Corruption in Russia

Living in Russia and paying attention to the local and nation-wide media, there is one topic that continues to embarrass the government. This topic is corruption, a phenomenon that has been built up during the Soviet years and flourished during the Yeltsin and Putin-eras. Russia was ranked in 2007 by Transparency International as 147 out of 180 countries in the world. There are few countries in the world that are more corrupt than Russia.

During the Soviet times government bureaucracy went hand in hand with corruption. When the Communist Party initially seized power under Lenin, the purpose was to create equality dividing the vast wealth that accumulated for centuries by a small proportion of the population. Right from the start, the party numbers began growing enormously. Every new party member would want his party card to get an office job. The new government was a route to make a career for those that participated in the October Revolution and others that were not natural party supporters but saw this as an opportunity for advancement.

Bureaucratic corruption spread, and while during the Stalin era, the fear of being sent to a concentration camp or being executed by the secret police helped control it, after the "thaw" in the Khrushchev period it began to grow further culminating under Brezhnev in what is considered today as the pinnacle of Soviet decay.

While bureaucratic corruption exploded with officials and state managers taking advantage of opportunities presented to them, another form of corruption grew. Soviet shops were empty. Consumer service was non-existent and an enormous deficit was created for almost any non-basic product. If you wanted a car and your employer permitted then there were years of waiting in long queues that was required. For every option offered by the system there was an alternative of course.

Jeans, Western music, almost anything else became available in the black market that grew ever year until the size and proportions of this economy expanded so much that it was no longer even possible for government officials to eliminate it or conceal it.

After the fall of the Soviet Union, corruption was dominated by the asset-grab operations where businesses that belonged to the government were turned private in a variety of schemes with the support of corrupt state officials.

Voucher privatization was one phase of the 90s which miserably failed. Vouchers for state giants like Gazprom were issued to the general public. Due to the economic collapse, poor education and other reasons, the population did not see any value in these securities and quickly sold them, to new private enterprises that were created by the few smart entrepreneurs that did, at rock-bottom prices. Later these entrepreneurs made sound profits having gained sizable stakes in the businesses.

Later a new breed of powerful businessmen emerged. These businessmen saw enormous opportunities in working with state officials in helping run state enterprises. Berezovskiy and Abramovich were two guys that had valuable relationships to the Kremlin family ("Semya"). These relationships allowed many of these entrepreneurs to take control of state giants, buy significant ownership stakes at very low prices and then sell them later to other sizable groups or list on a major exchange. Sibneft is a prime example where Roman Abramovich was able to take control of the company with the help of his contacts in the Yeltsin family and then later sell his business to Gazprom, a state controlled gas monopolist.

It is however not fair to say that many entrepreneurs were the only parties to make money during the post-Soviet period. The 90s was a period of economic collapse and financial crisis with inflation and default affecting many natural opportunities for corruption but once stability was created from the start of the Putin era, the situation started to deteriorate further. Oil prices went up and the economy recovered. Disposable incomes rose. Oligarch power was reduced and some that were unwilling to bow down and pay the price were exiled or put in prison. (including Berezovskiy, Gusinskiy, Khodorkovsky.

The most visible reminder of corruption today is the situation that is happening with the online state tenders. The idea of course was to make the system more transparent by allowing multiple buyers to compete and bid for projects funded by the state. Institutions however that are designated to use it including the police and even military see it clearly as a threat to their off-the-book incomes.

Let me give you a few examples of the kinds scandalous tenders that have already been noticed by the public. Gold plated beds for police authorities, mink coats for patients of a psychiatric hospital ordered by St. Petersburg authorities, handcrafted furniture for Novosibirsk police authorities, cars with massage seats.

The biggest scandal however was actually in how the online tender website was used. Instead of using Cyrillic letters, many authorities on purpose chose to use English letters to make it difficult to find tenders that don't want to be found.

Some institutions have gone so far as to make the parameters of their orders so unique that the only supplier is affiliated with themselves.

The authorities themselves have gotten away with simple apologize saying that the initiatives were actions of few.

If you thought that was terrible, then the new scandal with watches is even bigger. Officially, no official is permitted to receive gifts worth more than $100. The media has made research on the most visible accessory, the wrist watch, and has found that it is hard to find a state official wearing a watch worth less than $10,000, with many exceeding $100,000 and peaking at $1,000,000.

Corruption is obvious to all in fact and yet the higher powers apart from anti-corruption rhetoric have done very little. Vladimir Putin for example said in an interview that 30% of the budget "gets lost somewhere" i.e. stolen. Stability is one thing but if so much is stolen, the best way forward is small government, low taxes and deregulation.

Source: Moscow Times