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worldbank/wbi/governance

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worldbank/wbi/governance

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  1. ‘Unbundling’ Governance and Corruption: Some new empirical findings and Collective Action approachesDaniel Kaufmann World Bank Institute and ColleaguesAnti-Corruption Summit 2000, Wash. DCGovernance Program - The Strategy The power of rigorous empirics and diagnostics Corporate Strategies-National Governance NexusUnbundling Corruption: State Capture is key? http://www.worldbank.org/wbi/governance

  2. 8 Key Issues • Government in the ‘driver’ seat in A-C program • Focus on very focused A-C plan • Use worldwide data for action program • Technocratic approach to fighting corruption • Paramount: A-C Autonomous Agencies/Commissions • High Pay in public service for combating corruption • Focus: eliminate bureaucratic corruption/discretion • Strict Enforcement of civil service rules Proposition: The ‘8 Key Issues’ above contain an element of myth

  3. National Governance: Challenges in Integrating Anti-Corruption Into Institutional Change • A simple Formula synthesizing Governance/Anticorruption: • IG and AC = KI + LE + CA • Improving Governance and Anti-Corruption = • = Knowledge/Info.Data + … • ...+ Leadership (incl. Political) + ... • ... + Collective Action (change)

  4. A ‘Live’ Test:‘Culture’, Information and Incentives: You are approaching your car in the empty and unattended garage late at night You see an envelope on the floor, and you pick it up It contains 20 bills of US $100 each. If no possibility that anyone would know: No cameras, no monitoring, no reporting What would you do with such envelope full of cash?

  5. 33% Report and Return Funds 50% Undecided 17% Keep A. If no possibility that anyone would know: You are alone, there is no monitoring, cameras, or possibility of resporting Option Finder Results: Various Audiences

  6. 22% Undecided 4% Keep 74% Report and Return Funds B. If 30% probability that information is shared (e.g. 30% that camera recording info which may be reviewed)

  7. Control of Corruption: Aggregate Indicator (From 155 worldwide, transition/selected countries)* POOR GOOD Source: ‘Governance Matters’, PRWP 2196 by Kaufmann, Kraay and Zoido; based on data from 1998. For details and data, visit http://www.worldbank.org/wbi/governance There is a margin of error (thin line); extreme care in interpretation is needed.

  8. Broadening our Perspective: Assessing Governance • Control of Corruption (or Graft) • Rule of Law • Absence of Regulatory Burden • Government Effectiveness • Voice and Accountability (Civil Liberties) • Political Stability and lack of Violence

  9. Application of Rule of Law Varies by Region (based on aggregation of surveys/polls 1997-99*) High Index of Rule of Law Appli- cation Low Index OECD East Middle South Eastern Latin Sub- Former Asia East Asia Europe America Saharan Soviet Africa Union Note: Regional Averages shown for discussion purposes, and hide large intra-regional variation in each case. Thin vertical line reflects estimated margin of error. Source: Kaufmann, Kraay and Zoido-Lobaton (1999). "Aggregating Governance Indicators" and "Governance Matters" PWRP 2195 and 2196. http://www.worldbank.org/wbi/governance

  10. Corruption/Absence of Rule of Law & Civil Liberties High Corruption [and Absence of Rule of Law] Low Not Free Partly Free Free Civil Liberties Based on averages of data from 160 countries.

  11. Control of Graft and Freedom of the Press High Control of Graft [kkz] r = .68 Low Low High Freedom of the Press (Freedom House)

  12. Salient Features of New Governance Diagnostic Tools • Multi-pronged surveys of: households, firms and public officials [‘triangulation’] • Experiencialquestions(vs. ‘opinions’/generic) • Specially designed and tested closed questions • Conceptual framework: Incentive Structure behind Governance; focus on development • Rigorous technical requirements in implementation • Local Institution Implements, with WB Collaboration • Recognizing Multidimensionality of Governance • Focus on Service Delivery: Input for Action and Change

  13. Firms Reporting Negative Impact of High Level Corruption‘State Capture’ Source: WBES Survey 1999, 20 transition countries % 50 % 45 % 40 % 35 % 30 %of all Firms report negative impact of grand corruption % 25 % 20 % 15 % 10 % 5 0 Hungary Estonia Russia Azerbaijan Adverse Impact of ‘Purchases’ of: Parliamentary legislation Decrees Central Bank Influence

  14. Reported Direct Impact of State Capture on the Firm

  15. Transnational Corporate Responsibility Matters as Well: % of firms that 'Purchase' Legislation and Decrees in Transition Economies 12% 10% 8% % firms 'purchase' legislative 6% 4% 2% Domestic With Investor FDI Note: For transition economies, average of 20 countries. Source: Hellman, Jones and Kaufmann, 2000 (www.worldbank.org/wbi/governance)

  16. % Firms that pay public procurement kickbacks(of those that trade with the state)

  17. Percentage of firms paying kickbacks by country of FDI origin

  18. Enormous Social/Economi costs of state capture: Much lower growth in sales and investment in economy

  19. The result: weak property rights Firms reporting insecure property and contract rights % 80 70 60 50 % of All Firms 40 30 20 10 0 Lit Sln Slk Hun Est Geo Arm Pol Bul Bel Ukr Cro Rus Uzb Kyr Mol Cze Kaz Azer Rom

  20. Country-wide: State capture is associated with incomplete civil liberties (& slow economic reforms)

  21. For Firms, Capture is strategy that started with insecure property rights they faced

  22. Enterprises are Prepared to be Taxed for Better Government: Share of Firms that would pay additional taxes to eliminate corruption, crime and excessive regulations Prepared to Pay More Taxes to Alleviate:

  23. Lower Income Households ‘Pay’ Disproportionally Bribe/Total Income ratio % ( A Latin American Country )

  24. Which Public Sector Jobs Are “Sold”? 60 Customs inspectors 48 41 52 Tax inspectors 41 25 39 Judges 32 16 Albania 25 Ordinary police 40 23 Georgia 32 Investigators/ prosecutors Latvia 33 14 5 Ministers 10 19 0 20 40 60 80 Percent of public officials reporting “purchase” of positions

  25. Towards a Social Contract: Consensus Building with Civil Society and Gov’t • Consultation Process with Parliament (Canada) • Freedom on information and of the press (OECD) • Administrative appeals system (Sweden, U.S.) • Public hearings of draft laws (OECD) • Participatory coalition building w/NGOs and Gov’t • Social Contract

  26. Lower Public Sector Salaries do not Increase Bribery 15.5% 15% Bribe* = 3MS 12% 8.4% 9% 7.7% Bribe* Bribe* = 6% = 0. 2MS 0. 5MS 3% 0% Monthly Salary Monthly Salary Monthly Salary Less than 3MS Between 3 & 13 MS More than 13 MS * Average bribe to public officials

  27. Which Governance Characteristics Survive After Controlling For Causal Effects?

  28. Overall Corruption Over Time (Selected Countries; ICRG index, rescaled 0-10) 10 High corruption Indonesia El Salvador 8 Russia Indonesia 6 Russia 4 El Salvador Poland 2 Poland Low corruption Finland Finland 0 1992 1993 1994 1995 1996 1997 1998 1988-92 7

  29. Data Power and Collective Action: Synthesis • Logic of Collective Action: beyond ‘participation’ or standard conditionality • Power of Data.Knowledge Empowers Coalitions and De-Personalizes the Challenge -- Systemic Instead • Beyond Corruption: Governance and Transparency • Focus on Fundamentals [vs. Symptoms]: Institutions • Prioritization and Adaptation by Country Realities • There is Hope, yet no room for Complacency

  30. Some Policy Implications • Anti-corruption efforts should focused more on grand corruption and state capture as root of misgovernance • Broader Governance framework • Collective responsibility and Collective Action • Civil society involvement, Civil liberties • Security of property rights and economic liberalization • Need to address link between corporate (including FDI) and national-level governance For details, survey, and data: http://www.worldbank.org/wbi/governance/

  31. Some Issues for Discussion • Broadening Framework from Corruption to Governance? • How to interpret Worldwide indices judiciously? • Focus on 40-50 countries with acute governance challenge? • Next Stage in In-depth Diagnostics & Methods? • Measuring ‘Grand Corruption’ -- including ‘State Capture’? • Role of Corporate Responsibility, including FDI? • Role of Informatics, Internet power? • What kind of expertise is needed in the next stage? • How to help Empower?: from ‘participation’ to Collective Action

  32. http://www.worldbank.org/wbi/governance/

  33. Data Presented for Analysis and informing Policy Advise, not for Precise Rankings The data contained in this presentation originates from various enterprise surveys (as well as outside expert rating agencies) and are subject to a margin of error. The purpose is therefore not to present precise comparative rankings across countries, but instead to illustrate characteristics of governmental and corporate performance in order to assist in drawing implications for action. No ranking of countries is intended in presenting results from these external sources by either the presenter of this work, the World Bank or its Board of Directors. Further details and data, visit: http://www.worldbank.org/wbi/governance

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