New York City Pays a Steep Price for Failing to Guard a Guardian

This past Monday, April 28, U.S. federal trial court judge George B. Daniels sentenced three persons at the center of a corrupt scheme that cost New York City some $600 million to 20 years each in prison.  Despite the massive loss and the large number of firms and individuals that participated, the scheme was quite simple.  Its simplicity, and the vulnerability of a government as large and sophisticated as that of New York City to it, is a stark reminder of how critical contract administration — one of the more prosaic-sounding responsibilities of government — is to controlling corruption.

The New York scam arose from a $63 million contract to modernize its payroll system. Software contracts, like construction contracts, can take months if not years to perform and may need to be modified as the contractor runs into issues not anticipated when the contract was drafted.  More computer code than initially foreseen may be required to capture the way employees in some departments record their hours; a road may have to be re-routed because the ground along the original route turns out to be unstable.  But it may also be that more code isn’t needed or that the original routing of the road is fine.  Instead, it may simply be that the contractor is looking for a way to squeeze more money out of government.

To deal with this concern, governments typically rely on expert professionals to evaluate a contractor’s requests for change orders. Often these professionals also decide whether the completed project meets contract specifications.  They thus serve as guardians of project quality and integrity.  What happened in New York was simple: the guards deserted their post, conspiring with the contractor to bilk the city of out hundreds of millions of dollars. Where the city erred was its failure to heed the famous question attributed to the Roman satirist Juvenal:  Who guards the guardians?

Heeding that question and coming up with a satisfactory answer are, of course, two different things.  What can a government do to avoid the sort of collusion that cost New York City so much money? Continue reading

Yes, Corruption Is Bad for Development. No, Corruption Is Not a Western Obsession

Recently there has been a spate of commentary in the blogosphere that revives a set of tired old canards about corruption and development — the related claims (1) that the focus on corruption and governance in the development discourse is misplaced, because there isn’t a lot of evidence that corruption matters much for development, poverty reduction, etc.; and (2) that anticorruption is a fixation of wealthy, mostly Western countries, because it enables people in those countries congratulate themselves about their moral virtue and to look down on habits and practices in the poor, benighted South. Recent examples include Chris Blattman’s posts on his blog (here, here, and here), Michael Dowdle’s contributions to the Law & Development blog (here and here), and Jason Hickel’s post on Al Jazeera English, though there are others as well.

Sigh. Do we really need to go through this again? OK, look: Yes, there are still lots of unanswered questions about corruption’s causes and consequences, and its significance for various aspects of economic development. And yes, some anticorruption zealots have sometimes over-hyped the role of corruption relative to other factors. But the overwhelming weight of the evidence supports the claim that corruption is a big problem with significant adverse consequences for a range of development outcomes. And the evidence is also quite clear that the focus on corruption as a significant obstacle to development comes as much or more from poor people in poor countries as it does from wealthy Western/Northern elites.

A blog post is not the best format for delving into a very large academic literature on the adverse impacts of corruption. And so the posts to which I’m responding might be forgiven for generally failing to provide much evidence in support of their claims that corruption is relatively unimportant for development, and largely a Western obsession. But, let me at least take a stab at trying to move the conversation beyond unsubstantiated declarations to some assessment of the actual evidence, starting with the impact of corruption on development.

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China’s Anticorruption Crusade Is Reaching a Turning Point

Xi Jinping is 18 month into his presidency and almost as long into his anticorruption crusade in China. As the Wall Street Journal noted as early as May 2013, anticorruption purges are hardly new in China, but President Xi seems to be pursuing his anticorruption drive with unprecedented vigour and commitment. Zhou Yongkang, the newest and arguably most prominent casualty of the purge, is evidence that this time is different. Shannon Tiezzi recently made the same underlying point in a piece in the Diplomat. Ms. Tiezzi takes issue with the oft-repeated claim that President Xi is only using anticorruption to weaken political rivals and promote his allies; she points out that while President Xi is indeed using the purge to his advantage, political infighting couldn’t be his sole motivation, since if it were “he would likely be winding down the campaign now.”

I don’t disagree with Ms. Tiezzi’s point. President Xi’s anticorruption drive–the centerpiece of his tenure so far–has undoubtedly gone further than others before him. More than 182,000 party members, including 17 high-ranking officials, have been punished for corruption since the beginning of his presidency. Yet despite this progress, recent signals suggest that his campaign might be significantly curtailed in the near future.

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Corruption and Shame in South Africa: Lessons from Current Events

In his recent post, Jordan noted that the OECD Working Group on Bribery recently approved a “scathing” report on South Africa’s noncompliance with the Anti-Bribery Convention. He described group members’ frustration at hitting “a brick wall” as their criticisms fail to effect any change in South Africa. Noting that the Convention’s primary mechanism of enforcing compliance is shame created by critical reports, Jordan asked the very important and provocative question: “What if shame isn’t enough?” A future post will explore an option that might exist for changing, expanding, or enforcing the Convention, but there’s a prior, empirical question: How is the shame mechanism working so far? Continue reading

The Source of the $1 Trillion in Annual Bribes Figure

In my last post, I discussed my unsuccessful attempts to track down the source for the widely-cited “$1 trillion in annual bribe payments” figure (other than a 2004 World Bank press release, which referenced an unpublished study without further citation).  Several readers were kind enough to direct me to the best published source on the $1 trillion figure: the appendix in a chapter by Daniel Kaufmann in the World Economic Forum’s 2005-2006 Global Competitiveness Report.  The chapter addresses most—though perhaps not all—of my concerns.

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Income and Asset Disclosure Statements: No Anticorruption Magic Bullet

For the second time in the space of a couple of months I find myself explaining to the leaders of an anticorruption agency that a program requiring senior officials to disclose their income, assets, and other details of their personal finances won’t end corruption or, for that matter, cure the common cold or otherwise solve all their nation’s ills.  There seems to be some kind of myth floating around the development community and at least some self-anointed anticorruption “experts” that such a program can by itself lead to the exposure of a great deal, if not all, of corrupt activity.

If only it were that easy.  The truth is the evidence points in virtually the opposite direction. Continue reading

Where Does the “$1 Trillion in Annual Bribes” Number Come From?

Given the generally accepted view that bribery is widespread around the world, it probably doesn’t make sense to get too hung up over the specific numbers. That said, I’ve seen the figure of (approximately) $1 trillion in annual bribe payments thrown around quite a bit, and I was curious where that number came from.  It seems to me it would be very difficult for even the most intrepid researcher to come up with a plausible ballpark estimate of the total dollar amount of annual bribe transactions. After poking around a bit on the web and in some of the relevant literature, I’m coming up empty. Here’s what I can tell so far: Continue reading