a book I'm reading, edited by Bjorn Lomborg,
Director of the Copenhagen Consensus Center
b. Political corruption, as the dysfunction of a political system or institution in which government officials, political officials or employees seek illegitimate personal gain through actions such as bribery, extortion, cronyism, nepotism, patronage, graft, and embezzlement. Political corruption is a specific form of rent seeking, where access to politics is organized with limited transparency, limited competition and directed towards promoting narrow interests (rent seeking is not to be confused with property rental).
Chapter 13, Corruption, by Susan Rose Ackerman, Yale
(only 10 chapters to go!) Commentary and Summary
Aside:
Wikipedia, to deviate from SWBP, defines corruption as, "An "impairment of integrity, virtue or moral principle; depravity, decay, and/or an inducement to wrong by improper or unlawful means, a departure from the original or from what is pure or correct, and/or an agency or influence that corrupts." It goes on to define institutional and political corruption as,
a."Institutional corruption, as corrupt actions or policies within an organization that break the law, serve to subjugate humans in unlawful manners, discriminate against humans based upon race, ethnicity, culture, or orientation, or serve to degrade other humans or groups for that institution's own profit.
b. Political corruption, as the dysfunction of a political system or institution in which government officials, political officials or employees seek illegitimate personal gain through actions such as bribery, extortion, cronyism, nepotism, patronage, graft, and embezzlement. Political corruption is a specific form of rent seeking, where access to politics is organized with limited transparency, limited competition and directed towards promoting narrow interests (rent seeking is not to be confused with property rental).
Anyway,
Corruption is a big problem (all 23 of the problems addressed in this book were deemed, collectively, the "biggest"). Specifically, bribery is estimated to total 1 Trillion dollars a year by researchers at the World Bank Institute. (Political corruption is the topic of this chapter)
(There's a lot of Trillions floating around these days...a 47T world economy...a 1T Iraq war...a 1 T sub-prime mortgage bailout mess...geez, it's like mind-blowing. A TRILLION dollars is 1 billion dollars more than 999 Billion dollars, allright? One BILLION is 1m more than 999 MILLION dollars. There are people out there begging for change, alright? Like half the world lives on 2 dollars a day...Ugh)
Sorry.
Sidenote: As the scientologists say, aren't we being REACTIVE? Iraq and the bailout are Responses to problems that could have been prevented earlier. We need to do the right thing now, to prevent big problems in the future. We need to be PROACTIVE.
Good job, FBI, on the Blagojevich thing, I think. (pronounced Blah-goy-uh-vitch)
In any case, bribery is estimated to cost 3% of world income a year (that 1T I mentioned). This doesn't measure the total impact of corruption, however. The costs "may be many orders of magnitude higher than the volume of bribes themselves."
Ms. Ackerman differentiates between the low-level corruption of opportunistic payoffs and the systemic corruption which implicates an entire bureaucratic hierarchy, electoral system, or governmental structure from top to bottom. She says, "corruption is a symptom of dysfunctionl state-society relations."
Low-level corruption has 5 generic situations:
1. a scarce benefit, where officials have discretion to assign it to applicants.
2. officials selecting only qualified applicants.
3. a difficult to evaluate benefit, such as substandard pharmaceuticals
4. bureaucratic process as a source of delay, creating corrupt incentives
5. costs imposed by government programs, (such as the possibility of arrest or tax and customs collection).
Grand corruption has 3 varieties:
1. A branch of the public sector may be organized around bribe-generating.
2. A nominal democracy may have a corrupt electoral system.
3. Influence of the award of contracts (for construction projects, the allocation of natural resource concessions, and the privatization of state-owned firms).
Specific examples of the above are (LL1-5 &G1-3):
ll1) Despite the obvious solution of simply selling the benefit legally, officials may pocket the pocket (some or all of) the proceeds, or steal the goods outright. In Brazil, for example, federal police authorities estimate that embezzlement in the pharmaceutical sector totals $637 million/year (Colitt 2004).
ll2) officials frequently collect bribes from both the qualified and unqualified. Publicly-provided healthcare, supposedly free to the needy, may be rationed by ability to pay. Theft, too. 43% of food aid rice disappeared in one-third of Indonesian villages in one program.
ll3) Those in charge of distribution may provide substandard goods, and keep the higher quality for themselves or resale. 25% of pharmaceuticals, according to one estimate, consumed in poor countries are counterfeit or substandard.
ll4) delay may be created as a means of extracting more bribes. Survey evidence shows that businesses spend more, not less, time dealing with gvt. officials when corruption is common.
ll5) Officials get paid in return for tolerating illegal activities; at least half of tax collections are lost to corruption in some countries. As an example of reform, in Angola, reform cost $84 million over 2 years, and revenues increased from $230million to $345 million.
g1) Top police officials may organize corrupt syustems in collaboration with corrupt crime groups. Gvt. positions can be sold. Those "employed" may never show up and simply collect paychecks. In education, this can be harmful: teacher absenteism rates are high in some countries.
g2) spending limits can be undermined, the limits on types of spending permitted can be undermined, and controls on the sources of funds can be subverted. (from where, on what, and how much).
g3) The World Bank estimates, for example, that in the forestry sector, illegal logging costs at least 10B a year, mostly facilitated by corruption.
Cause: greed
Consequences
-The author considers it likely that corruption is both a cause and a consequence of lower levels of investment, income, and growth. "The causal arrow probably runs both ways, creating vicious and virtuous spirals."
(Speaking of virtuous spirals, my mother-in-law has a postcard of a church in x that has a spiral wooden staircase built without the use of nails in x, by an itinerant carpenter, reputed to have been the living Jesus himself).
Facts
Investment, as I said, is affected by corruption-both domestic and foreign. It -corruption- is associated with lower levels of direct foreign investment and capital inflows. Comparing a relatively clean Singapore to a relatively corrupt Mexico is the equivalent of adding 20 percentage points to the tax rate. It lowers productivity, reduces the effectiveness of policies, and encourages businesses to operate in the unofficial sector. Highly corrupt countries tend to spend less on education, to over-invest in public infrastructure, and to have lower environmental quality levels. Income inequality is produced by corruption, perhaps making the rich richer...and corruption may undermine programs designed to help the poor. Inequality has a negative effect on growth, which may be the result of its impact on corruption. What is inequality's effect on corruption? She doesn't say. Corrupt links between wealthy elites and the state may perpetuate an unequal system. Corrupt gvts. lack legitimacy. Tax evasion is associated with high levels of perceived corruption. Trade openness appears to reduce corruption, and weak law and order and insecure property rights increase it.
If 30 percent of the funds allocated to fulfill the MDG's in water and sanitation in Sub-Saharan Africa in the next decade, the excess costs would total $20B. Other interventions, with lower cost:benefit ratios, such as reducing low birthweight babies, can only be "worthwhile" if corruption can be controlled.
Solutions
caveat: "reforms must be accomplished inside particular countries, each with its own economic, political, and social realities."
She recommends 4 policies:
1. An international effort to help countries streamline gvt. operations.
-Excess regulation, which requires the tedium and expense of complying with the law, push people into corruption, she says. For example, if (over-regulated, presumably) Calcutta had the investment climate of Shanghai, the share of firms exporting would nearly double from 24% to 47% and the share of foreign-invested firms would increase frm 2.5 to 3.9%.
2. Efforts to encourage the ratification and enforcement of international treaties.
-Several treaties exist, such as at the OECD and UN, reflecting the salience of the issue. Getting ratification would change the discourse, but only have an impact to the extent that it changes behavior. Monitoring and compliance should get more resources, she says. "Transparency International is engaged in this effort, but more should be done."
caveat: the treaties won't solve the problem, but an effort to publicize them could bring benefits with little expenditure.
3. Multinational investments to control corruption
-An investment of 1.25B might mean that just 10% of the $200B in oil and gas exploration receipts expected to accrue to the the handful of states, many poor and with weak gvts., over the next decade, would flow to the poor citizens of those countries. This $20B is a likely underestimation, she says. The Chad-Cameroon pipeline, construction funds for which were negotiated in a World Bank agreement, requires 70% of revenues to go to poverty reduction, and should be studied for lessons, she says.
-Also, export credits, such as those in the OECD, can be awarded or limited on the basis of agreeing with (anti-)corruption rules. For example, member countries can impose and exercise "due diligence" when dealing with exporters who are on a debarment list of a multilateral financial institution (I admit I don't know what this means), under charge in a national court, or convicted for violation of laws against bribery of foreign public official within the last 5 years.
4. Controlling money-laundering
-The Financial Action Task Force (FATF) has 49 recommendations, adopted by over 100 countries in '89. In 2000, The Wolfsberg Principles were developed. More study is necesssary (for example, on the impact of different anti-money laundering systems on the amount of funds laundered, or on the link between money-laundering and the level of predicate offenses, such as corruption), and cross-border cooperation is necessary, and protection of reporters and investigators. Both the formal law and its enforcement need to be strengthened.
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