Did Institutional Change Bring More Social Welfare? Determinants of Economic Efficiency of Public Procurement in Vladimirskaya Region

Tanya Ilina (TI-R)Ivan Aymaliev (UCL)

Why Corruption in Procurement is Bad? One sad story about one happy couple…

Consequences of Public Procurement Corruption

Transparency International lists the following impact of corruption on public procurement:• Financial Impact• Economic Impact • Environmental Impact• Impact on Health and Human Safety• Impact on Innovation• Erosion of Values• Erosion of Trust in Government• Damage to Honest Competitors• Serious Danger to Economic Development

Statistical Indicators for RussiaIndicator and source

Russia Eastern Europe andCentral Asia

Corruption Perception Index 2010 TI 2,1 3,46

Integrity of the Legal System WEF 6,67 6,67

Reliability of Police Services WEF 2.,7 3,83

UNDP Human DevelopmentIndex 2010 UN

0,72 0,72

GDP per capita $PPP 2010 WB$13611,38 $10281,08

Unemployment total (% of laborforce) 2010 WB

8,16 6,94

Poverty gap at $1 a day (PPP) (%) 2002 WB 0,5 0,58

GINI 2008 WB 42,27 20,45

New business density 2009 WB 2,6

Innovation 2006 GC 3,34 2,69

Control of Corruption 2009 WB -1,12 -0,34

Government Effectiveness 2009 WB -0,28 -0,06

Rule of Law WB -0,77 -0,2

Regulatory Quality 2009 WB -0,46 0,12

Voice and Accountability 2009 WB -0,95 -0,13

FDI inflows WB 38722,42 381,85

FDI outflows WB 46057,31 2371,04

Gross capital formation (% of GDP) WB 18,73 21,9

Unofficial payments to secure government contract (% contract value) 2009 WB 46,32 26,33

So, what did the Russian government do to mitigate this problem?

• Federal law №94-ФЗ introduced in 2005 was set to regulate the procurement of goods and services for state and municipal needs.

• Transparency• Accountability• Competition

• Federal law №131-ФЗ was introduced in 2003 in order to change organization of local power.

• Decentralization in municipalities/centralization on regional, federal levels• Autonomy of local governments, division of powers/lack of resources, shift of responsibilities

• Law № 273-ФЗ “On the prevention of corruption” • Presidential Decree of July 1, 2010 N 821«On commissions on compliance by

federal civil servants with requirements for official conduct and the regulation of conflicts of interest»

So did the implementation of these new laws actually work in enhancing social welfare?

Research aim: Empirically investigate whether the government’s efforts to improve the regulatory environment, and in particular its efforts in enhancing public officials’ accountability, resulted in awarding more economically efficient contracts in public tenders. And if not, propose solutions, and give policy recommendations for further reform.

Map of Vladimirskaya region

Media review• September 2012: Council of People's Deputies of Alexandrov violated the law and abolished the election of

deputies of the city council and mayor Alexandrov.

• March 2012: Former Mayor of Alexandrov Gennady Simin is accused of bribing, land fraud.

• December 2011: According to investigators the head of Viaznikovsky region Evgeny Vinogradov received money from one of the local businessmen for patronage of his business. The shadow revenue of the official is estimated as 2 millions of rubles.

• October 2011: Andrew Cashin, a former city council member of Gus-Crystalny is found on the dock. Deputy was a member of a criminal group "Group of Eight", that attacked the local businessmen for many years.

• August 2011:The number of court cases started in connection with the receipt of bribes increased in 50%. 12 criminal cases were initiated against persons of a special legal status, including three members of local authorities on the facts of extortion and fraud, and four heads of municipalities for the abuse of power, taking bribes.

• May 2011: The former head of Kameshkovsky rayon Vladimir Somov is under prosecution for giving promise to a local businessnam to simplify processing of land ownership for the appropriate remuneration.

Conflict of interests in road construction in Vladimirskaya oblast. Example.

• Head of State Budget Institution “Governance of Highway Administration of the Vladimir region”. SBI "Vladuprador” performances the functions of the state customer for construction, repair and maintenance works in Vladimirskaya oblast.

• Director of State Unitary Enterprise “Special road repair and construction administration”. SUE “SRRCA” gets 27% of its orders from SBI "Vladuprador” .

Klimov M.F.

Vladimisrkaya region• General:Population: - 1431,9 thousands people by 1 jan. 2012 , 77,6% - urban, 22,4% - rural, GDP per person 149,5 thousand rubles in 2010, 37 place by socio-economic development in 2010. • Corruption: 14% of respondents came across civil servants that forced them to informal payments, services for their efforts. max 35% 16% of respondents do not disapprove those who take bribes. max 40%52% of respondents in case they come across a situation where corruption is possible are ready to bribe. max 70%, (2010 FOM)• Political and administrative system of local bodies:Vladimirskaya oblast id divided into 16 municipal districts, 5 urban districts. 16 municipal districts are divided into 26 urban settlements and 80 rural settlements.

1, 2 Head of local body is the head of administration or the chairman of Council of People's Deputies.3,4 The head of administration is hired.

Representative bodyThe head of municipality

1 Direct/mixed 2 direct/majoritarian3 Indirect/mixed 4 indirect/majoritarian

• Sample:The sample consists of 16 municipal districts, 4 urban districts, 54 settlements and 91 public bodies placing orders: 1934 observations. Orders placed from 01.01.2011 to 01.01.2012• Procurement:

• Service under survey:Construction and repairment works: mending of roofs, floors; work with electricity, repair of heating, laying of water and sewerage, design of master plan of the rural settlement, control over repairment works.

customer customer customer

Public body Public body

supplier supplier supplier

Research methods & data collection

Literature review & Media review

Qualitative research- triangulation

In-depth interviews with private competitive

entrepreneurs across municipalities

Interviews with (former) politicians, public officials,

citizens, experts, investigative journalists,

convicts, etc.

Quantitative research

Cross-sectional regression across 74 municipalities in

V. Region

Research hypothesis

Empirical findingsRatio of prices distribution

Number of bidders per auction

Cross-sectional correlations…

Variable Correlation with winning bad to reserve price Ratio N of Obs

Competition-0,6489**

1934

(0,000)

Collusion0,3390** 1934

(0,000)

Notes: P-values in parenthesis, ** p<0.01, * p<0.05