How Does Political Finance Regulation Influence Control of Corruption? Improving Governance in Latin America

In this paper, we address the question of how political finance regulation affects control of corruption in Latin America from a quantitative perspective. We present a Political Finance Regulation Index with panel data from 180 countries over 20 years (1996-2015). This index was developed using the IDEA Political Finance Database, and once created, was applied to assess the relationship between political finance regulation and control of corruption.

In order to do this, we use the equilibrium model of control of corruption developed by Mungiu-Pippidi (2015). We also included judicial independence and public investment, considered as a constraint and an opportunity to corrupt, respectively. Lastly, we use control variables for level of development.

Results show that, in Latin America, increases in political finance regulation are related with a deterioration of control of corruption. This relationship is statistically significant in the panel estimations. Inversely, the negative relationship between regulation and control of corruption becomes positive in countries with high levels of judicial independence. In a similar way, increases in opportunities to corrupt, represented by levels of public investment, have a significant and negative effect in control of corruption.

Measuring Political Corruption from Audit Results: A New Panel of Brazilian Municipalities

Comparative research on corruption has always faced challenges on how to reliably measure this phenomenon. Indicators based on perceptions of or experience with corruption are the most common approaches, but these methods have also faced criticism regarding limitations to their conceptual and measurement validity. A number of scholars have thus sought to develop alternative, more objective, measures of corruption. Following this line of research, this paper relies on audit reports from Brazilian municipalities to construct a concrete indicator of political corruption. Data collection exploits the setup of randomized multiple audit rounds to construct a unique panel of 140 municipalities covering five administrative terms between 1997 and 2013. A first empirical application of data is presented, testing the potential deterrent effect of electoral accountability on future corruption levels.

Corruption Perception: how can we improve corruption measurements?

By Ramin Dadašov and Niklas Kossow

When releasing the Corruption Perception Index (CPI), every year, Transparency International (TI) can be sure to attract the attention of the wider public including policy makers, academics and the media. According to its latest results, the problem remains severe across the globe. More than two thirds of countries covered by the CPI suffer from serious corruption. Still, the current report also says that there is significant improvement in many countries: this seems to be good news for the growing anti-corruption community. Yet, some of the CPI results do raise some eyebrows. The steady raise of Qatar’s scores, for instance, cannot be squared with the governance realities on the Arabian Peninsula.

The role of the CPI and its companion – the World Bank’s Control of Corruption indicator (CCI) – in raising public awareness of the magnitude and the spread of corruption worldwide cannot be underestimated. Moreover, thanks to these indicators and the resulting huge body of empirical research in the last years we have learnt a lot (although by far not everything) about the factors which explain cross-country variation in corruption levels. The key feature of both indicators is that they are based on the aggregation of perceptions of experts and the general population. The aggregation of a variety of sources aims to reduce the measurement errors associated with individual surveys and to reflect the broad concept of corruption which underlines the measurements. Although the CPI and CCI differ with respect to sources employed and aggregation methods, they are highly correlated (for a global sample of 173 countries in 2013 data, e.g., the correlation between both indicators is r=0.98).

TI-CPI

As aggregate perception indicators both indicators have received several criticisms since their first publication in the mid-90s. Leaving aside the discussion on methodological and conceptual issues, one of the major concerns is their “lagging nature”:  Changes in the assessments of corruption often reflect corrections of errors done in the past. One illustrative example is Brazil. Hit by the Petrobras scandal that broke in 2014, it has been suffering from a severe economic and political crisis; the country’s current CPI scores deteriorated compared to the previous year after being stable between 2012 and 2014. The positive development of uncovering a previously hidden corruption scandal was not reflected in the score.  Other notable example in this context is the worsening of CCI scores in Greece, Spain, Italy, and Portugal in the aftermath of the recent financial and fiscal crisis.

These examples make clear that interpreting changes in CPI or CCI should be done very cautiously. Using them for guiding policymakers can be misleading or even harmful as they might be silent about the potential outcome of anti-corruption reforms. Ukraine’s CPI score showed almost no change between 2012 and 2015, despite witnessing major anti-corruption reforms since the Maidan revolution in early 2014. Until very recently the methodology of CPI did not even allow for comparison across years which, despite explicit warnings by TI, did not hinder many users from doing so.

A corruption indicator that addresses the needs of the policy community thus needs to be a diagnostic tool that assesses the institutional capacity of a society to control corruption. It should be based on objective data, solidly grounded in evidence thereby transparently reflecting preventive policies for curbing corruption. Building on our work in ANTICORRP, the ERCAS team has been working on building such a tool.

Specifically, we propose an indirect way of capturing the national level of control of corruption through an Index of Public Integrity (IPI). Relying on objective and actionable data, it combines six different indicators reflecting aspects of red tape, transparency, judicial constraints, and social accountability.  A global version of the IPI covering around 100 countries will be available soon. A more limited version that covers only 28 European Member States was presented this month in a report commissioned by the Dutch EU presidency. Its approach enables researchers to track progress over time and to consider the impact of reform efforts. Similarly, as part of the DIGIWHIST project, our researchers are working on ways to use red flags in the context of public procurement as indicators for high-level corruption. As a governance field particularly prone to corruption, procurement practices can be used as proxies to estimate societal corruption levels, if used with care.

Our research shows that there is still a long way to go in order to reach truly objective measurements of corruption. Yet, there are steps in the right direction. Thanks to the efforts of the growing anti-corruption community we will soon be able to find indicators which will help us to inform the policy community on how to effectively fight corruption.

Curbing Corruption: Ideas that Work

ccreportThe Legatum Institute launched a new collection of successful anti-corruption case studies. The series titled “Curbing Corruption: Ideas that Work” is published jointly by the Legatum Institute and Democracy Lab. It presents a wide range of case studies illustrating what does and what doesn’t work in the field of anti-corruption. The study wants to stimulate a discussion on corruption “that draws on implemented policies, lived experience and specific details,” according to Christian Caryl, Managing Editor of Democracy Lab and Senior Fellow at the Legatum Institute. By doing so it wants to avoid the pitfall of generalising anti-corruption policies, which often only work in specific contexts and addresses a particular form of corruption.

The eleven case studies take the reader into different corners of the world and into a large spectrum of anti-corruption success stories. Christopher Eglund and Johan Engvall, for example, are looking at the reforms of the education system in Georgia after the 2003 ‘Rose Revolution’. They describe the ‘big bang’ approach of sweeping reforms introduce by Alexander Lomaia, the new minister of education and science. They turned the Georgian education system around into one that values academic performance and integrity. In another case study Richard E. Messick looks at the FBI agents that uncovered a web of corruption in Chicago’s court system. He describes how they used fake trials and informants to tackle deeply ingrained court corruption. Anna Petherick analyses the case of Brazil where authorities tried to reign in on corruption on the municipality level with ‘audit SWAT teams’ performing surprise audits of municipalities. A lottery decides which municipalities are going to be audited; this way all mayors know the next audit could be in their constituencies.

These are just three out of the eleven case studies presented by the Democracy Lab and the Legatum Institute. They illustrate the broad range of cases covered in the Curbing Corruption series. The reports were launched in September with a panel discussion titled “Fixing the Fight Against Corruption”, held at the Legatum Institute in London. The panelists stressed that there is now easy fix for corruption and that solutions always have to be adapted to local environments. The case studies give plenty of food for thought in this context. Naturally the evidence they convey remains anecdotal. Yet, they spark a debate about potential policy solutions. In the end, this is exactly why they were commissioned.

Anti-corruption as last chapter of democratic revolutions

by: Alina Mungiu-Pippidi

Tarek al-Tayeb Mohamed Bouazizi was a 27 years old Tunisian street vendor who set himself on fire on 17 December 2010, in protest at the confiscation of his wares following an accusation by officials that he was trading illegally. That started the fires of the Tunisian Revolution and then the wider Arab Spring, and he was instantly cast as a hero – after all, then-President Zine El Abidine Ben was a typical predatory leader with a wife who had built herself an unauthorized villa at the UNESCO heritage site of Carthage. But the hero of the Tunisian revolution was in fact avoiding paying tax, like most petty traders in poor countries all around the world. He saw himself as acting legitimately in doing so because the state had done so little for him and his family in his life, while President Ben Ali and his wife prospered. The state could have argued in return that since people like Mr Bouazizi had never paid taxes there were insufficient public resources to offer them much. It might turn out that the money spent on Mrs Ben Ali’s villa and other spoils was insufficient to provide for all those in need of education and health care but who were not paying taxes. In other words, beyond the paradigm of predator and victim, what seems to be the problem in the Tunisian situation is the absence of an agreed social contract between them to avoid both corruption and evasion. Only such a contract would give development a chance.

1280px-French_support_Bouazizi
Photo credit: Antoine Walter (Flickr)

Crowds in the streets of New Delhi, Sofia and Rio have only recently raised corruption as one of the main banners of their protests.  It is not difficult to see why. Most of the 114,000 respondents in 107 countries interviewed for the 2013 Global Corruption Barometer believe that corruption has increased, not decreased in the previous year, two out of three consider that favouritism is the rule rather than the exception in their public services (only a quarter having resorted to bribes in the year previous to survey), over 50% believe their government is captured by vested interests and for every nine people who consider national anti-corruption strategies ineffective we find one who believes they are working.

The reasons why people complain of corruption become obvious when we survey the countries where such perceptions are dominant. New research from the EU FP7 ANTICORRP project shows that corruption comes with a score of malign phenomena which hinder development and well-being. High perception of corruption is significantly associated with low public expenditure on health (the queues outside Brazilian hospitals), but high expenditure on various government projects – from Brazil’s expensive World Cup to Mr. Ben Ali’s grandiose empty mega-mosque – along with reduced absorption of assistance funds, low tax collection, poor returns from public investment and brain drain. In 2013 only citizens in Northern European countries agreed that for the most part advancement in the public or private sector is based on hard work and competence, while for the rest of Europeans favouritism through connections, the most insidious and widespread form of corruption, seems to be the ticket to success in their societies.

Why are elections not taking care of that and in new democracies we continue to have the same problem, which we can document with evidence ranging from the poor rate of tax collection to the fact that the number one source of wealth continues to be power and authority? Why does control of corruption work in most old democracies (though not in all) and in so few new ones (over eighty countries which hold regular free elections are systematically corrupt)? Because for a society to prevent those with power to allocate public resources to their benefit elections seem not to be sufficient- they alone cannot guarantee that whoever gets elected rules by the law and the state treats everyone equally and fairly. In many new democracies political parties are structured as “spoiling machines” of public resources, a historically more evolved organizing vehicle for group benefit after family, clan or tribe, who have learned to coexist fairly well with apparently modern organizations by informally draining them of their impersonal and objective character. The most widespread example is the politicization of the public service in corrupt countries (including hospitals and schools, where jobs are seen as party spoils).

Over 160 countries in the world ratified the United Nations Convention against Corruption pledging to evolve to modernity. But seeing that corruption at a systemic scale is simply an abuse of power, anti-corruption is necessarily a political act.  The few countries which succeeded to build control of corruption over the last forty years – countries like Uruguay or Estonia – did not do it through anti-corruption agencies or other silver bullets promoted by the international community, but because a critical mass managed to balance power and elect people who ended the old vicious circle and initiated new rules of the game. For our generation the elimination of privilege and favouritism is the only way to accomplish in full the democratic revolutions started in 1989. Integrity is a public good, and this is why its construction is fraught with collective action problems and translates in this new wave of global discontent – it’s only discontent with the outcome of imperfect democracies and not with democracy itself.

The results of the ANTICORRP project cited here are published in Alina Mungiu-Pippidi (editor) Anticorruption Report 1 (Controlling Corruption in Europe) and Anticorruption Report 2 (The Anticorruption Frontline) which came out from Barbara Budrich publishers in 2013 and 2014.

Alina Mungiu-Pippidi chairs the European Centre for Anticorruption and State Building (ERCAS) at the Hertie School of Governance in Berlin.

Lessons from Sochi: getting civil society into the games

by: Niklas Kossow

“The mission of the IOC is to promote Olympism throughout the world and to lead theOlympic Movement. The IOC’s role is: to encourage and support a responsible concern for environmental issues…to promote a positive legacy from the Olympic Games to the host cities and host countries”– Olympic Charter, Rules 2.13 and 2.14

Once upon a time, Akhmed Bilalov was a successful businessman and deputy head of the Russian Olympic committee. His brother, Magomed was not only commissioned with the construction of the Krasnaya Polyana skiing resort, but also received 100% funding for the project from Russian state-owned banks. Business was booming for the Bilalov brothers, until President Vladimir Putin visited the resort in February 2013, criticising the quality of the construction work. In the next months, both brothers were charged with misuse of Olympic construction funds and fled the country. This is but one of countless tales of corruption from the Sochi Games, which will be remembered largely for incredibly high costs, disregard for human rights and the environment. Unfortunately, civil society voices were largely shut out of the planning process for Sochi. If they had been involved, would coverage of the games have been different?

Anti-corruption research has shown a positive link between an active civil society and levels of corruption, especially in Eastern Europe and Central Asia. Civil society actors are independent and represent citizens who want to have their voice heard. As independent actors, they can help prevent graft in providing oversight that is independent from private interests and state interference.

Before Sochi even won the bid to host the games, environmental activists urged the International Olympic Committee to reject the bid based on the environmental damage it would cause the Western Caucasus, a UNESCO World Heritage Site, but their pleas were ignored. Just before the start of the games, Transparency International Russia published a report, “Olympic Sized Corruption”, explaining in detail where funds were misused. Russian activists have exposed corruption as the main reason for the bloated cost of the Olympic Games, despite the increasingly oppressive responses of Vladimir Putin’s regime. The games were originally budgeted at $12billion, but the final cost was closer to $50billion. The amount lost to embezzlement has been estimated at anywhere from $18billion$30billion of the total expense.

Given their claims to support environmentally sustainable games, the behavior of the IOC with regards to the Sochi Olympics is disappointing. If they are serious about future games reflecting the true nature of the Olympic charter, then civil society involvement and independent oversight has to be one of the conditions for awarding the games. The Sydney 2000 games proved to be a successful example of how increased transparency and civil society involvement can make a difference. Environmental groups were involved in the planning process and took part in making the Sydney Olympics the first “green games”.[i]

The Sochi Olympics is definitely not the first, nor is it likely to be the last example of corruption, environmental degradation and human rights violations during the planning of a mega event. The run-up to the Rio 2014 World Cup and 2016 Olympic games have already seen major street protests and now a workers’ strike, respectively.  The IOC recently announced that it intends to review its host-city selection process, and has promised to take a more active role in Rio 2016 preparations, but they have yet to acknowledge the value of increased civil society involvement. It is not just the IOC who looks the other way when selecting a host city. FIFA selected Qatar to host the 2022 World Cup to despite reports of numerous human rights violations against migrant construction workers.[ii] By insisting on the inclusion of citizen voices in the planning of Olympics, the IOC would get closer to honouring the terms of their own charter as well as provide a good example for other international sports organizations.

Niklas Kossow is a Master’s of Public Policy candidate at the Hertie School of Governance. 


[i] Kearins, K. and Pavlovich, K. 2002. Corporate Social Responsibility and Environmental Management 9, 157–169

[ii] For more information on this, see: ERCAS Working paper No. 40, “Corruption in Qatar? The Link between the Governance Regime and Anti-Corruption Indicators” by Lina Khatib, and an Amnesty International spotlight on migrant worker abuse: “The Dark Side of Migration.”

New Grassroots Anti-corruption Revolutions Discussed at NED

National Endowment for Democracy hosted Alina Mungiu-Pippidi for a talk in Washington, DC where she argued that the demand for good governance erupting in grassroots movements in Egypt, India, Ukraine, Turkey and Brazil should be seen as a second phase of transition to democracy as global constituencies are no longer satisfied with elections alone and demand more equality of treatment from governments everywhere.

Mungiu-Pippidi shared data from the research project ANTICORRP showing that favoritism of governments in relation to citizens is the number one cause of high perceptions of corruption and criticized the global corruption movement for neglecting this phenomenon. She also expressed skepticism towards top down anti-corruption reforms, arguing that in countries where corruption is widespread the spoliation of public resources could be described as a pyramid, with people on top spoiling the most. She furthermore encouraged those who care about promoting democracy to invest in structuring this growing demand for new government.

Mungiu-Pippidi concluded her presentation by describing three situations in which such countries may find themselves, and corresponding policy approaches:

  • The first situation requires the presence of a strong and autonomous civil society. In this situation, those who lose from corruption are strong and organized enough to take action. They are the main drivers of change, and as an approach, anti-corruption strategies should be aimed at helping them achieve their goals.
  • The second situation is where those who lose from corruption are not strong and organized enough to take action. Instead of directly pursuing anti-corruption strategies, the recommended approach is to develop civil society capacity to be autonomous in the future.
  • The third situation is one in which there are no significant domestic losers meaning that no corresponding anti-corruption strategy is needed except in terms of aid distribution.

The new data is from an upcoming ANTICORRP report, an extensive quantitative analysis of causes of achievement and stagnation in the global fight against corruption. The report also argues that particularly in countries where corruption is the norm, top-down reforms are ineffective.

Protests in Brazil Fuelled by Popular Discontent with Corruption and Bad Public Services

Brazil - anti-corruption protestsThe last two weeks have seen the biggest wave of protests in Brazil in 21 years, since the large demonstrations in favour of President Collor’s impeachment in 1992. What started as a mobilisation in the city of São Paulo against a R$ 0.20 (€ 0.07) increase in public transportation fares, first organised by the Movimento Passe Livre (free fare movement) on June 6th, slowly grew to a massive collection of demonstrations in 100 Brazilian cities bringing around 1 million to the streets on June 20th, for reasons ranging from corruption to generally bad public healthcare and education and excessive government expenditures for the 2014 World Cup.

Why have the protests gained such magnitude? Firstly, related to the immediate motivation for the demonstrations, there is the fact that several other state capitals also had increases in public transportation fares in a context where transportation services are becoming more expensive without any apparent improvement in quality. This also comes at a moment where basic living costs in Brazil are rapidly rising due to increased inflation, and higher transportation fares only added to that burden. Secondly, the developments around the first demonstrations in São Paulo contributed to make other problems evident and tap into a generalised dissatisfaction with public services in general, police violence, corruption and the fact that a large part of the population does not feel represented by the current party and political system. At the same time, people have seen the federal government invest billions in the construction of stadiums and infrastructure projects for the Confederations Cup currently taking place in Brazil and the World Cup to take place next year. The recent inauguration of the stadiums was perceived as a signal that the government is not prioritising projects that benefit the population’s basic needs.

The protests in Brazil are also evidence of the revolutionary role of social media in political mobilisation, reaching especially citizens that had never participated in protests before, which were more than 70% in one of the protests, according to a survey. Platforms such as Facebook, Twitter and Youtube contributed greatly not only for the dissemination of the demonstrations, but also to ultimately mobilise public opinion in favour of the protests through the spreading of videos and photos of police violence and abuse. The video of a police officer breaking the window of his police vehicle, suggesting police action to simulate acts of vandalism and attacks by the protesters, was seen by over 1.1 million people. Several citizens and commentators on television compared police repression to the protests with that seen during the military dictatorship that ruled the country between 1964 and 1985. Moreover, these online platforms have enabled people to follow the protests closely and debate the political issues raised in the demonstrations. Since June 13th, when the fourth demonstration in São Paulo took place to demand that the increase in transportation fares were revoked, more than 130 million people have actively followed social media posts on the topics, and two million posts with the movement’s mottos “the giant woke up”, “come to the streets”, among others, were registered online.

In the meantime, several municipal governments had no choice but to revoke the bus fare increases. Thousands of protesters celebrated the victory, but not without wondering what would come next and what other causes should be taken up by the street movements. This process has seen the mobilisation of great masses of citizens all over the country, but also increasingly diffuse topics and complaints among the demonstrators. Many analysts and members of social movements were critical of this turn in the protests, claiming that demonstrating against everything without focus on concrete issues faced that risk of emptying and weakening the movements. More recently, however, part of the protests has been reorganised to claim for new, more specific demands. In São Paulo, for instance, the organised groups that started the protests against the high fares and low quality transportation service have turned to other issues related to transportation management in the city. While city contracts with private bus companies are being investigated under suspicion of fraud, and accusations of collusion among bus companies have been raised, the City Legislative has reacted to public pressure and the accusations by initiating a request to install a Parliamentary Investigative Committee to examine these issues. Another demonstration has been scheduled for June 25th to demand the creation of the Investigative Committee and increased transparency for municipal expenditures in public transportation.

Other groups of protesters against corruption have now also mobilised against a much more specific issue being currently debated in Congress. A proposal for a Constitutional Amendment (PEC) establishing that criminal investigations be exclusively conducted by the State and Federal Police, thus prohibiting prosecutorial bodies of investigating, was planned to be voted in the Lower House on June 26th and was expected to find large approval among representatives. The PEC has been under discussion for several months, with a deadlock between Police and Prosecutors that have not managed to reach an agreement on the text that should be submitted to Congress. Before the street protests gained this dimension, manifestations against the PEC were mostly limited to representative associations of prosecutors and lawyers, together with anti-corruption movements claiming that the Constitutional change would increase impunity in the country. As it emerged as one of the issues raised among protesters, the Lower House has already stated that voting shall be postponed. Demonstrations in São Paulo and Rio de Janeiro have brought together around 35,000 people against the approval of the PEC in the past two days.

These street movements in Brazil have shown that the population is extremely unhappy with their quality of life and is no longer willing to tolerate the abuses of a privileged political elite that is seen as benefiting from resources that should be directed to improving the welfare of the population at large. They have made clear that Brazilians are aware of the connection between corruption at high levels of government and the low quality of public services available to them. As the initial message of the movement, “it’s not about R$ 0.20”, but about a demand for accountable governments that act in the public interest instead of their own.

(The picture featured above is credited to Eraldo Peres.)