TACKLING CORRUPTION

ON TACKLING CORRUPTION: A NON-ECONOMIST’S VIEW

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.

I. INTRODUCTION

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.

II. THE POLITICS OF CORRUPTION

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.

III TACKLING CORRUPTION

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.

IV CRIME AND PUNISHMENT

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.

V. EDUCATION AND MERITOCRACY

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.

VI THE ARMED SERVICES AND THEIR ROLE IN CORRUPT SOCIETIES

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.

VII A ROOF OVER MY HEAD

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.

VIII ‘GOOD’ CORRUPTION

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’.

IX FREEDOM OF INFORMATION

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.

X CONCLUSION: AND ALL THE KING’S MEN …

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.

Reference

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.