Why fighting corruption helps the poor

Fighting corruption is no longer just a moral issue. It has become a major tool in the fight against world poverty.

Once seen as the cost of doing business in much of the globe - sometimes even regarded as useful in greasing the way for development projects - bribery increasingly is viewed as a major stumbling block to progress.

And increasingly, governments and business groups around the world are beginning to do something about it.

"There has been a sea change in the past seven or eight years in awareness of the issue," says Daniel Kaufmann, the World Bank's top official on the corruption issue.

Three factors have been pushing the planet in this direction: the spread of democracy to many developing countries and former communist nations, recent research proving the terrible damage corruption does to the economies of poor nations, and the rapid spread of this knowledge across borders through the Internet.

The most sweeping move came two weeks ago when the General Assembly of the United Nations approved - unanimously - the Convention Against Corruption. Justice ministers and some heads of state from about 130 nations plan to gather in Merida, Mexico, from Dec. 9 to 11 to sign the new treaty.

"Corruption is an insidious plague that has a wide range of corrosive effects on societies," UN Secretary General Kofi Annan told the General Assembly. "It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life, and allows organized crime, terrorism and other threats to human security to flourish."

As Mr. Annan noted, this evil phenomenon is found in all countries, rich and poor. The United States, despite its wealth, democracy, and elaborate system of justice, has been experiencing a troubling bout of financial fraud.

Corruption, though, hits poor countries especially hard by diverting money away from development.

New research finds that, over a generation, if a poor country with a high level of corruption manages to reduce corruption to a median level, it will enjoy a 400 percent improvement in its per capita income, according to Mr. Kaufmann. That translates into a jump from, say, $4,000 a year for every many, woman, and child to a relatively prosperous $16,000. By contrast, people subject to a truly corrupt government often see a reduction in their living standards.

Just signing a treaty, of course, does not block all corrupt activities. But the convention includes a major breakthrough. It requires signatory nations to return assets obtained through corruption to the nations from which they were stolen. "Corrupt officials will in future find fewer ways to hide their illicit gains," said Annan.

Though proving that money is ill- gotten may not always be easy, that provision may prevent corrupt dictators, such as Ferdinand Marcos, a past president of the Philippines, or Joseph Mobuto, former president of Zaire, from stowing billions of dollars abroad and getting away with it for years.

The Convention Against Corruption will require ratification by 30 nations to come into force. This process, usually involving legislative approval, could take 18 months or so.

Other moves are also afoot:

• Nigerian President Olusegun Obasanjo announced in Berlin Nov. 7 that his government would publish the revenues it receives from the oil industry. This would square with the British government-led Extractive Industries Transparency Initiative. Representatives of oil companies also indicated they would make public what they pay to Nigeria.

In some countries, "signature bonuses," royalties, and other payments have gone to hiring mercenaries or buying arms for a civil war. For instance, Human Rights Watch in Washington charges that over the past five years, $4.2 billion of Angolan state oil revenues disappeared before it could reach the coffers of the central bank. That sum is roughly equivalent to the total foreign aid Angola has received in that period.

• Anticorruption conventions approved by several international organizations - the Organization for Economic Cooperation and Development (OECD), the Organization of American States, the Council of Europe, even the African Union - have pushed many nations to pass their own antibribery laws.

In Germany, for instance, some key business executives regarded graft as a necessary if unpleasant way of doing business abroad. Then Peter Eigen, chairman of Transparency International, a watchdog group fighting corruption, met with about 20 key executives. Over several meetings, he persuaded them that bribes were by now extremely risky for their companies. If they were caught, consumers of their goods would punish them for their transgressions by withholding purchases.

As a result, the German government signed on to the 1997 OECD convention and soon thereafter rescinded a law allowing bribes by business made abroad - not in Germany - to be tax deductible.

• The World Bank is promoting "integrity pacts." A group of competitive companies bidding on a major deal, say the privatization of a telecommunications company or a minerals project, will pledge to each other that they will not engage in bribes. If subsequently caught, a bribing firm must pay damages to its competitors without the necessity of them proving damage. And that firm will be blacklisted for future projects.

Some 60 of these pacts now exist involving more than 100 multinational firms.

In a 1996 speech, World Bank president James Wolfensohn placed corruption front and center as a worldwide challenge to development. Today the Bank and other development institutions work to discourage graft, sometimes with success, sometimes with little progress.

"A country needs to have some commitment to help itself," says the World Bank's Kaufmann.

One factor making the worldwide drive to tackle corruption easier has been the end of the cold war. The US and other Western industrial nations are no longer under any strategic pressure to support corrupt governments - thieves on the side of the West.

That change, however, has not ended "political expedience in international relations," cautions Kaufmann.

Another key trend: the spread of democracy across the globe. It makes governments more accountable to their citizenry. "It creates millions of auditors," Kaufmann says.

Moreover, democracy usually includes a more or less free press that can expose corruption.

Another helpful factor is an explosion of data. Economists can now prove the enormous cost of corruption and other elements of poor governance to economic progress. The World Bank even ranks nations on their governance.

When the Bush administration gets its Millennium Challenge Accounts in operation, a new plan to provide more foreign aid to those countries with the better governance that makes economic progress more likely, it will use the bank's ranking of nations, rough as it may be, as a guide.

A fourth factor is the Internet. It makes it easier to disseminate this information. Authoritarian governments have greater difficulty controlling the Web than print or broadcast media.

The World Bank site on corruption gets some 500,000 visitors a month, half from developing countries. Thousands of copies of papers on corruption issues, especially if they include data on the issue, are picked up each month.

When Kaufmann participated in an anticorruption symposium in China two years ago, an official mentioned that a legal-network website highlighting the symposium had 1.2 million visitors. Chinese officials wanted the Chinese people to know about the harm caused by corruption.

All the anticorruption treaties will not do much to limit graft unless nations act on them. They are, in effect, primarily statements of good intentions.

The new UN treaty itself contains no follow-up provisions. But Dmitri Vlassis, a key facilitator of the two-year negotiations leading to the treaty, hopes to get some support from the Nordic nations for a small bureaucracy to help train and advise other nations on how to implement the treaty and call conferences of nations to review progress.

One provision dealing with campaign finance bribery was removed from the treaty at the insistence of the US delegation. Apparently, the US had concerns similar to those expressed in battles over campaign finance at home, that any limitations would restrain free speech.

But the treaty does include a framework for stronger cooperation between nations to prevent, detect, and return the proceeds of corruption. It sets standards, measures, and rules that all countries can apply to strengthen their legal and regulatory anticorruption regimes. It calls for preventive measures and the criminalization of the most prevalent forms of corruption.

"If fully enforced, this new instrument can make a real difference to the quality of life of millions of people around the world," the UN's Annan said.