diagnosis ⇒ initiatives strategy
TRANSCRIPT
Diagnosis Initiatives
Strategy
Prof. Robert KlitgaardParamadina University, 6 July 2011
Overview
1. The Costs of Corruption
2. Diagnosing Indonesia
3. Initiatives
4. Strategy
1. The Costs of Corruption
Corruption once called “the grease and the glue” (1965)
Contrary evidence mountsCase studies
Econometric studies
Bottom line: “Corruption is a primary obstacle to development” (World Bank).
The Kinds of Costs
How corruption undermines development:
Economic costs (distorted incentives)Social costs (inequity and injustice)Political costs (undercuts popular rule)
Evidence about Costs
• Countries with poor governance have:Less investment, other things equal
Less benefit from each dollar of investment.
Who loses the most? The poor.
“When no one is corrupt, no one will be poor.”
Policy “Value Chain”
① Measures of corruption and good government.
② But what specifically improves those measures?
③ Missing links from measures back to specific initiatives…
④ Once we have a list of initiatives, we need a strategy.
Diagnosis Initiatives Strategy
Overview
1. The Costs of Corruption
2. Diagnosing Indonesia
3. Initiatives
4. Strategy
Progress in Governance
Global Competitiveness Report 2010-2011
Some good news about the Indonesia
Compared with 139 countries of the world
Overall Competitiveness
2010-11: 442009-10: 54
2008-9: 55
2005: 69
Capacity for Innovation
Indonesia
30 in world
Equal toIreland
Better thanSpain, Hong Kong
Pay and Productivity
Indonesia
20 in world
Equal toCzech Republic
Better thanDenmark, Germany
Control of International Distribution
Indonesia
33 in world
Equal toBelgium
Better thanChina, Italy
Buyer Sophistication
Indonesia
35 in world
Equal toCzech Republic
Better thanIndia, Brazil, Spain
Breadth of Value Chain
Indonesia
26 in world
Equal toSpain
Better thanNorway, Canada, India, China
Favoritism in Decisions by Public Officials
Indonesia
28 in world
Equal toBelgium
Better thanFrance, Taiwan, Israel
Wastefulness of Gov’t Spending
Indonesia
30 in world
Equal toAustria
Better thanGermany, Canada
Burden of Gov’t Regulation
Indonesia
36 in world
Equal toTaiwan
Better thanChile, Austria, USA
Equal to or Better than…
Norway, Spain, Austria, France, Canada, Iceland, Singapore, Italy, Belgium, Hong Kong, Ireland, Czech Republic, Denmark, Germany, USA …
Not to mention China, Brazil, India, Korea …
VIVA INDONESIA!!
Equal to or Better than:Country GDP pc (current USD 000, 2009)
Norway 79.0
USA 46.4
Austria 46.0
France 42.7
Canada 39.7
Singapore 37.2
Italy 35.4
Spain 31.9
Hong Kong 29.8
Israel 26.8
Per Capita GDP of Indonesia?
?
Per Capita GDP of Indonesia?
$2329
Rank # 100 in world (Paraguay, Sri Lanka)
Why $2329 and Not $32,329?
Not Macroeconomics
Indonesia (44th) posts an impressive gain of 10 places, mainly driven by a healthier macroeconomic environment... Indonesia managed to maintain a relatively healthy macroeconomic environment (35th, up 17) throughout the crisis. While most other countries saw their budget deficits surge, Indonesia kept its deficit under control. Public debt remains low at 31 percent of GDP, and savings rose to 33 percent of GDP. In addition, inflation in 2009 slowed down to 4.8 percent, half the rate of 2008.
—Global Competitiveness Report 2010-11
One Hypothesis: Institutions
Global Competitiveness Report 2010-2011
Some bad news about the Indonesia
Compared with 139 countries around the world
Irregular Payments and Bribes
Indonesia
95 in world
Equal toLesotho
Worse thanSenegal, Bulgaria, Mozambique
Transparency of Gov’t Policymaking
Indonesia
91 in world
Equal toMauritania, Guyana
Worse thanHonduras, Mali
Burden of Customs Procedures
Indonesia
89 in world
Equal toMalawi
Worse thanAlbania, Zambia
Legal Rights ProtectingBorrowers and Lenders
Indonesia
103 in world
Equal toEgypt, Senegal
Worse thanAngola, Nepal, Zimbabwe
Time to Start a Business
Indonesia
121 in world
Equal toBosnia
Worse thanBangladesh, Bolivia, Nigeria
Organized Crime
Indonesia
98 in world
Equal toUganda
Worse thanCambodia, Albania, Cameroon
Reliability of Police
Indonesia
80 in world
Equal toEgypt
Worse thanZambia, Ghana
Ethical Behavior of Firms
Indonesia
99 in world
Equal toBenin
Worse thanCambodia, Syria, Guatemala
Equal to or Worse than…
Cambodia, Senegal, Guatemala, Syria, Mongolia, Zambia, Senegal, Nigeria, Bangladesh, Bolivia, Burkina Faso, Uganda, Zimbabwe, El Salvador, Benin, Bulgaria …
OH NO INDONESIA!!
Per Capita GDP of Indonesia
$2320
Median of these other countries: < $1000.
Other Evidence (1)
What Indonesians say:
• What is Indonesia’s main challenge as a nation?
# 1 is corruption (39%) (Kompas, 2010).
• Indonesian university students rate corruption the # 1 problem (forthcoming report from Indonesia Setara).
Other Evidence (2)
World Bank/IFC “Ease of Doing Business” Report, 2011.
183 countries: Indonesia ranks 121 overall.
155 in ease of starting a business.
154 in enforcing a contract.
Other Evidence (3)
In 1997, corruption cost Indonesia
63% of GDP
Axel Dreher et al., “Corruption Around the World: Evidence from a Structural Model,” Journal of Comparative
Economics, 2007
Overview
1. The Costs of Corruption
2. Diagnosing Indonesia
3. Initiatives
4. Strategy
From Diagnosis to Initiatives
The analogy from healthDiagnostic information does not lead automatically to prescriptions
Corruption prevalence is not corruption seriousness.
The benefits and costs of reform initiatives need to be calculated.
Example: Systems Diagnosis
• Consider the stages of a procurement system1. Prequalification
2. Terms of the tender
3. Award
4. Renegotiation and change orders
5. Payments
• Confidential, one-on-one interviews with businesses lead to a diagnosis of how the corrupt system works.
• Then problem-solving meetings with business and gov’t.
Initiatives in Indonesia
World Class
KPK
Honesty shops
Initiatives Look Excellent
Laws: INPRES 5/2004, UNCAC 7/2006
National action plan on corruption (RAN/PK)
Initiatives include: KPK, wealth declaration, performance targets, quality of public services, procurement reforms, simplicity, corruption prevention studies, GCG, anti-corruption education (including “honesty shops”), e-government, islands of integrity, one-stop service, and more.
KPK Report
“Officials still behave in a corrupt manner.”
“Initiatives for giving of incentives also come from users.”
Level of freedom of information about services still low.
Too little transparency about time and costs of services.
Channels for complaints are not properly administered.
“No serious corruption prevention efforts detected.”
Regional Variation, 2008
13 cities and regencies have all indicators above average:
Ex.: Yogyakarta, Banda Aceh, Padang, Gorontalo…
Ex.: Jepara, Magelang, Barito Kuala and Barito Utara…
12 have all indicators below average:Ex.: Bandung, Pontianek, Tanjung Pinang…
Ex.: Sumenep, Sambas, Bandung…
Institutional Variation, 2007
Top 9 agencies include:BKN (State Employees Board), Home Affairs, PT Pertani, Cooperatives and SMEs, National Education
Bottom 9 agencies include:Ex.: Supreme Court, Religious Affairs, Transportation, Manpower and Transmigration, Police, BPN (National Land Agency), Law and Human Rights
Worst 5 organizations on “experience integrity score”:
Customs, Penitentiary, No. Jakarta court, W. Jakarta court, KPPN (Treasury)
Learn from Success
Why and how are some agencies, some cities and some businesses doing better?
From generalities to checklists.
An example from Peru.Scorecards.
Awards.
Case studies and checklists.
Training and technical assistance.
Overview
1. The Costs of Corruption
2. Diagnosing Indonesia
3. Initiatives
4. Strategy
4. Strategy
Beyond a list of initiatives: Colombia 2011.
Fit with other policies, threats, sources of support.
Sequence and priority.
Who does what.
What should President focus upon?
Public-private-citizen collaboration.
Strategic Ideas
a) Structures, leadership, and incentives
b) A whole-government approach
c) Involving business and the people• Prevention 1.0• Prevention 2.0
d) Subverting corruption
e) The role of morality
a) Structures, Leadership, and Incentives
Corruption is an economic crime.
A crime of calculation: risks and rewards
Corruption = Monopoly + Discretion - Accountability
C = M + D – A
Thus, Structural Changes Must…
• Change the risk-reward calculations for those giving and receiving bribes.
Raise the probabilities that bad behavior (and good behavior) are discovered
Increase the rewards for good behavior
Raise the penalties for bad behavior
Reduce monopoly power, limit discretion, and increase accountability
a) Structure, Leadership, and Incentives
The principle of the
big fishWe need leaders who are
brilliant in prevention,
ruthless in prosecution, and
exemplary in morality.
a) Structures, Leadership, and Incentives
“Incentive myopia”If we pay peanuts, we get monkeys.
Public sector pay levels 80% of private sector
Beyond levels, incentives linked to good performance (and penalties linked to bad performance)
The Ingredients of Success
a) Structures, leadership, and incentives
b) A whole-government approach
c) Involving business and the people• Prevention 1.0• Prevention 2.0
d) Subverting corruption
e) The role of morality
b) A Whole-Government Approach
Not just one agency. Many government departments must collaborate in the fight against corruption.
Leadership means enabling creative collaboration.
The Ingredients of Success
a) Structures, leadership, and incentives
b) A whole-government approach
c) Involving business and the people• Prevention 1.0• Prevention 2.0
d) Subverting corruption
e) The role of morality
c) Involving Business and People
Not just government’s problem—and the solutions are not just from government.
• Prevention 1.0Goal: make government systems stronger to resist
corruption. C = M + D - A
Risk assessments, for example.
3. Involving Business and People
Not just government’s problem—and the solutions are not just from government.
• Prevention 1.0Goal: make government systems stronger to resist
corruption. C = M + D - A
Risk assessments, for example.
• Prevention 2.0Integrity pacts
Systems diagnosis
The Ingredients of Success
a) Structures, leadership, and incentives
b) A whole-government approach
c) Involving business and the people• Prevention 1.0• Prevention 2.0
d) Subverting corruption
e) The role of morality
d) Subverting Corruption
The analogy from disease: prevention vs. cure
If we have the disease of systemic corruption, prevention is not enough.
We need to subvert corruption, using ideas from the war on organized crime.
An example: road building in Colombia
New technologies will help, especially social networking and information sharing
The Ingredients of Success
a) Structures, leadership, and incentives
b) A whole-government approach
c) Involving business and the people• Prevention 1.0• Prevention 2.0
d) Subverting corruption
e) The role of morality
John T. Noonan’s Prediction
“As slavery was once a way of life
and now has become
obsolete and incomprehensible,
so the practice of
bribery…will become obsolete.”
Bribes, New York: Macmillan, 1985
Why?
Noonan argues that bribery will continue to be morally condemned:
1 Bribery is shameful everywhere in the world.
2 Bribery is a sell out to the rich.
3 Bribery is a betrayal of trust…which is a precious necessity of every social enterprise.
4 Bribery violates a divine paradigm.
e) The Role of Morality
In addition to structure, leadership, and incentives; whole-government reforms; involving business and citizens; and subverting corruption
We must declare that corruption is immoral and we’re not going to allow it any more
Indonesia’s Successful Future
Technological revolutions
The rise of the South
The design economy
To succeed, Indonesia needs even more progress against corruption. Better diagnoses linked with practical initiatives, embedded in a strategy that includes politics and public-private-citizen collaboration