When I think of federalism, I recall the Federalist Papers and picture the political campaign waged by the authors of the U.S. Constitution. Alexander Hamilton, James Madison and John Jay argued that within the union, states could each benefit from a synergy unattainable by means of individual effort. Then I look at modern Russia, which is drifting away from its federal political structure toward a de facto unitary state. President Vladimir Putin is making every effort to convince the political elite and ordinary Russians that federalism in its current state is ill-formed, ineffective and counterproductive. Recent opinion polls indicate that the people, in fact, support their president in his decision to end direct elections of regional leaders and to eliminate single-mandate State Duma districts.

The problem with Russian federalism is that the country has never had an efficient federal structure. Essentially, current relations between Moscow and the regions are grounded in the only experiences with federal arrangements Russians ever had, namely Soviet-era ethno-federalism and the asymmetrical federalism of President Boris Yeltsin's administration.

During the Soviet era, the ethnic republics enjoyed relative regional autonomy in terms of day-to-day operations but remained under the total control of the party and state apparatus. As with any centrally controlled structure, Soviet-style federalism was plagued with tremendous information asymmetries. During their years in power, the regional elites excelled in bargaining with the central authorities and obtaining personal benefits in return for loyalty. This arrangement was extremely inefficient for both the center and the regions. And when Mikhail Gorbachev loosened the grip of central command, the leaders of ethnic republics went shopping for independence on the wave of mass support from their constituencies.

While on paper Russia had a federal structure during the Soviet period, it was in fact a unitary framework with regions that were formally autonomous but subordinated to central party control. When all hell broke loose, the Soviet Union collapsed, and the wave of independence reached the newly independent Russian Federation, Yeltsin had no choice but to offer regional leaders as much autonomy as they could stomach. In the early 1990s, the federal center was weak and lacked the resources to breed loyal subjects in all 89 regions of the country. In an attempt to keep the country together, Moscow and the regions reached a compromise in the form of bilateral power-sharing agreements. Thanks to these agreements, the amount of regional autonomy correlated directly with the amount of power in the hands of regional leaders. To a large extent, this was the solution that prevented the breakdown of Russia.

This asymmetry in relations between the center and the regions in the 1990s is largely responsible for the current dismay with which many Russians think of federalism. For the first 10 years after the collapse of the Soviet Union, regional leaders governed with scarce resources and soft budgetary constraints. For the most part, they tried to bargain with the center for funding and made unsecured loans to finance both regional and federal programs. As a result, many social responsibilities were left without funding, and regions became financially insolvent. Not all regional leaders were equally successful in this bargaining game. Some, like Tatarstan's president, Mintimer Shaimiyev, or the leader of Bashkortostan, Murtaza Rakhimov, managed to strike much better deals with Yeltsin in return for their personal loyalty and support. Others, mostly the leaders of resource-poor regions, had to struggle for every ruble of federal transfers.

Gradually, the Yeltsin-era regional leaders grew strong vis-a-vis the central government. After 1995, direct election gave the governors an alternative source of popular legitimacy. When talking to the Kremlin, they could use the mandate of the people in addition to the art of bargaining. The financial crisis of 1998 sparked an economic recovery, which, in turn, increased the resources under governors' control. The system of federal relations became very unstable. The Kremlin started to experience additional costs from monitoring the newly powerful governors.

Finally, in the aftermath of the terrible tragedy of Beslan, the president decided to reduce these liabilities by abolishing the institute of direct gubernatorial elections. This policy choice came as no surprise to the governors themselves. They knew that Putin does not like to approach issues gradually. Governors knew that if presented with a choice between targeting the corruption surrounding gubernatorial elections or abolishing them altogether, Putin was likely to choose the most radical and painless policy.

Could Russia be governed as a unitary state? The answer is a definitive no. First, the sheer size of the country calls for some degree of regional autonomy. This autonomy should not be limited to everyday management but should give regions enough room to maneuver in domestic policy matters within constitutional boundaries. Regional leaders should be elected by direct popular vote. Supporters of centralization argue that elections are corrupt. However, even an incomplete electoral contract with a regional leader serves the interests of the people better than a hierarchical system of bureaucratic subordination.

Second, economic diversity among the regions also demands a significant degree of fiscal federalism and the ability for the regions to control their fiscal base. Right now, the regions bear huge responsibilities for funding federal social programs but have hardly any say in how the taxes are distributed between the regions and the center. Should social problems similar to the current benefits protests arise in the future, regional leaders will have no other option but to transfer all responsibility to the federal government and the president. According to a number of recent opinion polls, the majority of Russians consider governors safeguards against the center's attempts to extract and redistribute regional resources. The appointment of regional leaders will eliminate these safeguards and increase the hostility between the center and the regions. Appointed governors will have no incentives to foster horizontal competition and create favorable conditions for business and labor. The only incentive they will have is to serve their master well.

Third, there is the issue of nationalism. The nature of popular mobilization is such that protest driven by nationalist sentiments spreads much faster then dissent based on social factors. In a unitary state, any nationalist grievances immediately expand to the global level, as the central government is the only source of public authority. Russia is home to hundreds of different ethnic groups with a multitude of interfering interests. Popularly elected and legitimate regional leaders address many of these conflicts far better than federal authorities.

Finally, decentralization has increasingly become a global trend among large and diverse nations around the world. Successful federations, including the United States, Switzerland, Canada, Germany and Australia, encourage local independence and responsibility. Not so successful unions, such as India, Brazil and Mexico, continue to struggle with inefficient centralization mechanisms.

However strong the centralization trend might appear, the history of Russian federalism is hardly over. Many of the current policy choices are made in an ad hoc manner, without broad societal discussion and consent. The power vertical, so cherished by the administration, will begin to buckle under the weight of corruption, popular dissent and administrative inefficiencies. Then the authorities will realize that central control is not the best governing option. For now, the rules of the game have changed. But the game itself is far from over.