Back to Basics—10 Myths About Governance and Corruption

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Abstract

Governance—which remains a sensitive and misunderstood topic—is now being given a higher priority in development circles. Some donors and international financial institutions (IFIs) are working with some emerging economies to help reduce corruption, and encourage citizen voice, gender equality, and accountability. […]

But is good governance and controlling corruption really so fundamental for development? The explosion of empirical research over the past decade, coupled with lessons from countries’ own experience, have given us a more solid basis for judging the effect of governance on development, and the effectiveness—or lack thereof—of strategies to improve it. Yet there are still unresolved questions and debates in the development community, not only about the importance of governance, but also about the ability of IFIs to help countries improve on it. Let us therefore go back to basics and address some prevailing “myths” about governance and corruption.

Myth #1: Governance and anticorruption are one and the same? No. We define governance as the traditions and institutions by which authority in a country is exercised for the common good. This includes the process by which those in authority are selected, monitored, and replaced (the political dimension); the government’s capacity to effectively manage its resources and implement sound policies (the economic dimension); and the respect of citizens and the state for the country’s institutions (the institutional respect dimension). By contrast, corruption is defined more narrowly as the “abuse of public office for private gain.”

Myth #2: Governance and corruption cannot be measured? It can. It is true that less than a dozen years ago virtually no internationally comparable measures of governance or corruption existed. But in recent years, the World Bank and others, such as TI, have sought to remedy this. […]

While the indicators represent a big step forward, there are measurement challenges. Margins of error are not trivial, and caution in interpreting the results is warranted—one should not precisely rank countries. But these margins of error have declined, and are now substantially lower than for any individual measure of corruption, governance, or the investment climate. As a result, the World Bank’s governance indicators are used worldwide for monitoring performance, for country assessments, and for research.

Myth #3: The importance of governance and anti-corruption is overrated? Not really. Thanks to these and other advances in empirical measurement, a number of researchers have examined the impact of governance on development and it is found that countries can derive a very large “development dividend” from better governance. A country that improves its governance from a relatively low level to an average level could almost triple the income per capita of its population in the long term, and similarly reduce infant mortality and illiteracy. Such a relative improvement (by one standard deviation) would correspond, for instance, to a move up in our ranking for the “control of corruption” dimension in our database, taking Equatorial Guinea to the level of Uganda, Uganda to Lithuania, Lithuania to Portugal, and Portugal to Finland.

Governance also matters for a country’s competitiveness and for income distribution. […] A rough estimate of the extent of annual worldwide transactions that are tainted by corruption puts it close to US $1 trillion. […] Further, when governance is poor, policymaking in other areas is also compromised.

Myth #4: Governance a ‘luxury’ that only rich countries can afford?. Absolutely not. Some claim that the link between governance and incomes does not mean that better governance boosts incomes, but the reverse—higher incomes automatically translate into better governance. Our research does not support this claim. It is misleading to suggest that corruption is due to low incomes, and invent a rationale for justifying or discounting bad governance in poor countries. In fact, the evidence points to the causality being in the direction of better governance leading to higher economic growth. A number of emerging economies, including the Baltic countries, Botswana, Chile, and Slovenia, have shown that it is possible to reach high standards of governance without yet having joined the ranks of wealthy nations.

Myth #5: Does it takes generations for governance to improve? Not at all. While it is true that institutions often change only gradually, the evidence shown by the governance indicators points to the fact that in some countries there has been a sharp improvement in the short term. This defies the view that while governance may deteriorate quickly, improvements are always slow and incremental. […]

Myth #6: Can donors agencies “ringfence” and thus fully protect their project funds in highly corrupt countries and sectors? Not really. […] The data suggest that when a systemic approach to governance, civil liberties, rule of law, and control of corruption is absent, the likelihood of an aid-funded project being successful is greatly reduced.

Myth #7: Does fighting corruption by fighting corruption make sense? Not really. A fallacy promoted by some in the field of anticorruption, and at times also by the international community, is that one “fights corruption by fighting corruption”-through yet another anticorruption campaign, the creation of more “commissions” and ethnic agencies and the incessant drafting of new laws, decrees and codes of conducts […] such initiatives appear to have little impact, and are often politically expedient ways of reacting to pressures to do something about corruption, substituting for the need for fundamental and systemic governance reforms.

Myth # 8: Is the corruption culprit the public sector in developing countries? […] Not quite. The reality is much more complex, since powerful private interests often exert undue influence in shaping public policy, institutions, and state legislation. […] It takes two to tangle when it comes to bribery, for instance. And multinationals also bear an important responsibility.

Myth #9: Is there little that countries can do to improve governance. No. […] it is easy to fall into the pessimist camp. That would be a mistake. First, historical and cultural factors are far from deterministic […] Second, there are strategies that offer particular promise […]. Transparency reforms, [such as] […] public disclosure of all parliamentary votes, draft legislation, and parliamentary debates or effective implementation of freedom of information laws, with easy access for all to government information […], can be particularly effective.

Myth #10: Not much the IFIs can do? […] Surely, there are areas that fall outside the mandate of IFIs, such as promotion of fair multiparty elections. But initiatives to encourage transparency, freedom of information and an independent media, participatory anticorruption programs led by the country, and gender equality […]

The challenge of governance and anticorruption confronting the world today strongly argues against the “business-as-usual” modus operandi. A bolder approach is needed, and collective responsibility at the global level is called for […] countries themselves must take the lead in improving governance.

References:

Bellver, Ana, and Daniel Kaufmann, 2005, “Transparenting Transparency: Initial Empirics and Policy Applications,” World Bank Policy Research Working Paper, (forthcoming) (Washington)

http://www.worldbank.org/wbi/governance

Commission for Africa Report, 2005, Our Common Interest: Report of the Commission for Africa (London)

http://www.commissionforafrica.org

Kaufmann, Daniel, Aart Kraay, and Massimo Mastruzzi, 2005, “Governance Matters IV: Governance Indicators for 1996–2004,” World Bank Policy Research Working Paper 3237 (Washington)

http://worldbank.org/wbi/governance/pubs/govmatters4.html

Kaufmann, Daniel, 2003, “Rethinking Governance: Empirical Lessons Challenge Orthodoxy,” Global Competitiveness Report 2002–03, World Economic Forum, Geneva

http://www.worldbank.org/wbi/governance/pubs/rethink_gov.html

World Bank Institute, 2002, The Right to Tell: The Role of Mass Media in Economic Development (Washington).

http://www.imf.org/external/pubs/ft/fandd/2005/09/basics.htm

Back to Basics—10 Myths About Governance and Corruption

Daniel KAUFMANN

Finance et Développement, Fonds Monétaire International

Volume 42, N°3

Septembre 2005

http://www.imf.org

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