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Corruption - Can It Ever Be Controlled?



Bribery has become a $1 trillion industry. Corruption has been shown to hold back developing countries, keeping the poorest people in poverty, and a major 'tax' on enterprise growth. Can it ever be controlled? World Bank Institute Governance director Daniel Kaufmann participated in a live online discussion at 10am (Washington DC time) on April 13.

Abdurashid Solijonov:
The governments of developed countries facilitate and support corruption in developing countries for political reasons and to make operations of their MNCs in these countries much easier. As the developed countries have real power in global political arena, who can control corruption except them. Here is the dilemma—in order stop corruption we need powerful actors, who are able to control it. But the only powerful actors in global arena are themselves the main source of corruption. What do you think about this problem?
Daniel Kaufmann:
Powerful firms and conglomerates have an extremely important role and responsibility in combating corruption, and one can find behavior in both sides of the spent rum, at the negative extreme, pervasive problem of the state by some conglomerates, very powerful conglomerates which can purchase essentially the legislation, the rules of the game U the laws, regulations, and policies of the state, and that has happened, and does happen. Unfortunately, that's not universal. Increasingly, multinational corporations understanding that even for their bottom line it may help to have a conduct full of integrity, and that is further being abetted by the power of civil society and of transparency tools which are exposing the rogue firms who engage in bribery and state capture. The press, international press and domestic press, is playing a very important role there. So, increasingly, we find a tendency of groups of very important powerful firms, multinationals but also domestic elites who understand that a better investment climate without corruption is in their long-term interests, and the issue is to ally one's self with those multinationals as well as with the associations of small and medium scale enterprises, of exporters who have an intrinsic incentive also to have a much more competitive arena. Now, it is important to recognize not to lose site that is not only--we shouldn't only focus on multinationals but also on the domestic elite and the firms. Second, how level political corruption, we should note, often involves also high level politicians or even some political leaders. It takes--let's remember. It takes two to tangle, so it's mutual responsibility in this area. And last, at times, there is also extortion of firms, not of the most powerful firms, by politicians or high level public officials. Again, this is a mutual responsibility here. The collective responsibility, which is very important. With the responsibility also shared by the invest or by the multinationals, by our organizations, as well as the local domestic political and executive leadership.
akiode olusegun:
HOW CAN THE ENDEMIC ISSUE OF CORRUPTION BE REDUCED OR ERRADICATED WHEN IT IS A WAY OF LIFE FROM CHILDHOOD AT A FAMILY SETTING.CORRUPTED BABIES OF YESTER YEARS ARE NOW ADULTS, LEADERS OF INDUSTRIES CHAMPIONING CRUSADES FOR ELIMINATION OF CORRUPTION. WHAT IS THE WAY OUT OF A VERY DIRT FABRIC? AKIODE FROM LAGOS NIGERIA
Daniel Kaufmann:
Let me preface by saying that we some place we got so diverse questions, over a hundred or so, we cannot do justice to all, maybe at some point by E-mail we will be able to continue. Many of the questions were on the issues of culture and corruption, which this one does touch upon. When there is an endemic issue of corruption as the questioner suggests, it is not easy, of course, and nothing will happen dramatically over night. But, we have found, and the evidence is very clear, that the problem of corruption, however much culture may play a role, is never cast in stone. And not only that, but it is not just one solution or one aspect of the solution. I suggested when we started this discussion to the first question. But in particular here, it is very important in the context of the question to have different strategies for two groups. One is for the use where the whole issue of education, the whole issue of curricula in school is absolutely crucial. We have seen a major revolution in some countries, in Europe, in the U.S., as to awareness on environmental sustainability because the children have been telling us when they come back to school how to recycle their trash, for instance, and many other such issues, on smoking, for instance. That there education is crucial, but beyond a certain age, for adults, more important than attempting to train or instill issues of integrity by courses, much more important is to change incentives, to have systemic reforms that can combine indicates carrots, carrots and sticks, where exposure is absolutely key, where one rewards anticorruption and we support efforts, for instance, and where there is much more meritocratic approaches within the civil service instead of pait naj patronage, as we suggested earlier. So, essentially, when incentives change, culture can change quite rapidly. I will never forget when I was a teenager, and I was interviewed for a scholarship by some foreigners, that they told me that we Chileans were known to be bicultural, extremely lazy and not working hard, and therefore there was not much prospects for development, what did I think about that, and in a rambling way, I suggested that these incentive change or reforms took place, things could change quite rapidly, and I think the country has demonstrated there. There are many other such examples, including South Korea, others in Asia, in Latin America, in Africa, and so on.
Mbuyi S. Tuambilangana:
What relationship does have the World Bank or your Institute with anti-corruption institutions from most corrupted regimes of developping countries? Why the World Bank does not get directly involve in developing countries national institutions set up to deal with corruption issues by providing supervision, advises, training and monitoring their progress instead of leaving its management in hands of corrupted officials as conditionality to some loans access? What relations do you establish between low salaries in developing countries and corruption?
Daniel Kaufmann:
First point is that anybody should be entitled to at least a living wage and then some. Obviously, otherwise, one is not going to get productivity or a lack of moonlighting or other such phenomenon. Once thees did a living wage in place, the evidence does suggest that it's not crucial to obtain in the public sector exactly the same scale as in the private sector, so parity is not absolutely criewcialg which in many cases would be counter macroeconomic stability, and that is a good example in chail Chile, also countries in Europe and so on. Typically, the salaries in the public sector are below the private sector, but living wage and then some is crucial. But, once this is in place and there is a salary scale that rewards performance and skills, simply raising salaries across the board may not help much in controlling corruption. Instead, it has to be seen within an overall civil service reform package which includes decompression of the salary scale, monetization of in kind benefits, merit crattic hiring and promotion. Meritocracies crucial in this process. Training and professionalism of the civil service. We seen this, and there was another question, codes of conduct is one small piece, but is just one small component within a much larger framework of civil service reform package when some cases what's needed is a refreshing or renewal, replacement, allowing the younger cadre to come in in a meritocratic fashion.
Eduardo Martinez:
Are developing countries more corrupt than developed countries? Are actions such as those from Halliburton in Irak wors than corrupt actions in Africa, Asia or Latin America?
Daniel Kaufmann:
The first point to make is that it's a fallacy to say that corruption is the same everywhere in the world. Instead, there are enormous differences in the extent manifestations and corruption across countries in the world. On average, the industrialized world or rich world has left less corruption than the emerging economies. But let me stress on average, there are countries again, as I suggested before, like Chile, like Botswana, like Slovenia, that have ratings better on corruption than some OECD countries, so one has to be careful about making generalizations. At the same time, it's important to recognize that one manifestation or another of corruption exists everywhere, even in the countries with most integrity in the world and best governance, according to the indicators, like most of the Nordic countries. There are scandals that one can read in the papers and others, even in those places. And when a large scale standard takes place by a firm or multinational, that can have significant consequences, and particularly in some cases for developing countries. The key test is whether that corruption is, indeed, ricial used or individualized are ear systemic instead. If it's individualized and the country has strong institutions and strong and honest leadership to be able to deal with that, that's a test of a country. In my own country in Chile, there was a corruption scandal about a year and a half ago. It dealt with it very transparently, and clearly, and some very important reforms took place as a result. In some other countries, where those have taken place, and some actions have been taken, others have not. So, the real test is what happens, and what actions are taken when the corruption scandal, which can take place any place in the world.
Alpha Diedhiou:
Aren't firms and executive surveys a bias methodology in corruption measurement? Isn't time to develop a methodology that captures the broad nature of corruption? these two questions are posed in the light of the current approach to development that promotes greater interpenetration between state, market, and society.Political-economy corruption (state capture)affects the bureacracy, as well as ordinary people.
Daniel Kaufmann:
I'll be brief for the sake of time, but suggest that these are excellent methodological questions about data, and there are a few others, and we have a major set of materials in the Web on this methodological issues on indicators, measurement, data, and diagnostics that you can access very easily, and it's very web interactive, by going to the hope page of the bank, on issues of corruption, one can easily get issue to WB I/governance home page, and there is access to these methodological issues. Let me suggest and agree with the questioner that it is crucial to unbundle or to unpackage corruption to its different manifestations, and that is a move in the direction of capturing the broad nature of corruption, and also in order to pinpoint which types of link linkages, actual corruption and linkages between them is most important in the country. Is it corrupt procurement, is it embezzlement of state actions? Bribery for bureaucratic or is it capture of the state by a demogague or by other few firms from outside. In different settings one would find different priorities, so diagnostics and data and its analysis is absolutely crucial. There is no one recipe that applies to all countries. Each country has to do its own serious rigorous homework based on rigorous empirical work.
musheeruddin:
is it possible to combat corruption where the country is subject to military rule frequently or controlling behind the scene.
Daniel Kaufmann:
The evidence is quite clear from around the world that the more a country allows for democratic voice and accountability to their citizenry, and the less the extent of capture by vested interests of the elite or behind the scenes, the better the chance the country has in combating corruption. So obviously it is important to strive towards more accountable sustainability, less autocratic military rule, and lessening of behind the scenes or not behind the scenes capture of the state by a few very powerfully let interests. And that's where the issues of transparency, competition, and collective action, the elements we provided in the first--in answer to the first questions, do come in.
Afreen Alam:
What are some specific steps taken by democratic governments in highly corruption- prone countries that have proven to be successful in combating corruption?
Daniel Kaufmann:
Let me start with giving a bit more comprehensive answer in this particular case because there have been so many excellent questions on that same issue. About what to do about it, which is an absolutely crucial question. Let me summarize, in brief, by pointing to five key elements where lessons from experience and our evidence suggests that hold a lot of promise when they can coalesce together. And they are the following: Collective action, competition in the political and economic arena, prevention, focus on prevention, leadership, and transparency. Let me say a few words about each one. Collective action basically suggests that this is not just the responsibility. We think the executive or one particular body within the government like an anticorruption body, but, instead, it has to be a broad coalition, suggesting a diversity of players and significant checks and balances and responsibilities by many. Civil society, activism is crucial, women groups need to be involved, NGOs, and others, with significant democratic voice. The legislative, the parliament is crucial in this, judiciary with its intreght, the private sector has a major responsibility, not only domestically, but also the multinational corporations, and also our responsibility is very important leer, the international financial organization. The voice of the democratic accountability in this context is very, very critical. Let us keep in mind that associations of many individuals and more players request equal at the end of the day a very large player, for instance, associations of parents, of school children, of associations of small and medium sized enterprises. They together can be a powerful fours against monopolistic tend eves by monopolists or corruption politicians that exist in some places, so, this is crucial. Second, competition, political accountability and economic competition are absolutely key elements and also in this context to counteract monopolistic tendency both in terms of power, the politics, and in terms of the economics and the private sector. Third, the focus on prevention, it's very important to adopt more deeply what already has been learned in public health, 15, 20 years ago, that prevention is much more effective than curative approaches which come too late and are extremely expensive. The same applies in this context of anticorruption. For prevention it crucial to change incentives within organizations and for individuals by making organizations, firms, and individuals more accountable, more transparent, more merit crattic, rewarding good work, et cetera. Fourth, is leadership, the example of leadership is absolutely key. Political leadership of a country is central as well as leaders of political parties, but also in the private sector and leadership and civil society. The example of leaders in particular key institutions is also crucial, not only the leader of the nation, but, for instance, the leader of the central bank, the Minister of finance, the head of electoral commission, of the Supreme Court U of the police, and customs. So, that's absolutely crucial. Now, these are four levels, but none of those four would be doing completely the job without the key fifth element for which many questions to have come into, and that is transparency. The expression says that sunshine is the best disinfectant. Public procurement in the Web, for instance, town hall meetings, discussing openly the budget of the city, and large procurement projects, discussing the rules of the game for such procurement, and leaders are full of information, full accession to information is critical for transparency. For instance, how does your parliamentarian vote for what type of legislation, and other such examples is crucial. In this context, the Internet revolution can play an extremely important role. Last in that context within transparency, and within voice and accountability, but certainly not least is freedom of the press. Reporting on all these issues, new information, on data, on surveys, and other type of initiatives where data is colored about vulnerable institutions, about corruption, is an enormously important check and balance in this context.
Jens Luneburg:
Since 1986 I am involved in procurement and contract management and am aware of bribery and corruption, particularly in the field of civil engineering, but $ 1 Trillion is a surprise for me. Can it be defeated? To a certain extent, yes, but donors have a dilemma. The success of their staff, particularly with nultilateral donors, is measured against the size and speed of disbursement. Why can this be changed more in favour of transparency and accountability? Why are donors so reluctant to take on more the role of a policeman?
Daniel Kaufmann:
. First, on the 1 trillion-dollar figure, which is an annual estimate, let me note, it's a very rough estimate, and it does include bribery and corruption actions that would take place anywhere. It's not for a particular part of the world, so that includes industrialized countries and multinationals, and so on. Second, on the core of the question of Mr. Local \{en^}\{^en} burg, the role of the policemen, this is a very tough question. The issue is one of balance. For us, first and paramount are issues of sovereignty of the country, issues of leadership and ownership of any program being taken by the country itself, and also the objective is crucial for us of capacity building or capacity enhancement at the country level. That's on the one hand. On the other hand, we have to recognize that fiduciary responsibilities with respect to our funds, how they are used, and also the use of responsibility vis-a-vis the country regarding how they get indebted and whether that debt that they incur is being put to good use. Therefore, it is important to ensure that mechanisms are in place to minimize corruption, so we do get involved in up stream work to improve overall procurement in the country, helping countries reform their procurement, as we said, helping them with capacity enhancement, capacity building, helping with transparent international competitive bidding, and supervisions, spot audits, investigations, and so on. And we some the much more systemic reforms of the public sector. But we cannot be full time policemen. That is not our role, given the importance of country sovereignty, and given that is not basically the way we are set up to be, or our skills. Much more important is that the assistance and mechanisms are in place in the country instead, which may not happen over night, but we need to keep working with the countries for that purpose.
Ziad Al Basir:
Transparent is the main weapon against corruption. How much the WB procedures are pushing to apply it? And why sometimes in some WB project had been not applied?
Daniel Kaufmann:
Very important question, and let me provide the frank answer. Until not long ago, the mid nineties, we were not in the World Bank as transparent on these issues as we could have been. In fact, we couldn't in official documents we were discouraging effect from the use of the free world and fully spelling if out, C dot dot. There has been a major sea change ever since James Wolfensohn came in 96, and the major speech given at the Annual Meetings of the miff and world IMF and World Bank on corruption, and the development of that things have change, and World Bank procedures changed alongside. Let me give a few elements on that very quickly in terms of how we were striving for maximum transparency nowadays, and minimizing corruption in projects. We have much different standards for basically selection of projects, international competitive bidding, which is transparent, and full access to information on those projects. We have a hotline, and that's 1-800 831-0463. That's in the U.S. you can also access to the Web page in the home page of the World Bank. One can go to the hotline to inform or to provide information on any possible malfeasance, and that will be investigated. Now, very tough audit, and cases where any firm or enterprise has been investigated and found to have been engaged in corruption in World Bank funded projects by the country, that firm is delisted or sanctioned or otherwise called black listed, and that's also very transparent. One can go also to the government page of the bank or the main home page, and they find the full list of the delisted firms of these almost 100, which is part of that process of essentially minimizing corruption in any action by the World Bank. These are extremely tough zero tolerance policy for staff integrity in terms of avoiding corruption. That does not mean that on location those things do happen. We are dealing with hundreds and hundreds of projects every year, very large, and they do happen. However, it's a much tougher, a much more transparent framework to date, and every day we are trying to improve, and with the citizen involvement, letting us know if there is any malfeasance, we could continue to improve.
Jean-Marie Eklou:
1- What is the best strategy to prevent or to limit corruption in African countries? 2- What role ICT can play in a governance of countries?
Daniel Kaufmann:
Excellent question. Again, I think it's important to take the five elements we just discussed, corrective action, prevention, leadership, and transparency. Another question, while relatively speaking, which ones are the most pressing and urgent for a particular country, it's difficult to generalize for one continent, even within Africa, there are some great examples of good governance and control of corruption, like Botswana, and some others that are making significant inroads as well. So, I think it's very important to understand, learn, and diagnose their reality within each country, and for that they are very in-depth diagnostic tools which we help with and support countries that want to improve governance and control corruption. In many African countries, these diagnostics are taking place. Having said that, over the difficulties in generalizing, let me suggest just a couple of points, which are important within these five components we just discussed in the previous answer. Obviously, voice and collective action is absolutely crucial in most of the countries in Africa which have a significant challenge of corruption, so is political competition, and so is much more focus on prevention, not just on the passing laws or creating anticorruption a commission, and the issue of leadership and transparency, including the use of ICT tools is extremely important. The issue of economic competition, on the other hand, has made significant inroads, and most African countries do not face the same problem of state capture by a few potent dates outside the government in the economic elite or that is apparent in some countries in other regions, so more the focus would be on the political competition issue, which is absolutely crucial. The second and last point to make in the case of Africa is to look at the world and learn from the experiences also of other countries in recall regions, but again, not generalizing for the whole region. I, myself, I am a Chilean, and in chill a, 15 years ago, we said that we were not going to look at the average common denominator in Latin America as an objective, but instead we are going to aim for industrialized country standards in governance, institutional reforms, and development, and we have basically almost achieved those standards at least in governance we have similar standards having OECD countries nowadays in Chile. By looking at the best examples, in Europe, in the Americas, in Asia, and so on, and a number of African leaders have requested, in fact, information after making this type of presentation about the case of Chile. There are others, coast Costa Rica is another example, and others in Eastern Europe, and others.
Edgar:
One of the biggest incentives to corruption is the discretionary of the public decision makers. In addition, the automation of process changes the discretionary for algorithms and the asymmetry of information vanish. Consequently, will the ICTs (Information and Communication Technologies) help to eliminate corruption?
Daniel Kaufmann:
. ICT can be an extremely powerful tool, and it is in the context of the broader issue of transparency we discussed. Just to give a few examples of how it can help enormously, first, in the dissemination of the new data that is nowadays being gathered throughout the world on corruption and governance, indicatorrings for the whole world, you can go to our Web site, and there is plenty of data for that, or specific surveys and diagnostics for a country or for institutions within a country where the users report and provide feedback by disseminating it and opening it to shun shine, that creates checks and balances. Second, having full access to how parliamentarians vote in the legislative is extremely important for the population to have the legislators accountable and less subject to particular influences and capture. The I P can be extremely effect oif that. And the third and fourth example ill give quickly, but there are many more, is for public procurement to have what's called nowadays E procurement where countries like Mexico and others in South America live in the way of lead in the way of having automation and transparency in the process, and therefore less discretion. And also in terms of the taxation, filing taxes through the Web where countries like Chile again are leading the way along others.
l tole:
Why does the World Bank contribute funds to governments that it knows are corrupt? Don't you feel you are part of the problem? So long as political elites in these countries (most of whom do not care one jot for the plight of their poor citizens) know that the World Bank will always bail them out, they have no incentive to change their behaviour. The bottom line is that the systems and institutions that make for effective governance depend on people knowing and doing the "right thing". No amount of money thrown at corrupt governments (which are basically comprised of the individuals entrusted to run them) will change this fundamental fact. A conscience is not something World Bank money can buy.
Daniel Kaufmann:
Very important question, and let me provide the frank answer. Until not long ago, the mid nineties, we were not in the World Bank as transparent on these issues as we could have been. In fact, we couldn't in official documents we were discouraging effect from the use of the free world and fully spelling if out, C dot dot. There has been a major sea change ever since James Wolfensohn came in 96, and the major speech given at the Annual Meetings of the miff and world IMF and World Bank on corruption, and the development of that things have change, and World Bank procedures changed alongside. Let me give a few elements on that very quickly in terms of how we were striving for maximum transparency nowadays, and minimizing corruption in projects. We have much different standards for basically selection of projects, international competitive bidding, which is transparent, and full access to information on those projects. We have a hotline, and that's 1-800 831-0463. That's in the U.S. you can also access to the Web page in the home page of the World Bank. One can go to the hotline to inform or to provide information on any possible malfeasance, and that will be investigated. Now, very tough audit, and cases where any firm or enterprise has been investigated and found to have been engaged in corruption in World Bank funded projects by the country, that firm is delisted or sanctioned or otherwise called black listed, and that's also very transparent. One can go also to the government page of the bank or the main home page, and they find the full list of the delisted firms of these almost 100, which is part of that process of essentially minimizing corruption in any action by the World Bank. These are extremely tough zero tolerance policy for staff integrity in terms of avoiding corruption. That does not mean that on location those things do happen. We are dealing with hundreds and hundreds of projects every year, very large, and they do happen. However, it's a much tougher, a much more transparent framework to date, and every day we are trying to improve, and with the citizen involvement, letting us know if there is any malfeasance, we could continue to improve. Q. We could do the do the next one, why does the bank contribute funds to countries that are corrupt, or is that not a fair question? A. Noose fine. That's fine. Q. Okay. Next question, why does the World Bank contribute funds to governments that it knows are corrupt? Don't you feel you are part of the problem, so long as political e let's in these countries know that the World Bank if there is no incentive to change the behavior? The bottom line is... Okay, answer. A. Our main mission is to help alleviate poverty in the countries we work with. To alleviate poverty, one of the most important element system to combat corruption and improve governance. That's our and everybody else's evidence shows very clearly now. Now, about alleviating poverty, combatting corruption, we find that in almost every country, other segments of--many segments of the population care about that. Civil society, many, if not all in parliament, some in the private sector, as well as some reformers in government. So, it's always very important to focus on those that want to join this collective action in addressing the issue of corruption. In the extreme cases where there is absolutely no political will in government in terms of combating corruption, and corruption is endemic, and little is being done within the country nowadays about it, we simply do not lend money to those governments. Where we see that there are opportunities to work with civil society, and with others, we lend very little or almost nothing and provide technical assistance for a bottom up approach to apply checks and balances and to promote transparency and good governance. There is some corruption in government and outside, which is the case in many countries and not just in emerging economies, we do engage, I suppose to when it would be totally stem ig, but we do engage with some loans, and they need to be carefully scrutinized in terms of ensuring they reach the target population, and the intended objective of alleviating poverty, and that's why we go back to the previous question is to important, the type of procedures we have in place for audits, for investigation, and for transparency and for supervision in terms of the use of our funds. Equally important is to work with countries in terms of their own systemic reforms of the procurement process and other such public sector reforms for them to improve governance and for controlling corruption.
Jochem:
Does a high level of education combined with lack of job oppertunities lead to more corruption in developing countries?
Daniel Kaufmann:
The evidence suggests that most of the action, other direction, what does this mean? We find that improving governance and controlling corruption provides an enormous development did I have doand the country. We call it the 400 percent dividend because we find that the country that makes inroads in controlling corruption, far from perfection, but make some inroads in controlling corruption, and increase its income per capita 400 percent from $2,000 to $8,000 per capita, for instance, in the long run it will take generations for that improvement to take place, but it's an enormous payoff. We find the same type of link between controlling corruption and decline in infant mortality, improving health standards, and improvements in education, particularly in eliminating illiteracy, increasing literacy levels. That is the direction of causality, which is most dominant that we find, from improving governance and controlling corruption to better development prospects, including jobs, incomes, education, and health, and not so much vice versa. We do not mind much evidence that by waiting for incomes to magically improve, then somehow magically also governance will improve and corruption will be controlled. It's the other way around. It requires hard work, political commitment, at every turn, to improve governance, to control corruption, in order to reap such development dividend.

Thank you for participating in the discussion. For further reading, here are some of the resources Daniel Kaufmann mentioned in the discussion:

 

Discussion Transcript
Governance & Anticorruption Resource Center
Public Sector Governance



Featuring

Former Director of Governance, World Bank Institute
President, Revenue Watch Institute