What is Public Sector Corruption
A phenomenon that has really stood the test of time in the world is corruption. Whether it was ancient Greece, Rome, India or China; corruption has been prevalent across the ages and is today, one of the most insidious global traits that is undermining the healthy development of social and economic structures in developed and developing countries. Public sector corruption is corruption that is prevalent in government or a government body, which uses public funds to provide public services (Slater, 2011). Public sector corruption is also defined as the discharge of public duties in favor of bribery and corrupt practices. Corruption is derived from the Latin word ‘Corruptus’ which means ‘breakage’. This breakage in morality and integrity in public life is called public sector corruption (Nicholls et. al., 2011). Corruption in public sector is the breach of any confidence that people entrust, on public officials. In its very basic form, corruption can be defined as “abuse of entrusted power for private gain” (Slater, 2011).
According to Williams-Elegbe, “corruption is behavior which deviates from the duties of a public role because of private-regarding (personal, close family, private clique, pecuniary or status gains) or violates rules against the exercise of certain types of private-regarding influence” (2012).
Extent and Cost of Global Public Sector Corruption
According to the World Bank, around $1 trillion is lost every year globally because of corruption (Eigen, 2015). Methods to measure corruption are many and they help determine the extent of corruption, efficiency and levels. Some of the perception based measures e.g. from Transparency International, do not measure corruption accurately. One effective measure is the PETS (Public Expenditure Tracking Survey), which for example, in Uganda, tracked the outlay of government expenditure on education and the actual grants received by schools. It was seen that the leakage rate (corruption) was close to 87% (Olken and Pande, 2011). Another example is in Indonesia, where studies revealed, that close to 18% of a Rice distribution program was usurped, before it reached homes. Another way of measurement is the estimation of stock prices of corporations which have large influential shareholders or leaders who join politics. A cross-country study showed a 2.2% increase in company value when a business person gets into politics and a 4.3% rise in stock prices (Olken and Pande, 2011).
Causes of Public Sector Corruption
Basic economic theory teaches us that every business or any other transaction needs to have a demand side and a supply side. Similarly, with public sector corruption, there is a demand side (taker - the official who holds power and authority to grant a contract or any other service; and a supply side (the giver - who is usually a business or corporation), which wants to gain undue influence to further its business interests (Dixit, 2013). Most countries criminalize such behavior and have mandated many processes and laws to curb the demand side of the equation. But many experts believe that the supply side also is a very important component.
Although the total decimation of corruption is a great objective, it would well nigh be impossible to achieve, since it is ingrained deeply in the cultural fabric of many countries. Added to that is the new global economy and the world order. With increased globalization, there is immense collaboration and cooperation between nations and corporations. Funding is freely available and investments in growth markets and developing countries are increasing. So, the supply side of the equation is growing tremendously, giving public officials more opportunities to engage in corrupt practices.
Corruption remains a socio-economic problem. Many experts believe that it is because of imbalances in society and a reflection of the failure of capitalism (Williams-Elegbe, 2012). The reasons could stem from social, economic, political and cultural fabric and vary from country to country. In most of the developing countries, a simplistic corruption model can be linked to Opportunity, Discretion and Accountability. Here Opportunity refers to the signatory authority and availability of funds, Discretion refers to the powers that the official holds and Accountability is the lack of oversight or responsible behavior. In many countries, the salaries of low to mid-level officials are not commensurate with living costs and inflation. Corruption also stems from lack of promotions, motivation and the monotony of job roles (The World Bank Group, n.d.). In the Asia Pacific Region, the cultural practice of gift giving is closely linked to business interactions (Loughman and Sibery, 2012).
Effects of Public Sector Corruption
The foremost issue concerning Public Sector corruption is that it becomes a big impediment to the process of economic development and modernization of a country. Corporations with international businesses encounter public sector corruption in most developing countries; though it damages governments, firms, and the broader society in those countries (Doh, et. al., 2003). It also brings about global imbalances and widens the gap between the developed and developing nations on one hand and the rich and poor within a country, on the other. In a survey of 150 senior officials from 60 developing countries, many responded by ranking corruption as the worst impediment to the development process (Myint, 2000). Public sector corruption tends to be unproductive by rewarding firms without merit with contracts, while the innovative firm loses the contract (Rodriquez, et. al., 2005). In many developing countries, according to Olken and Pande, “efficiency costs of corruption can be quite severe, as corruption may raise the marginal tax rate of firms, decrease business activity, raise the marginal costs of public funds, make certain government projects economically unviable, and undo the government’s ability to correct externalities, leading to inefficient outcomes”(2011). The ‘cost’ of corruption in some developing nations like Bangladesh, Cameroon, Nigeria, Tanzania and Azerbaijan, is alarming. Corruption adds ‘fuel to the fire’, by seriously impeding the deployment of government funds towards economic development, health, education and social emancipation.
Measures to Prevent Public Sector Corruption
Transparency International conducts global surveys to measure the corruption trends in countries – calculating a ‘Corruption Perception Index’, a ranking of different countries according to perceived corruption seen by surveyors (See Appendix A).
The best way to decrease the incidence of corruption is to enhance transparency pertaining to the payments and business relationships in the demand side of the equation too. In addition to punitive measures, the risk of damage to reputation may help to change the behavior of the giver and the receiver in a corrupt practice (Moran, 2008). Many countries like the U.S. and U.K. have established key regulations to combat the proliferation of bribery and corruption. The U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act (UKBA) are transnational in nature and prohibit corporations and individuals from indulging in corruption and unethical behavior. The U.K. Bribery Act was passed in 2010 and is in force since July 2011. The Bribery Act, although similar in many aspects to FCPA, has wide ranging applications. The U.K. Bribery Act has added more teeth and provisions to the regulations in the U.K. According to Carr-Howard, “The broader U.K. approach has begun to have a significant impact on the U.S. view of corrupt conduct and will likely influence other jurisdictions as well” (2014). Let’s look at some similarities and differences. Both the Bribery Act and FCPA are extra-territorial, i.e. their jurisdiction is global in nature (Eastwood, & Quinnen, 2011). There are however many differences between the two. The Bribery Act defines a Foreign Public Official in more detail. FCPA does not concern itself strongly with bribery at a private level. Corporations are forced to keep adequate records of all financial dealings and non-compliance will result in fines and imprisonment for the individuals or the stoppage of business dealings for corporations.
The establishment of the FCPA, has indeed been very effective, and it has collected fines to the tune of billions of dollars, besides imposition of other punishments – prison sentences and forfeitures (Carr-Howard, 2014). The Bribery Act is punitive towards both the ‘giver’ and the ‘receiver’ of bribes. The Bribery Act covers not only organizations within U.K. and its global subsidiaries but also their service providers and vendors. Under the FCPA, one needs to prove that the individual in question had ‘intent to bribe’. The Bribery Act does not include that distinction. FCPA allows for certain payments such as ‘facilitation payments’ or ‘promotional payments’ but the Bribery Act does not. Punishments under both acts also vary. Under the Bribery Act, an individual found guilty may receive up to 10 years of imprisonment and/or unlimited fine and a company may receive a sentence of unlimited fine. Under FCPA, an individual may be fined $250,000 for every violation and/or 5 years in jail; while a corporation can be fined $2 million for every violation (Eastwood, & Quinnen, 2011).
Conclusion
Public sector corruption has assumed mammoth proportions globally. Governments, social organizations and individuals need to inculcate best practices in integrity and honesty and implement regulatory frameworks. Failure will lead to socio-economic imbalances and could affect world order in future.
References
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Appendix A
Source: Transparency International, Corruption Perceptions Index, 2011.
