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Analysis: How Corrupt Is Russia?

Moscow (UPI) Nov 02, 2005
Recent claims by members of media and some Russian politicians opposed to the Kremlin that corruption during Vladimir Putin's tenure in office has gotten worse would seem to be based more on unfounded assumptions than solid economic logic.

The level of corruption in Russia actually appears to be on the decline and the risk of giving and taking a bribe higher.

Ever since the Russian think tank INDEM released its report on corruption in Russia last summer, a repeat of the same study four years ago, media and others have mistakenly accepted some of the report's conclusions uncritically.

INDEM claims corruption in Russia has dramatically increased since its last report. A closer read of the report actually demonstrates the level of corruption is on the decline and its nature has transformed since Putin became president.

When the report was released, attention was drawn to one particular estimate: the total amount of bribes being paid in Russia -- a staggering $361 billion annually. INDEM assumes the level of paid favors in the country is approximately three-fifths of Russia's gross domestic product.

While this is certainly a huge number and a sensational headline, the simple is that this estimated figure is an economic improbability. The standard estimate of bribes assumed by most economists and market watchers is somewhere between 10 percent to 20 percent of gross domestic product.

To put this figure into perspective, the government collected $118 billion in taxes in 2004. Bribes are an implicit tax, meaning that adding the $361 billion INDEM suggests would put Russia's overall tax burden at 65 percent of GDP. This figure would be even higher if regional and local taxes were included. Such a tax burden would make doing business in Russia very difficult and severely limit economic growth.

While INDEM obviously appears mistaken regarding its estimated total corruption figure, its other findings appear to be quite realistic and indicate how corruption has and is changing in Russia.

-- Over the past four years, the average bribe paid by a Russian businessman has increased 13-fold, but the number of payments has declined markedly.

-- The average bribe increased from $10,200 in 2001 to $135,800 in 2005 and officials now reportedly have "price lists" for services.

-- The mid-level payment for business has risen from $22,900 to $243,750.

-- The average number of bribes paid was 20 percent lower than in 2001.

-- The $3.01 billion paid for state services the report cites is related to education, medical care and draft dodging. The one exception to the reduction in the willingness to pay a bribe was to avoid the military service, which rose by about 20 percent.

Oddly enough, in the absence of appropriate legislation, the level of bribery for education, health care and other core state services suggests that Russia operates as one of the most liberal free-market regimes in the world.

INDEM appears to be correct when explaining why the number of bribes paid has decreased while the amount of the average bribe has increased. Businessmen are increasingly looking to the legal system to resolve problems and many are simply refusing to pay bribes altogether; the economy is growing and administrative reform has been less than efficient.

The corruption report also suggests the average citizen is more aware of the law and less wiling to pay a bribe. Considering the size of the average bribe, this form of corruption involves a very small percentage of the population. The average month wage in Russia is about $300 a month.

There are other very important conclusions that can be drawn from INDEM's corruption report. Corruption in Russia has not grown 10-fold over the past four years, but the nature of corruption in the form of bribery has changed remarkably.

The amount of a bribe is an acknowledgment toward prosperity and the risk incurred in accepting the bribe. The average level of prosperity in Russia has increased in the past four years, but not enough to justify the extraordinary rise in bribe amounts. Therefore, the most significant factor affecting the bribe amounts is risk.

If this is in fact in play, then it should be assumed that it is more risky to accept bribes than it used to be, so greater amounts must be paid to justify that risk. This would all indicate that corruption in Russia is declining in scale, but not necessary in terms of value. The most encouraging news is that those demanding a bribe and those willing to pay now put themselves at greater risk.

Peter Lavelle is a Moscow-based analyst.
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