Corruption: Concepts, causes and consequences

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Corruption: Concepts, causes and consequences. Inge Amundsen, researcher , Chr. Michelsen Institute Thursday , November 3 rd , 2011, 08:30 Petrad, Stavanger. Concepts, causes and consequences. What is Corruption? Definitions and basic forms of corruption A Role Play - PowerPoint PPT Presentation

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  • Corruption: Concepts, causes and consequencesInge Amundsen, researcher, Chr. Michelsen InstituteThursday, November 3rd, 2011, 08:30 Petrad, Stavanger

  • Concepts, causes and consequencesWhat is Corruption?Definitions and basic forms of corruptionA Role Play

    Causes, costs, and consequencesEconomic, political, institutional and social-culturalResource Curse Theory

    Corruption in the Petroleum SectorCorruption risks in the value chain

  • Abuse (capture) of public power for private benefit

    World Bank

    Misuse of entrusted power for private gain

    Transparency International

    Concepts: DefinitionsBehaviour which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains; or violates rules against the exercise of certain types of private-regarding influence (Nye)

    A form of secret social exchange through which those in power (political or administrative) take personal advantage, of one type or another, of the influence they exercise in virtue of their mandate or their function (Mry)

  • Forms of corruption: Two actors

    The STATE

    Civil servantsFunctionariesBureaucratsPoliticians

    Elected, hired, nominatedAny non-governmental agent

    Private firms, businesses (contractors, bidders)Private individuals (users, clients)Organisations, NGOs (consultants, clients, users)

  • Forms of corruption: Two perspectives Demand oriented

    Corrupted, public side

    Extractive, neopatrimonial, kleptocratic state Supply oriented

    Corruptor, private side (bribing firms)

    Captured state

  • Forms of corruption: Two types Controlled

    CentralisedCoordinatedDisciplined

    Uncontrolled

    DisorganisedCompetitiveUnpredictable

    Damaging!

  • Forms of corruption: Two levelsPolitical corruptionGrand, large scale

    Administrative corruptionPetty, small scale

    ExtractionPower preservation ? ?

  • Embezzlement Bribery Commissions Privatisations Tax systems Concessions, licences Freedoms Monopolies Favouritism Nepotism Vote buying Cooptations Manipulated institutions Govt resources for elections ImpunityPolitical corruptionExtractionPower preservationPolitical corruption: Two faces/phases

  • Forms of corruption: Several techniquesBriberyCorruption per seKickbacks, sweeteners, grease money, pourboire, pay-offs, consultant fees, EmbezzlementTheft. Only one partyFraudEconomic crime. Element of cheating, swindleExtortionElement of violence. No/little returnsFavouritismPatronage politics, nepotism, clientelismManipulation of institutions, impunityBuying of votes, constituencies, support

  • A Role Play

  • Causes: Corruption and Economics

  • Causes: Corruption and Politics

  • Causes: The Resource CurseThe Dutch DiseaseThe Paradox of PlentyThe Rentier State model

    Oil rich countries can be worse offRich in natural resourcesPoor in economic development

    ExplanationsEconomic explanationsPolitical explanations

    ExamplesMalaysia vs Nigeria

    The institutions that matterInstitutions of extractionInstitutions of redistributionNorwayAustraliaCanadaChileBrazilMalaysiaBotswana NigeriaAngolaDR CongoThe SudanSierra LeoneLiberiaZambiaColombiaAzerbaijan

  • Economic ExplanationsWhy?

    Relative price effectHigher currency valueMore imports (cheaper)Competition difficultVolatilityUncertainty for businessesLow investments in alternative productionGovernment waste and debtCapital flightThe Dutch DiseaseOver-investment in extractive industriesUnder-investments in manufacture, agricultureDe-industrialisationReform fatigue

    Consequences

    Crowding out productive sectorsCapital absorptionContractionConcentrationWeak Redistribution Increasing inequalitiesIncreasing povertySquanderGrandiose projectsPocketedCapital flight

  • Political explanationsWhy?

    The prize of controlling the state increasesHigher government revenuesLarger benefits in being the state eliteAvailable consumption, enrichment, corruption, embezzlementState autonomy increasesOff-shore, foreign, High-TecNatural resources: un-earned, easyLittle taxation of domestic economic activityNo social contractLittle influence of business interests, middle classLittle influence of civil society, interest organisationsRents increases the powers of the stateMeans to manipulate institutionsMeans to buy (off) rivalsMeans to buy instruments of coercionConsequences

    Increasing conflictsIncreasing inequalitiesIncreasing povertyUneven distributionIncreasing authoritarianismEntrenched elitesViolent defence of privileges

  • Two country examples Malaysia

    1973 Emerging from devastating inter-ethnic riots Natural resources giving high revenuesBroad-based prosperity Ethnic groups sharing gains from revenues1993 Spectacular progress High investment inflows2003Malaysia a world-class economy (Kuala Lumpur tallest building in the world) HDI rank 66 (0,829 high ) President handling over power in a smooth transitionNigeria

    Post-conflict Oil starting to flowFirst oil boom wasted Coup d'tat Abacha embezzeled 2-5 bn US$ 93-98Second oil boom wasted Two more coups d'tat Niger Delta Syndrome2003Total income $ 300 bn over 25 years Economy as poor as in 1973 (after $200bn of oil money) HDI rank 158 (0.511 low ) Reform just started

  • Without improving their democratic institutions and administrative capacity, it is unlikely that African oil exporters will be able to use petrodollars to fuel poverty reduction; instead oil monies are more likely to make matters worse for the poor

    Catholic Relief Services (2003):Bottom of the Barrel. Africas Oil Boom and the Poor

  • Corruption challenges in the petroleum sector Petroleum sector corruption characteristicsHigh tech, high states, high politics

    Licensing and explorationPaying up for access to resources?ProductionPaying up for maximum profits?DecommissioningPaying up to pollute?

    Revenue managementPaying for power preservation?

  • Corruption challenges

    Weak legal, regulatory and contractual framework Weak institutions and ill-defined institutional responsibilitiesWeak jurisdiction and authority over territory (on-shore, off-shore)Lack of a national petroleum policy, lack of long-term plansHaphazard access to and control of seismic dataLack of transparency in data handlingSecrecy, confidentiality, and discretionary decision-makingNon-transparent bidding and award proceduresRoyalties and signature bonuses to politiciansPolitical interference and favouritism in individual cases

  • Corruption challenges

    Weak legal, regulatory and contractual framework Unclear access to and handling concessions for productionExaggerated development costsRe-negotiation of and amendments to development contractsUnclear ownership of companies, changing handsOil companies (concessionaire and partners)Sub-contractors: service delivery companies Lack of standards for environment, health and labour safety

    Land use conflictsConstruction and installation of necessary infrastructure Rigs, support camps, subsea systems, pipelines, etc.Community compensation

  • Corruption challenges

    Preferential and favouritist contracting and sub-contractingSecrecy, confidentiality, exclusivity, discretionary decision-makingDead meat national private oil companiesWeak institutions and ill-defined institutional responsibilitiesSurveillance/monitoring of activities, production levels, etc.Weak tax regimeTax evasion, capital flight, tax havensOil and service companies off-budget social investments (CSR)

  • Corruption challengesBuying regulatory exemptions and early abandonBuying sub-standard rehabilitationRemoving installations and clean-up Lack of optimization of recoverable volumes and revenue

  • Revenue Management: Paying for power preservation? Embezzlement Bribery Commissions Privatisations Tax systems Concessions Freedoms Monopolies Favouritism Nepotism Vote buying Cooptations Manipulated inst Elections ImpunityPolitical corruptionExtractionPower preservationCounter-measures

    Make economic diversificationProductive sectorsAgricultureEnsure fair redistribution Decrease inequalitiesDecrease povertyStop squander and grandiose projectsStop capital flightIncrease democracyDefuse conflictsEnsure participationEnsure legitimacyRestrict the entrenched elitesRestrict privileges

  • The petroleum sector ideal

  • Petroleum sector corruption

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