Corruption - How to stop the skim
An examination by two US academics of corruption should remind Australians and New Zealanders not to become complacent.
- Corruption is a state in which everyone accepts that corruption goes on.
- Corruption measurements show New Zealand is very clean but rules get bent for mates in Australia.
- Freer information and international financial cooperation are helping to push corruption back.
By Jason Murphy.
Corruption has always been with us. But it has never paid so well as now: One recent president of Guatemala pocketed US$3.8 billion in a single 12-month period in 2014 and 2015.
We now have a comprehensive account of the business of raking off funds, in Ray Fisman and Miriam Golden’s new book, Corruption: What Everyone Needs to Know (Oxford University Press, 2017). Fisman is a Boston University economist and an acclaimed writer. Golden, a UCLA political scientist, has done fieldwork on political corruption from Italy to Pakistan. They teamed up to write an academically grounded yet readable book that not only shows the pervasiveness of corruption, but also explains it.
Corruption covers many sins. A doctor may insist on a fee to offer a treatment to which a patient is freely entitled. A police officer may accept a few dollars in lieu of a fine. A politician may take kickbacks for awarding contracts, steal government funds, and demand a share of bureaucrats’ takings in return for letting them take bribes. In one notable example, the President of Haiti sold an entire railway in1910. It was packed into shipping containers and sent offshore; he kept the funds.
The consequences of even minor corruption can be severe. When a garment factory called Rana Plaza collapsed in Bangladesh in 2013, 1,134 people died. The building collapsed in part because the politically-connected building owner added extensions to the building without permits. Globally, many structures are not built to standard because of corruption. Over 80 per cent of earthquake deaths are in anomalously corrupt countries, according to a 2011 study.
The puzzle of clean states
Poverty causes corruption, and corruption returns the favour by perpetuating poverty, argue Fisman and Golden. But sometimes, even in very poor areas, corruption never develops. Take India, a highly corrupt country: the very poor states of Kerala and Himachal Pradesh are basically squeaky clean.
Fisman and Goldman argue that systematic corruption takes hold only when the culture acknowledges that corruption is a reality. Corruption, they demonstrate, is not well explained by religion or political system, nor by whether citizens think corruption is good. Attitudes to corruption are highly negative in even the most corrupt countries.
Instead, corruption is what economists call an equilibrium. For one reason or another, lost to history and possibly including the flap of a butterfly’s wings, a country or institution establishes shared understanding amongst its people: corruption happens here.
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If everyone knows you must pay the border guard, nobody complains when he asks. The police wouldn’t care anyway; they or their political masters are getting a cut. Whether a person abhors corruption or not, they can do little except pay the bribe. The same goes for someone starting work as a border guard. When their pay is set with the expectation they will take bribes and there is no chance of being reprimanded, their choice is easy.
Systems return to equilibrium. So a lone person can’t make a difference by opting out of corruption. Neither can two people, nor 20. As Fisman and Goldman explain, corruption can’t be fought little by little. Ending corruption requires not incremental progress but sweeping changes that explode the old equilibrium and shift a whole institution – or a whole nation – to a new one.
We’re clean. Right?
Corruption can be measured. In Transparency International’s most recent data, Somalia and South Sudan take out the bottom two rankings while New Zealand takes out equal first place with Denmark. Australia is 13th.
Should Australians and New Zealanders even bother understanding corruption? The answer is yes. Even in countries famous for upright behaviour, corruption can lurk beneath the surface. For example, in the early 2000s a German political party was found to have been keeping a secret set of books full of undisclosed political donations.
Very recently, anti-corruption commissions at the state level in Australia found examples of embezzlement and misbehaviour. What might transpire if a national version were established? Australia’s federal politicians appear loath to find out.
In Fisman and Golden’s book, politicians crop up time and again as perpetrators and perpetuators of corruption. They skim not only to line their own pockets – though there is plenty of that – but also to raise funds for re-election. As election campaigns grow ever more expensive, the temptation for corruption will grow ever stronger.
It doesn’t matter if it’s legal or illegal; it’s the economic outcome that matters
University of Queensland economist Cameron Murray is an authority on corruption in Australia. He argues most corruption in Australia takes a more insidious form than flat out bribery of politicians – not breaking rules, but “bending them for your mates”.
Murray focuses on the property development industry, where government zoning decisions can change the value of land by a huge factor. Murray argues that if the government is creating value, it should share it widely. He finds “unethical favouritism” wherever governments can make discretionary decisions.
“I call it grey corruption,” he says. “It doesn’t matter if it’s legal or illegal; it’s the economic outcome that matters.”
In the case of planning, the value of the newly-zoned land is delivered to the land owner. That is legal, but not always unquestionable. The biggest predictor of whether planning decisions go the way of developers, Murray has found, is not political donations but relationship networks. “There’s a lot of indirect reciprocity amongst the group but in the end everyone funnels the wealth toward their group.” In this context, the importance of rules around employment of politicians during and after politics becomes very clear.
A cleaner future?
Fisman and Golden give us reasons to be optimistic about a future with less corruption. We live in an information era. Information exposes the corrupt and while that is not enough, it is necessary for any anti-corruption campaign.
International financial cooperation has also made a big difference. The sort of anti-money laundering laws introduced in New Zealand in late 2017 are spreading, chasing ill-gotten gains. Banks and taxation authorities all over the world are sharing information.
The corrupt will continue to adapt –and technology, not least Bitcoin, is providing new, more obscure avenues for funds transfer. But corruption fighters are working hard too. We now know the kind of institutions needed to dismantle corruption. They must be big, powerful and fenced off from the culture in which the corruption is found.
The Guatemalan anti-corruption commission that sprang the president making off with all those billions was funded by the United Nations. But not all anti-corruption drives are external. Italy had a dramatic anti-corruption moment in the early 1990s, when a wave of prosecutions and media articles led to a single election in which the country replaced 70 per cent of its politicians, and wiped out the two major political parties.
The future may well be cleaner. But it won’t come about without a fuss.
CA ANZ eLibrary: Corruption - what everyone needs to know
What is corruption? Where is corruption most prevalent? What are the consequences of corruption? Who is involved in corruption, and why?
Jason Murphy is an economics writer and former policy analyst for the Australian Treasury. Among other work, he has managed budget preparation for the Republic of Nauru. He blogs at thomasthethinkengine.com.