It’s Time To Get Serious About Global Corruption

The United States should put combating corruption at the center of its development and diplomacy agendas.  While good governance and anticorruption have been a feature of U.S. development policy for decades, the time is right to return to this issue.  For practical and political reasons, the United States should lead the charge in a renewed fight to improve governance, increase transparency, and reduce corruption around the world.  The U.S. should seek to make common cause with leading companies and business communities to achieve these goals.  The World Economic Forum is holding its Annual Meeting in Davos this week, and there is no doubt that fighting corruption will be an important topic of discussion.

First and foremost, fighting corruption while promoting transparency and accountability is good for prosperity.  Robert Klitgaard supplied a famous definition for corruption, noting that “corruption is a term of many meanings” but, “at the broadest level, corruption is the misuse of office for unofficial ends.” Around the world, corruption serves as a massive tax on the private sector and holds back global growth.  There are various estimates on the absolute cost of corruption, but clearly the scale of the challenge is enormous.

A commonly cited World Bank estimate from 2005 places the total cost of corruption around $1 trillion annually.  Transparency International estimates that in developing countries alone, corrupt officials receive up to $40 billion in bribes each year, and nearly 40 percent of all business executives report that they have been asked to pay a bribe when dealing with a public institution in the past.  Some estimates place the total cost of corruption at more than 5 percent of global GDP each year– this amounts to $2.6 trillion, or 19 times larger than the $134.8 billion spent globally on official development assistance (ODA) in 2013.  At my day job, we produced a report using World Banks data in February 2014 that estimated private sector corruption alone accounts for $515 billion or more annually.  The point is, it’s hard to nail down the real cost of corruption, but we do know is that it is massive.

Protest against Corruption
Protest against Corruption in India. Corruption has riled citizens ire from Beijing to Washington, and everywhere in between.

Reducing corruption while promulgating transparent governance and open information not only enable progress on social challenges and institutional development, but plays a significant role in driving foreign investment and commercial engagement. The WEF estimates that moving a business from a country with low corruption to one with medium or high corruption constitutes a 20 percent tax increase for that business.  For a given country, reducing this cost will have direct and substantial effects on national economic wellbeing.

The most compelling reason to target anticorruption as a development priority is the broad and intense public support confronting corruption enjoys around the world, and especially in developing countries.  Public polling conducted by the WEF shows that societal corruption is a top three issue in 67 countries.  In this sense, anticorruption efforts are a “demand side” phenomenon – citizens themselves are driving the push for clean and accountable governance.  The reasons for this push are clear.  Lack of transparency, crony arrangements, bribes, and misuse of public funds cause significant damage to a country’s social and institutional fabric.

 The United States was an early leader of the anticorruption movement – Rod Hills, who recently passed away, pioneered this work beginning in the 1970s (I previously wrote about Rod’s work).  Due to the visionary efforts of Rod Hills, and people like him, the United States was the global leader on anticorruption for 40 years.  These efforts were met with a great deal of success.  Today we have a clear understanding of the pernicious costs of corruption, and have been able to drive reform in dozens of countries and thousands of companies.  The Organization for Economic Cooperation and Development (OECD) is a strong supporter of the anticorruption movement, and the World Economic Forum (WEF) has honed in on the issue through its Partnering Against Corruption Initiative (PACI).  Business groups such as CREATe (Center for Responsible Enterprise and Trade), I should note this group funded my professional work on corruption, also have a role to play. Anticorruption language is now standard feature of most trade and investment agreements.  In the four decades since the anticorruption torch was taken up, we’ve made great progress, but significant challenges remain.

In the wake of the financial crisis, and the perceived cronyism that precipitated the collapse, some feel that the United States has lost a degree of legitimacy in the fight against corruption around the world.  The next U.S. President will have the opportunity to remake the development and diplomacy agenda, and whether it’s Hillary Clinton or a Republican candidate who takes the White House in 2016, fighting corruption needs to be a renewed priority.  While the United States is not perfect when it comes to the issues of transparent and accountable government, we do have a critical role in helping reduce global corruption.  Citizens around the globe want clean and transparent governments, and the United States should help them get it.

From a U.S. political perspective, this is a great issue to tackle.  Anticorruption initiatives provide the opportunity for bi-partisan cooperation on an international priority, and better yet, these efforts help our standing and perception abroad. U.S. policymakers should focus on anticorruption as a major driver of positive economic and social outcomes – it deserves attention as a headline issue, not as a third or fourth line item in a development project budget.

Focusing in on corruption as a challenge is about more than transparent and accountable delivery of targeted foreign assistance – instead it is about supporting free media, civil society, and transparent information which help create an environment where citizens are capable of holding powerful public and private sector interests accountable for their actions.

Given increasing attention around trade flows, infrastructure projects, government procurement purchases, and domestic tax mobilization (a topic I’ve done recent work on), private sector and government shareholders are going to have more reasons to combat corruption effectively.  Solving the corruption puzzle requires multi-stakeholder coalitions and collective action.  Corruption has real economic costs, but more fundamentally, it severs the contract of trust between governments and their people.  In an era when information is more accessible than ever before, individual citizens have an increased capacity to demand transparent and effective governance from their elected officials.  It is in the U.S. interest to remain an ally for anticorruption efforts around the world – we should be at the front of this parade.

Article Published in on January 22, 2015.

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