Corruption, what and why?

By Prof. A.D.V. de S. Indraratna

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1. Definition of corruption

A legal definition of ‘corruption’ is both difficult and complex. A US Supreme Court judge remarked that corruption is difficult to define but that it is like pornography and that we all know it when we see it. Most people would agree that corruption involves the use of public office for the private gain of the office holder. It should not always necessarily involve financial gain. There could be corruption in the form of gifts or favours in kind. For example, soliciting or receiving of sexual favours could be considered an act of corruption.

Sri Lanka legislation defines ‘corruption’ in Section 70 of the Bribery (Amendment) Act No. 20 of 1994. Any public servant who causes a loss to any other or to the government for the advantage of himself or any other person and commits any of the five acts specified under(a), (b) (c) (d) and (e) of Section 70 of the Act commits an act of corruption. Transparency International, an Anti-Corruption Organisation has defined corruption as the “abuse of entrusted power for private gain”. 

The World Bank definition goes a little beyond and defines corruption as “the abuse of public office for private gain, when an official accepts, solicits or extorts a bribe. Public office is abused, when private agents actively offer bribes to circumvent public policies for competitive advantage and profit. It is also abused for personal benefit even if no bribery occurs, through patronage and nepotism, theft of state assets or the diversion of state revenue”. (Helping Countries Combat Corruption – the Role of the World Bank, 1997) 

None of the above definitions, it has to be admitted, taken separately covers the entire gamut, nature and forms of corruption. Therefore, combining them, so to say, the following definition could be adopted as a comprehensive one: corruption is the misuse or abuse of entrusted power or authority by officers, officials and authorities through practices such as embezzlement, fraud, extortion, bribery/kickbacks, nepotism or favouritism, including theft of State assets and diversion of State revenue, for their personal gain or of others connected to them. Those who offer bribes to obtain an unfair advantage or benefit from public officials and public authorities should also be considered corrupt, even though our definition does not strictly cover them.

Corruption increases the cost of public services to the people where they are called upon to pay directly for such services as in the case of electricity or water or any other. 

The Bribery Act No. 11 of 1974 was passed in order to deal with bribery, under which a Bribery Commissioner’s Department was set-up. 

The Declaration of Assets & Liabilities Law was passed in 1975 applicable to Members of Parliament and public officials. The Bribery Commissioner’s Department dealt only with bribery allegations against public employees which included employees in State Corporations. However, bribery charges against the Ministers and Members of Parliament were not within its scope. 

There were, however, Commissions of Inquiry set up by Parliament to inquire into complaints of bribery against politicians. The Thalagodapitiya Commission was one such Commission, which found some politicians guilty. 

They were removed from Parliament and deprived of civic rights for a specified period. Although bribery was a punishable offence, the law did not include “corruption”, as such, as a punishable offence. This lacuna was rectified with the passing of Act No. 20 of 1994 and the setting up under that law of the permanent Commission to Investigate Allegations Against Bribery and Corruption (CIABC). 

2. Factors responsible for corruption

There are many factors which lead to, or cause, corruption. Let us take them one by one.

I. Poor or bad governance

Poor or bad governance gives rise to corrupt practices. Poor or bad governance is the opposite of good governance. Governance is defined here as “a) the process by which governments are selected, held accountable, monitored and replaced, b) capacity of governments to manage resources efficiently and to formulate, implement and enforce sound policies and regulations; and c) [the quality of (sic) and respect for institutions that govern economic and social interactions among them” (Daniel Kaufmann, Francesca Recanatini and Sergiy Belitski, 2002). If there is good governance in this sense, there will be hardly any room for corruption.

In countries where there is bad governance, its leaders may find “the creation and allocation of state rents serves political purposes- rewarding supporters, buying off opponents, ensuring the backing of key groups, managing the ethnic diversity and accumulating resources to fight elections. For this purpose they forge alliances with business groups, create and distribute rents through the bureaucratic apparatus” (Helping Countries Combat Corruption- the Role of the World Bank 1997).

This is true of Sri Lanka and is the primary reason for corruption in the public sector. In fact the Constitution of the country appears to encourage public sector corruption. This may partly explain the lack of a political will that has been there in this country to eliminate corruption.

Since it is mainly poor governance that breeds corruption, it is useful to take a brief look at systems of governance in Sri Lanka. Up to 1972 there were some checks and balances with separation of powers among the legislature, the executive and the judiciary. In the new constitution of 1972 the control of the executive/public service including the police and security forces as well as the judiciary came under the party with a majority in parliament i.e. the governing party and the cabinet of ministers. This was repeated in the 1978 constitution i.e. the present constitution, with the recruitment, promotion, and transfers and even dismissals in the public service vested with the politicians, many of whom do not possess any relevant qualifications and experience. Most officials, especially the heads of statutory boards are political appointees and often do not possess the necessary skills or qualifications to run them efficiently. Officials with qualifications are often not adequately trained, or are disgruntled or not recognised even if they do good work; because of favouritism or nepotism. The officials, who are inclined to become ‘whistle blowers’, could either lose their jobs or be consigned to a ‘pool’ vested with no responsibility , as the politicians now control recruitments , promotions, transfers and even dismissals.

The Members of Parliament (MPs) are elected under a proportional representation system, which has led to the formation of weak coalition governments as the major parties do not generally garner a majority in parliament, without the support of the minor parties. The major parties forming coalition governments also have had their own stakeholder groups, which have to be kept under control. 

This has led to the formation of ministries and departments with gay abandon without a rational division of functions. It was reported that once to carry out the function of small and medium scale enterprise development, there were more than 18 ministries and more than 50 statutory bodies functioning under them (White Paper on National Strategy for Small and Medium Enterprise Sector Development, 2002) .These had often become employment bureaux.

 This mushrooming of institutions accompanied (with a bewildering array of cumbersome regulations), without adequate co-ordination and stringent monitoring of performance had become an ideal breeding ground for rent seeking and corruption

The election of MPs on a district basis is another feature of the present constitution which promotes corruption. Under this system, as a candidate has to cover an entire district and not a constituency as before 1978, the cost of electioneering has become enormous. Many of those elected would attempt to recoup this huge cost by resorting to corrupt practices, rather than thinking of national needs and alleviation of poverty.  In fact, their corrupt practices would aggravate poverty. Under these circumstances the famous remark made by Lee Kwan Yew, that “elections in Sri Lanka are an auction of scarce resources, where the highest bidder wins and the people always lose”, is very apt. 

Passing on to district government, the type of district administration left by the British was simple. At the head of each district was a Government Agent (GA), who represented the centre. The GA was supported by Divisional Assistant Government Agents (D/AGAs) at a divisional level with the help of Village Officials.

 Then there were the elected local government institutions including the Municipal Councils (MCs), Urban Councils(UCs), Town Councils (TCs) and Village Councils(VCs) responsible for certain local affairs. This dual system functioned well, as merit was the predominant criterion in recruitment, promotions etc. (Most of the public officials were recruited through competitive examinations). It was highly prestigious to be a public official in those earlier days. The best brains were attracted as officials to the central and local government institutions. Administration was a fairly transparent system. Most of the corrupt and the criminal elements, if and when found, were almost always prosecuted and severely punished if proved guilty.

The introduction of the Decentralised Budget in 1974, though intended to extend decentralisation to the district system, strengthened the power of the MPs over the GAs and other officials, and made the system more politicised and worse. 

The 13th Amendment of the constitution created a Provincial Council (PC) system covering several districts to which certain functional subjects were devolved, while another list of subjects was shared by the Centre and the PCs, with another list of powers reserved only for the Centre. Under this system there has been very little consultation with officials at the district and divisional level and the utilisation of funds in his/her area, it is alleged, was at the sole discretion of the MP of the area and the politicians of the PCs and the Pradeshiya Sabhas. 

The Pradeshiya Sabhas had the responsibility for coordination and the maintenance of local infrastructure facilities but have been starved of funds, fractions of which come from the PCs and the Decentralised Capital Budget controlled by the MPs (each MP being annually allocated a certain sum; in early 2000, it was Rs. 8 million). Politicisation of the district system really started with this new resource allocation mechanism under the 13th Amendment.

It was alleged that the contracts of local government agencies had normally been awarded to the favourites of the political worthies ‘on a give and take’ basis through certain village associations/committees, who were empowered to disregard tender procedure. They, it was alleged, did not dare to supervise whether these contracts had been carried out according to specifications or had been ‘persuaded’ not to do so. Thus practically little was known as to what was going on in this maze of institutions. Co-ordinating, supervising and auditing were often neglected. 

The government realising that coordination and monitoring at district level was not satisfactory created the District Ministries, headed by senior MPs entrusted with policy making and smoothening of coordination of development and administration at district level. Instead they also got directly involved with development and administration, worsening the politicisation of the process. 

All in all, the public service in the country was highly politicised and corrupted to the core. 

II. Low financial remuneration in the public sector

Another major reason for corruption in Sri Lanka was the low salary structure of public servants, especially at the higher levels of the hierarchy. For example a Secretary of a Ministry is paid much less than a CEO of a leading private firm. The latter may earn several times that of the former inclusive of all perquisites. The salaries of public servants have not kept pace with inflation. 

Government salaries and wages are also rarely structured according to the nature of work. For instance Police officials are called upon to perform an important and difficult job almost 24 hours of the day. But their salaries are equivalent to those of other public servants. 

They are lower than what other security personnel are paid. Their working conditions and other facilities available to the officers and families such as housing and medical services are rather poor compared to those extended to other security personnel. 

The reason for the inability of the government to increase the remuneration and perquisites of its officials unlike the private sector is the desire of most political parties coming to power to employ as many persons as possible, as provision of employment is a very important vote catching device due to the heavy demand for such jobs from job seekers, whose perception is that a government job is more secure and prestigious. But when in service they may be compelled to seek illegal payments for various public services due mainly to the low remuneration. 

Governments in Singapore on the other hand have opted for meritocracy instead of mere numbers. Their salaries are also quite competitive when compared with those of the private sector. 

They are also insulated from external influences (as in India too), unlike the public servants in this country. This is the reason for the high efficiency and low corruption levels of their civil services.

III. Cultural background 

It is said that corruption is being accepted by the public in the developing countries which are emerging from a feudal culture where the giving and receiving of gifts by officials was generally regarded as acceptable and not morally culpable. 

It is also true that in feudal times the subjects called on those in authority with gifts and did not think there was anything wrong with that. Therefore bonds of caste, creed, race, kinship and other divisions including political affiliations may still be more important than merit in recruitment to jobs, provision of various public goods, etc. in Sri Lankan society. 

During the colonial period the State was identified with the colonial ruler and theft of public property did not draw the same opprobrium as in the case of private property. However, though the British regarded corruption at the lower levels such as the Village Policeman and Headmen as ineradicable, but when they were caught they were invariably prosecuted, convicted and punished.

The former Auditor General S.C. Mayadunne related an anecdote which explains this attitude of mind. There was a Muslim Moulavi whose child was caught stealing stationery and a pen from another child at school. He was summoned by the Principal and while rebuking the child had uttered the following, “If you had told me I would have brought enough pens and paper from my office for you”. This attitude of misuse of State property for private use of State employees is widespread. An attempt to tighten the law was made by passing the Public Property Law but petty thefts of State property goes on still unchecked. 

Attitudes of the public may be now changing. In the last decade or so, attitudes against corruption have been strengthened. The Janatha Vimukthi Peramuna (JVP), a Leftist political party, has vociferously condemned corruption among officials in racy language. So corruption nowadays is beginning to be regarded as anti-social behaviour.

IV. Foreign aid 

Foreign aid has promoted grand corruption, as funds were made available for massive construction projects in the field of roads, irrigation dams, and multi-purpose development schemes, all of which involved management of huge sums of money by politicians and officials who were left with a lot of discretion in making decisions. Increase of foreign aid took place after 1977 when the economy became part of the global economy and after which corruption intensified.

William Easterly in his book ‘The White Man’s Burden’ describes how $2.3 trillion spent by the West as aid in the last 50 years (before 2000) has had disappointing results and ascribes corruption to be an important cause for the failure unlike the Marshall Aid given to the war devastated Europe by the USA after World War II, which enabled those countries to return to their previous prosperity. 

An estimated 30% of foreign aid is said to be siphoned away by politicians who run the government. This is a sizeable amount of funds which if it goes directly for development projects would mean less taxation and hence less of a burden on the people by way of higher taxation, which is mainly indirect taxation which affects the poor disproportionately; or higher inflation, which again burdens the poor disproportionately. 

There is the charge against multilateral lending institutions like the World Bank that they have not installed adequate checks and balances to ensure a corruption free implementation of projects funded by them. The World Bank commissioned a Global Poll which involved interviewing people in countries where people felt strongly that foreign assistance was wasted due to corruption. (“the Global Poll: Multinational Survey of Opinion Leaders 200” prepared by the Princeton Survey Associates for the World Bank 2003)

V. The failure to take punitive action 

The failure to take severe punitive action is another reason for increased corruption. Corrupt officials distort public sector choices to generate large rents for themselves. Economists say such corruption promotes a rent seeking economy and not an entrepreneurial economy required for economic progress and development. Applied to our country “globally least competitive but most corrupt”. Our efforts hitherto have been confined to tackling bribery and corruption only at the lower levels of the government. One has only to examine the cases filed by the CIABC to see how this is borne out. There were numerous allegations published in the press, which the CIABC has no power to investigate on its own. This shows institutional failure which has to be remedied.

The Judiciary uses its common law powers to deal with persons for contempt of court, to deal with persons who dare to expose corruption in the Judiciary. In most democratic countries the Judiciary’s common law power of dealing with contempt has been regulated by statute. The Judiciary is not accountable to any other arm of government. Parliament too has no control over it. In other democratic countries like the UK and the USA, there are Standing Committees for oversight of the judiciary and the appointment of judges has to be approved by the Upper House of Parliament.

VI. Failure of civil society

Civil society has failed to be stirred by the exposures of corruption in the media; the reason for this is the ignorance on the part of the ‘ordinary citizen’ as to the extent to which his/her life has been affected by corruption or it may be a result of his/her inertia due to dependence on State services for his/her existence. 

Even though everybody should be concerned with corruption, individual actions are not enough. Civil society must organise itself to campaign against corruption. But the public at large will not be aware of corruption although individuals may know or suspect such corruption. Those who are parties to corruption are unlikely to talk about it openly. So others will not know. But there are ‘whistleblowers’ who for reasons of public spiritedness or for narrow personal reasons may wish to expose corruption. But how could they do so on their own? It is here that the media can come in. But the principle that the media cannot be called upon to disclose its sources is not always upheld by the courts. Special protection for ‘whistle-blowers’ is therefore absolutely necessary. 

VII. Too much discretion allowed to public officers 

The role of the State is very large in many developing countries. This promotes corruption by creating more opportunities for rent seeking. The large benevolent state which is also called the ’nanny state’ is perhaps a hangover from the policies of the past when Third World leaders were enamoured of Communism and the dominant role of the State. But the economists of the Public Choice School have pointed out that the public officials are as motivated by self-interest as ordinary individuals in society. So, public officials like to arrogate more and more power to their organisations. This has led to a plethora of laws, rules and regulations which affect the economic activities of the citizens. Laws are passed to regulate the behaviour of individual citizens and the cost of enforcing such laws and regulations is not considered. 

It is also pointed out that corruption arises from the inefficiency and arbitrariness of many government rules and regulations. So, they say it is necessary to examine and review all regulations and do away with those which are unnecessary and modify others by limiting the discretion of officials, enforcing such regulations, which cannot be done away with altogether. . 

“Capital spending is highly discretionary unlike current spending …since politicians and officials have to make a large number of decisions regarding the size of the capital spending, choice of projects, their geographical location and its design especially when auditing institutions are weak. For a private enterprise a contract can be highly profitable. Therefore managers are willing to offer ‘commissions’ to politicians and officials making decisions. In fact, it could be even legal and tax deductible in certain countries. Officials can manipulate the process to select a particular project by providing inside information at the time of issuance of tenders.

Officials can assure the inclusion of the cost of any commission in the bid; the initial low bid can be adjusted upward along the way to reflect modifications to the basic design. Contractors can also reduce spending on the project by the amount of the bribe. By skimping on the quality of work and materials used it can also be done by overpricing if the contract is stipulated in a cost plus fashion. Thus the tax payer can end up with a project of inferior quality that will require costly upkeep and repair, while some projects are completed and never used” (Vito Tanzi and Hamid Davodi, 1998).

Evidence also could be illuminating in connection with the degree of discretion enjoyed by public officials in the choice of private parties to supply public goods and services and the exact terms of those contracts, as stated earlier. It can also affect the changes in the terms of contracts during project implementation. Extra-contractual payments are a source of corruption.

VIII. Lack of competition in the supply of public services

Corruption has often been argued to exist because of the lack of competition which generates rents that can be illegally appropriated. This general idea has often led people into thinking that, since increased competition reduces rents, it also leads to lower corruption. Rose-Ackerman (1996) maintained that “In general any reform that increases the competitiveness of the economy helps reduce corrupt incentives.” 

This factor is important in procurement where there is perceived to be much corruption. 

This is important in the case of a good to be procured which is not homogeneous but can be produced at different quality levels. In exchange for a bribe, the department which is purchasing can buy lower quality products, which may meet with the specifications but are cheaper. Such goods may fetch a price which is comparatively high for the successful bidder but uncompetitive for suppliers who quote for a superior quality. 

A National Procurement Agency has been set up due to the initiative of the World Bank and it has produced a Manual of Procedures. However, the latter has no statutory status and there is no law to compel the government departments and agencies to comply with it. 

IX. Weak accountability  

Political competition takes the form of undermining the government in power and unseating it before the due date for the next general election rather than providing a dynamic opposition in Parliament which could be an effective check on corruption and bad governance. The Opposition parties lack the competence to analyse the reports of the Auditor General which are placed before Parliament. There is no Code of Ethics for the Members of Parliament or even for the members of the political parties. 

The institutions of government are not functioning or are functioning poorly and checks and balances are ineffective, as stated earlier under the political factors promoting corruption. The watchdog institutions that provide information on which detection and enforcement are based — such as investigators, auditors, accountants, and the press — are all weak. Yet strong investigative powers are critical; because both the parties to corruption often benefit and would not like to blow the whistle. So corruption is extremely difficult to detect. 

Even if detection is possible, punishments are apt to be mild when corruption is systemic—it is hard to punish one person severely or at all when so many others (often including the “enforcers”) are likely to be equally guilty. There is also no social stigma attached to those even if convicted of bribery or corruption, In fact a Member of Parliament, the late D.B Monnekulame, who was convicted for bribery, re-contested at a subsequent election and won his seat. 

(The proper implementation of the 19th Amendment and the independent working of the Constitutional Council and the other Commissions appointed by it would change the above picture.)

(This is an edited, abbreviated extract of the Section 2 of Indraratna and three others ‘The Impact of Corruption on Poverty and Growth,’ USAID, June 2007.)