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It’s Easier to Transform Corruption than to Defeat It

As the economy improves and anti-corruption legislation develops, it’s highly likely that the market corruption will transform into a network one. Network corruption works through ties between officials and businesspeople, and the currency here is not money, but services. Maria Kravtsova studied various forms of corruption in her paper ‘A Friend in Court or a Penny in the Purse? Reasons for Market and Network Corruption’

In order to better understand the phenomenon of corruption, it’s necessary to understand its various iterations. Corruption can be market or network, and these are essentially different ways of damaging society and state. Market corruption is the situation when anyone can pay a bribe and get access to services by state officials. Network corruption, on the other hand, is based on personal ties. In the context of network corruption, only people who have useful connections can expectpreferential treatment from officials.

‘Market corruption can seriously damage state regulation, since it destroys legality. At the same time, it is well adjusted to the logic of the market: companies which are more successful have more opportunities to pay bribes and get the necessary services from officials’, says Maria Kravtsova, the research author and Associated Researcher at the HSE Laboratory for Comparative Social Research.

Network corruption, which does not include the widerpopulation, but only a group of people close to government officials, is not as destructive for the state. But what it does do is considerably limit market competition, since it splits entrepreneurs into insiders and outsiders. ‘Because of this, we can’t definitely say which form of corruption, market or network, is more harmful for the state and economy’, Kravtsova says, ‘Unfortunately, today we don’t have a definite answer to this problem, since we have to study the nature of both forms of corruption before we give it’.

The analysis was based on the data of the Life in Transition (LiTs) survey. This survey has been conducted by the European Bank of Reconstruction and Development (EBRD) twice, in 2006 and 2010. It covered 16 countries of Central and Eastern Europe and 11 CIS states.

Corruption, dangerous and not really

Defining the two types of corruption – market and network – is only the startof a deeper classification of the phenomenon. The researcher focuses on three main types of market corruption.

The first form is ‘egalitarian controlled corruption’. In this, everyone has access to corrupt services, and the state covertly controls the process. Egalitarian corruption can include such impersonal practices as creating informal ‘support funds’ under executive bodies, where any entrepreneur can transfer money. This is the least harmful type of market corruption.

The next, more dangerous form of market corruption is ‘top down corruption’. ‘The government, represented by a small group of people, mainly connected to each other through family ties, has unlimited power over business and derives a corrupt income from it’, the researcher explains. Such a form of corruption is typical for countries with low-quality formal institutions of state governance. According to the study, countries with top down corruption include Azerbaijan, Tajikistan, Kirgizstan, and Uzbekistan.

The third form of market corruption is known as ‘free competition’, where the strongest wins. Either entrepreneurs or government officials can be the strong side. ‘Low-levelofficialsmayeasilyderivecorruptrevenuefrom small and medium-sized enterprises, while at the highest level, certain oligarchs easily buy the decisions of a weaker state’, the author explains. And this was a typical situation in Russia during the 1990s. Modern examples of countries with ‘free competition’ include Ukraine, Albania, Moldova, and Mongolia.

When talking about about network corruption, its main difference from market corruption is the fact of personal acquaintance with the official. An extreme level of network corruption is ‘pure network corruption’, which eliminates informal payments and is based exclusively on exchanging services.

Network corruption has chances in the city

The personal characteristics of people who solve their problems through corruption influence the use of certain forms of corruption. For example, urban residents use personal connections more often than rural population, which means that the probability of their participation in network corruption is higher. Single people more actively participate in network corruption than married ones.

The form of corruption also depends on the field where the participants work. ‘Pure network corruption, when people solve their problems exclusively through their personal connections, more often appears in the retail trade, the hospitality business, and education’, Maria Kravtsova says. The mixed type of corruption, when people use both bribes and connections, is widespread in civil engineering and the wholesale trade.

If we talk aboutabout market corruption, it appears both in fields involving frequent social contacts and alsoareas where personal contacts happen relatively rarely. These include, for example, agriculture, hunting and fishing, and foresting.

The author of the study cited a description of group values falling apart in early post-Soviet Russia given by a prominent Russian sociologist, Alena Ledeneva: ‘Many respondents told us that there is a trend for breaking social ties. While in 1991-92 friends were believed to be the most reliable business partners, in 1994, the friendship rhetoric was turned upside down – “don’t do business with friends, or you’ll lose them…”’ (Ledeneva 1998).As a result, the practice of quid pro quofavoursstarted to be replaced by financial payments. Which means, according toLedeneva, that breakup of social connections, and exclusion of everyone except family members from the close social circle led to the shift from network corruption to market corruption.

To fight not corruption, but its reasons

The results of the study show that network corruption is specific for countries with more stable and developed economies. The shift to network corruption from market corruption can also be a result of decreasing anomia in the society and a strengthening in anti-corruption practices.

Such changes in Russia have been taking place in Russia from 1990s till today. They have resulted in a gradual decrease in market corruption, along with growing network corruption.

Kravtsova illustrates this trend by the example of informal relations between entrepreneurs and police officers. She demonstrates her point through interviews with entrepreneurs and police officers, as well as quantitative data from surveying these groups of respondents.

The results of the study show that fighting corruption can be an endless task. Strengthening anti-corruption legislation in an underdeveloped institutional environment can cause a shift from market to network corruption. But in this case, the predominance of network corruption is not an indicator of an improving economic situation: corrupt officials simply have to look for other ways to solve their problems. At this stage, the state can start fighting network corruption by, for example, rotating officials, but positive results are unlikely.

If there are no strict sanctions, fighting network corruption can create the conditions which allow for a return to previous practices, which means a rise in market corruption. Strict sanctions, on the other hand, can slow down economic activity in the country. That’s why, the author concludes, any anti-corruption policy should focus not on fighting specific symptoms of both forms of corruption, but on eliminating the reasons for corruption.

 

Author: Marina Selina, December 11, 2013
Law