Date: Tue, 9 Nov 1999 12:29:42 -0500
Sender: Forum on Labor in the Global Economy <LABOR-L@YorkU.CA>
From: Charles Brown <CharlesB@CNCL.CI.DETROIT.MI.US>
Subject: bribery is endemic to capitalism
A survey of more than 3,000 East European companies paints a sobering picture of endemic corruption, favored lobbies, and continuing state influence over business 10 years after the collapse of communism, reports the Wall Street Journal (p.A21) and the Wall Street Journal Europe. The survey by the World Bank and the EBRD, published yesterday as part of the EBRD's annual Transition Report, concludes that bribery and corruption remain widespread due in part to the continued reliance of companies on direct ties to government officials.
Among the findings is that companies in Eastern Europe pay bribes of an average of two percent of annual revenue in Croatia to eight percent in Georgia. “When added to what is already considered by firms to be an extremely high level of official taxation, the bribe tax imposes a severe burden on enterprises in the region,” says the survey. The average bribe tax in the former Soviet Union-5.7 percent of revenue-is almost twice that in Central and Eastern Europe, 3.3 percent of revenues.
Surprisingly, though, bribery remains widespread in countries considered transition success stories, according to the survey. Companies surveyed said firms that bribe “frequently or more” totaled 31.3 percent in Hungary and 32.7 percent in Poland, compared with 29.2 percent in Russia. Private-sector companies pay a larger share of their revenue in bribes than do statecompanies.
Of most concern to the EBRD appears to be the impact on small companies, with some 40 percent of those surveyed saying they frequently pay bribes compared with 16 percent of large enterprises. EBRD President Horst Koehler said new companies are critical in driving economic growth in transition countries and must be protected and encouraged.
The study's sharp words about corruption and powerful business oligarchs represent a radical departure for the EBRD, which in the past has been cautious about publicly criticizing slipshod business practices in the region, the story says. While Koehler has sought a more outspoken role for the bank since taking over last year, some EBRD bankers advocate a lower profile to avoid alienating governments in the 26 East European and Central Asian countries where it operates.
The study found that while direct state intervention in the region's economies has shrunk dramatically since the collapse of central planning, “bargaining between the state and firms has not ceased but rather changed form.” Governments continue to favor some companies over others by giving explicit or implicit subsidies, including tax breaks and tolerance of debts. Meanwhile, a small group of powerful companies exert undue influence overgovernment policies in many of the region's countries. “The evidence suggests that in most transition countries a small group of firms exercises influence over state policies that affect the activities of many firms across theeconomy,” the study found.
Despite its critical assessment of business practices in East Europe, the EBRD was quick to applaud areas where progress has been made over the past 10 years. “Freedom of economic and political choice has advanced significantly in virtually all of the countries (in which the EBRD operates),” EBRD Chief Economist Nicholas Stern said. “We have to recognize those achievements.”
The EBRD said it expects average economic growth in the region to accelerate to more than three percent in 2000, from about 1.6 percent this year. It also predicted that foreign direct investment into Russia would jump to around $3.5 billion this year from $1.2 billion in 1998.