About Matthew Stephenson

Professor of Law, Harvard Law School

Guest Post: The Link Between Perceived Corruption and Sovereign Risk Ratings

Today’s guest post is from Roberto de Michele and Francesco De Simone, of the Inter-American Development Bank and Ugo Panizza of the Graduate Institute of International and Development Studies in Geneva.

A year ago, at a seminar at the Inter-American Development Bank (IDB), a representative from one of the major private credit rating agencies got everyone’s attention with a single slide. That slide showed a strong positive correlation between corruption perception indicators and sovereign risk ratings. The simple yet compelling message: corruption, or at least its perception, negatively affects a country’s perceived credit risk, in turn may raise the country’s borrowing cost.

What are we to make of this correlation? Does it indeed indicate a causal connection between corruption and high borrowing costs? If so, what are the implications for policymakers? Although there was some discussion of this issue in the academic literature a decade ago, the subject had not received much attention. Intrigued by this simple correlation, the IDB Transparency Fund sponsored a study of this topic, for which one of us (Ugo Panizza) served as principal investigator. That study, published last October, is available in English and Spanish on the IDB website. The main findings were as follows: Continue reading

Tracking Corruption and Conflicts of Interest in the Trump Administration–November 2017 Update

Last May, we launched our project to track credible allegations that President Trump, as well as his family members and close associates, are seeking to use the presidency to advance their personal financial interests.Just as President Trump’s son Eric will be providing President Trump with “quarterly” updates on the Trump Organization’s business affairs, we will do our best to provide readers with regular updates on credible allegations of presidential profiteering. Our November update is now available here. A few highlights from the most recent update:

 

  • The Republican tax plan, strongly supported by President Trump, would result in enormous benefits to President Trump, his businesses, and his family. While it is difficult to assess the degree to which President Trump’s personal financial interests–as opposed to a general ideological/policy preference for cutting taxes on the super-rich–may have influenced the tax plan, the concern (which, as Jacob recently pointed out, is exacerbated by President Trump’s lack of transparency regarding his past tax returns) is a real one.
  • A relatively minor but nonetheless troubling report involves the Chinese government’s attempts to get the United States to return billionaire Guo Wengui, who has applied for asylum in the U.S. After Trump supporter Steve Wynn, who relies on Chinese government permits to operate his casinos in Macau, delivered (and apparently endorsed) a message from the Chinese government asking for Guo’s return, Trump initially agreed that he should be sent back, but changed his mind after aides informed him that Guo was a member of Trump’s Mar-a-Lago resort. In this case, improper financial interests seem to have played a role in both sides of the debate within the U.S. government on Guo’s case.
  • The recent “Paradise Papers” revelations, reported by the International Consortium of Investigative journalists, have suggested that Commerce Secretary Wilbur Ross’s conflict of interest may go beyond what had already been reported: The leaks from the Appleby law firm indicate that Secretary Ross maintained an interest in a shipping company that received significant revenue from a Russian company co-owned by Vladimir Putin’s son-in-law.
  • As has been widely-reported, Puerto Rico initially granted a substantial no-bid contract for the repair of the island’s power grid to a tiny firm located in the hometown of Interior Secretary Ryan Zinke, despite the firm’s lack of capacity and experience. While Secretary Zinke insists that he had nothing to do with the contract, the governor of Puerto Rico has called for cancellation of the contract, and several federal agencies are investigating.
  • President Trump is breaking with past practice by personally interviewing candidates for U.S. Attorney positions in New York and Washington, D.C., which has raised concerns given that these offices would have jurisdiction over substantial portions of the Trump Organization.

We will continue to monitor and report on allegations that Trump, or his family and close associates, are seeking to profit from the presidency. As we are always careful to note, while we try to sift through the media reports to include only those allegations that appear credible, we acknowledge that many of the allegations discussed are speculative and/or contested. We also do not attempt a full analysis of the laws and regulations that may or may not have been broken if the allegations are true. For an overview of some of the relevant federal laws and regulations that might apply to some of the alleged problematic conduct, see here.

US Anticorruption Policy in a Trump Administration Revisited: An Evaluation of Last Year’s Doom-and-Gloom Predictions

Almost exactly one year ago, the day after the U.S. presidential election, I published a deeply pessimistic post about the likely future of U.S. anticorruption policy under a Trump presidency. As I acknowledged at the time, “the consequences of a Trump presidency are potentially so dire for such a broad range of issues–from health care to climate change to national security to immigration to the preservation of the fundamental ideals of the United States as an open and tolerant constitutional democracy–that even thinking about the implications of a Trump presidency for something as narrow and specific as anticorruption policy seems almost comically trivial.” That statement is, alas, still true. But what about the impact on anticorruption specifically? In my post last year, I made a bunch of predictions about the likely impact of a Trump presidency on corruption, anticorruption, and related issues. What did I get right and where did I go wrong?

This may seem a bit self-indulgent, but I think it’s often useful to go back and assess one’s own forecasts, not only in the interests of accountability and self-criticism, but also because examining where we got things right and, more importantly, where we went wrong can help us do a better job in the future. Of course, one difficulty in assessing my own predictions is that many of them concerned longer-term effects that we can’t really assess after one year (really 9+ months). And in some cases the predictions concern things that it’s hard to assess objectively. But it’s still a useful exercise. So, here goes: Continue reading

Guest Post: Against the “More-Is-Better” Principle in Corruption Survey Design

Frederic Lesne, a researcher at CERDI/Clermont Auvergne University (France), contributes today’s guest post:

A series of recent posts on this blog have addressed a persistent difficulty with corruption experience surveys: the reticence problem–in other words, the reluctance of respondents to give honest answers to questions about sensitive behaviors–which may be caused by fear of retaliation or by “social desirability” bias (fear of “looking bad” to an interviewer—see here, here, and here.) Various techniques have been developed to try to mitigate the reticence problem, leading to a range of different survey designs.

How can we tell if a corruption survey is well-designed? Some researchers, attuned to concerns about social desirability bias, implicitly or explicitly apply what some have dubbed the more-is-better principle. According to this criterion, the best wording for a sensitive question is the one that produces the highest estimates of the sensitive behavior (and the lowest non-response rates).

Yet there are reasons to question the more-is-better principle. Changing the wording of a sensitive question may not only alter its sensitivity but also the respondents’ understanding of the question and ability to answer it. This may lead to a measurement bias that causes the modified wording to produce higher estimates of the behavior, not because of more effective mitigation of social desirability bias, but because of the exacerbation of other forms of bias or inaccuracy. Consider a few examples: Continue reading

Guest Post: Going Beyond Bribery? Improving the Global Corruption Barometer

Coralie Pring, Research Expert at Transparency International, contributes today’s guest post:

Transparency International has been running the Global Corruption Barometer (GCB) – a general population survey on corruption experience and perception – for a decade and a half now. Before moving ahead with plans for the next round of the survey, we decided to review the survey to see if we can improve it and make it more relevant to the current corruption discourse. In particular, we wanted to know whether it would be worthwhile to add extra questions on topics like grand corruption, nepotism, revolving doors, lobbying, and so forth. To that end, we invited 25 academics and representatives from some of Transparency International’s national chapters to a workshop last October to discuss plans for improving the GCB. We initially planned to focus on what we thought would be a simple question: Should we expand the GCB survey to include questions about grand corruption and political corruption?

In fact, this question was nowhere near simple to answer and it really divided the group. (Perhaps this should have been expected when you get 25 researchers in one room!) Moreover, the discussion ended up focusing less on our initial query about whether or how to expand the GCB, and more on two more basic questions: First, are citizen perceptions of corruption reflective of reality? And second, can information about citizen corruption perceptions still be useful even if they are not accurate?

Because these debates may be of interest to many of this blog’s readers, and because TI is still hoping to get input from a broader set of experts on these and related questions, we would like to share a brief summary of the workshop exchange on these core questions. Continue reading

Some Thoughts on the Trump-Tillerson FCPA Exchange

Dexter Filkins’ terrific New Yorker piece on US Secretary of State Rex Tillerson earlier this month included an anecdote about an exchange between Tillerson and President Trump concerning the Foreign Corrupt Practices Act (FCPA). For those who haven’t seen it, here’s the basic gist: In February 2017, shortly after Tillerson was sworn in as Secretary, he was meeting with Trump about an unrelated personnel matter when Trump launched into a tirade about the FCPA, and how it put US businesses at an unfair disadvantage. (That Trump holds this view is no surprise: He had expressed similar criticisms of the FCPA in public prior to his election.) But Tillerson pushed back, using an anecdote about how, when Tillerson was CEO of Exxon, senior officials from Yemen had demanded a $5 million bribe to close a deal that Exxon was pursuing in that country. Tillerson told Trump that he refused to pay, and made it clear to the Yemenis that this wasn’t how Exxon does business—and in the end Exxon got the deal anyway. According to Mr. Filkins’ source, “Tillerson told Trump that America didn’t need to pay bribes—that we could bring the world up to our own standards.”

Though it’s only a minor part of Filkins’ piece, the alleged exchange about the FCPA has attracted a fair bit of attention and commentary over the past month (see, for example, here, here, here, and here), much of it expressing or implying concern about this further evidence of President Trump’s hostility to the FCPA. It’s slightly puzzling that this anecdote is attracting more attention now, since the alleged exchange (which took place in February) was actually reported in early March—though Filkins’ piece has a little bit more detail (like the name of the country involved). Perhaps it’s because a news item about the FCPA was drowned out in early March by more pressing and immediate matters. (Trump issued the second version of his travel ban two days before the March report about the Trump-Tillerson FCPA exchange, and the federal district judge in Hawaii issued its injunction temporarily blocking enforcement of the ban a week later.) And perhaps the renewed attention to this item also has something to do with recent reports of an increasingly strained relationship between Trump and Tillerson.

Ultimately, though, it’s not so important to figure out why this anecdote is getting more attention now than it did back in March. The more interesting question is what, if anything, it reveals about the state of thinking—in government and the private sector—about the FCPA. There’s only so much that one can or should draw from a single vignette, but I do think it invites a few observations: Continue reading

Populist Plutocrats Conference–Video Update

Sorry for yet another follow-up post on last month’s Populist Plutocrats conference, but I wanted to let interested readers know that, in addition to the unedited recording of the full conference, the good people at the University of Chicago’s Stigler Center have made available edited videos of each of the conference, which you can access from the conference webpage. I’ll also post the conferennce schedule with the video links below, in the hopes that you will also be able to get to the videos directly from here, but if the links below don’t work you can get the videos from the Stigler page by following he link above. Continue reading