Populist Plutocrats Conference–Video Available

Last Saturday, on September 23, Harvard Law School organized (in collaboration with the Stigler Center at the University of Chicago) a conference on “Populist Plutocrats: Lessons from Around the World,” which I previously advertised on this blog (see here and here). The event was video-recorded for those who are interested but were not able to attend in person. At the moment, the available video is a full, unedited recording, which you can find here (on the Stigler Center’s YouTube channel). We’re hoping to get the video edited and uploaded in a more convenient format soon, but for those who are interested, I’ll provide in this post the time locations for different sessions of the event:

I hope and expect that we’ll have some more posts in the coming weeks that reflect and engage substantively with some of the discussions at the conference, and in particular how they relate to issues of corruption and related topics, but for now I hope some of you will check out some of the video recording.

 

Anticorruption Bibliography–September 2017 Update

An updated version of my anticorruption bibliography is available from my faculty webpage. A direct link to the pdf of the full bibliography is here, and a list of the new sources added in this update is here. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Preventing Corruption in Development Projects: The World Bank’s La Guajira Project

Report Number No: 38508-CO for a Proposed Loan in the Amount of US$ 90 Million to the Department of La Guajira with the Guarantee of the Republic of Colombia for a Water and Sanitation Infrastructure and Service Management Program is probably not the first place one would turn for advice on preventing corruption in development projects.  But it should be.  For annex 11 contains a text book example of how to identify and mitigate the risk of corruption in a donor-funded project.

The annex is part of the project appraisal document, the paper the World Bank’s Board of Directors relied upon in February 2007 in approving a $90 million loan to the Department of La Guajira in Colombia to upgrade the department’s water and sanitation services.  The loan was for the purchase of equipment and construction of civil works in some dozen or so municipalities and pilot water and sanitation projects in several remote rural areas.  While the project document made a strong case for the project’s benefits, it minced no words when it came to the risks of corruption the project faced: “The Department of La Guajira has a reputation for weak governance, corruption, and the continued presence of parallel institutions which have prevented public sector efforts to meet citizen needs in an equitable and effective manner.”  To be sure the message was not lost on board members, the authors went on to warn that “corruption, public sector malfeasance, capture by elites and special interests, and the paucity of accountability and transparency” is endemic in La Guajira and is the reason why the department remains so poor.

After reading such a clear, candid statement of the project’s corruption risks, one might question the sanity of any board member who voted to put $90 million of World Bank funds at risk.  But in fact an unvarnished analysis of the risk of corruption in the project is the first reason why the board was right to approve the loan the corrupt environment in La Guajira notwithstanding.  Project managers cannot prevent corruption in their projects if they are in denial about the risks they face.

The second reason why the board was right to approve the project loan is the chart that appears in the annex. Continue reading

Can Indirect Questioning Induce Honest Responses on Bribery Experience Surveys?

As I noted in my last post, bribery experience surveys – of both firms and citizens – are increasingly popular as a tool not only for testing hypotheses about corruption’s causes and effects, but for measuring the effectiveness of anticorruption policies, for example in the context of assessing progress toward the Sustainable Development Goals’ anticorruption targets. Bribery experience surveys are thought to have a number of advantages over perception-based indicators, greater objectivity chief among them.

I certainly agree that bribery experience surveys are extremely useful and have contributed a great deal to our understanding of corruption’s causes and effects. They’re not perfect, but no indicator is; different measures have different strengths and weaknesses, and we just need to use caution when interpreting any given set of empirical results. In that spirit, though, I do think the anticorruption community should subject these experience surveys to a bit more critical scrutiny, comparable to the extensive exploration in the literature of the myriad shortcomings of corruption perception indicators. In last week’s post, I focused on the question of the correct denominator to use when calculating bribery victimization rates – all citizens, or all citizens who have had (a certain level of) contact with the bureaucracy? Today I want to focus on a different issue: What can we do about the fact that survey respondents might be reluctant to answer corruption questions truthfully?

The observation that survey respondents might be reluctant to truthfully answer questions about their personal bribery experience is neither new nor surprising. Survey respondents confronted with sensitive questions often have a tendency to give the answer that they think they “should” give (or that they think the interviewer wants to hear); social scientists call this tendency “social desirability bias.” There’s quite robust evidence that social desirability bias affects surveys on sensitive topics, including corruption; even more troubling, the available evidence suggests that social desirability bias on corruption surveys is neither constant nor randomly distributed, but rather varies across countries and regions. This means that apparent variations in bribery experience rates might actually reflect variations in willingness to truthfully answer questions about bribery experience, rather than (or in addition to) variations in actual bribery experience (see here, here, and here).

So, what can we do about this problem? Existing surveys use a range of techniques. Here I want to focus on one of the most popular: the “indirect questioning” approach. The idea is that instead of asking a respondent, “How much money does your firm have to spend each year on informal payments to government officials?”, you instead ask, “How much money does a typical firm in your line of business have to spend each year on informal payments to government officials?” (It’s perhaps worth noting that the indirect questioning method seems more ubiquitous in firm/manager surveys; many of the most prominent household surveys, such as the International Crime Victims Survey and the Global Corruption Barometer, ask directly about the household’s experience rather than asking about “households like yours.”) The hope is that asking the question indirectly will reduce social desirability bias, because the respondent doesn’t have to admit that he or she (or his or her firm) engaged in illegal activity.

Is that hope justified? I don’t doubt that indirect questioning helps to some extent. But I confess that I’m skeptical, on both theoretical and empirical grounds, that indirect questioning is the silver bullet solution for social desirability bias that some researchers seem to suggest that it is. Continue reading

Regulatory Discretion and Corruption in the FDA

In the United States, the regulatory agency responsible for ensuring safe food and medicine, the Food and Drug Administration (FDA), has been marred by numerous scandals – from a 2016 insider trading prosecution to a 2009 politicized medical device approval to a 2013 ProPublica investigation that found the FDA overlooked fraudulent research and let potentially unsafe drugs stay on the market. These scandals have, understandably, undermined public confidence in the FDA. What’s the explanation for these problems? Why is there such a large public perception of corruption, and so many questionable incidents, at the FDA?

Much of the explanation has to do with institutional design: Corruption blooms where transparency and accountability are lacking, yet the FDA has vast discretion over the regulations it sets, incredibly loose restrictions on the money it can receive from industry, and little public accountability. The following steps can be taken to reform the FDA, in the interest of rooting out corruption and restoring public confidence in the agency:

Continue reading

Populist Plutocrats Conference–Reminder

This is just a quick reminder, for those who are interested, that the Harvard Law School conference on “Populist Plutocrats: Lessons from Around the World” (co-sponsored by the University of Chicago’s Stigler Center) is happening tomorrow, September 23, starting at 9 am (Eastern Time). The full conference agenda and speaker list is here, and for convenience I’ll also include it in this post after the break. If you’re interested in the event but can’t make it in person, you can catch the live stream here. The event will also be video-recorded, and I plan to post links to some of the videos (along with some commentary) over the next couple of weeks.

Also, in case any of you would like a bit more background, this morning the Harvard Gazette ran a short interview with me about the conference and what motivated me to organize it. (Spoiler: The main motivation rhymes with “Ronald Grump.”)

Here’s the full program and speaker list: Continue reading

Uzbek Civil Society on the Hazards of Investing in Kleptocracies

Tonight Uzbekistan President Shavkat Mirziyoyev will tout the benefits of investing in his country to executives of multinational firms at a swank dinner at the Onyx Room in mid-town Manhattan.  He will point to measures the government has taken since the death last year of its first president, renowned kleptocrat lslam Karimov, to open the country to foreign investment — from reforms to economic policy to steps to improve its atrocious human rights record.  But before they open their checkbooks, the execs will want to heed the warnings contained in a letter Uzbek civil society activities just sent Washington lawyer Carolyn Lamm, chair of the American-Uzbekistan Chamber of Commerce, the host of tonight’s get-together.

Reprinted below, the letter cautions that there are still many signs that Uzbekistan has yet to shed its kleptocratic past, from the appointment of one of the most notorious kleptocrats of the previous regime as prime minister to the rise to power of Mirziyoyev’s sons-in-law.  The authors remind Ms Lamm and the members of her organization what happened to those who invested in Karimov’s kleptocracy.  Not only did their investments turn out to be a bust, but the bribes the investors had to pay to do business have cost them (or more accurately their shareholders) dearly.  One firm was fined $795 million by Dutch and American authorities and a second recently told shareholders it anticipates paying over $1 billion to resolve the case against it.

The authors sent a copy of their letter to the members of Ms Lamm’s organization, a group that includes General Electric,  General Motors, Boeing, Catepillar, Coca-Cola, Honeywell, Visa, and other well-know, well-respected companies traded on American stock exchanges (and thus subject to the Foreign Corrupt Practices Act). Readers holding shares in any of these companies will want to ensure company executives pay careful attention to the letter’s warnings.

Ms Carolyn Lamm
Chair
American-Uzbekistan Chamber of Commerce
601 13th St NW # 600S
Washington, D.C. 20005

September 18, 2017

An Open Letter to the American-Uzbekistan Chamber of Commerce regarding the Situation in Uzbekistan on the Eve of its Meeting with President Mirziyoev

Dear Chairwoman Lamm:

We, the undersigned Uzbek citizens and activists, write to you on the eve of your dinner with President Shavkat Mirziyoev on September 20, 2017, to express concern that your members may be misled into believing that meaningful reform is underway in our country. We ask you to share with them this letter explaining the current conditions in Uzbekistan and the risks any firm investing or doing business in the country will face. We further ask you to urge the President to reform the judiciary and create an independent, impartial and effective body to investigate allegations of corruption. Continue reading