Executive Summary
Corruption is the illegal use of public power for private gain or political ends. Widespread corruption imposes serious costs on states by undermining legitimacy, deterring investment, and limiting the capacity to collect taxes and to implement programs fairly. Although no single solution applies everywhere, some proposals have broad applicability to most democracies in transition. Some proposals can produce political gains for those who support them and do not involve high budgetary costs.
I. Democracies should expand mechanisms of external and internal accountability.
- External accountability requires the public disclosure of information so that private watchdog groups and the media can monitor this information and complain about irregularities.
- Internal accountability requires one part of the government to monitor another part.
II. Specific sectoral strategies: some examples
- Tax collection: simplify tax rules and shift to more easily measured types of taxes.
- Police reform: may involve retraining, reorganization and citizen complaint mechanisms.
- Health care: reduce routine payoffs by privatizing services and increasing public funding.
- Procurement and privatization: introduce more competitive and transparent procedures.
REPORT
Corruption is the illegal use of public power for private gain or political ends. It can occur when public officials have power to dispense benefits or impose costs on private individuals and businesses. Widespread corruption can impose serious costs on countries making a transition to democracy. It can undermine the legitimacy of the state in the eyes of citizens and of investors, both domestic and international. Regimes that face criticisms from their citizens should recognize that public condemnation of corruption means that people are beginning to expect the state to act in their interest. They are demanding accountability from political, bureaucratic, and judicial actors in return for their political support. Democratic regimes need to respond in a way that produces real reforms and does not leave them open to the criticism that they are using anti-corruption campaigns to silence and discredit political opponents while overlooking serious problems within their own governments.
Attempts to reduce corruption should focus on the costs in terms of decreased state legitimacy and reduced economic functioning. Corruption deters investment and limits economic growth. It encourages the development of illegal businesses and the shadow economy. Corruption undermines state capacity by limiting the states ability to collect taxes and to enforce regulatory and spending programs fairly. It also threatens the legitimacy of the democratic experiment by reducing public trust in government. Citizens may begin to view all who participate in politics as tainted and hence may limit their participation in the project of state building by turning to purely private concerns. Worse, they may become corrupt themselves out of cynicism and despair.
What practical steps can political leaders take to limit corruption in ways that can have real payoffs in promoting the institutionalization of democracy, but that recognize the political and resource constraints under which governments operate? Obviously, there is no single blueprint that will apply everywhere. The nature of the problem varies from state to state. Nevertheless, we can make some suggestions that ought to have broad applicability to many democracies in transition. Our basic claim is that corruption cannot be addressed by the state acting alone. Because corruption is a product of the interaction between public officials and private individuals and business firms, it can only be addressed by policies that require both the public and the private sector to take responsibility for limiting payoffs and self-dealing. Many states are experiencing a vicious cycle in which corruption breeds corruption. Instead, the goal is to produce a virtuous cycle where honesty breeds honesty.
We emphasize two types of strategies below, not because they are the only ones that are relevant, but because they seem to us to be a necessary part of any serious reform agenda and because they can be at least partially accomplished so long as the necessary leadership is forthcoming from the top of government. Our primary focus is on alternative methods of achieving greater accountability as a means of exposing and deterring corruption. However, we also discuss the possibility of beginning the anti-corruption effort by focusing on one or two particularly important areas of government functioning. We conclude with some observations on the political costs and benefits of alternative strategies.
I. Accountability
Democracies ought not to rely on the criminal law as the only tool against corruption. It is needed as a backup, but it should be combined with mechanisms of external and internal accountability. By external accountability we mean state openness to scrutiny by the public. By internal accountability we mean the use of organs of state power to limit incentives for corruption. Furthermore, private firms should be required to make certain information available and encouraged to develop internal procedures to limit corruption. Finally, accountability can be affected by the decentralization of state functions.
Discuss the possibility of beginning the anti-corruption effort by focusing on one or two particularly important areas of government functioning. We conclude with some observations on the political costs and benefits of alternative strategies.
I. A. External Accountability
Elections are the fundamental means of achieving accountability in democracies, but they are not sufficient to ensure the day-to-day integrity of government. This is so even in political systems with credible opposition parties that can use accusations of corruption as part of a strategy to gain power. Thus, we focus here on other forms of external accountability. They all require the public disclosure of information and workable mechanisms for public participation and complaints.
First, consider the transparency of the electoral process itself. Candidates should disclose the sources of campaign funds in a timely manner. They should also disclose their families personal finance interests in companies that could benefit from government policies. Private watchdog groups and the media can then monitor and publicize this information. The state needs to establish a small number of clear rules both about conflict of interest for high officials and legislators and about the sources of campaign funds. The point is to have rules that are clear to candidates before the campaign and that can be complied with under realistic conditions.
The media should be free to criticize public officials with little fear of running afoul of libel laws some countries have anti-insult laws that punish the media for being outspoken. However unfair the media may sometimes be, such laws can seriously hamper anti-corruption efforts by dampening criticism.
Public financing is frequently mentioned as a solution, but in poor countries it is unlikely to be a realistic option. In any case, it needs to be structured to avoid favoring incumbents. This can be done by giving citizens vouchers to spend on whatever candidate they wish or by an allocation procedure that disfavors incumbents.
Second, the operation of the bureaucracy and the legislature needs to be subject to scrutiny. The goal is to make corrupt deals difficult to hide from a vigilant public. There are four parts to such a strategy. First, the government needs routinely to make information available on budgets and the contents of laws and executive decrees. The Internet has drastically reduced the costs of such strategies by making it easy for governments to supply information to a broad audience. Second, a freedom of information act is a key part of the structure. Such acts permit citizens to access government information that is in the files but has not been published. Those requesting information need not have a personal interest at stake; they can demand disclosure simply in their capacity as citizens or members of the media. Exceptions can be added to the law to protect privacy and security interests. Third, the state must make it easy for groups to organize as nonprofit, issue-oriented groups or as business associations Private sector monitoring of the public sector cannot solely be the province of individual citizens; groups are needed because they can provide expertise and continuity. The state should not impose substantive requirements on registered groups but should, instead, limit itself to assuring that the groups are not acting as fronts for the personal financial interests of their founders. Of course, a free media also needs to exist as well. Fourth, once private groups or individuals have access to information, there must be an effective means of seeking redress or registering complaints short of urging criminal prosecutions. For individuals this might be an Ombudsman, but for larger policy concerns, such as corruption in major contracts or service sectors, such as the police, this might involve access to the courts or to an independent oversight commission.
I. B. Internal Accountability
One part of the government can also check another part. The best recent examples are the federal election commissions that appear to have played a positive role in a number of countries, especially in Latin America. These commissions have mostly focused on avoiding fraud in the casting and counting of ballots but they can also serve an anti-corruption goal in monitoring the system of campaign finance and in supervising the collection of candidate’s financial disclosure forms. Independent financial control agencies can also serve an important monitoring function but they must operate under clear, simple and transparent procedures so they do not become one more source of red tape and corruption themselves.
More problematic examples are the anti-corruption commissions that have been established in a number of countries. The problem here is not just to assure their independence-often a difficult task-but also to be sure that they focus on important issues. Too many of them have had a mandate that mostly involves law enforcement. Our claim is that corruption cannot be addressed primarily through the criminal law but requires a rethinking of the way government service delivery and regulatory programs are organized. This should be the primary focus of an independent commission.
The judiciary and the public prosecutorial system are key institutions in the fight against corruption. For the development of the private sector, an honest judiciary will facilitate trade and investment by making it possible for arms-length deals to take place against a background of legal protections. Furthermore, an honest judiciary facilitates the control of corruption within government. Challenges to the corruption of public officials can be resolved in the courts in a way that limits the use of false corruption allegations as a tool of political control and that makes effective punishment for the corrupt more realistic. The courts can also monitor second-order allegations concerning government attempts to hide information. To perform these functions, however, the courts need to be open to suits by citizens or public interest groups seeking to challenge government action or inaction. There are many ways to achieve a professional independent judiciary, and we do not presume to present an preferred method. However, some practices are obviously counter-productive. These include constitutional courts with judges whose terms are identical to the chief executives or provisions that make it easy for the president to remove judges.
I. C. Private Sector Transparency
The private sector also needs to provide information about its own activities to permit the public to monitor its performance. To make it possible to enforce rules on conflict of interest and self-dealing, corporate board memberships need to be public, and companies need to create codes of conduct against corrupt dealings of their own executives. These practice can have an impact not just on the internal behavior of firms but also on the ability of ordinary citizens to track possibly illicit connections between businesses and the state and to publicize instances of state capture by outside interests.
I. D. Decentralization
Recently, it has become fashionable to support decentralization of political power to regions, states, or municipalities as a way of making government more accountable to the people. Some claim that government will be easier to monitor and corruption easier to detect at lower levels of government. There are several problems with this argument. First, it may not be true. National level media and nonprofit watchdogs may function better than local ones. Second, even if citizens of local governments can easily observe the corruption of local leaders there may be nothing that they can do to limit malfeasance. Corrupt local leaders may have a monopoly on power and act with impunity.
Nevertheless, some promising recent experiences in some municipalities and villages in Brazil, Nepal, India and Uganda, suggest that well-designed systems of citizen participation can overcome entrenched patterns of corruption and favoritism in the provision of public goods and services. These experiments all involve broadly participatory procedures either to allocate public funds or to monitor aid projects or grants from higher levels of government. In many cases they supplement the work of formally constituted local government. In a number of situations, higher levels of government or nonprofit organizations with expertise play a role by supplying technical assistance that help the participatory processes to operate Other countries could learn from these experiments.
II. Sectoral Strategies
In some democracies corruption is not all-pervasive but is concentrated in particular sectors. The worry is not just that these sectors are performing poorly but that their weakness will overflow into other sectors and will contribute to a general delegitimation of democracy. Of course, the sectors at risk will differ widely across countries, but we mention a few cases that have posed problems in countries with which we are familiar. They are tax collection, the police, health care, and the related issues of privatization and large-scale procurement.
II. A. Taxes
Corruption in tax and customs collection can produce a vicious cycle. Widespread evasion through payoffs to tax collectors or simple fraud means that a given tax rate produces too little revenue. Hence, tax rates are raised to collect more revenue. As a consequence, even fewer taxes are collected as more taxpayers evade payment. One solution is to lower rates, simplify the rules, and engage in a credible enforcement effort. Alternatively the tax base could be changed to one that is easier to measure-i.e., a tax on revenue could be substituted for a tax on profits. In some cases the human element can be reduced along with the corrupt incentives it produces For example, customs collection can be carried out through electronic programs. Where tax collectors are necessary they can be rewarded with performance-based bonuses instead of higher pay.
II. B. Police
Corruption of the police is not uncommon throughout the world in established as well as new democracies. It is often associated with the flourishing of organized crime and of a society where violence and its control have been partially privatized. The police extort payoffs in return for protection from arrest or from fines and both actual lawbreakers and innocent victims are targeted. The venality of the police permits private extortion rackets such as kidnapping rings to function with impunity. There are no easy answers here, but the experience of anti-corruption efforts in the municipalities of established democracies may be of help. In many cases, reform will not be cheap since it will require the recruitment of a more professional group of employees as well as retraining of existing personnel. Reorganization of police work combined with mechanisms for citizens complaints can also help and are less expensive.
II. C. Health Care
The countries in a transition to democracy appear to face a particular problem with corruption in the health care system. Payoffs have become so routine that they are hardly viewed as corrupt; yet, they undermine the social goals of a state-managed system. Here the answer is not a law enforcement crackdown. Rather the state has to face up to pathologies of the existing systems and decide where to legalize payments through privatization and where to retain public funding but increase the states financial commitment in order to reduce incentives for payoffs.
II. D. Privatization and Procurement
The first wave of privatization is largely complete in the post-socialist countries and elsewhere most large scale privatizations have been accomplished. Some of them, however, involved so much corruption and insider dealings that they have little legitimacy in the eyes of ordinary people and may have produced on-going corrupt links to government regulators or providers of subsidies. These cases need to be reexamined to see if more competitive pressures can be introduced. For remaining privatization deals and for all large scale procurement and concessionary deals, many governments may need to introduce more competitive and transparent procurement procedures as well as establish a framework that creates competitive pressures instead of giving monopoly power to insiders. They need to publish procurement rules and procedures ahead of time, and open the bidding process widely.
III. Conclusions: The Importance of a Political Coalition for Reform
Anti-corruption reform is not easy, nor will it always show immediate results. In many cases, longstanding practices have to be changed, and those who benefit from corruption often want to block reforms. Benefits often will not appear immediately, weakening public support and giving opponents an opportunity to challenge policies. Nonetheless, many of the reforms suggested above can be adopted without paying a very high political price. Some of them will attract allies or generate immediate results. Others will not require high budgetary costs, so they can be adopted without threatening other government projects.
First, consider reforms that will not immediately threaten powerful interests. A freedom of information act will provide access to government information, but its impact will only develop gradually as organized groups begin to understand how to use it. Providing more information about government decisions does not require any immediate changes in the policies themselves.
Other reforms will attract allies who can provide political support. Making it easier for non-governmental organizations to organize and register will attract their support. Corporations may benefit from good publicity by adopting anti-corruption codes of conduct . Although local government officials may not always welcome requirements for public hearings or public participation in decisions, if these requirements are accompanied by authority over more decisions, they might be more welcome.
A third group of reforms can be adopted without major new expenditures. These changes would demonstrate that action is being taken without threatening other policies. More information about the content of laws, decrees, and regulations can be made available on the internet at relatively low cost.
Anti-corruption reforms present heads of states and government with an opportunity to demonstrate political leadership on an issue of critical importance to many voters. While corruption will not decline immediately, the small, concrete steps toward greater openness and accountability suggested here lay the foundation for long term changes in expectation and behavior that may eventually reduce the level of corruption. Corruption is often deeply entrenched and notoriously difficult to reduce solely through direct prohibitions or criminal penalties. General strategies aimed at increasing internal and external accountability, combined with specific reforms targeted at the areas of greatest concern in particular countries, stand the best chance of creating favorable conditions for a reduction in corruption. Even though corruption may never be totally eliminated, each step toward reduction makes further steps more likely and helps reduce the real cost of corruption-the ability of governments to govern.
Of course, some reforms, such as a reconstituted judiciary and an honest police force are likely to be both expensive and politically controversial. However, because the benefits are potentially so large, a bold leader can gain legitimacy and respect by taking on such challenges.