The burden of Anti-corruption Policy: the case of Colombia

Camilo Andres Cetina F.

Policy Design and Implementation in Developing Countries

-GRIPS-

Outline

• Introduction: Definition of corruption and corruption around the world

• Traditional Model of Anti Corruption Policy – Forms of corruption, costs and upsides – Features Corruption in Colombia – Colombian Policy experience and Policy effectiveness

• Towards a New Model of Anticorruption Policy: Alternatives an caveats – Behavioral approach – Examples

• Conclusion and policy implications

Definition • No definition of corruption is completely clear-cut.

(Svensson, 2005)

• Corruption is the abuse of public trust for private gain; it is a form of stealing (Todaro & Smith, 2009).

• Rent seeking is the socially costly pursuit of rents, often created by governmental interventions in the economy (Tollison, 1997), while bribes are technically a transfer (Svensson, 2005)

OBS!: I am also defining a STANDARD MODEL for anti-corruption policy making as well as an “alternative” model or an “emergent” model.

Corruption Index: World Bank (2010) & Transparency International (2011)

Control of corruption captures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests.

The Corruption Perceptions Index developed by Transparency International is an aggregate indicator that combines different sources of information about corruption based on assessments and opinion surveys carried out by independent and reputable institutions

The “double cost” of curbing-corruption policy • Bribes

• Purchase of public positions

• Fiddling contracts for public works, purchases, consulting, and other services.

• Trading government’s property by public officials.

• Cronyism

• Nepotism

• Embezzlement of public resources

• Fraud

Perceptions are used to assess corruption because it is to a great extent a hidden activity that is difficult to measure.

WIDELY KNOWN FORMS

Only 1 party involved

UNKNOWN EXTENT AND DIMENSIONS

VS.

Corruption itself can be costly for both governments and society, but tackling the problem might have an uncertain payoff.

“Upsides” of corruption

• It is a tool to circumvent inefficient bureaucratic procedures. – Ex.: In Peru it takes more than 200 steps and more than 1.200 dollars

to start up a small garment shop. (De Soto, 2001)

• It could be a way to simply survive, as it was the case in the former URSS.

• Business success partly lies upon networks and conflicts of interest. Well-connected businesses through bribes or kick-backs may bring them substantial profits

• “Suharto model”: A “centralized”, “predictable”, “measured”, “stable”, “forward-looking” corruption system in which a dictator allegedly stimulates long-term economic growth in order to maximize his personal profit through well quantified and predictable bribe payments. (Jacobs & Wagner, 2007)

Some figures about corruption in Colombia

• Estimated cost according to control organisms is U$D480 million/year.

• 50% of purchases made by the state might contain at least one element of bribery. This could be 19% of all contracts subscribed by the government. (T.I., 2011)

• Around 11% of budget allocations are being embezzled for private/illegal purposes. This is USD1.76 billion. i.e. 2% of Colombia’s GNP. (T.I., 2011)

“We will reduce corruption to a fair proportion” Julio Cesar Turbay, President of Colombia (1978-1982)

The standard Model applied in Colombia

• This paradigm, supported by World Bank, United Nations and other agencies, states that corruption: – Increases as both rents and discretionary power increase.

– Decreases as accountability increase.

• This has been applied in Colombia by: – Increasing control over public officers.

– Increasing decentralization.

– Promoting citizen participation.

– Increasing public information on budgets, contracts, tenders, development projects, cash-flows, etc.

Particular features of corruption in Colombia

Drug trafficking

It feeds a civil war to keep control of the business.

It finances both illegal groups and political parties.

Illegal armed groups

Guerrilla and paramilitary groups

Capture rents by forcing and threatening local public officers.

Weak capacity of political parties.

Paramilitary groups associated with political parties &public officers.

Public officers involved in crimes beyond what we know as corruption

Dimensions of control – Since 1991

National Comptroller’s Office Fiscal Control

• Audits and fiscal evaluations are run by this institution in order to determine whether or not procedures and public entities management was legal. Reports on budget executions, tenders and contracts are carefully audited by this organization.

• It determines fiscal responsibilities and takes action to recover public resources that were lost or embezzled. They can seize public officers property and/or take over their assets.

Office of the General Ombudsman Disciplinary Control

• Any public officer is responsible for any action/inaction when he/she is in charge of official duties.

• They can fire , suspend, fine and declare a public officer unable to be on duty.

General Attorney / Director of Public Prosecutions Punitive Control

• A public officer can be also criminally liable for felony or misdemeanors.

• They can formally accuse a public officer. If found guilty, the judge must put him/her in jail.

Other anti-corruption institutions

Presidency’s Anticorruption Program

• It is not independent as it belongs to President’s Office, i.e. the Executive Branch of the State.

• It is supposed to design public policy to fight corruption. This includes

• To develop studies to determine causes of corruption.

• To support projects that turn state owned enterprises and state organizations into more transparent entities.

• To develop specific strategies with control organisms to fight corruption.

• To propose anticorruption acts to the Senate.

Social Audits and other organizations from civil society

• They can call for public audiences to make public offices accountable for their actions and

How does the policy work?

Direct Control over public

officers

• Both the Ombudsman and the Comptroller run audits (independently) , gather material and check whether public officers perform according to the law.

Anti-corruption

Actions

• If evidence is found, sanctions are imposed: disqualification of officers from holding their posts, seizing of bank accounts/personal assets, fines are imposed, etc.

Investigation • Attorney’s office assesses

whether a criminal behavior exists. Possible trial and condemnation.

PREVENTION

ACTION

PUNISHMENT

Decentralization & Corruption

National

Regional

Local

Development Policy making. Legal constraints decided. Taxes collection / Public expenditure criteria

Most of the resources are transferred from the National Government. Some are spent here some are forwarded to municipalities

Transfers received. Some spent autonomously . Some spent by the province on behalf of the municipality.

Each dollar is generated at the national level. Then is fractioned 32 times at the regional level. It is again fractioned another 30-50 times. This inherent spreading of resources makes hard to trace how the money is spent in more than 1.000 territorial entities.

Risk Map for Anticorruption Protocol (Developed by PPLCC)

• Planning

• Budgeting

• Human resources management

Tolerable

• Failure in designing and implementing internal control

• Recurrent deviations from development plans

Important • Skipping procedures for

signing contracts and managing public resources

• Breaking the disciplinary code

• Refusing or neglecting directions from Control Organisms without reason.

Unacceptable

• Tolerable: Suggestions are issued in a memo. • Important: Warnings are issued. Likely to get formal investigation from the Control

Organisms • Unacceptable: Major investigations are started from Control Organisms. Attorney’s office

might start a formal prosecution.

Citizen participation & Corruption • Colombian institutions have been trying to promote citizen

participation and social audits in order to make territorial entities more accountable.

• In some cases this policy democratizes rent-seeking behavior among ordinary citizens instead of promoting actual control over public officers. – People ended up setting up projects or annoying public administrators

with paperwork, in order to obtain posts and rents from local governments.

• In most of the cases, this is simply too costly for the citizens:

– Complicated procedures to get information or to get public officers’ responses.

– Some expertise (or at least being familiar with public administration) is required in order to keep an eye on public funds’ investments.

– Both Judiciary and Control Organisms have long lasting procedures when proving guilty a public officer.

Example • Let’s assume an average citizen sees an extractive firm producing oil

in his hometown. He believes they are better off.

• However, this citizen keeps seeing poverty, no water supply, no electrification, no education services, and only informal employment around the mine of coal.

• Even if he knows that BY LAW the firm MUST pay royalties to the government, tracing where the money is lost, becomes a REALLY COMPLICATED task.

Pays Hidrocarbons Agency

Pays Pays

Programs Project Contracts

Contracts Allocation of resources

Municipality

Sub-Contractors

Sub-Contractors

Sub-Contractors

National Planning Board

Policy effectiveness

• Around 3.000 professionals have to keep track of such resources • Proving findings and recovering resources can take more than 2

years. • Every year the state is signing new contracts.

Agricultural 22% Environment

2%Defence

4%

Administration8%

Infraestructure18%

Social40%

Extractive Sector and

Energy6%

National Comptroller’s OfficeIllegalities/Irregularities by Sector

Base: U$D1,5 billion 18.944 contracts

Year 2010

Source: Annual Report by the Comptrollers Office, 2010

Too costly for the society, also?

Policy effectiveness (cont’d) • In the last two years more than 800 sanctions against Colombian

mayors have been imposed by the Ombudsman’s Office. Likewise its interventions had to expand to other areas i.e.: – Electoral fraud. – Unexplained delay in public works. – Abuses committed by the police against citizens. – Irregularities in royalties-funded investments.

• Cost of exerting control: splitting up of official contracts makes more expensive to trace illegal practices than to let the resources go.

• Judiciary system is also weak: when the felony is accepted or a corrupt official betrays his/her partners, the criminal justice spares some resources. However, judges are obliged to reduce penalties in exchange of betrayal. This, added up to other benefits such as “good behavior in jail” make negligible any punishment when compared with the damage the corrupt officers make.

Policy effectiveness (cont’d)

• Lessman & Markwardt (2010) showed that the effect of decentralization on reducing corruption actually DEPENDS ON how free the press is.

Alternatives and Caveats

• The underlying assumption of the traditional model is that corrupt or dishonest behavior increases as external rewards of it also increases

• However, research from behavioral economics (Ariely & Mazar, 2005) has showed that dishonest activities DO NOT increase as the reward increases.

• Honesty provides an internal reward, that deactivates the external one.

Example 1 • M.I.T. Students were asked to solve 10 questions in 5 minutes. • Right after finishing, they were given the correct answers • Then were asked to calculate their score, tear up the answer

sheet and claim reward for correct answers.

• 3,1 questions solved on average (Not tearing up allowed) Benchmark

• Recall 10 books

• Tear up answer sheet, report results, get the money.

• 6,3 questions solved on average

Control 1

• Recall the 10 commandments, tear up answer sheet, report results, get the money

• 3,7 questions solved on average Control 2

OBS!: Nobody (out of 2000 participants) could recall all the 10 commandments

Example 2

Same as in previous experiment.

• 3,4 questions solved on average (Not tearing up allowed)

Benchmark

• Tear up answer sheet, report results and get the money.

• 6,2 questions solved on average Control 1

• Tear up answer sheet, report results and receive IN TOKENS the reward.

• Walk to another room and exchange tokens for money

• 8,4 questions solved on average

Control 2

A lot of people cheating “a little bit”. Even when they got 20 dollars per correct question, this did not increase the rate of cheating.

OBS!: Only 4 out of the 2000 participants claimed to have solved ALL questions correctly

Insights from the alternative approach

• What have Ariely & others learned from this about cheating?

– People tend to cheat if the opportunity to do so is at hand. They cheat just by a little bit.

– When we remind people about their morality, they cheat less.

– When we get bigger distance from the object of money, people cheat more.

– When we see cheating around us, particularly if it's a part of our in-group, cheating goes up.

Conclusions • Anticorruption Policy can be costly: it requires money, human

resources, time, expertise and strong institutions.

• Control also requires a proven methodology both to intimidate corrupt officials and to generate returns for the society. However, so far the agreement seems to be reduced to measures and forms of corruption.

• Standard governance good practices have been focused on complying with forms of control and requirements, rather than developing effective methodologies.

• More decentralization, more transparency, more citizen participation by themselves do not guarantee less corruption.

• Behavioral sciences’ findings are worth to be tested in actual anti-corruption policy making. Other aspects such as social norms, simpler procedures and policy coordination are also strongly required, even if they do not appear in UN, WB and other agencies’ handbooks.