A popular understanding of corruption is the misuse of public office for private gain - government officials and politicians taking bribes for legitimate and illegitimate action, or even for taking no action. It is commonly thought of as being a problem in the realm of governments. Without minimizing the role of the public sector, we cannot ignore the fact that for every ‘receiver’ there is a ‘giver’. The private sector link is not often enough discussed outside of experts on governance. How can we bring out the importance of working with the private sector? In this piece we first argue for explicitly recognizing the role of the multiple parties in corruption; second, we identify some of the ways in which the private sector contributes; third, we briefly present some of the damaging consequences of corruption; fourth, we look for benefits the private sector can expect by tackling corruption; and finally, we explore a way forward. We argue that to be able to better address the scourge of corruption, policies need to address and involve the private sector and go beyond 'catch and punish'.
There are many players in the business of corruption. Givers and receivers are the two obvious parties in a corrupt act. But there are other actors as well like the objector, the regulator, the observer and the facilitator. Givers are not always the victims of corruption - they can be active corruptors as well. While receivers are generally seen as the beneficiaries, they can also be caught in a trap – being part of a longer chain, they may face threats for not cooperating. Objectors can object in order to nudge out a competitor, make a side deal, raise the stakes, out of jealousy, or because there is a dispute over the division of spoils, and of course, to genuinely stop corruption as well. Regulators are intended to stop, catch, punish. But they could themselves be parties to corrupt acts. Observers may be passive, but later could become whistle blowers or one of the other categories. Facilitators can be perfectly legal (accountants, lawyers, tax havens) or illegal (unauthorized go-betweens, fixers). The private sector can be involved as a giver, an objector, an observer or facilitator.
Explicitly recognizing these multiple players leads us to the direct role of the private sector in contributing to corruption. Some examples include bribes for contracts, which represent the most obvious form. When contracts are large, for example, in the case of large construction projects, we have cases of ‘grand corruption’ involving large sums. Other forms include, for example, influence peddling, dodging taxes through collusion with officials. In cases of disasters, whether natural or otherwise, rehabilitation is a period when large sums of money flow in and are spent in a relatively short time period because of the emergency humanitarian situation. Here, standard prudential norms do not always apply, and this creates a situation for contractors that is vulnerable to corruption.
While much of corruption is illegal, there are a number of forms that are still, in fact, legal. For example, where profit potential is seen to be very high, payments to 'adjust' laws and regulations result in non-state actors influencing the business of the state for their own considerations other than public interest. This amounts to a ‘capture’ of the state, for example, as seen in cases of commercial exploitation of natural resources, i.e. forests and mining. Once such a law is passed, acts arising from it are legal but corrupt.
Further, without the help of legal professionals like lawyers and accountants and preferential tax regimes that are harmful, large scale and especially trans-national corruption would not be possible. Many companies that would not dream of bribing officials in their own countries see nothing wrong with bribery when operating abroad, or believe that they would fail to win new business because their competitors paid bribes. Thus corruption can cross country boundaries through trans-national companies and tax havens.
It goes without saying, then, that the consequences of corruption can be highly damaging. The damage happens at a micro-retail level directly affecting people’s everyday lives, as well as at a more macro-institutional level. At a micro level, the use of sub-standard material, partly to offset costs of bribes paid to get contracts, can result in school buildings and roads that are not only of poor quality, but also positively hazardous to people in their everyday lives. Corruption that undermines essential social services like water supply, electricity, schools and health facilities, drains tax money and deprives citizens of what they should legitimately expect. Corrupt contactors cause public goods to be undersupplied and overpriced. Corruption through collusion with officials and politicians by drug companies for inappropriate drug certification can have tragic consequences for people’s health and life. The harsh implications for people impacted by natural disasters are aggravated as relief and recovery are undermined. In circumstances where the police are underpaid and face difficult working conditions, private companies can divert them for their protection for relatively small sums. Instead of maintaining the law and protecting those who can ill afford to pay, the police force is used to maintaining ‘order’ on behalf of businesses who usurp resources like land or timber, regardless of the law. At a more macro level, laws and policies are influenced and even sometimes ‘drafted’ by interest groups that can divert away from public interest. Corruption undermines institutions resulting in long-term harm that can transcend generations. And this can be very hard to reverse. Eventually almost everyone loses from corruption; the poor lose much more.
With this in mind, why then should businesses cooperate in the fight against corruption? Simply put, they have a lot to gain. People are becoming increasingly aware as consumers and can demonstrate their influence through their purchasing power. Tackling corruption can:
- Present a clean image that has an important public relations value
- Make future planning more predictable and smooth transactions costs when unexpected demands for side deals surface less often
- Provide nascent or smaller companies better opportunities instead of being muscled out by larger ones through corrupt practices
- Nurture innovation better since it is easier for new projects to emerge without being bogged down by long drawn-out approval processes.
As businesses devote their energies to growing their businesses and profits legitimately, they can project their ethical standards rather than seeing their resources leach away into the pockets of corrupt officials. With increasingly aware consumers, this can translate into profits. The larger the numbers of private agents joining the struggle against corruption, the more worthwhile it will become for the laggards as well. In the medium- to longer-run everyone benefits from a corruption free environment for doing business.
So what is being done? Some transnational companies have recognized the public relations value of a clean image and have already developed codes of conduct, conducted anti-corruption training for staff and established internal control systems. International agencies, including the United Nations and the OECD have also drafted guidelines to support commitment from transnational companies for a corruption-free business environment. Civil society groups are educating consumers to vote with their money. Under the UN Global Compact framework nearly 3,000 businesses in 100 countries have pledged to promote socially responsible policies against corruption. The private sector must come to the fore in the fight against corruption, not just for the sake of economic growth, but especially for removing impediments to achieving the millennium development goals and promoting human development. We need to respond to the concerns of the disadvantaged who are much more strongly impacted by the behavior of the privileged, but are severely constrained in the choices they can exercise.
The private sector can improve cooperation with governments domestically and across borders in combating corruption. Businesses that tend to operate more responsibly in their own countries than elsewhere should establish internal standards of corporate governance that are less ‘adjustable’ in the pursuit of immediate gains. Professional bodies of potential legal facilitators like lawyers and accountants should explicitly take account of corrupt practices to strengthen professional ethics and codes of conduct. Trade and industry associations can do likewise. Publicizing such codes of conduct, orienting new entrants, and including them as part of professional training can help improve compliance. Harmful preferential tax regimes can be addressed through improved cooperation across borders to make it increasingly difficult for corrupt money to find a safe hiding place. Businesses in developed and developing countries need to work jointly and with governments and with each other.
We have seen that there is a commercial argument to combat corruption and also an efficiency argument. But the strongest is the moral argument – the injustice experienced and the lowered stake in prosperity is strong enough of a justification for eschewing gradualism. Most developing countries no longer wait for poverty to come down on its own in the course of economic growth – they put in place explicit policies to accelerate the process. Similar is the argument to combat the scourge of corruption, to explicitly address the issue on many fronts. To the extent the private sector seizes the opportunity to take the initiative, prevention will receive support, minimizing the need for punitive action.
The UNDP Asia Pacific Regional Center in Colombo has been working on corruption issues for the past year and a half. The focus of the work has been tackling corruption in support of poverty reduction, achieving other Millennium Development Goals and, more broadly, promoting Human Development.
For more information, please contact Ms. Anuradha Rajivan, UNDP Asia-Pacific Regional Center in Colombo