Part 3

The still woeful standards of honesty in Third-World governance go a long way to explain the persistence of poverty. The morality of corruption control, which the writers of the 18^th century European Enlightenment emphasized, has apparently not yet been widely understood in most of the Third World. Corrupt practices are still \"deeply steeped in local tradition and culture... They are, moreover, at the core of the.... political system.... [Reforms] can potentially threaten the interests of the wealthy and powerful elites\", as Francis Fukuyama wrote in his Foreword to the 2005 Global Corruption Report. He further observed \"even the most optimally designed institutions will not prevent corruption if a society\'s norms say it is acceptable to take bribes, or if the country\'s elites regard politics as an arena for self-enrichment”. He adds that, even when enlightened outsiders point out the urgent need to fight corruption, it can ultimately only be stopped by local polities. If one thinks through this line of argument, one has to conclude that, in the era of globalization, poverty is a matter of choice. Alas, the choice is made by the political elites and their powerful cronies –– and the poverty persists for the down-trodden masses!

In some poor countries, political leaders have emerged who placed a high priority on overall economic growth and took the long view that prosperity for all is a source of legitimacy and strength. Sometimes, they were inspired by international threats and rivalries, such as in East Asia when communist China loomed large, and by a genuine concern to lift the people from poverty. The desire for economic growth motivated policy makers to institute the rules of a free, open economy and to invest in education. As a materially secure middle class emerged, political freedom was seen as highly desirable and newly affluent generations began to stand up to traditional corruption. With a growing economy and a broader tax base, governments were able to pay civil servants better, which also helped to reduce corruption. This happened not only in Singapore, Hong Kong, Taiwan, and Korea, but is also happening to some extent in Chile, Mauritius and Botswana, countries that are graduating from the Third World to the First. The process often began with the actions of autocrats – such as Lee Kuan Yew in Singapore, Park Chung Hee in Korea and Augusto Pinochet in Chile – and produced sustained economic growth, a gradual improvement of the political, economic and civic institutions, and their non-corrupt implementation. Like before in European history, economic reforms initiated by autocrats have had unintended long-term side effects for political freedom.

The great challenge now is to persuade traditional and new elites in other developing countries that economic growth requires not only institutional reform (the shaping of those rules that underpin economic freedom), but also a decisive attack on corruption (the transparent, even-handed application of these rules). This is not easy because the take-off into economic growth typically brings new opportunities for corrupt dealings, and bureaucracies multiply, creating regulations which offer more such temptations. Corruption also becomes more costly. Where the standard pay-off for a favour from a public official may once have been the equivalent of a radio, officials now demand a family holiday in London or a villa in Sydney. On this critical front, the Global Corruption Reports and the CorrPI equip the young generation of corruption fighters in transition economies with valuable inspiration and benchmarks.

Perceived corruption in government is very high in Africa. African underdevelopment has this year become the focus of renewed major efforts to disburse more official aid and cancel overdue debts. It does not surprise that corruption-riddled governments of stagnating economies show little inclination to repay loans. The poor African countries – as well as Burma and Vietnam – which are heavily indebted, invariably also display the worst corruption ratings. When outstanding loans from the World Bank and other official agencies are simply forgiven or serviced by the taxpayers of affluent countries, this creates \'moral hazard\', the invitation to act irresponsibly. It also encourages both greater and more entrenched corruption and new borrowing to support the extravagant living standards of the elites. Such regimes also typically deny the citizens economic freedom.

Economies with corrupt political, judicial and administrative regimes are of course still able to compete internationally in export markets and in attracting internationally mobile capital, know-how and enterprise. When bribes are extracted, internationally mobile capital and enterprises only stay as long as local production factors, including government administration, absorb the corruption costs. Corruption means that local workers and landowners must contend themselves with lower incomes than otherwise. Local incomes thus remain low. Although wages tend to be higher in export-oriented factories than in local industry, anti-globalisers are nevertheless able to point to low and stagnant wages. International corporations and globalization can then be denigrated. In addition, official tax collections remain low, so that government services are minimal and infrastructure cannot be built. Civil servants are poorly paid, which also encourages corruption. The real culprit – corruption – is less visible. In any case, it is always politically safer to blame foreigners and capitalists.

In China and India, corruption ratings are thought to have deteriorated since the early 1980s but improved somewhat more recently in the wake of the progressive opening of the two economies. China had a perceived rise of corrupt practices since the beginning of economic reforms in the early 1980s, but this is probably a reflection of improved transparency and a realization among the people of China that corruption is an evil that can be fought. Workers and tax collectors in both countries will, however, only be able to obtain a larger share of the income from their efforts, if effective corruption controls are put in place and are enforced consistently and convincingly. If the corruption burden is not reduced, political recriminations, slower growth and social conflicts are likely, as educated middle classes gain more influence in both countries.

In Australia\'s wider neighborhood, the levels of perceived corruption are also high. The CorrPI for Indonesia, East Timor and Papua New Guinea, the Philippines, Laos, Sri Lanka, Thailand, Samoa and Fiji are cause for immediate concern. Pervasive, severe corruption, as Africa has shown, can lead to state failure, a phenomenon which has now come to the forefront of international concerns. Aid donors are therefore trying to insist on conditions for aid to failing states, to date to no avail. Corrupt regimes, by failing their citizens, become sources of illegal mass migration at levels which Western democracies cannot absorb without damage to their own citizens. Moreover, poor, frustrated young people may become recruits for terrorism, criminality and internal political destabilization, as has been evident from Africa and the Middle East to the Solomons.

Another political warning signal made evident by the corruption data concerns petroleum and gas rich countries. Saudi Arabia, Iran, Algeria, Libya, Russia, Azerbaijan, Indonesia and Nigeria suffer from extreme levels of corruption (Graph 1). To the extent that annual corruption data can be relied on, standards have even slipped in recent times. In Venezuela, another major oil supplier, corruption has increased markedly under the Chávez regime. Malaysia, a much better performer, apparently also allowed probity standards to slip during the Mahathir era. Oil and gas wealth evidently allows ruling elites to intervene more intrusively in the economy, as well as to appropriate a high share of resource rents accruing to their countries. Most major oil and gas exporters have not distributed income and wealth equitably, rather the opposite. This points to potential social and political instability in the future and hence possible disruptions of energy supplies. However – as international contretemps with leaders of such regimes (the House of Saud, Malaysia\'s Mahathir, Iran\'s ayatollahs, and Venezuela\'s Chávez) indicate – there is little that can be done directly to reduce corruption in resource-rich regimes.

Recalcitrant rulers can easily find arguments and political support for persisting with traditional national power plays and opposing the Western vision of openness and transparent governance. Yet, resisting the pressures of global competition harms the broad population and the not-so-well-connected competitors. It is most regrettable that some aid lobby groups, who emphasize the need for debt forgiveness, official aid and \'fair\' (rather than free) trade, such as Oxfam, signal to those leaders that they can persist with their ways.

Another feature brought out by the 2005 corruption data is that Western military intervention – in Afghanistan, East Timor and Iraq does obviously not lead to acceptable probity standards. The evidence on corruption, growth and hence poverty eradication, and social stability suggests that military intervention is all too easily followed by economic failure and social unrest. Intervening agencies can only to easily become tainted by the corrupt cultures of failing states. Military governments are imbued with a culture of hierarchical command and control; they tend to distrust decentralised competition and economic freedom. They readily opt for interventionism, which has the unintended side effect of reinforcing the very causes of future economic stagnation and instability.

No outside intervention in failing regimes should in future be attempted without explicit plans how to liberalise the economic institutions and ensure non-corrupt standards of governance. This is a much more difficult task than delivering loans and capital goods, or setting up technical colleges. It is also much more important. Failing states typically lack the expertise and the skills to run non-corrupt administrations and judiciaries. Only the simplest and most modest forms of governance should therefore be attempted. Alas, the bureaucrats in the United Nations, the World Bank, the European Union and most aid agencies tend to advocate ambitious administrative structures for Third-World countries. They then falter because of lacking local capacities to govern, and to govern honestly. Perfectionist administrations –– as were, for example, put in place in post-independence Papua New Guinea or are attempted in East Timor –– are invariably condemned to failure.