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[The Political Analysis of Postcommunism. Kyiv: Political Thought, 1995, pp. 163-173.]

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Corruption as a Political Phenomenon Under Postcommunism

Section 5. 1 Valentyn YAKUSHYK, 2 James MACE, 3 Kostiyantyn MALEYEV.




1. Corruption in Postcommunist Societies


In the political lexicon, the term corruption is almost always used to mean bribery and the venality of public officials. Therefore, it embraces two interconnected aspects of one of the forms by which "public servants" are alienated from the people.

Corruption can be found in any political and economic system, and it constitutes a component of a mechanism by which bureaucratic structures may exploit society. Where democratic or authoritarian mechanisms function and guarantee the social organism normal life, corruption is localized such that it has little influence on the political situation as a whole or is kept more or less under control. Nevertheless, under both authoritarian and democratic regimes, corruption can be transformed into a structuralizing element of political and social life. This becomes possible when unrestrained self-interest prevails among broad segments of the population.

Practically all types of states announce their determination to combat corruption. Moreover, all states are forced to adopt in some form or another anti-corruption measures. In some cases, combating corruption may lead to the creation of a system of reliable legal and institutional safeguards of social and political control (democratic or autocratic) over the activities of state bodies, various organizations, and individuals. In others, it may be reduced to measures forced on /164/ the authorities by the need to restore basic order, or redistribute spheres of influence among various clans of the ruling oligarchy and Mafia-type entities, etc. A direct agent of corruption as a specific type of social relationships, i.e., a person who out of his/her self-interest (and for a certain remuneration), engages in particular unlawful, immoral, or socially dangerous acts of commission or omission to benefit someone else, may be committed by a state official of any level, a politician, or an organizational functionary. The beneficiaries of such acts may be individuals, foreign or domestic companies, political or communal organizations, foreign intelligence agencies, etc.

As shown by the experience of postcommunist states, corruption creates a certain "distribution of authority" or, more precisely, a distribution of power among different types of politicians: pragmatists loyal to the national leader, members of the leader's clan, people whose mutual trust and alliance were formed through the joint shedding of other people's blood, various types of romantics whose political orientations may differ according to the cultural and historical features of a specific state or political expediency, and also mafia circles representing criminalized national capital and the comprador bourgeoisie.

Many states with such regimes have adopted legal normative acts on combating corruption. Usually such norm creation reflects an old bureaucratic tradition: legal normative acts permit the avoidance of real action capable of attaining the enunciated aim, appear energetic, and thus simulate socially important state functions. Very often "combating corruption" becomes a way of carrying out reprisals against representatives of rival political and economic clans or of legitimizing the policy of the ruling oligarchy. Group selfishness supersedes the strategy of safeguarding national

interests.

There is nothing unusual about this: it is a rather common type of behavior under progressing moral and economic crisis. Suffice it to recall the experience of many African countries. The superprofits gained by illegal means enable a number of the present rulers to satisfy not only their own /165/ and their children's material needs, but also to guarantee the fulfillment of the most exquisite whims of their descendants, who can expect to inherit the boundless wealth now being reaped from the selling out of their country.

There are no barriers which corrupt and mafia-type structures are unprepared to overcome; there are no rules of society that they dare not break. Nor can the world community fail to realize the serious danger of the further criminalization of various politically unstable, especially postcommunist, regions of the world. All this justifies the conclusion that in the foreseeable future the problems of corruption will remain a central political issue.






2. Ukrainian Kleptocracy


Ukraine, like other newly independent states of the former USSR, inherited eviscerated and deformed social, political, administrative, and economic structures. This in turn created extremely complicated problems, which, in the face of the persistent territorial and other pretensions expressed by its northeastern neighbor, require quick resolution.

As American Sovietologist Moshe Lewin rightly described it, under Stalinism the Soviet state literally swallowed up civil society, including the economy. The First Five Year Plan, he noted, "was a unique process of state-guided social transformation, for the state did much more than just 'guiding': it substituted itself for society, to become the sole initiator of action and controller of all important spheres of life. The process was thus transformed into one of 'state building,' with the whole social structure being, so to speak, sucked into the state mechanism, as if entirely assimilated by it."13

In other words, Stalin was able to concretize the Hegelian idea that the state created society by creating (to use the Orwellian Newspeak of the period) a state superstructure which, in turn, created its own economic base. The creation of the command economy and its appropriation of the agricultural sector during the forced collectivization of the peasantry relegated the economy to a secondary role /166/ wholly dependent on politics. And in a state where 90% of the economy is state property, economic problems simply cannot be solved without political decisions being made.

American political scientist Alexander Motyl also vividly described what he called "post-totalitarian ruin," stating: "Ukraine is a land with people and things, but the organization of the people and things, the administration and arrangement of them, the relations between and among them, are still for the most part missing or undefined." In place of a state which, in Max Weber's classic definition, effectively taxes, administers, and polices a certain territory, Ukraine today has an "underdeveloped and dreadfully corrupt... pseudostate."14

After the collapse of the USSR, Ukraine, whose ministries and administration had been little more that mailboxes for orders from Moscow, inherited a much too small, intellectually weak, and largely vassalized state mechanism with responsibilities much too large for it to handle from building apartment complexes to running grocery stores.

It was only natural that most of the mechanisms of planning and supervision rapidly disintegrated. Instead of privatization there was a feudalization of state enterprises, the managers of which had administrative control over state property and goods and began to open their own "private" firms. This, in turn, allowed the manager to sell items from "his" state factory to his private firm at such prices that any profits were sure to wind up in his pocket. Thus, there was a unique and nonviable process of partial privatization where only the profits were privatized and the costs by and large remained in the state sector. State industries quickly lost all incentive to produce efficiently and cost-effectively. In the final analysis this caused a structural economic crisis which cannot be solved without a fundamental rethinking of the state's role in society, the separation of the private and state-run economies, and the creation of effective incentives to produce marketable goods and services.

These structural problems were in themselves sufficient to create economic chaos, a catastrophic decline in industrial output and, as a result, a substantial decline in real in-/167/comes. Nomenklatura partial privatization led to huge monetary emissions (which are now almost impossible to control) to persons protected by high state posts and who have real influence on economic policy. Such people have an interest in continuing the policy of state credits, which cause inflation by producing a huge structural budgetary deficit. This deficit, in turn, gave rise to confiscatory taxation, which then created a situation where it makes little sense to do business legally. The state's monetary hunger tends to push economic down where the tax man cannot find it.

Another important factor also influenced Ukraine's economic disintegration: its instantaneous isolation from the socalled "unified economic complex" into which it had been integrated illogically and without regard for its regional national needs and interests. From the 1930s on, in order to combat the danger of "economic separatism" industry was often located far from its sources of raw materials and from its consumers. When state enterprises in Russia stopped sending goods to and paying for goods from Ukraine, the chain of production was broken. Examples abound. Due to the fact that Ukrainian titanium was processed only in Russia, Ukraine is now forced to sell raw titanium while the Russian plants that used to process it into titanium sponge stand idle for want of the raw material. Sometimes economics circumvented politics, restoring the severed links in round-about fashion. Russia, which used to send Siberian diamonds to Kyiv for cutting, decided to give this business to an Israeli firm. But the Kyiv factory was cheaper, and the Israeli firm contracted with Kyiv to do the actual work. As a result, Russia began shipping raw diamonds to Israel, whence they were shipped to Ukraine, then back to Israel as cut stones, and home again to Russia.

Lower production presents two alternatives, unemployment or inflation. The state chose inflation, a choice governed by the fact that most people in Ukraine, for all their dissatisfaction with the communist old regime, are still in the habit of looking to the state as their universal provider. Fearing that civil disturbances could accompany the inevitable costs of shock therapy, politicians simply lacked the /168/ political will to do what was necessary. And with time it became clear that the demoralization and economic hopelessness of the vast majority of the population do not bode well for reforms which will inevitably impact negatively on people's morale and living standards.

Today the sole model of a market economy with which the vast majority of the population are familiar is the black market. Unlike America, where organized crime infiltrates legitimate business, in Ukraine organized crime (bands which traditionally controlled, say, prostitution and fenced stolen goods) have themselves established major commercial enterprises which frequently come into competition with firms founded from the only other major source of domestic investment capital, the banned (now partially legalized) Communist Party and Comsomol. In fact, the parallels between the economic activity of ex-criminals and ex-communists are so close that most people see no difference between them and use the same word, "mafia," for both. The growth of a market economy out of the black market has led to an economic culture closer to Al Capone than to Western business. Bankers cannot survive without a group of bodyguards recruited from former spetsnaz members because disagreements, which in the West would be solved with the aid of lawyers, are more cheaply and effectively solved here with guns and explosives. In Ukraine being a banker is very hazardous to one's health. And so on down the economic food chain. One cannot even open a kiosk without paying unofficial taxes to unofficial "authorities."

When criminal structures grew into legitimate business what took place was a simultaneous legalization of the mafia and "mafiaization" of business in general. On the one hand, former criminals set up banks and other big businesses without giving up what were, for them, their traditional spheres of activity. The inability of the state to adequately pay the police and other internal security agencies enabled organized crime to "infect" small business by demanding the latter pay the unofficial taxation known as the "protection racket." The vast majority of small and medium-sized businessmen are well aware of the fact that the cannot safely work with-/169/out paying "insurance" to some sufficiently powerful Godfather.

Ex-party officials have their own structures of contacts and associations which assist them conduct their current "business."

It became a fact of life that no one could live on his official income. On the one hand, the need for a second "under the table" income fostered a less than serious attitude toward one's official job, where one has to show up or face problems with the authorities. And this led to substantial economic losses. On the other hand, the pauperization of certain strata of society inevitably led to widespread corruption, which has assumed a structural character justifying our employing the term, "kleptocracy." This does not mean that all-officials and bureaucrats take bribes or steal, but rare is the person who, for example, cannot on his official income afford a new pair of shoes for his child and will eschew all not quite legal ways of supplementing his income. In this sense one can discern a venalization of the whole structure of public administration.

Misappropriation has also assumed a structural character, most prominently in the area of state and state-guaranteed credits. Here perhaps the best illustration is the case of the nomenklatura agricultural cooperative, Land and People, headed by former Agriculture Minister and current Deputy Speaker of Parliament Oleksander Tkachenko. As we know, in 1993 Mr. Tkachenko obtained for his cooperative a state-guaranteed credit line of $70 million US from Citibank in New York, ostensibly to buy seed corn. A relatively small quantity of corn was actually purchased, while much of the borrowed money went to buy 32 American automobiles, TV sets, computers, faxes, furniture, and other easily resold items. After the cooperative declared bankruptcy, Ukraine was forced to repay $53 million and still owes over $20 million to Citibank.15

Since Parliamentary Speaker Oleksandr Moroz cannot retain his fragile majority without Tkachenko's support, this illustrates how the need to protect specific political figures impacts upon the whole political structure and shows that /170/ theft has assumed the character of public policy.

Ukrainian kleptocracy is an important factor fostering economic and political instability. But as a form of government it is inherently nonviable because it cannot halt mass pauperization and the state's loss of effective control over the army and police. I see two alternatives for unraveling this Gordian knot. Either Ukraine will opt for radical reforms, privatization, and destatization to reduce the state's responsibilities to a point where the state can fulfill them and through the formation of a civil society become a direct and equal member of the family of nations (this might be called the Polish option). Or Ukraine will become a second class nation capable of participation in world civilization only through the mediation of a Russocentric CIS, which will swallow it up and impose on Ukraine what might be called "the Belarus option."






3. Corruption and Corporate Interests


Most judgments on the economy and politics now current among scholars and practical politicians, economists, experts, political scientists assume the existence of a certain object society, economic life, relationships which has only to be correctly understood and studied, about which correct conclusions have only to be drawn. Then, based on this knowledge, good transformation programs can be worked out, and the transformations will eventually take the right path. That is, it is assumed that there is someone who wants to make something good out of that object. But nothing ever comes of such wishful thinking. And excuses are always found that this or that plan was not adequate, this or that project was not quite perfect, etc.

Society, however, is not a passive, lifeless object. It is an active agent that contains its own dynamics of economic life. We all talk, for example, about the influence of politics on the economy; but conversely, the economy exerts far greater influence on politics, even if this influence is not exactly advertised by the politicians themselves. To take an example, the Peasant Party is at the same time a faction in /171/ the Parliament and a mouthpiece of the majority of agricultural (so to speak) corporations and chairmen of collective farms in Ukraine (i.e., it directly represents them in the persons of their members). Eighty percent of decisions which they do or do not support flow from their direct economic and corporate interests. Let us consider another aspect of this problem. If most people do not live on the wages and salaries they receive at their official place of employment, but survive on their connections in the countryside or other jobs, then why does the overwhelming majority of population still cling to their official jobs? Why do enterprises not close down and why do workers at the Artem plant, who earn wages on which they cannot live, still go to work there? Here we come to the main point.

If people begin to create economic relationships outside and apart from their main job the place of their "employment registration" (i.e., unofficially, in fact, illegally and illegitimately from the point of view of industrial legal norms currently in force) then necessity has cast over us a rather powerful shadow of a corrupted society which overshadows us all. Corruption is being structured into the forms of corporate representation in the upper echelons of power either in the government or as a lobbying group or faction in Parliament. In other words, through legitimate structures of production and power, corporate interests of other kinds private manufacturing or private commerce and, eventually, the corporate interests of criminal structures proper find their way to covert legalization. This can take place even without bureaucrats and top elected officials clearly realizing that they are representing such interests. But one can never know when this blessed innocence may evolve with time into intentional purposeful lobbying by this part of the elite of corporate (as opposed to public, societal) interests and, later, into their institutional consolidation.

This process has, on the whole, an objective nature. But what policy and what realistic economic programs can we speak about, if the very existence of powerful corporate interests among the ruling elite is overlooked? How can re-/172/ forms be planned, if these half-legal and practically illegal interests are not bridled? In the case of the Agrarian Party, this process holds no great danger. Here in the final analysis interests do not go far beyond the limits of the law, and we know what the representatives of the collective farm feudal lords want. They cannot permit radical alteration of the existing form of land use. But along with this, there are other corporatist "programs" about which we know nothing. And these undercurrents are, of course, not taken into account when official plans are made.

Thus, following President Kuchma, one can speak of social partnership. This is clearly a progressive proposal, if only because it recognizes different social interests of different social groups. Earlier, nobody wanted to admit this officially. For example, a director was assumed to represent interests of his workers. A director, who went with his family on holidays to Switzerland, was thought to have the same set of interests as a worker of that enterprise who earned about $5 US a month. And now the different interests of different social groups and classes are at least acknowledged. But what conclusion does the President's program draw from this? That it is necessary to raise most people's wages and salaries. In other words, it is recognized that there are people whose earnings should be reckoned with, i.e., earnings of others should be brought up to the level of that political-economic incognito. However, nothing is said about the latter. Although from a public relations standpoint it would be worthwhile to plan some kind of law adopting a luxury tax.

Of course, it is quite possible that this spontaneous process of the corporatization of postcommunist society is unlikely to constitute a threat in itself. Far more dangerous is the disproportionate representation of different group interests. Those of many covert and openly acknowledged corporate groupings are not represented at all in the projected economic transformation. For example, the interests of trade unions as a legitimate corporate entity are not provided for at all. On the whole, the program takes into account the interests of legitimate business and the state-owned sector. /173/ But this also means that the interests of a rather large segment of the population, for example, those who are busy with shuttle-trading, who go to far-away regions to earn money and who bring foodstuff from their relatives in the countryside, etc., are not in any way taken into account. But, more importantly, the interests of the above-mentioned covert social corporatist entities are not given explicit and legal expression. And this may bring even the best thought out program to a bad end and doom it to economic failure. In the final analysis, in Ukraine as elsewhere in the postcommunist world, everything could end up totally out of control.




13. Moshe Lewin, "Society, State, and Ideology During the First Five Year Plan" Cultural Revolution in Russia, 1928-1931, ed. S. Fitzpatrick (Bloomington, 1978), p. 41.

14. A. Motyl, Dilemmas of Independence: Ukraine After Totalitarianism (New York, 1993), pp. 54, 65.

15. Demos, No. 1, October 19, 1994 (in Ukrainian and English).





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