Rolling out the Red Carpet

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Monday, January 19, 2009

Making a Dead Set at Corruption

Corruption is an insidious plague that has a wide range of corrosive effects on society. It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes quality of life, and allows organized crime, terrorism and other threats to human society to flourish. As defined by Transparency International: “Corruption is the abuse of entrusted power for private gain.” According to Kofi Annan, “Corruption hurts the poor disproportionately—by diverting funds intended for development, undermining a government’s ability to provide basic services, feeding inequality and injustice, and discouraging foreign investment and aid.”

The good news is that future of corruption is not so bright it will not entirely finish though.

No country is entirely free of corruption. Efforts to fight corruption encourage transparency and accountability, thanks to an increased understanding of corruption's social and economic costs. There is the need for expanding the econometric framework, as well as to more general future research directions and policy implications in the field of governance.

Corruption is principally a governance issue, a failure of institutions and a lack of capacity to manage society by means of a framework of social, judicial, political and economic checks and balances. Good governance and globalization (at both the country as well as at the city level) do matter for performance in terms of access and quality of delivery of infrastructure services.

Corruption is deeply embedded in the political culture and poverty of Pakistan. Regulatory bodies are particularly vulnerable to corruption as they have the power to make key decisions on profit-making activities. Corrupt regulatory bodies can thus dangerously impede economic development.

Discretion creates more opportunities for corruption than where regulatory requirements are laid out through clear, precise and formal rules. Debate about corruption tends to focus almost exclusively on the receivers of corruption, rather than the purveyors. Corruption is alive and well and living in myriads of places. Bribery is simply the way business is done in Pakistan.

Within Pakistan's political dynamics, corruption figures as a very critical element. Prevalence of corruption in various political regimes has been the main cause of their downfall. The incumbents have placed accountability and the anti-corruption drive very high on its agenda in form of NAB its operational approach is rather controversial.

Corruption increases the number of capital projects undertaken and tends to enlarge their size and complexity. The result is that, paradoxically, some public investment can end up reducing a country’s growth because, even though the share of public investment in gross domestic product (the total of all goods and services produced in a country in a given year) may have risen, the average productivity of that investment is dropped.

For a private enterprise, getting a contract to execute a project, especially a large one, can be very profitable. Therefore, managers of these enterprises may be willing to offer commission to politicians who help them win the contract. Conversely, in many cases the act of bribery may not start with the enterprise but with the officials who control the decisions. It is apparently impossible to win a government contract in Pakistan without first paying a bribe. Interestingly, the laws of certain major industrial countries regard commissions paid by domestic enterprises to foreign politicians as not only legal but also tax deductible.

In some of these phases, a strategically placed high-level official or elected leader can manipulate the process to select a particular project. He can also tailor the specifications of the design to favor a given enterprise by, for example, providing inside information to that enterprise at the time of issuance of tender.

The enterprise that pays the commission rarely suffers from the payment of the bribe, since it is fairly simple to recover that cost. First, if corrupt officials of winning the bidding competition assure it, the enterprise can include the cost of the commission in its bid. Second, it can reach an understanding with the influential official that the initial low bid can be adjusted upward along the way, presumably to reflect modifications to the basic design. Third, it can reduce its spending on the project by the amount of the bribe by skimping on the quality of the work performed and the materials used. Fourth, if the contract is stipulated in a cost-plus fashion, the enterprise can recover the cost of the commission by overpricing.

The first step towards tackling corruption is preventing it. In attempting to prevent the laundering of proceeds of corruption mechanisms need to set up to review suspicious transactions, and analyze financial information.

Transparency and accountability in matters of public finance must also be promoted, and specific requirements established for the prevention of corruption, in particularly critical areas of the public sector, such as public procurement.

Citizens have the right to expect a high standard of conduct from their public servants. They also have to participate in preventing public corruption. For these reasons there is a need to actively encourage and promote the involvement of non-governmental and community based organizations, as well as, other elements of civil society, and to raise public awareness of corruption and what can be done about it.

There is a requirement for the prevention of corruption in the judiciary. Decision-making should be entrusted to committees rather than individuals. Although this adds to the cost of regulation, it may eventually save money by facilitating mutual monitoring and accountability.

New attitudes, better financial systems, prosecution of the guilty, better management of diamonds and real accountability to the people … this is the agenda for change. In taking it forward, the leading role must obviously be taken by the people and Government. But tackling corruption effectively requires a real focus, coordinated action and shared responsibility. Everyone’s energies must be thrown behind this anti-corruption strategy. It is the key to a better future for the people of Pakistan. (