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Self-interest And The Public Interest

Self-interest and the public interest frequently conflict. In a corrupt relationship both the briber and the recipient are better off, but the transaction violates government policy. A criterion other than willingness to pay is supposed to prevail. Sometimes corrupt public officials claim that bribes have not influenced their behavior. They are simply "gifts of good will." Private individuals and firms may, nevertheless, believe that such gifts are, in fact, a requirement of good service up and down the government hierarchy. Even those who pay to receive something they ought to obtain for free believe that bribery is better than the alternative presented by the corrupt official. They may believe that politicians and judges will be biased against them if no money or favors have changed hands. The systemic effect of permitting such payoffs is damaging. Those with discretion will be tempted to create a large number of vaguely specified rules that create more chances for payoffs. Those who have not paid in the past may be tempted to pay in the future because it appears to be the norm.

Although individual payoffs may seem to further efficiency and even fairness, systemic corruption will seldom do so. In a repressive state, where many policies are harmful to all except a favored elite, corruption may be a survival strategy. Toleration of this practice, however, may just permit an illegitimate and inefficient system to persist. Corruption scandals can then be a sign of a country's growing political maturity. They show that citizens are beginning to recognize the difference between the public and the private spheres and to complain when the border is crossed. Citizen concerns over bribes paid in return for favors indicate that people recognize norms of fair dealing and competent administration and are beginning to demand that government serve general public purposes.

Corruption may have its roots in culture and history, but it is, nevertheless, an economic and political problem. It produces inefficiency and unfairness in the distribution of public benefits and costs. It is a symptom that the political system is operating with little concern for the broader public interest. It indicates that the structure of government does not channel private interests effectively. Political legitimacy is undermined if government permits some to obtain disproportionate private gains at the expense of others.

One of the most vexing issues for reformers is determining when incumbent politicians and bureaucrats have an incentive to change. Outside pressure can help, but abiding change is unlikely unless those who oppose reform can be either compensated or marginalized. The best case for reform is one where an initial change creates new beneficiaries who then support further reform. The worst case is one where the corruption becomes more entrenched and widespread over time. Corruption cannot be expected to wither away just because a reform government has taken power or because economic growth is vigorous. So long as officials have discretionary authority, corrupt incentives will remain and can be especially harmful for fragile new states. Reformers will have to take concrete action, not just assume that entrenched habits will change with a change in top personnel.

Corruption is not a problem that can be attacked in isolation. It is not sufficient for the criminal law to search for bad apples and punish them. Of course, the state may need to establish credibility by punishing highly visible corrupt officials, but the goal of such prosecutions is to attract notice and public support, not solve the underlying problem. Anticorruption laws can only provide a background for more important structural reforms.

The cases in which corruption enhances the efficiency of agents and improves the allocation of public services are limited. The theoretical and empirical evidence does not support widespread tolerance of corruption. The difficulty with tolerance in some areas is that it undermines efforts to reduce corruption in other areas where it is clearly harmful. The possibility that payoffs may sometimes motivate officials to work more efficiently suggests that in particular cases illegal bribes might be converted into legal incentive pay schemes. If some types of payments are viewed as acceptable tips to public officials, they should be legalized and made subject to reporting requirements. One test of the "cultural" justification for payments is the acceptability of proposals to make such payments public.

Both theory and practice suggest that there is no single, simple response that should be adopted across the board once the basic anti-corruption statutes are in place. Instead, there are two different but related types of corruption: corruption involving high-level officials that often implicates multinational corporations or large domestic firms, and corruption that is endemic in the way the government carries out its routine activities such as tax collection, customs, licensing, and inspections. Within each of these categories, some payoffs facilitate illegal activities, and some are paid to obtain benefits to which one is legally entitled.

A country serious about fighting corruption must carry out a detailed assessment to determine where corruption is most harmful and where it can be most effectively attacked. A first step is to survey the public to find out how corruption affects their daily lives. This provides a way to set priorities that reflect popular grievances. However, survey evidence is not sufficient. The corruption that is most visible to the population may not be doing the most harm. Thus a second emphasis should be on high- level corruption in contracting, privatizations, and concessions that introduces serious economic distortions and undermines the fiscal health of the state. Third, people may believe that they gain from bribery that limits their taxes and reduces their regulatory burdens. Thus bribery of this type may not be reported as a problem by survey respondents. Nevertheless, the cumulative impact of such payoffs can be very harmful. Those seeking to set priorities must look behind the individual responses to consider the overall impact of a large number of attempts to circumvent the rules. In such cases the policy response might be program redesign, not increased oversight. A direct attack on corruption through enhanced law enforcement, asset disclosure requirements, and special anticorruption agencies is not sufficient and may not even be necessary. Instead, the focus under all three types of corruption should be on the underlying causes of payoffs. Thus simple generalizations are not possible, but the experiences of different countries suggests several common reform possibilities.

Tax and customs revenues may be far below the level needed to carry out basic government services, and the pattern of payments may be very inequitable due to payoffs. The response should be both to simplify the tax laws to reduce bureaucratic discretion and to reorganize the bureaucracy to improve oversight and incentives for good performance.

Regulation of business may be so complex, time-consuming, and intrusive that the development of a healthy private sector is affected. Here the answer is a hard look at regulatory laws to see which can be eliminated, which can be simplified, and which require improved enforcement. Many countries have both pointless business regulation that generates bribes and ineffective regulations in socially beneficial areas such as environmental protection.

Another costly pattern is state sponsorship of massive infrastructure projects that are too large and complex. The cost of corruption is not the bribes themselves, but the cost of the inefficient actions they encourage. Even if direct evidence of corruption is not available, evidence of the inappropriate scale and design of projects should be sufficient to cancel them. Such a change in direction must, however, be combined with improved procedures for future project approvals, or the pattern may repeat.

Basic institutional reforms may be a precondition for reform in particular sectors. Sometimes reforms that would be effective under one set of political and economic conditions will be useless in other cases where the government is very weak and arbitrary. Especially important as a background to other reforms are improvements in the checks and balances present in a political system.

Even if one holds constant a nation's constitutional structure, there are a range of reforms that may be politically difficult, but are not particularly expensive. They must, however, be institutionalized so that they will endure changes in personnel and changes in the political coalition. Policies that seem politically costly to reverse include those that increase the transparency and accountability of government operations and facilitate the organization of independent watchdog groups.

Once the problems of substantive policy and institutional structure have been tackled, most corrupt countries must still face the difficult task of civil service reform. This will be either financially expensive or politically painful, but is a necessary part of any serious reform effort. If civil service wages are allowed to deteriorate relative to the private sector and if pay differentials within the civil service are too small to give officials an incentive to seek promotions, then efforts to control official corruption are unlikely to succeed. Reform policies must reduce the size of the civil service, pay decent base salaries to the remaining officials, and establish effective incentives to induce officials both to be honest and to perform efficiently.

The lack of credible institutions capable of hearing complaints and enforcing the law is a weakness in many developing and transitional countries. Thus one area for reform should be either improvements in existing institutions such as the courts or the creation of new bodies such as independent inspectors general or anticorruption commissions. The experience of other countries should be documented - both successful experiments and those that backfired when the nominal corruption fighters became corrupt themselves.

International institutions and the international business community can help provide incentives for reform. Aid and lending institutions should take a broad-based approach. Efforts to keep aid projects clean while ignoring the rest of a government's activities will be ultimately ineffective as corrupt officials and private individuals and firms seek opportunities elsewhere. Clearly, international organizations ought not abandon efforts to keep their own projects free of corruption, but the more serious that effort becomes, the more they will need to help countries reduce corruption throughout their institutions.

Fundamental change requires commitment from the top of government and a willingness to follow through as the anticorruption effort unfolds. Serious reform can be carried out within any existing structure of government. Governments that make it very difficult for independent voices to be raised in criticism, however, will have an especially difficult time establishing a credible commitment to honest and transparent government. Such governments may be able to move quickly in the short run but pose the risk that their policies will be reversed in the future. Anticorruption campaigns can be used to undermine political opponents and discipline troublesome groups. Reformers should resist those who would use an anticorruption crusade to limit political opposition. Nominal reform efforts that become a vendetta against political opponents will lose credibility. In a highly politicized atmosphere individualized prosecutions will not produce real reform. Only structural changes in the underlying corrupt incentives built into the operation of government can accomplish credible change.

Susan Rose-Ackerman. Corruption and Government: Causes, Consequences, and Reform . Cambridge University Press. 1999.

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