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The reluctant briberNov 2nd 2006
From The Economist print edition
SourceA year in the life of an ordinary Russian entrepreneur (who, strangely enough, would rather not be named)CALL him Ivan. When The Economist met him, on a flight from Moscow to Ukraine, Ivan was perplexed. Before the “orange revolution” of 2004, he said, “I knew who, when and how much” to bribe, on behalf of the small minerals company he co-owned in Ukraine. All the new talk of wiping out corruption was making business impossible. Ivan mostly works in Russia, his homeland. He is just the sort of small entrepreneur that the country needs to flourish, if its economy is to rely less on oil and gas, and its society to be stabilised by the growth of a middle class. Ivan has the strong stomach and dark sense of humour needed to survive the everyday perils of doing business in Russia. As he proved in a series of meetings over the last year, he is also enlighteningly candid.
Like many successful Russian businessmen, Ivan, who is in his 50s, had a scientific training, which meant he was not too exposed to Soviet indoctrination. He owes the once unthinkable lifestyle he now enjoys—foreign holidays, overseas education for his children—mostly to his dealings as a commercial-property developer. When The Economist saw him next, he was finishing a profitable project near Moscow. It was profitable not only for him. “It's like the last days of Pompeii,” he said of the bribe-taking that consumed roughly a tenth of his costs, the same proportion, he said, as criminals extorted in the 1990s.
Ivan's experience is typical: despite theoretical improvements to the registration and tax systems, President Vladimir Putin himself remarked last year that anyone who successfully registered a business in Russia deserved a medal. Vague and overlapping regulations can seem expressly designed to enrich predatory officials. Outright seizures of firms by criminal raiders, usually in cahoots with security or justice officers, are frequent. Ivan's project required dozens of licences, and every licence needed a bribe. Despite new rules that are supposed to restrict them, he faced a procession of bogus inspections by fire, health and other agencies. Mostly, he said, the bureaucrats don't demand cash explicitly; they just procrastinate until it appears.
Ivan's other big problem—labour—is also a money-spinner for corrupt officials. The old system of vocational training, he told The Economist six months ago, has collapsed with the Soviet Union; these days, economists are easier to find in Moscow than manual labourers. Today's Russians, he complained, are only interested in “easy money”. Drunkenness is another worry for employers (a common lament, which a new “register of non-drinking men”, set up by an entrepreneur, whose members will be vetted by the wives of alcoholics, is intended to address). There is no choice, Ivan says, but to use illegal immigrants and pay off the police. Polls suggest that Russian businessmen fear bureaucrats more than criminals, and dread the police most of all. They charged Ivan 500 roubles ($19) per month for each of his illegal workers. Still, at least the kickback system is intelligible. Ivan once started a venture in America which ran up against local sanitation rules: “no-one would take a kopeck”, and the project folded.
For a while Ivan believed things might be changing for the better at home. The system seemed to offer him discounts for repeat custom: working on a second development in the same town near Moscow, he found that the bribes were lower (though he was also being leaned on to contribute to local schools, a common form of soft extortion). He also thought he might be benefiting from a short-term anti-corruption push. The federal government, he speculated, wanted to show that at least some parts of the country were functioning properly. He believed Mr Putin's regular vows to fight graft.
Meanwhile, the situation in Ukraine was still unpredictable. Ivan doubted that the “orange” government was any less corrupt than its predecessor: “they all say that”, he said of the anti-corruption slogans. For the time being, a sort of paralysis had set in among local officials. Almost no bribes were being taken, except the odd bottle of vodka, and nothing was getting done.
Worse before it gets betterBy last week, Ivan had turned despondent about Russia too. New people had taken control of the town he was working in. They didn't care, he said, that he had helped to create hundreds of jobs there; they were squeezing him out of the development with exorbitant demands in favour of their pet firms. That disappointment tallies with recent surveys that suggest graft in Russia is actually worsening. Old bureaucrats have found ways around new rules. The periodic firings of disgraced officials have come to seem like the fallout of government infighting, rather than part of a genuine war on corruption. Mr Putin's promises, Ivan has now concluded, are “just paper and words”.
Like everything else in Russia's economy, the small-business sector is hard to measure precisely. Though it seems to be growing, obstacles like those Ivan faces are helping to keep it much smaller as a share of employment and GDP than in Western countries. But Ivan, at least, is still optimistic about Russia in the long run. Crooked officials may be as old as Russian literature, but he sees today's rampant corruption as a specifically post-Soviet illness. The Soviet regime bred nihilism among government officials but, he says, the fear that once restrained the worst of it has gone. Pen pushers with small government salaries shamelessly “go to the Canary Islands” on expensive holidays. Yet that mentality will eventually die out as a new generation of people go into business, Ivan believes. He himself regards the methods he is obliged to use with a sort of wry disgust.
Meanwhile, although he no longer wants to do business in Russia, things are returning to normal in Ukraine. The team that ran the country before the revolution is back in power, and Ivan once again knows who, when and how much.
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