Poli 125d-Corruption: Midterm Stugu

corrupfish

Corruption and Human Development(1)

Corruption: a misuse of public office for prvate gain

Defined as a modern concept: The division between public and private funds

Human Development aspect: The global south typically seems to have a lot more corruption

• richer countries have lower corruption causation

• graphs tend to show that full democracies have less corruption and non-democratic regimes tend to have more corruption

Key Approaches to Defining Corruption(2)

The three approaches to defining what is considered corruption are:

• The Legal Approach

  • Nye (1967) definition of corruption: “behavior which deviates from the formal dutities of a public role (elective or appointed) because of private-regarding (personal, close family, private clique) wealth or status gains; or violates rules against the exercise of certain types of private-regarding influence → Sott (1972) also supports the legal approach with caveats)

  • Legal approach is: what the law says, does it fulfil these prongs, etc

  • Cons / Why the legal definition may not be fully satisfactory:

    • comparisons accross countries (diff country have diff laws)

    • comparisons accross times (legal now but not then; vise versa)

    • Legal vs Ethical (readings show how Nazi soldiers would let Jews pass for a bribe → ethically correct, but is this technically corruption?
      

• The Public Interest Appraoch

  • the action is a “misuse of public office for private gain IF harmful to public interest

  • Cons:

    • who is the public interest? Mid class? High elites? + public interest can change over time+ it is difficult to say what the public interest is

    • How do you measure it? where do we draw the line of what is harmful to the public?

• The Public Opinion Approach 

  • the action is a “misuse of public office for private gain” IF the public thinks so

    • Cons:

      • what if people disagree?

      • skewed results → after an event happens, people are more likely to say something is corrupt

Key approaches to measuring corruption(2)

• Perceptions of Corruption: asking experts their take on corruption and using the index (explained well of how its calculated in Teisman 2007)

  • Pros

    • general idea of what experts think/where they’re at

    • having a measure holds nations more accountable and shames them for being corrupt

    • relatively easy to measure (survey people, firms etc is expensive and time consuming, but asking experts is straightforward and a lot easier)

  • Cons:

    • Small number of experts may be limiting

    • elites may have bias

    • maybe the experts are not biased but may take short cuts

• Experiences with corruption: asking people directly if they have engaged in a bribe

  • pros: 

    • first hand accounts

    • less expert bias

    • some people who may be passionate about it 

  • Cons: 

    • some may be hesistant to explain if they have (social disireability bias)

    • memory fault etc or human error

    • relatively expensive to conduct

    • firms and large orgs are hard to measure with corruption

• micro-level estimation techniques (multiple techniques)

  • estimation by subtraction (with corruption minus without corruption)

  • direct observation

  • estimate by market inference (politically connected firms go down→ people assume there are is some type of corruption happening that will be revealed)

corruption perceptions index(2)

Transparency International’s measure of corruption: The Corruption Perception Index

This index is high profile and widely used

• draws on multiple data sources (10+)

• based on perceptions of businesspeople and country experts

• ranks from most to least corrupt
  

Criticism:

• some have attacked the CPI’s reliance on small groups of experts and businesspeople

• some say to draw better more accurate information/evidence

• some argue that the use of a single number/ranking cannot show the scale and depth of a complex issue like corruption, and compare countries accordingly
  

global corruption barometer(2)

looks at citizen’s perceptions and experiences of corruption, just another form of measurment by Transparency International; operates as a survey

offers measures of how frequently citizens or business people encounter demands for bribes in different countires

petty vs grand corruption(3)

Petty: the everyday abuse of low-level officials ; often called bureaucratic corruption etc; usually low level corruption at a low to mid level of public officials in the interactions of ordinary citizens who often are trying to access basic goods or services in places like hospitals, schools, police departments and other agencies

Grand: Acts committed at a high level of government that distort policies or the central functioning of the state, enabling leaders to benefit at the expense of the public good

categories of petty corruption(3)

• equalizing supply and demand (ex: renting an apartment and the gov may subsidize it for low income people→ and people not getting that may be willing to pay a bribe to get that)

  • governments often provide goods below market prices

  • bribes serve to equate the supply and dmeand

  • however consequences are not indentical to the market: it has to do with the type of good being given out tho:

    • the benefit you want may be scare and fixed in supply

    • the benefit may be scarce but an official can influence the quality and quantity and give less and less out

  • Key Point: puts supply and demmand out of wack and fuck up the market
    

• Provideing incentive bonuses

  • context: public sector employees typically do not have the incentive to do their job or do it well

  • big reasons why ppl pay these workers bribes:

    • to speed up procedures

    • finalization of procedures

    • receiving better treatment

    • avoiding payment of a fine
      

• Reducing costs 

  • government takes taxs from citzens and firms along with its regulations

  • paying bribes to get lower taxes or lower regulations are a form of petty 
    

• Enabling criminal activity

  • often many firms and citizens will pay customs officials in order to smuggle goods 
    

consequences of bribes with different characteristics(3)

The consequences of paying a bribe may not be identical to paying for something properly on the market because:

• the good/benefit you want may be scarce but then fixed in supply

• the good/benefit you want may be scarce in supply but an official can influence the quality and quanitty and give less and less out to others to benefit you

• ultimately this puts things out of wack and could have larger negative affects on the market

petty corruption and health care(3)

we saw the Bangladesh Video

• A lot of the time petty corruption is seen within hospitals to get care/treatment over others/to even get in

• as much as 215 for a blood test in Bangladesh

• 
  
  
  Chinese Covid Hongbao (gray money) article:

• we saw during covid it was strongly based on who you knew

• people would pay bribes for beds in china during covid when they were running out

• Drs in china get a good portion of salary from these bribes if anything

• payments to middlmen or “yellow cows”

Hongbao (3)

Hongbao means red envelope — refers to the “gray money” that would be given to Doctors and networked people as bribes for letting people who pay get health service more easily

Firm Perceptions and experiences with corruption (4)

Perceptions: We see a lot of Latin America and Middle East / N. Africa as the perceieving the most corruption— they believe that corruption is a major constraint in their countries; we see Europe and Central asia and East Asia and the Pacific less so

Experiences: However when looking at percent of firms experiencing at least 1 bribe payment request, East Asia & Pacific, South Asia, and SS Africa are the three highest, while Euro&Central Asia and Latin America are on the lower end of firms experiencing corruption


generally, the global south firms experience more corruption but perceptions are different in different regions

petty corruptions and experiences with corruption (4)

A lot of firms in the global south face daily petty corruption

an example can be the petty corruption in Venezula and accros its border; one example was like literally food and basic necessities because their inflation is so high

petty corruption and imports:south afirca vs mozambique (4)

two ports: one in Mozambique and one in South Africa, both going to the same location and roughly the same distance

one difference:

• custom officials in both cities have very different levels of interactions with the firms, more specifically the clearing of agents getting the imports INTO the place

• South Africa is a lot more advanced with their importing with a whole online system, whereas Mozambique is more in person etc

this brings up two concepts:

Collusive bribes: which are payed in order to get out of tarrifs; both the importer and the port official win 

Coercive: the port official requires/coerceses you into paying the bribe to actually get the job done; this is a type of bribe that provides incentive bonuses

petty corruption on vietnam-China border (4)

“making law” reading:

Between the Chinese and Vietnamese border, trade is heavily restricted but the locals have “made law” that sets bribe taking and this “corruption” as commonplace and part of the system they go through.

Merchants and Border Agents will chat casually amongst each other, assimilate corgidly, and instead of seeing the bribe as corruption, they have described it as a “give and take” and instead of paying a bribe, some say they see the bribe as a “thank you for lowering the tarrifs/fees”

“Thick” Borders (4)

Government checkpoints and more restrictions are opportunities for corruption to fester and therfore make trade harder aka make borders “thick”

→ what happens? corruption hinders access to foreign markets 

Procurement and Concessions: Motivations to Bribe (5)

Motivations to bribe:

• Getting included on the list of pre-qualified bidders

  • Make a public tender

  • Hey everyone we need x amount of apples, put in your bids of the lowest amount you'd let us buy

  • Gov obviously wants to put some requirements on your company to allow you to buy

  • You would then pay a bribe to an official for the public tender, so you get on the list of apple buyers
    

• Getting insider information about something

  • Who's gonna provide the good?/ Who’s gonne be the one to provide the concession 

  • I want insider info on the tender of what part of the application im applying for a tender for 
    
    

• Structuring bidding so only a single “qualified supplier” wins 

  • Ex: Corrupt public official

    • Pub official says you need a public employee in every state or the computer system you’re selling needs to have xyz feature → only Mr. Bribe’s company has it 

• Getting selected as a winning supplier

  • your bid is still low but they pick  

• to increase prices or reduce quality

  • when you are putting in a bid to supply somthing to the gov, but you want more money to get that, so when you pay the bribe, you get a higher price

• for a kickback scheme

  • Public institution has a public official that wants money (the kickback)

  • the public institution hires a contractor with an inflated contract

  • the contractor then “hires” a “subcontractor” who acts as a middle man

  • the “subcontracter” pays the public official (this is disguised as part of the procedure/contracting) 

  • that payment is the difference from the inflated contract

Procurement and Concessions: Effects of Grand Corruption (5)

Motives for corruption during privatization(5)

• providing insider information

  • when a state owned enterprise is sold, you don’t have full info as to how good/bad it is doing; this insider information bribe will help determine whether or not to aquire the public enterprise

  • you may also know/not know the regulations of the gov owned company

• misrepresenting value

  • saying the company fucking sucks

  • its actually insane and doing good

  • pay bribe to learn of this

• retaining monoply power

  • pay bribes to influenc and make it as best as possible that no new competitotrs appear and you own the market

• other factors discussed above:

  • inclusion on list of pre-qualified bidders

  • structured bidding so only one can get the bid

  • increase prices or reduce quality

Corruption potential by privatization type (5)

• voucher-based mass privatization

  • giving vouchers to the broad population to buy x amount of shares of a company that needs to be privatized, but the vouchers are only given to a very small share of rich people (??? how does this work?)

• Liquidation

  • taking all parts of a firm and selling them induviudally for what they’re worth ??(how is that corrupt?)

Suharto, Grand Corruption, and Stock Price Change(5)

Suharto was once president of Indo and had an insane corruption run (Lebron of corruption); included:

• had his children be the middle men for purchases and gov purches

• had monopolies on huge imports

• children would get subsidized loans

• bankers were afraid of asking for loans back from the children

• had this weird thing called Yaysan- institutions were required to donate to these weird fake charities that Suharto’s family was using as slush funds
  

Stock Tracking:

• Suharto got sick and stuff and had a random visit to a german hospital

• but before that, his son’s comapny he owned went down in stock value becuase of unconfidence

  • these poltiicall connected firms do worse when politics are uneasy

• Big Idea: this is a reverse search of how to measure corruption called the market inference approach

Lava Jato(6)

“Operation Car Wash” a corruption scandal that involved like 1/3 of Brazillian congress

• Petorbras (state owned oil company) was holding bidding

  • big oil fields found far off the coast of Brazil

• contracting companies who were bidding created a cartel and would set prices, cycling and taking turns who got contracting deals

• these contracting companies would pay bribes to state officials to continue getting government issued contracts

• these state offcials then used the money for their own interests like their political campaigns to get re-elected

Mensalao(6)

the mensalao scandal was a vote buying scandal that then current president Lula of the far left Brazillian worker’s party spearheaded where these mensalaos, or monthly stipponds, would be paid to congressmen of brazil to then secure their votes

importance: this happened before lava jato and invited prosecutors to have a bit more of an iron fist when punishing corruption in regard to Lula and the PT

Lula (6)

• Tried to get elected over and over, finally does in 2002)

• part of the far left workers party (pt)

• part of/spearhead of the mensalao scandal

• involved heavily with the Lava Jato Scandal

Petrobras(6)

state owned gas company involved in lava jato-→ would take contractor contracts

high PB execs would benefit from these bribes being paid to secure contracting contracts

Sergio Moro (6)

Once a federal judge who gained traction for sentencing then president Lula to 9.5 years in prison for his ties in Lava Jato

After this setencing, Moro became a public figure drawing the eyes of other poltiicians and soon was appointed by the next president, Bolsonaro, as the Minister of Justice

This resulted in people raising eyebrows at Moro for taking the spot and all of a sudden being appointed to it; question arises of whether or not it was ethical for moro to take the spot

Vaza Jato (Lav Jato Leaks) (6)

a huge volume of classified information has been filtered by The Intercept Brazil, a phenomenon that has been named Vaza Jato. The documents that have been released act as evidence of a political conspiracy by Moro and the other prosecutors, revealing their conversations plotting to end the PT through the abuse of judicial power

• these documents prove/show that Lulas case was not easy and closed, instead, prosecutors and Moro worked closely to take down the PT workers party through the judiciary

• idea was “they didn’t want him taken down for corruption but instead because they wanted him to not win president” 

• feeds into the whole conspirarcy about Moro taking up Bolsonaro’s position as Minisiter of justice

Foreign Bribery, by industry (7)

Chart showed that extractice materials (oil, drilling, coal, metals, stone, gas, fracking, etc) were the highest % of bribery cases as well as the highest bribes as % of the sector transational value

• so most common and largest bribes

• this points to insutries like oil and logging etc

relationship between corruption and oil (7)

Relationship between oil and corruption is not causal BUT it happens often:

• we typically see oil rich developing coutnries to have a large amount of corruption (non-oecd)

Contributing Factors to corruption with oil:

• scale of revenue gained:

  • in large govs there are more opportunities for corruption, espeically when oil production makes up so much of the GDP

• Source of revenues (where it comes from)

  • people will not be as upset if the money that is corrupt/being funneled to public officials is not their tax dollars is the money being corrupted (rather than just rando oil money)

  • when people do not demand as much because the money to fund things is not coming from their pockets, rather, the money is coming from the oil industries → it makes it a lot easier for officials to take the money from these oil industries in a corrupt manor due to the lack of public pressure

• Size of rents (of oil)

  • economic rent is the amount of revenue getting beyond the expected profit margin; the extra money amount earned by a resource (e.g. land, capital, or labor) by virtue of its present use

  • If you make t shirts for 5 cents and then someone offers you a bribe→ fuck no i barely make shit (profit)  to even take the bribe → if there is large economic rent, there is leeway to take bribes/corruption → but if you make a shit ton of money with big wide margins, it becomes easier to take bribes

• Secrecy of Revenues (money going to the gov)

  • tends to be less transparency if countires produce more oil

  • state owned enterprices may be a lot easier to hide

• Natural monopolies— oil refineries are typically really expensive to upkeep/start, so there is usually (naturally) one company that just does it all and ends up becoming a lwk monopoly

• Strategic importnace

  • everyone needs oil, oil = power

rentier effect (7)

People do not get as upset at corruption if it is not their tax dollars being used for the corruption

united nations oil-for-food scandal(7)

• was set up after iraw had invaded kuwait

• many people were very poor after the war

• main idea of the program was to allow some sale of iraqi oil ONLY if the sale was used to then support the people of iraq with food/water/medicine

• a large poriton of the iraqi population were dependant

allegations of kickback scheme

• saddam hussien would sell oil to small firms at lower prices via vouchers

• these firms would then resell the oil at inflated prices

• iraqi regime then got that kickback and pocketed it 

• oil was also commonly smuggled outside the country

deforestation and corruption (7)

redwood corruption in nigeria (7)

Lot of logging in Nigeria and parts of africa

typica scheme:

• gov will take over an area claiming they will protect the area from logging

  • this ended up opening up avenues for corruption

• Countires that tend to have higher corruption tend ot have more logging corruption

foriegn corruption practices act (8)

• makes it illegal for government officials to engage/prohobits the use of brubes

• officials are not allowed to make, offer, promise, or authorize any payment they know will be used as a bribe

• the FCPA applies to companies that do business in the US and Abroad

walmart in mexico (8)

Mexico was the biggest retail store in Latin America

• in the early 2000s, Walmart was very eager to keep expanding like crazy in Mexico

• a lot of walmarts were popping up in random areas and raised eyebrows, espcially when random permits were expedited super quick and hundreds of sus payments were made

• what did walmart do? they got their own internal investigator who was allegedly also involved in the scheme itself, to investigate bits and pieces but “found” barely any evidence 

• then the NYT does their own investigation to find the truth 

• Walmart FCPA compliance costs: 

  • walmart had to increase the global compliance program

  • over $800 million spent on compliance program increases to please the DOJ and so the FCPA doesn’t fine the shit out of them

Gestores (8)

these were middlemen in both Mexico Walmart Scandal and in Argentinia vote buying scandals

Mexico:

• usually got 6% of the bribes

• walmart had a systematic code that these gestores would use to inform top executives

Argentina:

• these guys dont gaf about the politician and just want a bag lowkey W

Health care corruption in china (8)

Clientelism (9)

vote buying (9)

secret ballot puzzle (9)

turnout buying (9)

clientelism and development (9)