When analysts talk about the distribution of power in Russia, they usually mean the relationship between the new President Dmitry Medvedev and the former President Vladimir Putin. But the Kremlin and the White House are not the only centers of power in Russia. The distribution of power in Russia is based on an intricate system of informal agreements between the federal bodies of power ­ primarily the president ­ and governors, as well as other influential local and regional figures.

Putin’s vertical of power actually harkens back to an old Russian tradition of government. For many centuries, Russia was ruled by voyevodas, who were the equivalent of feudal lords and had absolute control over their territory. In exchange, the voyevodas had to provide the state with a certain number of soldiers and a certain amount of taxes.

The current distribution of power between the center and regions in Russia is, of course, more modern and a lot more complicated, but in many cases, it possesses certain traits of this old system. It may not be perfect, but it works and, paradoxically, making this system of informal agreements stable and workable is one of Putin’s undisputable achievements.

A good example of this arrangement is Chechnya. The Western press may not have noticed it, but Chechnya under the current “pro-Moscow” president Ramzan Kadyrov is much more independent than it was under the late separatist president Djokhar Dudayev, before the start of the war in 1994. Ramzan Kadyrov has a free hand in ruling Chechnya at will and fighting Muslim fundamentalists and other extremists by any means he considers necessary. Additionally, Chechnya receives $1.5 billion from the federal budget annually. Russian officials have ceased to keep track of how this money is spent, so Kadyrov and his people distribute it according to traditional rules of Chechen society, taking into account its complex clan structure and remnants of a tribal hierarchy. Surprisingly, this system works­the Chechen capital Grozny is quickly being rebuilt, and even the most critical of Western observers acknowledge this. Moscow seems to have realized that Chechens have a better idea of the right way to spend money in Chechnya. This recognition, even if it runs against the letter of Russian law, seems to be bringing good economic results.

In return for giving Chechnya this freedom, Russia gets security on its southern flank­the terrorist raids to the neighboring Russian regions have stopped, and the former separatist fighters have gotten jobs in Kadyrov’s police and security forces­a much better kind of employment than they had under Dudayev.

The Kremlin, in fact, agreed to establish a sort of a confederative relationship with Chechnya. Besides giving Kadyrov full power in Chechnya and money, Moscow had to reconcile itself with a total expulsion of ethnic Russians from Chechen territory. Chechnya is now populated and ruled almost exclusively by Chechens.

The Chechen experience is repeated in several other Russian regions, albeit in a milder form. When Western experts on Russia claim that Putin can fire and appoint governors at will, this is an exaggeration. Putin could fire and appoint unsuccessful, weak governors, who have no support in society and who alienated people by economic mismanagement. There has not been a single case of Putin removing a strong and popular governor. And this cannot be explained by Putin’s benign intentions. In fact, the presidential administration made two attempts to remove Moscow Mayor Yuri Luzhkov, as well as Sverdlovsk Governor Eduard Rossel and Bashkortostan’s president Murtaza Rakhimov. All of these attempts failed because they were associated with high political risks.

Formally, the president could remove any of these governors by one stroke of his pen, merely stating that this or that governor “lost the president’s trust.” However, the president has to keep in mind that an “unprepared” removal of someone like Yuri Luzhkov could lead to big economic losses not only for Moscow, but for the entire country. Not only because Luzhkov’s loyalists in the city government could sabotage the work of a new mayor and his team, but also because certain businesses and even industries could come to a standstill, since their activities are based on “informal agreements” with Luzhkov.

Soviet authorities faced a similar problem. In 1986, when Mikhail Gorbachev removed Dinmukhamed Kunayev from his position as head of the Communist Party in Kazakhstan, his supporters organized riots in the then-capital of Almaty. The riots were so substantial that they were reported in Soviet mass media, which was a huge embarrassment to the entire Soviet leadership.

So far, these “strong” governors have grudgingly accepted the new system ­ as long as Putin did not use it against them. But if Dmitry Medvedev tries to break this unwritten agreement, he may face dangerous consequences. It is hard to predict, for example, Ramzan Kadyrov’s actions if he is not reappointed to his position, or even if he decides that Moscow is not giving him enough money. In fact, presidential power in Russia does have its limitations, some of them based on unwritten laws and corrupt practices. Paradoxically, the present level of corruption may not be the worst case scenario, since it is well known that absolute power, including the presidential one, corrupts absolutely.

In some cases local elites have blocked the Kremlin’s decisions, forcing the center to take their point of view into account. The idea to incorporate the Republic of Adygeya into the Krasnodar Territory was resisted by the Adygeyan elite, and this idea was never realized.

In fact, Putin’s vertical of power is not as primitive and inflexible as many observers believe. The tradition of an “informal” federation goes back to pre-revolutionary times. Modern Russia is not only an informal, but also an asymmetric federation, with different regions having different amounts of sovereignty. In fact, this is the only way Russia can survive as a viable state, since different regions have hugely different potentials and traditions.

In the 1990s, Russia was also an asymmetric federation. Twenty-one autonomous republics had much more power than the 68 remaining entities, known simply as “regions.” However, under late President Boris Yeltsin, the federalization process went too far. As a result, several republics have their own constitutions and separate treaties with the central authorities. Putin limited these federalist aspirations, but he did not build a unitary state, as many believe. The distribution of power between the regional governments and the federal one is not even, as it was under Yeltsin, but neither is it as Moscow-centric as it was under Joseph Stalin. Putin rightly understood the limits of the extent to which federal power could be forced upon the regions.

In fact, “outsourcing” more power from Moscow to the regions, and from regions to bodies of local self-government in towns and villages, will be one of the major challenges of Medvedev’s presidency. At some point, the current system of informal agreements between the center and the republics will start to restrict economic development. Entrepreneurs are bound to get sick of developing businesses based on a gentlemen’s agreement with a local ruler. Transition from informal agreements to laws is necessary, and Medvedev stressed the importance of this transition in his recent speeches.

But Medvedev may not have enough clout to make such a transition possible. Institutionally, Medvedev will be weaker than Putin for some time. Putin’s power rests not so much on his popularity as on his prestige among all the important influence groups, particularly the siloviki. Medvedev’s power is greater in the economic block of the elite, where the primary role is played by powerful industrial and financial groups.

However, it would be wrong to expect too much fighting among these groups, as their interests are more complementary than antagonistic. The industrial groups yearn for order and protection, and the siloviki are more and more involved in business. For example, Vladimir Yakunin, the head of Russian Railways, is usually portrayed as a silovik. However, Yakunin understands that his most cherished project ­ a railway corridor between Southeast Asia and Central Europe across Russia ­ can only come to fruition through large-scale international investment, not some subsidy from the Russian government. His pragmatism is therefore pushing him towards more liberal economic behavior.

This example shows that meeting the challenge of creating a consensus among the elites to confront Russia’s economic developments and converting informal agreements into a legal system is difficult, but possible for Medvedev.

The second challenge­meeting the increased expectations of the population about Russia’s future that were encouraged by Putin­is equally difficult. Economic sanctions and the transport blockade against Georgia are being lifted without Georgia giving in to any of Russia’s demands, or even toning down their insulting rhetoric. NATO continues to expand to areas with a predominantly Russian population (Crimea and Donetsk), that have never belonged to the Euro-Atlantic civilization that NATO has always been supposed to protect and represent. The bigger the unwarranted expectations, the more profound will be the feeling of the ensuing deception. Domestic promises will be even harder to meet, such as the promise that an average pension will amount to no less than 40 percent of an average salary. This would mean making an average pension equal to $200­still an unattainable goal for poor regions.

There is only one word of advice that can be given to Medvedev: it is impossible to conduct reform without damaging the interests of some people. The other alternative, letting the old system crumble little by little, is fatal ­ just take the example of the Soviet Union.