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2. MODERNIZING SISTEMA

Sistema's existence and further perpetuation rests on two main interdependent pillars, namely internal control, and the maintenance of its external support. Indeed, sistema insiders face a difficult task of modernizing it, which the thesis defines as a preservation of the network-based governance patterns with a simultaneous creation of an illusion of their fundamental change. The task is modernizing the informal system of governance, aiming to persuade the society of the legitimacy and an efficiency of the government, thus leading to their acceptance of the situation. To put it in a simple metaphor, it is a repainting of the old door instead of its replacement with a new one. Subsequently, there arise the following important questions: how is the task of modernizing sistema ensured? Why is it the preferable option of the voluntary insiders, i.e. what are the drivers behind their resistance of `real' sisema's change? And what are the obstacles of ensuring this task, i.e. to what extent internal and external measures of control and support of sistema's modernization are effective and durable?

The first part of the chapter analyses methods of ensuring internal and external stability and subordination to the informal system of governance. The former include a closed type of recruitment, which is based on personal relations, loyalty and inheritance, redistribution of rewards and punishments among the members of sistema, and a collection or an artificial creation of compromising materials on the insiders (Ledeneva, 2013, p.14). The latter include a creation of pseudo-oppositional parties and political figures; a modification of the image of oligarchs; the promotion of the illusion of legal punishment of the law-breaking political and business elites; and the adoption of laws and decrees that prevent any resistance to sistema from the outside.

The second part of the chapter analyses the material base of social forces within sistema that enable and enhance its modernization, pushing against its `real' change. It conducts a micro-level analysis of the system, looking at one of the spheres where it operates and functions, i.e. public procurement, and examines how voluntary sistema insiders use formal mechanisms and rules to achieve their informal private interests. Furthermore, it shows that corruption, occurring in the sphere of public procurement, is not a product of acts of individual greed, but a system, which operates and functions as a well-coordinated mechanism. The focus on this subsystem highlights not only the systemic nature of corruption and the lack of responsible bodies' effectiveness in managing the public procurement process in particular, but also the lack of efficiency of the public sector in general. Being part of sistema, it possesses same features, i.e. the lack of transparency, the use of formal rules for informal interests, and high level of loyalty, including loyalty between official customers and bidders, who by using certain “gaps” in the law turn contests into a “legalized” way of selecting the "right" performer (Makarin, 2008, p.35). The first part of the chapter examines the precise methods and mechanisms in the sphere of public procurement that are used by ruling elites in order to achieve their private interests, which serves them as the driver for preserving sistema. Then it proceeds with an analysis of existing statistics about the phenomenon, highlighting the lack of a unified information, as well as the lack of full-value statistics and analytics on government purchases. This significantly undermines the ability to trace and scrutinize the effectiveness of the public procurement process, thus creating more incentives for involved individuals to engage in corruption. The following part looks at the evolution of the law in the sphere of public procurement, and at the “gaps” there, which allow for “corruption manoeuvre” of customers and “customer-bidder” alliances that are marked by the cooperation between political officials and individuals from private business sphere. Among the most prominent corruption schemes, common to this type of the alliance, are: dumping, filter, and spelling errors, which are used due to the “gaps” in the law.

And the third part analyses obstacles of modernizing sistema. It begins with dividing insiders into two major groups, i.e. voluntary and involuntary, and then separately examines their behaviour, which encourages perpetuation of Russian informal system of governance, with the use of the game-theoretic approach. Thus, it analyses the behaviour of voluntary insiders, as a zero-sum game, where the preservation of sistema is equivalent to the preservation of the “hand that feeds” them. Driven by self-interest, they compete for the resources and power with other voluntary insiders, by obeying and following sistema's rules, norms, practices and commands, which in turn foster its continuation. Then it analyses the behaviour of involuntary insiders in the context of the prisoner's dilemma. Their behaviour, unlike the one of voluntary insiders, is driven by their reluctance to receive a punishment for “misbehaviour”, rather than by a desire of a reward for the obedience. The unwillingness to go against informal signals and commands on their own, given the uncertainty about other members' intentions and potential actions, encourages them to obey, which also enhances sistema's continuation. However, such `enforced' obedience poses an internal threat to the modernization of the system. Finally, the third part of the chapter analyses the durability of external cosmetic changes to sistema, highlighting major obstacles that it faces, including the advances in mobile communication technology and the rise of Internet access (Ledeneva, 2013).

2.1 Internal Modifications

The process of cadres' selection is very important when it comes to the question of existence and continuation of sistema. Traditionally, the recruitment system of new cadres should have a large number of channels of vertical and horizontal mobility and social elevators (Myasnikov, 1993). Young, active and talented professionals in all areas should have access to elite groups due to their knowledge and skills, thus fostering a circulation of the political elite as opposed to its stagnation and degradation (Myasnikov, 1993, p.52). However, the recruitment of independent-minded cadres may destabilize the informal system of governance of Russia, as there is a risk that they would uncover its hidden features and practices, or raise internal disobedience. Hence, there is a closed type of recruitment of new sistema insiders, where the guarantee of entering into power groups is by no means experience, education or other professional qualities (Morris and Polese, 2015a). The main criterion for the appointment of new people is their ability to conduct whatever is required to remain in the office, i.e. loyalty and compliance (Ledeneva, 2013; Morris and Polese, 2015a). The mechanisms of circulation, in this case, are weak, and the procedures for getting into the political elite are non-transparent.

The principle of "inheritance", i.e. being born into a family, which belongs to sistema and possesses a certain share of power, is also important. Thus, the successors inherit both the “place in the system” and a share of the power-administrative resource (Myasnikov, 1993, p.55). For instance, a bright representative of the power bureaucracy and one of Putin's closest associates, Sergei Ivanov, was dismissed from the post of head of the Presidential Administration in August 2016, and a few months later his 39-year-old son took over as chairman of the board of one of Russia's largest diamond holding companies - Alrosa (Ivanov, 2018). This principle is valid for other prominent representatives of Putin's sistema: the children of Secretary of the Security Council Patrushev, Director of the FSB Bortnikov, the former head of the FSO Murov, and former Prime Minister and Director of the Foreign Intelligence Service Fradkov occupy key positions in large state-owned companies (Rogov, 2018). Thus, the influx of oppositional forces and “fresh blood” into an elite community is extremely hampered by the current recruitment system.

Another important tool to ensure internal compliance, and hence sistema's continuation, is the collection and the use or threat of use of kompromat, which is a compromising material on individuals that can undermine their work placement or even their freedom (Ledeneva, 2006). Compromising material usually takes form of the witnessing of actions incompatible with the status of a civil servant, deputy, leader of the party, or another member of a political elite. The range of such actions is quite wide: from charges of bribery and corruption to accusations of undermining Russian statehood, and connivance of extremist or terrorist forces (Oates, 2017). Compromising material may also take the form of an information about a serious misconduct of a politician in the past, e.g. his earlier participation in a criminal group, or the commission of a crime (ibid.). The search for kompromat requires considerable time and money, and when it cannot be found, it can be artificially created (Miller, Grodeland and Koshechkina, 2001). For instance, in some cases, illegal or immoral acts are provoked intentionally, and if the provocation is effective, then the received materials, including a videotape or any financial documents, turn into delayed-action mines that can detonate at any moment (ibid.). The existence of kompromat makes the targeted individual dependent on sistema and its other members, thus raising the level of his `enforced' obedience and loyalty.

A well-established system of rewards and punishments of insiders, depending on their behaviour, is another factor that reinforces continuation of sistema. Individuals are faced with sufficient incentives to behave in a way, which is demanded by the system, as compliance with its rules and norms is rewarded in terms of material gains or a potential for an upward movement in the vertical of power (Ledeneva, 2006). On the other hand, anything, which can possibly destabilize the informal system of governance, and thus endanger those actors, who are interested in its preservation, is strictly prohibited (ibid.). Any disobedience, e.g. the uncovering and an open criticism of the informal practices, as well as of its negative consequences, e.g. the material costs of corruption in the sphere of public procurement, are severely punished (ibid., 2013). The punishment can range from a material cost to the exclusion from the system, the country, and even imprisonment. The severity of punishment is usually determined by the level of harm, that an individual has or can potentially cause (ibid.).

2.2 External Management

The success of ensuring the continuation of sistema rests not only on internal, but also on external management and control, i.e. a creation and a preservation of an illusion of its reform. This is ensured through the use of governmental or political technologies, which exist between the states of domination and the games of power (Foucault, 1979, p.19). These technologies are a set of techniques, methods, and procedures that are used by political actors to achieve their goals of preserving sistema and their place in it (March, 2009). The people are the main target of the political technologists, including Vladislav Surkov, as it is they who create parties, hold rallies and strikes, vote for candidates, and reproduce or destroy political and economic systems (Robertson, 2011). Accordingly, political technologies are methods of influencing people with the aim of changing their political behaviour (Avtorhanov, 1991; Robertson, 2011). To root social and political myths, the technology of manipulation involves the use of a rich variety of methods of influencing the consciousness of the people. Among the methods of manipulation are: reduction in the amount of information available to ordinary citizens; the use of propaganda, i.e. giving citizens partly correct, but tendentious information; the creation of pseudo-oppositional parties and political figures; the punishment of `irrelevant' insiders; and the use of judiciary in order to sustain external obedience and to prevent any riots and other acts of protest.

One of the most common methods of making an illusion of a reform is the `creation' of new prominent pseudo-oppositional political figures and parties. For example, the political party “Just Russia” (JR), founded on 28<sup>th</sup> October 2006, was a manifestation of the idea of ??building a bipartisan system in the country, under which, depending on the circumstances, the Kremlin could rely on either one of the two systemically important parties, i.e. “United Russia” (UR) or JR (March, 2009). Surkov described the problem as follows: “there is no second leg" in the society, which can be relied on when the first one is tired; in Russia, there is a need for a second major party, “which, according to the president's plan, should, in the long run, take up the voices that are now gathered by left-leaning parties” (Levichev, 2018). Indeed, “Just Russia” has been used by the Kremlin to create the image of opposition to the party of power, UR, thus enhancing the legitimacy of the government. Thus, even though JR was allowed to criticise the president and other sistema insiders, its space for `creativity' and manoeuvre was substantially limited and controlled. Subsequently, in the presidential elections of 2008, when Dmitri Medvedev was a less popular candidate than Putin, JR did not nominate its own candidate (Robertson, 2011). A similar situation occurred in 2017, when the party's leader Sergei Mironov supported the self-promotion of Vladimir Putin (Beluza, 2017).

Another tool to enhance the illusion of reform among the ordinary citizens, and simultaneously to raise the levels of internal obedience to sistema, is punishment of political officials, who are no longer favoured by it. This allows the system to `clean up' personnel, which has disobeyed its unwritten rules or became `irrelevant' due to other reasons, thus sending a signal to the other remaining members, and to enhance citizens' perception of the effectiveness of the system of checks and balances, judiciary, and the government via punishing those politicians, who have been caught with corruption or other abuse of power. For instance, the former Minister of Economic Development Alexei Ulyukaev, accused of taking a bribe of 2 million dollars from the head of “Rosneft” Igor Sechin, was sentenced to eight years in a strict-security prison colony (Agamalova, 2018). Nevertheless, the number of such cases when political elites were punished or `pseudo-punished' is limited. Since 1996, criminal cases have been filed against 27 heads of Russian regions, including the case of Yurchenko, and 16 acting heads of subjects of the Russian Federation (Timoshenko, 2017). Three out of seven regional leaders, who were found guilty, received suspended sentences, two were amnestied, and only the remaining two governors were sentenced to imprisonment (ibid.). Currently, there are eight former heads of subjects of the RF who are under the investigation, being detained in 2015-2017 (Zverintseva, 2018).

To strengthen the illusion of reform, the Kremlin also alters the image of sistema oligarchs. For instance, Roman Abramovich, who significantly transformed Chukotka region after becoming an appointed governor there, is now widely perceived as a “good” and a “kind” man (Ogneev, 2018). Under him, Chukotka, which had become neglected outskirts, turned into a place where one can live. He planted trees in the region, made normal roads in the capital and beyond; he painted and insulated houses, repaired communications, increased the number of buses, and installed new bus stops and benches (ibid.). He also made beautiful pedestrian crossings, built a huge modern fitness centre, a cultural centre, the Museum of Chukotka, sports grounds and yards, a supermarket, a three-star hotel, two Italian restaurants, and so on. During the eight years of Abramovich's governorship in Chukotka, many socio-economic indicators have grown significantly. For instance, the average per capita monetary income of the population increased from 4.732 thousand rubbles in 2000 to 24.320 thousand rubbles in 2006 (ibid.).

The preservation and continuation of sistema are also ensured via the judiciary system. Indeed, the forces within it that are resisting its `real' change, adopt laws that prevent any external resistance and opposition, for example, the Federal Law 54 “On Assemblies, Meetings, Demonstrations, Processions and Pickets” of June 19, 2004 (Federal'nyi Zakon ot 19.06.2004 g. № 54-FZ) and Federal Law 226 of July 3, 2016 “On the troops of the National Guard of the Russian Federation” (Federal'nyi Zakon ot 03.07.2016 g. № 226-FZ). The former law requires the organizers of a public event to submit a notice on holding it to the relevant executive authority of a constituent entity of the Russian Federation or a local government body, which must include the places of the public event, the routes of participants' movement, and in case if it is conducted using vehicles, information on the use of vehicles. Any nonconformity with provided information results not only in the prevention of the event, but also in potential arrests of its participants and a fine for its organizers, which ranges from 150 thousand to 1 million rubbles (Federal'nyi Zakon ot 19.06.2004 g. № 54-FZ). There are also some instances of organizers' imprisonment. For instance, after the protests on May 6, 2012, there began the so-called "bolotnaya case", following which many political activists were sentenced to imprisonment (Petrov, 2015). The Basmanny District Court of Moscow, for example, passed a verdict against opposition activist Ildar Dadin, who was found guilty in the case of repeated violations of the rules of holding rallies or picketing. The defendant was sentenced to 3 years of imprisonment in a general regime colony (ibid.). According to the latter law, the National Guard, which is a state military organization designed to ensure state and public security and protection of human and civil rights and freedoms, is allowed to use force to disperse mass demonstrations, use special means, including rubber batons, gas grenades, handcuffs, as well as service animals, and to shoot for defeat in emergency situations (Federal'nyi Zakon ot 03.07.2016 g. № 226-FZ). Altogether, these measures substantially raise the costs of any public disobedience or unrest, making them less likely, and thus perpetuating sistema.

2.3 The Material Base of Voluntary Insiders for Modernizing Sistema

The ability to exploit sistema in order to achieve private interests, i.e. a maximization of one's own power and wealth, is the main factor that drives voluntary insiders to preserve and ensure its continuation. The informal system of governance provides with access to one or another “feeder” (kormushka), which differ according to sectors of the economy (Morris and Polese, 2013). In the sphere of public procurement, such self-enrichment of the ruling elite manifests in kickbacks (otkat) (Ledeneva, 2006). It is a complex mechanism, where the official does not just stand in the way of business, but, in fact, becomes a partner of the businessman in the plundering of state funds. By looking at the sphere of public procurement, the paper examines how sistema enables its insiders to use formal tools and mechanisms to achieve their private interests, showing that corruption there is a system that functions as a well-coordinated mechanism.

2.3.1 Acts of Individual Greed or a System?

There is an established system of state orders, where a business does not work for a specific consumer, who pays for goods or services with his own money, but for the state, which pays for work from the budget. The largest and most expensive state order is military (Timoshenko, 2017). But apart from it, the state pays for the construction and repair of roads, bridges, railways, pipelines. It buys cars, furniture, office equipment for the needs of the state administration, spends money on hospitals and schools, and orders businesses to create various facilities, including stadiums for competitions, e.g. the Olympic games and the World Cup. In all of these cases, the resources are taken from the budget, and private businesses, which compete for the contract, are very much interested in receiving it. Moreover, they are interested in the prices for services being as high as possible (Lomakina, 2006).

The kickback assumes that an official, who has conspired with a businessman, provides him with a favourable government order, and the latter "rolls back" (otkatuvaet) some of the profits received from this operation into the official's pocket. If, in the case of a normal bribe, the businessman is a suffering side, who is interested in stopping the abuse by the official, in a situation with a kickback nobody suffers, except fair suppliers and the taxpayer in general, whose money finances the state order (Ledeneva, 2006). Referring to the report of the director of the development department of the contract system of the Ministry of Economic Development, Maxim Chemerisov, only 5% of purchases are held on a competitive basis, that is, by holding contests and auctions; the remaining 95% of purchases are non-competitive; of these, “36% are from a single supplier, and about 59% are provided by so-called other methods” (finanz.ru, 2017). The total volume of contracts concluded by customers under 223-FZ grew by 11% in 2016 to 21.1 trillion rubbles, and if 95% of these purchases were carried out on a non-competitive basis, it turns out that this is a sum exceeding 20 trillion rubbles (ibid.). There are a lot of existing corruption schemes in the system of public procurement, which were invented and mastered by those involved individuals who wanted to attain extra funds at the expense of the taxpayers (Pardo, 2004).

By preventing the development and an innovation of the formal institutions, sistema enables its insiders to engage in corruption, by providing them with the required tools, mechanisms, and opportunity for self-enrichment. The imperfection of the current legislation in the field of public purchases is one of the major factors that enable corruption there. The existing “gaps” in the law, which are a complete or partial lack of norms that are necessary for the development of social relations, and for the finding of practical solutions to cases, provide opportunities for “corruption manoeuvre” of customers, and their alliances with bidders (Poroshenko, 2017). The insufficiently active role of the Ministry of Economic Development, the Federal Antimonopoly Service, and other authorized state bodies, whose task is to ensure control over the procurement sphere, and over actions of officials who decide on the conduct and monitor the progress of procurement procedures, further enhances the ability for making violations in this area (Lomakina, 2006, p.105). Another important factor comes from the established system of appointments. Indeed, an ignorance and a misunderstanding by specialists, engaged in the procurement, of their rights and responsibilities makes it easier for the involved actors to achieve their private interests at the expense of the wider society (Poroshenko, 2017, p.2).

Simultaneously, sistema creates an ability and enhances the chances of individuals' engagement in corruption in public procurement, by enabling them to minimize or even avoid the punishment. It is an important factor, as it affects insiders' decision-making process by substantially lowering potential costs of using corruption schemes there. Despite many reported cases of corruption in the sphere, there is an absence of an integrated approach in verifying the legality of the execution of complex state contracts, which results in an extremely low level of actual detection of procurement offences of customers (Lomakina, 2006, p.108). The absence of a legal opportunity to confiscate the corruptor's property in the criminal law, and the lack of a mechanism for the rapid power withdrawal from state and municipal officials who compromised themselves in the eyes of the population through their actions, also makes such a phenomenon more likely (Ibid.). Furthermore, the ruling elites make attempts to mitigate the punishment for violations of anti-corruption norms for senior officials by proposing certain policy initiatives. For instance, the Ministry of Justice of the Russian Federation has drafted a bill that suggests introducing for governors, ministers and deputies such a form of punishment as a “warning” (finanz.ru, 2016). The cooperation of bribe-givers and bribe-takers in preserving their “shelter” also enables them to avoid the punishment. According to the Academy of the General Prosecutor's Office of the Russian Federation, most of the interviewed entrepreneurs prefer not to report on the proposal to enter into corruption relations, received by the customers (Academy of the Prosecutor General's Office of the Russian Federation, 2014: 3). Additionally, a low level of qualification of the employees of the territorial divisions of the internal affairs bodies affects not only the opportunity of those interested in obtaining a kickback, but also the execution of their potential punishment (Poroshenko, 2017).

2.3.2 Corruption in Numbers

The aggregate volume of government procurement in Russia is not planned, but formed on the demand. Therefore, even in official comments and documents, there are usually stated different opinions and numbers. For instance, on 7 February 2016, the Ministry of Economic Development of Russia claimed that the entire government procurement was 7.5 trillion rubbles, and at the meeting with the Russian government, which took place on 10 February of the same year, it was noted that this figure exceeds 8 trillion. (Anchishkina, et.al., 2017, p.10). At the end of 2016, the Ministry published new data. Referring to the unified information system, the regulator claimed that in 2016 the state order placed procurement notices for the amount of about 6.5 trillion rubbles, and the total volume of concluded contracts amounted to about 5.3 trillion rubbles (Ibid.).

There is also no precise estimate of the volume of Russian state orders in official statistics (Ibid., p.11). According to the Ministry of Economic Development of Russia, in 2015, more than 3 million notices on purchases, based on 44-FZ, for the amount of 6.6 trillion rubbles were published on the portal zakupki.gov.ru, and 3.2 million contracts were concluded for the amount of 5.3 trillion rubbles (ibid.). The difference between the number of notices and the number of contracts concluded is due to a number of various reasons, including: purchases from a single supplier, cancellation of procurement procedures, and repeated procurement procedures. On the procurement portal, however, the figures differ: the volume of notices for 2015 is less by 150 billion rubbles. (6.45 trillion rubbles), and the number of contracts concluded, on the contrary, is more by 200 billion rubbles. (5.5 trillion rubbles) (ibid., p.12). The difference of 200 billion rubbles, for example, could cover 0.2% of the budget deficit in 2017, which was 2.4% of the country's GDP (ibid.).

Full-value statistics and analytics on government purchases and purchases of individual companies are not being conducted. The Ministry of Economic Development and Trade of the Russian Federation refused this practice in 2015, and instead conducts selective monitoring, citing statistics of a selected sample on the website www.zakupki.gov.ru (Prikaz Rosstata ot 15.05.2015 № 226). The situation with purchases of individual companies, based on the 223-FZ, confirms this thesis even better. For instance, the number of notices that were published on zakupki.gov.ru in 2015, according to the portal, increased by 23% as opposed to 2014, and the sum of the initial prices for them reached 23.1 trillion rubbles (Anchishkina, et.al., 2017, p.13). However, according to the Ministry of Economic Development of Russia with reference to the data of the companies themselves, agreements were concluded for 18.9 billion out of 23.1 trillion rubbles (Economykbr.ru, 2018). The difference comprises almost 30% of the country's GDP (Anchishkina, et.al., 2017, p.13). Thus, relying on the official data, it is possible only to make an approximate calculation, as the final figures are available neither from responsible agencies nor from the state purchases portal. This substantially undermines the ability to analyse the level of accountability in the public procurement process, making it easier for involved individuals to engage in corruption.

2.3.3 “Gaps” in the Law

The first step in the development of the relevant legislation was laid with the issuance of the Decree of the President of the RSFSR of 15.10.1991 No. 143 “On Economic Relations and Supplies of Goods in 1992” (Ukaz Prezidenta RF ot 15.10.1991 № 143), as well as the Resolution of the Council of Ministers of the RSFSR of 23.10.1991 No. 558 “On the organization of material and technical support of the national economy of the RSFSR in 1992” (Ukaz Prezidenta the RSFSR ot 15.10.1991 № 143), which eliminated the centralized distribution of material resources (Burmistov, 2001). They were followed by the RF Law of 28.05.1992 No. 2859-1 “On the supply of goods for state needs” (Zakon RF ot 28.05.1992 g. № 2859-1) and Federal Law No. 60 of December 13, 1994 “On the supply of products for federal-state needs” (Federal'nyi Zakon ot 13.12.1994 g. № 60-FZ). However, these measures not only were declarative, but also were deprived of procedural rules for ensuring fair public procurement. They were filled with norms-principles, the application of which was impossible in the absence of everyday legal regulators (Burmistrov, 2011, p.231).

Gradually, the situation began to change with the adoption of Presidential Decree No. 305 of 08.04.1997 “On Priority Measures to Prevent Corruption and Reduce Budget Expenditures in Arranging Procurement of Goods for State Needs” (Ukaz Prezidenta RF ot 08.04.1997 № 305) and Federal Law No. 97-FZ of 06.05.1999 “On Contests for placing orders for the supply of goods, performing work, rendering services for state needs” (Federal'nyi Zakon ot 06.05.1999 g. № 97-FZ). In these legislative acts, a specific procedure for selecting a supplier for state needs was established, i.e. a tender. It became required to publish an announcement about the need to conclude a contract. However, the main drawback of the legislative acts was the lack of clear criteria for evaluating applications for participation in tenders, as well as the absence of obstacles to the publication of notices on tenders in media outlets that are hardly accessible to most entrepreneurs (Poroshenko, 2017).

A real breakthrough in the legislative regulation of state procurement activity was Federal Law No. 94-FZ of 21.07.2005 “On the Placement of Orders for the Supply of Goods, Works and Services for State and Municipal Needs” (Federal'nyi Zakon ot 21.07.2005 g. № 94-FZ). After its introduction, procurement became an independent field (Lomakina, 2006, p.108). Subsequently, the Federal Antimonopoly Service and the Rosoboronzakaz formed a system of control in the sphere of placing orders, and gradually there was introduced a unified information system for placing announcements on tenders on the Internet (ibid.). However, the opportunities for “corruption manoeuvre” of customers and potential suppliers still remained due to the use of shortcomings of the main way of placing orders, i.e. the tender. Due to the affiliation with the customer, the contractor could secure an advantage in making contracts by artificially inflating the individual quantitative indicators of his application, for example, by shortening the work execution period (Egorov, 2011, p.18). Yet, the legislator did not oblige the customer to charge a fine for the delay in the execution of the state contract (ibid.).

In 2009, Federal Law No. 94-FZ was amended, and a new form of bidding, which has become the main one, appeared - an open auction in electronic form. The customer places an order for the construction of an object, several participating firms express their consent to build it and offer their price, which is reported to the customer via the Internet in order to prevent collusion between the participants in the placement of the order. At the same time, to prove their qualification, they provide the customer with copies of the necessary licenses and permits. With the literal interpretation of the law by the controlling bodies, this method of placing an order was ideal for ensuring the implementation of the principle of fair competition (Timoshenko, 2017, p.29). However, the norms of art. 55 of Federal Law No. 94-FZ directly allowed the non-competitive placement of a number of federal needs for astronomical amounts, which has caused an increase in the share of non-competitive purchases (ibid.). Additionally, the norms of the legislation on auctions in electronic form have led to the duality of the order placement indicators: in theory, the auction was held, but it turns out that the winner did not have a license for the price, a permit for construction and installation works, and cannot fulfil the contract, therefore his application is rejected and the contract is made at a higher price with another supplier (Egorov, 2011).

Today, the public procurement law in Russia is formed by two legal acts, i.e. Federal Law No. 44-FZ “On the Contract System in the Sphere of Procurement of Goods, Works, and Services for Ensuring State and Municipal Needs” that was adopted on 5 April 2013, and Federal Law No. 223-FZ of 18 July 2011 “On purchase of goods, works and services by special types of legal entities” (Kukol, 2012).

The basic law on the contract system, 44-FZ, strictly regulates the process of state and municipal order from the planning stage to the conclusion and execution of contracts (Federal'nyi Zakon ot 05.04.2013 g. № 44-FZ). It is widely “advertised” due to its introduction of a number of innovative provisions, e.g. public discussion of procurement, three-year procurement planning, scheduling, an introduction of a unified information system in the sphere, and setting rules for determining the price of the contract (Poroshenko, 2017, p.4). However, it sets only declarative norms, which do not create real obstacles to corruption. For instance, the principle of responsibility for the result and the effectiveness of procurement, in fact, is a “sleeping” norm, as the law does not say how to implement it, and its execution is not guaranteed (Pavlenko, 2013, p.378). Similarly, the principle of competition is also declarative, as there is practically no real competition in government procurement, and the current norms only create its visibility (ibid.). Thus, in 2015, less than half of state contracts (44.85%) were concluded on competitive basis: 28% of contracts were concluded with a single supplier, and 27% of contracts were concluded on the results of failed competitions and auctions, that is, procedures in which there was no competition (Anchishkina et.al., 2017, p.16).

The Law on the Contractual System establishes the opportunity to apply non-price evaluation criteria in conducting tenders, i.e.: “qualitative, functional and environmental characteristics of the procurement object” and “qualification of the procurement participants, including the availability of financial resources, work experience related to the subject of the contract, and business reputation” (ibid., p.17). Thus, the subject and the procedure for evaluation of potential suppliers are arbitrarily defined by the customer in connection with the absence of the necessary rules and regulations in the normative legal acts. These circumstances result in the low attractiveness of the contests, essentially turning them into a “legalized” way of selecting the "right" performer (Makarin, 2008, p.35). For example, the importance of subjective evaluation criteria for the procurement of information systems and when selecting an expert organization is 70% (Ibid., p.34). In this situation, if a participant is awarded a “0” score according to subjective criteria, his victory is possible only if he reduces the price of the contract by more than 3 times, which triggers the involvement anti-dumping measures (ibid.).

Furthermore, the customer, guided by the Resolution of the Government of the Russian Federation of 04.02.2015 No. 99, has the right to arbitrarily determine and establish prequalification requirements for procurement participants (Postanovlenie Pravitel'stva Rossiiskoi Federacii ot 04.02.2015 g. № 99). The use of such `filters', i.e. the imposition of special, often impossible conditions for order execution, significantly limits the number of participants in procurement, and allows only the predetermined contractor to participate in the tender. Other filters include: the establishment of extremely short terms for the realization of an order or performance of work, where its execution is possible only by a previously prepared supplier, participating in the fraudulent scheme; the establishment of a knowingly uncompetitive price for the execution of state order in the designated volume, which will be of no interest to other potential suppliers; and the use of an unattractive payment scheme for the execution of government contracts, for example, with a long delay, etc.

Spelling errors are an alternative common corruption scheme in public procurement, which is enabled by the Law No. 44-FZ. According to it, all reports of upcoming tenders should be published in a single public procurement information system and/or in the media, and potential suppliers and contractors should track these data for filing applications (Federal'nyi Zakon ot 05.04.2013 g. № 44-FZ). But there are situations when opportunistic behaviour is manifested both by contractors and by the customer, when officials organize a competition for their own or attract the “necessary” firms to participate in the request for quotations (Poroshenko, 2017). The mechanism of this fraud is as follows: a notice on the tender or another way of purchasing goods, for example, ball pens, appears on the public procurement website. However, the notice contains a mistake, for instance, instead of a “ball pen” there is written a “boll pen” or a “ball pan”. Potential suppliers, i.e. producers or just sellers of such pens, search for the relevant order in a single information system, but cannot find anything, as they do not know that the notification contains a mistake (Timoshenko, 2017, p.19). Subsequently, only the “right” supplier, who is informed about the offer disguised on the website, participates and wins the tender (ibid.). Additionally, according to Part 2 of Article 51 of the Law No. 44-FZ, applications for participation in the tender are submitted in paper form. The envisaged procedure for filing applications in paper and submitting them in envelopes does not meet the requirements for preserving the confidentiality of information on procurement participants and does not ensure an honest determination of the winner: it allows the customer to get acquainted with the content of the application, to change it, and even to physically prevent its submission, which leads to the restriction of the competition (Poroshenko, 2017). Indeed, it does not provide an honest definition of the winner, allowing and leading to corruption risks, as well as to the inefficient spending of budget funds.

Furthermore, the Law No. 44-FZ establishes the right of the customer to take a decision on a unilateral refusal to perform the contract on the grounds provided by the Civil Code of the Russian Federation (Federal'nyi Zakon ot 05.04.2013 g. № 44-FZ). Each customer has the right to independently determine the grounds for unilateral termination of the contract, e.g. to terminate the contract on the basis of the results of the examination of the delivered goods, the work performed, or the services provided (ibid.). In the case of unilateral termination of the contract, information on the supplier is included in the register of unfair suppliers, which substantially undermines his reputation, reducing his potential to win in other contests. At the same time, Law No. 44-FZ does not contain any requirements for the selection of experts who evaluate the provided good or service (Timoshenko, 2017). The acceptance and payment for expert services are carried out by the customer under the general rules for receiving the results of the executed contract, which means that only the “demanded” result is accepted by the customer (ibid., p.22). Thus, in 2016, information on 5.555 contractors was included in the register of unfair suppliers (Poroshenko, 2017, p.9). Based on the foregoing, the risk of increasing corruption at the stage of contract execution increases due to the customer's ability to exert pressure on the contractor by threatening him with a unilateral cancellation of the contract and an inclusion of information about him in the register of unfair suppliers.

Federal Law No. 223-FZ “On purchase of goods, works and services by special types of legal entities” is also inefficient since it doesn't ensure a fair competition among the participants in procurement (Federal'nyi Zakon ot 18.07.2011 g. № 223-FZ). It allows a customer to easily reject any application of an undesirable competitor, due to the lack of an exhaustive list of grounds for such a decision in the law (ibid.). Additionally, the Law enables the customer to purchase any goods and services from a single supplier at his own discretion (Anchishkina et.al., 2017, p.27). According to the Ministry of Economic Development of Russia, the volume of purchases from a single supplier in 2016 increased by 3.8% compared to 2015 (Economykbr.ru, 2016). Moreover, the law No. 223-FZ contains neither a closed list of types and methods of procurement, nor a regulation of choosing the procurement method, which leads to a concealment of the real number of purchases from a single supplier (Poroshenko, 2017). Thus, in 2016, the number of “other ways” of purchases conducted by customers increased by 983 (Anchishkina et.al., 2017, p.28). They include: “purchase on the basis of long-term contracts”, “without bidding,” “extraordinary purchases,” “no alternative choice,” “without considering competing proposals,” and “without bidding: the choice of proposals from the consolidated price list” (ibid.). At the same time, the civil law defines only two forms of choosing a supplier on a competitive basis, i.e. a tender and an auction (ibid.). The lack of requirements for procurement methods in the Law No. 223-FZ has led to the fact that customers already apply more than 4,480 ways to determine the supplier, which, among other things, mask purchases from a single supplier (Timoshenko, 2017, p.25). The variety of methods of procurement negatively affects its transparency and fair competition among the participants in procurement.

In theory, the very mechanism of state procurement is fair and competitive, aiming at minimizing budget expenditures and, accordingly, saving taxpayers' funds, effectively using them, as well as stimulating the increase of labour productivity in various spheres of economic life, including through the development of competition (Lomakina, 2006, p.2). However, in practice, this mechanism works as a cover for frauds with the use and the distribution of budgetary funds (ibid.). The ability to maximize one's own power and wealth, which is provided by sistema to its insiders, serves as the material base for their struggle for its preservation and perpetuation. The informal system of governance, by weakening the formal institutions and practices, enables its members to attain extra profits at the expense of the ordinary citizens, and simultaneously to avoid the punishment.

2.4 The Obstacles to Modernizing Sistema

2.4.1 The Durability of Compliance

Zero-Sum Game as an Explanation of Behaviour of Rational-Economic Sistema Insiders.

Zero-sum games are games, in which the winning of one side is equal to the loss of the other. The “game with zero or constant sum” does not allow compromises (Vorobiev, 1984). This situation is often called “sharing a pie”, i.e. what one will get will not be available for others. For example, deputies who approve articles of spending the state budget are in this position. If someone's district asks for more financial help, it would come from the resources, which could have been allocated to other districts (Rose, 2001, p.155). A similar situation occurs with the distribution of the tax burden between different groups of voters: rich and poor, wage workers and owners of capital (ibid.).

By applying this model to the analysis of the behaviour of voluntary sistema insiders, namely rational-economic actors, i.e. those who protect the system in order to use it for the achievement of their personal interests, it is possible to understand the rationale behind it. Let's assume that players A and B are rational-economic members of sistema (table 3). They both are assigned to complete a task, which would not add to public benefit, but which, however, can increase their personal well-being, e.g. result in a work promotion or a material bonus. In case if A and B decide to comply and follow the order, they both get awarded by sistema. However, in a situation when A complies, but B breaches, A gets all the reward, including B's part of it. The same situation applies to B. If both players decide to breach the order, then none of them gets the reward. Moreover, there may arise the uncertainty about their loyalty to the system, which can endanger their very position in it. Considering A and B are both voluntary members of sistema, who accept its rules and norms, and who use its tools and channels to obtain personal benefits, they would choose to comply with the order.

(table 3)

Although voluntary insiders have a common goal of fighting for sistema's preservation and continuation, they are competitors, who struggle with each other for the power and resource distribution. For them, the protection of the informal system of governance is the protection of the “goose that lays golden eggs”. However, even though their competition with each other, motivated by the strive for maximization of personal gains, is the force behind sistema's existence, as it encourages those insiders to follow and obey informal signals and commands, it can also be the source of its destabilization. Indeed, the struggle between different clans within the system can undermine the effectiveness of measures that aim at ensuring and sustaining internal and external subordination by shifting their attention to that very competition for power and resources.

The Prisoner's Dilemma as an Explanation of Behaviour of Involuntary Sistema Insiders.

In game theory, the prisoner's dilemma helps to characterize situations where there is simultaneously confrontation and a tendency to cooperate, i.e. mixed motives of behaviour, in conditions when players making decisions are deprived of the opportunity to coordinate their actions (Brams, 1975). As in all game theory, it is assumed that the player, i.e. the “prisoner”, maximizes his own winnings, not caring about the benefits of others (Fudenberg and Levin, 1998). The modern prisoner's dilemma was adopted relatively recently: it was formulated in 1950 as one of six types of non-cooperative games by M. Flood and M. Dreschner (1950). This game illustrates the situation that often occurs in the economy and social life in general, when co-operation can improve the position of cooperating entities, regardless of whether they are individuals or legal entities, but is impeded by mutual distrust of actors, as well as by the lack of a mechanism for compelling the subjects to implement the reached agreements (Jervis, 1976, 1978).

Let's assume that players A and B are both sistema members who disagree with its norms and rules and are willing to change them (table 4). Being rational actors, they both understand that sistema will easily punish them for disobedience, if they would rebel independently. Moreover, the individual costs of such a rebellion would be higher. Thus, in order to act in accordance with their real interests, i.e. the transformation of sistema, they need to be certain that they are not doing it alone. Considering there are no guarantees, that one's opposition will be joined by other insiders, disobedience can lead to such consequences, as the loss of trust by other members of sistema, a subsequent exclusion from it, and even imprisonment. Thus, A and B are uncertain about each other's possible actions. In these conditions, compliance of both players would enable them to avoid punishment for `misbehaviour', and to receive some kind of reward. In a situation when one of the players decides to breach the informal rules and norms and the other doesn't, the `rebel' would face a severe punishment, while the other would not. However, if both actors decide to breach, they would create the base for a further destabilization and a potential change of sistema, which is their `real' goal. The more players would join them, the lower would be each individual's punishment, i.e. their personal costs decrease due to a greater number of rebels. Therefore, even though breaching is the desired option of both players, due to uncertainties about each other's actions and fear of a punishment, both A and B would choose to comply with the informal system of governance.