The Challenge of Anti-Corruption Conference on Corruption and Anti-Corruption: Threats, Challenges and Opportunities Sussex Centre for the Study of Corruption, Transparency International Clifford Chance, London 9 th September Mushtaq H. Khan, SOAS, UNIVERSITY OF London

Corruption in Developing Countries Corruption appears to be endemic across developing countries Anti-corruption efforts do not appear to have lasting effects The relationship between corruption and economic performance at the aggregate level appears to be relatively weak One interpretation is that corruption is very difficult to fight and the gains are uncertain. An alternative interpretation is that we have ignored differences in types of corruption and our instruments do not identify or target the most damaging types of corruption This is true for much of the ‘good governance’ reform policies that target property right stability, the rule of law, political accountability, AND anti-corruption 2

Cross-Country Evidence 3

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Corruption and Growth 7

Growth-Enhancing Governance versus Good Governance

Four types of Corruption 9 Corruption is always associated with state functions where a public official is engaged in illegal activities: But the state functions themselves may be legal and/or necessary functions, or not Anti-corruption strategy that does not distinguish between different types of corruption to target the most important and feasible types is likely to fail

Feasibility versus Impact of Anti-Corruption Strategies 10 State-constraining corruption is likely to be an important focus for effective and feasible anti-corruption activities in developing countries

An Example of the Policy Design Problem from Bangladesh: Regulatory Failure in the Bangladeshi Garments Industry 11 (Drawn from a cross-country study on The Impact of Corruption on Private Sector Growth conducted for DFID 2014)

Another Example of State-Constraining Corruption: Customs Corruption in the Bangladeshi Garments Industry 12 (Drawn from a cross-country study on The Impact of Corruption on Private Sector Growth conducted for DFID 2014)

A Process-Analysis Approach to Anti-Corruption The targeting of state-constraining corruption is critically important in developing countries Corruption is in general ‘over-determined’: multiple processes are involved with firms engaging in corruption for different reasons In the worst cases, almost all firms are engaged in corruption, and in these cases, everyone pays lip service to anti-corruption but standard anti-corruption strategies have no chance Effective strategies require careful ‘process analysis’ to separate the determinants of corruption for potentially compliant and potentially non-compliant firms Necessary state functions have to be redesigned to remain developmental and ensure that it becomes feasible for the potentially compliant to become compliant and even to benefit from compliance Regulatory and enforcement capacities are likely to need strengthening but since resources are limited, policy has to incrementally target critical agencies to achieve specific objectives 13