(Svenson) Corruption
Baked into how country works economy, country, culture. Not just bad actors but a symptom of a bad system
(1) What is Corruption?
Misusing public office for private gains
Outcome: a reflection of a country's legal, economic, cultural and political institutions
Response to either beneficial or harmful rules.
Examples:
Bribes
Higher transaction costs than taxes, because of the uncertainty and secrecy that necessarily accompany bribe payments
Similar to lobbying to influence decision-making that is firm specific
Not the same as rent-seeking
Not always public corruption, can be in private sector
Also lobbying, campaign contributions, and clientelism Which Countries are the Most Corrupt?
Ranked by Transparency international survey index, etc.
How reliable each country seems
Not hard data
How much people trust government
different rankings have similar results
Consistent naughty list: Somalia, South Sudan, Venzuela, Yemen, Libia, and other countries in chaos, developing, or switching from one type of economy to another
(2) Which Countries are the Most Corrupt?
Main Types of Corruption Indicators:
Indicators of corruption from private risk-assessment firms (International Country Risk Guide)
Likelihood of high government officials demanding special payments and the prevalence of illegal payments across government levels
Averages of ratings from perception-based sources (Corruption Perception, Transparency International)
Overall extent of corruption and not expected impact. Political risk involved in corruption. Depends on public tolerance towards corruption
Control of Corruption index
Overall extent of corruption and not the expected impact
Firm costs in “unofficial payments”
International Crime Victim Surveys
(3) Common characteristics of countries with high corruption?
Institutional-based characteristics
Low Income and education level → low institutional quality → corruption more likely
Institutions are persistent and inhertied
Designed to benefit colonizers
More regulations makes it more likely
religious institutions
Economic/political institutions restrict market and political competition
Economically
Openness to external competition from imports
Regulation of entry for new businesses
Politically
Freedom of press
Right to re-elect politicians
Form
Empirical characteristics
Corruption is closely related to GDP per capita and human capita
Substantial variation in corruption levels across countries, partially explained by degree of market and political competition
(4) What is the magnitude of corruption?
Firm operational costs
Uganda: 80% of businesses admitted to paying bribes. Corruption becomes a cost for doing business
Price comparisons
Millions of dollars that could’ve gone towards helping people
Making hospitals and education more expensive than it has to be
Public procurement and service delivery
(5) Do Higher Wages for Bureaucrats Reduce Corruption?
Sweden had a history of corruption until it increased civil servant pay + deregulated
Increased government pay so they’re less tempted by bribes and incentivize honest behavior
Theoretically ambiguous and depends on factors such as the presence of third-party enforcement and nature of bribe negotiations
Mixed empiricial evidence
not a guaranteed solution, esp. for developing countries with weak institutional frameworks
Effective monitoring and enforcement mechanisms are crucial for success of anti-corruption strategies
(6) Can competition reduce corruption?
Economic Competition
Level of bribes demanded from each firm is determined by how vulnerable those firms are to exiting the market due to increased bribe demands, not the overall number of firms or the natural level of competition.
Regulations that restrict market entry empower officials to demand and collect bribes
Deregulation may then work, not directly because you’re increasing competition but because you’re limiting officials’ ability to extract bribes
Political competition
Deregulation may decrease corruption by reducing officials' ability to demand bribes, rather than by directly increasing competition
Potential of people to seek government support through a different official could lower level of bribes
However, this only works if multiple officials are required to approve a project, with each having the power to halt it, bribe demands could become exorbitant.
Does not guarantee public service delivery
But not necessarily because Uganda’s educational system made it so by going to different schools, there was no collective action to address problem
No organized resistance = potentially more resources can be gatekept/extracted
(7) 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
But in developing countries, these institutions themselves are often weak and susceptible to corruption
Simply allocating resources to these institutions is not a viable solution for reducing corruption
Ex: Russian
police given more expensive weapons sold weapons to criminals at higher prices
Ex: Singapore and Hong Kong
Establishment of powerful independent anti-corruption agencies
Reform to substantial increase civil servant pay relative to the private sector.
Regular rotation of public officials so they couldn’t build corruption networks
Rewards for officials that refuse bribes and report bribery
Simplification and publication of rules and procedures for fewer loopholes to exploit
Elimination of unnecessary permits and approvals
Reduction/removal of fees (import duties)
Alternative strategies for combatting corruption:
Public enforcement of public laws
Citizen enforcement and access to information
Delegation and “integrity for Hire”
Outsouring g special functions, liek customes, to private firms with reputation for integrity to avoid bribery
Sucessful anti-corruption efforts need a multi-faceted approach that combines robust enforcement with complementary reforms
Top political leadership is crucial for successNot just about adding more cops
Not just about catching bad guys but changing the whole game
Not about government doing more but doing things differently
(8) Does corruption automatically hurt a country’s economic growth?
In countries burdened with bureaucratic inefficiencies and rigid regulations, sometimes bribery helps firms expedite processes and bypass obstacles… but those are just symptoms of underlying issues
Slower economic growth
Discourage entrepreneurship and investment. Reduced profits, incentives, or expanding. Divert towards informal sector wherein not public service relian.
“Fly-by-night” technology
Misallocation of resources in bribery rather than productivity improvements
Erosion of human capital. People will be drawn to use skills careers in private sector where they can exploit and personal gain rather than in private productive sectors of economy
Empirical evidence
Africa: Subsistence farming to avoid corruption, resulting in lower productivity and living standards.
Peru: High start-up costs and corruption forced entrepreneurs into informal sector, limitng growth prospects
Indonesia: Firms in political connections and rent-seeking as means of growth
Pakistan: Firms connected to politics were more likely to default on loans so that politicians may use business ventures to access public resources through corruption
India: Bribes used to allocate water and contracts. Increased competition = multiple officials extract rents
Uganda: Bribery has large detrimental effect on firm growth rather than taxation
No macro evidence since corruption has various effects on growth
BASICALLY
Corruption is generally viewed as a detriment to economic growht
Micro level supports negative impact of corruption
Hidden tax to businesses, adds costs and uncertainties
Businesses purposely don’t enhance tech because more success may lead to more bribes
therefore, slows down progress and innovation
Smart and capable people feel that it’s better to exploit, prevents them from starting business
Rewards the wrong kind of behavior
Not a clear link because measuring corruption across a whole country is hard + so many factors to growth of an economy
But the benefits of removing corruption surpass far beyond numbers but people’s lives
Solutions
Block-chain
Every government transaction, contract, and permit all for public to see
Huge step
Ai to flag suspicious data
Tech is only a tool, we need to solve things at the root causes
Addressing the culture of lack of accountability. Change both minds and systems
Back-up people already on the frontlines (data tanks, journalists)
Vote for leaders doing the right thing
Hold elected officials accountable
Silence is corruption’s best friend
So baked into the culture it becomes invisible that normalize corruption
Conscious choices
Historical Contexts
Latin America
Corrupt systems set-up by Spain left an institutional precedent
Weak governments, constant political turmoil, huge gap between rich & poor = large breeding group for corruption
Common: Bribery, embezzlement (huge amounts of money disappearing, cronyism), electoral fraud (rigging systems)
Consequences: 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
Poverty makes people vulnerable and corruption keeps them trapped.
Anti-corruption agencies
Chile really cracked down on corruption, emphasis on accountability mechanisms
Africa
Corruption is a real plague
Common faces: Bribery, embezzlement, cronyism
As just the way things work, everyone’s doing it so it’s not really wrong, if normal, where do you draw the line?
Erodes basic values of honesty and trust
Being honest as the only way to survive
Money that goes to roads, healthcare, infrastructure instead goes to public officials and already wealthy
Being dishonest as the only way to survive
Not just individuals being greedy but a system set-up to only benefit a select few
Foreign investors don’t want to invest in countries they dont want to put money where it’ll just disappear
People don’t believe in courts and take matters into their own hands
Affects everything
Rowanda’s 0 corruption policy
Strengthened law enforcement to really go after bad guys
Pushed hard for transparency and hide shady stuff
Role of civil society to make sure public officials are kept an eye on. watchdogs
media exposes corruption
Scandinivia
High levels of trust. Corruption is not only rare but frowned upon. Deep culture of trust in each other and government. Mindset to do everything with honesty. virtuous cycle.
zero tolerance. deal with swiftly and efficiently. dont even bother we’ll catch u and it’ll be bad.
Strong institutions. rule of law. level playing field. nobody’s above the rules. access to information is the norm. free press. best disinfectant when everyone can see what goes on.
Shows it’s possible to build a society where corruption is the exception, not the rule
Georgia
Peaceful rose revolution (2003). Serious push for change with hard reform.
E-governance: Harder to be corrupt by simplifying bureaucracies and institutions and putting everything out in the open. Hard to operate in the shadows.
Made police force that served the people, not just those in power
also up to people to demand for better
Rapid dramatic change i spossible
Have clear vision
Asia
Singapore:
Efficient and strict. Low corporation because of tough laws, anti-corruption agency, and culture of honesty. Proof where government is created where corruption isn’t tolerated
Comes at the cost of individual rights.
Strong centralized government has trade-off
India
Corruption is deeply rooted
Bribery is common practice. Need to grease the wheels
Embezzlement, cronyism, complex
Any means necessary, even if it’s dishonest
People pwoer drives change
Can be countered, even in places with strong history embedded in it but strong leadership, need political will and commitment, and citizen’s demand of refusing to tolerate
Why believe in anything of leaders are also breaking the rules
Rots foundations of a fair society
Political and social poison that rots a fair society
Each country has different context and history. Not about copying but taking the principles and embodying.
Tools to combat corruption
Education - people to know and understand their rights, what corruption looks like and how to report it safely
Access to information - free press without being threatened or shut down. can report truth without fear
Technology - reporting corruption anonymously, track government spending, leveling playing field, mobile money platform, less f2f interaction, less shady stuff, data analysis tools for shady businesnes
shining a flashlight on dark corners
Ai detect massive data sets as digital detective. more thorough than any human
International groups involvement - Support & funding in anti-corruption programs. Global effort. If corruption surpasses borders, so its solutions have to as well
Strong leadership. Transparency. Strong culture of trust. = Virtuous cycle
Instead of just punishing it when it happens, we focus on preventing it in the first place
Understand why people become corrupt. triggers & motivations: personality, norms, less likely they will choose corruption in the first place. honesty reward. corruption is loser’s choice.
Everyday acts of corruption
Starts with small corruption that builds a culture where it’s normalized
Allows bigger compromises to slide in later on
Gives permission for behavior to send
Be willing to said something when it’s awkward