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CASECASE UkraineUkraine

www.case-ukraine.kiev.ua

Corruption in Ukraine: Behind and Corruption in Ukraine: Behind and Beyond the Orange RevolutionBeyond the Orange Revolution

Vladimir Dubrovskiy Vladimir Dubrovskiy

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Th e 2004 Transparency International CorruptionPerceptions Index

CASE Ukraine

114. Rep. of Congo 2.3Ethiopia 2.3Honduras 2.3Moldova 2.3Sierra Leone 2.3Uzbekistan 2.3Venezuela 2.3

Zimbabwe 2.3122. Bolivia 2.2

Guatemala 2.2Kazakhstan 2.2Kyrgyzstan 2.2Niger 2.2Sudan 2.2

128 Ukraine 2.2129. Cameroon 2.1

Iraq 2.1

Kenya 2.1Pakistan 2.1 http://www.infoplease.com/ipa/A0781359.html

Out of 147 countries

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CASE Ukraine

160 Liberia -0.86

161 Moldova -0.86162 Niger -0.87

163 Pakistan -0.87

164 Sierra leone -0.88

165 Kenya -0.89

166 Ukraine -0.89167 Indonesia -0.90

168 Papua new guinea -0.90

169 Belarus -0.91

170 Georgia -0.91171 Libya -0.91

172 Kyrgyz republic -0.92

173 Togo -0.92

174 Djibouti -0.94

175 Venezuela -0.94

Control of Corruption (2004), Point Estimate

Governance Matters IV:Governance Indicators for 1996-2004Daniel Kaufmann, Aart Kraay, andMassimo Mastruzzi

The World Bank, May 2005

Out of 204 countries

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CASE Ukraine

Petty corruption: medicine, education, trafficenforcement .

Corruption in state-business relations

Embezzlement and abuses of procurement

Extortion

Just increase t h e salaries and improve t h e control

Improve t h e transparency and control

Bribing

State Capture by Corrupt Networks

CollusionKarklins,

2002

Hellman,1998

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CASE Ukraine

Business Environment in Ukraine. IFC, Septamber, 2003

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CASE Ukraine

Business Environment in Ukraine. IFC, December, 2004

Corruption is perceived as a seriousimpediment for doing business

w h ile t h e ot h er impediments are connected to it

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Institutional legacy (following Nort h; Putnam)

The severity of the Russian laws is alleviated only by discretionin their enforcement just this disorder makes life in Russia

possible

Institutional memory of t h e former empire:Institutional memory of t h e former empire:

Legislation is designed intentionally? in such a way that almostEVERYONE must become a lawbreaker

Discretion is the only resort from such a total guilt

E very business is subject to the authorities E very business is subject to the authorities

CASE Ukraine

Karamsin, 19th centuryRussian historian

Gertzen, 19th century

Russian social thinker

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F ACILITATES

CASE Ukraine

Legislation(flawed,

ambiguous,impracticable)

Corruption

Discretion

ENHANCES

INTERES T INTERES T

Decreasing t h e demand for improvements

ALLEVIATESALLEVIATES

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Un controlled and mostly

affiliated wit h business

Strictly controlled and

separated from business

Possesses the political power tomagnify ambiguity and non-transparency in legislation

No decision-making power Clear separation of powers frombranches of State

Controls politicians rather than viceversa. Tries to control mass-media toavoid public scrutiny

Operates under constant publicscrutiny and political oversight

Poorly-paid and dependent uponadministrative rents in money or barter ) Relies upon discretionary power andvague and arbitrary informal rules

Highly-paid professional publicservants facilitating rational processesof control.Implements legislation in a strictlyformal impersonal ) way

Administrative power in

Ukraine

B ureaucracy (Weber)

Officials: not a bureaucracy

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CASE Ukraine

Consequences

Inh ibited business selection t h roug h th eentry and exit

Suppressed entrepreneurs h ip and F DI

Distorted political representation

Poor governance

Misuse and misallocation of resources

Hig h social costHig h social cost

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CASE Ukraine

Business Environment in Ukraine. IFC, December, 2004

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Wh ith er captured state: a deadend?

Business:

a Milk caw or

a Rent pumpfor officials

Administrativepower:

Providesprotection andpatronage for

business

Residual rig h tsof control

Public:

a passive player

Sources of rent ; permissions

Perceived totallycorrupted

Perceived

totally rent-seeking

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CASE Ukraine

Public is not passive any more

B UT

Societal structures are persistent

Authorities are committed to fight corruption seriously

Legislation did not change significantly

Executive power officials have lesser impact on the legislature

As a result of t h e revolution:

Political market emerges

F urt h er closing of

corrupt networks

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T hanks for T hanks for your attentionyour attention! !