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Corruption
in
the
Russian
Federation:
Its
In3luence
on
Political
and
Economical
Development
The
economic
theory
of
corruption
exerted
on
the
case
of
the
Russian
Federation
by Ruben Werchan
Table of Content
Introduction 1. Economic Theory of Corruption 1.1. The Problem of DeWining Corruption 1.2. An Economic Model of Corruption 1.3. The Role of the Government 1.4. Causes and Deterrences of Corruption 2. The Case of the Russian Federation 2.1. Empirical Data on Corruption in the Russian Federation 2.2. Consequences of Corruption for the Russian Society and Economy 2.3. Reasons for the Corruption in the Russian Federation 2.4. How to Battle Corruption in the Russian Federation Conclusion
2 3 3 4 6 7 8 8 13 14 16 18
Introduction
When
talking
about
modernization,
there
is
a
hugh
gap
in
the
understanding
of
what
is
meant
by
that
between
Russian
and
Western
European
politicians.
Western
European
politicians
usually
refer
to
a
simultaneous
modernization
of
the
economy
and
the
political
system.
And
by
modernization
of
the
political
system
they
mean
off
course
democratization.
The
Russian
political
elite
however
is
determined
to
realize
economic
modernization
leading
to
better
global
competitiveness
of
the
Russian
industry,
without
altering
the
political
system.
The
success
of
this
approach
is
doubted
by
western
politicians
and
scientists
likewise,
and
so
far
there
exists
little
evidence
for
economic
development
since
the
growth
in
Russian
gross
domestic
product
(GDP)
is
carried
exclusively
by
oil
and
gas
exports.
One
of
the
main
problems
associated
with
the
russian
political
and
administrative
system
that
deters
economic
development
is
corruption.
Corruption
restrains
investment
and
thereby
economic
growth.
It
also
leads
to
a
suboptimal
allocation
of
resources
that
seriously
jeopardizes
the
efWiciency
of
the
economy. In
terms
of
degree
of
democratic
institutions,
freedom
of
press,
and
corruption
Russia
can
be
compared
to
other
countries
in
a
similar
stage
of
economic
development
and
with
similar
economic
output
(cf.
Shleifer/Treisman
2005:
152).
But
at
the
same
time
it
stands
out
for
a
number
of
reasons.
What
makes
it
unique,
concerning
corruption,
in
comparison
to
other
countries
of
equal
development
status
and
economic
power
was
best
described
by
James
Leach,
the
then
chairman
of
the
US-Congresses
Committee
on
Banking
and
Financial
Services,
who
wrote
in
his
opening
statement
to
the
hearing
on
Russian
money
laundering
at
the
US
house
of
representatives
in
1999:
What
sets
Russia
apart
is
the
pervasiveness
of
politically
tolerated
corruption
in
a
country
of
such
sweeping
geographic
size
and
seminal
geopolitical
signiWicance
(Leach
1999:
199).
With
this
statement
Leach
stressed
what
distinguishes
Russia
from
other
countries,
that
have
seen
an
equal
level
of
corruption:
Russia
is
bigger,
economically
and
politically
more
inWluential
and
in
the
end
poses
a
signiWicant
amount
of
nuclear
weapons.
Another
development,
that
makes
Russia
unique
is
that
corruption
is
not
decreasing
with
economic
growth
but
seems
to
be
very
consistent.
Various
studies
have
shown,
that
corruption
has
grown
during
Vladimir
Putins
Wirst
presidency
and
remained
at
a
comparably
high
level
all
the
way
through
the
presidency
of
Dmitry
Medvedev.1 Because
of
its
unique
position,
the
Russian
Federation
is
an
interesting
subject
for
scientists.
This
paper
is
aimed
at
bringing
quantitative
and
qualitative
analysis
of
Russian
corruption
together, identify main reasons, problems and possible solutions, and to analyze it on the background of the economic theory of corruption. For this purpose, the Wirst chapter will give an overview of the economic corruption theory, including a working deWinition, a model of corruption and some insights on the role of the state and main causes and deterrences of corruption. The papers focus will be on corruption of public servants. The second chapter will present data on corruption in the Russian Federation and analyze its causes and consequences as well as give some ideas on what is done and what should be done to battle corruption.
Concerning
public
sector
corruption,
Fred
S.
McChesney
offers
a
good
deWinition
based
in
the
property-rights
approach.2
According
to
him,
corruption
should
be
de1ined
as
a
governmental
actors
use
of
resources,
that
nominally
he
does
not
own,
but
that
effectively
he
does
own,
to
enrich
himself
personally.
How
he
can
enrich
himself
depends
on
the
market(s)
within
which
corruption
is
bought
and
sold
(McChesney
2010:
223). Although
this
deWinition
captures
the
act
of
corruption
the
best,
it
lacks
some
precision.
It
is
not
corruption
that
is
bought
and
sold,
rather
corruption
is
the
act
of
buying
and
selling
of
a
state
owned
resources
to
the
mutual
beneWit
of
the
buyer
and
the
governmental
ofWicial. Arvind
K.
Jain
stresses
the
point,
that
corruption
refers
to
a
situation
where
an
asymmetry
of
power
exists
and
is
abused.
public
ofWicials,
bureaucrats,
legislators,
and
politicians
use
powers
delegated
to
them
by
the
public
to
further
their
own
economic
interests
(Jain
2001:
73).
When
looking
at
corruption
as
an
economic
transaction,
it
describes
a
private
agent
buying
something
from
the
government,
or
more
precise
from
a
governmental
ofWicial
or
employee.
That
something
that
is
bought
from
the
public
servant
should
logically
be
something,
the
private
agent
could
not
purchase
elsewhere.
The
one
good,
government
is
a
monopoly
owner
of,
is
power.
By
deWinition
the
government
is
the
only
agent
in
a
society
that
has
the
right
to
coerce
the
citizenry,
and
thus
the
right
to
assemble
armies
and
police
forces,
maintain
prisons
and
levy
taxes
-
none
of
which
are
recognized
rights
of
private
individuals
(McCheney
2010:
224).
It
is
accordingly
the
monopoly
of
power,
that
gives
governmental
ofWicials
and
employees
something
to
sell
to
private
individuals.
The
following
section
will
present
an
economic
model
of
corrupt
behavior
of
public
servants
and
their
private
clients. 1.2.
An
Economic
Model
of
Corruption A
basic
economic
model
of
corruption
was
presented
by
Andrei
Shleifer
and
Robert
W.
Vishny.
In
this
model,
the
government
produces
a
good,
which
is
then
sold
to
private
agents
by
an
governmental
ofWicial.
This
ofWicial
can
artiWicially
limit
the
access
to
this
good,
in
practice
this
means
a
long
delay
or
an
imposition
of
many
requirements
(Shleifer/Vishny
1998:
93),
thus
creating
a
situation
where
he
or
she
is
the
monopoly
supplier
of
this
scarce
good.
The
price
of
the
distribution
of
the
good,
hence
the
amount
of
the
bribe,
is
then
determined
by
setting
marginal
revenue
equal
to
marginal
cost.
It
has
to
be
distinguished
between
the
two
cases
of
corruption
with
and
without
theft.
In
the
case
of
corruption
without
2
See
next
subsection.
theft, the governmental ofWicial turns over the price of producing the good to the government and therefore these costs determine the marginal cost of the ofWicial for providing the good. In this case, the amount the private agent has to pay for the good always lies above the government price, because the bribe is added to this price (cf. Shleifer/Vishny 1998: 93f.). In case of corruption with theft, the ofWicial does not turn over the price of producing the good to the government. Instead he actually hides the sale from the government and his marginal costs are therefore zero. In this case the bribe may actually be lower than the ofWicial governmental price (cf. Shleifer/Vishny 1998: 94f.). Examples for corruption without theft would be the provision of a passport or a permit, which only takes place, after a bribe is paid. Examples for corruption with theft would be the imposing of a Wine or the declaration of customs. The ofWicial then collects a Wine or customs that are lower then they would be without corruption, but does not report the act of Wining or the declared products to the government, and keeps the whole paid sum to him- or herself. The effect of corruption without tax on the economy is the same as a commodity tax. The only difference is, that the tax revenue would go to the government, while the bribes are kept by the bureaucrats (cf. Shleifer/Vishny 1998: 94f.). The model by Shleifer and Vishny describes the practice of rent-seeking by public servants. Rent-seeking is a problem of insufWicient property rights: If property rights were clearly delineated and perfectly secure, there could be no rent- seeking. Rent-seeking arises because of the discretionary power of the state to alter or transfer property rights through taxation and spending, regulation and eminent domain makes private property rights insecure (McChesney 2010: 226). Assigning and modifying property rights is one of the elementary functions of governments. It guarantees the functioning of the economy. Only if property rights are clearly assigned and enforced, can economic interactions take place. Property rights are then traded between private actors on markets (cf. Benson 1984: 390). Ideally the government intervention would be held to a minimum and the assignment of property rights would be led by the goal to maximize social welfare and economic efWiciency. If this would actually be the case, there would be no room for rent-seeking. If however property rights are not clearly deWined and/or not secure, government ofWicials and employes have the discretionary power to alter and reassign them for personal gain. In this case the private agent has to decide wether to rightfully buy a desired property right on the market, or bribe a public servant to have him reassign the property right to the private agent. He will do the latter, if the bribe is less than the market price (cf. Benson 1984: 390f.). 5
Weak institutions are a key condition for the government to posses discretionary power, and the public servants to be able to use this power for their personal beneWits. Especially legal institutions must be such that ofWicials are left with an incentive to exploit their discretionary power to extract or create rents (Aidt 2003: F633). Therefore, the legal system can easily be caught in a vicious cycle. If for whatever reasons a system of corruption that is beneWicial for the political elite is established, this elite will try to keep it. To achieve this, the political elite weakens the legal and judicial system by cutting its resources and appointing corrupt judges. But reduced resources and corrupt judges will make it hard for the legal system to Wight corruption, thereby giving corruption the opportunity to spread even further (cf. Jain 2001: 72). What forms public sector corruption can take and what consequences it has, will be examined in the following subsection. 1.3. The Role of the Government When focussing on how the state can use its discretionary power for personal beneWits of its ofWicials and bureaucrats, a distinction can be made between three levels of corruption. The highest level concerns public, especially economic, policy and the implementation of policies. Corruption on this level leads to the creation of policies that create opportunities for rent seeking for the governmental ofWicials and public spending[s] [are] diverted to those sectors where gains from corruption [for the governmental ofWicial] are greatest and where the discretional nature of the procedures reduces the risks involved (Portella/Vannucci 1993: 518). This kind of corruption, that leads to policy decisions that serve primarily the interest of some governmental ofWicial, has the most serious consequences for society because it leads to an inefWicient allocation of resources on a large scale, and thereby creates an incalculable welfare loss (cf. Jain 2001: 74). The second level is concerned with the legislative, and describes the extend, to which legislators can be inWluenced through corruption. Corruption takes place in form of legislators receiving payments, or favors from private agents in order to pass a legislation beneWicial to these agents. Wether these payments are legal or illegal depend on the legal framework of the given country. An often seen legal form of payments to a legislator to inWluence legislative outcomes are campaign contributions (cf. Rose-Ackerman 2001: 47). In democratic systems, legislators have to balance the gain from bribery and legislation that serves only the particular interests of those that paid the bribe, and the possible punishment of the voters, that can lead to a loss of ofWice in the next election. If legislators are believed to balance the gain from corruption and the risk of being reelected, when deciding on wether to be corrupt or not, it is obvious, that a system of election forgery encourages bribe taking of legislators. If 6
the legislator expects elections to be forged and therefor knows that his or her election does not actually depend on voters decision, he or she does not face the risk of losing the next election due to eventual corruption. Therefore a malfunctioning democracy reduces the disincentives of corruption (cf. Jain 2001: 86). The lowest level of political corruption involves bureaucrats and other public employees. This type of corruption describes bribery of public ofWicials for either providing a good, that would otherwise not be available, or to speed up the process of the provision of a good provided by the government. It also involves corruption in the judiciary, where bribes can lower either the costs or the chances of legal penalties (Jain 2001: 75). But what are the factors that foster corruption and which factors hinder it? 1.4. Causes and Deterrences of Corruption One factor, suggested to support a corrupt environment, is a comparably large public sector. The logic behind that assumption is straight forward. If it is government structures, that cause corruption, then the reduction of these structures leads to declining corruption. The instrument suggested to Wight corruption is therefore privatization (cf. Becker 1994). However this theory is not backed by empirical Windings. The scandinavian countries are just one example of countries with a strong public sector and very few corruption (cf. Lambsdorff 2006: 4). And also the suggested cure, privatization, has been shown to be less effective then the theory suggests, because it has been seen that many transition economies experienced massive corruption in the privatization programs themselves (Lambsdorff 2006: 5). A clearer correlation exists between political competition and corruption. The more competition exists within the political system, the fewer the opportunities for corruption. This holds for two reasons. First, if there exists competition between governmental ofWicials, as is usually the case in democracies, the discretionary power of the individual ofWicial is limited. The ofWicial has limited decision power because an agreement with other ofWicials is necessary to form a decision, and also deWinite promises can not be made, because chances are that at the end of a term the ofWicial is not reelected (cf. Montinola/Jackman 2002: 150). Second, if competition exists between government agencies that provide goods to private agents, the bargaining power of the client is strengthened. If two agencies offer complementary services, the private individual can choose to turn to the less corrupt agency (Montinola/Jackman 2002: 151). Therefore centralized and undemocratic systems are beneWicial for corruption. The economic cost-beneWit-analysis contributes to the solution of the corruption problem by providing insights on how corruption relates to public servants pay and the possible loss 7
from detection. The basic argument is, that the higher the salary, the chance of detection and the penalties, the lower the incentives for corruption. However, wages do not have to increase to levels, unrealizable for most developing countries. Caroline Van Rijckeghem and Beatrice Weder name factors that reduce corruption under an only modest increase in public servants wages. First of all, since the most bribes in the public sector are low, wages would only have to increase moderately. Second of all, it is not the absolute level of wages, that inWluences corruption, but the question wether wages are perceived as being fair. And last of all, if public service remuneration includes personal beneWits, such as reasonable pensions, health insurance, or opportunity for promotion, the incentives to risk being Wired because of corrupt behavior are reduced (cf. Van Rijkeghem/Weder 2002: 60f.). But also the structure of the economy inWluences the level of corruption in an country. One economic factor that has been made out to signiWicantly contribute to corruption is the availability of natural resources. If resource rents are easily appropriable by an established elite, they may trigger bribes and distort policies (Bulte/Damania 2008: 3). The reason is, that resources increase the payoff of rent-seeking behavior because the extraction and sale of natural resources produce large rents (cf. Bulte/Damania 2008: 3). Whoever owns the right to extract and sell the resources has the opportunity to earn this rent. Since initially this right usually lies with the government, it offers public servants huge discretionary opportunities to allow or deny access to the resource economy. This model was empirically conWirmed by Sambit Bhattacharyya and Roland Hodler in a study of 124 countries. They found out that natural resources feed corruption, however they do not, if the country had well developed democratic institutions at the point of the discovering of the resources (cf. Bhattacharyya/ Hodler 2010: 619), as was the case in Norway.
and
social
development
are
numerous,
studies
that
actually
tried
to
quantify
corruption
in
russia
are
few.
The
most
elaborate
of
these
studies
has
been
carried
out
by
the
Russian
non- governmental
INDEM
Foundation.3 The
study
by
the
INDEM
Foundation
was
carried
out
in
2005
and
included
some
data
from
a
2001
study.
Its
main
Winding
was
that
corruption
was
very
common
both
in
2001
and
in
2005,
but
the
structure
of
the
corruption
market
had
changed
between
2001
and
2005.
It
was
characterized
by
a
mutual
readiness
to
bribe
and
take
bribes
in
2001,
but
this
mutual
agreement
on
corruption
was
not
found
in
2005.
By
then,
a
higher
percentage
of
respondents
was
willing
to
refuse
paying
bribes,
but
at
the
same
time
the
pressure
from
authorities
to
pay
bribes
had
increased,
and
so
had
the
average
bribe
amount.
The
report
puts
it
as
follows:
In
general
we
have
to
deal
with
two
opposite
behavior
strategies:
the
authorities
build
up
its
pressure
towards
citizens
and
the
citizens
avoid
corruption.
If
previously
one
could
argue
that
corruption
process
may
be
caused
by
both
parties,
nowadays
this
given
suggestion
just
con1licts
with
any
facts
available
(INDEM
2005). Table
1
summarizes
the
main
Windings
of
the
study.
The
study
estimates
the
overall
volume
of
the
every
day
corruption
market
at
about
three
billion
US-Dollar
and
the
business
corruption
market
at
about
300
billion
US-Dollar
(cf.
INDEM
2005).
This
result
means,
that
in
2005
the
total
amount
of
bribes
paid
by
businesses,
exceeded
the
ofWicial
federal
budget
revenues
by
more
than
two
and
a
half
times.
This
is
an
alarming
result
recalling
the
model
from
chapter
one:
Bribes
have
the
same
inWluence
on
the
economy
as
corruption,
but
do
not
contribute
to
the
state
budget,
and
therefore
bribes
can
be
regarded
as
missed
government
revenues
and
thereby
lead
to
a
smaller
state
budget.
That
on
the
other
hand
decreases
the
capacity
to
act
of
the
government
and
also
leads
to
distributional
problems. The
fact
that
corruption
is
seen
as
a
major
problem
by
the
russian
citizens
is
reWlected
in
the
133rd
rank
in
the
Corruption
Perception
Index
(CPI)
of
Transparency
International.
A
survey
of
the
most
important
russian
opinion
research
institute,
Levada,
comes
to
a
similar
but
more
detailed
result
on
perception
of
corruption.
In
their
yearbook
of
opinion
polls
from
2012,
they
present
numbers
on
how
corruption
is
perceived
in
Russia
today.
The
main
results
are
that
90
percent
of
respondents
see
corruption
as
being
worse
today
then
a
decade
ago
(see
Table
2).
The
same
percentage
of
respondents
stated
that
they
believe
that
governmental
ofWicials
and
leading
bureaucrats
make
only
a
small
part
of
their
actual
income
public
(see
Table
3)
and
3
INDEM
stands
for
Information
Science
for
Democracy.
It
is
a
nongovernmental
organization
that
was
established in 1997 with the aim to contribute to the development of democratic institutions in the Russian Federation. Its main Iield of work however has become research on corruption.
10
Table
2:
How
do
you
think,
did
corruption
and
theft
in
the
administration
develop
within
the
past
10
to
12
years?
It
increased It
staid
the
same It
decreased No
answer 41 43 9 7
Table
3:
In
your
opinion,
how
much
of
their
income
do
governmental
ofIicials
and
leading
bureaucrats
make
public
with
their
annual
declaration?
All
of
it The
larger
part
of
it The
smaller
part
of
it Only
very
few
of
it No
answer 2 13 38 32 15
27
42
19
10
25
35
23
13
22 6
38 30
21 36
5 14
14 15
almost 100 percent of respondents believe, that these ofWicials and bureaucrats have accounts in foreign banks (cf. Levada 2012: 144). The survey also shows a very paradoxical view of the population on governments attitude towards corruption. While a vast majority states that in their view corruption and nepotism is common practice among government ofWicials and that the campaign against corruption is merely an effort to draw attention away from pressing problems and increase the popularity of Vladimir Putin, they also believe that Putin at least tries to Wight corruption and 25 percent even believes in his success (cf. Levada 2012: 145). Tables 4 summarize the Windings of the Levada survey. Another interesting insight on corruption in Russia was discovered by the OECD. They regressed the Transparency International CPI against per capita GDP and share of petroleum in total exports for various countries. Both regressions showed a signiWicant relationship. Both regressions also showed, that corruption in Russia is considerably high, compared to other countries with similar per capita GDP or similar shares of petroleum in exports (cf. OECD 2011: 66f.). The following Wigures from the OECD illustrate the results. They support the statement of James Leach, that Russia is more corrupt, than comparable countries.
12
Even though these empirical analysis are mostly concerned with corruption at the level of government employees, is does not mean, that high level corruption does not exist. The problem with high level corruption is, that it is harder to measure. But the large amount of bribes, paid by businesses, suggest that corruption at the highest levels takes place. Also Elena Denisova-Schmidt notes, that approximately 80% of all administrative positions are held by people, that have some kind of personal relationship with Vladimir Putin. That includes coworkers from the time when he worked with the KGB, political allies from his time in St. Petersburg, such as Dmitry Medvedev, members of the cooperative Ozero (the society established by Putin and his friends who owned cottages near St. Petersburg), and off course family members and close friends of Putins people (cf. Denisova-Schmidt 2012: 5). This alarming percentage is a graphical example of the predominance of nepotism, and oriented on personal beneWits behavior in the Russian political elite. The following subsection is concerned with the consequences of the corruption for the Russian economy and society. 2.2. Consequences of Corruption for the Russian Society and Economy The OECD summarizes the negative consequences Russia suffers from corruption as follows: Currently, investment is hindered by widespread corruption and a weak and inconsistent application of the rule of law. That slows down the modernisation process, and also leaves Russia with a more energy-intensive economy than otherwise. Corruption also in1lates the cost of public procurement, reducing the effectiveness of government spending and, other things being equal, worsening the 1iscal balance (OECD 2011: 20). Michael P. Barry used a computable general equilibrium (CGE) model 4 to calculate the economic costs of corruption in the Russian Federation. According to the basic model of corruption without theft, he models the burden imposed on the economy by corruption as a Wive percent tax. This is a rather modest burden compared to the amount of corruption presented in the previous subsection. Barry comes to the result, that corruption in Russia decreases GDP by approximately two billion US-Dollar and reduces consumer welfare by 2.4 billion US-Dollar (cf. Barry 2009: .397). He splits up the welfare effect into three parts to make the effect more clear. The welfare loss consists of a $2.98 billion allocation efWiciency loss and a $3.6 billion loss in Russian terms of trade. These losses are partially offset by a gain in savings and investment efWiciency, because the recipients of bribes have extra funds available
4 CGE modeling techniques attempt to summarize all economic markets (supply curves and demand curves) in a
large, integrated system of simultaneous equations. All micro markets are aggregated into a macro system, which allows for discussion of economy-wide variables, such as national price level, national output, total factor productivity, sectoral output, and sectoral trade (Barry 2009: 394).
13
for investment, savings, and consumption. But this positive effect can not fully compensate the negative effects of corruption (cf. Barry 2009: 397). By examining the structure of gains and losses due to corruption, the strongest impact is seen on investments. The decrease by approximately 40% in comparison to a situation without corruption (cf. Barry 2009: 398f.). In a study on bank lending and corruption, Laurent Weill found a signiWicant negative inWluence of corruption on both investment and bank lending. Corruption was found to diminish investments signiWicantly. It adds to the uncertainty of investors and banks and this uncertainty is passed on to the receiver of loans in form of increased interest rates. Thus making investment more costly and therefore less attractive (cf. Weill 2011: 241) The reason, investment is hampered by corruption is that legal institution usually protect investments and ensure the enforcement of contracts (cf. Weill 2011: 233). Corruption, an underdeveloped rule of law and unclear property rights all add to uncertainty for the investor and therefore reduce incentives to invest. Reduced investment on the other hand slows down the development of the Russian economy. Another serious consequence of corruption on public welfare is its impact on social expenditures. Yuriy Timofeyev found out, that corruption signiWicantly diminishes the efWiciency of public expenditures and thereby the ability of the state to reduce poverty (cf. Timofeyev 2011: 48). The reason is, that in most transition countries, social expenditure are the main contributors to poverty reduction. Because of corruption the tax incidence is decreased in Russia and thereby the funds for social expenditures, or in other words the sum that can be redistributed through government programs is deminished (cf. Timofeyev 2011: 45ff.). 2.3. Reasons for the Corruption in the Russian Federation In an article from 2009, then president Dmitry Medvedev named some of the reasons he believed to be responsible for corruption in Russia: Until today this corrosion has been due to the excessive government presence in many signi1icant aspects of economic and other social activities. But it is not limited to governmental excess -- business is also not without fault. Many entrepreneurs are not worried about 1inding talented inventors, introducing unique technologies, creating and marketing new products, but rather with bribing of1icials for the sake of controlling the 1lows of property redistribution (Medvedev 2009). By naming government involvement in the economy, and businesses investing in bribery rather than in research and development, he shows a profound understanding of the logics 14
and
dynamics
of
corruption,
since
both
factors
have
been
made
out
both
by
theoretical
and
empirical
economic
literature
on
corruption.5 The
key
reason
for
corruption,
presented
in
the
Wirst
chapter,
is
the
opportunity
for
rent- seeking.
Situations
that
allow
for
the
generation
of
a
rent
facilitate
the
spreading
and
prevailing
of
corruption.
A
factor
that
allows
for
rent-seeking
on
a
large
scale
in
Russia
is
the
heavy
reliance
on
natural
resources
of
the
Russian
economy.
Not
only
is
this
situation
given,
but
it
is
also
getting
worse,
because
the
resource
sectors
is
growing
relative
to
the
rest
of
the
Russian
economy:
one
key
aspect
of
the
opportunity
for
corruption,
the
availability
of
natural
resource
rents,
has
expanded
sharply
in
the
last
dozen
years
(OECD
2011:
13).
This
might
be
one
reason,
why
corruption
has
rather
been
increasing
than
decreasing
over
the
past
decade. Another
reason
for
corruption
has
been
identiWied
by
Veronika
Belousova
and
her
co-authors.
In
a
study,
using
data
from
different
Russian
regions,
they
found
out,
that
the
economic
more
prosperous
regions
of
the
Russian
Federation
witnessed
signiWicantly
less
corruption,
than
less
prosperous
regions.
The
reason
is
most
likely,
that
these
regions
have
better
anti- corruption
measures
and
also
that
economically
successful
individuals
are
less
likely
to
engage
in
illegal
corruption
(cf.
Belousova
et
al.
2011:
11).
Because
the
Russian
economy
is
considerably
weak
in
general
and
especially
weak
in
almost
every
sector
other
than
the
oil-
and
gas
sector,
it
is
reasonable
to
assume,
that
the
economic
underdevelopment
contributes
to
the
prevailing
of
corruption
in
Russia. Reasons
for
corruption
in
different
parts
of
the
Russian
society
and
economy
are
easily
explained.
The
main
reason
for
the
widespread
corruption
in
the
education
sector
for
example
is
the
low
wages
of
teachers
and
professors.
Russia
spends
the
second
lowest
percentage
of
GDP
of
all
OECD
countries
on
education,
only
Turkey
being
worse
(cf.
OECD
2011:
38).
Reasons
for
the
large
sums
of
bribes
paid
by
businesses,
by
far
the
biggest
share
of
the
overall
corruption
market,
as
has
been
shown
in
subsection
2.1.,
are
twofold.
The
OECD
names
complex
and
hard-to-comply-with
regulations
and
the
need
to
stay
competitive
with
other
Wirms
that
pay
bribes,
the
most
important
factors
(cf.
OECD
2011:
65). One
last
important
reason
for
the
widespread
corruption
in
Russia
lies
within
the
institutional
structure
and
history
of
the
country.
Two
factors
have
been
made
out
in
the
Wirst
chapter
to
be
obstructive
to
the
development
of
a
corrupt
environment:
well
deWined
property
rights
and
a
strict
rule
of
law.
Neither
can
be
found
in
contemporary
Russia.
Constanze
Dobler
and
Harald
Hagemann
even
claim
that
Russia
lacks
a
history
of
property
rights
and
the
rule
of
law.
The
5
See
previous
chapters
and
subsections.
15
reason is that secure property rights and the rule of law necessitate a third party enforcement mechanism able to implement the rights against private persons or the state (Dobler/Hagemann 2011: 23). In Russia however law has always been used by the government as an instrument that could be used against the citizens. Since people could not rely on the government or the law, to achieve certain goals, but had to trust personal relationships and networks. As a consequence a system of corruption, bribery, and nepotism evolved (cf. Dobler/Hagemann 2011: 23). It is therefore unlikely that corruption can be reduced, unless the Russian government breaks with the tradition of using the law as an instrument of the ruling power. This leads over to the question, of what can be done to effectively battle corruption in Russia. 2.4. How to Battle Corruption in the Russian Federation First steps in Wighting corruption in Russia have already been taken. The government started by approving international rules, such as the UN Convention against Corruption in 2006, and the OECD Convention on Combating Bribery of Foreign Public OfWicials in international Business Transactions in 2011 (cf. Denisova-Schmidt 2012: 13). Also in 2008 a National Anti- Corruption Plan has been adopted. It is aimed at reducing corruption in the legal system. The most important steps, that are to be taken according to the plan are the increasing the judicial pay, the introduction of new, more transparent, procedures for appointing judges, the establishing of new mechanisms for punishing judicial malfeasance, and also to bring courts under federal jurisdiction to reduce their dependence on regional authorities (cf. OECD 2011: 44). If carried out, most of those steps are likely to improve the situation in the judicial system, although success of the last measure is highly doubtful. Reduced independence of regional authorities, but increased dependence on federal authorities, that are also known to pressure the courts, may just be substituting one evil by another. Strictly speaking, it is economically not optimal to fully eliminate corruption. The costs would be prohibitively high because it would for example require very high wages for public servants, major changes in the legal system and very harsh penalties. Theoretically, the optimal level of corruption would be reached, when the marginal costs of further reduction equal the marginal social beneWits from that reduction (cf. Tanzi 1998: 586). That also explains, why there exists no country on earth without any corruption. But the Russian Federation is far from the point, where marginal social beneWits equal the marginal costs of reducing corruption. Therefore real efforts have to be made to reduce corruption.
16
Belousova et al. recommend, in accordance with their Windings, policies that are aimed at economic development. The following economic prosperity would then lead to declining corruption (cf. Belousova et al. 2011: 16). Economic growth however can only be achieved, if the investment climate in the Russian Federation is improved. The reasons for the grim investment climate, presented in the previous subsection, are weakly deWined property rights and a unreliable judiciary system and unclear legal circumstances. The main problem obstructing the solution of this problem is the lack of political will. Supposed this will existed, the problem could relatively easy be stemmed with some policy reforms. The need for the solution of this problem is beautifully illustrated in the following interview: The interviewer: Let us assume that corruption is not at present in our society. The expert: With the current laws? The interviewer: Yes. The expert: If the existing laws were fully obeyed, it would be a catastrophe. It would mean that society would stop in its development, the economy would collapse (Cheloukhine/ King 2007: 112) Dobler and Hagemann however present a rather fatalistic view concerning the possibility of improving the rule of law and the security of property rights in Russia. In their opinion, the necessity of corruption and bribery lies within the character of the Russian political system with the patriarch as the head of state (Dobler/Hagemann 2011: 27), and real political reforms are unlikely to happen in the near future, because they would unavoidably lead to a weakening of the central power. One policy measure to battle corruption, suggested by the literature, is privatization. If governmental ofWicials and bureaucrats are known to be corrupt, the idea is to limit the rent seeking opportunities for them by reducing the size of the state sector. The efWiciency of this measure is doubted by Belousova et al. which have found no correlation between the degree of privatization and actual and perceived corruption in different Russian regions (cf. Belousova et al. 2011: 14). Johann Graf Lambsdorff comes to the same conclusion, that downsizing the public sector does not help to reduce corruption, at least not during the transition period (Lambsdorff 2006: 5). One example may serve as illustration, why this policy measure is so susceptible to corruption itself, that it does not help. The Russian program loans for shares, carried out in the mid-1990s, had the aim to improve the public budget by lending shares of large state owned companies to private bidders. If the state would not repay those bidders, the shares would they with them and could been sold for proWit, what 17
was in the end exactly what happened (cf. Treisman 2010: 2.). The practice of the auction however looked as follows: On November 3, 1995, in the remote Siberian town of Surgut, an auction took place for the right to lend the cash-strapped Russian government tens of millions of dollars. Collateral for the loan was to be a 40 percent stake in the countrys 1ifth largest oil company, Surgutneftegaz. Two bidders made it into the auction room; a third had been barred because of problems with the 1irms paperwork. Had any others planned to 1ly out from Moscow to take part, they would have had trouble: the local airport mysteriously chose to close that day. When, late in the evening, the participants emerged, the winner turned out to be Surgutneftegazs own pension fund. (Treisman 2010: 1) This example is symptomatically for how privatization often looked like throughout the history of economic transition in post-soviet Russia. It illustrates, why privatization neither reduces corruption nor leads to an increase in welfare, and should therefore implemented very cautious, if at all.
Conclusion
It
has
been
shown,
that
corruption
has
a
number
of
negative
effects
on
public
welfare.
These
are
conveniently
summarized
by
Yuriy
Timofeyev:
Corruption
slows
down
economic
growth
and
increases
the
gab
between
the
rich
and
the
poor.
It
also
skews
the
incentive
structure,
with
adverse
consequences
on
the
poor
by
depriving
them
of
income
generation
opportunities
[...]
Finally,
corruption
can
affect
the
targeting
of
social
programs
to
the
truly
needy
because
funds
are
siphoned
off
from
poverty
programs
by
well-connected
people
in
the
public
and
private
sector
(Timofeyev
2011:
39). All
of
these
problems
as
well
as
the
explanations
of
why
they
exist
have
been
presented
in
this
paper.
The
theoretic
and
empirical
background
offers
suggestions
which
circumstances
foster
and
which
deter
the
development
of
a
corrupt
system.
The
analysis
of
the
Russian
case
has
shown,
that
almost
all
factors,
beneWicial
to
corruption
are
found
in
Russia.
It
comes
therefore
at
no
surprise,
that
Russia
is
one
of
the
most
corrupt
countries
on
earth,
and
most
likely
the
most
corrupt
country
of
its
economic
and
geo-political
importance.
Nevertheless
there
exists
hope
for
improvement.
The
problem
of
corruption
has
been
acknowledged
the
political
elite
and
even
been
ofWicially
one
of
the
main
goals
of
the
18
presidency of Dmitry Medvedev. But so far few more than declarations on the battle of corruption has been made by the government. Combining this fact with the observed development of corruption in Russia in the past decade, one has to agree with the fatalistic conclusion of Dobler and Hagemann, that a reduction of corruption will take place under the given political system. This also means, that the approach of economic modernization without political modernization, chosen by the Russian political elite, is not feasible. In the face of the pressing negative consequences of corruption for the Russian society and economy, it is doubtful how long the momentous stability is Russia will hold. First signs of a destabilization of society can already be witnessed in Russia as more and more people are openly calling for political reform. Also the survey by the Levada centre has shown a changing attitude of the public towards corruption. With respect to the welfare of the Russian public a soon change in the development of corruption in Russia is desirable, if not absolutely necessary.
19
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21