This week, Europe and the US will be negotiating the fifth round of the Transatlantic Trade and Investment Partnership (TTIP). Transparency International (TI) has urged the parties to include a transparency and anticorruption chapter in the TTIP. TI is right about this–the US and European negotiators should include something like TI’s suggested chapter in the revised TTIP. Continue reading
The FIFA World Cup is more than “a mere sporting event. It’s a tool to promote social transformation.” So said Ricardo Teixeira, the President of the Brazilian Football Confederation, after Brazil won the bid to host the 2014 games. Despite initial optimism, however, the buildup to the Cup in Brazil has been marred by widespread protests and accusations of corruption. If there is a basis to these accusations, the World Cup provides an early — and high-profile — opportunity to test Brazil’s new anticorruption law. Maryum’s post earlier this week might be right that the national government has a political incentive to prove that it’s serious about anticorruption, but the World Cup contradicts that narrative. The Cup’s high profile might skew the national government’s incentives: identifying corruption in Brazil’s World Cup could be a national embarrassment. If the federal government’s incentives are misaligned, the decentralized enforcement powers in the CCA – which Maryum’s post criticizes – offer hope that corruption will be punished. Continue reading
One of the most influential and widely cited economics articles on corruption is Paolo Mauro’s 1995 paper, “Corruption and Growth,” published in the Quarterly Journal of Economics (Vol. 110, No. 3, pp. 681-712). It has become a standard citation for the proposition that corruption is lowers investment, and consequently lowers economic growth. The paper is important because it sparked close to 20 years (and counting) of increasingly sophisticated research on the economic effects of corruption. Furthermore, it leant critical academic support to the emerging anticorruption movement in both civil society and international organizations like the World Bank and IMF. And for those reasons alone, I think one could make a strong case that this paper has had a positive impact on the world.
In a recent post Matthew spotlighted a handful of academics that are in denial about the extent of corruption in developing countries. As bad as it is for armchair analysts to ignore the facts about corruption, it is far worse when a leading development policy maker does. Yet that is what the World Bank is on the verge of doing as it puts the finishing touches on its new procurement policy. Continue reading
A couple of weeks ago, I posted a minor diatribe responding to the related claims – which I had perceived in a number of recent blog commentaries – (1) that corruption is not really that big a problem for economic development, and (2) that the emphasis on corruption had more to do with the desire of Western countries to feel superior to the allegedly misgoverned countries in the so-called Global South. One of the targets of my critique, Michael Dowdle, has posted an interesting response that deserves careful consideration.
Dowdle explains that his original post did not claim “that everyone involved in the anticorruption movement is infected by” the impulse to claim moral superiority, did not claim that this impulse “is the only or even the predominant motor behind the global anticorruption movement,” and indeed did not claim that this impulse is “a distinctly Western mindset.” After making these helpful clarifications, Dowdle explains the root of his concern that the desire to claim moral superiority may (partly) explain (some of) the global anticorruption movement: the invocation of a particular kind of corruption – “crony capitalism” – to explain the failures of the neoliberal model of global capitalism, most prominently in the 1997 Asian Financial Crisis.
In a nutshell, Dowdle’s argument goes something like this (and I apologize in advance for what I’m sure will be a bit of an oversimplification, but I think this is basically faithful): (1) the rapid growth of the Asian economies in the 1980s and 1990s, with their allegedly distinctive approach to government involvement in the market, posed a challenge to the purported superiority of American capitalism; (2) the Asian Financial Crisis delegitimized this alleged alternative model of capitalism, and so was greeted “with a clear degree of glee” from many American commentators; (3) commentators (mostly Western) claimed that a root cause of the crisis was “crony capitalism” – the alleged tendency to make loans based on political or social connections rather than expected returns – as part of an emerging narrative about how the “Asian Alternative” had failed; (4) in fact, however, crony capitalism had nothing to do with the crisis; and (5) the global anticorruption movement more generally “was strongly catalyzed by the discourse of corruption that American observers used to describe and explain” the Asian Financial Crisis.
For the moment, let me put aside that last point about the alleged causal relationship between the discourse of crony capitalism in the context of the 1997 crisis and the emergence of the global anticorruption efforts more generally – except to say that I’m skeptical that this was more than a minor factor. (Certainly Dowdle doesn’t point to any evidence, beyond the timing, that would substantiate this claim.) I want to focus instead on his intriguing and provocative arguments (A) that crony capitalism had nothing to do with the 1997 Asian Financial Crisis, but (B) that the emphasis on crony capitalism in some quarters reflected a desire to delegitimize a perceived Asian challenge to American/Western capitalism. I find this narrower version of Dowdle’s hypothesis much more plausible than the much broader version I (mis)understood him to be advancing in his original post. But I still find myself somewhat skeptical, so in the interests of continuing what at least for me has been a very stimulating exchange, let me push back against certain aspects of Dowdle’s argument here.
In January 2014, the Brazilian Clean Companies Act (CCA) came into effect. Under the CCA, Brazilian companies and foreign entities with a Brazilian registered office, branch, or affiliate can be sanctioned (civilly and administratively) for the bribery of domestic or foreign public officials, with penalties up to 20% of a company’s gross billings. The Act may be cause for optimism that Brazil is going to get serious about the corruption that has hampered its development, undermined trust in government, and provoked riots.
But despite the CCA’s tough sanctions and sweeping provisions, there are reasons to doubt whether the law will be effective at combatting corruption at the local level (as opposed to national-level officials). Even if the CCA might go some way toward dealing with corruption at the national level, the new law fails to to adequately address local-level corruption in Brazil — and this is a major limitation, because local corruption in Brazilian business dealings is especially rampant. There are at least two reasons why it is questionable the CCA will effectively combat local corruption. Continue reading
Over the last few months the business press has written many stories about hedge fund manager William A. Ackman’s billion-dollar short of nutritional supplement company Herbalife. Ackman is betting that the price of the stock will fall because the company (in his view) is nothing more than an immoral and illegal pyramid scheme. The New York Times has noted, however, that Ackman isn’t leaving anything to chance. He has successfully lobbied members of Congress to call for an investigation of Herbalife, pressured the Federal Trade Commission (FTC) to investigate the company, paid civil rights organizations to help him organize against it, and generally conducted an “extraordinary attempt to leverage the corridors of power” to crush Herbalife. The campaign seems to be making progress: the FTC and FBI recently announced that they have begun investigations into Herbalife, and the company’s stock has plunged as much as 32% this year from its recent high. The New York Times has painted Ackman’s tactics as an extreme (and unusually public) form of an increasingly common phenomenon: financiers “frequently” ask regulators to investigate and punish companies they’re betting against, making “Washington [increasingly] a battleground of Wall Street’s financial titans.”
Whether or not we want to call this sort of influence activity “corruption” (which, as Matthew pointed out in a previous post, is the subject of a longstanding debate), it raises difficult questions about how to regulate the influence of wealth on the political, regulatory, and — recently — law enforcement processes. Although Ackman’s concerns about Herbalife may very well be legitimate, the opportunity to abuse government resources and manipulate the market exists if investors push for investigations in bad faith — for no other reason than to make a buck and use law enforcement to do it.
Should we be worried about this conduct? And if so, should government agencies police against possible abuses of the law enforcement process? Continue reading
A little while back I posted a critical commentary on the Stolen Asset Recovery Initiative’s Left Out of the Bargain report. The report described – and implicitly but clearly criticized – the fact that although the U.S. and other “supply-side” jurisdictions had recovered substantial amounts of money in settlements with bribe-paying firms, only a relatively small percentage of those settlements were transferred to the “demand-side” countries where the bribery took place. These demand-side countries (which the report, to its credit, carefully avoids calling “victim countries”) are the ones that are “left out” of the “bargain” (that is, the settlement) between bribe-paying firms and supply-side governments.
I read the report as calling for, among other things, greater redistribution of settlement proceeds to demand-side governments, and expansion of the ability of those governments (or private parties) to pursue “follow-on” actions. My main criticism was that the report neglected to consider the effect that either change would have on the incentives of firms and supply-side enforcers. Two of the report’s authors, Ji Won Park and Jacinta Odour, posted an interesting reply to my post, which I recommend (along with my rejoinder, which can be found in the comments section of the original post). But although the main focus of my critique and their response was the incentives issue, our exchange also revealed an important difference of opinion regarding the meaning and significance of the UN Convention Against Corruption, particularly its provisions on asset recovery. It’s that issue that I want to explore here.
In my original post, I remarked in passing that the StAR report “elides … the distinction between asset recovery actions—in which a country seeks the repatriation of assets stolen by the country’s own nationals (usually former officials or their family members)—and actions for penalties or disgorgement brought against a firm or individual for allegedly bribing foreign officials.” In their response, Park and Odour “disagree that the [Left Out of the Bargain] study does not distinguish between repatriation of assets stolen by public officials and monetary sanctions imposed in foreign bribery settlements.” The report does this, they say, “through the lens of UNCAC.” They explain that UNCAC Article 51 (the first Article in Chapter V, on asset recovery) states that “[t]he return of assets pursuant to this chapter is a fundamental principle of [UNCAC], and States Parties shall afford one another the widest measure of cooperation and assistance in this regard.” Park and Odour then declare that this obligation to assist in the return of assets “applies not only to the mandatory return of assets that proceed from embezzlement and misappropriation […] but also to proceeds of corruption from other offences covered by UNCAC (such as Article 16 on Foreign Bribery) and compensating victims.”
If I’m reading this right, Park and Odour seem to be suggesting that, for purposes of States Paries’ obligations under UNCAC Article 51, there is no significant difference between stolen assets recovered in a forfeiture action, fines recovered in anti-bribery enforcement actions, disgorged profits, compensatory damages, and the like; they are all “assets” within the meaning of Article 51 – which implies, presumably, an undifferentiated obligation to “repatriat[e]” (in Park & Odour’s word) both stolen assets and “monetary sanctions imposed in foreign bribery settlements.”
I don’t believe this assertion can withstand close legal analysis, and I certainly think it is misguided as a matter of policy.
Last week I complained about the dearth of practical, policy-relevant literature available to help governments oversee contracts for the construction of civil works, the development of complex software programs, and other products which take months if not years to complete. This is but one of many examples where governments must navigate the procurement process without rigorous, empirically grounded work on what procedures to employ when and how. Absent such guidance, the procurement community falls back on rules of thumbs, old saws, and folk wisdom — the accuracy of which is always suspect.
One of the more suspicious sounding old saws in the procurement practice is the notion that contract execution and contract selection are independent activities — the belief, in other words, is that that how one selects a contractor is of little or no import for how well the contract is performed. But economic theory and recent empirical work both cast doubt on the accuracy of this bit of folk wisdom.
Continue reading
In my post last week, I went after a bunch of recent blog commentary that asserted there wasn’t much evidence that corruption mattered for development (and that also asserted the allegedly disproportionate focus on corruption was a “fetish” of self-satisfied Western countries). My emphasis in that post was on presenting the evidence that corruption is indeed a serious problem, one that citizens in developing countries care about. But I didn’t say much directly in response to the evidence that the targets of my screed (Christopher Blattman, Michael Dowdle, Jason Hickel) had offered for the claim that corruption’s not all it’s cracked up to be as a development problem. Of the posts I went after, Blattman’s made the most effort to ground the corruption’s-not-so-important claim in academic research. So I think his most detailed post on the subject deserves closer scrutiny than I gave it in my original polemic. (By the way, Blattman also included an interesting direct response to my post here; my reply is in his comments section.)
After reviewing Blattman’s post and the research he cites (and links to) in support of his argument that there’s little evidence that corruption matters very much for economic growth, my conclusions are largely unchanged. Indeed, I think that the academic papers on which Blattman relies tend to undermine his point more than they support it.
GAB | The Global Anticorruption Blog 