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Slide 2 Governance and Controlling Corruption is Central for Socio-Economic Development and Growth: New Reports and Evidence Presentation by Daniel Kaufmann, The World Bank, on New Books and Research on Quality of Growth and Anticorrruption and State Capture in Transition ICPS Roundtable, Kyiv, November 6th, 2000 Slide 3 Broadening our Perspective: Assessing Governance Control of Corruption (or Graft) Rule of Law Lack of Regulatory Burden Government Effectiveness Voice and Accountability Political Stability and lack of Violence Slide 4 Quality of Rule of Law by Region Good Poor Slide 5 % Slide 6 Corruption in the Banking Sector ( EIU 1997-98, Selected Countries ) 0 1 2 3 4 Chile Hong Kong Hungary Mexico Ecuador Turkey Panama Syria Russia High Corruption Low Corruption Slide 7 CORRUPTION DETERS FOREIGN INVESTORS: Probability of Investment Loss due to Corruption (within 5 years) 5 6 10 12 15 24 29 39 41 44 58 62 68 71 79 95 0102030405060708090100 UNITED STATES SINGAPORE ITALY COSTA RICA GREECE ESTONIA POLAND MEXICO ROMANIA BULGARIA RUSSIA UKRAINE PAKISTAN GEORGIA COLOMBIA TURKMENISTAN *Source: S&P/DRI 1998 %%%%%% Slide 8 Impact of good government on investment and growth 10% 15% 20% High MediumLow % Investment share in GDP HighMediumLow -1.5% 0% 1% 2% 1.5% -0.5% -1.0% 0.5% Income per capita Growth Rate Government Quality Government Quality Slide 9 The Dividend of Good Governance Infant Mortality and Corruption 0 10 20 30 40 50 60 70 80 90 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 0 25 50 75 100 WeakAverageGood Rule of Law x Development Dividend Per Capita Income and Voice and Accountability 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 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 http://www.worldbank.org/wbi/governance. Slide 10 Corruption High Low Bureaucratic Discretion Corruption & Bureaucratic Discretion Slide 11 Enterprises are Prepared to be Taxed for Better Government: Share of Firms that would pay additional taxes to eliminate corruption, crime and excessive regulations Prepared to Pay Taxes to Alleviate: Slide 12 Slide 13 Smaller Firms Are Hit Harder by Corruption in Russia and in Transition Economies Bribes to secure public procurement bids (% of contract value) 0 2 4 6 SmallMediumLarge % of contract value SmallMediumLarge % Slide 14 Extent of State Capture in Transition Slide 15 0 5 10 15 20 25 30 35 40 45 50 HungaryEstoniaRussiaAzerbaijan Parliamentary legislation DecreesCentral Bank Influence Differences in Transition Countries on the Extent of State Capture %of all Firms report negative impact of grand corruption % % % % % % % % % % Adverse Impact of Purchases of: Slide 16 Enormous Socio-Economic Costs of State Capture by Oligarchs and Vested Elite Interests: Business sector grows much slower, lacks investments and insecure property rights Slide 17 The result: weak property rights 0 10 20 30 40 50 60 70 80 Est Uzb Pol Sln Azer Hun Cro Slk Geo Bul Arm Rom Bel Cze Kaz Lit Kyr Rus Ukr Mol Firms reporting insecure property and contract rights % of All Firms % Slide 18 State Capture exists where partial Civil Liberties and slow Economic Reforms Degree of Civil Liberties in Transition Economies Economic Reforms Slide 19 Corruption High Low Civil Liberties Civil Liberties Help Control Corruption (Worldwide Evidence, 150 countries) Slide 20 Control of Corruption and Freedom of the Press High Low High r =.68 Freedom of the Press (Freedom House) Control of Graft [kkz] Slide 21 Slide 22 Civil Society Oversight: Freedom of information Public hearings of draft laws Monitoring by media/NGOs Good and Clean Government Competition & Entry : Competitive restructuring of monopolies Regulatory simplification Public Administration and Public Finance: Meritocratic civil service Transparent, monetized, adequate remuneration Accountability in expenditures (Treasury, Audit, Procurement) Strategy for Good Government and Anticorruption Accountability of Political Leadership: Disclosure of parliamentary votes Transparency in party financing Asset Declaration, Conflict of Interest Rules Checks and Balances: Independent and effective judiciary Decentralization with accountability Slide 23 Emerging Operational Strategies Albania Judicial reform Tax and customs Standards for health care University entrants Monitoring by NGOs Georgia Regulatory reform Tax and customs Public procurement Fiscal management Replacing Judges Monitoring by NGOs Slide 24 Overall Corruption Over Time (Selected Countries; ICRG index, rescaled 0-10) 0 2 4 6 8 High corruption Low corruption 1992199319941995199619971998 Indonesia Indonesia Finland El Salvador 10 Finland Russia Russia Poland Poland 1988-92 Slide 25 National Governance: Challenges in Integrating Anti- Corruption Into a Strategy of Institutional Change A simple Formula synthesizing Governance/Anticorruption: IG and AC = KI + LE + CA Anti-Corruption = Improving Governance and Anti-Corruption = = Knowledge/Info.Data + ...+ Leadership (incl. Political) +......+ Leadership (incl. Political) +...... + Collective Action (change)... + Collective Action (change)