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 New Frontiers in Governance and Anti-Corruption
The ‘Power of Data’ and Collective Action

Daniel Kaufmann, The World Bank Institute

http://www.worldbank.org/wbi/governance

OSCE Economic Forum 2001

Brussels, January 30-31st

Governance: 9 Key Issues + 1 Challenge

• Focus on Corruption equating poor governance
• Government ‘drives’ Anti-Corruption (A-C) program
• Paramount: A-C Agencies / Commissions / Ethics Off.
• Judiciary/Legal Enforcement Institutions are the key
• Strict Enforcement of Rules: civil service/bureaucracy
• High Pay in public service for combating corruption
• Focus: Bureaucratic bribery in developing countries
• Focus on problem within Governments
• Data on Governance/Corruption not that useful

Challenge: The 9 Key Issues above contain myths

Challenge:

1
 Who Should take the lead in a National
Governance/Anticorruption Program?
(response of public officials in conference surveys)
Broad Coalition 48%

A-C Agency 18%

Civil Society Alone 8%

Executive Alone 7%

Enforcement Agencies 4%

Legislative 4%

Int'l Experts 4%

NGOs Alone 3%

Not Worth It 4% Percentage of Respondents

A-C: Anti-Corruption 0% 10% 20% 30% 40% 50%

Broad Perspective -- and Unbundling:

Assessing Overall Governance with Data
[based on over 300 variables; 160 countries]

• Control of Corruption (or Graft)

• Application of the Rule of Law
• Quality of Regulatory Framework
• Government Effectiveness
• Voice, Civil Liberties and Accountability
• Political Stability & lack of Violence/Crime
Full definition on governance, and access and details on data: http://www.worldbank.org/wbi/governance

2
 Control of Corruption: Aggregate Indicator
(From 155 worldwide, transition/selected countries)*
2

1.5

0.5

-0.5

-1

-1.5

-2
Uzbekistan
Turkmenistan

Hungary
Zaire

Mauritius
Indonesia

Chile
Nigeria

Malaysia

Finland
Czech Republic

Costa Rica

Slovenia
Ukraine

Denmark
United States

United Kingdom
France
Belgium

Singapore
Cameroon

Canada
Paraguay
Azerbaijan

New Zealand
Venezuela

POOR
GOOD
Source: ‘Governance Matters’, PRWP 2196 by Kaufmann, Kraay and Zoido; based on data from 1998.
For details and data, visit http://www.worldbank.org/wbi/governance There is a margin of error (thin line); extreme care in interpretation is needed.

Application of Rule of Law Varies by Region

(based on aggregation of surveys/polls 1997-99*)
High
Index
of Rule
of Law
Appli-
cation

Low
Index

OECD East Middle South Eastern Latin Sub- Former

Asia East Asia Europe America Saharan Soviet
Africa Union
Note: Regional Averages shown for discussion purposes, and hide large intra-regional variation in each case. Thin vertical
line reflects estimated margin of error. Source: Kaufmann, Kraay and Zoido-Lobaton (1999). "Aggregating Governance Indicators" and
"Governance Matters" PWRP 2195 and 2196. http://www.worldbank.org/wbi/governance

3
 The ‘Dividend’ of Good Governance

Infant Mortality and Corruption Per Capita Income and

90 12,000
Regulatory Burden
80
10,000
70

60 8,000
50
6,000
40

30 4,000
20
2,000
10

0 0

Weak Average Good Weak Average Good

x Development Control of Corruption x Development Regulatory Burden

Dividend Dividend

Literacy and Rule of Law Per Capita Income and

10000
Voice and Accountability
100
9000

8000
75 7000

6000

50 5000

4000

3000
25 2000

1000

0 0

Weak Average Good Weak Average Strong

x Development Rule of Law x Development Voice and Accountability
Dividend Dividend

Note: The bars depict the simple correlation between good governance and development outcomes. The line depicts the
predicted value when taking into account the causality effects (“Development Dividend”) from improved governance to better
development outcomes. For data and methodological details visit http://www.worldbank.org/wbi/governance.

Voice, Accountability and Civil Liberties Matter for Development

200
180

160
Infant Mortality

140
120
100

80
60
40
20
Finland
0
-2 -1 0 1 2

Voice, Civil Liberties and Accountability

Source: KKZ 1999

4
 Corruption is associated with absence of Civil Liberties

High
Corruption

Low
Not Free Partly Free Free
Based on averages of
data from 160 countries. Civil Liberties

Control of Graft and Freedom of the Press

2.5
High FIN DNK
SWE
CHE
CAN NZL
2 NLD
Control of Graft [kkz]

SGP
GBRCYP ISL
IRL AUSNOR
LUX
DEU
1.5 HKG
AUT
USA
FRA ESP
ISR PRT
1 CHL
SVN
FJI GRC
ITA JPN
MYS QAT KWT HUNTWN EST CRI !
BWA
0.5 OMN TTOPOL
URY
NAM MUS CZE
MLT BHS
CUB ZAF
LSO MAR JOR KOR
TUN GMB SVK BRAGUY LTU
0 CIV SWZ
ARE
SLE
BRN LKA
GNB
PER MWIMNG
THA
SUR JAM
CHN TGO
EGY BHR GHA BGD MEX PHL IND SEN ARG LVA
VNM
BIH TUR ZWE
MDASLV LBN BFA
ETH
HRVHTI COL MOZROM UGAMKD PAN MLIBOL
MDG
-0.5 PRK
BLR SAU TCD ZMB RUS COG
KENGEO BGR
KGZ ARM
PAK VEN
DZA NGALBY IRNIDN
SYR
AGO YEM GIN
KAZ GTM UKR
TZA NIC ECU DOM BEN
PNG
-1 SDN UZB
ALB
YUG
AZE PRY
GABHND
MMR SOM LBR
CMR
IRG TJK TKM
-1.5 ZAR NER r = .68

-2 r = 0.68
Low -2.5
0 0.2 0.4 0.6 0.8 1
Low High

Freedom of the Press (Freedom House)

5
 Salient Features of New Governance Diagnostic Tools

• Multi-pronged surveys of: households, firms and public

officials [‘triangulation’]
• Experiencial questions (vs. ‘opinions’/generic)
• Specially designed and tested closed questions
• Conceptual framework: Incentive Structure behind
Governance; focus on development
• Rigorous technical requirements in implementation
• Local Institution Implements, with WB Collaboration
• Recognizing Multidimensionality of Governance
• Focus on Service Delivery: Input for Action and Change

Lower Income Households ‘Pay’ Disproportionally

Bribe/Total Income ratio % ( A Latin American Country )

4.2
4
3
2.1
2 1.4
1
0

Low Middle High

Income Income Income

6
 Which Public Sector Jobs Are “Sold”?
60
Customs inspectors 48
41

Tax inspectors 52
41
25

39
Judges 32
16
Albania
25
Ordinary police 40
23 Georgia
Investigators/ 32 Latvia
prosecutors 33
14

5
Ministers 10
19

0 20 40 60 80
Percent of public officials reporting “purchase” of positions
Source: Diagnostics 1998

Public Officials Survey: Meritocracy in the Public Service

Can Help Reduce Corruption
5
High
Comptroller
y = -0.05x + 6.05
2
Prov. Council
R = 0.50
National Council of Transit r=-0.71
Telephone company
4
Undersec. Of Social Welfare
M of Fin - Budget
M of Energy and Mines
Electoral Supreme Tribunal Universities and schools
Courts
Undersec. Of Gov't
3
Congress

Real Estate Bank

2
Attorney General
Municipality
Presidency
M of Fin - Treasury
National Fin. Corp. Electricicy company
M of Fin - Income
Cent. Bank
Low 1 Public Prosecutor
40 50 60 70 80 90 100
Meritocracy in Hiring and Promotion

7
 Citizen Voice Improves Accessibility of Public
Services to the Poor in Bolivia
70
Accessibility to the Poor

60

50

40

30
Low Moderately Low Moderately High High

Voice / External Accountability

Simple Average Association Controlled Causal Link

Based on Bolivia Public Officials Survey. The sample of institutions includes 44 national,
departmental, and municipal agencies which are a prior anticipated to be accessible to the poor

Transparency within Government Agencies Increases

Their Poverty Reduction Impact in Bolivia
60
Poverty Reduction Impact

50

40

30
Low Moderately Low Moderately High High
Internal Transparency
Simple Average Association Controlled Causal Link

Based on Bolivia Public Officials Survey. The sample of institutions includes 50 national, departmental,
and municipal agencies which are a prior anticipated to have a major impact on poverty reduction.

8
 Extent of State Capture in Transition

Parliamentary Presidential Central Criminal

legislation decrees Bank Courts Party finance Capture index Capture
Country (% of firms) (% of firms) (%of firms) (%of firms) (% of firms) (%of firms) Classification
Albania 12 7 8 22 25 16 Low
Armenia 10 7 14 5 1 7 Low
Azerbaijan 41 48 39 44 35 41 High
Belarus 9 5 25 0 4 8 Low
Bulgaria 28 26 28 28 42 28 High
Croatia 18 24 30 29 30 27 High
Czech Rep 18 11 12 9 6 11 Low
Estonia 14 7 8 8 17 10 Low
Georgia 29 24 32 18 21 24 High
Hungary 12 7 8 5 4 7 Low
Kazakhstan 13 10 19 14 6 12 Low
Kyrgyzstan 18 16 59 26 27 29 High
Latvia 40 49 8 21 35 30 High
Lithuania 15 7 9 11 13 11 Low
Moldova 43 30 40 33 42 37 High
Poland 13 10 6 12 10 12 Low
Romania 22 20 26 14 27 21 High
Russia 35 32 47 24 24 32 High
Slovakia 20 12 37 29 20 24 High
Slovenia 8 5 4 6 11 7 Low
Ukraine 44 37 37 21 29 32 High
Uzbekistan 5 4 8 5 4 6 Low

Overall 24 21 25 18 20 22

State Capture Prevails in some countries

The ‘Capture Economy’ vs. the Market Economy
Source: Hellman, Jones and Kaufmann 2000 (BEEPS in Transition)
%of Firms affected by state capture

50 %
45 %
40 %
35 %
30 %
25 %
20 %
15 %
10 %
5%
0
Hungary Estonia Russia Azerbaijan
Adverse Impact of ‘Purchases’ of: Parliamentary Decrees Central Bank
legislation Influence

9
 • Transnational Corporate Responsibility Matters as Well:

% of firms that 'Purchase' Legislation and Decrees

in Transition Economies
% firms 'purchase' legislative

12%

10%

8%

6%

4%

2%
Domestic With
Investor FDI

Note: For transition economies, average of 20 countries.

Source: Hellman, Jones and Kaufmann, 2000 (www.worldbank.org/wbi/governance)

% Firms that pay public procurement kickbacks

(of those that trade with the state)

40
35
30
% of firms

25
20
15
10
5
0
tic

)
es

Q
m

H
Do

ic

as
est

rse
m

ve
Do

O
I(

I(
FD

FD

10
 Enormous Social/Economi
Social/Economi costs of state capture:
Much lower growth in sales and investment in economy
(and also weaker property rights protection)

25
Average rate of growth '97-'99

20

15
Sales
10 Investment

0
High capture Countries Low capture countries

State Capture exists where partial Civil Liberties

and slow Economic Reforms

40%
Economic
Extent of State

30% Reforms
Capture

20% Low Ec. Reform

10% Partial Econ. Reform

High Economic Reform
0%
High Civil Liberties Partial Civil
Liberties

Degree of Civil Liberties in Transition Economies

11
 Governance Improvement in Practice:
Differentiated Strategies in Five Countries
Institutional and Civil Service Economic Policy:
Reform: Deregulation and Delicensing in Bolivia
Transparent Privatization • Revamping Customs in Ecuador and Latvia
in Ecuador • Tax Administration in Latvia and Ecuador
• Salary Reform in Bolivia • Tax/Customs Code Reform in Albania
• Disclosure of Assets in
Bolivia and Georgia
Financial Controls:
Corruption Procurement Reform in Bolivia,
Ecuador and Georgia

Public Oversight and Civil Society:

Legal-Judicial:
Revamp of Supreme Court in Bolivia
• Competency test and firing of judges
in Georgia, Albania and Latvia
• Mediation in Albania
Ombudsman in Albania and Bolivia
• Private Sector Coalition in Bolivia
• Diagnostic Surveys and NGO
monitoring in Ecuador and others

Summing Up…
• Broadening Framework: Governance for Growth
• Addressing State Capture and Grand Corruption
• Political vs. Economic Independence of key agencies
• Voice & Civil Society: Participation/Collective Action
• Role of Competitive Private Sector/Business Assciations
• Addressing Fundamentals/Systemic Factors [vs. Symptoms]:
imperative of Institutional Reform
• New empirical diagnostic tools & dissemination:
The Power of Info.data
http://www.worldbank.org/wbi/governance

12
 Broader Framework in Quality of Growth: Summing Up
• Growth is paramount for poverty alleviation and
welfare improvement...
• ...But not if short term, K-int. and volatile growth
• And there are also other important welfare
components: Civil Liberties, Human K, etc.
• Governance and Voice components are also
important inputs for quality growth
• Rich countries can help quality growth process in
emerging economies: governance and aid
• We are still learning: power of data

Visit: http://www.worldbank.org/wbi/governance

National Governance: Challenges in Integrating Anti-

Corruption Into Institutional Change

A simple Formula synthesizing Governance/Anticorruption:

IG and AC = KI + LE + CA
Improving Governance and Anti-Corruption =

= Knowledge/Info.Data +…

...+ Leadership (incl. Political) + ...

... + Collective Action (change)

13
 http://www.worldbank.org/wbi/governance/

Data Presented for Analysis and informing

Policy Advise, not for Precise Rankings
The data contained in this presentation originates from
various enterprise surveys (as well as outside expert rating
agencies) and are subject to a margin of error. The
purpose is therefore not to present precise comparative
rankings across countries, but instead to illustrate
characteristics of governmental and corporate
performance in order to assist in drawing implications for
action. No ranking of countries is intended in presenting
results from these external sources by either the presenter
of this work, the World Bank or its Board of Directors.
Further details and data, visit: http://www.worldbank.org/wbi/governance

14