Some questions – and

answers – on corruption
Raymond Fisman, Columbia Business School

November 13, 2013

Questions and answers on corruption

How much corruption is there, really?

What are the social

consequences of corruption?

Approaches to fighting corruption

 Rich countries are less corrupt

2
1
corruption

0
-1
-2

4 6 8 10 12
logGDPPC

3
 But a lot of variation with income groups
1.5

2
ZAR ZWE
TCD SDN
HTI
GIN KHM
TJK CIV
BDI KGZ LAO PAK
GNB
1
1

TGO NGA
BGD CMR
TMP
UGA KEN
CAF SLE
ETH COMBEN MDA
NPL MRT SEN
corruption

NER MLI
corruption

ZMB
0

GMB
.5

LBR TZA
ERI
MWI MOZ
BFA
MDG
0 -1

GHA
LSO
-2
-.5

RWA

4.5 4 5 6 5.5 8 6 10 6.5 12

logGDPPC
logGDPPC

4
 But a lot of variation with income groups

2
1.5
TKM
IRQ UZB AGO

PNG COG AZE

SYR
1
1

UKR
ECU FJI
HND
PHL
NIC PRY
MNG IDN
ARM KSV
VNM CHN
GUY GTMEGY
.5

IND
corruption

DZA
corruption

SLB BOL
LKA ALB
0

MNE
TON BIH
SRB TUV
GEO SWZ MAR FSM
KIR MKD
0

WSM
-1

VUT
-.5

CPV
-2

BTN
-1

6.5 7 7.5 8
4 6 8
logGDPPC 10 12
logGDPPC

5
 On the virtues of efficient corruption
"Yes, there was corruption.
Yes, he gave favours to his family
and his friends, But there was real
growth and real progress. I think
the people of Indonesia are lucky.”
(Lee Kwan Yew, 2008)

“Rouba mas faz”

6
The private benefits of connections

7
…and the social costs

8
 Evidence on effects of corruption

Politician benefits Company benefits

• Licenses and contracts
• Trade protection
• Credit access

Social Consequences
• Reduced competition
• Increased inequality
• Production distortions
 On responding to corruption

● What’s the relevant counterfactual?

– Suharto’s theory of orderly corruption
– What would be the consequences of tightened
rules? (Whac-a-mole effect)

● Tax evasion versus tax avoidance

● Why bother evading laws when you can just

change them?
The private benefits of connections

11
 The financial benefits of public office

Pre-election disclosures: 2004

$400,000 in assets

Pre-election disclosures: 2008

72 properties
54 bank accounts
$13 million in assets
Mayawati Kumari,
Official income: 2004-2008 ex-Chief Minister
$30,000 per year of Uttar Pradesh
Mandatory asset disclosures since 2004

13
11/1
4/20
The private returns to public office
● “Balance Sheets” for 2 points in time allows for an
estimate of politicians’ asset accumulation
Assets Liabilities and Net Worth

(1) Movable Assets (3) Liabilities

Cash Loans from Banks amnd Fis
Deposits Loans from Inidviduals
Bonds Debentures and Shares in Companies Dues
Motor Vehicles
Jewelry
…

(2) Immovable Assets Net Assets = (1) + (2) - (3)

Land Buildings
…

● Compare asset growth of election winners versus

election runners-up
14
11/1
4/20
Winners’ assets grow 3-5% p.a. faster
% of observations

“Excess” Asset Growth

15
Source: Fisman, Schultz, and Vig, 2013 11/1
4/20
In (high-corruption) BIMARU states
“Winner’s premium” is 10% PA

16
For Ministers, Winner’s Premium = 12% p.a.

17
 Connections matter, but at what cost?

Corruption: grease in the wheels of commerce?

18
The costs of circumventing regulation

fuelskiller
Corruption the China mine
in China Corruption
Two Charges
men jailed for Hit
disasters
rail crash China’s Food
corruption & Drug
linked to Lotus
Regulator,collapse
Riverside Again

19
On the social costs of corruption

“Corruption is one major reason why accidents

happen again and again…It is high time that we
took a careful look at connections between local
coal mine owners, local officials and the safety
watchdog. These links have set up barriers
against strict safety supervision.”

Li Yizhong, Minister of Production Safety (2005)

 Political connections and worker deaths

0.8

0.7
Deaths per 10,0000 workers

0.6

0.5

0.4

0.3

0.2

0.1

0
2008 2009 2010 2011

PoliticallyConnected=0 PoliticallyConnected=1

Source: Fisman and Wang, 2013

Fighting corruption

Rules

Technology

Culture
 Who will enforce anti-corruption rules?

Service Branch Corruption Ranking

Police
Police 1
Land Records 2
Housing 3
Water 4
NREGS 5
Forestry 6
Electricity 7
Health 8
PDS 9
Banking 10
Education 11

Source: Transparency International India, 2008 23

A pictorial history of corruption enforcement in HK

1960s 1970s 1980s 1990s 2000s

24
“If Hong Kong can change, why can't we?”

2002 2003 2004 2005 2006

25
 On the failure to change in Kenya

Kenya's global corruption ranking, 1996-2011

1

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Source: Governance Matters, 2012 26

Difference in governance, HK vs. Kenya

27
Borrowing good governance: Charter Cities

Good governance zone

Enforcer of rules

28
Borrowing good governance: Charter Cities

29
Problems with crowd-sourced governance

Kenya I paid a bribe 30

On the role of rules vs culture among diplomats

“Diplomatic immunity affords [all] foreign diplomats

in America a blank check for bad behavior.”
A simple model of culture and corruption

Driver
Policeman

Offer Bribe Pay Fine

Solicit Bribe (5,-5) (-50,-50)

Collect Fine (0,-50) (0,-10)

32
Reforming a culture of corruption

Super-citizen Mockus
Changing culture in Bogota
 Enforcement works, if you can do it

Total monthly diplomatic parking violations

10,000
Bloomberg gets
OK to tow cars
1,000
of diplomats

100

10

35
On reforming corruption – last word

“Public policies must bring together legal

developments with their informal correlates
(moral and cultural norms and regulations), in
order to achieve changes in people´s
behaviour, attitudes and justifications for how
they live their lives.” (Antanas Mockus, Global
Economic Symposium, 2009)

“Social problems can’t be solved through

better rules or better attitudes – you need both”

36
Thank You!

37
Gaming of rules - death quotas

38