Tianiabrains: CORRUPTION AND DEVELOPMENT

Corruption Thwarts Development

MOLLY O SHEEHAN / Vital Signs / Worldwatch Institute 2003

Corruption—the misuse of public power for private benefit—is hard to measure because officials who take bribes try to hide such activity. Since Transparency International (TI), a Berlin-based nongovernmental organization, published its first global Corruption Perceptions Index in 1995, however, opinion surveys have become a widely used tool to gauge corruption.
The index combines 15 surveys from nine institutions that ask businesspeople, risk analysts, and residents about corruption among public officials and politicians. In 2002, the index covered 102 countries. Of these, 70 nations scored less than 5 out of a clean score of 10, and 35 scored less than 3.1 (See Table 1.)
The methodology of this index is evolving, making year-to-year comparisons difficult, but TI does point to a few countries where the perception of corruption seems to be changing.2 South Korea improved its score between 2001 and 2002, after an anti-corruption law established a commission to investigate high-ranking officials and set fines for bribery of up to $40,000, jail terms of up to 10 years, and a ban on subsequent employment of 5 years.3 In contrast, Argentina was perceived as being more corrupt in 2002—its economic crisis invited new scrutiny of government spending at the same time that investigations into abuses by former President Carlos Menem were under way.4
Corruption erodes people’s trust in government. In 1999, two thirds of 57,000 people polled in 60 countries by Gallup’s International Millennium Survey believed that their country was not governed by the will of the people.5 Similarly, the Open Society Institute found that three fourths of citizens in Central and Eastern Europe believed that most or all of their public officials were corrupt, while only 4 out of 10 children surveyed in Europe and Central Asia saw voting in elections as an effective way to improve conditions in their country.6
Corruption also appears to sap economic growth. In a path-breaking 1995 paper, economist Paulo Mauro showed that highly corrupt nations have a smaller share of their gross domestic product going into investment.7 Corruption raises the cost of business, deterring would-be investors.8 A study of transition economies in Eastern Europe and Central Asia found that gross domestic investment averaged 20 percent less in countries with high corruption compared with countries with medium levels of corruption.9
When bribes mean more than votes, a government fails its citizens, as money that could be used to provide needed public services is diverted to private bank accounts. A parliamentary committee in the Philippines calculated in 2002 that corruption costs that government some $1.9 billion annually—twice the size of the national education budget.10 The World Bank estimates the cost of corruption in Colombia at $2.6 billion a year.11
Further, corruption skews public spending toward the sectors where bribing is easier.12 Studies show that corruption shifts spending away from education, health, and maintenance of existing infrastructure and toward large public works construction and buildup of the military. 13 Indeed, surveying corporate executives, bank officials, and law firms in 15 emerging market economies in 2002, TI found that public works was the sector in which bribes were most often demanded, followed by defense.14
At the local level, petty bribes solicited by officials from citizens act as a regressive tax that falls most heavily on the poor. Urban Kenyans polled by the Kenya chapter of TI in early 2001, for example, reported paying some $104 in bribes each month, on an average monthly income of only $331.15
Corruption also corresponds to environmental harm. Researchers at Yale University’s Center for Environmental Law and Policy have designed an Environmental Sustainability Index that ranks nations by environmental performance. Of 67 quality-of-life variables included in the index, corruption was the one most highly correlated with poor environmental quality.16 One explanation for this link could be that officials in nations with high levels of corruption take bribes in return for not enforcing environmental laws.
Deforestation spurred by corruption is well documented, for instance. In Indonesia, a recent study found that many of the logging concessions, covering more than half of the nation’s total forest area, were awarded by former President Suharto to relatives and political allies, that at least 16 million hectares of natural forest were approved for conversion to plantations, in direct contradiction of existing laws, and that corrupt officials allowed illegal logging that accounted for some 65 percent of total supply in 2000.17
Public officials have also used concessions for mining and fuel extraction to liquidate a nation’s resources without passing the revenue on to citizens. In oil-rich Nigeria and Angola, public officials have used oil money for arms and for personal gain.18 In July 2002, the family of Nigeria’s former dictator Sani Abacha agreed to return some $1.2 billion that he took from Nigeria’s central bank.19
Construction of public works is another area in which corruption has the potential to harm the environment. In Japan, unnecessary and environmentally damaging bridges, dams, and roads have been built as a result of unethical ties between the construction industry and lawmakers. 20 The president of the upper house of Japan’s Diet resigned in April 2002 after allegations that his aide took a kickback from a construction company on a public works project.21
In a landmark case involving the Lesotho Highlands Water Project, both the briber and the person who was bribed were found guilty of corruption in 2002. A court in Lesotho fined the Canadian company that built a dam $2.2 million for bribing the chief executive of the project, who was sentenced to 18 years in jail; this was the first time a developing nation’s court convicted an international company for paying bribes.22
The Lesotho case reflects mounting international pressure to combat corruption. Since 1999, the World Bank has barred from development projects companies that are involved in corruption.23 A 1997 Anti-Bribery Convention by the Organisation for Economic Co-operation and Development (OECD) criminalizes the bribery of foreign public officials, primarily targeting companies from industrial nations that pay bribes for contracts in the developing world.24 The Asian Development Bank and OECD launched an anti-corruption initiative in the Asia Pacific region in 2001 that committed nations to developing anti-corruption action plans.25 The Organization of American States has begun to implement an Inter-American Convention against Corruption.26 And in 2002, the United Nations began negotiating a global treaty on corruption.27

Table 1: Nations Perceived by Business People and Risk Analysts as Most Corrupt of 102 Surveyed, 2002

Corruption
Index Score¹  Countries
1.0–1.9  Bangladesh, Nigeria, Angola, Madagascar,
  Paraguay, Indonesia, Kenya
2.0–2.3  Azerbaijan, Moldova, Uganda, Bolivia,
  Cameroon, Ecuador, Haiti, Kazakhstan
2.4–2.6  Georgia, Ukraine, Viet Nam, Albania,
  Guatemala, Nicaragua, Venezuela,
  Pakistan, Philippines, Romania, Zambia
2.7–2.9  Côte d’Ivoire, Honduras, India, Russia,
  Tanzania, Zimbabwe, Argentina, Malawi,
  Uzbekistan

1 Index ranges from 0 (most corrupt) to 10 (least corrupt).
Source: Transparency International.

All these new initiatives recognize that “it takes two to tango” in corruption: a bribe payer and a bribe taker.28 But most companies have yet to fear prosecution for paying bribes. A recent survey of managers of major firms operating in developing countries found that only 19 percent knew something about the 1997 OECD anti-bribery treaty.29 Peter Eigen, TI’s chairman, notes: “Only a level playing field—a world in which honest companies know that bribery doesn’t pay and that unscrupulous competitors will be punished—will bring about a lasting change in the behavior of international business.”30 To help level the playing field, his organization is working with companies such as BP, Shell, Tata, and General Electric to develop business principles for countering bribery.31
References

1. Transparency International, Corruption Perceptions Index 2002 (Berlin: 2002).
2. Transparency International, “Frequently Asked Questions about the TI Corruption Perceptions Index (CPI) 2002,” at , viewed 3 February 2003.
3. Transparency International, Global Corruption Report (Berlin: 2003), p. 133.
4. Javier Corrales, “The Politics of Argentina’s Meltdown,” World Policy Journal, fall 2002, pp. 29–42.
5. Gallup International, “Governance and Democracy—The People’s View: A Global Opinion Poll,” Gallup International Millennium Survey, 1999, at , viewed 7 January 2003.
6. Peter S. Green, “Graft in Eastern Europe is Called Rampant,” New York Times, 7 November 2002; UNICEF survey of 40,000 children between the ages of 9 and 18 in 72 countries cited in UNICEF, The State of the World’s Children 2003 (New York: 2003).
7. Paulo Mauro, “Corruption and Growth,” Quarterly Journal of Economics, vol. 110 (1995), pp. 681–713.
8. Shang-Jin Wei, How Taxing is Corruption on International Investors? Working Paper No. 6030 (Cambridge, MA: National Bureau of Economic Research, 1997).
9.World Bank, Anticorruption in Transition: A Contribution to the Policy Debate (Washington, DC: 2000), p. 19.
10. Philippine Daily Inquirer, 6 March 2002, cited in Transparency International, “Mugabe Stands Out Among the Politically Corrupt, While Banks and Energy Sector Top Dirty Business Deals Uncovered in 2002,” press release (Berlin: 17 December 2002).
11. Transparency International, op. cit. note 3, p. 108, based on World Bank, Report on Governance, Institutional Performance and Corruption: Developing an Anti-Corruption Strategy for Colombia, 21 March 2002, and on .
12. George T. Abed and Sanjeev Gupta, eds., Governance, Corruption, and Economic Performance (Washington, DC: International Monetary Fund (IMF), 2002).
13. Vito Tanzi and Hamid Davoodi, Corruption, Public Investment and Growth, Working Paper 97/139 (Washington, DC: IMF, 1997); Sanjeev Gupta, Hamid Davoodi, and Rosa Alonso-Terme, Does Corruption Affect Income Inequality and Poverty? Working Paper 98/76 (Washington, DC: IMF, 1998).
14. Transparency International, Bribe Payers Index 2002 (Berlin: 2002).
15. Transparency International–Kenya, Corruption in Kenya: Findings of an Urban Bribery Survey (Nairobi: undated).
16. Yale University, “Environmental Sustainability Index,” press release (New Haven, CT: 26 January 2001).
17. Charles Victor Barber et al., The State of the Forest: Indonesia (Washington, DC: World Resources Institute, 2002).
18. Neil Ford, “Oil: Ethics Vs. Profits,” African Business, November 2000, pp. 26–27.
19. Floyd Norris, “A Nigerian Miracle,” New York Times, 21 April 2002.
20. “Survey: Corruption, Construction, Conservatism,” Economist, 20 April 2002.
21. Asahi Shimbun, 23 April 2002, cited in Transparency International, op. cit. note 3, p. 130.
22. Bernard Simon, “World Business Briefing Africa: Lesotho: Bribery Penalty,” New York Times, 29 October 2002.
23.World Bank, “Listing of Ineligible Firms: Fraud and Corruption,” at , viewed 7 January 2003.
24. John Brademas and Fritz Heimann, “Tackling International Corruption: No Longer Taboo,” Foreign Affairs, September/October 1998, pp. 17–22.
25. Asian Development Bank, “Asian and Pacific Governments Adopt Regional Plan to Fight Corruption,” press release (Tokyo: 30 November 2001).
26. Organization of American States, “Enhancement of Probity in the Hemisphere and Follow-Up on the Inter-American Program for Cooperation in the Fight Against Corruption,” General Assembly Resolution, Washington, DC, 5 June 2000.
27. United Nations, General Assembly, “Revised Draft United Nations Convention Against Corruption,” New York, 24 September 2002.
28. Demetrios Argyriades, “International Anticorruption Campaigns: Whose Ethics?” in Gerald E. Caiden et al., eds., Where Corruption Lives (Bloomfield, CT: Kumarian Press, 2001), pp. 217–26.
29. Transparency International, op. cit. note 14.
30. Peter Eigen, “Multinationals’ Bribery Goes Unpunished,” International Herald Tribune, 12 November 2002.
31. Ibid.
source: http://www.worldwatch.org/brain/media/pdf/pubs/vs/2003_corruption.pdf 5nov03

To send us your comments, questions, and suggestions click here
The home page of this website is www.mindfully.org
Please see our Fair Use Notice