Continuing from my previous post (which focused mostly on trends), this one focuses exclusively on international comparisons as per the results of Transparency International’s Global Corruption Barometer survey of 2010-11. The graphs represent affirmative answers to the question of whether the respondent had paid a bribe in the past 12 months to each of 9 institutions if he had come into contact with them.
Is Russia the most corrupt of the BRICs?
This is the conventional wisdom, both as per the widely cited CPI as well as numerous pundits. Is it correct? Well, going by the best possibly objective measure of corruption – asking people whether they (or a member of their household) paid bribes in the past year – no, it isn’t. The honor goes to India. China is modestly less corrupt than Russia, while Brazil is basically a First World country in this respect.
Is Russia especially corrupt by Central-East European standards?
No, it isn’t. While it’s certainly more corrupt than average, that particular honor has to go to Azerbaijan. The Ukraine is systemically more corrupt than Russia, with a higher percentage of respondents reporting bribing all nine institutions. Even Lithuania is, on average, more corrupt than Russia. (So much for the pro-Western democracy automatically leading to cleanliness and transparency thesis).
On the other hand, for the sake of honesty and consistency, one has to acknowledge that Saakashvili’s campaign against corruption in Georgia was a genuine and astoundingly successful achievement. In fact, if these polls are perfectly accurate, Georgia now has less “everyday” corruption than the US!
AK,
I posted a comment on the US-Russia.org discussion, which is primarily about Sergei Roy’s contribution. Particularly as it is also looking for a comparative context, if in a different way, I think it may be worth re-posting here.
It reads:
This is a most illuminating discussion. A few observations prompted largely by Sergei Roy’s contribution.
His distinction between different forms of corruption actually meshes with arguments made by some historically informed work on economic development. A professor at the School of Oriental and African Studies here in London, Mushtaq Khan, has argued that the empirical evidence simply does not support the conventional wisdom that the achievement of ‘good governance’ should be a critical objective for states seeking to develop.
Obviously, ‘good governance’ is desirable. It has not, however, proved critical to development in the way it is generally believed to have been, Mushtaq Khan argues. The evidence he produces meshes well with Roy’s arguments about Russian history.
Moreover, the fact that ‘good governance’ is the ‘dominant consensus’, in Mushtaq Khan’s view ‘sets poor countries infeasible and unachievable agendas, creating dismay and disillusion, and takes our attention away from achievable and critical governance agendas.’
(He can be seen presenting his argument at http://www.diis.dk/sw94747.asp )
Meanwhile, a noted expert on China, Michael Pettis, has produced a fascinating discussion of the problems of the Chinese economy. It starts:
‘As regular readers know I have often argued that the Chinese development model is an old one, and can trace its roots at least as far back as the “American System” of the 1820s and 1830s. This “system” was itself based primarily on the works of the brilliant first US Secretary of the Treasury Alexander Hamilton (see especially his report to the Congress on manufacturing and his two reports on public credit and banks).’
(See http://www.nakedcapitalism.com/2013/02/pettis-china-and-the-history-of-us-growth-models.html )
One critical point that Pettis stresses is that the success of this American version of ‘national socialism’ was critically to do with the avoidance of a situation where a great deal of – perfectly ‘rational’ – economic activity ends up being primarily concerned with, as it were, sucking at the teat of the state. This is what Roy points out tends to happen in Russia.
The arguments of both these writers, incidentally, bring into sharp focus the utter ignorance of the relevant economic history displayed by those Western advocates of ‘shock therapy’ who had such a calamitous influence in Russia in the 1990s. Rarely can a group of so-called ‘experts’ have combined such utter intellectual arrogance with such ignorance of so much of the relevant evidence about the questions on which they were so convinced they had a monopoly of truth.
In short, I completely agree. When it comes to long-term growth human capital >> institutions, I have a lot about that on my other blog.
By the way AK, my antivirus is saying that you other blog has “elements that may harm your computer”.
This seems quite realistic. A few unrelated people visiting Georgia have all commented on how Saak has really cleaned up his country – Russians who haven’t visited there don’t believe it and asume it’s like the rest fo the Caucuses when it is not. Also, anecdotally, from what I’ve heard, as bad as Russia is, it is much better than all the non-Baltic former Soviet states (I am surprised by Lithuania, but it is what it is); the survey results match the reputation.
Viz the point about different types of corruption, I might as well repeat here an old joke that used to be said in Greece in the 1960s about the three types of corruption:
1. You are ill and there is a hospital but you have to bribe the staff to get treatment;
2. You are ill and there is a hospital but no one will treat you since the staff are all ghosts and the director is pocketing their wages;
3. You are ill and there is in theory a hospital but no one will treat since in really it does not exist because the contractor who is supposed to have built it and the director who is supposed to manage it are both friends of the minister; the one has simply walked off with the money he was paid to build it, the other is happily helping himself to the wages of its “staff”, and the minister is getting a cut from both.
A point to understand is that the third form of corruption is the most dangerous but is the least visible. Some of the countries that supposedly achieve very low levels of corruption (eg. some of the Arab Gulf monarchies) fall squarely into that category. The most visible form of corruption is the first. One should not underestimate the harm it does but arguably it is less dangerous than the other two. My impression is that most of the corruption in Russia is of the first sort. There is some corruption of the second sort, but corruption of the third sort is rare.
Though it is a difficult thing to say, the reality is that corruption is an unavoidable aspect of modern society. I am making a theoretical point here, but it is nonetheless important to say that a totally corrupt free society exists nowhere and is an impossible ideal. It is like wanting a totally crime free society.
Corruption in Britain is not as common as in Russia but as anybody who lives knows it exists at every level of society. I have to pay my refuse collectors regular tips (“bribes”) to make sure my rubbish gets collected. If I employ a builder I am always expected to pay him in cash since he is cheating on his tax. I discussed the pervasive cheating and plagiarism that I saw in two law schools in earlier comment. Anatoly has rightly discussed the various bogus educational institutions that are set up to “teach” foreign students, which beyond a glossy prospectus quite often simply don’t exist (I have been involved in many cases concerning such scams). We have a scandal here (the Murdoch scandal) involving newspaper reporters hacking private telephones and paying bribes to police officers in return for information and protection, which has forced the resignation of the head of the Metropolitan Police (“Scotland Yard”) and of his senior investigators. There is a major food adulteration scandal underway with European ramifications, which involves horsemeat that was declared unfit for human consumption being passed off as beef. There were what looked like well founded allegations that Blair sold honours in return for cash to fund his election campaign in 2005. In 2009 it became known that a culture has grown up whereby the political class in Westminster effectively doubled its income at the taxpayer’s expense by cheating on expenses claims. Several MPs (parliamentary deputies) have gone to prison. Last but not least and arguably eclipsing in scale any one of these scandals, there is currently an investigation underway into the fixing of the London interbank interest rate by the big London based commercial banks (the Libor scandal) with the profits of this probably amounting to billions. Despite the staggering scale of this wrongdoing there have so far been no prosecutions with widespread grumbling (including in the media) about the impunity that bankers appear to have.
Does all this mean that Britain is a corrupt society? Of course not. Most British people are not in any sense corrupt though they are not beyond engaging in the odd scam when they can and if they think they can get away with it. That’s life. Imagine however how what I have written about could be reported by someone who was intent on showing that Britain is a corrupt society. It often seems to me that it is this sort of reporting that Russia comes in for.
On a different tangent, but still on the subject of Russian corruption, I understand that there are rumours today in the Russian press that Serdyukov is going to be charged this week and that the sentence for the crimes he will be accused of could potentially be up to 10 years in prison. We shall see.
http://rapsinews.com/news/20130218/266439809.html
That appears to be correct. Let us hope this is correct, as opposed to further shady stalling on the part of the Investigative Committee.
According to Bastrykin himself, it is going to take at least a year for Serdyukov to be reclassified from a witness to an accused person.
In the meanwhile, Serdyukov’s accuser, Magnitsky, is likely to remain dead.
Oh, lamost forgot:
Putin intends to put Magnitsky’s corpse on trial. I kid you not.
The Supreme Court has provided some statistical data on corruption cases.
http://www.rapsinews.com/anticorruption_news/20130219/266457341.html
The fact that the number of corruption convictions has roughly halved from 10,000 to just over 5,000 in a few years does not mean (and is not intended to mean) that corruption is getting less emphasis or is achieving greater impunity. It is more likely to mean that corruption overall is getting less common. This is consistent with what is often said about the growth in the size of bribes. The fact that the size of the average bribe in Russia is said to be growing is more likely to be a sign that corruption is becoming riskier and more difficult and therefore less common than that it is increasing.
The other point the Supreme Court makes is that corruption in the health care, education and the “penitentiary system” (does the last include police doing shakedowns to get bribes?) is as bad as ever. This is important because I suspect it is precisely within these sectors that Russians are most likely to come across corruption in their everyday lives. In other words corruption overall (for example within the business community and the state administration) may be declining but this may not be noticeable to most Russians because it is at the same level in those sectors where they are most likely to come across it.
This seems to be quite accurate. Putin’s time seems to have been associated with a clean-up of courruiption on the “macro” level but not aspects of more everyday life.
I asked my wife about incidences of her paying bribes in her pre- and post-Soviet life. She said that she has paid small bribes, and infrequently at that, and that they have almost always been paid to doctors in order to receive a better quality medicine than that provided by the state health care system.
But were these really bribes that she admits paying? She was not being denied treatment unless she made a payment: the doctors in question were, rather, earning something “on the side”, albeit unethically.
I asked her if she could tell me of a bribe she had paid that was not connected with medicine. She told me that when her mother died and on the undertaker’s suggestion she paid him so that he would put make-up on the deceased party’s face. He did a good job, apparently. I told her that that wasn’t a bribe either. She said it was, because she paid him cash in hand. I countered that he was offering an extra service – unethically, maybe – but that she had chosen to pay.
She also told me that she knew of plenty of students that had paid bribes to enter the prestigious Bauman Moscow State Technical University that she attended. I agreed with her that that was bribery. She stressed, however, that no bribe was paid so that she could study there: she gained entry to Bauman off her own bat.
I believe her, because Mrs. Moscow Exile is pretty smart.
An expanded version of the post by Michael Pettis on the history of the Chinese economic model to which I referred in my earlier comment has just been posted on his blog.
(See http://www.mpettis.com/2013/02/21/a-brief-history-of-the-chinese-growth-model/ )
I have posted a comment, which it seems sensible to reproduce here, particularly as some of it relates to Russia.
One question to AK and others. It has always seemed to me that the perverse incentives created by the interaction of the legacy of the Soviet past and ‘shock therapy’, which encouraged criminalisation, and to which I refer in the comment, also created a situation where very many people had things to hide. One does not need to swallow the kind of highly dubious ‘kompromat’ claims routinely put out about Putin and others to think that the possibility that corruption trials of people high up in the contemporary Russian elite might lead to the exposure of skeletons may materially inhibit prosecutions.
Someone like Serdyukov might be in a position to reveal a great deal of embarrassing information. Accordingly, removing corrupt figures from positions of power and influence, rather than actually prosecuting them, may seem the least worst option.
My comment on Professor Pettis’s blog reads as follows:
Some scattered observations on this enormously important post.
It points up, for one thing, the trivial and indeed dangerous nature of much contemporary Western economic theorising. A great deal of this is obsessively concerned with modelling the interactions of supposedly rationally self-interested individuals in highly abstract terms. This ignores two problems: that the exclusive emphasis on rational self-interest does not mesh either with common sense or with empirical evidence about how human beings actually behave, and that how a rationally self-interested actor can be expected to behave is a matter of context.
A central message of this article is, contrary to what is assumed by contemporary American economists who know nothing about the relevant history, successful ‘catch-up’ development, in the U.S. as elsewhere, has required state action to ensure that rational self-interest operated in contexts where it can produce benign rather than perverse outcomes.
Among other things, it is crucial that ‘infant industry protectionism’ be accompanied by ‘brutal domestic competition’ – and that one does not end up with a situation where rationally self-interested actors, in essence, suck at the teat of the state.
It would seem to follow that a necessary – but of course not sufficient – precondition for successful development would be elites whose views are shaped by good economic historians, and who ignore the conventional wisdoms of the economics profession. Also however necessary, however, it would seem, would be for those elites to identify, for whatever reason, with the objective of development – and not to be distracted from it by imperatives of rational self-interest that militate against it. Moreover, these elites need to in control of a state structure which is capable of effective action, without strangling private initiative.
An object lesson of how to do almost everything wrong would seem to be the ‘shock therapy’ adopted by the so-called Russian ‘reformers’ egged on by Western economists, notably from Harvard, in the 1990s. In fact the work of a developing school of research on mafias suggests that ‘shock therapy’, as applied to the former Soviet Union, was a strategy peculiarly well-adapted to ensure that rational self-interest manifested itself in the form of criminality.
As Professor Federico Varese of Oxford put it in his 2011 study ‘Mafias on the Move’:
“A relatively recent body of research has shown that mafias emerge in societies are undergoing a sudden and late transition to a market economy, lack a legal structure that reliably protects property rights or settles business disputes, and have a supply of people trained in violence who become unemployed at this specific juncture.”
A further complexifying factor which the Russian comparison brings into sharp focus is the role of military vulnerability. Particularly as claims about military threats can easily – although they are not necessarily – means by which rationally self-interested actors justify sucking at the teat of the state, a question arises as to how far the patent absence of such threats facilitated the success of industrialisation in the United States.
(The problem of demilitarising a hyper-militarised economy was, of course, central to the dilemmas faced by post-Soviet Russia. A fascinating paper back in 2006 by the late Vitaly Shlykov, incidentally, argued that Russian ‘reform’ would have been far more successful if, rather than attempting demilitarisation by market methods, the Russian government had followed the example of what the United States actually did following the end of the Second World War.
In fact, the reaction against the combination of protectionism and acute lack of competition in the Soviet command economy led to an uncritical acceptance of precisely the same conventional wisdoms about the virtues of free-trade of which Alexander Hamilton had been rightly sceptical.
[See http://eng.globalaffairs.ru/number/n_6571 ])
A clear implication of Professor Pettis’s analysis, more generally, would seem to be questions about the nature of their elites, and their ability both to understand the requirements of development and to develop and push through an effective strategy to generate them, should be central to ‘development economics’. Talk about ‘good governance’ seems to have marked limits as a way of approaching the issues involved.
A final observation is that it would be interesting to hear the views of Professor Pettis and others about how the kind of social model which has been developing in the United States, and elsewhere in the West, over the past decades looks in the context of his arguments about the requirements for successful development. It would seem an interesting question how far the requirements of maintaining the success of a ‘developed’ modern economy are distinct from, or similar to, those of creating such an economy.
Dear David,
I found this a most interesting article, both Professor Pettis’s and your response.
The difference between the American System of Hamilton and List and the British System of Adam Smith and Ricardo is well known. The US only fully and finally abandoned the American System in the 1960s when the Kennedy Administration substituted Keynesianism for the American System as the prevailing US economic orthodoxy. Keynesianism at its heart is an evolution of the British System.
As for Professor Pettis’s larger point, that growth is a consequence of investment and that investment depends on the availability of capital are points that are I would have thought so obvious that it is for me a permanent puzzle that so few people see them.
I would suggest that in almost every respect Russian economic policy approximates remarkably closely to Professor Pettis’s model. Russia does try to protect its industries to the extent it can from foreign competition and by and large it has been doing so successfully. The whole weight of Russian economic policy since 1998 has been to restore and strengthen the financial system so as to make it capable of capital investments and allocation. Russia has stimulated wage and income growth to boost demand. Outside a very small number of publicly owned strategic companies concentrated disproportionately in the mineral extracting centre it does not generally look to create national champions and the whole trend has been to eliminate subsidies whether operating through controlled pricing or interest rates. Privatisation is being used as a mechanism to boost competition and there are ambitious plans for heavy infrastructure spending, which has only just begun.
Probably the only difference between what Russia is doing or is planning to do and what Professor Pettis discusses is that Russia is planning to use increases in defence spending to support and development its scientific and industrial base. That of course is exactly what was done in England in the Eighteenth Century (through massive state investment in the Royal Navy), in Japan and Germany in the late Nineteenth and early Twentieth Centuries and to an extent that is rarely acknowledged or realised in the US in the 1860s where manufacturing was massively strengthened by the very heavy state investment in arms production that was needed to win the Civil War.
Dear Alex: People lost sight of the connection linking savings, availability of capital, investment and growth some time during the 1980s when global finance became more deregulated and debt finance came to be considered the easy option compared to raising equity as a source of funds. Raising equity forces a firm to be more accountable to shareholders (and more of them), on paper anyway at least. When I studied economics in the 1980s, the concept was going out of fashion, some of my lecturers said the connection was very weak and I suppose by now lecturers don’t even mention it any more.
Viva Brazil!