On the Power of Evidence-Based Analysis

Daniel Kaufmann

Plenary II: Peace, Equality and Social Justice: Fighting Corruption in Development and

Investment Beyond 2015 #16IACC, Malaysia, September 3, 2015

1

Data

The scale of the challenge and its impact:

• Extent of worldwide bribery is roughly US$1.5-US$2 trillion, about 2 percent of world’s GDP.

• However, this figure is not the whole “cost” of corruption.

• The 300 percent development dividend of good governance matters for per capita income, infant mortality, education.

• The 20 percent “corruption tax” on foreign investors; the tax on the poor, financial instability.

Governance Matters: Development dividend of improved governance in resource-rich (and other) countries

Sources: GDP per capita (atop each column) from World Bank World Development Indicators, 2012. Corruption Control data from Worldwide Governance Indicators (WGI), 2012. Countries grouped into terciles based on WGI Control of Corruption scores. “Resource Rich” country classification according to IMF (2010).

Poor Corruption Control Average CorruptionControl

Good CorruptionControl

GD

P p

er

ca

pit

a (

PP

P)

Resource-Rich Countries Non Resource Rich

5,000

0

10,000 6,851

3,941

12,712

10,272

45,000

30,820

3

Select countries showing large improvement or deterioration in voice and accountability (2000-2013)

0

10

20

30

40

50

60

70

80

90

100

Vo

ice

& a

cco

un

tab

ility

% r

ank

2000 (Improved) 2013 (Improved) 2000 (Deteriorated) 2013 (Deteriorated)

Source: Worldwide Governance Indicators, http://www.govindicators.org

Improvement from 2000-2013

Deterioration from 2000-2013

Select countries showing large improvement or deterioration in rule of law (2000-2013)

0

10

20

30

40

50

60

70

80

90

100

Ru

le o

f la

w %

ran

k

2000 (Improved) 2013 (Improved) 2000 (Deteriorated) 2013 (Deteriorated)Source: Worldwide Governance Indicators, http://www.govindicators.org

Improvement from 2000-2013

Deterioration from 2000-2013

Accountability must complement transparency : control of corruption vs voice & accountability (WGI)

6

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

-2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2

20

13

co

ntr

ol o

f co

rru

pti

on

Wo

rld

wid

e

Go

vern

ance

Ind

icat

or

sco

re

2013 voice & accountability Worldwide Governance Indicator score

r = 0.78

Note: Red data points are the 55 resource-rich countries according to the IMF. Source: IMF, 2013 World Bank Worldwide Governance Indicators.

Select countries showing large improvement or deterioration in control of corruption (2000-2013)

0

10

20

30

40

50

60

70

80

90

100

Co

ntr

ol o

f co

rru

pti

on

% r

ank

2000 (Improved) 2013 (Improved) 2000 (Deteriorated) 2013 (Deteriorated)

Source: Worldwide Governance Indicators, http://www.govindicators.org

Improvement from 2000-2013

Deterioration from 2000-2013

Malaysia: Worldwide Governance Indicators for voice & accountability, rule of law, and control of corruption

25

50

75

100

Voice & Accountability Rule of Law Control of Corruption

Go

vern

ance

Ind

icat

or

% R

ank

2004 2013Source: Worldwide Governance Indicators, http://www.govindicators.org.

Corruption has Morphed: Networks, and Legal & State Capture

10

11

Media

Private Sector

Municipal Government

Military

State (Bureaucracy) Political Parties

Civil Society

International Legislative Branch

Judiciary

1

Entrenched corruption networks: the case of Montesinos in Peru

Source: “Robust Web of Corruption: Peru’s Intelligence Chief Vladimiro Montesinos,” Kennedy. School of Government Case Program, Case C14-04-1722.0, based on research by Professor Luis Moreno Ocampo; Peru: Resource Dependency Network, 2000.

Vladimiro Montesinos

Alberto Fujimori

Source: AFP, http://www.abs-cbnnews.com/sports/06/02/15/look-key-players-fifa-scandal.

Petrobras

Source: Ministerio Publico Federal, http://pt.slideshare.net/arykara7002/fluxograma-do-dinheiro-da.

Cross-cutting mechanics: secret corporate vehicles

Image source: Radio Free Europe (2012), “Azerbaijani Government Awarded Gold-Field Rights To President's Family.”

Corruption across the decision chain

License allocations e.g. Griffiths (Chad), Cobalt/Nizaki (Angola)

Subcontracting e.g. Petrobras (Brazil), Skanska (Argentina)

Saving revenues e.g. SocGen/Goldman Sachs? (Libya)

Commodity sales e.g. Sphynx/AOGC & Gunvor (Congo-B), Swap contracts (Nigeria)

Implications

• View corruption differently: beyond an illegal transaction between two individuals it is a problem of high-level capture of state assets, policy, regulation and laws. Hence: Corruption as “the privatization of public policy.”

• Understanding corruption as a problem of networks and use of innovative tools

• To make progress on fighting corruption, integration needed between rule of law (end to impunity), vibrant civil society and effective transparency (incl. political and corporate [beneficial ownership])

• #16IACC “Small Idea”: a multi-stakeholder initiative to fight impunity and corruption

• Toward an “impunity index”