corruption detailed notes

8/9/2019 Corruption DETAILED Notes

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Corruption: its nature, causes and consequences

Definition of corruption

Components of corruption

Causes of corruption

Ways of fighting corruption

Definition of corruptionCorruption is a general concept describing any organized, interdependent system inwhich part of the system is either not performing duties it was originally intended to, orperforming them in an improper way, to the detriment of the system's original purpose.Corruption is the abuse of power by a public official for private gain. Corruption, whenapplied to officers, trustees, etc., signifies the inducing a violation of duty by means ofpecuniary considerations.

Specific types of corruption include:

Political corruption, or the dysfunction of a political system or institution in whichgovernment officials, political officials or employees seek illegitimate personalgain through actions such as bribery, extortion, cronyism, nepotism, patronage,graft, and embezzlement. Political corruption is a specific form of rent seeking(which is not to be confused with property rental).

Data corruption, or an unintended change to data in storage or in transit. Linguistic corruption, or the change in meaning to a language or a text introduced

by cumulative errors in transcription or changes in the language speakers'comprehension. A word that has adopted from another language but whosespelling has been changed through misunderstanding, transcription error,

mishearing, etc. Putrefaction ordecomposition of recently living matter. This physical process is

the primary model of the metaphorical meaning of corruption, so advanced statesof corruption in, e.g. a political structure are said to result in their putrefaction

The act of corrupting or of impairing integrity, virtue, or moral principle; the stateof being corrupted or debased; loss of purity or integrity; depravity; wickedness;impurity; bribery.

In broad terms, political corruption is when government officials use their governmentalpowers for illegitimate private gain.Misuse of government power for other purposes,like repression of political opponents and general police brutality, is not considered

political corruption. Illegal acts by private persons or corporations not directly involvedwith the government is not considered political corruption either. Illegal acts byofficeholders constitute political corruption only if the acts are directly related to theirofficial duties.

All forms ofgovernment are susceptible to political corruption. Forms of corruption vary,but include bribery, extortion, cronyism, nepotism,patronage,graft, andembezzlement.While corruption may facilitate criminal enterprise such as drug trafficking, money

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laundering, and trafficking, it is not restricted to these organized crime activities. In somenations corruption is so common that it is expected when ordinary businesses or citizensinteract with government officials. The end-point of political corruption is a kleptocracy,literally "rule by thieves".

What constitutes illegal corruption differs depending on the country or jurisdiction.Certain political funding practices that are legal in one place may be illegal in another. Insome countries, government officials have broad or not well defined powers, and the linebetween what is legal and illegal can be difficult to draw.

Bribery around the world is estimated at about $1 trillion (494bn) and the burden ofcorruption falls disproportionately on the bottom billion people living in extreme poverty.

Types of abuse

Bribery

Bribery requires two participants: one to give the bribe, and one to take it. In somecountries the culture of corruption extends to every aspect of public life, making itextremely difficult for individuals to stay in business without resorting to bribes. Bribesmay be demanded in order for an official to do something he is already paid to do. Theymay also be demanded in order to bypass laws and regulations. In some developingnations up to half of the population have paid bribes during the past 12 months. [3]

Graft

Main article: Graft

While bribery includes an intent to influence or be influenced by another for personalgain, which is often difficult to prove, graft only requires that the official gains somethingof value, not part of his official pay, when doing his work. Large "gifts" qualify as graft,and most countries have laws against it. (For example, any gift over $200 value made tothe President of the United States is considered to be a gift to the Office of the Presidencyand not to the President himself. The outgoing President must buy it if he wants to take itwith him.) Another example of graft is a politician using his knowledge of zoning topurchase land which he knows is planned for development, before this is publicly known,and then selling it at a significant profit. This is comparable toinsider tradingin business.

Extortion and robbery

Main articles:Extortion andRobbery

While bribes may be demanded in order to do something, payment may also bedemanded by corrupt officials who otherwise threaten to make illegitimate use of stateforce in order to inflict harm. This is similar to extortion by organized crime groups.Illegitimate use of state force can also be used for outright armed robbery. This mostly

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occurs in unstable states which lack proper control of the military and the police. Lessopen forms of corruption are preferred in more stable states.

Government officials, especially if involved in illegal activities, are also liable toextortion, both by senior corrupt officials or other criminals. These develop over timeinto complicated networks of corruption, where law enforcement merely serves as a wayto discredit and destroy. The anti-corruption effort is not immune to corruption either:there are examples of cases where officials of an Anti-Corruption Bureau have extortedsums from corrupt officials.

Patronage

Main article:Patronage

Patronage refers to favoring supporters, for example with government employment. Thismay be legitimate, as when a newly elected government changes the top officials in theadministration in order to effectively implement its policy. It can be seen as corruption ifthis means that incompetent persons, as a payment for supporting the regime, are selectedbefore more able ones. In nondemocracies many government officials are often selectedfor loyalty rather than ability. They may be almost exclusively selected from a particulargroup (for example, Sunni Arabs in Saddam Hussein's Iraq, the nomenklatura in theSoviet Union, or the Junkers inImperial Germany) that support the regime in return forsuch favors.

Nepotism and cronyism

Main articles:Nepotism andCronyism

Favoring relatives (nepotism) or personal friends (cronyism) is a form of illegitimateprivate gain. This may be combined with bribery, for example demanding that a businessshould employ a relative of an official controlling regulations affecting the business. Themost extreme example is when the entire state is inherited, as inNorth Korea orSyria.

Nepotism is widely accepted and expected in many cultures.

Embezzlement

Main article:Embezzlement

Embezzlementis outright theft of entrusted funds. It is a misappropriation of property.

Kickbacks

A kickback is an official's share of misappropriated funds allocated from his or herorganization to an organization involved in corrupt bidding. For example, suppose that apolitician is in charge of choosing how to spend some public funds. He can give acontract to acompany that isn't the best bidder, or allocate more than they deserve. In this

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case, the company benefits, and in exchange for betraying the public, the official receivesa kickback payment, which is a portion of the sum the company received. This sum itselfmay be all or a portion of the difference between the actual (inflated) payment to thecompany and the (lower) market-based price that would have been paid had the biddingbeen competitive. Kickbacks are not limited to government officials; any situation inwhich people are entrusted to spend funds that do not belong to them are susceptible tothis kind of corruption. Related: Bid rigging, Bidding,Anti-competitive practices

Effects

Effects on politics, administration, and institutions

Corruption poses a serious development challenge. In the political realm, it underminesdemocracy and good governance by flouting or even subverting formal processes.Corruption in elections and in legislative bodies reduces accountability and distorts

representation in policymaking; corruption in the judiciary compromises the rule of law;and corruption in public administration results in the unfair provision of services. Moregenerally, corruption erodes the institutional capacity of government as procedures aredisregarded, resources are siphoned off, and public offices are bought and sold. At thesame time, corruption undermines the legitimacy of government and such democraticvalues as trust and tolerance.

Economic effects

Corruption also undermines economic development by generating considerabledistortions and inefficiency. In the private sector, corruption increases the cost of

business through the price of illicit payments themselves, the management cost ofnegotiating with officials, and the risk of breached agreements or detection. Althoughsome claim corruption reduces costs by cutting red tape, the availability of bribes canalso induce officials to contrive new rules and delays. Openly removing costly andlengthy regulations are better than covertly allowing them to be bypassed by using bribes.Where corruption inflates the cost of business, it also distorts the playing field, shieldingfirms with connections from competition and thereby sustaining inefficient firms.

Corruption also generates economic distortions in the public sectorby diverting publicinvestment into capital projects where bribes and kickbacks are more plentiful. Officialsmay increase the technical complexity of public sector projects to conceal or pave way

for such dealings, thus further distorting investment. Corruption also lowers compliancewith construction, environmental, or other regulations, reduces the quality of governmentservices and infrastructure, and increases budgetary pressures on government.

Economists argue that one of the factors behind the differing economic development inAfrica and Asia is that in the former, corruption has primarily taken the form of rent

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extraction1 with the resulting financial capital moved overseas rather invested at home(hence the stereotypical, but sadly often accurate, image of African dictators havingSwiss bank accounts).[2] University of Massachusetts researchers estimated that from1970 to 1996, capital flight from 30 sub-Saharan countries totaled $187bn, exceedingthose nations' external debts. [3] (The results, expressed in retarded or suppresseddevelopment, have been modeled in theory by economist Mancur Olson.) In the case ofAfrica, one of the factors for this behavior was political instability, and the fact that newgovernments often confiscated previous government's corruptly-obtained assets. Thisencouraged officials to stash their wealth abroad, out of reach of any future expropriation.In contrast, corrupt administrations in Asia like Suharto's have often taken a cut oneverything (requiring bribes), but otherwise provided more of the conditions fordevelopment, through infrastructure investment, law and order, etc.

Environmental and social effects

Corruption facilitates environmental destruction. Although even the corrupt countriesmay formally have legislation to protect the environment, it cannot be enforced if theofficials can be easily bribed. The same applies to social rights such as worker protection,prevention of child labor and unionization. Violation of these laws and rights enablescorrupt countries to gain an illegitimate economic advantage in the international market.

Ways in which corruption has a particularly damaging impact on

women

There are significant ways in which the effects of corruption are particularly harsh onwomen. Consider the position of women in society: since women often face social,cultural, political and institutional discrimination it is likely that women will face evenmore repression in a corruption-ridden society. In other words if access to such

institutions is restricted by gender considerations, corruption compounds this by makingit even more difficult for women to access public goods including services. What followsis a brief explanation of the ways in which women are affected disproportionately bycorruption. The fight against corruption can improve their opportunities and prospects.

Access to decision-making: Corruption undermines a level playing field for women andmen in decision-making. When political parties can be bought and sold, when officialsare elected through vote-buying and when promotion within the civil service or corporatesector is related to personal connections rather than merit, there is less chance thatwomen can increase their representation in Parliament or at management levels within thepublic or private sector.

1 In economics, rent seeking occurs when an individual, organization or firm seeks to make money by

manipulating the economic and/or legal environment rather than by trade and production of wealth. Theterm comes from the notion ofeconomic rent, but in modern use of the term, rent seeking is more oftenassociated with government regulation and misuse of governmental authority than with land rents asdefined by David Ricardo.

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Protection and advancement of women's rights: Corruption is often associated withendemic disregard for human rights and a rise in organised crime, including humantrafficking. Minority groups and less-advantaged groups such as women and girls willsuffer disproportionately in a context where human rights violations are ignored by acorrupt law enforcement system.

Moreover, a corrupt judiciary will reinforce existing explicit or implicit genderdiscrimination.

Women's civil rights are often grossly inequitable with regard to marriage/divorce,allegations of adultery/rape, child custody, inheritance, property rights and financialindependence. Because women generally lack access to resources, "he" who can pay willwin any case brought to remedy such discrimination by corrupting the prosecutors and/orjudges.

An independent media is one of the most important tools for promoting equal rights

for women as well as for combating corruption . When the state, political parties orprivate interests control the media, or when it can be bought, it will be less likely to givefair coverage of women's issues.

Access to and control over resources: Corruption reduces public revenues, oftenresulting in lower levels of spending on basic services such as education, health care,family benefits and other social services, which predominantly affect women's andchildren's welfare (although men, particularly if they are the primary care-givers andhome-managers, are affected too).

Corruption also increases the obstacles for women entrepreneurs, by distorting access tocredit and making it more difficult to obtain the necessary licenses and permits.

Corruption in the water and energy sectors that reduces access to clean water andaffordable household energy will particularly impact poor women, who often bear theburden of seeking water and fuel for their families. Corruption in the water and energysectors that reduces access to clean water and affordable household energy willparticularly impact poor women, who often bear the burden of seeking water and fuel fortheir families. For example, see the Gender and Water Alliance which aims tomainstream gender into water policies, making sure that women are involved in theplanning and carrying out of water policies.

Conditions favorable for corruption

The following conditions are favorable for corruption:

Information deficitso Lack of government transparency.

o Lacking freedom of information legislation. The Indian Right to

Information Act 2005 has "already engendered mass movements in the

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country that is bringing the lethargic, often corrupt bureaucracy to itsknees and changing power equations completely." [4]

o Contempt for or negligence of exercising freedom of speechand freedom

of the press.o Weak accounting practices, including lack of timely financial

management.o Lack of measurement of corruption. For example, using regular surveys of

households and businesses in order to quantify the degree of perception ofcorruption in different parts of a nation or in different governmentinstitutions may increase awareness of corruption and create pressure tocombat it. This will also enable an evaluation of the officials who arefighting corruption and the methods used.

o Tax havens which tax their own citizens and companies but not those from

other nations and refuse to disclose information necessary for foreigntaxation. This enables large scale political corruption in the foreignnations.[4]

Lacking control over and accountability of the government.o Democracy absent or dysfunctional. Seeilliberal democracy.

o Lacking civic society and non-governmental organizations which monitor

the government.o An individual voter may have a rational ignorance regarding politics,

especially in nationwide elections, since each vote has little weight.o Weakrule of law.

o Weaklegal profession.

o Weakjudicial independence.

o Lacking protection ofwhistleblowers.

o Lack ofbenchmarking, that is continual detailed evaluation of procedures

and comparison to others who do similar things, in the same government

or others, in particular comparison to those who do the best work. ThePeruvian organization Ciudadanos al Dia has started to measure andcompare transparency, costs, and efficiency in different governmentdepartments in Peru. It annually awards the best practices which hasreceived widespread media attention. This has created competition amonggovernment agencies in order to improve.[5]

Opportunities and incentiveso Individual officials routinely handle cash, instead of handling payments by

giro or on a separate cash desk illegitimate withdrawals fromsupervised bank accounts are much more difficult to conceal.

o Public funds are centralized rather than distributed. E.g. if $1,000 is

embezzled from local agency that has $2,000 funds, it easier to notice thanfrom national agency with $2,000,000 funds. See the principle ofsubsidiarity.

o Large, unsupervised public investments.

o Sale of state-owned property and privatization.

o Poorly-paid government officials.

o Government licenses needed to conduct business, e.g. import licenses,

encourage bribing and kickbacks.

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o Long-time work in the same position may create relationships inside and

outside the government which encourage and help conceal corruption andfavoritism. Rotating government officials to different positions andgeographic areas may help prevent this.

o Costly political campaigns, with expenses exceeding normal sources of

political funding.o Less interaction with officials reduces the opportunities for corruption. For

example, using the Internet for sending in required information, likeapplications and tax forms, and then processing this with automatedcomputer systems. This may also speed up the processing and reduceunintentional human errors. See e-Government.

o A windfall from exporting abundant natural resources may encourage

corruption. See the resource curse. [6] Social conditions

o Self-interested closed cliques and "old boy networks".

o Family-, and clan-centered social structure, with a tradition of nepotism

being acceptable.o A gift economy, such as the Chinese guanxi or the Soviet blat system,

emerges in a Communist centrally planned economy.o In societies where personal integrity is rated as less important than other

characteristics (by contrast, in societies such as 18th and 19th CenturyEngland, 20th Century Japan and post-war western Germany, wheresociety showed almost obsessive regard for "honor" and personal integrity,corruption was less frequently seen)[citation needed]

o Lacking literacyand educationamong the population.

The breeding grounds for corruption lie in a culture where there seems to be very little or almost nopunishment for it and where the rewards for being corrupt seem much greater than the risk ofbeing caught.

Causative factors directly linked to the possibility of involvement in corrupt practices include:

Low salaries

Corruption is often attributed to the low salaries of civil servants. This differentiates between need driven(satisfying basic requirements for survival) corruption and greed driven (satisfying desires for status andcomfort that salaries cannot match) corruption.

It may be true that it is more difficult to stay honest, hard-working and trustworthy on a low salary, but it isalso true that most people with low salaries are still able to do so and that many corrupt officials are people

in high, responsible positions, earning good salaries.

In conjunction, corrupt practices flourish in systems where employees have high job security; where thelevel of professionalism in the public service is low; and hence officials rather serve their own interests thanperform their duty to serve the public. However, low salaries are not a valid reason for and do not justifycorruption.

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Culture

A gift culture exists, particularly in Africa, in which it is tradition that a small reward is paid for services rendered. Such agratuity or tip becomes part of the cultural environment and in certain countries the payment of such rewards is so embeddedin tradition that any attempt to rein in the practice would be seen as an attack on treasured cultural values. In Africa, this wastraditionally seen as awarding special honours to the Chief and, in this light, it often regarded as acceptable and normal forpoliticians to accept such rewards. In some countries it is common practice in the commercial arena for business transactionsto be accompanied by the giving of personal gifts or benefits, ranging from the Christmas bottle of whisky to much moreelaborate and extravagant items. In essence, the root of corruption is greed rather than culture, public life requires a standard

of its own; and those entering public office must be made aware of this from the outset.

The absence of rules, regulations, policies and legislation

All organisations, whether public or private sector, must have rules, regulations and policies that guide management and otheremployees in terms of acceptable behaviour and conduct within the organisation. Rules, regulations and policies areinstrumental in organising people, steering them towards a common goal and ensuring that everyone is treated fairly andequally. In order to be effective, such rules and policies must be clearly communicated to all individuals in order to beunderstood and applied objectively. Corruption is more likely to flourish in an organisation that does not have a wide range ofrules, regulations or policies that guide employees in their work. Similarly, a country must have clear policies and legislationthat guide the behaviour of all citizens and residents within that country. However, organisations and countries must strike areasonable balance in terms of policies and legislation; whilst corruption flourishes in an environment without clear rules andregulations, similarly, corruption finds fertile in a country that has a numerous laws, rules and regulations that restrict businessand economic activities. Such a climate creates industries dependence on individual civil servants to engage in economic

activity; thereby circumventing bureaucratic red tape through corrupt offers.

Range of discretion

No system can exist unless one person or authority is used, to some extent, to make decisions. Such a person is said to havethe power to exercise discretion the freedom to act within certain limits. Corruption takes place in institutions where publicofficials:

have great authority;

can exercise discretion with respect to interpretation and application of regulations;

are not required to be accountable to anyone; and

are driven by greed.

Therefore, an environment with a higher range of discretion without accountability is more conducive to corruption. Inconjunction, political office is one of the primary means of gaining access to wealth in less developed countries. If corruptionoccurs on the top level and the political leadership of the country does not set a good example with respect to honesty,credibility, transparency, integrity and the persecution of offenders, citizens become disillusioned and offenders are notdeterred from entering into corrupt practices.

The absence of transparency

Where there is no transparency in an organisation, i.e. where tasks and functions are conducted in secretand are not open to examination by other government officers or the public, the opportunity for corruptionincreases. Transparency2 is a prerequisite for democracy in which sovereignty is vested in the people andthe conduct of civil servants must be open to examination. It is therefore vital that citizens in general andthe media (radio, television, newspapers) in particular are guaranteed the right to freedom of speech; the

media can inform citizens of any action by a civil servant that might be corrupt in nature and appropriatecalls for action can be made. A transparent system deters corruption as the conduct of civil servants isunder constant scrutiny.

2Transparency is introduced as a means of holding public officials accountable and fighting corruption. When

government meetings are open to thepress and thepublic, whenbudgetsandfinancial statementsmay be reviewed byanyone, whenlaws, rules and decisions are open to discussion, they are seen as transparent and there is less opportunityfor the authorities to abuse the system in their own interest.

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The absence of accountability

In a democracy, public leaders and civil servants must be accountable to the people they serve. Accountability means thatpublic leaders and officers must provide logical and acceptable explanations for their actions and decisions to the people theyserve. Civil servants and officers in responsible positions must at all times adhere to the principles of transparency and beaccountable to the people they serve. However, accountability is dependent on the enforcement of rules, regulations andpolicies, if there is a lack of effective institutional mechanisms civil servants cannot be held accountable and corrupt practicescan flourish.

The absence of a watchdog institution

If there are no internal or external institutions or bodies that investigate cases of corruption or that act on complaints relating tocorruption, employees may take advantage of the fact that the chance of being caught doing something corrupt is remote.Even if the offender is caught, the consequences would probably be minimal if the system has no watchdog function.

Corruption in less developed countries

Although corruption is a universal phenomenon and exists in all countries, it is a more serious matter in less developedcountries. The conditions of these countries are such that corruption is likely to have different causes and consequences thanin more developed countries. The socio-economic conditions in low income countries are more conducive to the growth ofcorruption. Corruption is a symptom of deep-rooted economic and political weaknesses and shortcomings in the legislative

and judicial system of the country. To aggravate the situation, accountability in these countries is generally weak, the chancesof being caught are small and the penalties when caught are light. Non-governmental organizations that could serve aswatchdogs and provide information on corrupt practices are generally not well developed.

(Source: A Namibian Citizens Guide to Integrity)

Rich Countries involved in corruption abroad

When asking why poor countries are poor, it is quite common to hear, especially inwealthier countries that are perceived to have minimal corruption (at least domestically)that other countries are poor because of corruption. Yet, corruption is not somethinglimited to third world despots. Rich countries too have been involved in corrupt practicesaround the world.

As Professor Robert Neild from Trinity College, Cambridge University writes in PublicCorruption; The Dark Side of Social Evolution (London: Anthem Press, 2002), Richcountries and their agencies commonly have been and are accomplices in corruptionabroad, encouraging it by their actions rather than impeding it. (p.209). Specificproblems he highlights include:

The impact of Cold War corruption (supporting dictatorships, destabilizingdemocracies, funding opposition, etc);

Firms from rich countries bribing rulers and officials from developing countries togain export contracts, particularly in the arms trade and in construction (evenjustifying it by suggesting bribery is customary in those countries, so they needto do it to, in order to compete);

The corruption-inducing effects of the purchase, by the rich countries and theirinternational corporations, of concessions in Third World countries to exploitnatural deposits of oil, copper, gold, diamonds and the like. Payments made to

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rulers often violate local (and Western) rules, keeping corrupt rulers in power,who also embezzle a lot of money away.

The drug trade. Neild suggests that international law and national laws in richcountries that prohibit drugs may serve to produce a scarcity value irresistible toproducers, smugglers and dealers. Governments and civil society in the thirdworld are often undermined, sometimes destroyed by the violence andcorruption that goes with the drug trade. This is probably the most important wayin which the policies of rich countries foster corruption and violence. Yet theeffect on the Third World seems scarcely to enter discussion of alternative drug policies in the rich countries. Legalizing drugs, a system of taxation andregulation, comparable to that applied to tobacco and alcohol might do more toreduce corruption in the world than any other measure rich countries could take,he suggests.

Rich countries have been used to it, too:

Bribery may be pervasive, but it is difficult to detect. Many Western companies do notdirty their own hands, but instead pay local agents, who get a 10 per cent or so success

fee if a contract goes through and who have access to the necessary slush funds toensure that it does. Bribery is also increasingly subtle. Until recently, bribery was seenas a normal business practice. Many countries including France, Germany and the UKtreated bribes as legitimate business expenses which could be claimed for tax deductionpurposes.

Dr Susan Hawley, Exporting Corruption; Privatisation, Multinationals and Bribery,The Corner House, June 2000

A Cold War Legacy: The Curse of Natural Resources;

Inviting corruption

Professor Neild is worth quoting at extensive length on the impacts the Cold War had interms of encouraging or exacerbating corruption in the developing countries:

Many Western covert and overt military operation were motivated, in part at least, by theview, which may have been fearfully exaggerated, that the Wests supplies of rawmaterials and oil were threatened by communist intrusion into Third World countries. Afeeling of vulnerability was understandable. The Soviet Union was largely self-sufficient ; the West, in need of increasing supplies for its growing industrial production, depended heavily on imports from Third World countries. Western

governments used diplomacy plus overt and covert military operations to counter theCommunists. Meanwhile western firms paid rulers to obtain concessions to extract oiland minerals.

The business of obtaining oil and mineral concessions has aways been conducive to theuse of bribes, omissions, gifts, and favors, and remains so since there are huge rents(i.e. windfall profits) to be shared by the parties to a deal. Third World governmentsrarely use auctions [for concession, which, when done honestly, removes the opportunity

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for buyers to bribe sellers]. They commonly sell concessions by negotiation. For whichthere are some good reasons. It is often necessary for the foreign company that buys aconcession to build infrastructure, such as ports, pipelines, roads and dormitory towns fortheir staff; to make this worthwhile, a whole oil field or major mineral deposit has to begiven to one foreign company, rather than split between many competitors; and that onecompany, which will become the source of a significant, perhaps dominant, part of thenations revenue, will acquire substantial economic power vis--vis the government.Hence strategic and diplomatic consideration enter the calculation: the government willwant to give the concession to a company backed by a government which it believes will be helpful to it in its international relationsand in supplying it with arms andmercenaries. But . there is [also] the prospect of bribes. Those who run a governmentthat has a concession to sell will know that negotiation creates a strong incentive to thepotential buyers to offer them bribes: they will know this from the point of view of thebuyers, a sum that will only add a small percentage to, say, a billion dollar deal, will beworth paying in order to win the concession. Once negotiation is adopted as the means ofallocating concessions, the dominant incentive is for bidders to engage competitively inthe bribery of local rulers and fixers.

Robert Neild, Public Corruption; The Dark Side of Social Evolution, (London:Anthem Press, 2002), pp. 136-137 [Emphasis added]

But Neild feels that this same attitude has affected rich countries domestic politicalbehavior, too. Of particular concern to Neild in this is

the apparent tendency for bribery, which is intense in the business of seeking resourceconcession and selling arms, to become a secret habit of western firms and politiciansthat infects their domestic political behavior. Of this there has been considerable evidencein scandals that have occurred recently in Britain, France and Germany. Le Mondepublished an outspoken editorial commenting on the [French company, Elf Aquitaine,

corruption] affair:

For too long French policy in Africa has been neither moral nor effective.

It would be wrong to deny that corruption is indispensable in the obtaining of drillingconcession, though that does not mean that one should not try to stop it. M. Tarallo [asenior Elf Manager] is unfortunately right when he says that all petrol companies use itBut the sins of others do not absolve Elf. Added to which Elf has used its money tokeep in power dictators whose principle aim has been not the development of theircountry but their personal enrichment. In exchange, Paris could count on their support inits diplomatic battles and could offer captive markets to French firms

This neo-colonialism was put in place during the presidency of General de Gaulle andhas been maintained by subsequent governments regardless of party

Looked at today the picture is not glorious. A former colonial power has taughtcorruption to its African clientswho were willing pupilsand there is nothing topersuade us that they have not rewarded their friends in Paris

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In one case at least, lack of natural resources has apparently been an incentive toanticorruption policies: the tough ruler of Singapore, Lee Kuan Yew, is reported to havesaid that he came down hard on the corrupt because his tiny country with no naturalresources has to rely on its good name to remain a center of banking and technology.

Robert Neild, Public Corruption; The Dark Side of Social Evolution, (London:Anthem Press, 2002), p. 138 [Emphasis added]

Globalization, Multinational Corporations, and

Corruption

Corruption scandals that sometimes make headline news in Western media can often beworse in developing countries. This is especially the case (as the previous link argues)when it is multinational companies going into poorer countries to do business. Theinternational business environment, encouraged by a form of globalization that is heavilyinfluenced by the wealthier and more powerful countries in the world makes it easier formultinationals to make profit and even for a few countries to benefit. However, some policies behind globalization appear to encourage and exacerbate corruption asaccountability of governments and companies have been reduced along the way. Forexample,

For multinationals, bribery enables companies to gain contracts (particularly for publicworks and military equipment) or concessions which they would not otherwise have won,or to do so on more favorable terms. Every year, Western businesses pay huge amountsof money in bribes to win friends, influence and contracts. These bribes areconservatively estimated to run to US$80 billion a yearroughly the amount that the UNbelieves is needed to eradicate global poverty.

Dr Susan Hawley, Exporting Corruption; Privatization, Multinationals and Bribery,The Corner House, June 2000

Dr Hawley also lists a number of impacts that multinationals corrupt practices have onthe South (another term for Third World, or developing countries), including:

They undermine development and exacerbate inequality and poverty. They disadvantage smaller domestic firms. They transfer money that could be put towards poverty eradication into the hands

of the rich. They distort decision-making in favor of projects that benefit the few rather than

the many. They also

o Increase debt;

o Benefit the company, not the country;

o Bypass local democratic processes;

o Damage the environment;

o Circumvent legislation; and

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o Promote weapons sales.

(See the previous report for detailed explanation on all these aspects.)

IMF and World Bank Policies that Encourage

Corruption

At a deeper level are the policies that form the backbone to globalization. These policiesare often prescribed by international institutions such as the World Bank and IMF. Foryears, they have received sharp criticism for exacerbating poverty through policies suchas Structural Adjustment, rapid deregulation and opening barriers to trade before poorercountries are economic ready to do so. This has also created situations ripe for corruptionto flourish:

As Western governments and the World Bank and IMF shout ever more loudly aboutcorruption, their own policies are making it worse in both North and South. Particularlyat fault are deregulation, privatization, and structural adjustment policies requiring civilservice reform and economic liberalization. In 1997, the World Bank asserted that:

any reform that increases the competitiveness of the economy will reduce incentives forcorrupt behavior. Thus policies that lower controls on foreign trade, remove entry barriersto private industry, and privatize state firms in a way that ensure competition will allsupport the fight.

The Bank has so far shown no signs of taking back this view. It continues to claim thatcorruption can be battled through deregulation of the economy; public sector reform inareas such as customs, tax administration and civil service; strengthening of anti-corruption and audit bodies; and decentralization.

Yet the empirical evidence, much of it from the World Bank itself, suggests that, far fromreducing corruption, such policies, and the manner in which they have been implemented,have in some circumstances increased it.

Dr Susan Hawley, Exporting Corruption; Privatization, Multinationals and Bribery,The Corner House, June 2000

Jubilee Research (formerly the prominent Jubilee 2000 debt relief campaignorganization) has similar criticisms, and is also worth quoting at length:

Rich country politicians and bank officials argue that because dictators like Marcos,Suharto, and Mobutu were kept in power with western arms and were given loans tosquander on ill-judged and repressive schemes, that the people of those countrieswhooften fought valiantly against those dictatorscannot be trusted not to waste the moneyreleased by debt cancellation. This may seem confusing to people not familiar with thelogic of the IMF and World Bank. In summary:

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Creditors colluded with, and gave loans to dictators they knew were corrupt andwho would squander the money.

Creditors gave military and political aid to those dictatorsknowing arms mightbe used to suppress popular opposition

Therefore, successor democratic governments and their supporters, who may havebeen victims of corruption and oppression, cannot be trusted.

To many people in the South, this seems irrational and illogicalthe logic of blaming thevictim. It is the logic of power rather than of integrity, and is used to benefit the richrather than the poor in developing countries.

A similar logic argues that if the World Bank and government export credit agencies promoted inappropriate and unprofitable projects, then southern governments provedtheir inability to control money because they accepted the ill-advised projects in the firstplace. Thus, if money is released by debt cancellation, it must be controlled by agencieswhich promoted those failed projects.

This is the logic that says if people were stupid enough to believe cigarette advertising,then they are too stupid to take care of themselves and the reformed cigarettecompanies should be put in charge of their health care.

The same institutions who made the corrupt loans to Zaire and lent for projects in Africathat failed repeatedly are still in charge, but their role has been enhanced because of theirsuccess in pushing loans. Can we trust these institutions to suddenly only lend wisely; tonot give loans when the money might be wasted?

Preventing new wasted loans and new debt crises, and ensuring that there is not anotherdebt crisis, means that the people who pushed the loans and caused this crisis cannot beleft in charge.

The creditors or loan pushers cannot be left in charge, no matter how heartfelt theirprotestations that they have changed. Pushers and addicts need to work together, to bringto an end the entire reckless and corrupt lending and borrowing habit.

Joseph Hanlon and Ann Pettifor, Kicking the Habit; Finding a lasting solution toaddictive lending and borrowingand its corrupting side-effects , Jubilee Research,

March 2000

And in terms of how lack of transparency by the international institutions contributes toso much corruption structured into the system, Hanlon and Pettifor continue in the same

report as cited above:

Structural adjustment programs cover most of a countrys economic governance.

The most striking aspect of IMF/World Bank conditionality [for aid, debt relief, etc] isthat the civil servants of these institutions, the staff members, have virtual dictatorialpowers to impose their whims on recipient countries. This comes about because poorcountries must have IMF and World Bank programs, but staff can decline to submit

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programs to the boards of those institutions until the poor country accepts conditionsdemanded by IMF civil servants.

There is much talk of transparency and participation, but the crunch comes in finalnegotiations between ministers and World Bank and IMF civil servants The countrymanager can say to the Prime Minister, unless you accept condition X, I will not submitthis program to the board. No agreed program means a sudden halt to essential aid andno debt relief, so few ministers are prepared to hold out. Instead Prime Ministers andpresidents bow to the diktat of foreign civil servants. Joseph Stiglitz also notes thatreforms often bring advantages to some groups while disadvantaging others, and one ofthe problems with policies agreed in secret is that a governing elite may accept animposed policy which does not harm the elite but harms others. An example is theelimination of food subsidies.

Joseph Hanlon and Ann Pettifor, Kicking the Habit; Finding a lasting solution toaddictive lending and borrowingand its corrupting side-effects , Jubilee Research,March 2000

As further detailed by Hanlon and Pettifor, Christian Aid partners (a coalition ofdevelopment organizations), argued that top-down conditionality has undermineddemocracy by making elected governments accountable to Washington-based institutionsinstead of to their own people. The potential for unaccountability and corruptiontherefore increases as well.

Corruption everywhere; rich and poor countries,

international institutions

It goes without saying, almost, that corruption is everywhere. Corruption in poor

countries is well commented on (sometimes used dismissively to explain away problemscaused by other issues, too). It would be futile to provide examples here (see also thesources of information at the end of this document for more on this).

Rich countries, also suffer from corruption. Examples are also numerous and beyond thescope of this page to list them here. However, a few recent examples are worthmentioning because they are varied on the type of corruption involved, and are veryrecent, implying this is a massive problem in rich countries as well as poor.

The first example is the US government, accused of outsourcing many contracts withoutan open bid process. Jim Hightower notes that An analysis by the Times found that more

than half of their outsourcing contracts are not open to competition. In essence, theBushites choose the company and award the money without getting other bids. Prior toBush, only 21% of federal contracts were awarded on a no-bid basis.

Another example is Italy, where former Italian Prime Minister Silvio Berlusconi andsome of his close associates were held on trial for various crimes and corruption cases(though Berlusconi himself has not, to date, been found guilty of any charges). Many key

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teams in the massive Italian soccer league, Serie A were also found to be involved in amassive corruption ring.

In the United Kingdom, the arms manufacturer, BAE was being investigated for bribingSaudi officials to buy fighter planes, but the government intervened in the investigationciting national interests. The Guardian also reported that BAE gave a Saudi prince a 75airliner ($150m approx) as part of a British arms deal, with the arms firm paying theexpenses of flying it. This seemingly large figure is small compared to the overall deal,but very enticing for the deal makers, and it is easy to see how corruption is so possiblewhen large sums are involved.

International institutions, such as the United Nations and World Bank have also recentlycome under criticism for corruption, ironically while presenting themselves in theforefront fighting against corruption.

The recent example with the UN has been the oil for food scandal, where the headlineswere about the corruption in the UN. In reality, the figures of $21 billion or so of illicitfunds blamed on the UN were exaggerations; it was $2 billion; it was the UN SecurityCouncil (primarily US and UK) responsible for much of the monitoring; US kickbacksfor corrupt oil sales were higher, for example. (This is discussed in more detail on thissitesIraq sanctions, oil for food scandal section.)

At the World Bank, headlines were made when its recent president, Paul Wolfowitz, wasforced to resign after it was revealed he had moved his girlfriend to a new governmentpost with an extremely high salary without review by its ethics committee.

Paul Wolfowitzs appointment was also controversial, due to his influential role inarchitecting the US invasion of Iraq. A former member of staff at the World Bank alsonoted concerns of cronyism related to Wolfowitzs appointment way before the scandal

that forced him to resign.

The US nominee for the next president is the former US Trade Representative andcurrently an executive at Goldman Sachs, Robert Zoellick. His nomination is also comingunder criticism. Bush supports it, saying Zoellick is the right man to succeed Paul in thisvital work. Former World Bank chief economist, and Nobel Prize winner for economics,Joseph Stiglitz feels that instead of a political appointee, it would be better to get an economist who understands development.

As also reported by the BBC, Paul Zeitz, executive director of the Global AIDS Alliance, said that he thought Mr Zoellick was a terrible choice because Zoellick has no

significant experience in economic development in poor countries, and that he has beena close friend to the brand-name pharmaceutical industry, and the bilateral tradeagreements he has negotiated [for the US] effectively block access to generic medicationfor millions of people.

While the US typically gets its preferred nomination to head the World Bank, Europe hastypically got its preferred person to head the IMF. Critics have long argued that this lacks

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transparency and is not democratic. While not illegal as such, it does feel like a form ofcorruption.

PERSPECTIVES OF CORRUPTION CAUSES

The various causes of corruption can be viewed from two perspectives:

Individual characteristics perspective View corruption as a result of greed or the inability to withstand temptation.

Considered a main motivating factor of corruption, greed is a strong motivator for humanbehaviour.

This explanation provides insight into why some people become involved in corruption, butdoes not satisfactorily explain the extent of corruption in society.

Structural influences perspective Analyses the structural influences in society, including various political, social and culturalneeds that motivate individuals to engage in corrupt practices.

Systemic corruption breeds in a culture where the rewards for being corrupt are perceived as fargreater than the risks of being caught.

Provides a broader-level explanation than for the extent of corruption that the individualcharacteristics perspective.

Size of public sector

It is a controversial issue whether the size of the public sectorper se results in corruption.Extensive and diverse public spending is, in itself, inherently at risk of cronyism,

kickbacks and embezzlement. Complicated regulations and arbitrary, unsupervisedofficial conduct exacerbate the problem. This is one argument forprivatization andderegulation. Opponents of privatization see the argument as ideological. The argumentthat corruption necessarily follows from the opportunity is weakened by the existence ofcountries with low to non-existent corruption but large public sectors, like the Nordiccountries. However, these countries score high on theEase of Doing Business Index, dueto good and often simple regulations, and have rule of law firmly established. Therefore,due to their lack of corruption in the first place, they can run large public sectors withoutinducing political corruption.

Privatization, as in the sale of government-owned property, is particularly at the risk of

cronyism. Privatizations in Russia and Latin America were accompanied by large scalecorruption during the sale of the state owned companies. Those with political connectionsunfairly gained large wealth, which has discredited privatization in these regions. Whilemedia have reported widely the grand corruption that accompanied the sales, studies haveargued that in addition to increased operating efficiency, daily petty corruption is, orwould be, larger without privatization, and that corruption is more prevalent in non-privatized sectors. Furthermore, there is evidence to suggest that extralegal and unofficialactivities are more prevalent in countries that privatized less.[5]

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In the European Union, the principle of subsidiarity is applied: a government serviceshould be provided by the lowest, most local authority that can competently provide it.An effect is that distribution of funds into multiple instances discourages embezzlement,because even small sums missing will be noticed. In contrast, in a centralized authority,even minute proportions of public funds can be large sums of money

Measuring corruptionMeasuring corruption - in the statistical sense - is naturally not a straight-forward matter,since the participants are generally not forthcoming about it. Transparency International,a leading anti-corruptionNGO, provides three measures, updated annually: a CorruptionPerceptions Index (based on experts' opinions of how corrupt different countries are); aGlobal Corruption Barometer (based on a survey of general public attitudes toward andexperience of corruption); and a Bribe Payers Survey, looking at the willingness offoreign firms to pay bribes. The World Bank collects a range of data on corruption,including a set ofGovernance Indicators.

The ten countries perceived to be least corrupt, according to the 2007 CorruptionPerceptions Index, are Denmark, Finland, New Zealand, Singapore, Sweden, Iceland,The Netherlands, Switzerland, Canada, andNorway.

According to the same survey, the nine countries perceived to be most corrupt areSomalia,Myanmar, Iraq,Haiti,Uzbekistan,Tonga, Sudan, Chad, and Afghanistan.

In the USA, Louisiana, Mississippi, Kentucky,Alabama, andOhio are the top five mostcorrupt states, according to a 2007 study by Corporate Crime Reporter (based on U.S.Department of Justicedata on public convictions).[8]

Tackling corruption

What can be done to tackle this problem?

The above-cited report by Hanlon and Pettifor also highlights a broader way to try andtackle corruption by attempting to provide a more just, democratic and transparentprocess in terms of relations between donor nations and their creditors:

Campaigners from around the world, but particularly the South, have called for a morejust, independent, accountable and transparent process for managing relations betweensovereign debtors and their public and private creditors.

An independent process would have five goals:

to restore some justice to a system in which international creditors play the role ofplaintiff, judge and jury, in their own court of international finance.

to introduce discipline into sovereign lending and borrowing arrangementsandthereby prevent future crises.

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to counter corruption in borrowing and lending, by introducing accountabilitythrough a free press and greater transparency to civil society in both the creditorand debtor nations.

to strengthen local democratic institutions, by empowering them to challenge andinfluence elites.

to encourage greater understanding and economic literacy among citizens, andthereby empower them to question, challenge and hold their elites to account.

Joseph Hanlon and Ann Pettifor, Kicking the Habit; Finding a lasting solution toaddictive lending and borrowingand its corrupting side-effects , Jubilee Research,

March 2000

The Bretton Woods Projectorganization notes that the World Bank, under pressure oflate, has suspended a number of loans due to concerns of corruption. These include loansto Chad, Kenya, Congo, India, Bangladesh, Uzbekistan, Yemen, and Argentina. TheBank has also started internal investigations of Bank corruption. However, despite high-profile moves by president Paul Wolfowitz, the root causes of corruptionunderpaidcivil servants, an acceptance of bribery by big business, and dirty moneyremain largely

unaddressed.

TheBretton Woods Projectadds that the normalization of petty corruption in developingcountries has in part been driven by

IFI conditions; The aid industry for overpaying consultants and turning a blind eye to

corruption in some regimes; and The World Banks pressure to lend culture where staff are rewarded for the

volume of the portfolio they manage; The World Banks slow pace in investigating and disbarring companies found

guilty of corrupt practices such as bribery, fraud or malpractice; Failing to increase transparency of some of its own procedures; The IFIs central part of an international financial system which has both

actively and tacitly supported the global proliferation of dirty money flowsincluding, for example, the financing of various despotic rulers that have siphonedoff a lot of money to personal offshore accounts.

To help address these problems, theBretton Woods Projectsuggests a few steps:

Greater transparency of World Bank processes, allowing greater visibility forelected officials and civil society in recipient countries;

Strengthening internal mechanisms within the Bank itself, to monitor integrity ofBank functions, and allow truly independent audits of Bank operations;

Minimum standards in governance, transparency and human rights that must befulfilled before approving oil, gas and mining projects in institutionally weakcountries.

Not always tying loans with economic policy conditions in such a way that somegovernments surrender their policy-making space.

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During the 2002 World Summit on Sustainable Development, theBBCbroadcast a minidebate on globalization, poverty, and related issues, and had a panel of around 30 experts,from both the developing and rich countries. One person on that panel was VandanaShiva, a vocal critic of the current form of globalization and its impact on theenvironment and people in the third world. She was asked why people should listen toconcerns from the third world when they cannot sort out the rampant corruption first. Heranswer was simple: rich countries need to stop dictating policies that encouragecorruption in the first place.

Like Shiva, Professor Neild feels that the solution is philosophically simple. However, asNeild acknowledges, in reality it is far harder to do, due to the power interests involved:

It is hard to see how the international economic agencies and their member governmentscan introduce incentives that would cause corrupt rulers to [attack corruption] Not onlyare the rich countries and their agencies in this respect impotent, they commonly havebeen and are accomplices in corruption abroad, encouraging it by their action rather thanimpeding it.

It is hard to see any solution other than transparency and criticism. It would take anunprecedented degree of united dedication to the checking of corruption for theinternational community to agree that the oil and mining companies of the world shouldboycott corrupt regimes, somehow defined, let alone manage to enforce an agreement.

Robert Neild, Public Corruption; The Dark Side of Social Evolution, (London:Anthem Press, 2002), pp. 208-210, [Emphasis added]

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Fighting corruption in the developing countries

Irne Hors

Development Centre

Published: July 2000

The fight against corruption is not the monopoly of the industrialised countries. Nor can

recipes that have worked in OECD countries necessarily be applied to developing ones.Of the 134 countries that attended the 9 th International Anti-Corruption Conferenceorganised by Transparency International in Durban last October, over a hundred weredeveloping countries. More and more of these countries are expressing their resolve tocombat corruption, echoing international initiatives, such as the OECD Convention.

Despite the real efforts made, there has been little concrete progress to date.

In most developing countries today, corruption is widespread and part of everyday life.Society has learned to live with it, even considering it, fatalistically, as an integral part oftheir culture. Not only are public or official decisions for instance, on the award of

government contracts or the amount of tax due bought and sold, but very often accessto a public service or the exercise of a right, such as obtaining civil documents, also hasto be paid for.

Several mechanisms help to spread corruption and make it normal practice in thesecountries. Civil servants who refuse to toe the line are removed from office; similarly,businessmen who oppose it are penalised vis--vis their competitors. Furthermore, animage of the state has grown up over the years according to which the civil service, farfrom being a body that exists to implement the rights of citizens rights that mirror theirduties is first and foremost perceived as the least risky way of getting rich quickly. Allof which helps to make corruption seem normal.

In practice, it is the environment in which public servants and private actors operate thatcauses corruption. Public administration in developing countries is often bureaucratic andinefficient. And a large number of complex, restrictive regulations coupled withinadequate controls are characteristic of developing countries that corruption helps to getaround.

But to understand corruption, institutional analysis is not enough. A political andeconomic analysis is important too. Whether it be in Benin, Bolivia, Morocco, Pakistanor the Philippines five countries examined in a study by the OECD DevelopmentCentre and the UN Development Programme corruption is closely linked to the type of

government involved.

The link between political and economic power can be direct. There is patrimonialism, asin Morocco, where access to political power ensures access to economic privileges. Thelink can be indirect too, as in the Philippines, where political power, such as a privilegedposition in a patronage-based system, can be bought and sold. In short, the process ofallocating political and administrative posts particularly those with powers of decisionover the export of natural resources or import licences is influenced by the gains that

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can be made from them. And the political foundations are cemented as these exchangesof privileges are reciprocated by political support or loyalty.

Feeding underdevelopment

Another feature common to the countries studied is their underdevelopment, which isconducive to corruption. In fact, underdevelopment encourages corruption. How is this?First of all, low wages in the civil service encourage petty corruption, and the imbalancebetween the supply of, and demand for, public services likewise creates opportunities forcorruption. Also, individuals tend to invest in a career in the public service, given theshortage of opportunities in the private sector, thus increasing the likelihood of theirinvolvement in corrupt practices. Another reason is that the low level of education foundin underdeveloped countries maintains citizens in a state of ignorance of their rights,barring them from participating in political life.

Institutional analysis of corruption indicates where the remedies lie. Greater transparency,accountability and merit-based human resource management in public administration areprinciples which, if implemented, make it possible to curb corruption. Simplification ofstate intervention in economic activity also helps. A study of the customs administrationin Senegal found, using econometric tests, that a reduction in import taxes, simplificationof their structure, implementation of reforms reducing the discretionary powers ofcustoms officials and computerisation of procedures helped to reduce the level of fraudby 85% between 1990 and 1995.

But identifying the direction that reforms should take is only part of the task. The maindifficulty lies in implementing them. This requires a strategy that really is operational.Two kinds of obstacles are usually encountered. The first is economic. Whileunderdevelopment does not inevitably generate corruption, underdeveloped countries donot have the same means as more advanced ones to escape it. It is difficult to replicate the

strategy adopted in Hong Kong, for instance, which involved the creation of aninvestigative agency with a large staff and plentiful funds (see box). The fight againstcorruption must therefore be based on the development process itself.

The second kind of obstacle is political. Many politicians owe their careers and status tocorruption and few of them, if any, will take a stand against it, either for fear of upsettingtheir own careers or the political status quo generally.

Civil society and the media can help by denouncing corruption and putting pressure onthe government. But the real impediments to the fight against corruption are as much theinterests of the politico-administrative apparatus as the fatalism and ignorance of the

victims, maintained by a culture of fear nurtured by those who benefit from corruption.But before one can act, it is necessary to be informed. That is why research into theincidence of corruption and its effects is so important. Only on that basis can action bycivil society and aid agencies be guided.

The private sector can also make an important contribution to the fight against corruption,by policing its own codes of conduct and sticking to high standards of governance.International and regional organisations can also help, as can bilateral aid agencies, via

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programmes to strengthen institutional capacity, and of course by ensuring thetransparency of the projects they support.

One thing is sure: the problem of corruption in the developing countries cannot be solvedsimply by applying anti-corruption structures that work in OECD countries. Theexperience the latter countries have acquired in terms of legislation, public procurementcodes and control procedures, for example, is valuable, but it is just a technical element ina much more complex process of change. A reduction in corruption depends on economicdevelopment. It is thus for each country concerned to draw up its own strat

corruption detailed notes

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