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Corruption is both a major cause and a result of poverty around the world. It occurs at all levels of society, from local and national governments, civil society, judiciary functions, large and small businesses, military and other services and so on.
Corruption affects the poorest the most, in rich or poor nations, though all elements of society are affected in some way as corruption undermines political development, democracy, economic development, the environment, people’s health and more.
Around the world, the perception of corruption in public places is very high:
But it isn’t just in governments that corruption is found; it can permeate through society.
The issue of corruption is very much inter-related with other issues. At a global level, the
international (Washington Consensus-influenced) economic system that has shaped the current form of globalization in the past decades requires further scrutiny for it has also created conditions whereby corruption can flourish and exacerbate the conditions of people around the world who already have little say about their own destiny. At a national level, people’s effective participation and representation in society can be undermined by corruption, while at local levels, corruption can make day to day lives more painful for all affected.
A difficult thing to measure or compare, however, is the impact of corruption on poverty versus the effects of inequalities that are structured into law, such as unequal trade agreements, structural adjustment policies, so-called
free trade agreements and so on. It is easier to see corruption. It is harder to see these other more formal, even legal forms of
corruption. It is easy to assume that these are not even issues because they are part of the laws and institutions that govern national and international communities and many of us will be accustomed to it—it is how it works, so to speak. Those deeper aspects are discussed in other parts of this web site’s section on trade, economy, & related issues3.
That is not to belittle the issue of corruption, however, for its impacts are enormous too.
On this page:
- Rich Countries involved in corruption abroad
- A Cold War Legacy: The Curse of Natural Resources; Inviting corruption
- Globalization, Multinational Corporations, and Corruption
- IMF and World Bank Policies that Encourage Corruption
- Corruption everywhere; rich and poor countries, international institutions
- Tackling corruption
- More Information
Rich Countries involved in corruption abroad
When asking why poor countries are poor, it is quite common to hear, especially in wealthier countries that are perceived to have minimal corruption (at least domestically) that other countries are poor because of corruption. Yet, corruption is not something limited to third world despots. Rich countries too have been involved in corrupt practices around the world.
As Professor Robert Neild from Trinity College, Cambridge University writes in Public Corruption; The Dark Side of Social Evolution (London: Anthem Press, 2002),
Rich countries and their agencies … commonly have been and are accomplices in corruption abroad, encouraging it by their actions rather than impeding it…. (p.209). Specific problems he highlights include:
- The impact of Cold War corruption (supporting dictatorships, destabilizing democracies, funding opposition, etc);
- Firms from rich countries bribing rulers and officials from developing countries to gain export contracts, particularly in the arms trade and in construction (even justifying it by suggesting bribery is
customaryin those countries, so they need to do it to, in order to compete);
corruption-inducing effects of the purchase, by the rich countries and their international corporations, of concessions in Third World countries to exploit natural deposits of oil, copper, gold, diamonds and the like.Payments made to rulers often violate local (and Western) rules, keeping corrupt rulers in power, who also embezzle a lot of money away.
- The drug trade. Neild suggests that international law and national laws in rich countries that prohibit drugs may serve to
produce a scarcity value irresistible to producers, smugglers and dealers.Governments and civil society in the third world are often
undermined, sometimes destroyedby the violence and corruption that goes with the drug trade.
This is probably the most important way in which the policies of rich countries foster corruption and violence. Yet the effect on the Third World seems scarcely to enter discussion of alternative drug policies in the rich countries.Legalizing drugs, a system of taxation and regulation, comparable to that applied to tobacco and alcohol might do more to reduce corruption in the world than any other measure rich countries could take, he suggests. (See this site’s section on illicit drugs4 for more on that aspect.)
Rich countries have been used to it, too:
A Cold War Legacy: The Curse of Natural Resources; Inviting corruption
Professor Neild is worth quoting at extensive length on the impacts the Cold War had in terms of encouraging or exacerbating corruption in the developing countries:
But Neild feels that this same attitude has affected rich countries’ domestic political behavior, too. Of particular concern to Neild in this is
Globalization, Multinational Corporations, and Corruption
Corruption scandals that sometimes make headline news in Western media can often be worse in developing countries 6. This is especially the case (as the previous link argues) when it is multinational companies going into poorer countries to do business. The international business environment, encouraged by a form of globalization that is heavily influenced by the wealthier and more powerful countries in the world makes it easier for multinationals to make profit and even for a few countries to benefit. However, some policies behind globalization appear to encourage and exacerbate corruption7 as accountability of governments and companies have been reduced along the way. For example,
Dr Hawley also lists a number of impacts that multinationals’ corrupt practices have on the
South (another term for Third World, or developing countries), including:
- They undermine development and exacerbate inequality and poverty.
- They disadvantage smaller domestic firms.
- They transfer money that could be put towards poverty eradication into the hands of the rich.
- They distort decision-making in favor of projects that benefit the few rather than the many.
- They also
- Increase debt;
- Benefit the company, not the country;
- Bypass local democratic processes;
- Damage the environment;
- Circumvent legislation; and
- Promote weapons sales.
(See the previous report for detailed explanation on all these aspects.)
IMF and World Bank Policies that Encourage Corruption
At a deeper level are the policies that form the backbone to globalization. These policies are often prescribed by international institutions such as the World Bank and IMF. For years, they have received sharp criticism for exacerbating poverty through policies such as Structural Adjustment9, rapid deregulation and opening barriers to trade before poorer countries are economic ready to do so. This has also created situations ripe for corruption to flourish:
Jubilee Research (formerly the prominent Jubilee 2000 debt relief campaign organization) has similar criticisms, and is also worth quoting at length:
And in terms of how lack of transparency by the international institutions contributes to so much corruption structured into the system, Hanlon and Pettifor continue in the same report as cited above:
As further detailed by Hanlon and Pettifor, Christian Aid partners (a coalition of development organizations), argued that top-down
conditionality has undermined democracy by making elected governments accountable to Washington-based institutions instead of to their own people. The potential for unaccountability and corruption therefore increases as well.
Corruption everywhere; rich and poor countries, international institutions
It goes without saying, almost, that corruption is everywhere. Corruption in poor countries is well commented on (sometimes used dismissively to explain away problems caused by other issues, too). It would be futile to provide examples here (see also the sources of information at the end of this document for more on this).
Rich countries, also suffer from corruption. Examples are also numerous and beyond the scope of this page to list them here. However, a few recent examples are worth mentioning because they are varied on the type of corruption involved, and are very recent, implying this is a massive problem in rich countries as well as poor.
The first example is the US government, accused of outsourcing many contracts without an open bid process13. Jim Hightower notes that
An analysis by the Times found that more than half of their outsourcing contracts are not open to competition. In essence, the Bushites choose the company and award the money without getting other bids. Prior to Bush, only 21% of federal contracts were awarded on a no-bid basis.
Another example is Italy, where former Italian Prime Minister Silvio Berlusconi14 and some of his close associates were held on trial for various crimes and corruption cases (though Berlusconi himself has not, to date, been found guilty of any charges). Many key teams in the massive Italian soccer league, Serie A were also found to be involved in a massive corruption ring.
In the United Kingdom, the arms manufacturer, BAE was being investigated for bribing Saudi officials to buy fighter planes, but the government intervened in the investigation citing national interests15. The Guardian also reported that BAE gave a Saudi prince a £75 airliner ($150m approx) as part of a British arms deal, with the arms firm paying the expenses of flying it16. This seemingly large figure is small compared to the overall deal, but very enticing for the deal makers, and it is easy to see how corruption is so possible when large sums are involved.
International institutions, such as the United Nations and World Bank have also recently come under criticism for corruption, ironically while presenting themselves in the forefront fighting against corruption.
The recent example with the UN has been the oil for food scandal, where the headlines were about the corruption in the UN. In reality, the figures of $21 billion or so of illicit funds blamed on the UN were exaggerations; it was $2 billion; it was the UN Security Council (primarily US and UK) responsible for much of the monitoring; US kickbacks for corrupt oil sales were higher, for example. (This is discussed in more detail on this site’s Iraq sanctions, oil for food scandal section17.)
At the World Bank, headlines were made when its recent president, Paul Wolfowitz, was forced to resign after it was revealed he had moved his girlfriend to a new government post with an extremely high salary without review by its ethics committee.
Paul Wolfowitz’s appointment was also controversial, due to his influential role in architecting the US invasion of Iraq. A former member of staff at the World Bank also noted concerns of cronyism related to Wolfowitz’s appointment18 way before the scandal that forced him to resign.
The US nominee for the next president is the former US Trade Representative and currently an executive at Goldman Sachs, Robert Zoellick. His nomination is also coming under criticism. Bush supports it, saying Zoellick
is the right man to succeed Paul in this vital work. Former World Bank chief economist, and Nobel Prize winner for economics, Joseph Stiglitz feels that instead of a political appointee, it would be better to get an economist who understands development19.
As also reported by the BBC, Paul Zeitz, executive director of the Global AIDS Alliance, said that he thought Mr Zoellick was a terrible choice20 because
Zoellick has no significant experience in economic development in poor countries, and that
he has been a close friend to the brand-name pharmaceutical industry, and the bilateral trade agreements he has negotiated [for the US] effectively block access to generic medication for millions of people.
While the US typically gets its preferred nomination to head the World Bank, Europe has typically got its preferred person to head the IMF. Critics have long argued that this lacks transparency and is not democratic. While not illegal as such, it does feel like a form of corruption.
What can be done to tackle this problem?
Strengthen Democracy’s Transparency Pillar
One of the pillars of democracy is transparency; knowing what goes on in society and being able to make informed decisions should improve participation and also check unaccountability.
The above-cited report by Hanlon and Pettifor also highlights a broader way to try and tackle corruption by attempting to provide a more just, democratic and transparent process in terms of relations between donor nations and their creditors:
Address weaknesses in the global system
The Bretton Woods Project organization notes that the World Bank, under pressure of late, has suspended a number of loans due to concerns of corruption22. These include loans to Chad, Kenya, Congo, India, Bangladesh, Uzbekistan, Yemen, and Argentina. The Bank has also started internal investigations of Bank corruption. However,
despite high-profile moves by president Paul Wolfowitz, the root causes of corruption—underpaid civil servants, an acceptance of bribery by big business, and dirty money—remain largely unaddressed.
The Bretton Woods Project adds that the
normalization of petty corruption in developing countries has in part been driven by
- IFI conditions;
- The aid industry for
overpaying consultantsand turning a blind eye to corruption in some regimes; and
pressure to lendculture where staff are rewarded for the volume of the portfolio they manage;
- The World Bank’s slow pace in investigating and disbarring companies found guilty of corrupt practices such as bribery, fraud or malpractice;
- Failing to increase transparency of some of its own procedures;
- The IFI’s
central part of an international financial system which has both actively and tacitly supported the global proliferation of dirty money flowsincluding, for example, the financing of various despotic rulers that have siphoned off a lot of money to personal offshore accounts.
To help address these problems, the Bretton Woods Project suggests a few steps:
- Greater transparency of World Bank processes, allowing greater visibility for elected officials and civil society in recipient countries;
- Strengthening internal mechanisms within the Bank itself, to monitor integrity of Bank functions, and allow truly independent audits of Bank operations;
- Minimum standards in governance, transparency and human rights that must be fulfilled before approving oil, gas and mining projects in institutionally weak countries.
- Not always tying loans with economic policy conditions in such a way that some governments surrender their policy-making space.
During the 2002 World Summit on Sustainable Development23, the BBC broadcast a mini debate on globalization, poverty, and related issues, and had a panel of around 30 experts, from both the developing and rich countries. One person on that panel was Vandana Shiva, a vocal critic of the current form of globalization and its impact on the environment and people in the third world. She was asked why people should listen to concerns from the third world when they cannot sort out the rampant corruption first. Her answer was simple: rich countries need to stop dictating policies that encourage corruption in the first place.
Like Shiva, Professor Neild feels that the solution is philosophically simple. However, as Neild acknowledges, in reality it is far harder to do, due to the power interests involved:
Improve Government Budget Transparency
A trusted government is more likely to result in a positive political and economic environment, which is crucial for developing countries, as well as already industrialized ones.
The International Budget Partnership (IBP) is an organization that looks at public budgets by governments around the world. Why is this important? Produced every 2 years, in October 2010, they released their 3rd Open Budget Survey25 report. These reports assess how transparent and accountable the budgetary process for a number of countries around the world (currently just under 100) and ranks them accordingly.
Their introduction (p.2) explained the growing importance of budget transparency:
- Experts have increasingly concluded that making budgets transparent and building adequate checks and balances into the budget process can enhance the credibility and prioritization of policy decisions, limit corrupt and wasteful spending, and facilitate access to international financial markets.
- Budget transparency has become central to a number of international development discourses, ranging from the financing of climate change mitigation, to country-level actions to meet international development commitments like the Millennium Development Goals, to accounting for the revenues from the sale of natural resources, and to examining the amount of international aid given to developing countries and how it is spent.
Of the 94 countries assessed, they had the following findings:
- The overall state of budget transparency is poor. Only a modest minority of countries can be considered to have open budgets while a large number of countries provide grossly insufficient budget information.
- The general trend toward open budgets is nonetheless favorable. Budget transparency is improving substantially, especially among countries that provided little information in the past.
- Budget engagement by the audit institutions and the legislature is typically weak and is strongly correlated to the lack of budget information made available to these institutions and the public.
- There are many simple steps to opening up budgets that governments are failing to undertake. Such steps can be taken by the executive branch, the legislature, and the supreme audit institutions alike.
In many cases, where budget documents were made public, essential information was often absent, or some of the documents remained internal. Those that performed poorly on their index were also low income, low democracy, and/or dependent on aid or oil revenues. On the plus side, the IBP found that some countries that fared very poorly in their earlier analysis fared much better this time, sometimes through the simple and cheap step of simply making their budget documents available on their web sites.
As such, the IBP recommended that all key budget documents which are already produced should be made available to the public, for free, while the authority, independence, and capacity of budget oversight institutions should be strengthened. The IBP also recommends strengthening the voice of the public as a complementary check and balance. They even called for a global norm on budget transparency to be established.
Make it harder to embezzle billions
For years, stories of people embezzling millions — even billions — away to tax havens and other financial centers, have caused uproar, but little ever seems to have been done about it despite some various organizations and campaigns trying to highlight these deeper causes and potential solutions for many years. A lot of powerful interests of course are what has always made corruption so difficult to address.
In the wake of the global financial crisis27 that started in 2008, this issue has caught attention in the mainstream more than usual.
This site’s section on tax havens28 looks at this further, with links to other sites and organizations that are highlighting the issues further.
Lessons from the past: US’s New Deal in the 1930s
Another strategy for tackling corruption may come from history and seeing how the US
New Deal in the 1930s help remove a lot of corruption.
Before 1932, the administration of public relief in the US was widely regarded as politically corrupt. Political opponents of the New Deal often complained about the use of relief for political purposes, but by 1940, these criticisms of corruption and political manipulation had diminished considerably.
How this happened was detailed in a paper titled Politics, Relief, and Reform 29; Roosevelt’s Efforts to Control Corruption and Political Manipulation during the New Deal by John Joseph Wallis of the University of Maryland, Price V. Fishback of the University of Arizona, and Shawn Kantor of the University of California at Merced.
The authors of the paper asked
New Deal reforms is often castigated as bureaucratic, but rarely corrupt. What changed? How did the country enter the Depression with a public welfare system riddled with political manipulation and emerge with one that was not?
Other politicians—senators, representatives, governors, and mayors—wanted to control relief and use it for political gain. They
maneuvered, manipulated, and cajoled to get their hands on a share of the billions spent each year on relief. So what did Roosevelt do?
The authors stress that it wasn’t necessarily a superior morality that drove out this New Deal:
Direct Grassroots Action
As the effects of the 2008 global financial crisis33 are felt more and more, as food prices around the world increase, and other inter-related conditions get worse for many around the world, some of the resulting public unrest and disquiet is being channeled into anti-corruption concerns.
India, it seems, has had so much persistent corruption, that many are often resigned to it as a sad part of life.
Inter Press Service noted the extent of corruption in India:
However, recently a number of high profile corruption cases, such as the illegal award of contracts for the 2010 Commonwealth Games, and many more have flooded Indian mainstream press, and this time citizens are less reluctant to just accept it.
A strong growing anti-corruption movement has emerged, with people such as Anna Hazare capturing the imagination of many. Hazare, a 74 year old man has vowed to fast to death to see corruption tackled.
His non-violent civil disobedience has created a mass of followers many of whom liken his approach and struggle to that of the iconic independence leader, Gandhi. Some of the public protests against the governments attempt to weaken proposed anti corruption bills have seen hundreds of thousands gather and rally.
This non-violent form of protest appears of have been more effective in its short period than various violent ones 35 (on other political issues) that have plagued parts of India for many years.
Against such a force, the government seems to have responded quite poorly and there is great hope among many in the country that maybe corruption will start to be addressed like never before:
Nepal has also seen mass demonstrations, inspired by Hazare’s protests in India 37. Diverse groups such as former ministers, womens’s groups and students have held public fasts against corruption and pressed the new government on post-monarchy reforms. The protests have not appeared as dramatic in their effect as has been in India, perhaps because Nepal is just coming out of a long civil war. However, the inspiration is there to continue the protests as some promising developments have occurred.
Various organizations across numerous African countries are trying to come together to tackle an emerging trend of various African countries considering setting up off-shore tax havens 38, supposedly to kick-start their own financial sectors and streamline red-tape. Tax-havens are a major problem that can hide corruption and undermine democracies and is discussed more on this site’s section on tax havens39.
Brazil is also seeing a rise in action against corruption 40. It is thought that corruption, which is deeply rooted in politics and economics in Brazil, is costing the economy some $43 billion a year. Inspired by the rise in protests in Spain following the effects of the 2008 global financial crisis on the country, many movements in Brazil have seen the rise accompanied by an explosion in use of social networks and technology to help organize and by-pass the institutionalized mainstream media avenues closed off for most citizens.
As an extremely severe global economic and financial crisis41 takes hold, corruption is likely to increase. Many governments are considering New Deal or Keynesian style macroeconomic policies to help stimulate their economies. It is perhaps a critical — or at least opportune — moment to renew efforts to tackle corruption. Some politicians may have honest intentions, while others (many others, it may seem), may not. In either case, the rewards for stamping out corruption would be significant.
This is a large topic in itself. Over time, more will be added, but for now you can start at the following:
- Transparency International has a Corruption Perception Index42. It provides many reports, statistics and information.
- The World Bank, despite criticisms about it not looking at its own policies as being a factor, do, however have a lot about corruption. A search result on World Bank site on corruption43 reveals many articles.
- The Corner House44 is a UK-based charity that provides many articles looking at corruption, bribery and related issues.
- The World Bank weeds out corruption: Will it touch the roots?45 by the Bretton Woods Project, April 8, 2006, also has a number of links to further information.
- OECD: Fighting Corruption46, from the Organization of Economic Cooperation and Development.
- Corruption at the World Bank47, from IFIWatchNet
- International Budget Partnership48 works around the world to look at public budgets to help reduce poverty and improve governance
- Governance, Corruption, and Conflict49 is a useful study guide from the US Institute for Peace
3 articles on “Corruption” and 3 related issues:
Poverty is the state for the majority of the world’s people and nations. Why is this? Is it enough to blame poor people for their own predicament? Have they been lazy, made poor decisions, and been solely responsible for their plight? What about their governments? Have they pursued policies that actually harm successful development? Such causes of poverty and inequality are no doubt real. But deeper and more global causes of poverty are often less discussed.
Read “Causes of Poverty” to learn more.
The arms trade is a major cause of human rights abuses. Some governments spend more on military expenditure than on social development, communications infrastructure and health combined. While every nation has the right and the need to ensure its security, in these changing times, arms requirements and procurement processes may need to change too.
Read “Arms Trade—a major cause of suffering” to learn more.
Read “Trade, Economy, & Related Issues” to learn more.
Through tax havens, transfer pricing and many other policies — both legal and illegal — billions of dollars of tax are avoided. The much-needed money would helped developing (and developed) countries provide important social services for their populations.
Some tax avoidance, regardless of how morally objectionable it may be to some people, is perfectly legal, and the global super elite are able to hide away trillions of dollars, resulting in massive losses of tax revenues for cash-strapped governments who then burden ordinary citizens further with austerity measures during economic crisis, for example. Yet these super elite are often very influential in politics and business. In effect, they are able to undermine democracy and capitalism at the same time.
As the global financial crisis has affected many countries, tackling tax avoidance would help target those more likely to have contributed to the problem while avoid many unnecessary austerity measures that hit the poorest so hard. But despite rhetoric stating otherwise, it does not seem to high on the agenda of many governments as you might think.
Read “Tax Avoidance and Tax Havens; Undermining Democracy” to learn more.
The global illicit drugs market is enormous, estimated at some $320 billion. This makes it one of the largest businesses in the world. Some believe in strong prohibition enforcement. Others argue for decriminalization to minimize the crime and health effects associated with the market being controlled by criminals. Are there merits to each approach?
Read “Illicit Drugs” to learn more.
In 1970, the world’s rich countries agreed to give 0.7% of their gross national income as official international development aid, annually.
Since that time, billions have certainly been given each year, but rarely have the rich nations actually met their promised target.
For example, the US is often the largest donor in dollar terms, but ranks amongst the lowest in terms of meeting the stated 0.7% target.
Furthermore, aid has often come with a price of its own for the developing nations. Common criticisms, for many years, of foreign aid, have included the following:
- Aid is often wasted on conditions that the recipient must use overpriced goods and services from donor countries
- Most aid does not actually go to the poorest who would need it the most
- Aid amounts are dwarfed by rich country protectionism that denies market access for poor country products while rich nations use aid as a lever to open poor country markets to their products
- Large projects or massive grand strategies often fail to help the vulnerable; money can often be embezzled away.
This article explores who has benefited most from this aid, the recipients or the donors.
Read “Foreign Aid for Development Assistance” to learn more.
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