Corruption keeps our world in balance

corruption

Anne van Aaken

To person

is a legal scholar and economist, Alexander von Humboldt Professor of Law and Economics, Legal Theory, International and European Law and Director of the Institute for Law and Economics at the University of Hamburg. [email protected]

"Worse than an over-centralized, rigid and corruptible bureaucracy is an over-centralized, rigid and non-corruptible bureaucracy," said the American political scientist Samuel Huntington in 1968. [1] This view, which was still widespread at the time, has now changed. In 1996, the then President of the World Bank, James Wolfensohn, committed to an anti-corruption strategy: "We have to fight the cancer of corruption," said Wolfensohn at the time. [2] Since then, corruption, as a collective term for the abuse of entrusted power for private gain or gain, [3] has become a major obstacle to good governance (Good governance), which urgently needs to be combated across national borders. The harmfulness of corruption for economic, social and democratic development has meanwhile been extensively researched and recognized. [4]

The prominence of the fight against corruption for the promotion of development cannot be explained without empirical knowledge about the connection between corruption and development. In the following, the international efforts to fight corruption will be presented using instruments of international law, among other things, in order to then address the importance of corruption for development cooperation. [5]

Causes and Consequences of Corruption

Corruption is often identified as the number one obstacle to development. [6] There are multiple reasons for that. In the following, a broader development term is used that is not limited to economic development (such as growth in GDP per capita), but also includes other welfare indicators such as those defined by the Sustainable Development Goals [7] or the Human Development Index [8] . Only the quantification of corruption has made comprehensive studies possible on the causes and consequences of corruption. [9] As a rule, three types of corruption indices are used: private indices such as the "International Country Risk Guide" from the PRS Group, the corresponding indices from the World Bank and aggregated indices such as the "Corruption Perception Index" from Transparency International (TI). What all indices have in common is that they are based on subjective assessments and perceptions of corruption. These can be intensified by the increased exposure of corruption. [10]

Multiple factors lead to corruption. Three possible bundles of causes can be distinguished: economic factors, political and legal institutions, and geographical and cultural factors. [11]

Both economic factors What is striking is the high correlation between poor countries and corruption. Poverty can be both a cause and a consequence of corruption. It is assumed that from an annual income of around 2000 euros per capita corruption begins to decline. Well-functioning competition also goes hand in hand with less corruption. In addition, both import openness [12] and efficient regulation to increase the chances of potential competitors entering the market reduce corruption. [13] The salary level of officials also has an impact on their corrupt behavior. In poor countries in particular, a considerable increase in salary would be necessary to make corruption no longer appear worthwhile. [14] Countries with a considerable wealth of raw materials usually also show a higher level of corruption: the so-called "curse of raw materials". [15] There are many explanations for this. Among other things, the incentives for "rent-seeking" are higher, ie actors try to increase their own income at the expense of other market participants through corrupt behavior. In addition, in non-democratic countries control by the citizens is usually less pronounced.

Also in terms of institutional variables different causes become visible. While the evidence regarding the federal structure of states with regard to their susceptibility to corruption is unclear, [16] three necessary conditions are discussed with regard to other political and administrative variables that enable and maintain corruption: first, discretionary leeway in administration and politics; second, the extraction (by administration) or creation (by politics) of so-called economic rents made possible by this discretion; and thirdly, "weak" institutions in the sense that there are incentives for the administrators to exploit their leeway for corrupt behavior. A free press and freedom of information laws, on the other hand, reduce corruption. [17] The influence of democracy on corruption is unclear: the relationship here is not linear, but the reverse is U-shaped. This means that in young democracies, corruption initially rises, while later, with increasing consolidation of democracy and the rule of law, it falls again. Strong judicial institutions reduce corruption, but corruption also destroys the judicial system. [19]

Both cultural variables Above all, the influence of religion was tested. Protestant states show less corruption compared to Catholic, Orthodox or Muslim states. [20] Countries with a higher proportion of women in parliament (as a measure of the influence of women in public life) show ceteris paribus lower levels of corruption. [21] Various studies also show that corruption can be perpetuated by social norms. A kind of feedback mechanism comes into play here: the culture of corruption produces corruption and is the result of corruption. [22] It is important to emphasize that these studies show correlations, but do not necessarily demonstrate causalities.

When it comes to the consequences of corruption, a distinction is made between economic, political-legal and social consequences. [23] The economic consequences have been well studied. [24] Almost all studies show that corruption stifles growth in a number of ways. As early as the 1990s, there was consensus that efficient government and bureaucratic structures encourage development while Bad governance, which manifests itself in corruption, excessive bureaucracy ("red tape") and inefficiency of the judicial system, hinders growth. [25] The macroeconomic negative consequences of corruption are estimated at around 0.13 percentage points of GDP per one increased index point on the corruption scale, that is, one index point "more corruption" means a 0.13 percentage point lower GDP. [26] Other estimates suggest that an improvement in the TI Corruption Perception Index of 6 points (on a scale of 1 to 10) can result in a 20 percent increase in GDP. [27] In turn, the World Economic Forum estimates that the cost of corruption is approximately $ 2.6 trillion; this corresponds to around 5 percent of global GDP. [28] In addition, there are indirect negative growth effects, such as the effects of corruption on investments [29] and foreign investments, [30] inflation or educational standards. The negative influence of corruption on foreign trade, price stability, productivity [31] and employment [32] has also been proven.

Last but not least, corruption reduces government spending, as government revenues flow into private pockets and their composition changes. Services of general interest such as health care, ensuring environmental quality and spending on education suffer from corruption; Defense spending is higher, but health and education spending is lower. [33] In particular, the quality of the public infrastructure suffers, including that of the road network and the electricity supply. Both are necessary conditions for rapid economic growth. [34] The more unstable the legal system and the more ineffective the political system of a country, the more serious the negative consequences of corruption. [35] Corruption undermines institutional trust. This in turn has serious consequences for the economy and society. [36]

The studies also show that corruption increases distributional inequality and hits the poorest hardest. The more corruption, the greater the inequality and poverty in a society. [37] Poverty and corruption are sometimes mutually reinforcing, which is also a major challenge for development policy, as negative poverty-corruption spirals can arise. [38] At the same time, this means that development policy measures aimed at reducing corruption must also fight poverty and inequality. [39]

When it comes to human rights, the consequences of corruption for public health and education are of particular concern. Corruption has negative effects both on the macro level of the allocation of health goods (for example in relation to the question of where hospitals are built) and on the micro level, i.e. with regard to who receives which health goods. [40] Since health and education are not only prerequisites for sustainable economic growth, but also have an intrinsic value for people's wellbeing, the consequences in these areas are particularly serious.

International anti-corruption instruments

Corruption is not only, but also a transnational crime. International law starts with the fight against corruption in the transnational area, for example with the bribery of foreign officials and with legal aid provisions and provisions on the return of property. At the same time, it obliges states to introduce national regulations that relate to purely national issues.

International law in the area of ​​the fight against corruption was not only created because of the heightened awareness of the international community regarding the harmfulness of corruption. There were also solid economic interests involved, such as guaranteeing a level playing field for one's own companies. The fight against corruption is therefore linked to the values ​​and interests of the international community, which explains the proliferation of binding and non-binding instruments of the fight against corruption for around 20 years on a global and regional level. [41]

The UN Convention against Corruption [42] is the first global, comprehensive and legally binding convention in the history of the fight against corruption. [43] With their adoption, a long dispute about the cultural background of corruption and its acceptance in non-Western countries was basically settled. [44] The focus is on the promotion of efficient prevention and fight against corruption, including strengthening civil society. [45] In addition to the instruments with which corruption in the private and public sectors is to be combated, the convention contains mechanisms of international cooperation and technical assistance in the retrieval and confiscation of the values ​​obtained from a crime as an important innovation for the more effective fight against corruption. The Convention gives people who have suffered damage through corruption within the framework of national legal systems the right to sue those responsible [46] and thus abandons the idea that corruption is a (supposedly) "victimless crime".

Developed countries had previously drawn up the OECD Convention on Combating Bribery, [47] based on previously non-binding instruments. However, it is functionally limited and only covers transnational processes. Regional conventions are also gaining in importance: The Inter-American Convention against Corruption (OAS Convention) [48] of 1996 was the first of its kind. Here, too, the (negative) connection between democratic development and corruption is affirmed. [49] The Council of Europe conventions, namely the Criminal Law Convention against Corruption [50] and the Civil Law Convention against Corruption of 1999, [51] are also ambitious projects whose monitoring mechanism is considered exemplary. [52] The African Union in turn drafted its own convention in 2003, [53] which has been in force since August 5, 2006. Alongside the UN Convention, it can be described as the thematically most comprehensive anti-corruption convention. [54]

In addition to these binding instruments, there are numerous other non-binding but effective initiatives. Some of these are organized on a supranational basis, some are initiatives from international organizations or private instruments from companies. The amalgamation of development policy and the fight against corruption becomes clear here: the internal empirical connection between the two is so close that the normative specifications and initiatives of various organizations increasingly refer to both. And something else is evident: the implementation of international law instruments alone, without involving civil society in the monitoring, is not enough for an effective anti-corruption policy.

Most prominent today are probably the Sustainable Development Goals of the United Nations, [55] which in SDG 16.5 formulate the goal [56] of substantially reducing corruption in all its forms. The anti-corruption plan of the G20 of 2010 [57] also refers to the instruments of international law for combating corruption and calls on all states to ratify them. He also makes reference to the OECD Convention and the Soft law- Recommendations of the Financial Action Task Force (FATF) [58] on money laundering and counter-terrorism financing.

Fighting corruption in development cooperation

As shown, corruption not only has a variety of causes, but also far-reaching consequences. The development trap "corruption" cannot therefore be easily eliminated, especially since numerous interaction effects between the cause and effect of corruption can be identified, both in the economic, institutional and cultural areas. Countries can be in poor equilibrium (high corruption, low growth) or good equilibrium (low corruption, high growth). [59] It is clear, however, where development policy has to start: the social norms of a society, which naturally change only slowly and can be both a cause and a consequence of corruption, are not a particularly suitable starting point. Economic, political and constitutional institutions promise more success. For example, the Chinese special administrative region Hong Kong or states like Singapore, in contrast to their culturally very similar neighboring states, were able to reduce their level of corruption to a minimum. [60] Countries like Georgia have also achieved good results in the fight against corruption in the meantime. [61] Anti-corruption measures should therefore be taken on the one hand in the economic area, for example in the area of ​​competition rules and market opening, and on the other hand in the political, constitutional and institutional area. The path dependency of corruption must also be broken through corrupt networks. This can happen on the one hand by creating insecurity in corrupt contractual relationships, on the other hand by publicly ostracizing corruption, which can change individual and collective attitudes in societies in the long term.

The World Bank has been actively involved in the fight against corruption since the mid-1990s, placing particular emphasis on questions of the rule of law. [62] The same applies to the International Monetary Fund [63] and the OECD, [64] which has identified corruption as a major obstacle in the context of effective development cooperation [65] and has drawn up guidelines for combating it. [66]

German development policy starts fighting corruption on three different levels: [67] supporting reforms in partner countries, observing compliance and risk management in development cooperation, and implementing international obligations. [68] The Federal Foreign Office in turn promotes the rule of law, which also includes the fight against corruption. [69] In 2020, Federal Development Minister Gerd Müller announced a restructuring of development policy for the future: "Our partners must do more of their own, demonstrate good governance, respect human rights and step up their fight against corruption." If corruption increases, says Müller, Germany will reduce its aid and, if necessary, stop it if countries prove to be resistant to reform. Instead of working with 85 countries as before, Germany will in future only work directly with 60 countries. [70]

Corruption can be found everywhere and is not an exclusive problem for any particular country or region. The harmfulness of corruption is undisputed, but the causes and effects are closely interwoven, complex and multi-causal. This makes the fight against corruption so difficult, especially in development cooperation. Nevertheless, some countries have managed to fight corruption successfully. These were particularly those countries where non-corrupt governments have initiated and supported institutional reforms to fight corruption.In this respect, the Federal Government's decision to concentrate its development cooperation on countries that are making serious efforts to fight corruption is to be welcomed. The fight against corruption remains an urgent task in development cooperation.