Questions on Governance and Corruption PREM week Conference Session # 1 June 25 th, 2002 Prepared by D. Kaufmann, in collaboration with Bank colleagues See last slide of this presentation for details.

IFI involvement in Anti-Corruption/Governance: Basic Question: Which generic path? (Part I) 0. ‘Zero’ Scenario: No involvement (seventies…) 1. ‘Minor’ Scenario: Economic Competencies (‘till ’96) - Improved Economic/Trade/Regulatory Policy, etc. 2. ‘Traditional +’ Scenario: Economic + PSM + Legal 3. ‘Governance Scenario’: Economic + new Public Sector & Judiciary/Legal Reform + Anti-Corruption + Civil Society/Collective Action 4. ‘Maximalist’ Scenario: Scenario 3 + Politics… (?) We want to review pros and cons of appropriate approach, recognizing IFI/Bank opportunities as well as limitations. At present there is large variance of approaches across the Bank (ranging from 0 to 3) on which path ought to be taken.

Most Important Role for Donors in Helping Countries Fight Corruption Percentage of Respondents who Selected Role for Donors as Most Important Source: Web survey, 1800 respondents.

Most Detrimental Type of Corruption Percentage of Respondents Who Selected Type of Corruption As Most Detrimental Source: Web survey, 1800 respondents.

Most Important Obstacle to Transparent Judiciary Percentage of Respondents who Selected Obstacle as Most Important Source: Web survey, 1800 respondents.

Role of IFIs, part II : Onto Specifics Working with NGOs: Generally accepted, but what are lessons of experience? Selectivity warranted? Emphasizing further other civil society stakeholders?: Parliaments, Private Sector/Business Associations The role of Multinationals & Large Domestic Firms Understanding the Financing of Politics/Parties/Elections On the dynamics of Elite/State Capture: Corruption is not always a ‘symptom’ – but quite fundamental… Role in gathering, analyzing and disseminating Data/Empirical work on Governance & A-C

Governance: A working definition Governance is the process and institutions by which authority in a country is exercised: (1) S -- the process by which governments are selected, held accountable, monitored, and replaced; (2) E -- the capacity of gov’t to manage resources and provide services efficiently, and to formulate and implement sound policies and regulations; and, (3) R -- the respect for the institutions that govern economic and social interactions among them

Operationalizing Governance: Unbundling its Definition into Components that can be measured, analyzed, and worked on Each of the 3 main components of Governance Definition is unbundled into 2 subcomponents: Voice and Civil Liberties Political Stability and lack of Violence&Terror Quality of Regulations Government Effectiveness Control of Corruption Rule of Law We measure these six governance components…

‘Traffic Light’ Map: Rule of Law, 2000/01 Source for data: ; Map downloaded from : Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

‘Traffic Light’ World Map Control of Corruption – 2000/01 Source for data: ; Map downloaded from : Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

Control of Corruption: one Aggregate Indicator (selected countries from 155 worldwide, for illustration, based on 1998 research data*) Source: ‘Governance Matters’, 1999, PRWP 2196 by KKZ. POOR GOOD Corruption Control Level Margin of Error Good Corruption Control

The ‘Dividend’ of Good Governance Infant Mortality and Corruption WeakAverageGood Control of Corruption x Development Dividend 0 2,000 4,000 6,000 8,000 10,000 12,000 WeakAverageGood Regulatory Burden x Development Dividend Per Capita Income and Regulatory Burden Literacy and Rule of Law WeakAverageGood Rule of Law x Development Dividend Per Capita Income and Voice and Accountability WeakAverageStrong Voice and Accountability x Development 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

Investment Climate: Extent of Constraints to Business as Reported by Firms (Selected Countries, I) Source: World Business Environment Survey (WBES) The data and views presented do not necessarily reflect official views of the entire institution or its Board of Executive Directors. Given inherent error margins associated with any single survey results, it is inappropriate to use the results from this survey for precise country rankings in any particular dimension of the investment climate or governance. For interactive web-tool interface with this data, visit

Investment Climate: Extent of Constraints to Business as Reported by Firms (Selected Countries, II) Source: World Business Environment Survey (WBES) The data and views presented do not necessarily reflect official views of the entire institution or its Board of Executive Directors. Given inherent error margins associated with any single survey results, it is inappropriate to use the results from this survey for precise country rankings in any particular dimension of the investment climate or governance. For interactive web-tool interface with this data, visit

State Capture by Elite Firms at very high Economic Cost for the Rest of the Private Sector

Addressing Capture: Economic Reform, Political Competition & Voice/Civil Liberties Matter Pace of Econ Reform Political/Civil Liberties Reforms

Do FDI Exhibit Better Governance Than Domestic Firms? Share of all firms that corrupt % Bribery in Revenues

Towards a Solution: Collective Action by Firms

From Diagnostics: ‘Bribe Tax’ is Regressive -- Low Income Households ‘Pay’ Disproportionally Bribe/Total Income ratio % ( A Latin American Country )

Citizen Voice and Access to Public Services by the Poor (Bolivia illustration, each observation is a public agency) Based on 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

Which Governance Characteristics Matter for Agency Performance? Results from Bolivia Public Officials’ Survey Note: Middle column reflects simple correlation results, implying that many more variables appear to be significant.

Source: ‘Corruption: The Facts’, Foreign Policy, Summer 1997

Concluding… We are learning, without many successes yet… Understand forces shaping Governance & Policies Firms, Multinationals, Influence and Capture From Traditional PSM to broader Governance: Voice External Accountability more important than internal rules Judiciary part of the solution or the problem?: Implications Coalition-Building & Collective Action: how to help a ‘network’, and empowering millions of auditors On Data & Knowledge Tools – some interactive resources:

Best-equipped group to Formulate a National Action Program to Control Corruption Percentage of Respondents who Selected Group as Best-equipped Source: Web survey, 1800 respondents.

Data for Analysis and informing Policy Advise, not for Precise Rankings Data in this presentation is from empirical research related to aggregate governance indicators, diagnostic surveys, and expert polls, and is subject to a margin of error. Collaboration with Aart Kraay, Joel Hellman, Francesca Recanatini, Randi Ryterman and others, including external partners. Access to collaborative background papers available through the web. The empirical results are not intended for precise rankings of countries, but instead to illustrate performance measures to assist in drawing implications for strategy at the country level – at the country request. The data does not reflect official views (or rankings, which ought to be avoided) by the World Bank or its Board of Directors. Errors are responsibility of the authors.