Russia corruption costs $318 billion – one-third of GDP

MOSCOW – Why does the price of everything, from housing to food, keep shooting up in Russia despite a harsh economic downturn that’s intensifying competition and dragging costs down just about everywhere else in the world?

There’s a simple answer to that question, say experts: corruption.

“We estimate that businesses must add up to 40 percent to their production costs,” due to the toll of bribery, official extortion and economic crime,” says Anatoly Golubev, chair of the grass-roots Committee to Fight Corruption, who says corruption is a bigger threat to Russian society than terrorism. “It corrodes peoples’ souls and destroys the state from within.”

Surveys show that the vast majority of Russians encounter corruption at almost every turn in their daily lives, from dealing with traffic policemen to securing a place in a good school or getting a vital personal document renewed. Most businessmen maintain a permanent line in their ledgers entitled “problem solving” – a euphemism for paying bribes to inspectors, cops and local officials.

“If you’re a government official in this country, and you have some sort of power over people, you invariably use it for your personal advantage,” says Masha Lipman, an expert with the Carnegie Center in Moscow. “It’s a ubiquitous problem.”

The independent InDem Foundation in Moscow, which does the most comprehensive studies of the problem, estimates that Russians pay an estimated $318 billion in bribes each year – a whopping one-third of gross domestic product.

In a survey released last week, the international consultancy PricewaterhouseCoopers found that 71 percent of domestic and foreign companies working in Russia were victims of “economic crime” in the past year, double the rate that prevails in other BRIC countries – Brazil, India, and China – and a 12 percent jump over a similar study in 2007.

Medvedev: Corruption 'public enemy No. 1'
Kremlin leaders are acutely aware of the problem, and have frequently made it a rhetorical priority. Prime Minister Vladimir Putin, who was Russia’s president from 2000-08 and is still viewed by many as the most powerful leader in the country, insisted from the beginning of his presidency that corruption was at the top of his to-do list.

President Dmitry Medvedev has pegged his political reputation to an official assault on corruption, which he labeled “public enemy No. 1” shortly after arriving in the Kremlin last year.

“Corruption is one of the main obstacles to [economic] development.... the fight against it must be waged on all fronts,” Mr. Medvedev told Russians in his second annual State of the Nation speech earlier this month.

From 147th to 146th on Transparency International's ranking list

But Viktor Korgunyuk, an expert with InDem, says there have been no “serious” efforts to fight corruption so far – only words. “The whole system is based on corruption, and no one is going to cut off the branch upon which they are sitting,” he says.

The only touch of faint praise for Medvedev’s efforts comes from the global corruption watchdog Transparency International, which this year bumped Russia up one-tenth of a point in its Corruption Perceptions Index, so that it now stands at 146th (up from 147th last year), alongside Sierra Leone, in the group’s 2009 list that ranks 177 countries according to the perceived levels of corruption.

“I wouldn’t call it any kind of improvement, but the situation has stabilized,” says Yelena Panfilova, director of the Moscow Transparency International Center.

She says the group’s index, which is compiled from expert surveys, could be tracking a more hopeful reaction on the part of businessmen and political insiders to recent developments, such as a new law on corruption passed by the Russian parliament this year, which may set the stage for real change. Russia has never before had a comprehensive law that defines categories of corruption and sets criminal penalties for each, Ms. Panfilova says.

“There’s been lots of anticorruption rhetoric in the past, but now we see the development of an institutional and legal framework to actually fight corruption,” she adds. “Everything, of course, will depend on implementation in the future.”

Read about how police officer Alexei Dymovsky went public on YouTube with corruption charges against his superiors. He got fired, but his actions spawned a grass-roots anticorruption movement that's gotten a lot of attention on Russia's still-uncensored Internet.