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Corruption, Transparency and Governance Workshop on Deliberative DemocracyDani Kaufmann and Francesca RecanatiniWBI Global Governance TeamMay 14, 2003www.worldbank.org/wbi/governancehttp://www.worldbank.org/wbi/governance/http://www.worldbank.org/wbi/governance/ObjectiveTo discuss cross-country and in-country methodologies developed by the World Bank Institute to assess governance and transparencyTo introduce the private-public governance nexus (capture) and present some preliminary evidenceMain ResultsGovernance is linked to developmentParticipatory collective action and voiceare key for sustainable policy changesTransparency, incentives and prevention play a role in improving governanceThe role of politics especially influence/capture has been under-estimated?OutlineDefinition of governanceGovernance, development and democracyWorld Bank methodologies developed to measure and improve governanceCross-countryIn-countryMechanisms of influence and captureWhat What isis Governance?:Governance?:A working definition for public governanceA working definition for public governanceGovernance is the process, institutions and customs through which the function of governing is carried outGovernanceGovernance..(1) the process by which governments are selected, held accountable, monitored, and replaced; (2) the capacity of governments to manage resources efficiently, and to formulate, implement, and enforce sound policies and regulations; and, (3) the respect for the institutions that govern economic and social interactionsEach of the 3 main components of governance can be unbundled into 2 subcomponentsVoice and AccountabilityPolitical Stability and lack of ViolenceQuality Regulatory FrameworkGovernment EffectivenessControl of CorruptionRule of LawBuilding Aggregate Governance IndicatorsUse Unobserved Components Model (UCM) to construct composite governance indicators, and margins of error for each countryEstimate of governance: weighted average of observed scores for each country, re-scaled to common unitsWeights are proportional to precision of underlying data sourcesPrecision depends on how strongly individual sources are correlated with each otherMargins of error reflect (a) number of sources in which a country appears, and (b) the precision of those sourcesInputs for Governance Indicators 2002Publisher Publication Source Country CoverageWefas DRI/McGraw-Hill Country Risk Review Poll 117 developed and developing Business Env. Risk Intelligence BERI Survey 50/115 developed and developingColumbia University Columbia U. State Failure Poll 84 developed and developing World Bank Country Policy & Institution Assmnt Poll 136 developingGallup International Voice of the People Survey 47 developed and developing Business Env. Risk Intelligence BERI Survey 50/115 developed and developingEBRD Transition Report Poll 27 transition economiesEconomist Intelligence Unit Country Indicators Poll 115 developed and developing Freedom House Freedom in the World Poll 192 developed and developingFreedom House Nations in Transit Poll 27 transition economiesWorld Economic Forum/CID Global Competitiveness Survey 80 developed and developing Heritage Foundation Economic Freedom Index Poll 156 developed and developingLatino-barometro LBO Survey 17 developingPolitical Risk Services International Country Risk Guide Poll 140 developed and developingReporters Without Borders Reporters sans frontieres (RSF) Survey 138 developed and developingWorld Bank/EBRD BEEPS Survey 27 transition economiesIMD, Lausanne World Competitiveness Yearbook Survey 49 developed and developingBinghamton Univ. Human Rights Violations Research Survey 140 developed and developingControl of Corruption: one Aggregate Indicator (selected countries, for illustration, based on 2000/01 research data)-2.502.5Congo, Dem. Rep. (Zaire)KENYAZIMBABWEINDONESIATANZANIAKOREA, NORTHHAITIMOLDOVAARMENIAVIETNAMIVORY COASTBANGLADESHALBANIAINDIACHINAMEXICOBULGARIACROATIAMOZAMBIQUEMALAYSIAURUGUAYTUNISIACOSTA RICABOTSWANACYPRUSNAMIBIACHILENEW ZEALANDSource: KKZ 2000/01POOR GOODCorruptionLevelMargin of ErrorGood Corruption ControlRule of Law, 1998 vs. 2000 Latin AmericaSource for data: http://www.worldbank.org/wbi/governance/govdata2001.htm ; Chart downloaded from : http://info.worldbank.org/governance/kkz/Note: the thin lines depict 90% confidence intervals. Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%http://www.worldbank.org/wbi/governance/govdata2001.htmhttp://info.worldbank.org/governance/kkz/Traffic Light World MapVoice and Accountability 2000Source for data: http://www.worldbank.org/wbi/governance/govdata2001.htm ; Map downloaded from : http://info.worldbank.org/governance/kkz/gov2001map.asp Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between75% and 90% ; Dark Green above 90%http://www.worldbank.org/wbi/governance/govdata2001.htmhttp://info.worldbank.org/governance/kkz/governance_indicator.aspGovernance and Poverty Nexus, IGovernance and Poverty Nexus, ILower Investment and GrowthUnsound economic/institutional policies due to vested interestsDistorted allocation of public expenditures/investments Low human capital accumulationElite corporate interests capture laws and distort policymakingAbsence of rule of law and property rights Governance obstacles to private sector developmentLack of Health and Education Low human capital accumulation Lower quality of education and health careContGovernance and Poverty, cont.Governance and Poverty, cont.Poor have Smaller share in GrowthState capture by elite of government policies and resource allocationRegressiveness of bribery tax on small firms and the poorRegressiveness in public expenditures and investmentsUnequal income distributionBribery imposes regressive tax and impairs access and quality of basic services for health, education, and justicePolitical capture by elites of access to particular servicesImpaired Access to Public ServicesThe Dividend of Good GovernanceInfant Mortality and Corruption0102030405060708090Weak Average GoodControl of Corruption x Development Dividend02,0004,0006,0008,00010,00012,000Weak Average GoodRegulatory Burdenx Development DividendPer Capita Income and Regulatory BurdenLiteracy and Rule of Law0255075100Weak Average GoodRule of Law x Development DividendPer Capita Income andVoice and Accountability010002000300040005000600070008000900010000Weak Average StrongVoice and Accountabilityx DevelopmentDividendNote: The bars depict the simple correlation between good governance and development outcomes. The line depicts thepredicted value when taking into account the causality effects (Development Dividend) from improved governance to betterdevelopment outcomes. For data and methodological details visit http://www.worldbank.org/wbi/governance.Figure 1: Rule of Law, Voice and Accountability and Control of Corruption, Regional Averages, KKZ 2000Good Governance-1.00.01.02.0O ECD East Asia NIC Eastern Europe Middle East N.AfricaLatin America East AsiaemergingSub-SaharanAfricaFormer SovietUnionSouth AsiaRule of LawControl of CorruptionVoice and AccountabilityPoor GovernanceSource: Governance Research Indicators (KKZ) based from data in D. Kaufmann and A. Kraay, 'Growth without Governance', for 175 countries, details at http://www.worldbank.org/wbi/governance/pubs/growthgov.htm. Units in vertical axis are expressed in terms of standard deviations around zero. Country and regional average estimates are subject to margins of error (illustrated by thin line atop each column), implying caution in interpretation of the estimates and that no precise country rating is warranted. See also regional clarifications in note 6.http://Figure 5: Transparency and GDP Growth135Low Middle HighExtent of TransparencyTransparent Information by GovernmentEffective Parliamentary OversightCorporate EthicsAnnual GDP Growth (%)Source: Annual GDP growth over 1999-2001 is taken from WDI 2002; GDP is computed in PPP terms. The various transparency / governance variables drawn from Executive Opinion Survey, 2002.CorruptionCorruptionHighLowCorruption is associated with absence of Civil LibertiesNot Free Partly Free FreeBased on averages of data from 160 countries. Civil LibertiesControl of Graft and Freedom of the PressAGOALBAREARGARMAUSAUTAZE!BENBFABGDBGRBHRBHSBIHBLRBOLBRABRNBWACANCHECHLCHNCIVCMRCOGCOLCRICUBCYPCZEDEUDNKDOMDZA ECUEGYESPESTETHFINFJIFRAGABGBRGEOGHAGINGMBGNBGRCGTMGUYHKGHNDHRVHTIHUNIDNINDIRLIRNIRGISLISRITAJAMJORJPNKAZKENKGZKORKWTLBNLBRLBYLKALSOLTULUXLVAMARMDA MDGMEXMKD MLIMLTMMRMNGMOZMUSMWIMYSNAMNERNGA NICNLDNORNZLOMNPAKPANPER PHLPNGPOLPRKPRTPRYQATROMRUSSAUSDNSENSGPSLESLVSOMSURSVKSVNSWESWZSYRTCDTGO THATJK TKMTTOTUNTURTWNTZAUGAUKRURYUSAUZBVENVNMYEMYUGZAFZARZMBZWEr = 0.68-2.5-2-1.5-1-0.500.511.522.50 0.2 0.4 0.6 0.8 1HighLowLow Highr = .68 Freedom of the Press (Freedom House)Control of Graft [kkz]Overall Evidence is Sobering, however:Progress on Governance is modest at best, so farEvidence points to slow, if any, average progress worldwide on key dimensions of governance This contrasts with some other development dimensions (e.g. quality of infrastructure; quality of math/science education; effective absorption of new technologies), where progress is apparent At the same time, substantial variation cross-country, even within a region. Some successes.01.531984-1988 1989-1993 1994-1998 1999-2001TRANSITIONEMERGINGOECD+NICSource: Rethinking Governance, based on calculations from WDI. Y-axis measures the log value of the average inflation for each region across each periodSignificant Decline in Inflation Rates WorldwideHighInflationLow(avg. inlogs)1.546.51997 1998 1999 2000 2001 2002OECDEast AsiaIndustrializedMiddle EastEasternEuropeEast AsiaDevelopingLatin AmericaFormer SovietUnionSouth AsiaQuality of Infrastructure(Regional Averages of High/Low Quality every year, GCR 1997-2002)LowHigh1234561984-1988 1989-1993 1994-1998 1999 2000 2001Emerging & Transition Economies Source: ICRG/PRS, 1984-2001, data subject to margins of errorControl of Corruption Over Time for Emerging/Transition Economies PRS/ICRGPoorGood24.256.51998 1999 2000 2001 2002OECDEast AsiaIndustrializedMiddle EastEast AsiaDevelopingEastern EuropeLatin AmericaFormer SovietUnionExtent of Independence of the Judiciary (Regional Averages of Extent/Lack of Independence every year)Non-IndependentIndependentFrom From researchresearch to policy: into policy: in--country focuscountry focusA demand-driven process to improve governance, build local capacity and consensus among key stakeholdersKey elements: participation, transparency and analytical rigor (diagnostic surveys)Outcomes: greater local capacity, new policy actors, baseline governance data, and action plan for policy reformInIn--country focus to policy makingcountry focus to policy makingCommitment of the governmentCreation of national steering committeeImplementation of diagnostic surveysPublic discussion and dissemination of resultsParticipatory development of country strategyFollow-up monitoring activitiesWho Should take the lead in a National Governance/Anticorruption Program?3%4%4%4%7%8%18%4%48%0% 10% 20% 30% 40% 50%Not Worth ItNGOs AloneInt'l ExpertsLegislativeEnforcement AgenciesExecutive AloneCivil Society AloneA-C AgencyBroad CoalitionPercentage of RespondentsThe processChallenge: poor governance and corruption1. Establishment of Steering Committee2. Diagnostic surveys + analysis3. Draft of the NAS4. Public dissemination + discussion5. Revision of the NAS6. Implementation by Government7. Monitoring and Evaluation of NASWBI Technical AssistanceKey Partnership: Government + Civil SocietyCountry ImplementedExperientialdata from 3sources on quality ofgovernanceKey Features of Governance Diagnostic ToolsMulti-pronged surveys of: households, firms and public officials [triangulation]Experiencial questions (vs. opinions/generic) Specially designed and tested closed questionsConceptual framework: Incentive Structure behind Governance; focus on development Rigorous technical requirements in implementationLocal Institution Implements, with WB CollaborationRecognizing Multidimensionality of GovernanceFocus on Service Delivery: Input for Action and ChangeChallenge: poor governance and corruption1. Establishment of Steering Committee2. Diagnostic surveys + analysis3. Draft of the NAS4. Public dissemination + discussion5. Revision of the NAS6. Implementation by Government7. Monitoring and Evaluation of NASWBI Technical AssistanceKey Partnership: Government + Civil SocietyCountry ImplementedA few IllustrationsGuatemalaHighly fragmented civil societyJoint effort (CMU, SDV, WBI) to build consensus Sierra LeoneStrong commitment (civil society, state, donors) => surveys and report within a year. Results will be used for Institutional Reform ProjectHondurasCNA: report and strategy to newly elected gov (January 2001); integration of strategy in the 2002-2006 government plan Additional success storiesGhana: report and strategy (2000), integration of results into Bank projects, dissemination at national and regional levelColombia: report (2001). Strategy in progress, collaboration between government and steering committeeBolivia: report (2001); country reform policy for Judiciary and procurementStages for Development of the National Anti-Corruption Strategy1. Establishment of Steering Committee2. Diagnostic surveys + analysis3. Draft of the NAS4. Public dissemination + discussion5. Revision of the NAS6. Implementation by Government7. Monitoring and Evaluation of NASWBI Technical AssistanceKey Partnership: Government + Civil SocietyCountry ImplementedAlternative pathsPeruLack of political will => strategy never implementedSubsequent entry point: capacity building for monitoring with CMU and SDVIndonesiaWeak demand for reform and damaged reputation => work with local partners + donors; support A-C diagnostics by local NGO; involvement of locals in design and implementation of projectsSan PauloDifferent unit of observation: city. Partnership with TI to adapt tools and compile reportEcuadorLack of political will (2000) => report never releasedNew government (2003) => A-C and governance key issues in the new CASThe power of diagnostic data and key dimensions for analysis1. Unbundle corruption by type administrative, capture of the state, bidding, theft of goods and public resources, purchase of licenses and regulations2. Identify both weak institutions (in need of reform) and strong institutions (example of good governance)Key dimensions Cont.3. Assess the cost of each type of corruption on different groups of stakeholders4. Identify key determinants of good governance5. Develop policy recommendations A few illustrations from country diagnostic surveys around the worldExtent of mis-governance Type of mis-governanceQuality of servicesLink with service provisionLink with institutional determinantsExtent of corruption0% 20% 40% 60% 80%% of public officials report frequent publicfunds mis-management% of public officials report frequentpurchase of positions in their institutions% public officials report frequent cases ofcorruption in public administration% firms report bribes used frequently inpublic services% users report bribes used frequently inpublic services% firms report bribes used frequently inpublic contractsPeru Colombia Honduras EcuadorAccessibility of Public Services to the Poor(as reported by public officials; various counties, 1999-2001)40%60%80%100%CambodiaParaguayBoliviaRomaniaColombia PeruHonduras% public officials reporting the service provided bytheir institution is accessible to poorVulnerabilities of Corruption Reporting: Complaint Mechanisms(as reported by public officials; various countries, 1999-2001)0%20%40%60%80%100%Bolivia Paraguay Peru Colombia Honduras% reporting complaint mechanism is:Complicated Unsafe Politicized Threatening eliteNational and municipal agencies are ridden by different types of corruption(based on public officials' responses, a Latin American country, 2001)05101520253035Irregula use ofpublicresourcesBribes to obtainpublic contractsBribes tochange a legaldecisionBribes to obtaina public service% reporting that this form of corruption ivery frequentMunicipal agencies National agencies730/3035/3520/2719/2329/3616/2114/2031/436/326/2242/420%10%20%30%40%50%60%70%80%90%100%GeorgiaCambodiaHondurasRomaniaParaguayLatviaBoliviaSlovakiaEcuadorPeruColumbiaRank of Parliament within country, by Public Servants Source: WBI diagnostics and survey data; various countries; 1992-2001. http://www.worldbank.org/wbi/governance/Note: The chart shows percentage of respondents reporting that Parliament is dishonest institution. The number at the topof each bar reflects the ranking of Parliament relative to other government institutions. Parliaments Misgoverned or Honest Institutions? Relatively good Relatively bad% who believe that Parliament is corrupthttp://Alternative Dispute Resolution Mechanisms(as reported by users, 1999-2001)05101520253035404550Lawyer HigherrankingofficialThird party NGO Person inthe PoliceThreats,forceDirectnegotiationOther% of users that used such alternative mechanismPeru Honduras ColombiaPersonnel and budget decisions in public institutions (as reported by public officials, 2001)0%10%20%30%40%50%Politicizedpersonnel decisionsPersonnel decisionsbased on privateconnections Politicized budgetdecisionsBudget decisionsbased on privateconnections% reporting...Colombia Honduras PeruPersonnel BudgetCorruption penalizes especially lower income usersCorruption penalizes especially lower income users(% of income paid in bribes, as reported by all users that requested public services)02468101214Ecuador Peru HondurasLow incomeMedium incomeHigh incomePublic Sector Characteristics and Public Sector Characteristics and GovernanceGovernanceInternal TransparencyMeritocracySocial Involvement and collective actionQuality of norms and rulesAccountability & citizen voiceRule application and supervisionSalary SatisfactionAgency MissionsPoliticizingQuality of servicesCitizen Voice and Access to Public Services by the Citizen Voice and Access to Public Services by the Poor Poor (Bolivia illustration, each observation is a public agency)(Bolivia illustration, each observation is a public agency)02040608010010 20 30 40 50 60 70 80 90Voice / External AccountabilityAccessibility to the PoorControlledCausalLinkr = 0.54Based on Public Officials Survey. The sample of institutions includes 44 national, departmental, and municipal agencies which are a prior anticipated to be accessible to the poor Citizen Voice Helps Control Bribery in Citizen Voice Helps Control Bribery in LAC countryLAC country1020304050Low Moderate_Low Moderate_High HighVoice / External AccountabilityBriberySimple Average Association Control Causal Link Margin of ErrorBased on 90 national, departmental, and municipal agencies covered in the Bolivia Public Officials Survey. Transparency within Government Agencies Prevents Purchase of Public Positions369121518Low Moderately Low Moderately High HighInternal TransparencyJob PurchaseSimple Average Association Control Causal Link Margin of ErrorBased on 90 national, departmental, and municipal agencies covered in the Public Officials Survey. Determinants of Governance(based on public official responses, Bolivia, 2001)Governance Determinant of Performance Simple Unconditional Relationship Conditional/Causal Relationship Ethical Values 0 0 Agency Autonomy ** 0 Enforcement of Rules ** 0 Quality of Rules * 0 Wage Satisfaction ** 0 Politicization ** ** Internal Transparency ** ** External Voice ** ** Corruption ** ** To sum: a few salient lessonsGovernance and A-C (GAC) studies affect the policy debate and serve as an input in the design of a National A-C StrategyTransparency and public dissemination of the results are keyThe approach must be participatory at each stage of the processA Few Salient Lessons, cont.To unbundle corruption and institutional weaknesses allows to identify key areas for reformQuality control and use of rigorous analytical methods enhance the credibility of the resultsState CaptureEfforts of firms to shape the legal, policy and regulatory environment through illicit, non-transparent provision of private gains to public officialsExamples include:private purchase of legislative votesprivate purchase of executive decreesprivate purchase of court decisionsillicit political party financingInequality of Wealth/IncomeInequality of InfluenceSubversion of Institutions Insecurity of Property RightsReduced GrowthTowards an Understanding of the Institution of InfluenceRecent FindingsFirms who perceive a greater inequality of influence in their country ( where political system biased towards political cronies), exhibit: Negative assessment of Court system -- in terms of its fairness, impartiality, & enforcement of decisions Less use of courts to resolve business disputes; Less secure property and contract rights; Pay more bribes; and, Less tax compliance, more unofficial activities-- Thus, less credibility of formal institutions, which in turn are undermined by behavior of economic agents Inequality of influence is related to the extent of political liberalization -- in a non-linear fashionUnbundling Corruption [Regional Averages]Preliminary results 2002, View of the Firm, 80 countries03570LatinAmericaFormerSovietUnionEasternEuropeSub-saharanAfricaMiddle East East AsiadevelopingSouth Asia OECD East AsiaIndustrial% of firms rating type of corruption as high/very highAccess Public UtilitiesProcurementCapture of Laws & RegulationsExtent of Bribery for: Extent of "State Capture"/ Undue Influence by the Elite to Influence Laws and Regulations (as reported by public officials, 2001)0 20 40 60 80 100Bribes to officials ofCentral BankTo JudiciaryTo regulatory agenciesTo officials influencingministerial/presidentialTo Municipalauthorities/councilsTo Parliamentarians toinfluence laws% of public officials reportingColombia Honduras PeruPolitical contributions(as reported by enterprises, 2001)01020304050607080Political contributions arefrequentPrivate firms benefit frompolitical contributions theymadeOur firm has seen the needto contribute% of firms' responsesColombia Honduras PeruAddressing Capture: Economic Reform, Political Competition & Voice/Civil Liberties Matter00.10.20.30.4State Capture IndexPartial Civil Libs High Civil LibsAdvancedPartialSlowPace of Econ ReformPolitical/Civil Liberties Reforms0%25%50%75%100%OECD Sub SaharanAfricaSouth Asia Latin America Former SovietUnionIllegal Political FinancingFavoritism in ProcurementAwardIneffective Parliament% of firms that report:PervasiveNot a ConstraintExtent of:More broadly: Politics Matters and it can be measured (GCR, 2002)Selected Regions, based on EOSurvey of 5,000 firms in 80 countries, WEF-GCRCrony bias vs. Democratic Voice & Accountability(from Executive Survey for the Global Competitiveness Report, 2002/3, for 80 countries)Crony Bias vs. Democratic Voice and Accountability0.00.51.0-2.0 0.0 2.0Democratic Voice and AccountabilityCrony Biasr = - 0.41LowHighLoHighSome Implications for the next stage(1) A Broader Governance Framework(2) The Power of Data and Country-Diagnostics(3) Localize Know-how: Diagnose & Differentiate(4) Unbundling Politics: Influence, Capture, Party Finance(5) External Accountability: Voice, Transparency, & systemic incentives (with new e*governance tools/data)Corruption, Transparency and Governance Workshop on Deliberative DemocracyObjectiveMain ResultsOutlineWhat is Governance?: A working definition for public governanceGovernance.Each of the 3 main components of governance can be unbundled into 2 subcomponentsBuilding Aggregate Governance IndicatorsInputs for Governance Indicators 2002Rule of Law, 1998 vs. 2000 Latin AmericaTraffic Light World MapVoice and Accountability 2000Governance and Poverty Nexus, IGovernance and Poverty, cont.The Dividend of Good GovernanceFigure 1: Rule of Law, Voice and Accountability and Control of Corruption, Regional Averages, KKZ 2000Overall Evidence is Sobering, however: Progress on Governance is modest at best, so farSignificant Decline in Inflation Rates WorldwideControl of Corruption Over Time for Emerging/Transition Economies PRS/ICRGFrom research to policy: in-country focusIn-country focus to policy makingKey Features of Governance Diagnostic ToolsAdditional success storiesThe power of diagnostic data and key dimensions for analysisKey dimensions Cont.A few illustrations from country diagnostic surveys around the worldExtent of corruptionNational and municipal agencies are ridden by different types of corruption(based on public officials' responses, a Latin AmePersonnel and budget decisions in public institutions (as reported by public officials, 2001)Corruption penalizes especially lower income users(% of income paid in bribes, as reported by all users that requested publicPublic Sector Characteristics and GovernanceCitizen Voice and Access to Public Services by the Poor (Bolivia illustration, each observation is a public agency)Citizen Voice Helps Control Bribery in LAC countryTransparency within Government Agencies Prevents Purchase of Public PositionsDeterminants of GovernanceTo sum: a few salient lessonsA Few Salient Lessons, cont.State CaptureUnbundling Corruption [Regional Averages]Preliminary results 2002, View of the Firm, 80 countriesExtent of "State Capture"/ Undue Influence by the Elite to Influence Laws and Regulations (as reported by public officials, 2Political contributions (as reported by enterprises, 2001)Addressing Capture: Economic Reform, Political Competition & Voice/Civil Liberties MatterSome Implications for the next stage

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