Rent-seeking processes and the impact of political and economic shocks: a comparative study of companies in Belarus, Russia, and Ukraine

PhD project by Michael Martin Richter (since 2020)
Supervisors: Michael Rochlitz, Heiko Pleines

This project belongs to the Innovative Training Network “Mapping Uncertainties, Challenges and Future Opportunities of Emerging Markets: Informal Barriers, Business Environment and Future Trends in Eastern Europe, the Caucasus and Central Asia (MARKETS)” funded by an MSCA grant of the European Union in the context of Horizon 2020.

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30 years after the dissolution of the Soviet Union, which was back then expected to cement the “end of history”, it turns out that the legacy of the Empire continues to live on. Most notably, the majority of post-Soviet countries, just as the Soviet Union itself, can be classified from a political economy perspective as limited-access orders. In such systems, access to political and economic resources is restricted. Per definition, this situation breeds corruption as the lack of effective constraints on those enjoying access, allows them to misuse their public office for private gain. This is often known in conjunction with the phenomenon of rent-seeking, which describes “any redistributive activity that takes up resources”. This activity might be as simple as a low-level employee demanding a bribe to proceed with a bureaucratic procedure or as sophisticated as a mutual dependency-network between political and economic elites continuously interacting with each other and the provision of rents being a central mechanism. Despite all its facets, rent-seeking in the form of corruption constitutes a common denominator of all countries classified as limited-access orders.

This PhD project seeks to shed light on how such systems are affected by economic and political shocks. A shock in this context is understood as a dramatic change in the domestic and/or international political/economic system that fundamentally alters the processes, relationships, and expectations that drive business-state relations. This work therefore applies an original approach towards the understanding of shocks and puts the systemic perspective, that is the compound impact on the political economy system that it has at its centre. Its primary objective is to understand and conceptualize changes to and dynamics within these systems. As rent-seeking in the form of corruption is a central feature of these systems and a direct result of the nature of state-business relations, it serves as an excellent proxy for understanding and studying these dynamics.

In order to accomplish its objective, this project looks at shocks in a holistic view and assesses both the systemic as well as the micro level. This framework will be applied to and analysed in Belarus, Russia, and Ukraine. These countries are characterised by a close cultural as well as historical proximity but diverging developments in the recent past. From 1999 onwards, Russia moved away from a “Ukrainian” mode of governance towards a more “Belarusian” one. 2014 marked a year in which isolation from the West reached a new high and its import substitution strategy received a new impetus. The underlying question in that context is whether and how these changes led towards a corresponding similarity between Moscow and Minsk in the way rent-seeking on the micro and macro level functions. Equally important, since 2014 Ukraine is facing significantly increased outside pressure to conduct far-stretching reforms as part of the EU’s external governance and the conditionality from other Western supporters, like the IMF. These important developments justify a look into the subsequent developments of rent-seeking processes in these three countries.

These changes could constitute a shock according to the definition proposed in the beginning and therefore demand an in-depth assessment of political economy dynamics. The previously mentioned holistic view ensures this and is also visible in the structure of the PhD project: it consists of three different studies with mixed methods, which cumulatively promise to deliver sound and insightful results. This aspect will be strengthened through a simultaneous triangulation of input for all projects, ensuring a comprehensive look at each respective part of it.

The first project takes a quantitative, firm-level view. It investigates how low-level corruption, that is rent-seeking used by systemic outsiders with limited access to political and economic resources, was affected by the previously mentioned developments. The second paper, on the other hand, focuses on Ukraine. It assesses the “supply chain” of policy advice. In particular, it investigates how rent-seeking is affected in a situation in which a limited-access order country is severely dependent on financial support from the West, hence a possible case of a shock that changes state-business relations. Departing from a country-level view, the third paper takes once again the cross-country perspective. It looks at the broader level and assesses how the relationship between political and state entities developed in all three countries following the 2014 shock. In particular, the existence of an instance of “too big to fail” and a systemic relevance of certain types of (economic) insiders will be investigated. It assesses under which circumstances some agents/entities are systematically relevant and under which circumstances their access to resources can be restricted or withdrawn.