I was invited at the G20 OECD Third Annual High-Level Anti-Corruption Conference for G20 Governments and Business. The question that was put to me was the following:
This discussion is not only about how corruption impedes economic growth, but also how anticorruption policies can contribute to establishing growth. Could you tell us of instances where countries have achieved large reductions in their corruption perception scores while demonstrating an improved economic performance? Can we really identify/single out anticorruption practices as one of the factors in this success? What lessons could this provide G20 countries as they strive to build a strong international agenda against corruption?
Here is the text that was the basis for my speech.
You are asking me for economic advice, and I fear for the risks you are running by doing that. Economists Acemoglu and Robinson, in their latest paper “The Pitfalls of Economic Advice”, put it out nicely: “We argue not only that economic advice will ignore politics at its peril but also that there are systematic forces that sometimes turn good economics into bad politics, with the latter unfortunately often trumping the economic good” and “unintended political consequences are common place when reform is imposed from the outside without understanding the political equilibrium on the ground.”
So, by asking good advice to an economist on what anti corruption practices can be recommended there is not only a risk that the advice will fail, but of unintended worse consequences. For example, still following their line of thought, a government might end up – by pushing for the “right“ economic policies” – being forced to prematurely shift its nature or to alter its coalitions, and by so doing lose political control, suffer civil war or even become more authoritarian in nature.
Really good economic advice is only one that takes these (complex and local) considerations into account.
But in a less dramatic tone, I would like to go back to the other problem I see with giving a general advice to every country, the issue of the “one size fits all” solution.
Let me start with one example. The history of Anti Corruption Authorities, one of the latest and most interesting developments, as also told by World Bank’s Recanatini is clear:
a) Policy-makers should attempt to replicate successful experiences with caution;
b) The success of some countries – Brazil, Hong Kong, Indonesia, Slovenia and Singapore are some that come to mind – has been hard to replicate.
Case studies of failures sometimes are more informative than successes, because they show us what we should keep in mind anyway to avoid risking defeat again, and because they force us to understand what went wrong.
Italy’s Mani Pulite, the bribery scandal in the early 90s that wiped out from the political arena two of the three largest parties in Italy’s republican history till then, is the tale of a sudden strong improvement in many indicators of anti corruption monitoring, especially the activity by judges and police forces. In a paper I wrote with Coppier and Costantini that we published in Economic Inquiry, we show that lack of full credibility in this new anti corruption drive made firms at least in some areas of the country postpone investment (a wait and see attitude) and damaged the growth process of Italy in those years.
Reforms that generated less growth.
What can we learn from that episode? That only an explicit and very credible anti corruption reform is what generates growth.
Ok. But I see your question coming, so let me anticipate it. Explicit and credible is good, but explicit and credible depends on a political willingness rather than on the instruments per se, dont you think?
Yes. A whistleblower program may simply fail to protect whistleblowers. An anticorruption authority may be chaired by a corrupt chairman, or an honest chairman may soon be fired. It has happened before.
So the key question we should ask ourselves is: what makes the chances of a whistleblower program or of an anti corruption authority being successful more likely?
One anwer, we know, is growth and development. After all, whistleblower programs and anti corruption authorities are often successful there where they are needed the least, in rich countries which have developed over time a strong anti corruption stance also thanks to the larger amount of resources available.
We know for sure that the correlation of growth and corruption runs in both directions and that healthy and well distributed growth and opportunities reduce corruption. For that to happen, however, we need long spans of time.
The real issue is then if there is something we can recommend to be done in a shorter span of time to fight corruption or if we should resign ourselves to wait for growth to do its job. To make the issue even more tricky, let’s not forget that corruption is a cultural phenomenon, that can hardly be eradicated by itelsf in a short time, especially within democratic means. Or at least we lack evidence of such cases, as I argued before (we should however keep Brazil under a very watchful eye, since what is happening there, with an incredible acceleration in policies against and intolerance toward corruption is puzzling and fascinating at the same time).
My thought has always been that you need allies in fighting corruption. That is, just like for whistleblowing one looks for the partners of corrupt people as the weak link of the corrupt deal, one needs to find those phenomena that partner with corruption and focus on fighting them.
In economics we say that we need to look for “strategic complements” of corruption. Those phenomena that go in hand in hand with corruption, who feed on it and feed it at the same time.
There are three main strategic complements of corruption. One is criminal activity, especially of the systemic type. Its existence makes corruption easier to emerge, and the existence of corrupt people makes criminal organizations more likely to succeed.
In this sense cooperation between anti corruption units and criminal investigators becomes essential, even if fighting criminal organizations is often as hard as fighting corruption.
The other complement of corruption is collusion. Cartels and corruption walk hand in hand. The work of Ariane Lambert Mogilianski and others is very important in this sense. Corruption makes cartels more stable and cartels often make corruption more rewarding. An anti-corruption drive where collaboration with antitrust authorities is central might go far in making corruption harder to be sustained. But for this we need to fight for centralized antitrust authorities budget to be much larger, so as to look for data in public procurement across a given country, across different regions and over time. In Italy, the Italian antitrust authority has been able in 22 years of activity to open 22 cases of cartels in public procurement. My hunch is that the true number is way bigger than this.
Antitrust is often debated with less passion than anti corruption, it looks too technical. If we think that cartels and corruption are related, then we might put some passion in the antitrust reinforcement.
The third complement is incompetence . Corruption and incompetence walk together: where there is corruption the willingness to train is low, where there is incompetence corruption has a much easier time to capture procurers. Turn that result around: more competence, rewarded, less incentive for corruption to sustain itself.
We know if anything that Singapore’s emphasis on high wages and competence has come together with a good anti corruption record. Is that a coincidence? I dont think so. So one needs to focus, especially in public procurement, in making the labor force motivated, trained, rewarded. Possibly a professional career for purchasers should be created similar to the one of other elite officials like judges and diplomats. The private sector does it, why not the public?
Finally, related to competence, we should start teaching in every school at a very young age the advantage of “just saying no”. Brazil does it, we should help every country that wants to engage in such types of programs.
I hope my message, although not always optimistic, will encourage rich nations to think twice before applying external pressure to conform to a given rule chosen by outsiders. Corruption is not a global phenomenon that needs a global solution: it is a cultural phenomenon faced with globalization. And globalization might help in making internal reforms faster and more effective, it is enough to think how fast everywhere in the world the younger generations are getting a taste for integrity. As such, as a cultural phenomenon, it should be fought internally with resources from rich countries flowing there were improvement, even modest improvement, is shown in the battle against corruption.