The World Bank OCTOBER 1998 NUMBER 7 PUBLIC SECTOR New frontiers in diagnosing and combating corruption Corruption flourishes where policies provide incentives for it and restraining institutions are weak. Diagnosing corruption helps a country understand the short - comings in its policies and institutions and design a strategy to strengthen the state's performance. Over the past year the World Bank has and social costs of corruption. And it estab- helped Albania, Georgia, and Latvia mea- lishesabaseline againstwhich the successes Empirical surveys sure corruption and design strategies to and failures of reform can later be mea- combat it and improve governance. All three sured. Repeated surveys, starting 18 to 24 can provide the countries are now refining and imple- months after a reform program begins and menting these strategies. This note explains at least once a year thereafter, are key to information needed how empirical surveys can inform-and giving the government the information it transform-the policy dialogue, so that a needs and refocusing reform efforts, to develop an workable anticorruption agenda can be established. It also highlights challenges What empirical approaches anticorruption in performing these surveys, and in trans- should be used? lating survey results into priorities for insti- Until recently it was considered impossi- agenda tutional reform. ble to systematically measure corruption in government institutions and assess its eco- Why measure corruption? nomic and social costs. Data consisted of Implementing reforms to improve gover- general measurements of public and expert nance is inherently difficult. Because such perceptions of aggregate corruption in a reforms dramatically diminish the rents country. But recent advances include cross- from corruption, they are often resisted country analysis of data on perceptions of by senior officials, other politicians, and corruption against institutional and other bureaucrats. Yet such resistance can often correlates, to better understand its causes be cloaked by the lack of concrete evidence and consequences. These studies have on corruption and by the assumption-now improved our understanding of corruption disproven-that corruption cannot be mea- and helped identify potential problems in sured. When such evidence is available, the countries' institutional arrangements. For debate on corruption can be depoliticized example, cross-country analysis shows that and its focus shifted to substantive issues. corruption is higher in countries that Measuring corruption offers other ben- repress civil liberties. Such "flags" do not, efits as well. It can help establish priorities however, provide the country-specific detail for reform byidentifying activities and agen- that is needed to depoliticize the policy cies where corruption is concentrated. It debate and design rigorous anticorruption educates the public about the economic agendas. FROM THE DEVELOPMENT ECONOMICS VICE PRESIDENCY AND POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK The newest frontier in the fight against lic funds, theft of state property, bribery to corruption is to survey the parties to cor- shorten processing time, bribery to obtain ruption directly and simultaneously-includ- monopoly power, and bribery in procure- ing household members, enterprise ment. In Georgia the most common form managers, and public officials-and ask them of corruption (from this short list) is embez- about the costs and private returns ofpaying zlement of public funds. In Albania and bribes to obtain public services, special priv- Latvia the most common form is theft of ileges, and government jobs. Until recently state property. In addition, bribery in pro- skeptics believed that parties to corruption curement is common in all three countries. had an incentive to underreport it. But with Respondents are appropriate survey instruments and inter- Institutional causes of corruption dffer viewing techniques, respondents are willing suggesting different prioritiesfor reform witting to discuss to discuss agency-specific corruption with In Albania a weak judiciary is one of the remarkable candor. Even with underre- main causes of corruption; regulatory fail- agency-specific porting and nonresponses to some sensitive ures are much less important. Regulatory questions, the results offer telling lower- failures are more serious in Georgia and corruption with bound estimates of corruption. Latvia, both in terms of excessive regula- The limits of different empirical measures tions and the discretion granted to regula- remarkable candor of corruption point to the desirability ofusing tors enforcing them. The data provide multiple approaches and data from differ- information that can help establish priori- ent sources. Consistent findings across these ties in each of these areas. For example, approaches and sources significantly enhance detailed statistics were collected on the bribes the reliability and ease of acceptance of the paid by enterprises to regulators in differ- empirical evidence-as well as the credibil- ent agencies. This information can be used ity of the actions it suggests. to establish which agencies are receiving the Whatare he arlyresuts?largest share of side payments (figure 1). What are the early results? Detailed surveys of corruption were con- Enterprises would pay higher taxes if ducted in Albania, Georgia, and Latvia. corruption were eliminated Preliminary results provide a startling pic- Corruption has serious implicationsfor pub- ture of systemic corruption that hurts pub- lic finance (table 1). A large number of small lic welfare, taxes private sector activity, and bribes are paid to officials to avoid paying is deeply institutionalized. taxes, customs duties, and other liabilities to the state. Moreover, other types of bribes (such There are many types of corruption, and as unofficial payments to public officials for each country's pattern is distinct special privileges, such as a favorable judi- Respondents reported many types of cor- cial decision, that do not have direct fiscal ruption, including embezzlement of pub- implications) may crowd out payment of tax Table 1 Corruption and lost tax revenue (Percent) Indicator Albania Georgia Latvia Enterprises willing to pay higher taxes if corruption were eliminated 53 71 30 Additional taxes as a share of revenue of those enterprises willing to pay higher taxes if corruption were eliminated 11 22 15 Additional taxes as a share of revenue all enterprises are willing to pay if corruption were eliminated 6 16 4 Surce. 1998 World Bank survey of 483 enterprise managers in Latvia (Latvia Facts), 350 managers in Georgia (GORBI), and 356 managers in Albania (ACER). FigLIre 1 Where doe5 corrLlption occur in Georgia? The burden of corruption is much C)Wgreater for poorer households r.1.iij*t*IiI~LI-tCkX.J~L.'.~IL I UAJ~ LI:LP L:L, L' k LKUl and other liabilities to the state. Indeed, cor-corp,sgetnthtorutfiiasai- ruption is quite costly for firms: in Albania nay"ivs"webungtirplcofc. and Latvia bribes account for 7 percent of Tepteno hs amnsdfes revenue in firms that admit to paying them,. oee.I avamnitra oiin r In Georgia bribes account for 15 percent ofp enan firms' revenue. Lost fiscal revenues are highl in all three countries, especially Georgia.i grand ~ ~ ~ ~ ~ h corrptio maoemrfo rb Corruption disproportionately hurts the L i a w poor serou in Abn adGoga In Georgia 14 percent of households admit to paying bribes and in Latvia, 12 percent. W a oeddtedt ly Although richer households are more likely ThanirupinroaminAbi, to pay bribes, the burden of corruption-mea- Gori,adLtashesvrlfaue.Al sured as the fraction of income paid in bribes-- recutis is ogtasitnefo is much greater for poorer households,. h aki einngrfrst mrv Bureaucrats pay for lucrative positions ofpbisetreom,tonclntw- In Albania, Georgia, and Latvia the price oferhpwssenilNxthecurescm obtaining "high rent" positions is well known mte o oe n rnprn among public officials and the general pub- plcmkn-nldn olcigdtie lic, suggesting that corruption is deeply insti- dt ncruto n pnoigpbi tutionalized (figure 2). Higher prices are paid t for jobs in agencies and activities that house-agn.Fily,teovrmnsiiitd hodsd nerprlibies por the mtate.I cost corrupt, suggesting that corrupt officials ratio- rupton s qitecosly fr frms inAlbnia nally "invest" when buying their public office. and atva bibesaccuntfor pecen of The pattern of these payments differs, reveue n fims hatadmi topayig tem.however. In Latvia ministerial positions are In eoria ribs acout fr 1 pecen ofpurchased more often than in Albania and firm' rvene. ostfiscl rvenes re igh Georgia, and lower-level positions are pur- in al tree ounrie, esecilly eoria. chased less often. This pattern suggests that grand corruption may be more of a prob- Corrptin diproortinatly hrtsthe lem in Latvia, while petty corruption is more poor serious in Albania and Georgia. to ayngbrbe ad n Ltva,12pecet.What rote did the data ptay? Altoug riherhouehods re orelikly The anticorruption programs in Albania, to py bibes th buden fcorupton-ea-Georgia, and Latvia share several features. All surd a th frctin oincme aidin ribs-- three countries first sought assistance from is mch reaer fr pore houehods. the Bank in designing reforms to improve governance. Given the inherent difficulties Bureucrts py fr luratve psitons of public sector reform, strong client own- In Abana, eoria,andLatia he ric ofer ship was essential. Next the countries com- obtinng"hghret"poiton i wllknwn mitted to open and transparent amog pbli oficils nd he eneal ub-policymnaking-including collecting detailed lic sggetig tatcorupionisdeelyinsi-data on corruption and sponsoring public tutonaize (fgur 2) Hiherpries re aid workshops to discuss the data and the policy forobsin geniesandactvites hathoue-agenda. Finally, the govern ments initiated holds and enterprises report to be the most policy processes that should culminate in anti- It wilt be essential to continue toCI refine the methodology for 0L 04 J ~ transforming survey I .L ;h. Lr pikA,K4Lk evidence into corruption programs for regulatory reform, aheeeti h oiydaou ncr reform priorities civil service and public administration reform, rpin tl,calne ean public finance reform, and judicial reform. In addition, efforts were made to promote Rfnn h ehdlg the participation of civil society.I ilb seta ocniu orfn h Next the data collection and dissemina- mtoooyfrtasomn uvyei tion began. In Albania and Georgia the datadecinorfmpirtesThnwdag were presented in workshops that were opennotcolsaetthfrtirnmauig to members of all branches of government, cruto nseii gnis u xe the business community, and civil society. Inrinewtmasigcoupo'se- Albania the data dramatically altered the pol-noiadscalotssatnifnttge icy debate, moving it from vague, unsub- Tedrc iaca oto orpini stantiated accusations to a process focuseddifrnagcessakyidctoofc- on empirical evidence and systemic weak-ruio'mpconwlaendrvtee- nesses. In addition, the survey results weretodelpmn.Tewligssffrs printed on the front page of every major news- t a diinltxsi orpinwr paper. In Georgia the immediate effect was eiiae lopoie nipratma less dramatic but still significant. In Latvia the sr fisfl ot,a omaue fpb government opened the debate on corrup-liprfensfordungcrptn tion with a workshop in early 1997. In Junereaietohrplcybjtvs.Sl,ohr 1998 the new government presented the basic apoce r edd n hl urn program at a public conference, prior to the isrmnsdans h rvlneo completion of the survey. Presentation and mn om fcruto,invtv ol analysis of the data are expected later in thearneddtmasegadcoupi. year, and will be used to refine the program Fial,teBnnedtosrghnis and establish priorities,.aaiyt epplcmkr nert h What challenges lie ahead? wt h oiia esblt fdfeetpl The collection, analysis, and dissemination icreomnaos.Iiswthmp- of contryspecfic dta mrk aspecaciinhaet uc tesiblicy ialou aontant: rutin Still, chlene remain. It will be essentialtocniutorfeth d e n c i n ton u re o r p r o r ti s T hee n ewE d i g noti tol ar at the frnte in mesrn meh d lo yrr0 3inc wit mesuin cruto'co- transforming~ ~ ~ ~~~~~~~~~ ~noi andve social cot IK %eL&L%l%11 d IKpiwrwmimIi tihI.m 'krOFisw atp an intsae Ck:oroi~~Th direct fiania cos ofl corpto inb-%da nA&m,thK I different agnisnsaketnictrofcr corruption ~ ~~ rutin' prgasfrrgltr eom c ievmpct n elfare dandopive s c- refrm rirites ivl srvie nd ubic dmiisratonefrm,ruton Sadtion calltaxes ifcrruion wr pueimiate alsnc provides andjimportantmea-m the ~ ~ ~ ~ ~ ~~~sr oftiiato ocilscet.Iwit sseull o,a dontmeasuoresfn pub- Next~ ~ ~~~~~ ~i pr aacletonaddseia eferencesy for reduoring corruptein tio bean.InAlbniaandGergi th daarelatie ito otherm poiobties. Till ter ig werepreentd i wokshps hatwer o n nstrumtos agnos te foter preaeno to~~~~~~~~ ~mn febr falbachso oenet ormooruption , insecfcgnoaive btoolse thebusnes comunty an ciil ocity.I reneee to measurengr corruption.o Albniath daa damticllyalere th pl- cat toel posimakers integate thge. icy ebae, ovin itfro vage,nsu-lesn firomt theniase empiri insics staniatd acustios t a rocssocued wifnth enpolitica ely ofndiffeorent pol- paper.~ ~ ~ ~ ~~ ~c rnGogateimeit fetws eommaedatpoins It imwortn ea- ofs counicutry-spec nifiat ar atspeialzn thaeot sullchstfeasblt isdot mau constant: the broad empowerment that comes from ness community to participate in the policy this empirical, technocratic approach can process. 'Watchdogs" outside government tilt the balance toward reformists, in alliance can be established to monitor the state's com- with civil society. mitment to the anticorruption agenda. In Several strategies can be used to establish addition, the government maybe able to cred- reform priorities. One strategy being used ibly commit to reform by allowing private in Albania, Georgia, and Latvia is to conduct competition with some public services-for focus groups in which different constituen- example, allowing private forms of dispute cies discuss, among other issues, petty and resolution as an alternative to the judiciary. grand corruption and the feasibility of po ten- Finally, data collection needs to be instiu- tial reforms. Another strategy to address the tionalized, so that statistics on corruption can Anticorruption political feasibility ofreform is to assess a coun- be updated at least once a year. Broad dis- try's readiness to reform, analyzing what effect semination of these statistics can further efforts shoutd institutional and policy reforms will have on empower stakeholders to continue reforms. key stakeholders. In Albania, Georgia, and Latvia, NGOs focus on reforming helped develop policies. One strategy that Implementing reforms was used to encourage ongoing participation pubic policies The most difficult stage of an anticorruption was to hire a surveyor who could potentially program is after the survey data have been serve as a watchdog against future corrup- and institutions collected, analyzed, and disseminated--when tion. This surveyor's reputation as an inde- the government must start introducing pendent professional was crucial in the face reforms that tackle fundamental sources of of intense public scrutiny. corruption. A natural temptation for a coun- try's leader is to launch the program by ask- Designing agency-specific surveys and other ing for the resignations of senior officials who tools manage the most corrupt agencies. But in The Bank has already begun to design sur- many countries corruption is so pervasive vey instruments whose purpose is to col- andsystemic that it cannotbe addressed solely lect detailed information on behavior in by individualizing the problem. some of the most dysfunctional government Ultimately, anticorruption efforts should agencies. In addition, the Bank is advising focus on reforming public policies and insti- countries to gather hard data on corrup- tutions, with explicit high-level leadership tion in the delivery of specific services. For and commitment. Survey data provide a pic- example, corruption in the supply of saline ture of the most dysfunctional activities and by public hospitals can be established by hence priorities for reform. Based on the comparing the price-after accounting for country-specific priorities that have emerged, transport and other idiosyncratic costs-of the challenge is to implement credible reforms saline purchased by different hospitals. in each area. Such action has already begun in some countries. Latvia, for example, has Emerging conclusions initiated reforms to reduce corruption in cus- Diagnostic surveys are a useful and power- toms and tax administration. But challenges fud tool for unbundiing corruption and iden- remain-for instance, what can be done to tifying specific correlates, its costs, and reform Albania's thoroughly corruptjudicial problem areas. Surveys can focus the polit- system, and how can deregulation be imple- ical dialogue on concrete areas for reform. mented in Georgia and Latvia when vested The public transparency generated by hard interests in government ministries will devise data and a technocratic approach can fuel ways of continuing to extract rents? a participatory process that mobilizes and energizes civil society and generates pres- Sustaining reforms sures for reform. Reforms can be sustained by encouraging But rigorous surveys and in-depth analy- all branches of the state, civil society, andbusi- sis of their findings arejust one input into a multifaceted process for combating cor- "Diagnosing and Combating Corruption: ruption. And they can be misused if they A Framework with Application to are not carried out and placed in the Transition Economies." World Bank, proper context. Surveyors need to be inde- Washington, D.C. pendent and methodologies rigorous; oth- Transparency International and the World erwise the results can be misleading. Bank's Economic Development Institute. Moreover, there is a risk of scapegoating 1998. "New Perspectives on Combating unless the focus shifts quickly to credible Corruption." Paper prepared for reforms of underlying public sector dys- Transparency International's annual functions. meeting, Kuala Lumpur, Malaysia, Data are powerfut Data are powerful in mobilizing support September 11-16,andforthe IMF-World for reforms, but so are the vested interests Bankannual meetings, Washington, D.C., in mobitizing resisting such reforms. The challenge for October 6-8. political leaders, civil society, and donors is support for to capitalize on the insights and momen- This note was written by Daniel Kaufmann tum generated by the diagnostics, move (Division Manager Regulatory Reform andheivate reforms, but so from diagnostics to action, and make mean- Enterprise), Sanjay Pradhan (Sector Leader,Europe ingful progress on the ground. and CentralAsia), and Randi Ryterman (Senior are the vested Public SectorManagement Specialist, Europe and Further reading Central Asia). The authors are grateful tojim interests resisting Kaufnann, Daniel, SanjayPradhan,andRandi Anderson for data analysis and Bill Moore for Ryterman, with Jaes Anderson. 1998. graphics supportfor this note. such reforms poi l his note series is intended to summarize good practice and key policy findings on [rl PREM-related topics. PREMnotes are distributed widely to Bank staff and are also tai ai oailable on the PREM website (http://prem). If you are interested in writing a from demail your idea toAsieh Kehyari. For additional copies of this PREMnote 1,inu please contact the PREM Advisory Service at 87736. PrepaedAfodl Fam staffcio t TransitionfEconoies."BWorldsBank