Effects of Enron on future Russian business leaders: a time line survey

College Student Journal, Dec, 2008 by Marty Ludlum, Sergei Moskalionov

Russia has emerged as a new capitalistic country with a prior history of corruption under the state controlled regime. Will word of corruption in America stop efforts for an ethical business climate in the new Russia? Has the Enron scandal affected Russian views of business? In pursuit of the answer, the authors surveyed Russian business students (n=477) in the fall of 2004 to determine their attitudes on ethics, and to replicate the authors" previous study in 2002. Significant differences in several demographic subgroups were discovered. Finally, the results in 2004 were compared to the 2002 results. Significant differences were detected in the two groups.

"Zakon--chto dyshlo kuda povernul--to I vyshlo." "The law is like a front axle: Whichever way you turn it, that is the direction it will go."

--Russian Proverb

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Russia's economy has grown tremendously. Official figures reported 7% annual growth in real GDP from 1999-2004 (2). Private consumption has increased nearly 9% per year since 2000 (3). These figures understated the real growth in Russia. The official figures were distorted to avoid Russian taxes (4). Some have described the process as "importing air" to divert funds to international partners outside of Russia and avoid the tax system. (5).

The Russian educational system has also grown. Under the Soviet system, business education lacked prestige and funding (6). Now, business education has thrived as private schools have emerged (7).

The growth has not been evenly distributed. The oil industry has accounted for 70% of the economic growth (8). As a result, some of the large industries have prospered, while others have collapsed.

The transition to capitalism took place in Russia during great economic crises. (9) In 1996, Russia had only 40% of the economic output it had in 1990. (10) In 1998, the Russian banking system collapsed, and government stopped supporting the ruble (11). These crises have led too little concern for ethics. (12)

Russia has emerged as a new capitalistic country with a prior history of corruption under the state controlled regime. Will corruption in America stop efforts for an ethical business climate in the new Russia? Has the Enron scandal affected Russian views of business? In pursuit of the answer, the authors surveyed Russian business students to determine their attitudes on ethics, and to replicate the authors' previous study in 2002.

Russian Economy and Corruption

Corruption has been defined as "the illegitimate exchange of resources involving the use or abuse of public or collective responsibility for personal gains, benefits, profits or privileges." (13) Bribes which were commonplace under the Soviet bureaucracy have become the norm in new capitalist Russia. (14) During soviet times, private entrepreneurial activity was a severe crime. (15) Now capitalism has become legitimate, but unethical behavior has remained. (16)

Russia has been over regulated, with 24 federal ministries and 69 equal regulatory departments, with over a million officers. (17) A new business will need 30 different permits, each of which involved a different government agency. (18) Each civil servant expected some "speed money" (19) or "lubricant' (20) to expedite the official process. Bribes to civil servants may be 20 times their state salary. (21) The costs to business were staggering. For example, consumer goods must be certified, which involved nearly 4000 agencies. (22)

Russia had 27 federal taxes and 70 kinds of local taxes, together were nearly 90%. (23) That taxation system encouraged the underground economy, which was about 40% of the total economy. (24) The problem was explained " ... when legal standards are so high that one cannot comply with them, then one is forced to stray into the shadow world." (25) In 2001, Russia converted to a 13% flat tax, and created a new tax enforcement police, and tax revenues have soared. (26) However, the shadow economy stayed strong.

The double standard in privileges and taxes encouraged corruption. (27) A business competitor can be arrested for about $10,0007. (28) For $5, a tourist can get access to some nuclear facilities. (29) Criminal activity exists on a big scale also. Russian banks handle about $6 billion a year in money laundering. (30) The corruption was not confined to business matters. It has been common for Russian citizens to pay bribes to avoid military service or get into a good college. (31) Rules against unethical behavior lacked any enforcement. (32)

Less than 10% of Russians showed faith in the court system to be corruption free. (33) Transparency International, a watchdog group, rated Russia as one of the most corrupt countries on earth. (34) Corruption has not improved in a decade. (35) Corruption has been described as a "congenital weakness" in Russia. (36)

Gilinskiy's survey of Russian citizens found a striking distrust of the police because of corruption and abuses of human rights. (37) Police have been reported as corrupt by the population as a whole and every subgroup within it. (38)