1. Different forms of corruption, causes and
consequences
Class on Public Administration. Seminar 1 - Corruption in an international
perspective
L.A. Latif, Graduate Student
3. Introduction: Definitions
Corruption
Abuse of public office for private gain (World Bank).
Misuse of entrusted power for private gain (Transparency
International).
Abuse of power for private gain (European Union, 2003).
Misuse of office for unofficial ends (Klitgaard, 1998)
4. Bribes
Where a government official asks for or obtains money or
favor in return for a preferential treatment or government
services
Exchange of favors between 2 persons
2 people are involved: briber (a civilian) and a bribee
(commonly a state agent where the state agent misuses his or
her power)
3rd party is harmed (consequence)
5. Embezzlement
Stealing!
Theft of resources. Disloyal employees steal from their employers
Different from bribe: only 1 person is involved
Overlap with bribery: A minister cannot directly transfer money to
his/her account without reason. So, he/she obfuscates
embezzlement by asking for fake receipts from non existent
companies whose ownership is not disclosed. This introduces a
fake client to the transaction and blurs the difference between
bribery and embezzlement
6. Kickbacks
Form of a bribe
“Pay me from what I pay you”
Difficult to distinguish
between bribes and
kickbacks
Any ideas??
7. Causes and consequences: same coin?
According to Lambsdorff research on corruption is challenging
because:
Causes of corruption seem to be its consequences; and
Consequences of corruption seem to be its causes.
8. Causes of corruption
Size of the public sector
Quality of regulation
Degree of economic competition
Structure of government
Amount of decentralization
Impact of culture, values and gender
Role of invariant features such as geography and history
9. 1. Size of the public sector –limited role of the
state in the modern society
Economists (Boyko et al. 1996; Shleifer and Vishny 1998)
argument: privatize (corruption can be contained by minimizing
the public sector) – limit government power. Boomerang effect:
Corruption could be shifted from the public to private sector.
Example: ??? Regulation. IFFS, TP, TE, transition period and
corruption
Empirical findings:
NO: little support for this proposition. Little correlation between overall
size of the public sector and corruption. Gerring and Thacker (2005).
Example: ???
YES: corruption significantly decreases with government size in high
income countries. Graeff and Mehlkop (2003). Low income countries?
Example: ???
10. 2. Quality of regulation
Argument: Bad regulation is a cause of corruption. So it is not the size of government but
administration. Complicated rules. Example; The Advertising of bill boards case
(boundaries of counties in dispute). Former Land Laws of Kenya: BRIBES
The opposite is also true that corruption causes bad regulation. For example in
procurement and creation of monopolies (unregulated). The case of Pakistan and
Geothermal power plant in Kenya: KICKBACKS
Bad regulation and good regulation: what is this? Ask whether a regulation creates
opportunities for corruption. This will take us in circles and we will have no causal
connection. Hints helping us detect corruption: Ambiguities, gaps in law, higher barriers to
market entry, time for registering businesses
State intervention in private sector: too much or too little? Gerring and Thacker 2005
positive correlation between regulatory quality and absence of corruption.
11. 3. Degree of economic competition
Economists argue that the absence of economic competition
results in corruption. When there is competition, politicians have
less to sell. When competition is restricted, profits increase and
politicians can take the opportunity to assign these profits – in
exchange for a share.
Reverse is also true: private firms can give bribes to politicians to
offer market restrictions. Example; The Pakistani gold case.
Openness as a variable: The less competitive a market
environment, the higher will be the extent of corruption. Ades and
Di Tella (1995).
13. Democracy: constitutional structure and
electoral system
Schumpeter’s argument: democracy limits corruption because of:
Political competition (checks and balances from opposition and
accountability). Treisman: there is a reduction but not immediately:
IFF and the case of Zambian mining industry – Glencore (in
transition)
Authoritarian (Goldenberg scandal) to democratic (Anglo leasing).
Democracy does not reduce corruption. Corruption increases
where president is more powerful (presidential system versus
parliamentary system as the cause of corruption)
Voting process (leads to monitoring. What about electoral rigging?
Manow: political party influence in election reduces corruption.
Disagree: it is a cause and consequence of corruption
14. 5. Decentralization: cause/consequence
Argument: can reduce corruption because brings government close to people, can work
where there is good governance.
Corruption is high when spending is decentralized while revenue collection remains in
control of the central government. The CDF system in Kenya as example
Goes to the earlier argument on size of government
Introduced kickbacks in award of local government contracts: case of Nairobi city council
Triesman (1999), Adsera et al (2000) and Panizza (2001) find no significant impact
between between decentralization and corruption
Goldsmith (1999), Kunicova (2005), Gerring and Thacker (2004): federalism increases
corruption
15. Decentralization (cont’d)
Testa (2003): bicameralism lowers corruption but ethnic,
religious or linguistic fractions cause corruption
16. 6. Impact of culture, value and gender
Trust placed in civil servants and evaluation of political system
and low levels of corruption: “It’s our time to eat” culture of the
Luos of Kisumu in Kenya
Values: ethnicity comes in and becomes a cause of corruption
(retention in politics)
Male dominated networks may be causes of corruption (??
Bhutto, Sirleaf and 2 Japanese ministers)
17. 7. Geography and History: Natural
resources
Natural resources cause of corruption (Dutch companies in
DRC, Canadian and Swiss companies in Zambia and
Tanzania)
See GFI reports & StAR for more examples
Corrupt neighbors cause of domestic corruption where there is
a strong regional exchange
Colonial heritages as causes of corruption: Land in Kenya
18. Consequences of corruption
Generates inequality
Impacts productivity and investment
Distorts the public and private sectors
19. Inequality
Of income (Gupta et. al, 2002 using Gini Coefficient), land and
education
Inequality also causes corruption (Swamy et. Al, 2001)
20. Productivity and investment
Corruption decreases GDP per head (Slum dweller and
DTA/Kickbacks effect on DRM)
Ali and Isse (2003): lowers growth (DRC and Leopold
embezzlements)
Rock and Bonnet (2004): increases growth (East Asian newly
industrializing countries – government promotional privileges
for bribes)
21. Distorts public and private sector
Public
Corruption leads to:
Misallocation of public resources (public servants appointed based on
bribes and not competency)- good base for kickbacks – Mozambique
case on bottle labeling machine
Distortions in budget allocation (need to conceal illicit payments so
some goods preferred over others)
Reduced and low quality of public investments, services and
environmental regulation
Esty & Porter (2002): Overinvestment in public infrastructure (though
link is poor)
Mauro (1998): lower government spending on education
22. Continued
Private
Markets are affected (SMEs lose out on market share)
Aid and lending
Stocks and tax evasion
Underground economies
Deters foreign investors
Deters market entry
23. Corruption on investments
Reduces FDI
Vulnerability to currency rises
Studies show that firms adapt to a country’s level of corruption
(shell companies, mailbox companies)
24. Recommendations
Creation of the office of the ombudsman (e.g., Kenya, 2010)
Stringent laws – punishable offences
Declaration of wealth and name and shame blacklists
Regulations where MNCs are concerned
Exchange of informations where DTAs are concerned
Civil service salaries
Merit based recruitment
Freedom of information (media/press) deters corruption
Independent judiciary
Alert public
25. Reference sources
Baker, R. W. 2005. Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free- Market System.
Hoboken, NJ: John Wiley & Sons.
Global Financial Integrity, 2014. Hiding in Plain Sight: Trade Misinvoicing and the impact of Revenue Loss in
Ghana, Kenya, Mozambique, Tanzania, and Uganda: 2002-2011. Available at: http://www.gfintegrity.org/wp-content/
uploads/2014/05/Hiding_In_Plain_Sight_Report-Final.pdf
Johann Graf Lambsdorff, Causes and consequences of corruption: What do we know from a cross-section of
countries.
Pech, Birgit/Debiel, Tobias, 2011: Corruption as an Obstacle to Development?, in: Unikate, No. 40, 16-25.
See: “For whom the windfalls? Winners and losers in the privatization of Zambia’s copper mines” by Alastair
Fraser (Oxford University) and John Lungu (Copperbelt University), p. 7-87; July 2009. Publication available at:
http://www.liberationafrique.org/IMG/pdf/Minewatchzambia.pdf
World Bank. 2008. Democratic Republic of Congo: Growth with Governance in the Mining Sector. Report 43402-
ZR. Washington, DC: World Bank.
