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Concern about corruption
Aristotle(350 B.C.E.). The Politics
“to protect the treasury from being defrauded, let all money be issued openly in front of the whole city, and let copies of the accounts be deposited in various wards”
Concern about corruption
“Countries at the bottom need to adopt radical anti-corruption measures in favour of their people. Countries at the top of the index should make sure they don’t export corrupt practices to underdeveloped countries.”
– José Ugaz, Chair,Transparency International
Talking about CPI and Corruption
Some selected countries with CPI score and rank
Country CPI 2014 CPI 2009 CPI 2004Denmark 92 (1/174) 9.3 (2/180) 9.5 (3/145)
New Zealand 91 (2) 9.4 (1) 9.6 (2)
Finland 89 (3) 8.9 (6) 9.7 (1)
Sweden 87 (4) 9.2 (3) 9.2 (6)
Afghanistan 12 (172) 1.3 (179) -
Sudan 11 (173) 1.5 (176) 2.2 (122)
Korea (North) 8 (174) - -
Somalia 8 (174) 1.1 (180) -
Bangladesh 25 (145) 2.4 (139) 1.5 (145)
Nepal 29 (126) 2.3 (143) 2.8 (90)Sri Lanka 38 (85) 3.1 (97) 3.5 (67)
India 38 (85) 3.4 (84) 2.8 (90)
Source: http://www.transparency.org/research/cpi , as of 2/9/2015
Corruption
CorruptionPast Present
• Temporary• Exceptional ‘problem’• Wealth and power• Can be eradicated• No positive aspect• Local agenda• Women in corruption control• Singular focus• Cannot be measured • Decentralization, privatization, deregulation are the tools for control• Anticorruption agencies• Aid: a panacea• Democracy
• Permanent concern• Universal• Rules and roles• Cannot be totally eradicated• Some positive aspects • Global agenda• Gender and corruption• Demand and supply side anti-corruption• Can be measured• One size does not fit all
• Anticorruption agencies: Rhetoric vs Reality• Aid: a challenge• The cancer of corruption and governance
Corruption
Corruption Difficult to define (Model) Problem to measure (Measure)
Certain illegal acts such as fraud, money laundering, drug trades, and black market operations constitute/do not constitute corruption? Fraud, waste, and abuse (after 1970s)
Corrupt is that which is considered corrupt at a certain place and at a certain time.
Corruption
The misuse of public office for private gain. World Bank
The misuse of entrusted power for private gain. Transparency International
Acts in which the power of public office is used for personal gain in a manner that contravenes the rules of the game.
Exercise of official powers against public interest Abuse of public office for private gains
Why Zero Tolerance for Corruption?
Corruption
HD/GG/RBA
Human Developm
ent
• Income and wealth• Education and health care• Basic human needs• Decent standard of life• Awareness• Bargaining power• Freedom • Participation
Corruption as legal and appropriate behaviour Vs Illegal and inappropriate
• Weakens national institutions• Injustice in courts• Widespread economic inefficiency •Undermines efforts at poverty reduction • Diverts goods and services targeted for the poor to well -off and well- connected who can bribe• Ignores secured livelihoods• Inequitable social services
Hits hardest at the poor- who often depend heavily on
public services and are least able to pay bribe
Forms of corruption
Different forms of corruption
Demand and supply side
Grand and petty
Political/ legislative and bureaucratic
Private and public sector
Higher-level and lower-level
Patrimonialism and clientelism
Nepotism and favoritism
Individual level and Organizational level
Policy and administrative
International and national level
State and society levelTop-down and bottom -up
Forms/types of corruption
Political Leaders
Legislators
Appoint (2)/(G)
Elects
(1) (G) Bureaucrats (3) (G) Enact Laws
Make public policy Provide (2) (P)
services
PopulationReceives benefits according to each member’s
ability to influence each decision maker
Figure showing corrupt relation, Source: Jain, 2001.
Top-down and Bottom-up Corruption
TOP-DOWN CORRUPTION
“corrupt high levels buy lower levels by sharing a portion of gains”
More happened in shared-power systems
BOTTOM-UP CORRUPTION
“low level officials share their own collected bribes with superior levels to avoid detection or punishment”
More happened in centralized or dictatorial regimes
Which one is prevalent in Nepal?
Causes of Corruption
Why are some officials corrupt while most are not? Why are some officials not-corrupt while most are?
Causes of Corruption
Causes of corruption
In lower income countries (Nepal)
In higher income countries (Korea)
•Public choice approach•Institutional approach•Moralistic approach
Causes of Corruption
Public choice theory Individual tries to maximize his or her utilityPotential benefits > potential cost
Bad apple theory Greed or wrong values: a cause of corruption
Organizational culture theory
Group culture
Clashing moral values theories
Conflict of interests, Financial interestsPublic role and private obligations
The ethos of public administration theories
Culture of public management/scientific mgmt.
Correlation theories Related variables
Source: Graaf, 2007
Global Society and Corruption
Multinational corporations: “supply” Foreign public officials: “demand” 5% of the exports to developing countries ($ 50 to
$80 billion per year) goes to corrupt officials (Moss as cited in Darrough, 2004)
5 to 30% of all public funds (Hamra, 2000)
Determinants of Corruption
Discretionary powers; Value of economic rents; and Deterrents to corruption (detected, prosecuted,
punished) Net utility of corruption= f { Income from corruption,
legitimate income, strengths of political institutions. moral and political values of the society, probability of
being caught and punished)
The level and continuation of corruption
A, B, & C are 3 equilibrium points. A & C are stable but B is not. It does not pay to be corrupt at A, and honest at C. B is indifferent (between being corrupt and honest).
Source: Bardhan, 1997
No one is corrupt
Proportion of a given total number of officials (or transactions) that is known to be corrupt
Marginal benefit for a corrupt official
Marginal benefit for a honest official
The benefit of an honest official is higher than that of a corrupt official when very few officials are corrupt
But it declines as the proportion of corrupt officials increases
The M curve goes up at the beginning when more and more officials are corrupt but ultimately declines
Becomes even negative when almost all others are corrupt
Consequences of corruption
Positive effects? (2 hypothesis) Grease-the wheels-of bureaucracy Sand-in-the-machine
Corruption and bureaucratic efficiency Effects on resources allocation
Cost-enhancing consequences of corruption Project selection by a corrupt agent (pork barrel) Corruption and allocation of entrepreneurial talent
Corruption and distribution of income and wealth
Consequences of corruption
Table: Impact of corruption on efficiency
Grease the wheels
Sand the wheels
Effective institutions
Detrimental
Detrimental
Ineffective institutions
Positive Detrimental
Where does Nepal lie?
Collective Action Dilemma
Action: A
Honest Corrupt
Action: B
Honest (H, H)
(H, C)
Corrupt
(C, H)
(C, C)
South Korea, PNG and Nepal
South Korea PNG Nepal
43rd/174 (CPI 2014= 55) 145/174 (25) 126/174 (29)
Corruption : still a problem Corruption : major problem
...
Challenges
1. Excessive bureaucracy2. Inconsistent application of laws and regulations 3. Non-transparent regulatory processes 4. Many have been found guilty of corruption in recent years, sometimes for offences committed years earlier.Addressing corruption1. Sophisticated e-governance system2. One-stop shops to reduce opportunities for bribery3. Anti-corruption agenda
1. Corruption is institutionalized and seen as a norm2. Political culture of the ‘big man’ system3. Weak legal system and institutional apparatus to fight corruption.4. A rich patron-client system in place for both the agents and the principals, and the rent seekers or brokers.
…
Solutions and remedies
Dichotomous policy ideals: panacea or palliative?
Are recommendations long term solutions, or short-term patch work? Corruption cannot be totally eradicated. Part of human
nature. Humans by nature are socio-political beings, with an economic appetite for utility maximisation.
Policy options for fighting corruption abound without an end insight.
However, we can control corruption as economies continue to advance overtime, with newer and more improved systems and technologies to detect and curb corruption.
Cont.
A ‘lawyer’s approach Toughening laws & legislations
A ‘businessman’s approach Offering incentives to officials to disengage from corruption (buy out corruption).
A ‘market’ or an ‘economist’s approach Introduce or increase competition
An ‘institutional’ approach Genuine political/leadership commitment
How and what?
Anti-corrupti
on
IdeologyLawsRegulationsAdministrative strategiesInter- and intra-organizational checks and balances
Institutions/mechanisms aimed at:• Defining• Identifying• Preventing• Punishing
official corruption
Lesson learned from CPI top ranked countries
Administrative culture: rules are brief, clear and strict few level of bureaucracy autonomy on the local level collective decision system job security (a public official‘s bread may be
thin but at least it is long) the presence of women in decision making
post
Lesson learned from CPI top ranked countries
Transparency of the work Supervision of decision:
- Justice and the Parliamentary
Ombudsman Law enforcement:
- National Bureau of Investigation
Lesson learned from CPI top ranked countries
Social factors: equality in income welfare society high standard of living (the higher the
standard of living, the lower the level of corruption)
media
References
Bardan, P. (1997). “Corruption and Development: A Review of Issues.” Journal of Economic Literature, 35(3): 1320-1346.
Graaf, G. D. (2007). “Causes Of Corruption: Towards A Contextual Theory Of Corruption.” Public Administration Quarterly,: 39-86.
Jain, A. (2001). “Corruption: A Review.” Journal of Economic Surveys, 15(1): 71-121.
Pinto, J; C. R. Leana and F. K. Pil. (2008). “Corrupt Organizations Or Organizations Of Corrupt Individuals? Two Types Of Organization-level Corruption.” Academy of Management Review, 33(3): 685–709.