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www.worldnancialreview.com 61
January - February 2013
Sistema, Power Networks and Informal
Governance in Putin’s Russia
By Alena Ledeneva
In her new monograph Can Russia Modernise? Sistema,
Power Networks and Informal Governance, Alena Ledeneva
seeks to decode and reveal how informal power operates.
Concentrating on Vladimir Putin’s system of governance –
referred to as Putin’s sistema – she identifies four key types
of networks: his inner circle, useful friends, core contacts
and mediated connections. These networks serve sistema but
also serve themselves. Reliance on networks enables leaders
to mobilise and to control, yet they also lock them into
informal deals, mediated interests and personalised loyal-
ties. Ledeneva’s perspective on informal power is based on
in-depth interviews with sistema insiders and enhanced by
evidence of its workings brought to light in court cases,
enabling her to draw broad conclusions about the prospects
for Russia’s political institutions. The book is available from
Cambridge University Press from February 2013.
Sistema in contemporary Russia is a shorthand term for
a ‘system of governance’ that usually refers to open
secrets or governance matters not-to-be-named. The
term itself is elusive. Outsiders find it too general to mean
anything in particular. Insiders are not ordinarily bothered
with definitions of sistema – they intuitively know it when they
experience the ‘system made me to it’ pressure. One of them
explains the unarticulated nature of sistema by the lack of dis-
tance of insiders from it:
This is not a system that you can choose to join or not – you
fall into it from the moment you are born. There are of course also
mechanisms to recruit, to discipline and to help reproduce it. In the
Soviet Union there was more or less a consolidated state, whereas
now it is impossible to disentangle the state from a network of
private interests. Modern clans are complex. It is not always clear
who is behind which interests.
It is these non-transparent interests and non-hierarchical,
network-based aspects of governance that are missing in the
most conceptions of Russia’s systems of governance. Even
when informal influence, connections, clans, cliques, clus-
ters and other types of informal alliances within the elites
are identified, the social networks that generate ‘informal
power’ are not seen as intrinsic to the concept of governance.
Moreover, it is often assumed that power networks shadow
formal positions of power so that a ‘map’ of a pyramid of
informal ties and influences can be produced. This is not
how informal power operates. There is not much regular-
ity about it. Besides, networks that channel informal influ-
ence function in an ambivalent fashion – they both support
and subvert the existing governance model. Personalised
power networks enable leaders at all levels to mobilise and
to control, yet they also lock politicians, bureaucrats and
businessmen into informal deals, mediated interests and per-
sonalised loyalties. This is the ‘modernisation trap of infor-
mality’: one cannot use the potential of informal networks
without triggering their negative long-term consequences for
institutional development.
The Soviet sistema vs sistema in Putin’s Russia
The collapse of the Soviet Union provides a starting point for
assessing continuity and change in sistema. Soviet sistema was
associated with the theoretical tenets of socialism – no private
property, centralised planning, political and ideological rigid-
ity – but it also triggered behaviour that went contrary to its
proclaimed principles. In an insightful commentary on sistema
in his memoirs, Joseph Brodsky recalls,
If one had brains, one would certainly try to outsmart the system
One cannot use the potential of infor-
mal networks without triggering their
negative long-term consequences for
institutional development.
Technology Strategy Business Africa Canada Middle East Asia Europe Russia Latin America
62 The World Financial Review
by devising all kinds of detours, arranging shady deals with one’s supe-
riors, piling up lies and pulling the strings of one’s [semi-nepotistic]
connections. This would become a full-time job. Yet one was constantly
aware that the web one had woven was a web of lies, and in spite of
the degree of success or your sense of humour, you’d despise yourself.
That is the ultimate triumph of the system: whether you beat it or join
it, you feel equally guilty. The national belief is – as the proverb has it –
that there is no Evil without a grain of Good in it and presumably vice
versa. Ambivalence, I think, is the chief characteristic of my nation.
Putin’s sistema functions with some elements from the
‘administrative-command’ system of Brezhnev’s socialism.
Administrative-command methods remain effective for mobil-
ising new elites and allocating resources, adjusted to present-
day objectives and priorities. But there are also significant dif-
ferences: the party ideology has given place to market interests,
state property to privatised assets, informal exchange of favours
to monetised kickbacks, planning to the constraints of global
finance, local-bound infrastructure to hi-tech technologies and
overtly command methods to more subtle informal signals.
The key difference of Putin’s sistema is its orientation on
wealth. Due to the monetisation of the economy, power
networks that used to be aimed at obtaining privileges have
become oriented towards monetary income and capital. In the
Soviet economy, favours of access to resources had to be rou-
tinely exchanged as the resources themselves were not alien-
able. Power networks rewarded their members with exclusiv-
ity – privileges of access to resources rather than ownership
of resources per se. During Russia’s transition to a capitalist
economy, the assets themselves were granted, privatized, sold
to foreign investors and taken out of the country.
Putin’s Russia has seen an increase in economic growth
but also an increase in the scale of the economy of kickbacks,
widespread practices of informal deals over the budget funds
and informal capital flows. Stanislav Belkovsky coins the term
of the ‘economy of r-o-z’, referring to three common forms of
corruption: splitting profits, paying kickbacks and carrying in
bribes (raspil, otkat and zanos). He quotes corresponding per-
centages on deals with informal income and emphasises the
quantitative specifics of present-day sistema: from the 25 per
cent splits, 10 per cent kickbacks and 2 per cent bribes in the
1990s to the 60 per cent splits, 30 per cent kickbacks and 10 per
cent bribes in 20101. Informal income has become a “drug for
thousands of thousands of bureaucrats and businessmen and
their dependents,” he says. “Practically all elites are addicted
to the injections of informal income...Many state officials
understand that they should fight this addiction, but cannot
resist another dose.”2
The sistema ambivalence
In my view, sistema should not be associated simply with
corruption and dysfunctional government. Sistema benefits
from corruption but also restricts it with its inner channels of
checks and balances. It sustains informal control over assets
and appointees and reserves informal leverage for re-nego-
tiating property rights and positions. The vulnerability of
individuals, the flexibility of rules and ambivalence of con-
straints are at the core of the functioning of sistema. Sistema
is complex, anonymous, unpredictable and seemingly irra-
tional, but it serves to glue society together, to distribute
resources and to mobilise people; it contributes to both
stability and change; and it ensures its own reproduction.
Present-day sistema incites people to work, offers effective
stimuli and adequate motivation, but does so in an ambiva-
lent and even paradoxical way. Its incentives prioritise short-
term gain at the expense of long-term sustainability, loyalty
at the expense of professionalism, safety and collective
responsibility at the expense of leadership, and innovative
circumvention of sistema constraints at the expense of pro-
ductive innovation. Self-made businessmen often comment
on their success being achieved against the odds and despite
the forces of sistema, whereas sistema businessmen prefer to
avoid the subject of building close links with influential poli-
ticians or deny the links altogether. Power networks enable
their leaders to receive support and to trust others (inner
circle), to access resources (useful friends), to mobilize cadres
for solving problems (core contacts), and to reduce risks and
uncertainty (mediated contacts). All these functions are not
without strings attached.
Sistema works
It is tempting to assume that there are obvious reform mea-
sures that Russia could undertake to replace sistema with a
market economy and the rule of law. It would be a mistake,
however, to associate sistema with a failed state. It would
be too simplistic to claim that Putin’s micro-management
does not work. Quite the opposite, it is amazing how much
does get done in Russia despite the infrastructural problems
and institutional inefficiencies, and the explanation lies in
the effectiveness of networks and relationships. Sistema’s
output is impressive because it is capable of mobilising
people, of recruiting youth and of creating opportunities.
When it comes to individual recruitment, offers that came
from authorities are difficult to resist and hard to refuse.
It is amazing how much does get done in
Russia despite the infrastructural prob-
lems and institutional inefciencies, and
the explanation lies in the effectiveness
of networks and relationships.
Putin’s sistema functions with some el-
ements from the ‘administrative-com-
mand’ system of Brezhnev’s socialism.
www.worldnancialreview.com 63
January - February 2013
Moreover, such offers are met with enthusiasm and selfless-
ness. Businessmen rationalise their participation by future
gains for business and for themselves through sistema’s
promise of scale and potential, and often disregard sistema’s
downsides. If successful, their businesses will be used by
sistema or appropriated through sistema raiding; if unsuc-
cessful, a new generation of businessmen will be mobilised.
Just as people exploit sistema, the sistema exploits people.
Breaking out of this reproductive circle can be assisted by
honesty and trust at individual level, the idea of common
good recognised by all, equality before the law, security of
property rights – which thus far have been kept unstable in
order to keep asset holders in control – and accountability
of the leadership’s informal governance.
Factors of change: financial integration, technolog-
ical modernisation, legal globalisation
The financial integration of Russia into the global commu-
nity created possibilities of moving wealth and capital from
Russia, which were especially visible when associated with
individual exits from sistema. According to the 2011 national
opinion poll, 65 per cent of Russians answer ‘yes’ to the ques-
tion ‘Do state officials have bank accounts abroad?’3.
Another factor essential for the opening up and consequent
transformation of sistema is associated with globalisation in
technology and infrastructure. Advances in mobile commu-
nication technology, the rise of Internet access and Russia’s
openness and exposure to global infrastructure are not only
changing the behaviour of the elites but also bringing about
some unintended consequences. The culture of privileges for
sistema insiders is transforming under the global influence and
there are also transformations in the public understanding of
the common good and infrastructural equality.
The third challenge to sistema is the loss of sovereignty in
legal affairs. The analysis of ‘telephone justice’ in the materi-
als and appeals to international courts reveals signs of legal
globalisation (for those who can afford it) and relative weak-
ness of sistema outside Russia. Given a large number of cases
initiated by Russian citizens against Russian Federation,
experts refer to the European Court of Human Rights as the
Supreme Court of Russia. Yet international courts are also
used by the government for the purposes of asset recovery
from sistema fugitives.
None of these developments by itself can be sufficient for
the transformation of sistema. It is so complex that its change
must be an outcome of multiple factors, including the trans-
formation of the leadership.
The future of Putin’s sistema: the modernisation
trap of informality
Sistema cannot simply be ‘reformed’ in the traditional sense
of the word. First, challenging sistema could get the reformers
expelled from their formal positions, from informal networks,
or even from the country. Second, if sistema unravelled, the
consequences would be hard to manage, as it is also the glue
that keeps Russia’s economy and society together. Third, it
requires an enlightened leadership, capable of self-restriction,
fighting sistema’s destructive forces while preserving its capac-
ity for innovation, replacing informal tools with effective alter-
natives. Russia cannot modernise to its full potential unless the
issues of informal governance are spelled out and tackled. In
the short run, tools of informal governance can help leaders
to pursue their policy objectives. Such tools help them to exert
control over the media, bureaucracy and judiciary as well as
parts of the economy for the purposes of stability. For example,
companies in Russia know that the political leadership expects
them to show ‘corporate responsibility’ through support-
ing political, social, youth, environmental and charity pro-
grammes. The leadership also uses informal leverage and net-
works to promote its modernisation agenda. So companies feel
compelled, if not privileged, to sign up to Kremlin-sponsored
projects such as the Skolkovo innovation city, even if they
do not believe in their viability. In the long run, however, the
informal tactics for mobilising elites and allocating resources to
insider networks undermine the fundamental principles of the
rule of law, the separation of powers and the security of prop-
erty rights. Ultimately, they reduce Russia’s chances of achiev-
ing the strategic goals of modernisation. I call this the ‘mod-
ernisation trap of informality’: one cannot use the potential of
informal networks without triggering their negative long-term
consequences. Informal networks enable Russia’s to complete
modernisation projects, but in the process, they create vested
interests and lock politicians, bureaucrats and businessmen
into informal bargains and pledges of loyalty that subsequently
impede change and modernisation. Unless Russia’s leaders
address this governance paradox, there is no obvious way of
tackling the change of sistema without weakening the social
cohesion of the Russian society.
The paradox of informal power
Leaders rely on informal networks for getting things done
but are also limited, if not imprisoned, by them. They can
apply sanctions to particular members and weaken some
specific networks but leaders cannot radically modify their
own dependence on informal governance. Reliance on
networks per se should not be viewed as defective as it is
effective in enabling leadership and society to function at
all. Effectiveness of the leadership can only be achieved
in synergy with sistema – the leader’s power is not strictly
speaking personal, it is ingrained in power networks that
the leader can mobilise. The more leaders try to change
If sistema unravelled, the consequenc-
es would be hard to manage, as it is also
the glue that keeps Russia’s economy
and society together.
64 The World Financial Review
and the use of friendship. The motiva-
tion for the leadership to change may
arise from both internal and external
sources. The December 2011 peace-
ful protests certainly demonstrated the
need for reflection for leaders, their
followers and protestors alike and
created a significant shift in policies.
A number of events before, during
and after the 2011 parliamentary elec-
tions contributed to the protests. The
announcement in September 2011
regarding the decision by the Putin-
Medvedev tandem that Putin will run
for President, and Medvedev will be
Putin’s choice for Prime-Minister trig-
gered a reflexive change in the middle
class. The arrogance of the jobs swap
announcement motivated many suc-
cessful, self-respecting, and apolitical
people to vote for the first time. Crude
manipulation of the election outcome,
rather than use of more sophisticated
political technologies applied in previ-
ous elections, became another factor
in protests. Even among supporters
Putin’s return as President came to be
perceived as pursuing personal ambi-
tion, rather than any sistema necessity.
Internet-based forums have turned
into hubs of reflexivity, and social
networking sites turned out to be
more effective for channelling protest
moods than oppositional activism. Yet
the outcome of the 2012 Presidential
elections demonstrates that the major-
ity have vested interests in sistema and
that personal loyalty and compliance
within power networks continue to be
more important than loyalty to uni-
versal values. It is also indicative that
the so-called non-system opposition
propagates an elimination or replace-
ment of Putin’s networks, rather than
rejecting the network-based system of
governance as such. The protests are
pitched more against Putin than for the
general principle of leadership change-
over. Standing up for universal princi-
ples does not make a viable position
in Russia, where ‘beating the system’
and ‘privileged access’ remain both
national sport and survival strategy.
It is essential, however, not to over-
state the personalisation of sistema in
the sense that Putin’s sistema, which
he had shaped by mobilising his per-
sonal networks, is not really controlled
by him. Like everyone else, leaders
are ‘locked’ into their networks while
relying on them in performing their
public functions and satisfying their
private needs. Reversely, not relying
on networks might also limit, if not
undermine, the leadership capacity –
they have to operate within the cultur-
ally acceptable codes and discourses,
otherwise they lose their base. Thus,
the main implication of the ambiva-
lence of sistema is that its leader is also
its hostage.
About the Author
Alena V. Ledeneva is Professor of
Politics and Society at the School of
Slavonic and East European Studies,
University College London, UK. She
studied economics at the Novosibirsk
State University (1986) and social
and political theory at the University
of Cambridge (Newnham College,
M.Phil.1992; Ph.D.1996; Postdoctoral
Research Fellow at New Hall, 1996-
1999). She held appointments as a Senior
Fellow at the Davis Center, Harvard
University (2005); Simon Professor at
the University of Manchester (2006), a
Visiting Professor at Sciences Po, Paris
(2010). She is author of How Russia
Really Works (Cornell University Press,
2006) and Russia’s Economy of Favours
(Cambridge University Press, 1998).
sistema, the more they have to rely on
the informal means of execution of
power and decision-making outside of
formal procedures. The more they rely
on them, the more they get entangled
and eventually tied up with sistema’s
power networks. The more reliant on
institutions, and thus less interven-
tionist, leaders are, the less credit they
receive for their leadership. It is almost
as if informal leadership is the key
characteristic of leadership in Russia,
unachievable without instruments of
informal governance. Modernisation
in Russia cannot succeed as long as this
system of informal power and network-
based governance remains untouched.
I argue that modernisation of sistema
should start with the modernisation
of the networks it relies on. Russian
leaders keep talking about changing
Russia top down, without ever address-
ing the informal rules and constraints
that govern their own behaviour and
that of political, bureaucratic and
business elites. Modernising leaders’
own networks by gradually reducing
their use, or even by being aware of
their use, has the potential to change
sistema from the inside. Channels of
recruitment have to accommodate
those with loyalty to Russia, but not
necessarily to its leadership. Exposure
to global education and professional
training can lead to modernisation of
loyalty patterns within hierarchies and
modernisation of relationships within
horizontal networks.
Reflexive modernisation
The starting point is reflexive aware-
ness about one’s own leadership style,
recognition of the degree of reliance
on informal governance, the ability to
distinguish between personalised and
corporate loyalty, and the will to rec-
ognise a boundary between friendship
References
‘Otkat, raspil, zanos’, 1. The Forbes, www.forbes.
ru/svoi-biznes/predprinimateli/58657-otkat-
raspil-zanos
Ibid2. .
6 per cent did not answer. 3. Levada-Centre Rus-
sian Public Opinion: Annual Report, 2011, Mos-
cow: Levada-Centre Publishing, 2011. Table
8.11.5, p. 127.
The December 2011 peaceful protests certainly demonstrat-
ed the need for reection for leaders, their followers and
protestors alike and created a signicant shift in policies.
