Clark University

An Assessment of the Growing Local Economic Development Function of Local Authorities in

Russia
Author(s): Beth Mitchneck
Source: Economic Geography, Vol. 71, No. 2 (Apr., 1995), pp. 150-170
Published by: Clark University
Stable URL: http://www.jstor.org/stable/144356
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 An Assessment of the Growing Local Economic
Development Function of Local Authorities in Russia*
Beth Mitchneck
Department of Geography and Regional Development, University of Arizona,
Tucson, AZ 85721

Abstract: This paper investigates the increasing local economic development role
of the Russian local government by analyzing central forces and local conditions
that affect the geographic variation of two types of local government activity in a
centrally planned economy: declarations of special economic zone status and
declarations of sovereignty. A conceptual framework for explaining increasing
local activity is proposed and tested using discriminant analysis. The empirical
results largely support the hypothesis that both local conditions and central forces
influence local government economic development initiatives. The local
conditions measuring the social context and describing the labor force
composition and central forces representing central-local fiscal relations
differentiate the regional governments choosing particular types of activity from
those that did not. The findings indicate that future research should examine in
more detail the social and material forces underlying this increasing local
economic development role for the Russian local government.
Key words: Russia, local government, intergovernmental relations, local
economic development, special economic zone, sovereignty.

As the world applauded the crumbling noncapitalist modes of production or

of the Berlin Wall and the movement
toward democracy in East Europe and
the former Soviet Union, few considered
that we were also seeing the disintegra-
tion of the Soviet bloc and the entrance
of numerous new countries into the
world economy. Until then, most of the
Soviet bloc had been relatively shielded
from processes in the capitalist world
economy, including economic restructur-
ing. The effects of restructuring and local
government responses in economies with
* The authorwas supportedby funds from
the HarrimanInstituteat ColumbiaUniversity
and the NationalCouncilfor Soviet and East
European Research. The author gratefully
acknowledgeshelpful comments by Andrew
E.G. Jonas, Sara McLafferty,Susan Hanson,
Ellen Hamilton,andparticipantsto the Eighth
AnnualSocialScience ResearchCouncilSum-
mer Workshopon Soviet and East European
Economics.The author also thanks R. Lie-
bowitz for assistancewith data sources. The
author,however, bears full responsibilityfor
the contentsand findingsof the paper.
economies in transition has yet to re-
ceive significant attention. In particular,
central-local relations during restructur-
ing have not been analyzed within the
socialist and transition economies.
Restructuring in capitalist democracies
has triggered changes in central-local
government relations that have contrib-
uted to increasing economic activity on
the part of local governments. The
growth in the economic development
activities of local governments in the
capitalist democracies is well docu-
mented (Clarke and Gaile 1989; Logan
and Molotch 1987; Logan and Swanstrom
1990; Clarke and Kirby 1990). This
literature provides a framework for anal-
ysis of similar processes in a new
context: socialist economies in transition.
In addition to providing a paradigm of
restructuring, findings should be tested
in a new economic and political context,
such as the former Soviet Union (FSU),
in order to refine our comprehension of
the local experience.

150
 LOCAL ECONOMIC DEVELOPMENT
Local1 governments in the FSU are di-
rectly influencing regional and urban de-
velopment as central authority recedes.
Governments in cities and oblasts (subna-
tional administrative units) are attempting
to control flows of capital and labor across
their borders in order to address social and
economic problems related to the restruc-
turing process, such as unemployment, pov-
erty, and lack of investment funds. Al-
though these processes accelerated during
the disintegration of the USSR in 1992,
the activities began prior to that time. Lo-
cal authorities actively pursued entrepre-
neurial activities, such as declaring special
economic zone (SEZ) status, declaring
sovereignty, and establishing barter con-
tracts with other localities and firms. Local
governments in Russia used these decla-
rations and contracts to expand their
functions to include local economic devel-
opment. Legislatures at all levels of gov-
ernment have declared special economic
zones. These declarations were meant
to establish certain regions as zones
where market-oriented reforms and inter-
national trade could occur with minimal
oversight from the central government.
Sovereignty declarationswere made mainly
by legislatures in ethnically non-Russian
administrativeunits. The goals of these dec-
larations differed from unit to unit, but all
were attempts to establish local primacy
over political and economic decision mak-
ing.
Clarke and Gaile (1989) define entre-
preneurial activities as involving risk, with
the local government assuming a public
role of identifying market opportunities
and mobilizing the resources to accom-
plish their goals. The entrepreneurial
activities of local governments in Russia
resemble local economic development
1 Localrefershere to the
regional(oroblast)
and city levels. Oblasts were tertiary-level
administrativeunits under the Soviet govern-
ment and were consideredthe local level. In
current Russian parlance, however, local
(mestniy)refers to subregional(city or lower-
level) governments.
151
activities of local governments in capitalist
democracies, but Russian local govern-
ments have different goals, including
protection and stabilization of the previ-
ous economic structure, in addition to
attracting new industry. A major unan-
swered question is why some local gov-
ernments in Russia have pursued local
economic development policies whereas
others have not.
The objectives of this paper are twofold.
First, I shall examine possible economic
reasons for the growing interest of local
governments in Russia to facilitate local
economic development during the latter
days of the Soviet Union. Second, I shall
address the question of the geographic
variation of two local government eco-
nomic development initiatives-declara-
tions of special economic zone status and
declarations of sovereignty-using find-
ings from studies on capitalist democra-
cies as a guide. I argue that a local
government declares SEZ status or sover-
eignty, in part, as a result of central-local
fiscal conditions and local economic condi-
tions. In addition, I propose and test a
conceptual framework for explaining the
geographic variation of local government
economic development activity. The find-
ings indicate that the local government
response is associated with (1) local
conditions, such as per capita local bud-
getary expenditures, the local employ-
ment structure, and demographic compo-
sition, and (2) the level and nature of
central control over the local economy.
Local conditions appear to be better
predictors of increased local economic
development activity than are 'central
forces.
The local government response is
viewed here as part of a wider process of
restructuring and of growing regional
economic separatism that contributed to
the disintegration of the Soviet economy
in the late 1980s. Some local governments
seized the opportunity to push for eco-
nomic self-preservation by opting for local
economic development strategies that
would essentially shield their regional
economies from potentially negative con-
152 ECONOMICGEOGRAPHY
sequences of central restructuring. In the
field of Russian studies, several explana-
tions of disintegration focusing on central
politics have dominated research; the
emphasis on central politics has included
topics such as central-local political con-
flict and the political consequences of
change (see review article Bushnell 1992).
The economic consequences of political
disintegration have also been studied
(e.g., Bahry 1991; McAuley 1991; Noren
and Watson 1992). Little attention, how-
ever, has been given to potential eco-
nomic causes of central-local conflict that
led to the breakup. This topic has become
increasingly important as the Russian
central government faces many of the
same challenges as the Soviet central
government regarding central-local con-
flict.
The popular press in particular has
attributed disintegration and central-local
conflict to rising ethno-territorial conflict.
Although rising ethnic awareness cer-
tainly contributes to the process of change
and declarations of sovereignty, this paper
is based on the simple premise that
intergovernmental fiscal relations and
local economic conditions can help to
explain the pattern of local policy re-
sponse to restructuring in the late 1980s.
If we attribute local policies only to ethnic
awareness and political change, then we
ignore potentially powerful explanatory
factors for societal change. In fact, both
ethnic Russian and non-Russian regions
within the Russian Federation (Russia)are
affected by central restructuring and have
been in conflict with the central govern-
ment. For example, local governments in
overwhelmingly ethnic Russian regions
refused to send tax revenues to the
central government in 1990 and 1991.2
2
There are numerousexamplesof central-
local conflict between the Russian central
government and ethnically Russian oblast
governmentsin the post-Sovietperiod. Many
oblasts have refused to pay into the central
budget (RFE 1993a).Others have sought to
Since both Russian and non-Russian local
governments are in conflict with the
central government, we must explore
further possible connections between re-
structuring and central-local relations.
The first section of the paper examines
the growing local economic development
role of local governments outside of the
FSU. The next section defines the Russian
local government and explains the formal
and de facto economic role of the Russian
local government. The third discusses the
conceptual frameworkand hypotheses used
to analyze the regionalvariationof local gov-
ernment response. The following sections
review the data, methods, and results of the
application of the conceptual framework.
The Growing Local Economic
Development Role of
Local Governments
As a result of fiscal crises, economic re-
structuring, and fundamental changes in
central-local economic relations, local gov-
ernments in capitalist economies have be-
come more involved in seeking resources
for local economic development. For exam-
ple, Clarkeand Gaile (1989),Fincher (1990),
Leitner (1990),Levy (1992),and Reese (1992)
have advanced explanations for local gov-
ernment's growing interest in local eco-
nomic development in NorthAmerica.Find-
ings from these studies highlight aspects of
the political economy and the restructuring
of central-local relations that can help to
guide the study of local government in Rus-
sia.
Leitner (1990) uses case studies of
downtown development in several North
American cities to examine how wider
processes of economic restructuring have
combined with place-specific conditions
to generate regional variations in the local
government's role in urban development.
Levy (1992) also looks at the interaction
between central and local conditions to
explain the regional variation of local
increase political power by upgradingtheir
administrativestatus(RFE 1993b).
 LOCALECONOMICDEVELOPMENT
economic development policies. He states
that competition at the local level for
economic development appears to lead to
the growth of federal subsidies and an
increasingly uneven playing field for
localities in the United States.
Other explanations for the growing
economic development role of local gov-
ernment in Western capitalist economies
focus on conflict and issues of control.
First, the collective desire to preserve the
community's quality of life as a response
to external control of the local economy
may encourage local governments to be
more proactive on local economic devel-
opment (Urry 1981). Second, Harvey
(1985) suggests that within the context of
class conflict, the decrease of local control
by the presence of multinational corpora-
tions provides the catalyst for local gov-
ernment response. These explanations
indicate that forces other than local
conditions are significant in explaining the
regional variation in local government
economic development activity.
Another body of literature contrasts
local restructuring experiences across cap-
italist democracies, suggesting that we
should expect national differences among
local economic development strategies.
Reese (1992) finds that factors used to
explain local economic development pol-
icy choice in the United States, such as
intercity competition, tax rates, median
income, and manufacturing employment,
do not seem to apply to the same extent in
the Canadian context. Savitch (1990)
compares city-level restructuring and eco-
nomic development in the United States,
England, and France and concludes that
each central government sets the "con-
tours" for restructuring and, therefore,
sets the scene for intergovernmental
interaction that will produce different
outcomes. Logan and Swanstrom (1990)
also point out that economic restructuring
has not produced uniform outcomes due
to national differences, particularly in the
area of central-local relations.
Another important view maintains that
local government has some measure of
complicity with, in addition to depen-
153
dence on, local economic interests (Logan
and Molotch 1987; Logan and Swanstrom
1990). The growth machine concept con-
nects the search for wealth and power of
elites with the commodification of place
(Logan and Molotch 1987). Participants in
the growth machine might be politicians,
local media, owners of utilities, corporate
capitalists, the leaders of cultural institu-
tions, or small business owners. The
participants profit from the growth of
employment and tax revenues, while they
claim that the larger community also
profits from the reduction of social prob-
lems because of economic growth. Corpo-
rate capitalists play a large role in the
economic development of U.S. cities. The
Russian local government activity as part
of the growth machine does differ from
that described in cities in the United
States; it may be more akin to the U.S.
situation in the nineteenth century, when
the lines between public office and
private gain were less clear and when
career paths changed courses as opportu-
nities arose (Logan and Molotch 1987).
Since social relations vary by place and
are, in part, localized in nature, we may
expect local government responses also to
vary according to place (Cox and Mair
1991). We know from case studies of cities
and regions in capitalist, market econo-
mies that policy choice and implementa-
tion vary by local government (Clarke and
Gaile 1989; Fincher 1990; Leitner 1990;
Molotch 1990), so variation in response
should also occur in the Russian case,
especially given the extreme social and
economic differentials across Russia.
Studies have examined how local eco-
nomic development tools, such as land
use planning and tax incentives and
disincentives for influencing regional de-
velopment, vary across capitalist democra-
cies. Local government in the USSR had
limited ability to influence regional devel-
opment because it could not levy taxes or
set its own land use policies.3 Like the
3
This, however, has changed in the post-
Soviet period. Local governments can levy
154 ECONOMICGEOGRAPHY
local government under capitalism, how-
ever, local government under the Soviet
system of central planning received grants
and subsidies. Clark and Dear state that,
despite having the tools to influence
regional development, the local govern-
ment under capitalism has little influence
or authority over the local economy,
particularly as it becomes more depen-
dent on other government levels for
financial resources: "[The] mismatch be-
tween political authority and the power to
regulate the private market generates
structural tensions between tiers of the
state, the most significant being the
recurrent call for reallocation of functions
among various geographical levels of the
state" (1984, 135). Previous work by
Hough (1969) and Ruble (1990), for
example, demonstrated the mismatch be-
tween power of initiation and power to
implement in the nonmarket Soviet and
Russian cases. Yet the relationship be-
tween intergovernmental fiscal relations
and local government action has not been
studied in Russia. The present study
explicitly explores the potential impact of
intergovernmental fiscal relations and
other economic conditions on public
policy adoption in Russia.
The Russian Local Government
and Local Policy Initiatives
The growing economic development
role of local governments in Russia should
be seen as a local response to restructur-
ing. Bolstering city and oblast budgets is
at the core of many of the local initiatives.
Although local government initiatives ex-
isted before perestroyka, they have grown
increasingly important as intergovern-
mental fiscal relations have changed. The
Soviet central government instituted pol-
icies in 1989 that gave local governments
increased responsibility and authority
over their territorial jurisdictions.
certain taxes and fees that reflect local
concerns(e.g., parking,car ownership,small
businessregistration).
The policy of samofinansirovanie (self-
financing) put pressure on local govern-
ments (soviets)to finance expenditures with
their own tax revenues rather than with
grants from higher levels of government.
The policy of samoupravlenie (decentral-
ized administration)and democratic, local
elections put pressure on the local soviet
(i.e., the local legislature) to make expendi-
tures in the interests of the local economy.
The redistribution of fiscal responsibilities
included limited power to tax and to deter-
mine budgetary expenditure policy. Fiscal
decentralizationgave local governments the
potential to constructtheir own agendas and
power bases and encouraged local govern-
ments to think more in terms of local eco-
nomic development.
As the policies promoting political and
economic decentralization evolved, so did
the way in which elections to central and
local legislatures occurred. Unlike previ-
ous Soviet-style elections, the March 1989
elections to the USSR Congress of Peo-
ple's Deputies and the March 1990
elections to the RSFSR Congress of
People's Deputies had multiple candi-
dates on the ballots. The composition of
candidates as well as the process for
election changed. Soviet electoral ballots
usually consisted of one candidate per
slot, with candidates coming from only the
Communist Party membership. Voters
simply voted yes or no and most, if not all,
candidates were elected. The new-style
elections placed industrial managers and
workers, agriculturalworkers, members of
the military, and members of the intelli-
gentsia who did not necessarily belong to
the Communist Party on the ballots. The
new elections were competitive, in that
there were more candidates than posi-
tions in the legislatures. This led to
several rounds of run-off elections. The
new electoral process was repeated at the
oblast and city levels for elections to their
legislatures. The electoral changes often
resulted in substantial changes of political
value systems of the legislators. Local and
central legislators, theoretically, were
more responsive to the needs of their
constituents and regional issues.
 LOCALECONOMICDEVELOPMENT
The Changing Role of the Local
Government in Russia
Local economic development is a rela-
tively new activity for the Russian local
government. In the Soviet centralized
political and economic systems, local
government was structurally part of the
central government. A parallel and pow-
erful hierarchical structure existed at the
local level for the Communist Party
institutions. The structure of the centrally
planned economy created a situation
where local governments were dependent
on central ministries, centrally controlled
enterprises, and the Communist Party for
financing local economic development.
The local government in the USSR relied
heavily upon higher government levels
for funding regional development initia-
tives through subsidies, transfers, and
grants. This situation created a mismatch
between the ability to influence local
conditions and the power to initiate local
economic development. The budgetary
and off-budgetary expenditures of higher
government levels and enterprises were
integral parts of the local government's
resources for local economic develop-
ment. The central ministries acted like
multinational corporations, often without
regard to local and regional administrative
boundaries. Ministries freely dispersed
capital between their enterprises regard-
less of location.
Government ministries (all-union,union-
republic, and republic) directed most eco-
nomic activity, leaving relatively few eco-
nomic decisions at the local level. All-union
ministries (central) directed economic ac-
tivity of national importance, such as heavy
industry, most natural resource extraction,
and defense-related industry. Union-repub-
lic ministries directed activity that was of
national importance but located in only a
few republics, such as coal mining. Repub-
lic ministries directed economic activity of
lesser importance to the Soviet govern-
ment, like agriculture and light industry.
Other economic activities, like passenger
transportation, public utilities, and con-
sumer services (i.e., collective consump-
155
tion), were under the jurisdiction of the
oblast, city, or district.4Ministries were no-
torious for making decisions that ultimately
influenced collective consumption without
considering local environmental, demo-
graphic, or economic conditions (see Shom-
ina 1992).
Research also suggests that in the USSR
the local government did not act simply as
the administrative branch of the central
level of government. It could act in its
own interest or in its community's inter-
est. Studies focusing on the informal
system have noted local influence over
development decisions through the inter-
vention of local party and government
organizations (see Hough 1969; Bahry
1987; Ruble 1990). The formal economic
responsibilities of the local government
were restricted to the provision of social
and economic infrastructure within the
frameworkof centrally determined norms.
Under central planning, local govern-
ments did not have the authority to delve
into the world of production for the
"national economy," nor could local gov-
ernments provide economic incentives to
stimulate local economic development.
Although powerless to initiate production,
the local government apparatus had the
daunting job of overseeing all economic
activity related to the national economy
on its territory without having regulatory
authority.
Local Government and Budgets
Local budgets reflected both the limited
nature of financial resources and the lim-
ited budgetary powers of city and oblast
governments.Localbudgets financedhealth,
education,culture,propaganda,housing,and
the communal economy (e.g., public utili-
4 These
categoriesconstitutedthe mannerof
distributionof propertybetween government
levels (e.g., federal,oblast, and municipal)in
1992, when the implementationof privatiza-
tionplansbegan.Privatization did not coincide
with but followed declarationsof sovereignty
and specialeconomiczones discussedhere.
156 ECONOMICGEOGRAPHY
ties and transportation)but did not finance
industry, agriculture, and construction
(Lushin 1989). For example, of the former
group, local budgetary expenditures com-
prised 98 percent of total expenditures in
the Moscow city budget in the 1970s and
early 1980s (Shapovalov 1984).
The magnitude and direction of budget-
ary revenue flows should show the magni-
tude of activity by a government level on
a specific territory. For example, if 80
percent of all budgetary revenues from
oblast "x"flow into the central budget, 15
percent goes to the republic, and only 5
percent remains in the oblast, then the
central government holds the vast major-
ity of power in that oblast. In this case, it
follows that the regional economic struc-
ture would lean toward heavy industry or
natural resource extraction rather than
light industry or agriculture (i.e., activities
that provide revenues for the republic
level).
While the subject of the redistribution
of budgetary revenue and material re-
sources among republics has received
recent attention (Belkindas and Sagers
1990), the issue has not been addressed
below the republic level. This study
regards intergovernmental budgetary re-
lations as a primary motivating factor in
the growing economic development role
of local government. Intergovernmental
economic relations are therefore viewed
as forces that could motivate the local
government to press for the reallocation of
functions among government levels. The
greater the perceived imbalance among
government levels, the greater the inter-
est of the local level will be in pursuing
economic development initiatives, de-
fined here as declarations of sovereignty
and status as special economic zones.
Local Policy Initiatives
The argument for decentralizing eco-
nomic decision making within the central
planning apparatus to the republic level
gained credence from a discussion of the
sins of central ministries and their inabil-
ity to handle regional issues (Lapidus
1989) rather than from a proven ability by
republics to manage their own affairs. But
even a republic-level ministry in Russia
may not be able to manage activity
occurring in such a diverse geographic
landscape effectively. Local governments
therefore pushed for the reallocation of
functions and authority between govern-
ment levels and began the process of
redistributing power, authority, and infor-
mation pertaining to local economic de-
velopment. Special economic zone (SEZ)
and sovereignty declarations prior to the
breakup were the first attempts to reallo-
cate decision making at such a broad
level. They were local economic develop-
ment policy initiatives on the part of local
governments in Russia.5
Special economic zones are territorial
enclaves in which foreign or domestic
firms benefit from incentives and privi-
leges given to them for producing goods
either for export or for distribution within
the host country (United Nations 1990).
Central governments create SEZs with
the goals of improving the economies of
lagging regions and/or providing linkages
between regional and international mar-
kets. SEZs are favored in both developed
and developing countries because they
5A question often arises about the differ-
ence in the approachof oblasts and autono-
mousregionsto policyresponses(i.e., declara-
tions of special economic zone status or
sovereignty,respectively).Oblasts,as adminis-
trativeunits of the RussianFederationin the
Soviet Union, had fewer constitutionalrights
thanautonomousregions.Autonomousregions
had the formal representationof being a
higher level of governmentthan the oblast,
while de facto being on the same level as
oblasts.With few exceptions,all autonomous
regionshave declaredsovereigntyfromeither
Russiaand/orthe administrativeunit in which
it is located. Sovereigntydeclarationson the
part of oblastsor the elevationof administra-
tive statusto the republiclevel are rare.As of
mid-July1993 (beyondthe time frameof the
study), four subnationalunits were formally
consideringelevatingtheir administrativesta-
tus to that of republic(RFE 1993c).
 LOCALECONOMICDEVELOPMENT
encourage export-led industrialization. A
special economic zone is not any one
particular development strategy; it is a set
of strategies that uses market-type incen-
tives limited within geographic bound-
aries. The Chinese government, for exam-
ple, uses SEZs to attract foreign capital
and provide intranational links to foreign
capital (Xie and Costa 1991; Harding
1987). State governments in the United
States use enterprise zones, similar to
SEZs, to foster regional economic devel-
opment in economically distressed areas
(Erickson and Friedman 1990). The Brit-
ish government has also sought to curb
urban blight by establishing enterprise
zones, but these zones are often linked to
an attempt by the central government to
limit local autonomy (Pickvance 1990). In
the Russian case, the movement to
establish special economic zones has
emanated from both the local and central
levels. Russians viewed a special eco-
nomic zone as a "special territory of the
state on which special economic condi-
tions have been created in order to solve
concrete economic problems through
joint enterprise" (Pravitel'stvennyy Vest-
nik, 28 January 1990).
Most scholars have treated sovereignty
declarations as the result of political or
social movements arising from ethno-
territorial conflicts and the assertion of
national territorial identities (Anderson
1988; Brym 1986; Chisholm and Smith
1990; Flowerdew 1982; Gottman 1973;
Johnston, Knight, and Kofman 1988;
Williams and Kofman 1989). In the Soviet
case, however, sovereignty declarations
state the primacy of local control over all
political and economic activity in a region.
Rather than only asserting ethnic claims
to a territory, the economic sovereignty
sought by regional governments in Russia
constituted a regional development initia-
tive. The sovereignty declarations explic-
itly attempted to give local governments
control over the allocation of resources
and industrial location within the region.
A reading of sovereignty declarations in
Russia indicates that not all governments
had a common definition of sovereignty.
157
The following statement by the Tatar
deputy Rustam Khafizov, however, is
fairly representative: "[sovereignty is] the
right to the autonomous determination of
the republic's development priorities.
And in all spheres, be it credit and finance
or foreign policy activity, questions of
nature exploitation, the ecology, or the
cultural sphere" (KomsomolskayaPravda,
11 September 1990; FBIS, 17 September
1990). This statement stresses the impor-
tance of economic relations and the
question of nonrenewable resource man-
agement, in addition to political control.
Conceptual Framework
The conceptual framework presented
here posits that local governments in Rus-
sia pursue growth strategies and local eco-
nomic development as a result of local con-
ditions and central forces. As Soviet society
began to introduce market-typereforms,lo-
cal jurisdictions took on the characteristics
of commodities to be traded or used in ne-
gotiation.Russianlocalgovernmentsincreas-
ingly saw their jurisdictions as places where
wealth and power could be accumulated.
In this commodificationof place, naturalre-
sources and productive assets (such as na-
scent high-technology industries or port fa-
cilities)were importantlocationaladvantages
for economic development. These loca-
tional advantages rapidly gained impor-
tance for negotiating between government
levels and were deployed as bargainingchips
to attract foreign entrepreneurs.
The following framework adapts theo-
ries of local economic development as
applied in capitalist democracies to exam-
ine related activities of noncapitalist local
governments in Russia. The ability of the
local government in Russia to initiate
regional and local economic development
strategies depends on: (1) local conditions
and spheres of influence (e.g., structure of
the regional labor force, changing eco-
nomic conditions, local fiscal responsibil-
ity), culture (e.g., ethnic composition and
political culture), and history; (2) central
forces (e.g., policy decisions made at the
all-union and republic levels influencing
158 ECONOMICGEOGRAPHY
local economic priorities, relative pres-
ence of central economic institutions,
macro-level political environment, and
macro-level economic environment); and
(3) the interaction between these local
conditions and central forces.6
Following Duncan and Goodwin (1988),
the local conditions and central forces are
assumed to interact, producing locally
emergent effects. For example, central
forces, like decisions by central economic
planners, influence the structure of the
regional economy, thereby affecting local
factors such as employment structure,
income levels, and investment in collec-
tive consumption. Similarly, macro-level
economic performance necessarily reflects
local economic conditions.
Because central forces vary spatially,
they should contribute to the regional
variation of local government response to
restructuring. The tension between cen-
tral control over resource allocation and
increased local authority created an atmo-
sphere in which local government could.
reverse the long-term trend of central
control. The ethnic composition of Rus-
6
The presentformulationof localconditions
and central forces resembles the collective
consumption/production paradigm(see Cast-
ells 1977 and Cox and Jonas 1993 for a
discussion). The conceptual distinction be-
tween collectiveconsumptionand production
is attractive,particularlyfor an analysis of
Russiangovernment,since the local govern-
ment was largely responsible for collective
consumptionwhile the central government
and ministrieswere responsiblefor produc-
tion. However,it is not appropriateto transfer
a concept that is entrenchedin the capitalist
systemto the socialist,centrallyplannedone.
For example, the collective consumption/
productiondistinctionassumesa separationof
the publicand the privatespheresof responsi-
bility. Such a separationdid not exist in the
Soviet Union. Both collective consumption
and productionwere the responsibilityof the
central state, without a significant private
component. Since a major assumption is
violated,differentterminologyis necessaryso
as not to confuse the socialist, centrally
plannedcase with the capitalistone.
sian administrative units was an additional
condition of interaction between the
central and local levels. On the one hand,
ethnicity played an important role in
motivating the desire for local autonomy.
All ethnic groups, whether dominant
(e.g., Russian) or minority (e.g., Tatar),
could act out of concerns derived from
ties to territory (e.g., Russians in Moscow)
and from perceptions of equity or inequity
under central planning. Nevertheless, it is
simplistic to hypothesize that the local
government in a non-Russian administra-
tive unit sought autonomy because of
ethnic awareness and ethnic tension while
the local government in a Russian admin-
istrative unit sought autonomy solely
because of economic conditions. It is more
useful to explore how central-local rela-
tions interacted with the local social,
economic, and cultural context to produce
variations in the economic development
role of local governments in Russia.
Economic relations and conditions
should influence the spatial pattern of
response to societal restructuring. Among
many economic factors, the regional vari-
ation of intergovernmental fiscal relations
should be associated with the spatial
variation of local government response
and involvement in local economic devel-
opment. These relations partially deter-
mine the means available (or not) to levels
of government for use. The regional
economic structure and composition of
the labor force also should be associated
with spatial variation of response because
they describe local context. Qualitative
and quantitative differences between re-
gions should reveal differences in central-
local fiscal relations and local contexts that
can be associated with spatially varying
policy responses to restructuring.
Regional Analysis
I have divided the oblasts in Russia into
three groups: those that declared sover-
eignty before June 1991 (SOV, n= 17),
those that declared themselves special
economic zones before June 1991 (SEZ,
n=16), and the rest of the subnational-
 LOCAL ECONOMIC DEVELOPMENT 159

SEZ UNITS I
1 Vologda Oblast (Cherepovets City)
2St. Petersburg City .
3 LeningradOblast (Vyborg City)
4 Novgorod Oblost SOV UNITS 5
5 Moscow Oblast (Zelenograd City) 17 Karelia
6 Altoy Kray 18 Republic of Komi
7 Kemerovo Oblast 19 Republic of Mari-El 29 Buryatiya
U SEZ UNITS
8 Krasnoyarsk Kray 20 Mordovian SSR 30 Republic of Tuva
9 Chita Oblast 21 Chuvash Republic 31 Yakut-Sakha Republic SOV UNITS
10 Primorskiy Kroy (Nakhodka City) 22 Republic of Khol'mg Tangch-Kalmykia 32 Nizhnyy Novgorod Oblast
11 Khaborovsk Kroy (Jewish AO) 23 Tatarstan (Nizhnyy Novgorod City)
12 Amur Oblast 24 Kabardino-Balkar Republic 33 Chukotka Autonomous Soviet Republic
13 Kamchatka Oblast 25 North-Ossetian SSR 34 Khanty-Mansi Autonomous Okrug
14 Magadan Oblast 26 Chechen Republic (Tyumen' Oblast)
15 Sakhalin Oblast 27 Republic of Bashkortostan 35 Yamol-Nenets Republic
16 Kaliningrad Oblast 28 Udmurt Republic (Tyumen' Oblast)
* Represents St. Petersburg *Magadan SEZ and Chukotka SOV overlap

Figure 1. Mapof study regionsin Russia.

level regions in Russia (REST, n = 40).
Figure 1 shows the spatial distribution of
administrative units included in the anal-
ysis. The group of administrative units
that declared sovereignty from higher-
level units (SOV) is not homogenous, in
that both city and oblast governments are
included.
Data and Methodology
The data measuring local conditions
and central forces come from the 1979 and
1989 Soviet censuses, Goskomstat RSFSR
(the Russian government statistical bu-
reau) publications (1989, 1990), and other
published sources. Eight variables repre-
sent the local level and four the central
level (Table 1). The local-level variables
focus on the description of the local labor
force, while the central-level variables
represent intergovernmental fiscal rela-
tions.
A discriminant analysis was performed
to identify which of those variables best
discriminate between regional govern-
ments that chose certain economic devel-
opment paths--sovereignty declarations
(SOV), special economic zone status
(SEZ), or neither of those strategies
(REST).7 The discriminant analysis tests
the hypothesis that the choice by city and
oblast governments to use one of two
methods of economic development was
related to central-local fiscal relations,
local economic conditions, and social
factors. Second, the analysis identifies
contextual differences between regions
that chose sovereignty or SEZ status.
Next, the discriminant analysis evaluates
the usefulness of the classification of
administrative units in Russia into three
groups as a way to understand the reasons
7The variables were first transformedto
z-scoresto normalizethe data.
160 ECONOMICGEOGRAPHY

Table 1
Variables for Analysis

CentralForces
PCAUEXP 1988 per workercentralbudgetaryexpenditures
EXPAUP Proportionof total local 1988 budgetaryexpendituresmade by the centralbudget
REVAUP Proportionof 1988 budgetaryrevenues directedfrom the region to the center
PWIN8980 Ratio of per workercapital investmentin 1989 to per workercapital investmentin 1980

Local Conditions
PHEAVY Percentage of 1979 employed population in central branches of economy (manufacturing
and metallurgy)
PMING79 Percentageof the 1979 employed populationin mining industries
LARE8089 1989 to 1980 ratio of percentagechange in the size of labor resources
NMIG90 Net migrationin 1990
PCLOCEXP Per capita local budgetaryexpenditures
PURB89 Percentageof the 1989 populationresiding in urbanplaces
PRUS89 Percentageof the 1989 populationclaiming Russian nationality
HIED79 Numberof urbanpopulationwith higher educationper 1,000 population

behind the adoption of particular eco-
nomic development strategies.
The variables representing local condi-
tions and central forces were chosen with
respect to four hypotheses about the im-
pact of central-localrelations and local con-
ditions on policy choice. My first hypothe-
sis is that the degree of local dependence
on central government is directly related to
the local government's desire to become
more active in the area of local economic
development. We would expect that re-
gions that had local labor forces mainly em-
ployed by central ministries and that were
highly dependent on central fiscal policies
would choose to initiate local economic de-
velopment as a means of economic preser-
vationduringcentralrestructuring.It should
be noted that regions with high degrees of
central dependence (e.g., regions of natural
resource extraction)were of high priority to
the Soviet government. High-priority re-
gions were accustomed to reaping the ad-
vantages of the system. Restructuring,how-
ever, would not necessarily leave these
regions in privileged positions.
The percentage of the employed popu-
lation in a region working in industries
under central jurisdiction (manufacturing
and metalworking) in 1979 (PHEAVY)and
the proportion of the work force em-
ployed in mining in 1979 (PMING79)
represent local conditions related to de-
pendence of the work force on central
ministries and high economic priority.
The level of central dependence forms the
local context to decision making. The
regional economies of regions in the SOV
and SEZ groups are in fact based on heavy
industry and natural resources. For exam-
ple, machine building, metalworking, and
metallurgy comprise a significant portion
of the regional economies of SEZ regions
except Zelenograd and Sakhalin. These
economic sectors were under the jurisdic-
tion of the central government.8
Many of the local governments in the
SOV and SEZ groups have made the
exploitation of natural resources a focal
point of their initiatives. Declaring sover-
eignty or special economic zone status
could be a means for gaining control over
potential wealth-producing natural re-
sources. The Tatars complained about the
loss of oil income (Literaturnaya Gazeta,
15 August 1990) and the Yakuts singled
out the issue of diamond trade from their
territory. The declaration from Chukotka
8
Since 1991 many of the industries have
been transferredto the jurisdictionof the
republic (still the central government in
Russia).
 LOCALECONOMICDEVELOPMENT
stated that the local government wants
more reasonable and efficient use of its
natural resources (FBIS, 1 October 1990).
Six of the regions that declared sover-
eignty have important natural resources.
For example, Buryatiya has apatite, Kare-
lia timber resources, Komi fuel, Tatarstan
fuel, Yakut-Sakha diamonds, gold, and
coal, and Chukotka gold, tin, and tung-
sten. SEZ regions in the eastern part of
Russia also have claims to important
natural resources (Primorskiy and Altay
krays, Amur, Kemerovo, Magadan, and
Chita oblasts). Oblasts and cities in the
REST group also have important natural
resources and produce important heavy
industry products. But those regions are
mainly in the western portion of Russia
and/or have economies less favorable to
supporting a special economic zone.
An emphasis on natural resources and
heavy industry in the local economy is es-
pecially revealing for several reasons. First,
these economic sectorswere consideredpro-
ductive by the Soviet government and a
crucial component in the military-indus-
trial complex. Regional economies domi-
nated by these sectors received priority in
the allocation of central government re-
sources. Second, investment in collective
consumption in these regions often re-
ceived central priority in name only. When
coal miners began their strikes during 1990,
poor social conditions and lack of infrastruc-
ture were the primarycomplaints. Workers
in these regions were compensated for
higher regional prices with higher wages by
the central government, while collective
consumption was often underdeveloped.
One variable measures dependence on
central fiscal policy in the local economy:
the proportion of budgetary revenues that
go into the central budget from the
collection of the profits tax on enterprises
in the region (REVAUP). This loosely
measures the regional economic power of
central ministries. The higher the propor-
tion of local industry under central
jurisdiction, the higher the proportion of
tax revenues that go to the central level.
For example, in Tatarstan, 80 percent of
the enterprises were subordinated to the
161
central level, 18 percent to Russia (the
republic level), and 2 percent to Tatarstan
(Pravda, 1 September 1990). This means
that 98 percent of the enterprises did not
contribute tax revenues directly to the
local budget and were not under the
jurisdiction of the local government.
These intergovernmental budgetary rela-
tions may prompt the local government to
pursue economic development activity
that would result in higher revenues
remaining in the region. The local govern-
ment could then use the increased reve-
nues to help protect the local economy
during restructuring. Central jurisdiction
during the pre-perestroyka period could
be viewed, however, as a benefit since
central ministries and enterprises were
sources of off-budgetary expenditures and
the provision of goods and services.
Despite this, local governments could
overlook the potential benefits because
local concerns did not enter into the
central decision-making process.
Local dependence on central govern-
ment should be related to the place of the
regional economy in the national priority
hierarchy. High-priority regions would be
more likely to initiate local economic
development since they viewed their
resources as supplying the country with
economic power. Regions with low pro-
portions of budgetary expenditures from
the central level and low per capita
central budgetary expenditures may also
be expected to seek ways to circumvent
central control in order to provide local
resources for unfulfilled needs. Two vari-
ables measuring central budgetary expen-
ditures were included to discriminate
between high- and low-priority regions
and those with central dependence. These
are the proportion of all budgetary expen-
ditures by the central budget (EXPAUP)
and per capita central budgetary expendi-
tures (PCAUEXP). As central ministries
began to relinquish power during pere-
stroyka because of reforms, local govern-
ments that relied upon central ministries
began to lose their support, leaving
previously high-priority local economies
vulnerable. In the Soviet case, regions
162 ECONOMICGEOGRAPHY
that received high central budgetary
expenditures were of high priority to the
national economy (e.g., natural resource-
producing regions).
The second hypothesis is that those local
governments that previously had relatively
high levels of their own budgetary involve-
ment in local economic development would
seek to extend that involvement with dec-
larations of sovereignty and special eco-
nomic zone status. Per capita local budget-
ary expenditures (PCLOCEXP) seeks to
capturethis relationship.PCLOCEXP mea-
sures local government responsibilityfor the
provision of public goods and services to
the population.Localgovernmentswith high
fiscal burdens should have greater motiva-
tion for public policy initiative. Regions in
the SOV and SEZ groupsshouldhave higher
per capita local expenditures than regions
in the REST group.
The third hypothesis pertains to chang-
ing localconditionsand centralforces.Those
local governments facing substantialchang-
ing local conditions should opt for in-
creased participationin local economic de-
velopment to safeguardthe economy. Two
local-level variables and one central vari-
able are tested here. A growing work force
at the end of the perestroyka (i.e., 1988-91)
indicates local potential for both economic
growth and unemployment. The higher the
potential, the greater the desire of the local
government to ensure employment for the
labor force through public policy initia-
tives. LARE8089, the percentage change in
the size of the working age population in
1980 relative to 1989, measures the re-
gional demographic change during the
1980s. Net in-migration often signifies re-
gional economic growth. Conversely, net
out-migrationusuallysignifiesdeclining eco-
nomic opportunityon a regionallevel and/or
the presence of disadvantageoussocial and
economic conditions. Because good mea-
sures of standard of living do not exist for
Russia and because previous studies have
found a strong associationbetween regional
standards of living and migration patterns
in the Soviet Union (Maksakova 1986;
Mitchneck1990;Rybakovskiy1973),net mi-
gration (NMIG90) is used as a surrogatefor
standard of living.
Lastly, central capital investment should
represent a central force responsible for
changing local conditions. The late 1980s
saw a vigorous discussion of declining cen-
tral capital investment, particularly in in-
dustrial and mining sectors that were im-
portant to the regions in the SOV and SEZ
groups. If this in fact happened, we should
see a decline in the capital investment from
1980 to 1989 in regions with high central
capital investment. The ratio of per worker
capital investment in 1989 to per worker
capital investment in 1980 (PWIN8980)
measures this change.
The fourth hypothesis is that social
conditions also discriminate between re-
gions that choose certain development
strategies. Three variables were chosen to
represent local social conditions: the
percentage of the population that de-
clared Russian ethnicity in the 1989
census (PRUS89), the proportion of the
1989 population that lived in urban places
(PURB89), and the proportion of the 1979
urban population with higher education
(HIED79). The rise of nationalism cer-
tainly contributes to the trend of declara-
tions of sovereignty. In 1989 Russians
outnumbered the indigenous group in all
SOV regions except Tatarstan and Tuva.
For example, in 1989 Buryats comprised
only 24 percent of the total population in
their homeland and Karelians only 10
percent. In addition, anecdotal informa-
tion indicates that indigenous groups have
not shared equally in the benefits of the
development of their national regions,
particularlywhen the regional economy is
under central jurisdiction. Examples from
Khanty-Mansi Autonomous Okrug and
Yamal-Nenets Republic indicate that the
titular groups have not been employed in
the high-income sectors associated with
oil and gas development on their territo-
ries (Dienes 1985). The SOV, SEZ, and
REST groups should be differentiated by
ethnic composition. We also would expect
that autonomy movements would arise in
places with urban elites; therefore, urban
(PURB89) and highly educated urban
 LOCALECONOMICDEVELOPMENT 163

populations (HIED79) should be associ- (ethnic composition) and local economic

ated with governments actively pursuing
economic development strategies.
Results
The results of the discriminant analysis
show that the classification by policy
choice into three groups was successful
and that choice of economic development
activity was related to central-local fiscal
relations, local economic conditions, and
social context. The data representing
central forces and local conditions were
successful at discriminating between the
three groups (Table 2). The results reveal
significant economic and social differences
between the three sets of regions. Eighty-
two percent of the regions were correctly
classified into the three groups.
Discriminant Functions
Function 1 is clearly dominated by local
conditions that represent social context
conditions related to the labor force
(Table 2). Function 2 indicates that central
fiscal forces, albeit of less relative impor-
tance than local economic and social
conditions, also discriminate between the
sets of regions. The standardized canoni-
cal coefficients reveal that the proportion
of Russians living in the region, the
proportion of the population living in
urban places, per capita total budgetary
expenditures that come from the central
government, and the proportion of the
employed population in heavy industry
and mining are the most important
variables for discriminating between the
three sets of regions. The SOV and SEZ
regions have similar employment struc-
tures (PHEAVY and PMING79) and local
fiscal burdens (PCLOCEXP) (Table 3).
This supports the premise that geographic
variation of economic conditions, includ-
ing intergovernmental fiscal relations,
contributes to the spatial pattern of
response to restructuring.

able 2
Discriminant Analysis Results

StandardizedCanonical Coefficients
Variable Function 1 Function2 f-Ratio
CentralForces
PCAUEXP -0.23 -0.92 2.29
EXPAUP 0.28 1.01 6.02***
REVAUP -0.06 -0.14 0.56
PWIN8980 -0.05 0.06 2.38
Local Conditions
PHEAVY -0.67 -0.67 3.46**
PMING79 -0.47 0.15 5.15***
LARE8089 -0.06 0.17 7.75***
NMIG90 -0.48 -0.29 1.95
PCLOCEXP -0.22 0.34 6.99***
PURB89 0.34 0.70 4.52***
PRUS89 1.63 -0.10 41.10***
HIED79 0.33 0.30 1.50
AdjustedCanonical 0.75 0.40
Correlation
f statistic 4.33*** 1.79*
Proportion 0.83 0.17
Note: See Table 1 for definitions of variables.
*
Significant at 0.10 level.
** Significant at 0.05 level.
*** Significant at 0.01 level.
 Table 3
Summary Statistics
Variable
and Group Mean StandardDeviation
CentralForces
PCAUEXP 408.70 459.38
SOV 221.94 208.48
SEZ 549.44 365.57
REST 431.78 544.50
EXPAUP 20.47 13.41
SOV 11.96 8.36
SEZ 26.69 14.10
REST 21.59 13.34
REVAUP 33.40 11.53
SOV 30.82 17.10
SEZ 34.49 8.86
REST 34.07 9.55
PWIN8980 1.57 0.39
SOV 1.39 0.33
SEZ 1.59 0.48
REST 1.63 0.37
Local Conditions
PHEAVY 44.26 14.39
SOV 39.01 18.23
SEZ 40.15 12.04
REST 48.13 12.48
PMING79 11.68 12.37
SOV 15.98 17.11
SEZ 17.08 13.50
REST 7.70 7.50
LARE8089 0.17 0.85
SOV 0.73 1.26
SEZ 0.34 0.67
REST -0.13 0.52
NMIG90 1.14 8.20
SOV -2.05 7.26
SEZ 0.93 8.18
REST 2.57 8.38
PCLOCEXP 602.10 273.46
SOV 735.18 301.33
SEZ 711.63 422.75
REST 501.73 95.38
PURB89 69.89 11.68
SOV 63.82 11.63
SEZ 75.44 10.49
REST 70.25 11.19
PRUS89 78.55 21.47
SOV 50.12 20.03
SEZ 86.88 6.26
REST 87.30 14.55
HIED79 311.12 35.84
SOV 309.29 31.32
SEZ 324.56 46.00
REST 306.53 32.53
Note: See Table 1 for definitions of variables.
 LOCALECONOMICDEVELOPMENT
The Mahalanobis distances show that
the local conditions and central forces
variables clearly differentiate between the
regions that declared sovereignty and
those that did not.9 The significance of the
Mahalanobis distances between all three
groups increases when percentage Rus-
sian is excluded from the analysis. With-
out percentage Russian, the significance
of the distance between the SEZ and
REST groups increases to the 0.07 level
from 0.10. This illustrates the dominance
of the percentage Russian variable for
discriminating between groups of regions.
Indeed, the ethnic composition of regions
in the SEZ and REST groups is nearly the
same (86.88 and 87.30 respectively), while
the SOV regions have only an average of
50 percent Russian (Table 3).
Although percentage Russian is the
main difference between the SOV and
SEZ regions, it is not the only condition
that is different. Despite similar ethnic
compositions, SEZ and REST regions
differ with respect to other social aspects
of local conditions and intergovernmental
fiscal relations (Table 3). The nature of the
intergroup differences is one of extremes.
Regions that declared SEZ status are
characterized by well above average per
capita central expenditures and well
above average proportion of all budgetary
expenditures coming from the central
level. Regions that declared sovereignty
are characterized by well below average
per capita central expenditures and well
below average proportion of all budgetary
expenditures coming from the central
level. These relationships are mirrored in
the data for percent urban and education
levels. This suggests that the nature of the
local conditions and central forces is
important for distinguishing between
9The Mahalanobisdistance measures the
significanceof the discriminantfunctionsby
group. The SOV group significantlydiffers
from both the SEZ and REST groupsat the
0.01 significancelevel. The SEZ groupsignifi-
cantlydiffersfromthe RESTgroupat only the
0.10 significancelevel.
165
choice of policy response. Those regions
that prospered from central forces under
the previous system and that have a close
social distance from the norm choose a
policy (SEZ) that maintains political but
not economic relations. Further, those
regions that did not prosper and have a
substantial social distance from the norm
choose a policy (SOV) that seeks to alter
both political and economic relations
radically.
The f-ratios and standardized canonical
coefficients suggest that local conditions
are relatively more important than central
forces for discriminating between regions
that adopt policy responses to central
restructuring and between the policies
themselves. The univariate f-ratios indi-
cate that, in addition to the most impor-
tant variables, the majority of local condi-
tions variables and only one of the central
forces variables (EXPAUP) significantly
contribute to the discriminant functions
(Table 2). These results suggest that local
conditions related to fiscal issues (PCLO-
CEXP), social composition of the popula-
tion (PURB89, PRUS89, HIED79), the
industrial structure of the labor force
(PHEAVY, PMING79), and demographic
pressure (LARE8089) contribute signifi-
cantly to the separation of the regions into
three groups.
The weak showing of central forces
variables does not invalidate their impor-
tance for influencing the growth of local
economic development activity during
restructuring, but rather suggests that
they are simply of secondary importance
for distinguishing between choices. Non-
quantifiable central forces, such as central
policy shifts to samoupravlenie and
samofinansirovanie, shape the context
and environment of restructuring in
places, reflecting the individual choices.
Classification and Misclassification
The discriminantanalysis has a high pro-
portionof correctclassificationinto the three
groups (82 percent of the total). The SOV
regions had the highest rate of correct clas-
sification (88 percent), followed by REST
166 ECONOMICGEOGRAPHY
(85 percent) and SEZ (75 percent). The mis-
classificationsmainlyoccurbetween the SEZ
and REST groups (70 percent) and display
a geographic pattern. Over half of the mis-
classified regions are located in either the
Far North or in Siberia. The nature of these
misclassificationsbetween SEZ and REST
is most likely related to the dominance of
percentage Russianand the similarityof eth-
nic composition between those groups. The
misclassification of Nizhnyy Novgorod
Oblast from the SOV group to SEZ is most
likely associated with ethnic composition.
The oblast capital city declared sovereignty
from the oblast, yet the population is over-
whelmingly Russian.
Four regions that had declared special
economic zone status were misclassified
into the REST group. Three of those
regions form a spatial pattern of contigu-
ous regions in the northwest portion of
Russia. This could be evidence of a
neighborhood effect in that seemingly
unlikely regions chose a particular policy
similar to nearby regions. The choice by
Leningrad and Novgorod oblast could be
related to their proximity to the city of St.
Petersburg, well known for being at the
forefront of political and economic activ-
ism.
Hypotheses
The discriminantanalysis results support
the four hypotheses that guided the choice
of variables for the analysis. The discrimi-
nant analysis supports the first hypothesis,
that regions where the local economies were
dependent on central forces and/or were of
national priority chose these policy re-
sponses. The proportion of the employed
population in mining and heavy industry
(PMING79and PHEAVY)are relativelyim-
portant to the first discriminant function,
while central budgetary expenditures
(PCAUEXP)dominates the second discrim-
inant function. These variables represent
national economic priority. Regions in the
SOV and SEZ groups have a lower propor-
tion of their labor forces employed in heavy
industry than the REST group, but a much
larger proportion employed in mining (Ta-
ble 3). The Soviet central government con-
sidered mining a high priority. Regions de-
claring sovereignty had per capita central
budgetary expenditures well below aver-
age (Table 3) and had economic activity of
high priority. Low central expenditures de-
spite economic importance provides a po-
tential explanation for rising ethnic aware-
ness in the non-Russianregions, along with
a perception of inequitable fiscal relations.
Second, although the local involvement
in fiscal expenditures (PCLOCEXP) is
relatively unimportant to the discriminant
functions, the coefficients do contribute to
the overall separation of regions into
groups. Increased local economic activity
does appear to be related to regional
patterns of higher local fiscal burden for
quality-of-life expenditures. Regions in
the SOV and SEZ groups have much
higher levels of local budgetary expendi-
tures than the regions in the REST group
(Table 3). This is due, in part, to the
geographic location of many of these
regions in Siberia and the Far North,
where sparse and remote settlement
requires greater expenditures on collec-
tive consumption.
Third, the results partially support the
hypothesis that changing conditions con-
tributed to the regional variation of policy
choice. Only the variable representing the
changing size of the laborforce (LARE8089)
significantly discriminates between re-
gions. Neither changing central investment
(PWIN8980)nor living standards(NMIG90)
discriminates between regions. The re-
gional labor forces in the SOV and SEZ
groups increased on average, while re-
gional labor forces in the REST groups had
a relative decline (Table 3). This imbalance
denotes a potential demographic pressure
that could influence local governments to
mobilize to maintain employment opportu-
nity. Finally, as noted above, the results
show strong support for the fourth hypoth-
esis, that social context discriminates
between regions according to ethnic com-
position (PRUS89), urbanization level
(PURB89),and education levels (HIED79).
 LOCALECONOMICDEVELOPMENT
Conclusion
The analysis supports the hypothesis
that local conditions and central forces
influence local government policy initia-
tives for the case involving declarations of
sovereignty and special economic zone
status. The results further support the
contention that spatially varying economic
conditions and intergovernmental fiscal
relations, in addition to social consider-
ations, contribute to the regional variation
of local economic development activity.
Variations in the industrial structure of
the regional labor force, the demographic
composition, and central budgetary ex-
penditures appear to discriminate most
substantially between regions in Russia
that chose a particular development strat-
egy. Other local conditions, such as
demographic pressures (LARE8089) and
local burden of quality-of-life expendi-
tures (PCLOCEXP), also contribute to
regional variation of policy choice. The
results also suggest that the nature of local
conditions and central forces can influ-
ence the specific policy choice. Further-
more, local conditions appear to be more
important than central forces.
Regional governments that chose to
increase their economic development ac-
tivity in the latter days of the Soviet
Union appear to have felt the greatest
inequity in economic relations. As re-
structuring began in the FSU, these local
governments mobilized, motivated by
economic self-preservation, to secure the
economic futures of their jurisdictions.
Local governments now had more power
to influence local economic development
than in the pre-reform Soviet Union,
where local governments mainly imple-
mented central directives. Local govern-
ments became responsible for maintaining
and improving social and economic condi-
tions in their own territories, a responsi-
bility that previously laid with central
organizations.
It may seem counterintuitive at first
that the potentially most powerful and
high-priority regions would opt for public
policy seeking separatism as a resolution
167
to problems associated with restructuring.
Why would regions that have benefited
from the centralized system mobilize for
separate development? There are several
possible explanations. First, studies on
the regional pattern of demand articula-
tion for local concerns in the central
political arena during the pre-perestroyka
period also found a positive association
between level of demand articulation by
regional Communist Party officials and
the pattern of economic growth rates and
investment priorities. Breslauer (1984,
1986) found a regional pattern of "de-
mandingness" (i.e., political pressure at
central political meetings) strikingly simi-
lar to that of the SEZ group. He suggests
several reasons for the apparent anomaly:
political pressure to maintain economic
performance, emboldened by success and
additional needs. Pressure to maintain
economic performance and emboldened
by success appear particularly useful to
understanding why the high-priority re-
gions would opt out of central economic
planning. Apparently successful regional
economies in the SEZ regions were under
the threat of losing large central budget-
ary expenditures and saw SEZ status as a
means of preserving power.
As the reform process unfolded in the
1980s, the local governments found that
political power might not be strongly
associated with their economic power and
that their industrial base would be threat-
ened with entrance into the world market.
Until the 1980s, regions within Russia
were relatively sheltered from world
economic trends and the restructuring of
the capitalist economies. Natural re-
sources and manufactured goods (both
important to the economies of the SOV
and SEZ regions) were not sold on the
world market for competitive prices.
However, a major goal of perestroyka
consisted of integrating the Soviet econ-
omy more closely with the world economy
and entering the twenty-first century with
a competitive edge. Local officials clearly
understood that the unreformed, centrally
planned system could not provide the
means for such an integration. But by
168 ECONOMICGEOGRAPHY
initiating economic separatism and in-
creasing their activity in local economic
development, the local governments
could hope to translate economic power
into the previously lacking political
power. Thus they could place their
jurisdictions in advantageous positions for
the coming period of Soviet-style restruc-
turing.
Studieson capitalistdemocracieshave also
found that this mismatch between author-
ity and power can influence the trend to-
ward regional separatism and protection-
ism. Markusen (1987), studying regional
separatismin the United States, showed that
the most prosperous regions tend toward
separatism if the economic base sector (or
dominant industry) experiences unfavor-
able market conditions or if the industry
operates with substantial extraterritorial
ownership. Both of these conditions are ev-
ident in the regions in the SOV and SEZ
groups in Russia during the late 1980s.
Gourevitch (1977; cited in Markusen 1987)
suggests that regions in Canada and Eu-
rope tend towardeconomic separatismwhen
the region has economic power, but not po-
litical power. This too is evident in Russia,
particularlyin the non-Russianregions that
declared sovereignty.
The conceptual frameworksuggests that
catalysts motivate the local government to
initiate a public policy toward separatism.
The issue of ethnic conflict between the
predominantlyRussiancentral government
and the non-Russianlocal elites in the SOV
group presents a catalyst for separatism.
Even the dominant Russian elites in the
SEZ group could feel ethnic conflict with
the "Soviet" elite in the center. Political
change from traditional local actors to re-
formerscould also provide that catalyst. Lo-
cal elections occurred during the period
when the local governments in this study
began to declare sovereignty and special
economic zone status. According to an ac-
counting of the 1989 and 1990 elections to
the central legislatures (Embree 1991), the
oblastCommunistPartycommittee first sec-
retary was defeated in nearly half of the
oblasts in the SOV and SEZ groups, as op-
posed to about one-third for all of Russia.
An additional third of the SOV and SEZ
units had mixed results, with only a small
portion of the legislatorpositions clearly re-
mainingin the handsofnonreformers.While
this evidence does not firmly establish the
role of changing political leadership for ini-
tiating public policy toward separatismand
increasing local economic development ac-
tivity, it does suggest that political change,
alongwith perceived economic inequity and
pending upheaval, could have mobilized lo-
cal governments.
The partial success of the conceptual
framework for differentiating those re-
gions choosing a particular public policy
from those that did not indicates its
usefulness for explaining the increasing
role of local government in economic
development. It also suggests the need to
look at economic conditions, in addition to
social ones, as possible explanations for
the growing local economic development
role and separatism in the FSU. Exten-
sions to this research should include the
use of additional local conditions and
central forces variables. Other topics for
future research should include case study
comparisons of individual regions to bet-
ter understand the nature of restructuring
in Russia, particularly as they compare
with findings on restructuring in other
economies. Comparisons could be made
with respect to the emergence of growth
coalitions or other local government pol-
icy responses. Finally, the study suggests
that the roles of local budget composition
and intergovernmental fiscal relations
deserve more attention as substantial
factors for local variation of public policy
in Russia.
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