When I cited TI figures showing that Russian everyday corruption is middling by global standards (percentage paying bribes: 26%, compared to 15% in Latvia, 18% in Greece, 24% in Hungary, 28% in Romania) – as opposed to being on the same plank with Zimbabwe or Liberia – one of the most common counter-arguments was that corruption in Russia is especially concentrated in the upper commercial/political social crust.
However, as Vedomosti recently covered (h/t Nils), the acceptability of corruption in Russia has basically converged to global averages. According to the table below from the original study by Ernst & Young, Russia in fact now appears to perform slightly better than the global average (and vastly better than low-income countries like India, Indonesia, and Vietnam, all of which are nonetheless ranked higher than Russia in the Corruption Perceptions Index).
Furthermore, the last year has seen significant improvements, e.g. whereas now only 16% see cash payments as acceptable to win or retain business, this figure was 39% in 2010. This is practically equal to the global average of 15%, which unlike Russia rose from 9% in 2010.
Power summary: Russia is a normal country in the sense that its level of corruption, as reported by ordinary citizens and businesspeople, is what you would expect of a middle-income country. However, it is near rock bottom as perceived by various self-appointed experts. I wonder who’s more reliable.
Dear Anatoly,
The short answer to your obviously rhetorical question is that what ordinary citizens and businesspeople report is definitely more reliable than what is claimed by self appointed experts.
Speaking for myself my impression is that Russians by and large detest corruption and that they definitely do not see it as an acceptable practice as is the case in societies that are fully corrupt. If that is right (and what was all the “thieves and scoundrels” propaganda about if it is not?) then there is every reason to think that as the country develops and becomes richer the level of corruption will decline.
The west should stop projecting its fantasies onto Russia. I don’t see the point of having a perception of a major world power that is completely disjoint from reality. Do the deciders in the west really believe they can wish Russia into subservience? It seems they do and that makes them some of the worst flakes on this planet.
Well that’s the duality at work again Alexander.
The Western MSM would have you believe Russia is rotten to the core, yet they would also have you believe that liberals who protests against “thieves and scoundrels” represent the majority of Russians.
Obviously they cannot have it both ways – either Russia is a fully corrupt society or it isn’t. It can’t be fully corrupt today for one media report and represented by squeaky-clean liberals-who-would-really-enjoy-majority-support-but-for-the-scheming-of-the-Kremlin tomorrow for the other media report.
I wonder if this survey would translate into actual bribe instances (not just dollar amounts). It would be real progress if these opinion numbers were a proxy for actual bribe activity. There is some indication of this in that bribe “fees” have been increasing rapidly during the last few years. This reflects the economics of bribery reflecting the fact that the volume is falling due to risk of prosecution. So it is not just perceptions but actual law enforcement that is playing a role.
To rank Russia worse than Mexico in terms of corruption is obscene. I have nothing against Mexico but the impunity of the cartels and the 55,000 associated deaths since 2006 indicates that there is almost no law enforcement in big chunks of the country. There is not even serious military intervention from the central government which cannot be explained by “human rights” considerations. It’s as if the cartels have a “roof”. Even Russia during the 1990s wasn’t this bad. Yet we have the Transparency International index giving Russia 2.4 and Mexico 3.0. Russia should be over 5 and Mexico should be under 0.5 (if 2.4 is supposed to be Russian corruption then the scale is highly nonlinear).
Dear Kirill,
Your point that the west in the end fools only itself is true. In time it will of course become more true. There is an article today in the Financial Times co authored by the famous economist Roubini that calls for Russia to be expelled from the G8 and for the west to stop treating Russia as a BRIC. I cannot give you a link to the article as it is behind a paywall but it is littered with all the usual easily refuted myths including Russia’s supposedly collapsing demography, the mass emigration of its people, capital flight etc. Publication of such an article merely reinforces the false idea of Russia held by the people who run the Financial Times. How does that benefit anyone in Britain?
Having said this, Russia does pay a price for these misperceptions. I know of at least one British businessman whose company (Tesco) decided against investing in Russia because of the supposed lawlessness and corruption there. The existence of misperceptions about Russia cannot in the end prevent Russia”s economic growth. However they can and do slow it down and make the conditions for it more difficult.
Having said that I suspect that there will come a moment when it will suddenly dawn on people that Russia is not a basket case but a rapidly growing and even dynamic economy and society. That is what happened to China at some point in the 1990s. When that happens then who knows, investing in Russia might even become a fashion.
The west only shoots itself in the foot this way. Russia is doing fine without western investment. Even the ratings agency nonsense of ranking Russian bond risk higher than Greece is a total joke. All that does is prevent Russia from becoming addicted to cheap debt which has undermined many OECD economies. So they are actually doing Russia a favour.
Did you know that 40% of all foreing investements in Russia are coming from tax haves? On the otherhand large amount of all Russian investements go to these very same tax havens. And why? So that Russian investors can reinvest their money in Russia and at the same time avoid paying taxes. I don’t know why you Russians allow your own elite screw you so badly. And when somebody points out these things there that are hurting ordinary Russians all darussophiles of the world crawl out of their holes with “alternative measurements” and “contrarian analysis”. Well, it is your country and your life. Better luck next time.
Well actually it is not even Mr. Karlin’s country, but what do we care.
Heh. You sound like tax avoidence is so specific too Russia (it isn’t). You also contradict yourself – if Russia is not attractive as investment destination for Russian themselvs why on earth are they reinvesting?
Tax evasion happens everywhere, as does money laundering, and other shadow economy activities, but in Russia the problem is enourmous. If you don’t believe me, would you believe, for example, The Shirtless One’s former gov’s 1st deputy prime minister Viktor Zubkov?
Now Russia’s attractiveness as an investement area changes substantially if you can compensate for the risk increase by improving the rate of return on your investment through tax evasion, no?
So there aren’t any perks in Russia associated with being “foreign investor”? And even if there aren’t those Russians are investing in Russia because they are in best position to do so, they will always have an advantage over any foerign investors. IMO they are taking money out of Russia and then puting it back in because the property rights situation in Russia is not cler cut, they use western institutions to legitimize their money and only then re-invest it. Russia is a lucrative market but one with underdeveloped institutions – hence the strategy.
It doesn’t need Britain. Britain is a Trojan horse historically through proxy whether it be Jews, Turks, Japanese, Pakistani’s, Saudi’s, etc or various social, political and ethnic separatist movements representing their interests in foreign affairs.
England is the terrorism capital of the world even shielding jihadist terrorists linked to terrorism against the US.
Russia’s insane policy under Medvedev was to make London shock therapist Kudrin his right hand man that thankfully Putin took the reigns and got rid off that was planning to use Russian money to bail out the failing EU.
Children, first you would have to make Russia a fashionable investement area for RUSSIANS THEMSELVES!. Do you have any idea what is the rate of capital flight from Russia? It is speedy I tell you.
Secondly, even if we put aside the enourmous country risk that Russia has, it is very difficult to persuade investors to invest there. There are very few attractive investment targets. The most attractive ones can obviously be found in energy sector. But investement opportunities are limited, because energy sector is so called strategic sector for Russia and the federal law regulates foreign investments with a heavy hand. Ironically it also the sector where Russia would badly need foreign capital, skills and technolgy in order to keep revenues from natural resources flowing. But Putin can’t lax laws because boardening ownership base would destroy the power vertical he has so brutally and carefully built. Let’s dance Lasha Tumbai!
Except that the vast bulk of what is described as “capital flight” is in fact Western daughter banks recapitalizing their mothers in Western Europe.
Сдвиги в структуре вывоза капитала
Relevant paragraph:
Доля сомнительных операций в общем объеме зарубежных инвестиций реального сектора (включая покупку наличной валюты) в 1-ом квартале (27%) осталась примерно на среднем уровне прошлого года (29%), что значительно ниже предыдущих лет. Однако это результат не сокращения объемов сомнительных операций (в 1 кв. они составили 7.2 млрд. долл. против 7.5 в среднем в 2009-2011), а расширения легальных форм прямых и портфельных инвестиций за рубеж (в оффшоры). Тем не менее, можно констатировать, что мотив уклонения от налогов через фиктивные трансграничные сделки в общем массиве капитала, выводимого реальным сектором в оффшоры (в прошлом году – более 108 млрд. долл.), относительно несколько снизился.
… Но кто способен все это изменить – непонятно, финансово-экономический блок правительства во главе с Шуваловым и Дворковичем выглядит жалко (исключая разве что Андрея Белоусова), это серьезный шаг назад по сравнению даже с Кудриным.
That’s hilarious. All the bleating about a weak and unstable Russia while it is Russian banks (subsidiaries or not is irrelevant) which are lending to the “rich and stable” west.
Something is obviously wrong with the definition of capital flight. Lending abroad is not “flight” unless it is not lending but bank withdrawal. Are we to count all the trillions of dollars of lending by western banks to the rest of the world as capital flight?
“Something is obviously wrong with the definition of capital flight”
No there is not. Limited understanding or deliberate distortion is the problem here.
Even the author of the truly confusing article you linked admits that “there is a little bit of truth to” the fact that those who can move their mo overseas. They know that their wealth (and health) are at the whim of The Shirtless One.
Confusing is the article because it practically claims that capital flight is really not equal to outflow of money and assets, and that it is actually a sign of a success. Now somebody should tell Putin to hold his horses: he should not buy into this western propaganda and back down from his promises to improve the investment climate because capital outflow actually proves that Russia already has a “booming successful economy”!
The article also claims that:
“The detailed breakdown of the CBR’s data suggests that the other half of the “capital flight” is mostly loan refinancing and overseas M&A, which means the “true” capital flight is tiny.”
What utter bullshit. Data provided by the Central Bank of Russia proves just the opposite! Net FDI inflow has been increasingly negative since 2009 and more than half of the outflow has been directed to tax havens like Cyprus and Virging Islands. This means outflow is primarily NOT because Russian companies would be establishing themselves overseas through mergers and acquisitions.
The article is so confusing because it’s written by a useful idiot on the Kremlin’s payroll, as simple as that.
Dear KF and Peter,
I am going to turn this discussion on its head and say that there is no “capital flight” from Russia. There was capital flight from Russia in the 1990s and there is capital flight now from countries in the eurozone periphery such as Greece and Spain where anybody who can take their money out is doing so. In the case of countries like Greece and Spain there is a compelling reason to do so because no one in their right minds wants to leave their euros in countries where in the event of a eurozone exit or breakout it would be transformed into worthless drachmas and pesos. “Capital flight” therefore accurately describes this phenomenon.
There is nothing like that underway in Russia now so there is no justification in referring to what is happening as “capital flight”. What there is are normal capital transfers of the sort that all capital rich economies routinely engage in. In the case of Russia these are being actively encouraged by the Russian authorities, first and foremost the Finance Ministry and the Central Bank, who have been concerned that the size of the Russian trade surplus means that more money has been flowing into Russia than its economy can safely absorb without unacceptable inflationary pressures building up. That together with capital transfers by branches of certain European banks to help out their parents is all there is to it. By the way I don’t see why given the well known problems in the eurozone banking system and the fact that substantial transfers by branches of European banks to help out their parents is an attested fact this should provoke your skepticism and ridicule.
As for the fact that some of the money that is exported from Russia is channeled through tax havens, that is simply a red herring. Why shouldn’t it be? Why should Russian companies and businesses that want to invest overseas not make use of tax havens? What do you think western businesses and companies do? On the specific subject of Cyprus I have actual knowledge of the situation there through personal and business connections and I can say that not only does Russia now largely control its banking system but that the Russian government knows pretty much everything that goes on there.
In short if you want to discuss Russia’s economic performance please do so by reference to measures that actually matter eg. GDP growth, inflation, the trade balance, the rate of unemployment etc By contrast please don’t bore me with the irrelevant subject of the capital flight which isn’t.
I can’t speak for K.F., but as far as I’m concerned, you’re wrestling a straw man of your own incompetent making. Still, that’s a welcome improvement from your usual long-winded circular mumbo jumbo.
And not just a straw man, but one that is also dressed up rather ridiculously.
“Why should Russian companies and businesses that want to invest overseas not make use of tax havens?”
You don’t have an argument with me here but with the effing Russian goverment. Just one example, try googling: zubkov tax haven.
AK: Comment deleted for violation of Rule #5 of the Comments Policy.
No problem, I’m sure you appreciated the story.
Any evidence that Ben Aris is on the Kremlin payroll, besides appearing as a guest on RT? I know that’s all the evidence that’s ever needed in some fanatic circles.
You might have a point here. Even if he does it for free, they’re still paying him too much.