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CORRUPTION: Russian Business Joins With U.S. NGO to Fight Back

William Fisher

NEW YORK, Dec 8 2004 (IPS) - The popular image of Russia in the West today is of a land of post-Soviet oligarchs, oil company billionaires languishing in jail, President Vladimir Putin ruthlessly centralising his power by replacing provincial governors, civil liberties being abused, and, of course, the 10-year war in Chechnya with the resulting unthinkable murder of hundreds of children in Beslan.

But on the eve of international Anti-Corruption Day on Dec. 9, there are other, more hopeful, crosscurrents in this vast and complicated country. One is a realisation by Russia’s entrepreneurs that they must unite to reduce the endemic corruption that has impeded the development of small businesses in the country since the fall of the USSR in 1991.

This grassroots movement is being led by the Association of Entrepreneurs for Honest Business, whose mission is to: unite and educate entrepreneurs across Russia, raise public awareness of the costs of corruption, draft anti-corruption legislation, engage those in power, and force changes in the business environment by running for and getting elected to public office.

The effort is an offshoot of the Productivity Enhancement Programme (PEP), the private, not-for-profit brainchild of an indefatigable San Francisco grandmother, Sharon Tennison, who founded the Centre for Citizen Initiatives (CCI) in 1983 in an attempt to break through barriers between the two superpowers.

When the USSR imploded in 1991, Tennison continued creating programmes like PEP to help democratise Russia.

PEP is an out-of-country business management training programme, adapted from the historic Marshall Plan’s "Productivity Tours," which brought 24,000 foreigners to U.S. plants after the Second World War. To date, PEP has exposed some 4,000 non-English speaking Russians to the "how to" of American management in more than 10,000 U.S. companies in 500 cities in 45 states.

CCI’s 5,000 alumni form the nucleus of the new Association of Entrepreneurs for Honest Business, an effort several years in the making.

"I’ve been obsessed with bribe-taking from Russia’s grassroots businesses, because it is suffocating the normal development of small business," says Tennison. "Small business owners bemoan this plague endlessly but have felt totally helpless to address it openly, since their businesses could be shut down overnight by local authorities."

She adds in an interview, "Complicating the situation is the fact that there is no history of uniting for effecting change in Russia. Those who tried in the past paid for it in the gulags or with their lives."

"A second complication is that during those times, Russians developed deep fear of one another, not knowing if their next-door neighbour would inform on them. This lack of trust among Russian citizens, combined with their lack of experience with uniting, casts a long shadow into Russia’s business life today," according to Tennison.

The highly respected non-governmental organisation (NGO) Transparency International reported that in 2002 companies in Russia were more likely to pay bribes to officials than in any other emerging market country in the world.

According to Russian entrepreneurs, corruption cost businesses 36 billion dollars in 2003, or between 10 and 12 percent of gross domestic product (GDP). Bribes made up about 10 percent of the cost of all business transactions in Russia, while individuals paid about 2.8 billion dollars in bribes, usually to procure "free" government services such as health care or access to education.

The ‘Moscow Times’ says small business disproportionately bears the brunt of red tape and corrupt officialdom. For big business, the paper says, "corruption may be an irritant, but for (small and medium-sized enterprises (SMEs) it’s a matter of life or death."

But now, Tennison says, "the years of fearful compliance with forces beyond (business owners’) control have begun to give way to a modicum of hope. Russia’s small business owners say they can ‘feel the wind blowing from the top’."

"President Putin, whom most of them trust, has come out on their side, warning bureaucrats that corruption can’t co-exist with a healthy economy, and if they don’t change, then change will come from above."

Earlier this year, CCI arranged for 100 of its 5,000 alumni to study the world’s experience in reducing corruption. In Washington, DC, they held 55 meetings with the world’s experts in this field. Thirteen embassies of countries with the best anti-corruption records trained the Russians, and international agencies like the World Bank and the International Monetary Fund (IMF) provided methodologies successfully used by other countries.

The alumni’s ‘Recommendations to the President’ were delivered to Putin’s economic advisor, Andrei Illarionov, in the Kremlin. Illarionov spent 2.5 hours with the entrepreneurs, assuring them he would discuss their 33 recommendations with the president. Then he urged them to go back to their regions, unite, create a bold website and use their voices to enlist other entrepreneurs in their struggle.

The value of volunteers is underscored by Jack N Behrman, emeritus professor of international business and ethics at the University of North Carolina School of Business – and founder and former chairman of the volunteer MBA Enterprise Corps.

Behrman says his studies "show that volunteer action is one of the most effective means of curtailing corruption in both government and business." It "demonstrates that there is grassroots concern and that the damage is pervasive. Countries where corruption is rife remain on the lower rungs of development, and begin to progress to the degree that they curtail or eliminate it."

Bolstered by the high-level moral support from the Kremlin, the CCI alumni returned to their regions, organised press conferences with local journalists, held roundtables with district and regional officials, and began the work of uniting themselves locally.

In June they convened a second brainstorm to determine their nationwide work, and on Sep. 25, they finalised the bylaws needed to legalise and register as a new non-commercial association.

The director of the new association is Nonna Barkhatova, a woman who founded and operates a successful small business development centre in Novosibirsk, and is the city’s best-known supporter of small business development. The chairman of the board is Andrei Davidovich, an entrepreneur who built a marketing company from scratch, and now has affiliates in several Russian cities.

The association is buttressed by several strong supporters, including John Pepper, recently retired chief executive officer (CEO) of U.S.-based multinational Procter & Gamble and the organisation’s honorary co-chairman.

The organisation’s immediate next steps are to: create public awareness, draft legislation, engage local officials on corruption issues, spearhead a national membership campaign, and lobby all levels of officialdom for change.

Tennison is optimistic about its future. "These dynamic young entrepreneurs have trained in business sectors throughout the U.S., and have seen for themselves the market advantages of uniting for change. Now they are adapting it to Russia’s environment. An uphill climb is ahead, but this association is already a movement in motion. Its volunteers are unstoppable," she says.

A study by Marek Hessel and Ken Murphy for Transparency International concludes: "Corruption frequently ‘works’ only for those who receive bribes … Corruption breeds on itself: it gives the bureaucrats powerful incentives not only to keep inefficient rules in place (so that they can take more bribes and pass them about the office) but to multiply such rules."

The new association hopes to turn the tide.