Friday, May 6, 2011

Corruption: keeping it relative

Basu, Cornell prof on loan to the Indian government as chief economic advisor, argues that we can lower corruption by making the interests of bribe-payer and bribe-receiver diverge. Specifically, if a person is asked to pay a bribe to receive something they ought to anyway, don’t prosecute them – only the person receiving the bribe. That gives the bribe-payer an incentive to turn in the bribe-receiver after the transaction both by removing the disincentive of prosecution and promising restoration of the bribe money. Knowing this, officials should ask for fewer bribes.
The latest corruption report in graphical form (hat tip: PNB). Click to see it in glorious detail.
On keeping corruption relative for non-relativists:
To think that there is a low income country with zero corruption to which the United States can provide aid is foolish; it doesn’t exist at the high end of the income scale either. … The question is whether the MCC is investing in countries with relatively better records of controlling corruption. … Seventeen of the 21 MCC countries currently score better on control of corruption than their comparators, and 14 of the 21 countries have had better corruption scores than their comparators for the past six years.
Relatedly (to me, but not to him), Barder takes apart the idea of aid fungibility, specifically how difficult it is to get the right counterfactual:
A USAID assessment of Mozambique alleges that, “more than $100 million of donor funds were used in 2001 to bail out the failed privatization of the Commercial Bank of Mozambique (BCM)”. … This assertion seems to require us to speculate that if the donors had not given aid to the government, the government would not have bailed out BCM. But is there any reason for thinking that if there had been no aid at all, the government would have felt obliged to spend its own resources on health and education first, instead of the bank bail out? … And if all the donors had run health and education projects themselves, instead of giving aid to the government, what would the government have done with its budget savings in these areas? Would it not have used the money for the bank bail out?
… The bank bail out would probably have happened anyway: in which case the effect of aid was that there was more provision of health and education services than there would otherwise have been. If so, then in ordinary language we would say that donor funds were used for heath and education (not for the bail out) because that’s the difference the aid made.
Furthermore, in this particular case, the fact that the donors were mainly giving budget support almost certainly resulted in higher spending on social services than if they had been giving only project aid. The donors giving budget support had robust discussion with the government of Mozambique about its plans to bail out the banks, and thereby perhaps limited the resources used for the bail out. If the donors had been giving all their aid through projects, they probably would have not been able to have that conversation at all. If budget support gives the government less room to reallocate its spending because donors have more influence, this suggests that aid provided through the budget is less ‘fungible’ than aid provided as projects.
Whether or not you agree with these judgments about what might have happened in Mozambique, the example shows that our talk about ‘fungibility’ is somewhere between meaningless and irrelevant.

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