How to be Successful in Moldova
By Ana Porumbrica
Aug 23, 2004
I have always loved reading the stories of the famous businesses and their founders, to find out how their idea was formed and evolved, how they guided it to success. The books describing such narratives are very popular in Eastern Europe. You wonder why? These books illustrate a world of fiction for the businessmen from this part of the world, but most importantly they are a hope for the future.
In America, if an entrepreneur perseveres and has a good idea for a product or service, he will most likely succeed. Their stories can be summed up pretty much to "a lot of hard work'. What does it take for a Moldovan to become a successful businessman? Besides good business skills and hard work, the answer is, knowing the right people and having enough money to bribe the rest. It is sad, but it is the reality.
According to Transparency International's Corruption Perceptions Index 2003, Moldova is number 100 out of 133 countries. For comparison, USA is number 18, UK - 11, Cuba - 43, China - 66, Russia - 86, Haiti - 131. Corruption is a scourge that hinders the Moldovan society at every level. It is normal to give a doctor a present or an envelope with money if you want good medical treatment. More and more cases of bribing college professors for good grades are made public everyday. Doctors and teachers have such miserable salaries (because they represent the "industrial non-productive" class of society and they work in governmental owned entities) that they are vulnerable to temptation when they are offered two-months salary for giving an A or medical treatment.
It is horrifying to hear that judges and high government officials take bribes for giving a ruling that favors someone or for passing a law that benefits a certain business. Tax officers are routinely bribed, which ends up affecting the national budget and the economy as a whole.
The businessmen are the ones who suffer most from corruption. They have to "pay extra" to the people that are supposed to do some work for them even though it is their job. They have to bribe clerks to get their business registered or repairmen to install or fix their phones. Tax officials must be bribed to lower taxes because taxes are so irrationally high that there is no way they can pay their taxes honestly and remain in business.
Another big tax that the businesses have to pay is a tribute to the mafia bosses. It is money paid just to stay in business, just to exist, if you don't want to be beaten, killed or your property set on fire. Here is a table that shows the percentage of revenue an average business spends on bribes.
| Proportion of firms' revenues in unofficial payments to public officials % |
|
0% |
<1% |
1-1.99% |
2-9.99% |
10-12% |
13-25% |
>25% | |
| Small firms |
32.3 |
21.3 |
13.7 |
17.6 |
9.4 |
3.7 |
2 | |
| Medium firms |
37.6 |
26.9 |
11.7 |
4 |
5.9 |
3 |
1 | |
| Large firms |
58.2 |
20.9 |
6.8 |
8 |
3.7 |
1.5 |
0.9 | |
| All firms |
38.6 |
23.4 |
11.8 |
14.6 |
7.1 |
3.1 |
1.4 | |
| Source: World Business Environment Survey, WB |
This adds up to at least 10% in additional business costs, which increase the products' prices and ultimately affects the consumer - the simple citizens. Moldovan entrepreneurs are sometimes afraid to promote themselves because if they are seen as too successful, the wolves will be upon them. Charitable contributions are dwindling, since no one wants to demonstrate they have money to spare. Many foreign investors are afraid to even visit small Moldovan towns, let alone build a business. Fewer firms want to invest when they hear about corruption or are forces to deal with the bureaucracy. Even the local young people are disgusted by this state of affairs and is the main reasons they seek to leave the country and find a job elsewhere.
The mafia provides a code of conduct for businesses not yet provided by professional societies or government regulation. If a company has a problem with labor or another organization, the business owner contacts a mafia representative and the problem is quickly, quietly, efficiently resolved. Some people feel comfortable with this arrangement and make the most of it. In a country where we strive for a free market economy there shouldn't be acceptance for such things, so people's attitudes must be changed first. Some non-profit organizations are fighting to change this attitude and are trying to educate people about honest business practices. For example, the slogan of Transparency International Moldova is "Don't take and don't give bribes'. There are two parts to the transaction and the corruption should be fought from both sides.
Poverty and corruption go hand in hand. The higher the Corruption Perceptions Index of a country, the lower is its GDP. In the private sector, poverty emerges due to excessive fiscal burden, which, consequently, raises prices and erodes business profits. In the public sector corruption diminishes the efficiency of the public services. Corruption in the tax collection system causes a reduction of government revenues, and, hence, the state's ability to pay the wages of public employees at a suitable level. In such a way, corruption causes the poverty of the overwhelming majority of population. The results of the opinion poll carried out by Transparency International Moldova confirm that corruption is a greater problem for the poor. Those who consider their living standards as being absolutely unacceptable understand that corruption is a very acute problem.
Other effects caused by corruption are; over regulation of the private sector, an extremely heavy tax burden, loss of government revenue, a massive black market economy, economic stagnation, foreign debt, inability to pay public employees a decent wage, increasing criminality, and a particularly low level of foreign investments per capita.
Mauro Paolo in his book The Impact of Corruption on Economic Growth and Investments shows that lowering the corruption index is accompanied by an increase of foreign investments, an increase in the rate of economic growth and an overall increase in GDP.
The empirical evidence clearly proves that corruption has a very negative impact on the Moldovan economy as a whole. The established habits and attitudes are difficult to change. It is important that my generation travel to other parts of the world to see how business can be conducted honestly. We should be fighting against corruption with all our energy before Moldova becomes another economic basket case dependent on foreign aid.
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