Central Europe Review Balkan Information Exchange
Vol 2, No 37
30 October 2000
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Sam VakninStraf
Corruption in Central and Eastern Europe
Sam Vaknin

The three policemen barked "straf, straf" in unison. It was a Russianized version of the German word for "fine" and a euphemism for bribe. I and my fiancée were stranded in an empty ally at the heart of Moscow, physically encircled by these young bullies, an ominous propinquity. They held my passport ransom and began to drag me to a police station nearby. We paid.

To do the fashionable thing and to hold the moral high ground is rare. Yet, denouncing corruption and fighting it satisfies both conditions. Such hectoring is usually the preserve of well-heeled bureaucrats, driving sports utility vehicles and banging away at laptops.

The General Manager of the IMF makes USD 400,000 a year, tax-free, and perks. This is the equivalent of 2300 monthly salaries of a civil servant in Macedonia—or 7000 monthly salaries of a teacher or a doctor in Yugoslavia, Moldova, Belarus or Albania. He only flies first class and each one of his air tickets is worth the bi-annual income of a Macedonian factory worker. His shareholders—among them poor and developing countries—are forced to cough up these exorbitant fees and to finance the luxurious lifestyle of the likes of Kohler and Wolfensohn.

And then they are made to listen to the IMF lecture them on belt-tightening and how uncompetitive their economies are due to their expensive labour force. To me, such a double standard is the epitome of corruption. Organizations such as the IMF and World Bank will never be possessed of a shred of moral authority in these parts of the world unless and until they forgo their conspicuous consumption.

What is corruption?

Yet, corruption is not a monolithic practice. Nor are its outcomes universally deplorable or damaging. One would do best to adopt a utilitarian and discerning approach to it. The advent of moral relativism has taught us that "right" and "wrong" are flexible, context-dependent and culture-sensitive yardsticks.

What amounts to venality in one culture (Slovenia) is considered no more than gregariousness or hospitality in another (Macedonia).

Thus, we are better off asking "qui bono?" rather than "is this the right thing to do?" Phenomenologically, "corruption" is a common—and misleading—label for a group of behaviours. One of the following criteria must apply:

(a) There is a withholding of a service (which might include also information or goods) that, by law, and by right, should have been provided or divulged.

To have a phone installed in Russia one must openly bribe the installer (according to a rather rigid tariff). In many of the former republics of Yugoslavia, it is impossible to obtain statistics or other data (the salaries of senior public officeholders, for instance) without resorting to kickbacks.

(b) There is provision of a service that, by law, and by rights, should not have been provided or divulged.

Tenders in the Czech Republic are often won through bribery. The botched privatizations all over the former Eastern bloc constitute a massive transfer of wealth to select members of a nomenklatura. Licences and concessions are often granted in Bulgaria and the rest of the Balkans as means of securing political allegiance or paying off old political "debts."

(c) The withholding or the provision of a service is one person's power and the withholding or the provision of the aforementioned service constitutes an integral and substantial part of the authority or the function of the withholder or provider.

The post-Communist countries in transition are a dichotomous lot. On the one hand, they are intensely and stiflingly bureaucratic. On the other hand, none of the institutions function properly or lawfully. While these countries are legalistic—they are never lawful. This fuzziness allows officials in all ranks to usurp authority, to trade favours, to forge illegal consensus and to dodge criticism and accountability. There is a direct line between lack of transparency and venality. Eran Fraenkel of Search for Common Ground in Macedonia has coined the phrase "ambient corruption" to capture this complex of features.

(d) A service is provided or divulged against a benefit or the promise of a benefit from the recipient, and as a result of the receipt of this specific benefit or the promise to receive such benefit.

It is wrong to assume that corruption is necessarily, or even mostly, monetary or pecuniary. Corruption is built on mutual expectations. The reasonable expectation of a future benefit is, in itself, a benefit. Access, influence peddling, property rights, exclusivity, licences, permits, a job, a recommendation—all constitute benefits.

(e) A service is withheld because no benefit was provided or promised by the recipient.

A multi-faceted phenomenon

Even then, in CEE, we can distinguish between a few types of corrupt and venal behaviours in accordance with their outcomes (utilities):

(a) Income supplement

This group encompasses corrupt actions whose sole outcome is the supplementing of the provider's income without affecting the "real world" in any manner. Though the perception of corruption itself is a negative outcome, it is so only when corruption does not constitute an acceptable and normative part of the playing field.

When corruption becomes institutionalised, it also becomes predictable and is easily and seamlessly incorporated into decision making processes of all economic players and moral agents. They develop "by-passes" and "techniques" which allow them to restore an efficient market equilibrium. In a way, all-pervasive corruption is transparent and, thus, a form of taxation.

This is the most common form of corruption exercised by low and mid-ranking civil servants, party hacks and municipal politicians throughout the CEE. More than avarice, the motivating force here is sheer survival. The acts of corruption are repetitive, structured and in strict accordance with an unwritten tariff and code of conduct.

(b) Acceleration fees

This includes corrupt practices whose sole outcome is to accelerate decision-making, the provision of goods and services or the divulging of information. None of the outcomes or the utility functions are altered. Only the speed of the economic dynamics is altered.

This kind of corruption is actually economically beneficial. It is a limited transfer of wealth (or tax) which increases efficiency. This is not to say that bureaucracies and venal officialdoms, over-regulation and intrusive political involvement in the workings of the marketplace are good (efficient) things. They are not. But if the choice is between a slow, obstructive and passive-aggressive civil service and a more forthcoming and accommodating one (the result of bribery), the latter is preferable.

Acceleration fees are collected mostly by mid-ranking bureaucrats and middle-rung decision makers in both the political echelons and the civil service.

(c) Decision-altering fees

This is where the line is crossed from the point of view of aggregate utility. When bribes and promises of bribes actually alter outcomes in the real
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world, a less than optimal allocation of resources and distribution of means of production is obtained. The result is a fall in the general level of production. The many is hurt by the few. The economy is skewed and economic outcomes are distorted. This kind of corruption should be uprooted on utilitarian grounds as well as on moral ones.

(d) Subversive outcomes

Some corrupt collusions lead to the subversion of the flow of information within a society or an economic unit. Wrong information often leads to disastrous outcomes. Consider a medical doctor or a civil engineer who bribed their way into obtaining a professional diploma. Human lives are at stake.

The wrong information, in this case, is the professional validity of the diplomas granted and the scholarship (knowledge) that such certificates stand for. But the outcomes are lost lives. This kind of corruption, of course, is by far the most damaging.

Unfortunately, it is widespread in CEE. It is proof of the collapse of the social treaty, of social solidarity and of the fraying of the social fabric. No Western country accepts CEE diplomas without further accreditation, studies and examinations. Many "medical doctors" and "engineers" who emigrated to Israel from Russia and the former republics of the USSR, were suspiciously deficient professionally. Israel was forced to re-educate them prior to granting them a licence to practice locally.

(e) Reallocation fees

These are benefits paid (mainly to politicians and political decision makers) in order to affect the allocation of economic resources and material wealth or the rights thereto. Concessions, licences, permits, assets privatised, tenders awarded are all subject to reallocation fees. Here the damage is materially enormous (and visible), but, because it is widespread, it is "diluted" in individual terms. Still, it is often irreversible (like when a sold asset is purposefully under-valued) and pernicious. A factory sold to avaricious and criminally minded managers is likely to collapse and leave its workers unemployed.

Corruption pervades daily life even in the prim and often hectoring countries of the West. It is a win-win game (as far as game theory goes)—hence its attraction. We are all corrupt to varying degrees. But it is wrong and wasteful—really, counterproductive—to fight corruption in CEE on a wide front and indiscriminately.

It is the kind of corruption whose evil outcomes outweigh its benefits that should be fought. This fine (and blurred) distinction is too often lost on decision makers and law enforcement agencies in both East and West.

Sam Vaknin, 23 October 2000

The author is General Manager of Capital Markets Institute Ltd, a consultancy firm with operations in Macedonia and Russia. He is an Economic Advisor to the Government of Macedonia.

DISCLAIMER: The views presented in this article represent only the personal opinions and judgements of the author.

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