Globalization and Corruption
KeywordsExpert Assessment World Value Survey Corruption Perception Index Economist Intelligence Unit Firm Survey
Corruption is most often defined as “the use of public office for the pursue of private gain” (Galtung et al. 2013). This reflects a contractual relationship between the state and its bureaucrats and more broadly between the state and its citizens (Ledeneva 2009; Hira 2016). However, corruption increasingly refers to any breach of trust, malfeasance of intended duty, or failure to deliver in both practice and spirit for any agreement when the purpose is the gain of just one of the parties. Thus, corruption can occur at all levels of governance and include public, private, or nonprofit actors. Corruption is sometimes divided between petty, everyday corruption, and corruption scandals that occur on a large scale. Corruption can involve a wide variety of activities, from bribery to nepotism to favoritism.
Corruption, or misuse of office and abrogation of duties for pecuniary gain, has been common to all human societies. The development of the idea of a common interest, and subsequently a neutral bureaucracy looking out for the best interests of society, in the West helped to solidify the idea that corruption is something that could be rooted out, or minimized, though it has proven to be an ongoing process. In the postcolonial era after World War II, attention naturally turned to reforming developing countries, where widespread abuse of public finances and offices has taken place. Besides the wastage and misallocation of resources, corruption corrodes public trust and the legitimacy of government while reducing long-term investment. Attempts to reproduce Western-style bureaucracies and accountability mechanisms, and the spread of democracy as well as extensive monitoring efforts through global indices, have brought attention to the problem, but yielded limited results. Both the indices and much of the literature around corruption seem to point out the obvious – that corruption in the West is lower than in the developing world (Treisman 2007). Consensus around a causal theory that would lead to a more comprehensive reform effort has been contentious around whether an economics or cultural approach makes more sense. There is the possibility to see overlap between the two approaches, leading to a more effective corruption reform strategy.
Theories on Sources of Corruption (Kim and Hira)
There are two main approaches to understanding the sources of corruption, economic and anthropological. The economic approach emphasizes the possibilities that cost benefit analysis of cheating, that is, the costs of enforcement vs. the private gains from stealing or engaging in favoritism (Lambsdorff 2002). The anthropological approach looks more at cultural norms as a source of behavior, that is, formal bureaucracy may not reflect long-standing loyalties, traditions, and relationships that lead to corruption.
The dominant approach from economics has a deep and rich literature behind it and has informed most of the effort behind corruption reform. The ubiquitous term “rent seeking” was popularized by economist Anne Krueger in 1974. Rent seeking refers to the pursuit of individual or group private interest at the expense of public interests. It is often used to reflect the pursuit of gains by special interest groups and thus tied to campaign finance. Economists also tie corruption to transactions costs, or the costs or creating a link between and buyer and a seller (Lambsdorff et al. 2005). Oldenburg thus defines corruption as ‘the exchange of money or favor for a benefit disbursed by government official” (Oldenburg 1987, p.512). Government officials have an inherent conflict of interest in that they are to put national interests above their own individual or agency ones.
More complicating still is the fact that many transactions involve information uncertainty on the part of one or more parties to the transaction (Akerlof 1970). On top of this possibility for asymmetric information and the accompanying imbalance in power (e.g., the seller of a used car) is the principal-agent problem which comes up when one hires an expert in a field to act on their behalf and/or provide a service, such as a lawyer. The essential challenge is how to evaluate the role and performance of the agent when one lacks the expertise, no more so than in government decisions. In parallel, a middleman or broker in a transaction may benefit unduly from both of these phenomena. The Coase theorem (1960) suggests that property rights hold a key to reducing corruption since they internalize all transactions under one actor, such as a corporation that provides a beginning to end production process. However, many public activities, such as regulating environmental pollution or national security, are not possible to privatize.
Economics suggests that reciprocity is the basis of long-term cooperation. Reciprocity leads toward a generalized notion of social trust, giving an individual an incentive to play by the rules so that he/she does not suffer from violations. Thus, economists have a strong explanation as why both good and bad practices of corruption tend to be self-reinforcing. Repeated transactions and the need for transparency thus form the foundation for institutions, or organizations which bear and enforce rules of behavior for collective action.
It is hard to tell what role politics has on corruption. Though the general consensus is that vibrant democracies should be less corrupt (Treisman 2007), recent work on corrupt democracies such as India belies any simplistic notions (Riley and Roy 2016). There is contention about what types and activities of democracy reduce corruption. For example, Brunetti and Weder (2003) argue that the freedom of press is particularly important to expose corrupt officials and as a result will lead to the lower corruption over time. Kunicová and Rose-Ackerman (2005) claim that presidential systems have higher perceived corruption compared to their parliamentary counterparts.
From the cultural perspective, corruption reflects deeply embedded values and relationships. For example, some authors claim that power distance is a cultural value, reflecting the degree of tolerance from public and number of checks and balances against the abuse of power. In more egalitarian societies such as those in Scandinavia, therefore there is less corruption than in more unequal societies such as India and China (Hofstede and Hofstede 2005). However, those who study culture approach corruption in a very different way. Corruption is often viewed as a Western lens which unfairly judges developing societies (Torsello 2014). Authors such as Blundo (2007) therefore suggest studying culture as a reflection of more informal and less acknowledged cultural practices. Corruption is therefore understood as emanating from a clash between formal (Western) institutions and traditional ones based on more informal and less recognized personal networks. Such networks include long-term personal relationships which allow individuals to deal as a group with formal institutions and avoid uncertainty in an environment of scarcity through information exchange, political support, and bureaucratic favors (Lomnitz and Sheinbaum 2004; Jancsics 2014). Such networks can be found all around the world: in America it is called pull, in Russia blat, in Latin America compadrazgo, in Israel protexia, in Mexico palanca, and in China guanchi (Lomnitz 2004). Thus nepotism is not seen in the same negative light as it is in the West (Jaskiewicz 2013). The networks may also be vertical in the sense of a patron bestowing favors upon a client in exchange for loyalty or long-term debts (Boissevain 1989; Campbell 1989; Jackall 2010, pp. 18–44). Thus much of the formal movement toward democracy, even in the West, covers up patron-client activity that tends to elicit corruption.
The general approach coming from economics that has informed most corruption reform efforts is to increase penalties, transparency of transactions and regulations, and set up oversight agencies to examine transactions. The transactions approach is embraced by the leading global actors on corruption reform such as Transparency International and the World Bank. While there have been improvements in general awareness, there is no real sign of general shifts away from corruption globally. Therefore, new studies call for some combination of the two approaches, recognizing and seeking to change and merge informal and formal approaches to corruption reform (Hira 2016).
History of Corruption and Attempts to Fight It in the West (Hira)
If the West is the model to follow, how did it establish “clean” government? We can begin our review of the history of corruption in the West in a counterintuitive way: since corruption has been around since the beginning of time, the more interesting question is what are the roots of anti-corruption efforts? Along the lines of cultural approaches to corruption, it is still important to point out that anti-corruption has its roots in Western ideas around morality. Corruption in its broadest sense is any violation of accepted morality. In the West, the sources of morality are most proximately Judeo-Christian traditions, particularly the notion of sin. The most primordial story of the Garden of Eden is based on the devil’s lies. Corruption was historically tied to sin through a sense of uncleanliness, a violation of purity through dishonesty, which then made everything else metaphorically unclean and diseased (Bayless 2012). This helps to explain why we have an instinctively repugnant response to even petty corruption in the West, which is much harder to observe elsewhere. We essentially see corruption as an individual failing and breach of trust. The breach of trust is exacerbated when such violations take place in the public sector, which has additionally packed in notions of social, public, and collective responsibility. Arguably, then, in the West, proscriptions against corruption are much stronger due to the overlap of both individual and social implications in public activities, whereas in more corrupt societies, there is a perceived long-standing breach between an individual bureaucrat’s and public interests. Thus, ironically it is the focus on individual responsibility, regardless of context, in the West that allows for a strong sense of responsibility, whereas in societies which are more group-oriented, it is more understandable for an individual to take care of their clan or extended family before taking care of their public responsibility.
We can see in the West, therefore, that the justice and legal systems are built around the broader notion of dealing with moral violations. “The rule of law,” whereby the law is above individual interests and decisions, is a key concept that enshrines moral codes into a standing set of reified rules, a phenomenon rarely found in the developing world. The concept has deep roots in Greek and Roman history. In terms of corruption, these are embedded in the well-accepted principles of codes of conduct, conflicts of interest, independent judicial and regulatory review, and whistleblowing, along with the overriding one of due process in investigating purported violations (Miller et al. 2005). Such notions were developed and supported during medieval times by the idea that even rulers were subject to God’s law (Møller and Skaaning 2014, 131). Underlying these systems are the deeply embedded beliefs that the ends does not justify the means, the need for stable rules of behavior, above all for honesty. This is not to say that other societies are a- or immoral, only that their notions of corruption in practice do not match those of the West. In times where behavior in the West deviates from such guidelines, a correction inevitably ensues. For example, the turn of the twentieth century in the USA is sometimes looked upon fondly in terms of the machine politics of the big cities like Chicago or New York, where votes and contracts were frequently bought off from recent and often illiterate immigrants; however, the violence of the prohibition (with parallels in narco-trafficking today) era demonstrated the problem that allowing the breaking of rules in one area of society would spill over into others and that social norms had to support the rules.
Corruption does occur in the contemporary West, as stories from cost overruns in Afghanistan by US defense contractors to the massive scandal around FIFA abound. Large parts of southern Italy are rife with extortion payoffs and control of certain subsectors of production by illegal groups. It is more the perception and pervasiveness of corruption that varies. In the West, most everyday transactions are generally stable and predictable, whereas in the developing world, they are more prone to changing conditions. The best examples of that are the regular and peaceful succession of governmental change after a fair election and the independent role of law enforcement and the judiciary, both things often lacking in the developing world. It bears examining, therefore, how the West developed the notions of corruption that it is now attempting to universalize.
It would be difficult to retrace the exact steps of the evolutionary process in the West that led to less corrupt bureaucracies. Nield (2002, 12) links it to the rivalry among European states, whereby efficiency and stability in the public administration supported military success. The foundation of Western notions of propriety relate to the rule of law, property rights, and the development of the Weberian bureaucracy. All of these can be seen as parts of the overall context of accountability by election and by checks and balances among branches of government. Behind these is the concept of a public interest that supersedes that of any individual or group, with the government as the embodiment of it.
The idea of the rule of law is designed not only to set up orderly and acceptable conduct in public administration, but also to give a sense of confidence to the population at large in terms of equal and fair treatment under transparent rules of behavior. The rule of law is much more forceful than enacting law. As the cases of Latin America and Russia attest, enforcement and the spirit of the law are equally important to having a legal code.
Property rights figure large in most accounts of Western propriety. Property rights are in essence contractual boundaries for ownership of the benefits deriving from a piece of land, business, etc., that are ultimately enforced by the state. Property rights are thus essential to the free trade/exchange of assets in a reliable fashion. Tying into the monetary system, valuations of them, and the ability to exchange property, goods, and services for financial reward is the heart of the capitalist system allowing for accumulation and long-term investment.
Behind these systems is the public bureaucracy. The modern Western bureaucracy is generally traced to developments in Western Europe around 1790–1850. Within the next 100 years, many of the attributes of a modern bureaucracy, including functional divisions and task allocation, nonpolitical personnel no longer appointed by sale of offices, ranking systems, and professional pay and pension systems developed (Raadschelders and Rutgers 1996, 75–80).
Weber’s (1978) notion of advanced bureaucracy is central to Western propriety. Weber posited that traditional cultural systems would give way over time to a modern state where a merit-based neutral bureaucracy with strict rules on conflicts of interest and separate, stable budgets would make decisions in the best interests of society. This approach still represents our ideal view of the principles behind bureaucracies, though practices vary considerably. Yet, in practice, most Western bureaucracies are mixed systems, whereby political appointments occur at the highest levels (e.g., ministers or ambassadors), and merit-based hiring should take place at the lower levels. In some cases, such as local prosecutors or judges, there is a direct election. Historically, there has been a continual tension between these two systems, the first derided as the “spoils system,” a term popularized by appointments under US Pres. Andrew Jackson of his cronies to high positions. A related area of ongoing tension is public procurement. The Western principle is that public contracts should be awarded in a public competition with the criteria clearly known. The development of auditors, whistleblowers, and transparency for public contracts reflects an ongoing concern. A more recent addition to accountability agents is the Ombudsmen, an office that hears public complaints about corruption or poor service directly. In essence, such efforts are bound to be limited because of (a) the levels of expertise required to understand and weigh the different aspects of different proposals, (b) the number of contractors who can deliver on many contracts is bound to be limited and subject to collusion, and (c) the possibility of hijacking or otherwise marginalizing the accountability efforts. A perfect example of the latter is the conflict of interest that occurred by ratings agencies for junk US housing derivatives leading up to the 2008 financial crisis. The agencies had a basic conflict of interest because they wanted ongoing contracts from the issuers of the bonds (Hira 2015). What is underplayed in many discussions due to the prominence of the economics approach is the culture of bureaucracy in the West. Not only formal codes of conduct but a genuine spirit of public service abounds in Western bureaucracies.
The last piece for understanding Western approaches to corruption derives from the notion of checks and balances (Montesquieu 1748). This is often called “horizontal” accountability as opposed to the vertical accountability manifested through elections or appointments (where the supervisor has responsibility). The checks and balances approaches reflect the enshrinement of law enforcement and judicial independence. Along with that is the idea of overlapping roles, such as the need for the executive to propose budgets and the legislature to approve them. The overlap draws back to the basic history of democratic development in the West whereby European kings relied upon aristocratic landholding families in the Middle Ages to finance wars. This was the original source of power for a separate legislative branch as enshrined in the Magna Carta. Eventually, this evolved into the enshrined principle that the king should be accountable to oversight by the legislature and, over time, toward elected government. Elections are still considered the ultimate source of accountability. Perhaps an equally important role is played by the media, to uncover stories of corruption. The role of investigative journalism works hand in hand to allow whistleblowers access to a wider audience, as in the famous case of “Deep Throat” who revealed the Watergate scandal that was tied to US Pres. Nixon in the 1970s.
We see, then, that democracy itself is pervaded by the idea of accountability. Where transparency breaks down, such as the lack of oversight on privacy of security gathering of personal information following the 9/11 terrorist attack in the US, scepticism and distrust of government starts to creep in, undermining its effectiveness. The importance of values is underscored by noting that even when rules are not violated, violations of the spirit of propriety are quite serious. A contemporary example is the row over campaign donations by ultra-wealthy individuals in the US currently. While such notions are common throughout the West, the level of tolerance of violations varies greatly over time and space. In Canada, for example, Québec has a reputation for questionable public contracts. Propriety seems to break down often when Western companies work overseas as we discuss in the section on development and corruption. The boundaries of corruption are not as easy to discern in the West, then, as is commonly portrayed. The example of the Wikileaks scandal whereby a number of embarrassing classified communications were hacked and released publically demonstrates that there are still limits and controversy around transparency and accountability in the public sector.
Growing scepticism in the West about the role of government from the 1980s led to a series of reform movements which are discussed in detail in other sections of this volume. The first is called the New Public Management (NPM). NPM seeks to increase accountability by emphasizing a market approach to public services, where private providers can provide the service they are preferred. If not, the government should act like a private firm in terms of developing measures of performance, from setting up competition among providers to objective measures such as waiting times to allowing citizens (“clients”) to evaluate the service. Government agencies may even compete against each other. The second is the whole-of-government approach which sees government agencies as too fragmented and lacking in communication across functional areas, in distinction with the separation of powers tradition. It sets up integrated tasks forces and other means to improve integration and coordination. It is still too early to tell whether such reforms will make any dent on corruption, but there are reasons to be sceptical. While the NPM is helpful in creating a sense of performance, there are many functions outside of routine mundane functions, such as providing drivers’ licenses that are difficult to measure. Horizontal efforts go against a variety of systems including recruitment that are designed to build functional specialization along vertical lines.
The history of corruption in the West is ongoing rather than resolved. While the West has relatively strong accountability and normative systems that reduce levels of corruption, we should be very cautious about finding solutions, or replicating systems that developed over hundreds of years in individual national circumstances. Ongoing scandals show that accountability systems must evolve over time as well.
Global Measurements of Corruption (Murillo)
The measurement of corruption is a particular area of interest related to the need to map out corruption as part of general reform efforts. Quantitative approaches to tracking corruption allow cross-country comparison over time. These, in turn, have important and profound decisions on global economic transactions, particularly investment flows. However, the measurement of corruption has been an area of disagreement between stakeholders from different fields. The plethora of methodologies, measurement instruments, and indices represent in turn different conceptualizations of corruption. This section elaborates on three ways to measure corruption: surveys, expert assessments, and composite indices.
Representative Surveys of Service Users
Measurement of corruption through nationally representative opinion surveys is a common method to assess corruption levels in a nation. The two general types are private sector (business) surveys and general population surveys. Nationally representative surveys of firms or households provide a good insight of apparent corrupt practices in the provision of government services to the citizen. The samples range from randomized general population samples to surveys of the private sector and segments of the public administration. The size and nature of the samples has varied considerably.
Private sector-led surveys measure only corrupt transactions happening between public officials and business firms. For instance, they enquire about bribes paid in tax collection or in business licensing and also identify the types of firms pay more in bribes. Business people are frequently surveyed since they are thought to be knowledgeable in this field (Knack 2006).
Overall, these types of surveys provide a specific corruption measure that can be used to shed light on aspects of corruption that are not emphasized by the more broad perception-based indicators, which focus primarily on administrative corruption.
Among the many private sector surveys, two large surveys are the World Bank Enterprise Surveys and WEF’s Executive Opinion Survey. Both are parts of broader surveys of an economy’s private sector. World Bank Enterprise Surveys capture the prevalence of different types of bribery in 135 countries. The results are based on surveys of more than 130,000 firms. The Enterprise Survey is carried out through face-to-face interviews with firm managers and owners regarding the business environment in their countries and the productivity of their firms. Corruption is one of the topics covered through questions on bribes paid for different government services and processes. Other topics include infrastructure, trade, finance, regulations, taxes and business licensing, crime and informality, finance, innovation, labor, and perceptions about obstacles to doing business (WB 2015). The World Economic Forum’s (WEF) Executive Opinion Survey also has corruption as one of its topics. The survey is applied to a sample of firm managers in most nations of the world. Ratings are computed as the simple average of all executives’ responses (Knack 2006).
There are a plethora of household surveys that address corruption issues. Some surveys are entirely focused to corruption, while others explore a wide gamma of variables, corruption being one of them. Each of them differs on the nations covered, the methodology utilized, and the sample characteristics.
Transparency International’s Global Corruption Barometer (GCB) is an annual opinion survey of approximately 1000 people from each of 107 countries (for the sample taken from Sep. 2012–Mar. 2013) that tracks public opinion on corruption. Administered to a representative sample of the population, it addresses people’s direct experiences with bribery and details their views on corruption in the main institutions in their countries. The survey also provides insights into how willing and ready people are to act to stop corruption. The survey is administered face to face in local languages, through computer-assisted telephone interviewing or online, depending on the country context (Hardoon and Heinrich 2013).
The World Values Surveys (WVS) is carried out by professional survey organizations, using face-to-face interviews. All national samples were drawn from the residential population of 18 years and older and have a minimum sample size of 1000 individuals. In most countries, some form of stratified multistage random sampling was used to obtain representative national samples. In the first stage, a random selection of sampling points was made based on the given society’s statistical regions, districts, census units, election sections, electoral registers or voting stations, and central population registers. In most countries, the population size and/or degree of urbanization of these primary sampling units (PSUs) were taken into account. In the second stage, the list of addresses within each PSU was chosen using standard random route procedures. In the third stage, various methods were used to select respondents within households. In most countries, substitution of respondents was allowed (Kravtsova et al. 2014).
Another survey is Gallup International Voice of the People. As in the WVS, corruption is one of the many topics of the survey questions. The survey is conducted in 59 countries, with an approximate minimal sample size of 500 per country. Wherever possible, within each country a nationally representative sample of 500 adults, male and female, aged 18 years and over is used. In some emergent countries, where such research conditions are not possible, there may be stated variations to this (e.g., urban areas only). Similarly, in the developed world, interviews were conducted by telephone, while in emergent and underdeveloped countries, face-to-face interviews were conducted (Gallup 2012).
Similar types of surveys are International Crime Victim Surveys, New Democracy Barometer, Afrobarometer, Asia Barometer, Latinobarometer, and many others. These are characterized by focusing on different world geographies and economies and by having corruption only a part of the survey (Knack 2006).
In contrast to citizen surveys, expert assessments are surveys given to a network of correspondents with country-specific expertise. Given the nature of the data sources, these assessments of corruption have been most widely used for comparisons across countries and over time.
These assessments differ in various aspects that can have important impacts on the survey results. For instance, they generally focus on specific geographical or economical regions, thus providing limited number of nations. They also differ in how the surveys are managed and processed. For instance, some surveys are very centralized approaches, with final ratings being determined by a very small number of people from views of a network of correspondents with country-specific expertise. Others follow a more decentralized approach where final ratings are directly determined from experts with experience in different countries. A hybrid version utilizes regional hubs in order that process information.
These assessments also differ on how transparent is their methodology and whether they have clear definitions of the various concepts. While some indices provide detailed documentation and qualitative details, others provide little documentation, which raises important questions in regards to the nature of its data source and the rationale of the choice of the different parameters (Knack 2006).
An example of well-utilized expert assessment is the African Development Bank Governance Ratings 2014 (AFDB). Part of the Country Policy and Institutional Assessment (CPIA), the Governance Ratings assesses the quality of a country’s institutional framework in terms of how conducive it is to fostering the effective use of development assistance. The index is characterized by maximum level of uniformity and consistency across all regional member countries surveyed. The CPIA is carried out by a group of country economists with vast experience in policy analysis. The knowledge of these experts is complemented with that of local contacts that provide both quantitative and qualitative insights. Peer discussions are also used to monitor the quality of the findings. Experts are asked to assess the transparency, accountability, and corruption in the public sector. Three dimensions are addressed: the accountability of the executive to oversight institutions and of public employees for their performance, access of civil society to information on public affairs, and state capture by narrow-vested interests. The assessment covers 40 African countries (TI 2015).
The Economist Intelligence Unit (EIU) Country Risk Ratings is another example of expert surveys. Country Risk Ratings are designed to provide in-depth and timely analysis of the risks of financial exposure in more than 140 countries. The EIU relies on teams of experts based primarily in London (but also in New York, Hong Kong, Beijing, and Shanghai) who are supported by a global network of in-country specialists. Each country analyst covers a maximum of two or three countries/territories. The economic and political reports produced by EIU analysts are subjected to a rigorous review process before publication. Scores are given as integers on a scale from 0 (very low incidence of corruption) to 4 (very high incidence of corruption). One hundred twenty-eight countries/territories were scored in 2015. Data is available to subscribers of EIU Country Risk Service (TI 2015).
The assessment of corruption of citizen surveys, firm surveys, and expert assessments has various limitations. First, each is purposely defined too narrowly in order to capture different aspects of corruption. For instance, some might reflect only corrupt interactions between firms and public officials. Second, each is focused to various aspects of governance or other phenomena, corruption being only one of the components, frequently represented by a small number of questions. Third, each individual survey might introduce measurement errors due to bias, noise, or others. And fourth, each focuses on different sets of nations deepening on the organization’s geographical or economical focus. No single source covers all world nations.
Composite indices seek to address some of these issues. Their rationale is that a combination of several sources helps capturing the different forms and dimensions of corruption, thus providing a more comprehensive measure of this complex phenomenon. The aggregation of several sources also reduces the margin of error, assuming that such errors are not correlated (i.e., sources are independent). Nation coverage also improves tremendously, however making indices interdependent.
The best-known example in this category is the Corruption Perception Index (CPI) that measures the degree to which corruption is perceived to exist among a country’s public officials and politicians. The index is based on 17 surveys from 13 independent institutions that gather opinions of business people and country analysts.
A common criticism of this framework is that aggregating corruption indicators from numerous sources – with the goal of increasing precision in measurement – does not always produce a more appropriate measure than using a single indicator or data source. One cost that should be considered is the loss of conceptual precision through aggregation (Knack 2006). Gains in statistical precision from aggregating sources of corruption data likely are far more modest than often claimed, because the assumption of independent error in measurement among data sources is violated (Knack 2006).
General Criticisms and Limitations of Corruption Measurement
Both surveys and expert assessment have limitations beyond those already discussed. They are useful in presenting a general picture of where countries stand in terms of levels of corruption at a given time; however, they should not be mistaken for causal arguments, and their measurements should be looked at more as ordinal rather than continuous variables, thus limiting their statistical usefulness.
Firm surveys can be more appropriate for tracking changes over time than citizen surveys if the survey questions and sample design are identical in both periods and if other factors are controlled for where necessary. However, it is important to highlight that these measure only a small dimension of corruption, and they suffer of similar bias as citizen surveys do (Galtung et al. 2013). For instance, the surveying of firms and households is not effective in assessing the prevalence of corrupt transactions that occur entirely within the state, for example, when politicians bribe bureaucrats or when funds are illegally diverted. Furthermore, perceptions that corruption is an obstacle to doing business are potentially affected by optimism, or by prevailing economic conditions (Knack 2006). Many types of conflicts of interest also are not easily captured by firm surveys, for example, equity stakes of public officials, or employment promises to them by firms (World Bank 2000).
Furthermore, in firm surveys and citizen surveys alike, there are difficulties in obtaining honest responses when addressing a social or cultural taboo or an issue in which the respondent has a high degree of complicity (Galtung et al. 2013). Similarly, the current political climate fueled by mainstream media, social media, or other communication mechanisms might introduce bias in the respondent’s answers. The above biases can be complicated with the particular cultural background of respondents, their level of expertise in the subjects (i.e., education and awareness), whether they live or have lived in other nations, and whether they are rural or urban dwellers. Some surveys might be overly focused to citizens of urban areas, thus introducing further bias.
Likewise, expert opinions about the extent of corruption might reflect the frequency of muck-raking media reports, of government anticorruption campaigns, or of politically motivated accusations by opposition politicians. Ratings by international business people and experts, disproportionately drawn from developed Western countries, might be influenced by Western preconceptions or by the raters’ greater familiarity with certain cultures. Some of the organizations that prepare corruption ratings might also have ideological axes to grind. For all these reasons, “perceived corruption” may reflect many other things besides the phenomenon itself (Treisman 2007).
Most importantly, the different measures reflect differences in regard to the nature of corruption. They disagree on the definition, the rigor of the framework and survey, the sample size and characteristics, the role of culture, among many others. Overall, existing corruption indicators differ importantly in the aspects of corruption they purport to measure, in clarity and breadth of definition, and in the methods and transparency of their assessments. For these reasons, no one indicator or data source is best for all purposes (Knack 2006). The lack of a formal framework that will appropriately capture the concept of corruption stands out in contrast to the practices of measuring whatever dimension of corruption is readily available through existing tools. This leads to large bias and prejudgment that the funding organizations can set upon the methodology and measurement instruments. For instance, poor and simple societies tend to be more corrupt than rich and complex ones; however, this assumption largely ignores major corruption in developed nations and the elusive nature of lesser forms of corruption that could have permeated the complex Weberian system in evolved forms. The fact that visible corruption (such as bribes in public service) is more often associated with more primitive levels of economic and political development (Zimring and Johnson 2005) might be an indication that we are conveniently measuring what is obvious and not what is essential. That might be one of the reasons that complexity is associated with lower levels of corruption. Indeed, corruption is an evolving phenomenon that takes different forms depending on the controls that the system sets, adopting lesser visible behaviors in order to avoid the deterrents and preventions that grow with Weberian complexity (Zimring and Johnson 2005). Perhaps most concerning of all is that the indices are frequently used for policy-making without the requisite reevaluation needed for this new role (Ledeneva 2009). This takes us to innovation in the monitoring of corruption.
New Technological Approaches to Corruption (Murillo)
If we want to move beyond the general perceptions of a country’s overall levels, we find the monitoring of corruption challenging. Until the mid-1990s, most of the empirical findings on corruption in the academic literature were of an incidental or anecdotal nature. The evidence was based on particular, well-defined events or settings. Sometimes this was drawn from fieldwork and interviews, occasionally on legal and other primary sources and quite often on items and scandals reported in the media. The general problem in writing about corruption was that “the facts cannot be discovered, or that if they can, they cannot be proved.” Even in our current context, major corruption can only be found through unofficial channels such as leaks, whistleblowers, “hackers,” and other actors; this makes us rethink and ponder of the validity of current indices and also examine the role of modern technologies in incorporating other dimensions of corruption to current measurements.
The Principal-Agent Framework, Adjusted
Transparency can be categorized using two dimensions: how information is released and what type of information is released. These can be relevant for the identification and measurement of corruption.
Within the principal-agent framework, two types of transparency are identified, depending on who controls the release of governmental information (Lindstedt and Naurin 2010). Agent-controlled transparency is the agent’s release of information about its activities as mandated by the agent itself or externally imposed by the principal. This mandate could be self-imposed by the agent in an effort to increase its legitimacy or imposed by the principal in order to increase control, as modern freedom of information or other mandates do. Non-agent-controlled transparency is the release of information through the work of an independent and investigative media or other third-party source such as whistleblowers. While agent-controlled transparency makes the life of the agent more complicated, non-agent-controlled transparency makes it more dangerous, as it may identify actual instances of corruption and illegal activity (Lindstedt and Naurin 2010).
The type of transparency depends on the type of information released. Two types of transparency can be identified, economic and institutional transparency and political transparency. Economic and institutional transparency is related to the content, accessibility, and usefulness of economic and institutional information. It deals with transparency of economic and financial information, the budget and its process, economic policy-making, and public administration, among many others. It also deals with the implementation of Freedom of Information Laws and other transparency enablers (Bellver and Kaufmann 2005; Knack 2006). This type of transparency can be highly relevant in the context of an ever increasing globalized market and the opportunities for corruption at new scales, which seem to be growing. Political transparency is related to open debate and accountability in political institutions. It relates to transparency in political funding, openness and competitiveness of political participation, independence of the media, disclosure of politician’s assets, voting records, etc. (Von Alemann 2004; Bellver and Kaufmann 2005; Knack 2006).
With the principal-agent framework in place, we now identify the various approaches to measure corruption, including what we measure, how we measure, and where we measure.
As illustrated in Fig. 4, corruption could be directly identified (thus measured) by monitoring the agent and the agent’s actions at all times. However, this would be prohibitively expensive and unfeasible, as postulated by the principal-agent framework. For instance, some US states have required to police officers to carry out body cameras in order to document their dealings while in duty in the field. Similar requirement to all public office holders would certainly make their visible actions more transparent; however, the costs of the processing of information resulting from monitoring the actions, activities, documents, messages, dealings, and other activities of every single public servant would be extremely high. Thus, as the principal-agent framework postulates, gathering complete information on the agent’s actions is regarded as prohibitively expensive (and not feasible, at least for now), thus resulting in a preference for shirking.
A second manner of measuring corruption is by monitoring the information that the agent makes available proactively (agent-controlled) and finding incongruencies through different types of analyses, work generally done by civil society, investigative media, or other stakeholders. As the principal-agent framework assumes, the nature of the agent makes him withhold information in order to satisfy its own interests (i.e., hide inefficiency and corruption). Freedom of Information Laws and digital technology are facilitating the possibility of having more information available proactively, in a timely manner, and with technical sophistication that would facilitate its processing.
However, there are still various barriers to utilize information for measuring corruption. First, in most nations, the availability of information that is relevant for identifying corruption is highly reactive, generally obtained through highly bureaucratic Freedom of Information processes can take long time. And, second, specialized online portals that claim to make governments more transparent are not sharing information that is relevant for the identification of corruption (Shkabatur 2013; Murillo 2014) and are not utilizing appropriate technical sophistication and tools that would allow different segments of the population identify instances of corruption (Murillo 2014).
There are various technical tools and other processes that could be relevant in making government actions transparent in order to curb corruption. For instance, the utilization of appropriate technical standards and the adherence of global processes (such as “open budgets” and “open procurement”) will certainly have an effect in identifying occurrences of corruption; however, we argue that these will mostly have an effect in curving corruption or even changing the way that corrupt acts are being carried out.
Actors such as civil society, investigative journalists, and the international community can leverage the processing of data in order to identify instances of corruption. Tools such as “crowdsourcing,” technical standards, and even artificial intelligence will certainly help in identifying corruption. While the monitoring of the agent might switch from prohibitively expensive to highly expensive, the evolving nature of corruption might make it even more hidden, to the depths of technical processes. There are some emerging frameworks and limited efforts to measure government’s economical and institutional transparency, an important requisite for identifying corruption (Piotrowski 2010; Hollyer et al. 2012; Murillo 2012).
A third manner of measuring corruption is through non-agent controlled transparency, that is, through assessing acts that are exposed through whistleblowers, leaks, investigative journalists, hackers, or other major actors. The use of these actors to provide governmental information generally signifies that “grand corruption” is involved in such disclosures. Measuring corruption based on non-agent controlled transparency has two main issues. The first is that it generally measures major corruption (happening at various political and administrative levels of a nation), and the second is that it is highly biased, as the measurement is highly in function of the “capacity” of the nation to disclose information in unofficial manners, which might depend on whistleblower protection laws. Naturally, nations who do not have such laws might be harsher with the different actors present, thus presenting lesser number of non-agent-controlled transparency disclosures. The advent of the Internet, databases such as Wikileaks, and the spread of investigative journalism have been a key factors in disclosing corruption instances. Furthermore, with the evolving nature of corruption that adopts lesser visible behaviors in order to avoid the deterrents (Zimring and Johnson 2005), non-agent-controlled transparency might be a key tool for identifying major corruption acts.
In conclusion, despite the increasing ease of sharing information through the Internet, the lack of data and the high cost of monitoring the agent impede progress. However, as the bureaucratic process gets more automated and as technical tools gradually become part of human interactions, the identification and measurement of corruption through agent-controlled transparency might become a reality (Galtung et al. 2013; Murillo 2014).
Thus, for now, we are obliged to utilize indirect methods and proxies in order to measure corruption, or properly put, perceptions of corruption. This is done through representative surveys of service users, expert assessments, and composite indices composed of the above methods, when data is available (Knack 2006; Ledeneva 2009).
More comprehensive measures of corruption should include objective measurements (of what is actually occurring) and subjective assessments (of how those involved perceive or understand what is occurring). The information is needed because the reactions of people to anticorruption efforts will be governed by their own perceptions (Galtung et al. 2013). Therefore, the approaches to culture also underline that compliance should be norm based as much as enforcement based. The two should in fact be mutually self-reinforcing (Hira and Shiao 2016). Thus, culture and norms can be reconciled with the economic approaches.
Corruption, Development, and Globalization (Hira)
Corruption is synonymous with underdevelopment. Throughout the developing world, the ineffectiveness of government remains a major impediment to economic growth and citizen satisfaction. Corruption leads to declines in and misallocation of investment (Uhlenbruck et al. 2006). Concerns about corruption have led to ongoing spontaneous protests throughout the developing world, which increasingly evolve into more organized anti-corruption movements, such as the Hazare movement in India which sprang up in 2011. While NGOs such as Transparency International play a valuable assisting role, the role of international organizations and multinational corporations (MNCs) is more scrutinized.
By their charters, the World Bank and the IMF cannot engage in domestic politics. Yet, their activities speak otherwise. Numerous reform efforts, often tied to meeting international debt obligations, have followed the logical lines of creating a Weberian-type bureaucracy, meritocratic, transparent, and accountable to national interests. Moreover, since the 1980s, increasing emphasis has been placed on reducing the role of the government, including extensive privatization of state-owned enterprises, aka neoliberalism. The World Bank’s own governance indicators have become a primary means to measure corruption. Measuring items such as days to open a new business, the indicators reflect the difficulties created by both bureaucratic inefficiency and corruption. At the same time, such surveys (including that of Transparency International) are often accused of being biased toward Western interests in market liberalization, to assure investors. As a result, the efforts have more recently attempted to engage in citizen surveys and broader indicators to reflect more domestic sentiment. Yet, the choice of indicators and how they are reported and used, despite warnings by the issuers, remains controversial. There is no indication based on indices that neoliberalism has had any effect on levels of corruption. In broad terms, international organizations as well as foreign NGOs have to deal with host governments in order to be able to operate, thus exposing them to tacit cooperation with often corrupt entities.
Certain international organizations have taken a more active stance. The United Nations, for example, created the UN Global Compact in 2000 to set up principles for MNC activity, including reducing collusion for corruption. The UN has also set up certain organizations such as CICIG (International Commission against Impunity in Guatemala) which have acquired quasi-legal status, at the behest of the host government, to fight corruption and human rights abuses. The International Criminal Court, set up to deal with the latter, does not have any mandate for dealing with corruption.
Findings on MNC activities are blurry. MNCs are routinely accused of shady deals with corrupt governments, with trillions unaccounted for, such as the recurrent scandals around Nigeria’s oil industry or many arms deals. MNCs often counter that they are merely following local practices and have a better record than domestic counterparts. Statutes in the West designed to curb such practices, such as the US Foreign Corrupt Practices Act, seem to have quite limited practical effect in reducing corruption. Some would go further and state that even some legal mechanisms, such as export financing, amount to effective subsidies. However, countries wanting to curb such practices find their MNCs complaining that they will be shut out of such markets by their competitors, including those from emerging markets who face minimal pressure, if they do so. MNCs frequently use their global nature, for example, through transfer pricing to subsidiaries, to reduce taxes and hide transactions from prying eyes. In turn, governments seeking to crackdown on unwanted MNC behavior face the possibility that they will lose work to countries willing to look the other way. In line with the Global Compact, MNCs have ubiquitously adopted corporate social responsibility platforms. However, analysis of such behavior indicates haphazard, at best, compliance, even when there are third-party monitors (Hira and Rea 2015).
The problem for curbing corruption on a global scale is even more daunting, given the setup of the global financial system. As revealed in reporting around the Panama Papers emerging from a hack of a legal firm in 2016, individuals and companies everywhere freely use non-reported offshore banking havens to hide assets from tax collectors and for use in illicit activities. Despite some increase in reporting requirements following the 2008 financial crisis, Western government are still unwilling to close down such havens.
Conclusion and Recommendations
Developing countries clearly lack or are underdeveloped in terms of accountability and transparency, ranging from property rights to independent judiciaries. Yet, attempts to create such institutions as meritocratic recruitment have generally met with resistance, which can be explained by deeply embedded cultural norms. In considering the economic vs. the cultural approaches to corruption, we find that both work together. In the development of rule of law and good governance in the West, cultural and bureaucratic norms were established that were then reinforced through legal sanctions. The occasional scandal that grabs media attention in the West and bigger questions around campaign finance and procurement contracts demonstrate that such norms are not only alive and well but necessary for a legal regime to be effective. Emerging measurements of corruption seek to combine elements of objective transparency and accountability with perceptions, addressing the principle weaknesses of both survey- and expert-based assessments. The development of the internet also holds promise for increasing transparency, for example, by making budgets and procurement contracts publically available.
Acknowledging that culture or group norms have a direct impact on levels of corruption is not the same as finding causal mechanisms that would suggest reforms (Licht et al. 2007). Examining the history of anti-corruption in the West reveals that rule of law evolved over centuries and that vigilance must be constant. History cannot be reproduced, thus suggesting that while there may be some general lessons, it is likely that each region, or possibly each country, must find its own way forward. Complicating the situation even further in developing countries is the fragile nature of their states, postcolonial and fragmented along ethnic, religious, and class lines, traditional institutions persist in the shadow of formal Western ones (Hira 2016). The persistence of institutions over long periods of time suggests a far greater effort that is needed to make inroads on corruption (Acemoglu et al. 2001).
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