Corruption in Russia, Russia Corrupted: Is There a Way Out?

By the mid-2010s, corruption in Russia has become an acute problem for the whole of society. Today it is hard to find an area of socioeconomic life in the country where it would not play a major role. Even the Russian Minister of the Interiors, Vladimir Kolokoltsev, has admitted that in 2013 the average bribe in Russia doubled [36].

Due to the high public demand for a fight against corruption, Dmitry Medvedev, after his election as President of Russia, publicly declared corruption to be one of the main problems facing the society (2010) [38]. Vladimir Putin’s return to office as Russian President is usually associated with the initiation of new anti-corruption cases and the arrest of a number of government officials and businessmen involved in corruption. The state introduced an electronic system of public procurement, and many official procedures were simplified or became more transparent. But these measures have not led to a significant reduction in the level or extent of corruption.

According to the Accounts Chamber of the Russian Federation, 70% of tenders for extra-high-value public (state) procurement contracts involved a single bidder [37]. in a report entitled Global Corruption Barometer 2013, Transparency International Russia (TI-R) has come to the conclusion that Russian citizens have lost faith in the effectiveness of the fight against corruption [46]. For example, Russians feel that the following institutions are corrupt: judiciary (59%), parliament/legislature (54%), government officials/civil servants (74%), and political parties (49%). The recently reformed police are seen by Russian citizens as an extremely corrupt institution (66%). in the view of respondents, in the last three years corruption has not decreased in any sector, but the increase in their estimate of corruption in business and nongovernmental organizations (NGOs) is smaller. According to a 2012 survey conducted by UBS bank and Campden Research organization among business people, the number of business owners regarding corruption as the main obstacle to Russia’s development increased by an order of magnitude in one year [58].

Such widespread corruption leads, on the one hand, to significant losses borne by the Russian economy every year, which is expressed in a shortage of funds for social purposes, healthcare [22], education [3; 16] and science [27]. on the other hand, it leads to a chronic decline in labor productivity and, as a result, to a decline in the competitiveness of the Russian economy. In the long term, the state institutions begin to deteriorate. They cease to perform the functions expected of them by society and adapt themselves to a different task: maximum absorption of “shadow” income flows. The final aspect of corruption is the deteriorating moral health of society (or the development of public tolerance of corruption), which leads to its further spread.

Corruption as a Subject of Research

The analysis of corruption and the methods of fighting it have attracted the special attention of researchers in the late 20th and early 21st centuries. Due to the large income gap between developed and Third World countries, there was a need for international aid programs for poor countries. An analysis of their implementation revealed shocking facts of ineffectiveness caused by corruption in low-income countries, which led to the embezzlement of a significant part of this international aid by local corrupt elites [30; 24; 6; 1].

Ed Brown and Jonathan Cloke studied the effectiveness of the neoliberal approach to fighting corruption [7]. A team of authors tried to answer the question of how corruption mechanisms function in transition economies from the viewpoint of anthropology [8]. A number of researchers have explored the effectiveness of the proposed anti-corruption methods [13; 12; 15; 14]. Dan Hough [14] has also analyzed the successes achieved in the fight against corruption in case studies of Bangladesh and Kenya. An attempt to summarize corruption practices across many sectors of the economy was made in a work performed under the auspices of the World Bank [31].

According to a study of the problems of illegal migration in Russia, this phenomenon is closely associated with corruption and the informal (shadow) sector of the economy [11]. Alena V. Ledeneva has analyzed the cultural foundations of corruption in Russia and informal networks, including the current state and evolution of the so-called sistema (system) [23]. She has shown the existence of informal rules and connections that are often more important for real political and economic decision-making than formal laws or even the hierarchy of governance. The essence of these ponyatiya (“notions” in Russian; they exist in accordance with a traditionally accepted attitude to corruption understood as informal laws) is shown by Vladimir Pastukhov (2012, 2014) [41].

Quantitative estimates of the extent of corruption in Russia are given in a work by Georgy Satarov [29]. Let us note the mathematical models of corruption proposed by Mark Levin [25]. in his paper, he identified both the negative and the positive effects of corruption on the economy and constructed mathematical models of its influence on economic development. An assessment of the state and dynamics of everyday corruption in Russia, including from a regional perspective, is presented in a joint study by the Russian Ministry of Economic Development and the Public Opinion Foundation (FOM) [28]. The most comprehensive analysis of the study of corruption in economic theories is contained in a paper by Svetlana Glinkina [9], who showed how the economic policy pursued in Russia in the transition period went hand in hand with corruption. Sergey Glazyev notes that the Russian authorities are unaccountable to the public [44]. Let us also mention the works of Vladimir Babenko [2] on the historical roots of corruption in Russia, Yury Boldyrev [5] on the essence of post-Soviet Russian capitalism, and Andrey Yakovlev [32] on the connection between state capitalism and corruption in our country. Vladislav Inozemtsev shows that a “corruption civilization” has actually emerged in Russia [52].

Despite numerous studies on corruption, I think that a comprehensive, systems approach to the study of Russian corruption holds promise. Corruption should be seen not as a historical phenomenon or an element of the ineffectiveness of state and business governance, not only as part of the system of informal relationships, but as a cornerstone of the Russian economy, where corrupt relationships largely act as its driver, forming the main money and resource flows and providing a basis for economic governance.

Systemic Components of Corruption in Russia

An amended definition of corruption based on the definition we proposed earlier [19] goes as follows: “corruption is conscious and voluntary cooperation between an organization official (in the public or private sector) with third parties so as to obtain additional benefits for himself or his dependents by making, within the scope of his competence, decisions known to be nonoptimal for their organization and leading to the receipt of additional benefits by the official or his dependents.” Below we will consider society as a set of relationships between three relatively independent macro subsystems: government, business and community [18]. Accordingly, the level of corruption in the society should be based on three components: corruption in public administration (government corruption); corruption in business (corporate corruption); and petty corruption in everyday life (everyday corruption). The attitude towards corruption on the part of society as a whole (tolerance of corruption) deserves a separate discussion.

Government (State) Corruption

In terms of corruption, the state (government) sector includes, first, agencies performing fiscal and social functions associated with tax collection and allocation of funds for social, healthcare and other national purposes; second, agencies that regulate and control compliance with rules and regulations established by the state for citizens, and also various activities of individuals and legal entities (judiciary, law enforcement agencies, licensing, patenting, certification, sanitary- epidemiological, environmental and health control); and third, agencies managing property complexes, companies and enterprises wholly or partly owned by the state.

The existence of a large state sector does not necessarily result in high corruption. For example, during Soviet rule, under total state ownership, the level of corruption was significantly lower than after perestroika. In Norway, which has a high share of state ownership, the level of corruption is one of the lowest in the world. But there is no doubt that the size of the state sector makes special demands on the construction of a model for running it in order to achieve socially significant goals.

Let us consider each sphere of the government sector to identify the causes of corruption.

Government sector: fiscal and social functions. The functions of the state can be presented in the form of a pipeline (budget). it accumulates tax revenues, which are used to make social payments. The state performs two main functions: tax collection (so that no economic entity could avoid paying taxes) and allocation of tax revenues for various social purposes (social budget management). corruption affects both these functions.

• First, at the level of tax collection, corrupt officials organize an outflow of budget funds, where significant amounts of money are siphoned off from the budget under the seemingly legitimate pretext of refunding overpaid taxes, but in actual fact fraudulently. Scandals involving billions of rubles of illegally refunded VAT and profit taxes [54] show that corruption in this area of government (state) activity is very high, while the lack of punishment for the officials involved in such illegal refunds confirms the corruption system’s high resistance to external influences [55].
• Second, in performing their allocation function, corrupt officials organize a system of kickbacks, where the final recipients of social payments, in exchange for the allocation (sometimes in due time) of social payments to which they are entitled, return to officials part of the money (in cash) received from the budget on legal grounds. Another form of corruption is the inclusion of intermediaries in the “budget—final recipient of public funds” chain so that these intermediaries extract corruption rents, which are also pocketed by the officials responsible for budget allocations.

Examples of unlawful use of social budgets, whether in healthcare [47], education, children’s homes or social security benefits [42], are revealed constantly. These corrupt relationships involve not only government officials who directly participate in decision making (employees of the Federal Tax Service and the respective federal ministries), but also those whose mission is to fight corruption in the implementation of these decisions, including law enforcement officers and prosecutors [57]. This results in a corruption chain in which corrupt officials, even as they seek to obtain illegal gains, share their corrupt income with officials responsible for controlling corruption and thus secure their protection. As a result, the state and the society lose tens of billions of rubles every year.

Government sector: regulation and control. In relations between small and medium business and sanitary-epidemiological stations, in the regulation of environmental pollution standards, and in contacts with members of the State Traffic Safety Inspectorate of the Ministry of the Interior (GIBDD) [60], there is evidence of corruption. For example,­­­­­­­ the IKEA Company could not for a long time connect its newly built shopping centers in Russia to the electricity grid because of corruption in this area [51]. Russia’s prosecutor general has also admitted the existence of regulatory corruption [33].

In recent years, attempts have been made in Russia to use various methods of fighting corruption. These include, first, a reduction in regulation in order to reduce opportunities for corrupt decision making; second, maximum depersonalization of contacts between officials and those subject to regulation, as when they communicate through the internet or when speeding violations are recorded automatically by traffic cameras without the participation of GIBDD traffic patrol officers; and third, punishment for involvement in corruption. But it has proved impossible to reduce regulatory corruption in the state (government) sphere to a significant extent. The main reason is that the problem lies much deeper: in the minds of all participants in corrupt relationships. Government officials see regulation as an opportunity for personal gain while potential bribers see bribes as the only way to solve the problem of communication with the regulator.

Government sector: management of property complexes. in the last ten years, the media have reported many examples of cost padding in capital investment [20], purchase of equipment and pipes [53], and construction of pipelines and railways, which points to a high level of corruption in companies owned by the state. Virtually all enterprises servicing state-owned companies—suppliers of equipment, parts and components, providers of communication, it, advertising and even hiring services—operate within a system of constant kickbacks, which leads to grossly overpriced goods and services. As a result, a new market has emerged in this corrupt environment: a market of management positions in state corporations, where such positions are in effect “bought out” by candidates both for personal gain and for the benefit of the groups that helped to appoint them. Corruption among middle-rung managers compares with that among top managers, and at each level of management its scale depends on the value of the decisions being made [59].

Reasons for the Spread of Corruption in the Government (State) Sector

The current system of public administration was formed in the process of transition from the socialist, administrative (or centrally run) economy to a market economy. privatization with a transfer of property into the hands of the “red directors,” criminal elements and oligarchs led to a decentralization of ownership, on the one hand, and to an extremely high level of corporate corruption, on the other. When the “statists” came to power, it seemed that the state’s influence had to increase. Indeed, the role of the state has significantly increased in the oil, gas and banking sectors. But the state has not gone over to systemic management of the economy. A situation has arisen where it does not manage the economy, as in the days of the USSR, but controls it.

Let us consider the differences between these types of regulation and their impact on the level of corruption. In the USSR, where state ownership predominated, the state was responsible for setting up production facilities and managing them, for the distribution of productive forces, for the infrastructure, and the reallocation of labor and financial resources. This mode of governance implied a system of checks and balances, special institutions responsible for information gathering (divisions of statistical agencies), and planning of activities at the corporate, sectorial, regional and federal levels. each subsector had its own centers for collecting and analyzing technical and economic information, which accumulated data on the best practices of global science and technology in this area. public control bodies which had some independence—trade union and party organizations—were active in the country.

Today’s state oligarchy system differs significantly from the Soviet system. The purpose of the state is not ownership, but control over the main market participants. This was probably the reason for the creation of companies that currently have a dominant position in their sectors: Gazprom in the gas industry, Rosneft in the oil industry, Rostec (formerly Rostekhnologii) in the defense and machine engineering industries, OAK in aircraft construction, and Oboronprom in helicopter manufacturing. As a result, the concentration of ownership in many industries has sharply increased and the state has tightened its control over the main market participants either through direct ownership or through state bank financing.

The tasks set before state corporations are usually of an extensive nature (construction of gas pipelines, extraction of specified amounts of oil, manufacture of aircraft or arms) in the absence of almost any resource constraints. Management personnel in state companies are selected and appointed on the principle of personal and corporate loyalty rather than based on management experience and abilities. As a result, state corporations are, so to speak, encrusted with numerous intermediaries who sponge off them, which leads to a manifold increase in the cost of their products and services [21].

A comparative analysis of state governance mechanisms in the administrative system of the USSR and the state/market system of Russia is given in the table. This far from complete list shows that the possibly imperfect system of control over corruption that existed in the USSR is now absent, while the elements of public or institutional control that have replaced it have turned out to be either ineffective or corrupt.

	Administrative system of governance (USSR)	State (governance) control (Russia)
Dominant form of ownership	State and kolkhoz-cooperative ownership (100%)	Private ownership; there are industries with dominant state ownership: gas industry, banking sector (over 50%); significant state share in the oil industry.
System of control, information gathering and planning	State Committee for Statistics (Goskomstat), State Planning Committee for Material-Technical Supply (Gossnab) and their regional divisions.	The accuracy and relevance of information collected by the Federal State Statistics Service (Rosstat) raises serious questions; there is no monitoring of corporate business structure; indicators reflecting the activities of enterprises in a market environment are often absent. State planning is virtually absent.