The OECD Report on Corruption in Sectors: Will it Hurt the Brand?

Consequences of Corruption at the Sector Level and Implications for Economic Growth and Development is the OECD’s latest report on corruption. Released March 25, it was written at the request of G-20 governments and follows an earlier one the organization did for the G-20’s September 2013 meeting.  Whereas that report examined the impact of corruption on rates of economic growth and levels of development, this one adopts a micro perspective, analyzing the effect of corruption and suggesting ways to fight it for four sectors of national economies: i) extractive industries, ii) utilities and infrastructure, iii) health, and iv) education. Among its more striking conclusions:

  • ”independent, competent and better regulatory and law enforcement systems” are critical for combating corruption;
  • “transparency should be an integral component of all anti-corruption strategies;” and
  • “anti-corruption measures must . . . be targeted and tailored.”

Additional examples of focused, cutting edge policy recommendations can be found by clicking “Continue reading.”

In fact, readers hunting for policy recommendations, or even where to look for policy advice, will find the report very disappointing.  What they will find are more banalities like those spotlighted above: strengthen formal accountability systems, “address” informal payments (i.e., small bribes) in the health sector, track expenditures in education using public expenditure tracking surveys, and so forth.  Little that is new and much that is pedestrian.

There are to be sure some useful nuggets buried in the text.  The organization puts its weight behind long-standing recommendations to improve the way corruption is measured and to step up monitoring and evaluation of anticorruption policies.  It also underlines the importance of addressing procurement corruption in the pre- and post-tender phases.  But the ratio of the platitudinous to the useful is very high.  This is disappointing given the target audience is the G-20, governments which represent 85 per cent of the world’s production, 80 per cent of world trade, and two-thirds of the world’s population. The high ratio is also surprising because on a range of corruption-related subjects  – from public sector ethics to the bribery of foreign public officials to corruption in different industries (click here and here for examples) – the OECD is a leading source of authoritative analysis and good practice.

The problem may be with the terms of reference the G-20 gave the organization.  As OECD Chief of Staff and principal author Gabriela Ramos explains in the forward, the report was written for two reasons: “to shed light on the link between corruption and economic growth and development by unraveling available information” and secondly to develop “recommendations for more effective anticorruption strategies.”  The relationship between the two themes is the belief (assumption? hope?) that, in the staff chief’s words, “improved knowledge of the consequences of corruption may promote more robust and systematic implementation and bolster political momentum for effective collective action against corruption.”  Twenty years on into the global movement to curb corruption, with 175 nations now a party to the United Nations Convention Against Corruption and 41 to the OECD Antibribery Convention, it seems hard to believe one more report showing how harmful corruption is will stimulate more action.  This is said even though the short chapter on the effect of corruption on the delivery of health care is as good and powerful a summary of the issue as one could ask for.

Do the report authors really think that the reason for inaction on anticorruption policies is that policymakers don’t appreciate the damage corruption does to their economies and their citizens’ well-being? Even if they were moved to take action by the short summaries showing the harm corruption does to their utility, mining, health, and education sectors, they would find little help on what to do in the report.   For example, the report urges G-20 governments “to call on firms to have strong internal controls to prevent bribes” (p. 17) but provides no guidance on what the controls might consist of or how they might be implemented.  At the least, the report might have pointed to the Good Practice Guidance on Internal Controls, Ethics, and Compliance, issued by the OECD Antibribery Convention’s Working Group in 2009.  It contains detailed recommendations on internal control mechanisms and how to implement them.  Ignorance of the guidance document is presumably the most likely explanation for the oversight.

Not only does that oversight reveal poor staff work within the organization, but it produces bad advice as well.  The report recommends government tell firms to put in place mechanisms to control bribery.  No, this is not right.  The good practice guidance is one of several sources that recognize that internal control systems need to curb more than just bribery – conflicts of interest and collusion to name just two.

Another glaring omission is the absence of any reference to the July, 7, 2012, OECD Council of Minister’s Recommendation on Fighting Bid Rigging in Public ProcurementWork by the OECD suggests that kickbacks from the inflated prices collusive bidding on public contracts produces are a major source of corruption in many countries, and though the report discusses corruption in public works in the sections on utilities, education, and health (many health and education ministries oversee the building of new schools and hospitals), it makes no mention of bid rigging or of the OECD’s leading role in efforts to curb it.

Part of the reason for these oversights may arise from the way the reports’ authors have chosen to define corruption.  They distinguish “political corruption” from “bureaucratic corruption” and “collusive corruption” from “extractive corruption.”  The definitions make it sound very much like “political” and “collusive” refer to corruption on a large scale and “bureaucratic” and “extractive” corruption the small time corruption arising from demands by teachers, doctors, other service providers for bribes.  Yet they hasten to argue that this is not the case.  The “relevance [of extortive corruption] goes beyond petty corruption,” they insist (p. 29, emphasis in original).  Moreover, in their terminology, embezzlement does not qualify as a form of corruption nor does putting people on the public payroll who never show up for work (p. 59).

Besides the curious way of defining corruption, the new terminology is also confusing.  As used in the report, “political corruption” has nothing to do with illegal political contributions, vote buying, or other unlawful means for gaining power (p. 117), and collusive corruption has no relationship with bid rigging or cartelization.  The terminology seems to blind the authors to one of the most important forms of corruption infecting the mining and utility industries: large, hidden payment to political parties from powerful private cartels in return for concessions and public contracts.

In the fields of public integrity and anticorruption, the OECD “brand” is highly respected for analytical quality and sound advice.  One  hopes the report will not compromise the brand.

3 thoughts on “The OECD Report on Corruption in Sectors: Will it Hurt the Brand?

  1. Wow, that’s pretty scathing. I wonder if it’s maybe a bit too harsh? I haven’t had a chance to read the OECD Report, but based on a quick glance at the Executive Summary, it looks like they do offer a bit more in the way of concrete policy recommendations than your post suggests. For example:

    * The report argues that anticorruption should be a priority on the G20 growth & development agenda (p. 16), which does seem banal at first glance but not be entirely trivial, since I gather there’s some debate about what belongs on that agenda, and specifically how much it will focus on corruption.

    * The report advocates public access to government contracts and related contract information (p. 17), which may or may not be a good idea but which is certainly a concrete and potentially controversial recommendation.

    * Also in the vein of transparency, the report advocates automatic exchange of information on tax matters, as well as beneficial ownership transparency (something that several NGOs, including Global Witness and Transparency International, have been pushing — it’s not new, but the fact that the OECD is endorsing it is not trivial) (p. 18).

    * With respect to public procurement, the report also makes a point of arguing that we can’t just focus on the procurement process itself (i.e., the moment of bidding/contracting), but we also need to focus on the post-procurement phase, and in particular subjecting amendments to the contract, renegotiation, post-delivery service agreements, etc., to a level of scrutiny comparable to that given to the initial contract (p. 18).

    * In infrastructure procurement in particular, the report also advocates specific forms of contract design (“design-build” and “alliancing”), and also suggests (I presume controversially) that countries might retain foreign experts to assess the quality of final constructions, at least for projects supported by international development assistance (p. 19).

    * The report emphasizes the need to develop new and better sources of corruption data (p. 18) — something I know you agree with. OK, so not wholly novel, but given the propensity of many organizations, scholars, and advocates to rely on the same limited data sources over and over again, I’ll give the OECD credit for making this a point of emphasis.

    * The report’s call for more financial transparency in the extractive sector (of the “publish what you pay” variety) (p. 20), while not particularly novel, is a concrete policy recommendation, and a contested point right now, particularly in the U.S.

    * Also in the extractive sector context, the report calls for G20 countries to consider requiring the appointment of “special transaction advisors” or “special compliance observers” for particularly high-value contracts, in order to prevent corruption (p. 20).

    * In the health sector, the report calls for limiting the discretion of government officials in making medicine procurement decisions, perhaps through administrative or judicial review of such decisions (p. 21). I can see both costs and benefits to this proposal, and it certainly strikes me as worthy of serious discussion.

    Again, I haven’t read the full report, and it’s entirely possible that it will turn out that, as you say, the platitude-to-useful ratio is unreasonably high. And in fairness, you do refer to several “useful nuggets buried in the text,” including several of the points I just mentioned. But I guess I wanted to challenge you a bit on your statements to the effect that the report’s recommendations are little more than a collection of banal platitudes and familiar, pedestrian talking points. Is it really as bad as you suggest? Am I reading too much substance into the bullet points in the executive summary?

  2. Oh, also, as long as I’m speaking up in defense of this report (which I haven’t actually read), i think you’re being a bit unfair on at least one aspect of the definitional issue. I think the report is pretty clear on what it means by the difference between “collusive” and “extortive” corruption, and it’s not the difference between high-level and low-level corruption. As they say (p. 29): “Collusive corruption means that both parties involved are motivated for the illegal deal and conspire to keep the crime hidden,” while “extortive corruption implies that the one who makes a bribe payment feels forced to be involved.” This is a pretty conventional distinction in this area, and one that has implications for law enforcement strategy, because (as the report notes) in the former case both parties benefit from the transaction and would prefer to keep it secret (and to allow more such transactions in the future), while in the latter case this is not so. And the table on p. 29 shows quite clearly that the report views the political-bureaucratic dimension as orthogonal to the collusive-extortive dimension. So here I think your criticism of their typology is just off the mark.

    That said, the report does indeed declare (p. 59) that “embezzlement … [is] not corruption per se,” which is patently bizarre. I’m not sure why they would restrict their definition of corruption to transactional corruption. I don’t know if this matters much for the overall analysis, though. Perhaps this will become clear when I finally get around to reading this report I’ve been so busy defending!

    • In defense of my critique —

      * Public disclosure of contracts. Charles Kenny now at the Center for Global Development and before that at the World Bank has long advocated public disclosure of infrastructure contracts. See for example his 2007 paper, World Bank Policy Research Working Paper 4271. I find the arguments (and data!) Bruce Cain puts forward n his book Democracy More or Less Bruce Cain questioning the efficacy of citizen oversight in such settings persuasive. He contends that where what is being overseen produces diffuse benefits, citizens have little or no incentive to invest the time and effort to do decent oversight. All the more likely in the case of large infrastructure projects where the contracts run to hundreds, if not thousands of pages, and are quite complex. Moreover, it is not clear to me that contract disclosure won’t facilitate collusion. The Center for Global Development dismissed the concern in its November 2014 paper supporting contract disclosure but the argument was not convincing.

      * Automatic exchange of tax information. The OECD has been the one spearheading the work on the exchange of tax information for the last six years. Why the report makes no mention of this, or provides details of what has been accomplished, is another mystery.

      * Yes, the report, like several other sources, suggests different contract structures would mitigate corruption risks by changing incentives. Like the other documents it offers no evidence in support of these claims.

      * The post credits the report both for stressing the importance of pre-bid and post-award prevention measures and for calling for better corruption data.

      * The only practical point I see to the difference between “collusive” and “extortive” corruption is that where the latter occurs hot-lines and whistleblower laws are likely to be of value — a point not made in the report. I would have been more sympathetic to the distinction if the report had not made so many unsupported empirical assertions about the difference in the frequency and the harm caused by the two.

      * You are right that I should have credited the report for suggesting that in high value transactions a special advisor or compliance observer be appointed. Maybe along the lines of the Canadian procurement ombudsman? A model the report might have mentioned.

      As you can perhaps tell, I still think the report does the OECD brand a disservice.

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