Beware of Snake

A corrupt bureaucrat can seem like a cozy business partner to entrepreneurs in developing countries. When an entrepreneur develops a corrupt relationship with a bureaucrat, that business can flourish as sharing profits with the bureaucrat result in a sudden onslaught of administrative pressures that eventually force the competing businesses out of the market.

As comfortable as this may seem to the entrepreneur that benefits from the relationship, eventually (s)he will realize that the unholy transaction was actually a bite of forbidden fruit and now a snake is sitting in his/her lap, studying the business’ weaknesses, waiting for the perfect moment to turn that “business partnership” into a means of extortion. Once the bureaucrat knows a business’ weaknesses, he/she wields all the power in the relationship. Suddenly, you and the other business are bidding on bribes to maintain the corrupt partnership or vanquish the competitor, or those free lunches to that friendly tax inspector have grown into free lunches for him and 10 of his friends, and there is nothing you can do about it. Or is there?

Russian experts on corruption like Dina Krylova from the Union of Business Associations (OPORA) and former Yeltsin advisor Georgy Satarov from the Indem Foundation point out that minimizing corrupt relationships is a far better way to build a business, even in a notoriously corrupt environment, even if that business has already started a corrupt relationship. In “Business without Corruption: an Action Guide,” they describe all kinds of ways to protect against extortion such as using tape recorders, getting support from clients or other businesses, finding the right people to send letters to, and keeping inventory of documents given to inspectors.

An even more effective means of fighting corruption is collective action, as we’ve seen in many instances in Russia, where associations and chambers of commerce are strengthening and becoming effective civil society actors; an odd paradox given the way in which NGOs have all but disappeared off the political map. To revisit an old cliché, collective action against corruption is like a rising tide that raises all ships. Through collective action, businesses can collectively refuse to be cornered by dangerous relationships and they can also come up with collective solutions against a growing wave of corruption that threatens to drown out the SME sector.

For example, as government pressure to engage in “corporate social responsibility” takes on an extortionate flavor, businesses have made their community development contributions through local chambers of commerce or associations, thereby maximizing transparency and remaining in the government’s favor, all the while doing good for the community. In another example, a real estate association hired a staff legal expert to help members whenever corruption issues arise, thereby keeping the realtors’ clear of extortion and building trust from the community that realtors are real professionals. All of these examples come from the guidebook, “Business without Corruption: an Action Guide,” which was written by CIPE partners, with support from CIPE and USAID. Click here for a link to the guide.