(Svenson) Corruption

Corruption

• Misuse of public office for private gains

Corruption is a reflection of…

a country’s legal, economic, cultural, and political institutions

Bribes, lobbying, campaign contributions, clientelism

Examples of corruption

Bribes

• Under the table + private gain

• Higher transaction costs that taxes because of uncertainty and secrecy accompanied with bribe payments.

• Can be in both private and public sector

Taxes

• Transparent & mandated

• Public use

Corruption characteristics (DSCD)

1. Developing, transitioning in political or economic systems

2. Socialist

3. “Closed economies”

4. Democratic doesn’t mean no corruption

Institutional-based theory for high corruption

1. Low income and education level

2. Persistent and inherited institutions designed to benefit colonizers

3. Inhospitable environment

4. Religious heritage

5. Path dependent

Economic competition

• Openness to external competition from imports

• Regulation of entry for new businesses

Political competition

• Freedom of press

• Right to re-elect politicians

• Form (authoritarian, democratic, etc.)

Magnitude of corruption (FPP)

1. Firm operational costs (Uganda 80% businesses admitted to paying bribes)

2. Price comparisons

3. Public procurement and service and delivery

Do Higher wages for bureaucrats reduce corruption?

• Increase government pay so they’re less tempted by bribes and incentive honest behavior

• Increased civil servant pay must also have deregulation

• Theoretically ambiguous and depends on other factors like presence of third-party enforcement and nature of bribe negotiations

• Not a guaranteed solution for developing countries with weak institutional frameworks

Pork Barrel

• Funds allocated to local level but given to legislative

• Vilates seperation of power

• Congress man makes laws, executes, and allocates

Effective monitoring and enforcement mechanisms

…are crucial for success of anti-corruption strategies

Does increased economic competition reduce corruption?

• Deregulate, not to increase competition but so you can limit officials’ ability to extract bribes

Does increased political competition reduce corruption?

• Potential of people to seek government support through a different official could lower level of bribes

• But without organized resistance = potentially more resources can be gatekept/extracted

Why have there been so few recent successful attempts to fight corruption?

• Many rely on legal and financial institutions—judiciary, police, and financial auditors—to enforce accountability within the public sector

• Developing countries have weak institutions that are susceptible to corruption

Why Singapore and Hong Kong are winners

1. Established powerful independent anti-corruption agencies

2. Reform to substantially icnrease civil servant pay relative to private sector

3. Regular rotation of public officials so they don’t build corruption networks

4. Rewards for officials that refuse and report bribes

5. Simplification of rules and procedures so there’s fewer loopholes to exploit

6. Elimination of unnecessary permits and approvals

7. Reduction/removal of import fees

Alternative strategies for combatting corruption

• Public enforcement of public laws

• Citizen enforcement and access to information

• Delegating “integrity” for hire

  • Outsourcing special functions to private firms with reputation for integrity to avoid bribers

a multi-faceted approach that combines robust enforcement with complementary reforms

Successful anti-corruption efforts need…

top political leadership

It’s not just about adding cops but

changing the game

It’s not just about catching bad guys but

doing things differently

Not just about government doing more but

Does corruption automatically hurt a country’s economic growth?

1. More of a symptom of bureaucratic inefficiencies, rigid regulation… bribery helps expedite that process

2. Discourages entrepreneurship and investment. Reduced profits, incentives, and expansion.

3. Diverts enterprises to informal sector and not reliant on public services

4. Misallocation of resources in bribery rather than productivity improvements

5. Erosion of human capital: people go into public to exploit rather than be productive in private productive sectors

6. Lower productivity and living standards

Corruption’s effects

• Hidden tax to businesses, adding costs and uncertainties

• Deters tech innovation

• Rewards wrong kind of behavior

• Not a clear link measuring corruption across a whole country

Latin America Case Study

• Corrupt systems set-up by Spain left an institutional precedent

• Weak governments, constant political turmoil, huge gap between rich & poor = large breeding ground for corruption

• Commonly manifested via bribery, embezzelment, cronyism, electoral fraud

• Undermines people’s trust in government, undermines rule of law, bribe just to have access to basic services (to see doctor, pick up trash, education) → distressed citizenships

Tools to combat corruption

Prevention > Just Punishment

1. Education

   1. People to know and understand their rights, what corruption looks like and how to report it safely

2. Access to information

   1. Free press without being threatened or shut down. can report truth without fear

3. Technology

   1. Reporting corruption anonymously, track government spending, leveling playing field, mobile money platform, less f2f interaction, less shady stuff, data analysis tools for shady businesses

      1. Shining a flashlight on dark corners

      2. Ai detect massive data sets as digital detective. more thorough than any human

4. International groups involvement

   1. Support & funding in anti-corruption programs. Global effort. If corruption surpasses borders, so its solutions have to as well

5. Strong leadership. Transparency. Strong culture of trust. = Virtuous cycle