Where corruption is systemic, the formal rules remain in place, but they are superseded by informal rules. Government tender boards may continue to operate even though the criteria by which contracts are awarded have changed. Seen in this light, strengthening institutions to control corruption is about shifting the emphasis back to the formal rules. This implies acknowledging that a strong legal framework to control corruption requires more than having the right legal rules in place.
It means addressing the sources of informality, first by understanding why the informal rules are at odds with the formal rules and then by tackling the causes of divergence. In some countries the primary reason for divergence may be political, a manifestation of the way power is exercised and retained.
This limits what the Bank can do to help outside the framework of its projects. In other countries the reason may be weak public management systems and inappropriate policies, which the Bank can help improve. What do economics and political science tell us? While it would be easy to say that all corruption is bad, the Bank must base its approach on evidence and analysis of corruption's effects on development.
The political sensitivity surrounding issues of governance underscores the need for such a foundation. In preparing this report, the Bank examined the conclusions drawn by economic researchers working on the topic, the perspectives of disciplines other than economics, and the evidence from the Bank's operational work.
Economic research. The body of research addressing the economic effects of corruption has grown significantly in recent years. The research is both macroeconomic and microeconomic, theoretical and empirical. Its conclusions depend in part on what the researcher views as the bottom line: short-term economic efficiency in private markets, long-term dynamic efficiency and economic growth, equity and fairness, or political legitimacy.
One strand of literature explores, primarily from a theoretical perspective, the likely economic effects of different forms of corruption. First, the argument is made, corruption may not distort the short-run efficiency of an economy if it merely entails a transfer of economic rents from a private party to a government official. Thus a bribe to an official who is allocating, say, foreign exchange or credit in short supply can be seen as a market payment for ensuring that resources go to the party most likely to use them efficiently the one who can pay the highest bribe.
The problem with this line of reasoning is that it fails to take into account any objective other than short-term efficiency. In the long run, expectations of bribery may distort the number and types of contracts put up for bid, the method used to award contracts, and the speed or efficiency with which public officials do their work in the absence of bribes.
It may also delay macroeconomic policy reform. In addition, the gains from such bribery may be inequitably distributed accessible only to certain firms and public officials. Second, bribes can theoretically increase economic efficiency if they allow firms to avoid overly restrictive regulations or confiscatory tax rates.
That is, bribes lower the costs of bad regulations to firms that bribe. There may be some validity to this argument, particularly in the short run. Yet such bribery defuses pressure for broader reform and invites firms to evade good regulations as well as bad.
Furthermore, the costs of such a system may fall disproportionately on smaller firms. And in some transition economies such restrictions have proliferated in an uncontrolled way with the express purpose of extracting rents. This causes a shift of economic activity to the informal sector. To summarize, models purporting to show that corruption can have positive economic effects are usually looking only at static effects in the short run.
In the long run, opportunities for bribery are likely to lead public officials to change the underlying rules of the game or their own behavior in the absence of bribes, and the results are likely to be costly in terms of economic efficiency, political legitimacy, and basic fairness.
Another strand of literature examines the links between investment, economic growth and the quality of government institutions. While useful in highlighting the broad economic effects of institutional deficiency, much of the literature has been unable to separate the effect of corruption from other dimensions of government quality. While few would disagree that corruption has undermined development in Africa and has slowed the emergence of well functioning market economies in the former Soviet Union, the coexistence of high growth and systemic corruption in some Asian countries challenges those who believe that corruption is always economically harmful.
Several explanations have been suggested. First, perhaps predictability is what matters, and some governments reliably deliver what is "bought" with bribes while other governments do not. Fourth, corruption may be imposing environmental and social costs that are not captured in national accounts data.
We do not know these costs, and country experience differs widely even within Asia. Nobody, however, argues that corruption is good for development, and recent research suggests that corruption may be restraining growth even in Asia. Political science. Political scientists look beyond the visible signs of corruption to the broader setting in which it occurs.
They see corruption in relation to the legitimacy of the state, the patterns of political power, and the engagement of civil society. Corruption may be a manifestation of the way political power is contested and exercised. To the leadership the creation and allocation of state rents serves political purposes: rewarding supporters, buying off opponents, ensuring the backing of key groups, managing ethnic diversity, or simply accumulating resources to fight elections.
To obtain these resources, leaders may forge alliances with business groups or create and distribute rents through the bureaucratic apparatus. The resulting policies may favor or discourage capital accumulation and economic growth, depending on the nature of the alliances struck. If this is the case, the pattern of corruption will change only if the power structure changes, which may result from a popular outcry against corruption.
Political scientists also take a historical perspective. Over time most industrial countries have developed merit-based bureaucratic values, institutionalized competitive politics, established transparent government processes, and fostered an active media and an informed civil society.
These mechanisms constrain political and bureaucratic corruption, making it the exception rather than the norm. The transition may be spurred by an enlightened ruler or, more likely, by the growing power of new political groups with an interest in better-performing government. In developing countries, in contrast, government institutions are weaker, civil society is less engaged, and political and bureaucratic processes are less accountable and transparent.
An effective state apparatus and capacity for law enforcement may be virtually nonexistent. In such settings, sustained progress in building an honest and effective state apparatus requires addressing the mix of factors in the state and in society that give rise to both corruption and weak social and economic performance.
This is an exceedingly complex and long-term effort. The public management view of corruption is clear-cut. Systemic corruption, in the form of graft and patronage and the inefficiencies that accompanied it, spurred the nineteenth-century reforms in Europe and North America that created the modern bureaucratic state.
Corruption opposes the bureaucratic values of equity, efficiency, transparency, and honesty. Thus it weakens the ethical fabric of the civil service and prevents the emergence of well-performing government capable of developing and implementing public policies that promote social welfare.
The machinery of modern government, as it evolved in industrial countries and has been transferred to developing countries, includes systems that protect public organizations from corruption and promote accountability.
Such in-depth analyses indicate the opportunities and constraints for reforms, and potential allies and opponents — all of which can facilitate a strategic, evidence-based approach. In addition to describing the challenge, diagnostic data also provides a baseline against which it is possible to monitor the performance of anti-corruption interventions. Such feedback assists reformers in evaluating their effectiveness and adjusting the approach as necessary.
See the U4 topic page Measurement and evaluation for useful guidance. They typically have robust corruption risk management systems with provisions to ensure that funds are used to advance development objectives.
For more information please see the U4 topic page on Corruption risk management , and a U4 blog post on Zero tolerance policies. U4 also offers an online course on corruption risk management for U4 partners and their collaborators.
Many development partners also support anti-corruption efforts in partner countries. This most often involves improving aspects of formal anti-corruption systems, or promoting broader good governance reforms that comprise elements of these systems. Insights are summarised above, and laid out in the U4 Issue Reassessing donor performance in anti-corruption: Pathways to more effective practice. In pursuing development objectives in health, education, justice or any other sector, development partners should consider how corruption undermines their anticipated outcomes.
Known as anti-corruption mainstreaming , the approach seeks to not only prevent the misuse of programme funds, but also tackle specific corrupt practices that jeopardise programme results. For instance, a programme may fail to reach vaccination targets if parents avoid health clinics because providers demand bribes. To succeed, a programme must not only provide the vaccines, but also address the conduct of health providers.
Mainstreaming can be challenging because it requires combining two sets of expertise: sector-specific and anti-corruption knowledge.
There is a great deal of accumulated insights to assist practitioners in their efforts. It is not unknown that donor countries pursue an anti-corruption agenda through development programming while at the same time ignoring corrupt business practices by its firms operating in the partner country, or politically supporting corrupt leaders.
The notion of working politically discussed earlier also implies recognising all the trajectories of interaction with partner governments that link to corruption, and aligning approaches across departments and agencies. This strategy is commonly known as policy coherence or a whole of government approach. The whole of government approach requires development partners to examine how their domestic financial, real estate, fine art or other markets may be used to transform illicit proceeds from corruption into legitimate assets.
They also have to review their policies toward global financial structures used to conceal illicit wealth. The U4 topic pages on Natural resources and energy , Oil, gas, and mining and Illicit financial flows provide some entry points for engaging with these issues. Anti-corruption basics. Basic guide to anti-corruption. Basic guide to anti-corruption Defining corruption Corruption can take many forms.
Whilst not without critics, this definition is widely used because it encapsulates three core elements of corruption: 1. Abuse Corruption involves a violation of norms of conduct or professional obligations — explicit or implicit — arising from formal or other entrusted duties.
Entrusted power Corruption arises when a person misuses the authority derived from all kinds of formal or professional roles, but also informal or traditional ones.
Private gain The gain realised through corruption is private because it does not benefit the entity or the collective that the official is entrusted to represent or serve. For recommended actions for funders, see Anti-Corruption Programme for Funders. Lack of co-ordinated action between contractors, consultants, business associations, and professional institutions : Insufficient communication and co-operation between international and national contractors, consultants, business associations, and professional institutions with regard to tackling corruption will facilitate corruption.
Without such co-operation, it will be difficult to establish a level playing field in which all contractors and consultants adopt equivalent ethical standards. As a result, ethical contractors and consultants will continue to be prejudiced by the willingness and ability of their more unscrupulous competitors to participate in corruption. Many contractors, consultants, business associations, and professional institutions are now taking a lead on this issue. For details of these initiatives, see Initiatives.
For recommended actions by contractors, consultants, and other parties providing the equipment, materials and services for a project, see Anti-Corruption Programme for Organisations. For recommended actions by business associations and professional institutions, see Anti-Corruption Programme for Business Associations and Professional Institutions. Lack of sufficient debarment of corrupt organisations : Governments, funders, and project owners should operate a system of debarment whereby organisations which have been convicted for corruption are debarred from receiving funding or contracts for a specified period.
International co-ordinated action is required to ensure that this penalty is transparently, fairly and evenly applied. Why Corruption Occurs. The motivation for corruption Individuals or organisations who participate in corruption may do so as a result of various different motivating factors. Factors at project level which facilitate corruption There are many factors at project level which facilitate corruption in the infrastructure sector.
An example of a complex structure in relation to the construction of a power station project is shown in the diagram below: Diversity of skills and integrity standards: The infrastructure industry is a diverse industry, in terms of the number of different professions, trades and specialist contractors.
For example, a typical power station project may involve the following: Professionals: such as architect, structural engineer, civil engineer, building engineer, mechanical engineer, electrical engineer, electronics engineer, thermal engineer, acoustics engineer, metallurgist, geologist, quantity surveyor, land surveyor, accountant, lawyer, banker. Each of these professions may have a different national professional association with different codes of conduct, and differing levels of enforcement of these codes.
Trades: such as machine operator, concrete pourer, steel fixer, formworker, scaffolder, erector, pipe fitter, cladder, brick layer, plasterer, carpenter, electrician, plumber, glazier, tiler, welder, driver. Each of these trades may have a different national trade association. Specialist contractors: such as excavation, foundation, civil, building, erection, insulation, cladding, roofing, turbine, generator, boiler, pipework, pumps, cooling systems, controls and instrumentation.
The people in that country see nothing wrong in it. They are just age old business practices. They are part of the game. Everybody does it. It forms part of the contract. Therefore, we have to bribe in order to remain competitive. It does not exist in our [developed] country. Factors at national level which facilitate corruption There are many factors at national level which facilitate corruption in the infrastructure sector.
Some of the reasons for insufficient reporting of corruption are as follows: Lack of awareness: There is often a lack of awareness within the industry and amongst the public as to the nature of the different types of corruption, and that they constitute criminal offences. Thus, corruption often goes undetected, even by those against whom it is perpetrated, and therefore goes unreported. Inadequate or non-existent reporting structures: Both on projects and generally in society, there may be inadequate means by which individuals can safely report corruption.
Belief that nothing will happen if they report: People may believe that there is no point in reporting suspected corruption, as they feel that nothing will be done in response to their report.
Fear of retaliation: People may fear that they will be the victim of retaliation if they report corruption e. Fear of consequences: People may fear that, if they report, they will become embroiled in a costly and time consuming investigation, or that the investigation may examine their role in the relevant circumstances, or in other actions.
The individual employees of such a department who are responsible for the selection and management of projects may be vulnerable to corruption for a number of reasons: They may have little incentive to maximise profit for the department. They may have little accountability, and therefore may not be concerned to minimise loss or ensure good quality work.
They may have unfettered control over the selection and management of projects. In developing countries, such individuals may be poorly paid because of the general lack of resources, or because of corruption. Factors at international level which facilitate corruption There are many factors at international level which facilitate corruption. The earliest records of corruption date back to the thirteenth century BC, to the time of the Assyrian civilization.
From the found plates, written in cuneiform, the archeologists managed to discern how and who accepted bribes. Under the Roman law, the criminal offense of corruption was defined as giving, receiving or claiming benefits in order to influence an official in connection with his work. Due to the prevalence of corruption in the country, this law was supplemented by a new law, which predicted compensation for damage in double value of the damage, and the loss of political rights for the perpetrator of the corruptive act.
However, this did not help alleviate corruption, especially due to the fact that corruption was most practiced by the members of the Senate and senior state officials, both in Rome itself and in the remote Roman provinces. The early Christian faith condemned corruption, yet corruption later also developed greatly in ecclesiastical structures, and achieved its peak with the selling of indulgences in the Middle Ages, all until the condemnation of the latter as well as of other immoral acts of the clergy, with the Pope at the head by Martin Luther.
Apart from the condemnation of corruption, the Reformation also led to a break with until then dominant Catholic culture and the emergence of Protestant ethics. As a child he was a hostage at the Ravenna court , Attila 1 noticed a high level of corruption among the state officials of the Western Roman Empire and how they appropriated the state money as a consequence, there was less money in the Treasury and therefore the taxes increased.
He thus decided that if he would ever to rule, he would do so fairly and by oppressing the corruption in his own country. The early feudalism was familiar with various laws that punished the bribing of courts also with death.
Then, in late Feudalism, countries became virtually helpless in the fight against corruption, as illustrated by the case of France, which in established a special court in which should rule in cases of abuse of royal finances; however, these abuses embezzlement, extortion, bribery, scams, etc.
The corruption was also widespread during the time of the Spanish Inquisition, where the victim of the accusation could make amends with money, which made the corruption, especially among the inquisitors, extensive. Throughout the history, many intellectuals dealt with corruption or theorized about it one way or another.
Machiavelli 2 had a low opinion on republics, considering them even more corrupt than other regimes, and according to him, corruption leads to moral degradation, bad education and bad faith. On the other hand, however, the great philosopher, diplomat and lawyer Sir Francis Bacon 3 was known both for receiving bribes and taking them. When he reached the highest judicial position in England, he was caught in as many as 28 cases of accepting a bribe and defended himself before the parliament by saying that he usually accepted a bribe from both parties involved and that the dirty money therefore did not affect his decisions.
The parliament did not accept these arguments and sent him to the jail where he spent only a few days as he was able to bribe the judge. Thus, although the corruption has been occurring in society ever since, it has only been given more attention in the recent period—the researches on the phenomenon and its negative impacts have become more common after , when countries and international institutions began to be aware of this problem.
The attitude of the public toward corruption was, until then, neutral. In , Kaufmann and Gray [ 1 ] found that:. Bribery is widespread, especially in the developing and transition countries; there are, however, significant differences between and within regions.
Bribery usually leads to ineffective economic results, in the long term impedes foreign and domestic investments, reallocates talents due to income and distorts sectorial priorities and technology choices for example, it creates incentives for contracting major defense projects or unnecessary infrastructure projects, but does not encourage investments in rural specialist health clinics or in preventive health care.
Bribery is unfair, as it imposes a regressive tax, which heavily burdens in particular commercial and service activities performed by small businesses. Many other researchers and institutions the World Bank Institute—WBI, the European Commission, the United Nations, the EBRD have investigated corruption and its impact on macroeconomic and microeconomic indicators through various forms of corruption, as well as its connection with local customs and habits, and how it affects the everyday lives of people.
Most studies are therefore mainly the analyses of the effects of corruption on various economic indicators, such as GDP growth, investments, employment, tax revenues and foreign investments [ 2 , 3 , 4 , 5 ], or the study of various forms of corruption in relation to politics and the economic environment [ 6 ], the research of its social condition and various manifestations [ 7 , 8 ].
Although corruption differs from country to country, it is possible to identify some of the key common driving forces that generate it. What is common to all countries, which are among the most corrupt, has been identified by Svensson [ 10 ]; all of them are developing countries or countries in transition,.
Regardless of the above, corruption cannot be assessed unambiguously, since there is never only one phenomenon that is responsible for the occurrence and the development of it; corruption always arises from an array of several, interrelated factors, which can differ considerably from one another. Among the most commonly mentioned factors that influence the development of corruption are: political and economic environment, professional ethics and legislation, as well as purely ethnological factors, such as customs, habits and traditions.
The phenomenon of corruption is strongly influenced by the political and economic environment. The more is the economic activity in the country regulated and limited, the higher the authority and the power of officials in decision making and the greater the possibility of corruption, since individuals are willing to pay or offer payment in order to avoid restrictions.
A great potential for corruption is especially there where the officials are under the regulation given the opportunity to decide on the basis of discretion. The level of corruption is also affected by the monetary policy. Goel and Nelson [ 11 ] in their research found a strong link between monetary policy and corruptive activity in the States.
The States that have a well-regulated financial sector, not a lot of informal economy or black market are also less corrupt than those where the opposite is true. They also find that there is less corruption in the countries with higher economic and political freedom.
Dimant [ 12 ] puts it well in his claim that the level of efficiency of public administration determines the extent to which corruption can find fertile soil and sprout. Such efficiency is determined by the quality of the regulations and permits, since ineffective and unclear regulations help to increase the level of corruption in at least two different ways:. The artificially created monopoly of power that enables civil servants to obtain bribes is based on their superior position and embedded in the system.
On the other hand, however, ineffective and unclear regulations cause inhibition and therefore encourage natural persons to pay bribes in order to speed up the bureaucratic procedure. Corruption is also strongly influenced by the low salaries of public administration employees state officials , who are therefore trying to improve their financial position by receiving bribes, and consequently, the socio-economic situation of the government officials also affects the phenomenon of corruption.
This is demonstrated also by Allen et al. The mentioned authors find that the private sector has higher ethical values, in particular those that affect satisfaction with work, than the public sector and is therefore less unethical especially regarding thefts and corruption. Indirectly, Svenson [ 10 ] also affirms this and states that in principle, the salary level of civil servants affects the receipt of a bribe the higher it is, the smaller the chance that the person will act corruptly.
However, he continues on that a higher salary also strengthens the negotiating power of the official, which leads to higher bribes and he also states that, on the basis of existing research, it is very difficult to determine whether a higher salary causes less corruption, which means that the level of salary is not a decisive factor, but merely one of many. The economy is unfortunately largely dependent on politics and often reflects the rule of law; various options for eliminating competition are exploited, and bribery is just one of the possible weapons in the struggle to gain a job.
They are part of the game and everyone does it. The political influence of corruption is also manifested through the proverb: examples are attractive! If the top of the politics government, parties and leading politicians is corrupt, then corruption shows at all levels, and this evil at the same time spreads among the ordinary population, as nobody trusts the institutions or the rule of law.
Johnston [ 15 ] thus points out useful thinking in terms of two types of equilibrium—the balance between the openness and the autonomy of the institutions and elites it leads and the balance between political and economic power and opportunities for cooperation. Ideally, the institutions should be open to influences and feedback from different sources, yet at the same time sufficiently independent to effectively carry out their work.
Where the openness and independence of the institutions are in balance, the officials are accessible, but not excessively exposed to private influences; if they can make authoritative decisions, while not using their power to arbitrate, the corruption is relatively low. Lack of professional ethics and deficient laws regulating corruption as a criminal offense, and the prosecution and sanctioning of it are also an important cause for the emergence and spread of corruption.
A great influence comes also from the ineffective sanctioning of corruption, which only increases the possibility of continuing the corruptive actions of those involved, creating at the same time a strong likelihood that others will join in the corruption due to this inefficient sanctioning. The sole lack of professional ethics is a particular issue, as the administration requires different amounts of time to develop or change its ethics and professional standards, which is well known in transition countries in some, ethics and professional standards changed overnight and approached the equivalents in the developed democracies, and in some, they remained the same as in socialism.
Therefore, due to lack of professional ethics in some countries that otherwise manage illegal corruption well, there is nevertheless a widespread form of legal corruption. Corruption also generates a lack of transparency and a lack of control by supervisory institutions. Therefore, where there is insufficient legal basis or sufficient political will to control, which enables a non-transparent functioning of both politics and the economy, corruption flourishes.
Corruption is also affected by the extensive, non-transparent or incomplete legislation, where laws can be interpreted in different ways for the benefit of the one who pays.
Different countries have different attitudes to corruption.
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