Sunday, 10 April 2011

From Humble to Jumble: the Role of Law in Post-Independence Azerbaijan

Azerbaijan’s dilemma

The modern Azerbaijan Republic’s legal system had a humble, and strife-riven, start to life. When the Soviet Union collapsed in 1991, Azerbaijan was left with a legal dilemma. There were in existence basically two bodies of law – laws, rules and regulations passed by the legislative bodies of the Azerbaijan Soviet Socialist Republic; and the legislation of the Soviet Union, including all the multilateral and bilateral treaties to which the Soviet Union was party. Azerbaijan in large part denounced the laws of the Soviet Union, including most of its treaties, retaining a handful of fundamental laws, primarily the Codes covering such matters as civil, housing and employment law. Faced with war with Armenia (the ceasefire not materialising until May 1994), a dislocated and collapsing economy and a loss of faith in the Azerbaijani currency, the country moved quickly to try to attract foreign investment and foreign advisers. As part of this process, the author was the first (and perhaps only) foreigner to be a member of a parliamentary commission.

In 1992, Azerbaijan enacted the law On the Protection of Foreign Investments, a piece of legislation still in force (in an amended form) though not always applied. As part of this early investment-friendly climate, in 1994 Azerbaijan also signed the first of its new double taxation treaties. It was with the United Kingdom, which was about to become Azerbaijan’s biggest foreign investor. That treaty was the first in what is now a well-trodden path.

And, with great fanfare, in September 1994 the Contract of the Century was signed with oil companies for the development of the Azeri, Chirag and deepwater Gunashli fields. From a legal perspective, this agreement was an important milestone, being subsequently passed into law and thereby setting a precedent followed to this day not just in the realm of offshore exploration, development and production of hydrocarbons but also for some onshore fields, the main oil and gas export pipelines, and for certain gold-mining ventures. Although the exact legal status of such agreements passed into law has never really been clear, they have formed a foundation for the economic development and political stability of Azerbaijan.

The double tax treaty made with the United Kingdom was not only the first of many but was perhaps exemplary of another dilemma which Azerbaijan faced in its early days: the English-language version was the only official text as an Azerbaijani draft could not be prepared in time for the signing ceremony. The reasons for this could be many but one possibility could have been that few of Azerbaijan’s senior lawyers and not many of its ministers at the time had a sufficiently sound knowledge of the Azerbaijani language to allow them to draft laws (or treaties) in Azerbaijani, even using the Cyrillic alphabet. To this day, though the situation is much improved, that continues to be a problem bedevilling legal draftsmen in Azerbaijan.

The Millennium Bug

The second-half of the 1990s saw some major legislative developments, especially in the start of a process of privatisation. The process was mired from the outset in controversy, having been launched using a flawed voucher scheme whereby all citizens were given vouchers in theory meant to represent a share in the states’ property but in practice being almost worthless (except to a lucky few). By the end of the ‘90s, privatisation had begun in earnest and Qaradagh Cement was amongst the first of the major state-owned enterprises to be privatised.

The turn of the century also brought a spate of vigorous legislative action, infecting the Milli Majlis like a computer virus. By mid-1999 we had a new Labour Code in force, updating the old Soviet version and incorporating the requirements of dozens of International Labour Organisation conventions that Azerbaijan had acceded to. The Labour Code was followed swiftly in 2000 by new Tax, Family, Civil, Criminal, Administrative Offences and procedural Codes. There would be many more in the years to follow. But the much-talked of draft law On Oil & Gas remained in the cupboard collecting dust.

This flurry of activity in law-making evidenced both enormous hope and goodwill but also highlighted some of the deficiencies of the legislative process.

On the positive side was the fact that both the Labour Code and the Tax Code genuinely sought extensive public consultation, both being published in draft in the newspapers. Comments were not only elicited but acted on, this author personally appearing before two parliamentary committees and spending several hours with the generous-spirited draftsman of the Labour Code in considering various amendments to the draft. Alas, this open consultative process has never been repeated in such a fashion.

The negative side of the spewing forth of legislation was its quality. Some of it was not the fault of the legislators but of the foreign consultants advising on the drafting of the laws. In essence, the problem lay in the poor command of Azerbaijani legal terminology by all concerned. The best lawyers, educated in the Russian-language sector, struggled with the texts, first mentally composing their sentences in Russian and then putting them into a stilted form of Azerbaijani. Matters were made even worse when foreign consultants were involved: they would draft in a foreign language, which would then be translated into Azerbaijani by lawyers whose primary language was Russian and, when used by foreign lawyers, would be translated back into English through the same convoluted process. The result was often a jumble of words making little sense.

The next challenge

Legislation has continued to pour out of the Milli Majlis, the President’s office, the Cabinet of Ministers and a plethora of ministries at an ever-increasing rate. Too much legislation. Most legislation today originates not with the Milli Majlis but with the President’s office. That makes the Milli Majlis more or less irrelevant in the legislative process and places an enormous burden on the shoulders of the President’s experienced but small and over-worked legal team. It must surely be time for the deputies of the Milli Majlis to shoulder a greater share of this burden and to perform the job for which they have been elected, namely the introduction, scrutinising, and amending of primary legislation.

Monday, 11 October 2010



Post-independence Baku is a perfect subject for a study in development economics. Today, in 2010, tower blocks and hotels are sprouting all over the city and grandiose development plans are mushrooming almost as fast. But post-independence Baku was a very different place. There were few tall buildings and satellite towns such as Xirdalan did not exist. Vermin-free and electrically-safe accommodation, with running water, preferably other than through the ceiling, in downtown Baku was a rarity.

Arriving in the late summer of1993, Baku had no quality hotels. There were basically five half-acceptable ones (i.e. with louse-free beds): the Respublika - not really an option as BP had block-booked most of its rooms; the Old Intourist (a not unattractive grey-coloured low-rise building), which was also not really an option either as two other oil companies, Pennzoil and Unocal, together with the British Embassy had taken over chunks of it; the New Intourist, otherwise known as the Azerbaijan Hotel, (an ugly high-rise now being redeveloped and intending to re-open as the Hilton), the Apsheron (mirroring in many ways the Azerbaijan Hotel and currently also being redeveloped and expecting to reopen as the Marriott) and the Moskva (Moscow) Hotel another non-descript high rise on the hill near the Parliament building, then popular for weddings and even in late 1993 was undergoing renovation (and is now being completely redeveloped, expecting to open as the Fairmont).

Of the three ‘available’ hotels (the Azerbaijan, Apsheron and Moskva), the Moskva had the better reputation, though hard to see why but for its wide staircase and an absence of the then ubiquitous Russian ‘floor-ladies’ (unsmiling ogres, invariably ethnic Russians, who kept their beady eyes on all comings and goings). It also had a bar, bigger though less popular than the one at the Old Intourist. The hotels did have one factor in their favour – with the country still at war (the ceasefire with Armenia not occurring till May 1994), their restaurants did at least have something to eat (even if the menu was limited to caviar – a treat the first few times but unappetising thereafter - sturgeon, chicken, hard-boiled eggs, pilov, tomatoes and cucumber. And bread and mineral water. There were always long bread queues in the city and a there were a couple of days when I recall mineral water was hard to come by (before a convoy of Iranian trucks arrived to save the day). The waiters wore black bow-ties, scruffy black jackets and crumpled white shirts, pretending at style.

But the Azerbaijan Hotel was still the preferable option over the Moskva, stuck out of the way up the hill. It was staying at the Moskva that I conducted my interviews to hire staff for Ernst & Young and where I consequently met some of the brightest people in the city. I was convinced one candidate, a senior employee of the Ministry of Foreign Affiars, was working for the intelligence services, his English being so good and his Soviet-era history as a diplomat (having resided in Vienna for several years). He, too, was suspicious of me and insisted on looking at the notes I was taking of our interview. We remain friends to this day.

But it was also in the Moskva where I had one of my scariest experiences. Taking the elevator to my floor it, for reasons unknown, failed to stop and kept going to the top floor. Realising there must be a fault with the machinery. I hopped out and decided to walk down. That was a mistake. It was only when I got out that I realised the top floor was being renovated, with all the windows removed, bags of cement lining the walls, the sun setting and the natural light fading, the wind gathering force and billowing up dust. I walked down two storeys only to come to a wooden barrier constructed across the staircase. With no human in sight and it getting too dark to see clearly, I ascended the stairs to call the lift, my only option. I went to press the elevator button. But where was it? The control panel had been removed! I was stranded. I had visions of starving to death without anyone knowing. Fortunately, before panic took hold, the dodgy lift came as if it had sensed my distress, the doors opened and I leapt in.

Although the Moskva had its scary moments, the other hotels had there own problems. The ‘refurbished’ ‘suite’ rooms of the Azerbaijan Hotel were poorly heated and even less well-insulated (the winter of 1993-94 was an especially cold one for Baku, with unusually heavy and persistent snowfalls) and I shivered some nights fully dressed. When I moved out of hotels to an apartment (which also doubled as the Ernst & Young office) on Nizami Street, near the railway line, I recall one winter night the curtains flapped horizontally as the north wind howled outside and, despite being fully dressed lying under two duvets on the bed, I struggled to sleep because of the cold. I eventually nodded off only to be woken in the morning by the staff arriving for work. I looked at my alarm clock to find its battery had seized up with the cold and the electricity voltage had dropped so dangerously low that the plug on my electric heater had melted.

Baku that winter seemed dreary, depressing, desolate and dead. The creaky tram/trolley bus network (since dismantled) was barely functioning and the few rusty Soviet-era Ladas and Volgas on the streets were targets then, as now, for the rapacious traffic police. On one occasion, my driver – who came equipped with his own white unheated Lada – whispered urgently for me to get into the parked car as he made to hand his papers over to a policeman. As I closed the door, he sped off, leaving the bristling policeman whistling for his money.

Not only were there few acceptable hotels in 1993 but there were few restaurants and no supermarkets. The nearest thing to a supermarket was the Viyana Store, a shop in Xatai, which stocked whatever the truck happened to bring, including toilet paper and out-of-date cheese (and where I once bought 36 litres of UHT milk, not knowing when I might see that luxury again). It was not long before quite reasonable supermarkets (the first I recall being an Israeli-owned one on Rasulzadeh Street in the historic part of town on the fringes of the Old City) and restaurants started to open (three Turkish ones in particular, including the Cinema Club on the Boulevard and a very pleasant one in a garden setting in Xatai). Bars were also starting to proliferate.

For entertainment, other than the bars, there were the Opera & Ballet Theatre and the Philarmonia. The former was an interesting diversion to see some delightful Azeri operas, and some uninspiring western operas and ballets. Soldiers on R&R from the battlefront would use the matinee performances for a snooze in the back rows.

And the Azerbaijani soldiers were not the only soldiers taking a rest from the fighting. There were also the Afghan mujahideen, strolling along the waterfront or relaxing in the Azerbaijan Hotel. And strolling along the waterfront was then, as now, one of the few pleasures an impecunious Azerbaijani could indulge in when the weather was good. The Afghan mujahideen, along with the rest of Baku’s males, would no doubt ogle the pretty girls (even though almost all seemed to have one or more glinting gold teeth). But the women in those days were quite modestly dressed: the first mini-skirted girl I saw was in the summer of 1994 and I recall she was given a mouthful of abuse from an older woman. Back then, you would never see men in shorts (even today a rare sight) – jogging would have to wait until there was a fitness club equipped with a running machine.

But all of this was before the Hyatt Regency opened in 1995. That was when the city started to buzz. Not only did it provide that fitness club and the first public space where a western businessman could feel relaxed and comfortable. It also had an important economic impact on the city. Before the hotel opened, British Airways had already started scheduled flights to Baku to meet the growing demand from the oil companies and oil service sector looking for opportunities in Azerbaijan. But the flights were dog-legged through Bucharest. Now, with an acceptable hotel to put up their crew, British Airways could fly direct. Once it could do that, more businessmen were willing to visit. And with a good quality hotel, more senior executives, unused to roughing it in Soviet-era hotels, were ready to explore new opportunities. Other airlines, such as KLM, also saw the opportunity to develop routes, and to use Baku as a stop between Tehran and Amsterdam.

The Hyatt Regency also formed the venue for the early meetings of the Baku Cricket Club (formed in 1995 but now defunct), two of whose early stars were a Dutch and American-Pakistani employees of Hyatt's management team.

The British Embassy and ambassador’s residence, too, moved to the Hyatt Regency (the former Naxchivan Hotel, a name President Heydar Aliyev insisted be restored alongside the Hyatt moniker). Britain’s first ambassador to Azerbaijan, Tom Young, was a Turkish speaker with a nice sense of humour and he developed a real affection for the people of Azerbaijani. Sadly, after serving with distinction as ambassador in Azerbaijan and High Commissioner in Zambia, he committed suicide not long after retiring from the diplomatic service.

The Hyatt Regency brought with it a casino (subsequently outlawed but popular whilst it lasted). Originally located on the lower-ground floor of the Hyatt Regency it was later moved to a newly-constructed adjacent building (now the Hyatt’s Conference Centre). It was not quite Las Vegas but it was a place where there was late-night entertainment (not just the gambling but a singer or pianist) and a cosy place for a relaxed meal. Other casinos opened, the biggest in the Europe Hotel, a stone’s throw from the Hyatt, and casino-tourism from Turkey came into vogue for a while.

It is hard to know what Baku would have looked like if the Hyatt had not opened. Of course, other developers would eventually have moved in. But the Hyatt Regency earns the distinction of having been the pioneer which spurred economic development in Azerbaijan.

Saturday, 5 June 2010



There are those who see the current economic crisis in Europe as the beginning of the end, first for the euro and then for the grand European idea as a whole. They argue cogently that the Germans will not be willing for long to bail out their southern European partners, unglamorously nicknamed the PIGS - Portugal, Ireland, Greece and Spain though Italy would do just as well as Ireland and would be more in keeping with the general perception in the north of a corrupt, lazy, and tax averse south. So the argument goes, Germany will tire of these southern debt-ridden sloughs of despond and will either eject them from the eurozone or itself will abandon the euro and return to the glory days of the Deutschmark. France will have to follow the Germans, something it has not been used to doing since the Second World War. Thus an ugly (unworkable?) two-tier Europe will be created (though ignoring the fact that, first, a number of European Union countries, in particular the United Kingdom, have never been in the eurozone; and secondly, talk of a two-tier Europe has existed for well-over a decade when the French thought it was a good idea).

The travails of Europe’s economies have a long way to go and may well cause Germany and others to contemplate taking steps that might irreparably damage the grand European dream. But, in some senses, this crisis might bind Europe more closely together: if the steps taken by the European Central Bank to extend a mountain of credit to Greece (followed by others) work to stem the tide of decline and create a climate for much-needed reform, then Greece and others may well look to Germany as a saviour. But this itself harbours its own dangers. It will make Germany the leader of Europe, a fact the French will not stomach for long.

In reality, the rot set in in 1989. In that year the Berlin wall came down and the following year Germany reunified. The post-war settlement of 1945 was predicated on keeping Germany divided and weak. A strong Germany was seen as a threat to the whole world, not just Europe. This line of thinking went way beyond a desire to punish, to inflict retribution. It was a philosophy based on history, not just the history of the Third Reich but of the German people. The Germanic people had been at the centre of wars in each century for more than half a millennium. This was not so much the fault of the Germans (or at least not entirely) but of their geography. They sat at the heart of Europe and were, therefore, best placed to control large chunks of territory in every direction.

After 1945, with Germany divided and Germans driven out of the eastern bloc, Europe could breathe more easily. The French took the lead. They had always aspired to be leaders of Europe. Napoleon Bonaparte almost achieved it. But, in the last century before 1945, stuck on the periphery of the continent and with a large colonial empire pulling it away from Europe, it struggled for mastery of Europe. In 1945, France saw its chance. With Germany beaten and destitute, France could lead a war-ravaged Europe (or at least the western bit of it). As Germany’s economy picked up, but with the Germans still wary of flexing their burgeoning biceps for fear of reviving memories of wartime horrors and France all too willing to play on these fears, France could both lead politically and could count on Germany to pay for it. France made sure of its pre-eminence by not permitting the United Kingdom to join the European Economic Community in the 1960s. When the UK finally did join, its empire was gone and its economy was in a mess. France could continue to lead without any fear of the UK meddling (especially as it was the new boy on the block).

Then, the wall came down, the two parts of Germany were reunited and the European Union, the transformed economic community, was on an expansionist kick. That expansion moved Germany from being at the periphery of the EU to its very heart. A number of the new members joined which had been historically subject to German influence (Austria, Slovakia etc. and Germany continues to press for the membership of Croatia, another historic ally). So Germany, the economic and industrial powerhouse of Europe, had moved silently into its traditional role as a central European political power. And, with every push that the United States and its NATO allies give to Germany to contribute more to military actions in, for instance, Afghanistan, the quicker it overcomes its taboo over having a stronger more muscular military. What then will be its next step? Britain and France, despite the loss of empire cling jealously to their self-appointed roles as world policemen. Why do we not expect Germany to want to do the same in Europe as, historically, it has done?

The Europhiles argue that Europe is bonded by a common culture. That is a nice but ludicrous notion. Before even wondering what that culture may be, it pre-supposes that all Europeans share the same values and that no other nation can have those values. Not only does it ignore reality – does Bulgaria really have much in common with Sweden? – but it makes nonsense of a lot of foreign policy and international aid programmes of European Union members. Let us say, for instance, that “the rule of law” is a European value (though personally I would hold that it is an English value that has been adopted by many European countries). If no other country can become “European” (i.e. we don’t have the confidence that their cultural “mentality” permits them to understand what is being “European”), why bother to encourage other countries to adopt this particularly useful trait if they cannot be expected to understand it? If a non-European country adopted all these philosophical “European” ideas – as expressed in the laws of the European Union, I wager that those foisting on geographical Europeans the grand European dream will still deny that non-native Europeans can be ‘culturally European’. That is not only an arrogant conceit but it makes pointless the whole thrust of Europe’s foreign policy.

The very notion of a united Europe is based on a historic fallacy. It assumes some common classical Greco-Roman heritage for Europe but that ignores both history and common sense. Rome did not extend to the northern reaches of Europe – Scotland and Scandinavia – or throughout even the whole of the Germanic territories. And there were many other, even stronger, influences on some European countries where Rome did once have a presence (Arabic culture in Spain, say, or the Ottomans in Bulgaria).

Indeed, the notion of a superior European culture – Europe bonded by a common set of beliefs in equality and certain inviolable freedoms - is an exercise in collective amnesia. It conveniently blots out the blood-letting of the Balkan wars, not even a century ago, and the horrors of its colonial past, of the barbarities of the Belgians, the Germans, the Portuguese, the Spanish, the Italians and even, I regret to say, the British.

And then there was Nazi Germany (not to mention General Franco, Mussolini, the Greek Junta, Portugal’s Salazar, the communist legacy of the eastern European members – need I go on?). Nazi Germany was not a mere aberration that can be blanked out from the pages of history. In some senses, it was the culmination of the European dream – a united Europe where some of the more pernicious developments of ideas of the Enlightenment – euthanasia for instance - were put into evil practice. The lessons of a maniacal genocide have clearly still to be learned. The slow reaction of Europe to the ethnic cleansing in Bosnia is evidence of that.

Even religion does not form a common European bond. Ignoring the fact that for the most part of their history before the ‘barbarian’ invasions, the Romans were not Christian, Europe still bears the scars of deep fissures between (very broadly) a Protestant north, a Catholic west and south and an Orthodox east. And those divisions ignore all the local religions that existed before Christianity, religions that had such a strong hold on the popular imagination that their influence is so pervasive today that we barely notice it (consider the ‘pagan’ names we generally use for days of the week or names of the months or the religious festivals celebrated in Europe, such as Christmas, that are essentially ‘pagan’ holidays).

The various Christian sects, however, would not be a great barrier to the European dream, especially in an increasingly secular Europe, if it were not for language. For all its combined economic strength and population, Europe as an entity can never challenge the United States or even reach parity with it, because language will always form a barrier to the single market. This barrier becomes greater now that Germany is reunited. Labour is not as free to move about Europe as it is in the US, if only because of the language barrier (and that’s not the only barrier). The Germans will not surrender the language of Goethe, the French will not relinquish the language of Moliere and the British will no more give up the language of Shakespeare. Indeed, they will all compete to ensure their language is dominant.

And so I return to the basic question: does Europe have a future? I don’t see it. If Europe in the form of the European Union wanted to survive, it needed to do two things: prevent Germany reuniting; and not expand eastwards. In failing to do these two, the evolution of European power that was evident in the first half century since 1945 has taken an uncertain turn. Before, under the leadership of France and by its side a Germany wanting to atone for its recent past by opening its purse for others to dip in their sticky fingers, everyone knew their place. Margaret Thatcher may have rocked the boat but ultimately the UK was unimportant to the European dream.

Nations are born out of war. War binds their people together and creates a myth of nationhood and the spirit of a nation. The European Union has not had such a war. Should it face one, perhaps it will forge a sense of common purpose. But that eventuality seems unlikely. For the time being, the Benelux countries (and now the Balts and small central European states) will tend to favour the idea of a united Europe because it allows essentially bit players on the world stage to have a voice and recognition beyond their desserts. But, in time, the Germans will justifiably start to wonder why, with Europe’s strongest economy and, eventually, strongest military, it should be listening to these tiddlers. Europe beware.

Thursday, 27 May 2010




This essay considers how, in a fast changing world, nation-states should organise and fund education. I make the following assumptions: that education in its widest sense (i.e. including technical skills, crafts etc.) is a general good; that each person is entitled to have equal access to state-provided education; that the providers of education may also include private institutions and corporations (whether or not operated for profit and including faith schools); when and where an individual chooses to obtain higher education is a matter for that individual; education is not intended as vocational training and part of the burden of educating the workforce will continue to fall on employers, professional bodies and guilds as it has always done.

Essentially, the idea proffered here is a modified and expanded version of the plethora of voucher schemes, academies and other concepts adopted in various countries. It is designed to be much more flexible and can be applied in almost any country. The scheme outlined here does not consider kindergartens or playschools. Nor does it consider issues of curricula. Although my personal view is that the only prescriptive aspect of education at schools should be limited to native language, one foreign language and mathematics, leaving all other decisions about teaching to the school itself, the contents of any curriculum raises as many political as educational issues and is beyond the scope of this essay.

The Scheme

First, we need to establish what the approximate cost of providing education (primary, secondary and tertiary) is. Governments will know what that cost will be and will also know its composition (made up of day-to-day expenditures and amortized capital costs). For the time being I will leave aside consideration of new school building. There may be significant variations between different urban centres (because, say, of a high number of special needs pupils or differentials in the cost of living) and different types of rural community (more remote ones, say, being more costly to service than ones located near large conurbations). There are also differences in the cost of educating a child at the primary level, say, and the tertiary level. Furthermore, some schools will have their own peculiarities (e.g. being housed in historic buildings requiring special consideration) and some parents might choose to home-school. And, of course, there is always the question of cost inflation. I will return to these nuances later.

Let us say that the annual cost per student works out at 2,500 units in an urban centre and 5,000 units in a rural community. Let us also say that each individual should have at his or her disposal the chance to receive formal full-time education for 18 years (from 5 until the age of 23). Of course, not everyone, indeed, not even a majority of individuals, will probably complete 18 years of education. Some may choose to leave tertiary education to later years and others will choose to leave full-time education early and will not return to it. Nonetheless, I believe 18 years of full-time education should be adopted as the norm. Based on this assumption (and excluding for the moment reference to cost inflation, improvements in technology etc.) the total cost per individual of full-time education over the student’s lifetime will be 45,000 units in an urban centre and 90,000 units in a rural area.

Six months before a child reaches the age of five, the parents are notified that they have available a notional pot of money (45,000 or 90,000 units) which, within certain limitations, they may spend as they wish on purchasing education for their child. If they choose to send the child to a state-funded school, the school will be paid the average cost of education (2,500 or 5,000 units p.a. for urban and rural schools respectively). In addition, the state will give a bonus payment of 20% which will be divided between the parent and the school. Let’s assume the division is an equal one, so that the parents and the school accepting their child will each receive 250 or 500 units annually. This payment will be made at the beginning of the school year.

The parents will be able to use this annual bonus payment to buy books, school uniforms, and other aids. This gives parents in developing countries an incentive to send children to school by relieving at least part of the burden of the costs associated with educating children. In more developed economies, poorer parents will find the lump sum a useful and timely contribution to their costs.

The school will be free to spend the bonus money on equipment, special needs facilities, extra books, sports equipment etc. (but will not be allowed to top-up salaries of permanent teachers). Thus, a school in an urban centre with 1,000 pupils will receive annually 2,500,000 units from the state to meet its day-to-day expenses plus a further 250,000 units to spend on discretionary items. The schools, therefore, will have a considerable incentive to attract students by improving its appeal to parents, students and teachers.

Ideally, the school will be a self-administered trust regulated by the local or central government and national school inspectorate.

If the parents choose to send their child to a private school, and the school accepts the child in accordance with its normal entry procedures, the same bonus payments (as if the chosen school were a state school) will be made to the parents but no bonus payment will be made to the school. The school will, however, receive its standard annual fees up to a specific limit (say, 140% of the cost of sending the child to a state school). This may mean that the total notional pot of lifetime units will get used up more quickly, but that is a choice the parents should be entitled to make. They might decide that it is it better to try to get, what is in their opinion, the best education available for a child at the primary or secondary stage, rather than worry about whether the child will be burdened with debt during the tertiary stage. Of course, one could limit the payment to the private school to the same price paid to a state school; or one could pay the full cost without the 140% limit. I believe, however, that the 140% limit is about the right level (after about 13 years of education, age 5 to 18, the full allowance will be used up).

Once a child reaches the age of 18, decisions about use of the education fund are passed from the parents to the child. S/he need not go straight to university. The fund will be available for use at any time of life, be it driven by a desire to change career or to take a chance to learn more deeply about some new-found interest. As people live longer, more and more are choosing to learn new skills or crafts later in life. I believe this is a trend that should be encouraged, allowing people to study what suits them best at a time when they are ready to study rather than be driven into further education without any clear desire or firm intent for a future career. It also has considerable benefits for universities, bringing a mature attitude and vision to university campuses.

The Details

I deliberately left aside consideration of a number of factors. I will now deal with these. First, new school buildings. Governments (local and central) will from time-to-time determine that, due to changing demographics, a new school is required in a particular locality. In the above scheme, new construction will still be the responsibility of the relevant government. It will build, equip and staff the school. Thereafter, all its running costs will be paid from scheme funds brought to the school by the children attending it. There may be for some scope for schools, particularly new schools, to borrow funds to pay for perceived essentials which the government has not provided. However, I believe such borrowing is not desirable and, if permitted, must be closely regulated.

Secondly, I mentioned variations between different urban centres and different types of rural community. Such variations between the cost of urban education and a rural education or within different urban or rural environments are inevitable. This could be dealt with by zoning a country according to education cost and permitting higher funds for inhabitants in higher-cost districts. However, I believe that the zones should not be overly complex. The zones will apply to the location of the parents (or child), rather than the school. Parents who choose to send a child to a school outside their zone of residence will still get the fund attributable to their zone of residence. The fund will be adjusted on the basis of residence. Thus, the 45,000 unit fund might rise or fall depending on the residence of the parent (or child), residence being determined at the end of a school year (thereby ensuring that the amount available to spend is known in good time before the start of a new school year).

Thirdly, I mentioned differences in the cost of educating a child at different stages of their lives (e.g. primary education tends to cost less than university education). Adjustments to the fund could be made for this over the life of the period of compulsory education. If this happens to be from age 5 to 16, the first 3 years could be paid at a 20% discount, the next 3 years at a 15% and so on. The savings could be added to pay for later years of education (i.e. the total education fund available will remain the same).

Fourthly, I mentioned that some schools will have their own peculiarities (e.g. being housed in historic buildings requiring special consideration). The cost attributable to preserving a nation’s heritage should not be passed to the educational institution concerned. This should continue to be a cost borne by the state.

Fifthly, I alluded to the potential difficulties which might arise if parents choose to home-school. I believe that it would be fair in these circumstances for the parents to receive the bonus as if the child were attending a state-funded school. The education fund would be reduced by the appropriate amount (perhaps at a lesser rate) to take account of an on-going requirement for administration, approving curricula inspection, etc.

Finally, I mentioned inflation. Education costs will normally rise over the lifetime of an individual due to inflation. However, this is easily dealt with by indexing the education fund to an inflation index, such as a consumer prices index. A government could, of course, choose to top up education funds with additional sums at specific levels of education (e.g. primary, secondary etc.).


I recognise that aspects of the scheme are being adopted around the world. However, as far as I am aware, no country has adopted a comprehensive programme of education funding reform along the lines proposed here.

I mentioned at the outset that there are a number of special factors that will need to be taken into account. I have listed a few of them and I have tried to offer some suggestions of how to deal with these. I hope that readers of this essay will post comments not only on the main theme but also on potential difficulties and ways to overcome them. I intend after some months, if sufficient constructive comments have been received, to rewrite this essay taking those comments into account.

Tuesday, 11 May 2010


20 January 1990 and the Unity of Azerbaijanis

Recently, both Elin Suleymanov and Tabib Huseynov made the point that, in the wake of the massacre of unarmed Azerbaijani citizens by Soviet troops on January 20, 1990, Azerbaijanis demonstrated an unprecedented level of national unity and resolve (Azerbaijan Diplomatic Academy Biweekly Newsletter, Vol. III, No. 3, February 1, 2010). I was not present at those events so cannot speak from experience but whether or not, as is stated, one million people turned out in demonstration in Baku, it was clearly a momentous occasion. But I am still mystified as to exactly what it represented. Was it a show of unity? If so, unity against what? The Soviet Union? Or was it simply an outpouring of revulsion against the slaughter of innocents?

Even today, amongst those aged 40+ there are many who hanker after the days of what they consider the ‘unity’ of the former Soviet Union. Those people do not view the Soviet Union as the foe but as the protector. I recall on one occasion in 1995 speaking to a very senior government official who, pondering his future if the economic prospects for Azerbaijan got any bleaker, said he had many highly-placed friends in Moscow who would find him a job. Not much sign of national unity there.

Many of those who lived in Baku in 1990 have since left the city. No doubt the harsh economic outlook prior to 1997 drove many to look elsewhere but even without that impetus many would have left in any case, especially amongst that strata some would have called the ‘intellectuals’ of Baku. They did not express much unity for Azerbaijan as a nation. Indeed, President Abulfaz Elchibey (1992-93) looked to Turkey not only as a model but as a parent, going so far as to introduce not Azerbaijani but Turkish as the national language.

Increasingly from August/September 1993, when I made my first visits to Azerbaijan, people would complain to me about the influx of refugees to Baku and how they were making such a mess of their beautiful city. “Why don’t they go back to the front to fight?” was the common refrain. Many valiant and patriotic Azerbaijanis did fight and die for Azerbaijan but I certainly got the sense, particularly amongst the educated middle and upper classes of Baku, that this was not Baku’s war, that Baku was somehow not part of Azerbaijan, that Baku was cosmopolitan, superior, and that Azerbaijanis were essentially peasants who should fight their own wars and leave Baku and Bakuvians alone. Admittedly, this is purely anecdotal. The people I met in those war-torn days were no doubt an unrepresentative sample of Bakuvians but it didn’t give me the impression of unity. And whilst Elchibey’s government was hardly a model administration, I was never left with the impression that Azerbaijan would emerge the victor in its war against Armenia, not so long as Baku did not stand behind it. It pained me at the time to think so.

It seems to me that the very idea of a modern unique identity of Azerbaijan was the creation of Haidar Aliyev, the former Soviet Politburo member who almost single-handedly brought Azerbaijan back from the brink of total defeat and started the hard slog of putting right the utter mess in which Elchibey’s administration had left the country. It was President Aliyev who made Azerbaijani the national language and he himself, unlike many of his senior administration of the day, spoke eloquently in stirring Azerbaijani. Elchibey had never quite succeeded in making people feel that the new state was a continuation of the first independent Azerbaijan Republic of 1918-20 but somehow it seems to me that President Aliyev magically achieved this feat.

Still, I do wonder whether national unity really was there in January 1990. If it was, was it so easily lost between then and September 1993? And has it truly come back since? It would be an interesting study to answer these questions.

Saturday, 8 May 2010



Over the past few years, voices calling for the reform of the United Nations, in particular reform of the Security Council and its membership, have become louder and more persistent. The call for reform is driven by a perception of injustice and absence of democratic principle in a system which vests five nations (China, France, Russia, the United Kingdom and the United States of America) with the power to veto a resolution, irrespective of the overall support among UN members for that resolution. These five permanent members of the Security Council are, therefore, viewed as exercising an undemocratic influence over the proceedings of the UN.

All but China of the P5 were made permanent Security Council members largely because they were the victors in the Second World War and each possessed nuclear weapons, then the only nuclear-armed states. Since then, China, another nuclear-armed nation, has joined the elite group. Other than the addition of China, the permanent members have remained the same, despite the reduced global role played by the United Kingdom and France and the break-up of the Soviet Union (Russia having inherited the Soviet Union’s seat), and despite other nuclear-armed states coming into being.

The system of five permanent members is viewed by most, including the P5, as inherently unfair. It excludes other economically and militarily influential countries and encourages a sense of disenfranchisement. A number of proposals have been made to change this situation, including expanding the number of permanent members to include, in particular, Brazil, India, Japan and Germany. It has even been suggested that each of these be given a veto, as the existing P5. Whilst going down this route might satisfy the four nations concerned, it is hardly making the system any more democratic. And it risks making it completely unworkable. It would leave many countries feeling distinctly antagonistic to the very idea of their local economic and military rivals becoming so influential. For instance, Pakistan (a populous and nuclear-armed nation) will naturally object to India’s membership. Others will also ask ‘why not us?’ Will not Indonesia feel slighted? What about Turkey? Won’t voices be heard saying that not a single Muslim country will be represented on the revamped permanent veto-wielding membership of the Security Council?

The answer is not really to tinker with the existing system but to devise a wholly different system that will be more democratic but will at the same time recognise that the existing P5 and the aspiring permanent members have a significant role to play and that their power and influence justifies that this role be greater than smaller, less influential countries.

Scheme for Reform

I start from the premise that the very existence of the Security Council brings the UN into disrepute. Privileging a handful of members creates an aristocracy amongst nations and undermines the very principles of democracy. My scheme for reform, therefore, starts with the abolition of the Security Council altogether, using the General Assembly as the world representative body whose resolutions will be binding on all members. Naturally, this means that a new system of voting has to be devised. ‘One-nation-one-vote’ is not a workable alternative to current Security Council arrangements.

In devising a new system, one has to recognise that the existing P5 are there largely because of their influence on the world stage. That power and influence is mainly derived from their economic strength and size of population that allows them to wield both military and economic power. So, any scheme for reform must be realistic and must give the P5 sufficient comfort that they will not lose their influence.

However, any scheme of reform must, to gain general acceptance, be seen to be fair, take account of realities of power (e.g. population and gross domestic product) and not be too rigid. Basing a system simply on voting weighted by, say, population alone will not be desirable. A populous country is often influential, at least regionally, but population alone does not determine global influence. By including GDP (or some other economic parameter that can be independently assessed), a nation’s wealth can be added to the parameters for weighting voting rights. And, whilst GDP is to an extent determine by population, there are sufficient additional influences to conclude that this will not be double-counting. Smaller nations will inevitably score less well though their allocated vote could be affected by, say, a significant discovery of mineral wealth.

Still, I believe this alone is not enough. Nations should be encouraged to improve the lives of their citizens and my proposed scheme for reform of the UN will take into account two further variables. These factors are overall literacy levels and infant mortality.

In the table below, I have calculated the votes that would be attributed, by way of example, to certain countries (those UN members whose names begin with the letter ‘A’). The bases of the weights applied are specified below the table. These are for illustrative purposes only. This weighting system could be tweaked and modified to be made fairer; or other systems could be adopted altogether.

The information source for making the decisions will need to be consistent and adjustments may be needed for lack of data etc. (the information source I have used is the CIA World Factbook). Researches of the Organisation for Economic Co-operation and Development, World Bank etc. could be used for providing baseline data.


                            POPULATION       GDP                  LITERACY       INFANT MORTALITY
                           (MILLION),      est. (US$ bn) PPP    % aged 15 and over  LIVE BIRTHS           
                           where <1, 1,          rounded up           (rounded up)                per '000            

Afghanistan     34               23               28.10              151.95            
Albania            4                22               19.67                18.62         
Algeria           34              236               69.90                27.73         
Andorra           1                 4              100.00                  3.76         
Angola          13              111                67.40               180.21           
Antigua           1                  2                85.80                 16.25         
Argentina      41              576                97.20                 11.44            
Armenia         3                 19                99.40                 20.21            
Australia       21              801                 99.00                  4.75             
Austria           9              325                  98.00                 4.42         
Azerbaijan      9                74                  98.80               54.60          

                              VOTES     VOTES      VOTES         VOTES                   TOTAL
                                        POPLTN     GDP       LITERACY   INFANT MORT.       VOTES

Afghanistan                4        0          0                 0                4

Albania                      2        0          0                 1                3
Algeria                      4        1           0                 1                6
Andorra                    1        0           2                 2                5
Angola                      3        1           0                 0                4
Antigua                     1        0           1                 1                3
Argentina                  4        3           2                 2              11
Armenia                   1         0           2                 1                4
Australia                   4        4           2                 2              12
Austria                      2        2           2                 2                8
Azerbaijan                2        1           2                 0                5


Weights could be adjusted every five years to take account in changes in population, GDP, literacy, infant mortality etc.
POPULATION: less than 3 million: 1
                              3-10m: 2
                            10-20m: 3
                            20-50m: 4
                          50-100m: 5
                        100-300m: 6
                        300-500m: 7
                        500-800m: 8
                     800-1,000m: 9
            more than 1,000m: 10

  less than 50bn: 0
        50-250bn: 1
      250-500bn: 2
      500-750bn: 3
   750-1,000bn: 4
1,000-2,000bn: 5
more than 2,000bn: 6

less than 70%   0
        70-90%   1
more than 90% 2

INFANT MORTALITY (per ‘000 live births):
more than 50:    0
          16-50:    1
  less than 16:    2


A glance at the table above reveals that whilst all members will get a minimum of one vote, even the smallest nation, if it has good health and education provision for its people, can increase its vote to five. A larger nation such as Afghanistan, with a moderately-sized population but little in the way of health or education provision scores only 4 votes, compared to Australia’s 12, even though the latter has a population only two-thirds the size of Afghanistan. On this basis (one which, I accept, is not perfect, requires further discussion and could be nuanced in several ways), the maximum vote any country could have is 20.

The system is designed to be fair – it does not allow any one country to dictate policy but it does recognise the reality of power. Importantly, it also encourages members to improve conditions for their citizens in line with the aims of numerous UN agencies.

Friday, 30 April 2010



This essay looks at corruption in the developing world and amongst newly-emerging nations. It does not address corruption in the developed world, the causes of which are not the same.

Corruption affects many societies and much effort and expense has been devoted to tackling it. Economists generally view corruption as an economic problem – the grabbing hand of the state; greedy officials always getting in the way of honest businessmen and even (sometimes) well-meaning politicians. Lawyers tend to see things not unnaturally as a legal problem – the absence of the rule of law and law enforcement mechanisms. The truth of the matter is that corruption is an integral part of authoritarian government. Political power determines the level of corruption in emerging nations with developing institutions of government. Ragged, decentralized political power will lead to ragged, decentralized forms of corruption. Strong central government gives rise to more systematic and ‘efficient’ corruption. New laws rarely help (and can hinder). This paper looks at some of the root causes of corruption, why attempts at reform have largely failed and suggests some measures (both legal and economic) that might, in time, have more success.


Almost as much has been written about corruption as has been witnessed but little seems to change in practice. In part, this is because the will to tackle corruption is not as great as is generally imagined but it is also because academics have generally viewed corruption as an economic problem with economic solutions. Thus, one economist writes, “The rational [sic.] for curbing corruption should not arise from the perception of corruption as ‘immoral or ethical behaviour” [sic.]. Rather the rationale should be the negative impact that corruption has on economic development and investment …” [de Asis 2000, p. 1] The same author neatly sums up the prevailing view: “the common ground for the misuse of public power for private benefit is related to three elements: 1) pervasive incentives; 2) lack of public information and transparency; and 3) lack of accountability” [de Asis 2000, p. 2]. All of this is true but it is not enough to say that, “Officials are tempted by corruption when the gain (or perceived gain) is greater than the penalty” [de Asis 2000, p. 3].

Limiting this analysis to the World Bank’s equally limited definition of corruption, namely, ‘the misuse of public services for private gain’, one might conclude that corruption only exists in the developed world for this definition has little direct application to corruption in emerging economies. It is in part the thesis of this paper that these definitions, whilst perhaps applicable to the developed world, have little application in newly-emerging or developing countries. The causes of corruption in these countries run far deeper than personal financial gain. In failing to understand this, governments and institutional donors of aid have squandered precious resources. To understand the causes of corruption we need to dig deeper. Often, news laws are not the answer – in fact, sometimes they merely add to the opportunities for corruption.

Looking further, however, this paper does suggest some legal and administrative mechanisms and developmental measures that could have at least as much impact on corruption as the measures propounded to date.


A. Why corruption works

A short sojourn in almost any country with an emerging market will reveal that corruption is rife. Quite how rife will vary from one country to another but corruption there will be. And almost all the countries in question are either one-party states or immature democracies (India is an anomalous exception to this general rule). Why does it exist? The obvious answer is greed. But this is far too simplistic a view. It is not economics but politics that lies at the root of most third world corruption. Private enrichment goes beyond personal greed: much of the wealth siphoned off is used to maintain corrupt governments in power.

We tend to think of autocratic governments as ones lacking popular support. This is not really so. Such governments are, by definition, not democratic but no government can survive for long without at least 20-25% of the population favouring it. That is no smaller a proportion by which most democratic governments are elected. The difference is that the support of a non-democratic government often arises from selected ethnic, religious, clan or tribal groups. Whilst similar divisions are sometimes seen in democratic societies, political parties in those societies tend to split along (usually, but not always) less divisive economic lines (working-class socialists, say, pitted against middle-class conservatives).

The real difference between a democratic and non-democratic society is that the latter survives on a heavy dose of patronage. That patronage is not merely a consequence of non-democratic government: it is patronage that maintains non-democratic governments in power. Patronage is often the cause, not the consequence, of the lack of democracy. Corruption is an integral part of government by strongman, junta, clique and party. Political power determines the level of corruption in developing nations with developing institutions of government. Ragged, decentralized political power will lead to ragged, decentralized forms of corruption. Strong central government gives rise to more systematic and ‘efficient’ corruption.

However, even a democracy weakened by excessive use of patronage (or put another way, the absence of meritocracy) does not necessarily lead to bad government. However, the prevalence of patronage erodes authority (all of which ultimately vests in the source of the patronage at the very pinnacle of the power pyramid). That erosion of authority causes public servants to be held accountable for errors (if and when it suit the masters) without having the authority to achieve anything positive. Such a system forces the public servant into endless red-tape procedures and rampant inertia. After all, no one so positioned will want to take a decision unless half-a-dozen signatures are obtained from superiors. That way, if one perishes, the whole lot goes. That in turn forms a bond between the group and a common interest in covering up any indiscretion or mismanagement.

Without authority, the energies of ambitious bureaucrats are directed into essentially negative pursuits. They can block, prevaricate, and deny but they will not plan, strategise or execute programmes for change. They are able to foul a development, kill off an innovative idea. They will, of course, fulfil a duty, issue a licence, register a charge, certify an interest but only in exchange for a bribe. Still, the corruption becomes almost a secondary impediment to that of inefficiency and incompetence.

Of course, patronage is not simply a third world affair. Civil services the world over and, even more so, ‘QUANGOs’, are stuffed full of jobs for political hacks, failed ministers, the ‘great and the good’ and those in line for “Buggins’s turn”. No recommendation for good government perhaps, but usually these are of marginal importance and give little cause for concern. Democracy tends to keep the quangos in check. The problem with non-democratic government is that bloated bureaucracies become positively desirable. They burgeon, they bloom. The reasons they do so are three-fold:

a. The more jobs that are at the disposal of an individual (and all ultimately ends with the man or woman at the top), the more support s/he can command when it comes to an election or a referendum. Teachers can order children out into the streets to wave flags; regimental officers can command their companies to vote in specific ways; election returning officers can stuff the ballot boxes if need be. It is a mistake to assume that the lack of democracy makes ‘popular’ support unimportant. This is as important in an autocracy as it is in a democracy but the support is obtained by other means – the electors do not always have to be convinced that their pockets will be filled, their children will be educated or that jobs will flow. Instead, non-domestic issues become far more important – the national borders are under threat, some foreign menace looms, and so on;

b. Jobs can be sold. The more influential the post, the higher the sum demanded. The post-holder must then re-coup his investment through the use and abuse of his office. And the amounts collected are, after taking the agreed cut, passed up the chain of command. Policemen, handed guns and truncheons, can bully their way through rules and regulations. Bureaucrats in charge of doling out licences are in a perfect position to demand money. Customs officers can hold up goods for days or weeks (with storage charges clocking up and perishable goods rotting). Tax inspectors can harass businesses with threats of audits and massive fines and penalties. Even lowly utility workers can threaten to deny electricity, gas or water at the throw of a switch or twist of a stop-cock. All of this will happen unless bribes are paid. These post-holders rarely help a project to work or aid development – more usually, if their demands are not met, the project fails. Their influence is essentially negative rather than positive;

c. The rumble of human discontent can be alleviated by doling out government jobs, all at negligible cost to the State’s finances. Autocracies will often leave the most important jobs for their favoured clan, religious or ethnic group. But that still leaves plenty of jobs for the otherwise unemployed. These jobs will not pay much but the post-holders will immediately convert into government supporters. They will have regained some dignity from having a job at all and will, through the corrupt practices they must indulge in in order to re-pay the boss who sold them the post in the first place, automatically become part of the governing system.

However, none of this works unless everyone in the system is involved. What does this mean? No one in a corrupt system can be permitted to be uncorrupted. Anyone not willing to engage in corrupt practices is either left wholly outside the system (and, hence, kept away from the majority of lucrative business opportunities) or is used by the system in backroom or technician jobs (someone, after all, has to do the real work!). Those willing to work within the system (the majority) find that at a basic level it works rather well – it has to, in the absence of a viable alternative.

An excellent example of the process of acculturation of the populace to a corrupt system was evidenced in the December 2004 municipal elections in a recently independent nation with a population of about 8 million. Here, there were over 39,000 candidates (i.e. about one for every 200 people or, say, every 40th household) and of this only about 11% represented opposition candidates. The conclusion that can be drawn is that the electorate has given up on democracy and everyone wants to be associated with the ruling regime. That conclusion is supported by a survey of public opinion carried out by the Transparency International local affiliate in April-May 2004 [Country Corruption Assessment, Transparency, 2004]. Almost 83% of respondents said they did not have enough money to buy food or both food and clothes but, despite such difficult circumstances, almost half the population said it was satisfied or very satisfied with the general situation in the country. The inference is that corruption is not a significant issue for many people (indeed, almost 14% considered corruption was not a serious problem whilst only 11% thought corruption was the most serious problem faced by the country).

This conclusion has enormous repercussions for foreign investors: if they do business through a local contact, they do so generally because of whom s/he knows. Commonly, if s/he is sufficiently well-connected to get a deal through, then s/he is part of the corrupt system. Is such a deal one the foreign investor should be conducting or even contemplating? Is such a deal one that multilateral institutions should be funding? After all, the better the likely return on investment, the more likely that a kick-back (or a succession of kick-backs) is involved.

B. Democracy or the rule of law?

The development of civil society has become a central feature of donor programmes. And one might conclude from the analysis above that Democracy is the answer to Corruption. At the heart, therefore, of the concept of civil society is the development of democratic institutions. In a way it is, but only indirectly so. First must come the Rule of Law. This may seem like a ‘chicken or egg’ situation but it is not.

The establishment of the rule of law is a pre-requisite for a democratic society. The two concepts, democracy and the rule of law, are complementary but answering the question of which should come first is still important. Of course, it is easy to say that, in a ‘failed state’ or one with an autocratic government, both should be encouraged simultaneously but that is often unrealistic – scarce resources must be allocated where the priorities fall. The author believes that the rule of law must be given priority over democracy. The latter will almost certainly follow once the former has been established. Oddly, our bureaucrats sometimes fail to recognise this natural sequence, perhaps because in a democracy our bureaucrats answer to elected politicians. More predictably, politicians in democratic environments (nascent or ancient) tend to over-value the role they themselves play. Thus, they will naturally emphasise the role of democratic institutions. But, whatever the politics, no modern democratic society can function properly without the rule of law.

To avoid confusion, let me first define what I mean by the ‘rule of law’. The term here will mean government in accordance with certain laws and principles established in a pre-defined way where all persons are considered equal before the law and the law is impartially applied by an independent judiciary. Concepts such as the presumption of innocence, the right to be tried by one's peers etc. do not figure in this definition because these are normally, though not always, associated with the execution of criminal justice. This is not to say that the process of criminal justice is unimportant in a civil society but, in proposing reform measures to nations with emerging or shaky institutions, the providers of aid have concentrated on non-critical areas at the expense of the essential.

C. Development aid and civil society

There are many reasons why development aid aimed at the creation or sustainability of civil society is wasted. It is worth pondering this issue for a moment before discussing certain specifics. In more than a decade of working in the former Soviet Union, the only assessment the author can make of the value of aid given is, at its best, it is of marginal benefit and, at its worst, it has been downright destructive. In the process, corrupt practices are inadvertently bolstered.

One reason for the general failure of most technical aid programmes is the absence of coordination between donors. Each donor naturally believes his own country as embodying the best ways of doing things. Consequently, Germans will want laws resembling German laws, the French will prefer the French way, Americans the American way and so on.

Aid is given for a multiplicity of reasons, some more commendable than others. Of the less commendable ones is often a desire to give backhanded subsidies to the donor country’s or donor institution’s pet consultants rather than a genuine desire to provide help to a particular nation. Some countries are more guilty of this than others - Great Britain fares better whilst Germany and France often do less well. The European Union and the United States set a poor example all round with tied aid, i.e. aid with strings attached (e.g. equipment suppliers must be based in the donor country or the consultant must be a citizen of the donor country). That in itself sends the receiving government the wrong signals - it says that the primary purpose is not to help the recipient but to help the folks back home. ‘Crony capitalism’ we would have quickly dubbed it if it were an African nation, say, doing the same thing. If such is the view taken by the recipient government, the results inevitably will be:

a) ‘crony capitalism’ will be considered acceptable;
b) the recipient government will simply try to cream off as much of the aid for its own supporters as possible;
c) the recipient government will not care about the product as it will see no national benefit in it

The last of these consequences has led multi-lateral institutional donors, such as The World Bank, to extol the virtues of persuading the host (recipient) government to sponsor or ‘buy into’ this or that aid programme. This is fine in theory but it rarely works in practice. Noting a few of these reasons may be instructive in itself.

When a donor talks of ‘buying into’ some project or other, it means that the host government/ministry etc. must understand the purpose of the project and accept its desirability. If it does so, it will, it is hoped, be motivated to fulfil the aims of the project. This whole theory ignores certain fundamentals of human relationships and is multiplied many-fold where host country public servants are entrenched in a corrupt system:

o First, the donor will often be dealing with some bright young technocrat, fluent in English and educated, in part, outside his home country. This will give the donor a warm fuzzy feeling that he is dealing with someone thinking along the same track. But the young technocrat will rarely be a decision-maker. Those will be the ‘old guard’, often riddled with corruption and interested only in what they (or their cronies) can make out of it.
o Secondly, more often than not, the young technocrat will be wary of crossing his patron and will be learning the ways of a corrupt government machine.
o Thirdly, the aid agencies will argue that their procedures of transparent tendering, detailed specifications and so on, will limit the opportunities for corruption. This is simply not so. The tendering process itself is fraught with danger – the donor agency will not be able to control the constituent members of the tender selection panel; local content requirements imposed by the donor will inevitably lead to local ‘go-betweens’; and any attempt by the donor to direct or steer the selection process will itself leave the bona fides of the tender process open to question.
o Finally, assistance given to build up the middle ranks of the bureaucracy will be doomed to failure because the bureaucracy mis-functions not simply due to a lack of ability (though this may be true also): political considerations prevent it functioning efficiently.

It is, of course, always better to work with the cooperation of the bureaucracy than without it. The attempt must be made. This author merely takes the view that one should not be too optimistic of the results. Having said that, there are actions that can be taken, aid which can be effectively directed: it should be directed at improving quality and efficiency, not at changing the way things are done. The latter is the confrontational approach, the former a more constructive one which, although slow and laborious, will ultimately yield greater and more sustainable rewards.

Having defined ‘rule of law’ in a peculiarly narrow sense, it would, of course, be naïve to imagine that any country in the world adheres invariably to these precepts, desirable though such adherence may be. Still, there are numerous countries that do adhere to these principles at least as far as day-to-day government is concerned and that, perhaps, is as much as we can expect.

However, when we come to aid programmes extended to developing countries, these tend to concentrate on applying the rule of law to criminal processes and procedures and highlight the role of human rights. This is a misguided approach. There is no denying that criminal law and the protection of human rights (whatever these might be defined as being) are important but the author submits that these should take a secondary and not the primary place in our planning. First should come establishing the rule of law in civil (i.e. non-criminal) processes and procedures. In particular, efforts should be concentrated on the law defining and establishing rights in or over property. Thus, registers of real property rights, movable property registers for legal entities, enhancing secured lending, defining contract inviolability etc. must be at the forefront of development aid.

The reasoning is simple: first, criminal law and human rights are often very sensitive areas politically. Accommodating the views of governing politicians might entail tempering ones principles and devoting so many resources to achieving limited aims that little energy is left to deal with civil law. Secondly, criminal law tends to affect a relatively small proportion of the population whilst civil law, dealing with commerce, the protection of property, family law and labour rights, affects almost the entire population. Tax law, too, has a wide reach and its successful application is in the interest of the government of the day.


A. Fiscal policy and the rule of law

Fiscal policy has rarely been considered an instrument to further the establishment of the rule of law. But a government, whatever its stance on human rights or its democratic record, will generally want to cooperate with bilateral and multilateral lending- and grant- agencies where the aim is to fill its coffers. So, let us look at how fiscal policy can be used to further the establishment of the rule of law.

The benefits of using and moulding fiscal policy to social needs is nothing new, whether to encourage industry, further research and development, boost employment, or even engineer society. Such manipulation is not always successful but it generally plays a significant part in the fiscal policy of most nations. Other less salubrious uses to which fiscal policy is put include rewarding the friends of political parties, benefiting incumbent politicians or their relatives and generally oiling the wheels under pork-barrel politics. Whether used for good or ill, therefore, it is undeniable that fiscal policy plays an important role in defining the political and social scene. The distribution of pork is an unpleasant travelling companion of democracy: the challenge of using fiscal policy honestly in established democracies is so often unmet that one might question what chance there is of the developing world using fiscal policy in a mature manner.

With the International Monetary Fund dictating fiscal policy for many developing economies, even to the extent of drafting tax codes for the nations concerned, one might imagine that a steady hand is guiding the less than steady governments concerned. Unfortunately, more often than not, the dictats of the IMF resemble those of an experienced driver with an alcohol problem: the driver thinks he can drive a safe course but the result can be wobbly and disastrous.

Simply put, the IMF’s approach to fiscal policy is to establish a sound economic base for development and to secure for the government adequate finances to meet its budgetary requirements. Fiscal prudence and balanced budgets are the order of the day, commendable aims that lose something in the implementation. Tax codes blessed by the IMF are often inflexible, are aimed at preserving the tax base and, consequently, denying reliefs and concessions to most groups of taxpayers.

This short paper is not intended as a critique of the IMF or its policies. But some comment about the detail of fiscal policy is necessary because of the impact it has, or could have, on the issue of corruption.

Comprehensive revision of tax systems in the developing world is often desirable, if not essential. The IMF and consultants paid for by it and other agencies do not have easy jobs in devising or revising tax systems. Not only do they face an uphill task in educating tax inspectors of concepts that may well be unfamiliar but they face entrenched resistance from those who fear their livelihoods will be threatened.

Nonetheless, any reform must have an objective. In the field of fiscal policy, it must surely be simplicity, a degree of continuity and an emphasis on encouraging investment (especially domestic but also foreign), all within the general framework of maintaining the revenue base. Instead, what usually emerges is tax legislation replete with developed world tax concepts.

By way of example, one could point to the transfer pricing provisions so beloved of first world tax inspectors. By employing transfer-pricing tools, tax authorities are permitted to reconfigure transactions between related parties in order to reflect the prices that would have been charged by parties in the absence of the relationship. This imposes the well-known ‘market value’ test. Nothing wrong with this, one might say, if one is dealing with developed and free economies but what relevance has it to emerging economies? Is an economy that has suffered from decades of socialist central planning even capable of establishing ‘market value’? Without an open market, there can be no ‘market value’; and ‘market value’, even in a free and open economy, is really only a concept that can be applied where adequate statistics exist. If the IMF believes that the statistics available in most developing economies bear much relationship to the truth, then the time has come for its economists to quit sniffing glue.

Equally, one could point to thin capitalisation provisions that re-characterise ‘excessive’ debt as equity. This is a fiscal provision that has crept into developed world tax systems only very late in the day and is a subset of transfer pricing. It has emerged in developed economies once a healthy economic base has been established but thin capitalisation is being imposed on emerging markets in the absence of this healthy environment. One might ask, exactly which financing institution is mad enough to lend ‘excessively’ to businesses in the developing world? The only companies likely and able to borrow ‘excessively’ will be subsidiaries of foreign investors, state enterprises or companies connected with the politically powerful. As the last two categories usually have a favoured status vis-à-vis the tax authorities, that leaves only subsidiaries of foreign companies. Against whom, then, are such provisions aimed? Foreign investors who, distrusting fickle foreign exchange regimes, prefer to take their profits in the form of interest? If so, is it the desire of the IMF to hinder foreign investment? Which is better: a thinly capitalised subsidiary investing in a struggling nation or no investment whatsoever? And, surely, the imposition of reasonable withholding taxes on interest is a much more efficient way of collecting taxes on profit than denying tax relief to the payor for interest charges?

The vast majority of small businesses in the lesser-developed world do not pay taxes. That is either because of rampant tax evasion or because they are genuinely not taxable. But, the corrupt tax inspector sees the small business (taxable or not) as her/his personal fiefdom: this is where the day’s wages are earned. As for the big businesses, these are invariably connected directly or indirectly to the very top of the political pyramid and tax regulations are easily circumvented. That, then, leaves the middling sort of business (assuming any small business survives the ravages of the local tax inspector to develop into a medium-sized business). Without a political protector, the middle-sized business will soon disappear into oblivion. First world tax systems, replete with anti-tax avoidance provisions, strong investigative and enforcement powers, complex methods of computation, and so on, are completely out of place in the developing world. They merely provide more powerful tools for the corrupt official to extort bigger bribes.

B. Tax avoidance is good

How, then, can fiscal policy be used to reduce corruption and encourage investment? How can it be used to further the establishment of the rule of law?

What is invariably needed is a simple tax code that sets out the rules in as much detail as is essential, provides all prescriptive forms, and is widely disseminated. What is invariably not needed is a tax code with multiple anti-tax avoidance provisions. These can be introduced as the tax system matures if tax leakage is significant but, if anything, tax avoidance should be encouraged, not shut down. After all, most developing nations suffer from almost instinctive tax evasion, not tax avoidance. Giving a taxpayer the right to reduce his/her taxes legitimately helps build respect for the law and has little or no impact on tax revenues.

Small businesses should be taken out of the tax net altogether. But not simply by exemption. The small entrepreneur should be required to apply for the exemption by reference to the specific tax provision giving it. S/he should also be required to submit an annual tax return, with a penalty for failure to submit. If these two simple conditions are fulfilled, the taxpayer will be exempted from tax and the exemption, subject to meeting all the requirements for it, will be guaranteed for a number of years. Subsequent changes in the law will not apply to a standing application for exemption – the only factor that could make the entrepreneur taxable would be where s/he no longer met the definition of small business (as applicable at the date of the original application). The tax authorities will have right of audit but not more than once in, say, every three years and then they may only audit one tax year in the three (i.e. the tax authorities will be obliged to select which year they will audit and no other). The benefits of this approach include:

o Furthering the rule of law by obliging the taxpayer to rely on the law in order to obtain his exemption. If it were made clear in the law that, say, failure to register in the first year of the scheme will exclude the entrepreneur from its benefits, this would hasten registration;
o Improving the statistical base of the tax authorities by virtue of the regular submission of tax returns ;
o Getting the taxpayer used to making tax returns (and ultimately, in paying taxes);
o Reducing the black economy and thus increasing bank liquidity as taxpayers feel it safer in depositing their profits with a bank. This, in itself, could give a significant boost to the economy;
o Without the fear of constant tax inspector oversight or regular audits, the level of corruption will immediately reduce (as the opportunities themselves diminish);
o A negligible loss of tax revenues. In fact, as confidence and bank liquidity grows, employment will increase and so tax and social security revenues from employment will expand.

It would be naïve to suggest that this approach has no problems, chief of which is that the taxpayer will have an incentive to ensure that s/he never exceeds the threshold of taxability. But surely this is a desirable result. Where this happens, we have clear evidence that the rule of law is taking root. In any event, any serious abuse can be caught by the occasional tax audits permitted to the tax authorities. And the loss of revenues is likely to be negligible (and, as suggested above, revenues should, in fact, increase). Problematic will be the attitude of those corrupt tax inspectors who rely on the small entrepreneurs to earn a living. S/he has been allowed to do so in part because of the ignorance of the small entrepreneur and the absence of a culture of paying taxes. That will now disappear. A number of tax inspectors will become redundant (and they will, of course, stubbornly resist).

Although most studies of corruption concentrate on foreign investment flows, in fact, domestic investment is often affected far more. Assuming a degree of security and political stability, chances are that any significant domestic investment will be captured by the rich and powerful at the expense of the ordinary entrepreneur. This is merely one more reason for supporting the development of small entrepreneurship through tax exemptions.

Much more can be said about tweaking fiscal policy to aid the establishment of the rule of law and, consequently, reduce the level of corruption but space does not permit it to be done here.


Some recent studies of corruption have concluded that not only does corruption reduce the level of foreign direct investment into transition economies but that the ‘quality’ of investors is also lower. Indeed, such studies also conclude that such investors are more likely than domestic investors to try to influence legislation favourable to themselves. [For instance, see Hellman, Jones, Kaufmann [2002].]

Clearly, corruption is a two-way street. [See, Organisation for Economic Cooperation and Development, Commentaries [1998] where the terms 'active’ and ‘passive’ bribery are used.] Whether as lavish entertainment, expensive gift-giving, ‘facilitation’ payments or something bigger, bribery is in the interest of both the giver and the taker. That generally leads to the conclusion that both parties should be equally punished, though some might say that the corrupt official who demands a bribe is the worse offender and should suffer more. But exposing both bribe-giver and bribe-taker to penalty (be it confiscation, incarceration or massive fines), merely gives both parties an incentive to keep quiet. Whistle-blowers will not emerge.

One could, therefore, suggest punishing only the bribe-taker. However, this would be difficult to prove and would still leave the bribe-giver exposed – even if not punishable in the country in which the bribe was given, s/he may face charges back home under domestic legislation and, even if s/he did not, a reputation may have been sullied.

That leaves one possibility: punish only the bribe-giver and not the bribe-taker. This sounds at first wholly unfair. But it might just work. Consider the situation where the bribe-giver knows that only s/he can be punished. S/he falls totally into the power of the corrupt official. There is no way out, no possibility of a counter-threat to temper the demands of the official. The bribe-giver will be punishable in the country where the bribe is given and, if a foreign investor, quite possibly also in his/her own country. Even if the demands are not excessive, the bribe-giver will always be wary that one day s/he will be unmasked, the crime revealed. Some will fall into the trap but a great many more will have the good sense to avoid it.


If one accepts that the purpose of a bureaucrat in a corrupt environment is not to administer but to act as a collection point for bribes on behalf of his superiors (and himself), then clearly merit has no relevance to the job – far more important are loyalty, cunning, and obsequiousness. If, however, merit were critical, corruption would be severely curtailed. Why?

Those who consider that they merit a senior position will not suffer for long those who clearly do not. If a public servant holds his/her post on merit, there is always the danger that an individual will be corrupted. But, crucially, most will want to achieve something i.e. the emphasis will shift from being a negative force to a positive force. Corruption or no, that alone will be a giant leap forward. How then to establish a meritocracy if the politicians are not interested in doing so?

Perhaps, if those competing and wasteful development agencies concentrated on improving the quality of education at the tertiary level, we would move a long way towards a meritocratic society. Why ‘tertiary’, rather than ‘primary’ or ‘secondary’, education? That is another essay in itself but, very briefly, even the sons and daughters of the politically influential and wealthy (often those engaged in the most prestigious of courses) will want to have their skills recognised if those skills are teased out and cultivated. In many lesser-developed countries, the education systems are not designed to promote skills or learning. Degrees are bought and sold – the bazaar takes over at a very early stage of an individual’s life. If a degree has no value to the individual, s/he will not be motivated by intellectual achievement. If, however, tertiary education actually delivers improved skills, disseminates knowledge and formulates an atmosphere of intellectual stimulation and creativity, then the student is inclined to achievement. S/he has the option of going into the private sector but the public service will always be a major employer so, inevitably, a large number of graduates will find their way into the civil service. Many, of course, will take the easy route by leaving the country altogether but this is less likely with the children of the powerful and influential – they may spend stints overseas but will usually return to take over from their parents. They do not need to be exceptional students: they need merely to be students who have worked for their degrees. They will eventually issue a challenge those who in office not on merit but put there through patronage. Lethargy, if not corruption, will find a true challenger.


In reviewing the damage corruption does to society, all the effort is concentrated on the civil service. Corruption in the private sector occasionally gets a mention but corruption in the armed forces hardly ever does.

Many developing nations still maintain conscript armies. The role these play is sustaining a corrupt system is rarely discussed but conscription or involuntary military service has an important place in it.

This paper can only touch on some of the issues:

o Reluctant conscripts can buy there way out of the system, thus adding to general levels of corruption;
o Those who are too poor to buy their way out are used as ‘slave’ labour, often not for military purposes at all but as a private workforce at the beck-and-call of its commanding officers;
o The patronage system is strengthened through horse-trading for ‘soft’ military postings etc.;
o The conscripts are a ready source of political support;
o The conscripts, under the direct corrupt influence of their officer corps, particularly where there are no immediate external threats to the nation, are involved in illegal activity (drugs or human trafficking, say) and are liable to keep up the criminal links after demobilisation.
o Networks created in a militarised society contribute to corrupt practices in civilian life.

Ending conscription may extract howls of anguish from the commandants but will go some way to undermining the networks of patronage, power bases and corrupt practices. This is a point invariably overlooked but, because it impacts the lives of so many families, corrupt practices are allowed to establish deep roots in societies which rely on conscript armies.


Most readers will think it odd to see at this point a reference to industrial parks and office complexes. What have these to do with corruption? Quite a bit, actually, at least at the margins.

Usually, studies on corruption concentrate on the practices of venal officials or businessmen. As a result, the solutions proposed are people- or process-centred: better pay for public servants, the elimination of red-tape, the imposition of heavy criminal penalties on wrongdoers etc. However, if the underlying thesis of this essay is sound, viz. tackling corruption is primarily a political (not economic) issue and, without the political will and readiness to surrender power, corrupt practices will persist, then most economic measures will have only limited success. Nonetheless, there are other steps worth examination.

The various multilateral and bilateral development agencies might consider the development of industrial parks and office complexes not only in the context of economic planning but also as means to counter corruption. An explanation is required: where one has a central provider of services such as office space or fitted-out industrial workshops, generally only the central provider of services (not each lessee) is forced to deal with the bureaucracy – the lessor sorts out the utilities, confronts the local authorities, obtains planning permission, licences etc. Because the lessor will normally be a much bigger operator in-country than its tenants, it will have greater clout and political influence and will be able to hold its own against a rapacious bureaucracy. This will relieve, to some degree, a large number of businesses from having over-frequent contact with corrupt officials. Consequently, the opportunities for corruption will be reduced.


There are those who argue that there is such a thing as ‘good corruption’, in other words, an acceptable type of corruption, the type one can live with. It is sometimes said that corruption can break through bottlenecks and smooth economic growth. This, they say, is in contrast to ‘bad’ corruption which is a drag on economic growth and displaces the efficient for the inefficient. The example sometimes given is Suharto’s Indonesia where, it is claimed, every business knew the cost it would have to bear and simply treated this as a form of taxation. Everyone knew where they stood and the costs were passed on to the consumer. Sicily is another example offered up of a place where businesses continue to operate despite the presence of the Mafia (Cf. Reference 6 - BBC).

All this is really saying is that if corruption is predictable, a business can take note of it in its planning. The trap this argument falls into is that it assumes that the success of entrepreneurs is all that matters. The argument ignores the impact on the consumer (through, for example, increased costs and unresponsive monopolies), the affect on society by, for example, creating a class of over-powerful petty bureaucrats and promoting social inequalities and, most importantly, through the pernicious affect corruption has on civil society and the rule of law. The political equivalent would be to say that one-party government is sometimes effective and, therefore, ‘good’. It isn’t and nor is corruption ‘good’. Some level of corruption may be inevitable (just as is a certain level of crime) and trying to prevent low-level corruption might be a waste of effort and resources, but to say that corruption can be ‘good’ is missing the point. ‘Crime’ is not ‘good’ nor is corruption. It may be necessary in order to survive and, in practice a little of each may provide society with a safety valve for its general problems. Both crime and corruption may in small doses be necessary to stop a slide into totalitarian dictatorship but neither is ‘good’.


One positive development has been in the use of Fredom of Information legislation to try to tackle entrenched corruption. It hasn't always worked. India is a good example of this but, whilst the levels of corruption may not have fallen as a result of such legislation, it has, nonetheless, brought considerable benefits to the lives of ordinary individuals. For instance, such laws can be used to embarrass corrupt officials into, if not reducing their financial demands, at least performing the acts for which they have been paid.


Corruption has many roots. But the political ones have largely been ignored by commentators. Corruption helps maintain governments and strongmen in power through the use of patronage. The relationship is almost feudal: services and support (retainers) for the ‘king’ in exchange for land (or buildings), a commodity that can be quickly repossessed at the first hint of disobedience. That is true even if the highest echelons of government may themselves appear free of corruption whilst the sub-strata of government oozes misfeasance. After all, if such a state of affairs did not at least partly serve the rulers, surely it would have been stamped out?

Having said that political power lies at the centre of a corrupt society, this, of course, gives rise to economic consequences. To be sure, inadequate salaries in the public sector force people to solicit bribes. But the reasons why salary levels are kept low go well beyond the lack of resources. Politics is the principal cause of misfeasance and inefficiency, not just one of the consequences. Without politics intervening, corruption would be far easier to deal with. When democracy is offered as a solution, this confuses objectives – the people should have the right to direct the way they are governed but this, in itself, will not go far to eliminate corruption. Establishing the rule of law will go much further. But it still does not go to the heart of the problem. If the thesis of this essay is true, that political power, not greed, is the root of the problem, then the motivation for change must come from the governing clique but that will only happen if the power structures are ready to cede power. The rush to do so is hardly likely to be breathtaking. What else, then, can be done?

There are many aspects of tackling corruption in the public sector. This brief essay has touched on a few, aimed largely at breaking down the monopoly of power (e.g. abolishing conscription or bolstering the judiciary and rule of law as an alternative arbiter). Nibbling at the edges, one might say.

The political stranglehold, and hence the torpor of a corrupt State’s services, is likely to be broken only when the academic high achievers (starting with the off-spring of the rich and powerful) begin to demand the chance to apply their skills. The aim, therefore, of development aid should be to establish meritocracies. Ultimately, this will do far more to undermine political control of bureaucracies than initiatives directed at improving efficiency or administration in the public sector or worrying about the greed of public servants.

Of course, no one tool is sufficient but the objective should be clear – eliminate corruption by breaking down the political power bases. If the building of meritocracies is seen as the best way to do this then the emphasis must be on developing tertiary education. Let us produce graduates with their skills honed, eager to use their knowledge. And let us ensure that those skills are used in their own countries of origin and not siphoned off by the developed world for its own benefit.

Whatever else, one thing is clear to this writer: trying to legislate corruption out of the system is useless and often counter-productive. Laws written ostensibly to prevent government ministers and senior civil servants from maintaining private business interests are easily evaded by family members taking over the legal ownership of such business interests. It would be far better to permit civil servants to have private commercial interests but to maintain a public register of them (and those held by near relatives). And laws drafted ostensibly to punish erring officials or businessmen are used simply as a way to cow political opponents. Better not to have such laws at all. They don’t work in countries where there is no established rule of law. Development agencies which like to fund such laws may feel a warm glow of satisfaction but don’t realise the damage they are doing. Better to have no law than to have a law that plasters over a festering wound.


1. Maria Gonzales de Asis, Reducing Corruption at the Local Level, World Bank Institute, [2000]
2. J Hellman, G Jones, D Kaufman,  Far From Home: Do Foreign Investors Import Higher Standards of Governance in Transition Economies?, World Bank [2002]
3. Transparency Azerbaijan, Country Corruption Assessment: Public Opinion Survey in Azerbaijan [2004]
4. OECD Commentaries on the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions [1998]
5. Council of Europe’s Criminal Law Convention on Corruption and its Civil Law Convention on Corruption
6. BBC World Service, Business Daily, broadcast 24 April 2010.