2. Corruption in transitional Russia

2.1. The political impact
2.2. Estimates of the monetary magnitude of corruption
2.3. The economic impact of corruption
2.4. The social impact of corruption

1. Introduction
2. Corruption in transitional Russia
3. Corruption as a phenomenon of the transition
4. The state
5. Measures taken against corruption
6. A basis for change
7. Conclusions
Acknowledgements
References

Corruption has become a commonplace theme in discussions of the Russian economy*. For example, in 1995-1996 national and regional newspapers and magazines published more than 3000 articles on corruption, and there were more than 150 television programs concerned with the subject. More than 60% of respondents in opinion polls reported that they believe corruption is a factor threatening Russia’s national security. More than 70% agreed with the statement that Russia may be considered a corrupt state.

2.1. The political impact

Political impacts of corruption are readily observable in Russia. Political goals deviate from the tasks of national development and are directed at securing political power for the benefit of selected oligarchic private groups. As a consequence, trust of authority declines and ordinary people become more and more alienated from society. As a result, good intentions of the authorities are neither credible nor rewarded. The prestige of the country in international affairs is damaged, threatening political and economic isolation. Political competition be-comes a farce. Citizens become increasingly disillusioned with democratic values, stimulating the decline of democratic institutions. The potential collapse of the nascent democracy is thereby made more likely. The threat, that democracy will be replaced by a dictator coming to power on the wave of an anti-corruption program, then arises.

2.2. Estimates of the monetary magnitude of corruption

The scale of losses inflicted on Russia by corruption can be estimated in monetary terms, but only in a very approximate way. Estimates suggest see IDEM Foundation, 1998 that the sum exceeds the combined expenditures on science, education, health care, culture, and art allocated in the government budget. According to Constitution Society: ‘‘Losses are associated with commercial transactions that are made, not on the basis of price or merit, but as the result of bribes, kickbacks, or extortion. It has been variously estimated that such corruption adds between 5% and 15% to the cost of goods and services generally’’.

Further estimates made by Russian law enforcement bodies indicate that criminal groups in some branches of industry oil and gas industry, mining of rare metals spend up to 50% of their revenues actual, not declared on bribing officials at various levels. According to the Audit Chamber of Russia, in 1997, the losses from improper uses of state budgetary funds have amounted to tens of trillions of rubles, or billions of dollars.

There is also grassroots corruption. Experts from the non-profit organization ‘‘21st Century Technologies’’ estimated that small entrepreneurs across the country spend a minimum of US$500 million monthly on bribes to officials. These estimates do not include the payments of small entrepreneurs to their so-called ‘‘roofs’’. Some 10% of total revenues in small- and middle-size businesses are taken by corruption. In the early stages of a business registration of the company, etc., expenses are considerably higher. ‘‘Creating a business’’ requires permission from about 50 officials. These losses are offloaded to the ordinary customers and clients of small business, since expenditures on bribes are included in the price of goods and services.

One can also note the almost unexplored and virtually uncontrolled corruption within companies and non-governmental organizations e.g., providing a credit from a commercial bank in exchange for a bribe.

The combined corruption-related payments appear to be in the range of US$10-20 billion in a year. The size of the estimates points to another aspect of corruption; investments to reduce corruption will be socially profitable. The value of the payments received in bribes is the prize available in rent-seeking activities where participants seek the bribes, and resources are used in these contests that could otherwise be productively employed. The elimination of corruption would free these resources for productive use.

2.3. The economic impact of corruption

Expansion of the shadow economy reduces tax collection and weakens government budget. As a result, the state loses leverage for management of the national economy, and additional limits are placed on the provision of public goods and other services that government should provide. Social problems are aggravated because of budget shortfalls.

Market competition is also weakened, since the winners often prove to be not the most competitive agents, but rather those who gain advantages through bribery and special connections. As a result, market efficiency breaks down, casting doubt in people’s minds about the merits of market competition.

Government budgetary funds are used ineffectively, in particular when government contracts and credits are distributed. The process puts further pressure on the government budget. Costs of production and distribution are higher because of ‘‘corruption overheads’’. The higher prices necessitated by these overheads are paid by the consumer. Market agents lose their confidence in the ability of the authorities to establish, commit to, and enforce, fair rules of market behavior. The climate for investments deteriorates. Economic growth does not take place, since the renewal or replacement of productive assets is postponed or abandoned.

Corruption in non-governmental bodies companies, non-profit organizations undermines efficiency.

2.4. The social impact of corruption

Corruption distracts resources from the goals of public development and the authorities’ ability to solve social problems declines. Wealth disparities and the poverty of the bulk of population are prolonged and increase. Some forms of corruption boost the unfair and unlawful redistribution of resources in favor of narrow special interest oligarchic groups , at the expense of the most vulnerable strata of society. The rule of law is not available as the main mechanism regulating the life of the state and society. An image of the citizen lacking protection from both crime and the state emerges in the public consciousness. Corruption within law enforcement bodies, which interacts with corrupt officials and entrepreneurs gaining access to political power and channels for money laundering, promotes the strengthening of organized crime. Social tensions increase, putting political stability in the country under threat.


* Transparency International in 1998 ranked 85 countries according to a ‘‘corruption perception index’’. The index is based on international surveys of businessmen, political analysts, and the general public. Russia was ranked in 76th place, where position ‘‘1’’ is for the least corrupt country. This represented a slight worsening for Russia in comparison with 1997.

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