How to fight Corruption

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How to Fight Corruption

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How to fight Corruption

  1. 1. Amman Centennial Forum II Transparency in Urban Governance Requisite for Good Governance, Anti-Corruption & Development Ronald Maclean-Abaroa World Bank Institute As presented in Amman, Jordan 25th June 2009
  2. 2. Part I Requisite for Good Governance, Anti-Corruption & Development Part II Fighting Corruption in La Paz, Bolivia (A Case Study)
  3. 3. Good Governance & Growth Defined as: A broad Cluster of Pro-Growth Institutions to Reduce Poverty and Increase Equity. • Political Institutions • Institutionalized State Capacity • Regulation of Economic Institutions.
  4. 4. Open Access Societies Just 15% of world population (around 25 countries) Vs. 85% of world population (175 countries) live in Limited Access Societies
  5. 5. Limited Access Societies Create “static” Elite Privileges to capture excess political & economic rents by Granting assorted Monopoly powers in Politics & Business “Corrupt” or Limited Access Institutional Arrangements
  6. 6. Open Access Socities • Create “transitory” limited access by technological innovation i.e. Microsoft • Constant process of “Creative Destruction” Cyclical Crises & Adjustments Pro-Growth, Poverty Reduction & Equity
  7. 7. Anti-Corruption Institutional Building & Reform Corrupt Institutions Stop Growth, Increase Poverty & Inequity Institutional Architecture Vs. Instit. Control Smart Skills Vs. Hard Skills “Diplomacy Vs. War”
  8. 8. Smart Skills • Decentralization • Competition • Out-sourcing • Reduced Government Scope • Execution replaced by Regulation • Incentives vs Controls • Checks & Balances • Markets vs Command
  9. 9. How to Catch Flies with Honey & MILC* Subvert corruption by: • Changing and infiltrating their institutions • Intelligence, Incentives & Information (III) • Leave Crime & Punishment to Authorities • Leave “Name & Shame” to competing political & economic forces Provide the Ammunition
  10. 10. Fighting Corruption in La Paz, Bolivia A Case Study Ronald MacLean-Abaroa 27 de octubre de 2000
  11. 11. La Paz, Bolivia: 1985 • Capital city of about 1 million • Country is the poorest in South America • Twice the size of France, few paved roads • Hyperinflation 26,000 % a year • Crisis forces President to cut his term short
  12. 12. La Paz, Bolivia: 1985 POLITICAL SITUATION ECONOMIC SITUATION • Democratic elections • August 1985, massive “shock” economic adjustment • New civilian President • Local political autonomy cuts • First elected mayor in 40 years(2- year term) national economic subsidy for city... • Different party from the President • And the city is broke • But lots of international goodwill (WB, GTZ,etc)
  13. 13. Crises in La Paz • New Mayor takes office in September, 1985 • Hyperinflation and collapse of city revenues • Salary erosion for city employees • City payroll = 120% of month’s revenues • And a mine of systemic corruption
  14. 14. Public Works • A huge construction unit (4,000 workers) • Machinery, parts and gasoline stolen • Poor quality and time delays • Huge cost overruns • Location of works affected by bribes (moonlighting)
  15. 15. Taxes and Revenues • Complexity: 100 plus different taxes • Property taxes meaningless – Low values via hyperinflation – Arrangements with assessors – The proposed tax assessment survey • Difficult to pay taxes = long cues • Fraud on vehicle, and business taxes
  16. 16. Permits and Licenses • Over-regulation • Many permits and licenses are required • “Negotiations” in the corridors of City Hall • Delays • Corruption
  17. 17. Procurement • Collusion • Kickbacks • Complicated procedures in an effort to “control” corruption (26 steps for minor purchases) • Results: delays, poor quality, high costs, cynicism
  18. 18. The Cashier • Inflation peddler & speculator • The nicest cars in the parking lot • Friend and “lender” to all (including the former Mayor) • The symbol of mismanagement and corruption
  19. 19. Effects on the City • Financial collapse is imminent • Deteriorated performance • Unable to fulfill mission to the poor • Political suicide?
  20. 20. La Paz ¿Que Pasó? La Paz What Happened? Fighting Corruption
  21. 21. Key Steps • Diagnosis • Strategy • Implementation
  22. 22. Diagnosis • Addressing the payroll crisis with employees • What kinds of corruption? Unpack • Where, how much, who benefits, who is hurt? • Participatory diagnosis • Special studies
  23. 23. Participatory Diagnosis in Action: Analyzing Corruption in the La Paz City Government, 1985
  24. 24. Developing a Strategy • Use a framework to guide analysis • Emphasize institutional adjustment • Corruption = Monopoly + Discretion – Accountability • Principal-Agent-Client Model: Information and incentives • Crime of calculation = Cost/Benefit Analysis
  25. 25. Implementation • The principle of frying a “big fish” …otherwise, the culture of impunity persists • The cashier bites the dust • Others: tax evaders, procurement fixers hit
  26. 26. Implementation Tips • Involve employees in diagnosis, and development of strategy • Help your employees before “attacking” them – help them with working conditions – improve payment • Recover institutional memory – “French Study”/ hire back experienced people • Pick low-hanging fruit = early easy successes • Ally with favorable institutional forces – “Ride the wave” of reform
  27. 27. Public Works • Re-invent the role: not a construction unit anymore, but a promoter and regulator • Involve private sector • Huge cuts in personnel 40% • Carry out systematic cost-benefit studies • Community-demanded projects
  28. 28. Personnel • Salaries comparable with private sector • Huge cuts in numbers & better quality • Merit system & professionalism • New blood through “Young Bolivia” • Young “best & brightest” foreign talent • Topping-ups
  29. 29. Procurement • From 26 steps to 6 steps • Monitor: the principle of the sample • Competition and transparency
  30. 30. Permits and Licenses • Deregulate & promote transparency • Single registry of all transactions • Isolate clients from agents handling permits • Information: Manual for (“Paceño”) citizens • Certified “Public” Architects (“CPAs”)
  31. 31. Taxes and Revenues • Cut the numbers of taxes (126 to 7) • Simplify taxes. (asset vs. income tax) • Pay taxes directly to banks • “Self-evaluation” of property • Incentives for tax collectors
  32. 32. Results • Revenues soared (especially property taxes) • Investment in public works up by 10 times • International creditworthiness • Corruption collapsed • Re-elected for fourth term
  33. 33. Thank You Ronald MacLean-Abaroa World Bank Institute The World Bank rmacleanabaroa@worldbank.org Amman Institute for Urban Development Amman, Jordan Info@Ai.jo

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