1. Introduction
Since 2014, Ukraine has taken unprecedented steps to reduce corruption in public life. No country emerging from the former Soviet Union, with the exception of the Baltic states and Georgia, has adopted such significant measures in such a short time to limit the space for corrupt practices while also creating new anti-corruption bodies and starting to reform its judiciary and law enforcement agencies. Results to date have been mixed. The considerable progress on increasing transparency and closing down opportunities for extracting administrative rents has outstripped efforts to bring to justice past and present officials who have abused their public office. As anti-corruption activists quip, these unbalanced outcomes mean that Ukraine is now possibly the most openly corrupt country in the world.
There is nothing surprising about this. Success in overcoming deeply embedded corruption in a country such as Ukraine, with its formal and informal systems of governance, requires much more than new laws and dedicated anti-corruption bodies. Ultimately, it requires consensus among the elites to change the rules of the game. The history of Western Europe shows that this can happen when elites evolve to the point where they see benefit in developing institutions to secure their property rights and access to rents, rather than relying on personal patronage and clientelism. In social science this is known as the transition from a ‘limited access order’, in which a narrow group of powerful individuals exercise political and socio-economic dominance, to an ‘open access order’, which admits a wider set of interests based on self-organizing networks and impersonal social relationships.1
By some estimates, a transition of this kind typically takes 50 or so years, assuming a degree of linear progress.2 If Ukraine started on this path in 1991 after independence, it is now around the mid-point. The 2014 ‘Revolution of Dignity’ and its aftermath accelerated progress, but this has not necessarily been linear. In the case of the anti-corruption reforms, a combination of pressures, including the war with Russia, the demand for change from society and the conditionality of support from international partners, forced Ukraine’s elites in 2014 to start the process of reducing the scale of wealth diversion and other practices that subtracted value from the country. These abuses had plagued Ukraine since independence and warped its institutional development. They reached unprecedented levels during the presidency of Viktor Yanukovych (2010–14), leaving the country not just bankrupt but defenceless. Previous anti-corruption programmes going back to the late 1990s had only imitated the process of combating the problem.
The exigencies that became evident during the revolution led to the adoption of the Law On Preventing Corruption in October 2014, and of other measures that for the first time sought to limit the losses to society from predatory behaviour by officials acting for their own benefit and on behalf of a narrow group of powerful individuals. However, as the situation has stabilized since 2014, the readiness of elite networks to support change has diminished as they see less need for sacrifice. At the same time, the fightback by some of them against anti-corruption reforms, in particular the creation of a High Anti-Corruption Court, is a clear indication that these measures are effective and endanger the vital interests of the groups in power. Yet this does not necessarily mean that reforms are succeeding. In the case of the High Anti-Corruption Court, the independent capacity to investigate, prosecute and convict high-level officials scares power groups not so much because they fear going to jail, but because they see it as an encroachment on their control of the limited access order. In particular, a court that is not controlled by the power groups risks undermining the system of selective justice that derives from their influence over law enforcement agencies and the judiciary.
This paper analyses the effectiveness of the anti-corruption reforms undertaken since 2014 on key sectors of the Ukrainian state in the context of the system that they are seeking to change. Corruption is defined as the misuse of public institutions and office to the detriment of the common good. It does not necessarily involve financial wrongdoing or bribery.
Despite some distinctive cultural features that have shaped its development, Ukraine broadly fits the category of a state with a limited access order in which corrupt practices are the norm and form the root of a system that allows power groups to coexist peacefully on the basis of shared privileges and rents. The system is not just corrupt; it runs on corruption. The paper argues that Ukraine has achieved significant results in reducing depredations by the elites by narrowing the space for corrupt practices, even if overall corruption remains disturbingly high and radical action is still necessary in key areas to consolidate progress.
By contrast, punitive actions against corrupt officials, or the threat thereof, have so far yielded little. For now, such actions are likely to remain a blunt instrument, as the nature of the system has not yet changed sufficiently to allow them to target senior members of the elite. In other words, challenging this system head-on by trying to put corrupt officials behind bars will not change its essence.3 Instead, some of the interest groups that form this system need encouragement to evolve in response to reduced opportunities for corruption and increased scope for the development of business that derives from genuine creation of value rather than extraction of rents.
The nature of corruption in Ukraine
In common with many countries with less advanced governance systems, Ukraine has a stubborn form of corruption deeply embedded in its state institutions. Citizens are acutely aware of this, and continue to rank corruption especially high-level corruption – as one of the biggest problems facing the country, and on a par with Russia’s aggression.4 The most popular perception is that corruption is a type of ‘rust’ plaguing state institutions and requiring removal with an ‘iron brush’ in the form of harsh punitive measures. According to this logic, the more senior officials are jailed, the less corruption there will be, and the better state institutions will perform. Yet even if it were possible to put in place punitive measures to deter officials at all levels from extracting private benefits, there is no guarantee that these old institutions would start working better. Some might even function worse, if officials deprived of access to privileges lost the incentive to perform their basic duties.
Corruption defies simple description and remedy because of its complexity. At its root are deep systemic problems that create space for various forms of rent-seeking. These deficiencies continue to bedevil Ukraine’s state institutions and are the main reason for its poor performance across the board from the economy to diplomacy. As such, corruption is a symptom of underlying systemic problems, not their cause, even if it reinforces some of them.
As Douglas North, John Joseph Wallis and Barry Weingast have noted, ‘Natural states [i.e. with limited access orders] are not sick. They have their own logic and are not dysfunctional … Natural states may appear to be corrupt according to the norms and values of open access orders.’5 In other words, what Western countries traditionally regard as corruption, such as the fusion of business and power, is an integral feature of a limited access order. Popular anger at corruption reflects frustration with the inbuilt limitations of this system and the aspiration to open it to others. Ukrainians can see successful examples of such a transition in Western Europe; as well as to some extent in Central Europe, where the establishment of an open access order, while not complete, is relatively advanced. Reducing corruption is a by-product of systemic transformation and cannot be treated separately from it.
Resistance to the opening of a limited access order is often considerable because corruption is not only a tool for enrichment of the ruling elites, but also an indispensable instrument of administration. Mid- and low-level officials typically require incentives for executing orders in the form of privileges or side payments that derive from illicit diversion of state resources. At the same time, low-level officials are often required to collect or even extort bribes and channel them to their superiors. In both cases, corruption works as both carrot and stick; senior officials have grounds to report their subordinates’ corruption in case of non-compliance with their orders, even if their orders are illegal. It is very hard to estimate the scale of these well-established informal mechanisms, but many of Ukraine’s state institutions – especially in law enforcement – would probably experience rapid decay or even paralysis if these reward channels were to close overnight. However, the rapid and successful transformation of the Ministry of Health’s system for procuring medicines shows that, at least in one key area, change is possible without undermining the institution.
Paradoxically, some forms of corruption of institutions in limited access orders are conducive to economic and societal development, in that they reduce the effects of limited access and allow for ‘greasing of the wheels’ from below. This was the case in the Soviet era, when the Communist Party often disregarded the informal barter of goods and services between economic entities in order to alleviate the inefficiencies of the planned economy. Without this expedient, the Soviet economic system could not have functioned.6 In Ukraine today, corruption remains an important enabling force that keeps the grossly inefficient state bureaucracy and economy functioning. However, despite the mitigating function of this type of corruption, it has malicious spillover effects that contribute to embedding informal practices that are difficult to remove. Just as corruption may help to circumvent trivial but onerous regulations, it can easily do the same, for instance, in the case of rules that protect lives. The number of fatal industrial accidents in Ukraine speaks volumes about this risk.7 Moreover, tolerance of one form of corruption tends to legitimize other kinds of corruption, and blurs the line for society between acceptable and unacceptable behaviour.
As in much of the former Soviet Union, the limited access order in Ukraine is characterized by overregulation, in tandem with space for the bureaucracy to enforce selectively rules and norms that are intentionally made impracticable so that the authorities have leverage. This combination not only gives the power groups that make the rules significant influence over others in society; it also provides them with the ability to create patron–client networks that ensure the loyalty of the bureaucracy. The bureaucracy gains a stake in the system through selective enforcement of the rules on behalf of its patrons. This derives from a Russian tradition going back centuries whereby norms are deliberately made discretionary, ambiguous and overly restrictive to endow a nachal’nik (chief) in the bureaucracy or law enforcement with informal discretionary personal power (vlast’) that can be then used either for personal enrichment or sometimes for entirely legitimate purposes.8 As a result, two of the most widespread forms of corruption in Ukraine are extortion under the threat of enforcement of impracticable rules and regulations, and collusion between officials and business people or citizens to circumvent these norms or abuse them for private benefit.
Constraining the space for this kind of informal influence requires more than drastic streamlining of legislation. In Robert Klitgaard’s classic definition, corruption equals monopoly plus discretion minus accountability (C = M + D − A).9 In line with this, cutting corruption in Ukraine means reducing the scope for monopoly decision-making and replacing officials accustomed to personal power with civil servants who are skilled in impersonal and strict implementation of the rules and genuinely committed to the public good. Neither approach can work properly in isolation. Even the best designed norms will be abused, although possibly to a lesser extent by ‘old cadres’, while even the most impartial officials are at high risk of losing their integrity if faced with the implementation of impracticable norms tailored for maximizing their power.
Aside from the administrative challenges, reforms of this kind are politically difficult to manage. Corrupt ‘chiefs’ use their money and influence to lobby for even more favourable conditions for corruption. They also have clients and partners from the private sector who are used to benefiting from impracticable norms vis-à-vis their competitors through their ties to officials. In addition, senior politicians who may not even be involved directly in corruption schemes may still look on them kindly due to their political interests or because it helps to keep their subordinates under informal control. On a societal level, moreover, it is hard to expect zero tolerance of corruption becoming the norm in the near future because of the general acceptance of petty corruption as a way of life that helps solve problems. Last but far from least, widespread corruption in law enforcement structures and the judiciary, which are supposed to limit the scope of corruption, means that both are accustomed to selective implementation of the law, including anti-corruption norms, and experience very low levels of public trust.10 Therefore, increasing the severity of the law will not only be mitigated by its customary use; it can also paradoxically result in strengthening the limited access order by further closing the social networks and streamlining the channels that take the proceeds from low-level corruption to the political level.
Specific features of corruption in Ukraine
The oligarchic system that took shape in Ukraine in the mid-1990s built on the limited access order inherited from the Soviet system and earlier traditions of governance. The wealthy individuals who emerged at that time often did not own assets. They first secured monopoly control of key sectors such as the gas trade with Russia and banking, or they profited from informal control of state-owned enterprises (SOEs). They later increased their wealth through privatizations that sustained patron–client relationships from Soviet days, with ‘red directors’ and their networks assigned prominent roles in these enterprises. The demise of the Communist Party – and its control of the levers of power – gave the new ruling groups vast influence over the machinery of the state in the absence of the old system’s internal checks and balances.
To protect and expand their positions in this emerging order, some of Ukraine’s new rich bought media assets, established quasi-political parties and ensured that their representatives were elected to parliament. They often also found patrons or partners in law enforcement agencies, including parts of the security service, and in the judiciary. Some of these structures had developed ‘commercial’ interests well before the collapse of the Soviet Union. In addition, Ukraine’s judiciary had no tradition of independence. This system coalesced under President Leonid Kuchma (1994–2005) and did not change substantially after the 2004 Orange Revolution. Despite the stirrings of civil society at that time, the power groups did not feel pressured enough to change their behaviour. This explains why anti-corruption efforts at that time proved merely tokenistic; they were often just a tool for settling scores between rivals rather than for improving the public good. President Yanukovych adapted the system by centralizing control to divert rents to his family and its associated networks.
A study of high-level corruption issues prepared by the new government in 2014, with the assistance of the IMF, noted the ‘pyramidal’ nature of influence over the government system with ‘powerful well-known elites at the top, heads of agencies in the middle and agency staff at the base’.11 It described how these groups were able to control appointments in the public sector, to ensure the application of regulations in line with their interests, and to restrict public access to information. The study also noted coordination across different government agencies to intimidate business and extort bribes. The tax administration, the police, the Prosecutor General’s Office, the State Enforcement Service and the judiciary were identified as the most corrupt institutions. Typically, positions of power that allowed possibilities for extortion were for sale, this investment would then be repaid through the proceeds of bribes.12
There is nothing specifically Ukrainian about these practices, even if they have taken on an extreme form in Ukraine today. They are a regular feature of countries with governance based on a limited access order. The political scientist Henry Hale coined the term ‘patronal politics’ to describe societies in which individuals can pursue political and economic goals based on personalized exchange of rewards and punishment.13 The power groups’ control of the law enforcement agencies, notably the prosecutorial institutions, and the judiciary is a key feature of these systems. With the ability to make justice selective, some power groups can extract illegal rents with impunity and protect themselves from potential enemies.
The manipulation by certain Ukrainian elites of the electoral system sustains a particularly pernicious form of political corruption. A vicious circle of corruption arises from the fact that members of parliament often pay for their seats either by buying places on party lists or by using illegal campaigning tactics in single mandate constituencies. Regrettably, traditional methods of election observing do not address this problem.14 Members of parliament elected in this fashion expect to recoup the cost by demanding payments to support parts of the legislative agenda, including voting for formal and informal privileges that benefit certain interest groups, as well as legislation enhancing the vlast’ and rents of certain categories of ‘chiefs’ in the executive. In its most primitive form, this is a distribution of rents to the smallest group possible to secure the continued functioning of the limited access order.
A cultural factor causes Ukraine to be especially prone to petty corruption. In contrast to the situation in countries where citizens feel responsible to institutions, Ukrainians feel responsible to a close personal circle of relatives and friends on whom they can rely in case of hardships in the absence of reliable and stable benevolent public institutions. Like citizens in other post-colonial countries, particularly those that have been located on the shifting peripheries of large empires, Ukrainians have inherited a survival ethic that deeply distrusts the state and its institutions, including the law, regarding them as inherently alien and hostile.15 As a result, many Ukrainians have an ambivalent attitude towards corruption; at one level they strongly oppose it, but at the same time they tend to regard nepotism and other corrupt practices as acceptable means of protecting their interests. Many also tend to prefer keeping open the possibility of paying a bribe to settle a low-level matter – to avoid a fine, for instance, or to secure a permit.16
In summary, corruption in Ukraine has organizational elements that are commonly found in countries with limited access orders, together with specific features derived from the country’s history that make it hard to address without cultural change on the part of its citizens. In particular, this includes how they view the state, and the impact of stealing from it. The challenge for Ukrainian reformers is to align the interests of the progressive elements of the elites and wider society to allow them to accept new rules and behaviours based on strong and reliable institutions. This includes establishing a place for large and small business in this new system.
1 North, D., Wallis, J. J. and Weingast, B. (2009), Violence and Social Orders, Cambridge University Press.
2 Ibid.
3 Rating Group (2018), ‘Socio-political moods of the Ukrainians: new challenges’, http://ratinggroup.ua/en/research/ukraine/obschestvenno-politicheskie_nastroeniya_ukraincev_novye_vyzovy.html (accessed 11 Sept. 2018). Around 40 per cent of respondents say that corruption is a systemic mechanism necessary for society, rather than an illness. Unlike other indicators, this one is surprisingly stable (with almost no change in five years), and tends to increase the higher the level of education and the lower the age of respondents.
4 Ibid. Corruption was mentioned as one of three main problems affecting Ukraine by 40 per cent of respondents, almost as many as those who listed the war in Donbas (41 per cent). Inflation ranked third, listed only by 27 per cent of respondents. This pattern has remained broadly unchanged since 2014.
5 North, Wallis and Weingast (2009), Violence and Social Orders, p. 269.
6 Smith, A. and Swain, A. (1998), ‘Regulating and Institutionalizing Capitalism: the Microfoundation of Transformation in Eastern and Central Europe’, in Pickles, J. and Smith, A. (eds) (1998), Theorizing Transition: The Political Economy of Post-Communist Transformation, New York: Routledge.
7 In 2014, there were 2,034 work accidents with 99 fatal cases in Ukrainian coal mines, and 220 work accidents, with 12 fatal cases in ore and non-metal mines. International Labour Organization (2017), ‘New ILO Project aims to reduce work accidents and occupational diseases in Ukrainian mines’, 13 July 2017, http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_562950/lang—en/index.htm (accessed 11 Sept. 2018).
8 Dubrovskiy, V. (2006), Towards Effective Anti-Corruption Strategies in Ukraine: Removing the Cornerstone without Toppling the Building, Warsaw: Center for Social and Economic Research, p. 9, http://www.case-research.eu/files/?id_plik=2624 (accessed 11 Sept. 2018).
9 Klitgaard, R. (1988), Controlling Corruption, Berkeley, CA: University of California Press.
10 In a December 2017 poll, law enforcement agencies and the judiciary scored poorly on trust. The least reformed institutions such as the Prosecutor’s Office and the courts scored worst, while the partially reformed police are viewed more positively, and the new patrol police even more so, although it is still more distrusted than trusted. National Anti-Corruption Bureau of Ukraine (NABU) was the best performer. Democratic Initiatives Foundation (2018), Громадська думка, грудень-2017: виборчі рейтинги і рейтинги довіри [Public opinion, December 2017: selective ratings and ratings of trust], https://dif.org.ua/article/reytingijfojseojoej8567547? (accessed 11 Sept. 2018).
11 Government of Ukraine (2014), Diagnostic Study of Governance Issues Pertaining to Corruption, the Business Climate and the Effectiveness of the Judiciary, Government of Ukraine Report, p. 4, https://www.imf.org/external/pubs/ft/scr/2014/cr14263-a.pdf (accessed 9 Oct. 2018).
12 Ibid.
13 Hale, H. (2014), Patronal Politics, Cambridge University Press.
14 OSCE (2014), Ukraine, Early Parliamentary Elections, 26 October 2014: Final Report, Warsaw: OSCE Office for Democratic institutions and Human Rights, https://www.osce.org/odihr/elections/ukraine/132556?download=true (accessed 11 Sept. 2018).
15 Among Ukrainians, these attitudes date back to the Zaporozhian Cossacks and their success in obtaining privileges and partial autonomy from the tsars, see Applebaum A. (2017), Red Famine, London: Allen Lane, p. 4.
16 Rating Group (2018), ‘Socio-political moods of the Ukrainians: new challenges’, slide #44, http://ratinggroup.ua/en/research/ukraine/obschestvenno-politicheskie_nastroeniya_ukraincev_novye_vyzovy.html (accessed 27 Sept. 2018). Among respondents who admitted to giving a bribe during the previous year, 81 per cent said that there was no justification for this, even if it solves a problem that is personally significant for them.