corruption

Corruption

Strains of sleaze

Nov 9th 2006
From The Economist print edition

How trustworthy is the experts' verdict on governments' honesty?

WHO judges the judges? Transparency International's annual corruption index (see chart) ranks governments around the world for their honesty or lack of it. But how much weight does the survey, based on the views of businessmen and other country experts, deserve?

Few would quibble with the outlines. The most corrupt countries are the poorest, and the cleanest are the richest. Those who know Haiti do not doubt that it deserves to be somewhere near the bottom; Finland, Iceland and New Zealand are plausible candidates for the top (though both Singapore and Denmark are in effect there too).

For countries like Italy, ranked 45th, the index provides an annual rebuke, and confirmation that corruption can thrive even without the alibi of poverty. For America, which is now no cleaner than Chile, this year's ranking was a fresh embarrassment.

But for poorer countries that jockey for position nearer the foot of the table, money as well as pride is at stake. Donors, fed up with corruption, use these rankings as a guide. Seven of the nine sources that Transparency International (TI) relies on for its raw data also guide the American government's Millennium Challenge Corporation. This week it announced which countries may pitch for its aid money, likely to be $2 billion this year.

So are the expert perceptions worthy of the weight now being put on them? TI itself “does not encourage” the use of its corruption indicators as a condition for aid. This is not because it doubts the veracity of its scorecard, but because it insists that corrupt countries should not automatically be denied aid.

There is growing rivalry between those who measure corruption by looking at bureaucracy, and those who prefer the more impressionist indicator of perceptions. The World Bank, for example, publishes a “Doing Business” survey that plots where the dead hand of the state falls most heavily: how many days it takes to clear customs, or to set up a business, for example. This week it released a new report on the administrative burdens of the tax code. Admittedly, these are not measures of corruption per se, but the more licences and signatures a business has to collect, the more bribes it is likely to pay.

Supporters of this approach question TI's methodology. The sample of experts is not consistent over time. As with all rankings, adding new countries can change the standings, without reflecting absolute change. Relying mainly on foreigners' perception of corruption may overstate it. More detailed World Bank studies show respondents in some countries saying that corruption is prevalent but not a menace to business. Such countries may prosper despite corruption—at least for a time.

TI points out that some of its informants live locally; others were born there. Foreigners' views tally well with those of residents. A defence of subjective measures of corruption comes from Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi of the World Bank Institute, who compile their own indicators, drawing on many of the same sources as TI. They find that expert opinions are more tightly correlated with the impressions of businessmen than they are with each other. “Halo effects”, as they are called, may be more of a problem. Perceptions of corruption in countries like South Korea and Thailand deteriorated along with their currencies in the wake of the financial crisis of 1997-98.

Corruption has many different strains: sometimes politicians are bent and judges are straight; civil servants may be honest executors of a corrupt politician's will; or the minister may be honest, but officialdom crooked. So two countries with similar rankings may suffer from rather different problems. TI's rankings show the analysts' disapproval, but not what governments must do to impress them.

The Organisation for Economic Co-operation and Development (OECD) is trying to highlight this. Its “Investment Compact” assesses poor countries—initially in south-eastern Europe, and in future elsewhere—for good government in both theory and practice. The seven categories it studies include tax policy and administration, tariff and other barriers to trade, regulatory reform and education. The methodology is solid and the results revealing—but there's a catch. Only backward countries get the treatment. Putting rich countries under that kind of spotlight, explains an OECD official ruefully, would be “politically unacceptable”.