Corruption and its dimension: Prevention and deterrence

Corruption is not a new phenomenon. Two thousand years ago, Kautilya, the legendary philosopher and Prime Minister of the ancient Indian kingdom had written about corruption in his book Arthashastra.  Seven centuries ago, poet Dante placed bribers in the deepest parts of Hell.  Shakespeare depicted corruption as a curse in some of his plays.  In our present times, corruption has assumed an unprecedented proportion in all spheres of public activities.

The most popular and simplest definition of corruption is abuse of public power for private benefit. This is the definition used by the World Bank. Sometimes, abuse of public power is not necessarily for one's private benefit but for the benefit of one's party, class, tribe, friends, family and so on.  Again not all practices of corruption result in the payment of bribes. For example, a public employee who claims to be sick but goes on vacation is abusing his public position for personal use. Thus, he is engaging in an act of corruption even though no bribe is paid. A small road built for one's own interest by depriving majority of people's interest is also an act of corruption. Here also this does not involve bribery.

It is difficult to distinguish bribe from gift. In many instances, bribes can be disguised as gifts. The distinction does not depend on the size or value of the gift. Gifts or tips are defined varyingly in different cultural contexts. Tips given to a taxi-driver in USA is common whereas tips given to a taxi driver in Sweden is an act of corruption. Clearly, identifying   bribery is not always simple.

FACTORS CONTRIBUTING DIRECTLY TO CORRUPTION: Discretionary power of officials of the state creates ample opportunity for engaging in corruption. But the least corrupt countries in the world, such as Canada, Denmark, Finland, the Netherlands and Sweden, have been using discretion for greater public interest. Application of numerous rules or regulations in various public activities like obtaining licences, permits, authorisation of  works  such as opening a shop and keeping it open, borrowing money, driving a car, owning a car, building a house, engaging in foreign trade, obtaining foreign exchange, getting a passport and so on requires a certain exercise of discretion because not all cases are the same. No unique regulation can serve or meet multiple needs.   

Discretion gives the officials power that often does not follow the proper course. The real challenge lies in the use of discretion. Suppose one gas engineer has the capacity to provide connection to fifty households at his jurisdiction but if he gets 500 applications for those connections, how should he go about performing his job? He may opt for an open lottery, or he may choose the highest tax payers among the applicants to receive connections, or he may resort to first-come-first-served policy. Any of these could be used to apply discretion. But the ground reality is that in the absence of transparent regulations, officials in charge of such jobs may tend to abuse discretion. This situation can be minimised by simplifying regulations and making those public.

REVENUE MOBILISATION: Physical presence or face-to-face meeting of revenue collectors and citizens needs to be reduced as far as possible to avoid bribery. Corruption is likely to be a major problem in some developing countries in revenue administration if:

n laws are difficult to understand and can be interpreted differently so that taxpayers need assistance in complying with them;

n payment of taxes, fares, rent and revenue  requires frequent contacts between payers and  administrators;

n acts of corruption  of the revenue inspectors are ignored, or not

n easily discovered, or when discovered penalising is insignificant;

n no clear criteria for the selection of taxpayers for audits;

n no clear provision of tax incentives, determination of tax liabilities

PUBLIC EXPENDITURE: Corruption can also affect public expenditure.  Public projects have, at times, been carried out specifically to get "commission" from those who are chosen to execute the projects. This  reduces the productivity of such expenditure and result in projects that would not have been justified as per objective criteria. Again, frequently increasing the price of the project after awarding contract is seen as a great window for corruption.

PUBLIC PROCUREMENT: Purchase of goods and services on the part of the government is another gray area for corruption. To reduce corruption possibilities, some countries have developed online procurements. In all these areas, lack of transparency and effective institutional control is the main cause of corruption. Experiences show that e-procurement can drastically reduce opportunities for corruption if the system works properly.

PROVISION FOR GOODS AND SERVICES AT BELOW MARKET PRICES: In most developing countries, governments provide for goods, services and resources at prices lower than market prices, for example -- foreign exchange, credit, electricity, water, public housing, some rationed goods, access to educational and health facilities, access to public land and so on.

These are considered as fertile grounds for corruption.  So, it is critically important to put in place an effective mechanism to provide such services to check corrupt practices.  

EMPLOYMENT OF GOVERNMENT SERVANTS: Corruption in the employment of government employees has been found in some countries as presenting ample opportunities for bribery and rent seeking. To stop this, some countries have outsourced public sector employment or contracting out methods for employment in large scale.

LAND MANAGEMENT AND REGISTRATION: Maintaining manually private land management and registration procedure invites corruption in some countries. Decisions relating to the sale of public sector assets, including the right to extract natural resources, decisions on the privatisation of state-owned enterprises and on conditions attached to that process, managing public land and properties create opportunities for rent seeking practices. In these areas, countries like Sweden, Denmark practise fully  automated online systems to check corrupt practices.

INDIRECT CAUSES OF CORRUPTION: Besides the factors that promote corruption directly, as discussed above, other factors can contribute to corruption indirectly. Some of these are discussed briefly below:

QUALITY OF THE BUREAUCRACY: The quality of the bureaucracy varies greatly among countries. In some, public sector jobs give a lot of prestige and status.  Many years ago Max Weber (1947), the outstanding German sociologist, pointed out the characteristics of an ideal bureaucracy. He was aware that most bureaucracies are not ideal.  Rauch and Evans (1997) have shown that the less recruitment and promotion are based on merit, the higher is the extent of corruption. Absence of clear and publicly open rules on recruitments, promotions and hiring in the public service can create ample opportunities for corruption. Thus, clear and publicly open rules for recruitments and promotions for public service should be in place to check corruption.

LEVEL OF PUBLIC SECTOR WAGES: Singapore has pursued a wage policy aimed at reducing the temptation for public officials to engage in acts of corruption. Reportedly, the salaries of ministers and other high-level officials in Singapore are among the highest in the world. There has been some speculation in the theoretical economic literature that high wages may reduce the number of corrupt acts in service delivery, but this may lead to demands for higher bribes for such employment. The reason is that high wages raise the opportunity cost of losing one's job or gaining one's job.

PENALTY SYSTEMS: Gary Becker and Robert Kildguard (2008) mentioned in their classic analysis of crime prevention that deterrent penalty can restrict corrupt practices. Corrupt practice should be like high hanging fruits. Penalty must be higher than the proceeds of corrupt acts.

INSTITUTIONAL CONTROLS: The other important ingredient in Gary Becker's analysis is that those who commit corruption should be caught instantly. This leads to the role of institutional controls. Generally, the most effective controls should be those that exist inside institutions. This is really the first line of defense. Honest and effective supervisors, good auditing offices and clear rules on ethical behavior can discourage or discover corrupt practices. Transparent procedures should make it easier for officials to exercise their controls. Supervisors should be able to monitor the activities of their subordinates and they should themselves be held accountable for acts of corruption in their offices that go unpunished. If these checks are nonexistent, major corruption cannot be detected only by outsiders like press media or external audit.

TRANSPARENT RULES, LAWS AND PROCESSES: In many countries, lack of transparency in rules, laws and processes creates a fertile ground for corruption. Rules are often confusing, the documents specifying them are not publicly available, and at times, the rules are changed without properly publicised announcements. Laws or regulations are written in a way that only trained lawyers can understand and they are often conceptually opaque about important aspects, thus leaving grounds for different interpretations. This makes it difficult to determine whether corruption has played a role in some important decisions. Some countries for example, New Zealand, have made great efforts in recent years to bring more transparency in all the accounts and actions of the government. The IMF has recently issued a code on fiscal transparency for its member countries that, if followed, would have the effect of reducing corruption.

EXAMPLES BY THE LEADERSHIP: A contributing factor to curve corruption comes from examples set by the leadership. When the top managers do not set the right example either because they engage in acts of corruption or, as is more often the case, they condone such acts on the part of relatives, friends, or associates, it cannot be expected that the employees in that office will behave differently. These institutions cannot be expected to be corruption-free if their heads do not set the best examples of honesty.

MEASURING CORRUPTION: If corruption could be measured, it could probably be eliminated. In fact, conceptually it is not even clear what one would want to measure. Simply measuring bribes paid would ignore many corrupt acts that are not accompanied by the payment of bribes. An attempt to measure acts of corruption rather than the amounts of bribes paid would require counting many relatively unimportant actions and identifying each act of information that is simply not available. While there are no direct ways of measuring corruption, there are several indirect ways of getting information about its prevalence in a country or an institution. Useful information can be obtained from reports on corruption available from published sources including newspapers, case studies and questionnaire-based surveys. Countrywide surveys are available from the following organisations: Global Competitiveness Report (Geneva), Political and Economic Risk Consultancy (Hong Kong), Transparency International (Berlin), and Political Risk Services (Syracuse).

Results obtained from these surveys are now widely used by researchers and business people. The best-known of these surveys, the Transparency International index, for example, assesses the perception of corruption on a scale of 0 to 10. Ten refers to a corruption-free country; zero refers to a country where most transactions are tainted by corruption.

 FIGHT AGAINST CORRUPTION: Some countries (Singapore, Hong Kong, Portugal) have managed to reduce the incidence of corruption significantly (Lindbeck, 2008, p. 3). Corruption is a complex phenomenon that is almost never explained by a single cause. The fight against corruption must be pursued on many fronts. It is a fight that cannot be won in months or even in a few years. The greatest mistake here could be to rely on a strategy that depends excessively on actions in a single area -- such as increasing the salaries of the public sector employees or increasing penalties or establishing code of conduct and then to expect quick results.

In the ideal bureaucracies described by Max Weber, the public official (as

the agent of the state) is the faithful executor of the mandate and instructions

that he receives from the state.  It is generally believed that increasing the penalties to the public employees for acts of corruption would reduce a country's corruption.  It is useful to point out that some of the countries perceived to be the least corrupt (e.g., Sweden, Denmark, Canada) have little punishment measures.  On the other hand, some countries with the highest punishment for corruption (e.g., Nigeria, Pakistan, China, Venezuela) have some of the highest corruption records.

Thus, corruption will be reduced only when governments are willing to substantially reduce some of their regulations that affect public life. In any case, any serious strategy to reduce corruption will need actions on at least five fronts:

1. Honest and visible commitment by the leadership to the fight against corruption, for which the leadership must show zero tolerance;

 2. Policy changes in terms of scaling down regulations and other policies and by making those that are retained as transparent and as nondiscretionary as possible;  

3. Increasing incentives toward honest behaviour, and instituting effective controls and penalties on the public servants and private sector;

4. Somehow solving the problem of financing of political parties by allocating resources from the national budget;

5. Clear and transparent rules for recruitment and promotion of public officials are central to prevent corruption. Again establishing e-procurement hub in public sector is another key to reducing corruption.

An independent and impartial judicial system, an independent anti-corruption agency, existence of grassroots "watchdog" organisations, a telephone "hot line" (like in the United Kingdom and Mexico that allow citizens to complain directly to the ACC), public opinion surveys (such as those carried out by Public Affairs Centre in Banglore, India or by the World Bank's Economic Development Institute in other countries) are some of the essential steps that can act as effective deterrent to corruption. International organisations such as the United Nations Development Programme, World Bank, International Monetary Fund, Asian Development Bank and the like can provide moral pressure as well as technical assistance to induce or help countries in their fight against corruption continuously.

Dr Md Shamsul Arefin is  Director General,

Anti-Corruption

Commission Bangladesh. [email protected]