Monthly Archives: September 2016

Larger Governments Have Less Corruption (Part 2 – Possible Explanations)

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In my last post, I argued that the familiar hypothesis—advanced by Gary Becker and others—that big governments are associated with more corruption is inconsistent with the available cross-country empirical evidence. In fact, though the results of different studies are not entirely consistent, the weight of the evidence seems to suggest that (controlling for other possible correlates), countries that have larger governments—defined primarily as those that have higher levels of government spending as a percentage of GDP—have lower levels of perceived corruption, as measured by the familiar indexes, such as Transparency International’s Corruption Perceptions Index (CPI). Again, there are some questions about the robustness of this negative correlation—some studies find that it is statistically significant, while others do not—but there’s enough supporting evidence that I think it’s fair to (tentatively) treat this correlation as genuine.

Perhaps in hindsight this shouldn’t be so surprising. Putting aside multiple regression and other fancy statistical techniques, if one just eyeballs the CPI “league table,” it’s clear that the group of countries that consistently score near the top of the rankings include lots of countries—particularly countries in Northern and Western Europe—with quite large governments (such as Denmark, Sweden, Belgium, Norway, the Netherlands, Finland, and Iceland), while the bottom of the CPI list includes countries with very small governments. (Even if one excludes barely functioning states, like Somalia, the bottom group in the CPI includes small-government states like Bangladesh, Cambodia, Haiti, Russia, and the Central African Republic). Of course, this by itself doesn’t tell us much, especially given the well-established correlation between GDP and the government spending/GDP ratio—but, again, multiple regression techniques that control for GDP and other factors show that the positive correlation is genuine, and the handful of favorite examples often trotted out to suggest that small governments are the key to lower corruption (like Singapore and Hong Kong) are in fact statistical outliers.

So let’s assume that, as most studies seem to show, there’s a negative correlation between the government spending/GDP ratio and perceived corruption. What’s the explanation for this?

The short answer is that I don’t know, and I’m not aware of any research that really nails this down. But here are a few possibilities, some cribbed from existing papers, others based on my own wild speculations: Continue reading →

Watching Out: Cambodian Corruption Video Documentation Where Censorship Fails

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Low-cost video, and easier video distribution, simple though it sounds, is emerging as one of the premier corruption-fighting tools. This is especially true for small countries with poor track records in public integrity. Consider Cambodia. Although Prime Minister Hun Sen’s 30-year rule has been rife with graft, cronyism, land grabbing, and political violence, the government has been able to keep the extent of this hidden from most of the Cambodian public. Yet video and video-sharing services have proved one form of protest that the reigning government cannot seem to quash.

The most recent video to provoke the ire of the ruling party has low production values and little action. Three men sit at a table, one talking for the majority of the eight-minute run time about a Global Witness report’s allegations of extreme nepotism and cronyism within the ruling family. The man speaking, Kem Ley, was an opposition politician who was assassinated in broad daylight at a gas station convenience store just two days after his remarks. Many commentators immediately suspected the killing was political; these statements themselves spurred lawsuits from the ruling party. Multiple YouTube versions of the video now have several hundred thousand views each, with video news stories covering the killing tallying hundreds of thousands more. Kem’s funeral procession brought out droves of Cambodians, some reports numbering the crowd at two million (in a country of around 15 million people).

Another recent video about an anticorruption campaigner has become extremely popular despite—or perhaps because of—the government’s best efforts to stop it. The video’s subject, Chut Wutty, worked to expose illegal logging in Cambodian forests, logging that often happened with police complicity or direct participation. While accompanying journalists to show them the extent of the illegal deforestation, Wutty was shot and killed by a police officer. The low-budget documentary about his life and death was released this spring. Banned by the government, the film also quickly racked up hundreds of thousands of views and gathered plenty of attention.

In a country with state-controlled media, sparse internet connectivity, and extreme poverty, the exposure to corruption-exposing video is ad hoc but growing. Videos like these hold promise for the future of the long-struggling country for several reasons:

Continue reading →

Guest Post: Catalyzing Anticorruption Efforts in the Pharmaceutical Sector–Collaboration Is Key

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Michael Petkov, Programme Officer for Transparency International’s Pharmaceuticals & Healthcare Programme, contributes the following guest post:

It will come as no surprise to readers of this blog that the pharmaceutical sector has extensive corruption risks: the sector is extremely complex, with multiple actors, high-value products, large-volume contracts, and a high degree of information asymmetry. But despite these well-known risk factors many actors in the pharma sector are failing to produce and enforce adequate anticorruption policies. Key decision-makers in the pharma sector frequently do not perceive corruption as an important issue and often do not display a genuine commitment to anticorruption efforts.

A recent paper published by Transparency International and the Leslie Dan Faculty of Pharmacy at the University of Toronto identifies several overarching challenges that are hampering efforts to minimize corruption in the pharma sector, and posits key areas for action including the importance of harnessing technology to minimize corruption vulnerabilities and of increasing the monitoring, enforcement, and sanctions of actors. Because of the complexity of the sector, collaboration is essential to making progress on all of these fronts. After all, a key difficulty for tackling corruption in the pharmaceutical sector is the fact that the medicine chain stretches across national borders. It is encouraging that governments came together at the London Anti-Corruption Summit and recognized the need for national institutions to share relevant information with their peers in other countries. Similarly, multi-stakeholder initiatives such as the European Healthcare Fraud and Corruption Network are excellent opportunities for all types of actors to come together, share information, and collaborate with others to take action.

There are two other ways in which greater collaboration is critical for making progress on the fight against corruption in the pharma sector: Continue reading →

Fighting Natural Resource Corruption: The Solomon Islands’ Challenge

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On September 8 & 9 the Government of Solomon Islands, the UN Office on Drugs and Crime, and the UN Development Program will host a workshop in Honiara to discuss the national anticorruption strategy the government is preparing.  One issue almost certain to arise is how the government can intensify the fight against corruption in the logging and mining sectors. Both sectors are critical to the nation’s economic well-being.  Commercial logging is currently the largest source of export revenues, but earnings are expected to decline sharply over the coming decade as forest reserves are depleted (due in no small part to corruption).  The hope is that increases in the mining of the country’s ample reserves of bauxite and nickel will replace losses from forestry.

Corruption in both sectors has been documented by scholars (here, here, and here for examples), the World Bank (here), and the Solomon Islands chapter of Transparency International.  The government has not only acknowledged the problem but has committed to addressing it.  Its recently released National Development Strategy 2016 – 2035 makes controlling corruption in logging and mining a priority.  As the strategy explains, corruption in the two sectors robs government of needed revenues and deprives local communities of the benefits from the development of resources on or under their lands.

Identifying a problem is one thing.  Coming up with solutions is another, particularly in the case of resource corruption in the Solomons where the combination of geography, poverty, and huge payoffs from corrupt deals make curbing it especially challenging.  The remainder of this post describes the hurdles Solomon Islanders and their government face and suggests ways they might overcome them.       Continue reading →

Larger Governments Have Less Corruption (Part 1 – The Evidence)

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Many people believe that one of the most important root causes of public corruption is “big government.” This view was perhaps captured most famously and most succinctly by Gary Becker, the late Nobel Laureate economist, who declared (in a couple of memorable op-ed headlines), “If you want to cut corruption, cut government” and “to root out corruption, boot out big government.” Professor Becker was not what you would call cautious or circumspect in advancing this claim: He insisted that “instituting large cuts in the scope of government is the only surefire way to reduce corruption,” and that without such cuts even the most well-intentioned anticorruption reforms and crackdowns would fail, because “corruption always reemerges wherever governments have a major impact on economic conditions.” Though Professor Becker was perhaps the most blunt (and famous) advocate for this view, many others have taken this position. (See here, here, here, and here.) Indeed, a while back I attended an anticorruption conference at which a former senior minister of a European country (whose identity I cannot disclose due to the conference’s confidentiality rules) declared that the key to reducing corruption in his country was the decision to drastically shrink the public sector, slashing taxes, public spending, and the overall size of government–and this ex-official called on other countries to follow that advice as well.

But before we go charging ahead advising countries that the only way that they can get their corruption problem under control is to cut their governments, it might make sense to assess whether the available empirical evidence actually supports Becker’s hypothesis. Is it true that (all else equal) countries with larger governments have more corruption, compared to countries with smaller governments?

The answer is no. If anything, the evidence cuts in the opposite direction. Continue reading →

Guest Post: Limited Corporate Criminal Liability Impedes French Enforcement of Foreign Bribery Laws

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Frederick Davis, a lawyer in the Paris office of Debovoise & Plimpton, contributes the following guest post:

The U.S. Foreign Corrupt Practices Act (FCPA), adopted in 1977, prohibits bribery of foreign public officials. In 2000, France adopted its own law on foreign bribery, which generally prohibits the same conduct. Yet despite the similarity of the laws on the books, the FCPA has been vigorously enforced, with scores of settlements and large fines imposed on corporations, while in France, not a single corporation has been convicted of foreign bribery under the 2000 law—even though since that law’s passage, four large French corporations have entered into negotiated agreements with US authorities to settle alleged FCPA violations, paying more than US$3 billion in fines and other penalties. What explains this difference in enforcement?

While suspicions lurk that French authorities may not be terribly serious about fighting overseas corruption, the more plausible explanations lay the blame on other aspects of the French legal system. One difficulty is that French criminal investigations proceed very slowly, often taking ten years or longer. (At least some of the French corporations that negotiated outcomes with the U.S. DOJ were investigated for the same conduct in France; it’s likely that the U.S. authorities declined to defer to a French investigation without having any idea when it might end, or what the result would be.) Second, as Sarah Krys and Liz Loftus have pointed out in an earlier posts on this blog, France lacks a mechanism permitting a negotiated corporate outcome comparable to the “deferred prosecution agreements” and “non-prosecution agreements” (DPAs and NPAs) that the US authorities routinely used to resolve FCPA cases against corporations; even a corporate “guilty plea” is difficult and very rarely used in France. Just as important, though, and perhaps not sufficiently appreciated, is the difference between the two countries’ laws concerning corporate criminal responsibility, and the incentives those laws create for corporate decision-makers: Continue reading →