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Christian-­‐Albrechts-­‐Universität  zu  Kiel Faculty  of  Economics

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  

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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  

1  See  section  2.1.  for  more  detail.

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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.

1.  Economic  Theory  of  Corruption
1.1.  The  Problem  of  De3ining  Corruption Basically   all   contemporary   literature   on   the  issue  of  corruption   opens   with  a   description  of   the  difWiculty,   or   even   impossibility   of  deWining   corruption   (cf.   Jain   1998:  13).   The  literature   also   complains   about   the  fact,   that   the  lack   of  a  convenient   and   consistent  deWinition   of   the   problem   makes   the   empirical   analysis   difWicult   and   less   fruitful   (McChesney   2010:   219).   Nevertheless  everybody  tries  to  give  a  deWinition  but  still  no  consensus  has  been  found. The  main  drawback  of  most   deWinitions   of   corruption   is   the   normative   element   they  posses.   Those  deWinitions  try  to  include  the  unlawful  aspect  of  corruption.   Illegitimacy  is  an  important   aspect  in  the  normative  analysis   of  corruption,  but  from  an  economic  point   of  view,  it  makes   little   difference,   wether   corruption  involves   legal   or   illegal   transactions   (cf.   Rose-­‐Ackerman   2001:   48f.).   It   is   important   to   stress   this   aspect,   because   what   is   illegal   and   what   is   not,   depends  largely  on  the  legislation  in  a  given  country,  and  things  that  are  illegal  in  one  country   may  be  legal  in  another.  Nevertheless  the  consequences  of  corruption  are  largely  the  same. Generally  there   are  two   types  of  corruption:   private   sector   and  public  sector  corruption.  Vito   Tanzi   proposed   a   neutral   deWinition   that   covers   both   private   and   public   sector   corruption:   “Corruption  is  the  intentional  noncompliance  with  arm’s  length  relationship  aimed  at  deriving   some  advantage  from  this  behavior  for   oneself  or  for  related  individuals”  (Tanzi  1998:  564).   Even   though,   corruption   can   occur   and   does   occur   in   the   private   sector,   namely   in   large   enterprises   when   it   comes   to   hiring,   or   subcontracts   (cf.   Tanzi   1998:   564),   most   scientiWic   interest   is   directed   to   public   sector  corruption,   since  it   is   by   fare  more  widespread  and   has   therefore  worse  consequences  for  welfare.  

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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   actor’s   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.

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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   servant’s   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   servant’s   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.

2.  The  Case  of  the  Russian  Federation
2.1.  Empirical  Data  on  Corruption  in  the  Russian  Federation There  has  been  a  lot   of  scientiWic  attention  on  corruption   in  the  Russian  Federation.   The  main   reason   for   this   attention   is,   that   the   Russian   Federation   is   a   member   of   the   G20   (the   20   economically   most   powerful   countries)   and  ranks   the   country   with  the   ninth   highest   gross   domestic   product  (GDP)   in  the  World  (cf.   OECD   2011:   23f.).   But  at   the  same  time   it   is   the  by   far  most  corrupt  country  among  the  G20,  with  rank  133  out  of  176  countries  in  Transparency   International’s   Corruption   Perception   Index   (cf.   Transparency   International   2012:   4).   But   even  though   studies   that   asses   the   inWluence  of   corruption  in  Russia   on  economic,   political,   8

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.  It’s  main  Iield  of  work  however  has  become  research  on  corruption.

9

Table  1:  Everyday  corruption  market  in  the  Russian  Federation  (2001/2005)
Problem Corruption  risk   (in  percent) 2001 Free  medical  service School:  to  enter  required  school  and  Ainish   successfully Higher  education:  enter,  transfer  another   one,  exams  etc. Pensions:  paperwork  calculations  etc. Social  payments:  paperwork  calculations   etc. Solving  problems  related  to  the   conscription  procedure Employment:  to  get  a  desired  job  or  career   development Land  area:  to  obtain  territory  etc. Dwelling:  to  obtain  and/or  legalize  a   relevant  proprietary  interest To  get  dwelling  maintenance  &  repair   work  services To  obtain  justice  in  law-­‐court to  get  assistance  from  the  military To  get  registration,  domestic  or  foreign   passport To  solve  problems  with  road  police   authorities 23,5 13,2 36,0 11,3 16,2 32,6 24,6 14,9 28,9 32,2 26,2 27,4 19,7 59,3 2005 37,7 41,0 52,1 11,4 19,8 57,7 29,2 39,8 34,3 29,5 39,5 40,2 32,7 59,6 Readiness  to  bribe (in  percent) 2001 80,4 76,2 66,7 50,0 47,4 50,0 80,0 75,0 75,6 60,5 59,4 77,3 76,0 86,0 2005 62,0 60,8 63,2 17,1 30,6 63,4 35,0 51,1 41,9 31,6 43,6 54,7 48,9 68,9 corruption  market   Total  market  share   Average  bribe   volume  (million  US$) of  corruption  market Amount  (in  Rubles) 2001 602,41 70,10 449,37 0,29 6,62 12,66 56,16 20,09 123,02 22,67 274,48 29,95 65,84 368,38 2005 401,1 92,4 583,4 7,9 80,3 353,6 143,4 84,4 298,6 15,6 209,5 29,6 87,7 183,3 2001 28,7  % 3,3  % 21,4  % 0,01  % 0,3  % 0,6  % 2,7  % 1,0  % 5,9  % 1,1  % 13,1  % 1,4  % 3,1  % 17,5  % 2005 14,8  % 3,4  % 21,5  % 0,3  % 3,0  % 13,0  % 5,3  % 3,1  % 11,0  % 0,6  % 7,7  % 1,1  % 3,2  % 6,8  % 2001 1093 1238 4305 50 250 3250 963 2000 2529 292 13964 1715 664 896 2005 1423 2312 3869 2250 3467 15409 2448 3713 5548 400 9570 930 1426 920 Average  No.  of  bribes   per  year  per  person 2001 1,098 2,213 0,820 0,669 1,065 1,010 0,950 0,655 0,848 0,771 0,681 1,787 1,107 1,089 2005 0,847 0,950 0,875 0,339 0,657 0,650 1,053 0,698 0,809 0,954 0,672 0,809 1,030 1,120

(own  table.  source:  INDEM  2005)

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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

(source:  Levada  2012:  144)          

 

 

 

 

 

 

 

   (source:  Levada  2012:  144)

Table  4:  How  do  Russians  view  the  government’s  attitude  towards  corruption?
Questions\Answers In  your  opinion,  do  government  ofAicials  and  leading  bureaucrats  have  a  foreign  bank   account? In  your  opinion,  is  corruption  an  unavoidable  occurrence  in  a  coutry  where  the  public  does   not  control  those  in  power,  where  are  no  honest  elections,  free  press,  and  real  political   competition? In  your  opinion,  does  the  present-­‐day  administration  in  its  striving  for  power  only  rely  on   people,  faithful  to  it  and  in  return  closes  its  eyes  on  their  crimes  and  allows  them  unlawful   practices  to  enrich  themselves? In  your  opinion,  is  the  present-­‐day  campaign  against  corruption  only  carried  out  to  draw   attention  away  from  real  economic  problems,  and  the  incapability  of  the  Putin-­‐ administration  to  fulAill  the  promises,  made  before  the  elections? In  your  opinion,  is  the  present-­‐day  campaign  against  corruption  only  designed  to  increase   the  trust  in  Vladimir  Putin  and  keep  him  free  of  charges  of  establishing  a  corrupt  regime  in   Russia? In  your  opinion,  will  Vladimir  Putin  keep  his  promise,  made  before  the  elections,  of  reducing   corruption  by  two  to  three  times  at  minimum  within  the  next  six  years? yes 70 33 rather  yes 24 44 rather  no 2 12 no 1 2 no  answer 3 9

27

42

19

2

10

25

35

23

4

13

22 6

38 30

21 36

5 14

14 15

(own  table.  source:  Levada  2012:  144,  145)
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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  government’s  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.

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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   Putin’s   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).

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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   country’s   1ifth   largest   oil   company,   Surgutneftegaz.   Two   bidders   made   it   into   the   auction   room;   a   third   had   been   barred   because   of  problems  with   the   1irm’s   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  Surgutneftegaz’s  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.

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