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•
‘Unbundling’ Governance and Corruption:
Some new empirical findings and Collective Action approaches
Daniel Kaufmann World Bank Institute and Colleagues
Anti-Corruption Summit 2000, Wash. DC
Governance Program - The Strategy The power of rigorous empirics and diagnostics Corporate Strategies-National Governance Nexus
Unbundling Corruption: State Capture is key?
http://www.worldbank.org/wbi/governance
8 Key Issues
• Government in the ‘driver’ seat in A-C program• Focus on very focused A-C plan• Use worldwide data for action program• Technocratic approach to fighting corruption• Paramount: A-C Autonomous Agencies/Commissions• High Pay in public service for combating corruption• Focus: eliminate bureaucratic corruption/discretion • Strict Enforcement of civil service rules
Proposition: The ‘8 Key Issues’ above contain an element of mythProposition: The ‘8 Key Issues’ above contain an element of myth
National Governance: Challenges in Integrating Anti-Corruption Into Institutional Change
A simple Formula synthesizing Governance/Anticorruption:
IG and AC = KI + LE + CA
Improving Governance and Anti-Corruption =
= Knowledge/Info.Data + … ...+ Leadership (incl. Political) + ...
... + Collective Action (change)
A ‘Live’ Test:A ‘Live’ Test:‘Culture’, Information and Incentives:‘Culture’, Information and Incentives:
• You are approaching your car in the empty and You are approaching your car in the empty and unattended garage late at night unattended garage late at night
• You see an envelope on the floor, and you pick it upYou see an envelope on the floor, and you pick it up
• It contains 20 bills of US $100 each. It contains 20 bills of US $100 each.
• If no possibility that anyone would know: No If no possibility that anyone would know: No cameras, no monitoring, no reportingcameras, no monitoring, no reporting
• What would you do with such envelope full of What would you do with such envelope full of cash?cash?
50% Undecided 33% Report and Return Funds
17% Keep
A. If no possibility that anyone would know:A. If no possibility that anyone would know:
You are alone, there is no monitoring, cameras, or possibility of resportingYou are alone, there is no monitoring, cameras, or possibility of resporting
Option Finder Results: Various Audiences
B. If B. If 30%30% probability that information is shared probability that information is shared (e.g. 30% that camera recording info which may be reviewed(e.g. 30% that camera recording info which may be reviewed))
74% Report and Return Funds
22% Undecided
4% Keep
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
Zaire
Cameroon
Myanmar (Burma)
AzerbaijanParaguay
NigeriaHonduras
Ukraine
KazakhstanNicaraguaGuatemala
EcuadorVenezuela
Kenya
ColombiaEl Salvador
MexicoArgentina
PeruBrazil
MoroccoUruguayCosta Rica
BelgiumSlovenia
ChileSpain
United StatesSingapore
Denmark
Control of Corruption: Aggregate Indicator (From 155 worldwide, transition/selected countries)*
Source: ‘Governance Matters’, PRWP 2196 by Kaufmann, Kraay and Zoido; based on data from 1998. For details and data, visit http://www.worldbank.org/wbi/governance There is a margin of error (thin line); extreme care in interpretation is needed.
POORGOOD
Broadening our Perspective: Assessing Governance
• Control of Corruption (or Graft)
• Rule of Law
• Absence of Regulatory Burden
• Government Effectiveness
• Voice and Accountability (Civil Liberties)
• Political Stability and lack of Violence
Application of Rule of Law Varies by Region
OECD EastAsia
MiddleEast
SouthAsia
EasternEurope
LatinAmerica
Sub-SaharanAfrica
FormerSovietUnion
(based on aggregation of surveys/polls 1997-99*)
High Indexof Rule of LawAppli-cation
LowIndex
Note: Regional Averages shown for discussion purposes, and hide large intra-regional variation in each case. Thin vertical line reflects estimated margin of error. Source: Kaufmann, Kraay and Zoido-Lobaton (1999). "Aggregating Governance Indicators" and "Governance Matters" PWRP 2195 and 2196. http://www.worldbank.org/wbi/governance
Not Free Partly Free Free
Co
rru
pti
on
[an
d A
bse
nce
of
Ru
le o
f L
aw]
Co
rru
pti
on
[an
d A
bse
nce
of
Ru
le o
f L
aw] High
Low
Civil Liberties
Corruption/Absence of Rule of Law & Civil Liberties
Based on averages of data from 160 countries.
AGOALB
AREARG
ARM
AUSAUT
AZE
!
BEN
BFABGDBGR
BHR
BHS
BIH
BLRBOL
BRABRN
BWA
CANCHE
CHL
CHNCIV
CMR
COGCOL
CRI
CUB
CYP
CZE
DEU
DNK
DOMDZA ECU
EGY
ESP
EST
ETH
FIN
FJI
FRA
GAB
GBR
GEO
GHA
GIN
GMBGNB
GRC
GTM
GUY
HKG
HND
HRVHTI
HUN
IDN
IND
IRL
IRN
IRG
ISL
ISR
ITA
JAMJOR
JPN
KAZKENKGZ
KOR
KWT
LBN
LBRLBY
LKA
LSOLTU
LUX
LVA
MAR
MDA MDGMEX
MKD MLI
MLT
MMR
MNG
MOZ
MUS
MWI
MYSNAM
NER
NGANIC
NLD
NOR
NZL
OMN
PAK
PANPER PHL
PNG
POL
PRK
PRT
PRY
QAT
ROMRUSSAU
SDN
SEN
SGP
SLE
SLV
SOM
SURSVK
SVN
SWE
SWZ
SYRTCD
TGO THA
TJK TKM
TTO
TUN
TUR
TWN
TZA
UGA
UKR
URY
USA
UZBVEN
VNM
YEMYUG
ZAF
ZAR
ZMB
ZWE
r = 0.68
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
0 0.2 0.4 0.6 0.8 1
Control of Graft and Freedom of the Press
High
Low
Low High
r = .68
Freedom of the Press (Freedom House)
Con
trol
of
Gra
ft [
kkz]
Salient Features of New Governance Diagnostic Tools
• Multi-pronged surveys of: households, firms and public officials [‘triangulation’]
• Experiencial questions (vs. ‘opinions’/generic)
• Specially designed and tested closed questions
• Conceptual framework: Incentive Structure behind Governance; focus on development
• Rigorous technical requirements in implementation
• Local Institution Implements, with WB Collaboration• Recognizing Multidimensionality of Governance• Focus on Service Delivery: Input for Action and Change
0
5
10
15
20
25
30
35
40
45
50
Hungary Estonia Russia Azerbaijan
Parliamentary legislation
Decrees Central Bank Influence
Firms Reporting Negative Impact of High Level Corruption‘State Capture’ Source: WBES Survey 1999, 20 transition countries
%of
all
Fir
ms
repo
rt n
egat
ive
impa
ct o
f gr
and
corr
upti
on
%
%
%
%
%
%
%
%
%
%
Adverse Impact of ‘Purchases’ of:
Reported Direct Impact of State Capture on the FirmReported Direct Impact of State Capture on the Firm
Country
Parliamentarylegislation(% of firms)
Presidentialdecrees(% of firms)
CentralBank(%of firms)
CriminalCourts(% of firms)
Party finance(% of firms)
Capture index(% of firms)
CaptureClassification
Albania 12 7 8 22 25 16 LowArmenia 10 7 14 5 1 7 LowAzerbaijan 41 48 39 44 35 41 HighBelarus 9 5 25 0 4 8 LowBulgaria 28 26 28 28 42 28 HighCroatia 18 24 30 29 30 27 HighCzech Rep 18 11 12 9 6 11 LowEstonia 14 7 8 8 17 10 LowGeorgia 29 24 32 18 21 24 HighHungary 12 7 8 5 4 7 LowKazakhstan 13 10 19 14 6 12 LowKyrgyzstan 18 16 59 26 27 29 HighLatvia 40 49 8 21 35 30 HighLithuania 15 7 9 11 13 11 LowMoldova 43 30 40 33 42 37 HighPoland 13 10 6 12 10 12 LowRomania 22 20 26 14 27 21 HighRussia 35 32 47 24 24 32 HighSlovakia 20 12 37 29 20 24 HighSlovenia 8 5 4 6 11 7 LowUkraine 44 37 37 21 29 32 HighUzbekistan 5 4 8 5 4 6 Low
Overall 24 21 25 18 20 22
2%
4%
6%
8%
10%
12%
% f
irm
s 'p
urc
has
e' le
gis
lati
ve
DomesticInvestor
WithFDI
% of firms that 'Purchase' Legislation and Decrees in Transition Economies
• Transnational Corporate Responsibility Matters as Well:
Note: For transition economies, average of 20 countries. Source: Hellman, Jones and Kaufmann, 2000 (www.worldbank.org/wbi/governance)
% Firms that pay public procurement kickbacks% Firms that pay public procurement kickbacks(of those that trade with the state)(of those that trade with the state)
0
5
10
15
20
25
30
35
40
% of firms
Domestic
FDI (Domestic HQ) FDI (Overseas HQ)
Percentage of firms paying kickbacks by country of FDI origin
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
UK
Ge rmany
France
Othe r
Russia
USA
Austria
Gre e ce
Dome stic firms
All FDI
Proportion of firms
Enormous Social/Economi costs of state capture: Enormous Social/Economi costs of state capture: Much lower growth in sales and investment in economyMuch lower growth in sales and investment in economy
0
5
10
15
20
25
Average rate of growth '97-'99
High capture Countries Low capture countries
Sales
Investment
The result: weak property rights
0
10
20
30
40
50
60
70
80
Est
Uzb Pol Sln
Aze
r
Hu
n
Cro Slk
Geo
Bu
l
Arm
Rom B
el
Cze
Kaz L
it
Kyr
Ru
s
Uk
r
Mol
Firms reporting insecure property and contract rights
% o
f A
ll F
irm
s
%
Country-wide: State capture is associated with incomplete civil liberties (& slow economic reforms)
0
0.1
0.2
0.3
0.4
Degree of State Capture
High CivilLiberties
Medium CivilLiberties
Low CivilLiberties
High Reform
Medium Reform
Low Reform
For Firms, Capture is strategy that started with insecure property rights they faced
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 More Taxes to Alleviate:
4.2
2.11.4
0
1
2
3
4
LowIncome
MiddleIncome
HighIncome
Lower Income Households ‘Pay’ Disproportionally
Bribe/Total Income ratio % ( A Latin American Country )
Albania
Georgia
Latvia
0 20 40 60 80
Customs inspectors
Tax inspectors
Judges
Ordinary police
Investigators/ prosecutors
Ministers
Which Public Sector Jobs Are “Sold”?
Percent of public officials reporting “purchase” of positions
4860
41
5241
25
3932
16
25
10
4023
5
3332
14
19
Public Prosecutor
Electricicy company
Cent. BankM of Fin - Income
National Fin. Corp.
MunicipalityPresidency
M of Fin - Treasury
Attorney General
Congress
Undersec. Of Gov't
Electoral Supreme TribunalCourts
Universities and schools
M of Energy and MinesM of Fin - Budget
Undersec. Of Social Welfare
Telephone company
National Council of TransitProv. Council
Comptroller
Real Estate Bank
y = -0.05x + 6.05
R2 = 0.50
r=-0.71
1
2
3
4
5
40 50 60 70 80 90 100
Meritocracy in Hiring and Promotion
Public Offic ials Survey: Meritocracy in the Public Service Can Help Reduce Corruption
High
Low
Towards a Social Contract: Consensus Building with Civil Society and Gov’t
• Consultation Process with Parliament (Canada)
• Freedom on information and of the press (OECD)
• Administrative appeals system (Sweden, U.S.)
• Public hearings of draft laws (OECD)
• Participatory coalition building w/NGOs and Gov’t • Social Contract
* Average bribe to public officials
Lower Public Sector Salaries do not Increase Bribery
7.7%
15.5%
8.4%
Bribe*=
3MS
Bribe*=
0.2MS
Bribe*=
0.5MS
0%
3%
6%
9%
12%
15%
Monthly Salary
Less than 3MS Between 3 & 13 MS More than 13 MS
Monthly SalaryMonthly Salary
Which Governance Characteristics Survive After Controlling For Causal Effects?
GovernanceCharacteristics
Simple UnconditionalRelationship
Conditional/CausalRelationship
Ethical Values 0 0
Autonomous Agencies ** 0
Enforcement of Rules ** 0
Wages ** 0
Politicization ** **Transparency ** **Voice ** **
Corruption
Public Oversight and Civil Society:Public Oversight and Civil Society:
OmbudsmanOmbudsman in Albania and Bolivia in Albania and Bolivia¥¥ Private Sector CoalitionPrivate Sector Coalition in Bolivia in Bolivia¥¥ Diagnostic Diagnostic Surveys and Surveys and NGO NGO monitoring in Ecuador and others monitoring in Ecuador and others
Go vernance Im provement in Pract ice:D ifferen tiated Strateg ies in F ive C o un tries
Fina ncial Contro ls:F ina ncial Contro ls: ProcurementProcurement Reform in Bolivia, Reform in Bolivia, Ecuador and Georgia Ecuador and Georgia
Institutional and Civil ServiceInstitutional and Civil ServiceReform:Reform: TransparentTransparent Privatization Privatization in Ecuador in Ecuador¥¥ SalarySalary Reform in Bolivia Reform in Bolivia¥¥ Disclosure of AssetsDisclosure of Assets in in Bolivia and Georgia Bolivia and Georgia
Le gal-Judicia l:Le gal-Judicia l: Revamp of Revamp of Supreme CourtSupreme Court in Bolivia in Bolivia ¥¥ Competency test and firingCompetency test and firing of judgesof judges in Georgia, Albania and Latviain Georgia, Albania and Latvia¥¥ Mediation Mediation in Albania in Albania
Ec onom ic P olicy:Ec onom ic P olicy:
Deregulation and Deregulation and DelicensingDelicensing in Bolivia in Bolivia¥¥ Revamping Revamping CustomsCustoms in Ecuador and Latvia in Ecuador and Latvia¥¥ Tax AdministrationTax Administration in Latvia and Ecuador in Latvia and Ecuador¥¥ Tax/CustomsTax/Customs Code Reform in Albania Code Reform in Albania
Overall Corruption Over TimeOverall Corruption Over Time(Selected Countries; ICRG index, rescaled 0-10)(Selected Countries; ICRG index, rescaled 0-10)
00
22
44
66
88
High High corruptioncorruption
Low Low corruptioncorruption
19921992 19931993 19941994 19951995 19961996 19971997 19981998
IndonesiaIndonesia
IndonesiaIndonesia
FinlandFinland
El SalvadorEl Salvador
1010
El SalvadorEl Salvador
FinlandFinland
RussiaRussia
RussiaRussia
PolandPoland
PolandPoland
1988-921988-927
Data Power and Collective Action: Synthesis
• Logic of Collective Action: beyond ‘participation’ or
standard conditionality
• Power of Data.Knowledge Empowers Coalitions and De-
Personalizes the Challenge -- Systemic Instead
• Beyond Corruption: Governance and Transparency
• Focus on Fundamentals [vs. Symptoms]: Institutions
• Prioritization and Adaptation by Country Realities
• There is Hope, yet no room for Complacency
Some Policy Implications
• Anti-corruption efforts should focused more on grand corruption and state capture as root of misgovernance
• Broader Governance framework• Collective responsibility and Collective Action• Civil society involvement, Civil liberties• Security of property rights and economic liberalization• Need to address link between corporate (including FDI)
and national-level governance
For details, survey, and data:
http://www.worldbank.org/wbi/governance/
Some Issues for Discussion
• Broadening Framework from Corruption to Governance?• How to interpret Worldwide indices judiciously?• Focus on 40-50 countries with acute governance challenge?• Next Stage in In-depth Diagnostics & Methods?• Measuring ‘Grand Corruption’ -- including ‘State Capture’?• Role of Corporate Responsibility, including FDI? • Role of Informatics, Internet power?• What kind of expertise is needed in the next stage?• How to help Empower?: from ‘participation’ to Collective
Action
http://www.worldbank.org/wbi/governance/
Data Presented for Analysis and informing Policy Advise, not for Precise Rankings
The data contained in this presentation originates from various enterprise surveys (as well as outside expert rating agencies) and are subject to a margin of error. The purpose is therefore not to present precise comparative rankings across countries, but instead to illustrate characteristics of governmental and corporate performance in order to assist in drawing implications for action. No ranking of countries is intended in presenting results from these external sources by either the presenter of this work, the World Bank or its Board of Directors.
Further details and data, visit: http://www.worldbank.org/wbi/governance