Daniel Kaufmann is the director of global programs at the World Bank Institute and a noted researcher on issues of governance. On the occasion of his visit to Lebanon, he talked to Executive about the World Bank’s work to enhance governance, reduce corruption and alleviate poverty.
Is your visit to Lebanon part of a regional tour, or was it purposely scheduled?
It was purposely scheduled because of excellent discussions we had with the minister of finance [Jihad Azour] during the annual meetings of the World Bank and IMF [in September]. My visit is a follow-up to that. I don’t believe in regional tours for tours’ sake, I go only to places where there is a possibility for concrete help and work.
The World Bank categorizes nations into four brackets in terms of governance indicators. Knowing that you said you are not an expert on Lebanon, which policy recommendations tend to be the most important for a country situated in the lower middle bracket of achieving good governance, as Lebanon is?
Lebanon has a set of viable institutions. This is not a failed state, of which there are some. Lebanon has institutions and human capital. The range of issues in this type of country is the following.
One, we discuss the whole regulatory framework. Are there too many excessive regulations? This is usually associated with a lack of governance, monopolistic power, capture of state, and more corruption.
Second, procurement. What are the vulnerabilities in terms of procurement and what reforms are required in that area?
Third, and related, is transparency. In all kinds of different realms, including procurement, transparency is very important. But transparency also relates to full disclosure of assets of politicians, of judges, public officials and their dependents.
Fourth is public finance, the issue of the budget. Are all public expenditures transparent through the budget, or are a lot offline? Are there issues of governance in tax collection? These are the broad areas that apply almost everywhere in countries with this type of challenge. In terms of specific issues, more research is required.
One peculiarity that participants also were alluding to in yesterday’s discussion is that data collection in Lebanon seems very weak and that even some high-ranking decision makers treat data in a very liberal fashion.
Let me say three things about that, because it is very important. Point number one is that data needs to be treated very cautiously anywhere in the world. This is not only about governance but also about investment climate and many other issues, and applies in some cases particularly to official data.
The second point is that precisely because we are aware of that [need to be careful about data] we use different techniques to gather data from many different organizations, including international organizations. We have reasonable confidence that this data can be used with the caveat.
The third point is that there is not always objective criticism. It is not uncommon that a minority has a vested interest in criticizing data. It is what we call shooting the messenger. Nobody complains about our numbers if one is doing okay. When we come out with our numbers on governance, we have never heard criticism from officials in a country where things are improving. It is a one-to-one correlation as to where the criticism comes from. Let me rest my case there.
You were also discussing myths to debunk when discussing anti-corruption strategies. Of the myths about fighting corruption, is there one that you consider the most important to unravel?
The most important one to get rid of at the generic level is a bullet message: one does not fight corruption by fighting corruption. Corruption is a symptom of significant weaknesses somewhere else and one has to understand the issues of governance. That is why I mentioned those policy points. The myth that one can fight corruption by fighting corruption can be unbundled into sub-myths, such as [that it is effective to] throw another institution at the problem. It is very easy to create another anti-corruption commission or adopt another decree against it, do another campaign.
Does that mean that more stringent laws and higher penalties would not be key measures?
Setting of higher penalties is fine. The problem is the incessant drafting of laws which may or may not get adopted. Obviously having tougher penalties within reasonable limits – we don’t believe in people being executed because of corruption – is important. It is the drafting and thinking that the law needs to be improved.
Most every country in the world has decent laws against corruption. The problem is that they are not implemented effectively. Getting away from a state that is monopolizing who can have the dealership of such and such company, or a radio or TV or newspaper and who cannot, those are the much more difficult issues than creating another commission.
Research into human behavior that you quoted yesterday seemed to indicate that people are more inclined to act in a moral way when they are watched then when they are not. Do you advocate monitoring as key measure for inducing governance and better behavior?
The expression is that sunshine is the best disinfectant. We are not talking about monitoring but we are talking about transparency. Transparency in my view is a much more effective tool of policy and sometimes a substitute to other regulations. Having all kinds of procedures and regulations sometimes can create even more corruption. Instead, let’s have sunshine – if for no other reason that first you start rating the cost of corruption through the reputational risk.
In some countries, where politicians and others don’t care, the question of reputation may not matter. But it increasingly matters internationally in the competitive world. It matters for investors; it matters for the electorate, and so on.
Is improvement of governance a realistic possibility or is it a dream? Is human nature per se corruptible, or do you believe that human beings could be different from the corrupted?
Of course I believe in that, otherwise I wouldn’t be doing what I do. There is no question that you will never get rid of corruption. The challenge is to move from a situation where there is a systemic, endemic or even pandemic – not here but in some other countries – corruption to another stage where corruption is still widespread but not endemic or pandemic, and then to where it becomes individual. In a country like Norway, there is corruption. But it is individualized and is the exception, and when it comes to the light, it is a real scandal and penalties may be applied.
So, although you said yesterday that improvements of governance on the whole have not been strong over the past ten years, you have seen progress.
We have seen how countries have managed to make progress. What better example than to show that some countries are doing very well, even among emerging economies? That is why I bring in my own country, Chile. Singapore and Hong Kong were extremely corrupt only 20, 25 years ago. They have contained it. England took longer. It was a very corrupt country years ago, now it is doing very well. In Eastern European countries, the evidence speaks [of governance improvements] in countries like Slovenia and even in Africa. Botswana has better ratings than some countries in southern Europe.
Between public sector corruption and petty corruption in the public sector, how important is corporate corruption on your map of problems?
It is very important. The crucial issue with corporate corruption is how corporate corruption affects public corruption. More important than fraud within a company or between two companies is the collusion between the private and the public sector. Bribery takes two to tender, a briber and a bribed. Very often we are finding out that it is not the public official who is always extorting from the private sector. Some very powerful private interests sometimes capture the politician or the public official; in that case they have an enormous responsibility.
The Middle East has many autocratic regimes. How well can autocratic methods function in defeating corruption and inducing change in governance?
On the Middle East, you are the expert. What we find on average and on balance worldwide is that a country that gives more voice and freedom of expression and has also more transparency, is better able to control corruption. Of course that is not the only thing that matters. Countries can make very significant efforts through other means, through rule of law, transparency of budget.
But there is no evidence in the data that autocratic governments do better in fighting corruption than democratic ones. On average, it is to the contrary. It has to be that the citizens become the auditors of their country. What is the probability in a place like Lebanon that big daddy can be watching everybody? The whole idea of the freedom of expression is creating millions of auditors.
In a definition of governance you described it as a set of traditions and institutions in a country. In this region, religion-based traditions and institutions play a strong role. Can you fit them into your model of governance?
We are mindful of the relevance and importance of the religious dimension. We do not enter it into the data exercise. In part, this is deliberate because we want to remain neutral vis-à-vis religious beliefs. Our approach to what constitutes good governance is a more universal approach. I must say, however, that the World Bank has made a very concerted effort over the past seven, eight years of reaching out to the faith community and to the interfaith community. In all interfaith activism, the commitment to poverty alleviation and the same objectives that we have is extremely strong.
When you presented your evaluation of Lebanon in terms of corruption control, the graph’s margin of error was very large. Why?
Because there are very few sources. The margin of error in a significant way is a function of how many surveys there are. That’s an issue, because a country like Lebanon, a financial center, is not being rated by the World Economic Forum. If a country is jumping aboard the train of globalization, the moment that the WEF, IMD and others cover them, the margins of error start coming down. The first order of business is to be on the radar of all these investment ratings agencies and other large entities. There is nothing worse than being ignored. It is much better to be rated not very well.
In assessing governance in Lebanon at the World Bank, do you find a lot of cooperation from the Lebanese side?
Lebanon is now very interested in these issues of measurement and thinking where one can go in the next stage. But one has to distinguish two things. One is a worldwide measure – the indices on governance. This is all from independent outside sources, that’s why we cover the world. The other is what is needed when a country wants to do something about the problems. There one needs an in-depth study and analysis, and I find that the Lebanese are very open.
How important is it for you personally to believe in the improvability of governance?
I think that the theme of justice, of alleviating poverty in the world, particularly in emerging economies, and empowering people to take their destiny in their own hands and improve their own welfare, is crucially important. Just giving people the opportunity and the enabling environment of not enormous regulations to be entrepreneurs, to express their views and innovations, that is what motivates me and that is why I work on governance for poverty alleviation. I feel affinity to a place like Lebanon, because I am Chilean. Chile until only about 15 years ago was considered a very troubled place. It was a country that was not living to its potential and not doing all the reforms that were needed. I feel enormous affinity to those type of challenges of the emerging world. I think it is feasible within a realistic timeframe to make enormous progress but it is very hard work, it is political leadership for governance improvement.
