ZERO TOLERANCE FOR CORRUPTION

Concern about corruption

Aristotle(350 B.C.E.). The Politics

“to protect the treasury from being defrauded, let all money be issued openly in front of the whole city, and let copies of the accounts be deposited in various wards”

Concern about corruption

“Countries at the bottom need to adopt radical anti-corruption measures in favour of their people. Countries at the top of the index should make sure they don’t export corrupt practices to underdeveloped countries.”

– José Ugaz, Chair,Transparency International

Talking about CPI and Corruption

Some selected countries with CPI score and rank

Country CPI 2014 CPI 2009 CPI 2004Denmark 92 (1/174) 9.3 (2/180) 9.5 (3/145)

New Zealand 91 (2) 9.4 (1) 9.6 (2)

Finland 89 (3) 8.9 (6) 9.7 (1)

Sweden 87 (4) 9.2 (3) 9.2 (6)

Afghanistan 12 (172) 1.3 (179) -

Sudan 11 (173) 1.5 (176) 2.2 (122)

Korea (North) 8 (174) - -

Somalia 8 (174) 1.1 (180) -

Bangladesh 25 (145) 2.4 (139) 1.5 (145)

Nepal 29 (126) 2.3 (143) 2.8 (90)Sri Lanka 38 (85) 3.1 (97) 3.5 (67)

India 38 (85) 3.4 (84) 2.8 (90)

Source: http://www.transparency.org/research/cpi , as of 2/9/2015

Corruption

CorruptionPast Present

• Temporary• Exceptional ‘problem’• Wealth and power• Can be eradicated• No positive aspect• Local agenda• Women in corruption control• Singular focus• Cannot be measured • Decentralization, privatization, deregulation are the tools for control• Anticorruption agencies• Aid: a panacea• Democracy

• Permanent concern• Universal• Rules and roles• Cannot be totally eradicated• Some positive aspects • Global agenda• Gender and corruption• Demand and supply side anti-corruption• Can be measured• One size does not fit all

• Anticorruption agencies: Rhetoric vs Reality• Aid: a challenge• The cancer of corruption and governance

Corruption

Corruption Difficult to define (Model) Problem to measure (Measure)

Certain illegal acts such as fraud, money laundering, drug trades, and black market operations constitute/do not constitute corruption? Fraud, waste, and abuse (after 1970s)

Corrupt is that which is considered corrupt at a certain place and at a certain time.

Corruption

The misuse of public office for private gain. World Bank

The misuse of entrusted power for private gain. Transparency International

Acts in which the power of public office is used for personal gain in a manner that contravenes the rules of the game.

Exercise of official powers against public interest Abuse of public office for private gains

Survey findings

Why Zero Tolerance for Corruption?

Corruption

HD/GG/RBA

Human Developm

ent

• Income and wealth• Education and health care• Basic human needs• Decent standard of life• Awareness• Bargaining power• Freedom • Participation

Corruption as legal and appropriate behaviour Vs Illegal and inappropriate

• Weakens national institutions• Injustice in courts• Widespread economic inefficiency •Undermines efforts at poverty reduction • Diverts goods and services targeted for the poor to well -off and well- connected who can bribe• Ignores secured livelihoods• Inequitable social services

Hits hardest at the poor- who often depend heavily on

public services and are least able to pay bribe

Survey findings

Forms of corruption

Different forms of corruption

Demand and supply side

Grand and petty

Political/ legislative and bureaucratic

Private and public sector

Higher-level and lower-level

Patrimonialism and clientelism

Nepotism and favoritism

Individual level and Organizational level

Policy and administrative

International and national level

State and society levelTop-down and bottom -up

Forms/types of corruption

Political Leaders

Legislators

Appoint (2)/(G)

Elects

(1) (G) Bureaucrats (3) (G) Enact Laws

Make public policy Provide (2) (P)

services

PopulationReceives benefits according to each member’s

ability to influence each decision maker

Figure showing corrupt relation, Source: Jain, 2001.

Top-down and Bottom-up Corruption

TOP-DOWN CORRUPTION

“corrupt high levels buy lower levels by sharing a portion of gains”

More happened in shared-power systems

BOTTOM-UP CORRUPTION

“low level officials share their own collected bribes with superior levels to avoid detection or punishment”

More happened in centralized or dictatorial regimes

Which one is prevalent in Nepal?

Corruption: Organization and Individuals

Fig:

Source: Pinto et. al, 2009.

Survey findings

Causes of Corruption

Why are some officials corrupt while most are not? Why are some officials not-corrupt while most are?

Causes of Corruption

Causes of corruption

In lower income countries (Nepal)

In higher income countries (Korea)

•Public choice approach•Institutional approach•Moralistic approach

Causes of Corruption

Public choice theory Individual tries to maximize his or her utilityPotential benefits > potential cost

Bad apple theory Greed or wrong values: a cause of corruption

Organizational culture theory

Group culture

Clashing moral values theories

Conflict of interests, Financial interestsPublic role and private obligations

The ethos of public administration theories

Culture of public management/scientific mgmt.

Correlation theories Related variables

Source: Graaf, 2007

Global Society and Corruption

Multinational corporations: “supply” Foreign public officials: “demand” 5% of the exports to developing countries ($ 50 to

$80 billion per year) goes to corrupt officials (Moss as cited in Darrough, 2004)

5 to 30% of all public funds (Hamra, 2000)

Survey findings

Determinants of Corruption

Discretionary powers; Value of economic rents; and Deterrents to corruption (detected, prosecuted,

punished) Net utility of corruption= f { Income from corruption,

legitimate income, strengths of political institutions. moral and political values of the society, probability of

being caught and punished)

The level and continuation of corruption

A, B, & C are 3 equilibrium points. A & C are stable but B is not. It does not pay to be corrupt at A, and honest at C. B is indifferent (between being corrupt and honest).

Source: Bardhan, 1997

No one is corrupt

Proportion of a given total number of officials (or transactions) that is known to be corrupt

Marginal benefit for a corrupt official

Marginal benefit for a honest official

The benefit of an honest official is higher than that of a corrupt official when very few officials are corrupt

But it declines as the proportion of corrupt officials increases

The M curve goes up at the beginning when more and more officials are corrupt but ultimately declines

Becomes even negative when almost all others are corrupt

Consequences of corruption

Positive effects? (2 hypothesis) Grease-the wheels-of bureaucracy Sand-in-the-machine

Corruption and bureaucratic efficiency Effects on resources allocation

Cost-enhancing consequences of corruption Project selection by a corrupt agent (pork barrel) Corruption and allocation of entrepreneurial talent

Corruption and distribution of income and wealth

Consequences of corruption

Table: Impact of corruption on efficiency

Grease the wheels

Sand the wheels

Effective institutions

Detrimental

Detrimental

Ineffective institutions

Positive Detrimental

Where does Nepal lie?

Collective Action Dilemma

Action: A

Honest Corrupt

Action: B

Honest (H, H)

(H, C)

Corrupt

(C, H)

(C, C)

South Korea, PNG and Nepal

South Korea PNG Nepal

43rd/174 (CPI 2014= 55) 145/174 (25) 126/174 (29)

Corruption : still a problem Corruption : major problem

...

Challenges

1. Excessive bureaucracy2. Inconsistent application of laws and regulations 3. Non-transparent regulatory processes 4. Many have been found guilty of corruption in recent years, sometimes for offences committed years earlier.Addressing corruption1. Sophisticated e-governance system2. One-stop shops to reduce opportunities for bribery3. Anti-corruption agenda

1. Corruption is institutionalized and seen as a norm2. Political culture of the ‘big man’ system3. Weak legal system and institutional apparatus to fight corruption.4. A rich patron-client system in place for both the agents and the principals, and the rent seekers or brokers.

…

Solutions and remedies

Dichotomous policy ideals: panacea or palliative?

Are recommendations long term solutions, or short-term patch work? Corruption cannot be totally eradicated. Part of human

nature. Humans by nature are socio-political beings, with an economic appetite for utility maximisation.

Policy options for fighting corruption abound without an end insight.

However, we can control corruption as economies continue to advance overtime, with newer and more improved systems and technologies to detect and curb corruption.

Cont.

A ‘lawyer’s approach Toughening laws & legislations

A ‘businessman’s approach Offering incentives to officials to disengage from corruption (buy out corruption).

A ‘market’ or an ‘economist’s approach Introduce or increase competition

An ‘institutional’ approach Genuine political/leadership commitment

How and what?

Anti-corrupti

on

IdeologyLawsRegulationsAdministrative strategiesInter- and intra-organizational checks and balances

Institutions/mechanisms aimed at:• Defining• Identifying• Preventing• Punishing

official corruption

Lesson learned from CPI top ranked countries

Administrative culture: rules are brief, clear and strict few level of bureaucracy autonomy on the local level collective decision system job security (a public official‘s bread may be

thin but at least it is long) the presence of women in decision making

post

Lesson learned from CPI top ranked countries

Transparency of the work Supervision of decision:

- Justice and the Parliamentary

Ombudsman Law enforcement:

- National Bureau of Investigation

Lesson learned from CPI top ranked countries

Social factors: equality in income welfare society high standard of living (the higher the

standard of living, the lower the level of corruption)

media

Action

PromotionalPreventive

Punitive

Punishment

ReformEducation

Conclusion: How is it possible?

References

Bardan, P. (1997). “Corruption and Development: A Review of Issues.” Journal of Economic Literature, 35(3): 1320-1346.

Graaf, G. D. (2007). “Causes Of Corruption: Towards A Contextual Theory Of Corruption.” Public Administration Quarterly,: 39-86.

Jain, A. (2001). “Corruption: A Review.” Journal of Economic Surveys, 15(1): 71-121.

Pinto, J; C. R. Leana and F. K. Pil. (2008). “Corrupt Organizations Or Organizations Of Corrupt Individuals? Two Types Of Organization-level Corruption.” Academy of Management Review, 33(3): 685–709.