Evolution of Bank policy through mid-2000’s

1. Anti-corruption policies, political economy, and the World BankPhilip KeeferDevelopment Research GroupThe World Bank

2. Evolution of Bank policy through mid-2000’s • Through to mid-1990s: Corruption a byproduct of under-development. • Address through overall development strategies. • Corruption in Bank projects, specifically, a concern. • Rely on country systems and normal corporate fiduciary practices. • Mid-1990s – mid-2000s: Corruption a cause of under-development • Support anti-corruption policies (e.g., Hong Kong style anti-corruption boards, asset declaration, etc.). • Governance (not specifically corruption) conditions IDA allocations.

3. Evolution of Bank policy: 2006-2007 • Corruption THE obstacle to development: • Country corruption an overriding factor in conditioning lending; • Extractive Industries Transparency Initiative (EITI) • No consensus on assessing corruption creates organizational challenges (e.g., ad hoc suspension of country loans). • How to measure corruption and/or governance? • Contentious – intellectually and politically. • What government policies/actions are definitive evidence of progress on governance/corruption?

4. Evolution, 2007 – present: More fiduciary, less anti-corruption • Internal: • Budgets for monitoring corruption in Bank projects significantly increased. • Integrity Vice Presidency created (above and beyond usual corporate practice). • External: • Anti-corruption policies in countries: reduced emphasis. • Significant attention to public sector financial management - much less to other aspects of country systems (bureaucracy/judiciary/police/etc). • More attention to political economy (though ad hoc, not clearly actionable). • Some loans still halted on ad hoc basis: Bangladesh Jamuna bridge. • Still no consensus on measuring/conditioning on corruption/governance.

5. Fit with research findings? • Research: Corruption IS a by-product of over-arching political economy. • Underlying political dynamics simultaneously influence : • Rent-seeking • Conversion of public resources into public benefits/public goods. • Implications: Where political incentives are friendly to corruption • ALL development efforts are hard to implement. • Above all, though, anti-corruption policies won’t be enforced; • Public sector financial management reforms less likely to succeed

6. Research vs. policy evolution? • To mid-1990s: • Reasonable to assume that corrupt behavior a “by-product” of development. • An error to ignore governance/political economy roots of development. • Mid-1990s to mid-2000s • Key and important innovation to start paying attention to governance/political economy. • But disconnect in emphasis on anti-corruption reforms without an integrated strategy to address governance/political economy obstacles to development.

7. Research vs. policy? 2006-07 • Conditioning loans on corruption a reasonable expression of moral indignation. But . . . • An incomplete development strategy. • Is donor influence strong enough such that conditionality on governance leads to governance improvement? • Research ambiguous: We don’t know if fiscal crisis/necessity (the source of efficacy of conditionality) spurs political reform.

8. Research vs. policy? 2006-07 • Measurement agenda: tension between policy and research • Gov’ts to Researchers: how can we improve governance scores? • Res to Gov: Governance is about responsiveness to citizen interests! • But – how to measure responsiveness? • focus on corruption, or • government responsiveness to citizens, or • citizen ability to act collectively to influence government, or • simply policy performance?

9. Research vs. policy? 2006-07 • Extractive industries (EITI) • What we care about is: natural resources turned into public benefits. • EITI accomplishes this only if information is the missing link in government accountability. • In many cases – not the case. • Ignores the alternative solution: keep the stuff in the ground; lump sum transfers.

10. Research vs. policy? Now • WB expenditures on WB integrity is a response to external pressures . . . but development impact? • Less specific attention to country corruption, per se, consistent with research. • But huge attention to PFM – not supported by research. • More attention to political economy – consistent with research. • But still little systematic integration of governance/political economy into development strategies.

11. Persistent dilemma • What to do in countries that exhibit severe governance problems? • Corruption? • Governance generally? • Fragile states? • These countries are the ones where development challenges – poverty, misery – are the greatest. • The biggest tool that donors have is money. • But these are the countries where government action least likely to improve development outcomes.

12. Different paradigm? Collective action instead of Good Governance? • Governance = no accountability to citizens. • Fundamental issue in accountability: ability of citizens to act collectively. • In weak governance countries: • Political parties underdeveloped. • Efforts to organize are undermined. • Removing obstacles to collective action a donor priority? • Remove obstacles to formation of civil society organizations (Tunisia). • Community-driven development. • Not easy – we need research here!

13. Conclusion • Focus on corruption as a development issue has waxed and waned. • Growing understanding that political incentives underlie corruption – and poor public sector performance, generally. • Implication: “supply-side” interventions (anti-corruption, PFM reforms) unlikely to succeed. • More effort needed on “demand-side” – increasing citizen ability to (act collectively to) hold government accountable.