A law unto themselves

The sight of tanks rolling into the rebellious Caucasian republic of Chechnya in the past week has caused many in the West finally to give up on the new Russia, seeing in these events a bullying superpower heralding the end of democracy. But such emotional reflexes do not do justice to an issue of fundamental importance: the role of order in societies making the transformation towards liberal capitalism. President Yeltsin expressed the problem in his televised speech to the nation on Tuesday: "Th e longer the situation in the Chechen republic goes on, the greater the destructive effect on Russia's stability. I want to assure all Russian people... law and order will be restored in Chechnya."

Russian liberal reformers are divided; one group, led by Yegor Gaidar, forming a bizarre alliance with the Communists against President Yeltsin; another, including foreign minister Andrei Kozyrev, defending him and the need to use force. But leaving aside personalities, and the tactical merits of armed intervention, a broad issue of principle is also at stake: the need for all societies, including those aspiring to liberal values, to be able to impose the rule of law.

What is emerging from the ideological debris of the Cold War in many countries is the outline of a system of governance which can best be described as anarcho-capitalism. Societies are emerging - not just in Russia and the former Eastern bloc, but also in China and some potentially powerful countries such as India and Indonesia - which are highly entrepreneurial and economically dynamic but where the "rule of law" is precarious and large-scale disorder is not far below the surface. While there are somebig and important differences in these countries' political models - from democratic India to authoritarian China - there is a shared dilemma: how to dismantle overcentralised, inefficient, state-dominated systems in the name of liberalisation, without s imultaneously opening the door to widespread lawlessness, secession and fragmentation; how to create greater economic and political freedom without allowing the authority of the state to collapse.

This is a dilemma which the West fails to understand, indulging, with some naivety, in the belief that "good governance" is a cocktail of market reform and democratic elections. The role of law and order in this process is left studiously vague (except where foreign investors need law and law enforcement).

Part of the problem is that the West has inherited a system of rules-based capitalism resting on the rule of law (with a few partial exceptions, such as Italy). Those few non-Western countries - all in East Asia - that have been highly successful economically have all placed a high premium on order. It was achieved in Japan with the help of a strong sense of social cohesion, in Taiwan and Korea with ruthless state power, at least initially, and in Hong Kong through colonial government. All of thi s has been rationalised in terms of something called Confucianism, which is in fact a rather fancy way of encompassing several different systems which had in common a strong emphasis on social discipline and order. The point is that without order and sta bility, sustained development was not possible.

In anarcho-capitalist states, these conditions do not yet hold and are having to be created. In the particular case of countries where law and order were equated with failed Communism, such as Russia, the concept of the rule of law is having to be reinvented, and in a hurry.

This presents two serious problems: how to create systems of commercial practice which inspire trust and enable capitalism to work and how to create efficient and stable forms of devolution which allow for local decision-making.

As to the first, Westerners are largely able to take for granted that their food and drink are not adulterated, that contracts and proof of ownership will be respected, that fraud is untypical, that judges, police and fire services do not have to be given bribes to perform their jobs, and that banks and insurance companies are no longer run, as in Dickens' time, like Mr Montagu Tigg's Anglo-Benglace Company. There are, of course, many abuses, but institutions exist to provide regulation and remedies.

Under anarcho-capitalism, these things cannot be assumed. Legal principles are ill-defined, public institutions are weak and enforcement is capricious. A certain amount of anarchy may not matter: Some big Asian countries such as China, Indonesia, Thailand and India are achieving considerable economic success under these conditions. The lesson which has to be drawn, and is reflected in the advice of Western institutions, is that priority should be given to financial stability and to the freeing of market s (which has the beneficial by-product of reducing the artificial scarcities which fuel corruption).

Yet a narrow economic agenda fails to capture the depth of the problem, especially in post-Communist societies. Adam Smith, who was always sceptical about governments having more than a minimalist role, nonetheless made major exceptions of "peace" and "the tolerable administration of justice." Without these, there is no personal security and no sense of fairness. It is possible for the state to be too weak, as well as too strong.

Such weakness can be seriously debilitating. In the extreme case of Russia, organised crime is all-pervasive. And many people's first experience of financial investment has been through scams like the collapsing pyramid selling company MMM. In India, where there is a much more long-standing sense of the rule of law and a vigorous democracy, a point has nonetheless been reached where some state (provincial) governments have been subverted by organised crime, and there is widespread cynicism about the decay of institutions. In China the emergence of a more liberal economic regime has been associated with widespread lawlessness, corruption and fraud (problems that are more pervasive than political dissidence). The Chinese have tried to re-establish order by exemplary punishments, including public executions (in much the same way as occurred in similar circumstances in the late 18th and early 19th-century Britain). Indeed the appeal of the Chinese authoritarian "model", not least in Russia, rests on the ability of the authorities in what is now a capitalist society, to combine growth with at least a minimum of order.

This is the broad context within which events in Russia have to be seen. In particular, liberal reformers have to meet the challenge of lawlessness posed by autonomous local baronies, of which Chechnya's is simply the most flagrant. Otherwise, economic and political liberalisation will be seen as contributing further to the unravelling of Russia's remaining central authority.

Devolution has to be managed without fragmentation and separatism. The problem is not unique to Russia. Each of the big, heterogeneous countries now in the process of liberalisation and transformation - notably Russia, China, India and Indonesia - faces numerous local demands for "self-determination", including outright independence.

In India such challenges have been met by allowing devolution within a federal structure but without conceding independence. While political subtlety and democratic processes have played their part, force has also been part of the equation. The Punjab, for example, has returned to near-normality thanks to a combination of tough counter-insurgency measures allied to political compromise. And after all, the world's most successful liberal democracy, the US, had to suppress the secession of its of its Southern states in a particularly brutal civil war. It is difficult to see why greater pacifism should be demanded of those who rule the new Russia (or for that matter China and other states fending off incipient anarchy).

These events pose a challenge of understanding to the West (including an undertaking of its own history). Many countries, especially former Communist countries, are redefining the role of the state to establish more liberal systems of governance. What they have created, at least transitionally, is a sort of anarcho-capitalism which is dynamic and unstable. Managing this instability - creating order and the rule of law - is, not surprisingly, extremely difficult. It may well require the judicious use offorce. For the West to act, or speak, as if such action heralded a return to the methods of the Soviet Union would be dangerously wrong-headed.

The writer is head of the International Economics Programme at the Royal Institute of International Affairs.