ADMINISTRATIVE AND NETWORKING STRATEGIES:

THE 'POWER VERTICAL” AND HORIZONTAL NETWORKING:

COMPETING STRATEGIES OF DOMESTIC AND INTERNATIONAL INTEGRATION FOR NIZHNIY NOVGOROD OBLAST

Andrey Makarychev

Linguistic University of Nizhniy Novgorod

INTRODUCTION

From the very beginning of Putin’s presidency, integration became the most widely used concept for Russia’s regional development. It is hard to question the need for domestic institutional integration, which is justly considered to be the precondition for Russia’s survival in 21^st century. What is still debatable are specific models of integration and their relevance to the challenges of globalisation.

By the end of 1990 it became clear that due to the emergence of new political, economic and public actors Russian political space became much more complex than ever before. New patterns of institutional and non-institutional interaction were coming into being, with new corporate actors emerging on the basis of new labour ethics. These new trends were very much consonant with the world-wide crisis of hierarchical models and the mushrooming of networking models of management, which in Russia have their own specific characteristics.

Regional survival in an increasingly complex and demanding environment consisting of a variety of actors depends on how the regions are positioned in the frameworks of both horizontal cooperation and vertical subordination. Traditionally, the regions in Russia were perceived as administrative units looking for their place in the “administrative staircase” of political power. Vertically, the regions are parts of what could be called an “administrative market” composed of political institutions, each with its niche in a newly reconstructed “vertical of power”. Yet this is just one part of the story, since the regions increasingly find themselves interacting with other structures and institutions that in a strict sense are not a part of this “administrative market” and are not attached to a specific territory to the same extent as the regions. Horizontally, the regions have still to discover the potential of coalition building with what James Rosenau called other “sovereignty-free actors”. Social interaction with other members of the regional milieu, interchange of resources and information, coordination of political and social practices, and the combination of different economic experiences have become increasingly important (Lawson 1999: 159-161).

In this paper I am going to examine the vertical/horizontal mechanisms of the regional political process in Nizhniy Novgorod oblast (NNO). I seek to analyse and characterise the relationship between state directed vertical integration and globalization driven horizontal integration. Two questions are of primordial importance in my analysis: 1) does vertical integration undermine or underpin horizontal dynamics; and 2) what does this tell us about globalization and its impact on Nizhniy Novgorod oblast, and therefore the rest of the federation.

Studying the case of NNO as a regional actor in wider international context is worthwhile for different reasons. First, this region was a closed area till 1990 due to heavy militarisation of its industry in the Soviet times. The whole decade of 1990s was the period of gradual adjustment of the regional elites and institutions to the international environment. NNO started to reclaim its historical reputation as the commercial “pocket of Russia”.

Secondly, during 1990s the region experienced different patterns of governance. The first one, explicitly liberal and innovative, was associated with its first post-Soviet governor Boris Nemtsov, while the second one, much more conservative and traditional, was put into practice under the governorship of Ivan Skliarov. Under Boris Nemtsov NNO became a laboratory of economic reform, working closely with the World Bank, its International Finance Corporation, British Know How Fund, US Peace Corps, International Executive Service Corps, Citizens Democracy Corps, Eurasia Foundation and numerous Western NGOs on privatisation and economic reforms. Transitions from the closed region to one of the regional pioneers of market reforms and later on to the “post-Nemtsov” times give us a good chance to trace the evolution of NNO from the viewpoint of both domestic and foreign policies.

Thirdly, a number of politicians from Nizhniy Novgorod were promoted from 1997 to the federal government. Sergey Kirienko (former prime minister in 1998) and Boris Nemtsov (leader of the Union of Right Wing Forces party which finished fourth in 1999 parliamentary election) are the two most prominent of them.

Fourthly, in May 2000 Nizhniy Novgorod was selected by President Vladimir Putin as the center of newly created Volga Federal District, one of seven in the country. This made NNO political credentials distinctive from the neighbouring regions. Nizhniy Novgorod as the “capital” of VFD got a new chance for becoming one of locomotives of Russia’s transition. New models of governance experimentally are being elaborated here, new ways of anti-crisis solutions are looked for.

NNO has always had far-reaching international ambitions (historically, Nizhniy Novgorod Fair was an important international trade point; nowadays the NNO government has launched a project to turn the region into a leading Eastern European cultural centre). This case study shows that it is impossible to achieve international goals and reach world standards by relying on purely administrative measures. Globalisation is basically about networking between equal partners horizontally associated by mutual interests. Globalisation agenda encompasses interconnectedness, intensification of political, economic and cultural links, growth of mutual dependencies, and integrated global economy. NNO provides a good example of the changing roles of regional governmental and non-governmental institutions under the pressures of globalisation.

NETWORKING STRATEGIES OF NNO ACTORS

There are five types of key regional actors in NNO that widely apply networking strategies. First, these are industrial and business institutions. To foster domestic cooperative links between small and medium enterprises, a number of associations were established like “Partnerstvo” (Partnership), “Delovaya Perspektiva” (Business Perspective) and others. For the business community, creating technological and production chain is an important asset. For example, NORSI oil company, one of the most successful enterprises in NNO, builds its strategy on closely cooperating with oil reprocessing factories located in Kstovo and Dzerzhinsk and the Sibur-Neftekhim corporation (MK v Nizhnem Novgorode, 30 August – 9 September, 2001. P. 12). Insurance companies (both local and Moscow-based) are also developing business networks in NNO using a variety of means like e-trade and Internet advertising.

International networking strategies are also widely applied to make NNO business actors better integrated into the world markets. NBD Bank, one of the largest in NNO, is taking part in a number of cooperative projects, which include overseas partners such as the World Bank and European Bank for Reconstruction and Development. Nizhniy Novgorod Commodities & Currency Exchange has initiated the “Investment in Russia” project with a special focus on Volga Federal District territories.

The second group is educational and scholarly institutions. Among those actors developing the conceptual framework for networking strategies and implementing them in practice are the Centre for Social and Economic Expertise, Nizhniy Novgorod Research Foundation, Nizhniy Novgorod Regional Fund for Personnel Training, and other non-governmental public policy research institutions.

The university community in NNO is one of a few “islands of globalisation”. It was the Institute for Applied Physics, Russian Academy of Science that gave a start to “Sandy”, the first electronic network in Nizhniy Novgorod. Intel Corporation has developed its educational programmes in information technologies in Nizhniy Novgorod State University. The Higher School of Economics has launched a pilot project in human resources management and business education. The head of the Yukos company has started a major educational project “Generation” to compete with Soros Foundation and its regional branches.

The third group of networking actors is non-governmental organisations (NGOs) working in the public policy domain. Environmentalists (eg the “Dront” centre), human rights associations and gender organisations are among the most influential public actors in NNO. Thus, the International Forum “Great Rivers” that is periodically convened in Nizhniy Novgorod frames discussions around a wide range of problems of national interest - from the environment to Caspian Sea oil extraction.

The fourth group is information actors. Thus, TUS Information Centre is committed to the mission of restructuring the region’s communications space on the basis of new information and managerial technologies. The Nizhniy Novgorod branch of the Moscow-based Sterling Group is the region’s leader in inculcating state-of-the-art technologies of corporate decision making, personnel retraining and strategic planning (Monitor, N 14, 16-22 April, 2001. P. 10). Internet business (including web design, e-commerce, and communication technologies) is mushrooming in the region. The strategic goal of these actors is to make information work for the sake of commercial and managerial efficiency.

The fifth group is ethnic, religious and cultural actors that tend to develop their outward strategies regardless of administrative and territorial borders. Cultural exchanges are by definition about networking; they develop beyond state and administrative borders.

These five groups differ from each other a great deal – for example, the first group is composed of self-oriented actors, while all other groups have a strong public interest background. Each of them possesses a different type of capital, as shown in the table below (Light 2001: 1-2):

Networking actors	Type of capital
Industrial and business institutions	Financial and physical capital (economic assets, funds, material property)
Educational and scholarly institutions	Human capital (trained skills, know-how, expertise)
Public policy NGOs	Social capital (socialisation, relationship)
Information actors	Intellectual capital (data possession and distribution, interpretation of key events)
Ethnic and religious actors	Cultural capital (cultural knowledge that ultimately redounds to the owner’s advantage)

Thus, networking strategies are not exclusively based on market, profit-seeking principles, and include important social dimensions (information sharing, education, use of intellectual capital, joint values and shared ethics, interlacing of responsibility, etc.). Networking relations are primarily about mutual agreements, including informal ones, and trust. In comparison to market operators, networking actors can and do refuse to apply strategies that would undermine the interests of their partners.

Market Strategies	Networking strategies
The main objective is material gain	The main objective is establishing long-term cooperative communications with multiple partners
The objects of exchange are well fixed in legal terms	What is exchanged are experiences and values
Sanctions against deviant actors are based on litigation mechanisms	Sanctions are a part of social relations and are based on moral and ethical standards

Establishing networking relations is a time consuming process, which makes participation in the network more effective that withdrawal. In this sense, networking successfully combines two different principles – competition and cooperation. Its effectiveness might be explained in terms of facilitating access to key resources and knowledge, lowering the risks, and speeding up innovations. By and large, networking leads to growing integrity within specific social and economic segments, be it in the business community or the world of NGOs. Most likely, in the future networking will flourish in those sectors which defy both market selfishness and administrative regulation (Sterlin and Ardishvili: 70-80).

What matters is that these are basically networking actors that foster a liberal agenda and institutional pluralism in NNO. Many of them are in the vanguard of the region’s global moves, since their practices and experiences seem to correlate with the “global networking” concepts being developed and widely implemented in the West in the last few decades (Zacher and Sutton: 1996). Foreign investments predominantly go to those sectors which are based on networking principles and are relatively free of excessive administrative regulations. This was one of the basic messages of US Treasury Secretary Paul O’Neil, who visited NNO in August 2001 (Delo, 10-17 August, 2001. P. 3).

Of course, in order to avoid oversimplification, we should not treat absolutely all actors in the categories above as strong promoters of a globalisation agenda in the region. For example, in the media and university communities of NNO we can easily find nationalistic and protectionist attitudes (Chelovechestvo… 42-29, 61-64, 183-185, 314-317). A significant part of the regional business elite is overtly critical of joining the World Trade Organisation (WTO) because of its fear of losing in competition with strong international contenders. For example, the anticipated entry of Russia into the WTO will eventually force insurance companies to increase their capital assets, which will automatically push many small regional companies out of the market.

Yet despite these reservations and fears, the very nature of non-governmental actors' operations makes them a part of global networking. They are pioneers of what could be called community-based development initiatives (including education, project support, technical assistance and institution building) that promote an open society agenda and democratic institution building in the region (Shuman: 2). Lobbying, grassroots activity, public relations, litigation, mass communication and contributing to political campaigning constitute the core of networking strategies. To the extent that networking actors influence government officials, they make them more accountable and responsive (Mundo: 11). The networking actors are in most cases the leaders of public opinion, making specific demands upon government representatives on behalf of identifiable interests in society. They are modifiers of members' behaviour and opinion, and vehicles by which interest groups can realise their political, economic and social goals, both inward and outward oriented (Kvak: 11).

Most of networking actors are more efficient and resourceful in comparison to their administrative counterparts. For example, private TV channels in NNO are more popular than the state-owned ones. Business managers are generally perceived as more trustworthy than local politicians (MK v Nizhnem Novgorode, 30 August – 6 September, 2001. P. 12).

It is very indicative that the public activity of networking actors is not always applauded in Nizhniy Novgorod political life, and frequently receives negative administrative feedback. Indeed, horizontal networking might become a matter of security concern for regional officials. For example, in summer 2001 the NNО administration issued a warning statement identifying those “non-traditional” religious units that are considered to be detrimental for the region’s stability, with Ron Habbard’s Scientology Church at the top (Portal NN Web site, 7 June, 2001, at http://www.Nizhniy.ru).

A host of regulations are being imposed by regional public authorities in response to the perception that the networking sector is violating the public good (Andel and Devos: 23). Nizhniy Novgorod Human Rights Society was heavily criticised for its peace initiative in Chechnya, while “Dront” ecological centre received negative media coverage for allegedly making money out of ecological concerns and impeding some industrial projects in the region (Delo, 24-31 August, 2001. P. 16). Nizhniy Novgorod Association of Soldiers’ Mothers failed to get City of Nizhniy Novgorod (CNN) Duma support to conduct a referendum aimed at introducing non-military service as an alternative to current conscription regulations. All this leads us to take a closer look at a different segment of the region’s political and economic milieu, namely the “administrative market”. These channels include a variety of official institutions each having its well-defined place in the hierarchy of state power.

ADMINISTRATIVE STRATEGIES AND THEIR ACTORS

Federal administrative institutions

The federal centre understands that regions have an important impact upon federal policy issues. The main challenge is to find appropriate strategies and institutions to foster cooperative relationships between the centre and the regions.

The Volga Federal District (VFD), established in May 2000, is a major institutional element of this administrative market. On the one hand, the federal district is an instrument for conducting coherent federal policies at sub-national level. In an attempt to supervise regional economic developments, Sergey Kiriyenko, presidential envoy in VFD, has suggested that where subjects of the federation have become insolvent or are mismanaged, crisis managers and mechanisms comparable to bankruptcy will have to be applied (VFD Web site, at http://www.pfo.ru/main/news.phtml?id=1399).

On the other hand, Kiriyenko has been widely using the advantages of this new institution to lobby the interests of NNO both domestically and internationally. For instance, attending Salzburg Economic Forum in 2001, Kiriyenko advertised the investment opportunities of NNO (National News Service Web site, at http://www.nns.ru/interv/int3950.html).

In the sphere of international relations one of the most important formal institutions is the local branch of the Ministry of Foreign Affairs in NNO which was established in 1992 and is in charge of visa support and issuing passports for foreign travel. It also assists the tourist industry and travel companies, as well as business institutions wishing to check information concerning their international partners (Monitor Weekly Web site, at http://www.monitor.nnov.ru/2000/number43/art16.phtml).

Regional administrative institutions

During the last decade (1991-2001) NNO has experienced three different types of regional governance, summarised below.

	*Boris Nemtsov*	*Ivan Sklyarov*	*Gennady Khodyrev*
*Type of political regime*	“Winner takes all”	“Struggle by the rules”	“Struggle by the rules”
*Political agenda*	Democratic and pluralist (right-wing)	Conservative (centrist)	Left-oriented (pro-Communist)
*Relations with the federal centre*	Excellent	Unstable and controversial	Enforced compromise
*Economic orientations*	Liberal reforms	Stagnation	Socially oriented economic platform
*Relations with non-state actors (media, NGOs, etc.)*	Very selective, based on corporate loyalty and administrative interest	Generally tense and ambiguous, with multiple ups and downs	Unclear (still nascent)
*Major political resources*	Publicity and news making	Political apparatus (regional nomenklatura)	Protest voting and Communist party affiliation
*Major political successes*	Opening the region to the world, turning NNO into one of the most important political regions in Russia	Starting to build relations with major domestic investors, forming a regional government	Freezing membership in Communist Party
*Major political defeats*	Corruption accusations, unfinished reforms	Inability to mitigate clashes of interests, failure to secure regional budget	Slow team building, low transparency of decision making procedures
*Major rivals in the region*	Communists and nationalists	The mayor of NN city	Liberal groupings, Presidential representative in VFD (potential)
*International credentials*	Good reputation in international financial and political circles	Mediocre, tending to decrease by end of term in office	Almost non-existent

The governorship of Boris Nemtsov (1991-1997) was considered as one of the most liberal in Russia. However it was based on the predominance of administrative instruments and measures in political consensus building and economic reforms. Nemtsov’s leadership contained strong authoritarian inclinations, since his strategy was one of subordination of the most loyal non-state institutions to the regional authorities, and marginalisation of those which were treated as uncooperative. Politically, Nemtsov’s leadership was a “one man show’, which by and large corresponded to the “winner takes all” model of regional political regimes developed by Vladimir Gel’man (Gel’man: 45-48).

The governorship of Ivan Sklyarov (1997-2001) was a period of political and economic stagnation. Sklyarov, a follower of Nemtsov who won the election after Nemtsov’s resignation, lacked a clear understanding of the region’s mission and interests. In comparison to Nemtsov, his successor stuck to a conservative agenda, and to an even greater degree preferred to rely heavily upon the support of the regional nomenklatura.

Gennady Khodyrev, a Communist who defeated Sklyarov in the 2001 election, is still searching for his regional political identity. He has to oscillate between the loyalty to the federal centre and his left-wing credentials. As a “good will gesture” addressed to the Moscow Kremlin he had declared his decision to temporarily freeze his membership in the Communist Party. First personnel nominations Khodyrev’s administration reveal a great deal of uncertainty and controversies: the first secretary of regional Communist Party Committee Vladimir Kirienko received the job of governor’s chief of staff, while all key ministers dealing with economic and finances were taken from Moscow – surprisingly new practice for NNO which has always been proud of the qualities of its own cadres. What makes Khodyrev’s job even harder is growing economic weight of major financial and industrial groups in the region. Without FIGs consent no decision might be taken in industrial and business policies, which might manifest shrinking capabilities of the institution of governor in the long run.

All three political regimes experienced in NNO have, however, much in common. All of them were based on overtly administrative strategies of achieving their political goals, and underestimated the importance of heeding the needs and interests of non-state actors. All three governors were rather suspicious of the capacity for autonomous action of financial and information agencies, and basically neglected their potential. These protectionist instincts were particularly visible when it came to Moscow-based companies wishing to extend their business operation to NNO: past and current experience is that multiple red-tape impediments are being erected to exclude out-of-region competitors (Birzha, N 32, 30 August, 2001. P. 10).

One of the greatest problems of the region’s administrative market is that its institutions seem to be rather vulnerable to electoral constraints. In Sergey Obozov’s words, the governor is the sole guarantor of institutional stability within region (Nizhniy Novgorod News Service, 7 July, 2001, at http://www.infonet.nnov.ru/nsn/arch/print.phtml?mess_id=62445). The resignation of Obozov’s right-wing government in the aftermath of the victory of Communist candidate Gennady Khodyrev in the July 2001 gubernatorial election was an evident proof of the fragility of the political and administrative market in the region. In August-September 2001 Khodyrev – with consent of the regional legislature - has drastically diminished the powers of regional government by eliminating the post of the regional prime minister (the government has to be run directly by the governor).

Of course, this is not to say that administrative strategies are doomed in principle. Administrative tools might indeed be rather effective in solving a number of issues. For example, many in Nizhniy Novgorod now argue that the whole concept of off-shore zones has to be drastically revised, despite the fact that the Sarov zone was quite instrumental in launching a number of reconversion projects. Yet NNO authorities believe that the off-shore zone in Sarov takes money away from the regional budget and is a sort of financial “black hole” which brings substantial loses to regional finances (Zakon. Finansy. Nalogi Weekly Web site, at http://www.zfn.Nizhniy.ru/?n=10&article=35). Of course, these are legal and political tools that should first be applied to make the enterprises pay taxes to the regional budget of NNO.

Some sub-national administrative institutions are rather effective in going global. The Bor county administration – which is a part of NNO – is widely known for its well-thought out strategy of attracting foreign investors (including Glaverbel, Gallina Blanca and other European companies). The Bor administration has pledged to reimburse its foreign partners for any losses that are incurred due to bureaucratic procedures and unexpected changes in legislation (Monitor Weekly Web site, at http://www.monitor.nnov.ru/2001/number27/art13.phtml).

Industrial actors

The relationship between industrial actors and the administrative institutions is very complex and controversial. On the one hand, almost all the new owners of major Nizhniy Novgorod industrial enterprises have been staying aloof from regional politics. Oleg Deripaska, one of the most influential Russian tycoons and the owner of the GAZ car-building factory, refused to run for the governorship in 2001 despite the insistence of some in the regional elite. Later on Deripaska pointedly refused to give his approval to the government of NNO, thus demonstrating his unwillingness to become involved in political and administrative issues.

Yet on the other hand, industrial actors are in one way or another closely associated with regional and federal administrative institutions. Regional authorities of course are very much interested in keeping control over major plants and factories for financial, social and political reasons: they pay taxes to the regional budget, control large segments of the constituency, and the authorities are keen to keep a balance in the regional labour market and avoid large-scale unemployment. Even if the regional administration is not formally among the stakeholders in an industrial enterprise, it has a variety of tools to exert its influence over industrial policies. Of course, the regional “party of power” is not a consolidated political institutions, and contradictions between its fractions over economic and financial issues are being widely used by other regional and out-of-region actors.

Major financial and industrial groups (FIGs) are eager to keep “special relations” with certain factions of the federal policymaking elite. For example, Oleg Deripaska is known to have good relations with influential people in the Moscow Kremlin - Anatoly Chubays was instrumental in forcing Ukrainian President Leonid Kuchma to allow Deripaska’s companies to take over the Nikolayev Aluminum Works. Moreover, Deripaska badly needs state protection from multiple international lawsuits charging him with money laundering and illicit business operations (Novaya gazeta, N 25, 14-20 August, 2001. P. 3).

The very structure of Russian legislation makes the federal authorities indispensable for tackling a plethora of practical issues related to the everyday activities of industrial actors. Thus, the federal centre's consent was needed to restructure the debts of GAZ (Zakon. Finansy. Nalogi, N 45, 9 November, 2000. P. 15) and establish the GAZ-FIAT joint venture.

For their part, under President Putin the federal authorities have developed their own strategies towards regional industrial actors. One of them is creating a number of all-Russian business associations that are eventually supposed to become the backbone of Putin’s “new social contract” and the cornerstone of federal industrial policies. Another strategy is to encourage individual firms to merge into larger industrial corporations of trans-regional reach. According to Kiriyenko, four sectors were given high priority for NNO and VFD in general: the petrochemical industry, car building, aviation and transport (Strana Web site, at http://volga.strana.ru/print/985290985.html).

In NNO the pioneers of industrial enlargement were the radio-electronic enterprises that in summer 2001 formed three corporations - Radar, Radiopribor and ATC (Strana Web site, at http://volga.strana.ru/print/994859204.html). Each is supposed to get preferential treatment from the federal government (their debts will be restructured and federal contracts will be secured). Another recent example of a new trans-regional vertically integrated company is Volga Hydro-energy Cascade, also created in summer 2001.

The fact is that the appearance of new business agglomerations lessens the political and administrative resources of the regional “party of power”. As economist Yakov Pappe suggests, the possibilities of administrative bargaining decrease, because the spectrum of issues to be solved exclusively by the regional administration is shrinking. Should this trend persist, in the future the financial and industrial groups (FIGs) will treat the regional administration as merely one of their counterparts to deal with. In this case FIGs as coalitions of partner business organizations will play a major role in Putin’s institutional reforms (Centre for Political Technologies Web site, at http://www.politcom.ru/c_b.html).

BRIDGING THE GAP BETWEEN ADMINISTRATIVE AND NETWORKING STRATEGIES

The main message of the previous section was that administrative strategies have their clear functional and institutional limitations. Many efforts of the networking actors fail to achieve their full potential because of multiple administrative institutions each erecting their red-tape barriers. That is why for the sake of market efficiency they have to be coupled with non-administrative, networking instruments.

Regional administrative institutions have started developing a wide range of relations with autonomous and semi-independent actors. This is increasingly true in the financial sector. Some commercial banks were among creditors of the NNO administration (NBD Bank, “Garantia” and others) (Gubernia, N 35, 24-30 August, 2001. P. 2). The Regional Fund for Supporting Small and Medium Businesses, affiliated to the Oblast’s Department of Developing Entrepreneurship, is a guarantor of the programme to finance socially important projects initiated by local private companies (Gorod i gorozhane, N 35, 28 August, 2001. P. 4). One of the first moves of Gennady Khodyrev in his capacity as new NNO governor was to sign a protocol with the Gazprom corporation in order to reschedule the regional budget’s debts to this mighty gas monopoly (Kurs, N 33, August 2001. P. 3).

The close interconnection of administrative and non-administrative tools is well illustrated by the project of establishing a Free Customs Zone (FCZ) “Russia’s Pocket” in NNO. This project surfaced in summer 2001, when the government of NNO drafted a concept and solicited federal centre support in issues of taxation and passing appropriate legislation (Nizhniy Novgorod News Service, at http://www.infonet.nnov.ru/nsn/arch/print.phtml?mess_id=59891). The federal centre attitude to this idea was rather indifferent, and it will unlikely get off the ground. It means that purely administrative channels are not sufficient for economic autonomy projects. What is necessary is to find appropriate business partners that have vested interests in upgrading local communication and transport infrastructure, environment, urban architecture, tourist facilities and other components of a business friendly climate in the region.

There are other instances of potentially fruitful linkages between administrative (vertical) and non-administrative (horizontal) strategies. As soon as Nizhniy Novgorod became the main city of VFD, the regional authorities came up with the idea of “exploiting the resource of the capital city”. The point is, however, that Sergey Obozov, the first head of NNO government, treated this resource in predominantly administrative ways: with its new political role as the “capital” of the district, Nizhniy Novgorod attracts more attention from the President, and more ministers come here on official visits (Birzha Weekly Web site, at http://www.birzhaplus.sandy.ru/birzha/4.htm). Meanwhile, there are competing – yet not mutually exclusive - concepts of development for Nizhniy Novgorod – turning it from the administrative “district capital” to the “business capital” with a market friendly climate, entrepreneural culture and business-sensitive policy making.

Basically, Russian investors – major financial industrial groups like Sibal, Interros, Severstal, LUKOil, Kaskol, United Car-Building Plants – have in fact become major networking partners of the NNO administration (http://www.hotcom.ru/main/?id=10449). Their advent to the NNO market was a consequence of their inability to successfully operate abroad, for many reasons including the protectionist policies of some Western countries and the slow adaptation of Russian FIGs to the demands of the international markets. Each of these FIGs has purchased major industrial enterprises like GAZ, the Pavlovo Bus plant, “Krasnoe Sormovo” shipyards, and other industrially important plants. Relations within FIGs are usually characterised by coalition-building and “soft” coordination of interests between numerous business operators. For example, in the petrochemical industry a new holding is being formed with a far reaching strategy of competing with leading international producers. As a precondition for entering the world markets, the holding is oriented to keeping high standards in accounting, consulting, and securing shareholders' rights (Versia Digest, Nizhniy Novgorod edition. 7-13 May, 2001. P.5).

Inevitably, the creation of such corporations will make the regional authorities rethink their old-fashioned strategies of industrial development. There is no longer much, if any, room for Soviet-style orders to industrial actors: they are motivated by making money and expanding their markets. If the business climate in the region is insufficiently friendly, major investors might leave the NNO as fast as they have appeared. In response to the changing procedural framework, the NNO administration has introduced the practice of signing cooperation agreements with major investors (Sibur-Neftekhim and others), which is a good testimony to the emerging comprehension of horizontal cooperation strategies in the region.

To boost NNO investment potential, NNO government has to cooperate on the horizontal plane with a number of autonomous partners, including NGOs such as Transformation Technologies, Institute of Commodities Market and Management, Expert Institute, Institute of Urban and Regional Development and the Institute of Direct Investments. According to Obozov, the role of the regional administrative structures is to accumulate resources of the private sector for launching major cost-sharing projects co-sponsored by foreign and domestic investors. This fruitful approach is one of the results of the strategy of foreign financial institutions to encourage regional administrations to raise matching funds for collaborative projects (“Investment Opportunities of Russia” Web site, at http://www.ivr.ru/conference/06_09_00/material_1.shtml).

Yet it is not only administrative institutions which have to cooperate with non-state economic actors. The latter need positive administrative feedback as well. For example, insurance companies operating in NNO are certain that lack of interest in their business on the part of local and municipal authorities is one of the major deficiencies of progress in the insurance market in the region (Birzha plus finansy, No 30, 16 August, 2001. P. 4).

The concept of mixing horizontal and vertical strategies is applicable to the political domain as well. Politically, the region might secure its interests (both nation-wide and internationally) via parliamentary institutions: both chambers - the State Duma and the Federation Council - have strong regional backgrounds. Yet those representing the region in the federal parliament are members of different political parties and public movements, and in this sense are rather participants of various political networks than of administrative hierarchies.

The humanitarian sphere too necessitates constant interaction between administrative bodies and non-administrative actors (media, think tanks, voluntary and professional associations, etc.). For example, Nizhniy Novgorod Law Institute of the Interior Ministry became a partner of the US Emerald Group within the framework of an anti-corruption project that involves – by the very nature of the problem tackled – public authorities. Similarly, the Nizhniy Novgorod Human Rights Association created in August 2001 by a number of local NGOs (Committee of Soldiers’ Mothers, Ecological Centre “Dront”, Society Against Tortures and others) is looking for nomination of its activists to the VFD Human Rights Commission, which from the outset has been filled basically by administrators (Delo, N 31, 17-24 August, 2001. P.2).

District Building and Changing Strategies of Trans-Regional Actors

The district-building process is a mix of administrative (vertical) and networking (horizontal) strategies. Domestically, administrative cadres in VFD are predominantly recruited – due to Kiriyenko’s efforts – through open competition, which allows us to speak about new principles of political management technologies that are being tested in the district and which are based on using communication and information resources. It is no coincidence that the bulk of candidates for public service offices in VFD come from business (Aksionova: 2).

This is an understandable trend because small and medium business is searching for a niche somewhere between the administrative market and networking strategies. Nizhniy Novgorod is the consolidation centre of the VFD branch of the All-Russian Union of Entrepreneural Associations. This nascent institution is clearly supported by the Presidential administration, eager to find new communication channels for state-business dialogue. On the other hand, its function is the coordination of sectoral and territorial interests between multiple business organisations (Pikantnie novosti, N 32, August 2001. P. 12). To foster investments and credits, it will have to establish a network of connections with international institutions as well.

Big business too is leaning towards the administrative decision makers. For example, Lukoil's purchase of the NORSI oil processing plant in NNO was negotiated starting from early 2001 under the auspices of Sergei Kiriyenko, as a part of creating new large industrial holdings from existing small ones in VFD (MK v Nizhnem Novgorode, 30 August – 6 September, 2001. P. 14).

Networking principles are also projected onto those spheres lying beyond Russia’s borders. Sergey Kiriyenko, for example, noted that the territorial area of responsibility of Russia’s leaders, both national and sub-national, is defined not by administrative borders but rather by cultural factors - he refers to the “area within which people think and speak Russian” (Kiriyenko: 8). Kiriyenko is known for his commitment to supporting the networking of non-governmental organizations, fostering horizontal integration of local communities in culture, arts, ecology, social partnership, youth policy, sports, and gender.

The interdependence of administrative and networking strategies can be illustrated by the changing roles of many actors of trans-regional reach. One of them is the Volga Customs Board, one of the key institutions in charge of VFD's foreign economic contacts. On the one hand, like all district-level institutions, the Board is an instrument for achieving greater centralisation and unification of customs operations. On the other hand, it has to find means of cooperating with individual exporters and importers, customs brokers, and other actors outside the administrative market.

NNO is a part of the “Greater Volga” Association of Inter-regional Economic Cooperation. Though Association members are regional administrations, organizationally it is based on networking principles. For example, NNO has come up with the idea of establishing a Volga Board on Foreign Trade to coordinate and monitor foreign economic relations of regions in the Association (Zakon. Finansy. Nalogi, N 9, 6 March, 2001. P.3). This can be done only on the principles of respecting the mutual interests and equality of all parties involved.

The same goes for extending to NNO the trans-European transport corridor running from Berlin through Minsk to Moscow and further eastward. Closely related is the federal programme “Roads of 21^st Century” in which NNO – due to its location at the crossroads of North-South and East-West transport axes - plays one of the key roles. Basically, these projects are based on administrative structures, namely the public authorities in charge of investing in upgrading the transport infrastructure, including airports, highways and river ports (Strana Web site, at http://volga.strana.ru/print/99302695.html). It is the responsibility of the regional authorities to find adequate solutions to those critical problems that might undermine the project – for example, restructuring the huge debts of Gorky Railroad, or finding the most appropriate areas of industrial cooperation with the failing economies of Belarus (within the framework of trans-European transport corridor) and Central Asia (a North-South transport project is still under consideration).

The truth is, however, that administrative strategies sometimes lack due transparency and competitiveness. For example, there were alarming signs that the Moscow–Nizhniy Novgorod highway was mismanaged by NNO authorities, threatening the implementation of the international transport corridor project (MK v Nizhnem Novgorode, 19-26 April, 2001. P. 14). Yet most important is that there is plenty of room for non-state actors (investors, providers of retail services, travel agencies, communication companies, etc.) to contribute to the success of each of the projects. Such infrastructure projects in VFD, apart from mobilising administrative resources, clearly require regular horizontal interaction with a wide range of actors relatively independent of the regional governments, like car producers, catering services and the media (Obozrevatel’-Observer Journal Web site, at http://www.nasledie.ru/oboz/N07_00/07_02.HTM). Hence, the basic challenge for project implementation is coordination – non-administrative, interest-driven - between multiple actors each having a stake in its success.

RESULTS OF APPLYING INTERNATIONAL STRATEGIES

It is still debatable whether the NNO has managed to raise its international credentials. Learning to live in the world of networking relations (including using communication technologies, recruiting a skilled labour force, and business education) is a difficult challenge for the region’s political and economic actors. Building balanced cooperative relations is a true departure from Soviet-style decision making, and has brought a certain disorientation to the decision makers. Thus, the first reaction of Nikolay Pugin, former General Director of the GAZ car-building factory, to the entry of Severstal into NNO market, was extremely negative (Portal NN Web site, at http://www.Nizhniy.ru, 15 February, 2001). Pugin wrongly predicted that this new powerful economic actor would undermine stability in NNO. There was a period of relative uncertainty for GAZ, with its purchase by another wealthy newcomer – the Sibal group. GAZ also went through a review of its relations with its major foreign partner Fiat and started negotiations with Ford and Volkswagen (Portal NN Web site, at http://www.Nizhniy.ru, 2 March, 2001).

A number of problems are still unsolved in the area of international engagements of NNO actors. First, there is a critical deficit of skilled managers in the region. Second, customs regulations are outdated and obsolete. Third, foreign investors are not happy with the economically all-mighty monopolies like Gazprom and United Energy Systems which might raise energy tariffs and thus damage existing projects. Fourth, many enterprises are unwilling to apply international accounting standards, mainly because they are afraid to lose the informal financial mechanisms they are used to. Fifth, some public authorities are still are not ready for long-term international cooperation. Thus, for example, the Swiss-based foundation Swisscontact had to withdraw from funding a business incubator in the city of Dzerzhinsk because the municipal authorities were unable to find an appropriate office in time, the task stipulated by initial agreement (Birzha Weekly Web site, at http://www.birzhaplus.sandy.ru/birzha/2.htm). Another notorious example is the much debated conflict between the NNO authorities and international investors who have defended their right to continue erecting the hotel in Nizhniy Novgorod city centre despite objections from local religious and nationalist groups that have found an ancient cemetery under the building's foundation.

A very important factor shaping the region’s strategy of internationalisation is that many enterprises lack obvious customers in the West. That is why the success of establishing and developing networking relations so far has been very limited. Thus, Pavlovo Bus Plant has succeeded in cooperating only with partners from Ukraine and Vietnam which were interested in buying its vehicles and providing spare parts for them (Zakon. Finansy. Nalogi Weekly Web site, at http://www.zfn.Nizhniy.ru/archive/010626/?15). This and other cases demonstrate the need for better international marketing strategies.

CONCLUSION

NNO is a regional actor that benefits from both vertical and horizontal types of communication. The difference between the two is summarized below.

Vertical communication	Horizontal communication
Administrative market of state institutions	Networking between equal actors, including non-state ones
Patronage politics	Interest groups politics
“Hard hierarchy” based on administrative connections and personal loyalties	“Soft hierarchies” based on resource potential (chiefly economic and informational)
Existence of the single centre of strategic decision making	No single decision making centre exists; the rules are plurality and diffusion of authority, rivalry between competing poles of gravitation
Subordination of political relations	Coordination of political relations
Strict and highly formalised rules of officialdom	Flexible and adaptable frameworks of relations based on emerging agendas (often informal ones)
Strict borders of the institutional influences	No strict borders – all influences are of trans-regional and trans-national reach
Bureaucratic rivalries of different institutions each eager to augment their influence at the expense of others (zero-sum-game)	Self-restraining is indispensable condition for effective functioning of the system
Inward-oriented relationship aimed at mustering domestic resources	Outward-oriented relationship fostering internationalisation and globalisation

NNO, like all Russian regional institutions, shares a sort of “double identity” – it functions in two spheres (the administrative and networking ones) simultaneously. This may lead us to believe that the future model of federalism in Russia could be described by the formula “administrative strategies plus networking”. Three basic obstacles, however, might slow down its implementation.

First, the case of NNO, which as we have shown went through three different types of political leadership during one decade, suggests that the road to global integration should not be paved exclusively by administrative structures. Of course, it is important that the regional administration signs investment agreements, takes loans, introduces tax relief for foreign business wishing to operate in the region, and looks for cooperation with foreign counterparts[1]. Yet “red tape globalisation” inevitably faces severe constraints in resources, scope and effectiveness. The region’s “administrative market” works extremely ineffectively in vital spheres like strategic planning, legislative support of business, energy supply, labour relations, fighting corruption, and many others.

Second, each time state and non-state actors have to interact, multiple conflicts arise – those of communication, decision-making and joint management of public issues. Administrative structures are very reluctant to share their powers with non-governmental actors.

Third, non-state (networking) actors frequently lack the necessary resources to fully implement their agendas, and have to go cap in hand to administrative decision-makers.

In sum, plugging into the global world has to start with domestic changes within the regional milieu. Living in the global world presupposes a greater weight of horizontal, networking relationships in all spheres of regional life – in politics, the economy, and social processes. Administrative efforts should complement the non-administrative strategies, but not be a substitute for them. The more influential and resourceful are NGOs, the media, private enterprises and professional communities, the faster and more effectively the integration to the global infrastructure ought to proceed. As this happens, the administrative institutions should react to these changes, acknowledging the new roles for networking strategies as a part of the region’s global agenda.

NNO experience in this regard is very much telling. Despite Communist “revenge” of 2001, regional society is based on institutional pluralism and interest groups competition, which paves the way for new openings in non-governmental networking. The toughest challenge for political elite is to fastly and effectively get adjusted to new structural environment both inside the region and internationally.

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[1] NNO keeps regular contacts with 22 countries. It is quite remarkable that such countries as Great Britain, Germany, Switzerland, France, Denmark, Hungary, Japan, Taiwan, Namibia are basically motivated by developing cultural and educational projects; Finland is active mostly in spheres of agriculture and transportation, while the United States are more interested in political and security related projects. Italy, Poland, Czech republic, New Zealand, Malaysia, Singapore, India, China, South Korea, Iran put more emphasis on industrial cooperation.