Corruption: if we can’t win the fight, can we live with it?
Many scholarly articles on corruption give the impression that the world is populated by two types of people: the ‘sanders’ and the ‘greasers’. The ‘sanders’ believe that corruption is an obstacle to development, while the ‘greasers’ believe that corruption can (in some cases) foster development (Toke Aidt in Oxford Review of Economic Policy, 2009)
We find that corruption slows growth and/or reduces investment in most developing countries, particularly small developing countries, but increases growth in the large East Asian newly industrializing economies. The latter finding provides solid empirical support to a country case literature that explains the East Asian paradox––the combination of high corruption and high growth––in terms of stable and mutually beneficial exchanges of government promotional privileges for bribes and kickbacks (Michael Rock and Heidi Bonnett in World Development, 2004)
Corruption is a popular topic in Ethiopia to extent of developing a stereotype of the Ethiopian Diaspora as a hiding place for thieves and criminals. The purpose of this piece is to open a discussion in this area more generally and in the Ethiopian context.
Corruption is simply understood as the abuse of public authority for personal gains. It has negative effects for societies in terms of lowering investment incentives, disrupting market forces, exploiting ordinary citizens, wasting resources, creating inequalities, degrading the quality of public services and causing political polarization.
Ethiopia is one of the countries that have taken strong measures to fight corruption. The asset registration program for government officials and the institutionalization of gemgema (performance appraisal) practices in all state institutions are examples. The Federal Ethics and Anti-Corruption Commission has emerged instrumental in investigating malpractices and bringing public and private sector employees to justice. Ethiopia is also looking forward to being a member of the Extractive Industries Transparency Initiative, an international coalition of various stakeholders intended to promote governance capacity in the mining sector. All these are major steps, but Ethiopia has a long way to go to overcome wide spread corruption in society.
Corruption is a complex issue entrenched in various forms in societies around the world. There are four main practices, at least for our purpose here. First is what is simply known as market entry fee or rent seeking. Consider firms entering into lucrative sectors like mining, text book publishing, telecommunications and construction. These firms know that they will be making hundreds of millions of dollars in profits 10 or 15 years down the road. The politicians and senior bureaucrats also have the same information (about profits) and so they demand a share of the pie. The firms don’t mind paying millions or tens of millions of dollars in bribes to enter into such lucrative sectors. Also, don’t forget the “greasing” effect for firms as a result of bribes: fast customs clearances, relaxation of environmental regulations, lowering import levies (material and equipment), easy access to water and electricity, and so on.
Second is what can be called a facilitation payment. This is a lower level corruption involving payments of bribes mostly related to issuance of license and when accessing state services.
Third is theft - stealing money from state funds allocated to support social projects or programs, such as education, health and agriculture.
Finally, illicit financial transfer, which means transferring money out of a country illegally. The most common practice involves traders in two countries agreeing (illegally) to under-price traded goods. A hypothetical example will be pricing 100 Kg of coffee for $2,000, while in fact the true market price is $3,000. The $1,000 goes missing from national accounts (shared between the two culprits). This issue has received a lot of international attention because of its volume and devastating macroeconomic impact. For instance, according to the Global Financial Integrity report (2011), “illicit outflows increased from $1.06 trillion in 2006 to approximately $1.26 trillion in 2008, with average annual illicit outflows from developing countries averaging $725 billion to $810 billion, per year, over the 2000-2008 time period measured”. The top five countries with highest illicit financial outflows in this period were: China (with $2.18 trillion), Russia ($427 billion), Mexico ($416 billon), Saudi Arabia ($302 billion) and Malaysia ($291 billion). One recent report (2012) by the UN Economic Commission for Africa indicates “an annual average illicit financial flow (out of Africa) of US $50 billion between 2000 and 2008”.
The perception against corruption is so strong that, if you stand up on a conference floor to speak of its “greasing” effect - that corruption fosters development -, you could be ridiculed or even denounced. But, if you argue that corruption increases as the economy grows, there will be no objection! As we learned from one of quotations above (Rock and Bonnet), there is evidence to suggest that this trend is found in some growing economies. Look at the following Transparency International (TI) corruption indexes for currently fast growing economies, as an example: Brazil 73, China 75, India 95, Indonesia 100, Vietnam 112, Ethiopia 120, Russia 143, and Angola 168. Doesn’t corruption waste resources and slow down growth? Nope, says Maxim Mironov of the University of Chicago (2005). He writes that corruption is indeed bad for economy and society, but there is also “residual (good)” corruption that is “positively correlated with GDP growth, capital accumulation and productivity growth (especially) in countries with poor institutions”. For example, the “greasing” effect of corruption facilitates economic growth by, among other things, creating incentives for the bureaucracy to “overlook” rigid approval procedures (i.e., speeding up the issuance of permits) and encouraging poorly paid and ill-motivated bureaucrats to work harder and faster (in anticipation of facilitation payments). The money obtained through corruption can be used to buy consumer goods, build houses, open retail stores and other small and big businesses, which stimulate aggregate demand and supply to drive GDP growth. In short, this line of argument contents that corruption is the result of government failure and therefore corruption can correct this failure to facilitate economic growth. The history of such argument goes as early as 1960s.
However, things may not be as simple as this, in terms of getting away with corruption. Previously some African countries have negotiated contracts with foreign mining firms, because contracts had been valued too low or procurements had not gone through appropriate procedures, all because of corruption. The culprits of corruption are also brought to justice; in China, they are even sent to shooting squads. It is highly unlikely that a foreign firm will try to bribe business in Ethiopia’s mining sectors with the watchful eyes of Revolutionary Democrats. Yet, Ethiopian state institutions and private sector firms remain infected with corruption. For instance, a lot of “looting” took place by lower level bureaucrats when the government was allocating urban land; the new urban land policy has provided a solution to ending this problem or at least this is the public perception. Some rural Kebele officials who were estimating the value of rural land given up for road construction projects, are suspected of making fortunes by taking bribes from construction firms in return for undervaluing land (which means less compensation payouts for land owners). Ethiopians appear to have the view that the country’s laws are too soft, leading some people to joke “it is better to spend four or seven years in prison and live as a millionaire for life afterwards”. The fact is that laws have to meet international standards, not too harsh, not too soft.
Things get more complicated when you consider cases that relate to the social dynamics of corruption in society. A member of rural Kebele judicial committee in Gondar became the focus of musena (corruption) investigation, which involved allegation of accepting free drinks from local residents (who may or may not have Kebele files). When the gemgema (performance appraisal) meeting was over, this man left the meeting place early (perhaps embarrassed and offended), but only to be intercepted by a group of men who asked him to join them for a drink in a local bar (tela bet). He couldn’t be too adamant, because refusing a social invitation might be perceived negatively (is he putting himself too high?). This judicial member would then join that group of men for a drink. They paid for him. Ethiopian rural priests provide a parallel example here. If someone dies, priests must stop whatever they are doing to go and conduct a burial ceremony. The same goes for mediating disputes or providing spiritual counselling. In return, priests have social privileges, such as being guests of honour (to feast) in all social events like mahabers (social gatherings), weddings and baptisms. I believe rural people perceive the roles of Kebele officials the same way, since they are non-salaried state employees serving communities. Whether or not Kebele officials should be entitled to special social privileges, is another issue. What is clear to us is that the Ethiopian government has succeeded in sensitizing the population on corruption issues, which is a major step towards the institutionalization of bottom-up (community level) accountability.
A rural Kebele militia became the subject of gemgema, because he had fired bullets to the sky during the funeral of his niece. Firing bullets was prohibited and this militia was supposed to enforce them. The gun and bullets also happened to be the property of the Ethiopian government (all evidence of abuse of public authority). Nonetheless, this militia stood up his ground to argue that firing a bullet to the sky was not musena (abusing authority). He screamed, “you are supposed to sympathize with me (for the death of his niece)”, stirred emotions and got away with it (no disciplinary action). On the basis of this and the example above, one may think that, at times, society conspires against government rules that are supposed to protect public interests. I would argue that society should be allowed to better understand and systematize rules in its own social and cultural contexts. Laws are institutionalized in society when they are flexible and adoptable and allow independent action.
In conclusion, should we think of learning to live with corruption? Absolutely not! Would there be a world free of corruption? We hope so. The US and UK (which have the toughest anti-corruption laws) rank 16th and 24th on the TI index, respectively. New Zealand is ranked #1 in TI index, but this does not mean that there is zero corruption in the country. It means that, relative to all other countries around the world, things are much, much better in New Zealand. If corruption persists in wealthy Western countries that have plenty of incentive structures and well developed accountability systems, it may not go away easily or sooner in developing countries like Ethiopia. And, as the late Meles Zenawi once said, “wherever there is honey, there are flies”. He meant that whenever there is money, there will be culprits of corruption, more so as the economy grows and more state and private sector funds are made available. But, we can agree that governments have a role to play by putting in place systems, values and practices that promote open and accountable institutions. The empowerment of citizens is also a major step in itself. The gemgema exercises practiced in rural and urban Kebeles in Ethiopia build citizens’ confidence in the systems, values and practices that have been put in place to fight corruption. For sure, social and economic development will narrow opportunities for corruption practices at many levels.
October 14, 2012