-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
1/21
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
2/21
Introduction
According to the annual Transparency International monitoring Russia constantlyoccupies one of the lowest positions in the CPI rating. Extensive discussion on corruption in
Russia in the media and in scientific publications provides however little analysis of how the
corruption process works and what makes it so deeply entrenched. One of the reasons here is
that the very notion of corruption is often used as umbrella term to cover a variety of
fundamentally different phenomena having only one formal feature in common using
official position to gain private profit. This dominating (at least in Russia) research approach
can be labeled state-centered as it considers corruption generally as steeling from the state.
Unfortunately, average statistical indexes illustrating the scale of corruption in Russia tell usnothing new about the nature of this phenomenon just as the data on average temperature in a
hospital can tell nothing about the diseases of its patients. With all importance of state-
oriented approach for general monitoring of the efficiency of the state bureaucracy it is
hardly useful for the explanation of a wide spectrum of informal interactions with authorities
that stand behind the general term of corruption. In order to undertake more profound
exploration of the origins and the nature of corruption it is necessary to change the view on
corruption as a holistic and homogeneous phenomenon for considering it as a bricollage of
numerous corruptions considerably distinguishing from each other. From this point of viewthe general strategy of the study of corruption should be a detailed analytical description of
various corruptions with precise focusing on micro practices, including the cultural norms
they imply, and combining insights gained from these studies with the analysis of institutional
structures.
Also overlooked in the discussion is the fact that the phenomenon of corruption is
constantly changing, reflecting evolution of the economy and society, and this is especially
true for the period of post socialist reforms when the conditions of Russian economy and
society modified essentially almost every year. Corruption is changing not only in terms of its
volume (which is almost impossible to measure), but, more importantly, in terms of
substantial changes in its forms, mechanisms and content, and the emergence of new informal
actors and even institutions. There are constantly new forms of informal interactions
emerging, along with new actors informal intermediaries which facilitate a variety of
informal relationships in the business sphere. In established capitalist economies, the role of
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
3/21
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
4/21
different business sectors. The next part of the paper illustrates the development of the
phenomenon of informal mediating into sustainable informal institution. In the concluding
part of the paper informal mediating will be considered within general context of legalization
of informality taking place in Russian business environment in recent decade and as a new
stage in evolution of corruption in Russia.
Routine corruption in small and medium business
Informal relations with authorities in small and medium business have some specific
features either for the level of bureaucracy involved in the interactions or for the content of
the problems to be solved. These differences are caused first of all by the particularities of
small business - its small scale, high level of involvement in shadow economy,
underdeveloped and overregulated legal environment for small and medium business. Not thelease factor refers to the kind of risks that small entrepreneurs run in their interactions with
official, what could be the consequences of not-using corruption strategy. Like in the well-
known metaphor of R. Tawney, situation in small business can be generally compared to a
man standing up to the neck in the water when even a small wave is enough to get drown.
(Tawney, 1966:77). Our informants often mentioned that in their interactions with officials at
stake was not just a loss of profits but the very existence of business itself. Businessmen
found themselves as hostages of any bureaucratic structure, which can close down any firm
at any moment. This asymmetry in possessing power typical for the relationships between
business and the state in Russia has been already labeled as soft terror (Usyskin, 2003) and
has its most vivid manifestations in small and medium business. It can be stated that small
businessmen is the most vulnerable to the bureaucratic extortion.
For small and medium business the problem of overregulation and impracticability of
formal rules remains the main problem of doing business. The leitmotif of almost all
interviews could be better expressed using the words of one of the informants: 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! As a rule corruption interaction in small business is provoked by
impossibility to obey formal regulations without considerable losses for business. This can be
caused by different reasons. One of them is the obsolete character of departmental
instructions, which are sometimes so outdated that have no practical sense any more.
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
5/21
Although these instructions have already nothing to do with the reality, violating these rules
may lead to punitive measures up to total prohibition of business activities.
We belong to public catering, but we dont cook anything ourselves. They [officials]
insist on installing three new sinks, for example. We dont need them! We dont cook anything! But if they want, they can shut us down because of this. And these norms,
these rules, they have not been changed practically from 1974!?.
(director of the cafe)
Sometimes the rules developed by different controlling departments (e.g., fire and sanitary
inspections) do not correspond or even totally contradict each other. The most illustrative
example of such contradictions is when sanitary inspection requires the wall of the shop to be
painted with some particular type of paint while fire inspection strongly objects to this kind of paint because of its high fire risk.
Even if the rule is feasible sometimes the bureaucratic procedure itself can be so
protracting (because of imperfection of bureaucracy, insufficient qualification of officials,
lack of resources etc.) that might also cause losses and risks for businessmen. In any case
some confrontation usually emerges between businessmen and the bearer of bureaucratic
authority regarding following (obeying) formal requirements. This confrontation is not
necessarily grows into an open conflict, but it always potentially exist. Corruption or bribery
in this case takes the form of some anticipatory action.
As it follows from mentioned above examples the main distinguishing feature of
corruption in small and medium business from other corruptions is to what extent
corruption is the forced measure of resistance to ineffectiveness of bureaucracy and
corruption as a strategy of gaining additional profits or advantages. From interviews with
businessmen corruption hardly appears as some competitive strategy or deviation or even
crime but rather as an attribute of everyday economic routine, the way to overcome
bureaucratic barriers. It can be labeled as routine or everyday corruption, constantly
presented in routine practices of interaction with bureaucracy. Routine corruption is an action
which is aimed not at the improvement of the situation but at not getting it worse. This sort of
corruption prevails in small business but at the same time does not exclude other forms. In our
study we were told about some pocket small firms created purposely for the adoption of
budget finances through which budget finances flew into the officials pockets. These
practices can be considered as examples of classical and usually serve as examples in public
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
6/21
discourse on corruption. We seek to attract attention to the practices of routine everyday
corruption which is less visible due to its self-evident character.
The phenomenon of routine corruption in small business differs from endemic
corruption which is based on cultural norms and traditions rather than on any rational
behavior. Endemic corruption implies rituals of gift giving, building and maintaining of institution of friendship relations. The concept of endemic corruption is often used in studies
of corruption in China, India, African countries where gift giving practices interweaved into
cultural and social context of traditional pre-capitalist societies. The routine corruption can be
called endemic in a sense that it is viewed by businessmen as an effective way to deal with
authorities. However these views are based not only on cultural norms but rather on anchored
in public opinion belief (often based on personal experience) that official institutes are
inefficient or do not work at all and it is almost impossible to solve the problem in a formal
way.Unlike endemic corruption, which is a socially approved regulator of peoples
behavior routine corruption is not really approved and desirable norm but rather a forced
behavior. Even the fact that many businessmen welcome corruption as a practical effective
way to solve the problem informally routine corruption remains generally condemned way of
interactions with authorities. In the given quotation this contradictory condemnation of
corruption can be explicitly traced:
As any rational person I am interested in achieving some desired result. And as
long as a system of state relations exists in given conditions I have to adjust to this
systembecause I am interested to be success in a given system. But I dont like the
system itself. Of course I am trying to keep relations with various officials who make a
lot of useful things for me, and even without any envelopes just due to our good
relationships; we can meet and communicate with each other. But this is not correct.
This should not be in this way. I mean that as long as this system exists it is convenient
for me andreasonable, but still it should not be in this way. And if the state changes
its polarity towards this system of relations than I personally would accept it
withwell may be not pleasure, but I would understand that yes, even it will cause
some inconvenience for me personally but if it is equally changed for everybody
than I will not just accept it, I will welcome it.
(general director of the advocacy firm)
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
7/21
Routine corruption as weapons of the weak
Routine corruption can be defined as passive, defensive reaction of business to the
states pressure (which is principally different from traditional understanding of corruption as
aggressive business strategy). The nature of routine corruption practices in small and medium
business in Russia are more similar to silent resistance of peasants or so called weapons of
the weak that James Scott considered in his studies of peasants (Scott, 1985, 1998). By this
term he implied a wide spectrum of everyday covert forms of resistance taken by peasants in
many countries in different historical periods. The examples of these illegal practices are
poaching in masters and state forests, silent appropriation and utilization of masters lands,
avoiding or detraction of tax payments, and etc. All these practices Scott considers in a wider
context of everyday resistance typical for subordinated, powerless groups of population.
These covert forms of resistance do not imply any political confrontation but have exclusively
pragmatic character aimed at economic survival. In this respect one can see obvious
similarities between silent resistance of peasants and corruption practices in small business
which corresponds better to economy of survival rather than to gaining extra profits.
Similarity of peasants silent resistance to the phenomenon of corruption is
strengthened by similar perceptions of the state personificating formal rules. The perception
of the state is ambiguous. On the one hand, nobody expects anything good from the state.
Interactions with the state always cause a lot of problems and obstacles overcoming of which
is rather expensive. Any innovations coming from above even if they are aimed onimprovement of the situation in small and medium business are percepted very warily, they
do not believe in the possibility to improve the situation. On the other hand, there is some set
of expectations about the functions regarding small and medium business that the state is
supposed to fulfil. One of the most frequently mentioned in the interviews expectations
referred to protection of businessmen from bureaucratic extortion:
I would understand if I should return to the state 10% of the earned money. But! Not
just return. This does not mean that somebody would come up and say like, hey, do
you earn money? Give something to the state. And the question emerges: why should I
pay to the state this tax when the state even incapable to defend me? When I got my
license I paid to the state 1300 rubles, the rest of money which is much more - was
grabbedsay also by the state, by the ministry I cease to understand what is state.
Whether it is a structure that endlessly changes the laws and regulations, i.e.
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
8/21
paranoiaclly trying to improve something but in fact worsening situation? I dont see
what is state. I cant make leasing agreements with CMSP [the Committee for
Management of State Property] which is a main bandit on real estate market-how can
we talk about small business development with such rates of rent? And without any
benefits? I cant take credit in the bank, I cant get my license, I cant rent premises for the money I earn because all of them would rush to guzzle me down. I dont
understand what is state!
(the director of the repairing firm)
This quotation demonstrates distancing from the state typical for small and medium
business. Alike for the peasants for small entrepreneurs it is ore reasonable to avoid or elude
improper law than to change it or to adjust to formal requirements. This strategy is typical
precisely for small business and this is what distinguishes it from big business. On the one
hand, big business is more visible and therefore has to react properly to constant changes in
the legislation. On the other hand, it has more resources and possibilities to trace the changes
in formal rules and lobby its interests during the process of their development. As for small
business it is more reasonable for them not to really conform to improper regulations but to
imitate this conformity which is possible due to informal relationships with officials. 2 If the
informal compromise is for some reasons impossible then businessmen would find another
way to avid unfeasible regulation:
All these laws and regulations increasing requirements are just senseless. For instance if tomorrow well be asked to pay one million dollars to run business we
would answer that we are not businessmen at all, we are just stall-holders, just
decided to sell something today. For this actions from the side of the state we will
reply in our own way, as it is possible.
(the director of the paint selling firm)
The given quotations allow to conclude that corruption is just one of the ways of
everyday resistance that businessmen use alongside with many others. As for openopposition to impracticable rules implying lobbing strategies at legislative bodies, it
encounters the lack of business associations supposed to defense interests of businessmen in
the face of the state. 3 While small business in all countries is characterized by low self-
2 for more profound analysis of imitating strategies of businessmen in Russia see Paneyakh, E., 20013 for the analysis of business associations in small and medium business see Olimpieva, I., Pachenkov, O., 2006
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
9/21
organization and discrepancy, in Russia it is aggravated by underdevelopment of civil society
institutions and established general unbelief in possibility of effective dialog with the state.
The intermediaries boom
In recent years there has been an explosive growth of mediation services (provided by
either firms or individuals) assisting businesspeople in getting access to bureaucratic services.
Interviews with businesspeople reveal numerous examples of intermediaries operating in
different spheres of the economy. Some intermediaries deal with the problems of ordinary
individuals (e.g., in getting resident permits, registration of migrants and tourists, foreign
passports, and other routine paperwork). Others work in the business sphere assisting
businesspeople in getting the necessary documents for doing business and in passing throughvarious bureaucratic procedures or in defending them from various state inspection agencies.
From the formal (official) point of view, organizations that can be referred to as mediating
structures provide services that resemble the services provided by similar institutions in
established capitalist economies. The emergence of such mediation could be considered as
evidence of functional specialization and hence as a normal from the economic viewpoint
development of the market in Russia. However, our study has proved that services provided
by intermediaries operating in the Russian business environment differs from their analogues
in the West. One of the most important differences involves the role of informality in their
activities. Our empirical data indicate that the informal component of mediating functions,
through which informal access to official bodies is maintained, plays a crucial role in the
effectiveness of mediating functions.
While qualitative character of the study does not allow us to develop a comprehensive
classification of informal intermediaries, however we can designate at least three dimensions
that can be used for the analysis of this phenomenon.
1. Intermediary firms that fully replace official bodies in contacts with businesspeople can
be considered as direct intermediaries. To get permission from this or that bureaucratic body a
businessman appeals to intermediary firm instead of going to the responsible bureaucratic
body and from this firm he or she finally gets the desired document. The best example of this
type of structure is intermediaries dealing with licensing and certification. For our informants
it is obvious that in order to get license or certificate it is better to avoid direct contacts with
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
10/21
licensing and certification centers which complicate the procedure deliberately, and work
instead through an intermediary firm, which will issue the same papers on the basis of the
same documents, but for a different price:
Naturally, I have never seen anybody, but everything goes to a firm. 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! In
reality nobody does anything but the documents are here, they are on official paper and
look nice. From institutes and training centers, that somebody attended courses, passed
the exams, commission accepted, etc It turns out that this pyramid is specially built on
an empty place. And these firms, they are created around those officials who deal with
issuing licenses. There are about a dozen people involved, you know If they bring this
paper it will be accepted [by the officials], if not well, it wont. Its amazing!(director of construction firm)
The study provides numerous examples demonstrating the same situation with some other
bureaucratic bodies -- state monopolies for gas, electricity, water, and other utilities.
According to our informants, the procedure of getting permissions from these structures can
take several months (if not years). However, if a businessperson uses the services of an
intermediary firm the problem can be solved in a few days -- but for a different price.
Indirect mediation means that a mediating firm is not involved directly in the
interaction between businessmen and officials, but they cater for these relationships. Indirect
mediation is often provided by organizations operating around inspection agencies. These
firms are not involved directly in the inspection process, however they provide services that
become a condition for passing this or that inspection (or for avoiding additional inspections).
The best examples here can be found in the sphere of fire protection and sanitary inspection:
There are 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
wouldnt be accepted by the fire inspectors. 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 policeman of the district. Thats it
(director of a sewing shop)
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
11/21
In this case a shop selling fire protection alarm systems serves as indirect intermediary for
getting approval from fire inspection. In case of sanitary inspection the role of intermediary is
played by some clinic providing services in medical examination:
Accordingly, at the very beginning sanitary inspection conducted raids upon us,well, say flying visits with insinuations 4 [] then we begin to interact according to
an informal agreement we send our employees for medical examinations to a certain
clinic which the inspectors indicate to us for us it doesnt matter to whom we pay
this money. And I do not know what kind of connections they have got there.
(director of a caf)
2. Mediating services can be provided by the firms specially created for these purposes or
by the firms that combine mediation services with main business. In the above-mentionedexample the licensing and certification intermediary firm is specially created for this
purposes. There is also another set of firms, which are specialized in different services, and at
the same time fulfil informal mediating functions. Some real estate firms serve as
intermediaries between businesses and the Department of State Property distributing state-
owned premises for rent at reduced prices. According the Program for the Support of the
Development of Small Business in St. Petersburg, renting state-owned premises is cheaper or
sometimes even free for some small and medium sized enterprises. Access to these premises
is limited. But real estate companies connected to the local administration can help in finding
an appropriate state-owned premise for a low rental price. The condition is that a business will
make monthly payments of additional money to this firm in black cash. Not only real estate
firms mediate these relationships (as seen from the following quotation)
Q: Did you have any problems with officials in opening your shop?
A: Oh, horrible! There was a law 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!
4 Flying visits is a direct translation from the Russian, referr ing to unannounced visits by inspectors with ahigh probability, whether justified or not, of finding violations likely to lead to a loss of certification.
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
12/21
(director of the shop)
It should be mentioned that the number of intermediaries who are specialized
exclusively in informally mediating bureaucratic extortion is not as large as the number of
firms that focus on "cutting the red tape." The peculiarity of informal mediation is that it canbe performed by absolutely legal firms specialized in various kinds of services. As a matter of
fact, intermediaries combine in their activities overt functions and hidden or shadow
functions. Therefore, from the official side (from the documents and official reports) these
firms appear as ordinary business organizations, which run normal businesses (and they
really do) consulting, selling equipment, dealing in real estate, etc. At the same time,
intermediaries fulfill shadow or hidden functions by facilitating informal relations between
businesses and the state. So under informal mediation we refer only to the informal
component of mediation functions, precisely mediation services that are based on informalaccess to a bureaucratic structure (or to an individual bureaucrat). Therefore the main problem
here is to separate the strictly legal functions of intermediaries from the informal ones.
3. The intermediary structures described in the previous sections have one important
feature in common all of them serve the process of bureaucratic extortion, and the initiative
to create such firms comes from above or has top-down direction. Officials prefer dealing
with intermediary firms because in this case they do not have to enter a rather risky corruption
market personally. The use of independent organizations and firms changes the appearance
of the interaction, reshaping it from a corrupt deal to an official procedure. It also narrows the
circle of people communicating with an official directly and creates a protective barrier from
undesirable outsiders.
Another type of intermediary can be seen as a bottom-up process, serving
businesspeople in their attempts to avoid excessively demanding formal rules and
requirements. This does not mean that officials are not involved in the process at all, indeed,
as with any kind of informal mediation this service becomes possible exclusively due to the
good will of officials, their readiness to close their eyes to some infringements of formal
norms and procedures, and their informal personal relationships with intermediaries.
However, informal intermediaries of this type act on the side of businesses rather than on
the side of officials, and this is what distinguishes them from intermediaries facilitating
bureaucratic extortion. One of the most explicit examples of these kind of informal
intermediaries drawn from our studies is customs brokers, and precisely so-called gray
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
13/21
brokers that fill in and submit customs declarations and communicate with customs on
behalf of their clients:
We can be labeled as gray brokers. The real broker is some juridical person
(organization) that possesses a license to represent the interests of some third person
in the customs. Especially for this purpose! And this firm is eligible to conclude aspecial agreement with a third person a brokerage agreement. This is an official
agreement, according to which it can do registration of cargo on behalf of third
person. Correspondingly, the cargo customs declaration (CCD) which is the main
document at customs -- is signed by this juridical person, not by the client. All this
we call a real brokerage. Now imagine that we do all the same things. That means we
have the same package of documents, the same CCD, but we bring all these documents
to say the top manager of our client firm and he signs it because he trusts us. So
the CCD is sealed and signed by the client but we do all the real work [of customsclearance]
(director of a transportation firm)
A special market of informal custom services has been formed during the last decade
offering a wide spectrum of customs clearance schemes - from "white or light-gray" to "fast
black." The same color spectrum is used to mark the legal status of custom brokers. However,
a "white" or "grey" status for a particular custom broker does not necessarily explain the
degree of his involvement in informal mediation. As our study shows, "white" brokers use
"grey" schemes as often as "grey" brokers do. What is particularly important to understand the
essence of informal mediating is that informal relationships of trust with customs officials are
a key point in customs clearance procedure. This is true not only for gray brokers or the
implementation of gray schemas, but for any kind of customs clearance operations. The
informal mediation of customs brokers is explicitly described in the following quotation:
Actually there is no real need for the assistance of a so-called customs broker or
declarant. You can easily fill in the declaration especially if you constantly convey one
particular type of cargo and are not doing it for the first time. But his [brokers] main
role (why he is really needed) begins after you fill in the declaration. He is like a
messenger of God on the earth. In other words, he is the person who goes to customs
with your documents, and the customs would decide whether to let your cargo through
or not. And, then, imagine that you come to customs and bring your documents
yourself. A custom official wonders who is this stranger? Where did he come from?
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
14/21
And it is quite a different situation if a declarant [broker] comes and says:
everything is fine, the inspection is done, we can go. It is clear that your payment
agreed payment is shared between them. Because if the customs broker didnt pay
then he would be sent to the same circle as I was sent. And they [officials] wouldnt
take money directly from me it will be a bribe in this case.(director of firm, cargo owner)
Another example of informal mediating of a bottom-up type can be found in the
sphere of shuttle-trading. Since shuttle-traders regularly break custom rules regarding the
weight and the amount of goods can be brought across the border, they always need some
mediating structure or person to solve the problems that arise between them and custom
officials. The role of mediation is performed by tourist firms, or to be more precise, by tourist
guides who organize the trip. 5
Institutionalization of informal mediation
We would argue that currently, informal mediation in relationships between
businesspeople and authorities is going through a process of institutionalization . In this part of
the paper we will try to demonstrate that the phenomenon of informal mediation has
developed during the past years into sustainable informal institution that has come to occupy a
stable position in the Russian economic environment.
According to the theory of institutionalization developed by Peter Berger and Thomas
Luckmann the essence of institutionalization is the reduction of uncertainty in the external
environment, making it more predictable for people (Berger&Luckmann, 1996: 54). Based on
empirical data obtained during the studies we consider institutionalization of informal
mediation through the processes of habitualization, typification, objectivation and
legitimation of interactions between businesspeople and informal intermediaries.
The emergence and formation of the institution of informal mediation is preceded by
the habitualization of informal economic practices in the Russian business environment,
where infringement (or avoidance) of formal rules and regulations has become a generally
accepted norm of economic activity. The prevalence of informal relations in vertical
5 The outcomes of the study on intermediaries in the sphere of cross-border cargo transportation is presented inOlimpieva, I., Pachenkov, O., Ejova, L., and Gordy, E. (2007 )
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
15/21
interactions between businesspeople and officials is predetermined by the imperfection of
the bureaucratic system, and by the impracticability of formal regulations. It is widely
acknowledged that the legislative environment in Russia does not facilitate business
development, particularly for small and medium sized business. As it follows from our study,
informal stimulation of officials of different ranks in order to overcome bureaucraticbarriers has become a routine practice in everyday economic activities.
As informal practices become habitualized, the most effective of them become
crystallized, with their further transformation into typical patterns of behavior. Our study
provides empirical evidence that using intermediaries for informal interactions with officials
has become such a typical pattern for Russian businesspeople. The reasons for using informal
intermediaries services are the following:
a) Businesspeople prefer to deal with intermediaries because it is simpler
(intermediaries know all the details and hidden dangers of this process) and faster (anyway itsaves time and therefore - money).
Ok, in order to register the agreement for all these premises for rent, I went to
officialsone, two- oh, this will be the eighth visit. In June I started my visits to
these officials, spent overall 16 hours, today it is already October five months have
passed! And no result so far... It is better to do it through the agency, formerly we paid
them $1000 and they did everything in one month.
(director of a trading firm)
In fact there are two ways for businesspeople to solve a bureaucratic problem. The direct
way means applying to the official body trying to fulfill all formal legal requirements. This
way can take an extremely long time and the result is not guaranteed. Another way is the
indirect way, operating through intermediary structures, which is faster and less time-
consuming. As a result one can see the double-faced strategy that businesspeople often use in
their relationships with officials: if the problem is urgent and vitally important for a firm they
choose the more expensive but faster and more reliable indirect method. In cases of less
urgency the long method of navigating ones own way through bureaucratic procedures.
b) Using intermediaries makes it possible to avoid emotional strain, which is usually a
painful part of the interpersonal communication between businesspeople and officials, and not
only in cases where it is necessary to solve the problem using informal means:
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
16/21
I want to say that every official - depending on his upbringing, his intellect and I
dont 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!
(director of a dressmaking establishment)
When a businessperson goes to an intermediary, the situation is different it takes the shape
of formal service and businesspeople feel like customers in that case. So it can be stated that
by using intermediary services businesspeople reduce the emotional costs of informal
interactions with officials.
c) Not least important, using informal intermediaries reduces the uncertainty of the
situation, and increases its predictability. According to our respondents, intermediaries makethe whole system of interactions between business and authorities more clear . Of course,
this does not imply that the procedures of the bureaucratic body are more transparent, but
rather that intermediaries are uniquely positioned to offer a better understanding of the steps
that businesspeople need to undertake in order to effectively achieve their goals in interacting
with state institutions.
The study provides empirical evidence of objectivation of informal mediation. In some
spheres the set of informal mediation institutions has a sort of coercive power over individual
behavior. Using the services provided by intermediaries has become, if not obligatory, then
vitally necessary for businesspeople if they want to run business without troubles. This can be
seen from different cases of failed attempts to avoid using intermediary services. One of the
most vivid examples is when businesspeople try to do custom clearance directly through
customs bodies avoiding the services of intermediaries:
The way through the customs it is just horrible! We were doing everything by a
white scheme. The system works as follows we try to do everything fairly, paying all
customs duties and so on. But the customs rules and customs laws are very
complicated, they can object to anything, and wont let a commodity through. But it
can be done very easily ... We tried once to go through customs procedures using a
gray 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?
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
17/21
(director of a shop)
The above quotation explicitly demonstrates how white business is being converted into the
gray zone under the pressure of institutionalized informal relationships in the business
environment.Institutions require legitimation , that is ways by which they can be explained and
justified (Berger&Luckmann, 1996: 61). The leitmotif of all explanations of our informants
regarding the existence of intermediaries is that they are created by officials themselves to
produce additional profits. Our informants are deeply convinced that intermediary firms (the
top-down ones) are specially created by officials themselves in order to get additional
informal payments for avoiding impracticable and intricate bureaucratic rules. Some of our
informants are even sure that people who work in these structures are in close kinship or
friendship relations with officials. In general, businesspeople perceive intermediaries as anobjective necessity of the business environment and accept them as such. Justification of
bottom-up informal intermediaries is based on their convenience for businesspeople. Even
with the high price of mediation services they provide for businesspeople the real possibility
of solving problems and economizing on other expenses.
Informal intermediaries and evolution of corruption
The dual character of the institute of intermediaries provides the main obstacle for its
research and analysis, and was mentioned by many scholars (Tanzi, 1998; Lambasdorff, 2002,
Polischuk, 2003, and others). On the one hand, intermediaries could serve legal interactions
between businesspeople and bureaucratic bodies, and on the other hand, facilitate corruption
deals. However, both legal and corrupt forms of mediating have some common basis. From
the perspective of a transaction costs approach, the economic essence of the institution of
intermediaries is seen as assisting businesspeople to reduce transaction costs related to
complying with formal bureaucratic rules and regulations. In case of legal mediating reducing
of transaction costs is achieved due to functional specialization of intermediary firm, while in
case of corrupt mediating it happens because of the mechanism of trust based on informal
contacts with the authorities.
It is almost impossible to provide accurate assessment of the scale of the informal
intermediaries market in Russia. Alongside with standard obstacles usually related to
quantitative measurement of informal phenomena, there is a problem of impossibility to
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
18/21
separate legal and informal functions, which intermediary firms often combine in their
activities. The qualitative character of our study does not allow making quantitative
generalizations. The types and examples of informal intermediaries revealed in the study of
routine corruption in small and medium business do not necessarily exist in big business,
which might have different forms of corruption and mediation. However, although our studieswere focused on the Saint Petersburg municipality alone, the outcomes are not specific to
Saint Petersburg and could be reasonably extrapolated to describe phenomena of informal
mediating throughout the Russian business sphere, particularly those involving small and
medium sized business .
It should be mentioned here that for some reasons the market of mediating services in
Russia has not yet attracted deserved attention by scholars. Very few works are devoted to the
analysis of intermediary market in Russia either legal or informal, its dynamics and
characteristic features (see e.g., Migin et al, 2005, Polishchuk, 2003; Olimpieva et al, 2007).The study of intermediary market conducted by the National Institute of the System Research
of the Problems of Entrepreneurship considers legal firms formally assisting businesspeople
in their interactions with bureaucratic structures for the issues of firm registration, licensing
and certification, registration of land and other bureaucratic procedures. The study has
revealed considerable growth of the market of intermediary bureaucratic services in recent
years. This is manifested in increasing amount of intermediary firms operating in the market,
growing number of employed and high profitability of the intermediary sector (Migin et al,
2005:190). As it is emphasized in the research, with the lack of corruption the market of
intermediaries could emerge only around particularly complicated and sophisticated
bureaucratic procedures, going through which without assistance might lead to considerable
costs for businessmen (ibid: 14). The redundant number of mediating structures in Russia can
be considered therefore as the evidence of redundantly high bureaucratic barriers and
consequently, high corruption potential of the system. From this point of view the very
existence of the growing and flourishing market of intermediaries serve as an evidence of the
alike growth and flourishing of the sector of informal mediating.
There is one more argument if favor of the connection between growing legal
mediating services in Russian economy with the growth of the informal mediating sector. As
it follows from some studies, that same intermediary structures that operate absolutely legally
in advanced capitalist economies in the developing countries serve for corrupt mediating
providing access to bureaucratic structures using informal contacts with the officials (see, e.g.,
Andvig et al., 2000; Oldenburg, 1987). The case of custom brokers in our study provides the
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
19/21
similar example of the mutation of intermediaries institute in Russia. The study allows us
to suggest that particularities of the transitional socio-economic context make the role of
intermediaries in Russia different. They often act either as a covert instrument for
bureaucratic extortion or as a form of latent resistance of business against over regulation and
impracticability of the legislation.The emergence and dissemination of informal intermediaries in Russian business
environment has proved that corruption is a flexible, alive phenomenon which is constantly
changing in accordance with the changes in legislative, economic and social context. The
evolution of corruption in Russia can be traced since the first wave of entrepreneurship
emerged at the beginning of 90s and up to nowadays. At the initial period of business
environment formation corruption in business-state relationships existed in the form of
unconcealed bribery. In 1998 Russian researchers had pointed out that classical bribery in
the envelopes had already become the thing of the past being replaced by more respectableinstitute of friendships and mutual support (Radaev, 1998). Since that time the role of
informal contacts with officials even increased especially with recent establishing of the
informal institute of the selective enforcement of the formal law (Paneyakh, 2008). In this
context the institute of informal mediating has emerged as a next step in the development and
formalization (legalization) of the institute of friendship and mutual support to facilitate
informal relationships with bureacracy. Thus the emergence and recent development of the
institute of informal intermediaries mark the next step in the evolution of corruption in
Russia.
References
Andvig J.C., Fjeldstad O-H., Amundsen I., Sissener T., Soreide T. (2000), Research on
Corruption. A Policy Oriented Survey. Final report, December 2000. Commissioned by
NORAD. Chr.Michelsen Institute (CMI)& Norwegian Institute of International Affairs
(NUPI). , 2003
Berger, P. L. and Luckmann, T. (1966). The Social Construction of Reality: A Treatise in the
Sociology of Knowledge. Garden City, New York: Anchor Books
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
20/21
Lamsdorff, J.G. (2002) How Confidence Facilitates Illegal Transactions. American Journal of
Economics and Sociology, 61, pp.829-853.
Migin, S.V., Shestopyorov A.M., Shestopyorov O.M., Shchetinin O.A., Polishchuk L.I.
( .., .., .., .., ..)(2005) :
. .: ;
.
Oldenburg, P. (1987), Middlemen in Third-World Corruption. World Politics, 39 (1987),
508-35
Olimpieva I., Pachenkov, O. ( , ., , .) (2006) : ( ) //
, 6, 2006, . 198-205
Olimpieva, I., Pachenkov, O., Ejova, L., and Gordy, E. (2007) Informal relations and the
institution of intermediaries in the post-socialist business sphere/Working paper, JI
Paneyakh, E. ( , . .) (2001)
// . 2001.
. 2. 4. . 56-68. www.ecsoc.msses.ru
Paneyakh, E. ( , . .) (2008) . .:
.
Polishchuk L. (2003), Bureaucrats, Businessmen, and Middlemen: Gainers and Losers.
Mimeo
Radaev, V. ( , .) (1998) :
, . .:
.
-
8/8/2019 The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA
21/21
Scott J.C. (1985), Weapons of the Weak: Everyday Forms of Peasant Resistance, Yale
University Press.
Scott J.C. (1998) Seeing Like a State: How Certain Schemes to Improve the Human
Condition Have Failed, Yale University Press.
Tanzi V. (1993) Corrupton Arround the World. Causes, Consequences, Scope and Cures. IMF
Staff Papers, Vol. 45, No.4 (December 1998)
Tawney R.H. Land and Labour in China. Boston, Beacon Press, 1966.
Usyskin L.B. ( . .) (2003) (
) // , 2003, 5 (31)(http://magazines.russ.ru/nz/2003/5/usyskin.html)