CORRUPTION AND GOVERNANCE
Daniel Kaufmann
Nonresident Senior Fellow
Brookings Institution
The progress of international
anti-corruption efforts
• More explicit international recognition now exists of
the negative effects of corruption
– Corruption is an obstacle to development
• When corruption is curbed and governance
improves, development dividend is significant
• Private sector has a major role – and a major
responsibility – in fighting corruption
300 percent development dividend: a country that
improves governance by one standard deviation can
expect to more or less triple its annual per capita
income in the long run.
The need for collective action
against corruption
• Collective action is indispensable in combating
corruption
• Collective action should include the private
sector
– Making business ethics a higher priority is crucial
in anti-corruption efforts
• Significant progress has been made in the past
decade, but more is still needed
Limits to progress
• Though there is progress in anti-corruption
efforts around the world, it has been
checkered and not universal
• Many domestic firms and multinationals still
widely engage in bribery
– Procurement is particularly corruption-prone
• Corrupt practices in emerging economies
remain widespread despite some
improvements
Single bottom line
• Multiple bottom lines approach expanded business
considerations beyond the profit motive to include other
goals
– Social and environmental sustainability, corporate social
responsibility, etc.
• BUT the essence of business operations still comes down
to the single bottom line
– Basic principle: companies must be first accountable to their
shareholders
– The principle of accountability to shareholders drives incentives
and behavior of companies
Incentives and costs matter
• It is important to find the incentives that drive
companies and individuals to engage in
corrupt practices
• It is also important to evaluate the costs and
benefits of anti-corruption regulation and
enforcement
– Excess regulations can create negative reactions
from the private sector and produce more
incentives for bribery
The need for greater transparency
• The alternative to excessive regulation is
greater transparency
• More attention should be paid to proper
disclosure in governments, corporations, and
multilateral organizations
• Transparency at the corporate level, such as
the monitoring of stock market and banking
system, is needed
Transparency deters corruption
• The World Bank publishes the names of corporations
and individuals involved in inappropriate or corrupt
practices in World Bank-funded projects
• International organizations such as Transparency
International can be a depository of information on
corruption
– Greater transparency increases reputational cost and
decreases incentives for corruption
We need transparency reforms with spine, not rhetoric.
The importance of media freedom
• Free media and investigative journalism can
greatly increase reputational risks for
corporations and public officials
• Research also shows a strong correlation
between mentions in the press about
corporate abuses and better corporate
governance
Evaluating anti-corruption efforts
• There has been little progress globally on broader
governance reforms
– Media freedom is lacking in many countries
– Disclosure of assets by politicians is not widespread
– Political campaign finance remains an issue
If there is very little progress on broader
governance reforms, the impact of many of the
smaller initiatives, such as anti-corruption
manuals, publications, and voluntary codes of
conduct, may be rather limited.
Broader governance framework
• Voluntary anti-corruption codes can only work
with better overall governance
– Single bottom line and incentives matter
– Voluntary measures may produce little results if
the incentives are not there
• Incentives for corruption can be reduced by
third-party monitoring with serious sanctions
for non-compliance and high reputational
costs
Overcoming resistance to
anti-corruption reforms
• Many serious anti-corruption reforms are
resisted by different groups
– There are often many vested interests stacked
against the implementation of anti-corruption
reforms
• The key is to figure out whether each initiative
is truly making a difference
– If not, how can it make a difference in the next
stage?
Going beyond superficial reforms
• State capture remains a formidable challenge
– The capture of the state institutions, laws, regulations, and
policies of the government by private elites
– Prevalent in many countries around the world
• Wherever state capture exists, micro anti-corruption
initiatives make little difference
– The key is to address the systemic problem
– Outside donor organizations cannot solve this problem,
but can position their programs better to make a
difference
State capture and vested interests
• State capture undermines competitiveness of
medium- and small-scale enterprises, as well as
public sector governance
– Exists in industrialized and emerging economies
• Although most firms have an interest in a wellgoverned business environment, some firms with
vested interests in status quo will remain
uninterested in anti-corruption reforms
– Even if firms recognize the benefits of anti-corruption, the
challenge of collective action against corruption remains
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