 Recently, a friend of mine was crossing the Russian-Ukrainian border by train. The customs officer knocked at the door of his carriage compartment and asked for his documents. After careful examination, the officer said that the registration had expired and my friend was not allowed to cross the border.
That would be the end of story if it were the US-Canadian border because my friend would be forced to exit the train. The end of this story had, however, a happy ending. The officer was waiting and looking at my friend as if he wanted to hear some explanations hinting that something could be done to resolve the problem. After short negotiations, the officer asked my friend to follow him.
Shortly, the friend came back with the stamp in the passport that allowed him to cross the border. This example illustrates a more general point that the rules are not strictly enforced in a country with a high level of corruption such as Ukraine.
To achieve our goals we are ready to break the rules and bribe government officials who are supposed to protect the law. Officials, in their turn, expect that we behave that way and force us to give bribes. The vicious circle is very hard to break because it has become ingrained in the Ukrainian culture and governs people's cultural code of behavior.
The common knowledge is that everybody does it, so why should you be any different? Taking bribes is part of athe routine work of policemen, customs officials and municipal workers. Adjusting numbers for the cost of living, Ukraine came in the second placesecond-place - not far behind Ghana - in annual bribes paid by households according to the results of a public opinion survey of about 55,000 people in 69 countries. (See Table 1.)
How costly is corruption for the welfare of a country? Oddly enough, the mere fact of bribery has no direct impact on a country's gross domestic product (GDP).
However socially costly, the bribe is a transfer of money from one individual to another that has an impact on distribution of income but leaves the level of GDP unchanged (in fact, if it was registered, it would even increase GDP).
Does that mean that corruption has no impact on economic growth? Of course, the answer is negative.
Paolo Mauro - one of the first economists who empirically studied the consequences of corruption - demonstrated that corruption reduces economic growth in a country by 0.5-1 percent a year on average. For Ukraine, This sum is comparable with the annual budget spent on education in Ukraine.
More importantly, it makes an even greater difference for economic growth in the long run because losses accumulate over time. The negative impact of corruption on economic growth comes from the very significant influence of corruption on investment rates (it can be as high as 5 percent).
In addition, corruption distorts distribution of resources across industries. Countries with high corruption levels invest relatively more resources in construction and less in education and social programs. A corrupt government official would prefer to finance a big investment project with very uncertain costs where it is difficult to monitor expenditures - i.e. build a highway or an airport - rather then give money for educational programs that are more transparent and easier to control.
In 2006, Ukraine - together with the Dominican Republic, Georgia, Mali, Mongolia, and Mozambique - occupied places 99 in the annual report on the corruption perception index provided by Transparency International.
The problem of high corruption in Ukraine is well recognized by all parts of the political spectrum. Party leaders of the ruling coalition and the opposition publicly announced that fighting corruption should be a priority in the government agenda. On December 5, 2006, the Government of Ukraine and Millennium Challenge Corporation - a U.S. program that seeks to reduce poverty by rewarding countries for establishing open markets and following other good governance practices - signed an agreement estimated at US $500 million as the threshold program for development of Ukraine that would be partially spent to finance an anti-corruption campaign as a part of the threshold program for Ukraine.
Prime Minister Viktor Yanukovych publicly stated that figure following a meeting with US Secretary of State Condoleezza Rice. "The program will envisage actively combating corruption, which will be a priority of the current Government," Yanukovych said.
At the same time, Ukrainian politicians are very much divided on the question of the best way to reduce corruption. It was very clearly demonstrated during the "Svoboda Slova", a popular TV show where the top government officials, parliamentarians, and experts discuss important political and economic topics in front of a large audience. The program was devoted to discussion on corruption in Ukraine and was aired in December 2006.
While the minister of defense expressed the opinion that the best way to get rid of corruption in the army is to subcontract all functions not directly related to defense to private companies, the minister of transportation argued that more government controls and more detailed regulations is the way to lower the corruption level in the transportation sector.
In my opinion the minister of defense has a better strategy to fight corruption. Winston Churchill once said: "If you have ten thousand regulations you destroy all respect for the law." Simplifying cumbersome and lengthy laws and regulations, giving more economic freedom to private companies, local governments, and organizations and getting rid of politically driven decisions would substantially reduce corruption opportunities for government officials and bureaucrats.
Raymond Fisman and Roberta Gatti, world experts in the study of corruption, have demonstrated that more decentralized countries have lower levels of corruption. Therefore, the administrative reform that gives more budgetary expenditures to be divided at the local level suggested by the Socialist Party could be beneficial for Ukraine because it would spur political competition between local governments, improve their performance and lower corruption.
It is difficult to find the best anti-corruption roadmap for in Ukraine. However, the establishment of a strategy for this purpose should not be decided in a narrow circle of government officials or the ruling coalition's leaders.
According to the Global Corruption Barometer report, political parties are the most corrupt institutions of society as shown in Graph 1. Therefore, it would be very dangerous to leave the politicians on their own in a hope that they will miraculously solve all our problems.
For an anti-corruption campaign to be a success, the government should work out the strategy in collaboration with media, non-government organizations, and educational institutions. And if, on a wonderful day, people in power and the army of state bureaucrats start behaving as role models for us by strictly following all rules and regulations they have created for ordinary people, we would become better citizens and stop cutting lines, violating traffic rules, and bribing officials in an attempt to solve our everyday problems.
Oleksandr Shepotylo, Ph.D., is an assistant professor of economics at EERC and Kyiv Economics Institute. The views expressed in this article are those of the author and do not represent the views of above-mentioned organizations.
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