1. Different forms of corruption, causes and
consequences
Class on Public Administration. Seminar 1 - Corruption in an international
perspective
L.A. Latif, Graduate Student

2. Table of Contents
 Introduction
 Definitions
 Corruption
 Bribes
 Kickbacks
 Embezzlement
 Discussion:
 Causes, and
 Consequences
 Recommendations
 Reference sources

3. Introduction: Definitions
 Corruption
 Abuse of public office for private gain (World Bank).
 Misuse of entrusted power for private gain (Transparency
International).
 Abuse of power for private gain (European Union, 2003).
 Misuse of office for unofficial ends (Klitgaard, 1998)

4. Bribes
 Where a government official asks for or obtains money or
favor in return for a preferential treatment or government
services
 Exchange of favors between 2 persons
 2 people are involved: briber (a civilian) and a bribee
(commonly a state agent where the state agent misuses his or
her power)
 3rd party is harmed (consequence)

5. Embezzlement
 Stealing!
 Theft of resources. Disloyal employees steal from their employers
 Different from bribe: only 1 person is involved
 Overlap with bribery: A minister cannot directly transfer money to
his/her account without reason. So, he/she obfuscates
embezzlement by asking for fake receipts from non existent
companies whose ownership is not disclosed. This introduces a
fake client to the transaction and blurs the difference between
bribery and embezzlement

6. Kickbacks
Form of a bribe
“Pay me from what I pay you”
Difficult to distinguish
between bribes and
kickbacks
Any ideas??

7. Causes and consequences: same coin?
 According to Lambsdorff research on corruption is challenging
because:
 Causes of corruption seem to be its consequences; and
 Consequences of corruption seem to be its causes.

8. Causes of corruption
 Size of the public sector
 Quality of regulation
 Degree of economic competition
 Structure of government
 Amount of decentralization
 Impact of culture, values and gender
 Role of invariant features such as geography and history

9. 1. Size of the public sector –limited role of the
state in the modern society
 Economists (Boyko et al. 1996; Shleifer and Vishny 1998)
argument: privatize (corruption can be contained by minimizing
the public sector) – limit government power. Boomerang effect:
Corruption could be shifted from the public to private sector.
Example: ??? Regulation. IFFS, TP, TE, transition period and
corruption
 Empirical findings:
 NO: little support for this proposition. Little correlation between overall
size of the public sector and corruption. Gerring and Thacker (2005).
Example: ???
 YES: corruption significantly decreases with government size in high
income countries. Graeff and Mehlkop (2003). Low income countries?
Example: ???

10. 2. Quality of regulation
 Argument: Bad regulation is a cause of corruption. So it is not the size of government but
administration. Complicated rules. Example; The Advertising of bill boards case
(boundaries of counties in dispute). Former Land Laws of Kenya: BRIBES
 The opposite is also true that corruption causes bad regulation. For example in
procurement and creation of monopolies (unregulated). The case of Pakistan and
Geothermal power plant in Kenya: KICKBACKS
 Bad regulation and good regulation: what is this? Ask whether a regulation creates
opportunities for corruption. This will take us in circles and we will have no causal
connection. Hints helping us detect corruption: Ambiguities, gaps in law, higher barriers to
market entry, time for registering businesses
 State intervention in private sector: too much or too little? Gerring and Thacker 2005
positive correlation between regulatory quality and absence of corruption.

11. 3. Degree of economic competition
 Economists argue that the absence of economic competition
results in corruption. When there is competition, politicians have
less to sell. When competition is restricted, profits increase and
politicians can take the opportunity to assign these profits – in
exchange for a share.
 Reverse is also true: private firms can give bribes to politicians to
offer market restrictions. Example; The Pakistani gold case.
 Openness as a variable: The less competitive a market
environment, the higher will be the extent of corruption. Ades and
Di Tella (1995).

12. 4. Structure of government

13. Democracy: constitutional structure and
electoral system
 Schumpeter’s argument: democracy limits corruption because of:
 Political competition (checks and balances from opposition and
accountability). Treisman: there is a reduction but not immediately:
 IFF and the case of Zambian mining industry – Glencore (in
transition)
 Authoritarian (Goldenberg scandal) to democratic (Anglo leasing).
Democracy does not reduce corruption. Corruption increases
where president is more powerful (presidential system versus
parliamentary system as the cause of corruption)
 Voting process (leads to monitoring. What about electoral rigging?
Manow: political party influence in election reduces corruption.
Disagree: it is a cause and consequence of corruption

14. 5. Decentralization: cause/consequence
 Argument: can reduce corruption because brings government close to people, can work
where there is good governance.
 Corruption is high when spending is decentralized while revenue collection remains in
control of the central government. The CDF system in Kenya as example
 Goes to the earlier argument on size of government
 Introduced kickbacks in award of local government contracts: case of Nairobi city council
 Triesman (1999), Adsera et al (2000) and Panizza (2001) find no significant impact
between between decentralization and corruption
 Goldsmith (1999), Kunicova (2005), Gerring and Thacker (2004): federalism increases
corruption

15. Decentralization (cont’d)
 Testa (2003): bicameralism lowers corruption but ethnic,
religious or linguistic fractions cause corruption

16. 6. Impact of culture, value and gender
 Trust placed in civil servants and evaluation of political system
and low levels of corruption: “It’s our time to eat” culture of the
Luos of Kisumu in Kenya
 Values: ethnicity comes in and becomes a cause of corruption
(retention in politics)
 Male dominated networks may be causes of corruption (??
Bhutto, Sirleaf and 2 Japanese ministers)

17. 7. Geography and History: Natural
resources
 Natural resources cause of corruption (Dutch companies in
DRC, Canadian and Swiss companies in Zambia and
Tanzania)
 See GFI reports & StAR for more examples
 Corrupt neighbors cause of domestic corruption where there is
a strong regional exchange
 Colonial heritages as causes of corruption: Land in Kenya

18. Consequences of corruption
 Generates inequality
 Impacts productivity and investment
 Distorts the public and private sectors

19. Inequality
 Of income (Gupta et. al, 2002 using Gini Coefficient), land and
education
 Inequality also causes corruption (Swamy et. Al, 2001)

20. Productivity and investment
 Corruption decreases GDP per head (Slum dweller and
DTA/Kickbacks effect on DRM)
 Ali and Isse (2003): lowers growth (DRC and Leopold
embezzlements)
 Rock and Bonnet (2004): increases growth (East Asian newly
industrializing countries – government promotional privileges
for bribes)

21. Distorts public and private sector
 Public
Corruption leads to:
 Misallocation of public resources (public servants appointed based on
bribes and not competency)- good base for kickbacks – Mozambique
case on bottle labeling machine
 Distortions in budget allocation (need to conceal illicit payments so
some goods preferred over others)
 Reduced and low quality of public investments, services and
environmental regulation
 Esty & Porter (2002): Overinvestment in public infrastructure (though
link is poor)
 Mauro (1998): lower government spending on education

22. Continued
 Private
 Markets are affected (SMEs lose out on market share)
 Aid and lending
 Stocks and tax evasion
 Underground economies
 Deters foreign investors
 Deters market entry

23. Corruption on investments
 Reduces FDI
 Vulnerability to currency rises
 Studies show that firms adapt to a country’s level of corruption
(shell companies, mailbox companies)

24. Recommendations
 Creation of the office of the ombudsman (e.g., Kenya, 2010)
 Stringent laws – punishable offences
 Declaration of wealth and name and shame blacklists
 Regulations where MNCs are concerned
 Exchange of informations where DTAs are concerned
 Civil service salaries
 Merit based recruitment
 Freedom of information (media/press) deters corruption
 Independent judiciary
 Alert public

25. Reference sources
 Baker, R. W. 2005. Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free- Market System.
Hoboken, NJ: John Wiley & Sons.
 Global Financial Integrity, 2014. Hiding in Plain Sight: Trade Misinvoicing and the impact of Revenue Loss in
Ghana, Kenya, Mozambique, Tanzania, and Uganda: 2002-2011. Available at: http://www.gfintegrity.org/wp-content/
uploads/2014/05/Hiding_In_Plain_Sight_Report-Final.pdf
 Johann Graf Lambsdorff, Causes and consequences of corruption: What do we know from a cross-section of
countries.
 Pech, Birgit/Debiel, Tobias, 2011: Corruption as an Obstacle to Development?, in: Unikate, No. 40, 16-25.
 See: “For whom the windfalls? Winners and losers in the privatization of Zambia’s copper mines” by Alastair
Fraser (Oxford University) and John Lungu (Copperbelt University), p. 7-87; July 2009. Publication available at:
http://www.liberationafrique.org/IMG/pdf/Minewatchzambia.pdf
 World Bank. 2008. Democratic Republic of Congo: Growth with Governance in the Mining Sector. Report 43402-
ZR. Washington, DC: World Bank.

26. Thank you for listening