The shift to “centralized corruption” and
the effectiveness of the Russian bureaucracy
September 16, 2022

Andrei Yakovlev

Visiting scholar at Freie Universität Berlin 

Based on his research, Andrei Yakovlev argues that in recent years the level of corruption has decreased at the lower and middle levels of the bureaucracy. This, in his view, represents a reason for the unexpected resilience of the Russian economy in the face of Western sanctions.

At the end of the summer, the impact of international sanctions on the Russian economy had turned out less catastrophic than initially expected. Experts put forward various explanations for the relative stability of the economy, including:

  • Quick and sound actions taken by the Russian financial authorities, which already by the end of March had managed to stabilize both the ruble and the banking system, as well as short-term expectations across the economy;

  • The prompt introduction of new government subsidized lending programs for both strategic enterprises and especially small and medium-sized business; they were implemented without major issues, as it was the measures that had been developed during the height of the COVID19 pandemic in the spring and summer of 2020 that were used;

  • Flat and even higher export revenues (due to rising global oil prices following the announcement of sanctions), which represent the core of the federal budget;

  • Considerable stocks of materials and components for industry and other sectors of the real economy, which companies had built up to mitigate the impact of potential new waves of the pandemic.
Medvedev chairing a meeting the Anti-Corruption Council on 30 September 2008. Source: Wiki Commons
Demands on bureaucracy rise in response to crises

Besides these widely mentioned factors, there is another, less obvious one. It is the increase in the effectiveness of the Russian bureaucracy over recent years. The thesis about the corruption and incompetence of the Russian bureaucracy has been based on theoretical models in multiple studies on the economy and politics and confirmed by empirical data. Its basis was fairly simple and reasonable arguments. The highly centralized governance model built in the 2000s assumed that all key decisions were made at the federal level, and local officials were expected to be diligent and politically loyal, meaning they must ensure the “right” results in parliamentary and presidential elections. For its part, the Kremlin was willing to turn a blind eye to rent extortion, corruption and incompetence at lower levels; money was thrown at the problems that arose as needed, since there were more than enough budget revenues during the oil boom of the mid-2000s to go around.

But the situation started to change already after the 2008-09 crisis, when half of the reserve fund was spent in one year and it became clear that the resources of the federal government were by no means unlimited. Regional governors began to be expected to create more favorable conditions for doing business, with pressure provided by the benchmarking of regions based on the National Investment Climate Ranking conducted by the Agency for Strategic Initiatives.

The mass political protests of 2011-12 brought a new pressure on the authorities. They were spurred by fraud in the Duma elections, yet the underlying cause of the discontent was the poor quality of public goods (health care, education, infrastructure, security). The Kremlin came to such a conclusion, which led the federal center to raise its demands with regard to the performance of local and regional authorities, as well as relevant federal agencies. The “May Decrees” of 2012 with concrete KPIs for regional authorities and federal ministries and strict control of their implementation was Important instrument of this policy.

Finally, the economic consequences of Crimea annexation followed by the conflict in Donbass raised questions about those in charge of industrial policy. Since the mid-2000s, significant resources had been directed toward industry (including the creation of the state corporations Rostec and Rosnano, state holdings in aircraft and shipbuilding, and the financing of various projects through VEB), but clear successes in terms of diversifying the economy and developing high-tech industries were lacking. Meanwhile, the first wave of international sanctions imposed on Russia in 2014 revealed the high dependence of the Russian economy on foreign technology and equipment. It was then that the Kremlin began to demand that agencies report results.

Since 2014, in addition to the carrot (in the form of access to additional federal budget resources and career advancement opportunities) the bureaucratic elites have also seen the stick in the form of criminal cases based on anticorruption investigations. Previously such cases were initiated mainly against middle-level officials, but now the highest officials, including regional governors and federal ministers, began to be targeted. In other words, as external and internal pressures increased, officials at all levels began to be expected to demonstrate not only loyalty but also competence – the ability to solve problems and achieve results in their area of responsibility based on available resources.

Improvements in governance

This resulted in certain improvements in the system of public administration. For example, my analysis of public procurement data in the 2010s didn’t reveal high levels of corruption in low-level contracts between ordinary government customers and small and medium-sized suppliers. This doesn’t change the fact that the biggest contracts are very often landed by people with connections. And since there is still a very high concentration of large government orders in the hands of a small number of the largest suppliers, the total losses from corruption in the economy have changed little. Nevertheless, it can be argued that at the lower levels of “ordinary public entities,” the existing system of procurement generally works, despite its rigidity and excessive regulation. One indirect confirmation:
“According to surveys of suppliers for government orders in Russia, Kazakhstan and Slovakia conducted in 2020 under a common methodology, the effectiveness of Russia’s procurement regulation was rated higher than the other two countries."
Logo of Industrial Development Fund (IDF), 2015. Source: Wiki Commons
With regard to the Russian bureaucracy, in terms of quantitative data I focus on two large surveys of lower- and middle-level officials conducted in 2018 and 2021 in a region located in the European part of Russia. Judging by socio-economic parameters, the region can’t be considered among the most developed and in many respects is typical. In the 2018 survey, we looked at factors that influence civil service hiring. In the 2021 survey, we tried to assess the factors important for career advancement of current civil servants. In both cases, the survey covered lower- and middle-level officials who interact directly with citizens and businesses. We proceeded from the assumption that the quality of public services significantly depends on the motivation and behavior strategies of such officials.

In our analysis, we tried to assess the effect of personal connections and performance. Since such questions were obviously sensitive for the respondents, we used the list experiment method, which does not allow to find out an individual respondent’s opinion on a particular issue, but makes it possible to analyze the extent to which certain opinions are typical among certain groups or categories of respondents. In a famous article by Frye et al (2017), this method was used to assess the real popularity of Vladimir Putin after the “Crimean Spring.”

Our experiments showed that though having “useful connections” certainly matters, current officials consider meritocratic factors much more important. A comparison of the results for ordinary bureaucrats versus middle-level managers (heads of departments, deputies of regional ministers and heads of municipalities) showed that higher positions put more weight on meritocratic factors – the role of "useful connections" was seen as less important and that of performance was deemed higher. This provides grounds to conclude that “positive selection” was at work in the hiring for public administration in that region.

Another example is the Industrial Development Fund (IDF), which was reorganized in 2014 to support import substitution projects. I first heard very positive assessments of the IDF relative to other development institutions in interviews with enterprises as part of a project to analyze regional governance in Voronezh in 2016-17. This prompted me to take a closer look at the activities of the IDF and evaluate the results of state support for enterprises through the IDF. In 2021, based on open sources my colleagues and I created a database of enterprises whose projects were supported by the IDF and data-matched it with similar enterprises that didn’t receive support. Meanwhile, the analysis specifically involved enterprises whose projects had already been completed by 2021, meaning the results of the state support provided could be properly evaluated. Our analysis showed that the IDF activity had a positive effect that was statistically significant for small and medium-sized enterprises. In addition, based on documents and a series of interviews with external stakeholders, we analyzed the decision-making process within the IDF – they turned out to be quite close to the best international practices.

As part of all the projects mentioned above and the discussion of their results, I had numerous personal contacts with a number of regional ministers, as well as with IDF officials. In almost all cases, they seemed very competent and as a rule were rather young. Of course, it is possible that the selection of my contacts was biased in favor of good faith representatives of the Russian bureaucracy. But even so, it still provides additional reason not to exaggerate the scale of corruption at the lower and middle levels of the Russian system of governance. In the terms of the well-known article by Andrei Shleifer and Robert Vishny, we might be able to speak about a transition to “centralized corruption,” which for all its costs is more efficient than the “decentralized corruption” characteristic of Russia in the 1990s and 2000s.

In summary, there is obviously a high level of corruption in Russia, but now it is primarily political corruption at the highest level. On the lower and middle levels, in my view, it has decreased in recent years, and the bureaucracy has become more effective. And that can help to explain the current relative stability of the Russian economy in the conditions of war.
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