The World Bank must regain its authority to fight corruption
The World Bank must regain its authority to fight corruption
By Martin Wolf
Copyright The Financial Times Limited 2007
Published: April 18 2007 03:00 | Last updated: April 18 2007 03:00
"If you want to make poverty history you have to make corruption history." Paul Wolfowitz, embattled president of the World Bank, cited this remark by Nuhu Ribadu, head of the Economic Crimes and Corruption Commission of Nigeria, in a speech made only last month. There he emphasised, once again, the guiding theme of his presidency: fighting corruption and improving governance.
How credible, after recent revelations, is the World Bank as a beacon of good governance and a scourge of corruption? "Much less than it should be" is the answer.
In a speech just over a year ago in Jakarta, Mr Wolfowitz defined governance as "the combination of transparent and accountable institutions, strong skills and competence, and a fundamental willingness to do the right thing". Corruption is narrower: it is the abuse of public provision for private gain. Corruption, as Jim Wolfensohn,Mr Wolfowitz's predecessor, said, is "a cancer on the development process".
Yet corruption is also the natural thing to do. That is why it has always been pervasive. It is its absence that is unnatural. A society relatively free of corruption has removed the motivations of the marketplace from politics, public administration and the law. Since rich countries are far less corrupt than poor ones, the former have a better-enforced line between what lies within the market and what lies outside it (see chart).
Yet is it their wealth that causes the low corruption or the low corruption that causes their wealth? If it were solely the former, the World Bank's anti-corruption campaign would be a waste of time.
Fortunately, as Daniel Kaufmann, the bank's leading researcher on governance, argues, the relationship works both ways. "We estimate", writes Mr Kaufmann, "that a country that improved its governance from a relatively low level to an average level could almost triple the income per capita of its population in the long term, and similarly reduce infant mortality and illiteracy."*
Yet, as the chart also shows, the relationship between corruption and economic growth is, in fact, not just weak, but even perverse: corrupt countries have recently tended to grow a little faster. This is because underlying opportunities also matter. The corrupt countries were poorer and, other things being equal, poorer countries should grow faster than rich ones, because they have an opportunity to catch up on the latter.
As Paul Collier of Oxford university notes in a wonderful forthcoming book, development depends on two things: opportunity and the ability to seize it.** The quality of governance is an important determinant of the latter. But a country's resources, size, location, environmental condition and disease load determine the former.
The argument between those who stress institutions and those who stress underlying conditions is fatuous. Both matter. With favourable conditions - such as the discovery of oil - a badly governed country with poor policies can grow, at least for a while. With extremely unfavourable ones, even a relatively well-governed country will remain poor.
Yet this desperately sad fact does not make the quality of governance less important, but rather more so. As Prof Collier points out, many of the world's poorest countries do indeed suffer from limited opportunities. Where they do have wealth, it is usually in the form of commodities, such as oil. The management of such resources is intensive in good governance, as is management of large inflows of aid.
In contrast, one of the world's most corrupt countries, Bangladesh, has grown successfully for a generation, because it depends on exports of labour-intensive manufactures. This has proved to be both the most potent and most governance-proof opportunity of all. It is why China and Vietnam have both done so well.
Thus, even though the quality of governance is far from the only cause of success in development, it is hugely important, particularly for many of the world's poorest and least successful countries. The bank has been right therefore to make this one of its areas of attention. The question is whether anybody can do much about governance. The answer, again, is that it is hard, but not impossible.
In the significant case of corruption, it is a question of changing incentives and moral norms. Changing incentives involves: paying officials more; removing unnecessary and, above all, unnecessarily complex regulation; increasing transparency, not least through free media; and allowing citizens to exercise a "voice" through elections. Making such changes is hard technically and politically, since the beneficiaries of the corrupt status quo have the power to make progress difficult. But it is sometimes possible.
Can international financial institutions help? The answer, here, too, is yes. They can, above all, strongly support reformers when they come forward, as they often do.
The bank group has, after much internal dissent, come up with what looks like a sensible, seven-point programme: first, the focus on governance and anti-corruption follows from its mandate to reduce poverty; second, the country must have primary responsibility; third, the bank remains engaged in fighting poverty, as best it can, even in poorly governed countries; fourth, bank engagement will avoid a "one-size-fits-all" approach; fifth, the bank will engage with a broad range of government, business and civil society stakeholders; sixth, the bank will try to strengthen rather than bypass the government of a country; and, seventh, the bank will not act in isolation.***
I agree with Mr Wolfowitz that fighting corruption matters. But the institution must lead by example. Using his office to obtain what seems an extraordinarily favourable deal for his girlfriend is not, by the standards of our world, more than a venal sin. But his position as leader of the world's most important multilateral development institution and, above all, one dedicated to the fight against corruption makes it so.
Similarly, the pretence of ministers that a board whose members they appoint is free to act on its own is not the gravest imaginable failure in governance. But the fact that this is an institution dedicated to making governance better worldwide again makes it so. The moral authority of the bank is in the dust. Only one decent outcome of this tragically unnecessary affair exists. The cause on which so many rightly agree is bigger than the fate of one man.
*www.imf.org** The Bottom Billion: Oxford University Press; *** www.worldbank.org
By Martin Wolf
Copyright The Financial Times Limited 2007
Published: April 18 2007 03:00 | Last updated: April 18 2007 03:00
"If you want to make poverty history you have to make corruption history." Paul Wolfowitz, embattled president of the World Bank, cited this remark by Nuhu Ribadu, head of the Economic Crimes and Corruption Commission of Nigeria, in a speech made only last month. There he emphasised, once again, the guiding theme of his presidency: fighting corruption and improving governance.
How credible, after recent revelations, is the World Bank as a beacon of good governance and a scourge of corruption? "Much less than it should be" is the answer.
In a speech just over a year ago in Jakarta, Mr Wolfowitz defined governance as "the combination of transparent and accountable institutions, strong skills and competence, and a fundamental willingness to do the right thing". Corruption is narrower: it is the abuse of public provision for private gain. Corruption, as Jim Wolfensohn,Mr Wolfowitz's predecessor, said, is "a cancer on the development process".
Yet corruption is also the natural thing to do. That is why it has always been pervasive. It is its absence that is unnatural. A society relatively free of corruption has removed the motivations of the marketplace from politics, public administration and the law. Since rich countries are far less corrupt than poor ones, the former have a better-enforced line between what lies within the market and what lies outside it (see chart).
Yet is it their wealth that causes the low corruption or the low corruption that causes their wealth? If it were solely the former, the World Bank's anti-corruption campaign would be a waste of time.
Fortunately, as Daniel Kaufmann, the bank's leading researcher on governance, argues, the relationship works both ways. "We estimate", writes Mr Kaufmann, "that a country that improved its governance from a relatively low level to an average level could almost triple the income per capita of its population in the long term, and similarly reduce infant mortality and illiteracy."*
Yet, as the chart also shows, the relationship between corruption and economic growth is, in fact, not just weak, but even perverse: corrupt countries have recently tended to grow a little faster. This is because underlying opportunities also matter. The corrupt countries were poorer and, other things being equal, poorer countries should grow faster than rich ones, because they have an opportunity to catch up on the latter.
As Paul Collier of Oxford university notes in a wonderful forthcoming book, development depends on two things: opportunity and the ability to seize it.** The quality of governance is an important determinant of the latter. But a country's resources, size, location, environmental condition and disease load determine the former.
The argument between those who stress institutions and those who stress underlying conditions is fatuous. Both matter. With favourable conditions - such as the discovery of oil - a badly governed country with poor policies can grow, at least for a while. With extremely unfavourable ones, even a relatively well-governed country will remain poor.
Yet this desperately sad fact does not make the quality of governance less important, but rather more so. As Prof Collier points out, many of the world's poorest countries do indeed suffer from limited opportunities. Where they do have wealth, it is usually in the form of commodities, such as oil. The management of such resources is intensive in good governance, as is management of large inflows of aid.
In contrast, one of the world's most corrupt countries, Bangladesh, has grown successfully for a generation, because it depends on exports of labour-intensive manufactures. This has proved to be both the most potent and most governance-proof opportunity of all. It is why China and Vietnam have both done so well.
Thus, even though the quality of governance is far from the only cause of success in development, it is hugely important, particularly for many of the world's poorest and least successful countries. The bank has been right therefore to make this one of its areas of attention. The question is whether anybody can do much about governance. The answer, again, is that it is hard, but not impossible.
In the significant case of corruption, it is a question of changing incentives and moral norms. Changing incentives involves: paying officials more; removing unnecessary and, above all, unnecessarily complex regulation; increasing transparency, not least through free media; and allowing citizens to exercise a "voice" through elections. Making such changes is hard technically and politically, since the beneficiaries of the corrupt status quo have the power to make progress difficult. But it is sometimes possible.
Can international financial institutions help? The answer, here, too, is yes. They can, above all, strongly support reformers when they come forward, as they often do.
The bank group has, after much internal dissent, come up with what looks like a sensible, seven-point programme: first, the focus on governance and anti-corruption follows from its mandate to reduce poverty; second, the country must have primary responsibility; third, the bank remains engaged in fighting poverty, as best it can, even in poorly governed countries; fourth, bank engagement will avoid a "one-size-fits-all" approach; fifth, the bank will engage with a broad range of government, business and civil society stakeholders; sixth, the bank will try to strengthen rather than bypass the government of a country; and, seventh, the bank will not act in isolation.***
I agree with Mr Wolfowitz that fighting corruption matters. But the institution must lead by example. Using his office to obtain what seems an extraordinarily favourable deal for his girlfriend is not, by the standards of our world, more than a venal sin. But his position as leader of the world's most important multilateral development institution and, above all, one dedicated to the fight against corruption makes it so.
Similarly, the pretence of ministers that a board whose members they appoint is free to act on its own is not the gravest imaginable failure in governance. But the fact that this is an institution dedicated to making governance better worldwide again makes it so. The moral authority of the bank is in the dust. Only one decent outcome of this tragically unnecessary affair exists. The cause on which so many rightly agree is bigger than the fate of one man.
*www.imf.org** The Bottom Billion: Oxford University Press; *** www.worldbank.org
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