No envelope needed.

Photographer: Ulrich Baumgarten via Getty Images

Stop Bribery by Legalizing It

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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The first step toward getting rid of bribery may be to legalize it. Romania could soon try that controversial approach with its underfunded health care system. For the many countries without the money to finance modern public services, or the political will to privatize them, it will be an important case to watch.

Romania is one of the European Union's most corrupt countries, according to Transparency International. Informal payments seem to be especially widespread in health care, with about a quarter of Romanians reporting that they've recently been asked for a bribe by a doctor or nurse. A recent court decision declared gratitude payments to doctors illegal, because the medics are government employees. Subsequent protests by doctors and nurses forced the government to give them a 25 percent raise in salary, but everyone knows that won't be enough to stop envelopes from changing hands. So, coming out of the negotiations on August 18, Prime Minister Victor Ponta suggested legalizing the payola on three conditions: It shouldn't be demanded by the doctor, it should come after the treatment is completed and it should be declared and taxed.

QuickTake Corruption

The Romanian Physicians' Alliance, the doctors' professional association, condemned the proposal in a Facebook post, saying it wanted the government to offer higher salaries, not legalized bribery. Realistically, though, even with the most efficient management of the health care budget, the Romanian government can only afford to pay doctors what academics call a "capitulation wage." The term refers to salaries so low that they imply employees must supplement their income with direct, informal fees for their services.

That is a common problem for post-Communist countries, which have inherited vast, centralized health care systems that they could only afford when their governments had full control of the economy. Privatization seems an obvious answer, and it has worked in some countries such as Georgia, where most hospitals are now privately owned and the government only subsidizes the treatment of relatively poor citizens. Yet it's not always politically feasible, and running a private hospital in a poor country isn't a particularly attractive business proposition, either. 

So some reformers have relied on the formalization of informal payments. In Cambodia, out-of-pocket payments made up 82 percent of all health spending in 1999. After the government introduced an official fee schedule, locals soon found medical services were more cheaply available than before. The cost of surgical hospitalization, for example, dropped from a minimum of $40 to $26.70. Doctors welcomed the system because it guaranteed them higher incomes without having to engage in ad hoc negotiations with their patients. In Albania in the early 2000s, the introduction of official price lists quadrupled doctors' official incomes in some hospitals.

The approach failed in a few African countries where it was also tried because the fees deterred locals from seeking care. That, however, is not a major problem where governments have enough cash to issue vouchers to the poorest, as it's done in Georgia and neighboring Armenia -- a cheaper proposition, in any case, than financing a "free" health care system. 

These stories have implications that go far beyond health care. A principled rejection of corruption is well and good in wealthy democracies where people are relatively diligent about paying their taxes and public servants are well-paid and enjoy lives of dignity. But for countries struggling with widely mistrusted governments, erratic tax collection and bureaucracies devoid of long-term thinking, formalized bribes may be a reasonable idea. After all, the countries that squarely reject corruption today have passed through similar phases themselves.

In a 2012 paper, Anders Sundell of the University of Gothenburg described how Sweden -- now one of the world's least corrupt countries -- went from a system based on bureaucrats' right to charge direct fees, or sportler, for their services to one that established official schedules for such fees, then one that imposed stamp taxes for specific actions, before arriving at its contemporary system of entirely tax-financed government. Every stage logically followed the previous one, with bureaucrats gradually giving up their freedom to charge as much as they wanted for a slightly smaller but officially mandated income. 

That all happened in the 19th century, so contemporary residents of advanced economies aren't aware that their ancestors once had to negotiate fees with judges or customs officials. Yet the experience is still relevant today, especially for weak states. Sundell wrote:

If a too-difficult funding scheme is attempted without the necessary monitoring capacity as well as the capacity to raise and allocate revenue, it is likely that informal, direct payments will be the result. If state capacity is lacking, it is thus better to attempt the first intermediate step -- formalizing informal payments.

The radicalism of this idea goes further than Indian economist Kaushik Basu's 2011 proposal to decriminalize bribe-giving in order to encourage whistleblowing among people with first-hand knowledge about corrupt officials. Basu, who went on to become chief economist of the World Bank, was still thinking in terms of monitoring and punishment, and his idea, if anyone ever implemented it, would probably have struggled to overcome the long-term relationships between bureaucrats and the business people who enable their corruption. The formalization of petty corruption doesn't face such practical obstacles. It also allows governments to save on monitoring systems and on public-sector pay, as well as to cut taxes and reduce the shadow sector.

The biggest problem in taking this approach beyond health care is that it would require a government to inventory its services and decide which ones are unnecessary. Otherwise citizens could be forced to pay one bureaucrat for a certificate required for no good reason by another one or purchase licenses to breathe state-owned air. Health care is a convenient place to start because the list of necessary services is well-known. Even a government that doesn't really know what it's doing can work out a reasonable price list. And that's guaranteed to work better than trying to jail doctors who are simply trying to make ends meet.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net