic theory’—in the ideology of statecraft in Russia that encapsulated socially accepted ideas and values that are ‘taken for granted’ (Hirschman 1977: 69) and in the indoctrination of Islam in Iran that mobilised social forces in support of the regime and directed political competition. The ‘acceptance’ of the dominant ideological direction by the wider population is reinforced by structural power mechanisms possessed by the ‘new middle class’ that comprise ‘activists and supporters of new social movements’ (Offe 1985b) and is mediated alongside horizontal lines by what Van der Pijl calls the neo-Machiavellian ‘cadre stratum’ (van der Pijl 2001, 2005). This structural power resides in ‘high educational status, relative economic security, and employment in personal-service occupations’ (Offe 1985b: 833). However, quite opposite to Castells’ vision of networks as a threat to hierarchical rational-legal Weberian bureaucracy of nation states (quite justifiably for the heartland)—in contender states these ‘cadres’ are the ‘new category of mediators’ that strongly position themselves within various dominated social groups, at the same time remaining loyal to the ruling class. This new class not only works to secure public ‘consent’ with the measures of societal self-protection, but also sets limits for deeper penetration of the ‘transnational capitalist class’ into the domestic political spectre, keeping it ‘conditional on the strength and orientation of

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democratic popular movements for cadre globalism to develop towards equitability, transparency and emancipation, and prevent any suspension of neoliberalism from descending into another authoritarian adventure’ (ibid: 499). In Russia, these new categories of mediators are expected to foster the development in the cultural sphere that is seen by the government as not only the means to secure public consent domestically, but also to drive Eurasian integration and long-term strategic cooperation with Russia’s main trading partners. In Iran, these mediators were recruited by continuously expanding paramilitary institutions, controlled by the Basij and the IRGC—the building blocks for top-down institutional consolidation that aimed at supervising various civil society institutions and at securing the quiescence of the wider population to the political system (nezam).

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CHAPTER 8

Russia (Cultural Leadership)

8.1 8.1.1

De-commodifying WSR Function

Labour Markets: Ideology, National Security and ‘Cadre’ Formation

The ideology of statecraft 1 is based on the principles of democratic statism, ‘civilisational regionalism’ and an alternative modernity (see Makarychev 2018:13)—a system that conflates the elements of political pluralism and federalism with strong leadership and centralised control over strategic sectors of the economy (energy, finance, and military) to preserve the country’s stability and unity in an attempt to reconcile the conflict between public order and democracy. In the Russian context, the notion of statecraft acquires several distinctive features: statism, great-‘powerness’ (or derzhavnost ), Eurasianism, civilisational regionalism, patriotic nationalism, and even liberalism. Statism relates to Russia’s ‘ability to respond to external threats to the country’s security by equating successful foreign policy with that of a strong independent state’ that prioritises modernisation of the energy and military sectors over diversification, but at the same time seeks cross-cultural dialogue to preserve the ‘global strategic balance and influence in Europe, Eurasia, and other regions’ (Tsygankov

1 CHM R19 , see Appendix I.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_8

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2016: 149). Derzhavnost also presupposes the maintenance of Russia’s strength and security through deployment of its natural resources and its influence in the ‘zones of privileged interest’ (i.e. Central Asia and the Caucasus) (Pozo 2011: 78); in a wider sense, derzhavnost refers to a great power status and ‘includes elements of prestige, peer recognition, and a seat at the table in managing the global order’ (Gunitsky and Tsygankov 2018: 385). Civilisational regionalism emphasises the ‘broadest cultural entity’ of Eurasian nations, formed out of common historical patterns of development, traditions and ideas (Huntington 1997). Russia’s role in civilisational regionalism (with Eurasianism as one of its manifestations) is missionary and reflects Nikolai Berdyaev’s ‘Idea of Russia’, according to which a worthy role of Russians in world history is to affirm the principles of communitarianism and the brotherhood of peoples (Berdyaev 2012). Patriotic nationalism is closely related to contemporary Eurasianism—‘an imperial version of Russian nationalism’, however, the national specificity of Russia is expressed not through an ethnic nationalism but through an ‘imperialistic and state one’ (Laruelle 2004: 115). In fact, ethnocentric nationalism and the concept of the nation-state are condemned as threats to Eurasian territorial unity, based upon the ‘principle of cultural pluralism’ and ‘tolerance towards all other ethnocultural experiences’, combined with the ‘monism of political power’ (Panarin 1996: 22). Finally, liberalism in Russia can be characterised as ‘moderate pluralist’, in an effort to reconcile liberal values with ‘distinct Russian realities’ (e.g. ‘religious, abstractly spiritual, autocratic, imperial, and statepatriotic’ peculiarities), it avoids full compliance with European norms (Chebankova 2014: 360–61). The ideology of statecraft pushes through a transformative agenda of regional modernisation and industrialisation, which in turn has a substantial effect on Russia’s labour markets. The accumulation of reserves under the direct management of the Russian government made Russian labour increasingly ‘free’ from control over means of production and successfully helped to resist centrifugal tendencies in society with the aid of the ideology of statecraft, which is not unitary, as this type of governance is outlawed by the Russian Constitution of 1993, but rather a ‘national idea’, which has been quite abstractly defined by Vladimir Putin, when he proclaimed ‘we have no national idea besides patriotism, and there can be no other’ (Putin 2016). To be more precise, as suggested by the notion of ‘statecraft’, this ideology is a collective image of counterhegemonic strategies and processes that have been intensified in Russia

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under sanctions. This image is of a binary character, as its central components could be grouped alongside the domestic and regional drivers; the former are deployed in search for alternative modernity, the latter— to promote the concept of civilisational regionalism. Domestically, the ideology of statecraft secures a new political agenda, directed to consolidate state apparatus, to revive Russia’s derzhavnost via mechanisms, such as patronage politics, strong leadership, civil society hierarchy, cadre politics, human resource development, and corporate social responsibility and informal networks; internationally, it promotes a multipolar worldview and the discourse of ‘otherness’ (Kassianova 2001), that foster cooperation between counter-hegemonic emerging power centres and Eurasian integration. As Ray Silvius put it, ‘multipolarity is a particularly significant concept for understanding emerging debates on Russian foreign policy, as it is believed to threaten the West’s “collective unilateralism”’ (Silvius 2016). Overall, as a CHM, the Ideology of Statecraft has a dual effect on the de-commodifying function: it aids in obtaining public consent for political and economic domination of state-regulated entities, on another—the expansive role of the government in the economy makes the state ultimately responsible and culpable for the socio-economic hardships at times of economic downturns. Strong leadership and human resource strategy are the two components that are expected to restore Russia’s state integrity and to readjust the country’s developmental model to new realities. Putin’s leadership continues to be ‘a classic manifestation of Karl Polanyi’s view about the natural tendency for society to adopt self-protective measures against the ravage of the market’ (Sakwa 2008: 881). These self-protective measures have become the main driver for modern protectionism to resist commodifying pressures of a utopian self-regulating market-system (Polanyi 2001). The main contradiction of modernity is that an excessive spread of globalised liberalism unavoidably causes the rise of authoritarianism: ‘the more close the interdependence of the various parts of the world grew, the more essential became the only effective organisational unit of an industrial society on the present level of technique: – the nation’ (Polanyi 2001: 138). Modern nationalism is a ‘protective reaction against the dangers inherent in an interdependent world’ (ibid.: 138). Frequently, the character of nationalism that forms part of Russia’s ideology is mistakenly equated with ‘Third Wave’ ethnic nationalism that sets a contradictory and unattainable target of creating a strong Russian national state that would at the same time ‘remain an empire’ (Torbakov

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2017: 22). On the contrary, ‘Third Wave’ nationalists, such as Konstantin Krylov are very critical of Russia’s political system (Krylov 2013). Despite the suggestion that the Kremlin has skilfully manoeuvred between two strands of nationalism—ethnonationalism and ‘statist nationalism’ (also called ‘imperial Eurasianism’) borrowing from both (Torbakov 2017: 33), Russian ideology lies much closer with the latter, as that sets the target of reconstructing the relation between empire and nation by overcoming any sort of ethnic divisions through daily patronage routines that entail and require more collectivist-oriented and altruistic social practices; these ideologically driven policies welcome and promote the most enthusiastic individuals, with leadership ambitions and willingness to advance patriotic values among their peers. The ideas of intellectual leaders go in line with Polanyi’s vision of self-protective measures adopted by society to reconcile different social groups and to legitimise the power of oligarchs that they managed to acquire illegally in the 1990s (Sakwa 2008: 881). At the same time, this leadership is constructed upon ‘administrative interference in political processes’, which might challenge its legitimacy at times of crisis or political transformation, when a higher transparency of political practices than the current leadership allows will be required (ibid. 882). In Russia, these self-protected measures are summarised in the new National Security Strategy, adopted in December 2017, that underlined the importance of human resource engineering. Among positive developments, the document stresses the rise in the average life expectancy, natural population growth through reproduction, health improvements, a revival of traditional Russian spiritual and moral values, a ‘consolidation of the foundation of statehood’, and ‘of civil society around common values’, such as Russia’s freedom and independence, humanism, interethnic peace, harmony, cultural unity of the population, respect for family and religious traditions and patriotism (Presidential Decree N683 2015). In fact, the respect for traditional values became a primary requirement for candidates to public office, and for employees of state corporations and big strategically important businesses. These strategies have already had practical results not only in central Russia, but also in the regions, where the process of ‘cadre formation’2 initiates at early educational stages from primary school and upwards. For instance, the project ‘Gold 2 The French term ‘cadre’ is used to analyse the emergence of a new ‘class of mediators’ that, on one side, represents a ‘salaried stratum dependent on the sale of labour power’, like workers, on another—‘executes directive tasks for the ruling class’ (van der Pijl 2002).

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reserve’ in Perm region that won a competition at the Russian investment forum in Sochi in 2019 in the ‘Human capital development’ category set direct links between its schools and its most successful companies for the recruiting of the best students upon graduation (Glasnarod.ru 2019). However, the problem with social lifts is that in some cases they are not efficient and are too elite-oriented, as a result, a considerable number of young people are left behind. Apart from the recruiting and training programs that encourage investment into various scientific centres and courses that prepare a wide range of specialists, human resource strategies aim at mitigating economic hardships, intensified under sanctions, by reducing psychological and material pressures on the population, and at consolidating human capital for highly skilled labour markets, necessary for the realisation of an import substitution program. For instance, according to Andrei Varichev, the head of the leading Russian company Metalloinvest, the company not only actively hires young professionals (8% of the total of employees hired in 2017) and ‘adequately pays its employees, as the average monthly salary of Lebedinsky plant (Belgorod) and Mikhailovsky (Kursk), OEMK and Ural Steel plants (Orenburg) is 1.5 times higher than the average salary in the regions’, but also ‘developed a system of incentive payments for active participation in the life of the company, and used non-financial motivation to increase employee’s involvement in sports events and competitions’: in 2017, the company’s expenses for ‘employees social support’ exceeded 3 billion (IMPC 2018). As previously mentioned, these new categories of mediators are expected to foster development in the cultural sphere.3 For instance, the discussions to promote the Russian language and cultural values abroad, came to a culmination in Putin’s Address to the Federal Assembly in 2007, where he reiterated the idea that the stability achieved ‘in Russia itself’ allowed to ‘refocus’ the attention of ‘those who belong to modern civilization at large’ towards Russian culture (Russkiy Mir 2018). Sports events facilitated this ‘refocus of attention’ and were expected to have a positive influence on the image of Russia abroad: the 2014 Sochi Olympics and the 2018 FIFA World Cup changed the image of the country in a positive way. The positive image of Russia has been increasingly supported by the Russian media that has portrayed Russia as a

3 CHM R20 , See Appendix I.

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balancer of global conflicts and broadcasted numerous national events and holidays (i.e. via Russia Today, SputnikNews, Rossiya 24, TV Channel ‘Katyusha’ in China, etc.). However, increasingly sharpened anti-Western rhetoric, as well as the excess enthusiasm with which Russia’s media outlets report on internal problems and contradictions in Western societies (e.g. political factionalism, nationalism, social conflicts, democratic deficit, socio-economic and financial mismanagement, etc., and recently— problems in healthcare systems)—give solid ground to western observers to dub ‘those channels of Russian state-funded and state-directed media’ as ‘critical elements in Russia’s disinformation and propaganda ecosystem’ (US Department of State 2022). In fact, it appears strange that media elites in Russia fail to understand that harsh rhetoric of some Russia media is inconsistent with Russia’s strategic objective of winning hearts and minds of foreign audiences, as it empowers and legitimises multiple accusations of Russia contributing to the escalation of tensions by capitalising on internal problems of other states. As such, overall, cultural cooperation and expansion of mass media communications has a dual effect on the connecting capabilities of the WSR: on one side, it widens and consolidates the audience, creates media platforms with alternative narratives to Western media, on another, excessive propaganda undermines the country’s image in minds of foreigners, while tough rhetoric leads to an escalation of tensions. There are three recent trends in the labour market related to cadre formation in Russia. The first one is personnel ‘renewal’ in the public sector via shortening staff rotation and via temporary appointments of young specialists to senior positions (ispolnyaushiy obyazannosti), such as the position of governor, in hope of their subsequent ‘re-election’. In most cases, young governors were recruited from ministries, in the centre and in the periphery. For instance, the Governor of Novgorod region Andrei Nikitin (born in 1979) is a former General Director of the Agency for Strategic Initiatives, a pro-governmental organisation that ‘creates conditions for global leadership’ and a ‘positive image’ of Russian society by promoting the National Technology Initiative, investment programs for medium-sized companies, and a ‘new model of additional education for children’ (Agency for Strategic Initiatives 2019). Alexander Klychkov (also born in 1979), a temporary Governor for Orlov region, is a former deputy of the Moscow City Duma and Russia’s and of the Central Election Commission, Alexander Kozlov (born in 1981) was promoted from the Mayor of Blagoveschenks to the Governor of

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Amur Region, following the arrest of the previous leader, and Anton Alikhanov (born in 1986), the Governor of Kaliningrad, the youngest ever, is a former servant of the Ministry of Justice and the Ministry of Industries. Two of these became governors through winning elections that took place in September 2018: Andrei Nikitin got 67.7% of votes, and Alexander Klychkov—83.6% (Novaya Gazeta 2018). However, the composition of Dmitriy Medvedev’s government, after Putin’s re-election in 2018, remained conservative, preserving a usual cadre policy. For instance, Tatiana Golikova was appointed Vice-Premier for Social Policy (former Deputy Minister of Health), Maksim Akimov became a VicePremier for Transport, Communication and Digital economics (former Deputy for Presidential Administration), Yuri Borisov was promoted to a Vice-Premier for Military-Industrial Complex (former Deputy Minister of Defence). Although there were some ‘new’ people, they were carefully selected from the inner circle of friends, such as Konstantin Chuychenko, the Vice-Premier and the Head of the Government Apparatus, a former manager from Gazprom and Rosukrenergo, a university peer of Medvedev, or Dmitry Patrushev, the Minister of Agriculture, the son of the former Head of FSB Nikolai Patrushev. Second, the government launched a contest called ‘Leaders of Russia’, designed for the preparation of the top managerial reserve of the country—a database for top-management reserve cadres ‘of the new generation’, who will ‘determine the future of Russia’ (web Lidepy Poccii 2018). In 2017, 300 finalists received grants of 1 million Rub that ‘helped them to improve their skills in the best programs for managers’, a 1-year program of personal career consultations from top managers of major Russian companies and prominent government officials. According to Dmitriy Stapran, one of the finalists, the program was inspiring, informative, well-organised and was a very valuable experience to the participants. Anyone could take part just by registering on the website, and, most importantly, it was absolutely free of charge.4 Also, most of the finalists, as well as the majority of Russians, consider Putin’s leadership an important structural arrangement that protects Russia against clientelism and the use of informal ties in the labour market and also against neoliberal centrifugal forces that almost led to a social collapse and to a breakup of the state in the 1990s.

4 Author’s interview with a participant of ‘Leaders of Russia’.

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Finally, cadre formation with the aid of a common digital space in the Eurasian space has been increasingly considered by the Russian authorities as a vital part of integration. There have been several practical steps by the Eurasian Commission to foster the development of a common digital space between the member states that will enable day-to-day communication between businesses and individuals via joint commercial, educational and cultural programs. According to Dmitry Peskov (the Kremlin Press Secretary since 2012), appointed as the President’s Special Representative for the Program of digital development, HR development, as formulated in the National Technology Initiative ‘20.35’, is designed ‘to build a sandbox with an armoured umbrella’ in the Russian and Eurasian space (Kommersant 2018b). Among the organisations that see their mission as the formation of the common labour market and a common cultural and educational space are the Institute of Eurasian Integration in Kazakhstan and the Scientific Centre for Eurasian Integration (SCEI) in Russia. According to SCEI, one of the main priorities of joint Eurasian educational programs is the training of highly professional engineers—a driving force not only for the Russian import substitution program but also for the successful modernisation of industries in the Eurasian Union. At present, most of the joint programs are run by Russian universities, such as the Moscow Automobile and Road Construction State Technical University (MADI). Overall, in 2016, more than 103,000 students from Armenia, Kazakhstan, Belarus and Kyrgyzstan were educated in Russia. At the same time, the number of foreign students who study technical engineering remains low—20,500. However, the number is expected to grow following the launch of joint programs, along the lines of MADI, at the Kyrgyz State Technical University in Bishkek, the Armenian National University in Yerevan and the Belarusian-Russian University in Mogilev. 8.1.2

Households: Consumerism and Human Values

In previous chapters it was argued that governments, markets, businesses, international trade, and struggle over global hegemony could be ‘blamed’ for the excess commodification of nature, labour, human bodies and spirits and that the welfare state regime’s de-commodifying abilities depend on a wide range of material and institutional factors: unemployment payments, free education, healthcare, housing benefits and other benefits-in-kind and benefits-in-cash. Indeed, these factors are vital for the well-being of households and individuals, however, they do not guarantee

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social mental health and life satisfaction. Two important elements are left out: first, the relationship between consumption habits and happiness, set within individual households, which is the function of what neurophysiologists call ‘motivational dominant’ (Simonov 1994), and second, people’s subjective estimation of their dependence on markets, and of their need for certain types of markets. A study of the hierarchy of human values could be approached via an assessment of the complex interplay between consumption patterns, social norms and emotions—an interdisciplinary approach that combines sociology and neurophysiology, with a high potential of becoming an alternative to the neoclassical paradigm in political economy (and to behavioural economics). Neuro-physiologists question psychology as a ‘science’ of human behaviour, denying the universality of Maslow’s wellknown theory of the hierarchy of needs,5 which fails to consider the cultural peculiarities of societies. There are two insights that could be borrowed from the ‘Need-informational theory of emotions’,6 elaborated by Pavlov’s followers in Russia, related to the interference of social factors into the processes of higher nervous activity, and the formation of human’s needs within the remit of these processes. As objectification of a hierarchy of people’s needs, or necessities, is not attainable due to their complexity and physiological factors that are ‘far from always consciously recognized by the subject himself’ (Simonov 1994: 236), the best way to determine individual needs is to assess their ‘motivational dominant’—a ‘dominant need which is subject to priority needs satisfaction’ that varies from person to person, as it reflects specific moral, ethical, and social factors that construct a person’s identity (ibid.: 235). Human resource strategies incorporate a set of incentives, educational and training programs that target the ‘motivational dominant’ of employees, which in turn guide their behaviour and affect productivity. These strategies might explain why some societies appear more ‘individualistic’ and some—more ‘collectivist’, as social and spiritual needs of those raised in collectivist societies differ from those brought up in individualistic ones. Although the division of societies into collectivist and individualist is an oversimplification, traditionally collectivism has deep ideological 5 According to Maslow’s hierarchy, there are ‘primary’ societal needs—‘physiological’, and ‘safety’, followed by ‘secondary’ needs, such as ‘belonging’, ‘love’, and ‘esteem’, and then ‘tertiary’, such as ‘self-actualization’. 6 Ivan Pavlov, a physiologist, the first Russian Nobel Prize laureate (1904).

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and sociological roots in Russia that have taken various forms in the course of history: from collective farms, communities, and artels in prerevolutionary monarchical Russia (before 1917), based on the principle of conciliarity (sobornost) that presupposed a spiritual unity of people based on the community of faith and Christian values, such as love for one’s neighbour, helping the weak and needy, charities, the care of factory owners for workers’ families, heroic sacrifice in the liberation of the Motherland from invaders, etc.—to politicised and extreme collectivism based on egalitarianism, disregard for individual interests, comradely mutual assistance and unconditional subordination to collective interests of the USSR—and after the decade of egocentrism, uncertainty and chaos in 1990s that reimposed extreme individualism with the disregard for the interests of other people and criminalisation of labour as its horrific consequence—an attempt to retreat back to collectivist consciousnesses, self-organisation and discipline in the 2000s. This retreat to collectivism has been quite successful. If in the 1990s collectivism was seen not so much as the love for the ‘team’ but as a dislike of those who oppose it and Russians looked with suspicion at those who had achieved professional or personal success, be that a former Soviet leader, a farmer during perestroika or an oligarch of the Yeltsin era (Kommersant 2002), in the 2000s collectivism and team-building was a driver for a more successful organisation of production, when personal success stories were appraised as the manifestation of a joint effort—of a person and his team, successfully combining the principles of collectivism and individualism through the notion of solidarity into what Emile Durkheim called ‘représentations collectives ’ and ‘organic solidarity’—vehicles for human progress with a potential to reconcile exorbitant inequalities in today’s Russia with common national strategic objectives (Durkheim 1993). According to the poll by VCIOM, half of the residents of Russia believe that the success of a leader depends on a ‘well-chosen team’ (50% of respondents), and only then—on his personal qualities and talents (38%), knowledge and special education (35%), and experience (33%). Fewer Russians believe that money (17%) or connections (16%) help to achieve good leadership (TASS 2020). However, the application of this collectivist—individualist duality to the subjective estimation of commodifying pressures of WSR is problematic. Even though people could quite precisely characterise themselves as ‘collectivists’ or ‘individualists’, the extent to which their ideological ‘motivational dominanta’ influences their day-to-day lives varies a lot. Humans might act irrationally and

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struggle to understand their personal motivations, as quite frequently the motivations are subconscious. Even when individuals with low incomes believe that they are driven by the social rather than materialistic motives to enter the labour market, which is a logical explanation of the reason for their low incomes, they estimate their overconsumption as ‘high’, a factor that poorly correlates with their income status, which means that decisions by Russian households and their subjective estimation of consumption habits are contradictory. The complexity of humans needs and varieties of sociological and physiological factors that determine these needs is the main reason why it is so difficult to delineate specific consumption patterns in society and to analyse commodifying pressures of the market on particular social groups. Also, this complexity explains why the task of reconstructing a common national identity that Putin faced when he became president was so hard. The formation of a common identity is particularly difficult in a society where ‘motivational dominant’ varies from generation to generation. Over the last century Russia has passed through several dramatic historical transformations that substantially affected and modified people’s worldviews, and therefore, motivations and needs: the two revolutions of 1905 and of 1917, two world wars, communism and Stalin’s repressions, national mobilisation, technological progress and the space-age, Cold War and Perestroika, the collapse of the USSR and the surge of neoliberalism, market failure at the national scale, two financial crises (1998 and 2008), the remnants of the Cold War and NATO’s expansion, the conflict in Ukraine, followed by economic sanctions. Given the generational differentiation, elaborated by sociologist Yuri Levada (a founder of the famous Russian independent non-governmental public opinion polls and research organization the Levada Centre in 1987), Russian modern society consists of the following generations: of the ‘Stalin mobilisation’ (1930–1941), of the ‘War period’ (1941–1953), of ‘The Thaw’ (1953– 1964), of the ‘stagnation’ (1964–1985), of ‘Perestroika’ (1985–1999); the list could be complemented by adding the ‘Putinite’ generation of the ‘new Millennium’ (1999–2018). With the aid of ‘organic intellectuals’, commonly accepted and widely recognised norms and values become historically progressive, ‘constituting a pole of spontaneous attraction for the intellectual stratum at large’ (Gramsci 1975, cited in van der Pijl 2005: 499). Gramsci used the notion of organic intellectuals ‘to discard the illusion’ of the autonomous, ‘free-floating’ intellectual, who ‘stands above social conflict’ and obtain

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hegemony through the consent of the broader set of social forces (ibid.). These norms and values, however, might change dramatically from generation to generation: for instance, the representatives of ‘Stalin mobilisation’ would be in general more patient and obedient and capable to sacrifice their individual interests for the common good, compared to the generation of the ‘The Thaw’, which would be much more individualistic, pragmatic, better informed and emotional. This is a rough generalisation, but it would be useful to keep in mind some generational characteristics when analysing current decision-makers in Russia when it comes to understanding the shifts in managerial personnel in recent years. For instance, the previously analysed HR development strategy aims not only at increasing staff rotation but also at ‘rejuvenation’ of the country’s senior management, as the cases of the appointments of regional governors has demonstrated. Mr. Putin believes that by bringing into power elites a new generation of young patriotic managers that are more responsive to the efforts to reformulate the nation’s identity, the continuity of national values will be secured. There are hopes that this strategy will bring up, select and promote new candidates into the Russian presidency not from the representatives of ‘hard-line’ institutions, but from a new generation of loyal, devoted, and at the same time progressive, creative and innovative leaders. Talking to newly appointed young governors in 2017, Putin stated: “There are a lot of young people here in this hall… This suggests that people very much hope that with the arrival of young, energetic, well-trained people, some balanced, but vigorous measures will be taken to improve the situation in the relevant regions of the country” (Gazeta.ru 2017). However, in practice, the new system of cadre formation, promoted via enterprise paternalism and patronage routines, reinforced through the ideology of statecraft, although successful in obtaining public ‘consent’ for economic domination, still risks reducing vitally important entrepreneurial incentives amongst young people. Also, such systems might appear less stable at times of crisis, as the population will see the government ultimately responsible for all hardships. Another important factor in the formation of motivations is religion, which has become increasingly integrated in the ideology of statecraft. Although there are some Muslim and Buddhist regions in Russia, Orthodox Christianity dominates and plays an important part in the political discourse, as religions are always political. The dialectics between religion and ‘intellectual and moral reformation’ was one of the tasks of Antonio Gramsci’s Prison Notebooks; as rightfully noted by John Fulton,

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‘a revolution of the mind and heart, worked on painstakingly by the party faithful, and through educational and political means’ (Fulton 1987: 199) is to be examined through ‘the question of an intellectual and moral riforma which would have the same function the Protestant riforma had in German lands and as the French Revolution’ (Gramsci Q2108, quoted in Fulton 1987: 199). Putin’s ‘riforma’ has been actively supported by the Russian Orthodox Church, which historically has been organically interlinked with the ruling Russian princes, since Vladimir the Great converted Russia to Christianity in 988. The Church played an active role in feudal governance throughout various historical periods, providing ideological support and justifying conflicts with economic hardships. The Russian Church in modern Russia aims at ‘educating the faithful in the spirit of patriotism and love of peace’ (The Moscow Patriarchate 2018), and the power of the Church has been extended,7 having a positive impact on the Russia’s WSR de-commodifying capabilities, as the number of charitable organisations, such as hospitals, religious schools, canteens for the elderly, and shelters for the poor and single mothers, has substantially increased. Bishops have started playing a more active role in political life: in 2018 the Council of the Russian Orthodox Church allowed the hierarchs and clergy to nominate themselves for elections to the Russian Parliament ‘in exceptional cases, to protect the Church from schisms and other direct threats’ (RIA Novosti 2 February 2011). At the same time, it would be erroneous to suggest that Putin considers the Church to be a state power mechanism, nor does he consider the possibility of replacing market mechanisms, the guiding principles of private ownership of the means of production and the profit motive, by ‘so-called moral motives’, which, according to Von Mises not only ‘destroy the purposiveness and the efficiency of the market economy’ but put society at a risk of establishing authoritarian ‘theocratic priesthood’ to ensure moral rules of conduct that eventually limit individual freedoms (von Mises 1940, 1998: 9–16). Therefore, the risk of a paradoxical development of the application of religious motivations as an effective CHM in Russia is quite low. There is, however, a feature immanent to Orthodox Christianity that organically, not intentionally, integrated in the ideology of statecraft—the notion of suffering—one of the fundamental concepts, according to which the Lord

7 CHM R21 , See Appendix I.

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cleanses the believer’s soul and body of sins in order to make him righteous, as ‘by many tribulations we must enter the Kingdom of God’ (The Holy Bible 1996). This feature is not only reproduced in Russian literature, i.e. in Fyodor Dostoyevsky’s claim that ‘suffering and pain are always necessary for a broad consciousness and a deep heart’ (Dostoevsky 1866, 2003), but also explains the reason for the high degree of patience of the Russian population towards material deprivations, and this is evidenced now again, at times of economic sanctions, perpetuated by the global pandemic.

8.2

Redistributive WSR Function

Global market fundamentalism and financial liberalisation have a detrimental effect on primary income distribution, perpetuating income inequality and absolute poverty. As mentioned earlier, modernisation from above and institutional centralisation of the most profitable businesses in Russia under sanctions, justified by the need to accumulate enough capital to meet social needs, despite being efficient in this respect, shifted the balance of wealth distribution across sectors of economy, and across regions. The following passages will continue exploring primary and secondary mechanisms of income distribution in a wider historical and cultural context that implies the analysis of the moral and ethical aspects of capital accumulation that affect primary income distribution and people’s attitudes to income disparities that influence secondary income distribution. It also includes the assessment of ideological drivers for ‘modernisation from above’, or for the program of IS industrialisation (primary), and for socio-economic policies, i.e. fiscal policies, pension reform, and so forth (secondary income distribution). 8.2.1

Primary: The Moral and Ethical Aspects for Accumulation of Wealth and Ideological Drivers for ‘Modernisation from Above’

For centuries, humanity has been considering the possibility to reach an objectively ‘just’ level of social inequality, with the state preserving the power to limit various forms of social inequalities, equalising people’s chances for success and enrichment according to their efforts and abilities. A strong Soviet social state propagated the identification of self-consciousness of the individual in the community: the ideals of

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community, such as common welfare, were equated to the inner dispositions of Soviet citizens. In post-Soviet Russia, after seven decades of a strong social state that provided a wide range of social guarantees, outlawing private accumulation of wealth in a capitalist manner, as well as financial speculation, dubbed rostovshitchestvo, the problem of social inequality has become more acute. All of a sudden, at least three generations of people, used to a visible manifestation of social ‘justice’, or at least to a constitutional declaration of equality, faced exponentially increasing status and material differentiations across and within various social groups. In the 1990s, the ideological disposition for a national identity imploded, leaving the nation with a feeling of loss and abandonment, in a country where ‘absolutely everything was for sale: sex, marriage, a doctor’s note to avoid being called up to fight in Chechnya’ (Walker 2018: 13). When nominated to power, new President Putin faced a challenge of finding a way to re-conceptualise the notion of social justice,8 and the constitution of a Russian national identity.9 So far, Putin has been trying to achieve this goal by appealing to what is believed to be traditional Russian moral and ethical values, to Russia’s historical national glory and to the legacies of the Great Patriotic War (Belika Oteqectvenna Bo na). As noted by Richard Sakwa, Putin ‘brought the narrative of ‘values’ firmly back into the mainstream political discourse’ (Sakwa 2017a: 125). Initiated in the leading faction of ‘United Russia’, the ideological backing of the redistributive WSR policies in times of sanctions have been quite successful. The U-turn from what Sakwa calls the ‘Putin model of liberal republicanism’ that ‘espoused individual citizens against traditional communitarian views’ (Sakwa 2008: 888) back to a re-establishment of a communitarian content in the ideology of statecraft was inevitable, as economic hardship and national mobilisation required more altruistic and sacrificial attitudes to the regime’s consolidation. There are ‘measures’ accepted by Russian society to assert social justice: the country’s ‘independent type of social development’ prioritised ‘sociality’ over ‘capital’, ‘joint collectivism’ and shared values over individualism, a person as an active social subject (an ‘integral personality’) over ‘economic’ person or 8 Social justice is a socio-philosophical category to refer to the actual state of social relations in the public sphere and its compliance with the ideals of social order as it appears in people’s consciousness (i.e. free development, high quality of life, etc.) (Kozlov 2010:185). 9 CHM R22 , See Appendix I.

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‘money-maker’ (Kozlov 2010: 188–89). The ideals of equal opportunities, brotherhood of Nations, creative work, spirituality and sociality are meant to serve the ‘great purpose’ of Russia’s future development (ibid.) However, the dominant ideology is challenged by its binary character that reflects its dual strategic goal of domestic power cohesion and civilisational regionalism. Also, the problem is that the notion of social justice has acquired different formulations that have been selectively applied according to political targets. For instance, the issue of wage inequality has been easily renounced in the wake of global security challenges that the country faces, aided by political discourse in mass media to divert public attention from domestic to geopolitical issues. Resurrected, although not fully restored, national identity, coupled with increasing geopolitical tensions, helped to acquire public ‘consent’ for subordination of capital accumulation to national strategic interests: it’s rebuilding of the integrity of the state’s control of individual rights and freedoms were actualised through the ‘paradigm for the rebirth of a great democratic Russia’ (Titarenko 1998: 40). Russian traditional state ‘integrity’, however, does not presuppose an equalisation of the concept of common good to the totality of the interest of individuals, quite the opposite—in some situations, individuals are expected to act contrary to their private interests. Interestingly, only 35% of Russians believe that property rights are well protected in Russia, and 52% think the opposite, suggesting that human rights were better observed in the Soviet Union; at the same time, people don’t rank property rights and personal freedom as a top constitutional priority: most respondents emphasise the rights for social welfare, such as free access to healthcare (78%), education (62%) and housing (53%) over personal freedom (47%) or land property rights (27%) (Civic Chamber Report 2017). Like in most state capitalist societies, the statist ideological disposition that prioritises national interests and legally constraints private capital accumulation contradicts the actual situation in Russia, where a substantial share of capital, so badly needed for successful industrial modernisation, has been taken out of the productive cycle and lies idle in the accounts of state and business elites or flees the country, away from domestic re-investment. However, it would be erroneous to suggest that oligarchy, corruption, banditry and so forth are purely Russian phenomena, and are the result of a political and economic mismanagement—a failure of the leader of the state, of a ‘corrupted evil’, an ‘evil genius’ (Antonova 2018), or of a ‘gambler who won big’ (Ioffe

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2018)—the most common image of Vladimir Putin in the West. Rather, these are the dark sides of capitalism that could be hardly eliminated in a state as Putin inherited in the 1990s, without centralising and militarising state power mechanisms and institutions, without coercion and the occasional human right abuses that took place in the 2000s. Russia has been under considerable structural institutional, material and cultural transformation, industrial modernisation and ideological reconstruction, which has resulted in a partial subjugation of corrupted elements under state control, and in some cases—to its complete eradication. However, centralisation of the power mechanism and increased bureaucratisation bear the risk of promoting corruption to higher power echelons, and through ‘revolving doors’—to government, parliament and state administration, making politics and businesses an indivisible whole, a system of meta-corruption that legalises the properties of former criminal elements. Overall, Putin’s goal to completely eradicate corruption is unattainable, unless authorities at all levels and, most importantly, citizens, begin to respect the law, and obtain ‘sufficient awareness’ to ‘monitor the actions of state officials effectively’ (Sakwa 2008: 284–86). Without this awareness, Russia will continue to ‘suffer from legal nihilism’, in its traditional form of public office abuse and in the form of ‘telephone law’ when political interference undermines judicial processes (ibid.). The ideology of statecraft was partially successful in reconciling ‘new Russians’ (novye russkiye), a new class of oligarchs that emerged in the 1990s, with the security requirements of the state, and with strengthened military and law enforcement institutions, to restrain centrifugal tendencies in the Russian state. This gradual regime transformation presupposed a cooperation between the government and the oligarchs, who were expected to be loyal to the regime, to follow strategic national goals, and willing to provide financial and political support, domestically and internationally, when needed. To secure durability and continuity of their property rights in the context of increasing criminalisation, growing mass discontent, eroded investment opportunities and prospects for economic growth, most oligarchs recognised a vital necessity of legalisation of their illegally privatised assets. This cooperation consolidated both coercively and consensually, and as previously mentioned, permitted to resurrect and reconstruct social welfare in an increasingly favourable global economic environment in 2000–2008. The coercive element is quite straightforward, as the case of Yukos demonstrated, and the consensual element was based not only upon security considerations, but also

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upon actively propagated ideological drivers that prioritised the notion of ‘social responsibility’ of large and medium-size corporations. Enterprises were encouraged to coordinate their interests with the needs of the wider population to render a positive effect on income distribution in the areas and regions of their operation, contributing to the nation’s welfare. Russian companies such as Rosneft, Lukoil, Gazprom, Interros, Tatneft, or transnational corporations, such as Siemens and Danone, are good examples of the successful realisation of multilevel programs of corporate social responsibility 10 that consist of the following targets: first, to coordinate business practices with population needs (timely payments of wages, taxes and fees, job creation, vacancies for people with disabilities, etc.), second, to secure safe working conditions, provide human resource development and staff training, third, to invest in social welfare projects, social grants, scholarships, allowances and stipends, fourth, to launch numerous educational and charitable initiatives. The last target (charity and education) is historically rooted in the practices of ‘metzenatstvo’, according to which rich entrepreneurs, gentry and nobility sacrificed a large proportion of their savings, time and energy to construct and reconstruct churches, orphanages, hospitals, schools for the poor, etc. (Mogilevskaya 2015). As such, for a long time charitable activity in Russia has been considered an integral part of corporate culture and ethics and, along with other components of programs of social responsibility, was integrated to the country’s dominant ideological discourse. However, ideologically inspired corporate social responsibility as a counter-hegemonic element has a contradictory effect on primary income distribution in Russia. On one hand, the effect is positive as some portion of financial flows is redirected away from private enrichment towards social welfare projects, becoming a sort of fetter on capital accumulation; on another, it secures the status quo of the ruling class, alleviating social tensions without reconsideration of structurally embedded causes of social inequality. Nevertheless, economic hardship, intensified with sanctions, has made the government realise that ideological pressures and an implicit compromise with businesses are measures not sufficient for a successful realisation of socio-economic reforms, not for the ‘modernisation from above’. With this in mind, and in accordance with Dmitri Medvedev’s ‘Concept for public non-accounting development’—2017,

10 CHM R23 , See Appendix II.

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in the spring of 2018, the Russian Ministry of Economic Development elaborated a Draft ‘Law on Public non-financial accounting’, aimed to raise transparency and accountability of corporate business activities in the field of socio-economic and ecological environment. In 2019 the project was submitted to the Duma for consideration (Vedomosti 2019). According to its convenors, the project’s strategic goal is twofold: first, to respond to the WSR need of moderating negative public attitudes to the Russian socio-economic system in general, and to large firms, in particular, by making corporations look more ‘just’; second, to solidify the structure of Russian tripartism and strengthen business cohesion to the state’s primary goal of social stability.11 This ‘corporate social responsibility’ perfectly fits the ideology of statecraft that consolidates patronage political practices and secures the status quo of the elites by legitimising different kinds of social inequalities in the consciousness of Russian citizens (i.e. income inequality, status inequality, property ownership and resource access disparities). This is especially evident in relation to the recently emerged class of Novy Russky that derived its power not ‘from historically accumulated wealth’, as happened in most ‘non-ex-Socialist states’, but rather through ‘access to the state’ and elaboration of paraconstitutional innovations and practices to secure economic privileges (Sakwa 2008: 891). 8.2.2

Secondary: People’s Attitudes to Distributional Practices

After a decade of welfare state eradication in the 1990s that almost led the country to social collapse, in the 2000s the Russian government managed to restore secondary mechanisms of income distribution, as a result of a compromise between government and business that enabled the tax code mechanism, moderated an unrealistically tough fiscal regime, moved quasi-legal schemes out of the black market and accumulated enough financial resources to launch various social programs. At the same time, there remained some legacies of the Soviet past, such as informal networks 12 and clientelism, expressed as a collective form of governance to reconcile ‘the tension between the potential arbitrariness of state autocratic power and the popular desire for individual

11 Author’s interview, Moscow, 2018. 12 CHM R24 , See Appendix I.

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liberty’ (Harvey 2014: 49). At times of sanctions, clientelism has acquired some counter-hegemonic features, allowing the reconciliation of individual private interests with common strategic goals of the state via resorting to informal networks. According to VCIOM, ‘sensitive’ business activities that require excellent inter-personal connections with other businesses and regional administrations include financial activities, ‘privileged’ crediting, licensing, and taxation, access to business-information and so forth; also, personal connections dominate the labour market, especially in the service sector: 52% of respondents believe that it is impossible to have a successful career in law (49%—in medicine, etc.) without an informal promotion (VCIOM 2011). These interpersonal connections are reinforced not only in the workplace, but also through housing and recreational, cultural and sports activities. There were, however, side effects of the binding abilities of informal networks related to further centralisation and concentration of power, aggravated by the economic hardships incurred by sanctions, the global pandemic, escalation of military tensions with NATO, and other geopolitical pressures in the energy and financial markets. Among these side effects were persistent regional disparities due to an inflexible system of intrabudgetary transfers (which, however, in some cases, created incentives for private investment), a decline in social expenditure and the elimination of some Federal social programs, monetarist adjustments to global uncertainties and inflationary pressures, with their negative impacts on the formation of a middle-class, and above all, a decline in real incomes and the attendant problem of the working poor. Public surveys reveal quite pessimistic expectations concerning the dynamic of social inequalities and living standards in Russia in the near future. According to Public Opinion Foundation (FOM, Fond Obschestvennogo Mneniya), most Russians (85%) believe that social inequality will persist: 45% expect no changes, while 40% maintain that social inequality will rise, and only 5%—that it will be reduced. Only 19% of the population expect living standards to improve, 45% believe they will stay the same, and 21%—that they will decline (RIA Novosti 2016). Secondary mechanisms of income distribution (or redistribution) are responses by the government to social inequalities channelled through wealth and status distributional mechanisms and institutional practices, such as education, work, business activities, administrative resources, private and inherited financial capital and real estate, emerging types of property, promoted through excess advertising, such as intellectual

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rights, brands and so forth. As prices for domestic and imported products vary substantially, with domestic goods being much cheaper, Russian markets, especially in the regions, still offer lots of traditional goods that are less inflated by ‘intellectual’ rent, generated as the result of someone’s creativity, image designs and other factors of status and prestige that constitute 65–70% of the cost of Western goods. In this respect, efforts by the government, such as grants and subsidies, to support domestic producers of traditional goods and services, is considered by the public to be, along with pensions and taxation, an important secondary mechanism of income distribution related to ‘the morality of the market’, to an image of a ‘just’ marketplace. According to the FOM, if in 2007, 47% respondents considered the Russian social system less ‘just’ than in Western democracies (16%), in 2017, self-assessments of people of their social status has improved: 46% believed that Russian society is more ‘just’ than in Western democracies (26%) (FOM 2017). These estimations are the result of efforts by the government to revert to practices of the ‘moral economy’—a socially, politically and economically based system, fuelled by norms and values, based upon a ‘normative understanding of mutual reciprocity and embedded sociality that raises questions of how to support wellbeing and human capacity to flourish or suffer’ (Bolton et al. 2012: 126). However, still, the most popular answer to the question of the main cause of social injustice was ‘income inequality’ (26%), the second popular response was persistently ‘poor living conditions’ (15%), followed by ‘corruption’ (8%), poor law (6%), price and tariff inflation (5%). Interestingly, a high proportion of respondents mentioned ‘low inter-personal tolerance’ to income disparities and to other matters as a primary cause of social injustice, suggesting that the level of social solidarity in general and people’s relationships should be improved to enable a more ‘just’ social environment in Russian to be developed. People mainly characterise ‘social climate’ in Russia as ‘moderate’, where people are mainly treated with respect, despite some episodic moments of mistrust (44%), while 12% believe that ‘interpersonal social justice’ is ‘high’ (i.e. they are treated with dignity and respect by their colleagues, peers, etc.), however, still a very large portion of respondents (31%) believe that they are treated in an inappropriate manner, especially by local authorities and social services, as people are mainly intolerable towards each other. Most people (56%) believe that society, i.e. socio-economic factors, such as low wages, inadequate education system, discrimination at work, weak labour unions, etc.

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are the cause of poverty rather than the individual (28%), i.e. laziness, unwillingness to take risks, lack of thrift, etc., or fatalistic factors (9%), i.e. bad luck and unfortunate circumstances. However, despite this denial of individual responsibility for poverty by the majority of the respondents, they prioritise an equitable way of income distribution (62%), suggesting that fair income distribution should be proportional between people’s inputs (abilities, time, and efforts) and the outcome they gain, rather than egalitarian (24%), as in accordance to the logic: ‘from each according to their ability, to each according to their needs’, nor utilitarian (11%) that promotes a ‘greatest happiness of the greatest number of people in society’. This contradiction arguably reflects the human phycological tendency to attribute success to personal achievements but to attribute external factors as the cause of personal setbacks and failures. Also, it demonstrates that people still see the government as the main provider of social ‘justice’, fully responsible for poverty eradication. The ideology of statecraft assumes the role of the government as a social balancer and the main guarantor of social stability, a ‘fair’ income distributor and a welfare provider. However, the challenges of the distributional trade-off, or ‘trilemma’ between three policy objectives, such as ‘wage equality’, employment ‘expansion’ expected with the realisation of IS programs and human resource development strategies, and ‘budgetary restraint’ have become more acute after the intensification of sanctions (Iversen and Wren 1998, cited in Gough 2016). Following the trilemma’s logic that it is impossible to simultaneously pursue all three goals, it could be argued that for the sake of industrial modernisation the Russian government was eager to sacrifice ‘wage equality’ for the diversion of ‘restrained’ budget expenses away from the social sector. Wage inequality could be quite easily renounced in the wake of the global security challenges that the country faces, aided by political discourse in mass media and academia to divert public attention from domestic to geopolitical issues. The state is a domestic social arbiter, but also as a guarantor of international peace and stability, a guardian of national interests. As such, Russia resolves this distributional trilemma by prioritising budgetary restraint and employment expansion. A good example for this would be the recent debate over the increase in the pension age: Putin’s TV speech on the forthcoming reform was a call for popular mobilisation and people’s understanding and patience towards inevitable changes and austerity measures, needed for future economic gains and prosperity (Haldei 2018). The problem is that the government sees the

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budget as the primary source for economic modernisation and it ‘does not have other alternatives’: it would be difficult to make Russian ‘offshore oligarchy’ pay for modernisation, as it will inevitably inspire the rhetoric of human rights abuse, violation of property rights, and might even end up in ‘civil war’ (ibid.).

8.3

Connecting WSR Function

Institutional and material connecting Russian WSR settings, analysed in Parts II and III, revealed in what way government-business-labour relations were shaped by the system of Russian tripartism and executive law enforcement mechanisms, which have become instruments of social control that allowed for partial accumulation and coordination of investment flows at the macro-level, despite tensions between formal and constitutional order; at the same time, the analysis of investment activities at the micro-level, alongside the system of social partnership and enterprise paternalism demonstrated a contradictory effect on social stratification. The following passages will address, first, the ideological orientation and the discourse of ‘otherness’ as the dominant strategy by the state to consolidate society at the macro-level in the wake of geopolitical tensions, and second, at the micro-level, cultural aspects of informal welfare that have evolved alongside communal ties in civil society. 8.3.1

Macro-Level the Ideology of Statecraft

The state’s connecting functionality is predetermined by the strength of the state as an ‘agency’, able to ‘activate and channel the potentialities of social formation either toward maintaining the existing social order or toward bringing about a new order’ (Cox 1987: 106). The main goal of this ‘agency’ is to establish an equilibrium of a state-civil society complex that can be transformed and modified in the direction necessary for the pursuit of the state’s national interests, to reconcile an internal and external raison d’etat with existing and emerging domestic and international challenges. As such, the state ‘agency’ in Russia has been set forward by means of intellectual dominance over the population—through an already mentioned ‘binary’ ideology of statecraft that could be partly attributed to the Russian leader and called a ‘Putinite’ ideology, although attributing it solely to the Russian leader would be an oversimplification. Putin sees the restoration of state power as the ‘highest

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aspiration of society for its survival in conditions of adversity’, to secure dominant state strategies from factional contestation. It is believed that strong leadership and presidency will reassert the principles of stability and ‘normal’ politics, and will help to overcome segmented regionalism, reconstituting and re-concentrating ‘the relatively insulated nature of the regime’, corroded in the 1990s (Sakwa 2008: 882–87). The potential capability of ‘civilisational’ discourse has risen since the introduction of sanctions and intensification of the transatlantic disagreement over the legitimacy of ‘secondary’ American extraterritorial legal mechanisms that split Atlanticism from within. The discourse of ‘otherness’ 13 has become an effective counter-hegemonic mechanism that fits well in the wake of global uncertainty and growing geopolitical insecurity. Also, society, increasingly exposed to internal and external economic challenges, has become more supportive of traditional communitarian drivers of social solidarity. As such, the argument made by Richard Sakwa in 2008 that the ‘Putin model of liberal republicanism espoused individual citizens against traditional communitarian views’ (Sakwa 2008: 888), possibly correct at the threshold of the financial crisis, is no longer valid, as the model has inverted since the imposition of sanctions. The U-turn inspired a re-establishment of a communitarian content in the ideology of statecraft, as economic hardship and national mobilisation require more altruistic and sacrificial attitudes to the regime’s consolidation. As previously mentioned, the binary character of the ideology of statecraft reflects its dual strategic goal of domestic power cohesion and civilisational regionalism—this design is quite complex and cannot be attributed to statism, Eurasianism, neo-Eurasianism, Slavophile statism, nationalism, liberalism, messianism, communism or ‘Sovietism’ alone, as it comprises various, sometimes contradictory, features, selectively applied according to the context. For instance, Eurasian regionalism goes more in line with Panarin’s ‘civilisational pluralism’ that condemns ethnocentric nationalism that ‘divides the Eurasian territorial unity’, and also with Nazarbayev’s pragmatic and materialistic Eurasianism that successfully substituted the ideology of ‘Sovietism’ in the post-Soviet space (Laruelle 2004: 122). However, in its pure form neo-Eurasianism with its devotion to ‘authoritarian and messianic theocracy’, although influential in power elites, where it finds its financial support ‘that greatly contributes to its

13 CHM R25 , See Appendix I.

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fame’, has never become an ideology of the masses (ibid.: 119). Overall, as a CHM, the discourse of otherness can become a double-edged sword, as on one side, it helps to consolidate society at a macro level and to obtain public support for any sort of power centralisation, on another—it might spur national sentiments that could be quite a destructive force in such a multinational state, and undermine its project for closer regional integration. Eurasianism is an intellectual tradition and an important phenomenon in Russia’s intellectual history, however, it is fractured and cannot be presented as a general and integral ideology, or school of thought, as it contains numerous opposing worldviews and discourses that cannot be easily reconciled (for a detailed analysis of Eurasianism see Laruelle 2004, 2016). As formulated by Marlene Laruelle, ‘the labels ‘Eurasia’ and ‘Eurasianism’ obscure a diversity of thought that can offer insight into a difficult balancing game that Russia faces geopolitically’ (Laruelle 2017). ‘Classical’ Eurasianism emerged in 1920–1930, and was advanced by prominent Russian emigrees, like Peter Savitsky, Peter Suvchinsky, Nikolai Trubetskoy, and many others that later split over the issue of identification of Eurasianism as a philosophy of statecraft with Soviet totalitarianism. In the Gorbachev era, Lev Gumilev, the follower of earlier Eurasianists, acquired prominence for his ‘Theory of Passionarnost’, according to which ethnogenesis is a process that depends on the capability of an ethnos14 to successfully pass through the stages of birth and development and secure its civilisational activity for a long period, before its transition to ‘inertia’ and inevitable decline (Gumilev 1978/2007). Some neo-Eurasianists, such as Alexander Dugin, transform this idealistic vision of ethnogenesis in a politicised, revolutionary and deterministic concept of Russia’s ‘third way’, rooted in pan-Orthodoxy, social state corporatism, and in ‘organic ethnos’—the main component of the ‘Fourth Political Theory’ (Dugin 2012). For them, Vladimir Putin is ‘the embodiment of the “Eurasian capitalist” model of statist development’, underpinned by the ideology that ‘combines an anti-Western interpretation of geopolitics with mysticism, Aryanism, conspirology, authoritarian statism and Eurasianism’ (Kipp 2002: 91). Others, such as Alexander Panarin, deny Dugin’s nationalism and ethnocentric regionalism, proposing instead a 14 Ethnos, or ‘super-ethnos’, is a concept broader than ‘nation’ – a hierarchical group of people who recognise ‘mutual complementarity’ and origin, feel cultural and historical unity, have the same behavioural stereotype and worldview.

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‘great tradition of civilisational democracy’, and cultural pluralism as the way to reconcile different minorities that inhabit Russia and Eurasia (Panarin 2001). Despite the influence of neo-Eurasianists on some prominent Russian party leaders, such as the Communist Gennady Zyuganov, or the nationalist leader of the LDPR Vladimir Zhirinovsky, who criticise globalisation and its corrosive effect on the market’s morality, it would be wrong to suggest that these visions greatly affect Putin’s own conception for Eurasian integration, or that they affect Russia’s regional politics, which is much more pragmatic and less idealistic. Nevertheless, there are two important components of ‘broad Eurasianist ideas’ that found their reflection in Putin’s discourse: first, ‘a historically affirmative argument for Eurasian integration’ and second, the presentation of Russia’s model as an ‘alternative to the West, whose hegemonic (unipolar) designs must be opposed’ (Pozo 2017: 169). At the same time, Putin’s mentioning of Gumilev’s ‘passionarity’ in his annual address to the federal assembly was misinterpreted by the Western media as a claim for ‘extolling chestthumping nationalism, the martial virtues of sacrifice, discipline, loyalty and valour’ in order to restore ‘order out of chaos’, when in fact by ‘moving forward and embracing change’ Putin wanted to stress that Russia’s counter-hegemony depended upon the country’s ability to mobilise, to protect its sovereignty and to improve its social welfare, rather than upon people’s ‘capacity for suffering’, as it was ascribed (Financial Times 2016). Moreover, Putin has always denied any willingness to be in confrontation with the West, and restrained attempts by nationalist opposition to influence Russia’s foreign policy: ‘Putin explicitly sided with Europe and the United States and insisted that Russia was a country of European and Western, rather than Asian, identity… therefore, Westernisers lost their battle, but not to the ideologies of the hard-line orientation’ (Tsygankov 2009: 188–89). Although the economic rationale of the ‘sieged’ society at its Western frontiers has pushed Russia’s trade relations towards the East, this increased economic cooperation with nonWestern societies does not imply an ‘Asianisation’ of the Russian political philosophy. Effective leadership as a counter-hegemonic mechanism was strengthened upon the mobilisation of youth and intellectual leaders, such as Vladislav Surkov, who propose ‘sovereign democracy’ and ‘embraced globalisation’ by means of the Russian ‘brand’ to ‘make the country an attractive great power’ again. This hegemonic worldview in Russian

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society is in stark opposition to hard-line nationalism, to the currents of neo-Eurasianism that stress Russia’s Asian identity, and also in confrontation with ‘far right’ anti-liberal, ‘conservative’ and ‘traditionalist’ groups, such as the Izborsky Club (Laruelle 2016: 628–29). Another important component of the Russian ideological consolidation derives from religion: Christianity and other religions in a multi-confessional Russia. However, sanctions weakened the connecting function of the Russian Church in its ability to unite the Orthodox international community. The Kremlin actively supported the reunification of the Russian Orthodox Church with the Russian Orthodox Church Outside of Russia, that was accomplished in 2007 (Admiraal 2009: 212). However, in states, such as Georgia and Ukraine, this consolidation proved to be difficult to maintain. For instance, in Ukraine the actions by far-right nationalists (the Freedom Party, the Azov Battalion, the Right Sector, and C14) in September 2018 enforced the split of the Ukrainian Orthodox Church from the Moscow Patriarchate, putting an end to a historical union that had existed since the seventeenth Century (for the analysis of far right nationalism see Carnegie Europe 2018). According to Russian state officials, some anti-Russian observers, predominantly from the post-Soviet Eastern European and Baltic states, lead a campaign to manipulate America’s strategic fear that Russia might build friendly and close relationships with European states, re-establish itself as ‘the dominant strategic actor in Central Europe’—‘leaving the United States and NATO with no good options… and the trans-Atlantic security bond in tatters’, as NATO will ‘collapse’ (Shlapak 2017: 2). Therefore, according to Russia’s mainstream political discourse, the fear of ‘potential Russian aggression’ that has to be ‘deterred’ has been traded for increased US military provision, the construction of new NATO bases, and financial and other forms of economic aid. Vladimir Putin believed this tendency to be ‘very harmful and counterproductive’, as in ‘many Eastern European countries, anti-Russian propaganda and politics became a factor of the internal political struggle’, which was ‘simply used to come to power, to gain a foothold in power’ (Komsomol’skaya Pravda 2016). The risks of increasing hostilities against ethnic Russians were seen by the Russian government as a pretext to revise its National Security Strategy in 2017, intensifying its course on Eurasian integration, and appealing to a worldwide civilisational discourse and the concept of multipolarity with an emphasis on civilisational diversity. This appeal has acquired popularity among other contender states and rising powers:

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consolidation of the ‘contender’ block 15 has been aided by the ‘politics of resistance’ (Sakwa 2017a: 24), and financed by the Eurasian Fund for Stabilisation, The Russian Direct Investment Fund, Asian Infrastructure Investment Bank, Eurasian Development Bank, BRICS Development bank, and other public and private institutions. At the same time, it is difficult to disagree with the statement that ‘the Russian elite’s outlook on Eurasian integration is multifaceted and often vague’ (Pozo 2017), as well as it takes little from neo-Eurasianism ‘in defining a political and economic strategy in the region. No official text produced in Russia about the Eurasian union mentions Eurasianism as an ideology’ (Laruelle 2015, cited in Pozo 2017: 168). If we recall Richard Sakwa’s differentiation between Classic Eurasianism, neo-Eurasianism, New Eurasianism and Pragmatic Eurasianism (Sakwa 2017b: 201–6), Eurasian integration would be more in line with Pragmatic Eurasianism, which ‘stresses economic functionality’, and only rarely ‘politicised civilisational factors’. Despite all possible political difficulties and economic costs, the pragmatism of the EAEU is rooted in the ideology of statecraft that proposes collective efforts of its member states to ‘enhance the wellbeing of our people and facilitate the maintenance of the cultural, historical and social unity of the EAEU nations’ (Putin 2018). Yet, some potentially mutually beneficial projects and the future of Eurasian integration might be hampered by the reluctance of member states to sacrifice their economic and political sovereignty. 8.3.2

Micro-Level: State—Civil Society Complex

The previous chapters analysed the micro-level arrangements, such as the system of social partnership and enterprise paternalism that constitute the connecting function of the Russian WSR in the marketplace. It has been argued that the organisation of production has a connecting effect not only on the employees of corporations, but also on their family members that interact through the system of welfare institutions and recreational activities, organised alongside enterprises. This system was partly inherited from the Soviet collectivist organisation of business activities, but also gained new momentum through a globalised corporate culture of transnational corporations, with their team-building activities, seminars and other

15 CHM R26 , See Appendix I.

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efforts that aim at mitigating the alienating pressures of modern capitalism. However, the effect of enterprise paternalism as a CHM in Russia is quite contradictory: on one hand, it unites people through different institutions, on another, speaking in Cox’s terms, it acts ‘as a deterrent to the formation’ of trade unions that in fact ‘function primarily as enterprise unions’, ignoring ‘the issues of concern of non-established workers or to the unemployed outside the corporation’ (Cox 1987: 73). What are the instruments for an ideological consignment that originate from activities other than in labour or financial markets? We shall now turn to the Russian civil society ‘elements’, to a ‘material structure of ideology’, such as ‘publishing houses, newspapers, journals, literature, museums, theatres, art galleries, schools, architecture, or street names’ to see how ‘active’ they are ‘in an intellectual organisation of social hegemony of the ruling class’ (Gramsci 1996: 52–3, Q3§49, cited in Morton 2007: 93). After that we could relate the power of dominant ideologies to the issue of a nation’s identity, ‘obscured by achieving the appearance of acquiescence… as if it were the natural order of things’ (Cox 1994, cited in Morton 2007: 113). Russia’s WSR connecting ability was reinforced by a hierarchical structure of civil society, formed via para-constitutional dialogue between the state and civil society, in which the government played the role of a social balancer. As such, civil society hierarchy 16 has become a specific counter-hegemonic driver to reconstruct the dialogue between government officials and the wider population. The ideology of statecraft was successful in solidifying the link between the state and civil society through the Civic Chamber of the Russian Federation, which is a platform for public dialogue that ‘allows civic initiatives to be discussed, state decisions to be analysed and draft laws to be scrutinised’ (Sakwa 2008: 890). The Civic Chamber is of a ‘para-constitutional’ character: by being ‘a new channel of public accountability against overbearing officialdom’ it ‘thus usurped what should have been one of parliament’s key roles’; in this respect, the restoration of the authority of the state and the equalisation of the rights of citizens can serve ‘both as the facilitator of democratisation and as its gravedigger’ (ibid.: 888). Although Putin’s efforts to reconstruct the bridge between the government and the population has been visible, for example the ‘Direct line’ with the Russian President, annually broadcasted on main TV channels has become hugely popular,

16 CHM R27 , See Appendix I.

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the level of trust towards the Civic Chamber remains less than 50% of the population—43%, while trade unions and political opposition got even less (41 and 34%) (VCIOM 2016). Respondents expressed more trust in the Army (87%), the Russian Orthodox Church (72%), and Mass Media (65%); less successful were police (56%), political parties (47%), the judiciary (44%), the Civic Chamber (43%), and the lowest were labour unions (41%) and the opposition (35%) (ibid.). In fact, there have been a considerable number of positive reports that stressed the efficiency of civil society institutions and a growing possibility of different ‘voices’ in Russia to be heard by senior state officials. Among most commonly cited institutions, apart from the Civic Chamber are the ‘All-Russian Popular Front’, High Commissioners for human rights, for children’s rights, for the rights of entrepreneurs, and newly developed platforms, such as the Russian Social forum, the Forum for Social Innovations, and the network of youth forums, such as ‘Territory of Meanings’ or ‘Tauris’ that unites more than 6,000 people per session with the aim of elaborating road maps for joint studentships and various federal and regional programs in different spheres (i.e. science and innovation, arts and humanities, culture and sports) throughout the year (Civic Chamber Report 2017). Despite the fact that most civil institutions have grass-roots origins and were launched spontaneously by regional and local communities, in 2016–2020, there was a tendency for their consolidation under the supervision of para-statal organisations that became increasingly successful, such as the ‘Community Forum’, created in 2015 under the aegis of the Civic Chamber. In fact, the Chamber has become a facilitator, a coordinator of the activities of Russian civil institutions: ‘organisation’ of civil society in Russia is listed as one of the main goals on the Chamber’s website (Civic Chamber 2021). According to one of the volunteers to the Community Forum, the Forum has been successful in identifying problems, related to the country’s socio-economic development, to public welfare, to inefficiencies of ‘socially oriented’ practices of non-profit organisations that have increased due to insufficient cooperation between state administration, businesses and society. At the end of each twoday session of the Forum the participants—state officials, businessmen, NGOs, civil society institutions—set the ‘national agenda’, or roadmap of actions, to coordinate and implement numerous societal projects; these projects are monitored by the public, and later included in the Civic

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Chamber annual reports.17 For instance, in 2017, more than 400 experts took part in eight forums that took place across Russia, gathering more than 10,000 participants. The Forum’s volunteers and contributors are active on social media, through their own website (fopymcoobwectvo.pf) and (https://www.facebook.com/forumoprf) on Facebook. The results of the Forum are broadly covered by the mass media, including the federal TV channels, and this is not surprising as Vladimir Putin and Sergei Kiriyenko (the first Deputy Head of the Presidential Administration) were among the speakers for the sessions in November 2018. Interestingly, the organiser of the Forum, Valery Fadeyev, the Secretary of the Civic Chamber, is one of the authors and presenters of the weekly news summary Sunday Times (Voskresnoye Vremya), one of the most watched news TV programs on Channel One. The formation of a hierarchical structure of Russian civil society has been a step by the government to formalise various forms of public interactions at the micro-level. This is seen by state officials not as a built-in Soviet-type repressive mechanism that controls public relations and, if necessary, modifies public opinion, but rather as a flexible system that follows ‘Putin’s pragmatic liberalist vision of a modern society’, aiming at bringing the discussion of various acute social problems to the political agenda, at constructing a cross-country dialogue at the federal and regional levels between different social groups, at ‘creating strong ties and connections within the state-business-society tripartist system’, thus resisting centrifugal tendencies in the Russian WSR.18 In fact, the antiRussia sanctions facilitated this process, as the image of a sieged society, an increasing exposure to economic hardship, though not entirely the product of economic sanctions, but rather of the negative dynamics in the energy markets, connected and united some previously fractured social groups and drove mobilisation, inspiring different initiatives to solidify Russian socio-cultural ‘identity’ in the spirit of Eurasian ‘otherness’. The problem for post-Soviet Russia lied not so much in economic crises, but rather in an identity crisis, as the transition of people’s mentality—people’s way of thinking and behaviour—has not yet been completed; nor has the direction for this transition been clearly specified. Despite Putin’s efforts to reconstitute a new integral national identity on

17 Author’s interview with a state official, Moscow, 2018. 18 Ibid.

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the basis of a patriotic pride over glorious moments in Russian history and over faith in the future achievements of Eurasian civilisation, the contradictory nature of the ideology of statecraft that embodies the dualism of institutional and material structural settings, leaves an image of a Russian citizen incomplete and deficient. The problem with the formation of a common identity in states in transition is that norms and value differentiations among various generations are more acute than in societies that have not experienced dramatic cultural and ideological changes as in Russia. At the same time, the contradictory nature of a Russian identity might better serve society as a whole, saving it from a resurgence of nationalism at a greater scale, as a deluded identity is resistant to mythological trends towards a socially constructed ‘imagined community’ (Anderson 1991).

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CHAPTER 9

Iran (Cultural Leadership)

9.1 9.1.1

De-commodifying WSR Function Labour Markets and Ideological-Political Fluidity

Iranian national identity is complex, diverse and multicultural due to the country’s dramatic history. Numerous invasions and conquests (Greek, Arab, Turco-Mongol, British, etc.), as well as wars in the contexts of Russo-British rivalry in the nineteenth century and later East-West competition during the Cold War, reshaped Iran’s cultural, ethnic and religious landscapes in many ways. One of the most transformative events was the Arab invasion in 642 CE, at the end of the Sassanid Empire, and Iran’s subsequent Islamisation that reversed the country’s natural ‘social and political evolution towards the development of a common citizenship’ that would have ‘transcended religious and other differences’ (Hunter 2014: 3). Islamisation was followed by a destructive Turco-Mongol invasion in the thirteenth century. The restoration of Iranian territorial integrity and national identity began no earlier than the Safavid’s dynasty in the sixteenth century; it was driven by ‘Shiiasation’ that boosted collective spirit of the population, contributed to political and territorial unification, which ultimately prevented Iran from falling under the Ottoman Empire, as ‘Sunni Arab states eventually did’ (ibid. 10). However, as Shia’s political theory considers secular politics in the

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_9

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Muslim world to be illegitimate,1 one of the multiple consequences of Shiiasation was the emergence of a powerful clerical establishment that challenged and competed with secular power centres. The nineteenth and the twentieth centuries were rich in events—two world wars, the Russian revolution and the spread of communist ideas, the rise of nationalism and fascism in Europe, along with dramatic shifts in production, communications and trade, industrialisation, modernisation—all these factors significantly transformed the ideological environment in Iran, intensifying existing cultural dualities. In the 1950–60s, growing interactions of the Iranians with the outside world and a growing number of Western-educated Iranians resulted in rising societal pressures for reforms, and eventually, in the ‘White Revolution’ under Shah Mohammad Reza Pahlavi. This was the period of a ‘rebirth’ of Islam in Iran as a comprehensive political ideology and a focus of national identity. Multiple cultural dualities along various ideological fault-lines that exist in present-day Iran have evolved since then (some having a much longer history). The first ideological rift has been between traditional Iranian religious intellectuals and ‘modernisers’, with traditionalists calling modernisers ‘pseudo-modernists’, while modernisers referring to traditionalists as ‘culturally backward’ (Hunter 2014: 36). The second one has been the antagonism between ‘Iranianists’, the liberal nationalists, associated with Pahlavis, who ‘prioritise Iran over Islam’, on one side, and universal and cosmopolitan Islamists, who recognised no territorial or ethnic divisions among Muslims, on another. The third one, the most controversial, has been between the Leftists (e.g. Socialists, Marxists, Communists) and the Islamists (the clergy). On one side, Marxists and Islamists have got lots in common, such as strong communitarian values, antipathy towards unrestrained capital accumulation and the idle usage of wealth, an egalitarian ethos and emphasis on social and economic justice, according to which the government is responsible for supporting the most vulnerable (the poor, children, the elderly, the disabled, etc.). On another, Islamists see the communist’s antagonism towards private property and atheism as counterproductive as it undermines the appeal of socialist ideas to Iranians, a highly religious nation, on average. 1 ‘Shias do no owe allegiance to any political power until the return of the occluded twelfth Imam as the Mahdi. Meanwhile, during his absence only the Shia clergy could confer limited legitimacy on political leaders, provided they ruled according to the tenets of Shia Islam’ (Hunter 2014: 10).

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Nevertheless, Marxist ideas have penetrated deeply into Iranian ideological debates, with the aid of such political philosophers as Ali Shariati, who is believed to turn Islam from a culture into a political ideology (Hunter 2014: 44–70). One of the most important Marxist features in Shia’s ideological transformation was a disillusion with evolutionary methods of political struggle and a call for revolutionary actions (Shariati 1979). At the same time, socialist ideas in Iran were modified to accommodate religious aspects of class organisation. The result was the emergence of so called ‘positive socialism’ that bound together socialist and religious common grounds of ‘democratic freedoms’, necessary to overcome exploitation, social injustice, poverty and self-alienation (Taghavi 2005: 13–15). The Islamic Revolution of 1979 was a consequence of such modifications, as socialist groups were supporters and allies of the clergy. However, in post-revolutionary Iran, most leftist groups were outlawed by the new Islamic government that saw them as a threat to the regime. After 1979, the intra-regime competition gained new momentum that materialised in the country’s diffused-power semi-autocracy: centralised supranational power institutions co-existed with a weak party system. Guided mobilisation, elite competition and power diffusion reinforced a fluid ideological-political environment 2 in Iran. This fluidity has two characterisations. The first one is related to a two-dimensional factional landscape, i.e. ‘the theocratic republican regime divide and the left-right economic scale’—theocratic right that represents the clergy and Bazaaris, theocratic left that unites urban lower-middle class, war veterans and the IRGC, the republican right of Western-educated technocrats and rich Bazaari merchants, and the republican left that represents urban middle classes, women’s rights groups and more secular-minded university students (Mohseni 2016: 42–44). The second feature is a dynamic jurisprudence, with a flexible Constitutional framework, adjustable to changing ideological orienteers, responsive to the system’s existential threats. The dynamism of jurisprudence is secured by a supranational institutional design, established in the late 1980s by Ayatollah Khamenei, when the Expediency Council was empowered ‘to overrule the canons of both Shari’a law and the Constitution’, at the urgent needs of society (such as the revision of Article 44 of the Constitution that opened doors

2 CHM I20 , See Appendix II.

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for economic privatisation) (Amid 2009: 81). Overall, this ideologicalpolitical fluidity had a contradictory effect on the de-commodifying capabilities of the Iranian WSR: on one side, a ‘complex intersection of economic and ideological-identity conflicts’ is the safety net for the maintenance of democratic labour market protection mechanisms (e.g. elections) and their adaptation to the changing sentiments in the society; on another, there is a risk that an overheated ideological divide over the composition of a ‘just’ labour market can ‘pose a near existential threat to the system’ (Brumberg and Farhi 2016: 10). Post-revolutionary social class transformation in Iran went alongside vertical (traditional class hierarchy) and horizontal (network) dimensions. At times, the fluidity and ‘the ideational mix’ make it difficult for the government to agree on socio-economic policies and labour market regulations. To reach popular consensus, the government has been trying to build up the nation’s common perception of labour security issues. As in Russia, growing social complexities, intensified by global interdependencies and external pressures, are mitigated under a ‘strong directive state’ with the aid of ‘a new category of mediators of these interdependencies’ (van der Pijl 2002). To prevent Iran from being ‘broken up along some variety of ethnic or political cleavages after 1979’ (Harris 2017: 90), a powerful authority with a new class of mediators was needed to reconstruct political unity and centre-periphery relations. As political orienteers in Iran changed over time, each decade saw the emergence of various kinds of new intellectual forces: in the 1990s during Khatami these forces were struggling to consolidate diverse factions of ‘reformers’, during Ahmadinejad’s presidentship, they formed a new parastatal managerial class to restore right-wing populism and revolutionary ideals (Povey 2019: 366). To mediate between these two political extremes, the paramilitary Basij militia, supported by clerics, undertook the role of connecting people of different professions and background through the vast clustered network that promotes Islamic values, recruits, indoctrinates and organises people at different levels (Golkar 2012b). At the same time, any sort of mediation and ‘guidance’ in the context of ideologicalpolitical fluidity in Iran is a difficult task to accomplish, as the borders between different factions are porous. As Harris put it: ‘Iranian elites are habitually splitting and lumping themselves into new ideological categories and associational networks faster than analysts of Iran can generate the tables and figures to keep up’ (Harris 2016: 72).

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9.1.2

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313

Households: Consumerism and Human Values

The diversity, complexity and multiculturalism of Iranian society makes it difficult to delineate common consumption trends. Yet, it is interesting to trace some patterns, as consumption is not just a passive activity, but rather a ‘process of creating meanings, self-images, self-identities, and values’ (Jafari 2007: 372). For some Iranians consumption has become increasingly synonymous with ‘living’, as it has become a means of self-realisation and identification, when people ‘consume the symbolic meaning of those products, the “image”’ (Teimourpour and Hanzaee 2011: 309–28). Human needs based on values, ideologies and ‘motivational dominanta’ in Iran differ from generation to generation, with younger generations seemingly being more influenced by more liberal ideas and by Rafsanjani’s reforms in the 1990s that opened doors to a ‘massive amount of foreign goods (which by then were generally regarded as unnecessary)’ (ibid. 368). Although young Iranians were highly influenced by ‘cultural globalisation’,3 it would be erroneous to suggest that ‘Islamic values were suddenly replaced by materialistic values’—the proIslamist forces have never lost their popularity among the youth, while nationalistic, altruistic and collectivist values regained prominence in the 2000s. Nevertheless, the analysis of the formation of motivations as well as of the common national identity in Iran is a relatively easier task (compared to Russia). This is because consumption in Iran is ‘a mode of being and a way of gaining identity’, as it shapes personal and collective images, and lifestyles. Also, this is because the power of religion to lead what Gramsci called ‘an intellectual and moral reformation’ (Fulton 1987: 199) is much stronger in Iran than in post-Soviet Russia, which has not yet fully recovered from a half-century period of destructive atheism. After the Islamic Revolution, consumerism in Iran has been moderated by the necessities of a devastating war and by the legislation that shielded religious values against the influence of Western culture. In the 1990s, this ‘shield’—the political indoctrination of Islam 4 in Iran was reinforced with the aid of the institutional expansion of the Office of

3 Cultural globalisation—is an ‘acceleration in the exchange of cultural symbols among people around the world to an extent that leads to changes in local popular cultures and identities’ (see Nijman ‘Cultural Globalisation and the Identity of the Place: the Reconstruction of Amsterdam, Ecumene 6/2, 1999, 146–64). 4 CHM I21 , See Appendix II.

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the Leader. Despite factional competition and political disagreement over various economic questions, most official political and social actors do not openly oppose the doctrine of Velayat-e faquih (the Guardianship of the Jurisprudent), which gives an ultimate ‘semidivine’ authority to the Leader. This authority is ‘rested on the practical requirements of state interest (maslahat-e nezam) rather than on God’s timeless religious laws’ (Brumberg and Farhi 2016: 13–15). As Khomeini put it in 1988, ‘government… is one of the foremost injunctions of Islam and has priority over all other secondary injunctions, even prayers’ (Khomeini, quoted in Brumberg and Farhi 2016: 15). In the 1990s, the Leader’s authority was legitimised by a series of amendments to the Constitution (see Ch.3) that expanded his official institutional power. The maintenance or a religious identity is one of the ‘driving forces behind the existence’ of the political system, or ‘nezam’ (Asisian 2016). Iranians, already a very religious nation, find themselves under constant ideological supervision by the clerical and revolutionary organisations, such as the Basij, which are highly potent to guide people’s behaviour in households, markets (including labour market) and civil institutions. At the same time, identity has personal and social dimensions, with the former being ‘socially consequential but more-or-less unchangeable’ (Fearon 1999), while the latter—more dynamic and more prone to apparent transformations under external pressures, such as ideological supervision by religious leaders. The Basij has been quite successful in targeting the social dimension, while the personal dimension remains almost intact. As for the most vulnerable groups in society, such as youth and women, this ideological supervision, indoctrination, extended education and higher social mobility for loyal members of the nezam, at times was counterproductive: these policies resulted in higher social mobility and, especially in the younger population, a growing awareness and desire for freedoms and civil rights, which is potentially a very explosive trend, given the nature of young people to protest against anything that in their perception limits their freedoms. According to empirical study by Aliakbar Jafari, young Iranians ‘disagree with the state-presented IslamicIranian package, emphasising their own personal interpretation of being a Moslem/Iranian’, they do not see ‘consumption of Western culture’ as Westernisation and believe that they will be better off if offered more recreational, sports facilities and entertainment infrastructure—the lack of which intensifies the feeling of unjust wealth distribution, as rich Iranian

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have access to overseas holidays, and activities, such as skiing, horseriding, etc. (Jafari 2007: 379–81). Also, as young Iranian are increasingly blamed not only for ‘failing to be entrepreneurial and contribute to the country’s economic growth’, but also for not getting into stable marriages, anxiety among young Iranians is on the rise, as their precarious labour market situation makes them doomed to stay with their parents (Khosravi 2017: 355–59). Moreover, family crisis is perpetuated by the fact that many women want higher education and a career before getting married, for the fear of the implementation of ‘non-egalitarian family laws’ after they get married (Khosrokhavar 2011). Indoctrination of Islam blends with a ‘journey to modernity’, allowing some forms of market liberalisation, leading to a paradoxical situation: it promotes individualism and stigmatises people for social failures, at the same time, however, not rendering them any compensation in the form of civil freedoms, which remain constrained by the traditional forces (e.g. state policies, social beliefs, family values, etc.). This is the reason why family ‘value systems’ have become more ‘situational’, depending on a context, as Iranians adjust the ‘social identity dimension’ and their behaviour to the ‘demographic and psychographic variables’ (Jafari 2007: 379). Consumption patterns are also situational, as secular motives in consumption are strong. The clerical regime ‘is not just religious’, and Iranians are ‘trying to transform their identity and eventually their political system to a more egalitarian and secular system’, which will be ‘deeply rooted in the Iranian quest for modernisation and enlightenment’ (Asisian 2016). Therefore, the semidivine power of the Leader has not translated into the creation of a model religious state: the secularisation process is strong enough to prevent radical fundamentalist forces from ‘dictating their will’. It is, however, ‘not powerful enough to force the clerics out of the political picture, for good’ (Asisian 2016).

9.2 9.2.1

Redistributive WSR Function

Primary: The Moral and Ethical Aspects for Accumulation of Wealth and Ideological Drivers for ‘Modernisation from Above’

Most Iranian thinkers aspire to find alternative ways of transforming their identity and political design to a more egalitarian and secular system, in their quest for an alternative Iranian ‘condition of modernity’ and

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the ‘processes of modernisation’ (Asisian 2016). However, a common expectation by Western politicians that the ‘forces of modernism’ and globalisation could infiltrate Western values into Iranian society, ‘secularise all aspects of the state’, and eventually transform Iran from a religious Shia state to a ‘liberal democracy’ is troublesome. The problem with the Western vision of the path to Iran’s democratisation leaves out the country’s socio-economic peculiarities, specific aspects of factional conflict, religious beliefs, attitudes towards modernity and modernisation, accumulation of wealth and income distribution. For the clarity of definitions, before assessing the ideological division concerning modernisation, Mohseni’s four spectrum factional divide (i.e. the theocratic republican divide over legitimacy, and the left–right economic scale) could be amplified by Sabet’s differentiation of political currents, more commonly used in the Western media—i.e. centrists, reformists, hardliners (principilists) and traditionalists (see Table 9.1). Other titles—‘moderates’ or ‘reformists’ (republicans), ‘conservatives’ or ‘principilists’ (theocrats) are mainly used to name alliances between factions (i.e. moderates are the alliance of reformists and centrists, conservatives—between hardliners and traditionalists) (Sabet 2016). In the 1980s, factions on the left used to hold a critical stance on capitalism, and especially on neoliberalism. For them, the state should lead modernisation and play a major role in income distribution. Today hardliners, or the theocratic left, continue to hold strong anti-capitalist views by stressing their opposition to Western developmental patterns. For them, Islam and capitalism are antithetical (Mohseni 2016: 43), modernisation takes the form of a ‘resistance’ economy that emphasises political self-reliance and the role of the state as a promoter of social justice and equal welfare (Sabet 2016). In the 1990s, the Republican left has substantially departed from the leftist revolutionary anti-capitalist economic philosophy towards a more liberal-democratic view on modernisation, increasingly stressing the importance of individual civil rights, democratic freedoms and a market economy. This shift made some on the republican left agree with some on the republican right to form an alliance, now famously known as the ‘reformists’ (Mohseni 2016: 51). Traditionalists, or the theocratic right, like the reformists, also prioritise market-style income distribution over egalitarian communal social justice, however, in their Islamic-Iranian authentic model, market forces and accumulation of wealth are considerably restrained by religious considerations at the individual (i.e. limited consumption) and communal (i.e. charity)

Hardliners

Reformists

Traditionalists

Centrists

Theocratic Left

Republican Left

Theocratic Right

Republican Right

Source Mohseni (2016) and Sabet (2016)

Classification in the West (Sabet)

Political factions in Iran

Classification in Iran (Mohseni)

Table 9.1

Western-educated technocrats Bazaari merchants

Bazaari merchants Traditional clergy

Urban middle classes, Secular-minded students Women’s rights groups

Urban and rural poor and lower-middle class, War veterans Basij and IRGC members

Electorate

Akbar Hashemi Rasfanjani Mohsen Rezaei Hassan Rouhani

Ali Larijani Ayatollah Mahmud Hashemi Shahrudi

Mohammad Khatami Mehdi Karroubi

President Ajmadinejad, Ayatollah Mohammad Yazdi, Cholam-Ali Haddad-Adel

Some prominent leaders

IRGC, Basij, the D”velopers of Islamic Iran, the supporters of Hezbollah, the Society of War Veterans Mojahedin of Islamic Revolution, the Association of Combatant Clergy, The National Trust Party The Society of Combatant Clergy, the Islamic Coalition Party, the Society of Qom Seminary Teachers The Executives of Construction Party, the Islamic Work Party, the Moderation and Development Party

Parties (some examples)

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levels. Centrists, or the republican right, advocate a ‘China model’ of economic growth that stresses private sector development as the main driver for modernisation. They believe that Iran should learn from East Asian economic miracles in developing technocratic paths for a ‘universal, productivity-enhancing welfare system’, which will eventually ‘contribute to a diversified export economy and produce an educated population who loyally support the post-revolutionary state’ (Harris 2017: 176). The most heated disagreements and debates over the nature and the prospects of modernisation that have never left the political agenda since the 1960s were between the theocratic left and the republican right. In the 1990s, President Rafsanjani, advised by young Western-trained technocrats, such as Mohammad-Hossein Adeli, the Head of the Iranian Central Bank, took a political course on transforming Iran into a ‘developmental state’: the first five-year plan (1989–1994) set ambitious targets of economic diversification, market liberalisation, stable growth and investment. Inspired by the rhetoric of Den Xiaoping, Rafsanjani, who believed that ‘there was nothing un-Islamic in accumulation of wealth’, prioritised consumerism over ascetism, but he also stressed the importance and the benefit of work over idleness (Harris 2016: 156). Holy religious texts justify capital accumulation for the purpose of socio-economic development. However, uncontrollable market competition and unlimited wealth accumulation, aimed at obtaining purely materialistic profit while neglecting spiritual development, is nevertheless condemned (Kirkham 2019). Most political factions in Iran agree that the country’s modernisation and the formation of people’s identities should be led in the Islamic tradition, based upon religious education. All factions agree on one important issue: modernisation in Iran cannot be copied from the West, but should consider and be based upon cultural peculiarities, historical traditions and indigenous values of the population. Even the reformers, such as former President Khatami, consider religious education as the ‘key infrastructure’ for the realisation of human resource potential, in shaping the intellectual, spiritual, moral, cultural and political values of the young (Mehran 2003: 312). An alternative vision of modernity 5 or the alternative to what Iranians call Western ‘pseudo-modernisation’ has become a powerful counter-hegemonic mechanism against the cultural penetration

5 CHM I22 , See Appendix II.

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of Western values into Iran. Classical theorists of modernisation, such as Karl Deutsch (1961), identify the core characteristics of modern society as the decomposition of older ‘closed’ institutional frameworks and the development of new structural, institutional and cultural features and formations, driven by social mobilisation: ‘these theories tend to conflate major dimensions of modernity as they saw it developing in the West’ (Eisenstadt 2010: 1). The Iranian vision of modernity agrees upon the Western structural dimension, which stresses the importance of the formation of distinctive channels of communication and agencies of education. The disagreement, however, remains regarding institutional formations of the modern capitalist state, design of bureaucracies, the limits of new ‘independent’ markets, as well as the secular rational worldview with its purely ‘individualistic orientation’ (ibid.) Iranians disagree with the Western conviction that ‘Islamic societies lack the cultural and ethnical resources to create a democratic society from within’ (Mirsepassi 2010: 14, 188). The dominant intellectual perspective on the alternative Iranian modernity is rooted in philosophical rationalism, which sees democratic institutions not as a goal in themselves but as a by-product of modern rationality. Thus, modern rationality opens up a different vision on productivity and progress, as it transcends secular boundaries by capturing ‘the entire variety of beliefs and values that structure Iranian culture, including the comprehension and understanding of the individual, the family, gender relations, society, freedom and justice’ (ibid.). Therefore, when analysing the worldviews of the reformers and of the followers of the Green movement, it is crucial to understand the ‘extent’ to which they are eager to accept any sort of liberation, to which they are willing to open up the Iranian authentic socio-political organisation. In contrast to Western liberals, these movements set clear limits to market fundamentalism. Most are passionate about their community and traditional family ties, sharing Hegel’s vision on ethics, according to which ‘the Christian ethic of personal salvation was only a cry of desperation, after a loss of community’ (Beiser 2005: 86). Over time, the Iranian ‘third way’ has become more pragmatic and could be discovered at the intersection of the extremes of liberation and salvation (Khatami 1998). This is especially true concerning the role of religion, as secularism is neither seen as a ‘natural’ nor a ‘universal’ phenomenon but must be ‘context-specific if it is to preserve the integrity of the democratic principles on which it is based’ (Mirsepassi 2010). The Iranian ‘third way’

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learned the lesson from the failure of the Pahlavi authoritative rule—secularisation does not mean democratisation, nor does it facilitate democratic tendences. Overall, Iranian intellectuals debate over the possibility of combining Islamic ‘salvation’ with Western ‘liberation’: theocrats deny, but most reformists acknowledge, the possibility of liberation via greater democratic accountability of the government to the population. In the 1990s the reformist agenda was met with opposition by theocrats. Rafsanjani was blamed for capitulating to the West, for copying IMF and World Bank strategies, for bad technocratic economic management. The political battle was not so much over ideological purpose of modernisation but rather over economic privatisation and wealth distribution (Mohseni 2016). As Harris put it, the battle between elites was ‘over who would control Iran’s anticipated developmental state, but not a debate over the purpose of development’ (Harris 2017: 159). The debates were heated up by the growing annoyance that, by then, no administration had managed to successfully implement the core slogans of the revolution—i.e. independence, freedom and social justice. More political factions were demanding that the government must fulfil these promises via more democratic and economically pragmatic policies. According to a national survey in the 2000s, 75% of respondents ranked economic issues as their top priority, while only 0.5% described lack of freedom as their primary concern (Maloney 2015: 297). Economic dignity has always been at the centre of the quest for political legitimacy. Most presidential campaigns evolved around the criticism of political elites for corruption, for monopolisation of wealth and power, the failure to fulfil promises of economic justice to alleviate poverty and inequality. In the 2000s, dissatisfaction with economic reforms has increasingly become the impetus for dramatic power shifts, giving rise to Ahmadinejad after Khatami, and to Rouhani after Ahmadinejad. As Djavad Salehi-Isfahani’s analysis of the 2017 presidential campaign suggests, ‘voters are maturing and are likely to pay more attention to economic programs of the presidential candidates than how they would deal with social freedoms. So, the economy – especially jobs, housing, and marriage – is on the minds of voters of all ages, more so than in the past’ (Salehi-Isfahani 2017b). With time, the Iranian alternative route to modernisation has become more pragmatic and growth oriented. This pragmatism has been facilitated by Khomeini’s ‘rule by emergency’ allowed a bypassing of first order Sharia Principles regarding the principles of private property to open the

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door to privatisation (Harris 2017: 101). The reorganisation of industries, education, health care, communication and transportation, and even military forces went along Western lines, and had some similarities with Pahlavi’s modernisation campaign, which ‘expanded the sense of agency and subjectivity among the populace’, especially of the middle classes. As in the 1970s, when modernisation extended employment in industrial and semi-industrial sectors, ‘creating a sufficient degree of agency among the populace to revolt against the Shah’s regime’, in the 1990s, again, modernisation was contributing to the empowerment of the populace that increasingly acquired agency in the sphere of social and political action (Vahdat 2011: 905–1107). Yet, distinct from the West, the ambitious goals of economic diversification, universal education and health care, investment and growth, were achieved with ‘technocratic’ tools, not with market fundamentalism (Harris 2017: 155), as Islamic limitations to the reach of the new markets were carefully observed. Overall, modernisation in Iran, on one hand, secures Iran’s ‘third way’ by preserving national ideological identification and authenticity, on another—the shift to pragmatism, combined with the empowerment of universal agency, the push for secularisation and the promotion of the cannons of free markets challenge this very authenticity. 9.2.2

Secondary: People’s Attitudes to Distributional Practices

Social change resulted from modernisation and the expansion of the middle class affected individual self-esteem—one of the traditional and important components of Iranian national identity that shapes attitudes to wealth distribution. The ethical emphasis that individuals should guard their self-worth is enshrined in the Quran: Muslims’ ‘high value is the main strategy of Islamic ethics and educational method to motivate them to act righteously’ (Quran 39:15, in Joshanloo and Daemi 2015: 115). In other words, self-esteem 6 is at the root of Islamic ethics—it ‘leads to a resistance against sin’. The Iranian system of education actively promotes this worldview as the only one acceptable. This does not mean, however, that education in Iran is inflexible and not balanced between tradition and modernity. Progressive thinking among the most advanced developers of Islamic civil society, such as Mohammad Khatami, inspired Iranians

6 CHM I23 , See Appendix II.

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to promote religious democracy and the reformist agenda in formal schooling, by bringing ‘educated and learned to the forefront of society’, to cover the gap between traditionalists and ‘intellectuals who have longed for democracy’ (Mehran 2003: 312–13). In the 1980s, self-esteem used to be a powerful counter-hegemonic mechanism that maintained revolutionary spirit, and helped Iranians justify and endure poor living conditions for the sake of the common good. Moreover, it was strengthened by the official discourse that praised the poor—the ‘central figure of the revolutionary nation’. In late 1990s and 2000s, the reformist agenda reversed mainstream discourse into criminalising the working poor: a poor citizen was blamed for individual failure, and was seen as a burden on the nation’s welfare (Khosravi 2017: 355–59). As a result, in contrast to the 1980s, in the 2000s, the new generation of Iranians, ‘with a few decades of revolutionary ideology behind it, had no more taste for martyrdom, heroism or utopias, which promised paradise in the future’ (Khosrokhavar 2011). For them, self-esteem could be easily obtained through personal enrichment, as the official ideology stigmatised young people for being ‘unproductive’ if their incomes did not cover expenses (which was often the case due to youth under-employment). This shift in the perception of self-esteem put the youth in a very precarious situation, when their selfesteem has become more dependent on the level of income rather than on individual achievements. This tendency has had a destabilising effect on urban classes, on working poor, and particularly, on Iranian youth, leading to the rise of irregular employment, to the expansion of the informal sector and to the fall in job security. Another consequence of this deadlock—when a substantial proportion of populations fell in a psychological trap between their income-dependent self-esteem, on one side, and the precarious position in the labour markets, on another—inevitably led to a growing discontent over income distribution: ‘by criminalising working class young men, the whole issue of social inequality, structural discrimination, and the exclusion of these young men from society is suppressed and neglected’ (Khosravi 2017). In the 2000s, labour market precarisation and urbanisation, on one side, and growing new middle class with their aspirations for better welfare and secure markets, on another—this combination not only caused ideational changes and behavioural shifts in family formation, as most young Iranians struggled to obtain financial independence from their parents, but also became one of the drivers for formation of the

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Green Movement. Another driver for social mobilisation was the expansion of the middle class 7 —the outcome of economic modernisation with the rising emphasis on educational credentials—that ‘reshaped ideologies and alignments within the country’s political elite’ (Harris 2016: 87). According to Harris, by the late 2000s, this ideological change gradually ‘enveloped nearly the entire political elite’ that moved towards technocratic ‘expert governance’, away from ‘ideologically biased and managerially incompetent ruling’ (Harris 2017: 155). The development of the middle class was an important precondition for the realisation of technocratic plans of a successful modernisation—i.e. tax reforms, subsidy liberalisation, privatisation, industrial consolidation, etc. These reforms affected the labour markets and reinforced urbanisation, leaving only 30% of the population living in rural areas. However, paradoxically, urbanisation in Iran impeded the consolidation of the middle class; instead of moving up the ladder of class structure, ‘the bulk of the migrant population’ ended up in ‘urban poor or lower classes for whom political demands such as freedom and free elections were far less appealing than for the middle class’ (Haghighatjoo 2016: 234–35). Nevertheless, greater access to higher education, coupled with the declining population of rural areas, contributed to the formation of the social base of the Green Movement—a classic example of social mobilisation, understood as ‘the process in which major clusters of old social, economic and psychological commitments are eroded or broken and people become available for new patterns of socialization and behaviour’ (Deutsch 1961: 494). The Green movement was much more powerful than the ‘reform movement’ in the 1990s. It was a ‘move beyond Khatami’ not only for its slogan, but for its grassroots social mobilisation, and for its more radical claims in support of fundamental civil rights, political freedoms, and a ‘more profound and swifter transformation of the political system’, such as power decentralisation and electoral accountability (Haghighatjoo 2016: 224, 233). The eruption of street protests following the electoral fraud in 2009 came as no surprise, as the social base for the movement had developed well before the elections. Yet, to claim that the new middle class formed the base for Green Movement would be an oversimplification, as among the supporters there were many from the working class, rural poor, various civil rights groups that

7 CHM I24 , See Appendix II.

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represented the interests of students, youth, women, disillusioned with Ahmadinejad’s reforms and annoyed with the results of the elections. Overall, the reformists’ and the Green Movement efforts to promote constitutional principles to advance citizen’s rights had a paradoxical effect on the political system: on one hand, they succeeded in pushing authorities to accept a few changes in legislations such as family law, age of marriage, child custody, etc., therefore demonstrating to the wider public that at least in theory advancing human rights and democracy in Iran was possible, on another—the social movement provoked a securitisation of the judiciary by hardliners, who discredited efforts to use the Islamic Republic’s own laws, enshrined in the principle of state interest (maslahat ), to defend human rights (Brumberg and Farhi 2016). However, from an ideological standpoint, it is important to distinguish between two opposing ‘conceptions’ of the Green movement. The first one is formulated by the movement’s leaders inside Iran, such as Mir-Hossein Mussavi, Mehdi Karrubi, Hossein-Ali Montazeri and Mohammad Khatami, who are committed to democratisation and a reformist agenda but strongly denounce regime change and ‘reject confrontational mobilisation as their strategy’ (Haghighatjoo 2016: 230). Also, the leaders of the movement were ‘actively engaged in and solicited interventions from influential clerics’, such as Ayatollah Montazeri (Mokhtari 2016: 260), and criticised the government for the ‘corruption’ of Islamic values and demanded just elections. Mir-Hossein Mussavi proclaimed that the Green Movement was fighting for the forgotten values of the revolution, i.e. ‘freedom, freedom of expression, freedom after expression, and freedom to be elected and to elect’ (ibid.). In contrast, the second conceptualisation of the Green Movement was developed by exiled opposition leaders, such as Mohsen Sazgara, who proposed a break from the Islamic revolution, with its ‘inherently autocratic power structures’, and advocated for procuring foreign help for regime change (Khosrokhavar 2011). They supported secularisation of Islam, the separation of religion from politics. In contrast, the supporters of the Green movement inside Iran opposed any type of foreign aid in fostering democratisation, however, the repressions in 2009 and disagreements over economic matters impeded the formation of effective leadership and precipitated the movement’s demise. Despite the decline of social mobilisation, the legacy of the Green Movement remains and is continuing to shape political views. Like Khatami’s reformers, the followers of the Green Movement are convinced

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that the seeds for democratisation lie inside Iran and cannot be imposed on society from outside. They believe that the Islamic Republic could ‘accommodate freedom and democracy’ by ‘pressure from below, negotiation at the top’ to secure representative government, equality and freedom (Maloney 2015: 260–61). The notion of self-esteem is closely linked to a strong feeling of national independence that has a long historical legacy. For centuries, Iran’s national pride has evolved around the country’s material and spiritual accomplishments—of being one of the greatest powers in terms of military might and civilisation. Iranians remain very hostile to the history of ‘utterly counterproductive attempts’ by the West ‘to impose its culture upon the population, with the Shah serving as a conduit’ (Khalili-Tari 2019). That is why modernisation in Iran ‘doesn’t equate with democracy’, as understood in the West: ‘Iranian people, with their national independence, want to solve their problems domestically’ (Simbar 2007: 57). As Harris put it, ‘democratization in Iran can be aided by a reduction in external threats, as it allows for internal dynamics of contention to force state elites to refashion the post-revolutionary social compact in a politically inclusive direction’ (Harris 2016: 73).

9.3

Connecting WSR Function 9.3.1

Macro-Level: The Ideology

Despite heightened national pride, self-esteem and the alternative vision on modernity, Iranian intellectuals and the political elite have nevertheless been influenced by the writings of Western philosophers. At the beginning of the XX century, Iranians turned to the Renaissance ideas of freedom, equity and rule of law to challenge social underdevelopment and despotic monarchy, which eventually led to the Constitutional Revolution in Iran (1906–1911). Cultural revolution was the first ‘proto-democratic’ movement that united various social classes, such as merchant bourgeoisie, intellectuals and clergy to claim for the House of Justice (edalat khaneh) and for the parliament to limit the ‘arbitrary power’ of the monarch (Khosrokhavar 2011). As such, Cultural revolution ‘embodied in some of the theoretical attempts of the intellectuals of the late nineteenth century to engender a sense of agency in Iran’, established a good beginning for a positive image of individual empowerment (Vahdat 2011: 905–1107). The second advancement in this direction was ‘Mossadegh’s movement’ in the late 1940s—the first democratic movement in the Middle East

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after the end of the Second World War. This movement strived for parliamentary democracy, rule of law, national sovereignty and a more equal redistribution of wealth through national control over the lucrative oil industry (‘re-appropriation’). As the democratic movement’s plans to nationalise the oil industry impeded British and American strategic plans to control energy resources in the Middle East, it was very soon demised by the coup d’etat, organised in 1953 by the British and US secret agencies. Democratically elected Prime Minister Mohammad Mosaddegh was overthrown, and Shah Mohammad Reza Pahlavic was put in his place. The direct involvement of Western powers in the democratic process in Iran ‘had a far-reaching influence in that it made generations of Iranians suspicious towards Western democracy’ (ibid.). It also spurred nationalist ideas before and after the revolution, expressed through religious precepts and reinforced through the educational system by sharing ‘patriotic stories alongside standard lessons in the content and practice of Islam’ (Malekzadeh 2018). Moreover, it complicated the search for the ideals of social justice by pro-democratic movements, such as the Reform or the Green Movement, for the lack of trust towards Western ideals. Of course, the lessons of the 1950s were not the only impediments for Iran’s transition towards democracy. Following constitutional reforms in the 1990s and 2000s, the movement could not fully rely on Islamic Jurisprudence, either, as the functioning of legislative authorities in Iran has been restricted by the Leader and by the Guardian Council, while the system of ‘checks and balances’ has been considerably weakened: the Council of Experts that originally was supposed to scrutinise the actions of the Leader regarding their legitimacy, has turned into ‘a body that merely confirms the Leaders’ actions rather than, as envisioned in the Constitution, ensures accountability of his conduct’ (Brumberg and Farhi 2016: 12). Nevertheless, up to some degree democratic processes in Iran have been preserved and secured by the Iranian nationalism and by what Alem calls a ‘guided competition’ or ‘limited contestation’ (Alem 2016). Ideologically hollow nationalism, when combined with religious premises—is a very potent force both for mobilisation and indoctrination of social forces in support of the regime and for directing political competition. This is especially true at times of external existential threats, such as economic sanctions that induce lots of suffering by interrupting supplies of the most vital goods. Sanctions have had an especially devastating effect on the Iranian economy and healthcare system during the global pandemic. For some on the theocratic left and right, external

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political threats justify the introduction of further constraints on political ‘fluidity’. Nevertheless, presidential and parliamentary elections remain key instruments of the Iranian system of guided political competition 8 — a counter-hegemonic mechanism that is supposed to prevent the political landscape from tilting into extremes (i.e. to the far right of far left). Paradoxically, the system of guided competition at the same time contributes to and limits the ability of the elites to ‘negotiate the political and social terrains’: on one side, the existing hosts of institutions, including the Majilis, secure the maintenance of dynamic intra-elite dialogue; on another—the lack of institutionalised parties disables the capacity of existing factions to channel negotiations to legislate significant political change (Brumberg and Farhi 2016: 8). The role of parliamentary and presidential elections and the unpredictability of their results are vital for the maintenance of the system’s legitimacy in the eyes of Iranians, who continue to see the electorate system as the platform for the fulfilment of the slogans of Iran’s 1979 revolution (i.e. independence, freedom and social justice). Constitutionalism in Iran co-exists with clerical rule. On one side, vital socio-economic policies that direct the country’s development are decided by the means of political contestation, bringing a democratic component into the system. On another, theocratic rule uses elections as a means of social mobilisation which is later channelled into a state-managed hierarchical political order of the nezam, subjugating civil society to public administration. Political competition is limited by a clear-cut red line for freedom of expression. Despite social grassroots struggles for civic freedoms, ideological indoctrination remains unchallenged on a larger scale. At the same time, authoritarian repressive mechanisms of ideological supervision have their limitations: repressions a la 2009 undermine the very legitimacy of the constitutionally increased power of the Leader, and challenge the proper location of political sovereignty, with one question hanging in the air: where does the nezam derive tis legitimacy from? From its people or from God? The system of checks and balances has been successful so far (up until 2021) in preventing any political factions, or alliances, be they reformers, or principilists, from gaining too much control over socio-economic policies. So, elections in Iran were meaningful, despite the fact that the

8 CHM I25 , See Appendix II.

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Guardian Council frequently used its powers to disqualify unwelcome candidates. Not only non-conservatives got disqualified, but hardliners as well. For instance, during the 2016 Majilis elections campaign, as well as moderate cleric Hassan Khomeini, the grandson of Ayattolah Khomeini, some prominent hardliners, such as Hamid Rasaei, a member of the parliament who earlier opposed the nuclear deal, were also disqualified. That year showed the lowest qualification rates in history of parliamentary elections (Sabet 2016). However, the victory of Ebrahim Raisi, a conservative cleric and judiciary chief, to succeed Hassan Rouhani in the most recent elections in June 2021, gave hardliners ‘full control over all branches of the state for the first time in almost a decade’ (FT 2021). This victory does not bode well for the negotiations over Iran’s nuclear deal either, given that after he was appointed by the Supreme Leader as judiciary chief in 2019, Raisi was soon placed under U.S. sanctions over human rights violations. In fact, Raisi’s victory in the 2021 elections by 62% of votes (in 2017, he got 38%) was preceded by the disqualification of many reformists from running for election and the stepping down of three out of seven of the initial candidates from the campaign, and was accompanied by the lowest turnout at a presidential poll since the 1979 Islamic revolution (less than 50%), as some of the reformists’ supporters boycotted the vote—all this signifies a shift of the power balance towards hardliners. Moreover, it ‘undermines the popular legitimacy Iran’s leaders seek to claim from elections at a time when the gap between the regime’s ideology and policies, and the aspirations of the youthful population is widening’ (FT 2021). Yet, all candidates, including Raisi, were in favour of efforts to revive the 2015 nuclear deal and their pre-electoral claims were quite promising. Ebrahim Raisi vowed to combat poverty and corruption, to construct four million new homes in four years, and to build “a government of the people for a strong Iran”. Mohsen Rezai (12% of the vote), the former chief of the IRGC and a secretary of the Expediency Council, pledged to boost exports to neighbouring countries and proposed financial aid of 4.5 million rials ($17) a month for 40 million Iranians. The only remaining reformer—Abdolnasser Hemmati (8%), the head of Iran’s central bank, campaigned for ICB independence, less ‘state interference’, and an ‘active diplomacy with East and West’. Amirhossein Ghazizadeh-Hashemi (3%), another conservative, a doctor by profession and an MP for Mashhad, proposed employment and marriage funds for the youth (with loans around $17,000). The candidates that stepped down just before the

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elections were Alireza Zakani, a former MP for the holy city of Qom, and the current MP for Tehran, who advocated mining sector development and closer cooperation with the Iranian diaspora; Saeed Jalili, a former employee in Khamenei’s office, in charge of negotiations on Iran’s nuclear program between 2007 and 2013, prioritised stronger economic relations with neighbouring states, ‘rather than waiting for assistance from the West’, and Mohsen Mehralizadeh, one more non-conservative candidate, a former vice president and member of the Turkish-speaking minority, called for transparency in political life, affordable housing and modernisation in agriculture to address water shortages (France24 2021). The politics of exclusion in domestic policies, reinforced with the aid of external threats, such as economic sanctions, reintroduced in 2018, goes along with the efforts to consolidate ties with other ‘contender states’,9 as well as to maintain good relationship with Iranian allies in the Middle East. In 2014, the Supreme Leader Ayatollah Ali Khamenei stated: ‘We also have important capabilities outside of the country. We have supporters, we have strategic depth, both across the region and in this country. Some support us because of Islam, others because of the language, and others because of Shia Islam. They all constitute the country’s strategic depth’ (IISS 2019). Close interconnectedness with Iranian allies abroad has been supported both at the macro- and microlevels with the help of the Iranian diaspora, which is the third largest in the world by some claims, with 4–5 million people (after Chinese and Indian). As the expansion of the Iranian diaspora is a consequence of the Islamic revolution (Apaydin et al. 2020), some analysist believe that most Iranians abroad are not supporting the regime and are therefore allying with foreign governments in setting up ‘pro-democratic institutions’ in Iran with a strategic goal of regime change. This is not entirely true, as there are some loyal members (not the majority, though), who act as informal social network agents between the Iranian government and the local public, business, religious and other institutions. Moreover, not all Iranian who live abroad support foreign financial aid and institutional penetration as the means for democratisation. They believe that the easing of external pressures would excite democratic processes in a natural manner.

9 CHM I26 , See Appendix II.

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Apart from the support by the Iranian diaspora, Iran’s regional influence comes from ‘enduring partnerships’ with active civilian or military foreign entities in some countries in the Middle East, such as Iraq, Lebanon, Syria, Yemen and Palestine. Iran has got extended networks, connected to the IRGC Quds Force that successfully perform the country’s external strategies via third parties in foreign jurisdictions. These networks, however, are not active in other regions, where Iran prefers strategic intergovernmental partnerships. The goal of strategic partnerships is not to promote Islamic values but to overcome sanctions-induced isolation by diversification of trade and investment flows. Russia and China are among Iran’s most powerful potential allies. Anti-Iranian pressures and the US sanctions against Russia and China have pushed Iran closer to theses ‘contender’ states. The baseline for cooperation is the commitment to ‘build alternative integrative networks, and multilateral institutions on a regional level’ (e.g. the EAEU, SCO, or Iran’s 25-year agreement with China) in order to create a counterweight to US unipolarity that threatens civilisational identities (Tazmini 2020). Contender block consolidation, however, is riven by contradictions, which could be better understood if conceptualised at two separate levels of interactions. As suggested by Ghoncheh Tazmini: ‘on the top plane there are both common or clashing realpolitik interests that are held down by a gravitational pull onto a foundational level, comprised of common principles and perceptions of the international system. It is this crucial foundational level that accounts for the paradoxes of this most peculiar, but permanent, partnership’ (ibid.). In other words, interests could be both common and clashing at the level of realpolitik, however, mutual agreement over the crucial foundational issues makes the contender states more flexible and willing to cooperate and secure new modes of stable strategic partnership. 9.3.2

Micro-Level: State–Civil Society Complex

The ‘politics of exclusion’ at the micro level was reinstated through the arrangements of the post-revolutionary system of education, not only in relation to the curriculum, but also regarding de-mobilisation of students and control over youth associations (Malekzadeh 2016). After the revolution one of the top priorities of the new political establishment was to secure control over higher education but at the same time preserving the dynamism and political awareness of youth. Since 1983, independent student movement organisations were replaced by state-controlled

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Islamic Student Association (ISA) groups that belonged to the Office for the Consolidation of Unity (OCU). Only ISAs were allowed to operate on university campuses. This controlled students’ interconnectedness in line with the Cultural revolution of 1980–1983, with its official purpose ‘to extricate the corrupt influence of foreign powers “east and west” from universities’, to consolidate state control over campuses and to produce a vast university population, ideologically loyal to Islamic principles (ibid.). The Student Basij Association became one of the major top-down mechanisms for securing the quiescence of students to the political system (nezam). Nezam’s legitimacy was secured by disciplining students and academics through the system of meritocracy, the distribution of academic merits, therefore students were disactivated for political contestation. Mobilisation of students was also restrained by the ‘localisation’ strategy that established numerous local and provincial universities, and introduced quotas for rural applicants to urban universities. This was done to reverse the flow of students from rural areas to Tehran. Overall, ‘what was a once vibrant, diverse, and independent student movement dissolved completely into the ruling structure’, therefore ‘democratic breakthroughs’ at university campuses are constrained and are unlikely, as ‘the combination of consent and coercion is simply too much, the allure to material incentives too strong’, and the logic of meritocracy is too powerful (Malekzadeh 2016). The Cultural revolution went hand-in-hand with the politics of cadre formation.10 Some religious universities, i.e. the university of Imam Khomeini, Imam Sadeq and Imam Baquer, were insulated from the general system of meritocracy due to their unique and close relationship with the Leader. These three universities served as a hub for training loyal cadres: Imam Khomeini, the most connected to the seminary in Qom, produced graduates for the Office of the Leader; Imam Sadeq, like the Russian MGIMO or the Academy of National Economy prepared bureaucrats for various governmental institutions and ministries; Imam Baqer, managed by the Ministry of Information, educated intelligence agents (Malekzadeh 2016: 106–7). Cadre formation went alongside Islamic ideological indoctrination not only in the institutions of public higher education, affiliated with the Basij militia (formally managed by the IRGC since 2007), but also in independent public universities, and in

10 CHM I27 , See Appendix II.

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women’s associations. Like students’ associations, most women’s groups were subjugated to the female Basij militia that produced new cadres of political security ‘apparatchiks’ and managers for the economically empowered IRGC. In the 2000s, the Guardian Council started to play a more decisive role in selection or disqualification of the new cadres on the basis of their ideological credentials in the parliamentary and presidential elections, especially after the success the reformists had in the Sixth Majiles in 2002–2004. However, the hardliners’ grip on power has not been total. Following the traumatic experience with Ajmadinejad’s economic grievances and the post-2009 election repressions, the power of the hardliners was constrained by high popular electoral turnover that secured the victory of Rouhani in 2013, and a wider representation of the reformers in the 2016 parliament (19–20%). Also, despite strict control over mass and social media, Mahmoud Yaezi, the minister of information and communications technologies, decided to resist hardline pressures to close alternative media centres during the electoral campaign, therefore the most important platforms, such as the Telegram messaging app, were operating freely to enable mobilisation of voters in support of the reformers, and undermined the IRGC’s monopoly over information channels (Sabet 2016). At the same time, the politics of cadre formation substantially limits the opportunities of various non-governmental institutions to promote civil rights in Iran, as it channels and institutionalises grassroots popular mobilisation into the top-down hierarchical order of the nezam. The Basij militia plays a significant role in religious and ideological indoctrination and in the institutionalisation of civil society organisations, as we have seen in the case of student associations. Another striking and no less interesting case is of feminist associations that were particularly popular in late 1990s. The Khatami administration supported feminist organisations, and took steps to increase the political participation of women, which culminated in the establishment of the Centre for Women’s Studies in 1995 (since 2005—The Centre for Women’s Participation), as part of the Office of the Presidency. No doubt, women’s emancipation was ‘a nightmare for conservatives’, who believed that women’s principal role should be at home. In 2005, after the election of Mahmoud Ahmadinejad, the activities of feminist institutions were substantially retrained by a dramatic expansion of the female Basij militia (Golkar 2013). Established in 1981 as the Sisters Basij (Moavent’e Basij-Kkhaheran), with the initial goal

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of deploying female volunteers as nurses to the front during the Iran– Iraq war, after the war the Basij created ‘Alzahara batallions’, special female military groups for implementing large public health projects (e.g. the national polio immunisation campaign). Later, however, Ahmadinejad’s administration increasingly transformed the female Basij into a tool for suppressing secular feminists: the Centre for Women’s Participation became the Centre of Family and Women’s Affairs, ‘which reflected the approach of the hardliners to women’s issues’, and in 2009 the Sisters Basijin changed into the Women’s Basij Organisation (WBO). The WBO implemented various ideological political training (IPT) sessions for its members, becoming the main force in enlisting, organising and indoctrinating women who could confront secular movements (Golkar 2013). Women, especially in rural areas, quite eagerly joined the WBO, as for them this was a chance to get out of their homes, to secure their careers in limited labour markets, where positions for women were hindered ‘by the religiously and culturally motivated forces and institutions’ (Behdad and Nomani 2012: 730). The mission of the WBO is threefold: first, to impose moral control; second, to strengthen the family by means of moral control and third, to educate the new generation of Islamic believers; the IPT for women recurred to the conservative Islamic intellectuals, such as to Ayatollah Mortaza Motahhari, who reinstated the rights and duties of women, as well as the importance of psychological security and the philosophy of the hijab in Islam, as part of the religious intercourse on the innate differences between the genders (ibid.). Thus, the political indoctrination and education of conservative Islamist women became one of the powerful mechanisms of cadre formation. As with the educational meritocratic system, this strategy has had a paradoxical effect on the system’s stability: on one hand, it increases control over secular women’s movements and partly institutionalises women’s social mobilisation under the Basij’s control, on another, according to Golkar,—increased women’s social mobility undermines women’s traditional passivity, ‘acquainting them with the new realms of connectivity (especially through the Internet)’, which eventually ‘increases their knowledge and challenges their thoughts’.

9.4

Summing Up…

The cultural and ideological building blocks of transatlantic hegemony and of Russian and Iranian counter-hegemony are an integral part of the investigation of the WSR potential for social engineering. This chapter

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started with the assessment of the global trends that influenced the cultural settings of the WSR alongside its main functions. The cultural capabilities of Russia and Iran were constrained by geopolitical and economic pressures, such as economic sanctions, ideological domination of the Western neoliberal model and hardships and contradictions intensified by the global pandemic. Both Russia and Iran were trying to consolidate society by establishing state power over communication, information and education by institutionalising civil society institutions under state control. 9.4.1

De-commodification

In Russia, the de-commodifying WSR function was shaped by the discursive debate over unipolar versus multipolar world orders, with a contentious vision of liberal democratic ‘peace’ versus a civilisational coexistential consensus. Liberal norms and values penetrated Russian society and significantly invoked a re-commodification of human activities and a reconstitution of social welfare provisions. This explains why a dominant civilisational discourse acquires contradictory ideological ramifications by rival intellectual groups that attribute themselves to liberal democrats, communists, Eurasianists, nationalists and so forth. Despite the fact that most Russians, as well as the president, identify Russia as a European, rather than an Asian state, the imposition of sanctions inspired a new wave of intellectual debate over Russia’s ‘otherness’, over the necessity to restore state power and strong leadership to secure the country’s integrity, and to reassert ‘normal’ politics. The emphasis on a civilisational diversity has acquired popularity among other contender states, and other rising power blocks. At the same time, centralisation of power increased the risks of bureaucratic expansion, of corruption in higher power echelons and of disturbing administrative interferences in the process of Eurasian integration. The impact of sanctions on the cultural capabilities of the Russian WSR has been contradictory. On one hand, economic warfare strengthened the ‘ideology of statecraft’ by encouraging a new political agenda of state institutional consolidation, of the revival of Russia’s ‘derzhavnost ’, and of Eurasian civilisational regionalism. On another, Russia faced a ‘distributional trilemma’, according to which labour precarisation, poverty traps and wage equalities were sacrificed for the sake of industrial modernisation, labour mobilisation and budget stability.

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The de-commodification of workers in Iran was complicated by constant external pressures, such as wars and economic sanctions. However, throughout the centuries Iranian national identity has been shaped by territorial integrity, ‘Shiiasation’ and the political indoctrination of Islam that boosted the collective spirit: Iranians could tolerate extreme degrees of economic hardship, but at the same time remained sympathetic to cultural and ethnic diversity. Shia’s political intellectuals faced a hard task to navigate between global neoliberal hegemony with its secular tendencies, driven by industrialisation, modernisation and dramatic shifts in production, communications and trade, on one side, and a powerful clerical establishment that tried to preserve Iranian authenticity, on another. After the revolution of 1979, the intra-regime competition along these fault-lines gained new momentum, as a result, power was diffused in a fluid ideological-political environment, which on one side, had a strong de-commodifying potential that was realised as the outcome of intra-elite conflict and social mobilisation of various class segments, but on another, put the regime at a risk of intra-elite conflict that could (and did) easily spread into masses and gave rise to protest movements and social unrest. However, although influenced by cultural globalisation, Islamic values were not easily replaced by materialistic values: the pro-Islamist forces in Iran still remain dominant, and the power of religion is much stronger than in post-Soviet Russia, or in any other European state. 9.4.2

Redistribution

In Russia, like in other states worldwide, the long-standing philosophical contradiction between the individualist and communitarian hierarchy of human values is manifested in the inconsistency between the worldviews of some Russian politicians and their actual behaviour and lifestyles. Income redistribution was affected by the neoliberal belief in economic progress, in a common public benefit from economic growth, which, however, resulted in massive income disparities in Russia. The government retreated from neoliberal ideology towards the ‘ideology of statecraft’ by restoring the state’s responsibility for citizen’s welfare, by making steps to consolidate society that was left fractured and polarised after the era of liberalisation in the 1990s. The restoration of a communitarian content in the state ideology has been vital for popular mobilisation at times of economic hardship caused by sanctions

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and low commodity prices, however, this does not imply material deterioration of the social-economic policies, nor a purely altruistic driver for the regime’s consolidation—the government holds a pragmatic, rather than idealistic vision concerning social welfare requirements. Also, a revised program for corporate social responsibility increased business activities in the socio-economic and ecological fields. From the position of oligarchs, however, there was silent consent to provide for public social welfare in return for the legalisation of their assets, illegitimately privatised in the 1990s. One of the challenges for Russia is concealed in the ambiguous nature of Russian identity, in the difficulty of reconciliation of intergenerational and inter-class opposing views concerning generally accepted social norms, institutional practices, personal behaviour and the moral limits of the market. In Iran, prominent intellectuals and politicians aspired to find alternative ways of transforming their identity and political system to a more egalitarian and secular system, deeply rooted in the quest for an alternative way of modernising society. However, strong anti-capitalist views, held by the principilists, or theocratic left, contradict their actual policies, such as economic privatisation, which in fact contributed to the formation of a state capitalist structure under the management of the IRGC. Over time, many on the left gained more pro-democratic and market friendly views on modernisation, increasingly stressing the importance of individual civil rights and freedoms. For those on the right, the market economy was seen as the model for income distribution and for securing modernisation, however, the plans of the reformers and centrists who advocated a ‘China model’ with economic growth and private sector development, as well as a technocratic productivity-enhancing universal welfare system, were hijacked by hardliners who used this quasi-liberal reform to consolidate economic power. The Iranian alternative vision of modernity was also redirected from communitarian to individualistic postulates and the system of meritocracy, which, however, was not efficient enough to redistribute benefits well enough, leaving the young population in a very precarious position and impeding middle class consolidation. This inevitably led to popular mobilisation into the Green movement and social unrest, whose legacy is continuing to shape social political attitudes today.

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Connection

In Russia, the connective function was fractured due to the fatal collapse of the Soviet ideology and the normative inquisition of ‘liberal democracy’ that infiltrated Russian institutional and material WSR structures. However, as the Russian case demonstrated, social engineering, when incurred by external forces rather than from within the state, is a very difficult task to accomplish. Heterogeneity and discontinuity of Russian identity impedes the formation of a common ‘motivational dominanta’. At the same time, the Russian government believes that the regime of sanctions granted new momentum to the government’s ideology of statecraft that could be promoted through counter-hegemonic mechanisms that imply new human resource strategies, rejuvenation of state officials, state– civil society dialogue, and the formation of intermediary classes. However, state–civil society dialogue, centralised around the Civic Chamber and multiple forums, like the Community Forum, has contradictory tendencies, as it comprises democratic and non-democratic features: on one side, it reconstructs the link between grassroots civil institutions and senior state officials, allowing voices from remote parts of Russia to affect decision-making, on another, the formation of a hierarchical structure of civil society, although necessary for a prompt and efficient reaction to social needs, might become inflexible and bureaucratised, eventually narrowing the dialogue. In Iran, the search for the ideals of social justice by pro-democratic movements, such as the Reform or the Green Movement has been complicated in the context of ‘guided competition’ or ‘limited contestation’ for the lack of trust and isolation among the ‘reformers’ or the protesters, and also due to the restriction of legislative authority by the Leader and by the Guardian Council. Social mobilisation has been redirected by active indoctrination of the population, performed by the volunteers and the permanent members of paramilitary institutions, such as the Basij. Permanent external existential threats, such as economic sanctions that induced lots of suffering, served as a pretext for further power consolidation and justified some repressive measures against human right activists. At the micro-level, the regime interconnectedness has been secured by loyal cadres that were produced by the post-revolutionary system of education, and associations that controlled youth associations. Most independent civil society institutions are patronised by various Basij compartments that cover various fields of social

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lives, creating a panopticon-type centre of command for directing social mobilisation. However, despite all this, electoral contestation and spontaneous social mobilisation remain an important aspect of Iranian political life, leaving some room for democratic shifts of power. Moreover, political indoctrination and the expansion of education has a contradictory impact on the system’s stability: on one side, it increases control over civil society and partly institutionalised social movement under the Basij’s control, on another, it has become difficult to prevent the highly educated population, which is now in the majority in Iran, form questioning various aspects of the legitimacy of the nezam.

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PART V

Welfare State Regime Reproduction

Abstract This part synthesises the processes that unfolded in Russia and Iran in response to economic sanctions as described in the previous empirical chapters. It assesses counter-hegemonic mechanisms in greater detail by exploring their internal contradictions and identifying the general trends of contender states’ evolution: power centralisation; economic modernisation and optimisation; strategic partnership and diversification; para-constitutional reformation; human resource development. WSR reproduction also has a significant international component as it seeks to ensure the Self-Protection of Society. The chapter concludes by asking to what degree the Russian and Iranian WSRs obtained Hobbesian features and to what extent sanction-sender states are Lockean in nature. Keywords Sanctions, Welfare State, Reproduction, Hegemony, Political Philosophy, Thomas Hobbes

CHAPTER 10

WSR Reproduction

10.1

Introduction

A comparative analysis of Russia’s and Iran’s WSR reproduction that joins national and international contextual settings for the Self-Protection of Society is the final section of the current research. The function of reproduction is a synthesis of the processes that unfolded within society during the period of economic sanctions. The objective of Part V is twofold: first, to explore in greater detail the counter-hegemonic mechanisms previously identified in the main empirical chapters (the main theoretical question of the book); second, to draw a comparative analysis of the strengths and weaknesses of the counter-hegemonic settings of the target states by identifying the contradictions that these mechanisms engender (the main empirical question), which predetermine the state’s success or failure in contending with the ‘Lockean heartland’. The first goal presupposes a synthesis of processes alongside the main WSR functions of de-commodification, redistribution and connection, differentiated by institutional, material and cultural structures. Coercive or consensual, these processes are seen as CHM when they reproduce material and mental forces of social control and resilience to geopolitical pressures such as economic and political restrictive measures. Socio-economic and political hardships that emanate from untimely and insufficient protection of society from the corrosive effects of the © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_10

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contradictions of capital on social well-being are the mechanisms through which sanctions work: by exacerbating those contradictions, sanctions target the self-protection arrangements of already unstable welfare state regimes. First, with respect to institutions sanctions further limit the availability of state resources that are already scarce as the result of neoliberal state retrenchment and the global financial and health crises. Second, materially sanctions weaken productive (and hence taxation) capacity, disrupt the effective linkage between production and realisation, and disconnect industries from the global value chains. Third, by drawing attention to the contradictions of a neoliberal individualistic model sanctions motivate a return of strongly collectivist and authoritarian worldviews. The following passages will assess the ways sanctions deepened these contradictions and led to the deployment of CHMs in Russia and Iran. 10.1.1

De-commodification

Financialisation and retrenchment of the Western welfare state model resulted in the model’s eventual deterioration after the global financial crisis of 2008. Emerging new forms of ‘revolutionary’ tensions, ‘manifested’ in the rise of neo-populism, required a political solution (Kaynak 2016). Harsh austerity measures in most ‘liberal democracies’, aimed at transforming empowered social labour and subjugating it to the imperatives of capital, translated into a new wave of neo-colonial ‘spatiotemporal fixes’ (Harvey 2003). The imposition of sanctions, the rise of neo-imperialism and neo-revisionism, especially the military transformation of the OSCE ‘into an instrument of NATO’s foreign policy backfire’ (Pijl 2018: 25), met resistance in Russia and Iran, pushing its leaders to reassess the countries’ domestic and foreign policies, with significant alterations to a series of the state’s strategic documents. Sanctions intensified the contradiction between transnational capital and domestic labour in the target state. Declining real incomes of the most vulnerable social groups challenged stable consumption and increased demand for public spending, while channels to finance labour reproduction by borrowing in the global financial markets were narrowing due to the denial of United States to Iran and to Russia of any ‘credit, credit guarantees, or other financial assistance by any department, agency, or instrumentality of the United States government, including the Export-Import Bank’ (The Federal Register 2018). The pressure for

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re-commodification increasingly locked domestic labour into a ‘position, where they could do nothing other than reproduce the condition of their own domination’ (Harvey 2014: 64). This stalemate triggered three CHMs in the Russia—effective leadership, including the fortification of Putin’s role as the guardian of the Russian ‘third way’, as a guarantor of social stability, as a protector from radicalised ‘Western ideational foundations of the Cold War discourses’ (Sakwa 2017a), further monopolisation of ‘strategic’ sectors of the economy, in order to increase tax collection, and enhance state control over capital flows (i.e. energy, finance and military-industrial complexes), and the increased role of Sovereign Wealth Funds that guaranteed Russia’s financial stability. In Iran, the institutional response was a reinforced popular mobilisation through the diffused-power semi-autocracy which enhanced its legitimacy through the continuous expansion of education. This allowed to supply labour market with highly qualified labour force. These mechanisms were meant to accumulate sufficient resources to meet demand for public expenditures, at the same time improving the efficiency of the system and the quality of social services, to respond to re-commodifying pressures, increased with industrial modernisation and IS programs. The material capabilities of Russia and Iran developed in the context of rival capitalist tendencies that evolve between production and realisation. De-commodifying policies in both Russia and Iran have been affected by the neoliberal restructuring of global production, by profit maximisation strategies, by increased labour, wage, employment, job, skills, ‘flexibility’ that led to labour markets ‘precarisation’ and to a deterioration of effective demand (Standing 2011). At times when surplus value could no longer be maximised through lower labour costs, US secondary sanctions have become a powerful tool to aid an exhaustion of American ‘minimal’ hegemony, along with the rise of other protectionist policies inspired by the ‘America First’ model. Russia’s and Iran’s potential resurgence as competitors in global markets was curtailed by financial and technological restrictions designed to disrupt the effective linkage between production and realisation in the mining, military and other sectors. Economic sanctions, projected to make the aforementioned split of capital into national and international more feasible, disconnected Iran and later Russia from global value chains: the disruption of domestic production cycles in some industries undermined the state’s economic and fiscal capacities and ultimately its de-commodifying abilities. The following CHMs were Russia’s response to these challenges: reconsideration of the Concept of National

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Security that prioritises the development of the middle class and investment in human resources to alleviate the impact of income inequality on economic growth, and stimulation of service import substitution as the main driver for economic modernisation and diversification to fill the sanctions-induced gaps in the production value-chains of the ‘strategic’ sectors of economy which constitute the core contributors to the state budget. In Iran, popular mobilisation played a massive role in the formation of the middle class that demanded enhanced labour protection and reinstatement of the Martyr’s welfare state arrangements in order to withstand commodification. The destructive socio-economic effects of market fundamentalism on the Russian political economy in the 1990s erased the trust of the majority of the Russian population in the classical model of the liberal economy as a ‘direction of nature’ towards commodification. The ‘repressive tolerance’ to the ‘intolerable instruments’ of globalisation has been exhausted in society, and was thereby considered ‘the most effective manifestations serving the cause of oppression’ (Marcuse 1965). The neoliberal concept of freedom of rational individuals, responsible for their own happiness, systematically used to ‘justify the imperial and neo-colonial domination of much of the world’ more resembled the terror ‘launched in the French Revolution in the cause of consolidation ‘liberty, equality, fraternity’’ (Harvey 2014: 201–3). Sanctions intensify the mismatch between freedom and domination, as the target state begins to shape social forces ‘pre-emptively and often violently, from above, rather than on the ground of social development and production’, leaving people dependent on the state for their existence (van der Pijl 1998: 82). As some proportion of the population is pushed into opposition to the ruling class, the government takes measures to resist centrifugal tendencies. This is accomplished by hardening the state’s grip over strategic sectors of the economy. However, the role of the dominant ideology also plays a crucial role in this respect. Thus, Russia developed the following CHMs: patronage politics alongside collectivist-oriented and altruistic social practices in which the ideology of statecraft and patriotic pride secured public ‘consent’ and tolerance to austerity and economic hardships. Russia sought to enhance its role in global culture by consolidating the Russian-speaking diaspora abroad, by promoting the Russian language, literature and arts, increasing ‘global awareness of Russia’s cultural achievements and national historical legacy and the cultural identity of the peoples of Russia’ (Foreign Policy Concept of the Russian Federation 2016), with the support by

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the Russian Orthodox Church that sets it goal to ‘educate the faithful in the spirit of patriotism and love of peace’ (The Moscow Patriarchate 2018b). In Iran, the ideological political fluidity was a CHMs that helped to sustain labour market protection, reinstated by doctrinaire Islam as a guide to the behaviour of individuals and households. 10.1.2

Redistribution

The redistributive potentials of the WSRs in Russia and Iran have been considerably constrained by global imbalances, rising income inequality, and Russia’s and Iran’s lagging position in the global flows of goods, services and investment. Sanctions aim at perpetuating these problems. First, institutionally, sanctions weaken redistributive potential of state institutions, further deteriorating the countries’ already precarious position in the ‘geo-economic structure’ (van der Pijl 2006: 16), in which Western, predominantly US, capital spatially reorients towards South-East Asia, or elsewhere, to resist the formation of new geographical landscape in developing countries. The contender states respond to this by ‘building up a rival apparatus of wealth creation within their separate jurisdictions, at best harnessing the resources of satellites’ (ibid.: 13). Second, sanctions accelerate capital’s tendency to foment oligarchic class structures, to worsen income and wealth distribution and to threaten social stability. This happens because capital fails to channel the productivity created out of technological advancement for common welfare, but rather perpetuates inequality, thereby favouring ‘a small band of oligarchs’ (Harvey 2014: 91, 165), like those in Russia, who appropriated most of the natural resource rent after the collapse of the Soviet Union. Third, culturally, sanctions aim at damaging social cohesion, as asymmetries in society reinforce plutocratic elements in the region. The following passages will consider these geopolitical pressures and the CHMs in Russia and Iran taken in response to these pressures. First, uneven geographical development and the production of space serve sender-states’ political objective of further deterioration of the target’s position in global production and trade. Investment flows are inevitably redirected away from sanctioned states, damaging the primary and secondary mechanisms of wealth distribution and rupturing external and internal supply-demand relations. By limiting the country’s access to global financial resources, sanctions lead to capital outflow and to a decline in domestic investment. Capital flight that exerts downward

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pressure on wages and real incomes is an existential threat to a target state. The acknowledgement of this threat triggered several responses in Russia: reinforced state control over capital flows and national stock markets, secured via formal and informal agreement between state official and capital owners over reinvestment of their profits; measures to reduce state budget vulnerability to external shocks, extension of enterprise paternalism to mobilise and manage human recourses for industrial modernisation and protection of employees from precarious tendencies; further consolidation of intra-budgetary redistribution, directly, via specific institutions, such as the Fund for Financial Support of the Regions, and indirectly, via fiscal mechanisms (i.e. VAT, NDPI), and d) financial optimisation of socio-economic policies (i.e. budget optimisation and austerity measures), by raising the functional effectiveness of welfare institutions to lower the amount of public social spending. Iran had the following CHMs put in place: redistribution of wealth through land reform to obtain self-sufficiency in vital agricultural production, coupled with loose monetary policies to stimulate economic growth in other sectors of the economy, constitutional empowerment of supranational institutions, such as the Expediency Council, and substitution of the state’s direct ownership in the economy with a ‘subcontractor’ state, constitutional ‘adjustment’ of Sharia law to the government’s strategic needs. Second, sanctions aim at disrupting the positive effects of technological advancement and innovations on productivity, as centralisation of economic power that happens in response to external pressure might shift resources towards oligarchs, perpetuating inequality. As a result, the link between ‘human disposability’ and technology, defined as the use of natural resources, processes and things ‘to make products for human purposes’ (Harvey 2014: 92) is no longer workable; in other words, the benefits of technological advancement are not used for common social benefit. Historically, the waves of technological innovation have been strongly associated with wars and threats of arms races, as the military ‘branches of state apparatus’ in some developed states have been deeply involved ‘in search of superior weaponry and organisational forms’ (Arthur 2009: 203). In this technological warfare (as the present US sanctions against China demonstrate), sanctions transform state security strategies, leading to a resurgence of economic military nationalism and protectionism that spreads across most profitable sectors of economy. Technological retardation places the target state at risk of remaining

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the natural resource appendix to global capitalism. Russia’s response to this risk was threefold: state-led technological modernisation and import substitution; social fund sustainability and fiscal reforms in attempt to facilitate the formation of effective demand, crucial for successful technological modernisation, and counter-sanctions to ease domestic production and to improve the country’s position in the global division of labour. Similar processes were triggered in Iran: ‘resistance’ strategy for selfsufficiency with a specific focus on the development of knowledge-based high-tech industries, designed to reduce the country’s dependence on the import of raw materials, the empowerment of parastatal institutions with a preferential fiscal status that allowed them to accumulate sufficient funds for the realisation of socio-economic projects and welfare programs. The third tension arises with the plutocratic tendencies that disrupt social cohesion, as struggles over distribution of wealth are interlinked with the other forms of inequality, such as inequality before the law, inequality of political representations, inequality of educational and employment opportunities, which inevitably lead to additional ‘terrain of struggles’, such as the struggle for recognition and respect, for citizenship rights, for cultural and religious freedoms, ‘and even over the right to be lazy’ (Harvey 2014: 168). By ultimately benefitting the rich, as cost reduction strategies and austerity measures will inevitably have a downward pressure on wages, sanctions not only undermine democracy, contributing to the rise of plutocratic tendencies, but also slow down economic growth, as some fraction of the population that could have contributed its knowledge and efforts to economic growth, no longer has sufficient funds to invest in their education to develop their skills (Milanovic 2011). To resist these plutocratic tendencies, Russia’s counter-hegemonic response can be summarised as the following: restoring continuity of the traditional patriotic values that prioritise national interests and reconceptualise the notion of social justice: stressing the importance of human resource development for the common benefit; institutionalisation of the concept of social responsibility of large and medium-size corporations, constructing the platform of consensual cooperation between government and oligarchs and business, subjugating the corrupted elements under state control (e.g. Medvedev’s ‘Concept for public non-accounting’—2017), the maintenance of Russian-type clientelism and social interconnectedness to reconcile individual private interests with common strategic goals through informal recreational, housing, sport and other networks. In Iran, social cohesion was secured

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with the promotion of Iran’s alternative ‘third way’ towards modernity that preserves national identification, the maintenance of the revolutionary spirit, reinforcement of the notion of self-esteem which is central to Islamic ethics and the mobilisation of the middle class in support for human rights reforms. 10.1.3

Connection

The connective potential of the target states and their capabilities to shape the modalities of social behaviour and practices have been affected by the actions of international organisations and foreign national governmental, non-governmental and business institutions that, in some cases, challenge the legitimacy of the current political organisation and reproduce the country’s subordinate position in the global division of labour, redirecting the flows of capital and human resources away from sanctioned states. While the topic of NGOs requires independent research, it still can be argued that sanctions aim at aggravating the negative impact of the following tensions on connecting WSR settings. First, institutionally, sanctions fracture state–society relations, intensifying the contradictions between individual private property rights and the collective exercise of coercive governance by pressuring the government to revert to a state-centric system, which prioritises collective interests over private goals. Second, sanctions disconnect the target state from investment flows and global value chains, disturbing the ‘motion of capital’, leaving the country with no alternative but to temporally ‘fix’ capital by investing in proper infrastructure projects to secure its future motion (Harvey 2014: 41). Third, sanctions fracture social solidarity and undermine trust in the target state’s institutions worldwide. The danger is that social ‘multiple alienation’ intensifies geopolitical rivalries, gives rise to nationalism in its extreme and spills-over across Western societies. The following passages will consider these mechanisms of sanctions and responses of Russia and Iran. First, sanctions disturb the connecting abilities of the target states by intensifying class and non-class rivalries, and exacerbating the tensions between democratisation and capital accumulation. As noted above, efforts to consolidate ‘strategic’ resources in both Russia and Iran were considered as an inevitable step to provide for social welfare, though undertaken at the expense of democratisation. Sanctions necessitate

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finding a collective form of governance to reconcile the tension between what Harvey called ‘the potential arbitrariness of state autocratic power and the popular desire for individual liberty’ (Harvey 2014: 49). Russia responded to this challenge with the following CHMs: the system of tripartism that consolidated the partnership between the government, businesses and workers, by securing cohesion between state institutions and large enterprises, setting the rules of the game to reduce capital flight; the enhancement of the power vertical to synchronise regional with central legal systems, strengthen the executive branch over the legislative, and curtail the independence of mass media and foreign NGOs, para-constitutional settings that subordinate constitutional order to public administration. In Iran, the system of checks and balances maintained the legitimacy of the regime, the dualistic institutional structure set new lines of interconnectedness for the country’s reconstruction and development, the system of enterprise paternalism aided institutional control over the population through the networks of parastatal institutions. Second, the connecting capabilities were highly constrained by the tension between capital’s fixity and motion. This tension is perpetuated by the target state’s economic and security institutional isolation, by foreign NGO activities that seek to modify national identity, seize control over national wealth or reconstitute civil society dynamism towards regime change. Contender state counter-hegemony is directed not against liberalism per se, but rather against the US-controlled Western institutions (neoliberal at present) that claim to be protecting neoliberal values. The means to protect liberal values, such as a direct military intervention and economic sanctions, is far from liberal. Sanctions exacerbate tensions between fixity and motion within the circulation of capital by disrupting long-term investments in fixed capital in a target state. The following CHMs were meant to secure investment flows into the Russian economy (and prevent investment outflows): creating financial and fiscal stimuli for new investment projects, the realisation of a series of mega-projects to turn capital’s ‘motion’ into ‘fixity’ to secure future motion; megaprojects also aim at reducing disparities between regions by developing remote areas, investing in transport communication, increasing connectivity between the centre and the periphery; Eurasian integration, to stimulate FDI and hedge the WSR from geopolitical risks. In Iran, the measures were similar: the creation of free trade zones, the realisation of large infrastructure projects, and the mobilisation of resources through informal power networks.

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Third, sanctions aim at fracturing social solidarity and undermining trust in Russian institutions worldwide. Neoliberal discourse continues to serve US hegemonic aspirations, despite the fact that the United States itself retreated greatly from liberal economic policies, carrying out significant protectionism. Neoliberalism evokes a powerful feeling of global interconnectedness in people’s minds, designs consumption patterns, lifestyle habits, and above all preserves the leading position of the dollar in the global economy. Apart from that, the hegemonic control over populations is practiced via institutional penetration into foreign civil society terrains. The media coverage that constantly positions Russia and Iran as enemies ‘seeking to subvert an honest democracy’, as a ‘threat’ to the Western world that needs to be deterred, negatively affects connecting capabilities of WSR, first, by alienating the domestic population from Western institutions, second, by spurring Russo- or Irano- phobia and third, by dividing the West over the legitimacy of the emerging extraterritorial legal practices. Russia’s counter-hegemonic mechanisms create an alternative ‘collective political subjectivity’ by offering an ideological and practical resolution to external pressures: the political discourse of Russia’s ‘otherness’; consolidation of the ‘contender’ block, by seeking support in other states to a worldwide civilisational discourse and to the concept of multipolarity; the formation of a hierarchical structure of Russian civil society, a para-constitutional dialog between the state and civil society, reconstructed through the Civic Chamber of the Russian Federation and a series of new platforms, such as the Russian Social Forum, and Forum for Social Innovations. In Iran, socio-political interconnectedness was supported by its ‘third’ way: guided political competition that facilitated intra-elite political dialog, ‘contender’ block consolidations, like in Russia, reinforced by the mutual agreement over crucial matters and shared worldviews, program of cadre formation that channelled and institutionalised grassroots popular mobilisation into the top-down hierarchical order of the nezam.

10.2

Counter-Hegemonic Trends 10.2.1

Power Centralisation

The first direction of the WSR development in both Russia and Iran was power centralisation, exercised through the monopolisation of strategic sectors of the economy that went in parallel with some drivers to enhance

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state control over capital and labour. In Russia, the monopolisation in the vital spheres was enhanced by increased state control over capital flows in the banking sector, over domestic financial markets, and consolidation of the sovereign wealth funds. Public and business consent for this centralisation was secured via the system of tripartism, a reconstituted civil society hierarchy, and intensive discourse of ‘otherness’, ideologically enhanced by increasingly vociferous state mass media. In Iran, quite paradoxically, power centralisation was reinforced by means of privatisation, which in practice resulted in the empowerment of parastatal pseudo-state military institutions, affiliated with the IRGC, rather than in rising competition. This gave rise to a ‘subcontractor’ state on the basis of existing enterprise corporatism that effectively redistributed wealth and income through the workplace. However, contrary to Russia, it was more difficult to obtain public consent for power centralisation in Iran, as the democratic institutions in a weak party system—the bedrock of the legitimacy of a diffused-power nezam—had to respond to the demands of the population at large and effectively resisted the top-down mechanisms of social control. At the same time, less visibly, the extension of the Martyrs’ category to a wider population and a continuous indoctrination of Islam were the mechanisms that to some degree consolidated public consent to power centralisation for the sake of social benefit (Fig. 10.1). RUSSIA

IRAN

Monopolisation of strategic sectors (CHM 1)

Diffused-power semiautocracy (CHM 1)

Consolidation of SWF (CHM 2)

State control over capital flows (CHM 4) The system of Tripartism

Power centralisation

Subcontractor state (CHM 5)

Marty’s Welfare State (CHM 13)

Parastatal Foundations (CHM 15)

(CHM 8)

Discourse of ‘otherness’

Indoctrination of Islam

(CHM 25)

(CHM 21)

Civil society hierarchy (CHM 20)

Fig. 10.1

Guided democracy (CHM 25)

Power centralisation (Source Author’s diagram)

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The monopolisation of strategic sectors of the economy that was more pronounced in Russia but partially obscured by pseudo-privatisation in Iran enabled the governments in both states to enhance state control over capital flows, increasing the resources available in the state budget and wealth funds to restore the de-commodifying capabilities of the pension systems and to meet increased demand for public expenditures. However, the logic that what is good for an individual might not be good for society as a whole leads us to the following contradiction that challenges economic sustainability of the WSR: on one side, monopolisation helps particular institutions and businesses to accumulate enough financial, administrative and other forms of resources to withstand financial hardships in times of sanctions, and to accumulate sufficient funds to increase the de-commodifying capabilities of the pension system, on another, monopolisation increases the system’s overall vulnerability to sanctions: financial resources, when pooled and concentrated, become a much easier ‘target’ for economic restrictions. This was also true in case of sanctions against individuals: sanctions aimed at affecting not only individuals directly, but mainly their businesses, therefore by acquiring new assets, oligarchs automatically become transmission mechanisms for sanctions across economy. This was particularly the case in Russia, where pooling resources under control of one legal entity (such as in the case of Rosneft’s takeover of 50.08% of Bashneft) inevitably extended the regime of sanctions over a company that might not have fallen prey to them. In Iran, however, contrary to Russia, the web of parastatal foundations (the bonyads) and their affiliates that secured access to strategic assets as the result of privatisation is much more difficult to detach, as the financial and operational linkages remain dispersed and obscured in a less transparent legal system. Therefore, if Russia were to decrease the impact of sanctions of the vital sectors of economy—the ownership of those entities has to become less centralised. Moreover, as it was the case in Iran, an increased participation of the state in the decision-making of private firms makes the legal status of the latter quasi-private, inducing further centralisation and less flexibility to external shocks. Further centralisation of strategic sectors along with increasing vulnerability to financial restrictions dictated a necessity to increase control over capital flows. For both Russia and Iran, increased state intervention in financial markets had several objectives. First, to decrease the system’s vulnerability to external shocks, such as the global financial crisis.

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Second, to consolidate enough resources to finance strategically important projects and corporations. Third, to extricate the banking sector from informal networks, ‘formed by rent seeking clans’ inside the state apparatus, increasing ‘the state’s administrative capacity in its control over financial flows’ (Viktorov and Abramov 2016: 16–17). In Russia, the consolidation of leading stock exchanges RTS and MICEX, dependent on foreign speculative capital, reduced the system’s vulnerability to external shocks (ibid.: 8), while banking sector reform led to a 8% growth in assets, despite sanctions. Parallel to this was the consolidation of Russian sovereign wealth funds into one Russian National Wealth Fund (FNB), with the aim to refinance large business corporations from the fund’s profitable mixed portfolios, not directly from the government budget, or via quantitative easing, spurring inflation. In Iran, the IRGC have been expanding its for-profit economic activities in the Islamic (interestfree) banking system since the end of the Iran–Iraq war, and by 2000s the banking sector had become fully nationalised and excessively bureaucratised, constantly responding to ‘the budget shortfalls and borrowing needs of the money-losing state entities’ under sanctions (Amuzegar 2001). As in Russia, concentration of control over the banking sector increased its accountability to the system, made it less vulnerable to financial crises, but more vulnerable to potential US secondary sanctions. The good thing is that state-owned corporations that are under sanctions get access to resources to refinance their business activities, but at the same time they tend to become less disciplined, use funds less efficiently, and accumulate greater debts. Therefore, the reliance of large businesses on state funds perpetuates ‘patron–client dynamic’ that ultimately limits business efficiency and profitability. Moreover, as the state-controlled agencies prioritise strategic sectors, the access of small and medium-size business to the national banking sector is limited, and credit becomes more expensive. For instance, Iran is facing ‘a missing middle problem’ with a large number of small firms, but very few middle-sized enterprises, and the lack of a ‘constructive link’ with the banking sector (Financial Tribune 2015). Also, the appearance of new informal networks in the context of increased state expansion might undermine state capacity to finance industrialisation. In Russia, in some cases the fight against informal financial networks has reproduced corruption, as the CBR revokes the banks’ licenses after their shareholders have withdrawn their assets to offshore zones (Pasmi.ru 2014). Therefore, both Russia and Iran need to reform their banking

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sectors not only in a way that cushions large corporations but also facilitates the development of medium-size businesses—the cornerstone for economic stability. Large businesses in Russia and Iran are heavily reliant on the ‘patron– client dynamic’, reinstated through the system of tripartism in Russia, and in Iran—through parastatal institutionalisation that extended the category of martyr to new parallel institutions. However, the mechanisms of social cohesion and control that underpin patron–client relationships are different in Russia and Iran. In Russia, they are based on a stable government-labour-enterprise commitment that consolidates the ‘economic space’ by mitigating uncertainties and instabilities and securing a greater cohesion between state institutions and large enterprises. The ‘tripartite agreement’ sets the rules of the game, nudges businesses to prioritise domestic interests, constrains capital flight, and in some instances resembles neo-corporatism, as politicians increasingly rely on corporate social responsibility to fulfil their political targets. In Iran, the extension of generous social provisions (e.g. housing, health care and education) to the family members of the institutions that already enjoy a considerable level of welfare support, such as the Basij militia, the IRGC, the Construction Jihad, diluted the original meaning of a ‘martyr’, causing mistrust, annoyance and criticism among the population left outside the system. For outsiders, generous welfare schemes go in stark contrast with the precarious position of youth and women, of the poorest households living at the edge of subsistence. The ‘tripartism’ in Russia is not much better, either, as although it strengthens the partnership between government and firms, it is biased towards capital rather than labour, and speaking in Colin Crouch terms, has become less and less ‘legitimate in terms of the market’ (Crouch 2009: 397). The power of organised labour in this tripartite settlement remains very small, and as the Russia’s experience shows, in most of the cases, the bargaining between government, employers and employees over wages and social welfare have little influence over actual decision-making, and these agreements remain statements of intention that lack enforcement mechanisms (Remington 2011: 55). In Russia and Iran sanctions facilitated consolidation of civil institutions of grassroots origins under the supervision of parastatal organisations that became increasingly prominent. The governments in contender states attribute a major role for civil society for sustaining national security,

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expecting that the image of a ‘sieged society’ will become an ideological inspiration for mobilisation, uniting previously fractured social groups (Yashina 2018). In Russia, the limited power of organised labour has been disguised by the link between the government and the population that was reconstructed with the active participation of the Civic Chamber of the Russian Federation, and of newly created platforms, such as the Russian Social Forum, and the Forum for Social Innovations. The effect of the hierarchical order of civil society institutions on WSR is twofold. On one hand, the formation of a hierarchical structure of civil society has been a successful step in formalising public interactions at the micro-level; this system allowed the government to bring the discussion of various acute social problems to the political agenda, to construct a cross-country dialogue at the federal and regional levels between different groups, to create strong ties within the tripartist system, and ultimately to resist centrifugal tendencies. On the other hand, although this hierarchical system is not a Soviet-type repressive machine, further centralisation of control over civil institutions might have unpredictable consequences, making dialogue between the government and civil society excessively bureaucratised, inflexible and narrow. In Iran, where constitutionalism co-exists with clerical rule, the consolidation of grassroots civil institutions under the supervision of parastatal organisations is exercised not through one centralised institution, such as the Civic Chamber in Russia, but through the system of guided political contestation that maintains the system’s legitimacy by preventing the political landscape from tilting into extremes. Despite grassroots struggle for civic freedoms, ideological indoctrination stays unchallenged on a larger scale, as guided competition both contributes to and limits the bargaining power of elites. On one side, vital socio-economic policies are the product of political contestation— a democratic element of the system. On another, theocratic rule uses elections as a means of social mobilisation which is later channelled into a state-managed hierarchical nezam, subjugating civil society to public administration. The centralisation of economic power In Russia and Iran and the inflexibility of the state-civil society dialogue has been validated by the ideology that propagates the sense of the country’s uniqueness and stresses the role of the state as a defender of a multipolar world order. Sanctions have fostered further mobilisation and consolidation of the ideologically armed institutional and material structural power mechanisms, necessary for a timely and prompt response to economic hardships.

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The image of a besieged society increasingly exposed to geopolitical and economic pressures, though not solely as a result of economic sanctions, but in large part because of the negative dynamics in the energy markets, and later—because of global pandemic, connected and united some previously fractured social groups and drove mobilisation, inspiring a variety of initiatives to solidify socio-cultural ‘identity’. In Russia, sanctions reactivated formerly latent processes that had been gradually solidifying Russia’s contender posture since Putin’s Millennium Manifesto of 1999 (Nezavisimaya Gazeta 1999) and to solidify Russian socio-cultural identity in the spirit of Eurasian ‘otherness’. The ideology of statecraft with the central notion of Russia’s ‘otherness’ fits well in the wake of growing global uncertainty. Despite the fact that most Russians identify themselves Europeans, rather than Asians, the imposition of sanctions inspired a new wave of intellectual debate over the necessity to restore state power and strong leadership to secure the country’s integrity, to reassert ‘normal’ politics. In Iran, the level of ideological consolidation as well as socio-cultural identity is much stronger than in Russia. The devastating Iran–Iraq war and economic sanctions dictated the need in shielding religious values against the influence of Western culture. This ‘shielded’ religious identity was reinforced though the political indoctrination of Islam and the institutional expansion of the Office of the leader. Indoctrination predisposed an extended education and higher social mobility. However, greater social mobility (especially among the youth) does not contribute to the system’s stability—young people’s increased awareness of, and desires for, freedoms and civil rights is potentially very explosive, given that it is in the nature of youth to protest against anything that in their perception limits their freedoms. Moreover, coupled with a ‘journey to modernity’, Islamic indoctrination might trigger individualistic rather than collective tendencies, as stigmatising people for social failures without rendering them compensation in the form of civil freedoms is counter-productive. Overall, despite the ability of the political discourse of ‘otherness’ in Russia and indoctrination of Islam in Iran to consolidate society at the macro-level, excessively harsh state media rhetoric against sanctions ‘senders’ fuels nationalist and other radical sentiments which ultimately might undermine political freedoms.

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10.2.2

WSR REPRODUCTION

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Modernisation and Optimisation

The second direction of WSR development in Russia and Iran was economic modernisation, dictated at first by the needs of import substitution due to the sanctions-related shortages of goods. The experience of sanctions, especially during periods of oil price drops, showed the limits of the oil-led redistributive capacities. Moreover, the technological retardation of some sectors of economy (e.g. machines and equipment, car manufacturers, applied software and other high value added industries, etc.) remained one of the core problems for Russia’s and Iran’s economic development, rendering strategic sectors acutely vulnerable to sanctions. At the same time, however, sectoral sanctions had a mobilising effect on both states, stimulating investment in the technological modernisation and diversification of suppliers. New technological development strategies were coupled with institutional support to investors and direct monetary aid, possible due to financial consolidation. In Russia, financial consolidation was reinforced by economic optimisation, austerity measures and intra-budgetary redistribution to stimulate demand. In Iran, the resistance economy also presupposed financial optimisation, as well as loose monetary policy for the time being, subsidies reform, and land reform with a strategic objective of more equitable wealth distribution to aid domestic demand (Fig. 10.2). RUSSIA

IRAN

Intra-budgetary redistribution (CHM 6) Optimisation and austerity (CHM 7) Modernisation IS industrialisation (CHM 12)

Technological modernisation (CHM 13) Effective demand (CHM 14)

Investment Support (CHM 16) Fig. 10.2

&

Optimisation

Land Reform (CHM1)

Subsidies (CHM 6)

Loose Monetary Policy (CHM 7) Resistance Economy (CHM 14) Alternative Pseudomodernisation (CHM 22)

Modernisation and optimisation (Source Author’s diagram)

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Sanctions, intensification of geopolitical confrontation, and growing insulation of Russia’s and Iran’s core businesses from the dollar-based technologies and credits revealed the urgency of resolving technological retardation in value added strategic sectors, such as telecommunications, machinery, electrical equipment, upstream oil and gas, and other manufacturing industries. In Russia, among strategies in technological development aimed at self-sufficiency was the State Armament Program for 2018–2027, which covered not only the modernisation of the military sector, but also a series of long-term technological development strategies. In 2018, the famous Presidential May Decree ‘On National Goals and Strategic Objectives … for the period up to 2024’ claimed to make Russia one of the world’s five largest economies, by stimulating growth and keeping inflation stable (below 4%). In 2021 the government’s priorities shifted from social policies and the military to infrastructure, health care and digital issues. Manufacturers were ‘motivated’ to ‘localise’ production by a series of legislative initiatives that limited or banned purchases of foreign industrial goods by public institutions. In Iran, economic pragmatism backed up some necessary pro-market reforms to advance modernisation. Five-Year Plans, introduced by Rafsanjani’s administration, served as the blueprints for Iran’s future development. Apart from the Construction Jihad, modernisation was driven by the ‘resistance economy’ that aimed at developing knowledge-based high-tech industries, to reduce the country’s dependency on oil, and achieve national technological self-sufficiency. Overall, sanctions had a contradictory effect on the organisation of production in both states. On one side, technological innovation in some sectors of economy helped the nations to survive the severities of sanctions and shifted income redistribution across sectors; as tax burdens in some sectors grew (especially in the oil sector, i.e. oil export duties), this permitted the accumulation of sufficient funds to finance social programs. On another, high concentration of production in oil and gas, banking and military sectors led to the increased bureaucratic control over the major economic development, empowered parastatal organisations (especially in Iran), supported the status quo of the managers, whose income continues to greatly exceed the incomes of the ‘salariat’ and professionals. In Russia and Iran technological modernisation was driven by import substitution, counter-sanctions (in Russia), militarisation and economic diversification. The character of IS in both states was distinct from the classic examples of IS programs in East Asia, whose main goal was to

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develop export-oriented industries. The IS target was twofold: first, to fill the gaps in production value-chains of the ‘strategic’ sectors of the economy disrupted by sanctions—the core contributors for the state budget and the social welfare funds; second, to use the period of sanctions as an opportunity to modernise some industries (i.e. agriculture, chemicals, machinery, etc.). In Russia, most actively IS had been implemented in several areas: (1) agriculture; (2) mechanical engineering; (3) information technology, by transferring state institutions, state education and medical organisation to a newly created register of domestic software; (4) public procurement, by directing and restricting the purchases of goods by public institutions. IS in some sectors of economy succeeded in making the Russian labour market less precarious, especially in metallurgy, agriculture, chemicals and leather production and, consequently, favourably affected the de-commodifying function. However, as was the case in Russian agriculture: even with IS ‘in the context of provision of food security’ the success of domestic producers in overcoming the dependence on imports might be workable only in the short run, while in the long run, domestic firms, once accustomed to state-provided subsidies and reduced market competition, might lose stimuli for further investment in quality and innovation, and in HR development (Bogoviz et al. 2018). In Iran, IS had an ideological connotation of a peculiar alternative vision of modernity, designed to infiltrate cultural penetration of Western values into Iran. Although the Iranian ‘third way’ imposed some limitations on the new ‘independent’ markets of ‘individualistic orientation’, it has been, nevertheless, pragmatic in promoting a technocratic economic management, liberalisation in some sectors, and privatisation, facilitated by Khomeini’s ‘rule by emergency’ to bypass the first order Sharia Principles regarding the principles of private property. Overall, the Iranian ‘third way’, although it preserved national ideological identification and authenticity, has nevertheless shifted to pragmatism, which, combined with the empowerment of universal agency, the push for secularisation, and the promotion of the cannons of free markets—started challenging this very authenticity. As the successful modernisation was not possible without a favourable climate or domestic capital reinvestment, the Russian and the Iranian government took measures to support local ‘infant’ industries in particular regions and market segments with high value added capacities (machinery, electronics, communication, agriculture, pharmaceuticals, etc.). In Russia,

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a series of new scientific centres has been opened to stimulate investment in innovation, while tax breaks, state-subsidised credits and other means of financial support opened new opportunities in some markets. However, despite some impressive success stories (i.e. Craftway Corporations, Samarskiy Stroifarfor, etc.) the improvement of the investment climate in some regions was hampered monopolisation of regional markets by unitary state corporations. Private businesses are not fully independent from state control and are forced to buy materials from state corporations—remaining ‘quasi-private’ businesses dependent on ‘administrative resource’ and state officials in their business decisions. In Iran, a favourable investment climate was created for parastatal and clerical entities that control over 60% of Iran’s national wealth (in 2012, the budget of IRGC reached almost $9.5 billion, Imam Khomeini Relief Committee—$2 billion), enjoy privileged fiscal status and are frequently exempt from parliamentary scrutiny. However, the limited tax collection from those organisations has been ‘an unacceptable luxury at times of growing budget deficit’ (Katiraie 2020) and negatively affected the redistributing capabilities of the Iranian WSR. Overall, fiscal measures to facilitate investment in technical innovations have a contradictory effect on wealth distribution in both states: it provides a favourable climate for investment in some regions and sectors of economy; however, operational efficiency of some private medium-size businesses is constrained by their dependence on regional municipal bureaucracies. The difference between Russia and Iran is that in Russia the most important strategic sectors of economy are very heavily taxed, and therefore the effectiveness of the tax regime for the budget consolidation and secondary income redistribution is much higher than in Iran. While in Iran, hikes in gas prices, coupled with ‘fiscal parallelism’ that left more than 125 trillion tomans in evaded tax, provoked massive street protests in 2019. The governments of Russia and Iran used different measures to facilitate state investment and accumulate sufficient funds to fund modernisation. In Russia, the government subsidised import substitution, further consolidated the budgetary system, increased tax burden on the oil and gas sector, on consumption, and passed the new ‘fiscal rule’, according to which any revenue from oil prices higher than $40 per barrel went to the National Wealth Fund. Optimisation of public spending implied intra-budgetary redirection of substantial funds to the regions (for the needs of modernisation), and opening of other channels of financial aid to the regions (e.g. Fund for Financial Support of the Regions). However,

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the intra-budgetary system perpetuates regional income disparity, as, in contrast to modernisation programs, responsibility for financing social programs has been partly placed on regional budgets. In Iran, land reform helped Iran to turn from a net importer into a producer of some vital agricultural products. Loose monetary policies had been one of the efficient mechanisms to maintain liquidity and making it less expensive to borrow for many years (reversed in 2019), as low interest rates stimulated economic growth. However, over-borrowing increased speculation and spurred inflation. At the same time, the Iranian government continued to assign generous subsidies to boost the development of the manufacturing sector for a very long time (1989–2010), while the Targeted Subsidy Reform in 2010 (subsidies were replaced with universal cash transfers), intensified the negative effects of sanctions by fuelling inflation in the industrial sector. Therefore, subsidy liberalisation (especially in the industrial sector) had to be partially reversed. Although Russia and Iran had different macroeconomic approaches to stimulate IS, there are some similarities: at times of crisis there is always a tension between immediate and long-term economic goals, when on one side, the governments are trying to resolve financial bottlenecks (by means of austerity in Russia and subsidy reform in Iran), on another—a decline in social spending just perpetuate the crisis, distorts the balance between production and realisation and curtails effective demand. The awareness of both the Russian and Iranian governments that the reduction of the real income of the population with the highest marginal propensity to consume—a crucial factor for the realisation of successful technological modernisation—did little to adopt effective measures for the formation of effective demand. In Russia, spending on education has been very modest, as the budget was ‘fiscally ultra-cautious and prudent’, and ‘it prioritises stability over development’ (Reuters 2018), especially at times of global pandemic when lots of spending was diverted to health care. Moreover, the floating exchange rate that successfully kept inflation down had a negative long-term effect on the middle class, the main debtors in the economy, given that the politics of cutting inflation was a form of a ‘class-specific tax’ that restored the ‘real’ value of money to support domestic creditors (Blyth 1967, 2014). The fiscal policies in Russia had a contradictory impact on effective demand formation: on one side, the flat income tax rate of 13% allowed to ‘increase dramatically tax collection’, which in its turn has had a positive effect on income redistribution, on another, increased taxing of consumption caused inflationary

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pressures and constrained ‘effective demand’. In Iran, the outcome of the land reform and economic modernisation with the rising emphasis on educational credentials led to the expansion of the middle class that was an important precondition for a successful modernisation and a series of reforms (tax, subsidy reforms, privatisation, etc.). However, inflationary spikes and migration from rural areas to urban, undermined effective demand, as a great proportion of migrants ended up in urban poor classes. Moreover, greater access to higher education, coupled with the declining population of rural areas, contributed to the formation of the Green Movement. As such, the generous welfare system did not do much to alleviate the precarious position of the youth, and households experienced additional pressures, as new graduates remained financially dependent on their parents. 10.2.3

Strategic Partnership and Diversification

The third trend in the Russian and Iranian WSR development was the promotion of strategic partnerships with various states to obtain financial resources, to seek new investment opportunities, primarily in construction and infrastructure, and to secure export markets. The mechanisms through which Russia and Iran were trying to attract foreign and domestic investment in industrial modernisation were different. Russia introduced counter-sanctions, while Iran focused on the development of free trade zones and special economic zones. Counter-sanctions and free trade zones were coupled with stimulating measures, legal and financial support, such as preferential loans (i.e. ‘soft loans’), subsidies, grants on R&D. These were particularly important for the realisation of multiple mega-projects in both states, especially in construction, infrastructure, agriculture, pharmaceuticals and other spheres. In Russia, the realisation of large projects was paralleled with the course on Eurasian integration. In Iran, the ideological-political fluidity was effective in setting diverse strategic partnerships with states that were not hostile to Iran. Both states saw the consolidation of a contender block as a possible measure to mitigate the negative impacts of sanctions, to bring their economies out of isolation and to promote cultural values abroad (Fig. 10.3). Both Russia and Iran focused on the development of digital technologies, competitive manufacturing and agro-industrial complexes. Owing to the pandemic, priorities shifted from the military and infrastructure

10

RUSSIA

WSR REPRODUCTION

IRAN

Counter-sanctions

Free Trade Zones

(CHM 15)

(CHM 17)

Mega –projects

Infrastructure projects

(CHM 17)

Regionalism & the EAEU (CHM 18) Role in Global Culture (CHM 20) Contender Block Consolidation (CHM 26)

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Strategic partnership & diversification

(CHM 18)

Ideological-political fluidity (CHM 20) Ethics & SelfEsteem (CHM 23) Contender Block Consolidation (CHM 26)

Fig. 10.3 Strategic partnership and diversification (Source Author’s diagram)

projects to healthcare and digital issues, to respond to medical hardships, intensified by sanctions. Despite that, Russia continued to resort to counter-sanctions and other measures, such as the ‘Confirmation Certificate’ of the country of origin, and a ‘third extra’ rule (foreigners were not allowed to bid if two Russian manufacturers are bidding as well). In the agricultural sector, IS policies have been successful: investment in the Russian agro-technical sector substantially increased, as the program offered vast investment opportunities for foreign companies that already operated in the Russian market which took the chance to develop their businesses. Moreover, not only did small and medium size businesses gain from investing in Russia, but also major investment holdings, such as the Italian bank Intesa Sanpaolo, which was willing to finance not only the agricultural sector of Russia’s Far East, but also energy, transport and infrastructure projects (TASS 2016). However, there could be an interplay between the short-term and long-term effects of counter-sanctions, as in the long run, domestic companies, used to having their market shares unchallenged, might lose incentives to innovate. In Iran, free trade zones, set to attract investment for the realisation of large projects in innovative technologies, have played a significant part in boosting the country’s nonoil exports, and were successful in attracting domestic investment, but not so much FDI. A favourable investment climate for foreign capital was not established, as most of the initiatives to set up independent private enterprises were hijacked by paramilitary business entities. Over time,

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both Russia and Iran, where parastatal institutions ‘draw resources away from other domestic industries’, risk facing a situation where the main competition will be not between domestic and foreign firms, but between national industries, over ‘which sector is going to get the scarce resources of capital, skills, and, yes, labour’ (Krugman 1993: 24). The development of mega-projects has temporarily helped to address the macroeconomic problem of effective demand formation (and unemployment in Iran), crucial for the realisation of IS. Also, long-term investment in fixed capital proved to be an efficient CHM during times of sanctions, as it facilitated tension between fixity and motion of capital, by eventually turning motion into fixity in order to secure future motion: ‘in order for capital to circulate freely in space and time, physical infrastructures and built environments must be created that are fixed in space’ (anchored on the land in the form of roads, railways, communications…) (Harvey 2014: 75). Russia started to recover from the ‘investment drought’ of 2013–2015, characterised by the lack of capital expenditures that supressed domestic demand and inhibited economic growth. In Iran, the government succeeds in raising funds from domestic sources for the realisation of its strategic plans in oil and gas, in construction, in ‘institutional construction’, such as health care and education services, in transport infrastructure. Some capital-intensive projects were realised with the aid of TNCs, the presence of which has increased substantially over the past 20 years (e.g. in oil and gas, vehicle manufacturing, copper production, petrochemicals, pharmaceuticals, groceries, etc.). However, the US sanctions after the country’s withdrawal from JCPOA pushed third parties out of Iran for the sake of their operational capabilities, U.S. market share and banks accounts. Overall, for both Russia and Iran, megaprojects helped to create new jobs and alleviate unemployment (which is a big problem in Iran), but as project management is executed by large business conglomerates, as in the case of Iran—by paramilitary structures, in the long run their realisation will empower already rich beneficiaries, contributing to social inequalities. One of the driving forces for strategic investment in mega-projects was the politics designed at fostering regional cooperation. In Russia, it was Eurasian economic integration. In 2015–2020, despite certain obstacles, including the pandemic, there have been positive moves, as the EAEU has obtained some practical results of the working of the ‘Road Maps’, while the share of Russian large companies in the accumulated direct investments in the EAEU reached 78% ($26.76 bn.). An

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important factor that might boost the development of joint projects is the formation of an integrated financial market by 2025. The goal of making the ruble the region’s main payment and reserve currency has obtained some visible results: for the period 2011–2017, the share of ruble in the former CU and the EAEU internal transactions increased from 56 to 75% ($69 bn.), while the share of the US dollar declined from 35 to 19% ($18 bn.), however, the use of the ruble remains problematic because of its high volatility and correlation to the price of oil (EDB 2018). Iran was also willing to build mutually beneficial relationships with trading partners, irrespective of their ideological and religious standing. A fluid ideological-political environment prevented Iran from turning into a closed-type Islamist state. The most important features of this fluidity are dynamic jurisprudence, and a flexible Constitutional framework, that could be adjusted to changing ideological orienteers, and to the changing geopolitical environment. The government’s close ties with the Iranian diaspora overseas, extended networks, connected to the IRGC Quds Force successfully perform the country’s strategies in foreign jurisdictions. The goal of strategic partnerships is not to promote Islamic values but to overcome sanctions-induced isolation by diversification of trade and investment flows. Such state-led regionalism, in both Russia and Iran, initiates and strengthens relationships between businessmen, state officials and communities across vast borders. However, both states might need to foster cooperation between small and medium-sized businesses to get a greater economic effect. Also, closer cooperation in highly monopolised markets (e.g. in some potentially mutually beneficial projects in energy markets) might become politically costly, as foreign big businesses quite often constrains the political sovereignty of the states where they operate. The pressures of sanctions pushed target states closer to each other, fostering a new trend in geopolitics—consolidation of the ‘contender’ block. The worldwide civilisational discourse and the concept of multipolarity with an emphasis on civilisational diversity has acquired popularity among contender states. This consolidation has been aided by the commitment to ‘build alternative integrative networks and multilateral institutions on a regional level’ (Tazmini 2020), and by the ‘politics of resistance’ that prioritises investment in infrastructure and business projects with high integrationist effect to create value added product chains and generate mutual trade. In Russia, the National Security Strategy declared closer trade cooperation with other contender states

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as one of the national priorities. In 2014–2020, a ‘turn-to-the-East’, changed the geography of FDI inflows into Russia, and resulted in an increase in the amount of non-Western investments into the EAEU. Japan, China, Saudi Arabia, India, UAE, Singapore, Vietnam and Turkey become the main sources of investment inflows into Russia, facilitated by the efforts to ‘de-dollarize’ international transactions. In Iran, the politics of ‘exclusion’ and the efforts to consolidate ties with other contender states were also reinforced by growing external threats. For instance, Iran updated its Strategic Partnership Agreement with China in 2016, signed a free trade agreement with Russia in 2018 and expressed its willingness to join the EAEU. Nevertheless, in the longer term, contender block consolidation might have an ambiguous impact on the WSR: on one hand, Russia’s and Iran’s foreign policy reorientation towards the East secures FDI inflows and access to funds for economic modernisation; on the other hand, centralisation of power alongside emerging value chains and investment flows, closely coordinated by national governments, increases the risks of bureaucratic expansion, of corruption in higher power echelons and of disturbing administrative interferences in the private sector. Overall, contender block consolidation could be quite promising, as mutual agreement over the crucial foundational issues makes the contender states more flexible and willing to cooperate and secures new modes of stable strategic partnership. As was the case in Iran, to secure closer ties with its leading trade partners, the Russian government made efforts to advance the country’s role in international culture. This was done by consolidating the Russian-speaking diaspora abroad, by promoting the Russian language, literature and arts, by increasing the ‘global awareness of Russia’s cultural achievements and national historical legacy, cultural identity of the peoples of Russia, and Russian education and research’ and by ‘bolstering the standing of Russian mass media and communication tools in the global information space’ (Foreign Policy Concept of the Russian Federation 2016). In Iran, the notions of self-esteem and solidarity are the centrepiece of Iranian culture and powerful forces that maintained people’s interconnectedness across regions and generations. With the rise of neoliberal values worldwide, however, it has been partly eroded, despite the efforts by the Iranian government to reinforce it through international media channels. Both Russia and Iran are expanding their international audience by creating an alternative to the Western media, such as in the case of Russia Today, Iran’s PressTV or the Russian TV channel

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‘Katyusha’ in China. However, the centralisation of power in the mass media (e.g. acquisition of RIA Novosti by RT) and an increased control over cultural life through the digital revolution might have an opposite effect on the WSR. Excessive TV propaganda undermines the country’s image in the minds of foreigners, as tough rhetoric escalates tensions. This was the case when Russia demonstratively broadcasted the advancement of its hypersonic nuclear weapons—a tactical mistake that gave NATO’s leaders an excuse to justify their anti-Russian actions in the eyes of Western populations. Strong critical evaluations by Russian or Iranian TV channels of the internal contradictions and domestic political problems in Europe and across the Atlantic enable Western analysts to blame ‘contender states’ for fomenting, sponsoring, or even initiating these problems in order to undermine liberal-democratic values (e.g. far right, far left, extremist groups). At times of crisis, it is politically advantageous to ruling elites to blame external forces (cyberattacks, military threat, political penetration, etc.). 10.2.4

Para-Constitutional Reform

The fourth trend in the Russian and Iranian WSR development was a para-constitutional reformation that resulted in institutional dualism. Institutional parallelism in Russia and Iran, at first glance similar, was nevertheless different. In Russia, a subordination of the legal system to public administration is much more evident than in Iran, where supranational non-governmental institutions control public administration (not other way round), and the system of checks and balances constrain competing power centres. Unlike Iran, there are no significant rival political centres in Russia, as the United Russia (Yedinaya Rossiya) is the majoritarian leading power in the Russian Duma. This does not mean, however, that there is no competition within the Russian political system: political contestation happens between opposing blocs in the executive branch, especially within enforcement and paramilitary power structures. To withstand centrifugal tendencies in the executive branch, para-constitutional settings in Russia are reinforced by Putin’s charismatic leadership and power vertical that put corporate social responsibility and some informal networks under direct governmental control. In Iran, similar to Russia, informal networks are very powerful mechanisms for the sustainability of the system of checks and balances, supranational institutionalism, and fiscal parallelism that feeds the nezam (Fig. 10.4).

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RUSSIA

IRAN

Effective Leadership

Supra-National Institutions

(CHM 1)

Strong Power Vertical (CHM 9)

ParaConstitutional subordination Constitutional to Administration (CHM 10) Reform

(CHM 4)

Checks & Balances (CHM 8)

Institutional Dualism (CHM 9)

Corporate Social Responsibility (CHM 23)

Fiscal Parallelism

Informal Networks & Clientelism (CHM 24 )

Informal Networks Politics

(CHM 16)

(CHM 19)

Fig. 10.4 Para-constitutional reform (Source Author’s diagram)

One of the drivers for economic power centralisation that allowed the accumulation of resources available for immediate public expenditures in both Russia and Iran was institutional parallelism. However, in Russia it took the form of an increased subordination of constitutional order to public administration. The main contradiction inherent to para-constitutional settings in Russia reflects a tension between the formal constitutional state and informal administrative practices (Sakwa 2010). Despite the fact that para-constitutional parallel organisations, such as ‘federal districts’, the State Council, the Civic Chamber and so forth, have become ‘new channels of public accountability against overbearing officialdom’, these new institutions ‘usurped what should have been one of parliament’s key roles’. In the social sphere, this duality could be witnessed in many areas, including education and health care. In Iran, the parallel parastatal and civil organisations are designed to enforce interconnectedness at the macro-level, as institutions, such as the Construction Crusade, or the Basij Militia (‘mobilisation’ in Persian) have a strong mobilisation and unification effect on various social groups. Although strong in mobilising people, institutional parallelism could be quite counter-productive, as it slows down decision-making, therefore, the Iranian multi-centre power mechanism can be inept in responding to crises (military, social and economic), as it exacerbates ‘institutional redundancy, competition and waste’ (Maloney 2015: 147). For Russia the problems of parallelism lie much deeper: para-constitutional settings, designed to reinforce the constitutional order, and its de-commodifying

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abilities, introduce the elements of ‘dual-adaptation’ that undermine constitutionalism and induce corruption, serving ‘both as the facilitator of democratisation and as its gravedigger’ (Sakwa 2008: 888), rendering simultaneously a de-commodifying and a re-commodifying effect on the population. Overall, institutional parallelism considerably limits the system’s capability to eradicate corruption, and risks undermining rather than reinforcing social solidarity over time. One of the central elements of para-constitutional reformation is effective leadership. In Russia, the leadership of Vladimir Putin has been strengthened through the mobilisation of youth and power elites. This mobilisation became a ‘manifestation of Karl Polanyi’s view concerning the natural tendency for society to adopt self-protective measures’ (Sakwa 2008: 881), as Putin constantly faces the challenge of reconciling different social groups as well as simultaneously containing and legitimising the power that oligarchs acquired illegally in the 1990. One of the practical implications of this leadership was constitutional changes, despite Putin’s previous claims—that ‘Changing the Constitution for a particular person, even if I certainly trust him, is incorrect’ (in October 2007) (RIA Novosti 2013a). In Iran, by contrast, the position of the Office of the Leader Khamenei, who lacked the charisma of Ayatollah Khomeini, so vital for political mobilisation, has been continuously strengthened since the death of Khomeini in 1989. As in Russia, this strengthening presupposed ‘constitutional augmentation’ that expanded the power of the Supreme Leader, who was made responsible for resolving internal political conflicts (the role previously assigned to the president), for appointing a single Head of the Judiciary (instead of the five-member Supreme Judicial Council), appointing the manager of Islamic Republic of Iran Broadcasting, etc. However, Russia lacks such powerful institution as the Friday Prayer that offers a wide scope of social welfare. In both states the effective leadership has been further strengthened in response to harsh Western rhetoric (e.g. Russo-phobic and anti-Iranian attitudes), as people increasingly see their leaders as guarantors of social stability, and protectors from increasingly brutal and radicalised ‘Western ideational foundations of the Cold War discourses and beliefs’ (Sakwa 2017a). In the short run this leadership looks legitimate as it is generally accepted, however, in the long run (especially at times of political transformation) this very legitimacy, constructed upon ‘administrative interference in political processes’ (Sakwa 2008), might be challenged by the need for a higher transparency of political practices than this leadership allows. In Iran, the equilibrium

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of the system of checks and balances might become very unstable, if the weight tilts more towards hardliners. In Russia, unlike Iran, in the absence of checks and balances, chances for popular mobilisation for regime change remain very limited, as grass root tendencies are undermined at that very root, killing the preconditions for mass movement and social unrest. Another element of para-constitutional adaptation of both contender states was enhanced cooperation between state and businesses that comprised consensual and coercive elements (e.g. the Yukos case in Russia). In Russia, corporate responsibility of large and medium-size corporations consolidated patronage political practices and constructed a platform of consensual cooperation between government and oligarchs and business, subjugating the corrupted elements under state control, propagating ideological drivers that prioritised the notion of social responsibility. Institutionalisation of this cooperation, with the aid of official state strategies and normative documents, such as Dmitri Medvedev’s ‘Concept for public non-accounting’—2017, positively affected income redistribution in some regions, where enterprises coordinated their interests with the needs of the wider population (timely payments of wages, taxes and fees, job creation, vacancies for people with disabilities, etc.), secured safe working conditions and HR development, invested in social welfare projects and launched numerous educational and charitable initiatives, historically rooted in the practices of metzenatstvo. In Iran, where four parastatal and clerical entities control 60% of Iran’s national wealth, but ‘none of them has any communication with either the administration or the Majlis’ (Katiraie 2020), the imposition of any ‘corporate responsibility’ as in Russia, is problematic. Fiscal parallelism (i.e. parastatal organisations exempt from Iran’s General Accounting Laws), although allowing redistribution of incomes to the poor, significantly lowers the efficiency of the tax system overall. The effect of the model of corporate social responsibility on primary income distribution is not ideal, either. On one hand, some portion of financial flows it redirects from private enrichment towards social welfare projects, on another, it legitimises different kinds of social inequalities in the consciousness of citizens, alleviates social tensions without reconsidering the structurally embedded causes of social inequality. In both states, the status quo of the ruling class is protected by a non-transparent structure of the ownership of some businesses that in its turn secures the channels for outward investment flows and ‘capital flight’.

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Para-constitutional settings are designed to strengthen the power vertical in Russia as a means of social control, synchronising the regional and federal legal systems and empowering the executive branch over the legislative (Sakwa 2010). This subordination results in increased dualism of the law-enforcement instruments and reduced independence of mass media and foreign NGOs. The strength of the executive branch is ensured via the system of interpersonal trust, set with the aid of ‘blurred boundaries between the public and the private’ that secures cooperation among individuals and businesses through informal networks, compensating for institutional deficiencies, ‘where impersonal systems of trust are not sufficiently developed’ (Ledeneva 2013: 50). In Iran, the formation of a power vertical similar to the one that exists in Russia is not possible due to a multi-factional political landscape. This does not mean, however, that Iran lacks an efficient top-down mechanism of social control. It appears in a dispersed form, where supranational institutions are subjugated to the Expediency Council, empowered ‘to overrule the canons of both Shari’a law and the Constitution, depending on the urgent needs of society’ (Amid 2009: 81). Those urgent needs were dictated by the hardships of the Iran–Iraq war and by economic sanctions that pushed the government to amend Article 44 of the Constitution, giving the green light to privatisation and to land reforms, which, however, reinstated the new government (Ahmadinejad) control over the strategic sectors of the economy. In any sense, some degree of a power vertical could be helpful for strengthening social stability and solidarity, as it sets specific rules of the game, partly subordinates corrupted constituents under state control. However, when overstretched, it has a reverse effect as it brings corruption to higher power echelons through ‘revolving doors’. Overall, top-down mechanisms of social control run the risk of the formation of the ‘vertical of wealth’ that would undermine the morals of state officials, when the social norm of being a ‘good parent, relative or friend’ comes into conflict with the norm of being a ‘good bureaucrat’, thus resulting in a ‘double standard in the treatment of people within the circle and the general public’ (Ledeneva 2013: 63). The para-constitutional adaptation in both contender sates implied a reconciliation of individual private interests with common strategic goals of the state via resorting to informal networks and clientelism that reflect a tension between the formal constitutional state and informal administrative practices. In other words, as mentioned earlier, clientelism harmonised ‘the tension between the potential arbitrariness of

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state autocratic power and the popular desire for individual liberty’ (Harvey 2014: 49). In Russia, this informality, which is a manifestation of institutional dualism, based upon personalised social relations between managers, workers and state officials, turned from a ‘shortterm solution in the years of transition’, into a long-term ‘persistent culture that is undermining the institutional bases of labour relations and corrupting the work environment’ (Vinogradova et al. 2015: 198). In Iran, where the economy is dominated by public and semi-public enterprises, and the growing power of parastatal organisations impedes fair competition and becomes an institutional barrier for effective domestic and international cooperation between various small and medium-size enterprises, it is important to understand the dynamics in informal power network politics, the tendency of economic power centralisation, as the informal power centres shifted away from bazaars (i.e. from traditional supporters of SMEs) to IRGC (i.e. to large business conglomerates)— especially for those who are trying to do business in Iran (start-up businesses, or foreign investors). However, the Revolutionary Guards with its competing power factions could be at the same time consolidated and fractured by the informal power dynamics, as interpersonal relationships might challenge the systemic cohesion, instigating fracturing within the IRGC itself. Overall, clientelism in Russia and Iran might have an ambiguous effect on the WSR: on one hand, it provides people with an opportunity to maintain their interconnectedness through work and through recreational, housing, cultural and sports activities; on another, it introduces the system of class hierarchy, familialism and other types of informal relationships that disrupt labour bargaining power and cohesion. This serves as a good example of when informal institutional welfare state practices, aimed at providing income security, ‘become an “agent” of social stratification’ (Esping-Andersen 1990: 55). 10.2.5

Cadre Formation

The fifth direction in the Russian and Iranian WSR development was the emphasis on human resource development as part of national security strategies designed to enhance altruistic social practices. Collectivist notions of social justice were seen as necessary to counter the negative effects of sanctions (i.e. power centralisation, economic modernisation, diversification and para-constitutional reformation). In Russia, new cadres

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were formed and educated via the system of enterprise paternalism that promoted various patronage routines, reinforced through the ideology of statecraft and Russia’s religious orthodoxy. In Iran, enterprise paternalism has been more inclusive than in Russia, enabling much more effective institutional control over the population through the expansion of education, cadre indoctrination, enhanced labour protection and popular mobilisation (Fig. 10.5). Public and parastatal institutions resist centrifugal tendencies in society with the aid of patronage politics that require social solidarity, collectivist and altruistic social practices. In Russia, patronage routines were reinforced through the ideology of statecraft that conflates the elements of political pluralism and federalism with strong leadership based on the principles of civilisational regionalism, democratic statism and alternative modernity. Unlike political Islam in Iran, this is not a unitary ideology, as this type of governance is outlawed by the Russian Constitution. The Ideology of Statecraft welcomes and promotes the most enthusiastic individuals with leadership ambitions and willingness to advance patriotic national values among their peers. In this sense it is similar to the political indoctrination of Islam in Iran, according to which strong leadership and human resource strategy are the two components necessary for state integrity and an authentic developmental pathway that combines market rationale with collectivist societal values. Although the charisma and professionalism of a leader (e.g. the president or ayatollah) is important—in Iran, more than in Russia, this is not a one-person but rather IRAN

RUSSIA

Expansion of Education

Enterprise Paternalism

(CHM 2)

(CHM 5)

HR Development (CHM 11)

The Ideology of Statecraft (CHM 19)

Cadre formation

ROC Religious motivations (CHM 21)

Consolidation of the National Identity (CHM 22)

Enterprise Paternalism (CHM 10)

Popular Mobilisation (CHM 11)

Enhanced Labour Protection (CHM 12) Cadre Indoctrination

Fig. 10.5 Cadre formation (Source Author’s diagram)

(CHM 27)

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a collective leadership with a natural tendency for self-protection. This collective leadership, based on the sense of patriotic pride and prioritisation of the national interest over individual goals, aims at consolidating public consent and tolerance to economic power centralisation, and acceptance of economic hardship associated with austerity. The peculiarity of such patronage is that the ‘patronage’ class derives its power through the access to the state and lacks ‘the traditional autonomous social class whose power derives from historically accumulated wealth’ (Sakwa 2008: 891). Overall, patronage politics entail a certain contradiction: it obtains public consent for domination, as the majority of the population are eager to sacrifice their individual freedoms for the sake of security and social stability; however, at times of crisis these ‘sacrifices’ and the conceptual merger between that ‘patron’ and the ‘state’ make the state the only defendant, reduce vital entrepreneurial incentives, making the government ultimately responsible and culpable for all the wrongdoings, market and human woes. In both Russia and Iran, the scope of protectionist policies was not limited to IS and innovation alone but was viewed more broadly as part of the country’s development strategy, designed to improve the welfare of the population through enterprise paternalism and de-commodifying practices directed against labour impoverishment. In Iran, enterprise paternalism was reinforced by the growth of state and petty economic activity, making the middle class more dependent on state employment. In the first two post-revolutionary decades, half of the total increase in employment occurred in the state sector. Successful implementation of a modernisation strategy is not possible without investment in human resources and the formation of a middle class with a high mobilisation potential. The expansion of education widened the grounds for informal connections, reversed the post-revolutionary ‘status order’ and created effective social lifts. The overall effect of enterprise paternalism can be quite ambiguous. In Russia, corporate HR strategies that offer not only personal training and career growth, but also generous welfare provision have a substantial de-commodifying effect. However, a substantial proportion of the population stays outside the system, disconnected and alienated. Speaking in Cox’s terms, Russian enterprise paternalism ‘ignores the issues of concern of non-established workers or to the unemployed outside the corporation’ (Cox 1987: 73). In Iran, due to its cultural and ideological unity, enterprise paternalism has been much more inclusive than in Russia, enabling more effective institutional aid to the

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population through the net of parastatal organisations. At the same time, the high connecting potential of enterprise paternalism in Iran enables mass mobilisation of those who are discontent with government policies, as the practices of the Green Movement demonstrate (i.e. the eruption of street protests following the electoral fraud in 2009). The paradox is that, on one hand, radical claims in support of fundamental civil rights, political freedoms, power decentralisation and electoral accountability push authorities to advance some human rights policies and to improve the position of the working class, but this very advancement comes at the expense of a greater securitisation of the judiciary by hardliners. Human resource development became central not only in the Russia’s and Iran’s modernisation strategies, but also in the new strategies for economic security. The reconsideration of the concept of national security is expected to reshape the country’s wealth redistribution in two ways: first, to redirect public financing to strategic sectors; second, to prioritise the development of the middle class to alleviate the impact of income inequality on economic growth. The development of the middle class is crucial for the system’s sustainability: it not only consolidates the WSR redistributive function, but also provides for economic stability, balancing the production–realisation interplay. In Russia, the Strategy for Economic Security—2030 successfully integrated the importance of HR development in the system of enterprise paternalism, in the practices of patronage and cadre formation policies. However, it would be premature to argue for the overall efficiency of these measures for the development of the middle class, as on one hand, new cadre formation stimulates technological modernisation and economic mobilisation, on another—an increased role of the state agencies in the labour markets enhances different forms of control over population, constraining individual freedoms. In Iran, unlike Russia, where the system of education remains liberal, the system of higher education was the main driver for HR development, not only in relation to the curriculum, but also regarding de-mobilisation of students and control over youth associations. Although the Russian government uses some educational programs to bring up experts for different sectors of economy and for public administration, education is a complementary tool for HR development, rather than a mechanism of direct social control, as in Iran. In Iran, independent student movement organisations were replaced by the state-controlled Islamic Student Association, while the Student Basij Association became one of the major top-down mechanisms for securing the quiescence of students to the political system

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(nezam). At the same time, these institutional forms of social control via the system of education in Iran could be compared to Russia’s Civic Chamber, which also channels and institutionalises grassroots popular mobilisation into the top-down hierarchical order of the system (in a similar way that Basij does). However, the power of Russia’s Civic Chamber is many times weaker than the power of Basij militia, as the latter is a paramilitary institution that plays significant role in religious and ideological indoctrination and in the institutionalisation of civil society organisations, as in the case of the student associations—nothing of this kind exists in today’s Russia. Cadre formation is an integral part of ideology, which is conceptually supported by the notion of social justice and the continuity of traditional patriotic values that prioritise national interests. In Russia, a U-turn from what Sakwa calls the ‘Putin model of liberal republicanism’ (Sakwa 2008: 888) back to a re-establishment of a communitarian content in the ideology of statecraft was inevitable, as national mobilisation required more altruistic and sacrificial attitudes to the regime’s consolidation. At the same time, the differential application of the concept of social justice for political means was made possible due to a complex design of the ideology that cannot be attributed to statism, Eurasianism, neo-Eurasianism, Slavophile statism, nationalism, liberalism, messianism, communism or ‘Sovietism’ alone, as it comprises contradictory features. For instance, some political decisions, such as austerity, are in sharp opposition to some ideological premises. The deep root for an inconsistency between ideological context and political practices lies in the ambiguous nature of the new common Russian national identity, the formation of which in a state undergoing a transitional period is problematic, due to distinctiveness in norms and values across generations and also to Russia’s ambivalent international status as both subaltern and imperial, both colonised victim and a coloniser (Pavlova and Morozov 2018). Overall, on one side, despite Putin’s efforts to reconstitute a new integral national identity on the basis of social justice and patriotic pride glorious historical moments, the dualism of institutional and material structural WSR settings, this discordant and even contradictory aspects of Russian identity might better serve society as a whole, saving it from a resurgence of nationalism at a greater scale. In Iran, national identity is much more consolidated than in Russia, and the explanation of this lies, first, in the religious indoctrination of the population through various

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institutional practices. The revolutionary spirit solidified individual selfesteem, or ‘self-worth’ enshrined in the Quran—the ethical emphasis that individuals should guard ‘Islamic ethics and educational method to motivate them to act righteously’. Second, a rapid expansion of education contributed to the maintenance of the revolutionary spirit in the national identity. However, an overproduction of highly qualified cadres (although good for economic self-sufficiency) leads to high unemployment and is potentially explosive for the system’s stability. The extension of revolutionary and military corporatist system partly mitigates the precarious position of jobless university graduates by offering them state-funded accommodation and jobs in return for the loyalty to the system. Another important driver for social cohesion and the promotion of communitarian values and power centralisation can be religion. In Russia, however, relatively modest efforts to integrate religion in the ideology of statecraft remain miles away from indoctrination of Islam in Iran. At the same time, the Russian Orthodox Church, which historically has been organically interlinked with the ruling Russian princes, since Vladimir the Great converted Russia to Christianity in 988 is an active supporter for legitimacy of patronage politics and strong political leadership. One feature immanent to Orthodox Christianity has been organically, not intentionally, integrated in the ideology of statecraft—the concept of suffering—one of the fundamental concepts, according to which the Lord cleanses the believer’s soul and body of sins in order to make him righteous, as ‘by many tribulations we must enter the Kingdom of God’ (The Holy Bible 1996). The power of the Church has been extended, as the number of the charitable organisations has substantially increased, at the same time, the Russian government does not consider the Church to be a state power mechanism. The principle of ‘a certain division of domains between church and state and their non-interference into each other’s affairs’ does not really work in Russia, where ‘the tasks and work’ of the Church and the secular state coincide ‘in seeking purely earthly welfare’ (The Moscow Patriarchate 2018a). Unlike Russia, in Iran, religious motivations are both top-down and bottom-up mechanisms that play an enormous role in the welfare states system. Political Islam is the driver for the expansion of education, health care and social insurance in response to the growing expectations of the widening middle class. Popular mobilisation proceeds along various dimensions, but most effectively—both vertically and horizontally along religious lines that form political ethics and beliefs.

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CHAPTER 11

Concluding Remarks

11.1

Hobbesian Contender States?

The first counter-hegemonic trend of power centralisation goes in line with the teleological justification of a Hobbesian ‘fictional view’ of the state (Skinner 2011). Central to this understanding of the state power is strong leadership of a sovereign and a hypothetical social contract that grants the sovereign the monopoly over the law and legitimises the concentration of legislative and executive mechanisms in the hands of a sovereign, whose ‘power cannot, without his consent, be transferred to another: He cannot forfeit it: … He is judge of what is necessary for peace; and the Judge of doctrines: He is sole legislator’ (Hobbes 1651/2018: 139). Such power centralisation in Iran and absolutist tendencies in Russia today manifested themselves through the civil society hierarchy. In Russia, the system of tripartism that replaced the legal vacuum of the 1990s, perpetuated by the penetration of foreign capital. In Iran, where constitutionalism co-exists with the clerical rule, the consolidation of civic power networks under the supervision of parastatal institutions seems less centralised, as political power is dispersed through the system of political contestation that maintains the system’s legitimacy by preventing political landscape from tilting into extremes. However, on a larger scale ideological indoctrination is unchallenged, as theocratic rule utilises elections as a means of social mobilisation into a © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_11

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state-managed hierarchical nezam, subjugating civil society to what van der Pijl calls a ‘strong directive state’. According to the author, this ‘strong directive state’ is required for any state outside the heartland to ‘withstand the impact of the internationalisation of British and AngloAmerican capital’ successfully and not lose its sovereignty—a process that had a very quick and disturbing start in the 1990s, as it was in the case of eighteenth-century France, later Prussia-Germany, then Soviet Russia, communist China, post-revolutionary Iran and modern Japan and South Korea (van der Pijl 2001: 497). The second counter-hegemonic trend of technological modernisation shifts the ‘axis of exploitation’ and therefore transforms class awareness, which takes various forms of self-consciousness, when the previous forms of exploitation at a lower level of technological advancement are contested on a larger scale. The stress on a centrality of technological modernisation in a contender state posture is something that goes alongside Hobbesian power centralisation, as Van der Pijl clearly makes this statement—there is ‘no civil society here’, as the ruling classes in contender states just successfully ‘negotiate modernisation pressures’ with their citizens; this negotiation, however, in some cases (not always) takes the form of the state ‘confiscating’ its ‘social substratum’ (van der Pijl 2006b: 14). In an effort to emulate the achievement of the West, ‘every contender state’ can be characterised by a ‘state–society configuration in which the state serves as the directive state’ (van der Pijl 2007). This directive state leads modernisation of society, so that the population would remain ‘passive’ not to build up powers that could threaten and ‘dispossess’ the ruling state class (Gramsci 1971). This task is easier achievable in Russia that lacks political contestation than in Iran with competing power networks with a strong and explosive mobilisation potential. This explains why the survival of the nezam is much more dependent on a strong ideological indoctrination—something that Russia lacks. Russia’s technological modernisation is driven by the digitalisation of the economy and the development of the military complex. In Iran, modernisation is based on the Construction Jihad and economic pragmatism of ‘resistance economy’ inscribed in the Five-Year Plans to develop knowledge-based high-tech industries, reduce country’s dependency on oil and achieve national technological self-sufficiency. Apart from modernisation, digitalisation also permits to exert ‘intensive practices of surveillance’ in the political economy and in the state-civil society interrelations—this form of

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social control is Hobbesian in nature, as it alienates the rights of individuals, fully surrendering them to the Sovereign, making the social contract technically irrevocable (Steele 1993). Third, strategic partnership and regionalism have become essential parts of hegemonic and counter-hegemonic tendencies in the global political economy, in both heartland and contender blocs. However, there could be some variation in the nature of this regionalism. In the heartland, international cooperation could be characterised as driven by ideological manipulation that uses the Lockean liberal drive as an expansionary moral obligation to join the efforts in order to populate the world with liberal democracies by ‘saving’ contender states from the Hobbesian ‘state of war’. The consolidation of a contender bloc, in which Russia plays an active part, in contrast, happens on the ground of fear of conflict—as the mechanism of self-protection against the Lockean expansion. In Russian regionalism, the realisation of international mega-projects and the recent push to strengthen its partnership with other contenders is driven by the desire to protect the state from what Hobbes in the ‘National Condition of Mankind’ notoriously refers to as the ‘three principal causes of quarrell. First, Competition; Secondly, Diffidence; Thirdly, Glory. The first, maketh men invade for Gain; the second, for Safety and the third, for Reputation’ (Hobbes 1651/2018: 88). Regionalism is driven by ‘competition, diffidence and glory’ in the sense that Russia’s aspirations for regaining the status of a ‘Great’ power (the glory for reputation) are intertwined with expansionary and accumulative capitalist strategies and innovations (competition for gains), which are self-protective by nature— the bedrock of state sovereignty (safety out of diffidence). As such, there is no metaphysical, trans-historical mechanism at work when we talk about the mobilisation of contender societies. In Iran, the original rigour (during the revolution and immediately afterwards) to export the Islamic Revolution as a means to liberate populations from the oppression of Leviathan’s who serve the interests of international imperialism has waded and the contemporary goal of strategic partnerships is not to promote Islamic values but to overcome sanctions-induced isolation by diversification of trade and investments. As in Russia, strategic partnership and diversification in Iran—is a way of constructing self-protection of society with the aid of alternative worldview and psycho-ideological interpretation of geopolitical rivalry. This way led at ‘the individual level concerning human psychology’ to address what Hobbes would call the

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state’s ‘diffidence’, at ‘the systemic-structural level concerning the incentives for action’ to enhance its competitiveness, and at the ‘social level concerning ideology, culture and socialisation’ to gain its glory (Abizadeh 2011: 299). The real problem, therefore, is not how to enter the social contract, but rather ‘how to stay in political society’ (ibid. 312). The fourth counter-hegemonic tendency of subordination of constitutional order to public administration has a contradictory impact on the WSR in contender states and is not purely Hobbesian. Despite the fact that it contributes to the restoration of the authority of the state by increasing public accountability and control over civil society with the aid of para-constitutional means of social control, it nevertheless leads to ‘the rise of parallel power networks that cross-cut the formal organisation of the state, involving links among industrial and financial elites’ (Jessop 2015: 489). It can be argued that Russian para-constitutionalism resembles Poulantzas’ ‘interventionist state’ that is being formed in transition to socialism, with its dominance of executive state power over parliamentary order and representative democracy (Poulantzas 1978: 171–72). This form of state intervention leads to ‘authoritarian statism’ that evolves out of ‘military, political and economic emergency’ in both the domestic and the international space (ibid.). The rise of parallel power structures in Russia is the outcome of ‘the transfer of power from the legislative to executive branch’, accompanied by the ‘transformation of political parties from transmission belts that represent public opinion to the administration and, relatedly, from major forces in organising hegemony into vehicles for relaying state ideology and justifying policies to the population’ (Jessop 2015: 484). In Iran, efficient top-down mechanisms of social control are dispersed through horizontal power networks, that are historically much stronger than those in Russia due to Iran’s multi-factional political landscape that reflects the prerevolutionary organisation of production (where commercial and political power resided with merchants and bazaar elites) and post-revolutionary institutional parallelism. On a daily basis, however, these parallel power structures protect but at the same time challenge the strong collective leadership—a Hobbesian feature of the WSR, as they undermine constitutionalism and induce corruption (Ledeneva 2013: 50). The fifth counter-hegemonic direction was cadre formation, designed to secure the stability of political society. In the modern contender state, the ‘sovereign’ is in urgent need of developing a ‘new middle class’ of mediators—a class of managerial cadre (van der Pijl 2005). The centrality

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of this ‘separate class of mediating functionaries’ can be found in the Gramscian analysis of organic intellectuals and in the neo-Machiavellian discussion of ‘political classes’ and elites that formulate the worldview for the masses (Mosca 1895, 1939). The target for the new cadres is to ‘execute directive tasks for the ruling class’ (van der Pijl 2005: 499) by promoting the ideology (i.e. the ideology of statecraft in Russia and Islamic values in Iran), securing the continuity of patronage politics and enterprise paternalism in order to extinguish the extremes in complex societies. The formation of organic intellectuals to construct a political formula around ethical norms and values is in no sense a distinctive feature of a Hobbesian contender—in the Lockean heartland the new selfconscious class has been formed in an attempt to ‘transcend a stalemate between capital and labour’ by arriving at ‘compromises within the space created by the balance of forces’ (van der Pijl 2001: 498). As the case of Iran has demonstrated, the best way to reinforce the institutional forms of social control is via the system of education, and in this sense, Iran is more comparable to the Soviet Union rather than to modern Russia. Like Soviet Communist party, Basij institutions channels and institutionalises grassroot popular mobilisation of the student associations into the top-down hierarchical order of the nezam. On a larger scale, starting from schools, extensive horizontal parastatal networks secure religious and ideological indoctrination and in the institutionalisation of civil society organisation. However, this Hobbesian capture is not a distinctive feature of contender states alone. In both, contender states and in the heartland, the Gramscian legacy manifests itself through human resource strategies, deployed by state and private corporatism, so that the ‘explosives’ of socialised labour could be ‘internalised by the cadre and intuitively grasped by the masses’ (van der Pijl 2005: 506). Yet, in contender states, this internalisation serves well to restrain the ‘strength and cunning’ of individuals against the powers of the Leviathan, while in the heartland—to enhance the powers of the property-owing class.

11.2

Lockean ‘Heartland’?

The evolving liberal Heartland is an entity that has been historically formed by subjugating former contenders to the initial tandem of the second British Empire and the United States. One of the biggest waves of this subjugation is post-war European integration, built on prior contender state episodes (van der Pijl 2006b: 13–14). This is the reason

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why the heartland today is not a homogenous entity, and therefore has diverted so much from the original Lockean nature, as although incorporated in the heartland, the former contenders have not really become fully Lockean, if by Lockean we mean the liberal-individualist tradition, according to which the interests of the individuals are given primacy over the purposes of society. As van de Pijl puts it, ‘in the end, most contender states have been incorporated into the expanding heartland without entirely overcoming the earlier fault-lines’ (ibid.). These faultlines are actually where the Lockean nature of the heartland breaks up. Esping-Andersen’s differentiation between liberal, conservative and social democratic welfare states in Europe is very demonstrative in this respect— as it specifies these fault-lines by distinguishing crucial political and cultural divergences between the states, ‘rooted in the different historical legacy of regime institutionalisation, class mobilisation and class-political coalition structure’ (Esping-Andersen 1990: 29). A closely related, but no less important explanation of the durability of these fault-lines and welfare states varieties lies deeper—in the contentious nature of the Lockean social contract itself—the reason for some misinterpretations of the ‘Two Treatises on Government’ (Locke 1690/1980). For instance, one contradiction in Locke’s postulates could be encountered in a detailed analysis by Justin Bruner of ‘in what way, if at all, the outcome of the Lockean and Hobbesian States of nature differ’: the analysis reveals that in the ‘Lockean state of nature both widespread conflict and lasting peace are possible’ (Bruner 2018: 1–3). The reason why lasting peace is hard to obtain by fleeing the state of nature ‘for the protection and comfort of civil society’, is that civil ‘protection associations’ are mired in internal conflicts themselves and therefore cannot function successfully (Nozick 1974: 11–17). Bruner maintains that ‘all individuals in a particular geographic location come to patronise a dominant protection agency’ in a way that social organisation eventually takes the form of a ‘ultra-minimal state’ (Bruner 2018: 4). Another striking contradiction is that ‘Locke was not an individualist at all, but a “collectivist” in that he subordinated the purposes of the individual to the purposes of society’, as individuals have no rights against ‘this sovereignty of the majority’ (Macpherson 1954: 3–6); this points out to the inconsistency in defining the Anglo-Saxon state as purely Lockean, as well as the ambiguity of the assumption in the ‘Second Treatise of Civil Government’ that ‘both that men on the whole are rational and that most of them are not’, which means that on one side, Locke states that all men are equal, on

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another, he believes that the labouring class is subject to political society, but ‘without full membership’, as it ‘does not and cannot live a rational life’ (ibid. 3–8, a quote from Locke). These contentious points manifest themselves in the modern heartland—in the EU and the United States—in dramatic societal inequalities, not only in income but also in status, as well as in growing populism, undemocratic social practices, racism, free-rider problems, intensified conflicts within the civil terrain that undermine the very chance of the minimal state to be effective. What constitutes the primary predisposition for consolidation of the heartland: Lockean liberal ideals or expansionary tendencies of capitalism? On this point one might disagree with Van der Pijl’s statement that capitalism and capital as a historical ‘corollary of the heartland/contender structure’ are secondary to the liberal, Lockean constitution of the heartland, as capital ‘tends to escape the confines of bounded spaces and imposes itself on global society as an extraterritorial discipline’. The problem is that the ‘nomadic’ pattern of the organisation of capital (Palan 1957, 2006) has a certain territorial anchoring, as the case of the financial crises demonstrated and therefore at times of crises capital could and should be internalised by states. Van der Pijl rightfully maintains that the ‘transnational configuration’ of capital has become internal to the neoliberal heartland and is being governed by the heartland’s quasi-state structures, such as the Bretton Woods institutions (van der Pijl 2006a), however, the liberal character of the heartland is under question. The problem is that the consolidation of the heartland is more and more counter-balanced by a contentious and utopian nature of the Lockean social contract that proves to be less workable when put into practice in a capitalist society. A minimal state with its tendency of privatisation of law, of monopolisation of the ‘market for social ordering’ that limits the ‘state’s authority to intervene in the law’ results in a dangerous social fragmentation in the heartland (Fisher 2010: 473). The heartland, especially the United States, has become increasingly protectionist. As traditional means of protectionism, such as tariffs and NTBs, have certain limits and provoke counter-actions (as in the United States–China tariff war or in Transatlantic disagreements over Trump’s tariffs)—economic sanctions have increasingly become a tool of protectionist policies and one of the most debated issues in strategic communications not only between the Western nations and ‘contender’ states but also within the Transatlantic bloc itself. Moreover, civil ‘protection associations’ in the heartland and the state-civil society complex

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are riven by internal conflicts as capital overshadows the heartland’s initial liberal thrust. This suggests that the heartland is indeed of a Lockean nature, given that we take into account the ambiguities of the Lockean social contract and correctly interpret the way Locke viewed the state of nature, given his distinction between the ‘two classes and different rationalities and different rights’, the characterisation of the rationale for the establishment of the civil society as ‘to protect unequal possessions’, the description of human nature as ‘moved primarily by appetite and aversion’—which, if ‘left to their full swing’, might overturn all morality, so that ‘the difference between state of nature and the Hobbesian state of war virtually disappears’ (Macpherson 1954: 8–15). Borrowing Macpherson’s language (ibid.: 22), it could be argued that the greatness of neoliberal modern heartland lies in the ‘assertion that the free and rational individual is the criterion of the good society; the tragedy is that this very assertion necessarily denies individualism to half the nation’ inside the heartland and to populations of the contender states that lie outside it.

11.3

Some Thoughts for Future Research

In general, the Lockean/Hobbesian dichotomy is relevant for analysing contemporary IPE, providing an excellent contextual ground for the study of welfare state regimes. However, a more scrutinised analysis of the nature of both the heartland and the contender states, will not reveal any purely Hobbesian or Lockean societies: both contender and the heartland states are hybrid states, which to varying degrees contain both Hobbesian and Lockean features. For instance, both Russia and Iran have witnessed a typically Lockean development of an unequal civil society of ‘two classes with different rationality and different rights’ that is ‘established to protect unequal possessions’ (Macpherson 1954: 8–12). Oligarchs form a capitalist class of new Russians and the leaders of parastatal institutions in Iran have a ‘high propensity to accumulate property beyond the requirements of subsistence that necessarily leads rational men to establish civil society’ (ibid.). As Macpherson puts it, ‘not only is the desire for accumulation rational, according to Locke, but accumulation is the essence of rational conduct’ (Macpherson 1954: 12). At the same time, the emerging form of state in the post-crisis heartland is not Lockean per se, but what Gramsci called ‘an extended state’ or ‘a hybrid, which contains Hobbesian, Lockean and Benthamite elements’ (Gill 1995: 12). Moreover, the analysis tends to become even more

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complicated when refereed to the original text by Hobbes and Locke for several more reasons: first, there are significant commonalities between the two thinkers (Steele 1993), second, there are numerous inconsistencies, contradictions and conceptual ambiguities in Locke’s analysis (Macpherson 1954) and third, there significant misinterpretations of the Hobbesian analysis that are treated now as common knowledge, thereby overlooking contestable underlying assumptions (Skinner 2008). This book provides a starting point for further research. Despite its many strengths, the WSR approach does not develop a holistic theory of the state that could be applied for the analysis of a capitalist state, be that of a ‘contender’ or ‘heartland’ block. The context-dependency (in both time and place) of the welfare state regime approach and its dialectical nature leads to empirical indeterminacy: the WSR framework is a way of studying welfare provision in a global context rather than a theory that will yield the same ‘predictions’. Vulnerable to geopolitical environment and dependent upon constantly changing variables of the global political economy and peculiar evolutionary patterns of societies under research, this framework is for studying contender states and should be modified when used for analysing the Lockean heartland. In other words, the WSR approach offers a method, or a directive for processtracing, based upon the operationalisation of CHMs through the concept of the self-protection of society but it lacks precision concerning the processes. The Matrix of the self-protection of society, however, suggests ways of encountering and tracing these processes through the dialectics between structural forces: institutional mechanisms of social control, material capacity of the socio-economic base and the ability to transform the modality of social behaviour; and functional forces: de-commodifying abilities to reproduce the labour force, redistributive abilities to sustain purchasing power and connecting strengths that secure the legitimacy of the regime. However, even this limitation is a common feature of all historical dialectical materialist and critical realist accounts that provide understanding rather than problem-solving generalisations and definitions of the subject matter. Historical materialism sees science as a social practice, where the subject (the researcher) cannot be separated from the object which is investigated (the society), ‘not as independent of history, institutions and societal interests’ (Jäger et al. 2016: 102). Concepts such as state, social contract, liberty, etc. have their histories and, as they have been contested throughout a long period of human existence, they

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cannot therefore have consistent definitions and should be examined by genealogy (Nietzsche, referenced in Skinner 2016). This has an epistemological implication for the welfare state regime as well—as ‘direct observation as assumed in empiricism is simply not possible’, its characterisation is not deterministic but rather is given against the background of a particular societal context, in which powers that generate CHMs ‘do not always lead to certain events but are rather to be seen as tendencies’ (Jäger et al. 2016: 107). A second challenge for theory is related to the formulation and the analysis of counter-hegemonic mechanisms. Because critical realist investigation does not produce causal regularities, the WSR approach does not offer a theoretical precision regarding counter-hegemonic mechanisms— CHMs are historical products and, therefore, are synthesised depending on the level of abstraction (i.e. concerning the ladder of abstraction). The number of counter-hegemonic mechanisms, revealed in this study, could be many more (or less) than twenty-seven, if, for instance, the timeframe for the empirical investigation were longer, or if the level of analysis was more concrete and detailed, depending on the analytical strategy. By grouping CHMs into trends, the research partially avoided repetitiveness and succeeded in distinguishing the relationships between the mechanisms. Also, some CHMs might not necessarily be of a contradictory character. For example, the realisation of mega-projects in Russia might not end up ‘being morphed into the astonishing land grabs’ (Harvey 2014), or technological modernisation will not necessarily enhance the power of top managers and the military elite. Also, the WSR regime approach has the potential to be workable for studying multiple cases (more than two as in this book). For instance, it would be very interesting to add China to the comparative analysis. This empirical analysis of Russia has necessarily been based on a relatively short-time horizon: the period between 2014 and 2019. Therefore, unlike Iran, the number of publications on the subject is limited, and some statistical data are absent and raw. The newness of the data and the changing dynamics of the processes in Russia create a problem of constant data revision. In this situation the researcher is like an artist who is trying to draw a sketch of shifting sands—and the desert’s landscape might appear blurred. The art of the analyst is to distinguish between the short-term and long-term trends—a task not always attainable due to the complexities of modern capitalism. The assessment of socio-economic developments that are not yet complete, nor took a certain direction at

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the time of a writing, due to a constantly changing nature of society in transition, might contain some interim results that require updating. For instance, at the time of writing of chapter on the material base of the Russian CHMs, the macroeconomic situation in the country had been much worse than a year later, when the economy began to recover—some passages had to be rewritten three times. Therefore, a more weighted and time-proved analysis could have been performed, had the Russian case had a long history of economic sanctions, like Iran. The WSR approach partly resolves this empirical problem by explicating the contradictory nature of counter-hegemonic mechanisms: by doing so, it describes possible future directions for trends. Another important strength of historical materialism is that enables the analysis of short-time episodes by distinguishing actual and latent processes that had been in place prior to the imposition of sanctions. At the same time, the contradictory nature of CHMs is only the first step for the estimation of strengths and weaknesses of the counter-hegemonic settings, with time, when the political economy of contender states under sanctions becomes a former historical reality—it would be possible to estimate the impact of counter-hegemonic mechanisms on welfare state evolution. At the same time, by dealing with shifting sands, a researcher risks overlooking some important latent conflict grounds that have not yet manifested themselves and that are hard to predict. There are several lessons we can learn from the analysis of CHMs of the states under sanctions. First, historical materialism has a priority for analysing societies in transition: counter-hegemonic mechanisms do not emerge out of a vacuum. Their nature and effectiveness depend upon historical preconditions of a target states—the societal evolution that is directed by institutional, material and ideological power structures, governed by the regimes’ functionality. Second, CHMs evolve not only to protect the welfare state against geopolitical struggles and resist centrifugal and revolutionary tendencies in societies—they are designed to accomplish major historical transformations of contender states. Third, the ‘effect’ of sanctions on the target state might not be the one desired by the sender-states, particularly when sanctions foster contender regime consolidation, power centralisation and strong leadership induce the formation of a progressive social class of mediators, or organic intellectuals, who promote new forms of governance, exert social control over masses. Social control implies ideologically driven ‘consent’ for economic

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hardships, intensified as a result of economic restrictions, domestic mobilisation, financial optimisation and technological modernisation. Fourth, the analysis of the increasingly extraterritorial nature of economic sanctions helps reinstate the argument that the idea of globalisation, where the state plays a secondary role, is a ‘neoliberal myth’ (Mayo 2011: 61), systematically used by the United States to ‘justify the imperial and neocolonial domination of much of the world’, disguised as protection of liberty and freedom (Harvey 2014: 201). Finally, a Hobbesian /Lockean dichotomy is a relevant and useful contextual background for analysing societies in transition, as it touches upon the grounds of political philosophy that might produce valuable arguments to challenge the status of the dominant ideological paradigm of the modern global political economy.

References Abizadeh, Arash. 2011. “Hobbes on the Causes of War: A Disagreement Theory.” American Political Science Review 105 (2): 298–315. Bruner, Justin P. 2018. “Locke, Nozick and the State of Nature.” Philosophical Studies 177 (3): 705–26. Esping-Andersen, Gøsta. 1990. The Three Worlds of Welfare Capitalism. Cambridge: Polity Press. Fisher, Talia. 2010. “Separation of Law and State.” Journal of Law Reform 43 (2): 435–96. Gill, Stephen. 1995. “The Global Panopticon? The Neoliberal State, Economic Life, and Democratic Surveillance.” Alternatives: Global, Local, Political 20 (1): 1–49. Gramsci, Antonio. 1971. “The Modern Prince” Selections from the Prison Notebooks. London: Lawrence and Wishart. Harvey, David. 2014. Seventeen Contradictions and the End of Capitalism. London: Profile Books. Hobbes, Thomas. 1651/2018. Leviathan. Edited by R. Tuck, 3rd ed. Cambridge: Cambridge University Press. Jäger, Johannes, Laura Horn, and Joachim Becker. 2016. “Critical International Political Economy and Method.” In Palgrave Handbook of Critical International Political Economy, edited by A Cafruny, Leila Simona Talani, and G. P. Martin. London, UK: Palgrave Macmillan. Jessop, Bob. 2015. “Crises, Crisis-Management and State Restructuring: What Future for the State?” Policy and Politics 43 (4): 475–92. Ledeneva, Alena V. 2013. Can Russia Modernise? Sistema, Power Networks and Informal Governance. Cambridge: Cambridge University Press.

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Locke, John. 1690/1980. Second Treatise of Government. Indianapolis: Hackett Publishing Company, Inc. Macpherson, C. B. 1954. “The Social Bearing of Locke’s Political Theory.” The Western Political Quarterly 7 (1): 1–22. Mayo, Peter. 2011. “The Centrality of the State in Neoliberal Times.” International Gramsci Journal 1 (3): 57–71. Mosca, Gaetano. 1895/1939. The Ruling Class. Edited by A. Livingston. New York: McGraw-Hill. Nozick, Robert. 1974. Anarchy, State and Utopia. New York: Basic Books. Palan, Ronen. 1957/2006. The Offshore World: Sovereign Markets, Virtual Places, and Nomad Millionaire. Ithaca, NY: Cornell University Press. Poulantzas, Nicos. 1978. State, Power, Socialism. London: Verso. Skinner, Quentin. 2008. Hobbes and Republican Liberty (with 19 Illustrations). Cambridge: Cambridge University Press. Skinner, Quentin. 2011. A Genealogy of the State, Lecture Transcript. Available at: https://cluelesspoliticalscientist.wordpress.com/2017/05/18/a-gen ealogy-of-the-state-by-quentin-skinner-lecture-transcript/ Skinner, Quentin. 2016. “A Genealogy of Liberty, a Lecture, Presented at Stanford Humanities Centre.” Retrieved June 27, 2019 (https://cluelessp oliticalscientist.wordpress.com/2017/01/27/a-genealogy-of-liberty-by-que ntin-skinner-lecture-transcript/). Steele, Dean A. 1993. “A Comparison of Hobbes and Locke on Natural Law and Social Contract, Thesis.” Retrieved June 24, 2019 (http://www.proglo code.unam.mx/sites/proglocode.unam.mx/files/Stateofnature.pdf). van der Pijl, Kees. 2001. “From Gorbachev to Kosovo: Atlantic Rivalries and the Re-Incorporation of Eastern Europe.” Review of International Political Economy 8 (2): 275–310 van der Pijl, Kees. 2005. “Gramsci and Left Managerialism.” Critical Review of International Social and Political Philosophy 8 (4): 499–511. van der Pijl, Kees. 2006a. Global Rivalries From the Cold War to Iraq. London: Pluto Press. van der Pijl, Kees. 2006b. “Lockean Europe?” New Left Review 37: 9–38. van der Pijl, Kees. 2007. “Capital and the State System: A Class Act.” Cambridge Review of International Affairs 20 (4): 619–37.

Correction to: Introduction

Correction to: Chapter 1 in: K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_1 The original version of this chapter was inadvertently published with an unwanted comment in between the running text in the first paragraph of Chapter 1, which is now removed. The correction has been updated with the changes.

The updated version of this chapter can be found at https://doi.org/10.1007/978-3-031-04055-9_1 © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9_12

C1

Appendices

Appendix I. Russia Dec—de-commodification; Red—Redistribution; Con—Connection

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9

401

Chapter

4

4

4

4

4

N

1

2

3

4

5

HR-Enterprise Paternalism

Enhanced state control over capital flows

Sovereign Wealth Funds (SWF)—guarantors of financial security

Centralisation and monopolisation of ‘strategic’ sectors

Effective leadership

CHM

Red

Red

Dec

Dec

Dec

f

Counter-tendency

Provides legitimacy, with Administrative interference no (or little) need to in political processes might resort to coercive measures be challenged by pressures for a higher political transparency that will ultimately undermine legitimacy Successful accumulation of Increased system’s overall sufficient funds for vulnerability to sanctions: strategic needs polled financial resources become an easier ‘target’ for sanctions A ‘safety cushion’ for the The reliance of the large economy, a reserve to businesses on the state re-finance large businesses funds perpetuates at the time of crisis ‘client–patron dynamic’ that ultimately limits business efficiency Access to financial Corruption and less resources to refinance efficient usage of funds; business activities, reduce limited access of small and the system’s vulnerability medium-size business to to external shocks the national banking sector; more expensive credit Corporate HR strategies EP remains heterogeneous through generous WF and a substantial provision redirect excess proportion of the cash for the employee’s population stays outside consumption the system

Positive tendency

(continued)

Cadre Formation

Power Centralisation

Power Centralisation

Power Centralisation

Para-Constitutional reformation

Trend

402 APPENDICES

Chapter

4

4

4

4

N

6

7

8

9

(continued)

Red

f

Power vertical enhancement

Con

The system of ‘tripartism’ Con

Optimisation and austerity Red

Intra-budgetary redistribution

CHM The federal budgetary system gathers sufficient revenues and tax payments, enhancing the redistributive capacity of the pension system Reduced state budget vulnerability to external shocks, funds redirected for economic modernisation Tripartism strengthens the partnership between government and firms, developing ‘friendly’ relations between state administration and oligarchs The sets of specific ‘rules of the game’ partly subordinate corrupted constituents under state control

Positive tendency

Modernisation and Optimisation

Trend

Power Centralisation

(continued)

Increased bureaucratisation Para-Constitutional and the mechanism of reformation ‘revolving doors’ eventually brings corruption to higher power echelons, undermining the morals of state officials

The system is biased towards capital rather than labour, and is becoming less legitimate in terms of the market

Declined purchasing power Modernisation and Optimisation of the low-income population

Perpetuated regional income disparity

Counter-tendency

APPENDICES

403

Chapter

4

6

6

6

N

10

11

12

13

(continued)

Technological modernisation

IS industrialisation

Human resource development

Subordination of constitutional order to public administration

CHM

Red

Dec

Dec

Con

f

Potentially makes the labour market less precarious in some sectors (in Russia—metallurgy, agriculture, chemicals and leather production) Shifts income redistribution across sectors; the growth of tax burdens in some sectors (e.g. energy sector), the tax revenues used for technological modernisation of other sectors (e.g. military)

The restoration of the authority of the state and the channels of public accountability via para-constitutional parallel organisations HR development stimulates technological modernisation and economic mobilisation

Positive tendency

Modernisation and Optimisation

Cadre Formation

Para-Constitutional reformation

Trend

(continued)

High concentration of Modernisation and production in oil and gas, Optimisation banking and military sectors supported the status quo of the managers and the elite, whose income greatly exceeds the incomes of the ‘salariat’ and professionals

Introduction of the elements of ‘dual-adaptation’ that undermine constitutionalism and induce corruption Increased role of the state agencies in the labour markets might enhance different forms of control over population, constraining individual freedoms In the long run, firms, accustomed to subsidies and little competition, lose stimuli for innovation and in HR development

Counter-tendency

404 APPENDICES

Chapter

6

6

6

6

N

14

15

16

17

(continued)

Mega-projects

New investment opportunities (financial and fiscal assistance)

Counter-sanctions

Effective demand formation

CHM

Con

Con

Red

Red

f

Temporarily resolves the macroeconomic problem of effective demand formation, crucial for the realisation of IS

Existing flat rate (13%) allows to increase tax collection—the funds go for the repayment of public debt and on social provisions In the short run counter-sanctions improve the country’s position in the global division of labour, and reach self-sufficiency in some sectors (i.e. in agriculture, railway machinery, pharmaceuticals, etc.) Favourable climate for investment in some regions and in some sectors of economy

Positive tendency

Private businesses are more dependent on decisions of regional state and municipal corporations (quasi-private business) When projects are owned by private foreign investors (financial institutions), there is a risk for the fixed capital ‘to be morphed into the astonishing land grabs’ (Harvey 2014)

Increased taxing of consumption (VAT increase to 20%) has inflationary pressures that negatively affect the ‘effective demand’ In the long run, the competition in the market will is not between domestic and foreign firms, but between national industries over the scarce resources of capital, skills, labour

Counter-tendency

(continued)

Diversification and strategic partnership

Modernisation and Optimisation

Diversification and strategic partnership

Modernisation and Optimisation

Trend

APPENDICES

405

Chapter

6

8

8

8

N

18

19

20

21

(continued)

Con

f

Religious motivations—ROC

Role in Global culture

Dec

Dec

The Ideology of statecraft Dec and patronage politics

Regionalism

CHM

Educates faithful citizens in the spirit of patriotism and love of peace

Integration strengthened relationships between businessmen, state officials and communities, improved current remoteness across vast borders Patronage politics partially succeed in obtaining public ‘consent’ for domination, as the majority of the population are eager to sacrifice their individual freedom for the sake of social stability and security Cultural cooperation expands the audience and serves as a bridge of understanding between the peoples

Positive tendency

Diversification and strategic partnership

Trend

Excessive TV propaganda undermines the country’s image in the minds of foreigners, tough rhetoric dangerously escalates tensions A threat of the establishment of an authoritarian theocratic priesthood

(continued)

Cadre Formation

Diversification and strategic partnership

Cadre Formation At times of crisis the government becomes ultimately culpable for its actions (in which general public have no say), for all problems and hardships

Further integration will meet the reluctancy to give up state sovereignty

Counter-tendency

406 APPENDICES

Chapter

8

8

8

8

N

22

23

24

25

(continued)

Discourse of otherness

Informal networks (i.e. clientelism)

Corporate social responsibility

Consolidation of the national identity (social justice)

CHM

Con

Red

Red

Red

f

Counter-tendency

The national identity remains fractured due to structural dualism of WSR, despite efforts for its reconstitution on the basis of social justice and patriotic pride over glorious past Some portion of financial The status quo of the flows is redirected away ruling class is protected by from private enrichment a non-transparent structure towards social welfare of the ownership, projects, restraining excess decreasing the WSR capital accumulation material potential People get opportunity to Consolidation of class maintain their hierarchy, grounded in interconnectedness familialism, and in other through work and through forms of informal recreational, housing, relationships that disrupt cultural and sports labour bargaining power activities and cohesion Helps to consolidate Might spur nationalist society at the macro-level, sentiments to obtain public support for economic centralisation in Russia

A discrepant nature of a Russian identity impedes a resurgence of nationalism at a greater scale

Positive tendency

(continued)

Power Centralisation

Para-Constitutional reformation

Para-Constitutional reformation

Cadre Formation

Trend

APPENDICES

407

Chapter

8

8

N

26

27

(continued)

Civil Society Hierarchy

Contender bloc consolidation

CHM

Con

Con

f

Formalisation of public interactions at the micro-level, allowing the government to bring the discussion of acute social problems to the political agenda

Russia’s foreign policy reorientation towards the East secures FDI inflows and access to funds for economic modernisation

Positive tendency Centralisation of power alongside emerging value chains, coordinated by national governments, increases the risks of bureaucratic expansion and corruption Further centralisation of control over civil society institutions makes state–civil society dialogue excessively bureaucratised and inflexible. The opportunities for democratisation and popular mobilisation for regime change are minimised

Counter-tendency

Power Centralisation

Diversification and strategic partnership

Trend

408 APPENDICES

APPENDICES

Appendix II. Iran

409

Chapter

5

5

5

5

N

1

1

2

4

Supra-national institutional design

Land Reform

Expansion of Education

Diffused-power semi-autocracy

CHM

Red

Red

Dec

Dec

f A risk to the power of the Office of the Supreme Leader

Counter-tendency

An increasing demand of the population for higher education leads to overproduction of cadres, and to higher unemployment Allows the state to turn Not successful in from a net importer into a eliminating wealth producer of some vital inequalities overall: social products (e.g. agriculture, inequalities are transmitted medicine, etc.) from land inequality in the monarchy into urban inequality Constitutionalising and Political consensus over empowering the privatisation and over ‘just’ Expediency Council ‘to wealth distribution is overrule the canons of difficult to attain both Sharia law and the Constitution

A weak party system and intense elite competition reinforced popular mobilisation to maintain institutional legitimacy Contributes to the country’s self-sufficiency by supplying highly qualified cadres, where needed

Positive tendency

(continued)

Para-Constitutional reformation

Modernisation and Optimisation

Cadre Formation

Power Centralisation

Trend

410 APPENDICES

Chapter

5

5

5

5

N

5

6

7

8

(continued)

Checks and Balances

Loose monetary policies

Subsidies

Subcontractor state

CHM

Con

Red

Red

Red

f

Counter-tendency

An increase in the participation of the state in the decision-making of private firms, through quasi-private firms—a paradoxical further centralisation of state control Subsidies are necessary for Subsidies slow down some reforms and caused mass some industries to reach discontent their break-even point Induced over-borrowing, Low-interest rates increased speculation and stimulate economic growth by maintaining spurred inflation liquidity and making it less expensive to borrow The system of checks and Checks and balances risk undermining this same balances maintains the legitimacy, if the already legitimacy of the regime unstable equilibrium tilts more towards hardliners, failing to restrain their economic and social empowerment

A reduced state’s direct ownership in economy

Positive tendency

(continued)

Para-Constitutional reformation

Modernisation and Optimisation

Modernisation and Optimisation

Power Centralisation

Trend

APPENDICES

411

Chapter

5

5

7

N

9

10

11

(continued)

Popular Mobilisation

Enterprise Paternalism

Dualistic Institutional structure

CHM

Dec

Con

Con

f

Played a major role in the formation of the middle class and in the ‘solidarity economy’—a vehicle for poverty relief and struggle against a gender discrimination in the workforce

Strong mobilisation and unification effect on various social groups that are interconnected through their engagement in the country’s reconstruction and development programs Aids institutional control over the population through the net of parastatal institutions

Positive tendency

Para-Constitutional reformation

Trend

(continued)

High connecting potential Cadre Formation of EP enables mass mobilisation of those who are discontent with government policies Spurred the emergence and Cadre Formation the consolidation of a new parastatal managerial class during privatisation

Slows down decision-making, making the multi-centre power mechanism inept in responding to crises

Counter-tendency

412 APPENDICES

Chapter

7

7

7

N

12

13

14

(continued)

Modernisation/Resistance Economy

Martyr’s Welfare State

Enhanced labour Protection

CHM

Red

Dec

Dec

f

Drives the ‘self-sufficiency strategy’, helps the nation to survive the severities of sanctions and war, to develop knowledge-based high-tech industries, to reduce dependence on imports of raw materials

The creation of a ‘fixed’ category of martyrs ‘to consolidate the legacy of the revolution’ (and for the military mobilisation during the Iran-Iraq war)

Secure the position of the existing permanent labour force and impedes its further commodification

Positive tendency ‘the imbalance between entry and exit rates into the labour market’ resulted in growing youth unemployment and in the deterioration of career prospects for women and rural men – the most precarious members of the society The extension of the category of martyr to the members of the new parallel institutions erodes the original meaning of a ‘martyr’ and caused mistrust among population Leads to the increased bureaucratic control over the major economic development, and eventually—to the empowerment of parastatal organisations that deformed existing class hierarchy

Counter-tendency

(continued)

Modernisation and Optimisation

Power Centralisation

Cadre Formation

Trend

APPENDICES

413

Chapter

7

7

7

7

N

15

16

17

18

(continued) f

Large Infrastructure Projects

Free Trade Zones/Special Economic Zones

Fiscal Parallelism

Con

Con

Red

Empowerment of Parastatal Red Foundations

CHM

Create new jobs and alleviate unemployment

Allows the centralisation and mobilisation of human and financial resources needed for the accomplishment of mega-projects Allows state and para-statal institutions to accumulate substantial financial resources, launch parallel social welfare programs, members of the lower middle class and the poor Boosts the country’s non-oil exports

Positive tendency

Most of the initiatives to set up independent private enterprises might become hijacked by para-military business entities Project management is executed by large business conglomerates and further empowers paramilitary structures—the main investors and beneficiaries

Leads to ‘mushroomed bureaucracy’, to corruption that undermines the effectiveness of project management (and economic reforms) Lowers the efficiency of the tax system and affects social mobility by redirecting distribution of incomes from general taxpayers towards loyal members

Counter-tendency

(continued)

Diversification and strategic partnership

Diversification and strategic partnership

Para-Constitutional reformation

Power Centralisation

Trend

414 APPENDICES

Chapter

7

9

9

9

N

19

20

21

22

(continued)

Alternative vision of modernity/to ‘pseudomodernisation’

Political Indoctrination of Islam

Ideological-Political Fluidity

Informal Power Network Politics

CHM

Red

Dec

Dec

Con

f

Ideological supervisions are highly influential and potent to shape people’s ideals, guide their behaviour in households, markets and civil institutions Secures Iran’s ‘third way’ and preserves the national authentic identification

The informal power dynamics lead to mobilisation of resources, to consolidation of Basijis’ institutional leadership fracturing within the IRGC itself Serves as a safety net for the maintenance of democratic labour market protection mechanisms (e.g. elections) and their adaptation to the changing sentiments in the society

Positive tendency Informal and interpersonal relationships pose an incremental risk for the systemic cohesion, instigating further fracturing within the IRGC itself Overheated ideological divide over the Construction and composition of a ‘just’ labour market can ‘pose a near existential threat to the system’, making it difficult to reach consensus on socio-economic policies Growing awareness of freedoms and rights can be explosive, especially among young people who are more keen to protest against anything that limits their freedoms The shift to pragmatism, push for secularisation and liberalisation undermine political-economic authenticity

Counter-tendency

(continued)

Modernisation and Optimisation

Power Centralisation

Diversification and strategic partnership

Para-Constitutional reformation

Trend

APPENDICES

415

Chapter

9

9

9

9

N

23

24

25

26

(continued)

Red

f

Contender Bloc Consolidation

Guided Political Competition

Con

Con

Mobilisation of the Middle Red Class

Self-Esteem in Islamic ethics

CHM

Counter-tendency

Ideological shift towards individualism has a destabilising effect on some classes, led to insecurities and discontent over income distribution Gives hopes for Provoked a securitisation of democratic transformation: the judiciary by hardliners, as social movements who discredited effort to succeeded in pushing for use the principle of state some human rights interest to defend human legislations (e.g. family rights law, child custody, etc.) Facilitates political The lack of institutionalised intra-elite dialog through parties disables the capacity existing host of of existing factions to institutions, including the channel negotiations to Majilis legislate significant political change The mutual agreement Iran and its partners have over crucial matters and not only common but also willingness to strengthen clashing realpolitik strategic partnership interests—a potential risk of conflict

Supports revolutionary spirit by inspiring Iranians to endure their poor living standards for the sake of the common good

Positive tendency

(continued)

Diversification and strategic partnership

Power Centralisation

Para-Constitutional reformation

Diversification and strategic partnership

Trend

416 APPENDICES

Chapter

9

N

27

(continued)

Cadre formation

CHM Con

f Channels and institutionalises grassroot popular mobilisation into the top-down hierarchical order of the nezam

Positive tendency

Trend

Indoctrination and Cadre Formation educational meritocratic system increases social mobility, widens knowledge and people’s awareness of issues that might challenge their conservative beliefs

Counter-tendency

APPENDICES

417

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Index

A Ahmadinejad, Mahmoud, 80, 130, 131, 140, 142, 144, 148, 152, 156, 218, 226, 230, 231, 247, 312, 320, 324, 332, 333, 375 Althusser, Louis, 5, 36, 56, 57 Axworthy, Michael, 223 B Basij Militia, 139, 150, 151, 158, 224, 312, 331, 332, 358, 372, 380 Bieler, Andreas, 56–58, 63, 64 Boroujerdi, Mehraz, 148, 232 Brumberg, Daniel, 82 Burnham, Peter, 5, 8, 9, 57, 63–66 C Cadre stratum, 43, 266 Cafruny, Alan, 5, 26, 27, 60, 77, 81, 166, 167, 259 Callinicos, Alex, 4, 38, 39

Civilisational discourse, 255, 256, 297, 334, 354, 369 Civil society, 15, 35, 41, 51, 52, 54, 58, 64, 66, 114, 119, 149, 151, 255, 262, 265–267, 273, 274, 293, 299–301, 321, 327, 332, 334, 337, 338, 353–355, 358, 359, 380, 387, 388, 390–392, 394 Construction Crusade, 137, 150, 372 Counter-hegemony, 3–6, 9, 10, 13–16, 21–23, 25–27, 29, 30, 33, 35–38, 40–43, 55–58, 60–65, 68, 69, 76, 81, 82, 86, 89, 106, 112–114, 117, 118, 134, 141, 146, 149, 154, 156, 157, 164, 171, 172, 180, 189, 190, 194, 203, 211, 237, 246, 247, 254, 256, 258, 259, 266, 272, 273, 288, 290, 294, 296, 299, 318, 322, 327, 333, 337, 345, 351, 353, 354, 387–390, 396, 397

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 K. Kirkham, The Political Economy of Sanctions: Resilience and Transformation in Russia and Iran, International Political Economy Series, https://doi.org/10.1007/978-3-031-04055-9

455

456

INDEX

Cox, Robert W., 5, 6, 42, 43, 52, 53, 55, 57, 58, 62–64, 81, 265, 293, 299, 378

E Esping-Andersen, Gøsta, 2, 5, 24, 25, 29, 34, 35, 46, 90, 113, 117, 119, 376, 392 Eurasian Economic Union (EAEU), 86, 172, 190, 194, 198, 200, 206, 208, 211, 212, 259, 298, 330, 368–370 Eurasianism, 259, 263, 271, 272, 294, 295, 298, 380

F Farhi, Farideh, 82, 128, 138, 147, 312, 314, 324, 326, 327 Farzanegan, Mohammad Reza, 11, 231, 241 Foreign agent, 111, 115, 116, 173 Fouskas, Vassilis, 39, 58, 59, 84, 85

G Germain, Randall, 6, 63 Gill, Stephen, 40, 58, 59, 63, 80, 260, 394 Globalisation, 5, 22, 24, 49, 56–58, 77, 82, 83, 85, 110, 167, 169, 204, 240, 256, 257, 259, 262, 263, 296, 313, 335, 348, 398 G¨okay, B¨ulent, 39, 58, 59, 84, 85 Golkar, Saeid, 150, 151, 312, 332, 333 Gough, Ian, 2, 5, 9, 14, 22, 24–30, 35–38, 40, 42–46, 49, 292 Gowan, Peter, 38, 50, 80, 83–85, 257 Gramsci, Antonio, 14, 30, 40, 42, 44, 45, 49, 53, 58–60, 63, 85, 254,

265, 281–283, 299, 313, 388, 394 Guardian Council, 147, 149, 158, 232, 326, 328, 332, 337 Gumilev, Lev, 295, 296 H Harris, Kevan, 127–130, 132–134, 136–138, 140, 141, 144, 149, 152, 156, 217–220, 224, 229, 231, 232, 235, 237, 312, 318, 320, 321, 323, 325 Hartwick, Elaine, 27, 38, 64, 66, 85 Harvey, David, 4, 38, 41, 49, 56, 61, 62, 76, 81, 257, 261, 262, 290, 346–353, 368, 376, 396, 398 Hayek, Friedrich, 23 Hegemony, 5, 27, 36, 39, 40, 42, 43, 50, 53, 58–63, 81, 84, 85, 166–168, 172, 218, 261, 264, 265, 278, 282, 299, 333, 335, 347, 390 Historical materialism, 26, 395, 397 Hobbesian, 2, 3, 6, 16, 40, 50, 52–56, 76, 255, 256, 260, 387–392, 394, 395, 398 Hobbes, Thomas, 50, 51, 255, 260, 387, 389, 395 Huntington, Samuel, 255, 266, 272 I Ideology of statecraft, 15, 254, 259, 266, 271–273, 282, 283, 285, 287, 289, 292–294, 298, 299, 302, 334, 335, 337, 348, 360, 377, 380, 381, 391 Imam Khomeini Relief Committee (IKRC), 129, 132, 154, 224, 232, 364 Imperialism, 38, 49, 50, 60, 137, 168, 247, 389

INDEX

Institutional parallelism, 149, 150, 158, 371–373, 390 Islamic Revolutionary Guards Corps (IRGC), 138, 139, 141, 147, 148, 150, 224, 228–233, 242, 243, 246, 247, 311, 317, 328, 330–332, 336, 355, 357, 358, 364, 369, 376

J Jessop, Bob, 3, 6, 8, 36, 56, 65, 119, 390

K Khatami, Mohammad, 80, 140, 144, 149, 218, 222, 226, 242, 312, 317–321, 324, 332 Kirkham, Ksenia, 28, 172, 318

L Laruelle, Marlène, 272, 294, 295, 297, 298 Lockean heartland, 2–4, 6, 38, 50, 68, 345, 391, 395 Locke, John, 50–52, 260, 392–395

M Macpherson, C.B., 3, 52, 392, 394, 395 Maloney, Suzanne, 128, 137, 150, 153, 219, 228, 230, 235, 236, 320, 325, 372 Martyr, 129, 138, 221, 223, 224, 245, 246, 348, 355, 358 Marxism, 8, 56, 57, 63 Marx, Karl, 27, 55, 64 Mearsheimer, John, 11, 261, 262 Medvedev, Dmitry, 105, 114, 263, 277, 288, 351, 374

457

Mohseni, Payam, 137, 139, 140, 148, 222, 230, 258, 311, 316, 317, 320 Morton, Adam David, 8, 40, 56–58, 63, 64, 80, 83, 165, 265, 299

N Nationalism, 62, 168, 169, 246, 259, 262, 271–274, 276, 294–297, 302, 310, 326, 350, 352, 380 National Projects, 97, 105, 106, 108, 109, 156, 199 Nezam, 43, 133, 267, 314, 327, 331, 332, 338, 354, 359, 371, 380, 388, 391

O Offe, Claus, 3, 23, 27, 28, 34, 37, 43, 68, 76, 82, 221, 254, 266, 286 Organic intellectuals, 265, 281, 391, 397

P Pahlavi monarchy, 79, 127, 135, 138, 156, 217 Parastatal networks, 391 Peet, Richard, 27, 38, 64, 66, 85 Polanyi, Karl, 34, 64, 260, 261, 273, 274, 373 Poulantzas, Nicos, 6, 8, 56, 60, 66, 82, 172, 390 Privatisation, 38, 51, 77, 78, 80, 81, 83, 90, 92, 96, 99, 134, 135, 138–141, 144, 148, 152–156, 178, 188, 218, 228, 230–232, 247, 312, 320, 321, 323, 336, 355, 356, 363, 366, 375, 393 Putin, Vladimir, 11, 81, 90, 93, 99, 100, 103, 105, 106, 111, 114, 115, 155, 189, 258, 263, 272,

458

INDEX

273, 275, 277, 281–283, 285, 287, 292–299, 301, 347, 360, 371, 373, 380 R Rahimkhani, Kourosh, 148, 232 Realism, 59, 258 Regime, 2–4, 6–16, 21, 22, 25–30, 33–38, 40–46, 53–55, 57, 60, 61, 63–66, 68, 69, 77, 78, 80, 86, 90, 92, 99, 100, 105–107, 110, 111, 118, 128, 135, 138, 139, 147, 148, 150, 154–156, 158, 168, 173, 218, 220, 226, 227, 232, 244–247, 254, 256, 258, 261, 264, 266, 278, 285, 287, 289, 294, 311, 315, 321, 324, 326, 328, 329, 335–337, 346, 353, 356, 364, 374, 380, 392, 394–397 Remington, Thomas, 90, 95, 101, 103, 112, 114, 117, 194, 358 Ryner, Magnus, 5, 26–28, 60, 77, 81, 82, 167, 256 S Sakwa, Richard, 11, 59, 79, 81, 85, 114, 119, 173, 264, 273, 274,

285, 287, 289, 294, 298, 299, 347, 372, 373, 375, 378, 380 Salehi-Esfahani, Hadi, 240 Self-Protection of Society, 6, 14, 64, 67, 68, 76, 345, 389, 395 Shia Islam, 310, 329 Shock Therapy (ST), 38, 80, 83 Standing, Guy, 164, 178, 179, 182, 257, 347 Subcontractor state, 141, 156, 237 Supreme Leader, 128, 133, 138–140, 143, 147–149, 158, 232, 328, 329, 373

T Tripartism, 86, 110–113, 157, 202, 289, 293, 353, 355, 358, 387 Tsygankov, Andrei, 80, 259, 263, 271, 272, 296

V Van Apeldoorn, Bastiaan, 26–28, 55 Van der Pijl, Kees, 2, 3, 6, 38–40, 43, 50–55, 60, 64, 76, 81, 99, 256, 257, 260–262, 266, 274, 281, 312, 348, 349, 388, 390, 391, 393