Regional corruption in business

Alexandr A.

DREGALO

Senior scientific associate of economic research division of Arkhangelsk SC of the Ural RAS department

Yuriy F.

LUKIN

Viktor I.

ULYANOVSKY

The international researches point to the considerable spread of corruption in the field of entrepreneurship and business in most countries. The corruption among the officials who are in charge of budgetary funds, state and local orders and benefits, the objects of state and municipal property, social, educational and medicine services at the expense of the state is taking on special significance. The corruption has reached the higher levels, and this fact is said about in one of the annual President’s message to the Federal Assembly of the RF.

At present the corruption has an inertial character of development, i.e. its mechanism started in 1990s keeps up its given high pace of spread and becomes a threat to the national security of country as well. Only for 2008 forty thousand criminal proceedings were undertaken against those who had breached the government and municipal service regulations, 12 thousand of them are bribing and corrupting cases.

It is not an accident that today in Russia the anti-corruption drive becomes a weighty matter of state. The national anti-corruption plan was passed and is being implemented; the appropriate normative basis is being set up. Therefore the researches of regional corruption and its influence on the business activity of small-scale and large-scale entrepreneurship in the constituent territories of the RF are of scientific and practical interest.

The research into the peculiarities of the corruption services regional market in the sphere of relationship between the business representatives and the power-holding structures was conducted by the authors in September, 2005 and in February, 2009 in accordance with the tools given by G.A. Satarov , the Head of fund “Indem”. The research is one of the first such investigations in the Arkhangelsk region. It makes it possible to determine the causes and the scale of corruption spread in the region and the possible way of combating corruption.

The participants of the sociological study were the entrepreneurs, the business managers, the managers of many organization departments from Arkhangelsk and the region, the employees working at the enterprises of different business forms of property, the attendees of managerial training under the Presidential programme.

From the very beginning of the economic reforming in Russia the relationship between the business and the authority remains the major pain spot. In their way the entrepreneurs often face one or another obstacle put by the bodies of power at the federal, regional and municipal levels, and it makes difficulties for new firms forming and prevents them from entering the market and advancing. Dealing with state authorities and structures the entrepreneurs have to use some corruption mechanisms to simplify the administrative connections and to reduce the bureaucratic barriers.

The research makes it possible to retrace the forms of business and authority relationship. More than half of the respondents (51.3%) use the real property leased from the public authorities, 71.3% – supply some goods or render some services to the government or local institutions, in addition to that 28.3% of the respondents have no more than 10% of the monthly turnover from the services and delivery to the government institutions, 35% of the respondents have 50% and more of this share.

In view of the business representatives who took part in the research the pressure of corruption has been reflected at the regional level. While in 2005 the issues on poverty, poor wages (44.3%), increase in prices (35.8%) and bribetaking (29%) took the first places among the problems of society, which disturbed the entrepreneurs of the region, in 2009 the rating of the most urgent problems changed: the first place is taken by the problem of poverty and poor wages (50%), the second one – bribe-taking of officials and corrupt practices (40.9%), the third one – increase in prices (22.7%).

The corruption became the norm of social life and transformed into the specific social institution. The objective foundation of corruption origin is the need of population and business to simplify the administrative connections, to speed up administrative decision making and to reduce the bureaucratic barriers. There was appeared the distribution of social roles between the subjects of corruption relations (bribe-giver, bribe-taker, mediator). The certain rules of play, corruption norms and even slang and symbols have been formed. Some price of such services has been fixed, and this charge is known to those who are interested in it.

In spite of the fact that for the period under review the list of primary causes of corruption has remained unchanged, the rank of their importance has changed. In 2005 in the opinion of businessmen and managers the principal causes of corruption were confused laws, their broad interpretation, inconsistency of the laws, wide freedom of official’s discretion given by the law or the instructions, need for obtaining a lot of agreements and permits, disorder of government’s verification activities and also corrupt authority at the highest level, poor work of law-enforcement agencies (tabl. 1) .

In 2009 among the principal causes of corruption all respondents note the poor work of law-enforcement agencies (100%), the wide

Table 1. Question: “Evaluate the importance of the corruption causes in Russia”, % *

Possible cause	Business and authority
	2005 n=207	2009 n=214
Confused laws, their broad interpretation	95.4	96.5
Corrupt authority at the highest level	94.9	95.7
Poor work of law-enforcement agencies	84.6	100.0
Wide freedom of official’s discretion given by the law or the instructions	87.8	97.5
Disorder of government’s verification activities	91.3	90.9
Need for obtaining a lot of agreements and permits	89.3	91.3
Inconsistency of the laws	90.8	86.4
Oligarchies’ influence on the authority	85.6	87.0
Immorality of politicians and government employees	80.6	94.7
Weak judicial system, non-execution of court decisions	73.0	73.9
* The table contains only the indicator showing the gravity of influence.

freedom of official’s discretion (97.5%), the confused laws and their broad interpretation (96.5%); the corrupt authority at the highest level (95.7%) correlates with the increased immorality of politicians and government employees (94.7%).

The public opinion doesn’t support the judgement on that one of the causes of bribery spread in the judicial bodies is low salary of the judges. For example, 68.2% business representatives don’t agree with the opinion that the judges are poorly protected and are given low salary, so some of them start bribe-taking.

Because of the economic reforms the most part of population and its economically active business part have been found in different camps. The social study has fixed the radical changes of the moral guidelines. The business representatives have formed the opinion that in our modern Russian society money determines everything and nobody observes the laws. It seems that these are the sources of the permissiveness and the actual impunity for corruption.

In this connection the main reason for bribe-taking is the official’s intention to get rid of so called “little man” complex and in no time to reach the same level as the persons of dominant influence on people’s destinies. It is necessary to pay attention to some experts’ evaluations. According to the latter the corruption is an exchange method, a way of conversion of power into money and vice versa. It is not an accident that the business representatives and the oligarchies begin to influence on the authority and in such way they solve the problem of business’s political security as well as extend their opportunities to lobby for their economic interests. Today the bribe is in fact a form of indirect tax on income for the businessmen.

The sociological analysis shows some contradictoriness of the situation: on the one hand the businessmen denounce the corruption phenomena in our society, on the other hand they consider that the bribes promote the problems solution, speed up many administrative procedures and simplify them. While in 2005 just over half of the respondents (55.1%) considered that “the bribes should be avoided, because the corruption demoralizes us and our authority”, in 2009 the share of the respondents with such opinion was 40.9%. Among the reasons for bribing the first place is taken by “ceremonial bribes”, when both parties interpret them as a nature-imposed necessity; the second place – avidity of officials making some hints about bribing; the third place – bribing because of hopeless situation when there is no any other way to solve the problem (tabl. 2) .

It is significant that in the business representatives’ opinion for the past period of time the officials’ initiative in making the corruption situations has went up considerably – from 28.6% in 2005 to 46.2% in 2009, while the citizens’ initiative in bribe taking has been reduced

Table 2. Question: “What is the reason for giving bribes to an official?” (by % out of the respondents number)

Bribery reasons	2005	2009
Official himself forces, hints or creates the situation for bribery	28.6	46.2
Citizens themselves show initiative	10.7	4.3
Both parties know that bribery is some kind of rule	43.4	34.8
No other way to solve a problem	10.7	9.4
To find difficulty in replying	6.6	5.3

by more than twice. The business representatives fail to withstand the competition and to go through all zigzags of the Russian legislation without the “help” of the officials.

While in 2005 the percentage of the respondents (who state that the business firms like those where they work at have to give bribes to the officials 1 – 2 times a year) was 14.8%, in 2009 the percentage of such answers reached 26.1%. The problem of bribing is a regular issue among the entrepreneurs. In 2005 44.2% of the respondents answered in the affirmative to the question: “Did at least one of your closest acquaintances or business colleagues complain during the last month about the fact that he or she had to give bribe, present or tribute to solve his or her problems?”, in 2009 – 39.1%. Answering to the question what percentage (%) out of the monthly turnover does the firm such as their firm have to spend on the “financial stimulation” of the officials, the respondents answered that 13.5% of the firms spent from 1 to 5% of their turnover on the “financial stimulation” of the officials, 7.3% of the firms spent from 6 to 10% and 7.3% of the firms – more than 10% of the turnover. In 2009 the share of the meaningful answers was reduced by 2 times, at that the absolute majority gave the option “To find difficulty in replying” or “Refusal to answer”.

As we can see, under the conditions of the anti-corruption measures having been started the business representatives disclose their entrepreneurship activity’s reverse with rather a bad grace, especially if it concerns the amount of bribes. However on the basis of the replies to the question: “If your acquaintances or business colleagues had to give bribes during the last month, how much did it set them back approximately?” – one can conclude that the amount of bribes was from 400 thousand to 3 million rubles. As a result of the research there was revealed the following regularity: the small business representatives are protected from the arbitrary rule of the officials less, the share of their bribing expenses in the monthly turnover is twice more than the share of the large business representatives’ expenses.

If one retraces the business management strategy it will be clear that the absolute majority of the business representatives in the poll are law-abiding, they try to deal with the authority as little as possible and to obey the laws (78.1%); only 13.5% of the respondents break the laws using the informal methods. If it is found impossible to handle the situation with the help of authority the entrepreneurs resort to different ways to keep their business – they use the existed methods and keep searching for some new ones. 33.3% of the business representatives in 2005 used the imperfections in legislation; 29.2% used the lack of rules in order to achieve their goal; 26.6% made the acquaintance of the senior officials; 22.4% tried to find a powerful partner in Russia; 22.4% resorted to the help of the officials whom they had helped before; 10.4% sought help from the professional associations. In 2009 the first place among the mentioned above methods was taken by the search for a powerful partner in Russia (42.9%); the search for connections with the officials (23.8%) and their help (23.8%) were approximately at the same level; and the help from the professional associations (4.8%) was used the least.

As the businessmen from the Arkhangelsk region suppose, the most serious obstacle to

Factors	2005		2009
	%	Importance rank	%	Importance rank
High crediting interest rates	88.7	1	95.4	1
High fuel prices	84.0	2	90.9	3
Inefficiency of bureaucratic apparatus	81.9	3	85.7	6
Confusion of the rules of tax legislation	80.4	4	86.4	5
High tax level	80.3	5	82.4	7
Tax uneven distribution established by the law	77.4	6	77.2	9
Lack of clear economic policy of the government	76.3	7	77.4	8
Checkup and excessive demands of the supervisory bodies	75.7	8	88.4	4
Difficult of obtaining the credit	73.7	9	94.5	2
Unfair competition	73.6	10	72.8	10
* It was admitted of choosing several response alternatives.

In the respondents’ opinion to do private business is a high risk, not so much because of the entrepreneurs’ own omissions as because of the external factors conditioned by imperfect law and inefficiency of state apparatus when stimulating the competition development under the market relationship. The unpredictable situation in regard to economy and policy sometimes makes unreal to have the business in prospect.

Today not only large enterprises but also middle and small ones begin to comprehend the necessity for ensuring of the business's political security. Every tenth business representative states that their firm sometimes gives financial assistance to some party or some politician and during the elections such support is given by about 25% of the commercial organizations.

The research gives the opportunity to consider the business representatives’ view on the degree of corruption spreading into the different levels of authorities in the region. The respondents are sure that many people in the bodies of power take the bribes (tabl. 4) .

The research didn’t set the goal to have a legal confirmation of the northerners’ public opinion about the problems of corruption in the legislative and executive authorities in the Arkhangelsk region. But unfortunately such facts exist. According to the sentence of the Arkhangelsk regional court as of November, 17, 2006 the ex-deputy of the Arkhangelsk town council V. Vorobyev was found guilty of grand bribery to promote parcelling out of land in the center of the town for trade outlets and was sentenced to the strict regime colony for 8 years. Some public charges of bribe-taking were brought against the ex-governor of the Arkhangelsk region N.I. Kiselyov in the federal and regional media.

Table 4. Business representatives’ opinion about corruption spread in the bodies of power of the Arkhangelsk region (the year 2009; % out of the respondents number)

	The minority takes bribes	The majority takes bribes	Approximately in equal parts	To find difficulty in replying
The Arkhangelsk region authorities	22.8	36.1	17.4	23.7
Among the factions of the regional Assembly of deputies	13.8	45.5	13.6	27.1
Among the deputies of the regional Assembly	18.3	34.4	8.2	39.1
In the mayor’s office in the town where you live	15.4	36.8	21.7	26.1
Among the factions of the town (municipal) council	18.2	40.9	12.1	28
Among the deputies of the town (municipal) council	18.4	39.8	16.4	25.4

In 2009 running the program on antirecessionary measures the Government of Russia counted the point that “dependable business must be released from officials’ pressure” among the seven major priorities. The government will proceed with their lowering of administrative obstacles to business; such obstacles are one of the corruption causes. There will be offered a new package, which let the small business develop successfully under the conditions of crisis.

Under the economic and political crisis the state has to cooperate with business representatives for the reasons of objective necessity. The comparative analysis of population’s mentality and businessmen’s mentality shows that the population keeps some firm paternalistic expectations from the Soviet era about the government’s responsibility for ensuring the employment of all people. However while the proponents of paternalism among the population made up 80.7%, their share among the business representatives is two times as little. When the most enterprises are privately owned, the job opportunities of the state are rather limited and in general they just adds up to either retraining, teaching the unemployed persons some new skills or welfare unemployment payment. It is observed in the RF government program of anti-recessionary procedures for the year 2009 that the RF subjects adopted 82 regional programs stipulating the predictive occupational training in the case of threat of wholesale dismissal, the job creation, organizing the removal of those who are dismissed to another territory for new job; the quantitative characteristics of these procedures and their financial provision have been determined.

Under the conditions when the legislative, executive and judicial powers are more or less affected by corruption, the powerful weapon against corrupt practices is transparency of the government and municipal officials’ activity as well as openness of the information about the officials’ and their family members’ income.

A regular regional sociological monitoring of the manifestations of different forms of corruption and the efficiency of the taken actions could be the effective anti-corruption measures. An important part could be played by the media releasing not only the matters about the facts of corruption but also the commentary on it and the investigation data.

In conclusion it should be stressed that overcoming of corruption is a lasting process: it cannot be cancelled or abolished “from today for tomorrow”. But to develop the strategy and the tactics of organizing the anti-corruption struggle is possible, if one study the observable object itself. The sociological approach to the corruption research gives an opportunity to comprehend its complex cause, to diagnose its condition and to suggest the fine social procedures for liquidation of this social phenomenon.

We would like that the phrase of P. Vereschagin, the head of the former tsarist customs “I don’t take any bribe, I’m suffering for my native country!” from the film “White sun in the sands” will become a moral guideline not only for our officials of the government and municipal management but also for all law enforcement officials, judges and other workers of all spheres of activity in the Russian society..