Anti-corruption policies, political economy, and the World Bank

Philip KeeferDevelopment Research GroupThe World Bank

Evolution of Bank policy through mid-2000’s

Through to mid-1990s: Corruption a byproduct of under-development. Address through overall development strategies. Corruption in Bank projects, specifically, a concern.▪ Rely on country systems and normal corporate fiduciary practices.

Mid-1990s – mid-2000s: Corruption a cause of under-development Support anti-corruption policies (e.g., Hong Kong style anti-

corruption boards, asset declaration, etc.). Governance (not specifically corruption) conditions IDA

allocations.

Evolution of Bank policy: 2006-2007

Corruption THE obstacle to development: Country corruption an overriding factor in

conditioning lending; Extractive Industries Transparency Initiative (EITI) No consensus on assessing corruption creates

organizational challenges (e.g., ad hoc suspension of country loans).

How to measure corruption and/or governance? Contentious – intellectually and politically. What government policies/actions are definitive

evidence of progress on governance/corruption?

Evolution, 2007 – present: More fiduciary, less anti-corruption Internal:

Budgets for monitoring corruption in Bank projects significantly increased.

Integrity Vice Presidency created (above and beyond usual corporate practice).

External: Anti-corruption policies in countries: reduced emphasis. Significant attention to public sector financial management -

much less to other aspects of country systems (bureaucracy/judiciary/police/etc).

More attention to political economy (though ad hoc, not clearly actionable).

Some loans still halted on ad hoc basis: Bangladesh Jamuna bridge.

Still no consensus on measuring/conditioning on corruption/governance.

Fit with research findings? Research: Corruption IS a by-product of over-

arching political economy. Underlying political dynamics simultaneously

influence : Rent-seeking Conversion of public resources into public benefits/public

goods. Implications: Where political incentives are

friendly to corruption ALL development efforts are hard to implement. Above all, though, anti-corruption policies won’t be

enforced; Public sector financial management reforms less likely to

succeed

Research vs. policy evolution? To mid-1990s:

Reasonable to assume that corrupt behavior a “by-product” of development.

An error to ignore governance/political economy roots of development.

Mid-1990s to mid-2000s Key and important innovation to start paying attention to

governance/political economy. But disconnect in emphasis on anti-corruption reforms

without an integrated strategy to address governance/political economy obstacles to development.

Research vs. policy? 2006-07

Conditioning loans on corruption a reasonable expression of moral indignation. But . . . An incomplete development strategy. Is donor influence strong enough such that

conditionality on governance leads to governance improvement?

Research ambiguous: We don’t know if fiscal crisis/necessity (the source of efficacy of conditionality) spurs political reform.

Research vs. policy? 2006-07 Measurement agenda: tension between policy and

research Gov’ts to Researchers: how can we improve governance

scores? Res to Gov: Governance is about responsiveness to citizen

interests! But – how to measure responsiveness?

focus on corruption, or government responsiveness to citizens, or citizen ability to act collectively to influence government,

or simply policy performance?

Research vs. policy? 2006-07

Extractive industries (EITI) What we care about is: natural resources turned

into public benefits. EITI accomplishes this only if information is the

missing link in government accountability. In many cases – not the case. Ignores the alternative solution: keep the stuff in

the ground; lump sum transfers.

Research vs. policy? Now

WB expenditures on WB integrity is a response to external pressures . . . but development impact?

Less specific attention to country corruption, per se, consistent with research. But huge attention to PFM – not supported by research.

More attention to political economy – consistent with research. But still little systematic integration of

governance/political economy into development strategies.

Persistent dilemma

What to do in countries that exhibit severe governance problems? Corruption? Governance generally? Fragile states?

These countries are the ones where development challenges – poverty, misery – are the greatest.

The biggest tool that donors have is money. But these are the countries where government

action least likely to improve development outcomes.

Different paradigm? Collective action instead of Good Governance?

Governance = no accountability to citizens. Fundamental issue in accountability: ability of

citizens to act collectively. In weak governance countries:

Political parties underdeveloped. Efforts to organize are undermined.

Removing obstacles to collective action a donor priority? Remove obstacles to formation of civil society

organizations (Tunisia). Community-driven development. Not easy – we need research here!

Conclusion

Focus on corruption as a development issue has waxed and waned.

Growing understanding that political incentives underlie corruption – and poor public sector performance, generally.

Implication: “supply-side” interventions (anti-corruption, PFM reforms) unlikely to succeed.

More effort needed on “demand-side” – increasing citizen ability to (act collectively to) hold government accountable.