European Affairs

European Affairs

Spring 2000

 

Corruption Should Be Treated as a Problem of Bad Governance
by Daniel Kaufmann

There are three very important steps that must be taken if corruption is to be successfully tackled in any given country.

First, corruption must be "technocratized," or presented as if it were a technical matter, such as a major macroeconomic or trade problem, rather than an issue of morality. Fighting corruption should be treated not very differently from other attempts to improve a country's governance.

Second, the country's leaders - and international leaders, too - must be committed to solving the problem. And third, all the affected sectors of the country's society must participate in the effort, so as to achieve consensus building and collective action. The aim is to depersonalize and de-emotionalize the issue.

The idea is that one does not simply attack corruption by attacking corruption, but by addressing the wider problems of the way the country is run. Russia is in its twelfth or thirteenth anti-corruption campaign, and the results do not seem to have been very significant.

The real challenge is to identify the fundamental weaknesses in the country's public and private institutions that lie behind the problem. For that reason, we have basically tried to dissect the notion of governance into different interrelated components, such as the rule of law, the regulatory system and political stability, so as to begin tackling the fundamentals.

The former Soviet Union is in particularly dire straits in terms of these measures of governance, as well as of other corruption indicators. According to one "bribe fee list," the average "unofficial fee" required for registering a company in Russia is $288. Each telephone line installation costs $1,071 in such payments, and the "fee" for each regular visit by the tax inspector is $250.

Central and Eastern Europe is much better off. As a bloc, the region is still far from European Union or OECD standards, but there is considerable diversity between the different countries and some are fast approaching Western standards.

Various indicators show that, in only ten years of transition, many countries in Central and Eastern Europe have leapfrogged over Latin American standards. I can get away with saying that because I come from Latin America.

That is a source of hope; there has been enormous progress in a relatively short time, and it has been particularly striking in countries like Poland and Slovenia - in marked contrast to some countries of the former Soviet Union. According to some measures, the quality of the rule of law in the former Soviet Union is worse than in any other region of the world, including sub-Saharan Africa.

When we go into the specific institutional problems that lie behind corruption, we find that customs services are among the most likely to be corrupt. How much of an obstacle that presents to business varies greatly from region to region. But here, too, the former Soviet Union comes out as even worse than Africa.

With this type of empirical approach, we have also established that governance, in general, and corruption, in particular, matter enormously for socioeconomic development. It is not just that corruption impedes the growth of income and investment growth, it also has social consequences. The latest data clearly show, for instance, that corruption tends to result in higher levels of illiteracy and infant mortality.

Among the underlying causes of corruption, the data increasingly show that a lack of civil liberties is an extremely important factor. Research in Latin America also suggests that corruption is higher in government agencies in which people are not hired, dismissed or promoted acccording to merit. There is not such a close connection, as is often thought, between corruption and low wages.

In the former Soviet Union, we are finding significant "political capture" - that is to say, large companies and conglomerates are able, through bribery, to "capture" the political, economic and legal decision-making processes. Corrupt vested interests are effectively able to purchase laws and government decrees to suit their interests and exert influence over the decisions of the Central Bank.

The wide extent of these practices is suggested by the fact that in some countries of the former Soviet Union, 50 to 60 percent of companies say they are negatively affected by "political capture" operations by their competitors. This is a way of measuring grand corruption, as opposed to petty bribery.

Another conclusion suggested by our data is that there is absolutely no difference in the behavior of domestic and foreign-owned companies in the same country. There are significant differences among countries, and some variations according to the source of the foreign ownership, but, in general, 50 percent of companies in countries in transition toward market economies have to bribe to survive.

Equally, we are finding that there is so far absolutely no evidence that companies based in countries with strict anti-bribery laws are less inclined to offer bribes. That raises serious questions about future work on international anti-corruption agreements, and their monitoring and implementation.

Let me conclude with five points.