How to overcome corruption at the state-owned enterprises?

A 100% privatization of state-owned enterprises is the most effective way to overcome corruption there. This method fights the source of corruption – state ownership for enterprises; it does not fight its consequences.

This conclusion was made by the analysts of the Center for Economic Strategy, the authors of the analytical note  “HOW TO OVERCOME CORRUPTION AT STATE-OWNED ENTERPRISES?”

The authors have analysed three types of possible methods of combating corruption at state-owned enterprises: the involvement of law enforcement agencies, the reform of corporate governance, and the privatization of state-owned enterprises.

According to the data of the National Anti-Corruption Bureau of Ukraine, the unreformed judicial system does not allow this method to be effective. For example, only a few cases of corruption at state-owned enterprises have been convicted. There is no conviction for a director or other top manager of a state-owned enterprise. In addition, law enforcement agencies are actually combating the consequences of corruption, and do not eliminate its cause.

The reform of corporate governance through the creation of independent supervisory boards helps the state eliminate corruption in the form of “capturing of the state”. However, this process is long and does not eliminate the risk of re-capturing.

The most effective way of combating corruption at state-owned enterprises is to privatize them. Only privatization helps avoid the risks of political influence on the enterprises in the long run. Administrative corruption can also exist at private businesses, but then it is a problem for the private owner, not the population of the country, which is the ultimate beneficial owner of the state ownership. Furthermore, the private owner can personally control the state of affairs at the enterprise, unlike the citizens of Ukraine acting through elected representatives or officials.

Actually, Ukrainians believe that stealing is typical for state-owned enterprises, and it will be prevented by the private owner (73.71%). At the same time, 85.61% of respondents share an idea that corruption can be overcome at state-owned enterprises without privatization in case of strong desire. Therefore, during the privatization a special attention of the government should be paid to communication with the population and explanation of possible privatization risks. The research was presented during the panel discussion “Is there any public request for transparent privatization?” on July 12.