When Transparency Makes Corruption Worse: Cartels in Public Procurement

Yesterday Matthew commended the work of Mihály Fazekas, István János Tóth, and their colleagues to those concerned with corruption in public procurement.  I second that recommendation.  In their July 2013, slyly-named “Corruption Manual for Beginners”, the authors describe better than anyone yet how a government buyer can connive to steer a contract to a particular seller — from skewing the contract specifications so that only the favored firm can meet them, to failing to notify others about the procurement, to disqualifying on specious grounds firms that submit bids lower than the favored firm’s bid.

Yet despite the value of the contribution, the authors have not (yet) provided a similarly penetrating analysis of another form of public procurement corruption: that which results not from a conspiracy between a government buyer and one seller but that between the buyer and a group of sellers organized into an industry cartel.  Judging from the results of investigations in settings as different as the American states, the Netherlands, the Philippines, Nepal, France, Columbia, Uganda, Slovakia, and India, this type of corruption maybe be at least as common as the single seller form.  Costly too.  More than half the time, the price a buyer pays in a cartelized market is 25 percent or more higher than what it would have been had there been no collusion among the sellers.

The distinction between these two types of collusion–one involving a single favored seller, the other involving a cartel of sellers–is important, because the appropriate policy response is quite different. When the procurement process is corrupted by a cartel, the standard prescription for combating corruption–transparency–is not only ineffective but self-defeating.  Continue reading

The U4 Proxy Challenge–some quick reactions

One of the big challenges in anticorruption work, which I suspect we will be discussing quite a bit on this blog, concerns the measurement of corruption. After all, there are a bunch of different theories about the causes and consequences of corruption, and about the best way to combat it. Testing these theories requires some way of measuring the extent of corruption (or different forms of the corruption problem). And for folks actually doing anticorruption work (donors, governments, NGOs, etc.), it would be nice to be able to assess how well programs are working. Yet all of the existing measures have significant problems.

To try to inspire some creative thinking about new ways to measure corruption, the good people at the U4 Anti-Corruption Resources Centre (affiliated with the Christian Michelsen Institute in Bergen, Norway), with the assistance of the UK’S Department for International Development (DFID), recently sponsored a competition (the “Proxy Challenge”) to come up with new proxies that would help track the progress of anticorruption reform initiatives. U4 hosted a one-day workshop last month to let the five finalists present their proxies, to choose a winner, and to promote some general discussion of the challenges of developing useful proxies for corruption in a variety of contexts. I was able to attend. I’ll try to post a some more substantive thoughts in a later post, but here are a few quick reactions. Continue reading