On 5 March, the UCL Global Governance Institute hosted Dr Daniel Kaufmann, president and CEO of the Natural Resource Governance Institute, for a talk on ‘Governance, Capture and Corruption: Evidence and Solutions for a Changed World’.

1. 1
Governance, Capture and Corruption:
Empirics & Solutions for a Changed World
Daniel Kaufmann, President & CEO
Natural Resource Governance Institute (NRGI)
www.resourcegovernance.org
Keynote Lecture, Global Governance Institute,
University College London (UCL)
March 5th, 2019

2. Governance & Corruption:
Analytical & Empirical Rigor Matters – Main Topics
• What is Governance?
• Can it be Measured? Power of Data, of Facts
• Does Governance Matter?
• What is Corruption, & is it linked to Governance?
• Game changer: Legal Corruption & State Capture
• Vulnerable sectors? Extractives, Finance…
• Paths forward

3. 3
WGI: Six Dimensions of Governance
• The process by which those in authority are selected and
replaced
– VOICE AND ACCOUNTABILITY
– POLITICAL STABILITY & ABSENCE OF
VIOLENCE/TERRORISM
• The capacity of government to formulate and implement
policies
– GOVERNMENT EFFECTIVENESS
– REGULATORY QUALITY
• The respect of citizens and state for institutions that
govern interactions among them
– RULE OF LAW
– CONTROL OF CORRUPTION
Governance as the set of traditions and institutions by which
authority in a country is exercised-- specifically:

4. 4
Worldwide Governance Indicators
• Data on six dimensions of governance covering
well over 200 countries from 1996 until the present
• Synthesis of hundreds of underlying indicators
taken from about 30 different data sources
• Aggregate and individual indicators available at
www.govindicators.org, about largest publicly-
available governance database in the world
• Result of longstanding research project, featuring
the “Governance Matters” series

5. 5
Individual sources for constructing the WGI
• Cross-Country Surveys of Firms: Global Competitiveness
Survey, World Competitiveness Yearbook, BEEPS
• Cross-Country Surveys of Individuals: Gallup World Poll,
Global Corruption Barometer, Latinobarometro,
Afrobarometer
• Expert Assessments from Commercial Risk Rating
Agencies: Global Insight, Political Risk Services, BERI,
Economist Intelligence Unit, Merchant International Group,
IJET Travel Consultancy, Asia Risk Consultancy
• Expert Assessments from NGOs, Think Tanks: Reporters
Without Borders, Heritage Foundation, Freedom House,
Bertelsmann Foundation, Amnesty International, IREX,
Global Integrity, Binghamton University, International
Budget Project
• Expert Assessments from Governments, Multilaterals:
World Bank CPIA, EBRD, AFDB, ADB, State Department,
OECD, IFAD

6. WGI Control of Corruption: Select Countries, 2017
6
Governance
Level
Margin of
Error
Good Corruption Control
90th-100th percentile
75th-90th percentile
50th-75th percentile
25h-50th percentile
10th-25th percentile
0th-10th percentile
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September 2010). World Bank Policy Research Working Paper No.
5430. Available at SSRN: http://ssrn.com/abstract=1682130
-2.5
-1.5
-0.5
0.5
1.5
2.5
NewZealand
Norway
Finland
Denmark
Sweden
Singapore
Switzerland
Luxembourg
Canada
Netherlands
UnitedKingdom
Germany
Iceland
Australia
HongKong
Bhutan
Ireland
Austria
Japan
Belgium
UnitedStates
Uruguay
France
Estonia
Bahamas
Chile
Taiwan
Brunei
Macao
S.Korea
SaudiArabia
Fiji
Italy
SolomonIslands
Malaysia
Vanuatu
SouthAfrica
Turkey
India
Indonesia
Argentina
China
Thailand
Mongolia
Philippines
Brazil
Timor-Leste
Myanmar
Vietnam
Ukraine
Azerbaijan
Russian
PapuaNew…
Mexico
Laos
Nigeria
Cambodia
N.Korea
Guinea-Bissau
Syria
Libya
Yemen
SouthSudan
Somalia
Equatorial…
WorldwideGovernanceIndicatorScore

7. 2017 Voice & Accountability
Source: Worldwide Governance Indicators (www.govindicators.org)

8. 2017 Political Stability & Absence of Violence/Terrorism
Source: Worldwide Governance Indicators (www.govindicators.org)

9. 2017 Government Effectiveness
Source: Worldwide Governance Indicators (www.govindicators.org)

10. 2017 Rule of Law
Source: Worldwide Governance Indicators (www.govindicators.org)

11. 2017 Control of Corruption
Source: Worldwide Governance Indicators (www.govindicators.org)

12. 2017 Control of Corruption
Source: Worldwide Governance Indicators (www.govindicators.org)

13. 2017 Voice & Accountability
Source: Worldwide Governance Indicators (www.govindicators.org)

14. 2017 Control of Corruption
Source: Worldwide Governance Indicators (www.govindicators.org)

15. 2017 Voice & Accountability
Source: Worldwide Governance Indicators (www.govindicators.org)

16. Worldwide Governance Indicators for Venezuela:
2000, 2009, 2017
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September
2010). World Bank Policy Research Working Paper No. 5430. Available at SSRN: http://ssrn.com/abstract=1682130

17. Worldwide Governance Indicators for Colombia:
2000, 2009, 2017
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September
2010). World Bank Policy Research Working Paper No. 5430. Available at SSRN: http://ssrn.com/abstract=1682130

18. Worldwide Governance Indicators for Chile:
1996, 2006, 2016
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September
2010). World Bank Policy Research Working Paper No. 5430. Available at SSRN: http://ssrn.com/abstract=1682130

19. Worldwide Governance Indicators for Indonesia:
2000, 2009, 2017
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September
2010). World Bank Policy Research Working Paper No. 5430. Available at SSRN: http://ssrn.com/abstract=1682130

20. Worldwide Governance Indicators for Ukraine:
2000, 2009, 2017
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September
2010). World Bank Policy Research Working Paper No. 5430. Available at SSRN: http://ssrn.com/abstract=1682130

21. Worldwide Governance Indicators for Russia:
2000, 2009, 2017
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September
2010). World Bank Policy Research Working Paper No. 5430. Available at SSRN: http://ssrn.com/abstract=1682130

22. Worldwide Governance Indicators for UK:
2000, 2009, 2017
Source: Kaufmann, Daniel, Kraay, Aart and Mastruzzi, Massimo, The Worldwide Governance Indicators: Methodology and Analytical Issues (September
2010). World Bank Policy Research Working Paper No. 5430. Available at SSRN: http://ssrn.com/abstract=1682130

23. But does Governance & Corruption Matter?
• OK, governance and corruption
can be measured, with caution
• But does it really matter?
27

24. 28
The 3-to-1 Development Dividend From Improving Governance &
Controlling Corruption
High Corruption Medium Corruption Low Corruption
$300
$3,000
$30,000
Data Source for calculations: KK 2004. Y-axis measures predicted GDP per capita on the basis of Instrumental Variable (IV) results for each of
the 3 categories. Estimations based on various authors’ studies, including Kaufmann and Kraay.

25. Close link between WEF Global Competitiveness (2018) &
WGI Control of Corruption (2017)
29
Source: Worldwide Governance Indicators (http://www.govindicators.org) and World Economic Forum Global Competitiveness Report 2018
(https://www.weforum.org/reports/the-global-competitveness-report-2018)
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0.0
0.5
1.0
1.5
2.0
2.5
30 40 50 60 70 80 90
ConrolofCorruptionIndicatorScore
Global Competitiveness Indicator Score
r = 0.83

26. Sovereign Bond % Yield vs WGI (Composite) Indicator:
The ‘1,000 basis points dividend of good governance’
Argentina
Australia
AustriaBelgium
Botswana
Brazil
Bulgaria
Canada
Chile
China
Colombia
Croatia Czech Republic
Denmark
Egypt, Arab Rep.
FinlandFrance Germany
Greece
Hong Kong SAR, China
Hungary
Iceland
India
Indonesia
Ireland
IsraelItaly
Japan
Kenya
Korea, Rep.
Lithuania
Malaysia
Mexico
Netherlands
New Zealand
Norway
Pakistan
Philippines
Poland
Portugal
Qatar
Romania
Russian Federation
Singapore
Slovenia
South Africa
Spain
Sweden
Switzerland
Taiwan, China
Thailand
Turkey
Uganda
United Kingdom
United States
Vietnam
0
2
4
6
8
10
12
14
16
-1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00
2018SovereignBond%Yield
2016 Worldwide Governance Indicator Score
r = -0.73
Sovereign Bond % Yield is obtained from countries’ 10-year bonds as of February 14, 2018.
Source: Worldwide Governance Indicators, available at: www.govindicators.org and 10-Year Government Bond Spreads, available at:
www.investing.com/rates-bonds/government-bond-spreads.
30

27. 31
AUS
AUTBEL
CAN
CHL
CZE
DNK
FIN
FRA
DEu
GRC
HUN
IRL
ITA
JPN
LUX
NLD
NZL
POL
PRT
KOR
SVK
ESP
SWE
CHE
TUR
GBR
USA
HRV
EST
HKG
ISR
SGP
SVN
-8
-6
-4
-2
0
2
4
6
0.0 0.5 1.0 1.5 2.0 2.5
BudgetaryBalance,2006-2009
Control of Corruption, 2008
Graph from: D. Kaufmann, ‘Corruption and Budget Deficits in Industrialized Countries: Heresy in the Eurozone and Beyond’, forthcoming (2010), Brookings
Working Paper Series. Sources of Data for this graph: Control of Corruption, 2008 from the Worldwide Governance Indicators (WGI): Kaufmann, Kraay
and Mastruzzi, “Governance Matters VIII” (2009). Higher value means better Corruption Control. Budget Balance: Economist Intelligence Unit (EIU),
average for budget balance for 2006-2009. A positive (negative) value for budget balance depicts a budgetary surplus (deficit). Chart shows sample of 35
countries of the OECD and other high income economies, except for oil-rich and small islands.
Are Budgetary Deficits in Industrialized Countries
Associated with Corruption?: Yes
r = .6
Budget
Deficit
Surplus

28. On determinants of Corruption
32

29. Note: Dots in blue depict countries in East Asia, orange for Latin America, rest of the world is in gray.
Source: Worldwide Governance Indicators (www.govindicators.org).
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1.50
2.00
2.50
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ControlofCorruptionScore
Voice & Accountability Score
Control of Corruption and Voice & Accountability
(WGI, 2016 data)
r = 0.74

30. 34
-1.5
-1
-0.5
0
0.5
1
No Freedom/Rights Some Freedom/Rights Satisfactory Freedom/Rights
Press Freedom / Women's Rights / Transparency
ControlofCorruption
Press Freedom Transparency
Good
Freedom of the Press and Transparency is Associated with
Corruption Control
(Emerging Economy sample-- 135 countries)
Source for Control of Corruption: : 'Governance Matters IV: Governance Indicators for 1996-2004’, Kaufmann, D., A. Kraay and M. Mastruzzi,
(http://www.worldbank.org/wbi/governance/govdata/); Source for Press Freedom: Freedom House. Source for Gender Equality: CPIA 2004. Source for Transparency:
Transparenting Transparency”, A. Bellver and D. Kaufmann. Satisfactory Freedom/Rights reflect higher ratings from Press Freedom, women’s rights, gender equality and
transparency ratings.

31. Formal Progress:….

32. 38%
23%
33%
Free
Partly Free
Not Free
31%
36%
33%
Freedom of the Press, 2002 and 2016:
Press Freedom Rating in Developing Countries
% of countries in 2002 % of countries in 2016
Source: Freedom House, 2017 Freedom of the Press, https://freedomhouse.org/report/freedom-press/freedom-press-2017

33. 37
Concrete political economy & high level corruption
challenge: State Capture & Legal Corruption
• What we talk about when we talk about State Capture
• Sharp difference between administrative corruption and
State Capture: implementing vs shaping rules of the
game
• Political-Economic elites colluding or asymmetric:
kleptocrats vs Corpocrats – and anywhere in between
• Redefining Corruption?
• Traditional Definition: Abuse of Public Office for Private
Gain
• Or, untraditional: The Privatization of Public Policy… ?

34. 38
Parliamentary
legislation
Decrees Central Bank
Influence
‘Seize the State, Seize the Day’ Research on Capture, 1999-2000:
Differences in Transition Countries on the Extent of State Capture
%ofallFirmsreportnegativeimpactofgrandcorruption
Hungary Estonia Russia Azerbaijan
0 %
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
Adverse Impact of ‘Purchases’ of:

35. 39
Costs of State Capture – Private Sector grows and
invests less
0
5
10
15
20
25
30
High capture Countries Low capture countries
Averagerateofgrowth'97-'99
Output Investment

36. 40
Addressing Capture: Economic Reform,
Political Competition & Voice/Civil Liberties Matter
Advanced
Partial
Slow
0
0.1
0.2
0.3
0.4
Partial Civil Libs High Civil Libs
StateCaptureIndex
Pace of
Econ Reform
Political/Civil Liberties Reforms

37. Bribery vs. ‘Legal Corruption’ (& soft Capture), 2004
0
20
40
Corporate Bribery
%Firmsreport'corruption'
Nordic Countries
G-7
East Asia 'Tigers'
(NICs)
United States
Source: Author’s calculations based on EOS 2004.
% Firms report ‘corruption’

38. Bribery vs. ‘Legal Corruption’ (& soft Capture), 2004
0
20
40
60
80
Corporate Bribery Corporate
"Legal Corruption"
%Firmsreport'corruption'
Nordic Countries
G-7
East Asia 'Tigers'
(NICs)
United States
Source: Author’s calculations based on EOS 2004.
% Firms report ‘corruption’

39. Control of Corruption, 2000 & 2016:
Resource Rich vs. Non-Resource Rich Developing Countries
-1.25
-0.75
-0.25
0.25
0.75
1.25
Non-Resource Rich Resource Rich
WorldwideGovernanceIndicatorZ-Score
2000 2016
46
Good
Poor
Source: Worldwide Governance Indicators (www.govindicators.org)

40. El Dividendo de desarrollo de mejoras en gobernabilidad y control
de la corrupcion
Sources: GDP per capita (atop each column) from World Bank World Development Indicators, 2012.
Corruption Control data from Worldwide Governance Indicators (WGI, 2012) Countries grouped into terciles based on WGI Control
of Corruption scores. Resource Rich country classification according to IMF (2010).
Poor Corruption Control Average Corruption
Control
Good Corruption
Control
GDPpercapita(PPP)
Resource-Rich Countries Non Resource Rich
5,000
0
10,000
6,851
3,941
12,712
10,272
45,000
30,820
47

41. | WWW.RESOURCEGOVERNANCEINDEX.ORG
2017 Resource Governance Index country scores and rankings
48

42. | WWW.RESOURCEGOVERNANCEINDEX.ORG
World map of RGI scores & performance categories
6 billion people, 1.8 billion poor

43. | WWW.RESOURCEGOVERNANCEINDEX.ORG
Countries don’t follow their own rules
54

44. Assessing Corruption Vulnerabilities
across the decision chain
License allocations
e.g. Griffiths (Chad),
Cobalt/Nizaki (Angola)
Subcontracting
e.g. Petrobras (Brazil),
Skanska (Argentina)
Saving revenues
e.g. SocGen (Libya)
Commodity sales
e.g. Sphynx/AOGC &
Gunvor (Congo-B),
Swap contracts (Nigeria)

45. | WWW.RESOURCEGOVERNANCEINDEX.ORG
State-owned enterprises assessed in the RGI
59

46. Source: OECD 2017 Survey of anti-corruption and integrity in SOEs.
Corruption & related irregular practices in SOEs, by
sector (Survey by OECD)

47. Source: OECD 2014 Foreign Bribery Report.
Position of Private Sector briber of SOEs & public
official (from OECD survey)

48. The international environment can help or hinder
EITI: 51 implementing
countries
-- Well over a trillion in
payments and revenues
in EITI reports
Mandatory Reporting
Requirements on
Companies:
-- Dodd-Frank
Financial Reform Act
-- EU Directives
-- Canada
Abetting or Addressing
Illicit financial flows /
AML?

49. EITI’s challenge: ensuring that information drives reform
•Creates neutral space for building trust and
facilitating discussion
Multi-Stakeholder Dialogue
(MSG)
• Links EITI to broader national policy
priorities
Objective Setting
(Work plan)
• Useful in evaluating pressing questions &
concerns
Disclose Relevant Information
(Reconciler TOR & EITI Report)
• Enables informed public understanding &
policy debates
Analysis of Information
(CSO & Media Analysis)
• Increases accountability & developmentLinks to Policymaking &
Institution building
(Parl., Min., Reg.)

50. Register of
licenses
(§3.9)
Exploration
activities
(§3.3)
Legal
framework &
fiscal regime
(§3.2 )
SOE level of
beneficial
ownership
(§3.6(c))
Direct
payments/
receipts
(§4.2(d))
Employment
§3.4(d)
Revenues
recorded &
not recorded
in budget
(§3.7)
License award/
transfer
process & any
deviations
(§3.10)
Production
volumes &
values
(§3.5(a) &
§3.4(e))
Economic
contribution
(§3.4(a)-(c))
__________
Taxes &
Primary
Government
transfers by
SOEs
(§4.2(c))
Mandated
national/
subnational
transfers
(§4.2(e))
Social
payments
(§4.1(e))
Earmarked
revenues &
budget/
audit
processes
(§3.8)
Beneficial
ownership
(§3.11)
Export
volumes &
values
(§3.5(b))
Revenues
(§4.2(a))
__________
In-kind
revenues
(§4.1(c))
SOE quasi-
fiscal
expenditure
s
(§3.6(b))
Contract/
license
disclosure
(§3.12)
Infrastructure
/ barter
provisions
(§4.1(d))
Transport
Allocation of
Rights Production
Data
Revenue
Collection
SOEs
Revenue
ManagementSub-National
Social
Impact

51. To Adress Corruption & State Capture in our era
• “Not fighting corruption by fighting corruption”
• Governance diagnosis, evidence-based, @country
• Rule of 3-5 key priorities (move way from past)
• 1: Demand side of Governance, incl. Voice &
Accountability, Media, Transparency, Open Data, ICT
• 2: Legal & Judiciary Reforms
• 3: Procurement & Public Sector Reforms, incl SOEs
• 4: Reform of Political Parties & Campaign Finance
• 5: Private Sector & Markets
71

52. 72
In Concluding…
1. Data Power – Measuring, monitoring & diagnosing governance
& corruption worldwide at national, subnational, sectoral levels
2. State Capture: a different lens and approach to view corruption
and mis-governance – very costly & with different implications
3. Matter for: Economic & Social Development, Macro, Security
4. To address it: Demand side of Governance + 3 components
5. Governance in Extractives: Development Challenge
6. International Dimension of governance and corruption
7. Seizing historical opportunities for change and reform
8. About people, leadership and courage…