The Changing Contours of Corruption in Russia- IRINA OLIMPIEVA

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    Introduction

    According to the annual Transparency International monitoring Russia constantlyoccupies one of the lowest positions in the CPI rating. Extensive discussion on corruption in

    Russia in the media and in scientific publications provides however little analysis of how the

    corruption process works and what makes it so deeply entrenched. One of the reasons here is

    that the very notion of corruption is often used as umbrella term to cover a variety of

    fundamentally different phenomena having only one formal feature in common using

    official position to gain private profit. This dominating (at least in Russia) research approach

    can be labeled state-centered as it considers corruption generally as steeling from the state.

    Unfortunately, average statistical indexes illustrating the scale of corruption in Russia tell usnothing new about the nature of this phenomenon just as the data on average temperature in a

    hospital can tell nothing about the diseases of its patients. With all importance of state-

    oriented approach for general monitoring of the efficiency of the state bureaucracy it is

    hardly useful for the explanation of a wide spectrum of informal interactions with authorities

    that stand behind the general term of corruption. In order to undertake more profound

    exploration of the origins and the nature of corruption it is necessary to change the view on

    corruption as a holistic and homogeneous phenomenon for considering it as a bricollage of

    numerous corruptions considerably distinguishing from each other. From this point of viewthe general strategy of the study of corruption should be a detailed analytical description of

    various corruptions with precise focusing on micro practices, including the cultural norms

    they imply, and combining insights gained from these studies with the analysis of institutional

    structures.

    Also overlooked in the discussion is the fact that the phenomenon of corruption is

    constantly changing, reflecting evolution of the economy and society, and this is especially

    true for the period of post socialist reforms when the conditions of Russian economy and

    society modified essentially almost every year. Corruption is changing not only in terms of its

    volume (which is almost impossible to measure), but, more importantly, in terms of

    substantial changes in its forms, mechanisms and content, and the emergence of new informal

    actors and even institutions. There are constantly new forms of informal interactions

    emerging, along with new actors informal intermediaries which facilitate a variety of

    informal relationships in the business sphere. In established capitalist economies, the role of

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    different business sectors. The next part of the paper illustrates the development of the

    phenomenon of informal mediating into sustainable informal institution. In the concluding

    part of the paper informal mediating will be considered within general context of legalization

    of informality taking place in Russian business environment in recent decade and as a new

    stage in evolution of corruption in Russia.

    Routine corruption in small and medium business

    Informal relations with authorities in small and medium business have some specific

    features either for the level of bureaucracy involved in the interactions or for the content of

    the problems to be solved. These differences are caused first of all by the particularities of

    small business - its small scale, high level of involvement in shadow economy,

    underdeveloped and overregulated legal environment for small and medium business. Not thelease factor refers to the kind of risks that small entrepreneurs run in their interactions with

    official, what could be the consequences of not-using corruption strategy. Like in the well-

    known metaphor of R. Tawney, situation in small business can be generally compared to a

    man standing up to the neck in the water when even a small wave is enough to get drown.

    (Tawney, 1966:77). Our informants often mentioned that in their interactions with officials at

    stake was not just a loss of profits but the very existence of business itself. Businessmen

    found themselves as hostages of any bureaucratic structure, which can close down any firm

    at any moment. This asymmetry in possessing power typical for the relationships between

    business and the state in Russia has been already labeled as soft terror (Usyskin, 2003) and

    has its most vivid manifestations in small and medium business. It can be stated that small

    businessmen is the most vulnerable to the bureaucratic extortion.

    For small and medium business the problem of overregulation and impracticability of

    formal rules remains the main problem of doing business. The leitmotif of almost all

    interviews could be better expressed using the words of one of the informants: If you had not

    been violating the rules If you had been playing fair, then it would have been better not to

    be working at all! As a rule corruption interaction in small business is provoked by

    impossibility to obey formal regulations without considerable losses for business. This can be

    caused by different reasons. One of them is the obsolete character of departmental

    instructions, which are sometimes so outdated that have no practical sense any more.

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    Although these instructions have already nothing to do with the reality, violating these rules

    may lead to punitive measures up to total prohibition of business activities.

    We belong to public catering, but we dont cook anything ourselves. They [officials]

    insist on installing three new sinks, for example. We dont need them! We dont cook anything! But if they want, they can shut us down because of this. And these norms,

    these rules, they have not been changed practically from 1974!?.

    (director of the cafe)

    Sometimes the rules developed by different controlling departments (e.g., fire and sanitary

    inspections) do not correspond or even totally contradict each other. The most illustrative

    example of such contradictions is when sanitary inspection requires the wall of the shop to be

    painted with some particular type of paint while fire inspection strongly objects to this kind of paint because of its high fire risk.

    Even if the rule is feasible sometimes the bureaucratic procedure itself can be so

    protracting (because of imperfection of bureaucracy, insufficient qualification of officials,

    lack of resources etc.) that might also cause losses and risks for businessmen. In any case

    some confrontation usually emerges between businessmen and the bearer of bureaucratic

    authority regarding following (obeying) formal requirements. This confrontation is not

    necessarily grows into an open conflict, but it always potentially exist. Corruption or bribery

    in this case takes the form of some anticipatory action.

    As it follows from mentioned above examples the main distinguishing feature of

    corruption in small and medium business from other corruptions is to what extent

    corruption is the forced measure of resistance to ineffectiveness of bureaucracy and

    corruption as a strategy of gaining additional profits or advantages. From interviews with

    businessmen corruption hardly appears as some competitive strategy or deviation or even

    crime but rather as an attribute of everyday economic routine, the way to overcome

    bureaucratic barriers. It can be labeled as routine or everyday corruption, constantly

    presented in routine practices of interaction with bureaucracy. Routine corruption is an action

    which is aimed not at the improvement of the situation but at not getting it worse. This sort of

    corruption prevails in small business but at the same time does not exclude other forms. In our

    study we were told about some pocket small firms created purposely for the adoption of

    budget finances through which budget finances flew into the officials pockets. These

    practices can be considered as examples of classical and usually serve as examples in public

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    discourse on corruption. We seek to attract attention to the practices of routine everyday

    corruption which is less visible due to its self-evident character.

    The phenomenon of routine corruption in small business differs from endemic

    corruption which is based on cultural norms and traditions rather than on any rational

    behavior. Endemic corruption implies rituals of gift giving, building and maintaining of institution of friendship relations. The concept of endemic corruption is often used in studies

    of corruption in China, India, African countries where gift giving practices interweaved into

    cultural and social context of traditional pre-capitalist societies. The routine corruption can be

    called endemic in a sense that it is viewed by businessmen as an effective way to deal with

    authorities. However these views are based not only on cultural norms but rather on anchored

    in public opinion belief (often based on personal experience) that official institutes are

    inefficient or do not work at all and it is almost impossible to solve the problem in a formal

    way.Unlike endemic corruption, which is a socially approved regulator of peoples

    behavior routine corruption is not really approved and desirable norm but rather a forced

    behavior. Even the fact that many businessmen welcome corruption as a practical effective

    way to solve the problem informally routine corruption remains generally condemned way of

    interactions with authorities. In the given quotation this contradictory condemnation of

    corruption can be explicitly traced:

    As any rational person I am interested in achieving some desired result. And as

    long as a system of state relations exists in given conditions I have to adjust to this

    systembecause I am interested to be success in a given system. But I dont like the

    system itself. Of course I am trying to keep relations with various officials who make a

    lot of useful things for me, and even without any envelopes just due to our good

    relationships; we can meet and communicate with each other. But this is not correct.

    This should not be in this way. I mean that as long as this system exists it is convenient

    for me andreasonable, but still it should not be in this way. And if the state changes

    its polarity towards this system of relations than I personally would accept it

    withwell may be not pleasure, but I would understand that yes, even it will cause

    some inconvenience for me personally but if it is equally changed for everybody

    than I will not just accept it, I will welcome it.

    (general director of the advocacy firm)

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    Routine corruption as weapons of the weak

    Routine corruption can be defined as passive, defensive reaction of business to the

    states pressure (which is principally different from traditional understanding of corruption as

    aggressive business strategy). The nature of routine corruption practices in small and medium

    business in Russia are more similar to silent resistance of peasants or so called weapons of

    the weak that James Scott considered in his studies of peasants (Scott, 1985, 1998). By this

    term he implied a wide spectrum of everyday covert forms of resistance taken by peasants in

    many countries in different historical periods. The examples of these illegal practices are

    poaching in masters and state forests, silent appropriation and utilization of masters lands,

    avoiding or detraction of tax payments, and etc. All these practices Scott considers in a wider

    context of everyday resistance typical for subordinated, powerless groups of population.

    These covert forms of resistance do not imply any political confrontation but have exclusively

    pragmatic character aimed at economic survival. In this respect one can see obvious

    similarities between silent resistance of peasants and corruption practices in small business

    which corresponds better to economy of survival rather than to gaining extra profits.

    Similarity of peasants silent resistance to the phenomenon of corruption is

    strengthened by similar perceptions of the state personificating formal rules. The perception

    of the state is ambiguous. On the one hand, nobody expects anything good from the state.

    Interactions with the state always cause a lot of problems and obstacles overcoming of which

    is rather expensive. Any innovations coming from above even if they are aimed onimprovement of the situation in small and medium business are percepted very warily, they

    do not believe in the possibility to improve the situation. On the other hand, there is some set

    of expectations about the functions regarding small and medium business that the state is

    supposed to fulfil. One of the most frequently mentioned in the interviews expectations

    referred to protection of businessmen from bureaucratic extortion:

    I would understand if I should return to the state 10% of the earned money. But! Not

    just return. This does not mean that somebody would come up and say like, hey, do

    you earn money? Give something to the state. And the question emerges: why should I

    pay to the state this tax when the state even incapable to defend me? When I got my

    license I paid to the state 1300 rubles, the rest of money which is much more - was

    grabbedsay also by the state, by the ministry I cease to understand what is state.

    Whether it is a structure that endlessly changes the laws and regulations, i.e.

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    paranoiaclly trying to improve something but in fact worsening situation? I dont see

    what is state. I cant make leasing agreements with CMSP [the Committee for

    Management of State Property] which is a main bandit on real estate market-how can

    we talk about small business development with such rates of rent? And without any

    benefits? I cant take credit in the bank, I cant get my license, I cant rent premises for the money I earn because all of them would rush to guzzle me down. I dont

    understand what is state!

    (the director of the repairing firm)

    This quotation demonstrates distancing from the state typical for small and medium

    business. Alike for the peasants for small entrepreneurs it is ore reasonable to avoid or elude

    improper law than to change it or to adjust to formal requirements. This strategy is typical

    precisely for small business and this is what distinguishes it from big business. On the one

    hand, big business is more visible and therefore has to react properly to constant changes in

    the legislation. On the other hand, it has more resources and possibilities to trace the changes

    in formal rules and lobby its interests during the process of their development. As for small

    business it is more reasonable for them not to really conform to improper regulations but to

    imitate this conformity which is possible due to informal relationships with officials. 2 If the

    informal compromise is for some reasons impossible then businessmen would find another

    way to avid unfeasible regulation:

    All these laws and regulations increasing requirements are just senseless. For instance if tomorrow well be asked to pay one million dollars to run business we

    would answer that we are not businessmen at all, we are just stall-holders, just

    decided to sell something today. For this actions from the side of the state we will

    reply in our own way, as it is possible.

    (the director of the paint selling firm)

    The given quotations allow to conclude that corruption is just one of the ways of

    everyday resistance that businessmen use alongside with many others. As for openopposition to impracticable rules implying lobbing strategies at legislative bodies, it

    encounters the lack of business associations supposed to defense interests of businessmen in

    the face of the state. 3 While small business in all countries is characterized by low self-

    2 for more profound analysis of imitating strategies of businessmen in Russia see Paneyakh, E., 20013 for the analysis of business associations in small and medium business see Olimpieva, I., Pachenkov, O., 2006

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    organization and discrepancy, in Russia it is aggravated by underdevelopment of civil society

    institutions and established general unbelief in possibility of effective dialog with the state.

    The intermediaries boom

    In recent years there has been an explosive growth of mediation services (provided by

    either firms or individuals) assisting businesspeople in getting access to bureaucratic services.

    Interviews with businesspeople reveal numerous examples of intermediaries operating in

    different spheres of the economy. Some intermediaries deal with the problems of ordinary

    individuals (e.g., in getting resident permits, registration of migrants and tourists, foreign

    passports, and other routine paperwork). Others work in the business sphere assisting

    businesspeople in getting the necessary documents for doing business and in passing throughvarious bureaucratic procedures or in defending them from various state inspection agencies.

    From the formal (official) point of view, organizations that can be referred to as mediating

    structures provide services that resemble the services provided by similar institutions in

    established capitalist economies. The emergence of such mediation could be considered as

    evidence of functional specialization and hence as a normal from the economic viewpoint

    development of the market in Russia. However, our study has proved that services provided

    by intermediaries operating in the Russian business environment differs from their analogues

    in the West. One of the most important differences involves the role of informality in their

    activities. Our empirical data indicate that the informal component of mediating functions,

    through which informal access to official bodies is maintained, plays a crucial role in the

    effectiveness of mediating functions.

    While qualitative character of the study does not allow us to develop a comprehensive

    classification of informal intermediaries, however we can designate at least three dimensions

    that can be used for the analysis of this phenomenon.

    1. Intermediary firms that fully replace official bodies in contacts with businesspeople can

    be considered as direct intermediaries. To get permission from this or that bureaucratic body a

    businessman appeals to intermediary firm instead of going to the responsible bureaucratic

    body and from this firm he or she finally gets the desired document. The best example of this

    type of structure is intermediaries dealing with licensing and certification. For our informants

    it is obvious that in order to get license or certificate it is better to avoid direct contacts with

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    licensing and certification centers which complicate the procedure deliberately, and work

    instead through an intermediary firm, which will issue the same papers on the basis of the

    same documents, but for a different price:

    Naturally, I have never seen anybody, but everything goes to a firm. We pay the firm, and they do everything. They collect all the necessary documents, which are simply bought,

    because nobody has so much time to collect all this it would take me half a year! In

    reality nobody does anything but the documents are here, they are on official paper and

    look nice. From institutes and training centers, that somebody attended courses, passed

    the exams, commission accepted, etc It turns out that this pyramid is specially built on

    an empty place. And these firms, they are created around those officials who deal with

    issuing licenses. There are about a dozen people involved, you know If they bring this

    paper it will be accepted [by the officials], if not well, it wont. Its amazing!(director of construction firm)

    The study provides numerous examples demonstrating the same situation with some other

    bureaucratic bodies -- state monopolies for gas, electricity, water, and other utilities.

    According to our informants, the procedure of getting permissions from these structures can

    take several months (if not years). However, if a businessperson uses the services of an

    intermediary firm the problem can be solved in a few days -- but for a different price.

    Indirect mediation means that a mediating firm is not involved directly in the

    interaction between businessmen and officials, but they cater for these relationships. Indirect

    mediation is often provided by organizations operating around inspection agencies. These

    firms are not involved directly in the inspection process, however they provide services that

    become a condition for passing this or that inspection (or for avoiding additional inspections).

    The best examples here can be found in the sphere of fire protection and sanitary inspection:

    There are a lot of firms selling fire protection alarm systems with all necessary

    norms and rules. But we were told at the very beginning that: you know, guys, even if

    you find a cheaper fire alarm system and install it following all formal requirements, it

    wouldnt be accepted by the fire inspectors. Because we have a monopoly in this

    district. Such and such firm is selling alarm systems here, and the owner of this firm is

    a chief policeman of the district. Thats it

    (director of a sewing shop)

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    In this case a shop selling fire protection alarm systems serves as indirect intermediary for

    getting approval from fire inspection. In case of sanitary inspection the role of intermediary is

    played by some clinic providing services in medical examination:

    Accordingly, at the very beginning sanitary inspection conducted raids upon us,well, say flying visits with insinuations 4 [] then we begin to interact according to

    an informal agreement we send our employees for medical examinations to a certain

    clinic which the inspectors indicate to us for us it doesnt matter to whom we pay

    this money. And I do not know what kind of connections they have got there.

    (director of a caf)

    2. Mediating services can be provided by the firms specially created for these purposes or

    by the firms that combine mediation services with main business. In the above-mentionedexample the licensing and certification intermediary firm is specially created for this

    purposes. There is also another set of firms, which are specialized in different services, and at

    the same time fulfil informal mediating functions. Some real estate firms serve as

    intermediaries between businesses and the Department of State Property distributing state-

    owned premises for rent at reduced prices. According the Program for the Support of the

    Development of Small Business in St. Petersburg, renting state-owned premises is cheaper or

    sometimes even free for some small and medium sized enterprises. Access to these premises

    is limited. But real estate companies connected to the local administration can help in finding

    an appropriate state-owned premise for a low rental price. The condition is that a business will

    make monthly payments of additional money to this firm in black cash. Not only real estate

    firms mediate these relationships (as seen from the following quotation)

    Q: Did you have any problems with officials in opening your shop?

    A: Oh, horrible! There was a law firm at the district administration that offered us very

    good premises. But then it turned out Well, we said in the very beginning that everything

    was official and we completed a cashless transfer. Nonetheless, we were told that "You

    need to bring $300 every month in cash anyway [... ]. And it was impossible to reject,

    because this firm is at the administration and we were told: We will simply not allow you

    to work in this district!

    4 Flying visits is a direct translation from the Russian, referr ing to unannounced visits by inspectors with ahigh probability, whether justified or not, of finding violations likely to lead to a loss of certification.

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    (director of the shop)

    It should be mentioned that the number of intermediaries who are specialized

    exclusively in informally mediating bureaucratic extortion is not as large as the number of

    firms that focus on "cutting the red tape." The peculiarity of informal mediation is that it canbe performed by absolutely legal firms specialized in various kinds of services. As a matter of

    fact, intermediaries combine in their activities overt functions and hidden or shadow

    functions. Therefore, from the official side (from the documents and official reports) these

    firms appear as ordinary business organizations, which run normal businesses (and they

    really do) consulting, selling equipment, dealing in real estate, etc. At the same time,

    intermediaries fulfill shadow or hidden functions by facilitating informal relations between

    businesses and the state. So under informal mediation we refer only to the informal

    component of mediation functions, precisely mediation services that are based on informalaccess to a bureaucratic structure (or to an individual bureaucrat). Therefore the main problem

    here is to separate the strictly legal functions of intermediaries from the informal ones.

    3. The intermediary structures described in the previous sections have one important

    feature in common all of them serve the process of bureaucratic extortion, and the initiative

    to create such firms comes from above or has top-down direction. Officials prefer dealing

    with intermediary firms because in this case they do not have to enter a rather risky corruption

    market personally. The use of independent organizations and firms changes the appearance

    of the interaction, reshaping it from a corrupt deal to an official procedure. It also narrows the

    circle of people communicating with an official directly and creates a protective barrier from

    undesirable outsiders.

    Another type of intermediary can be seen as a bottom-up process, serving

    businesspeople in their attempts to avoid excessively demanding formal rules and

    requirements. This does not mean that officials are not involved in the process at all, indeed,

    as with any kind of informal mediation this service becomes possible exclusively due to the

    good will of officials, their readiness to close their eyes to some infringements of formal

    norms and procedures, and their informal personal relationships with intermediaries.

    However, informal intermediaries of this type act on the side of businesses rather than on

    the side of officials, and this is what distinguishes them from intermediaries facilitating

    bureaucratic extortion. One of the most explicit examples of these kind of informal

    intermediaries drawn from our studies is customs brokers, and precisely so-called gray

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    brokers that fill in and submit customs declarations and communicate with customs on

    behalf of their clients:

    We can be labeled as gray brokers. The real broker is some juridical person

    (organization) that possesses a license to represent the interests of some third person

    in the customs. Especially for this purpose! And this firm is eligible to conclude aspecial agreement with a third person a brokerage agreement. This is an official

    agreement, according to which it can do registration of cargo on behalf of third

    person. Correspondingly, the cargo customs declaration (CCD) which is the main

    document at customs -- is signed by this juridical person, not by the client. All this

    we call a real brokerage. Now imagine that we do all the same things. That means we

    have the same package of documents, the same CCD, but we bring all these documents

    to say the top manager of our client firm and he signs it because he trusts us. So

    the CCD is sealed and signed by the client but we do all the real work [of customsclearance]

    (director of a transportation firm)

    A special market of informal custom services has been formed during the last decade

    offering a wide spectrum of customs clearance schemes - from "white or light-gray" to "fast

    black." The same color spectrum is used to mark the legal status of custom brokers. However,

    a "white" or "grey" status for a particular custom broker does not necessarily explain the

    degree of his involvement in informal mediation. As our study shows, "white" brokers use

    "grey" schemes as often as "grey" brokers do. What is particularly important to understand the

    essence of informal mediating is that informal relationships of trust with customs officials are

    a key point in customs clearance procedure. This is true not only for gray brokers or the

    implementation of gray schemas, but for any kind of customs clearance operations. The

    informal mediation of customs brokers is explicitly described in the following quotation:

    Actually there is no real need for the assistance of a so-called customs broker or

    declarant. You can easily fill in the declaration especially if you constantly convey one

    particular type of cargo and are not doing it for the first time. But his [brokers] main

    role (why he is really needed) begins after you fill in the declaration. He is like a

    messenger of God on the earth. In other words, he is the person who goes to customs

    with your documents, and the customs would decide whether to let your cargo through

    or not. And, then, imagine that you come to customs and bring your documents

    yourself. A custom official wonders who is this stranger? Where did he come from?

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    And it is quite a different situation if a declarant [broker] comes and says:

    everything is fine, the inspection is done, we can go. It is clear that your payment

    agreed payment is shared between them. Because if the customs broker didnt pay

    then he would be sent to the same circle as I was sent. And they [officials] wouldnt

    take money directly from me it will be a bribe in this case.(director of firm, cargo owner)

    Another example of informal mediating of a bottom-up type can be found in the

    sphere of shuttle-trading. Since shuttle-traders regularly break custom rules regarding the

    weight and the amount of goods can be brought across the border, they always need some

    mediating structure or person to solve the problems that arise between them and custom

    officials. The role of mediation is performed by tourist firms, or to be more precise, by tourist

    guides who organize the trip. 5

    Institutionalization of informal mediation

    We would argue that currently, informal mediation in relationships between

    businesspeople and authorities is going through a process of institutionalization . In this part of

    the paper we will try to demonstrate that the phenomenon of informal mediation has

    developed during the past years into sustainable informal institution that has come to occupy a

    stable position in the Russian economic environment.

    According to the theory of institutionalization developed by Peter Berger and Thomas

    Luckmann the essence of institutionalization is the reduction of uncertainty in the external

    environment, making it more predictable for people (Berger&Luckmann, 1996: 54). Based on

    empirical data obtained during the studies we consider institutionalization of informal

    mediation through the processes of habitualization, typification, objectivation and

    legitimation of interactions between businesspeople and informal intermediaries.

    The emergence and formation of the institution of informal mediation is preceded by

    the habitualization of informal economic practices in the Russian business environment,

    where infringement (or avoidance) of formal rules and regulations has become a generally

    accepted norm of economic activity. The prevalence of informal relations in vertical

    5 The outcomes of the study on intermediaries in the sphere of cross-border cargo transportation is presented inOlimpieva, I., Pachenkov, O., Ejova, L., and Gordy, E. (2007 )

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    interactions between businesspeople and officials is predetermined by the imperfection of

    the bureaucratic system, and by the impracticability of formal regulations. It is widely

    acknowledged that the legislative environment in Russia does not facilitate business

    development, particularly for small and medium sized business. As it follows from our study,

    informal stimulation of officials of different ranks in order to overcome bureaucraticbarriers has become a routine practice in everyday economic activities.

    As informal practices become habitualized, the most effective of them become

    crystallized, with their further transformation into typical patterns of behavior. Our study

    provides empirical evidence that using intermediaries for informal interactions with officials

    has become such a typical pattern for Russian businesspeople. The reasons for using informal

    intermediaries services are the following:

    a) Businesspeople prefer to deal with intermediaries because it is simpler

    (intermediaries know all the details and hidden dangers of this process) and faster (anyway itsaves time and therefore - money).

    Ok, in order to register the agreement for all these premises for rent, I went to

    officialsone, two- oh, this will be the eighth visit. In June I started my visits to

    these officials, spent overall 16 hours, today it is already October five months have

    passed! And no result so far... It is better to do it through the agency, formerly we paid

    them $1000 and they did everything in one month.

    (director of a trading firm)

    In fact there are two ways for businesspeople to solve a bureaucratic problem. The direct

    way means applying to the official body trying to fulfill all formal legal requirements. This

    way can take an extremely long time and the result is not guaranteed. Another way is the

    indirect way, operating through intermediary structures, which is faster and less time-

    consuming. As a result one can see the double-faced strategy that businesspeople often use in

    their relationships with officials: if the problem is urgent and vitally important for a firm they

    choose the more expensive but faster and more reliable indirect method. In cases of less

    urgency the long method of navigating ones own way through bureaucratic procedures.

    b) Using intermediaries makes it possible to avoid emotional strain, which is usually a

    painful part of the interpersonal communication between businesspeople and officials, and not

    only in cases where it is necessary to solve the problem using informal means:

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    I want to say that every official - depending on his upbringing, his intellect and I

    dont know what else to a greater or lesser degree - would necessarily smear you on

    the table. If he is a cad, then he will be actively doing this. If he is a well-brought-up,

    then he will be doing this by his indifference. None of them cares about you!

    (director of a dressmaking establishment)

    When a businessperson goes to an intermediary, the situation is different it takes the shape

    of formal service and businesspeople feel like customers in that case. So it can be stated that

    by using intermediary services businesspeople reduce the emotional costs of informal

    interactions with officials.

    c) Not least important, using informal intermediaries reduces the uncertainty of the

    situation, and increases its predictability. According to our respondents, intermediaries makethe whole system of interactions between business and authorities more clear . Of course,

    this does not imply that the procedures of the bureaucratic body are more transparent, but

    rather that intermediaries are uniquely positioned to offer a better understanding of the steps

    that businesspeople need to undertake in order to effectively achieve their goals in interacting

    with state institutions.

    The study provides empirical evidence of objectivation of informal mediation. In some

    spheres the set of informal mediation institutions has a sort of coercive power over individual

    behavior. Using the services provided by intermediaries has become, if not obligatory, then

    vitally necessary for businesspeople if they want to run business without troubles. This can be

    seen from different cases of failed attempts to avoid using intermediary services. One of the

    most vivid examples is when businesspeople try to do custom clearance directly through

    customs bodies avoiding the services of intermediaries:

    The way through the customs it is just horrible! We were doing everything by a

    white scheme. The system works as follows we try to do everything fairly, paying all

    customs duties and so on. But the customs rules and customs laws are very

    complicated, they can object to anything, and wont let a commodity through. But it

    can be done very easily ... We tried once to go through customs procedures using a

    gray scheme. And it turned out to be much easier and much cheaper. And now we

    are thinking: what for? Why have we suffered so much for five years?

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    (director of a shop)

    The above quotation explicitly demonstrates how white business is being converted into the

    gray zone under the pressure of institutionalized informal relationships in the business

    environment.Institutions require legitimation , that is ways by which they can be explained and

    justified (Berger&Luckmann, 1996: 61). The leitmotif of all explanations of our informants

    regarding the existence of intermediaries is that they are created by officials themselves to

    produce additional profits. Our informants are deeply convinced that intermediary firms (the

    top-down ones) are specially created by officials themselves in order to get additional

    informal payments for avoiding impracticable and intricate bureaucratic rules. Some of our

    informants are even sure that people who work in these structures are in close kinship or

    friendship relations with officials. In general, businesspeople perceive intermediaries as anobjective necessity of the business environment and accept them as such. Justification of

    bottom-up informal intermediaries is based on their convenience for businesspeople. Even

    with the high price of mediation services they provide for businesspeople the real possibility

    of solving problems and economizing on other expenses.

    Informal intermediaries and evolution of corruption

    The dual character of the institute of intermediaries provides the main obstacle for its

    research and analysis, and was mentioned by many scholars (Tanzi, 1998; Lambasdorff, 2002,

    Polischuk, 2003, and others). On the one hand, intermediaries could serve legal interactions

    between businesspeople and bureaucratic bodies, and on the other hand, facilitate corruption

    deals. However, both legal and corrupt forms of mediating have some common basis. From

    the perspective of a transaction costs approach, the economic essence of the institution of

    intermediaries is seen as assisting businesspeople to reduce transaction costs related to

    complying with formal bureaucratic rules and regulations. In case of legal mediating reducing

    of transaction costs is achieved due to functional specialization of intermediary firm, while in

    case of corrupt mediating it happens because of the mechanism of trust based on informal

    contacts with the authorities.

    It is almost impossible to provide accurate assessment of the scale of the informal

    intermediaries market in Russia. Alongside with standard obstacles usually related to

    quantitative measurement of informal phenomena, there is a problem of impossibility to

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    separate legal and informal functions, which intermediary firms often combine in their

    activities. The qualitative character of our study does not allow making quantitative

    generalizations. The types and examples of informal intermediaries revealed in the study of

    routine corruption in small and medium business do not necessarily exist in big business,

    which might have different forms of corruption and mediation. However, although our studieswere focused on the Saint Petersburg municipality alone, the outcomes are not specific to

    Saint Petersburg and could be reasonably extrapolated to describe phenomena of informal

    mediating throughout the Russian business sphere, particularly those involving small and

    medium sized business .

    It should be mentioned here that for some reasons the market of mediating services in

    Russia has not yet attracted deserved attention by scholars. Very few works are devoted to the

    analysis of intermediary market in Russia either legal or informal, its dynamics and

    characteristic features (see e.g., Migin et al, 2005, Polishchuk, 2003; Olimpieva et al, 2007).The study of intermediary market conducted by the National Institute of the System Research

    of the Problems of Entrepreneurship considers legal firms formally assisting businesspeople

    in their interactions with bureaucratic structures for the issues of firm registration, licensing

    and certification, registration of land and other bureaucratic procedures. The study has

    revealed considerable growth of the market of intermediary bureaucratic services in recent

    years. This is manifested in increasing amount of intermediary firms operating in the market,

    growing number of employed and high profitability of the intermediary sector (Migin et al,

    2005:190). As it is emphasized in the research, with the lack of corruption the market of

    intermediaries could emerge only around particularly complicated and sophisticated

    bureaucratic procedures, going through which without assistance might lead to considerable

    costs for businessmen (ibid: 14). The redundant number of mediating structures in Russia can

    be considered therefore as the evidence of redundantly high bureaucratic barriers and

    consequently, high corruption potential of the system. From this point of view the very

    existence of the growing and flourishing market of intermediaries serve as an evidence of the

    alike growth and flourishing of the sector of informal mediating.

    There is one more argument if favor of the connection between growing legal

    mediating services in Russian economy with the growth of the informal mediating sector. As

    it follows from some studies, that same intermediary structures that operate absolutely legally

    in advanced capitalist economies in the developing countries serve for corrupt mediating

    providing access to bureaucratic structures using informal contacts with the officials (see, e.g.,

    Andvig et al., 2000; Oldenburg, 1987). The case of custom brokers in our study provides the

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    similar example of the mutation of intermediaries institute in Russia. The study allows us

    to suggest that particularities of the transitional socio-economic context make the role of

    intermediaries in Russia different. They often act either as a covert instrument for

    bureaucratic extortion or as a form of latent resistance of business against over regulation and

    impracticability of the legislation.The emergence and dissemination of informal intermediaries in Russian business

    environment has proved that corruption is a flexible, alive phenomenon which is constantly

    changing in accordance with the changes in legislative, economic and social context. The

    evolution of corruption in Russia can be traced since the first wave of entrepreneurship

    emerged at the beginning of 90s and up to nowadays. At the initial period of business

    environment formation corruption in business-state relationships existed in the form of

    unconcealed bribery. In 1998 Russian researchers had pointed out that classical bribery in

    the envelopes had already become the thing of the past being replaced by more respectableinstitute of friendships and mutual support (Radaev, 1998). Since that time the role of

    informal contacts with officials even increased especially with recent establishing of the

    informal institute of the selective enforcement of the formal law (Paneyakh, 2008). In this

    context the institute of informal mediating has emerged as a next step in the development and

    formalization (legalization) of the institute of friendship and mutual support to facilitate

    informal relationships with bureacracy. Thus the emergence and recent development of the

    institute of informal intermediaries mark the next step in the evolution of corruption in

    Russia.

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