Post Format

Privatizing corruption

Italy is on the verge of privatizing more of its assets, including its defense industry and its local utilities. Will this reduce corruption?

Not at all. As for defense, this is a sector that remains among the most corrupt,  whether it is in the public hands or in the private ones. The reasons are many but some stand out. The concentration of a few buyers (governments mostly) and a few sellers (large multinational which do not allow free entry) that play a repeated game among themselves and the criticality of obtaining or losing a contract (one plane sold is not one plane sold but all the logistics for decades attached to it) make corruption more likely to occur anyway, indpendently of the ownership structure of defense producers. That is, privatization in the defense industry might achieve other goals but does not guarantee that corruption in defense deals will decline.

So how exactly do we make defense corruption decline? Not easy. Deloitte posts a series of ways to fight corruption in defense through corporate governance and institutions. It is an important instrument but one that pales when looking at the political pressures that individuals face when making decisions in this field. The concept of off-set, instead,  whereby governments that buy defense services and equipments receive from the seller additional  industrial, social and technical assistance even in civilian sector is one way in which transfers go not (or not only!) to the local politician (as occurs with corruption) but to the economy at large.

In the end, privatization does not guarantee lower corruption even where you might expect it to occur more easily, like in local utilities. Work by Martimort and Straub shows how privatization only changes the nature of corruption and the groups within society affected by it. Taxpayers suffer from corruption when ownership is public but when the latter is private then politicians manage anyway to induce bribes from private regulated utilities, the cost of which is then transferred in higher tariffs for service users and consumers.

Privatization may have other benefits. Not one of changing human nature so easily.

Lascia un Commento

Required fields are marked *.