Russian Corruption A Bum Rap

By Damian Niolet

The views expressed in this paper belong solely to the author and do not reflect the views of the USAF.

INTRODUCTION Take away vodka and the word comrade and the country of Russia would be known for only one thing corruption. Corruption is rarely thought of as being anything less than morally reprehensible; as such, the Russian Federation is consistently lambasted for the pervasive corruption within its borders, mostly, by those on the outside. Often this is done with little consideration for the factors that lead to corruption, and more important, it is done with little acknowledgement of ones nations own corruption levels. The fact is that corruption is in every nation on earth. While the act of resorting to corruption cannot necessarily be spun as being ethical, the factors that lead people to resort to corruption can be justifiable. In the case of the Russian Federation, there are some understandable reasons why corruption exists. What is less understandable is why it exists elsewhere, such as in the U.S. Despite the countless assurances Americans have of their survival, they still very often resort to corrupt practices, a fact which is proven time-and-time again in the media as individuals are hauled off in handcuffs. Where the corruption issue demands the most attention is in the international economy arena. The international community ceaselessly warns against investing in the Russian Federation. U.S. companies have heeded this warning for the most part and instead are investing heavily in China. In this paper, I will contend that Russias forms of corruption are no worse than Chinas and that the forms of corruption in China are actually far more damaging to the international economy particularly the U.S. If there is anywhere U.S. businesses should not be investing in, it is China. If there is anywhere the U.S. should be investing in, it is Russia.

A BASELINE OF UNDERSTANDING SOURCES OF CORRUPTION

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Corruption, as generally defined, is a persons use of their position to take advantage of another individual for personal gain typically financially. Transparency International classifies corruption as being either in the public or the private sectors.1 Other organizations look at corruption in terms of either a system or on a personal basis. I believe both of these spectrums of classification could be combined for a more accurate understanding of corruption. The combining of the two would look something like figure 1 below. Systemic causes for corruption can be thought of as failings of the state to provide for the people. Personal causes for corruption concern a persons inner psychology more than outside factors. The private sector relates to governments, while the public sector relates to society to include corporations. What stands between them is the rule of law.

Government allows corruption knowing that it cannot meet needs sufficiently

SYSTEMIC

Young man attempting to avoid conscription Q2

Q1

PRIVATE

PUBLIC CEO embezzles money Q3 Q4

Government attempting to retain power FIGURE 1

PERSONAL

Using figure 1, cases of corruption

within Russia could be charted and one would likely begin to see patterns emerge. I believe that there would be a large collection of points in both quadrants 1 and 2. This would show that the Jomo Kwame Sundaram, Foreword 2 The role of the private sector in fighting corruption: essential for meeting local and global governance challenges in Global Corruption Report 2009 Corruption and the Private Sector, (Cambridge: Cambridge University Press, 2009), xx.
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corruption in Russia emanates from both the top and bottom of society, meaning that the government and the populace itself is involved in corrupt acts largely in response to systemic problems. One might suggest that quadrant 3 would likely also see a good deal of points as Putins Kremlin installed officials so as to perpetuate his rule, but this notion has not been entirely validated as of yet.2 Quadrant 4 would not see too many points, as there are few Bernard Madoffs in Russia. WHY IS RUSSIA CORRUPT? Understanding the sources of corruption in Russia, one can begin to ask, Why are these sources resorting to corruption? Systemic causes are the most prevalent causes of corruption in the Russian Federation. The systemic causes can be traced back to the fall of the Soviet Union. The economy at that time was in such shambles that poverty was widespread. Breadlines, which were already the norm, became even longer. Because there was little to go around just after the collapse of the Soviet Union, the people had to find ways to meet their needs on their own. The lack of a state system necessitated the formation of an inverse underground system to support the people. The fact that Russia was about to see its 4th revolutionary government in a centurys time left them a bit uneasy. Not to mention that there was little law enforcement, since there were no laws to enforce the government and its policies having imploded. The fact that only 20 years have passed since the Soviet Unions collapse reveals how it is not unremarkable to discover that the underground system exists today. People are constantly living in fear of yet another failed government. There are other systemic causes for corruption. Russias military conscription policy leaves many a young man and his family resorting to corruption in order to dodge service. This 2 Andrei Soldatov and Irina Borogan, Russias New Nobility, Foreign Affairs 89, no 5 (September/October 2010): 80.
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is not unbelievable considering the memories of only 20 years ago when there was no guarantee that soldiers would receive pay. Or the families might be attempting to avoid the well-known horrors of hazing that still exist today.3 The point is the system breeds a willingness in the people to feel they need to resort to corruption for their own survival. Resorting to corruption is a choice that everyone makes, but the system in Russia, then and to an extent now, has left them with no other choice. RUSSIA COMPARED TO THE U.S. At times the choice to resort to corruption has less to do with survival and more to do with maintaining a high standard of living or achieving a higher one. Ones survival is not at stake in this case; the individual has psychological reasons for resorting to corruption. It may be the thrill of knowing laws are being broken or it may be the sense of power that comes from putting others at a disadvantage that individuals crave. It is my opinion that relatively few acts of corruption are committed in this realm in Russia. Most of them are due to systemic issues. The U.S., on the other hand, has no such excuse for the corruption that exists within its borders. In a country of such extraordinary affluence, that hasnt seen significant breadlines since Russias first revolution in the 20th century, why is there rampant corruption? Yes, there probably is less of it occurring than in Russia, but that is largely due to a stable system. As such people have the time to entertain their psychological misgivings; plotting corruption occurrences in the U.S. would result in a chart that has many points in the personal realm. However, if the U.S.s system was on the verge of collapse, I guarantee there would be a weakening of the rule of law and eventually an onset of ubiquitous systemic corruption.

3 Peter Baker and Susan Glasser, Kremlin Rising: Vladimir Putins Russia and the End of Revolution, (Washington: Potomac Books, Inc., 2007), 243.
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It would be at that point that we might begin to understand the dire situation Russia finds itself in. Maybe then we would not be so quick to pass judgment on Russia and condemn the nation, even calling for the cessation of foreign investments into the nation. The fact is, all out foreign investment would probably do more to end corruption in Russia than propagate it. As foreign investment increases, the economy is likely to boom, which would infuse the government with more credibility and instill more faith in the people. Society would be less apt to resort to corruption and the government would be less apt to look away. RUSSIA IN COMPARISON TO CHINA Instead of investing in Russia, a greater number of multinational corporations are investing in China. China is probably the worst place for corporations to invest, especially hightech corporations. Although Transparency International lists China as being less corrupt than Russia in its 2009 report, I believe that China is by far more corrupt.4 Plotting cases of corruption in China would fill every quadrant on the chart. The causes for corruption are both systemic and personal and actively carried out by both the government and the people. Quadrant 3 would likely have the most points. By and large the Communist Party of China condones a corrupt nation. Like Russia, China has corrupt officials demanding bribes to compensate for slight salaries. Like Russia, Chinas government is turning a blind eye to the practice of corruption believing that it is the only way for the people to survive. Unlike Russia, Chinas ruling party is condoning a form of corruption at an unprecedented level theft, specifically intellectual property theft. Some may argue that IP theft is not corruption according to the definition presented above, but I contend that China is taking advantage of its position (a nation with cheap 4 Transparency International, Corruption Perceptions Index 2009, www.transparency.org, (accessed April 28th, 2011).
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labor) to put another nation (the U.S. primarily) at a disadvantage by stealing its IP and selling it as their own. The CCP is not going to do anything to stop it because 1/3 of Chinas GDP is based on IP theft. That is corruption.5 GLOBAL IMPLICATIONS OF CONDEMNING RUSSIA AND PROMOTING CHINA Looking at the figures, risk of loss from investing in China has the potential to exceed the risk of loss from investing in Russia.6 Multinational corporations might be asked to pay a bribe in Russia, but it has been shown that recourse is possible. The Kremlin has gotten involved a number of times and removed corrupt officials.7 Whereas China is not going to significantly crack down on IP theft. A production site might be raided, the counterfeit merchandise confiscated, but the facility would not be shut down. Too many livelihoods would be at stake. In Russia, the timeline for bribes would diminish; whereas, in China, the timeline for loss due to IP theft would exponentially increase as customers worldwide begin to distrust an oft-counterfeited brand.8 What is more, IP theft in China is far more damaging to the global economy than simple bribes in Russia because simple bribes do not take away jobs. As customers opt for cheaper counterfeits, fewer of the legitimate product need be made, entailing that fewer people need to be hired. As corporations profits hit all time lows, they have to lay off people. Also, the costs of 5 Henry Blodget, How to Solve Chinas Piracy Problem. http://www.slate.com (accessed October 29, 2010). 6 A.E. Feldman, U.S. Firms Paying High Price for Global IP Theft, http://blog.aefeldman.com/2009/08/04/us-firms-paying-high-price-for-global-ip-theft/, (accessed April 30th, 2011). 7 Bloomberg Businessweek, Corruption: Russias Economic Stumbling Block, http://www.businessweek.com/globalbiz/content/aug2009/gb20090827_771618_page_2.htm, (accessed April 30th, 2011) 8 Ted Fishman, China Inc: How the Rise of the Next Superpower Challenges America and the World (New York: Scribner, 2006), 247.
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combating IP theft would decrease profit margins and settlements passed down by Chinas judicial system have proven to be miniscule in comparison to the requested damages, causing the cycle to continue anew. CONCLUSION There is no doubt that there is corruption in Russia, but there is no doubt that there is corruption everywhere. Before condemning a nation because of its ubiquitous corruption, it would be wise to first determine the source of the corruption. Systemic corruption is not necessarily ethical, but with subjectivity, it can be justified. The nations that should be condemned above all others are those that choose to perpetuate corruption with the intent of keeping another nation at a disadvantage, such as China is doing to the U.S. Instead of fully condemning China as it is doing with the Russian Federation, the U.S. is investing in China. Apparently, U.S. corporations and others do not see that they are investing in their own demise.

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