Archive | April, 2019

The Causes of Corruption

Why are the institutions of some countries corrupt, and others hardly at all? Examining this question soon makes clear that there is not a single cause, some of the influences associated with corruption or its absence, and some outcomes, are obvious, while others are frankly surprising.
An obvious candidate for a factor that combats corruption, is the rule of law.
The statement that the rule of law prevents corruption, seems like a self-evident truth. This is the result, perhaps, of a common misconception of what the term “rule of law” means. Most people when asked this question, will reply that it means that law and order must be observed, or that generally the law is enforced. Yet that is not the meaning of the phrase. Such a meaning does not nor assist us to know how to prevent corruption, precisely because it is so self-evident. Of course there will be no corruption if the law is observed, since the prohibition of corruption is part of the law.
The real meaning of the rule of law is that citizens are governed not by the decisions of people, but by the law.
In a state where the rule of law holds sway, arbitrary government power is constrained. In other words the ability of officials or organs of state to rule by whim, yields to objective law made by proper democratic process. Self-evidently corrupt officials and citizens are prosecuted and sentenced impartially, and without fear or favour.
Here are the most important ingredients of the rule of law.
Separation of powers
1. Power to make law resides in Parliament.
2. The executive administers the law free from interference by the judiciary, save to the extent that it breaches the law.
3. All disputes arising from the interpretation or application of law are resolved by courts that are independent of the legislature, the executive and other parties.
Limited delegation of Power
4. Power to make law/regulations is not delegated by parliament to any official or organ without circumscribing the ambit and purpose of the power.
5. No official or organ with delegated power, further delegates that power unless expressly authorised by the empowering law, stating the ambit and purpose.
6. Delegated regulatory power is exercised in accordance with its ambit and purpose.
Due process
7. Parliament and bodies with delegated power observe due process in rational and objective pursuit of the public interest.
Content of laws
8. All laws are clear and known, or reasonably knowable, as to the behaviour that they regulate and consequences of non-compliance, and do not operate retrospectively.
9. The law protects all private property from state confiscation without proper compensation, and without due process in the public interest.
10. There is equality before the law. Laws are of general application, and not discriminatory on arbitrary grounds, whether in terms or application. Offenders are prosecuted without fear or favour.

The combined effect of all these applications of the rule is that ordinary citizens know that officials in government have limited power to harm their interests by taking decisions that are subjective, capricious, arbitrary, random, unpredictable or motivated by ulterior purposes or improper motives. Official power to decide is thus constrained by the law.
It goes without saying that decision-making power that does not comply with the rule of law in this sense (in other words amounts to legally unfettered discretion), creates room for officials to take decisions for bribes, otherwise to benefit themselves, or to victimise subjects. All the manifestations of the rule of law listed above are designed to curtail such legally unfettered discretion.
Equality before the law ensures prosecution and conviction of corrupt offenders without fear or favour.
We would then expect a strong correlation between rule of law and low levels of corruption.
To test whether this is so, we must find a way to measure compliance with the rule of law in different countries. There is an international index, The Rule of Law Index of the World Justice Project, which purports to measure rule of law across a range of countries. An analysis shows however that what the Index measures overall, is not rule of law as described above per se, but also various presumed consequences of the rule of law, one of which significantly is a lack of corruption. The composite rating of the Index is not of use therefore in tracking a correlation between the rule of law as defined, and corruption. Instead, we should identify variables in the Index independent of the prevalence of corruption, which bear a closer resemblance to the rule of law as defined, and can serve as a proxy for it. Here is a list of such variables contained in the Index:
1. Constraints on government power by legislature (item 1.1);
2. Constraints on government power by judiciary (2.2);
3. Publicised laws and government data (3.1);
4. Equal treatment/no discrimination (4.1);
5. Due process of law (4.3);
6. No expropriation without adequate compensation (6.5).

According equal weight to each variable, I calculated a composite point for each country, and then compared each country’s resultant figure with its corruption index rating. The data is summarised by quartile, from the highest rule of law score to the lowest:

The amount of corruption in a country clearly correlates with its rule of law rating.
The inference is irresistible that the cause of lower levels of corruption in countries that comply with the rule of law, is that it prevents discretionary power that can be abused. If South Africa wants to fight corruption, strengthening the rule of law should be the first port of call.
It also seems fairly self-evident that whether or not a country tends to be corrupt, depends on the sources of its societal values. A good place to find a clue to governing values, is the religious history of a society. To simplify matters, I looked at the main religions, and considered only the dominant religion in each country. Christian religions were divided into three broad groups, namely Roman Catholic, Orthodox and a third group, loosely defined as “Protestant”. The remaining two groups are Buddhist and Muslim. Jewish and Hindu-dominant societies I left out of the equation, as in either case the sample is too small to be of use. Countries with no dominant religion was left out of the calculation.
And here are the results, expressed as the average position on the Transparency International Corruption Perception Index occupied by each dominant-religion group, where the least corrupt country is number 1 and the most corrupt is 180:

As can be seen, the Protestant-dominant societies are best associated with a culture of low corruption by far. Some distance behind those are Roman Catholic, Orthodox and Buddhist countries. And then, at an average position more than twice the level of corruption in Protestant societies, follow the Muslim countries.
The same sequence appears in the African statistics, but the advantage of the Protestant societies is not as pronounced as that in the world as a whole.
What is surprising about the Muslim societies, is that crime rates for offences like murder and other violent offences are very low. Yet it seems that corruption presents different outcomes. The reasons for this are discussed later.
It is to be expected that there are other factors that influence corruption. I have made a list of such possible influences.
A fairly obvious candidate seems to be education. Good education, one would expect, would over time inculcate values associated with good governance, such as honesty and respect for the merit principle. Perhaps more important, educated peoples tend to know about values embodied in the rule of law, and are less entitled to be intimidated into silence and inaction than more ignorant citizenries. More sophisticated law-enforcement institutions, like courts, are possible in a well-educated society.
Media freedom obviously plays an important part in exposing and potentially leading to the prosecution of corruption. The so-called fourth estate often does more to shine a light on dishonest politicians, officials an their civil collaborators, than do law-enforcement agencies.
Another consideration, one that may not be so obvious, is diversity of the population of a country. Why would diversity be important? It seems that the degree of diversity in a society has to do with social cohesion, or trust. For example, the success of homogeneous corporatist systems (ie where the state, trade unions and employers negotiate economic rules or labour conditions for the whole society), is well-documented, while it invariably fails in diverse societies. Examples of the former are the Nordics, and the latter Spain, South Africa and Brazil.
Countries with high trust, in turn, have low corruption levels, as the next chart shows.

Diversity can have a “horizontal” dimension (as in the case of ethnic groups) or a “vertical”. Inequality of education is an example of the latter, and so is inequality of income. Inequality of income is associated with higher crime rates and in particular violent crime . By the same token, one might expect less corruption in more equal societies, where social cohesion is better.
The antidote to diversity is decentralisation . Decentralisation can be achieved by economic deregulation, but also by decentralised governance systems. Generally we can say that a free market is economically decentralised, while a governance system where small groups of citizens take governance decisions on an autonomous basis, is more decentralised.
Why would a decentralised system lead to less corruption, especially in a diverse society?
It must be understood that government power is fundamentally about power over the wealth and the person of a citizen. The more power citizens have to deal with their own affairs, both personal and economic, the less officials in government are in a position to abuse government power over their affairs. This may take two forms: Economic decisions in the form of voluntary exchanges (contracts) in a free market, and localised decisions by communities, either themselves or represented by close, accountable representatives attuned to their needs. In either case the interests driving decisions are more likely to be those of, or at least benefitting, affected citizens, than would be the case with centralised decision-makers or regulators. The concept of decentralisation is particularly powerful in diverse societies where the interests of groups are more diverse, and social cohesion at a national level is weak. Conversely, in a diverse society small groups taking decisions about their own affairs are statistically more likely to have to accommodate fewer diverse and conflicting interests.
Centralisation should not be confused with a large government sector in the sense that the state spends a relatively big portion of the national GDP. The Nordic societies have large government sectors (for which we rightly criticise them) but they are some of the most decentralised societies in terms of both governance and economic management. In a study done for the World Bank , Denmark, Sweden, Finland and Norway occupied positions 2, 3, 4 and 6 on the Government Closeness Index, which ranks countries according the overall decentralisation of governments. Large government sectors show no correlation with corruption in general; centralisation does indeed.
Apart from these considerations, average income seems to be a factor worth considering. One reason for that is that people who benefit from well-functioning economies, whether in government or the private sector, tend to be tempted less to abuse their positions or buy favours. High-income citizens tend to tolerate abuse less easily than the poor, who are often ignorant and vulnerable to manipulation. High per capita GDP is also associated with free markets generally, which have their particular mechanisms ensuring that state officials have fewer opportunities to abuse power.
And here are the results of the comparison of the various factors and corruption (set out in sequence from the least corrupt to the most corrupt country, but summarised by quartile), largely confirming these intuitive predictions:

Besides reiterating the obvious importance of the rule of law and media freedom, what we note is:
• Economic freedom, together with its corollary, per capita GDP, is without a doubt the most potent predictor of low levels of corruption.
• Decentralisation is also very important.
• It is then not surprising that ethnic diversity is likewise associated with high corruption levels
• There is also a significant correlation between corruption and a lack of education.
• Income inequality seems marginally influential.
It is fair to expect that a country would hope to have in place more than one, preferably most, of the factors that correlate with good governance. Some factors are impossible (not to say unethical) to control, notably religion and ethnic diversity. But clearly neither of those is the end of the road.
A number of diverse countries, like Switzerland, Singapore, New Zealand and the US, are world-class corruption-busters. Save for New Zealand, they all have relatively decentralised governance systems. All have very free markets. All have advanced education systems. And all score high on the rule of law.
That Muslim countries on the whole appear to be more corrupt, of course does not mean they cannot combat corruption. The UAE, for example, is in position 21 out of 180 in the world. It does, however, have quite a free market, high income, reasonably advanced education and above-average rule-of-law institutions. However, most Muslim-dominated countries do not have a reputation as being highly democratic, and the corollary is that the rule of law suffers too. Almost without fail Muslim-dominated societies have barely any media freedom. Without changing their institutions and the values implicit in them, it is hard to see how this problem of corruption in Muslim societies can be addressed.
The causation does not run one way only. For example, low corruption in itself makes countries’ economies freer, and tend to boost income. Less corrupt countries have more efficient spending on public services like education. And we must not forget that by definition the rule of law is part of the measurable criteria to determine market freedom. More problematic, the rule of law is in large measure a matter of personal and societal values, as much as it is the result of structures. The best constitution with the most sophisticated legal system is helpless against people in government who really want to cheat. But the above statistics show that adopting the right structures alters the probabilities significantly, even decisively, in favour of good governance.
Africa is generally not a pretty sight. Of the 180 countries assessed by Transparency International, only one African country (Botswana) is in the first quartile of least corrupt countries (occupying position 34). Of the total of 45 African countries, 19 find themselves in the fourth quartile. The average position occupied by African countries is 123 out of 180. South Africa is surprisingly high on the list at 77, considering that the impression in the media is that we are one of the most corrupt countries in the world. That is not the case. In many other African countries corruption is a way of life in the administration of licences, passports, traffic fines, courts and starting or operating a business. Whilst we should not underestimate the size of the debacle that is state capture and its cousin, tenderpreneurship, SA’s corruption is a manifestation of centralised government power gone wrong. It does not permeate every aspect of life. Our institutions like courts, the Department of Home Affairs, traffic police and company registration operate more or less as they should. Our media are free.
African countries for the most part overwhelmingly share certain characteristics that are conducive to a culture of corruption.
• Unfree markets: It is no coincidence that the two least corrupt states (Botswana and Mauritius) are also the freest economically. As for the rest, they are quite unfree. Out of a total of 162 countries assessed for economic freedom, the average position occupied by African countries is 118.
• The rule of law is, sadly, still an orphan in much of Africa. In terms of the criteria adopted above, African countries fare quite badly, achieving on average 1.96, compared to the international average of 3.24 and the top-performers like New Zealand and Denmark that achieve more than 5.
• Lack of media freedom: The average African country would occupy position 114 on the list of 180 assessed. Here at last is good news for South Africa, which occupies position 28, similar to Ghana and Namibia at 23 and 26.
• Muslim faith is the dominant faith in more countries in Africa than any other religion. Countries with a history of protestant mission schools have generally adapted better to democracy.
• African countries are the most diverse in the world on average, which is the result, to a very large degree, of the heritage of colonialism, that carved up and lumped together vast tracts of land without any regard to the ethnic composition of its their occupants.
• On top of this, African countries are generally far more centralised in terms of governance structures, than countries in the rest of the world. Together with the multi-ethnic nature of the societies, this makes for a toxic mixture ripe for corruption.
• Education in Africa is a particularly unfortunate victim of the phenomenon of centralisation in a multi-ethnic society. There is compelling evidence that decentralised, autonomous schooling is far superior to the centralised model favoured in Africa – especially in a heterogeneous environment with diversity of languages, cultures and ethnic groupings .
• This witches’ brew of factors has resulted in Africa suffering from poverty and inequality of income, which makes corruption a recognised career choice and essential navigational tool in business.
The public choices are clear. A government that is really serious about eradicating corruption, must:
• Adopt a constitution and/or other laws that respect the rule of law and media freedom, and use those institutions impartially to root out corruption;
• Reform the economic system to a free market;
• Create decentralised governance structures;
• Take steps to create an excellent education system.
Public-choice theory also tells us that politicians and officials are not easily persuaded to change structures that serve as rent-seeking feeding troughs. How to persuade a government in a corrupt country to reform the system, is no simple matter. It is difficult to see how that can be achieved without at least one strong leader who really wants to change. And then that is not a foregone conclusion.
South Africa has some beacons of hope: besides a constitution and institutions that are reasonably supportive of the rule of law, its major redemption is media freedom. Few countries would have exposed the Zuma- and Gupta-driven state capture campaign as dramatically as did South Africa. One cannot imagine that occurring in a country without media freedom. Despite some justified criticism of the courts, they have largely held the line. Our downfall has been the remainder of the factors listed above: Weak education, over-centralisation of state power in a highly diverse society, and over-regulation of the economy. The latter factor cannot be stressed enough. In SA the flashpoints of much corruption are state-owned enterprises like Eskom and SAA. These monopolies are fecund breeding grounds for malfeasance by politicians and officials. The power of control in the hands of the state, which is in effect power over money, has time and again proved too tempting. It is government power that enables bail-outs, tenderpreneurship, wasted and uncontrolled expenses, theft of public money and bribery for favours.
Think about it this way: The rule of law is essentially a set of principles designed to enable ordinary citizens to exercise self-determination. It enables accountable leadership, fair adjudication of disputes and equality before the law. In a nutshell, it keeps government out of the business of ordinary people, save to protect them against interference by others or the state. The free market does this in the sphere of commerce, and decentralisation in the sphere of governance. All three sets of principles (rule of law, free enterprise and decentralisation) protect individual freedom. A necessary corollary of that is that it limits the power of the state. The less power the state has, the fewer opportunities there are to grant favours arbitrarily, ask for bribes, and commit nepotistic deployment and state capture.
Our constitution, our media and our courts are excellent anti-corruption institutions. But they have proved not to be enough. The Bible warns us not to put our trust in princes. A leader on a white horse on his own will not do it, unless part of his plan is permanently to roll back the might of the state. Nothing less will do.
And even then we may flounder, because ultimately we need an evolution of values. Values are shaped by incentives created by experience. The free market, defined as it is as based on the rule of law, makes it difficult to commit corruption. Its natural incentive is that of merit. It requires voluntary exchange as the means of acquiring income and wealth. There are few government officials able to ask bribes for granting licenses to trade, or government tenders, or special subsidies and concessions. In the private sector it creates skin in the game. Most entrepreneurs and workers know the game requires that they play by its rules, and that entails delivery of goods and services on merit. Of course fraud still happens, but that is why we have courts that work. The self-same rule of law that combats corruption in government, does so in the private sector. Free markets also force undertakings to protect their reputations by delivering good service honestly. Unless they do, they will be shamed by the media and drummed out of business. Free markets score exceptionally well in the Global Competitiveness Report in terms of good commercial governance. For example, here is the global ranking out of 135 occupied by the 5 freest markets in the world for the criterion “ethical behaviour of firms”:

Then there is a second player in the game of values, and that is our education system. There is no room in this article to give a full exposition of reforms necessary to bring about a successful education system , save to say that it, too, will necessarily have to be the result of policy choices. As we have seen, good educational achievement is associated with low corruption levels.
Unless we get the state out of the affairs of ordinary people and get our schools system working, we will continue to suffer the predations of corrupt government.

0

Website created by Blog Meistress