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Corruption in State-Business Relationsthe study on small and medium business

in St. Petersburg, Russia

Fighting corruptionFighting corruption in post-socialist countriesin post-socialist countries: : Cases of Russia and HungaryCases of Russia and Hungary

Kranjska Gora, Slovenia27-29 June, 2004

Irina Olimpieva, Oleg Pachenkov Centre for Independent Social Research

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ContentsContents

I.I. Research descriptionResearch description

Research objectivesResearch methods

II. II. Main findingsMain findings

Scale of corruptionRoutinization of corruption“Soft terror” in state-business relations

New actors in the market of bureaucratic services Anti-corruption in business sphere

III. III. Conclusions Conclusions

 

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I. I. Research descriptionResearch description

Objectives of the research• to outline the typology of business corruption at the

regional and municipal level;• to gauge the extent to which the corrupt practices

of business are adaptive responses to the legislative, economic and social environment;

• to identify key problems facing small business that provide a breeding ground for corruption;

• to evaluate the willingness and readiness of business people to act against corruption.

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Research methods

A combination of qualitative and quantitative methods:

• Survey of business people in St. Petersburg. 355 respondents - top managers representing different types of business organizations in terms of size, form of ownership, and sphere of activity

• Interviews with businessmen30 in-depth interviews with business people in St. Petersburg

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II. Main FindingsII. Main Findings

Scale of corruptionTable 1

General evaluations of corruption

Evaluations of the scope of corruption in Russia

Possibility to avoid corruptive practices significant

Not as large as it used to

think

it is possible to manage without getting

into corruption relations. 44,2 2,7

it is impossible to avoid corruption relations for running business. 31,9 18,8

Table 2

Frequency of corruption practices and evaluation of corruption in business sphere (%)

Frequency of corruption relations

in recent year

Evaluation of corruption

Regularly (once a month and more often)

From time to time Seldom Not once Total

In our business sphere everything is based entirely on corruption and informal relations

57,4 35,2 7,4 0,0 100,0

21,8

In our sphere to run a business not getting involved into corruption relations is rather an exclusionary case

26,8 41,5 19,0 12,7 100,0

32,2

In our business sphere it is possible to run a business not resorting to corruption practices

2,7 17,0 37,5 42,9 100,0

24,2

It is difficult to say 3,7 40,7 29,6 25,9 100,0

21,8

Total 16,1 42,4 33,4 8,1 100,0

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Routinization of corruption

A serious stress

An annoying hindrance which has to be abolished the sooner the better

Just one of the working moments of business

Other Total

All respon. 12,2 31,9 45,7 … 100,

Sex

Male 7,5 35,5 49,0 … 100,

Female 19,4 29,9 41,0 … 100,

Age

Under 25 0,0 28,6 64,3 … 100,

26-35 10,0 29,0 53,0 … 100,

36-45 12,9 34,5 42,2 … 100,

46-55 14,9 29,8 43,6 … 100,

over 55 20,0 60,0 10,0 … 100,

When you face the necessity of using informal means to solve a problem, how does this situation feel for you? (in percent)

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“Soft terror” in state-business relations•Impracticability of formal rules

“If you had not been violating the rules… If you had been playing fair, then it would have been better not to be working at all!”

“In such a situation, in the real state of thing, constantly, whatever you do, you always violate the law. And you always feel yourself a criminal and in fact, you are forced to make pay offs.”

•“Soft terror” of bureaucrats

“In reality, when the inspectors come to your business and find problems, you will understand that they have come here not to shut you down as soon as possible. No, they have come here in order to get some money from you”.

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New actors in the market of bureaucratic services

•Informal and semi-formal intermediariesCustoms

«…OK, as for customs … they solve the problem in another way. They do not have…how to say...these direct relationships like “bribe-decision” . Everything is rather covert there, and, they have, say, nearby-custom structures that guide all operations with your cargo and solve the problems with customs officials. Is this bribe or not?»

“... We tried once to go through customs procedures using a ‘grey’ scheme. And it turned out to be much easier and much cheaper. And now we are thinking: what for? Why have we suffered so much for five years? Every time we bring a commodity through customs costs four days of my life”.

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Real estate

“Q: Did you have any problems with officials to open your shop?

A: Oh, horrible! There was a lawyer firm at the district administration that offered us very good premises. But then it turned out… Well, we said in the very beginning that everything was official and we completed a cashless transfer. Nonetheless, we were told that "You need to bring $300 every month in cash anyway [... ]. And it was impossible to reject, because this firm is at the administration and we were told: We will simply not allow you to work in this district!”

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Licensing and certification

“We pay the firm, and they do everything. They collect all the necessary documents, which are simply bought. Because nobody has so much time to collect all this – it would take me half a year! Besides I have no idea where to go to get these documents […] And these firms, they are created around those officials who deal with issuing licenses - a dozen people involved, you know! If they bring this paper – it will be accepted [by the officials], if not [them] – well, it won’t. It’s amazing! ”

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• Indirect mediating«There is a lot of firms selling fire protection alarm systems with

all necessary norms and rules. But we were told at the very beginning that : “you know, guys, even if you find a cheaper fire alarm system and install it following all formal requirements, it wouldn’t be accepted by fire inspection. Because we have a monopoly in this district. Such and such firm is selling alarm systems here, and the owner of this firm is a chief policemen of the district. That’s it»

«Accordingly, at the very beginning sanitary inspection conducted raids upon us, well, say – flying visits with insinuations {…} then we begin to interact according to informal agreement – we send our employees for medical examination to a certain clinic at which they point a finger – for us it doesn’t matter whom to pay this money. And I do not know what kind of connections they have got there.»

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Why businessmen prefer to deal with intermediates? Because it is:

a)simpler (intermediates know all the details and hidden dangers of this process);

b) faster and anyway it saves time and therefore - money;

c) not the least factor - it makes possible to avoid emotional strain, which is usually a painful part of the interpersonal communication between businessmen and officials.

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Emotional strain

“I want to say that every official - depending on his upbringing, his intellect and I don’t know what else to a greater or lesser degree - would necessarily smear you on the table. If he is a cad, then he will be actively doing this. If he is a well-brought-up, then he will be doing this by his indifference. None of them cares about you!”

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Anti-corruption in business sphere

“Q. – What do you think, if for instance there is some union of businessmen, would it help?

A. - I am convinced that it will be a union – “though the dog is barking, the caravan keeps going”.

“… All entrepreneurs can gather, sit in a room, smoking, drinking coffee and saying that "OK, now we are starting to fight. But when a single businessman will be addressed by some agency, he will solve his problems himself, because he understands that if he does not give a bribe because he wants to stick to his principles, he will loose much more in the future.”

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III. III. Conclusions Conclusions

1. Institutionalisation of informal bureaucratic mediation - informal mediating has become generally accepted practices and autonomous (one of the most profitable) business sphere

Formalisation of intermediaries - performed by legal firms possessing licenses for different kinds of services

Informal mediating - mediating services which are based on informal access to various bureaucratic bodies.

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Institutionalisation of informal mediating

Routinization of corruption

Weak civil society

Soft terror of the state

LEGALIZATION OF CORRUPTION?

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BUSINESS

STATE

Intermediaries Civil society

Options for business to cope with uncertain and unfavourable business environment