PUBLIC , POLICY AND CORRUPTION

"It is important to emphasize that corruption is not simply a developing country problem. Fighting corruption is a global challenge."

Daniel Kaufmann, Director for Governance World Bank Institute

“It is not the earthquake which kills most people, it is collapsing buildings that do.”

(Transparency international, commenting on the huge causality in a Turkey earthquake because of shoddy buildings constructed in violation of building code.)

Corruption and Public Policy

The World Bank has identified corruption as the single greatest obstacle to economic and social development. Even though corruption is a global vice, it is of special importance to the Asian policy makers since the problem is particularly acute in these parts in these parts of the world. This can be judged from the fact that non except three of the Asian nations featured even in the top 50 of the list of honest nations according to the latest Corruption Perception Index released by Transparency International, the Berlin based NGO dedicated to root out corruption. The Asian landscape has been dotted with the graveyards of many a public policy fallen victim to the inexorable force of corruption.

The socio-economic upliftment of a nation requires effective policy making. But if policy making gets contaminated by corruption it gives rise to shadow goals and fictitious objectives with the very actors posited for policy success inhabiting in a parallel universe where personal enrichment subjugates public value. By shifting motivation of the policy community away from the cause of organizational advancement, corruption sets the stage for gradual destruction of the institution and values. Take for example the Bataan Nuclear Power Plant which was created at a cost of US $2.3 billion as a result of power sector reform exercise of Philippines. The goal was to produce much needed electricity for the people of Philippines. But today, 32 years after its construction began; it has not produced a single unit of electricity and is not likely to produce any. The reactor is situated on an active earthquake fault line which can create a major nuclear contamination if the power ever becomes operational. Why did the policy process not envisage such fundamental design aspects of a costly power plant created with sole purpose of providing clean energy to a power deficient nation? Some of the answers became evident when the contractor, Westinghouse, admitted paying a commission of US$17 million to a friend of former president Marcos to secure the contract.

There are two enduring myths about this issue. The first is the myth of ethical tolerability. For those who think that corruption is only an economic offence, a much less moral digression than crime or brutality, the trial of 1993 Bombay serial bombing case back home would be shocking reminder of their intimate connection. When information about RDX landing at the western coast was made available, the custom officer in-charge promptly sent his crack team in the opposite direction. The concerned police sub-inspector swung into action and stopped the explosive laden truck to bargain for a larger slice of bribe and then released it , possibly with full knowledge of its lethal cargo!


The second is the myth of peripheral impact of corruption. Leaders and policy makers , many a time, wishfully deny its overwhelming influence and insist that corruption is only a marginal issue, peripheral to the core issues facing the society and economy. The statistics, given below, of the amount of money siphoned off by some of the top corrupt leaders , juxtaposed with the per capita income of that country, shatters this myth.



TOP TEN PERFORMERS OF LAST 20 YEARS
Name - Rank Who was He ? Corruption Volume GDPPC (2001)

Mohammed Suharto ----1 President, Indonesia, 1967-98 $ 15-35 bn $ 695
Ferdinand Marcos ---2 President, Philippines, 1972-86 $ 5-10 bn $ 912
Mobutu Sese Seko ----3 President, Zaire, 1965-97 $ 5 billion $ 99
Sani Abacha ---------4 President, Nigeria, 1993-98 $ 2-5 bn $ 319
Slobodan Milosevic --5 President, Yugoslavia,1989-00 $1 bn N/A
Jean-Claude Duvali---6 President, Haiti, 1971-86 $ 300-800 mn $ 460
Alberto Fujimori ----7 President, Peru, 1990-2000 $ 600 million $ 2051
Pavlo Lazarenko -----8 Prime Minister, Ukraine, 1996-97$ 114-200 mn $ 766
Arnolodo Aleman -----9 President, Nikaragua, 1997-2002 $ 100 mn $ 490
Joshph Estrada ------10 President, Phillipines, 1998-01 $78-80 mn $ 912

GDPPC:GDP per capita

Most of Money of Rank 1,2 & 6 were made in the Nineties (Data taken from various Global Corruption Reports and other special reports released by Transparency International Germany)


As globalization spreads, the world community is waking up to the reality that corruption is no longer an East-west or North-South issue. Like terrorism, it knows no geographical boundary, race or religion as has been evident from the string of corruption scandals involving multi-national corporations like Enron (USA) & Elf (France)[iii] with ramifications in various continents through contagion effect. Pervasive corruption is already undermining the very process of economic adjustment in the transition-economies of erstwhile communist nations. Global awareness against corruption can be seen in the flurry of creation of several multilateral conventions and declarations like the UN Convention against Corruption (2003) and the OECD Anti-corruption Declaration (1997) in the last decade.

Intensity of global corruption:

More than $1 trillion dollars (US$1,000 billion in Year 2005) is paid in bribes each year, according to ongoing research at the World Bank Institute (WBI). This US$1 trillion figure is an estimate of actual bribes paid worldwide in both rich and developing countries not accounting for deferred amounts and disguised types. This is nearly double than the World Foreign Direct Investment inflow in 2004 and many times more than the entire aid given by rich nations to poor countries. The graph below illustrates the intensity of global corruption.


As per World Bank estimate countries that tackle corruption and improve their rule of law can increase their national incomes by as much as four times in the long term and decrease child mortality by as much as 75 percent .One can see how the issue is vital to the leaders and policy makers of developing economies.

It is in this context one has to view the astounding success of Singapore. Being a tiny island nation with no natural resources it has been able to leapfrog from being a developing nation to a developed one in just one generation .The main reason for this is the near maniacal importance attached to the issue corruption by Singapores leaders who equated its absence with the very survival of the nation. They have created a society where adultery is perceived as a lesser crime than taking a small amount bribe from a government contract! Barely 40 years ago, its founding father Lee Kuan Yew, on a visit to Sri Lanka, had publicly mentioned that Sri Lanka is their role model which are trying hard to emulate. While most nations of Asia appear to be fighting a losing battle against this malaise, Singapore has found itself in the top ten honest nations for last several years. As one of my Vietnam friends once commented Vietnam had defeated a superpower , but the superpower of corruption seems to be defeating it now! For achieving prosperity, the Vietnamese leaders have attched top priority to design and implement a nation wide anti-corruption grid and that too with the help of policy specialist from Harvard and Princeton!

Where to start first? The Procurement Sector?

There is no doubt that anti-corruption has to be a Top-Down approach. If the leadership and the major institution of a country or society are not purged of this virus, no management at down-stream level will succeed. But, if the apex policy makers themselves are already affected, then can they or rather will they create, implement policies to curb this menace. So we are faced with the classic chicken-and-egg syndrome! But, given a chance to reform, and mandate to design policies at sectoral level, the question arises is where to start? Or where to give the biggest push ? This is outlined below:

A major portion of public expenditure at every level of government is incurred through the procurement of goods and services and construction activities. Typically, procurement accounts for 20% of central government expenditure and even up to 50% public expenditure in developing countries (including construction contracts). The range of government contracting and purchasing is vast, from weapons systems and large industrial plants to raw materials and mundane services. Poor procurement management has an impact beyond project implementation and functioning of the public agency concerned .It also delays and dilutes the intended program benefits to society, constrains the private sector performance. But the most important aspect of this sector is its inherent potential to be abused for corruption, nepotism & cronyisms. The Global Corruption Report 2005 has made this sector the central focus of global anti-corruption movement while stating the following:

Surveys repeatedly reveal corruption to be greater in construction than in any other sector of the economy. The scale of corruption is magnified by the size and scope of the sector, which ranges from transport infrastructure and power stations to domestic housing. Corruption affects both private and public players as they vie for their share of the global construction market of around US $3,200 billion per year. This market represents 57 per cent of GDP in developed and advanced developing countries and around 23 per cent of GDP in lower-income developing countries. [Global Corruption Report 2005]

How important the activities in procurement sector are from the viewpoint of combating national and international corruption can be judged from the following:-

"More than US $4 trillion is spent on government procurement annually worldwide. From the construction of dams and schools to the provision of waste disposal services, public works and construction are singled out by one survey after another as the sector most prone to corruption in both the developing and the developed world. If we do not stop the corruption, the cost will continue to be devastating.
Corruption in procurement plagues both developed and developing countries. When the size of a bribe takes precedence over value for money the results are shoddy construction and poor infrastructure management. Corruption wastes money, bankrupts countries, and costs lives."

(Peter Eigen, Chairman, Transparency International, Germany)

According to the Department of Budget & Management, Philippines waste 22 billion Pesos per year to corruption from the public procurement of locally funded projects. This sum, according to Procurement Watch Inc., an internet based NGO of Philippines dedicated to root out procurement corruption in Government Sector, was twice the budget of the Department of Health. It could have bought 520 million textbooks for school children or build them 63,000 new classrooms. DBM Undersecretary Laura Pascua said that the government lost some 20% of the procurement budget to corruption. In fact the leakage was even greater in infrastructure - some projects were bled to the tune of 50%.[vii] Similarly, in India after liberalization started in 1991, the Power Purchase Agreement (PPA) by Government of Maharastra with Enron Corporation, arguably the most costly Foreign Investment project of the day, was marred by allegations of bureaucratic corruption. The first phase of this contract had been finalized in a very short period without recourse to competitive bidding. The terms of the PPA were so favorable to Enron while being so much detrimental to the States interest that it continues to evoke surprise among financial analyst and policy makers world wide.

In the recent Global Corruption Report 2005, Transparency International laid down Minimum Standards for Public Contracting, setting out a blueprint for transparent public procurement. According to Juanita Olaya, TI Programme Manager for Public Contracting,

International donors and host governments must do more to ensure transparency in public procurement by introducing effective anti-corruption procedures into all projects. Tough sanctions are needed against companies caught bribing, including forfeiture of the contract and blacklisting from future bidding.