At its recent annual meeting, World Bank officials spoke extensively about corruption. It is an understandable concern: money that the bank lends to developing countries that ends up in secret bank accounts or finances some contractors' luxurious lifestyle leaves a country more indebted, not more prosperous.
James Wolfensohn, the bank's previous president, and I are widely credited with putting corruption on the bank's agenda, against opponents who regarded corruption as a political issue, not an economic one, and thus outside the bank's mandate. Our research showed systematic relationships between corruption and economic growth, which allowed us to pursue this critical issue.
But the World Bank would do well to keep four things in mind as it takes up the fight.
First, corruption takes many forms, so a war on corruption has to be fought on many fronts. You can't fight the diversion of small amounts of money by weak and poor countries while ignoring the massive diversion of public resources into private hands of the sort that marked, say, Russia under president Boris Yeltsin.
In some countries, overt corruption occurs primarily through campaign contributions that oblige politicians to repay major donors with favors. Smaller-scale corruption is bad, but systemic corruption of political processes can have even greater costs. Campaign contributions and lobbying that lead to rapid privatizations of utilities -- before appropriate regulatory frameworks are in place, and in a manner that produces only a few bidders -- can impede development, even without direct kickbacks to government officials.
Life is never black and white. Just as there is no "one size fits all" policy for economic development, there is no such policy for fighting corruption. The response to corruption needs to be as complex and variegated as corruption itself.
Second, it's fine for the World Bank to deliver anti-corruption sermons. But policies, procedures and institutions are what matter. In fact, the bank's procurement procedures are generally viewed around the world as a model to be admired. Indeed, some countries with large dollar reserves -- hardly in need of World Bank credit -- borrowed from the bank at far higher interest rates than they were getting from the US, believing that these procedures would help ensure high-quality projects free of corruption and become standard in other areas.
But success in fighting corruption entails more than just good procurement procedures (avoiding, for instance, single-source non-competitive bidding). Many other policies and procedures can be enacted that reduce incentives for corruption. For example, some tax systems are more corruption-resistant than others, because they curtail the discretionary authority of tax officials.
Third, the World Bank's primary responsibility is to fight poverty, which means that when it confronts a poor country plagued with corruption, its challenge is to figure out how to ensure that its own money is not tainted and gets to projects and people that need it. In some cases, this may entail delivering assistance through non-governmental organizations. But seldom will it be the case that the best response is simply to walk away.
Finally, while developing countries must take responsibility for rooting out corruption, there is much that the West can do to help. At a minimum, Western governments and corporations should not be complicit. Every bribe that is taken has a payer, and too often the bribe payer is a corporation from an advanced industrial country or someone acting on its behalf.
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