What is corruption?
A. Agents, clients and streams
The term corruption is often vaguely used for any improper money charge and any improper money offer, or even any improper way to acquire money or goods and services. But the concept should be confined to tapping the money flows associated with government administration involving government agents. The necessary condition for talking of corruption is the owner of an asset changing hands (the government or a victimized citicizen) does not approve of it, but is unaware or powerless. This is, however not sufficient to talk of corruption:
Non-corrupt
types of
acquiring property in a way not approved by the disappropriated owner are
|
Warfare | Illegal taxation | Illegal duties and public fees | Paying low wages that would not be accepted under free market choice, | Evasion of legal types of government taxation, duty and public fees without co-operation of government agents | Members of the public deceiving, robbing or stealing amongst themselves. | Tapping money streams within companies and NGO's (though similar, is better to separate this type of misbehaviour from the corruption subject) |
Most of these non corrupt acts of extortion stem from asymmetric power relations. Pervasivenees of those acts is an important cause of corruption.
Another
halmark if corruption is that it is not a power situation with a winner and a
looser, but one where either a public official
embezzles money he is trusted with, or one
that results from a deal of some sort, reflecting the
advantages of the parties and hence the power they perceive to have over each
other: you have the document, the medicine, the educaton, I have the money. You
produce the diamonds, I have the guns to keep the owning or taxing entity at a
distance.
Some basic concepts are useful for comprehension and neat discussion. The
government spending flow meant to execute government tasks (like education,
roads, security) is called the downstream. Under propriety, the flow
reaches the (final) executors of the work done.
The payments by customers of the public administration (like tax
payers, licence holders, customers of paid public services) form the
upstream.
Together, customers and executors form the clients of the public administration.
Corruption arises when a public administration
individual or agent ceases to behave according to the rules he
is hired to follow. He can engage in embezzlement: this is
tapping money directly from the downstream or the upstream in his own office to
his private property.
Corruption can also be done by contract. Then, an executor agrees to
"buy" his rights to execute for money by paying money directly to an agent. Or,
a customer agrees to "buy" his rights to buy a public service by paying money
directly to an agent.
Corruption by contract can be by the agent's or by the client's initiative.
Corruption by contract |
Agent |
Client |
|
Agent initiative | Proposing | Accepting, satisfied | Accepting, dissatisfied |
Client initiative | Accepting | Proposing |
Only under Agent initiative, client dissatisfaction is possible (though rare). In most cases (those with white background colour in table), both corrupt contract parties (the client and the official) will withhold proof if questioned about a corrupt deal.
B. Types of Taps
Downstream tapping
The
downstream flow of government expenditure is meant to buy a public service
product made by executors (like teachers, road workers, bookkeepers). The
government expenditure is meant to pay executor incomes, and the value of the
public service may, in this happy case, be estimated as the sum of these
executor incomes, that is, the cost of these services.
An agent puts a service tap by allowing an executor to fall short of
his requirements, and adding the "saved" expenditure to his private property.
One can reduce the true quantity of service below what is reported, or increase
its price above the level yielding a market conforming profit. Examples are
ghost workers, false reports on activities not executed in reality, public
service "trucks" in books that really are Pajero's driving the agent's family
around, etc.
Another example: an executor pays a public agent to be granted a government
contract above market price. Both public agent and executor win. The government
budget is tapped. The value of government service now falls below the payments
to executors (that in turn are partly channelled to the corrupt agent). So a
government budget tap is a service tap.
An agent puts an executor income tap by paying the executor less than
his/her administratively determined agreed income: salaries too low or too late,
road contractors working below market price, leaving part of their margin with
the agent to get hired for the job, etc. The result in the agent's private
appropriation at the expense of the administratively envisaged channelling is
seen in the reduction of grey (proper channelling) in the figure "Downstream
Tapping".
In sum, the direct or instantaneous burden of downstream
tapping might fall on public service (service taps), of on the executor of
public service (executor income tap). These direct burdens propagate through the
economy in due time in a way analysed in
Section C.
Upstream tapping
The
upstream flow of government income is meant to finance government expenditure.
Thus it is a burden on the private sector. In the figure "Upstream Tapping" in
the top bar, representing proper channelling, public (government) income exactly
equals the private burden. A part of unburdened private property is also
displayed in this top bar order to compare the top bar with what happens if an
agent puts a customer budget tap: this broken line delineated grey
bloc, that ought to remain private property, is taken by the (public) agent.
This may be done by excess charges on the customer, or withholding parts of the
service the customer should get thus obliging him to use additional money to
purchase it elsewhere. An example is taxing more than administratively
envisaged, and appropriating the excess revenue. It may also be done by reducing
manpower used to execute the service to the customer, resulting in increased
efforts and longer waiting times necessary to get through a procedure, which
leads to additional cost at the customers' side. Then, in addition, "special
treatment" can be given to customers who are agreeing to pay some more and
appropriating these payments. Another example is to omit parts of the service
which the customer paid for, obliging him to go somewhere and pay for it again
(like omitting glue on stamps). The result of a customer budget tap is that the
customers' budget is reduced with the amount by which the corrupt agent's
private budget is increased.
The agent can also put a public income tap: he reports lower than the
real tax and revenue income, and appropriates the difference.
The result in the agent's private appropriation at the expense of the
administratively envisaged channelling is seen in the reduction of grey (proper
channelling) in the figure "Upstream Tapping".
In sum, the direct or instantaneous burden of upstream tapping
can fall on the customer budget (customer budget tap) or on the public income
(public income tap). These direct burdens propagate through the economy
in due time in a way analysed in Section C.
Exercise:
Four types of taps can be distinguished, each of them can be put by embezzlement and by contract. For these eight possible corruption strategies, there are again two modes: work by executors and services to government customers can be overpriced, or the work by executors and services to government customers can be below the quantity and/or standard envisaged. Exercise: File examples of corruption you know into this catalogue of sixteen possibilities (right):
(for examples of corruption cases in Uganda see Ruzindana, A., (1997), "Combating Corruption in Uganda", in: Ruzindana, A. Langseth, P. and Gakwandi, A. (eds), (1997) Fighting Corruption in Uganda, p. 59-68)
C. Macro-economic Effects of Improper Channelling
The direct effects of improper channelling are:
How do these changes propagate through the economy?
Government services (like roads, education, hospitals) boost economic growth by
increasing the efficiency of private economic initiative (like reducing
transport cost, reducing production cost by increasing know how, by lowering the
rate of disease absenteeism). Hence, service taps are drags on economic
growth.
As far as corruption affects customer budgets, every citizen, whether working in
the private or the public sector or both, has its "corruption balance", being
the difference between what you win by extortion and what you loose by being
extorted.
In the unlikely event that every citizen's corruption balance usually would be
zero, the cost of corruption would be the effort needed to gain here what you
loose there, such as to make your net corruption loss equal zero. If
everybody would stop corrupting the procedures, everybody's budget would be the
same, but it would be made available in exchange for execution of economy
boosting government services instead of corruption activities like colluding,
forging signatures and documents, arranging fake court procedures etc. Under
zero net corruption loss for everyone the question would merely be: what are the
people doing with their time? The question people would simply have to pose is
whether forging, intriguing and conspiring makes your life more interesting than
building up your country.
The standard case however, is worse than net corruption loss: few have a
positive corruption balance, and the masses of the people have a negative
corruption balance. The masses are net losers of corruption. The few
are the net winners. This implies a redistribution of budget from the
masses to the few. From the tapped part of their budgets, the masses would have
bought home produced necessities of life. This would have boosted local
industry: local suppliers would save part of their sales revenues to invest and
expand production. Under non zero net loss corruption the money is
transferred to the few, who spend a large part of their net gain of
corruption on imports, and, what is worse, not on investment imports, like
production machinery, but consumer imports ("Pajero's"). If they do not know how
to spend everything, they put the rest on accounts of foreign banks, who invest
their savings abroad. The home economy is receiving little of the tapped money
and collapses.
Generally, corruption lowers home product quality relative to its price. Non
only in the luxury sector, therefore, but in every sector, foreign imported
products from less-corrupt foreign countries will gain attraction in the home
market. Corruption hence generally lowers demand for home products. Money and
jobs to produce what the money pays for flow abroad, as well as the profit on
that production that is meant to invest and thus fuel the economy.
Clearly, not only service taps, but all flow taps are drags on economic growth and can easily become causes of economic decline.
The drag is, to be precise, not corruption, but the inclination to be
corrupt. This becomes clear if one realises that a set of
procedures that would effectively succeed to fully prevent corruption would not
remove the drag: there would be no corruption, but the enormous amounts of money
for the corruption-barring procedures (lengthy procedures of consent by many
officials, customers obliged to hire employees for the purpose of managing the
interaction with all government bureaucrats involved in preventing corruption,
special departments of inspection, and inspections of inspections etc.) would be
taken from economic growth boosting activities like road building, health care
and education. So, to remove the drag on growth it is not sufficient to bar
corruption. Only if the inclination to be corrupt goes down, the social
cost not only of corruption but also of corruption-prevention can be reduced,
thus allowing wealth to replace poverty.
Some hold that corruption is bad because it is a selfish act. This is
entirely false.
The underlying vice of corruption is not selfishness. Selfishness is OK.
Selfishness is the driving force of any good economy: people work to selfishly
improve themselves by selling on a market, not (at least not in the first place)
to "be good" to the buyer. Economically, being good to your customer is a
rational means for the selfish end of improving your life: you
make a good product because you want your customer to come back, and keep paying
a good price.
In corrupt countries everybody, the corrupt even more than those who consider
themselves honest, claims not to be selfish. That is wrong and a sign
of the sickness, the hypocrisy of a corrupt society. Everybody knows everybody
is lying.
A healthy economy only works properly with rational, selfish people. There is no
reason to be ashamed of that.
So, since the vice underlying corruption is not selfishness, then what is it?
It is stupidity. The specific type of stupidity involved is short-sightedness: without corruption all citizens (corrupt agents included) would, after some years of honesty, by boosting the economy be far richer than they are under corruption. Under corruption, every owner of an expensive car knows he is likely to be seen, and correctly to be seen, as perspicuously showing himself guilty of the poverty of his nation. Under honesty in a healthy, working economy, people could rightly be proud of owning one.
D. Types of Monitoring
Enhancing systems of monitoring
Monitoring involves cost. The cost of any single measure should be compared to the economic benefits to be expected from the measure. That in its turn should be monitored. Reducing the need for monitoring by reducing the inclination to be corrupt ("culture change") is likely to have the highest result relative to cost. Since the cause of the inclination to be corrupt is the stupidity of short-sightedness, the issue of culture change is stretching the time horizon in the consciousness of public agents. Or, simply put, enhancing their brain function.
Monitoring can be done for all types of taps mentioned above, but, first of all, there is a set of measures from which all types of monitoring benefit:
Monitoring the downstream:
1. Service Monitoring: is every government service properly executed?
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2. Executor Income Monitoring: did the final government service executors
get their full pay?
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Monitoring the upstream:
1. Customer Budget Monitoring: did government customers not pay too much?
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2. Public Income Monitoring: did all government customers' money reach
the treasury?
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Version: 2014-08-20
Author: BH