Corruption: Causes, Consequences, Folk Remedies and What the Doctor Ordered

1. Corruption: Causes, Consequences, Folk Remedies and What the Doctor Ordered Anwar Shah (ashah@worldbank.org)

2. Corruption? • Exercise of official powers against public interest. • “Abuse of public office for private gains” (World Bank, 1997). • Concern for corruption as old as the history of government “…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…” - ----Aristotle, The Politics • corruption is not “cancer” (a disease) but a symptom of failed governance • corruption is not monolithic • administrative corruption • grand corruption (foreign vs. domestic origin) • Executive and legislative (“state” ?) capture • Patronage/paternalism and being a “team player” • Path dependency: initial conditions usually matter

3. ..And initial conditions differ a great deal across countries • “Government is the coldest of all cold monsters – whatever it says it lies – and whatever it has -it has stolen.” Nietzche • “We have a moral obligation to make government work right – to use the hard earned money of American people only in ways that further the public interest. If we can’t do that ..we can’t justify taking the money. ” Clinton

4. Consequences for Service Delivery: Empirical Findings • One standard deviation decrease corruption index leads to • 29 percent decrease in infant mortality rates • 52 % increase in satisfaction from public health provision • 30-60% increase in rate of satisfaction from improvement in the condition of roads • Source: Tomaszewska and Shah (2003): Phantom Hospitals, Ghost Schools and Roads to Nowhere: The Impact of Corruption on Public Service Delivery Performance in Developing Countries.

5. Drivers of Corruption: Theoretical Perspectives • Crime and punishment model (Gary Becker, 1968) • Corruption = Monopoly plus discretion minus Accountability (Klitgaard, 1988) • New Public Management: Government as a run away train - Disconnect between mission, authorizing environment and operational culture and capacity • Neo-Institutional Economics (NIE) Perspective - • Bounded rationality of principals and related transactions costs • Opportunistic behavior of agents • Inadequate countervailing institutions • Path dependency: cultural and historical factors and mental models

6. Drivers of Corruption from Country Case Studies • The legitimacy of the state as the guardian of the “public interest” is contested. • The rule of law is weakly embedded. • Institutions of accountability are ineffective. • The commitment of national leaders to combating corruption is weak.

7. The Causes of Corruption: An Empirical Framework • Role of the state • Institutions of Accountability in Governance • Political and Bureaucratic Culture and Incentives • Localization • Other contextual factors

8. Econometric Results - Significant causes of corruption by rank • lack of service orientation in political/bureaucratic culture • democratic institutions ( negative) • degree of closed economy • colonial heritage • bureaucratic controls • localization/decentralization (negative) • Source: Gurgur and Shah (2003)

9. Empirical approach-Effects on corruption

10. Empirical approach-Effects on corruption

11. Ratings on Relevance of a Menu of Anti-Corruption Programs

12. Ratings on Relevance of a Menu of Anti-Corruption Programs

13. Ratings on Relevance of a Menu of Anti-Corruption Programs

14. Ratings on Relevance of a Menu of Anti-Corruption Programs

15. Effective Anti-Corruption Programs Based on Governance Quality/Level of Corruption