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Diagnosis ⇒ Initiatives ⇒ Strategy

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  • 1. Diagnosis  Initiatives  Strategy
    Prof. Robert Klitgaard
    Paramadina University, 6 July 2011
  • 2. Overview
    The Costs of Corruption
    Diagnosing Indonesia
    Initiatives
    Strategy
  • 3. 1. The Costs of Corruption
    Corruption once called “the grease and the glue” (1965)
    Contrary evidence mounts
    Case studies
    Econometric studies
    Bottom line: “Corruption is a primary obstacle to development” (World Bank).
  • 4. The Kinds of Costs
    How corruption undermines development:
    Economic costs (distorted incentives)
    Social costs (inequity and injustice)
    Political costs (undercuts popular rule)
  • 5. Evidence about Costs
    • Countries with poor governance have:
    Less investment, other things equal
    Less benefit from each dollar of investment.
    Who loses the most? The poor.
    “When no one is corrupt, no one will be poor.”
  • 6. Policy “Value Chain”
    Measures of corruption and good government.
    But what specifically improves those measures?
    Missing links from measures back to specific initiatives…
    Once we have a list of initiatives, we need a strategy.
    Diagnosis  Initiatives Strategy
  • 7. Overview
    The Costs of Corruption
    Diagnosing Indonesia
    Initiatives
    Strategy
  • 8. Progress in Governance
    Global Competitiveness Report 2010-2011
    Some good news about the Indonesia
    Compared with 139 countries of the world
  • 9. Overall Competitiveness
    2010-11: 44
    2009-10: 54
    2008-9: 55
    2005: 69
  • 10. Capacity for Innovation
    Indonesia
    30
    in world
    Equal to
    Ireland
    Better than
    Spain, Hong Kong
  • 11. Pay and Productivity
    Indonesia
    20
    in world
    Equal to
    Czech Republic
    Better than
    Denmark, Germany
  • 12. Control of International Distribution
    Indonesia
    33
    in world
    Equal to
    Belgium
    Better than
    China, Italy
  • 13. Buyer Sophistication
    Indonesia
    35
    in world
    Equal to
    Czech Republic
    Better than
    India, Brazil, Spain
  • 14. Breadth of Value Chain
    Indonesia
    26
    in world
    Equal to
    Spain
    Better than
    Norway, Canada, India, China
  • 15. Favoritism in Decisions by Public Officials
    Indonesia
    28
    in world
    Equal to
    Belgium
    Better than
    France, Taiwan, Israel
  • 16. Wastefulness of Gov’t Spending
    Indonesia
    30
    in world
    Equal to
    Austria
    Better than
    Germany, Canada
  • 17. Burden of Gov’t Regulation
    Indonesia
    36
    in world
    Equal to
    Taiwan
    Better than
    Chile, Austria, USA
  • 18. Equal to or Better than…
    Norway, Spain, Austria, France, Canada, Iceland, Singapore, Italy, Belgium, Hong Kong, Ireland, Czech Republic, Denmark, Germany, USA …
    Not to mention China, Brazil, India, Korea …
    VIVA INDONESIA!!
  • 19. Equal to or Better than:
  • 20. Per Capita GDP of Indonesia?
    ?
  • 21. Per Capita GDP of Indonesia?
    $2329
    Rank # 100 in world (Paraguay, Sri Lanka)
  • 22. Why $2329 and Not $32,329?
  • 23. Not Macroeconomics
    Indonesia (44th) posts an impressive gain of 10 places, mainly driven by a healthier macroeconomic environment... Indonesia managed to maintain a relatively healthy macroeconomic environment (35th, up 17) throughout the crisis. While most other countries saw their budget deficits surge, Indonesia kept its deficit under control. Public debt remains low at 31 percent of GDP, and savings rose to 33 percent of GDP. In addition, inflation in 2009 slowed down to 4.8 percent, half the rate of 2008.
    —Global Competitiveness Report 2010-11
  • 24. One Hypothesis: Institutions
    Global Competitiveness Report 2010-2011
    Some bad news about the Indonesia
    Compared with 139 countries around the world
  • 25. Irregular Payments and Bribes
    Indonesia
    95
    in world
    Equal to
    Lesotho
    Worse than
    Senegal, Bulgaria, Mozambique
  • 26. Transparency of Gov’t Policymaking
    Indonesia
    91
    in world
    Equal to
    Mauritania, Guyana
    Worse than
    Honduras, Mali
  • 27. Burden of Customs Procedures
    Indonesia
    89
    in world
    Equal to
    Malawi
    Worse than
    Albania, Zambia
  • 28. Legal Rights ProtectingBorrowers and Lenders
    Indonesia
    103
    in world
    Equal to
    Egypt, Senegal
    Worse than
    Angola, Nepal, Zimbabwe
  • 29. Time to Start a Business
    Indonesia
    121
    in world
    Equal to
    Bosnia
    Worse than
    Bangladesh, Bolivia, Nigeria
  • 30. Organized Crime
    Indonesia
    98
    in world
    Equal to
    Uganda
    Worse than
    Cambodia, Albania, Cameroon
  • 31. Reliability of Police
    Indonesia
    80
    in world
    Equal to
    Egypt
    Worse than
    Zambia, Ghana
  • 32. Ethical Behavior of Firms
    Indonesia
    99
    in world
    Equal to
    Benin
    Worse than
    Cambodia, Syria, Guatemala
  • 33. Equal to or Worse than…
    Cambodia, Senegal, Guatemala, Syria, Mongolia, Zambia, Senegal, Nigeria, Bangladesh, Bolivia, Burkina Faso, Uganda, Zimbabwe, El Salvador, Benin, Bulgaria …
    OH NO INDONESIA!!
  • 34. Per Capita GDP of Indonesia
    $2320
    Median of these other countries: < $1000.
  • 35. Other Evidence (1)
    What Indonesianssay:
    • What is Indonesia’s main challenge as a nation?
    # 1 is corruption (39%) (Kompas, 2010).
    • Indonesian university students rate corruption the # 1 problem (forthcoming report from Indonesia Setara).
  • Other Evidence (2)
    World Bank/IFC “Ease of Doing Business” Report, 2011.
    183countries: Indonesia ranks 121 overall.
    155 in ease of starting a business.
    154 in enforcing a contract.
  • 36. Other Evidence (3)
    In 1997, corruption cost Indonesia
    63% of GDP
    Axel Dreheret al., “Corruption Around the World: Evidence from a Structural Model,” Journal of Comparative Economics, 2007
  • 37. Overview
    The Costs of Corruption
    Diagnosing Indonesia
    Initiatives
    Strategy
  • 38. From Diagnosis to Initiatives
    The analogy from health
    Diagnostic information does not lead automatically to prescriptions
    Corruption prevalence is not corruption seriousness.
    The benefits and costs of reform initiatives need to be calculated.
  • 39. Example: Systems Diagnosis
    • Consider the stages of a procurement system
    Prequalification
    Terms of the tender
    Award
    Renegotiation and change orders
    Payments
    • Confidential, one-on-one interviews with businesses lead to a diagnosis of how the corrupt system works.
    • 40. Then problem-solving meetings with business and gov’t.
  • Initiatives in Indonesia
  • 41. World Class
    KPK
    Honesty shops
  • 42. Initiatives Look Excellent
    Laws: INPRES 5/2004, UNCAC 7/2006
    National action plan on corruption (RAN/PK)
    Initiatives include:
    KPK, wealth declaration, performance targets, quality of public services, procurement reforms, simplicity, corruption prevention studies, GCG, anti-corruption education (including “honesty shops”), e-government, islands of integrity, one-stop service, and more.
  • 43. KPK Report
    “Officials still behave in a corrupt manner.”
    “Initiatives for giving of incentives also come from users.”
    Level of freedom of information about services still low.
    Too little transparency about time and costs of services.
    Channels for complaints are not properly administered.
    “No serious corruption prevention efforts detected.”
  • 44. Regional Variation, 2008
    13 cities and regencies have all indicators above average:
    Ex.: Yogyakarta, Banda Aceh, Padang, Gorontalo…
    Ex.: Jepara, Magelang, Barito Kuala and Barito Utara…
    12 have all indicators below average:
    Ex.: Bandung, Pontianek, Tanjung Pinang…
    Ex.: Sumenep, Sambas, Bandung…
  • 45. Institutional Variation, 2007
    Top 9 agencies include:
    BKN (State Employees Board), Home Affairs, PT Pertani, Cooperatives and SMEs, National Education
    Bottom 9 agencies include:
    Ex.: Supreme Court, Religious Affairs, Transportation, Manpower and Transmigration, Police, BPN (National Land Agency), Law and Human Rights
    Worst 5 organizations on “experience integrity score”:
    Customs, Penitentiary, No. Jakarta court, W. Jakarta court, KPPN (Treasury)
  • 46. Learn from Success
    Whyand how are some agencies, some cities and some businesses doing better?
    From generalities to checklists.
    An example from Peru.
    Scorecards.
    Awards.
    Case studies and checklists.
    Training and technical assistance.
  • 47. Overview
    The Costs of Corruption
    Diagnosing Indonesia
    Initiatives
    Strategy
  • 48. 4. Strategy
    Beyond a list of initiatives: Colombia 2011.
    Fit with other policies, threats, sources of support.
    Sequence and priority.
    Who does what.
    What should President focus upon?
    Public-private-citizen collaboration.
  • 49. Strategic Ideas
    Structures, leadership, and incentives
    A whole-government approach
    Involving business and the people
    • Prevention 1.0
    • 50. Prevention 2.0
    Subverting corruption
    The role of morality
  • 51. a) Structures, Leadership, and Incentives
    Corruption is an economic crime.
    A crime of calculation: risks and rewards
    Corruption = Monopoly + Discretion - Accountability
    C = M + D – A
  • 52. Thus, Structural Changes Must…
    • Change the risk-reward calculations for those giving and receiving bribes.
    Raise the probabilities that bad behavior (and good behavior) are discovered
    Increase the rewards for good behavior
    Raise the penalties for bad behavior
    Reduce monopoly power, limit discretion, and increase accountability
  • 53. a) Structure, Leadership, and Incentives
    The principle of the
    big fish
    We need leaders who are
    brilliant in prevention,
    ruthless in prosecution, and
    exemplary in morality.
  • 54. a) Structures, Leadership, and Incentives
    “Incentive myopia”
    If we pay peanuts, we get monkeys.
    Public sector pay levels  80% of private sector
    Beyond levels, incentives linked to good performance (and penalties linked to bad performance)
  • 55. The Ingredients of Success
    Structures, leadership, and incentives
    A whole-government approach
    Involving business and the people
    • Prevention 1.0
    • 56. Prevention 2.0
    Subverting corruption
    The role of morality
  • 57. b) A Whole-Government Approach
    Not just one agency. Many government departments must collaborate in the fight against corruption.
    Leadership meansenabling creative collaboration.
  • 58. The Ingredients of Success
    Structures, leadership, and incentives
    A whole-government approach
    Involving business and the people
    • Prevention 1.0
    • 59. Prevention 2.0
    Subverting corruption
    The role of morality
  • 60. c) Involving Business and People
    Not just government’s problem—and the solutions are not just from government.
    • Prevention 1.0
    Goal: make government systems stronger to resist corruption. C = M + D - A
    Risk assessments, for example.
  • 61. 3. Involving Business and People
    Not just government’s problem—and the solutions are not just from government.
    • Prevention 1.0
    Goal: make government systems stronger to resist corruption. C = M + D - A
    Risk assessments, for example.
    • Prevention 2.0
    Integrity pacts
    Systems diagnosis
  • 62. The Ingredients of Success
    Structures, leadership, and incentives
    A whole-government approach
    Involving business and the people
    • Prevention 1.0
    • 63. Prevention 2.0
    Subverting corruption
    The role of morality
  • 64. d) Subverting Corruption
    The analogy from disease: prevention vs. cure
    If we have the disease of systemic corruption, prevention is not enough.
    We need to subvert corruption, using ideas from the war on organized crime.
    An example: road building in Colombia
    New technologies will help, especially social networking and information sharing
  • 65. The Ingredients of Success
    Structures, leadership, and incentives
    A whole-government approach
    Involving business and the people
    • Prevention 1.0
    • 66. Prevention 2.0
    Subverting corruption
    The role of morality
  • 67. John T. Noonan’s Prediction
    “As slavery was once a way of life
    and now has become
    obsolete and incomprehensible,
    so the practice of
    bribery…will become obsolete.”
    Bribes, New York: Macmillan, 1985
  • 68. Why?
    Noonan argues that bribery will continue to be morally condemned:
    Bribery is shameful everywhere in the world.
    Bribery is a sell out to the rich.
    Bribery is a betrayal of trust…which is a precious necessity of every social enterprise.
    Bribery violates a divine paradigm.
  • 69. e) The Role of Morality
    In addition to
    structure, leadership, and incentives; whole-government reforms; involving business and citizens; and subverting corruption
    We must declare that corruption is immoral and we’re not going to allow it any more
  • 70. Indonesia’s Successful Future
    Technological revolutions
    The rise of the South
    The design economy
    To succeed, Indonesia needs even more progress against corruption. Better diagnoses linked with practical initiatives, embedded in a strategy that includes politics and public-private-citizen collaboration