Corruption and Decentralized Public Governance
| Author | Anwar Shah |
| Pages | WPS3824 |
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In their quest for responsive, responsible and accountable public governance, a large number of countries have recently taken steps to re-examine the roles of their various levels of government. This re-examination has resulted in a silent revolution sweeping the globe. This silent revolution is slowly but gradually bringing about rearrangements that embody diverse features of supra-nationalization, confederalization, centralization, provincialization and localization. Note that localization implies home rule, i.e. decision making and accountability for local services at the local level. Fundamental elements of home rule are: local political autonomy with elected officials accountable to local residents; local administrative autonomy - ability for local officials to hire and fire local government employees; and local fiscal autonomy - discretionary ability to raise revenues and authority and flexibility in the use of local resources. The vision of a governance structure that is slowly taking hold through this silent revolution indicates either a gradual shift from unitary constitutional structures to federal or confederal governance for a large majority of people or strengthening local governance under a unitary form of government (25 federal and 20 decentralized unitary countries with a combined total of 60.4% of world population)1. This trend is a current source of concern among academic and policy circles that are worried that localization may adversely affect the quality of public governance through an increase in the incidence of corruption.
This paper examines the conceptual and empirical basis of these concerns. Section 2 defines corruption and governance and discusses the importance of current concerns about corruption2. Section 3 provides analytical perspectives on corruption. This is followed by a discussion in subsequent sections (sections 4-5) of special concerns about corruption under decentralized governance and a synthesis of empirical evidence on this subject. A final section presents some conclusions.
Corruption is defined as exercise of official powers against public interest or the abuse of public office for private gains. Public sector corruption is a symptom of failed governance. Here, we define "governance" as the norms, traditions and institutions by which power and authority in a country is exercised-including the institutions of participation and accountability in governance and mechanisms of citizens'voice and exit and norms and networks of civic engagement; the constitutional-legal framework and the nature of accountability relationships among citizens and governments; the process by which governments are selected, monitored, held accountable and renewed or replaced; and the legitimacy, credibility and efficacy of the institutions that govern political, economic, cultural and social interactions among citizens themselves and their governments.
Concern about corruption - the abuse of public office for private gain - is as old as the history of government. In 350 B.C.E., Aristotle suggested in The Politics that ". . . to protect the treasury from being defrauded, let all money be issued openly in front of the whole city, and let copies of the accounts be deposited in various wards."
In recent years, concerns about corruption have mounted in tandem with growing evidence of its detrimental impact on development (see World Bank, 2004). Corruption is shown to adversely affect GDP growth (Mauro, 1995, Abed and Davoodi 2000).
Corruption has been shown to lower the quality of education (Gupta, Davoodi and Tiongson, 2000), public infrastructure (Tanzi and Davoodi 1997) and health services (Tomaszewska and Shah, 2000, Triesman, 2000), and to adversely affect capital accumulation. It reduces the effectiveness of development aid and increases income inequality and poverty (Gupta, Davoodi and Alonso-Terme, 1998). Bribery, often the most visible manifestation of public sector corruption, harms the reputation of and erodes trust in the state. As well, poor governance and corruption have made it more difficult for the poor and other disadvantaged groups, such as women and minorities, to obtain public services. Macroeconomic stability may also suffer when, for example, the allocation of Page 2 debt guarantees based on cronyism, or fraud in financial institutions, leads to a loss of confidence by savers, investors, and foreign exchange markets. For example, the Bank of Credit and Commerce International (BCCI) scandal, uncovered in 1991, led to the financial ruin of Gabon's pension system and the corrupt practices at Mehran Bank in the Sindh Province of Pakistan in the mid-1990s led to a loss of confidence in the national banking system in Pakistan.
Although statistics on corruption are often questionable, the available data suggest that it accounts for a significant proportion of economic activity. For example, in Kenya, "questionable" public expenditures noted by the Controller and Auditor General in 1997 amounted to 7.6 percent of GDP. In Latvia, a World Bank survey found that more than 40 percent of Latvian households and enterprises agreed that "corruption is a natural part of our lives and helps solve many problems." In Tanzania, service delivery survey data suggest that bribes paid to officials in the police, courts, tax services, and land offices amounted to 62 percent of official public expenditures in these areas. In the Philippines, the Commission on Audit estimates that $4 billion is diverted annually because of public sector corruption (see Shah and Schacter, 2004). Moreover, a study by Tomaszewska and Shah (2000) on the ramifications of corruption for service delivery concludes that an improvement of one standard deviation in the ICRG corruption index leads to a 29 percent decrease in infant mortality rates, a 52 percent increase in satisfaction among recipients of public health care, and a 30-60 percent increase in public satisfaction stemming from improved road conditions.
As a result of this growing concern, there has been universal condemnation of corrupt practices, leading to the removal of some country leaders. Moreover, many governments and development agencies have devoted substantial resources and energies to fighting corruption in recent years. Even so, it is not yet clear that the incidence of corruption has declined perceptibly, especially in highly corrupt countries. The lack of significant progress can be attributed to the fact that many programs are simply folk remedies or "one size fits all" approaches and offer little chance of success. For programs to work, Page 3 they must identify the type of corruption they are targeting and tackle the underlying, country-specific causes, or "drivers," of dysfunctional governance.
Corruption is not manifested in one single form; indeed it typically takes at least four
broad forms.
Petty, administrative or bureaucratic corruption.Many corrupt acts are isolated transactions by individual public officials who abuse their office, for example, by demanding bribes and kickbacks, diverting public funds, or awarding favors in return for personal considerations. Such acts are often referred to as petty corruption even though, in the aggregate, a substantial amount of public resources may be involved.
Grand corruption.The theft or misuse of vast amounts of public resources by state officials-usually members of, or associated with, the political or administrative elite-constitutes grand corruption.
State or regulatory capture and influence peddling. Collusion by private actors with public officials or politicians for their mutual, private benefit is referred to as state capture. That is, the private sector "captures" the state legislative, executive, and judicial apparatus for its own purposes. State capture coexists with the conventional (and opposite) view of corruption, in which public officials extort or otherwise exploit the private sector for private ends.
Patronage/paternalism and being a "team player".Using official position to provide assistance to clients having the same geographic, ethnic and cultural origin so that they receive preferential treatment in their dealings with the public sector including public sector employment. Also providing the same assistance on a quid pro quo basis to colleagues belonging to an informal network of friends and allies.
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It is also known that corruption is country-specific; thus, approaches that apply common policies and tools (that is, one-size-fits-all approaches) to countries in which acts of corruption and the quality of governance vary widely are likely to fail. One needs to understand the local circumstances that encourage or permit public and private actors to be corrupt.
Finally, we know that if corruption is about governance and governance is about the exercise of state power, then efforts to combat corruption demand strong local leadership and ownership if they are to be successful and sustainable.
Public sector corruption, as a symptom of failed governance, depends on multitude of factors such as the quality of public sector management, the nature of accountability relations between the government and...
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