#15 - JRL 9039 - JRL Home
Moscow Times
January 28, 2005
Confronting Corruption
By Sergei Guriyev
Sergei Guriyev is rector of the Higher School of Economics in Moscow. He contributed this comment to Vedomosti, where it originally appeared.

Contrary to common belief, corruption is more than just putting money in bureaucrats' pockets. It is a sure-fire way to slow economic growth. International research demonstrates that corruption has a tangible negative impact on growth. International Monetary Fund economist Paulo Mauro estimates that if Russia managed to reduce corruption to levels similar to those in Greece or the Czech Republic, investment would increase by 4 percent of GDP, and GDP growth rates would rise by at least half a percentage point per year. If we could reduce corrupt activity to Scandinavian levels, the effect would be twice as significant.

Corruption's influence on growth is obvious: Universal corruption not only functions as a tax that distorts processes in the private sector, but it also ruins the government's opportunity to implement socioeconomic strategies. For this reason, all countries have to combat corruption in some shape or form.

Yet few succeed in winning the fight. Battling corruption is particularly difficult if it has infected several government branches simultaneously and hit several levels of the bureaucratic hierarchy at once. In order to win the fight against corruption, those guilty of corrupt activity must be consistently and constantly punished. If corrupt officials are punished selectively -- even if the penalties are harsh -- the likelihood that mistakes will be made in a system corrupt from top to bottom is very high, as a bribe can get an official off the hook or land a rival in trouble. Moreover, if the authorities are corrupt not only at the lowest levels, but also at the highest, the rules of the game are written to encourage corruption.

One recipe for success in battling corruption is based on the illegitimate nature of corrupt deals. Mutual obligations for the parties involved in bribery cannot be enforced in courts of law. How can you force an official to do what he promised after he already has your money? And why pay an official who has already rendered an illegal service?

Thus, with the threat of deception or even denunciation hanging over their heads, both bribe givers and bribe takers wind up in a very delicate and awkward situation. The less trust there is between the two parties, the less corruption occurs. For this very reason, informers are protected by the law in many countries, in the private as well as the state sector. An entire section of the Sarbines-Oxley Act, which was recently passed in the United States, is dedicated to protecting corporate insiders who blow the whistle on corruption.

This same logic could be applied to the Russian context. The fear of getting caught is one of the main reasons Russian traffic police politely but firmly invite drivers to get into their patrol cars to write up violations, instead of asking for a bribe in plain view. A simple solution to this problem, which would make it much harder to collect bribes, would be to prohibit drivers from leaving their cars, which is the way things often work in the United States, for example.

Researching the nature of corruption deals is by definition extremely difficult, which only makes a recent article in the Journal of Economic Perspectives all the more extraordinary. The article, by economists John McMillan and Pablo Zoido, chronicles the career of the chief of Peru's secret police, Vladimir Lenin Montesinos Torres. Montesinos practically ran Peru in the 1990s. Though death squads and the fight against terrorism cost more than 70,000 lives in those years, Montesinos' power was based first and foremost on buying off, not killing, political rivals. He understood the perils of the cycle of violence and retribution and preferred instead to spend millions of Peruvian taxpayers' dollars every month on bribes to politicians, judges, officials and journalists. To make sure they kept their promises, Montesinos not only made people sign off on deals, but even filmed them taking bribes on video. These tapes were later called "vladivideo" in honor of their creator.

McMillan and Zoido were able to analyze how large the bribes were that allowed Montesinos to control the government system in Peru, a system which bore all the earmarks of a democracy: elections, term limits, an independent judiciary and independent media.

The economists' research revealed which institutions Montesinos considered the most important. Bribes to rank-and-file judges ran in the thousands of dollars, while justice officials, members of parliament and prime ministers received from $5,000 to $20,000 per month. The owners of television stations, on the other hand, got monthly bribes in the hundreds of thousands or even in the millions of dollars. Montesinos apparently believed that complete control of television eliminated any chance of political success for the opposition. As he stated to a member of the opposition at a press conference, "If no one broadcasts this press conference, that means it never happened."

Montesinos used the media to create the political phenomenon of Peru's highly popular president, Alberto Fujimori. Fujimori did succeed in defeating Maoist rebels in the Shining Path, and Peru's economic growth climbed to an average rate of 4 percent per year, compared to an annual decline of 1.2 percent in the previous decade. However, the public only understood the price of this economic success after Fujimori left office.

In the end, the illegitimacy of corruption deals, which forced Montesinos to keep careful records, proved to be his downfall. One videotape from the vladivideo collection wound up in opposition hands. As this happened immediately after Fujimori had won his third term -- after the necessary changes were made to the Peruvian constitution and after a certain amount of gerrymandering -- the public became so enraged that they forced the president out of office.

Fujimori fled to Japan, and Montesinos to Venezuela, before he was eventually extradited back to Peru. Unfortunately for Montesinos, his video archive fell into the hands of the victorious opposition and gave them plenty of evidence to sentence him first to nine years, then to another five, then to another eight, and finally to yet another 15 years in prison. Almost 500 of his accomplices were also accused of various crimes.

In addition to exploiting illegitimacy and consistently punishing violators, another important element in reducing corruption in the bureaucracy is transparency. In Uganda, the central authorities were able to put an end to the misappropriation of funds for schools by conducting a large informational campaign and making public the amount of funding assigned to each district. Economists Ritva Reinikka and Jakob Svensson reported recently that this campaign helped reduce the misappropriation of funds from 80 to 20 percent. The anticorruption campaign proved most successful in the districts with the highest concentration of newspaper kiosks. A similar approach would work well in Russia, and similar information should be made public via the press. We could make significant progress against corruption if state agencies' decisions -- for example, court rulings or the results of state purchasing tenders -- were posted on the Internet.

Yet the first step in fighting corruption is to stop deceiving ourselves into believing that corruption is a normal part of life. The problem will not be solved if Russians continue to pretend there is no problem.