Questions on Governance and Corruption

PREM week Conference Session # 1 June 25th, 2002

Prepared by D. Kaufmann, in collaboration with Bank colleagues 1

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

1 See last slide of this presentation for details.

IFI involvement in Anti-Corruption/Governance: Basic Question: Which generic path? (Part I)

0. ‘Zero’ Scenario: No involvement (seventies…)

1. ‘Minor’ Scenario: Economic Competencies (‘till ’96) - Improved Economic/Trade/Regulatory Policy, etc.

2. ‘Traditional +’ Scenario: Economic + PSM + Legal

3. ‘Governance Scenario’: Economic + new Public Sector & Judiciary/Legal Reform + Anti-Corruption + Civil Society/Collective Action

4. ‘Maximalist’ Scenario: Scenario 3 + Politics… (?) We want to review pros and cons of appropriate approach, recognizing

IFI/Bank opportunities as well as limitations. At present there is large variance of approaches across the Bank (ranging from 0 to 3) on which path ought to be taken.

0% 5% 10% 15% 20% 25% 30%

Donors Out

Collaborate withNGOs

Control corruption indonor projects

Awareness/Education

T.A.: Work withcountries

'Pre-Conditionality'

Most Important Role for Donors in Helping Countries Fight Corruption

Percentage of Respondents who Selected Role for Donors as Most Important

Source: Web survey, 1800 respondents. http://www.wbigf.org/hague/hague_survey.php3

Role of IFIs, part II: Onto Specifics

• Working with NGOs: Generally accepted, but what are lessons of experience? Selectivity warranted?

• Emphasizing further other civil society stakeholders?: Parliaments, Private Sector/Business Associations

• The role of Multinationals & Large Domestic Firms • Understanding the Financing of Politics/Parties/Elections• On the dynamics of Elite/State Capture: Corruption is not

always a ‘symptom’ – but quite fundamental…• Role in gathering, analyzing and disseminating

Data/Empirical work on Governance & A-C

‘Traffic Light’ Map: Rule of Law, 2000/01

Source for data: http://www.worldbank.org/wbi/governance/govdata2001.htm ; Map downloaded from : http://info.worldbank.org/governance/kkz/gov2001map.asp Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

Control of Corruption: one Aggregate Indicator (selected countries from 155 worldwide, for illustration, based on 1998 research data*)

-2

-1

0

1

2Ta

jikis

tan

Iraq

Mya

nmar

Suda

n

Ukra

ine

Indo

nesi

a

Syria

Paki

stan

Mex

ico

Phili

ppin

es

Thai

land

Kore

a, S

outh

Bots

wan

a

Cost

a Ri

ca

Hung

ary

Belg

ium

Chile

Aust

ralia

Sing

apor

e

New

Zea

land

Denm

ark

Source: ‘Governance Matters’, 1999, PRWP 2196 by KKZ. http://www.worldbank.org/wbi/governance/

POORGOOD

Corruption Control Level

Margin of Error

Good Corruption Control

The ‘Dividend’ of Good GovernanceInfant Mortality and Corruption

0

10

20

30

40

50

60

70

80

90

Weak Average Good

Control of Corruption x Development Dividend

0

2,000

4,000

6,000

8,000

10,000

12,000

Weak Average Good

Regulatory Burdenx Development Dividend

Per Capita Income and Regulatory Burden

Literacy and Rule of Law

0

25

50

75

100

Weak Average Good

Rule of Law x Development Dividend

Per Capita Income and Voice and Accountability

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Weak Average Strong

Voice and Accountabilityx DevelopmentDividend

Note: The bars depict the simple correlation between good governance and development outcomes. The line depicts thepredicted value when taking into account the causality effects (“Development Dividend”) from improved governance to betterdevelopment outcomes. For data and methodological details visit http://www.worldbank.org/wbi/governance.

Investment Climate: Extent of Constraints to Business as Reported by Firms (Selected Countries, I)

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Bangladesh

Source: World Business Environment Survey (WBES) 2000. The data and views presented do not necessarily reflect official views of the entire institution or its Board of Executive Directors. Given inherent error margins associated with any single survey results, it is inappropriate to use the results from this survey for precise country rankings in any particular dimension of the investment climate or governance. For interactive web-tool interface with this data, visit http://info.worldbank.org/governance/wbes/index2.html

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Botswana

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Canada

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Kenya

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Singapore

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Venezuela

Investment Climate: Extent of Constraints to Business as Reported by Firms (Selected Countries, II)

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Egypt

Source: World Business Environment Survey (WBES) 2000. The data and views presented do not necessarily reflect official views of the entire institution or its Board of Executive Directors. Given inherent error margins associated with any single survey results, it is inappropriate to use the results from this survey for precise country rankings in any particular dimension of the investment climate or governance. For interactive web-tool interface with this data, visit http://info.worldbank.org/governance/wbes/index2.html

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Nigeria

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Sweden

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Uruguay

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

US

0

100Bribe Frequency

Corrupt Courts

Inflation

Tax/Regulations

Policy Instab.

Corruption asconstraint

Zimbabwe

State Capture by Elite Firms at very high Economic Cost for the Rest of the Private Sector

0

5

10

15

20

25

Firms' Output Growth (3 yrs)

Low captureeconomies

High captureeconomies

Addressing Capture: Economic Reform, Political Competition & Voice/Civil Liberties Matter

0

0.1

0.2

0.3

0.4

Stat

e Ca

ptur

e In

dex

Partial Civil Libs High Civil Libs

Advanced

Partial

Slow

Pace of Econ Reform

Political/Civil Liberties Reforms

Towards a Solution: Collective Action by FirmsTowards a Solution: Collective Action by Firms

0102030405060708090

Hungary Russia

Business association members

(% of firms)

Active members Nonactive members

Citizen Voice and Access to Public Services by the Citizen Voice and Access to Public Services by the Poor Poor

(Bolivia illustration, each observation is a public agency)(Bolivia illustration, each observation is a public agency)

Based on Public Officials Survey. The sample of institutions includes 44 national, departmental, and municipal agencies which are a prior anticipated to be accessible to the poor

0

20

40

60

80

100

10 20 30 40 50 60 70 80 90

Voice / External Accountability

Acc

essib

ility

to th

e Po

or

ControlledCausalLink

r = 0.54

Which Governance Characteristics Matter for Agency Performance? Results from Bolivia Public Officials’ Survey

Governance Determinant of Performance

Simple Unconditional Relationship

Conditional/Causal Relationship

‘Ethical Values’ 0 0 Agency Autonomy ** 0 Enforcement of Rules ** 0 Quality of Rules * 0 Wage Satisfaction ** 0 Politicization ** ** Internal Transparency ** ** External Voice ** ** Corruption ** **

Note: Middle column reflects simple correlation results, implying that many more variables appear to be significant.

What to Do About Corruption?: Responses from Officials In 62 Countries

20%

30%

40%

50%

60%

70%

80%

90%

Anti-corruptionwatchdoginstitutions

Privatization Voice & CivilLiberties

Reform taxregime

Budgettransparency

Deregulateeconomy

Example set byleadership

% o

f res

pond

ents

giv

e hi

gh ra

ting

Source: ‘Corruption: The Facts’, Foreign Policy, Summer 1997

Concluding…• We are learning, without many successes yet…• Understand forces shaping Governance & Policies• Firms, Multinationals, Influence and Capture • From Traditional PSM to broader Governance: Voice• External Accountability more important than internal rules• Judiciary part of the solution or the problem?: Implications• Coalition-Building & Collective Action: how to help a

‘network’, and empowering millions of auditors• On Data & Knowledge Tools – some interactive resources: http://www.worldbank.org/wbi/governance http://info.worldbank.org/governance/ http://www.worldbank.org/wbi/governance/datasets.htm http://www1.worldbank.org/publicsector/anticorrupt/datatools.htm#1 http://www.worldbank.org/wbi/governance/tools.htm

0% 10% 20% 30% 40% 50% 60%

Oversight committees

Enforcement agencies

Various executive

NGOs

National a-c programs not helpful

Anti-corruption commission

Broad coalition

Best-equipped group to Formulate a National Action Program to Control Corruption

Percentage of Respondents who Selected Group as Best-equipped

Source: Web survey, 1800 respondents. http://www.wbigf.org/hague/hague_survey.php3

Data for Analysis and informing Policy Advise, not for Precise Rankings

Data in this presentation is from empirical research related to aggregate governance indicators, diagnostic surveys, and expert polls, and is subject to a margin of error. Collaboration with Aart Kraay, Joel Hellman, Francesca Recanatini, Randi Ryterman and others, including external partners. Access to collaborative background papers available through the web. The empirical results are not intended for precise rankings of countries, but instead to illustrate performance measures to assist in drawing implications for strategy at the country level – at the country request. The data does not reflect official views (or rankings, which ought to be avoided) by the World Bank or its Board of Directors. Errors are responsibility of the authors. www.worldbank.org/wbi/governance