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Paul Sanders talks about corruption in Russia

The Russian specialist talks at a high-level round table that took place on 12th January in Dijon

On 12th January, the Burgundy Regional Council and Sciences Po Dijon’s Central and Eastern European undergraduate programme organised a high-level round table on the theme of "From Corruption to Following the Rules: economic corruption policies in Russia, Ukraine and Bulgaria". Renowned specialists from the International Research and Study Center (CERI) analysed the question. On this occasion, Paul Sanders, Marketing professor at Burgundy School of Business and Russian specialist, answered the three following questions about corruption.

1) Globally speaking, how can we understand the phenomenon of corruption and try to remedy it?

Corruption is a problem which we speak frequently about, but there isn't a specific way to deal with it. A classical method is to present it from a microeconomic incentive angle. An example is the idea that "Bureaucrats are corrupted because they are “under-paid". However, this model doesn't in fact work.

Corruption is an international phenomenon which is poses real problems for companies that would like to set up in certain countries with Russia being one of them. The subject is all the more sensitive as national legislations are completely ineffective when unclear aspects take place in other countries.

An approach by values and “institutional entrepreneurs” is also fitting: it means helping create an anti-corruption culture as was the case with the judicial reform in Bosnia. It led to the creation of a state court at a national level, (quite uncommon in a country as divided as Bosnia) which fights against organized crime and corruption.

But again, it doesn’t always work when the different community leaders, who control identity formation, are themselves corrupt. They obviously have not interest in things changing.

2) What place does corruption have in Russia specially?

There is clearly a post-Soviet transition aspect that saw the emergence, or survival, of the predatory elite: the bureaucrats are there for the money. With the common interest being the least of their worries, they work for themselves. This is called the “honesty of the elite”. To deal with this phenomenon, Vladimir Poutine spoke about “law disctatorship” when he came to power in 2000. The rhetoric referred to the need for a strong state that applies the law to everyone, without exception, and even through force if necessary. In practice, this iron fist talk turned out to be false because the law isn’t applied to everyone in the same way: applying the law is ultra-selective which facilitates fights between clans and internal power changes. This was seen again in the second trial of Mikhaïl Khodorkovsky, former President and CEO of the oil company, Yukos.

Gilles Favarel-Garrigues, who spoke on 12th January, confirmed that Poutine himself had given up on fighting corruption when he spoke to effect of “If I had a solution to stop corruption, I would have already found it!”Despite everything, and even if the results are weak, Mr Favarel-Garrigues believes that there is a real will at the top level of the Russian state to fight corruption. It can be seen through a programme of major reforms that began 12 years ago. The problem is applying the law because many departments are corrupt at their base, like the MVD (Interior/Police Ministry), the FSB (branch of the ex-KGB, interior secret service) or the Attorney General. Everyone in Russia speaks about the police but almost nothing is made known about the corruption of the other two.

Two figures to understand the phenomenon (and its contradictions!): one third of Russia’s GDP is lost in corruption, and 700 anti-corruption convictions took place in 2009 which are both incredible!

3) You spoke of the corruption problem for companies that would like to set up in countries such as Russia. In concrete terms, what is the impact on them?

We are faced with a dichotomy between law and power and a situation in which relying on the law isn’t enough. Of course it’s necessary for companies to comply with rules, but there is an element of power that comes into play. People are in an environment where numerous externalities, such as state services, are run based on their own interests or do not run at all.

As such, to succeed, a foreign company needs to protect itself from “predators”, meaning structures that will want to extort money from them. It’s therefore necessary to set up a system once there to assure their safety with protection that will happen at several levels, and not simply at the physical level. But more importantly, it’s crucial for them to set-up a network and to expand their contacts. It’s in this sense that it’s important to start with a strong hand. We see that it’s an economy based on who you know, and this logic is quite developed in emerging countries.