Tools to Fight Corruption

The U.N. Convention Against Corruption has now entered into force as a result of 38 countries ratifying the convention out of the 140 that have signed the treaty. The Convention, which was adopted by the U.N.’s General Assembly in October 2003 is built on four pillars of prevention and criminalization of corruption, international cooperation, and asset recovery. The Convention provides a number of valuable tools to stimulate governments to make corruption a crime and to punish those who abuse their public office for private gain, as well as to punish those who seek special advantage by bribing or engaging in corrupt acts. Thus, the Convention goes after both the demand side (government officials) and the supply side (firms and private individuals) of corruption.

I’d like to suggest though, that the United Nations consider a second set of tools in the fight against corruption, namely institutional economics. The New Institutional Economics (NIE) is based on the concept that institutions (rules, norms, and values) are the foundation of business and economic behavior according to Nobel Laureate Douglass North who helped to create NIE. Corruption is and should be a crime. However, in order to fight this crime we need to understand how corruption occurs. That is where NIE comes in. According to the work that a number of CIPE partners around the world have done, many countries have overlapping or conflicting laws and regulations. This creates the opportunity for government officials to demand bribes from business people. Also, when government officials, like customs officers, have a lot of discretionary authority to interpret rules or regulations, that creates the opportunity for private firms to pay to get the decision that they want.

Hernando de Soto first described the world of the informal entrepreneurs who get locked out of the legal system by a maze of red tape and bureaucracy in his landmark book, The Other Path.  The World Bank has taken this a step further in building their Doing Business Report and database.  Both de Soto and the Bank show how it can take months to register a firm, get a contract enforced, or protect private property. NIE can help in the fight against corruption by giving us tools to:

1. Diagnose the enabling conditions that allow corruption to thrive
2. Design better institutions (rules, regulations) 
3. Create level playing fields where the honest entrepreneur isn’t put at a disadvantage by corrupt officials and business competitors.
4. Reduce and work to eliminate the incentives for corruption.

Economic and institutional reform can’t do it alone.  Criminalization and enforcement have to be a big part of the picture.  However, why not do both?  The U.N. should take up the issues identified by the World Bank, CIPE, and thousands of entrepreneurs and urge their member governments to add NIE as part of a full anti-corruption tool kit.