As many readers now know, the Czech Republic reached position 46-48 of the 163 countries on the Corruption Perception Index (CPI) compiled by Transparency International for the year 2006 and released earlier this month. The scale of values is from 0 to 10, with 10 meaning no corruption. The Czech Republic shares 4.8 points with Kuwait and Lithuania but improved its rating half a point in the past year, which is significant.

But a rating so much better does not correspond with the current political crisis in the Czech Republic. The whole political spectrum is paralyzed because of corruption cases exposed by police and media. It is a paradox that should be explained.

Understanding corruption in the Czech Republic requires an in-depth approach. One way is to compare the values in the CPI and the amount of foreign direct investment (FDI).

Brookings scholar Shang-Jin Wei has proven that a strong negative correlation exists between corruption and FDI. Thus, he argues, increasing corruption reaps the same negative effect as a tax increase.

Foreign companies prefer countries with better values in the CPI survey as safe havens for investment.

According to professor Graf Lambsdorff, called by many the "father of CPI," contemporary knowledge shows that if countries improve their rating in this survey by one point, the influx of FDI increases 15 percent.

China and South Korea, however, have high corruption rankings and still enjoy high FDI. The same can be said of the Czech Republic, which, according to the United Nations Conference on Trade and Development's World Investment Report 2006, is among the top 20 FDI recipients worldwide. Martin Jahn, former deputy prime minister for economics, explained the paradox while he was director of CzechInvest:

"The Czech Republic is quite notorious for corruption, but, on the other hand, we are one of the biggest receivers of foreign capital in Central and Eastern Europe, maybe in the world. Evidently, there is not a direct proportion and it also depends on the nature of corruption and how it influences foreign investors."

Corruption can be divided into petty (administrative corruption) vs. serious (political corruption). Petty corruption based on CzechInvest's experience in 2005 occurred mainly in granting entry visas, master planning/building permitting and licensing and founding new companies (entries into the Business Register).

Grand corruption relates rather to public contracts, laws, policies and judicial decisions.

Lambsdorff is now working on and discussing a theory that investors sometimes view the ability to take advantage of the secrecy surrounding corrupt deals to increase their own income, defrauding their firm or their shareholders. Serious corruption appears to provide a good basis for such fraudulent behavior and is easier to organize. It must be said that the Czech Republic is a very attractive for such opportunists, thanks to its reputation of good beer, beautiful girls and sports. Prague is wonderful to such people, with a high number of brothels, casinos and chances for money laundering in the Czech Republic.

In this spirit, the scholars Aleberto Alesina and Beatrice Weder argued in a 1999 study that corruption may also attract FDI once investors belong to the inner circle of those profiting from bribery. Petty corruption is quite unattractive to fraudsters and is likely to be delegated to local staff, according to Lambsdorff. Investors prefer serious corruption.

In the same way, Lambsdorff thinks, corruption in public utilities and loan applications often involves extortion because there is a clear official favor being requested. Payments to holders of public office tend to be made in order to avoid harassment and delay, and, in some rare cases, to avoid the official fee. The absence of corruption in public utilities has the strongest positive impact on FDI, more so than in exports and imports, tax payments, public contracts, loan applications, laws, policies and judicial decisions.

But CzechInvest's statement above does not mention corruption in public utilities as a problem for foreign direct investors. This could be explained by the fact that electricity for the Czech Republic is provided mainly by the ČEZ, which is one of the biggest electricity distributors in the whole of Europe. The same could be said for corruption in loan applications. Foreign investors own nearly all banks in the Czech Republic.

On the basis of the ideas of Jahn, Wei and Lambsdorff, and the fact of the high amount of FDI in opposition to the bad CPI rating, it can be said that there exists a serious type of corruption that does not deter investors.

Nobody knows how big an influence these investors have on the political situation in the Czech Republic. Nowadays, while politicians seem not to know how to solve the political crisis, bio-fuel refineries are being built across Western Europe. The Czech Republic does not support bio-fuel producers or the use of bio fuels and the Czech petrochemical industry is systematically liquidated. It all began with the privatization of Unipetrol.

In other words, because corruption in tenders and other places is still rampant, this country has already fallen behind in one promising area of environmental policy.

Before we're dragged down any further, it's time for Czech leaders to get serious about cleaning up their dealings.

The author is completing postgraduate studies at the Police Academy of