The World Bank
Washington, D.C.
October 4, 2000

The fusion of the state and the economy that characterized the communist system has been replaced in most of the transition countries of Eastern Europe and the former Soviet Union by a new order. But the separation of private and public interests has not been adequately defined, leading corruption in the region to new dimensions and challenges. That's according to a new World Bank report, Anticorruption in Transition: A Contribution to the Policy Debate, released during last week's IMF-World Bank Annual Meetings in Prague.

"Media reports throughout the region tell of powerful firms and individual 'oligarchs' buying off politicians and bureaucrats to shape the legal, policy, and regulatory environments in their own interests," says the report. "Numerous high-profile corruption scandals have revealed politicians abusing their authority to shift public resources to themselves and their allies through well-hidden stakes in a complex web of private and public companies. In many countries, the public perceives corruption to be woven into the basic institutional framework, undermining governance and weakening the credibility of the state."

Increasingly, transition countries have been requesting assistance from the World Bank specifically to target corruption. "We have seen through our assistance efforts that the extent and nature of the problem differ substantially across the transition countries requiring a differentiated approach to prioritization and sequencing of reforms," writes Johannes Linn, the Bank's vice president for Eastern Europe and Central Asia, in the report's foreword.

Anticorruption in Transition attempts to disentangle two forms of corruption: "state capture," which centers on corruption surrounding the formation of laws, regulations, and policies; and "administrative corruption," which refers to corruption in the implementation of existing laws, regulations, and decrees. Based on these criteria, a typology of corruption is developed as an analytical tool for designing effective anticorruption strategies, with emphasis shifting depending on the relative severity of state capture and administrative corruption.

According to the report, many of the social ills experienced in the decade of transition are associated with both forms of corruption. Output decline, poverty, inequality, and even organized criminal activity have been particularly bad problems in countries with high levels of state capture and administrative corruption. And it is the poor who bear the heaviest cost of corruption that weakens service delivery and misdirects resources.

The standard advice for combating corruption has traditionally focused on measures to address administrative corruption by reforming public administration and public finance management, says the report. "But with the increasing recognition that the roots of corruption extend far beyond weaknesses in the capacity of government, the repertoire has been gradually expanding to target broader structural relationships, including the internal organization of the political system, relationships among core state institutions, the interactions between the state and firms, and the relationship between the state and civil society."

The broader anticorruption agenda presented in the report includes: increasing political accountability, strengthening institutional restraints within the state, strengthening civil society participation, creating a competitive private sector, and reforming public sector management. To be effective, this multi-pronged approach requires guidelines for the selection and sequencing of reform priorities tailored to the particular contours of the corruption problem in each country. The typology provides guidance for priorities and sequencing of these reforms.

But the report emphasizes that one of the biggest challenges remains a strong commitment by the transition countries to tackle corruption as well as management of expectations and maintenance of a long-term view: "The status quo often benefits powerful interests, state capture poses formidable challenges, and the political economy of anticorruption initiatives has proven complex and difficult."