Corruption, Good Governance and Economic Development

The following sections are included:

• Acknowledgments
• List of Figures
• List of Tables
• List of Contributors
• Contents

The question may be asked, why is it important to discuss good governance as a prerequisite for sustainable and environmentally friendly development…

The word “corruption” has a moral as well as a qualitative connotation. Corruption is immoral and therefore it has to be stamped out. In this chapter, we discuss some of the quantitative measures of corruption. The Transparency International (TI) has developed several measures. The most popular measure is known as the Corruption Perceptions Index (CPI).

The TI produces another measure of corruption known as the Global Corruption Barometer (GCB). A third measure is known as the Bribe Payers Index (BPI), which assesses the supply side of corruption and ranks corruption by source country and industry sector.

The World Bank corruption index is known as the Control of Corruption Index (CCI). Yet another measure of corruption known as the International Country Risk Guide (ICRG) has been published on a monthly basis since 1980 by what is known as the PRS Group.

A final measure that is discussed in this chapter is known as the Opacity Index (OI). This index was produced for the first time in 2001, by the PricewaterhouseCoopers (PwC).

The release of economic and social data by a government provides many benefits to its citizens on a number of different levels. However, this willingness (or otherwise) to release information to the public may also be useful as a signal of the degree of political and institutional transparency. To that end, a new index is developed that has extensive coverage across countries (175) and time (1960–2005), and is based on the quantity of reported socio-economic data contained in the World Development Indicators and the International Finance Statistics databases. This chapter briefly outlines the construction of this index, and introduces a number of case studies and illustrations that highlight the importance of transparency in economic development.

Good governance is a prerequisite for a transition toward a more sustainable development. Within western democracy, governance is understood either as a management function or as a leadership role played by the government, politicians, business, academics, not-for-profit and community organizations or just particular individuals within civil society. More recently, this top–down approach has been challenged by the newly emerging methods of deliberative democracy which entrust the power of decision-making to randomly selected representatives of the public following intensive processes of deliberation. The role of experts in the process is to inform the deliberations, and the role of the traditional structures of power within society is to implement the outcomes from the deliberations.

Information availability is a serious condition for the potential of deliberative democracy to be fulfilled. Within the climate change imperatives, the focus of information delivery should be on allowing for a global picture to be created as the basis for individual localized decision-making. Based on the unprecedented power of computer and communication technology, this chapter puts forward the concept of a Global Green Information System (GGIS) which can provide the virtual space for and support on-line deliberative democracy processes. The functions that such a GGIS can provide are monitoring, information storage and transmission, facilitation of decision-making and analysis of virtual sustainability models.

Despite its enormous importance and input, the GGIS however will only be a tool in the broader deliberative processes guided by the value systems represented by society members.

Since the Second World War, Africa and especially Sub-Saharan Africa (SSA) has had the poorest economic performance of any region in the world. Ironically, many African countries had set out with high hopes once they had thrown off the yoke of colonial rule but it was not long before disaster struck. Against the background of an expanding world economy Africa experienced ‘a chronic failure of economic growth’ (Collier and Gunning, 1996), so that by the end of the 20th century incomes per capita were little better than they had been at the time of independence, and in some cases a good deal worse. The main problem was the failure to improve the efficiency of resource use; in contrast to the position in many other developing countries total factor productivity was either static or negative for much of the time (Ndulu and O'Connell, 1999; Crafts, 2000). Thus while poverty was declining elsewhere, it was increasing steadily in SSA. By the turn of the century two-thirds of the population were estimated to be living at subsistence or below the absolute poverty line, while nearly one-half the world's poor lived in Africa (United Nations, 1997).

There are of course many factors which can explain this remarkable state of affairs, but the one we shall focus on this chapter is Africa's great weakness in statecraft, by which we refer to political systems, bureaucracies, administrative organizations, property and legal rights and general issues of trust and contract enforcement. In other words, it is a question of good governance as opposed to bad governance and corruption. The general argument here is that with few exceptions African countries have lacked a sound social and political base which would favor growth and development and that this base has tended to deteriorate over time.

Corruption is understood by the majority to be harmful to a country although the reason why is rarely understood. For this reason, economists have endeavored to determine the causes and consequences of corruption. Corruption is an important issue for Bangladesh since it is widely spread throughout the country and can lead to many unwanted consequences. Li et al. (2000) found that corruption, for example, can lead to misallocation of resources. Once bribing becomes an integrated part of the market, it will no longer be equal to bidding for scarce resources. They also found that corruption can be harmful to innovation; entrepreneurs have to get licenses and permits to start up new businesses and are often subjected to corruption. This is a consequence of corruption that could be detrimental to Bangladesh's growth. The quality of goods may also be adversely affected, with decisions about the issuing of permits and licenses being determined by the largest bribe paid rather than the highest quality of goods (Lambsdorff, 2007).

This chapter is divided into 4 parts: Part I discusses the concept and various quantitative measures of corruption. As far as this author is aware the PRS Group was the first to score countries based on corruption. Since then a multitude of indices have been produced by well-known institutions such as Transparency International, the World Bank and PricewaterhouseCoopers.

Part II deals with the magnitude of corruption in Bangladesh and more specifically looks at the effectiveness of anti-corruption agencies within the country. The causes of corruption in Bangladesh are also explored, with particular emphasis on banking, customs and telecommunications sectors. In addition, Part II looks at the consequences of corruption on economic growth.

Part III discusses five possible remedies for corruption in Bangladesh and Part IV provides a conclusion.

Since the country's birth in 1971, Bangladesh has hardly experienced good (i.e., just) governance that could potentially allow for political stability and sustainable development. In fact, many commentators consider that challenges such as the rising degradation of natural resources, water crises, the widening gap between the rich and the poor, corruption, crimes and gender issues, are largely due to persisting malgovernance. The growing scale and mutual reinforcement of these conditions appear to have been pushing the country towards social, economic and environmental vulnerability.

Against this background, the paper explores ways to address the prevalent unsustainable situations focusing on the need for just governance within the cultural and human context of the country. It outlines the importance of nurturing and strengthening the cultural beliefs and traditions, including religiosity, patriotism, family and social bondage, self-reliance and traditional happiness that can help progress Bangladesh towards achieving a better governance in terms of socioeconomic and environmental justice. Depicting the inherent sustainability characteristics of Bangladesh, the paper argues that refurbishing of governance with competent, honest, responsible and patriotic politicians, civil servants, activists and other actors is of utter necessity for reversing the current trends in the country.

The chapter concludes that the cultural values of Bangladeshis, which were remarkable in the past, can help revitalize the country's governance for achieving a locally branded “sushashon”, i.e., good and just governance.

Corruption has existed in every country in some form of the other since time immemorial and India has been no exception. But until the Second World War (1939–1945), corruption in India was confined within a few departments like police, roads and so on, but the huge amount of money pumped into the war efforts changed the entire scenario and corruption became widespread in all government sectors. On the recommendation of the Santhanam committee, formed under the noted educationist and parliamentarian Professor Santhanam, the government of India set up five-fold Anti-corruption machineries during the early 60s to fight corruption in Public life, but it appears that there is a huge gap between anti-corruption policies and practice. Although India has been achieving record growth reaching almost 9% during the last few years, its position in the Global Corruption Index is rather low. During 2008, it slipped further to a rank of 85. An estimated amount of Rs. 21,000 crores is lost every year just from petty corruption. The fight against corruption has been declared a high priority by Prime Minister Dr. Manmohan Singh and some recent measures including RTI Act, 2005 and WHISTLEBLOWER Resolution have been adopted in recent years.

India has a decentralized Federal system in which state governments possess broad regulatory powers. Several reports indicate important regional variations in the level and impact of corruption. In this study, we have attempted to study these regional variations by studying action taken by various anti-corruption agencies vis-à-vis the economic indicators in those states. We have also conducted a representative sample survey to study public perception of corruption in India and suggested measures to combat it effectively. An analysis of the sample survey has been made to understand the impact of corruption in those states.

The relationship between crime and economic growth, and corruption and economic growth is complex in nature. It is also difficult to compare crime rates both internationally and nationally due to variation not only in legal definition of crime but also in its reporting systems, counting methods, and data quality. In India, average number of offences during the study period is ₹54.77 lakh of which ₹18.48 lakh under Indian Penal Code and ₹36.29 lakh under special and local laws. Crime against body, crime against properties and riots are falling but crime against women and economic offences are rising. This study covers 5 Indian States representing northern, southern, eastern and western part of India including West Bengal. Kerala, a southern state has the highest crime rate but remarkably better in overall functioning of the Criminal Justice System. On the other hand, West Bengal has lowest crime rate but requires improvement in Criminal Justice System. Unlike criminality rate and economic growth, the interrelationship between corruption and economic growth is perceived to be direct and strong. The rank correlation coefficient between ‘corruption perception index’ and ‘per capita GDP rank’ is 0.78 for selected 19 countries and 0.46 for selected Indian states. But there is an inverse relationship between crime and state domestic product. In addition, the data collected from wide range of people under this study reflects that rich persons are responsible for crime and corruption. Most of the respondents are not satisfied with anticorruption measures. Lack of education, poor salary and poverty are considered to be the most important cause for corruption. People's active involvement in eradicating crime and corruption hold the key.

This chapter aims to assess court decisions for eradicating corruption in Indonesia. The data were based on Indonesia Supreme Court decisions from 2001 to 2009. The dataset comprises of 549 cases involving 831 defendants. After the end of Suharto's regime, the Anti-Corruption Bill was ratified in 1999 and was refined in 2001. As Indonesia follows a civil law system, legal certainty has been manifested by stating the level of punishment clearly for each type of offences in the Bill. Despite a clear guidance on the intensity of punishments for each corruption type, judges' decisions on the intensity of punishments sentenced across defendants are far from consistent. Using logistic regressions, we found that the probability of judges in sentencing defendants with financial punishments (that is, fines, compensation and the seizure of evidence) does not depend on the level of economic losses inflicted by the defendants. On the contrary, the judges' decisions tend to be more lenient toward defendants with particular occupations but harsher toward others. The intensity of punishments has been sentenced idiosyncratically and has weakened the deterrence effect of the punishments. In estimating the social cost of corruption, prosecutors have estimated only the explicit cost of corruption, therefore the impact of corruption to Indonesia economy is underestimated. Brand and Price (2000) defined that the social costs of crime includes the costs in anticipation of crime, the costs as a result of crime and the costs in reaction of crime. The total explicit cost of corruption from 2001 to 2009 was Rp73.1 trillion (about US$8.49 billion), however the total financial punishment imposed by the Supreme Court was Rp5.33 trillion (about US$619.77 million). The data show that corruption is mostly committed by people with medium-high income and they usually have good careers.

Within the last decade, Indonesia has been sympathetically admired by commentators for the smooth running of a democratization process following the end of authoritarian regime under Suharto's administration. So far, along with the alteration of political rules of the game, the democratization process that is taking place has generated significant institutional changes, and brings a fairly major transformation in political landscape. Citizens are enjoying free liberal environment and are receiving the rights of speech and association that is guaranteed by the laws. Regular free and fair elections have been conducted for the third time for electing a president, members of senate (Dewan Perwakilan Daerah/DPD) and the people representative assembly (Dewan Perwakilan Rakyat/DPR) at both national and local levels. Free media has also been flourishing and plays an important role in scrutinizing governmental and political affairs. As well, power has been significantly distributed both vertically and horizontally: vertically, Indonesia has been carrying out a broad decentralization process where provincial and local governments are receiving a large number of authorities and responsibilities for the provision of public services; horizontally, a number of new democratic institutions (currently there are about 40 Institutions in the form of committees and commissions) have been formed for exercising a different set of power and rotating the wheel of governance. In addition to these, military force has been sterilized from the political arena and no longer engages, at least on formal regulations, in business activities. In sum, as the World Bank (2003: i) maintains, Indonesia has been able to construct basic requirements for a strong functioning democracy.

When it comes to corruption, however, the extraordinary process of governance reform seems to have no effect. Despite the success story of many democratic accomplishments, Indonesia continuously performs poorly in dealing with corruption. In the last 10 years after democratization began, Indonesia still ranked close to the bottom, together with the most corrupt countries of the world, according to Transparency International's Corruption Perceptions Index. The score has never been far away from the score that was achieved during the authoritarian government era.

On the practical context, the appearance of corruption acts could still be easily observed in almost entire governmental buildings, especially in the places where public service is carried out. Street conversations about the way government officials maintain red-tape bureaucratic procedures in order to attract bribery, collusion between government officials and businessmen to capture public resources as in the case of illegal logging, conspiracy of judicial authorities to take illicit profit from court cases, and the way politicians exercise power to grab public budget are still in the daily reports of the Indonesian media. Due to systematic corruption, the quality of public services remains extremely poor. Devolution and decentralization of power has no meaning other than prosperity for the elites and the new power holders. Needlessly to mention that annually the State Auditing Agency keeps finding a huge number of irregularities in almost every government branch. In short, corruption has not only become an endemic in contemporary Indonesian politics, but also, turns into “a new ideology” where everyone seems born corrupt.

This chapter will try to examine these contrasting phenomena by explaining why the governance reform in a new emerging democratic country like Indonesia is not sufficient to curb corruption. While theoretically the implementation of good governance principles could end chronic abuses of power including corruption, evidence shows that this is not an automatic mechanism. Instead, imprudent process of governance reform may create a fertile ground for the spread of corruption.

Readers of this volume will have noticed that it is divided into three Parts: Part 1 deals with general and theoretical topics, with a bearing on the main theme of the book, viz. “Crime, Corruption and Economic Development” Part 2 deals with specific case studies, with the primary focus on three countries, viz. Indonesia, India and Bangladesh. Part 3 relates to the present concluding section, in which the two editors try to sum up the contributions of the authors in this volume…

The following section is included:

• Index