Institute for Domestic & International Affairs, Inc.
Economic and Financial Corruption Director: John Paul Marshall
Š 2009 Institute for Domestic & International Affairs, Inc. (IDIA) This document is solely for use in preparation for Philadelphia Model United Nations 2009. Use for other purposes is not permitted without the express written consent of IDIA. For more information, please write us at idiainfo@idia.net
Policy Dilemma ______________________________________________________________ 1 Chronology __________________________________________________________________ 2 1989_____________________________________________________________________________ 2 1990_____________________________________________________________________________ 3 1991_____________________________________________________________________________ 3 1993_____________________________________________________________________________ 4 21 November 1997 _________________________________________________________________ 4 1998_____________________________________________________________________________ 4 January 1999 _____________________________________________________________________ 5 2001_____________________________________________________________________________ 6 2 November 2003 __________________________________________________________________ 6 June 2004 ________________________________________________________________________ 7 14 December 2005 _________________________________________________________________ 7 10 April 2008 _____________________________________________________________________ 7
Actors and Interests ___________________________________________________________ 7 Corrupt Officials __________________________________________________________________ 7 Foreign Corporations ______________________________________________________________ 9 The Populace of Eastern European Countries _________________________________________ 10 Anti-Corruption NGOs____________________________________________________________ 10 The European Union ______________________________________________________________ 11
Possible Causes _____________________________________________________________ 12 Privatization of Eastern Europe ____________________________________________________ 12 Corruption as an Institution________________________________________________________ 12 Eastern European Culture _________________________________________________________ 13 Possible Cause Comparison ________________________________________________________ 14
Projections and Implications___________________________________________________ 15 Conclusion _________________________________________________________________ 16
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Policy Dilemma Since the breakup of the Soviet Union in early 1990s the main economic goal of many former members of the Soviet bloc has been finding suitable private ownership for existing government held industries1. Corruption impedes this process in many ways and is rampant in Eastern Europe. Many of the former beneficiaries of the Soviet Union manufactured the fragmentation of the system so that they and their associates would still be able to hold their power and status. These Soviet castoffs are more concerned with maintaining their position than the rule of law and frequently engage in corrupt practices. In attempting to privatize formerly state held industries, these established corrupt bureaucrats are particularly disruptive to the process. The most prevalent way corruption disrupts economic development is through embezzlement.2 Deliberate diversion of development funds for personal gain or for pet projects is common practice in Eastern Europe. The effects of this kind of corruption are obvious. Well funded but flawed privatization projects fail because they were chosen for the wrong reasons. Shrewd privatization plans often end up underfunded and under administered. As a result the privatization of Eastern Europe has been a slow, and corruption riddled process. For example, in Serbia, less than half of the government assets held at the end of 1990 have been privatized as of 2007.3 Embezzlement is one of the most blatant forms of corruption but, because of the nature of corruption and the lack of enforcement in Eastern Europe, it has remained extremely problematic. A less urgent but more damaging byproduct of corruption is the destabilizing effect it has on financial markets. If a country is perceived as corrupt, foreign investors will be much more cautious about investing. Transparency International, an NGO committed to fighting corruption, issues an annual report known as the corruption 1
Milic Milanovic, Property Rights, Liberty, and Corruption in Serbia, Independent Review; Fall2007, Vol. 12 Issue 2, p213-234, 22p, Academic Search Premier 2
Robert Zuzowski, Journal of Social, Political & Economic Studies; Spring2005, Vol. 30 Issue 1, p9-40, 32p, Academic Search Premier 3
Milic Milanovic
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perception index (CPI). Eastern Europe, as a whole, rates poorly in the 2008 CPI with its highest member, Croatia, only ranking 66th while its worst country, Belarus, ranks 151st. The 2008 CPI reflects the perceptions of high corruption in Eastern Europe.
4
The view
that Eastern Europe is corrupt makes financiers wary. As a result, if they do make loans to privatization projects, they make them at high interest rates and, if possible, create stipulations on the use of the capital. Eastern Europe, however, has always lagged economically behind its Western counterpart and lacks the capital, real or human, to sustain privatization internally. Help is needed in the form of technical advice and loans and as long as Eastern Europe is seen as a hotbed of corruption few developed countries are going to be willing to risk their expertise and funds on projects in Eastern Europe. Corruption is debilitating to a country in almost every way and its eradication should be high on the priority list of any governmental body, whether it is a sovereign nation or the United Nations. Economically, it has both direct effects such as embezzlement and indirect effects such as undermining investor confidence. If such effects continue, sustainable economic growth will never be possible in Eastern Europe. The only way to solve this problem is curtailing, and eventually eliminating, corruption.
Chronology 1989 Mikhail Gorbachev’s policies of perestroika (restructuring) and glasnost (openness) allows for political dissent within the Communist Bloc. Without the threat of military intervention by the Soviet army, the countries of Eastern Europe begin staging revolutions to overthrow the Communist governments. Bulgaria, Czechoslovakia, Poland and Hungary had bloodless revolutions. East Germany begins the process of reunification. Romania has a bloody, weeklong revolution that ends with the execution of
4
Transparency International, http://www.transparency.org/policy_research/surveys_indices/cpi/2008, 10/19/08
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former communist dictator Nicolae CeauĹ&#x;escu. All of these countries endeavor to set up capitalist, parliamentary systems upon the completion of their revolutions.5
1990 The Soviet Union begins to fragment as its political system dissolves. The decline in Communist power began in the mid 1980s, but it is in 1990 when the Baltic States, Estonia, Latvia, and Lithuania declare their independence. This process continues in other former Soviet Republics. The remaining Soviet republics (Russia, Ukraine, Belarus) dissolve the Soviet Union for good in late 1991. The breakup creates 15 different countries, each of who remain loosely affiliated in a confederation known as the Commonwealth of Independent States or C.I.S. -The rush for the elite to exploit privatization does not take long. Former Soviet and Communist officials rush to buy up undervalued public property. One early example is when the final leader of the Hungarian communist youth organization buys the four communist party newspapers in 1990 for 1.5 million forints. Included in the buyout is the country’s largest daily the Nepszabadad-sag; a mere year later, he sells the Nepszabadadsag for over 100 million forints.6
1991 The Republic of Yugoslavia follows the example of the Soviet Union and begins to breakup as well. Ethnic and religious differences are the primary dividing lines in this breakup as Croatia, Slovenia, and Macedonia declare independence. Bosnia and Herzegovina follow suit in 1992. Serbia and Montenegro stay united as the last remaining piece of Yugoslavia, but they turn away from Communism. This area quickly degenerates into vicious conflict as competing interests vie for power. 7 5
Tiscali.reference, Revolutions of 1989, http://www.tiscali.co.uk/reference/encyclopaedia/hutchinson/m0034098.html, 10/26/08 6 Rasma Karklins, The System Made Me Do It: Corruption in Post-Communist Societies, New York, M.E. Sharp, 2005. 7 Post -- Cold War World: 1990-99, World Almanac & Book of Facts; 2005, p525-527, 3p, Academic Search Premier.
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1993 This date is known as the heyday for Russian organized crime after the breakup of the Soviet Union. Groups of criminals and thugs form a significant component of the post breakup power structure. With a lack of state support and an abundance of crime, entrepreneurs are more than willing to pay organized crime for protection. Massive racketeering rings dominate the Russian business infrastructure. Racketeering becomes so accepted that crime bosses face competition for their markets and streamline their operations to lower extortion rates and keep their clients. The Russian reformers respond by legalizing Private Security companies. However, organized crime then decides to enter the Private Security field where they are subject to government oversight and regulation and thus laying the foundation for the oligarchy now found in Russia. 8
21 November 1997 The member nations of the Organization for Economic Co-operation and Development (OECD), Argentina, Brazil, Bulgaria, Chile, and the Slovak Republic adopt the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. This convention stipulates that the countries should create penalties for foreign public officials engaging in corruption. It also stresses the need for accurate and well-preserved financial records to help track corruption. The convention also provides for mutual legal assistance and extradition agreements to aid in anticorruption enforcement across the globe. 9
1998 The Government of Serbia institutionalizes corruption as a revenue increasing measure. The Ministry of the Interior issues an edict allowing for the seizure of cars registered to legal residents if the car was registered in a Former Yugoslav Republic other 8
Anders Aslund, How Capitalism Was Built: The Tranformation of Central and Eastern Europe, Russia, and Central Asia, New York: Cambridge University Press, 2007. 9 OECD, OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, http://www.oecd.org/document/21/0,3343,en_2649_34859_2017813_1_1_1_1,00.html, 10/26/07
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than Serbia, even if they had court-validated papers stating they were driving a foreignowned car. This expansion of police authority at the expense of the courts is explicitly forbidden in the Serbian constitution. This is a glaring example of corruption even in what are supposed to be sacred institutions. 10 The Anti-Corruption Network for Eastern Europe and Central Asia (ACN) is established bringing 20 countries together with the help of the OECD. Their goals are to hold regular regional conferences, implement long-term goals and strategies, and share information pertaining to combating corruption.11
January 1999 Macedonia passes new legislation that relaxes standards that require an international tender on all privatization sales, essentially allowing for direct negotiation with a single buyer. This leads to two notable instances of corruption-- the first being the privatization of the Okta Oil Refinery. The Okta Oil Refinery is sold to the Greek corporation Hellenic at a price that is fair for its physical assets. However, the board of Hellenic petroleum is not actually after the refinery but the additional rights that came with the purchase. Hellenic Petroleum purchased the Okta Refinery through direct negotiation for $32 million USD, not only receiving the physical assets but also a five year monopoly on Macedonia’s energy supply and a 21% reduction in oil duties. Independent analysts contend that the deal is way undervalued and speculate that the deal could only have been put together under dubious circumstances. Even the World Bank writes a letter to the Macedonian government expressing its concerns over the transaction. Another instance of Private sector corruption is the undocumented, undisclosed, and illegal payment of company dividends by the board of Macedonia Telekom. While they were in the process of privatization, they declare a $20-$25million 10
Aleksander Fetic, Stability and Corruption in South Eastern Europe, SEER SouthEast Europe Review for Labour and Social Affairs (SEER SouthEast Europe Review for Labour and Social Affairs), issue: 04 / 2000, pages: 6172, on www.ceeol.com, 10/28/08. 11 Anti-Corruption Network for Eastern Europe and Central Asia, OECD Directorate for Financial and Enterprise Affairs, http://www.oecd.org/pages/0,3417,en_36595778_36595861_1_1_1_1_1,00.html, 10/28/08.
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USD dividend legal in November 2000. Less than a month later, when the sale is confirmed, the board secretly declares another dividend that is between $8-$20 million USD without the knowledge of the purchasing company. The purchasing company ended up paying â‚Ź362.5 million ($543.80 USD). This kind of private sector corruption not only flourishes in a corrupt government environment, but is the kind of corruption that scares off the investment and capital needed in developing economies.12
2001 Czech officials in the Ministry of Defense award a $16.7 million USD defense contract to a company who manufactures parachutes without actually paying tender. The company who was awarded the contract did not technically exist and the head of the company was the Defense official who coordinated the transaction. When the parachutes are finally delivered they were deemed unsafe after the death of a soldier in the testing process.13
2 November 2003 Georgian President Eduard A. Shevardnardze, whose administration is riddled with corruption, rigs a Parliamentary election. The election is declared illegitimate and the people of Georgia begin protesting the corrupt rule of Shevardnadze. By the end of November, the Georgian people force his resignation in what is now known as the Rose Revolution, led by current Georgian president Mikheil Saakashvili.
14
While this was a
step in the right direction in the fight against corruption, it is indicative of how deeply entrenched corruption had been in Georgian politics and the extreme level of popular support necessary to combat corruption.
12
International Crisis Group, Macedonia’s Public Secret: How Corruption Drags the Country Down, World Bank http://www1.worldbank.org/publicsector/anticorrupt/Macedonia(Crisisweb).pdf, 10/28/08. 13 Rasma Karklins. 14 Paul Wells, GEORGIA'S MOMENT OF TRUTH, Maclean's, 00249262, 12/31/2007, Vol. 120, Issue 51/52, Academic Search Premier, 10/26/08.
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June 2004 Pavlo Lazerenko, a former Prime Minister of the Ukraine, is convicted of money laundering in San Francisco, U.S.A. The crimes were traced back to his term as a prime minister and even before when he held the position of Energy Minister. Most of his money laundering is tied to his involvement with the privatization of Natural Gas resources in the Ukraine. He is also suspected of embezzlement, abuse of office, and even ordering assassinations against rivals in both the natural gas and political sectors of the Ukraine. 15
14 December 2005 The United Nations ratifies the United Nations Convention against Corruption. The Convention highlights many areas of the problems posed by corruption. They promote NGO involvement and transparency as agents of prevention. The Convention also promotes wide scale criminalization of corrupt acts, international cooperation, and the previously contentious concept of asset recovery as fundamental tenets of the world’s fight against corruption.
10 April 2008 The first annual Combating Corruption in the EU conference is held in Trier, Italy. It focuses on legal frameworks and the tools and mechanisms that help fight corruption. It also serves to help educate the prosecutors, judges, and financial institutions of the European Union on the signs and dangers of corruption. 16
Actors and Interests Corrupt Officials Corrupt officials can be found at any level of the political hierarchy from police patrol officers and inspections officials taking bribes and ignoring violations to Prime 15
BBC News, The case against Pavlo Lazarenko, http://news.bbc.co.uk/1/hi/world/europe/4780743.stm, 10/26/08 Combating Corruption in the EU, Academy of European Law, http://www.era.int/web/en/html/nodes_main/4_2127_474/Archives/conferences_2008/5_1796_5544.htm, 10/28/08. 16
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Ministers engineering massive privatization deals for their own benefit. Corruptive practices range from embezzlement and extortion to grand corruption, money laundering, and misappropriation of government contracts.
17
In Eastern Europe, many of these
officials got their start in the power structures of the Communist Party. During the fall of Communism the people with access to all the information, networks, property, and funds made sure they would end up in equally, if not more powerful, positions by grabbing all the valuable resources and obtaining bureaucratic positions in new, democratic administrations due to their past experience. The officials who have been “in� since the beginning have also had a significant hand in the legislation process. They start on the ground floor codifying the laws that make up their future political systems, consciously creating loopholes and gaps. In many early post-fall justice systems, corruption offenses result in a slap on the wrist, if anything at all.18 It cannot be ignored, that in the current political and economic climate of Eastern Europe, petty corruption is nearly unavoidable. Bureaucrats are generally educated members of the middle class and their lack of other skills leaves them at the mercy of a government with often-unstable currency. In instances of hyperinflation, bribes and extortion can be the only thing keeping the lower level officials afloat since currency is their only resource. This mindset is so ingrained in Eastern Europe that the perceived side benefits of political appointment is a major motivation for government officials. Even most normal citizens choose to operate in the imperfect system, paying their bribes to get along.19 The interests of the corrupt officials are to keep themselves in positions of influence as long as they can so they can make their own lives and lives of their friends and associates easier, even if it is at the expense of others.
17 18 19
Aleksander Fetic. Anders Aslund. Rasma Karklins.
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Foreign Corporations Eastern Europe’s economy is a developing one.20 Since it does not have the resources to develop itself, foreign capital, whether it comes from business investment or lending, is an essential component to economic development. This factor makes foreign enterprise crucial to the success of Eastern Europe. These companies are affected by corruption in numerous ways. Business ventures have many obstacles to deal with when trying to start a profitable business in a country rife with corruption. There are hidden costs all because there are all sorts of officials expecting bribes. Bribes have to be paid to push through everything from building permits to product licenses. Perhaps as a result of bribery remaining commonplace, there are more and more inspectors looking to capitalize on corruption. Ukraine, for example, has 70,000 inspectors for only 10,000 businesses. As a result, single businesses can be visited many times in one day; since inspectors are not required to tell business operators what their violations are, graft is common.21 In contrast to Western Europe, private security and transportation are also very costly yet quite necessary. Lending institutions face different problems with corruption in Eastern Europe. Banks like to see exactly where their money is going so they know their probability of getting money back. With the lack of transparency in Eastern Europe, this is nearly impossible and so banks compensate for the risk by charging higher interest rates. Another area where foreign loans are necessary is privatization projects. However, their reputation for being rife with corruption makes banks wary. It is far easier to predict the actions of a legitimate business venture than it is to guess the motivations of a corrupt official. The interests of foreign corporations in both the lending and business venture realms are to turn a profit. Corruption impedes their ability to make a profit, so they are less likely to engage in business in countries perceived as corrupt.
20
Toll of Transition in Eastern Europe and Former U.S.S.R, Gallup, http://www.gallup.com/poll/104881/TollTransition-Eastern-Europe-Former-USSR.aspx, 10/28/08. 21 Anders Aslund
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The Populace of Eastern European Countries The populace of most corrupt countries is tolerant of petty corruption but wholly intolerant of grand corruption. Eastern European governments and their populations have always had adversarial relationships. As a result, the everyday citizen is not surprised to be extorted by the police or a low level official. Citizens simply consider this petty corruption as a part of the cost of living. Corruption has existed for so long that it is streamlined; extortion and bribery are viewed as businesses22. But the public’s general mistrust of the government in Eastern Europe does not excuse instances of gross corruption, instances of which usually lead to enormous public outcry, demonstrations, and in some cases revolution. Two instances of peaceable popular revolution are prominent in the former U.S.S.R. The Rose Revolution of Georgia and the Orange Revolution23 of the Ukraine, both movements spawned from the deliberate rigging of elections by the people in power. The blatant abuse of voter conferred power and disregard for these newly democratic systems angered the people of these countries to the point where they forced an early termination to the terms of their presidents and elected new heads of government. From this it is apparent that the interests of the people are to maintain democratic governments free of democracy obfuscating corruption at the upper levels, but at the local level it is considered a part of life. The elites often use the corruption at the lower levels to justify their own misdeeds but the people of Eastern Europe are no longer going to allow grand corruption to continue. Petty corruption however, is also significant and should be eradicated as well.
Anti-Corruption NGOs There are many NGOs dedicated to the eradication of corruption. They recognize corruption as a major impediment to progress, justice, and democracy. Two anticorruption NGOs are particularly significant to Eastern Europe. The first is Transparency 22
ibid Vladimir Socor, Rose, Orange Revolutions’ Protagonists against “Colour Revolution”in Azerbaijan, Eurasia Daily Monitor, Vol 2, No. 203, 11/1/05, Academic Search Premier, 10/29/07 23
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International. Not only are they an international corruption watchdog but they compile the best measurement of worldwide corruption. The Corruptions Perception Index (CPI), rates each country on their perceived level of corruption. 24 This allows countries to measure their progress or lack thereof in eradication corruption. Another important NGO is the well-funded Open Society Institute run by Hungarian born billionaire George Soros.
25
It is said that the Open Society Institute’s funds and support were instrumental
in the Rose Revolution of Georgia.
26
The interests of anti-corruption NGOs are clear;
aiding governments in stopping corruption and alerting the world to governments that allow or participate in it.
The European Union Most of the Eastern European states are candidate countries for the EU. One of the hang-ups to accession is the pervasive corruption in the EU. The EU’s concerns are legitimate, their Union is based on democratic institutions and corruption has the potential to greatly disrupt the single market ideal of the Union. The EU, however, lacks clear corruption legislation itself, and while it has stringent acceptance policies stronger anti-corruption legislation is needed for when Eastern European countries join the EU. Another key focus of the EU is the lack of media freedoms in Eastern Europe, which they claim, is one of the keystones of the regions corruption.27 The EU is concerned with protecting their single market system and democratic legitimacy, corruption impedes both of these goals. As long as corruption remains prevalent in Eastern Europe their accession to the EU will be delayed because the EU must protect itself. 28
24 25 26 27 28
Transparency International, About Us, http://www.transparency.org/about_us, 10/29/08 Open Society Institute, About Us, http://www.soros.org/about, 10/29/08. Who is George Soros?, http://www.oilempire.us/soros.html, 10/29/08. Corruption and Anti-Corruption Policy, http://www.eumap.org/topics/corruption, 10/30/07. ibid
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Possible Causes Privatization of Eastern Europe The fall of the Soviet Union also signaled the end of Communism in Eastern Europe. The countries that now make up Eastern Europe were by and large established with capitalist democracies in the aftermath of the fall. To establish a true, free market democracy the governments became responsible for creating private industry out of public industry. To do this the governments must sell off their assets to private buyers, who will then operate the business as their own. This process is vulnerable to corruption.29 The bureaucrats and Communist officials who were around at the time of the fall of the Soviet Union held all of the resources and more importantly all of the information. They knew which industries were outdated and which industries could be profitable going forward. They were able to divide the desirable commodities and outsiders were left with the scraps. Another effect of this asymmetrical information was the specific industries that corrupt officials were able to secure. The nature of Communism led to certain industries controlling vast monopolies over their countries financial markets. The power brokers were able to identify these monopolies and claim them for themselves. In more recent times the privatization induced corruption has been equally prevalent. Privatization in the former Soviet republics is not even close to complete and investors are continuing to pursue formerly state held assets. Corruption can occur in many forms; for example, officials setting up deals for their own benefit or officials receiving kickbacks for helping secure a deal.
30
Corruption as an Institution The abuse of power has been going on since before recorded history. Once an individual has been vested with power the possibilities for corruption are numerous: nepotism, bribery, extortion, embezzlement, abuse of power for personal gain. Corruption 29 30
Rasma Karklins. ibid
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was as, if not more prevalent in the Roman Empire as it is today in Eastern Europe.
31
Corruption is deeply imbedded in the fabric of many cultures, seen in both the welldeveloped avenues of concealment and the attitudes of the citizenry; and the countries that comprise Eastern Europe are some of those cultures. The nature of corruption makes it one of the most concealable crimes one can commit. If an ordinary citizen embezzled funds from their company their actions would be brought to justice. If the criminal, however, is also the supposed purveyor of justice they are not going to punish themselves for their own misdeeds. Corrupt public officials not only know better than the common citizen how to circumvent the law but are less likely to be accused of wrongdoing by other corrupt officials who also have something to hide. In addition when the instances of corruption involve large sums of money public officials are quick to spread the wealth amongst themselves both to insure they receive the same from others and to keep the others privy to the corruption quiet32. In fact in the 1990s in Slovakia it was common for bribes to be passed along to superiors who would then disburse it among their departments.33 Not only is corruption a criminal act but those who commit it are the best at covering their tracks, even effective, well planned anticorruption efforts cannot eradicate corruption.
Eastern European Culture Eastern European government before 1989 had long been dominated by centralized power executed through local bureaucrats. The Austro-Hungarian Empire and Tsarist Russia dominated the 18th and 19th centuries and in the 20th century the area was ruled under Communist systems. As a result, the populace in Eastern Europe has never regarded formal institutions as helpful. The bureaucracy was considered an obstacle to be overcome, not a helpful branch of the government. Petty Corruption became a way of life 31
Hugh Elton, Off The Battlefield: The Civilians View of Late Roman.., Expedition; 1997, Vol. 39 Issue 2, p42, 9p, 5 color, 3 bw, Academic Search Premier, 11/4/08. 32 Nancy Zucker Boswell, Questioning Corruption, Foreign Policy; Nov/Dec2008 Issue 169, p10-12, 2p, Academic Search Premier, 11/4/08. 33 Aleksander Fetic
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in this system as bribes and other illegal activities are considered proper if they help cut through red tape and poor governance. In Eastern Europe this problem is exacerbated by their need for foreign capital. Corporations from other countries do not know how to operate in the informal, corrupt structure that really drives these countries’ economies. Their lack of knowledge, coupled with their cultural aversions to corruption make doing business in Eastern Europe even harder on foreign corporations.34 This informal culture promoting petty corruption hamstrings efforts to reduce overall corruption, as those at the top use the corruption of those below, and the ambivalence of the populace to justify their own actions. 35 The apathetic attitudes towards combating corruption are compounded by the fact that those individuals who choose to enter the underpaid bureaucracy view bribes as a legitimate part of their salary. This self perpetuating system is especially obvious in the lower levels of government that interact directly with the populace. Zoning Officials, Permit Regulators, Tax collectors, and police officers practice wholesale extortion. In addition, many police officers and tax collectors are actively engaged in racketeering within their districts. As long as the people see these palm greasing bribes and protection payments as legitimate the culture of corruption in Eastern Europe will never improve. 36
Possible Cause Comparison Since the dissolution of the Soviet Union, the causes for corruption have been varied. Privatization of state held industries has afforded many opportunities for corruption. The Nature of corruption is insidious and self propagating, making it near impossible to eradicate. Finally, the culture of Eastern Europe lends itself to corruption, therefore it is able to continue largely unmolested. If there is to be a change in the situation presented by corruption in Eastern Europe it has to be comprehensive and work from the bottom up. In a culture so accepting of corruption at the lower levels unless the 34 35 36
Aslund Rasma Karklins. ibid
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petty corruption can be eliminated the culture will never begin to change. When petty corruption is eliminated, there is no longer any incentive for the lower level employees to cover for their higher up and grand corruption will end as well. Two ways to implement this approach are encouraging media access and freedoms and raising civil servant wages to insulate them from the mindset that bribes are the only way they can get by. Of course this would require these countries, that are used to big government, to cut many of their governmental jobs, which will have the dual effect of purging corrupt officials.
Projections and Implications If corruption is not dealt with, it will continue to wreak havoc on the economic progress of Eastern Europe. It destabilizes domestic and foreign business interests and creates all sorts of negative externalities. For example monopolies, power struggles between political and business interests, and inappropriate one-sided deals set up by corrupt officials receiving kickbacks.37 The economic boom that Eastern Europe had been enjoying as a result of its association will not be sustainable as long as corruption exists. Even association with the relatively stable EU cannot guarantee the confidence of investors. Furthermore, if the countries of Eastern Europe do not appreciably reduce the amount of corruption in their societies they will not be permitted to enter the European Monetary Union at all and their brief success will once again, fizzle. The economic growth of Eastern Europe from 2003 to 2007 was an encouraging sign. In 2004 the Central and Eastern Europe (CEE) economies grew by an average of 6.1 per cent, in 2005 the same countries averaged 5 per cent growth38. These numbers indicate the Eastern Europe has the resources to expand economically but their inability to sustain these numbers indicates they have factors holding them back. One of those factors is corruption.
37
Aslund Marcin Sadowski, GDP Growth Rate in CEE will amount to 5%, PMR Publications, http://www.pmrpublications.com/press_room/en_GDP-growth-rate-in-CEE-will-amount-to-5_.shtml, 11/4/08 38
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Conclusion Corruption in Eastern Europe is one of the largest impediments to economic and social progress the region must face. The countries in question are still, by and large, in the grips of former communist officials who manipulated the breakup of the Soviet Union to make sure it broke in their favor. Even officials who were never employed by the Communist party are becoming products of the corrupt systems set up in the aftermath of the U.S.S.R.’s fragmentation. An important thing to remember with this issue is that corruption is not only a governmental problem but a cultural problem in Eastern Europe, and if one were to address only one facet and ignore the other the problem would not get solved.
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Discussion Questions Why has corruption become such an issue in Eastern Europe? How is the economy of Eastern Europe affected by the prevalence of corruption? How can this committee help promote economic stability with regard to corruption? In what ways do former Soviet policies and political structures influence corruption in current times? How have previous anti-corruption efforts failed and what can this committee to do learn from those failures? What are some strategies that can help countries identify and prosecute entrenched corruption rings within their own government? Should corrupt officials be tried by their own judicial systems? What incentives can we use to insure that development funds are made available even in countries perceived as corrupt? How can this committee begin changing the cultures of Eastern Europe and their ambivalence towards petty corruption? Should the European Union continue to delay member acceptance because of corruption or will ascension into the EU bring about positive change in and of itself?
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Annotated Bibliography For Further Reading Johnston, Michael. Syndromes of Corruption: Wealth, Power, and Democracy. New York: Cambridge University Press. 2006. This book fully addresses the nuances of corruption using case study and methodology. It combines economic, political, social, and cultural realities to show what a complex issue corruption is and promotes a reform agenda that takes these factors into consideration. www.transparency.org Transparency International is an NGO dedicated to reducing corruption worldwide. They produce many reports, studies, and most importantly the Corruptions Perception Index (CPI), which they produce yearly. Looking around their website would be very useful. Karklins, Rasma. The System Made Me Do It: Corruption In Post-Communist Societies. New York: M.E. Sharpe. 2005. An excellent analysis of the issues relating to post-Communist corruption with an emphasis on the culture surrounding corruption in Eastern Europe. Asserts that Corruption is not only self perpetuating within the governmental system, but also culturally entrenched due to the ambivalence of the populace towards petty corruption.
Works Referenced Zuzowski, Robert. Corruption in Post-Communist Europe: Immorality Breeds Poverty. Journal of Social, Political & Economic Studies; Spring2005, Vol. 30 Issue 1, p9-40, 32p Latcheva, Rossalina. Economic Transformation Outside the Law: Corruption, Trust in Public Institutions and the Informal Economy in Transition Countries of Central and Eastern Europe. Europe-Asia Studies; Jan2006, Vol. 58 Issue 1, p81-102, 22p, 11 charts, 1 graph Milovanović, Milić. Property Rights, Liberty, and Corruption in Serbia. Independent Review; Fall2007, Vol. 12 Issue 2, p213-234, 22p Post -- Cold War World: 1990-99. World Almanac & Book of Facts; 2005, p525-527, 3p Transparency International, http://www.transparency.org/policy_research/surveys_indices/cpi/2008, (Accessed 19 October 2008)