The path of corruption
By Shahid Javed Burki
Tuesday, 24 Nov, 2009
CORRUPTION is back in the news. Several newspaper columnists have written about it and it is the favoured subject of TV talk shows these days. Prime Minister Yousuf Raza Gilani has set up a task force to look into the problem.
Headed by Finance Minister Shaukat Tarin, the group has promised to report back to the government in four weeks.
I was queried by the Voice of America on the subject some days ago. The host of that programme played a clip from a statement by Minster Tarin who said that it was well known that large sums of money were being siphoned off by people who had the power to dispense services. It was also known, he went on to say, which government institutions were corrupt. The government was aware of what needed to be done, he seemed to imply. What was required was the political will to take action. He was right on both counts.
What has occasioned this revival of interest in the subject is the publication of the 2009 report of Transparency International which once again shows that Pakistan is doing poorly in the area although not as poorly as was the case a decade or so ago. Then the country was ranked as one of the most corrupt places on earth. The dubious honour belongs to even more troubled countries such as Somalia and Afghanistan. Rather than being the second most corrupt country in the world as was the case then, it is now a middling one.
Looking at the subject from the perspective of economics provides some useful insights into the practice. Corruption as a phenomenon can be easily explained in economic terms and economics also guides us towards some of the solutions. Corruption becomes endemic for a number of reasons. It may result when the cost of the services provided far outweigh the compensation given to those who are giving them away. This leads to a temptation on the part of those who have the authority to dispense these services to charge the receiver.
A policeman has the authority and the ability to maintain law and order. Security means a great deal to the people over whom the policeman has some authority. The people may be prepared to pay the officer for providing the services they need.
The same happens on the demand side of the equation. When the benefit of the services being received is much greater than the price being charged for them, those who want them would be prepared to pay additional amounts to receive them. This economic calculus can be changed by altering the cost benefit ratios for both the provider and receiver of services. There are some interesting examples of the reduction in the incidence in corruption when those with authority were given better compensation.
Singapore is often cited as an example of a country that has succeeded in practically eliminating corruption by giving handsome salaries to its senior public servants, including ministers. But we don’t have to go to Singapore to underscore the point that narrowing the difference between legitimate rewards to government employees and the cost to the receiver of the services they provide lowers the incidence of corruption.
The Motorway Police in Pakistan has a good reputation. Those who serve in this force are well compensated by the state. They also follow the procedures that are hard to circumvent. The latter point leads me to the second approach for controlling corruption. This is to strengthen the system and the processes used to provide services. Those who provide services and those who receive them should be clear about the procedures that have to be followed. Transparency has to be part of a system of controls. Any wilful departure should be brought to the attention of those who hold public servants accountable.
This brings me to the subject of accountability and corruption. Pakistan has a long history of coming up with accountability systems that were put in place to curtail corruption. Both Gen Ayub Khan and Gen Yahya Khan fired scores of civil servants to pacify the citizenry when corruption became a serious issue. This was an ex post way of dealing with the problem; to take action once the crime was committed. The first Nawaz Sharif administration set up an elaborate system of accountability. This was the ex ante approach, to address the problem before it became one.
The Sharif system was massively tinkered with by his successors and was scrapped by Gen Pervez Musharraf. The military government then went on to institute a system of its own, setting up elaborate investigative procedures as well as accountability courts for trying the cases investigated by the National Accountability Bureau.
Eventually, as is well known, the NAB process itself was corrupted and used for political purposes. The lesson to be drawn from this experience is that continuity of approach is vital. A jerky response to the problem does not create enough confidence on the part of the citizens that the system works to their advantage.
The Shaukat Tarin task force does not have to cover any new ground in pointing the government towards adopting the right set of solutions. Instead, it needs to watch over the implementation of the proposals it would be putting out. The proposals should be directed towards achieving three objectives. The system of compensation has to be drastically revised as should the systems of hiring and firing of people in government service, including the corporate sector controlled by the state.
Sound proposals were made by the commissions headed by Ishrat Husain and Moeen Afzal in this context. These need to be implemented. Along with better compensation should come accountability and that should be embedded in the legal system. No changes should be allowed once the system is in place. This can only happen if there is a broad political consensus behind its creation. Finally, while compensation for providing services should be increased so should the cost of being corrupt. Only then will the calculus change in favour of cleaner governance.