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Working Papers and Articles

Corruption, Governance and Security: Challenges for the Rich Countries and the World

by Daniel Kaufmann (September, 2004) - Chapter in the Global Competitiveness Report 2004/2005

 


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Corporate Corruption/Ethics Indices
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Traditionally, national governance and corruption challenges have been seen as: i) particularly daunting in the poorer countries, with the richer world viewed as exemplary; ii) anchored within a legalistic framework and focused on formal institutions, iii) a challenge within public sectors, and, iv) divorced from global governance or security issues - seen as separate fields. Through an empirical approach based on the analysis of the 2004 survey of enterprises by the World Economic Forum, we challenge these notions and portray a more complex reality. We suggest that the undue emphasis on narrow legalism has obscured more subtle yet costly manifestations of misgovernance, which afflict rich countries as well.

Emphasis is also given to measurement and analysis of misgovernance when the "rules of the game" have been captured by the elite through undue influence. We construct a new set of Corporate Corruption and Ethics Indices, encompassing forms of (legal) corruption not subject to measurement in conventional (illegal) corruption indicators. It is found that manifestations of "legal corruption" may be more prevalent than illegal forms, such as outright bribery, and particularly so in richer countries.

Further, we find that governance constraints, and corruption in particular, is a key determinant of a country's global competitiveness. These findings challenge traditional notions of what constitutes the country's 'investment climate', and who shapes it. It is also found that illegal forms of corruption continue to be prevalent in the interaction between transnationals of the rich world and the public sectors in many emerging countries. Finally, we suggest an empirical link between governance and security issues.


Access a related document: Legal Corruption

 

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The comments below reflect in part the ongoing e-discussion on myths.

Readers' Comments:

My comment is to reduce corruption and reduction of poverty. When there is political gain, we have good governance. Anonymous

The cases in the affected countries presents a paradox, as is the case in Nigeria. The laws and anti-corruption agencies are not meant to deter corruption but to clamp down on political enemies and achieve personal-non-national interest. The level of corruption in these countries increased with increase in the number of legislations, thus by these laws corruption is legalized. The corrupt individuals are the selected messiahs. I agree completely that the external views of this cover up reality, corruption-in-and-within-governance, is the determinant of competitiveness. What is required is an internal change in attitude before the linkage. Anonymous

The major problem is normally the lack of sensitization at the top and middle level of corruption and governments. There is no equation of survival and profits. Corruption and uncertainty about the benefits of non corruption lead to further corruption and poverty especially in the less developed countries. There is the myth of race inter-connected with a long history of neocolonialism and ungodly dependence. To us the notion of AID as it stands is mere corruption without representation. Thus demy thing must be taken carefully or create other myths. Who implements the international instruments against corruption and human rights abuse?  Anonymous

After a careful reading of the views presented, I am of the opinion that the issues of governance, corruption, economic development and security are so completely intertwined that disentangling them is very daunting and problematic.
One denominator, I believe, that influences these issues is 'power'. There is a current global obsession for 'power' that has a potential for destroying all the efforts to create a global congenial and harmonious social environment. President Bush describes his use of power as exporting freedom to all corners of the globe. This is a very contestable stance.
It is the desire to acquire and exercise power that inspires that propensity for bad governance and corruption. After all if everyone had the same resources the parity created thereby would make it impossible for anyone to be dependent on the other and probably provide more room for dialogue, negotiations and compromises. But that is utopia.
I guess, therefore, that we might have to live with bad governance (as in some Presidents scheming to stay in power perpetually), corruption (in all its legal and illegal forms), terrorism (as a demonstration of resistance to other power groups and a reaction to a lack of concern for the survival and interests of others) and failing economies (due to efforts by vested interest groups to maximize profits at the expense of others and often the environment) because the urge for power would drive governments, nations and individuals to do all it takes to dominate others for the sake ot it. The breakdown of all the peace talks in many of the global hot spots give credence to this. What we need more of now is to broaden the definition of the issues and to identify the underlying causes and influences that create bad governance, corruption and terrorism. For me President Clinton in his presentation, after 9/11 at the John Dimbleby memorial lectures in London, set the stage for a dispassionate look at these issues, when he called for a new approach to the concerns of the underprivileged and vulnerable groups. We may also have to revisit his time-tested views if we are interested in jump-starting our efforts at addressing the problems. Charles Aheto-Tsegah, UNV Training Specialist, SASVO, University of Pretoria, South Africa

I agree with the sentiments expressed in this article. Legalizing a transaction that is illegally achieved is materially corrupt in itself. Subtle corrupt acts may give rise to the larger corruption and must be forestalled eve if it is committed by a trusted rich country. Anonymous

I’m glad someone is beginning to challenge the idiosyncratic views about public management especially the causes of mismanagement in the 3rd world. One of the myths about public management is that western models are the models to emulate. therefore good governance is as prescribed by western scholarship. indicators so far are to the contrary. I thank Kauffman for the move. After all he has always led in anti corruption issues. Keep it up. This forum will help scholarship to interrogate the fallacies about corruption in Africa. Good luck. Anonymous

Governance and security both have a hand in corruption in any given country. with poor governance comes insecurity and with insecurity comes corruption. think about it. it all revolves around policies that are not put in place to act as guidelines in the manner in which a country carries out their political as well as social issues. Anonymous

I find these findings absolutely fascinating. I would like to read more on this. Anonymous

This is a great conclusion. It is a very important conclusion for the African countries. Our leaders will be happy to know that there are both legal and illegal forms of corruption. Also, these forms of corruption are also presents in developing countries. In Guinea (Conakry), West Africa, we have done our first corruption and governance survey. We are finalizing the report for its dissemination. This conclusion will help us to have the total involvement and adhesion of our government in fighting the corruption. If they know that even in developed countries, there are "legal form of corruption", they will be encouraged to support the anti-corruption strategies. Thanks again. Aliou Barry, Director of Stat View International, Conakry, Guinea

I personally like the new construct on 'legal' and 'illegal' forms of corruption. That in itself portrays the efforts to give credence to corruption and allow its practice in so-called rich countries. Unfortunately, a debate on the meaning and the characteristics of the legal and illegal forms of corruption might divert attention from the real issues at stake, which is who determines the investment climate of countries, individual countries or external interested countries and entities with specific vested interests that are not linked to the development of the investment-recipient country but their own. In most cases so-called poor countries are considered incapable of defining their own investment climate, which certainly would be based on their own experiences and their decision to accept or reject perceived modernist inventions of economic development. Consequently, though we refer to globalization as a significant feature in global development, we are infect referring to the growth and intensification of dependence of the labeled poor countries on the so-called rich countries who eventually determine what is the world economy. My take on this is that with regard investment and governance (even concerning the linkage with security issues), particularly with reference to efficiency and effectiveness, corruption (legal and illegal) has become an integral part of governance, acting as a negative impact that prevents politicians from making right choices. Anonymous

Though I generally agree with the views in this article, I feel that a very fundamental issue that needs to be addressed and understood is this: "Ethics, morality, and corruption are intrinsically inter-woven, and are fundamentally personal and individual traits". For instance, a person brought up with a strong sense of values and a firm character is less likely to be corrupt than one with loose or no values. Similarly, the economic issue is an important one. For a hungry man, the most important thing is to fill the stomach; he is not too much worried about the means adopted. Beyond the level of the individual come the group, societal, and organizational parameters. Prof. Parameshwar P. Iyer, Dept of Management Studies, Indian Institute of Science, Bangalore

The piece does indeed touch on something not hitherto examined before that has a ring of the reality to it; but could we get a deeper examination of the issues. For instances I would like to see more than a mere mention of an empirical link between governance and security issues. This is a very important issue for many countries trying to grabble with the growing tentacles of the narcotic trafficking and money laundering trades. I'm sure there is something there but could we get more? Sheila Holder, MP, GAP-WPA

The poorer countries feel the burdens of misgovernance and corruption the most, as compared to the richer/privileged countries. the cries of the oppressed people loudly heard and the decadence of their dwindling economies is easily seen in this fastly growing global economy as they are being left behind. Girma Mitiku, Coordinator, ATN & iEARN-Ethiopia

There should more on-line free courses about corruption. Anonymous

Congratulations for your long overdue discovery of these "governance myths" and a loud hurrah for spelling out myth No.1 and its related myths Nos. 1a-1b-1c! Many thanks for your past endeavors. I now look forward to the development of your new pilot series! Juergen Krombach

What about looking at the "myth" that specific poverty eradication programmes eradicate poverty - while general growth programmes do not? Anonymous

Dear sir,
The issue of corruption and good governance is not confined to the poor countries. It is a challenge even among the rich countries. It is more seen in the poor countries because here the international organizations and the rich countries invest, give aid and loans, In the process it is easy to note the corruption elements in the the process of even simple details as signing of a contract for urgent communal relief materials, Here some corrupt officials will want to benefit even before the aid gets to the targeted community. In developed countries the kind of corruption in the government deals with big economic enterprises where maybe there is contract to supply new types of
fighter jets. The developed countries corrupt the leaders in the poor countries where may be a country want to establish a defense base, more so if one country feels there could be another power needing to do the same. Therefore I would rather say that in the poor countries it is also easy to note because the donors, the rich countries and the international organizations are also the ones that hold the information power. Whether in a poor country or rich country corruption has to be fought for it leads to poor governance. A.B. Kalokola


Further myths to explore...
Area 1:
Moral typography and the relation to the evolution of governance institutions (political science; legal history; constitutional history; neurology; anthropology; sociology; criminology):
a) "The cultural perception of shameful acts have nothing to do with corruption."
b) "Governance institutions must be developed in order to accommodate local traditions and customs, to avoid ethno-centrism."
c) "The definition of control and independence is a secondary question relating to the importance of setting up enforcement institutions."

Area 2:
The cost of anticorruption programs and their life span:
a) "To combat corruption is a rather limited activity in time and money."

Area 3:
The understanding of the nature of corruption and the necessary sect oral components of an anticorruption program:
a) "Corruption can be eradicated by strengthening enforcement agencies or creating specific anticorruption enforcement agencies."
Fredrik Eriksson

As much as I find the new try to provide a new definition to corruption outside of the old and narrow "abuse of public office for public gain" interesting in its attempt to give a fuller picture, the suggested definition is crude at best.

To make policy decisions in a contestable manner concerns primary rules. But it is quite another to create implementation rules for these policies, secondary rules, normally delegated to a Ministry, excluding any contestability. On the final level we have secondary rule implementation, which may be covered by the proposed definition "exerting undue influence ...in receiving a public good, to the particular benefit of the influencing agent or institution".

However, firstly, all these levels have different definitions of what is "due" and "undue", why these definitions need to be defined for each level.

Secondly, contestation in a pluralistic corporatist state differs from other nations' organizational characteristics, why certain political systems’ characteristics will have to be approved or deemed “undue”. To influence national policymaking will naturally result in that sometimes, some influencing parties will benefit from the resulting policy. Unless the accepted conditions for influencing public policy are covered, how to can “undue” be determined in a sensible way?

Thirdly, influencing to receive a "public good" refers to specifically defined "public goods" that are determined to be produced by for instance the Executive branch. But how does this wording cover administrative decisions on the third level resulting in no "public good" being delivered at all (where it perhaps should have been one). The negative aspect is thus not covered. The reason for that is that there is no referral to "due implementation procedures" covering what specific facts that should produce a specific "public good". Naturally, this administrative procedure and the facts will then have to be defined as well.

As much as one may like to move away from narrow legalistic views and definitions of corruption to get a fuller picture, that is probably something that can only be done intelligibly on a country level, and not on an aggregate level due the inescapable need to connect the term corruption to the characteristics of a political system. The term cannot stand alone, just as little as the old definition's "abuse of public office" can, UNLESS there is a universally accepted definition to “due” and “undue”. Crude definitions get crude measures, exacerbated by left out definition dependencies. Consequently, the comparative value must be questioned. Fredrik Eriksson

O, how economists love statistics! The reference to terrorism is a spurious one. It is true that some acts of terrorism could have been prevented if corruption had not taken place. However, whereas it is the incidence of corruption that the paper tries to measure, it is not the incidence of terrorism that is being measured. Instead, the measure appears to be the threat of terrorism i.e. the mere perception that a terrorist threat exists. 'Perception' is not always a true or good indicator of reality.

Even corruption does not lend itself well to measurement - much of the 'measurement' is, in fact, little more than recording hearsay. The approach of most commentators tends to be too prescriptive - compiling lists of acceptable standards and signing off compliance forms. This merely allows senior corporate management to shift responsibility to others.

Corruption, in emerging economies at least, is not likely to be resolved unless the elite want it to be. But rich country governments find it easier to deal with entrenched elites so rich countries themselves cause corruption to be institutionalized.
If corruption is to be successfully tackled, it is better to concentrate resources where they are likely to do some good - at the level of tertiary education, SME development and encouraging competition. Anonymous

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