Transcript No Slide Title

‘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 myth
National Governance: Challenges in Integrating AntiCorruption 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:
‘Culture’, Information and Incentives:
• You are approaching your car in the empty and
unattended garage late at night
• You see an envelope on the floor, and you pick it up
•
It contains 20 bills of US $100 each.
• If no possibility that anyone would know: No
cameras, no monitoring, no reporting
• What would you do with such envelope full of
cash?
A. If no possibility that anyone would know:
You are alone, there is no monitoring, cameras, or possibility of resporting
33% Report and
Return Funds
17% Keep
Option Finder Results: Various Audiences
50% Undecided
B. If 30% probability that information is shared
(e.g. 30% that camera recording info which may be reviewed)
22% Undecided
4% Keep
74% Report and Return Funds
Control of Corruption: Aggregate Indicator
(From 155 worldwide, transition/selected countries)*
2
1.5
1
0.5
0
-0.5
-1
Denmark
Singapore
United States
Spain
Chile
Slovenia
Belgium
Costa Rica
Uruguay
Morocco
Brazil
Peru
Argentina
Mexico
El Salvador
Colombia
Kenya
Venezuela
Ecuador
Guatemala
Nicaragua
Kazakhstan
Ukraine
Honduras
Nigeria
Paraguay
Azerbaijan
Myanmar (Burma)
POOR
Cameroon
-2
Zaire
-1.5
GOOD
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.
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
(based on aggregation of surveys/polls 1997-99*)
High
Index
of Rule
of Law
Application
Low
Index
OECD
East
Asia
Middle
East
South Eastern Latin
Sub- Former
Asia
Europe America Saharan Soviet
Africa Union
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
Corruption/Absence of Rule of Law & Civil Liberties
High
Low
Not Free
Based on averages of data from 160 countries.
Partly Free
Civil Liberties
Free
Control of Graft and Freedom of the Press
2.5
High
DNK
FIN
SWE
CHE
NZL
CAN
NLD
CYP ISL
GBR
LUX
DEU
AUSNOR
IRL
AUT
USA
HKG
FRA ESP
ISR
PRT
CHL
SVN
GRC
FJI
ITA JPN
MYS QAT KWT
TWN
HUN
EST MLT
CRI ! BHS
BWA
TTO
OMN
POL
URY
NAM
MUS CZE
ZAF
CUB
LSO MAR
KOR
JOR
BRAGUY
TUN GMB
SVK
LTU
ARE
SLE
BRN
SUR
CIV SWZ
LKA
JAM
MNG
THA
GNB
PER
MWI
BHR
PHL INDSEN ARG
TGO
EGY
LVA
CHN
BGD
MEX
GHA
ZWE
VNM
BIH TUR
SLV ROM
BFA MDG
LBN UGA
ETH MDA
HRV
PAN MLIBOL
MKD
PRK
HTI COL
MOZCOG
BGR
SAU
TCD
ZMB
RUS
BLR
KENGEO
VEN
KGZARM
PAK
BEN
SYR
GTM
NIC ECU DOM
IRNIDN
YEM
GIN
PNG
DZA NGA
AGO
KAZ
LBY
UKR
TZA
HND
UZB
PRY
ALB
YUG
AZE
SDN
GAB
SOM
LBR
MMR
CMR
IRG TJK
TKM
r = .68
ZAR
NER
2
SGP
1.5
1
0.5
0
-0.5
-1
-1.5
-2
Low
r = 0.68
-2.5
0
0.2
0.4
0.6
0.8
Low
Freedom of the Press (Freedom House)
1
High
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
%of all Firms report negative impact of grand corruption
Firms Reporting Negative Impact of High Level Corruption
‘State Capture’ Source: WBES Survey 1999, 20 transition countries
50 %
45 %
40 %
35 %
30 %
25 %
20 %
15 %
10 %
5%
0
Hungary
Estonia
Adverse Impact of ‘Purchases’ of:
Russia
Parliamentary
legislation
Azerbaijan
Decrees
Central Bank
Influence
Reported Direct Impact of State Capture on the Firm
Country
Albania
Armenia
Azerbaijan
Belarus
Bulgaria
Croatia
Czech Rep
Estonia
Georgia
Hungary
Kazakhstan
Kyrgyzstan
Latvia
Lithuania
Moldova
Poland
Romania
Russia
Slovakia
Slovenia
Ukraine
Uzbekistan
Overall
Parliamentary
legislation
(% of firms)
Presidential
decrees
(% of firms)
Central
Bank
(%of firms)
Criminal
Courts
(% of firms)
Party finance Capture index
(% of firms)
(% of firms)
12
10
41
9
28
18
18
14
29
12
13
18
40
15
43
13
22
35
20
8
44
5
7
7
48
5
26
24
11
7
24
7
10
16
49
7
30
10
20
32
12
5
37
4
8
14
39
25
28
30
12
8
32
8
19
59
8
9
40
6
26
47
37
4
37
8
22
5
44
0
28
29
9
8
18
5
14
26
21
11
33
12
14
24
29
6
21
5
25
1
35
4
42
30
6
17
21
4
6
27
35
13
42
10
27
24
20
11
29
4
16
7
41
8
28
27
11
10
24
7
12
29
30
11
37
12
21
32
24
7
32
6
24
21
25
18
20
22
Capture
Classification
Low
Low
High
Low
High
High
Low
Low
High
Low
Low
High
High
Low
High
Low
High
High
High
Low
High
Low
• Transnational Corporate Responsibility Matters as Well:
% firms 'purchase' legislative
% of firms that 'Purchase' Legislation and Decrees
in Transition Economies
12%
10%
8%
6%
4%
2%
Domestic
Investor
Note: For transition economies, average of 20 countries.
Source: Hellman, Jones and Kaufmann, 2000 (www.worldbank.org/wbi/governance)
With
FDI
% Firms that pay public procurement kickbacks
(of those that trade with the state)
40
30
25
20
15
10
5
)
Q
ve
rs
ea
sH
O
Do
m
FD
I(
FD
I(
om
es
tic
H
Q
es
tic
)
0
D
% of firms
35
Percentage of firms paying kickbacks by country of
FDI origin
All FDI
Domestic firms
Greece
Austria
USA
Russia
Other
France
Germany
UK
0
0.1
0.2
0.3
0.4
Proportion of firms
0.5
0.6
0.7
Enormous Social/Economic costs of state capture:
Average rate of growth '97-'99
Much lower growth in sales and investment in economy
25
20
15
Sales
Investment
10
5
0
High capture Countries Low capture countries
The result: weak property rights
%
Firms reporting insecure property and contract rights
80
60
50
40
30
20
Mol
Ukr
Rus
Kyr
Lit
Kaz
Cze
Bel
Rom
Arm
Bul
Geo
Slk
Cro
Hun
Azer
Sln
Pol
0
Uzb
10
Est
% of All Firms
70
Country-wide: State capture is associated with
incomplete civil liberties (& slow economic reforms)
Degree of State Capture
0.4
0.3
0.2
Low Reform
0.1
Medium Reform
High Reform
0
High Civil
Liberties
Medium Civil
Liberties
Low Civil
Liberties
For Firms, Capture is strategy that started with
insecure property rights they faced
% Firms that are Captors
12
10
8
6
4
2
0
Insecure
Secure
Security of property rights three years ago
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:
60
50
Corruption
Regulations
40
30
Russia
Kazakhstan
10
Ukraine
20
Estonia
Proportion of firms
70
Lower Income Households ‘Pay’ Disproportionally
Bribe/Total Income ratio % ( A Latin American Country )
4.2
4
3
2.1
2
1.4
1
0
Low
Income
Middle
Income
High
Income
Which Public Sector Jobs Are “Sold”?
60
Customs inspectors
48
41
Tax inspectors
41
52
25
39
Judges
32
16
Albania
25
Ordinary police
40
23
Investigators/
prosecutors
Georgia
32
33
Latvia
14
5
Ministers
10
19
0
20
40
60
Percent of public officials reporting “purchase” of positions
80
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
Lower Public Sector Salaries do not Increase Bribery
15.5%
15%
Bribe*
=
3MS
12%
8.4%
9%
7.7%
6%
Bribe*
=
0.2MS
Bribe*
=
0.5MS
3%
0%
Monthly Salary
Less than 3MS
* Average bribe to public officials
Monthly Salary
Monthly Salary
Between 3 & 13 MS
More than 13 MS
Which Governance Characteristics Survive After
Controlling For Causal Effects?
Governance
Characteristics
Ethical Values
Autonomous Agencies
Enforcement of Rules
Wages
Politicization
Transparency
Voice
Simple Unconditional Conditional/Causal
Relationship
Relationship
0
0
**
**
**
**
**
**
0
0
0
**
**
**
Governance Improvement in Practice:
Differentiated Strategies in Five Countries
Institutional and Civil Service
Reform:
Transparent Privatization
in Ecuador
• Salary Reform in Bolivia
• Disclosure of Assets in
Bolivia and Georgia
Economic Policy:
Deregulation and Delicensing in Bolivia
• Revamping Customs in Ecuador and Latvia
• Tax Administration in Latvia and Ecuador
• Tax/Customs Code Reform in Albania
Corruption
Legal-Judicial:
Revamp of Supreme Court in Bolivia
• Competency test and firing of judges
in Georgia, Albania and Latvia
• Mediation in Albania
Financial Controls:
Procurement Reform in Bolivia,
Ecuador and Georgia
Public Oversight and Civil Society:
Ombudsman in Albania and Bolivia
• Private Sector Coalition in Bolivia
• Diagnostic Surveys and NGO
monitoring in Ecuador and others
Overall Corruption Over Time
(Selected Countries; ICRG index, rescaled 0-10)
10
High
corruption
Indonesia
El Salvador
8
Russia
Indonesia
6
Russia
4
El Salvador
Poland
2
Low
corruption
0
1988-92
Poland
Finland
1992
Finland
1993
1994
1995
1996
1997
1998
7
Data Power and Collective Action: Synthesis
• Logic of Collective Action: beyond ‘participation’ or
standard conditionality
• Power of Data.Knowledge Empowers Coalitions and DePersonalizes 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?
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
Further details and data, visit: http://www.worldbank.org/wbi/governance
of Directors.