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Corruption in Ukraine: Behind and Corruption in Ukraine: Behind and Beyond the Orange RevolutionBeyond the Orange Revolution
Vladimir DubrovskiyVladimir Dubrovskiy
The 2004 Transparency International Corruption Perceptions Index
CASE Ukraine
114. Rep. of Congo 2.3 Ethiopia 2.3 Honduras 2.3 Moldova 2.3 Sierra Leone 2.3 Uzbekistan 2.3 Venezuela 2.3 Zimbabwe 2.3122. Bolivia 2.2 Guatemala 2.2 Kazakhstan 2.2 Kyrgyzstan 2.2 Niger 2.2 Sudan 2.2
128 Ukraine 2.2129. Cameroon 2.1 Iraq 2.1 Kenya 2.1 Pakistan 2.1 http://www.infoplease.com/ipa/A0781359.html
Out of 147 countries
CASE Ukraine
160 Liberia -0.86
161 Moldova -0.86
162 Niger -0.87
163 Pakistan -0.87
164 Sierra leone -0.88
165 Kenya -0.89
166 Ukraine -0.89
167 Indonesia -0.90
168 Papua new guinea -0.90
169 Belarus -0.91
170 Georgia -0.91
171 Libya -0.91
172 Kyrgyz republic -0.92
173 Togo -0.92
174 Djibouti -0.94
175 Venezuela -0.94
Control of Corruption (2004), Point Estimate
Governance Matters IV:Governance Indicators for 1996-2004Daniel Kaufmann, Aart Kraay, and Massimo Mastruzzi
The World Bank, May 2005
Out of 204 countries
CASE Ukraine
Petty corruption: medicine, education, traffic enforcement ….
Corruption in state-business relations
Embezzlement and abuses of procurement
Extortion
Just increase the salaries and improve the control
Improve the transparency and control
Bribing
“State Capture” by Corrupt Networks
Collusion Karklins,
2002
Hellman,1998;Hellman, Jones, and Kaufmann, 2000
CASE Ukraine
Revenues typically paid to officials to "get things done" (% of sales)
0.00 1.00 2.00 3.00 4.00 5.00 6.00
CambodiaKyrgyzstan
RomaniaBangladesh
UkraineKazakhstan
PakistanBulgaria
ChinaSlovakia
RussiaPoland
SloveniaLithuania
Is it the “bribe tax” that makes a difference?
Investment Climate Assessments survey. IFC, 2002
CASE Ukraine
“Business Environment in Ukraine”. IFC, Septamber, 2003
CASE Ukraine
“Business Environment in Ukraine”. IFC, December, 2004
Corruption itself is perceived as a serious impediment for doing business…
… while the other impediments are connected to it
Institutional legacy (following North; Putnam)
“The severity of the Russian laws is alleviated only by discretion in their enforcement” “… just this disorder makes life in Russia
possible”
Institutional memory of the former empire: Institutional memory of the former empire:
Legislation is designed (intentionally?) in such a way that almost EVERYONE must become a lawbreaker
Discretion is the only resort from such a “total guilt”
Every business is subject to the authorities’ Every business is subject to the authorities’ arbitrary, discretionary powerarbitrary, discretionary power
CASE Ukraine
“Who are the boss, we or the law?”
“Laws are written for the fools”
Karamsin, 19th century Russian historian
Gertzen, 19th century Russian social thinker
CASE Ukraine
Corruption is embedded into the structure of post-Soviet society
Reputation-based informal networks of interpersonal mutual exchange with “favors of access” (blat)
Emerge to facilitate the illegal transactions of all kinds
““One has to One has to deservedeserve a a rightright to pay a bribe” to pay a bribe”
No contract enforcement is officially available
Normal economic activities are considered illegal
Forced modernization, especially the Communist regime:
Legislation violates the natural law
Ledeneva, 1998
Weak rule of law
Litwak, 1991 (!) while
FACILITATES
CASE Ukraine
Legislation (flawed,
ambiguous, impracticable)
Corruption
Discretion
ENHANCES
INTEREST INTEREST
Decreasing the demand for improvements
ALLEVIATESALLEVIATES
Uncontrolled and mostly affiliated with business
Strictly controlled and separated from business
Possesses the political power to magnify ambiguity and non-transparency in legislation
No decision-making power
Clear separation of “powers” from branches of State
Controls politicians rather than vice versa. Tries to control mass-media to avoid public scrutiny
Operates under constant public scrutiny and political oversight
Poorly-paid and dependent upon administrative rents (in money or barter)
Relies upon discretionary power and vague and arbitrary informal rules
Highly-paid professional public servants facilitating rational processes of control.
Implements legislation in a strictly formal (impersonal) way
Administrative power in Ukraine
Bureaucracy (Weber)
Officials: not a bureaucracy
CASE Ukraine
Consequences
Inhibited business selection through the entry and exit
Suppressed entrepreneurship and FDI
Distorted political representation
Poor governance
Misuse and misallocation of resources
High social costHigh social cost
CASE Ukraine
“Business Environment in Ukraine”. IFC, December, 2004
A tacit social contract:
“We” do not bother
“them”, “they” do not
bother “us”
BlatBlat
Whither “captured statecaptured state”: a dead end?
Business:
a “Milk caw” or
a “Rent pump” for officials
Administrative power:
Provides protection and patronage for
business
Property rights, rents
Public
Sources of rents
Perceived totally corrupted
Perceived totally rent-
seeking
PASSIVE PLAYER
PASSIVE PLAYER
Perceived Perceived manipulatedmanipulated
CASE Ukraine
Public is not passive any more
Societal structures are persistent
Authorities are committed to fight corruption seriously
Legislation did not change significantly
Executive power officials have lesser impact on the legislature
As a result of the revolution:
Political market emerges
“While we’re numerous, we’re invincible!”
Without a truly systemic and well-designed anti-corruption
policy, the loses from corruption increase whenever a
government tries to fight it
Further closing of corrupt networks
but
Thanks for Thanks for your attentionyour attention!!