Corruption Matters

Author:Daniel Kaufmann

Corruption Matters Finance & Development, September 2015, Vol. 52, No. 3

Daniel Kaufmann

Governance has progressed in a few Latin American countries but corruption still hinders development in the region

Hundreds of millions of soccer fans around the world are following the corruption scandal in the Fédération Internationale de Football Association (FIFA, the sport’s world governing body). The U.S., Swiss, Brazilian, Colombian, and Costa Rican governments, among others, are investigating, and executives and officials from regional and national organizations and companies throughout the Americas and beyond have been implicated. Charges include allegations of bribery and collusion in lucrative contract awards and selection of World Cup hosts.

Every scandal and organization is different. Yet this case has characteristics, such as corruption among opaque networks of colluding officials and executives of transnational and national organizations, that are found worldwide. And the FIFA scandal suggests that, even if it takes a long time, there can be eventual accountability, as some judicial actions show.

The ongoing “car wash” case involving Brazil’s national oil company, Petrobras, is also relevant: inflated contracts with Petrobras in exchange for kickbacks to former executives and illegal party contributions by powerful construction companies have led to indictments and sentencing by Brazil’s judiciary. Allegations of bribery to secure contracts from companies in Italy, Korea, and Sweden have also surfaced. Other countries in the region are experiencing their own high-level scandals, including Argentina, Chile, Guatemala, and Mexico. Some are reacting.

Beyond particular scandals, and the varying responses, the challenge of corruption is vast. Estimates of bribery around the world hover around $1 trillion, and cumulative illicit financial flows from Latin American countries over the past decade are estimated to be about the same.

Defining and measuringAs part of a research project I initiated in the late 1990s with Aart Kraay at the World Bank, we defined governance as the traditions and institutions that determine how authority is exercised (see “Governance Matters: From Measurement to Action” in the June 2000 F&D). These include (1) how governments are selected, held accountable, monitored, and replaced; (2) governments’ ability to manage resources efficiently and formulate, implement, and enforce sound policies and regulations; and (3) respect for the institutions that govern economic and social interactions.

For each of these three areas we constructed two empirical measures, for a total of six Worldwide Governance Indicators (WGIs), using data from dozens of organizations. Every year, we assess more than 200 countries on voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption. Corruption is one among several measures of broader governance because it stems from weaknesses in other governance dimensions.

Traditionally corruption is defined in terms of individual public officials who abuse public office for private gain. But corruption has a wider reach. It is a costly symptom of institutional failure, often involving a network of politicians, organizations, companies, and private individuals colluding to benefit from access to power, public resources, and policymaking at the expense of the public good.

Systemic political corruption, particularly associated with campaign finance and related “elite (or state) capture”—undue influence on laws, regulations, and policies by powerful corporate interests—plagues many industrialized and middle-income (and democratic) countries around the world, including in North, Central, and South America. In this context of state capture and...

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