July 17, 2013Doug Hadden
Lessons for Public Financial Management?
Doug Hadden, VP Products
Transparency International. has released the 2013 Corruption Barometer. There have been a number of interesting reactions to the TI report. The Chief of Staff for the President of Sierra Leone, Richard Konteh, claimed that the sampling was skewed and culturally insensitive. Park MacDougald in Foreign Policy suggested that "while corruption is undesirable for moral and symbolic reasons (it erodes faith in government, among other things), some academic research suggests that corruption can be good for economies — or, at least, not as bad as is generally assumed." This all comes on the heals of a recent rant by Alex Cobham, a Research Fellow at The Center for Global Development about the Corruption Perception Index (CPI). I can't help but think that actions proposed by TI are based on the notion that bribery should just stop without recognizing the path to lower and lower corruption requires sequencing many activities.
Don't get me wrong, this report is very valuable. But, it is important to understand the report limitations:
- Like with CPI, this is a survey. It's affect very much on perception, as many surveys do. Konteh argues that the survey "failed to take into account measures the Sierra Leone administration continues to implement to combat graft." The report focuses on specific outcomes not on actions or outputs by governments.
- The conclusions can add credibility to the misleading notion that poor countries deserve their corrupt governments – they don't demand change, they don't report, they don't refuse bribes etc. My sense is that, without an established middle class, corrupt officials are in a position of strength. Poor people do not have the financial flexibility to behave as more affluent people can.
- The focus on bribery may be misleading. Some bribery is petty and can be misleading. For example, the total amount lost through tax bribery (15% of respondents) could be higher in gross amounts than police bribery (31% of respondents). And, bribery could pale in comparison to money laundering or extractive industry tax capture.
- Increases in corruption perception might be explained by improvements in accountability and transparency in many countries. Improvements in governance often result in reduced trust because of this transparency. For example, there has been an increase in fiscal transparency and significant numbers of public servant dismissals in Liberia. This shows improved accountability – but can give the impression that corruption has increased.
- The report uses small stories to add context, but I was left under whelmed by the applicability of the stories. They seemed to focus on a superficial point and didn't have the depth necessary to understand how the practice could be replicated.
- It was good to see that TI looked into the role of citizens. But, without offering new ideas. It was rather odd to see the context of social media mentioned, but not the affects of the Arab Spring, the occupy movement or recent protests in Bulgaria, Turkey and Brazil. There's more needed than traditional civil society organizations: individual citizens and rapidly developed ad-hoc organizations are accelerating change. Citizen audit is becoming a civic duty.
Lessons for Public Financial Management
- Civil Service Management The TI report does not address the fundamental need for public service reform. Public servants who are not paid a living wage have no other choice than to resort to bribery. And, punishment isn't a sufficient mechanism to encourage compliance. Incentives and capacity building are critical.
- Automated Controls PFM systems need process compliance built-in and segregation of duties to reduce corruption opportunities, as we've described in the past
- Integration Integration among back-office systems and transparency portals are required to reduce data manipulation.
- Transparency Portals Fiscal transparency on the entire budget cycle changes behaviour and enables citizens and civil society.
Skewed for the Powerful?
The Barometer suggests that "Other less common, but equally damaging, forms of corruption that have an impact on people occur when decisions to allocate public resources are distorted by money, power, access, connections or some combination of the above."There is significant merit in this observation. I wish there had been more information about the impact of the powerful and special interests in corruption and manipulating government. It was instructive to see that political parties are seen as the most corrupt institution in respondents. There's no question in my mind that facilities like SuperPACs in the US is borderline institutionalized and legal corruption. As is the manipulation of public opinion by powerful media organizations.
My sense is that this access in not "equally damaging" – I think that it is possibly far more damaging that bribery.
But, I found the generalization that "access" by companies or individuals is, by it's very nature, corrupt. It's like the notion that impersonal bidding on contracts will result in higher value. Now, there is line here between access and perverting the system. (Agents, for example, can very much pervert the procurement process.) But, I'm not aware of any government that is happy making large purchases, especially multiple-year turnkey solutions from vendors that they haven't. Many of the RFPs that I've seen gives vendors with experience in the country and the government extra value points. And, vendors are unlikely to provide their lowest prices unless they have done business with the government before.
Let's Put This In Perspective
I don't fully agree with the results of studies that suggest "that, by itself, corruption is much less important for a country's economic health than outside factors like the quality of its institutions, the degree of political freedom, and government policy or the state of the national and global economy." One of the undesirable effects of corruption-specific analysis is that it gives the impression that corruption operates independently of other factors. That's clearly not true. Institutional quality is not an outside factor to corruption. Good institutions have higher capacity public servants, good fiscal controls, audit processes and codes of conduct. The degree of political freedom determines the ability for civil society to intervene.
And, as I pointed out, you can't wipe out petty bribery if public servants aren't paid a living wage.