Sunday, July 27, 2014


Comments on anti-corruption effort in Ukraine

By Tymofiy Mylovanov (University of Pittsburg)
 
There is a broad consensus that corruption is the number one problem in Ukraine. This is a cross-cutting issue and no reform can be successful without eradicating or, at least, minimizing corruption. How can this goal be achieved? In my capacity as an economist with expertise in design of institutions and incentives, I would like to offer some remarks on the anti-corruption effort in Ukraine.

Existing misconceptions

The are several widespread misconceptions in Ukraine that make it difficult to move forward.
Misconception #1: "It is a selected group of corrupt powerful people who are responsible for the current crisis"
We all are responsible for the state of the country because we routinely give bribes and use connections to further our daily goals and avoid responsibility for breaking the rules. Recent violence has helped us understand the enormous price, measured in human lives, we pay for allowing corruption to weaken and destroy the society's vital institutions.
Misconception #2: "Stricter punishments and proper laws will reduce corruption"
A substantive amount of effort in Ukraine is devoted to drafting anti-corruption laws, including laws that increase punishment for corruption. There is no guarantee that the proposed laws will be passed, will be enforced, and will not be abused for extortion, prosecution of political opponents, and negotiating political deals. This has been done in the past and, allegedly, it is being done now by selected parts of the (new) government.
Misconception #3: ''There are bad and good people, and we need to replace bad with good"
I believe that behavior is shaped by incentives, and there are no intrinsically bad or good people. While it is important to identify and replace people who have been implicated in the most fragrant corruption schemes to send the right message, the problem of corruption is endemic and enters the daily life of almost every Ukrainian. It is unrealistic and unwise to punish everyone, and it will achieve nothing.

General principles

In my opinion, the following are the underlying principles that should guide all reform efforts.
 
Principle #1: "Focus on change the behavior of the society (new equilibrium), not punishment"
The focus of the reform should be on changing the rules of the game in the society. It is important for the new wave activists and the proactive part of the government to send the message that "business as usual" is over and focus on going after ``new, post-Maidan'' cases of corruption.
Principle #2: "Acknowledge and minimize resistance from the existing political elite, instead of threatening it"
The existing powerful oligarchs and entrenched politicians are a direct threat to the reforms. If they are threatened and their resistance to the anti-corruption reforms becomes extreme, some selective concessions can be made to reduce this resistance and make passage of the reforms possible. It is better to have some reform than none. Negotiate deals that there is more transparency and less corruption now and in the future in exchange for forgiveness of the old transgressions.
Principle #3: "Foster public engagement, instead of relying on the new government"
The public should know that in every country where the anti-corruption reforms were successful the change was possible only because of extreme and persistent pressure from the public (not unlike that of Maidan on Yanukovich). The government and business will not voluntarily cleanse itself from corruption. The public mood in Ukraine is volatile and a substantive part of the population does not accept or trust the new government. This limits the capacity for the reform. The public should be constantly encouraged through small, if necessary populist, steps that demonstrate change.

Specific measures

From an economic perspective, the solution to the problem of corruption lies in creating rules of the game that make corruption infeasible or unprofitable. Stricter punishment is only one of the tools. It is as important to reduce opportunities for corruption by limiting discretion at individual bureaucratic positions, streamlining and formalizing governance procedures, and tracking the quality of decisions made by bureaucrats. These are some specific measures that can be undertaken.
  • The prosecution efforts should be focused on new cases of high profile corruption, while preventing selective or arbitrary prosecution (e.g., prosecution of the interim head of the National Bank of Ukraine). This approach will also improve public morale.
  • The most important priority of the reform should be removing opportunities for corruption. This can include strengthening transparency of decisions made by the state and business, securing property rights by removing opportunities for bureaucrats to exercise discretion over allocation of resources without proper accountability, and removing regulatory and other governing functions of the state wherever possible.
  • The courts have lost public trust. The spotlight should be on finding and promoting alternative dispute resolution processes (e.g., one can encourage arbitration procedures presided by international, possibly retired, reputed judges).

Target areas

There are three critical areas in which combating widespread corruption is vital.
Judicial system
The current ideology of the judicial and law-enforcement institutions continues to be the Soviet-era approach of controlling population in the interest of the rulers. The law-enforcement officials have extreme discretion and no accountability allowing for selective prosecution. The internal standards for evidence are low-to-non-existing. The other function of the courts and law-enforcement agencies is extortion of resources from the public and economy on behalf of the political elite. This state of affairs frustrates the public and breeds disillusion with the political and governance process, limiting the capacity for reform. Restoring justice as the key function of the judicial system should be the key priority.
Healthcare
Corruption in healthcare system enters the daily life of a major part of the population, including many elderly people. Corruption limits access to healthcare, creates inequality, and diverts resources. Most importantly, elderly people observe that despite the promises from the government nothing has been done to improve fairness and efficiency in the areas of life that matters to them. This will severely undermine the legitimacy of the new government in the medium term. Coupled with the expected recession, the discontent among this demographic group can create fertile grounds for disillusion, discontent, vote buying, and demand for populist policies as early as this fall.
Education
Corruption in education represents another major challenge. Young people in their formative years learn that grades and other forms of rewards are obtained through connections and bribes rather than based on merit. As a result, they become disillusioned with the governance structure of the society and spend the early years of their adult lifes investing in acquiring rent-seeking skills. The welfare loss due to diversion of their effort from investing in human capital is hard to underestimate.
The adequate solution to the problem of corruption in these areas requires increasing wages of police officers, judges, teachers, and doctors, securing their independence from their superiors (but not the public), strengthening monitoring and transparency, simplifying regulatory requirements, and prosecuting the new cases of corruption.

Grass-root initiatives

There are several grass-root initiatives, e.g., Dorozhnyi Kontrol, Public Access to Information, that target corruption. These initiatives have proven to be effective in increasing public awareness and exercising pressure on the state. They should be supported through training, expert advice, and funds. One can encourage creation of new grass-root initiatives and crowd-fund them (e.g., installing video-recorders in traffic police vehicles).

Conclusions

The corrupt political elite will resist the changes that take away opportunities for corruption but will welcome new legislation that allows for (selective) prosecution of corrupt officials in order to extract favor, revenues, and strengthen their power in other ways. Thus, there is the danger that the anti-corruption effort will fail to be systemic and will be hijacked by reactionaries. Possible countermeasures include (a) consistent PR effort to increase public awareness of attempts to subvert the anti-corruption initiatives, (b) strong emphasis on anti-corruption measures different from strengthening prosecution, and (c) coordination and engagement with the new wave of activists and leaders who can mobilize popular support.

5 comments:

  1. Nataliia ShapovalJuly 28, 2014 at 2:12 AM

    National Anti-corruption Strategy of Ukraine 2011-2015 is a good illustration of these misconceptions.M2 "Stricter punishments and proper laws will reduce corruption" - really non-trivial. Contradicts to usual approach. But I believe it wll work better.
    Should there be the Principle like "Reduce the size of the Government"? Great control over the (political) appointments by the executive branch creates incentives to bribe for these appointments. It leads to higher business involvement, and increases the number of jobs in civil service, therefore, decreasing the wages. Maybe there should be mechanisms to restrain the growth of the government and changed rules of recruitment. Increase in the wage with the same size of Government (and public sector overall) would be to expensive for tax-payers.

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  2. Is their really a broad based consensus on corruption as the number one problem? What is about state failure and lack of economic opportunities?
    It is a brilliant analysis, but I doubt the assumption. There is a civil war going on. It sound a bit like the reform in legal framework for dentistry in Syria, important, of course, but ...

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    1. Tymofiy MylovanovJuly 29, 2014 at 12:41 AM

      The consensus is there. You can check out the comments under the Ukrainian translation of the blog https://www.facebook.com/mylovanov/posts/10152261823951398 Corruption is in fact among causes for the civil war. The pro-Russian side argument is "you guys achieved nothing with your revolution and replaced one corrupt elite with another". As a specific example, the going price the be appointed as a judge in Kiev runs up to 300K USD, while one vote in the Supreme Court (40 judges / 3 honest) is 30K USD. Under the previous president, there was a centralized office for collecting the bribes for judges, and the judges would get their cuts from that office. This seriously weakens state capcity and makes it impossible to sue the state in courts, removing effective oversight.

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    2. No doubt, corruption is endemic and it is a huge problem. The question is: why a society prefer to live and work in a corrupt environment? What are the economic incentives that corrupt behaviour is stronger than the transparent, clean way of doing things done? What is correlation and what is causation?

      Corruption is rather widespread and has different intensity all over the world and at all time. Under some socio-economic circumstances the political consensus changes and "fighting corruption" become a part of the identity. As here in Germany, it does usually not pay to be corrupt. It is very risky and rewards are low. From this point of view, we are not yet at this point in Ukraine. Rent-seeking is preferable for a critical amount of economic agents. The relation of efforts and results is better than clean, entrepreneurial (and risky) work. This way, give the Ukraine the opportunity for economic growth, and after a short time lag there will be huge demand of anti-corruption measures, policies and expertise. Otherwise and even with huge money and efforts, nothing changes.

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    3. The idea is that one of the main hindrances for economic growth in Ukraine is corruption, thus it is highly unlikely that giving the opportunity for economic growth before lowering corruption is almost impossible

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