ZERO TOLERANCE FOR CORRUPTION

Concern about corruption  Aristotle(350 B.C.E.). The Politics  “to protect the treasury from being defrauded, let all money be issued openly in front of the whole city, and let copies of the accounts be deposited in various wards”

Concern about corruption  “Countries at the bottom need to adopt radical anti- corruption measures in favour of their people. Countries at the top of the index should make sure they don’t export corrupt practices to underdeveloped countries.” – José Ugaz, Chair, Transparency International Talking about CPI and Corruption

Some selected countries with CPI score and rank CountryCPI 2014CPI 2009CPI 2004 Denmark 92 (1/174)9.3 (2/180)9.5 (3/145) New Zealand 91 (2)9.4 (1)9.6 (2) Finland 89 (3)8.9 (6)9.7 (1) Sweden 87 (4)9.2 (3)9.2 (6) Afghanistan 12 (172)1.3 (179)- Sudan 11 (173)1.5 (176)2.2 (122) Korea (North) 8 (174)-- Somalia 8 (174)1.1 (180)- Bangladesh 25 (145)2.4 (139)1.5 (145) Nepal 29 (126)2.3 (143)2.8 (90) Sri Lanka 38 (85)3.1 (97)3.5 (67) India 38 (85)3.4 (84)2.8 (90) Source: as of 2/9/2015

Corruption PastPresent Temporary Exceptional ‘problem’ Wealth and power Can be eradicated No positive aspect Local agenda Women in corruption control Singular focus Cannot be measured Decentralization, privatization, deregulation are the tools for control Anticorruption agencies Aid: a panacea Democracy Permanent concern Universal Rules and roles Cannot be totally eradicated Some positive aspects Global agenda Gender and corruption Demand and supply side anti-corruption Can be measured One size does not fit all Anticorruption agencies: Rhetoric vs Reality Aid: a challenge The cancer of corruption and governance

Corruption  Corruption  Difficult to define (Model)  Problem to measure (Measure)  Certain illegal acts such as fraud, money laundering, drug trades, and black market operations constitute/do not constitute corruption?  Fraud, waste, and abuse (after 1970s)  Corrupt is that which is considered corrupt at a certain place and at a certain time.

Corruption  The misuse of public office for private gain.  World Bank  The misuse of entrusted power for private gain.  Transparency International  Acts in which the power of public office is used for personal gain in a manner that contravenes the rules of the game.  Exercise of official powers against public interest  Abuse of public office for private gains

Survey findings

Why Zero Tolerance for Corruption? Corruption HD/GG/RBA Human Development Income and wealth Education and health care Basic human needs Decent standard of life Awareness Bargaining power Freedom Participation Corruption as legal and appropriate behaviour Vs Illegal and inappropriate Weakens national institutions Injustice in courts Widespread economic inefficiency Undermines efforts at poverty reduction Diverts goods and services targeted for the poor to well -off and well- connected who can bribe Ignores secured livelihoods Inequitable social services Hits hardest at the poor- who often depend heavily on public services and are least able to pay bribe

Survey findings

Forms of corruption Different forms of corruption Demand and supply side Grand and petty Political/ legislative and bureaucratic Private and public sector Higher-level and lower-level Patrimonialism and clientelism Nepotism and favoritism Individual level and Organizational level Policy and administrative International and national level State and society level Top-down and bottom -up

Forms/types of corruption Political Leaders Legislators Appoint (2)/(G) Elects (1) (G) Bureaucrats (3) (G) Enact Laws Make public policy Provide (2) (P) services Population Receives benefits according to each member’s ability to influence each decision maker Figure showing corrupt relation, Source: Jain, 2001.

Top-down and Bottom-up Corruption TOP-DOWN CORRUPTION  “corrupt high levels buy lower levels by sharing a portion of gains”  More happened in shared-power systems BOTTOM-UP CORRUPTION  “low level officials share their own collected bribes with superior levels to avoid detection or punishment”  More happened in centralized or dictatorial regimes Which one is prevalent in Nepal?

Corruption: Organization and Individuals Fig: Source: Pinto et. al, 2009.

Survey findings

Causes of Corruption  Why are some officials corrupt while most are not?  Why are some officials not-corrupt while most are?

Causes of Corruption Causes of corruption In lower income countries (Nepal) In higher income countries (Korea) Public choice approach Institutional approach Moralistic approach

Causes of Corruption Public choice theoryIndividual tries to maximize his or her utility Potential benefits > potential cost Bad apple theoryGreed or wrong values: a cause of corruption Organizational culture theoryGroup culture Clashing moral values theories Conflict of interests, Financial interests Public role and private obligations The ethos of public administration theories Culture of public management/scientific mgmt. Correlation theoriesRelated variables Source: Graaf, 2007

Global Society and Corruption  Multinational corporations: “supply”  Foreign public officials: “demand”  5% of the exports to developing countries ($ 50 to $80 billion per year) goes to corrupt officials (Moss as cited in Darrough, 2004)  5 to 30% of all public funds (Hamra, 2000)

Survey findings

Determinants of Corruption  Discretionary powers;  Value of economic rents; and  Deterrents to corruption (detected, prosecuted, punished)  Net utility of corruption= f { Income from corruption, legitimate income, strengths of political institutions. moral and political values of the society, probability of being caught and punished)

The level and continuation of corruption A, B, & C are 3 equilibrium points. A & C are stable but B is not. It does not pay to be corrupt at A, and honest at C. B is indifferent (between being corrupt and honest). Source: Bardhan, 1997 No one is corrupt Proportion of a given total number of officials (or transactions) that is known to be corrupt Marginal benefit for a corrupt official Marginal benefit for a honest official The benefit of an honest official is higher than that of a corrupt official when very few officials are corrupt But it declines as the proportion of corrupt officials increases The M curve goes up at the beginning when more and more officials are corrupt but ultimately declines Becomes even negative when almost all others are corrupt

Consequences of corruption  Positive effects? (2 hypothesis)  Grease-the wheels-of bureaucracy  Sand-in-the-machine  Corruption and bureaucratic efficiency  Effects on resources allocation  Cost-enhancing consequences of corruption  Project selection by a corrupt agent (pork barrel)  Corruption and allocation of entrepreneurial talent  Corruption and distribution of income and wealth

Consequences of corruption Table: Impact of corruption on efficiency Grease the wheels Sand the wheels Effective institutionsDetrimental Ineffective institutionsPositiveDetrimental Where does Nepal lie?

Collective Action Dilemma Action: A HonestCorrupt Action: B Honest (H, H)(H, C) Corrupt (C, H)(C, C)

South Korea, PNG and Nepal South KoreaPNGNepal 43 rd /174 (CPI 2014= 55)145/174 (25)126/174 (29) Corruption : still a problemCorruption : major problem... Challenges 1. Excessive bureaucracy 2. Inconsistent application of laws and regulations 3. Non-transparent regulatory processes 4. Many have been found guilty of corruption in recent years, sometimes for offences committed years earlier. Addressing corruption 1. Sophisticated e-governance system 2. One-stop shops to reduce opportunities for bribery 3. Anti-corruption agenda 1. Corruption is institutionalized and seen as a norm 2. Political culture of the ‘big man’ system 3. Weak legal system and institutional apparatus to fight corruption. 4. A rich patron-client system in place for both the agents and the principals, and the rent seekers or brokers. …

Solutions and remedies Dichotomous policy ideals: panacea or palliative? Are recommendations long term solutions, or short-term patch work?  Corruption cannot be totally eradicated. Part of human nature. Humans by nature are socio-political beings, with an economic appetite for utility maximisation.  Policy options for fighting corruption abound without an end insight.  However, we can control corruption as economies continue to advance overtime, with newer and more improved systems and technologies to detect and curb corruption.

Cont.  A ‘lawyer’s approach  Toughening laws & legislations  A ‘businessman’s approach  Offering incentives to officials to disengage from corruption (buy out corruption).  A ‘market’ or an ‘economist’s approach  Introduce or increase competition  An ‘institutional’ approach  Genuine political/leadership commitment

How and what? Anti- corruption Ideology Laws Regulations Administrative strategies Inter- and intra- organizational checks and balances Institutions/mechanisms aimed at: Defining Identifying Preventing Punishing official corruption

Lesson learned from CPI top ranked countries  Administrative culture:  rules are brief, clear and strict  few level of bureaucracy  autonomy on the local level  collective decision system  job security (a public official‘s bread may be thin but at least it is long)  the presence of women in decision making post

Lesson learned from CPI top ranked countries  Transparency of the work  Supervision of decision: - Justice and the Parliamentary Ombudsman  Law enforcement : - National Bureau of Investigation

Lesson learned from CPI top ranked countries  Social factors:  equality in income  welfare society  high standard of living (the higher the standard of living, the lower the level of corruption)  media

Action Promotional Preventive Punitive Punishment Reform Education Conclusion: How is it possible?

References  Bardan, P. (1997). “Corruption and Development: A Review of Issues.” Journal of Economic Literature, 35(3):  Graaf, G. D. (2007). “Causes Of Corruption: Towards A Contextual Theory Of Corruption.” Public Administration Quarterly,:  Jain, A. (2001). “Corruption: A Review.” Journal of Economic Surveys, 15(1):  Pinto, J; C. R. Leana and F. K. Pil. (2008). “Corrupt Organizations Or Organizations Of Corrupt Individuals? Two Types Of Organization-level Corruption.” Academy of Management Review, 33(3): 685–709.