The Two Sides of Corruption in Russia

Corruption in Russia has been prominent since it was legal in the 17th century, when the tsar’s officers were allowed to take bribes. It was then illegalized, however never quite faded away especially during Soviet times when the conditions of the living people were harsh. It is still prominent in Russia today since the new capitalist country has not fully moved on from its socialist past. Understanding the historical content of corruption is critical in order to grasp the future of business in Russia. There is no evidence suggesting that corruption will end in the foreseeable near future. Therefore, in order for businesses, including foreign investors, to succeed, they must be willing to stray around the law because the competition is already doing so. Corruption allows to speed processes up sometimes, and even though it is morally unethical, it is an unspoken required component of making a profit in Russia. However, in order for Russia to succeed as a global superpower in the long run, corruption is a huge obstacle that needs to be diminished and eventually extinguished.

Businesses have to be transparent and a legal system has to be established in order to punish corrupt acts and prevent corrupt government officials from passing corrupt laws. Implications are as important as actions in the world of politics. So just the fact that a person in power preaches an ideology or acts to support it does not automatically mean that this new ideology is the right one. Under corruption, any Russian is capable of creating new ways to hack into software. Hacking is not merely trying to steal someone else’s identity. Hacking is also considered to be a hobby and to be derived a young age. Corruption in Russia is so ubiquitous that it is accepted as just the way things get done, providing the only way to survive in the market. Corruption is not only pervasive in government officials abusing their power, but is also adopted by the regular citizens as normal in their everyday lives. Corruption is not something done to the people; it’s something the people do in their lives. Russian people have never experience lack of corruption yet, so they would have no idea how the economy would work without it.

However, accepting corruption is not equivalent to the people viewing positive about it. Of course they would prefer the country without it. The people know how the world views Russia as a shady place where everyone is drinking on the job and paying bribes. Many people are frustrated about the regime of President Vladimir Putin, Mr. all-powerful, and thus there is generalization of the views of the outside world. The ruling elite reflect and represent the people who voted for them according to outside eyes. Therefore Russians have to be discomfited when they travel and are asked about the imprisonment of Pussy Riot or Mikhail Khodorkovsky. These are question that almost everybody does not have the correct answer to. The term blat originated in the early Soviet Union. During those times, there were always shortages and lines for food and every good that a consumer could or would want to get. In Russia’s Economy of Favours, Ledeneva points out that “to possess something that was not accessible to the majority, to obtain things that were sold out and were not available, or to enjoy goods in short supply became auxiliary motives for blat connections” (Ledeneva 22).

In order to get a car, a Soviet citizen could wait months for the car dealer to supply him with one, or he could use his blat connection to expedite the process to days or a week or two. There are similarities between blat and modern day corruption in Russia. Corruption today is used in obtaining patents or licenses for starting up business. Using a corrupt officials aid will speed up the process. While others might wait for the law to pass the patent, one could be ahead of the competition by bribing the official and get first rights to the scenario. A decade after the collapse of the Soviet union, corruption remains a problem in Russia. Although it was once considered critical to the boosting of the new capitalist economy it has gotten out of hand today and is hindering the development of the Russian economy. Corruption is not merely confined to the borders of Russia. Russian corruption is somewhat globalized today, tarnishing its image to the eyes of the rest of the world, undermining state capacity. There has always been a concern in Russia that huge amounts of money are being made by a few select people, who used to be known as the oligarchs.

But where exactly is the money and capital going? The answer is offshore accounts. Money laundering is extremely high, disabling capital to be re-injected in Russia’s economy and infrastructure. Russia is being deprived of investing within Russian borders, paying salaries, maintaining the quality and creating new social institutions. With the help of many experts in the western bank sectors and accounting professionals, Russian businessmen are laundering money out of the country. Corruption is enabling Russian businessmen with capital to buy assets abroad in order to internationalize their businesses. One of President Medvedev’s main efforts has been to modernize Russia and its image in the globe. “Another Giant Leap Forward?” Is an article in The Economist that illustrates that the end of socialism does not necessarily open the doors for a competitive capitalistic free market economy. Quite the contrary; it has led to a “dangerous version of capitalism where the bureaucracy considers the state its property and uses its mechanisms for personal enrichment.

The way that the economy works is that it comprises of a few oligarchs who have made their profit very quickly at the expense of a corrupt bureaucracy looking for votes in the election, living of Russia’s natural resources. There is very minimal if any competition that is a threat to these oligarchs all held together under the umbrella of corruption. As seen by the example of Khodorkovsy, any person willing to go against the law and act as a private owner undermining the bureaucracy is to be made an example of, imprisoned. In order to fully modernize the country, there needs to be a vast increase in the social structure and standard of living. Corruption in hindering this process since it is driving all the capital outside of Russia.

A clear social and economic space for society in Russia has to be created by the government stopping its attacks on businesses and allowing the private sector to compete legally with one another. The government needs to focus on education, health care, helping the poor, instead of merely helping the businesses and taking bribes. Moreover, a factor contributing to the high level of corruption in Russia is the lack of political competition. The fact that Putin has so much power makes it impossible for a healthy political competition. Therefore, everyone willing to succeed in the business world is subconsciously and evidently going to seek out Mr. Putin and get on his ‘good side’. Anyone opposing or questioning his regime is basically sentencing himself to lose his business and go to jail. Healthy political competition would under a strong legislature would result in giving the people the opportunity to side with the beliefs and views they consider to benefit them in the short and long run. The people would have the choice to select those individuals that are willing to be transparent and stray away from corrupt practices giving the people and businesses the power to invest however they want.

Healthy political competition would subsequently result in a healthy economic competition and provide the opportunity to have multiple options, and not just the one that is present that is clearly not succeeding. One of Medvedev’s main projects is creating the Skolkovo project. Skolkovo is a huge complex for research and development, including many high-tech labs, a prestigious business school. This project is modeled after the Silicon Valley in the United States, with the aims to keep Russian thinkers and businessmen and intellectual capital within the country. The motives for this project are clear, however it is still questionable how big of a role corruption plays in the creation of project and how productive of a complex it would be. The money raised for the project is funded primarily by the government, whereas Silicon Valley thrived from the private sector. It would be critical to understand the role that corruption would play in the success of the Skolkovo project. The Russian government is not really a business and thus does not have the financial acumen of corporations to make large private investments.

Even though the government has already earmarked a few billion with the project, it has plans to contribute more billions of dollars through the Skolkovo Foundation, which will decide where investments are made in regard to the start-ups and other facilities. The Skolkovo Foundation is considered to be an independent organization from the government, but it was put in place by Dmitry Medvedev and the government plays a major role within the foundation. It was not right for the government to get so involved in Skolkovo because not only would the project not yield the results that the government expects, but the big investments that are planned to be made through the Skolkovo foundation put a lot of risk on the Russian population as a whole.

Everyday Russians will be impacted if the government invests billions of dollars into Skolkovo and the operation fails. The expected profits make Skolkovo sound like a very appealing project, it is also unclear how the government came up with this assumption. Trying to replicate a Silicon Valley, future earnings estimates could not possibly be accurately predicted due to the unpredictability of what an innovation city will produce and the amount of risk that is involved in start-ups. But regardless of whether or not Skolkovo actually generates those sort of figures, that money would have to be injected back into Russia, and the government would have to receive a decent percentage of that money in the form of taxes, if Skolkovo would truly be a success for Russia.

If only foreign corporations and a small minority of Russians benefit from Skolkovo, it will be another fiscal economic failure, similar to the shock therapy that was implemented in the early 1990s. One of my major concerns with Skolkovo is that even if billions of dollars are made from the city, there is a doubt that the money will be invested back into Skolkovo, or Russia as a whole. There have been some well-known corporations, such as IBM and Cisco, that have invested in R&D facilities in Skolkovo, but the money they have invested does not compare to the amount that Russia has and is planning to invest. And because these successful corporations are primarily investing in R&D facilities, one might think that they just plan to capitalize on the massive tax breaks that the Russian government has promised Skolkovo investors. R&D facilities will bring jobs to intelligent Russians, but there are only so many people who can work at an R&D facility. Also, R&D facilities are not the start-ups that Skolkovo needs in order to generate billions of dollars for Russia.

These corporations feel that they can benefit through the R&D facilities because they can enhance their own products, but Russia won’t see a great return from these R&D facilities. Skolkovo needs corporations to invest in start-ups, but because Russia is a very tough place to do business, it was ranked 123 out of 183 companies surveyed in the World Bank’s 2010 Ease of Doing Business Report, I cannot imagine successful corporations like IBM and Cisco investing in Skolkovo Another problem that could inhibit Skolkovo’s ability to succeed is that foreign corporations could recruit a lot of the Russians that are working for them in Skolkovo. This could lead to Russia’s brightest and most promising minds migrating to countries like the U.S. where they feel could have the most opportunities. Russia has already had to deal with many of its most talented innovators moving to Silicon Valley.

It could be very difficult for Skolkovo to prove to its brightest individuals that there are better opportunities for them to stay, rather than to leave. A lot of the companies that have expressed support for Skolkovo will be cooperating with the Skolkovo Institute of Science and Technology, which was paid for by MIT Skoloko Tech, as it is called, could serve as a channel for foreign corporations to recruit students to come to the US. In order for the institutions like Skolkovo Tech and the Skolkovo Moscow School of Management to be successful, it will have to lure professors of the caliber of Stanford. They will also have to be professors with a great knowledge of starting businesses in a similar capacity as the Stanford professors so that these institutions can really serve as a feeder school for Skolkovo’s development. It will be very difficult to recruit professors of the caliber of Stanford professors to move to Russia- they would have to be offered a lot of compensation

The final reason why Skolkovo may not be a huge success is because the government is trying to complete the whole project in just a few years. Silicon Valley took decades to get to where it is today. Russian politicians are so eager to get ‘things’ done now that they forget the true meaning and reason behind patience. Patience is actually a virtue, and the lack of patience has led to the violent capitalism present in Russia today. All rich Russians were probably at some point of their lives linked to a gangster or an oligarch or a governmental aid to help them cross the border and differentiate between a regular citizen and a prestigious citizen.

Bibliography:

“Another Great Leap Forward?” The Economist. The Economist Newspaper, 11 Mar. 2010. Web. 03 Dec. 2012. . This is an article that portrays views on modernizing Russia and how corruption is hindering the process. Includes the example of Kodorkovsky and quotes from Gaidar.

Gessen, Masha. THE MAN WITHOUT A FACE: The Unlikely Rise of Vladimir Putin. New York: Riverhead, 2012. Print. The chapters available in this book give an insight on who Putin is and that is critical in understanding his personality and the impacts of that on running the country and his effects on corruption in Russia.

Ledeneva, Alena V. “Russia’s Economy of Favours: Blat, Networking and Informal Exchange.” Cambridge University Press, n.d. Web. This article provides a detailed analysis of blat and how it worked and what it was in the Soviet Union. It was basically a form of corruption and somehow reates
to corruption in Russia today.

Orttung, Robert. “Causes and Consequences of Corruption in Putin’s Russia.” N.p., Dec. 2006. Web. 3 Dec. 2012. . This is an article about the causes and consequences of corruption in Russia under Putin (as the title says), and provides a good view about the media and state-business relations and bureaucracy.