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How the cookie crumbles

Vladimir Putin has long paid lip service to the notion that his government should address the problem of corruption. Is his new campaign for real, or will it be more of a shootout between corrupt officials and businessmen with more or less support from on high?

During recent months the talk has all been of how President Vladimir Putin has started to fight corruption in earnest, and there have been many unexpected revelations. What really interests everyone, however, is whether charges will be brought against the former Minister of Defence, Anatoly Serdyukov, until recently one of Putin’s most trusted and high-ranking cronies. Whatever actually happens, the volume of abuses discovered at the ministry he headed until recently beggars belief.

Has Putin actually realised, after many years in powers, that the question of corruption must be addressed?  Or is something else going on?  To find the answer to these questions, we should first have a look at Russian corruption.

Corruption runs the country

Corruption became an integral part of the system for governing Russia in the 90s. The reason for this was twofold: a weak state and no money.

The weakness of the state was evidenced in its inability to withstand pressure from the multiplicity of lobbying groups. The lobbyists in the 90s carved out tax breaks, government loans, excise-free import of goods, special conditions for privatisation and access to resources etc. The government was introducing unpopular reforms and terribly afraid of making more enemies, so it accepted any compromise which would enable it to remain in power.

The lack of money was a feature of the 90s. The government was not in a position to pay competent officials a decent salary to prevent them defecting to the private sector, where managerial salaries were increasing exponentially.  For this reason it was compelled to adopt the principle of ‘if you want officials to work for you, then you’ll have to allow them to steal.’

In the ten-year period between the economic crises of 1998 and 2008 the situation changed completely. Rapid economic growth strengthened the state and increased the range of what could be done with budgetary resources.

'The government couldn't pay competent officials a decent salary, so it adopted the principle that ‘if you want officials to work for you, then you’ll have to allow them to steal.’

Putin’s very high popularity rating meant that there was no longer any need to give the green light to the lobbying groups simply to hang on to power. The popular president appealed directly to the nation, which saw its standard of living improving and was prepared to support the person they saw as responsible for the dawning of changes for the better i.e. Putin personally. This meant that, as President of Russia he could, if he so wished, apply the brakes to any projects that were obviously corrupt.

The rapid growth of GDP led to a considerable increase in bureaucratic salary levels. The disparity between incomes in the business and the public sectors was still in evidence, of course, but was less critical than it had been previously. These were conditions in which the battle with corruption could have been taken up, but the Russian government chose not to do that. Putin’s position was so strong that there was no real need.

High oil prices meant there were sufficient funds for the needs of both society and the corrupt officials. Indeed, financial resources were so abundant that clashes of interests between various groups never resulted in serious conflict. Even those members of the elites who were not in favour of this system acknowledged that their personal prosperity was growing so fast that they had no appetite for a fight with the government, or for emigration.

Corruption prevented the system from functioning

After the 2008-09 crisis, however, the system started changing radically. The old GDP growth rates were not re-established and a full understanding that the prosperity of the 00s would not return came, as it seems to me, only 12 months ago, when Putin once more became president.  In this respect the comparison between GDP growth rates in 2007 (almost 8%) and the 1st quarter of 2013 (slightly more than 1%) is illuminating.

At about the time Putin re-ascended the presidential throne it became clear that the various lobby groups trying to feed off the budget were still living in the past and had not adjusted their growing appetites to post-crisis conditions.  Many young people decided to live off the income they could derive from bribes (if they were officials) or off the profit to be made from government protection (if they were in business). After university they found jobs offering a good income and today they are not prepared to curb their appetites to fit in with the deteriorating economic conditions.

In this situation clashes between groups of corrupt officials competing for resources inevitably intensify. What makes the state of affairs different from pre-crisis (1998-2008) is that there are not enough resources to go round, though by comparison with the mid 90 today’s government does have some ways of limiting the scale of corruption.

Putin supports the battle with corruption and the various groupings of corrupt officials attempt to deflect the blow from themselves on to other groups.  The more people involved in corruption are uncovered, the more resources there will be for other, undiscovered, groups and the greater will be their income.

In the immediate future the relatively weaker groups of corrupt officials will lose out to the stronger. The law enforcement system will start punishing the weaker, thus decreasing the number of contenders for slices of the government cake, but be unable to do anything with the stronger offenders who enjoy influential support from higher up.

This is the nub of the fight against corruption in today’s Russia. It’s not against corruption as such, but aimed at those officials who are on the take without having cleared it higher up.

In essence, what we are seeing is the elemental regulation of corruption.  Our own, Russian, invisible hand (as the master of economic science, Adam Smith, would have said) punishes the weak who are unable to compete in the corruption marketplace either because they have no strong support from higher up the pyramid of power or because they are simply unable to steal professionally. This second reason, incidentally, is very important, because the rapid growth in corrupt officials which we have seen under Putin reduces the average levels of both intellect and training and anyway, in the kind of ‘anything goes’ situation we have now, the elementary cautiousness button fails to operate.

Who can be considered corrupt?

In the struggle for survival, Putin naturally cannot permit completely free competition between corrupt officials. The disclosures that are about to start will reach as far as the very top of the political management structures. This is why the President will most likely demand that the most high-ranking officials are not under any circumstances obliged to face charges in court, though they can appear as witnesses (which is what happened with Serdyukov).

Within the space of a few weeks, ex-Defence minister Anatoly Serdyukov moved from being a trusted high-rank official to the centre of a corruption scandal. Photo: RIA Novosti/Sergey Guneyev

But deciding where to draw the line i.e. which hierarchical level is to be let off the hook for corruption in today’s Russia is no easy matter.  If only a small number of lower-ranking officials are handed over to the law enforcement agencies, then corruption will continue to flourish and the country’s resources will be plundered in such a short time that Putin will find it difficult to maintain a standard of living for ordinary Russians. This, in its turn, could result in a loss of voter support for Putin and his ‘United Russia’ party at the next election.

But if only Putin’s immediate entourage is going to be let off, then the bureaucracy could decide not to protect the interests of the current regime any longer. Officials have become accustomed to stealing, so too tough a crackdown on corruption could act as a signal for rebellion. Putin needs the loyalty of a great many officials to preserve his political regime and losing it could present him with a few painful surprises. The police, for instance, could refuse to suppress protest rallies; electoral officials could refuse to rig the voting in favour of the government; housing authorites could engineer large-scale ‘accidents’ just before the election.  And if voters were suddenly to find they had no heating in winter, they would almost certainly vote for the opposition.

It’s still not clear which bureacrats Putin will decide are untouchable, but it’s safe to assume that at federal level they will be of the rank of minister and above and in the regions, governors and above. If the law enforcement agencies discover that any of these people have been involved in corruption, then the worst that could happen is that he/she would be honourably moved to another post.

This approach might be convenient for Putin, but it’s hardly effective. In all probability it will be unable to halt the Putin regime’s slide down the popularity ratings in deteriorating economic conditions. As a result, Putin could decide to abandon the last traces of democracy in Russia and move his political system as close as possible to the late Soviet system under Brezhnev (1964-82) and Andropov (1982-84).

Here too, however, he will have problems because hitherto the whole system has been based on Putin’s personal charisma, which has guaranteed his indispensability. But if elections are totally rigged, as they were in the USSR, and order can only be maintained through force and repression, rather than the people’s respect for their president, then Putin will no longer be regarded as irreplaceable by the elite.  In this case the elite could well try to put forward other, more popular, leaders.


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