Combating Corruption Anti-Corruption Initiatives from a Business View Point July 14, 2003 The Center...
38
Combating Corruption Anti-Corruption Initiatives from a Business View Point July 14, 2003 The Center for International Private Enterprise Washington DC
Combating Corruption Anti-Corruption Initiatives from a Business View Point July 14, 2003 The Center for International Private Enterprise Washington DC
Combating Corruption Anti-Corruption Initiatives from a
Business View Point July 14, 2003 The Center for International
Private Enterprise Washington DC
Slide 3
Overview of Corruption Corruption is often a taboo topic in
many countries. Institutionalized corruption threatens the
development of democracies and markets. Corruption increases
transaction costs and undermines the competitiveness of the private
sector in todays global economy. It is essentially a waste of
resources. Corrupt countries lack predictable economic environments
and stable legal institutions the base for international
investment, trade and growth.
Slide 4
Roots of Corruption Corruption is not simply an abuse of the
public office for private gain: corrupt behavior involves nepotism,
cronyism, insider-trading, etc. Corruption is often
institutionalized and is an acceptable behavior in many countries.
Complex and vague legal systems along with governmental
discretionary powers breed corruption. Over-regulation of the
business sector creates perverse incentives.
Slide 5
Measures of Corruption Transparency International Corruption
Perceptions Index ranks 102 countries on the scale of 10 1, with 1
being the most corrupt and 10 being the least corrupt country.
RankCountryScore 1Finland9.7 2Denmark9.5 10United Kingdom8.7
15Austria7.8 16USA7.7 18Germany7.3 25France6.3RankCountryScore
57Mexico3.6 64Turkey3.2 71Russia2.7 77Philippines2.6 85Ukraine2.4
96Indonesia/Kenya1.9 102Bangladesh6.3
Slide 6
Anti-Corruption Strategies 1.Break the taboo 2.Mobilize private
sector initiatives and political will 3.Identify specific
mechanisms that sustain corruption 4.Develop targeted programs and
accountability 5.Evaluate
Slide 7
Corruption: Supply-Side vs. Demand Side
Slide 8
Demand Side of Corruption: The Role of the Private Sector
corporate governance The business community has to gain a
reputation for equity, fairness, transparency, accountability and
responsibility by developing the institutions of corporate
governance: Transparency (full disclosure) Independent Auditing
Conflicts of interest involving boards of directors and managers
Procedures for bankruptcy Property rights Contract enforcement
Corruption and theft
Slide 9
Principles of CG OECD Principles 1.Protecting the rights of
shareholders 2.Treating shareholders fairly 3.Recognizing the role
of stakeholders 4.Ensuring disclosure and transparency 5.Clarifying
responsibilities of the board of directors
Slide 10
CIPEs Experience For businesses to succeed in the world
economy, they must have healthy corporate governance mechanisms
including rule of law Building corporate governance in developing
countries requires refashioning institutions Private sector must
participate in developing governance mechanisms The reward is a
thriving democratic society that supports economic growth
Slide 11
Case Studies TRACE (Transparent Agents and Contracting
Entities) - a business-led effort to establish standards for agents
and reduce due diligence costs Business Principles for Countering
Bribery (Transparency International and Social Accountability
International) NGO and business community joint effort to establish
standards of internal controls & ethics
Slide 12
Practical Approaches to Combating Corruption Coalition Building
Coalition 2000 (Bulgaria) Identifying Obstacles Center for Liberal
and Democratic Studies (Serbia) Journalist Support Journalists
Against Corruption (Latin America)
Slide 13
Public-Private Efforts Center for Economic Development
(Slovakia) Legal Reform Constitutional Reform and Legal
Streamlining (Ecuador) Integrity Pacts Probidad (Colombia)
Practical Approaches to Combating Corruption
Slide 14
Combating Corruption: A Policy Toolkit Supply-side
Recommendations Independent media equipped with tools of analysis
The role of think tanks, business associations and other NGOs OECD
Anti-Bribery Convention Internationally accepted accounting
standards Good standards of corporate governance Continue
strengthening general OECD guidelines Demand-side Recommendations
Establish sound procurement codes Require independent audits Legal
reform and simplification Inventory of legal barriers and
duplicative regulations Reduce the shadow economy Simplify tax
codes Salaries of the civil servants have to be competitive with
private sector ones Transparency in the financial/banking
sector
Slide 15
Slide 16
Governance and Controlling Corruption is Central for
Socio-Economic Development and Growth: New Reports and Evidence
Presentation by Daniel Kaufmann, The World Bank, on New Books and
Research on Quality of Growth and Anticorrruption and State Capture
in Transition ICPS Roundtable, Kyiv, November 6th, 2000
Slide 17
Broadening our Perspective: Assessing Governance Control of
Corruption (or Graft) Rule of Law Lack of Regulatory Burden
Government Effectiveness Voice and Accountability Political
Stability and lack of Violence
Slide 18
Quality of Rule of Law by Region Good Poor
Slide 19
%
Slide 20
Corruption in the Banking Sector ( EIU 1997-98, Selected
Countries ) 0 1 2 3 4 Chile Hong Kong Hungary Mexico Ecuador Turkey
Panama Syria Russia High Corruption Low Corruption
Slide 21
CORRUPTION DETERS FOREIGN INVESTORS: Probability of Investment
Loss due to Corruption (within 5 years) 5 6 10 12 15 24 29 39 41 44
58 62 68 71 79 95 0102030405060708090100 UNITED STATES SINGAPORE
ITALY COSTA RICA GREECE ESTONIA POLAND MEXICO ROMANIA BULGARIA
RUSSIA UKRAINE PAKISTAN GEORGIA COLOMBIA TURKMENISTAN *Source:
S&P/DRI 1998 %%%%%%
Slide 22
Impact of good government on investment and growth 10% 15% 20%
High MediumLow % Investment share in GDP HighMediumLow -1.5% 0% 1%
2% 1.5% -0.5% -1.0% 0.5% Income per capita Growth Rate Government
Quality Government Quality
Slide 23
The Dividend of Good Governance Infant Mortality and Corruption
0 10 20 30 40 50 60 70 80 90 WeakAverageGood Control of Corruption
x Development Dividend 0 2,000 4,000 6,000 8,000 10,000 12,000
WeakAverageGood Regulatory Burden x Development Dividend Per Capita
Income and Regulatory Burden Literacy and Rule of Law 0 25 50 75
100 WeakAverageGood Rule of Law x Development Dividend Per Capita
Income and Voice and Accountability 0 1000 2000 3000 4000 5000 6000
7000 8000 9000 10000 WeakAverageStrong Voice and Accountability x
Development Dividend Note: The bars depict the simple correlation
between good governance and development outcomes. The line depicts
the predicted value when taking into account the causality effects
(Development Dividend) from improved governance to better
development outcomes. For data and methodological details visit
http://www.worldbank.org/wbi/governance.
Slide 24
Corruption High Low Bureaucratic Discretion Corruption &
Bureaucratic Discretion
Slide 25
Enterprises are Prepared to be Taxed for Better Government:
Share of Firms that would pay additional taxes to eliminate
corruption, crime and excessive regulations Prepared to Pay Taxes
to Alleviate:
Slide 26
Slide 27
Smaller Firms Are Hit Harder by Corruption in Russia and in
Transition Economies Bribes to secure public procurement bids (% of
contract value) 0 2 4 6 SmallMediumLarge % of contract value
SmallMediumLarge %
Slide 28
Extent of State Capture in Transition
Slide 29
0 5 10 15 20 25 30 35 40 45 50 HungaryEstoniaRussiaAzerbaijan
Parliamentary legislation DecreesCentral Bank Influence Differences
in Transition Countries on the Extent of State Capture %of all
Firms report negative impact of grand corruption % % % % % % % % %
% Adverse Impact of Purchases of:
Slide 30
Enormous Socio-Economic Costs of State Capture by Oligarchs and
Vested Elite Interests: Business sector grows much slower, lacks
investments and insecure property rights
Slide 31
The result: weak property rights 0 10 20 30 40 50 60 70 80 Est
Uzb Pol Sln Azer Hun Cro Slk Geo Bul Arm Rom Bel Cze Kaz Lit Kyr
Rus Ukr Mol Firms reporting insecure property and contract rights %
of All Firms %
Slide 32
State Capture exists where partial Civil Liberties and slow
Economic Reforms Degree of Civil Liberties in Transition Economies
Economic Reforms
Slide 33
Corruption High Low Civil Liberties Civil Liberties Help
Control Corruption (Worldwide Evidence, 150 countries)
Slide 34
Control of Corruption and Freedom of the Press High Low High r
=.68 Freedom of the Press (Freedom House) Control of Graft
[kkz]
Slide 35
Slide 36
Civil Society Oversight: Freedom of information Public hearings
of draft laws Monitoring by media/NGOs Good and Clean Government
Competition & Entry : Competitive restructuring of monopolies
Regulatory simplification Public Administration and Public Finance:
Meritocratic civil service Transparent, monetized, adequate
remuneration Accountability in expenditures (Treasury, Audit,
Procurement) Strategy for Good Government and Anticorruption
Accountability of Political Leadership: Disclosure of parliamentary
votes Transparency in party financing Asset Declaration, Conflict
of Interest Rules Checks and Balances: Independent and effective
judiciary Decentralization with accountability
Slide 37
Emerging Operational Strategies Albania Judicial reform Tax and
customs Standards for health care University entrants Monitoring by
NGOs Georgia Regulatory reform Tax and customs Public procurement
Fiscal management Replacing Judges Monitoring by NGOs
Slide 38
Overall Corruption Over Time (Selected Countries; ICRG index,
rescaled 0-10) 0 2 4 6 8 High corruption Low corruption
1992199319941995199619971998 Indonesia Indonesia Finland El
Salvador 10 Finland Russia Russia Poland Poland 1988-92
Slide 39
National Governance: Challenges in Integrating Anti- Corruption
Into a Strategy of Institutional Change A simple Formula
synthesizing Governance/Anticorruption: IG and AC = KI + LE + CA
Anti-Corruption = Improving Governance and Anti-Corruption = =
Knowledge/Info.Data + ...+ Leadership (incl. Political) +......+
Leadership (incl. Political) +...... + Collective Action
(change)... + Collective Action (change)