NACC Journal, Special Issue

ISSN 1906-2087 Vol. 3, No. 2: July 2010

Research Center Office of the National Anti-Corruption Commission 165/1 Pitsanuloke Road, Dusit District Bangkok 10300, Thailand Telephone: +66 (0) 2-282-3161-5 ext. 121,122 Fax: + 66 (0) 2-281-7126 E-mail : nacc_info@nacc.go.th research@nacc.go.th Website: http://nacc.go.th Advisory Board Medhi Krongkaew Pakdee Pothisiri Editorial Board Wisarn Pupphavesa Kowit Kangsanun Jaturon Thirawat Dararatt Anantanasuwong Sirilaksana Khoman Nitinant Wisaweisuan Managerial Board Sirirat Vasuvat (Manager) Pacharee Meensuk (Assistant Manager) Chai Chinnasod Chintana Ploypatarapinyo Benjawan Yuprapat Sunee Tanusit Pichit Khamma Suthida Rakkaew Kanokwan Taraprab Kangamol Bothong Domrongphol Sangmanee Objectives To serve as the center for compiling and disseminating research findings and other academic works on corruption prevention and suppression. To assist policy formulation based on research findings and academic works and to enhance public awareness to counter corruption. To promote collaboration and coordination among government agencies and research-based institutions in managing research information on countering corruption. To promote the exchange of information and documents among relevant agencies and networks. Views expressed in the articles published in this Journal belong to the authors exclusively and do not necessarily reflect the official position of the NACC.

Contents
Editors Introduction...................................................... i NACC Presidents Opening Speech............Panthep Klanarongran, President of NACC ii Prime Ministers Keynote Speech.................Abhisit Vejjajiva, Prime Minister iv Selected Papers Clash of Reasons: Methodological Conflicts between Law and Economics in Anti-Corruption Perceptions and Practices in Thailand............Medhi Krongkaew 1 Corruption: The Catalyst for Violation of Human Rights.................Kanokkan Anukansai 6 Governance in the Health-Care Sector: Experiences from Asia...........Marco Roncarati 16 Fear, Regret and Transparency: Corporate Governance Embracing Disclosure and Integrity.........Peter Verhezen and Paul V. Morse 27 Corruption, Human Trafficking and Human Rights: The Case of Forced Labor and Sexual Exploitation in Thailand...Malinvisa Sakdiyakorn and Sutthana Vichitrananda 54 Corruption and Policy Outcomes in Indian States...................Jennifer L. Bussell 67 A Review of Chinas Tangible Construction Market: A Mechanism to Curb Corruption in Public Procurement.....................Lotte Beck 80 Problems in Trans-Boundary Recovery and Return of Assets or Proceeds of Corruption from the Perspective of Thailand........Visoot Tuvayanond 91 The UNCAC and Income and Asset Declaration.........Richard Messick 101 Restructuring, Renorming and Rethinking: Inferences from Canonical Thai Corruption Cases................................Jeffrey Race 113 Can Equality in Education Be a New Anti-Corruption Tool ? Cross-Country Evidence (1990 2005)....Kraiyos Patrawart 127 Development and Corruption in Asia: A Substantive Econometric Analysis for Practical Policy Uses.................Tran Van Hoa 158 Conference Organizing Committee Conference Agenda 167 169

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Editors Introduction
This Special Issue of the NACC Journal contains selected papers presented at the First Conference on Evidence-Based Anti-Corruption Policy. The conference was organized by the Thai National Anti-Corruption Commission (NACC), and held on June 5-6, 2009 in Bangkok. Understanding the causes and determinants of corruption and to better design efficient and effective policy measures and instruments to prevent, reduce and eradicate corruption are not easy goals to achieve. In order to better support reaching these goals, there must be better and more in depth understanding of the social, economic, political and legal conditions and environment affecting rewards, sanctions and punishment. Clearer and more concrete understanding of the ill effects of corruption, both qualitatively and quantitatively, could also raise public awareness and intensity in combating corruption. Nevertheless, research work in these subject areas in Thailand is still limited and very much in need. The NACC Sub-Committee on Research under the chairmanship and leadership of NACC Commissioner Dr.Medhi Krongkaew has therefore initiated and promoted many relevant and significant research projects as well as built the research capacity of the NACC Research Center. It has also promoted networking of researchers and research institutes with a common interest in the anti-corruption movement. The Conference was the first of its kind in Thailand and intended to: provide a forum for exchange of knowledge and experiences among researchers, anti-corruption officials, civil society advocates, and other stakeholders; promote networking among them; disseminate research findings; and stimulate public interest and participation in the anti-corruption movement. Over 250 national and international scholars and practitioners participated and 41 research works on a wide range of corruption issues were presented during the two day conference. To disseminate these research works to a wider audience, a number of papers presented at the Conference have been selected for publication in this Special Issue of NACC Journal. The Editorial Board reviewed and selected the papers on the basis of: the topic of the paper, recommendation from referees and the authors interest and availability to revise the paper as necessary in time for publication. It is hoped that this publication will not only reach a broader audience but also stimulate a greater involvement and closer networking in the anti-corruption movement based on knowledge to efficiently and effectively prevent, reduce and eliminate corruption. We would like to thank the referees for their constructive comments and recommendations; the NACC Research Center staff for their hard work, both in organizing the Conference and preparing the creation of this publication; the NACC Commissioners for their strong support for the Conference and publication; the World Bank, the Asian Development Bank, Transparency International Thailand Chapter, the United Nations Development Programme and the United Nations Economic and Social Commission for Asia and Pacific for their cooperation and contributions to the Conference; the honorary copy editor, John Loftus for his meticulous pro bono work, and last but not least, the authors, discussants and participants who collectively contributed to the success of the Conference and the Special Issue of the NACC Journal.

Wisarn Pupphavesa Kowit Kangsanun Jaturon Thiravat Dararatt Anantanasuwong Sirilaksana Khoman Nitinant Wisaweisuan

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Opening Speech by President of NACC, Thailand, Panthep Klanarongran
Cases involving high-level officials, even at the level of Permanent Secretary, have been sent to the Prosecutors Office, with the recommendation of prosecution for misconduct. Politicians of major political parties have similarly been found culpable, and many high-profile cases are in the pipeline. As an independent agency, we are constantly aware that our role is a difficult one, and that our agency must be considered similar to a glass house that is open to public scrutiny. We must be transparent and reliable, and we must also be efficient and systematic, and we must be able to garner citizens participation and support to carry out proper monitoring of the conduct of government affairs. We have now incorporated all these elements into a National Strategic Plan for Fighting Corruption. In the almost three years since the current team of Commissioners took office, the task of fighting corruption has been long and arduous. Thailand has been undergoing political upheaval, particularly as corruption cases are investigated and prosecuted, and perhaps because of such cases. The Commissioners have come under attack, not for any wrongdoing, but because we are doing our job. Nonetheless, we are totally committed to the conscientious review of evidence, thorough investigation, and careful and just interpretation of the law. We have undertaken our work without fear or favor, often at considerable personal risk. Yet, we are firm in our resolve, and submit ourselves to evaluation and scrutiny as well. There is clear separation of power in our judicial system, and any findings by the NACC are subject to independent review by the Prosecutors Office. At each stage of investigation, there are clear and transparent procedures. Investigating committees are formed, composed of outside experts clearly knowledgeable in their fields. Many are academics and professionals outside the NACC. At each stage, the alleged offenders are able to challenge the composition of an investigating committee, and are given every

Your Excellency Prime Minister Abhisit Vejajiva, Commissioners, Country Directors of the World Bank, the Asian Development Bank, Transparency International, and Distinguished Participants: On behalf of Thailands National Anti-Corruption Commission or NACC, I have great pleasure in welcoming all of you to this conference on Evidence-Based Anti-Corruption Policy, which was organized by NACCs Research Center. Everyone gathered here today is well aware of the dangers of corruption. It is a serious problem that all countries of the world have experienced, and a phenomenon that is extremely difficult to defeat. The NACC is the main agency in Thailand responsible for the task of fighting corruption. Our work involves three main areas, namely investigation, prevention, and promotion. When the current Commissioners assumed office in October 2006, there were more than 10,000 outstanding cases. Even if we were to spend 24 hours a day, seven days a week working on these cases, it would take more than 10 years to get through them. However, we have managed in the course of three years to deal with approximately half of them. Many cases proved to be groundless; some cases have been referred back to other jurisdictions for handling, and many other cases have been concluded. In doing so, we have made every effort to undertake our important work at the highest standard, with utmost competence and without prejudice.

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chance to defend themselves in the presence of their lawyers, if desired. On the prevention side, the NACC oversees the asset declaration of politicians and high-level government officials. We also undertake promotional and public relations activities, reaching out to every segment of society, to schools, rural communities, and businesses, large and small, promoting codes of conduct in public and private bodies and promoting positive values among the young. We are also in the process of studying and analyzing government measures and regulations to determine where loopholes exist and where opportunities for abuse of power can arise. The Research Center at the NACC forms the key element in this work. It seeks to create new bodies of knowledge on corruption, generate policy-relevant research, and provide a focal point for researchers and practitioners to discuss views and data in order to provide evidence not only for policy measures, but also for the generation of new paradigms and frameworks within which the problem of corruption can be more effectively addressed. Many of the papers presented at this conference are the output of research that the NACC has funded through a competitive process. This conference is one of the ways to disseminate the research findings, to obtain feedback from knowledgeable persons, and to encourage the exchange of ideas and dialogue in order to advance our knowledge. Our collaborator, the World Bank, has recently set up a governance hub in Bangkok, and we welcome this development. We all share the ultimate goal of building better societies, and the way to do so must be based on sound knowledge. Even though the NACC is the main organization assigned to suppress and prevent corruption in Thailand, we are well aware that the fight against corruption is ultimately everyones concern and everyones responsibility. We are fully aware that combatting corruption requires the collaboration of all groups in society that are committed to the ethical exercise of government. We are therefore pleased that many participants in government and business, as well as non-governmental organizations have joined us today. I would like to thank our collaborator, the W o r l d B a n k T h a i l a n d O f fi c e , f o r i t s coordination and participation, and our supporters, including Transparency International Thailand Chapter, the Asian Development Bank, the United Nations ESCAP, the United Nations Development Programme, or UNDP, and in particular, the staff at our Research Center, who have worked so hard to make this conference possible. And finally, I would like to thank all of you for taking part in this event, for without you, the conference could not be a success. I now have the honor of declaring this conference open. Thank you very much.

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Keynote Speech by Prime Minister of Thailand, Abhisit Vejjajiva
President of the NACC, Commissioners, Country Directors of the World Bank, the Asian Development Bank, and Transparency International, Distinguished Participants, Ladies and Gentlemen: I am delighted to be here this morning to address this important gathering of government officials, executives, scholars, practitioners, and members of the press. It is gratifying to know that, though coming from many places around the world, all of you are meeting on this occasion for one common purpose that is, to try to prevent, reduce, and eventually eradicate corruption from our societies. Corruption is indeed a serious problem that we have been trying to combat for a long long time. Despite the fact that it is commonly condemned by the public, a crime prohibited by law, yet it still remains widespread in many societies. It is a threat to national security jeopardizing not only the countrys financial well-being but also its socio-economic development efforts and, most importantly, the moral fabric of the nation in the longer term. As we all know, corruption takes many shapes and forms. The simplest form is bribery. When an official accepts, solicits, or extorts a bribe, or when private agents give or offer bribes to an official, for the purpose of evading compliance with rules and regulations, or gaining profit and advantage over their competitors, public office is abused. The public office can also be abused through patronage and nepotism, theft of state assets, or diversion or misuse of state revenues. And indeed, in our fight against corruption we must be aware all the time that the shape and form of corruption continue to evolve in keeping with changing circumstances, whether it is the global environment or the regulatory environment in particular societies. But whatever form and shape it takes, an abuse of public office for private gain means diverting the countrys resources for the benefit of only a few individuals or groups, rather than channeling them to the public good or to the people in general that is, to society as a whole. What is perhaps even more alarming is that through the long history of corruption more and more people are becoming used to having a corrupt environment, which more dangerously still appears to make it more acceptable to many many people. In particular, it is more alarming to hear that younger generations now grow up thinking that perhaps it is not wrong to steal, to bribe, to commit fraud or graft because these methods are a way of making sure that they can make progress in their careers or that they can enrich themselves. Therefore, it is necessary to help them understand the seriousness of corruption and the devastating effects it has on long-term development and their livelihoods. It should be seen as a cancer of any society. In addition, to effectively prevent and suppress corruption, an awareness-raising campaign needs to be adopted and implemented widely, both by the youths and by adults. And what I think is particularly crucial in trying to raise awareness and instill the right balance is to have good examples in any society and also make sure that the philosophy guiding the nation is something that is conducive to integrity and good governance. In Thailand, we have been fortunate to have His Majesty the King provide us with wisdom through the Sufficiency Economy philosophy. I am not going to talk today about the economic implications of that but I will say that the Sufficiency Economy philosophy provides guidance in terms of how one is to live ones life within ones means and in moderation, which, in itself, is a very strong counter-incentive to corruption and illegal means of seeking selfenrichment or progress.

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In Thailand, the government has pledged good governance in public affairs so as to suppress and prevent corruption and malfeasance. The government has also pledged to reform and amend outdated laws and regulations that are liable to abuse, the laws that promote conflict of interest and other forms of corrupt practices. Most importantly, we see the real need to cultivate the value of honesty among the Thai people, particularly the young generations. There has, of course, been some progress in fighting corruption. And I quote the word of many counter corruption commissions as we have just heard from the President: It has been long hard work. But this deep-seated political or systemic corruption is still more difficult to tackle. One crucial factor that drives corruption in almost all societies is the link between money and politics, and the process to capture state institutions at the national and local levels by powerful interests. In these cases, traditional control mechanisms may need to be supplemented by more innovative ones to enhance transparency and accountability. These include closer monitoring by the international community and the engagement of wider sectors on the domestic front namely the countrys financial sector, civil society organizations, as well as civic and professional groups. And in order to enable these groups to do just that we also need a good legal framework to make sure that there is freedom of information, so that people could have access to all the things that the public sector is engaged in. The National Anti-Corruption Commission (NACC) of Thailand is entrusted to perform challenging tasks. It is not only there to investigate corruption cases, but also to strengthen the enabling environment and the national governance systems themselves. In this regard, I would like to express my appreciation to the NACC and its staff for their dedication and commitment in fulfilling this tough responsibility, and for doing their job with integrity. Whatever the action or intention, sound policies need to be based on evidence; and sound evidence comes from good research. I am pleased that the NACC is thinking outside the box. It is not confining itself to day-to-day investigation, but is also building capacity through research and use of data which is the theme of this very conference. I am also pleased to hear that the NACCs Research Center is laying the foundation for it to be a regional center of knowledge on corruption research in the future. This conference moves the NACC forward in this new direction, and it is my hope that concrete outcomes for policy recommendations will result. On the part of the government, I would like to emphasize that, in seriously pursuing its anti-corruption efforts within the country, it fully recognizes the importance of cooperation with the international community, as corruption is now regarded as one of the transnational crimes. In this regard, the Thai government has already signed the United Nations Convention against Corruption (UNCAC) and is ready to join other parties in ratifying it as soon as all related laws are revised or enacted. I was informed that such laws have already been reviewed by the Council of State and are now under the consideration of the Parliament. Indeed, Thailand has regularly joined, and actively participated in, other international fora which deal with corruption. On this point, I am pleased to announce that last week the Cabinet resolved to approve the hosting of the 14th International Anti-Corruption Conference (IACC) in Bangkok in November of the year 2010. This Conference would help raise awareness and stimulate discussion, as well as foster exchanges of experiences and best practices in anti-corruption action both at the national and international levels. My government is resolute in its commitment to the rule of law, and a just and moral society. While no one can eradicate corruption overnight, we can start our action against corruption by inculcating in our people, especially the young generations, the value and culture of honesty and self-respect. And in order to make sure that this effort will bear fruit, we

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need to start at home, and extend thereon in our workplace, and national administration. It is also important to instill a sense of responsibility, accountability, and honesty in our people and make them aware that these values are actually part and parcel of human dignity. Let me end by reiterating that corruption may date far back in the history of mankind. However, can be prevented or suppressed if everyone works together in close collaboration. And on this note, I would like to commend each of you for being here today to express your commitment to fight corruption and make our societies better. I wish you every success in your deliberations. Thank you very much.

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Clash of Reason: Methodological Conflicts between Law and Economics in Anti-Corruption Perceptions and Practices in Thailand*
Medhi Krongkaew** I am delighted to have a chance to deliver the keynote address this morning. As a commissioner who played a part in initiating this conference some time ago, I am very happy to see the realization of that initiative today. The subject of my address this morning is the methodological conflicts between law and economics in anti-corruption perceptions and practices in Thailand. I hope to share with you some of my thoughts and experiences in my work as an anti-corruption commissioner in the past two and a half years. As the only academic economist in the National Anti-Corruption Commissi o n (NACC), I knew from the very first day of taking this office that I would face some methodological problems while working with my colleagues at the NACC, many of whom are established legal experts. It is a wellknown fact that law and economics are the two most prominent and strongest social science disciplines, and legal and economics scholars often hold their views as sacrosanct when two such professionals come into contact with one another. However, since it is important that the subjects of law and economics form the
* Keynote address given at the Conference on EvidenceBased Anti-Corruption Policy, organized by Thailands National Anti-Corruption Commission (NACC) in collaboration with the World Bank, June 5-6, 2009 in Bangkok. This address should be looked upon as a work in progress of the speaker rather than a definitive statement on the current anti-corruption activities of the NACC. ** Commissioner, NACC, and formerly, Professor of Economics, School of Development Economics, National Institute of Development Administration (NIDA), Bangkok.

foundation of any social policy, representatives of these two professions need to understand the basic methods of both subjects.1 More than 25 years ago, when I was still at the Faculty of Economics at Thammasat University, I helped set up a special course in the Faculty of Law of the same university; it was called Economics for Lawyers, which, I think, is still being offered there today. That was my one-way contribution to law students at that time. I did not realize that, 25 years later, I would be forced to learn the basic methods of law in order to do my job properly today. Of course, I have learned and greatly appreciate the power of law and legal methods in my work at the NACC, and have used my newly acquired legal skills in many corruption cases. However, there are still many methodological conflicts in the work of the NACC that I want to bring out and share with you, so that we can find ways and means to resolve these conflicts and bring about smoother, more effective, and more efficient outcomes of our activities. At this stage, I can think of five areas of such conflict, which I can briefly explain within the time allotted to me. 1. Corruption vs. Misconduct in Office The first methodological conflict has to do with the scope of authority of the NACC. As the name implies, we are expected to deal exclusively with all aspects of corruption, that is, its suppression, its prevention, and the promotion of social integrity so that corruption will not take place. However, the laws that currently empower the NACC specify that the Commission take care of both corruption and the misconduct in office of state officials.
1

One light-hearted way of telling the difference between lawyers and economists is that lawyers accept what is given and go from there while economists will not go anywhere until they know what is given.

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In economics, corruption in the public sector can be defined as the misdeed of any public officials who use their official positions to generate and transfer public benefits for their own private gain. It is true that misconduct in office may or may not involve a corrupt misdeed. If it involves corruption, then the misconduct is within the purview of the authority of the NACC.2 If not, then this case should be relegated to the State Service Commission or the Administrative Court, freeing the NACC to deal with corruption cases only. The benefit of this approach is that, not only is this a proper division of labor, but it also avoids conflict between the NACC and the State Service Commission and the Administrative Court.3 2. Code of Conduct of State Officials vs. Offences of Dereliction of Duty The second form of conflict concerns the proper status and role of state officials, and how to subject them to various laws when they have committed legal offences. Normally, in the context of public sector economics, state officials would be regarded as those who represent or work on behalf of the state. Their prescribed behavior, rights and duties must distinguish them from ordinary citizens. Their behavior can be quite extensive and wideranging depending on how the state (which is
Most of the time this type of corrupt misdeed or misconduct is also construed as a criminal offence.
2

their employer) would like these state officials to behave in their jobs. A code of conduct can be established based upon mutual agreement between the state and the state officials, and once this code of conduct is violated, those state officials found guilty must be punished or dealt with as having committed a legal offence while in office.4 However, the ways in which a state official can be found by the NACC to have committed misconduct in office currently are quite limited indeed. First, the state official must have been given a specific duty to perform; he or she can be assumed to have committed the offence of malfeasance or misconduct in office only when that official failed to perform his or her duty properly. Take for example the case of a secretary of a director-general of a department: she takes a bribe from someone on the promise that she would ask her boss (the director-general) to give that person a job in the department. When the unlucky person who had paid his money to the secretary, without getting the promised job, lodges a complaint with the NACC against this secretary, NACC legal experts would not accept his complaint on the legal ground that the secretary had no direct duty of appointing anyone to a job in the department, so she could not be found guilty of the offence of m a l f e a s a n c e o r m i s c o n d u c t i n o f fi c e . However, she could be sued as a private individual for fraud and might be dealt with by a disciplinary committee, but she could not be charged with a criminal offense while in office. To a social scientist who is not trained in law, this would seem very strange, if not rediculous. How can we promote good governance in the public sector when the existing laws narrowly differentiate between the overall
Legal terminology for this offence is malfeasance, which refers to an individual intentionally performing an act that is illegal, whereas misfeasance is the unlawful performance of a lawful act, and non-feasance is an intentional failure to act.
4

Some NACC Commissioners have argued that a total separation of authority is not possible because misconduct in office, although it involves administrative procedures, cannot be construed as a corrupt practices as defined earlier. Such misconduct may have damaged (or injured) someone, which could be regarded as a criminal offence which must be handled by such authority as the NACC, not the State Service Commission or the Administrative Court. On this issue, I have often felt increasingly uncomfortable that we have to build prima facie cases against many state officials both on criminal as well as disciplinary charges despite the fact that the alleged wrongdoings are clearly not corruption cases, but simply administrative cases. I wish that the law would be changed so that the NACC would only take care of corruption cases.
3

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status or position of a state official and what specific duty he or she is carrying out at a particular time, and when a criminal malfeasance charge would be filed against such an official: only when he or she wrongly carries out this exact duty, or fails to carry it out? The perplexing rule is that, if the wrongdoing is outside the realm of the persons duty, then no criminal malfeasance charge can be applied. 5 3. Legal Absolutism vs. Economic Optimality The third form of conflict is derived from a classic case of negative externalities in the textbook of public economics. Take the case of a polluting factory which emptied its wastewater into a river, resulting in the death of fish in the river, and adversely affecting the livelihood of fishermen downriver. A simple legal solution to this problem would be to close the factory as a punishment for polluting t h e r i v e r a n d h u r t i n g t h e fi s h e r m e n economically. However, in economics it can be shown that such a legal action can be worse than allowing that factory to continue operating (and continuing to pollute the river). This is possible if the closure of the factory would result in greater loss to society (if people could not obtain the products that would have been produced by the factory) than loss to the fishermen owing to the death of the fish in the river. An economic solution to this problem may call for not total closure of the factory, but a reduction in its level of production which would lead to a lowering of the extent of pollution and an optimal outcome for both sides.
In Thailand, we have a court verdict which illustrates this point: a policeman was absolved from an offence of misconduct in office when he was caught playing an illegal poker game while on duty. The Court said that, although he has a duty to arrest illegal gamblers, when he became an illegal gambler himself he was not causing injury to anyone or to the Police Department. So he was not charged with the criminal offence of dereliction of duty. Or take the case of a policeman who had the duty to guard against the escape of a female prisoner. He was not found to have committed the offence of malfeasance in office, although he had raped her while she was in his custody, because the prisoner did not escape.
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But how can legal absolutism and economic optimality be reconciled? Legal authorities may insist that, if a law is broken the culprit or perpetrator must be punished, whereas economists may say: No, we should not close the factory, but indeed should help or subsidize the factory with physical equipment or technical know-how in order to reduce the pollution as long as the costs of doing so are still less than the overall benefits provided by the continued outputs of that factory and the continued catch of the fish by the fishermen downriver. In real life, we may have seen many cases of conflict between legal absolutism and economic optimality. A state official may be found guilty of a certain form of misconduct, which is neither criminal nor a corrupt practice, but simply a disciplinary infraction. The existing law can be so rigid that there can only be one disciplinary punishment for such an infraction: expulsion from state service. The economic loss from such punishment can be enormous if that able official is deprived of the opportunity to continue to work for the good of the state and society. 4. Damage to Anyone vs. Benefits for All The fourth type of conflict is derived from the implementation and enforcement of Section 157 of the Penal Code of Thailand. This is the famous provision in Thailands Penal Code that has become the trade-mark penalty of our anti-corruption activities. Section 157 states that: Any person who is a competent official who conducts or refrains from conducting his duty properly so as to cause damage to any person, or (who) conducts or refrains from conducting his duty corruptly, will be subject to imprisonment from one to ten years, or (a) fine from 2,000 to 20,000 baht, or both imprisonment and fine.

Most corruption cases that the NACC Commissioners built have relied on this

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Section for the requisite charge. Many economists would see that this famous legal provision has a lot of loopholes. First, it is not only corruption offences that are included under this Section, but also malfeasance or misconduct in office that causes someone damage. As mentioned previously, this has created ambivalence concerning the proper role of the NACC. Second, an act by an official that causes anyone damage would be sufficient to incur this penalty if it could be proven that such act was intentional. In economics, we know that the same coin always has two sides. An action relating to something can always be seen as a non-action with regard to something else. The trade-off or opportunity cost concept, which is the life-line of economics, is often missing in a legal provision such as this. For example, a decision to privatize a state-owned enterprise may hurt or damage the interests of a certain group of people, even though it benefits a larger number of the population in the long run. Legally speaking, such a privatization could be deemed as violating Section 157 of the Penal Code, and the state official who is responsible for this act may face criminal punishment according to Section 157. In actual fact however the damage caused by not privatizing the enterprise may be even higher. Can this concept of economic trade-off be used in the correct interpretation of Section 157? To be fair, economic interpretation by economists on these issues may be unacceptable to some legal scholars. Take for example the case of a government decision to spend public money in any way the government likes, or to follow certain policies that it sees fit, on the presumption that it is the prerogative of the government, or within the democratic rights of the government (since it has the consent of the majority of the people), to do anything while it is in power. Imagine a government continuing to implement an economic policy that could be proven beyond reasonable doubt to be wasteful, corrupt, or inefficient (such as the current rice mortgage policy of the government or the student loan program of the government). In such a situation, should the legal authorities have the right to question the propriety or legality of such policies? Should the anti-corruption authority consider this type of activity as a corrupt practice, and try to haul the responsible minister or even the entire Cabinet into the court of law? 5.Disciplinary Action vs. Violation of Employment Contract and Human Rights Finally, the fifth form of conflict can be seen in the type of legal punishment meted out by the government against state officials. Currently, only two categories of disciplinary infraction can be charged against public officials in this country: ordinary infraction and severe infraction. There is nothing in between. If a person is found to have committed a severe disciplinary infraction, he or she would have to be either expelled or removed from the civil service. There is no other way to punish him or her. What is even more startling is that, if one is expelled from the civil service, he or she will lose all the pension that person was supposed to have received after having worked for a certain length of time with the government. It is this legal condition of forfeiting the right to receive a pension that an economist like myself cannot accept. To me, the right to receive a pension after long years of service with the government is based on an employment contract into which the state official had entered with the government from the beginning of his or her service. The application of any rule that would involve reneging on this contract with the employee is equivalent to breaking the law. Even if the government argues that it set this as an employment condition with the official in question from the beginning of his or her work, it could still be challenged that this rule violates basic human rights as stipulated in the Universal Declaration of Human Rights. Thus, it is illegal. These are some of the methodological conflicts between law and economics that I have encountered in the last few years of my work. Owing to my limited knowledge of law, I cannot

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claim that what I have said represents any definitive situation or understanding concerning anti-corruption perceptions and practices in Thailand. However, I hope to spend more time on this work so that I could suggest ways and means that legal experts and economists could utilize to work together more fruitfully and more harmoniously in order to bring about better results in our anti-corruption efforts in Thailand. Thank you very much for your kind attention.

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Corruption: The Catalyst for Violation of Human Rights
Kanokkan Anukansai * Abstract This paper addresses a conceptual linkage between corruption and human rights. The author looks at corruption and the violation of human rights from a power-relation perspective, as it reflects an asymmetric relationship between the subject and object of power. From this perspective, corruption and the violation of human rights comprise a social phenomenon which concerns the distribution of benefits among different groups of people and individuals. Corruption is an important contributing factor to the violation of human rights by facilitating, serving or creating an environment in which the violation can take place. The paper illustrates how corruption subverts human rights in different forms and degrees, from denying the basic rights of people to access services to threatening their lives. The abuse of human rights will be pervasive if corruption does not cease. Keywords: Corruption, human rights 1. Introduction There is a close connection between corruption and human rights. Increasing empirical evidence around the world reveals a linkage between corruption and the infringement of human rights. Corrupt state officials use their power to silence critics, so that justice would be subverted. Other times corruption has made it possible for criminals to go unpunished. As can be seen from authoritarian regimes, large-scale human rights abuses generally take place along
Program manager of Transparency Thailand. E-mail: kanokkan@cpcs.nida.com The author would like to express heartfelt gratitude to Dr. Juree Vichit-Vadakan for her kind advice concerning this paper.
*

with endemic corruption, such as in the regimes of Idi Amin in Uganda, Sani Obacha in Nigeria and Suharto in Indonesia. It could be said that corruption causes a lack of respect for human rights and the rule of law. As seen from the Euro Barometer Survey of 2005, more than half (57 per cent) of the citizens of the European Union see corruption as the driving force behind organized crime in their countries (Transparency International, 2008). This is especially so in the case of organized crime, which contributes to serious violations of human rights, such as human trafficking where corruption has been identified as a major barrier to effective law enforcement (Iselin, 2002). Corruption in such cases can further exacerbate the degree of exploitation and violation of human rights of those who are already disadvantaged. Corruption is a major barrier to fulfilling the states obligations to respect, protect and fulfill the human rights of individuals (ICHRP, 2009). For instance, a corrupt political system denies the fundamental right of political participation. A corrupt judicial system violates the basic right to equality before the law. Corruption in public administration endangers the right to life when it allows the manufacture of hazardous products. When the state fails to curb the spread of corruption, it may be concluded that the government has failed to fulfill its obligation to protect human rights. Understanding corruption as the catalyst for the violation of human rights will serve to give us a new perspective which could lead to a more effective anti-corruption strategy. This paper seeks to clarify the interconnections between corruption and human rights. The author submits that corruption leads to violations of human rights, and describes how the two acts are connected to each other, beginning with the logical relationship between corruption and the violation of human rights and following with some illustrations to reveal the nature of the relationship.

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2. Proposition 1: Corruption is about Power, Power Relations and Abuse of Power The term corruption could be defined in various ways. One of the definitions of the term is giving something to someone with power so that he/she will abuse his/her power and act (in a way) favoring the givers. Another definition is the offering, giving, soliciting or acceptance of an inducement or reward which may influence the action of any person (Rajkumar, 2002). Transparency International defines corruption as the abuse of entrusted power for private gain.1 A definition given by the United Nations is the misuse of public power, office or authority for private benefit (Pilapitiya, 2004). In the USAID Handbook for Fighting Corruption, corruption encompasses unilateral abuses by government officials (ICHRP, 2009). As indicated by various definitions of corruption, a core component of the term is the abuse of power. Corruption would never exist if there were no abuse of power. Abuse of power in government could refer to the abuse of the function of state authority, which is defined as the performance of or failure to perform an act in violation of the law by a public official in the discharge of his or her functions, for the purpose of obtaining an undue advantage for himself or herself or for another person or entity (ICHRP, 2009). Within this meaning, government corruption may occur when the official fails to perform his/her duties for personal or partisan gain. Corruption could be found in many forms, such as bribery, extortion, negliglence of duties, nepotism, cronyism, embezzlement and fraud (Pope, 2000; Terracino, 2008). The degree of the abuse of power tends to be magnified if the power is increasing, as referred to by Lord Acton, an English historian, who wrote in a letter: Power tends to corrupt, and absolute power corrupts absolutely. This was also restated in other words by an economist,
See Transparency International. What is Corruption? at http://www.transparency.org/about_us
1

Robert Klitgaard, who defined corruption in terms of the equation: Corruption = Monopoly Power + Discretion Accountability (Klitgaard, 1988, cited in ICHRP, 2009). In a setting where there is high degree of monopoly and discretion, corruption takes deep root when the state is captured by private interests that can access and use their power through regulations, laws, judicial rulings, decrees and other legal measures to gain influence for private benefits. Under this scenario, it is likely that violations of human rights will take place when corruption is endemic and power is concentrated in the hands of a few, as often happens in authoritarian regimes. In terms of power relations, the abuse of power involves a social relationship between human beings as either subjects, or objects of power. There must be at least two parties involved in this power relationship. From a power-relation perspective, corruption is an activity carried out by an individual or a group or groups of people who have gained access to power. It is a form of relationship between different social groups and/or individuals, and is related to the ways that power operates in a society. One way is through those who have more power and another is through those who have less power. Those with more power abuse power, while those with low power are abused. It is an asymmetric power relationship, which determines who controls whom and by what means. The relationship between corruption and the violation of human rights is framed by unequal power relations. Both acts take place when there is abuse of power. Corruption benefits those who have access to power and abuse it, and victimizes those who do not have access to power. From this perspective, human rights are subjected to violation when power is abused by corrupt practices. Violation of human rights could be a harmful consequence of corruption. However, not all forms of human rights violations are the result of corruption; for instance, gender discrimination is likely to be caused by many

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factors, including the traditional values of a society which believes that women are inferior to men. The victims of corruption and those of human rights violations are often the same groups of people. These victims suffer from the abuse of power by those who have more power than they do. Many times, the victims of corruption are vulnerable and marginalized people, such as those who are already suffering from discriminations on the basis of gender, economic status, ethnicity etc. Corruption just brings even more difficulties into their lives. This situation then becomes a double exploitation by the haves acting against the have nots. 3. Proposition 2: Corruption Leads to Violation of Human Rights: Direct and Indirect Violations Human rights are regarded as inherent, inalienable and universal. The Universal Declaration of Human Rights adopted by the United Nations in 1948, states: All human beings are born free and equal in dignity and rights. Everyone is entitled to all the rights. When an individual has human rights, it means the state and other actors have to respect those rights, which in principle would guarantee that no harm would come to individual persons (ICHRP, 2009). However, all forms of corruption could reduce the states capability to fulfill its obligations in a way in which the powerful are favored but the vulnerable are harmed, with the imposition of difficulties and threats to peoples lives. For instance, the trafficking of women, which is an organized crime and one of the worst forms of human violation, is made possible because corruption is central to its operation. Bribes are given to officials: police and immigration officers, border control officials and so on in the whole chain of officials involved. To examine corruption in terms of how it relates to the violation of human rights, a power-relation perspective focuses on who does what to whom. Does the corrupt act itself violate human rights or does it bring about other actions which eventually lead to the violation of human rights? Who are involved in corruption and the violation of human rights? Is it the same or different actors who corrupt and abuse human rights? By exploring these questions, the consequences of corruption, which result in the violation of human rights, could be identified as two types: direct violation and indirect violation. 3.1 Direct Violation of Human Rights Direct violation of human rights occurs when some corrupt acts are deliberately used as a means to violate a persons rights. It takes place when corruption itself is a part of the violation (ICHRP, 2009). Violations of human rights, in the meantime, are acts of corruption. For example, wrongfully and unlawfully incarcerating one's political opponent is a human rights violation and a form of political and judicial corruption. Another example perhaps is the best example to demonstrate a direct violation of human rights caused by corruption: corruption in the justice system. This type of corruption denies victims fair treatment and justice, and undermines the rule of law. For instance, a bribe offered to a judge, if accepted, definitely can affect the independence and impartiality of the judges ruling. In Global Corruption Barometer 2006, which surveyed peoples attitudes toward corruption in 25 countries (conducted by Transparency International), it was found that 1 in 10 households had to pay a bribe to gain access to justice. The results showed that the first rank of corruption was police and the third rank was the legal and judiciary system (Transparency International, 2007). Corruption also affects the administration of justice when it takes place before cases reach court. It could happen through the manipulation of evidence at the police level or the altering of facts at the prosecution level. In Thailand, the story of the murder of Sherry Ann Duncan, a 16-year-old Thai/American girl, illustrates this problem, which resulted in tragedy for four innocent persons. Sherry Ann was abducted and killed in 1986. Initially, the police arrested and charged with murder four construction workers

9
who later were sentenced to life imprisonment by the criminal court on the basis of evidence provided by the police. However, after the workers had spent several years in prison, the Supreme Court found the four suspects innocent. In the meantime, one of the suspects had died in captivity, while two others died of heart failure a few months after their release. The only remaining one was crippled as a result of the torture and harsh conditions he endured while in police detention and prison. It was a new investigative team that reopened the case and eventually cleared the names of the four scapegoats. New suspects were arrested and subsequently jailed. One of the suspects who was believed to have been the mastermind in ordering Sherry Anns murder was set free due to insufficient evidence. Fake evidence had been presented and a false witness had testified against the four original victims, all of which were formally presented by the police. The former chief investigator in charge of the case was found guilty; however, he resigned from the service before the conviction was made and thus escaped criminal proceedings. Other original investigators in the case received career advancement before their retirement. None of them faces criminal action (The Nation, 2003). Although no conclusive evidence of corruption was found in the investigation report, it is widely believed that corrupt practices were involved in the case. What could be the prime motive for the former chief of the police investigation to make his decision in a way which would cause menace to his career and life, if it were not for immense private gain? As mentioned by the lawyer for the four victims: It was not only a mistake which could happen from just doing (ones) duties. By taking such a high risk and great efforts to find the scapegoats, a person who was involved with the case must know the real wrongdoer and must have used all means to help him/her to escape from his/her guilt. The motive to close the case due to public pressure alone was an unsound reason for a person to frame the four scapegoats and produce a false witness in this murder case. In addition, the chief of the investigative team was an acquaintance of the believed-to-be mastermind of the murder, a rich and influential person (Manager Online, 2003). The presumption of corruption in this case was reconfirmed in a study on the ethics of the police. Some incidents of misconduct found in the inquiry into the case of Sherry Ann Duncan, as mentioned in that study, were the arrest, allegation with false witness and fake evidence and bribery (Thaipradit, 2004). The arrest of innocent people often occurs when some police accuse the victim of drug trafficking and then proceed to extort money from the victims. In one case, a victim was stopped by police at a checkpoint. The police found amphetamines in the victims car and demanded payment in exchange for his release, or for lesser charges. The victim initially denied the accusation but was tortured to give a confession. He was kept for four days until his mother finally agreed to pay money to these corrupt officials. This case was later brought to the Law Council of Thailand in a request for justice (Markan-Markar, 2008). Access to justice is a central issue for the protection of human rights. However, the principle of justice for all could not exist if corruption still pervades the justice system. Special attention should be given to corruption through the system of justice, from police officers, prosecutors and judiciary to prison officers. A variety of measures to confront corruption in the system should be installed, such as initiating a credible complaint mechanism for the victims of corruption, promoting an active role for civil society organizations and the media in exposing corruption cases, enforcing stronger punishment for corrupt judges and other officers, establishing a vigorous self-policing system and a strict code of ethics, and building a sense of integrity and pride in the profession. Such anti-corruption measures would help lessen the violations of human rights and enhance justice in society.

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Direct violation of human rights caused by corruption is also found in the provision of public services. In principle, public services should be allocated and provided for all members of the entire community without discrimination. Corruption in the provision of public services affects this principle because it requires extra payment for the delivery of services. When public officials demand or expect a bribe for doing an act which the officials are required by law to do, they are misusing their power in order to enrich themselves. For instance, certain health-care treatments in Nigeria, such as the treatment of HIV/AIDS cases, are not available to all who need such care, as a result of endemic corruption in that country. Anti-viral drugs, which should be available free of cost because of donor-funded programs for HIV/AIDS cases, did not reach the poor owing to demands for extra payments, which is a widespread practice. Some people were denied access to those services because they would not or could not pay bribes or did not belong to the clientele network. A Nigerian HIV patient mentioned that the antivirus drugs are not given to those of usbut to those big men who bribe their way through, and we are left to suffer and scout around for the drug. Discrimination also occurs when the use of sterile needles is ignored because some health workers extort illicit payments from patients for the use of such needles (Transparency International, 2008). Corruption in this case was an act of discrimination against those who could not afford to pay a bribe; they were denied access to essential service and were put at risk of contracting HIV infection. In the public service, corruption which distorts the allocation of public resources could lead to discrimination and arbitrariness. For instance, a corrupt politician may alter the rules of allocation in a social program against poverty in order to benefit his/her constituency but exclude others. It is a blatant violation of the rights and entitlement of those who should have been the beneficiaries of the fund in the first place. Corruption in public services, as described in these cases, prevents individuals from gaining access to their rights. When conditionality of access to basic human rights to such services involves corruption, it is a direct violation of human rights. 3.2 Indirect Violation of Human Rights Corruption becomes a necessary condition in cases of indirect violation of human rights (ICHRP, 2009). It occurs when corruption is the origin of subsequent violations of human rights. It is an essential factor among the factors that violate human rights. This type of corruption leads to actions by other actors, which eventually adversely affect human rights. It causes deteriorating effects, but by itself it is not an act that violates human rights. Human rights are violated by an act which stems from an act of corruption. For instance, in human trafficking and other crimes, when corrupt officials turn a blind eye to those who have been trafficked and to other criminal activities in exchange for bribes, their inaction could even threaten the victims lives. In this example, bribes comprise an essential factor in the chain of events that lead to the violation of human rights. Corruption is also found to be an indirect cause of human rights violation when corrupt officials seek to prevent exposure of their corruption. In the framework of power relations, corruption is an instrument that helps to sustain the order in which the powerful would often gain advantage. Corrupt officials will use all means to protect and maintain their position of power, a situation which may cause further violations of human rights. Telling the truth to the public about power relations may endanger those who speak out. Journalists, activists, and whistle-blowers have been attacked after exposing corruption. Threats to witnesses and whistle-blowers may vary from jeopardizing their physical safety to psychological threats, harassment, imprisonment and discrimination. A civil society organization called the Committee to Protect Journalists (CPJ) reported that 734 journalists around the world were murdered between January 1992 and April 2009. Of the murdered journalists, 20 per

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cent were killed as a result of their coverage of corruption (CPJ, 2009). In Thailand, violent acts against whistle-blowers have been numerous and well known. For instance, in a recent case, Athiwat Chaiyanurat,a local reporter with a newspaperand a television channel, was found dead in his home in the southern province of Nakhon Si Thammarat. His death was suspected to be related to his attempt to expose corruption in the local administration. Athiwat had been told beforehand that some influential officials in the province were "dissatisfied" with his reporting on local corruption issues (CPJ, 2009). Violence can increase and become a common occurrence when attempts are made to expose cases of corrupt practices. For instance, Sergeant Chit Thongchit, a 56-year-old former Thai highway police officer, was brutally shot and killed in order to stop him from exposing and helping to prosecute corrupt officials. During his life, Sergeant Chit exposed more than 10 cases of corruption involving police and local politicians. He also helped people who had been subject to unjust treatment from the authorities. Just before his murder, Sergeant Chit lodged complaints against the police on behalf of an innocent man who was accused of selling amphetamines in Prachuap Khiri Khan Province (Amnatchareonrit, 2009). In a different case, Charoen Wat-aksorn, a local community leader, was shot dead because he exposed a corruption case involving a conflict with an electricity generating plant. He was murdered on his way home after testifying before the Senate committee on social development and human security and the House committee on counter-corruption concerning the alleged malfeasance of local land officials. He had accused the officials of trying to issue title deeds covering 53 rai (2.5 rai = 1 acre) of public land to a local ''influential person. He accused many government officials and influential figures of encroaching on public land (Asian Center for Human Rights, 2004). All these accusations related to the corrupt practices of public officials. Corruption is similarly related to the violation of the human rights of whistle-blowers. It is corruption which causes such people to blow the whistle but this act results in all kinds of human rights abuses and violations against them. Whistle-blowing and witness protection are key concerns when incorporating into an anti-corruption framework, human rights protection measures for those who expose corruption and are victimized by corruption. A well-designed program for protecting witnesses in corruption cases and whistle-blowers is urgently needed for protecting these persons from violence and all forms of human rights violations. Such mechanisms may include ensuring the confidentiality and identity of the witnesses and whistle-blowers, providing special forces to safeguard their lives and their families safety, providing financial support and job security, and psychological counseling services, among other such measures. In the meantime, such measures are likely to contribute to a more effective anti-corruption strategy. If the lives of the witnesses and the whistle-blowers are threatened with danger, it should not be surprising that they would remain silent. On the other hand, if there are certain conditions which could ensure their safety, it is likely that they would release more useful information which would enhance the advancement of the investigation into corruption cases. These protection measures would also encourage other would-be whistleblowers and create confidence among the public to report corruption cases to the authorities. 4. Proposition 3: Grand and Endemic Corruption Heightens Massive Violations of Human Rights, Conflict and Violence. Grand and endemic forms of corruption create mass victimization, which may result in threats to the rule of law, peoples lives and massive incidents of violence. They involve the abuse of power on a large scale. One example is the current conflict in the Niger Delta, where authorities have been extremely corrupt, diverting public funds away from local communities. The result has been massive communal violence in that region of Africa.

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The Niger Delta is an oil-rich region in southern Nigeria where ethnic groups have lived for centuries. When large oil reserves were discovered in the area in the 1950s, multinational oil corporations began to invest in the region. With the assistance of the government, the companies established their oil-related plants in the region. At the same time, the government forced local communities to relocate for the construction of the plants and pipelines. It was believed that the oil industry would bring wealth to the local communities and the country. However, after 30 years of operation, the large oil reserves have not brought prosperity to the region or the country, as promised, but massive ecological deterioration. The gas emissions from the oil industry have caused severe pollution in the area. In fact, Nigeria introduced regulations to outlaw the emissions of gas 20 years ago but bribery thwarted law enforcement (Conflict in the Niger Delta, http://www.en.wikipedia.com March 12, 2009) The environmental devastation associated with the oil industry and the lack of distribution of oil wealth in the Niger Delta have caused further public dissatisfaction with the oil corporations and the government. For instance, in the 1990s, an ethnic people launched a movement to demand benefits from the oil industry under the responsibility of the corporations and the government. However, the movement was stopped by a military operation which resulted in the death of 2,000 civilians. A few years later, the surviving activists from the movement were arrested and sentenced to death under the dictatorship of Sani Abacha. The activists were denied the due process of law. Politicians who benefited from the oil corporation bore false witness against the activists. The companies gave money to the military to silence the voices which called out for justice. One company was criticized for trying to divide communities by paying off some members to disrupt a non-violent protest. (Conflict in the Niger Delta, http://www.en.wikipedia.com March 12, 2009) Some years later, a few militant groups emerged in the Niger Delta. These groups attempted to control the regional petroleum resources. They claimed that the local people were being exploited and had never benefited from the profitable but ecologically destructive oil industry. These groups illegally accessed the oil resources by tapping into oil pipelines and extracting the oil into barges. To make this bunkering process possible, they armed themselves and formed alliances with local politicians. Illegal arms trading has also been facilitated by the officials. The militant groups fought to control the bunker routes, which has resulted in the death of civilians. Employees of the oil corporations have been taken hostage by the militant group in a confict that causes about 1,000 deaths each year. Rampant corruption in that area and in the country has fueled the conflict and the violence. For instance, the corporations reportedly bribed some officials to win contracts to build a natural gas pipeline and oil plants. Bribes were also given to the government to protect these businesses, which cause massive environmental degradation, and to maintain their source of wealth. Payments are also given to the military and the militant groups to protect the corporations businesses. (Shah, 2004 and Watts, eds., 2008).

Ongoing cases of grand corruption, such an the one described above, will inevitably result in violations of human rights in various forms. With such endemic corruption, the conflict and violence will not cease.

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5. Proposition 4: Corruption Exacerbates Violations of Human Rights and Exploitation The impacts of corruption tend to be harsher for disadvantaged groups of people, such as minorities, the poor, migrant workers, and disabled persons, who are relatively marginalized and powerless. This phenomenon could be explained from a power-relation perspective. Corrupt people who posses higher status and power attempt to maintain their position of power. In doing so, it is easier to further oppress people under their domination because they are vulnerable and lack power. Disadvantaged people tend to be exploited more often and are less able to defend themselves than more well-off people. In this sense, corruption is an instrument that helps to define, sustain, expand or reduce the social order on the basis of unequal power between the powerful and the powerless. Persons in positions of power involved in corruption would attempt to maintain the status quo. Those who benefit from corruption would try by every means, including further corruption, to maintain their power. As a result, people who are not in a position of power, especially and vulnerable groups, are further oppressed and rendered unable to prevent any change in this power relationship. In other words, corruption reinforces the exclusion of the vulnerable groups and violations of human rights. For instance, corruption contributes to human trafficking, which is a modern form of slavery and the worst form of human exploitation. According to a United States government report, a correlation has been found between corruption and trafficking. The level of corruption has been perceived to correlate with standard efforts being made against trafficking. That is to say a state with a low level of perceived corruption is likely to have higher standards against trafficking (Lezertua, 2003). As mentioned previously, the victims of human trafficking are usually the most vulnerable or underprivileged groups of people, such as the poor, illegal migrants, minorities and women. These victims lose total control over their lives and are stripped of their self-determination and sometimes even their lives. This serious crime could not be possible if the authorities were not paid off by organized crime for either facilitating the traffickers or neglecting their duty by looking the other way. Organized criminals often bribe border guards and use personal networks to move their victims across countries. Another example concerns migrant workers. Corrupt officials may extract money from transnational migrant workers who lack a residence permit by threatening them with deportation. In Thailand, a law restricts migrant workers freedom of movement. As a result, there is plenty of room for corruption and extortion by law enforcement officers. Min Min, 18, a migrant worker who works in a restaurant said our life is difficult now. A few day ago at around 2 or 3 a.m., three men knocked on the doors of the migrants home. Nobody dared open the door but these men entered forcibly and took away all of their mobile phones. Sometimes their motorcycles were taken away by the police. Migrant workers need to offer bribes to get their property back (Malikaew, 2007).

In a report released by the Mekong Migration Network and Grassroots Human Rights Education and Development (2007), it was found that corruption often violates the fundamental rights of migrant workers. For instance, in a case known as Arrest in Khao Lak by Bangkok Police, the arrest of five alien workers was described. Police from Bangkok negotiated with the Thai employer of these aliens and asked for 70,000 baht for the five people. Finally agreement was reached to pay 40,000 baht. This bribe money would be deducted from the paychecks of the five workers; it should be noted that their salaries were only 4,500 baht per month. In another story, four alien workers were arrested while they were walking on the street. Two of them who had work permits were released after paying 2,000 baht each to the police officers. The two without work permits initially were detained, but later released with the payment of 6,000 baht each to the police officers (Mekong Migration

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Network and Grassroots Human Rights Education and Development, 2007). These examples illustrate how corrupt officials benefit the from abusing power for private gains while enforcing the law. Such behavior exacerbates the vulnerabilities of the weak and visibly magnifies the existing human rights problems of disadvantaged groups. 6. Conclusion As seen above, human rights and corruption are related in ways in which corruption leads to violations of human rights. Acts of corruption can directly and indirectly violate human rights, especially those of the disadvantaged. These two acts are complimentary. Reducing one helps to lessen the other. Resolving one issue could possibly lead to another issue. Therefore, anti-corruption measures need a human rights perspective. Similarly, effective human rights protection measures need to incorporate and integrate anti-corruption measures as well. When violations of human rights are portrayed as being a result of corruption, this will raise the awareness of people concerning the consequences of corruption on the well-being of individuals. This perspective helps to demonstrate clearly to the public the destructive effects of corruption on human beings. Trafficking in human beings is so inhumane that it might create a common spirit and public support for the cause of attempting to limit or eliminate corruption. The negative impacts of corruption on humanity would thus be more convincing and tangible to the public. People will have more understanding about the detrimental effects of corruption when seeing that it can threaten their lives. They will have greater sympathy for the victims of corruption because they are the same victims of human rights violations. Any individual could become one of the unfortunate victims if the state is not able to protect them and if the public remains passive and unaware. Public support for combating corruption will create demands and put pressure on the government to be committed more seriously to this cause and generate the true political will to eradicate corruption. Giving a human face to corruption may lead to more effective anti-corruption strategies through better awareness of the destructive effects of corruption, which should no longer be tolerated. Considering the issues of corruption and human rights through the lens of power relations enables us to see them as relationship between different social groups or individuals who are able to access power differently. We see that it is an asymmetric relationship between the subjects and objects of power. Both acts are social phenomena which concern the distribution of benefits between different groups of people and individuals. From this perspective, fighting corruption is fighting against powers that lack integrity and abuse power. This explains why corruption is a difficult and painful problem. However, if those who are powerless are empowered and synergized with courage, commitment and patience, the problem of corruption could be tackled. Perhaps the hopes and dreams of people to build a corruption-free society may be possible. References
Amnatcharoenrit, Bamrung (2009). A son's solemn vow. Bangkok Post, February 8.,2009 Asian Centre for Human Rights. (2004, June 30). In the line of fire: Human rights defenders in Thailand. Retrieved from website:http://www.achrweb.org/ Review/ 2004/27-04.htm Committee to Protect Journalists, Journalists killed. Retrieved April 13, 2009, from website: http://www. cpj.org/deadly/ 2008.php International Council on Human Rights Policy (2009). Corruption and human rights: Making the connection. Versoix, Switzerland: ICHRP. Iselin, Brian (2002). Barriers to effective human trafficking enforcement. A paper presented in the Human Rights Challenge of Globalization in Asia Pacific, US: Trafficking in Persons, Especially Women and Children. Honolulu, Hawaii, November 13.15, 2002.

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Klitgaard, Robert (1988) Controlling Corruption. Berkeley:University of California Press Lukes, Steven (1986): Power: A Radical View. Hong Kong: Macmillan. Malikaew, Suthhida (2007)Restriction makes life tough for migrant workers Inter Press Service. Macan-Markar, Marwaan (2008, Feb 11 ). Thai Border Patrol Police BPP Torture. Inter Press Service. Retrieved from website: http://www.ipsnews.net/ news. asp?idnews=41137 Manager Online. Mekong Migration Network and the Grassroots Human Rights Education and Development. (2007). Retrieved from http://www.mekongmigration. org/?page_id=127 The Nation. (2003, October 8). The Murder of Sherry Ann Duncan: A travesty of justice and its repercussions. Retrieved from http://www.nationmultimedia.com/ search/ read.php?newsid=86893 & keyword=ANN Pilapitiya, Thusina (2004). The Impacts of Corruption in the Human Rights Based Approach to Development. UNDP Oslo Governance Center. September. Pope, Jeremy (2000). Confronting corruption: The elements of a national integrity system. TI Source Book 2000, London: Transparency International. Rajkumar, C. (2002). Corruption and Human Rights. Frontline. Vol. 19, No. 19, September 14-27. Rachid, Harun. (2004). A crucial link between corruption and violation of human rights. The Daily Star, Vol. 4 no. 259, February 18. Shah, Anup. (2004, July 3). Nigeria and Oil Global Issues. Retrieved from website:http:// www.globalissues.org/ article/86/nigeria-and-oil. Terracino, Julio Bacio. (2008). Corruption and human rights. International Council on Human Rights Policy (ICHRP). Thaipradit, Sathita. (2004). The ethics of the police in the investigation of criminal cases: The case study of Sherry-Ann Duncan. A thesis for the completion of a masters degree in political science, Ramkamhang University, Bangkok. Tosakun, Rattana.(2005). The Concept of Power. Bangkok: National Research Council of Thailand. Transparency International. What is corruption? Retrieved December 5, 2008, from http:// www.transparency.org/ about_us _ (2006). Corruption and HIV/AIDS. Working Paper No.2/2006. _(2008a). Corruption and Human Rights. Working Paper No.5/2008. _ (2008b) Corruption and (In)security. Working Paper No.4/2008. _(2007). Global corruption report: Corruption in judicial system. Cambridge: Cambridge University Press. United Nations. (1948). The Universal Declaration of Human Rights. Retrieved from http://www.un.org/ en/documents/udhr/ Watts, Michael, ed. (2008). Curse of black gold: 50 years of oil in the Niger Delta. The Independent World, August 2. http://theindependent.co.uk Wikipedia (Retrieved March 12, 2009) Conflict in the Niger Delta. http:// www.en.wikipedia.com

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Governance in the Health-Care Sector: Experiences from Asia
Marco Roncarati* Abstract This paper considers the significance of good governance in the health-care sector as a means for improving health outcomes. Good governance encompasses the need to minimize corruption, as well as other attributes, including participation, transparency and equity. Moreover, although other stakeholders may play an important role, the role of the government in the financing, provision and regulation of health care is essential to protect the most vulnerable from ill health, especially in developing countries. The paper uses examples from Asia with regard to how governance in key components of health systems can have an impact on the equitable utilization of health services and puts forward a series of related recommendations. Keywords : Good governance, health-care sector, Asia 1. Introduction With the recent advent of a major global financial crisis, the situation with regard to aspects of human development in Asia is uncertain. Nevertheless, over the last few decades this part of the world has become a powerful driver of global economic growth. For instance, during the period 1988-2005 Asias developing countries experienced an average growth rate of 7.5 per cent per annum more than twice that of the rest of the world. Along with economic growth has been the sharp drop in the infant mortality rate experienced by almost all countries in Asia.
United Nations ESCAP, Rajdamnern Nok Avenue, Bangkok 10200, Thailand Tel: (662) 288 1565, Fax: (662) 288 3031, E-mail: roncarati@un.org The views expressed herein are those of the author and do not necessarily reflect those of the United Nations.
*

This has contributed to a 70 per cent rise in life expectancy, from an average of 40.19 years in 1960 to 68.17 years by 2004 (ESCAP, 2007). Crisis or no crisis, development in both economic and social spheres, though impressive in aggregate terms, has been uneven, with certain segments of society benefitting little. Significant differences in human development exist among countries. However, it is within countries where some of the starkest variations exist, with the vulnerable whether the poor, women, migrants or older persons losing out relative to others. Their weak performance in terms of health outcomes threatens the achievement of equitable provision and usage of health-care services as well as the health-related Millennium Development Goals (MDGs). In order to achieve the MDGs by the target year of 2015, greater investments are needed, especially in developing countries. In light of the financial crisis, this is becoming more difficult to realize. On the other hand, if the existing resources were used more efficiently, significant progress could be made even without greater investments. Though difficult to achieve in many settings, one of the most straightforward ways of using resources efficiently is by means of functioning in accordance with good governance. This entails, among other matters, minimizing corruption. However, efficiency does not ensure equity. This is especially so in the health-care sector, where market failure and corruption can occur very easily. The reasons for this susceptibility include uncertainty, the multitude of actors, physicians often acting as self-regulating professionals, the asymmetry of information, significant investments in health coming from governments and hence the scope for unwieldy bureaucracies where malpractice may occur, and large-scale involvement of the private sector in a domain where ethical issues (both in individual and public health contexts) are fundamental. Studies may come up with numbers, for instance 80 per cent of non-salary funds fail to reach health facilities (Lindelow, Kushnarova, & Kaiser, 2006), yet accurately measuring the

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extent to which the resources spent on health care actually reach the end-users is difficult to achieve. Despite the difficulty of ascertaining exact quantifications, a crucial matter that is becoming increasingly evident is that [f]ew of the resources spent in the health sector reach the poor (Yazbeck, Gwatkin, Wagstaff, & Qamruddin, 2005; p. 3). Therefore, emphasis on prioritizing the efficient use of resources as well as moving beyond just economic arguments is needed to ensure that all people enjoy good health and benefit from development. 2. Governance and the Provision of Health Care Corruption is bad for health. A study by the International Monetary Fund (IMF) that used data from 71 countries reveals that countries with high corruption indices systematically have higher infant mortality rates than those with lower such indices (Gupta, Davoodi, & Tiongson, 2001). So how does governance fit into the picture? The concept of governance relates to the process of decision-making and the process by which decisions are (or are not) implemented. Good governance, as discussed below, among other things, implies minimized corruption, though it is broader than that, with a mutually reinforcing relationship between the components or characteristics of good governance. In the context of health care, governance implies the implementation of decisions within and beyond health systems that have an impact on peoples health and in particular health outcomes. Health outcomes include health status, financial risk protection and public satisfaction (Roberts, Hsiao, Berman, & Reich, 2004). Such outcomes are relevant, as improving these can help in poverty reduction, the achievement of the MDGs and bolstering economic growth, as well as simply improving the quality of peoples lives. Though it is recognized that decisions and interventions outside the health-care sector can be very influential (such as those which relate to road safety, trade and employment) and have an impact on health outcomes, in this paper emphasis is primarily on what occurs within the health-care sector and how governance contributes to this. When considering health outcomes, other factors also come into play, such as levels of expenditure, quantity and quality of human resources and a gamut of cultural and political issues, many of which are specific to particular societies. Nevertheless, by just improving governance, dramatic changes can be achieved and existing resources can go a long way further than they currently do, especially in developing countries where there tends to be the greatest need to use limited resources efficiently. This is so because [c]orruption has a direct negative impact on access and quality of patient care and is one reason why, so often, increased spending on health does not correlate with improved health outcomes (Transparency International, 2006, p. 23). Given that health is a public good, as well as that all people should have the right to good health,1 equity issues become very significant. So does the role that governments play in providing those in need with health-care services. Breaking down the concept of good governance into its components gives a clearer picture of what needs to be done to improve the situation in so many settings. According to ESCAP (2009a), good governance, characterized by eight core elements, is: Participatory implying that it is informed and organized and includes women and men and all social groups;

Consensus-oriented implying what is in the best interest of the whole community, taking into account different interests, and how this can be achieved. It also requires a broad and long-term perspective on how to achieve sustainable human development;

Article 25.1 of the Universal Declaration of Human Rights affirms that everyone has the right to a standard of living adequate for the health of himself and of his family, including food, clothing, housing and medical care and necessary social services. Article 12 of the International Covenant on Economic, Social and Cultural Rights, the most comprehensive article on the right to health, recognizes the right of everyone to the enjoyment of the highest attainable standard of physical and mental health.
1

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Accountable implying that organizations or institutions, be they governmental, from the private sector or from civil society, are accountable to those who will be affected by their decisions or actions. Accountability is not possible without transparency and the rule of law;

impact and, with the correct social orientation, benefit those in greatest need. Many actors are involved in governance, though in the context of health, especially in developing countries, governments should play the main role. This is so because, without government intervention, vulnerable groups suffer disproportionately from market failures that occur in the health sector. Moreover, recent studies (for example, Oxfam, 2009) reveal that publicly financed and delivered health-care services continue to dominate in countries with higher performing and more equitable health systems. In the section that follows good governance is examined with regard to some of the aspects of greatest significance within the health-care sector. 3. Spheres within the Health-Care Sector Needing the Most Attention As with the nature of many illicit or morally reprehensible activities, the extent of corruption and other aspects of poor governance are not possible to quantify accurately. All the same, it is evident that it amounts to tens of billions of dollars, though the real costs must also be measured in terms of those people who suffer because they cannot afford brown envelope payments to health care workers and those who are forced to pay far more than they should for hospital services and pharmaceuticals due to rampant corruption (Transparency International, 2006, pp. 23-24). Figure 1 shows that there are five main categories of actors in the health-care sector, namely government regulators, payers, providers, consumers (patients) and suppliers. It also shows that there are many ways in which corruption, fraud and other malpractices can occur, given the complex relationships between the actors.

Transparent implying that the decisions made and their enforcement need to follow rules and regulations. It also implies that information is freely available and directly accessible by those affected by such decisions and their enforcement;

Responsive implying that institutions and processes serve all stakeholders within a reasonable time frame;

Effective and efficient implying that processes and institutions produce results that meet the needs of society while making optimal use of the resources at their disposal and ensuring protection of the environment.

Equitable and inclusive implying that every person, especially the most vulnerable, feels that he or she has a stake in matters and does not feel excluded from the mainstream of society;

Subject to rule of law implying minimized corruption and that fair legal frameworks are enforced impartially by an independent judiciary and just police force, and human rights, particularly of minorities, are fully protected.

A look at general enabling conditions which contribute to good practices reveals the importance of good governance. The enabling conditions cover a variety of factors, including political stability, a strong institutional and policy environment, commitment to equity, good evidence-based decision-making and strong stakeholder support (Gottret, Schieber, & Warers, 2008). In all of these, the principles of good governance can have a significantly positive

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Figure 1. Five Main Actors in the Health Sector: Relationships between Them and Scope for Malpractice

Source: Savedoff and Hussmann (2006). In the analysis that follows emphasis will be on the roles played by government regulators, suppliers of drugs and providers of health-care services, as well as patients, since ultimately they suffer as a consequence of malpractice and a lack of good governance. This is not to say that the role of payers is not significant, nor that of suppliers of products which indirectly have an impact on health care, such as the construction of hospitals and the supply of ambulances. However, the issues around supplying products of the aforementioned nature are common to many other sectors in addition to health. Moreover, in Asia it is a fact that the vast majority of people, and in particular the most vulnerable, do not have the privilege of social security or some form of health insurance, something more common in developed countries (where, of course, corruption may also occur). Research in China shows that direct patient expenditure on medications and health services, respectively, makes up 55 per cent and 35 per cent of the revenue of community health care (Zhang, Yang, & Gao, 2006). Such out-of-pocket expenditures are in fact the principal method used by poor people across Asia to finance their heath care. This form of payment is problematic since, with weak institutions and regulations, there might be overcharging, the funds might not go beyond the staff who receive them from those seeking heath care and the costs are largely non-reimbursable. In most of Asia out-of-pocket expenditure as a percentage of private health expenditure is significantly higher than in other parts of the world, including sub-Saharan Africa. Out-of-

20
pocket payments can be harmful, especially for the poor. For instance, they increase the rate of poverty by 33 per cent in Viet Nam, 19 per cent in China, 17 per cent in Bangladesh and 12 per cent in India (Durairaj, 2007). The implications are that much still needs to be done by governments to develop universal health-care coverage schemes, whether through tax financing or social health insurance. In order to make this possible, good governance can certainly help, as it makes the setting up and running of such schemes easier. 3.1 Government Regulators A lack of good governance among government regulators, to a large extent, sets the scene for how operations are carried out in the health-care sector. If there is inefficiency, or a lack of accountability and transparency here, the impact of regulations and the implementation of health-care interventions from the top down would be adversely affected. Investors may not be willing to put their funds into a corrupt system, knowing that much of their investment could be diverted into the pockets of the unscrupulous. Government regulators can influence controls over the quality of products, facilities, services and professionals. This can be done though a variety of means, such as certification, accreditation or licensing procedures being undertaken in a biased manner, expediting approvals for pharmaceuticals without consideration of quality, influencing research results or ignoring them if they go against what is desired by those with vested interests. Often there is significant scope for corruption within the process of the allocation of budgets. In 1998, the Thai Ministry of Public Health developed a scheme in which budgetary allocations to hospitals was increased, but drugs and medical equipment were to be purchased from companies named by senior persons in the Ministry and at fixed prices, which in certain cases were two or three times greater than normal. When questioned, the Ministry denied irregularities and refused to allow an investigation into the matter. Nevertheless, a combination of pressure from physicians, university lecturers, non-governmental organizations and the media forced the Minister of Public Health to resign, and led to dismissal and disciplinary measures related to corruption offences being taken against officials and senior officials (Phongpaichit, 2001). The afore-mentioned case shows how things can be done to bring an end to corrupt practices, but for this to be possible recognition of problems is necessary as is having the frameworks and institutions to put change into effect. In neighboring Cambodia, much still needs to be done to weed out corruption in the health-care sector. Research suggests that 5-10 per cent of the health-care budget disappears before the Ministry of Finance disburses the money to the Ministry of Health, while more money is diverted as funds are channeled from the national government down to provincial governors and directors of operational districts, and subsequently on to directors or managers of local hospitals and clinics. The problem is confounded by the alleged practice of paying up to US$ 100,000 for a post as director at the Health Ministrys provincial or national offices and even US$ 3,000 for a job as a low-level public servant in the health sector, when government employee salaries are on average US$ 40 per month (Prevenslik-Takeda, 2006). When the possibility of earning many times an official salary exits and is even institutionalized (albeit in an informal manner) it becomes difficult to change the culture and introduce good governance at the highest level, let alone at the lower levels. 3.2 Suppliers of Drugs In developing countries, 2050 per cent of the recurrent government health budget is often used to procure drugs or pharmaceuticals. These are among the most important and cost-effective elements of health care and frequently a key factor for successfully reforming the health-care sector. Asia is one of the fastest-growing markets in the world for pharmaceuticals and numerous multinational drug companies have plans to expand their investments and operations in Asia (UNDP, 2008). In addition, many hospital and clinics rely largely on the sale of pharmaceuticals as a source of revenue. In China, pharmaceutical

21
medication sales contribute a key proportion of the revenue of township hospitals and village clinics in some areas, accounting for 61.58 per cent of total revenue (Pan, 2006). Nevertheless, drugs are frequently being used irrationally, principally as a result of market imperfections in the health-care sector (Falkenberg & Tomson, 2000). Indeed, it is in the supply of drugs where some of the most troubling malpractices occur. Many of these take place at the regulatory level and have an impact all the way down to patients, since the pharmaceutical industry, in addition to supplying drugs, plays a substantial role as a purveyor of information and persuasion (Dukes, 2002). Malpractices often directly affect consumers or patients. Estimates by WHO reveal that over half of all medicines worldwide are prescribed, dispensed or sold inappropriately, and that half of all patients fail to take them in the correct manner (WHO, 2009a). The hazards to health are obvious when considering that irrational use of medicines could lead to over-prescription, incorrect prescription and questionable quality of drugs. The Declaration of Rome (February 18, 2006) states: Counterfeiting medicines, including the entire range of activities from manufacturing to providing them to patients, is a vile and serious criminal offence that puts human lives at risk and undermines the credibility of health care systems (WHO, 2009b). A lack of knowledge, or unethical behavior among prescribers, as well as a lack of awareness and knowledge among patients, may be part of such problems. It is the poor who are most adversely affected, often having to pay for drugs that are supposed to be free of charge. The poor, especially when facing high costs, may also opt for self-medication and be at greater risk of the harm associated with this practice. In 2003, investigations following complaints of alleged malpractice in the Indian state of Karnataka showed that certain drug-producing companies which had paid bribes to officials were permitted to circumvent drug standards, while those that had refused to pay ended up being harassed. Additional irregularities included price controls not being enforced, kickbacks being accepted and no action being taken in response to the discovery that a blood bank had dispensed HIV-positive blood. Pressure groups were instrumental in pushing for disciplinary action, but the case also shows just how vulnerable patients may be owing to the lack of information regarding their entitlements or health standards, as well as their fear of losing access to services if they proceed to file a formal complaint (Cameron, 2006). Incidents of this nature regrettably occur all over the developing world and to a certain extent also in developed countries. They all highlight the relevance of good governance in dealing with these problems, as well as the significance of the efforts to promote such approaches by all stakeholders from governments and international organizations to civil society, academia, the media and communities. 3.3 Providers of Health-Care Services The provision of health-care services comes from various sources, including both public and private hospitals, health centers and clinics, and officials and administrators dealing with health, physicians and other health-care professionals. The main aspects of such malpractice include the diversion of hospital budget allocations, bribes for admission to hospitals, theft of user fees, informal payments made by patients for health-care services which should be free, induced demand for unnecessary medical interventions, absenteeism, immunization programmes being compromised and public facilities being used for what is in effect private practice. Malpractice in the provision of health-care services, in particular under-thetable payments, may arise as a consequence of low salaries and limited opportunities for performance-based rewards. This may lead some people to feel justified in giving donations or gifts (such as red envelopes in China). It also may be exacerbated by patients lack of knowledge and their view of health as so significant that they are often willing to pay virtually anything to attain optimal outcomes.

22
Extra payments have become so institutionalized in numerous settings that many people accept them and even consider them useful. This is especially so in countries where public sector health care is weak and such informal fees work as a type, albeit unreliable, of quality assurance (UNDP, 2008). The consequences of malpractice in the provision of health-care services are, understandably, that many people are unable to pay for services, the near poor are made poor, the poor are made poorer, priorities are distorted, people lose faith in the public health system and inefficient use of resources and unprofessional behavior are encouraged. Addressing just one aspect of a problem, such as finding a way to stamp out informal payments, may simply bring about other problems, such as physicians moving to the private sector and thus public services being compromised. Incidents of bribes being frequently demanded by health workers for admission to hospital, for a bed and for receiving subsidized medications occur in Bangladesh, India, Nepal, Pakistan and Sri Lanka. In addition, these countries have high proportions of health-care service users who make informal payments, with figures of over 90 per cent in Pakistan and Sri Lanka (Lewis, 2006). Seen from another angle, in Azerbaijan and the Russian Federation, informal payments make up 84 per cent and 56 per cent, respectively, of total health expenditure (Lewis, 2000). Whatever are the arguments for or against informal payments, from the point of view of equity they are problematic. Such payments are regressive, since the poor pay more, at least as a proportion of their income. Absenteeism, in the form of staff not turning up for work while still getting paid, is also a problem across Asia. It can even take the form of ghost workers, in which payments are made to non-existent staff members and end up in the accounts of government officials. It may be that the absenteeism is due to legitimate sickness, a phenomenon found even in developed countries, and this could reflect work conditions, including issues of morale. The need for good governance could be relevant in such cases if there are problems that relate to matters including transparency, accountability, consensus-orientation and participation. Whatever the case, the situation could be ameliorated, as echoed by Indias Minister of State for Health and Family Welfare, Panabaka Lakshmi, who openly stated that addressing absenteeism among health workers would sustainably improve health facilities in India (Thaindian News, 2008). Figure 2 indicates the levels of absenteeism in certain countries in Asia. From this and other sources (for example UNDP, 2008) it can be seen that rural areas often suffer the greatest incidence of absenteeism. Reasons for this include difficulties in getting to work, poor working conditions, which act as disincentives and weak supervision. Malpractice also occurs in terms of bribes given to influence recruitment, as well as with regard to aspects of accreditation, licensing and certification.

Figure 2. Absence Rates among Health-Care Workers in Selected Asian Countries

Source: Adapted from Lewis (2006).

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4. Addressing the Challenges at Hand Subsequent to the identification and assessment of some of the main challenges being faced with regard to good governance in the health-care sector in Asia and before conclusions are made and recommendations are put forward, some examples of what is being done to address corruption, malpractice and other negativities are considered. In order to promote good governance in the health-care sector a combination of approaches needs to be adopted. These approaches include ways of generating greater awareness of the negative impacts of corruption and malpractice, enhancing institutional capacities to prevent these practices and deal with them if they arise; reforming management and accounting practices; improving performance reward systems; and allowing for greater participation from civil society, including pressure groups. It all entails involving the various actors in the health-care sector and adopting both top-down and bottom-up approaches. Moreover, in recognizing that the corruption and malpractice existing in the health-care sector is largely indicative of general shortcomings in governance in the public sector and may often relate to other sectors, approaches should fit in with wider good governance and anti-corruption initiatives. In Vietnam, regulatory measures have been put in place to combat corruption in the public sector at large, including the issuance of new decrees on corruption, the simplification of administrative procedures in ministries and agencies at the central and local levels, and the introduction of more transparent personnel procedures. As a result disciplinary action following investigations by the state inspectorate and the Vietnamese Communist Party have been increasing (Wescott, 2003). In the Republic of Korea, anti-corruption committee directly under the president and anti-corruption investigation departments of the Ministry of Justice, work to crack down on corruption by public officials at all levels. The anti-corruption investigation departments categorize corruption-prone areas into 16 categories, including health. In addition to the collection of information on irregularities and investigation into complaints, ethical behavior is promoted among the staff of the Prosecutors Office, within the Ministry of Justice, and where the anti-corruption investigation headquarters is located. This has won the publics respect and confidence (ADB & OECD, 2001, p. 54). When government regulators receive reasonable pay and are guided by upright principles and where effective institutional frameworks exist it is easier to prevent corruption, as well as identify it and respond to it when it occurs. This is likely to be more straightforward in more developed countries, but even in those which are developing there is much potential for tangible improvement. For instance, in India information technology has been used to streamline services and reduce corruption, with transactions and the issuance of certificates being done electronically in the health sector and other sectors to improve efficiency and reduce corrupt practices (Purohit, 2007). In the field of pharmaceuticals many initiatives have been undertaken to reduce corruption and malpractice. With regard to halting the sale of counterfeit medicine, a WHO study in Myanmar and Vietnam came to the conclusion that inspections at various stages of the pharmaceutical value chain could prove essential (Wondemagegnehu, 1995). In Thailand, results have been achieved by focusing on transparency and accountability as effective, efficient and feasible steps of good governance when dealing with medicines. Essential drug lists have been established, with controls on registration, pricing and procurement; furthermore, effort has gone into raising awareness about good governance and ethical practices (Tharathep, 2008). Chinas experiences in working with essential drug lists and controls on purchasing and allocation have also yielded positive results. By moving away from the practice of medication sales generating special allowances for doctors toward remunerating them with fixed salaries and bonuses determined only

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by performance reports, the quality of care has also been targeted. From another angle, diagnostic principles have been established and physicians prescriptions are checked on a regular basis; if prescription fees exceed a set amount the doctor responsible is penalized by forfeiting his pay (ESCAP, 2009b). This latter strategy also directly targets providers of health-care services. Other efforts to improve governance in the provision of health-care services include tackling informal payments. In Cambodia, in stark contrast to most developing countries, the introduction of official user fees at government facilities was associated with greater utilization of public health services, mainly because the official fees in the majority of cases replaced the more expensive under-the-table charges (Barber, Bonnet, & Bekedam, 2004). The introduction of a regulated fee system at Cambodias National Maternal and Child Health Hospital was associated with higher patient satisfaction, increased utilization and bed occupancy rates and a greater number of hospital-based natal deliveries (Akashi, Yamada, Huot, Kanal, & Sugimoto, 2004). This specific case shows how efforts to institutionalize matters can reduce certain unfavorable practices; yet, there may still be a need to attend to equity issues, such as exempting the poor from user fees. Another approach that is being adopted in India directly targets the poor; it involves providing them with heath insurance and smart cards. Such cards make transactions cashless and paperless for 725 pre-agreed medical procedures, hence preventing fraud and corruption. The cards can track expenses day to day in hospitals and money is deducted automatically following each procedure (OneWorld South Asia, 2008). To tackle absenteeism and staffing issues different strategies may be needed for different occupational groups and people in different settings. For instance, performancebased non-financial incentives, including career development, training opportunities and fellowships, have been found to be suitable for central and provincial managers in Sri Lanka. On the other hand, hospital managers there have been seen to prefer financial incentives (Bandaranayake, 2001). In Bangladesh and some other countries, regular audits, physical head counts, questionnaires and reconciliation of different data sources are used to help identify ghost workers and reduce the number of unauthorized absences, especially with such information being made publically available, and the institutions affected being empowered to take corrective actions (WHO, 2006). In any situation it is important to consider that polices should be as comprehensive and coordinated as possible. Hence, when addressing matters such as health worker dissatisfaction, incentives should not be used in isolation; rather, they should be part of a package which considers good governance in its entirety. 5. Conclusions and Recommendations A lack of good governance in the health-care sector and the related ills that result from its absence are of the greatest harm to those who are most vulnerable. Corruption and malpractice whether involving government regulators, suppliers of drugs, providers of health-care services, or other actors are the cause of tremendous inefficiencies and contribute to great inequities. It is developing countries, often characterized by weak institutional capacities, which find it most difficult to put into effect the measures that promote good governance and ultimately contribute to better health outcomes. Experiences in Asia show that efforts to stamp out corruption and malpractice can result in success. Nevertheless, there is a need for more resources and better use of existing resources, careful planning and monitoring, as well as a wide array of other facilitating factors, ranging from generating greater awareness and promoting transparency to engendering greater participation and more actively enforcing regulations. As a consequence of the above-mentioned issues, it is recommended that more research and analysis should be undertaken with the aim of understanding the causes and consequences of corruption and malpractice in the health-care

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sector, as well as developing related databases. In doing so, emphasis should be on ways to effectively minimize corruption and malpractice and promote good governance by generating greater awareness among all stakeholders and developing supportive institutional structures and incentive and payment schemes that enhance quality and equity. This applies to those at the top and bottom of the spectrum, as well as to all those in between. It also involves coordinating with sectors beyond health, particularly in other public domains, given the need to protect all, especially the poor and other vulnerable groups. Other important areas of action are improving regulation and monitoring, including with regard to quality, as in the case of pharmaceuticals, using information and communication technologies to simplify and rationalize transactions and other administrative procedures, and allowing for greater participation from civil society and other interest groups which aim to help consumers. In the broader scheme of things, cooperation and sharing of information within and beyond sub-national and national boundaries can facilitate the development of good governance, as can assistance technical or financial or that which enables acting as an arena for cooperation from donors and international organizations. References Books and articles
Akashi, H., Yamada, T., Huot, E., Kanal, K., & Sugimoto, T. (2004). User fees at a public hospital in Cambodia: Effects on hospital performance and provider attitude, Social Science and Medicine, p. 58, pp. 553564. Azfar, O. & Gurgur, T. (2006). Local-level corruption hits health service delivery in the Philippines. In: Transparency International, Global Corruption Report 2006. London: Pluto Press. Bandaranayake, D. (2001). Assessing performance management of human resource for health in South-East Asian countries: Aspects of quality and outcome. Geneva: WHO. Barber, S., Bonnet, F., & Bekedam, H. (2004). Formalizing under-the-table payments to control out-of-pocket hospital expenditures in Cambodia, Health Policy and Planning, 19, 199208. Cameron, S. (2006). Malpractice in the office of the drug controller in Karnataka, India. In: Transparency International, Global Corruption Report 2006. London: Pluto Press. Dukes, M.N. (2002). Accountability of the pharmaceutical industry, The Lancet, 360(9346), 1682-1684. Durairaj, V. (2007), Enhancing equity in access to health care in the Asia-Pacific region: Remediable inequities. Report prepared for the United Nations Regional Thematic Working Group on Health. Bangkok: WHO and UNFPA. ESCAP (2007). Development of health systems in the context of enhancing economic growth towards achieving the Millennium Development Goals in Asia and the Pacific. Bangkok: the United Nations ESCAP. ESCAP (2009b). Promoting sustainable strategies to improve access to health care in the Asian and Pacific region. Bangkok: the United Nations ESCAP. Falkenberg, T., & Tomson, G. (2000). The World Bank and pharmaceuticals. Health Policy and Planning, 15, 52-58. Gottret, P., Schieber, J.S., & Warers, H.R. (2008). Good practices in health financing: Lessons from reforms in low and middle income countries. Washington, D.C.: World Bank. Gupta, S., Davoodi, H., & Tiongson, E. (2001). Corruption and the provision of health care and education services. In A.K. Jain (Ed.), The political economy of corruption. London: Routledge. Lewis, M. (2000). Who is paying for health care in Eastern Europe and Central Asia? Washington, D.C.: World Bank. Lewis, M. (2006). Governance and corruption in public health care systems. Working paper No. 78. Washington, D.C.: Center for Global Development. Lindelow, M., Kushnarova, I., & Kaiser, K. (2006). Measuring corruption in the health sector: What we can learn from public expenditure tracking and service delivery surveys in developing countries. In Transparency International, Global Corruption Report 2006. London: Pluto Press. Pan, G.M. (2006). Crises primary health sectors are facing, Contemporary Medicine, 12, 3640. Prevenslik-Takeda, L. (2006). Corruption in Cambodias health sector. In Transparency International, Global Corruption Report 2006. London: Pluto Press. Purohit, M.C. (2007). Corruption in tax administration.

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In A. Shah (Ed.), Performance accountability and combating corruption. Washington, D.C.: World Bank. Roberts, M., Hsiao, W., Berman, P., & Reich, M. (2004). Getting health reform right: A guide to improving performance and equity. Oxford, New York: Oxford University Press. Transparency International (2006). Global Corruption Report 2006. London: Pluto Press. UNDP (2008). Tackling corruption, transforming lives: Accelerating human development in Asia and the Pacific. New Delhi: Macmillan Publishers India Ltd. Wescott, C. (2003). Combating corruption in Southeast Asia. In J.B. Kidd, & Richter, F.J. (Eds.), Fighting corruption in Asia: Causes, effects and remedies. Singapore: World Scientific Press. WHO (2006). Working together for health: The World Health Report 2006. Geneva: WHO. Wondemagegnehu, E. (1995). Counterfeit and substandard drugs in Myanmar and Viet Nam. Geneva: WHO. Yazbeck, A.S., Gwatkin, D.R., Wagstaff, A., & Qamruddin, J. (2005). Why were the reaching the poor studies undertaken? In D.R. Gwatkin, Wagstaff, A., & Yazbeck, A.S. (Eds.), Reaching the poor with health, nutrition, and population services: What works, what doesnt, and why. Washington, D.C.: World Bank. Zhang, X.F., Yang, J., & Gao, H.L. (2006). National health community health care survey on financing in urban China, Chinese General Practice, 3, 351353. Websites ADB & OECD (2001). Combating corruption on all fronts. Retrieved March 11, 2009, from ADB Website:http:// www.adb.org/Documents/Conference/Fight_ corrup tion/part1.pdf ESCAP (2009a). What is good governance? Retrieved February 20, 2009, from UNESCAP Web site: http:// www.unescap.org/pdd/prs/ProjectActivities/Ongoing/ gg/governance.asp OneWorld South Asia (2008). Health smart cards for Indias poor. Retrieved March 11, 2009, from OneWorld South Asia Web site: http:// southasia.oneworld.net/ ictsfordevelopment/health-insurance-through-smartcards-for-india2019s-poor/ Lewis, M. (2007). Efficiency and equity issues: Corruption, governance and spending in health care services [PowerPoint slides]. Retrieved February 25, 2009, from Pan American Health Organization Web site: http://www.paho.org/english/DPM/ SHD/HP/ finfisc-16pres-lewis.pdf Oxfam (2009). Blind optimism: Challenging the myths about private health care in poor countries. Oxfam Briefing Paper, February 2009. Retrieved February 20, 2009, from OxfamWebsite:http://www.oxfam.org. uk/resources/ policy/ health/bp125_blind_optimism. html Phongpaichit, P. (2001). Good governance: Thailands experience. Retrieved February 25, 2009, from Chulalongkorn University Faculties and Staffs Homepages Website:pioneer.netserv.chula.ac. th/~ppasuk/ goodgovernancethailandsexperience.doc Thaindian News (2008). India faces acute shortage of health workers: Minister. Retrieved March 13, 2009, from Thaindian News Web site: http://www. thaindian.com/ newsportal/health/india-faces-acute-shortage-of-healthworkers-minister_100130231.html Tharathep, C. (2008). Good governance for medicines programme: The Thai experience [PowerPoint slides]. Retrieved March 18, 2009, from Medicines Transparency Alliance Web site: www.medicinestransparency. org/fileadmin/uploads/ Documents/Presentations/GoodGovernanceFor MedicineProgramme_Thai.ppt WHO (2009a). Rational use of medicines. Retrieved March 11, 2009, from WHO Web site: http://www.who.int/ medicines/areas/rational_use/en/ WHO (2009b). Counterfeit and substandard medicines: Declaration of Rome. Retrieved March 11, 2009, from WHO Website: http://www.who.int/ medicines /services/ counterfeit/en/

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Fear, Regret and Transparency: Corporate Governance Embracing Disclosure and Integrity
Peter Verhezen and Paul V. Morse* Abstract Lack of information and responsibility within risk management, among board members, top management and homeowners, has contributed to the recent global subprime mortgage crisis. Similarly, lack of appropriate governance and risk management when faced with the temptation to make shortterm profits led to the Asian financial crisis of the late 1990s. Similarly, the desire for extraordinary growth and profitability resulted in the corporate ethical disasters of the Enron Corporation and WorldCom. Those apparently unrelated events led to regret and even fear. Moreover, they also resulted in stricter regulatory oversight. The main question is how can fear and regret be overcome amid recurring economic crises? This paper argues that converging global corporate governance principles and best governance practices may provide the first steps to institutionalize reform to contain global crises. Those practices embrace generic principles of
Peter Verhezen is a Visiting Scholar and Senior Fellow at the University of Melbourne, Australia, and recently appointed as Fellow at the Ash Institute for Governance and Asian Studies at the Harvard Kennedy School-USA. He advises corporations on risk management, governance and strategy in Asia and the Pacific. He received his MA Applied Economics from the Antwerp University, his MBA from the Leuven Business School and his MA and PhD in Philosophy from the University of Leuven, Belgium. His current interests are corporate governance and integrated risk strategies. E-mail: peter@verhezen.net & verhezen@unimelb.edu.au. Paul V. Morse is the Chairman of the Great Union Group Limited and its subsidiary Great Union Oil Investments Limited (oil and gas companies) in Hong Kong and Chairman of MAPE Investments in the USA. He received his BA in Political Science and BS in Civil Engineering from Stanford University, United States, his MBA and PhD in International Relations from Middleham University, United Kingdom. His current academic interests are international relations and politics in emerging markets (especially China), and governance strategies. E-mail: wsl@loxinfo.co.th
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institutional transparency, personal candor and attention to an attitude of integrity while best governance practices acknowledge the local context in which institutions and corporations function. Despite some costs incurred in increasing transparency, institutionalized disclosure and individual integrity can make a difference to guarantee appropriate corporate behavior that may strengthen the corporate decision-making process and could bring back confidence and trust in those corporate and financial institutions and their leadership. Keywords: corporate crises, governance principles, best practices, transparency, regulatory oversight, institutional disclosure 1. Introduction There does not seem to be any commonality between the recent financial global subprime mortgage crises and the Asian crisis of the late 1990s on one hand and anti-corruption corporate campaigns on the other. Or is there? Indeed, there is. We believe that there is an indication that something under the surface links the causes of those phenomena: a lack of institutional and/or individual responsibility. Transparency is a central pillar of good corporate governance. Increased disclosure and transparency are crucial for effective risk management as part of corporate governance. The notion of transparency that presents a truth claim reflects a new value in the information culture in general and more particularly in an increasingly global business environment. Transparency refers to an open society in which a thriving business requires valid information about markets, which implies risks and opportunities. Transparency can be seen first in the context of a new digital reality of more disclosed data turned into information and knowledge within and between organizations, and second in terms of personal responsibility, otherwise known as integrity. Generic governance principles are translated into contextually sensitive practices of improved institutional disclosure and enhanced individual

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accountability. Those best governance practices could substantially reduce, though not eliminate, the likelihood of crises and/or corrupt behavior by corporations. However, a shift to more transparency is possible only with a moral culture shift that breaks certain taboos and the silences of the past. In section 2, we emphasize the aspects of transparency as a fundamental underlying aspect of those converging good corporate governance principles. Transparency can be institutionalized through improved information disclosure requirements, either mandatory or voluntary, within a less opaque society. The Internet era has made transparent policies part of a growing global culture of information. The quest for more transparency is driven by the market, institutions, and politicians, but more than ever by information and communication technology. In section 3, this quest for transparency is deciphered and empirically analyzed with the objective to understand the relevance of more disclosure for improving institutions and organizations. In addition, one should be guarded against overzealous or unwise quests for disclosure, since reducing asymmetric information has its costs, and thus finding a balance between complying with institutionalized transparency rules and guarding confidential information is necessary. In section 4, we argue that improved individual integrity, accountability, personal candor and professionalism of top management should enable organizations to rise toward visionary and sustainable business strategies. Moreover, without transparent responsibility, business leaders will not be able to regain trust and confidence, which regrettably and fearfully have been lost in these recent crises. 2. Regret and Fear versus Transparent Responsibility? Cutting corners or taking the easiest way while avoiding accountability may not seem unexpected in a competitive business environment. It may even be considered as normal behavior to satisfy the investors expectations to continue to provide continuously growing or persistent quarterly earnings per share. Improving corporate responsibility on an institutional level and candor aligned with integrity on an individual level could counter some of the lost trust and confidence. Those at the centers of power and authority have corresponding duties and responsibilities to fulfill for which they can be held accountable through processes of transparency. The world currently seems to be in the grip of fear and regret caused by the meltdown of securitized mortgage instruments that led to a systemic global financial crisis. Similarly, being caught in a corporate corruption scandal usually brings along with it the emotions of fear and regret. The implication of greed, neglect and ignorance can be far reaching and its consequences sometimes quite intrusive. However, fear is hardly ever a reliable guide and regret usually comes too late since the damage has been done and its consequences can be quite dramatic, either on an individual or on an organizational level. Our conviction is that a lack of transparent responsibility, which is translated into opaque governance rules and non-responsible and even outright greedy behavior, is partially responsible for the current global financial problems and corporate debacles. 2.1 Why Transparency? Global competition and recent corporate disasters have brought to the forefront pressure for improved corporate governance and more particularly transparent leadership, both in the West and in the East. Being transparent indicates that light is allowed to pass through so that objects can be clearly seen; it also means without guile or concealment, open, frank and candid. Hence, transparency in the current social and business context can be defined as the social value of open institutional and/or individual access to particular information held and disclosed by centers of authority that supposedly function as stewards and guardians of

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information, on which corporate entities are based, for the sake of their respective owners and ultimately for the sake of the public at large. Moreover, corporate governance cannot be meaningfully analyzed in isolation, independent of the role of institutions and public governance that concerns transparency1 fairness and the legal system of the market mechanism. The recent financial crises seem to have been caused by the antipode of transparency. A common factor determining the success of a corporate governance structure is the extent to which it is transparent to market or regulatory forces. At one extreme of the pendulum of i n f o r m a t i o n o n e fi n d s s e c r e c y , w h i c h corresponds to traditional loyalties and hierarchies, whereas at the other extreme transparency oozes a fundamental respect for individual autonomy while acknowledging growing interdependencies of the global participants. The ideal of transparency assumes that more information about the functioning of a publicly listed corporation reduces the likelihood of corporate misbehavior and increases the chances that it will perform better. However, only if a firm is fully investigated by a regulator or institutional authority is it truly possible to verify the information it provides. In short, a company can be fully transparent and still be fraudulent. Enron and Parmalat are two by now infamous cases that prove this point. Both disclosed massive amounts of data as required under their respective
The notion of transparency is one of the seven criteria that are often used to determine the level of corporate governance in countries. AsiaPacific Markets, CLSA for example, has developed those 7 criteria to apply to Southeast Asia: (1) Discipline concerns managements commitment to emphasize shareholder value and financial discipline; (2) Transparency is the ability of outsiders to access the true position of a company; (3) Independence refers to the board of directors independence in controlling shareholders and senior management; (4) Accountability equals the account of management to the board of directors; (5) Responsibility is the effectiveness of the board of directors in taking necessary measures in case of mismanagement; (6) Fairness is the treatment of minority shareholders reviewed from majority shareholders and management; and (7) Social awareness concerns the companys emphasis on ethically and socially responsible behavior.
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capital market regulators, and in both cases, they were able to deceive the public. Despite being allegedly transparent about their internal financial data and codes of conduct, they did not tell the truth. Moreover, one can easily imagine corporations that are stellar performers without being fully transparent. After these public scandals of corporate appropriations, the quest for business legitimacy has become a top priority, the aim of which is to indicate that corporations could account for their actions and subsequent consequences. Institutional transparency (section 3), either mandatory (as for financial information relevant to investors) or voluntary (as found in ecological and ethical information relevant to stakeholders), is a necessary but not sufficient condition to guarantee responsible and accountable behavior. Visionary leadership (section 4) is needed to fill that gap which obviously is much harder to assume in a competitive global economy. 2.2 Why not Transparency? Two caveats should be mentioned though. Sometimes, less transparency could lead to better performance or even greater efficiency in the short term. The analogy is between an open society, such as India, that may be slightly less competitive or efficient compared with a closed society, such as China. The latter has grown more quickly and raised more people out of poverty more rapidly than democratic India. The second danger lingers that along with an overzealous discourse about human rights and democracy transparency has become another buzzword that presumably tries to demonstrate the supposed moral superiority of Western governance principles over the rest (Mahbubani, 2008). It is hard not to wonder how much of that discomfort of a lack of transparency [of Asian and Arabian investment whose inner workings are indeed opaque] and how much is about the shifting power balance in global finance (Karabell, 2008, p. 41). Adhering to certain transparency principles would help to reach such goals. Indeed,

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it can be argued that some socio-philosophical framework of global governance principles should be suggested while respecting and emphasizing the cultural historical context of its local practices to take on the enormous global challenges. Both the Asian crisis in the East and the subprime crisis in the West suggest that governance on a global level will need to be taken seriously because those crises demonstrate that an occurrence in the East has impacts on the West and vice versa. Business is embedded in institutional settings and socio-economic and political contexts of both a material nature, in terms of money and tangible physical assets, and a non-material nature, meaning intangible assets, such as credibility, goodwill, trust, social capital and reputation, which influence governance systems. Identifying common trends will become more and more related to the growing convergence of some institutional settings by the globalization process. Despite the benefits of effective governance practices and the pressure from globalization forces, changing governance models is not an easy process because they are embedded in a national institutional environment (Zattonni, 2008). Although economies with sound disclosure levels in the banking system, which in turn is related to the notion of transparency in public decisionmaking, suffer lower levels of corruption, whereas the ratings of Thailand and Indonesia in Transparency International, for example, have seemingly not improved since the 1997 crisis (Randhawa, 2005) and transparency is still a far cry off, keeping away a number of potential foreign investors. Modifying governance practices often requires amending laws and therefore agreement between the political and corporate elite on the governance model to adopt. Despite the fact that the convergence of governance principles2 seems to be oriented
The OECD principles are as follows: (1) rights of shareholders refer to the basic rights of ownership and information; (2) equitable treatment of shareholders implies equality per shareholding of minority and foreign shareholders; (3) the role of stakeholders recognizes their
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toward the Anglo-Saxon model, significant differences still exist between countries and regions when it comes to disclosures of various board sub-committees. The current global financial crisis seems to be hastening the ongoing trend of convergence of universally accepted accounting principles. The United States Generally Accepted Accounting Principles (GAAP) seems to be destined to look more and more aligned with the European International Accounting Standards (IAS). Indeed, in spite of the global nature of todays competition, the political, and economic and socio-cultural effects of local market institutions can have both positive and negative influences on the capabilities and competitive advantages of firms (Millar, Eldomiaty, Choi & Hilton, 2005; Kogut, 1991). It is difficult to envisage a complete convergence of corporate governance practices in non-Western legislation because of significant differences in culture, legal translation, history, and path dependence (Ho et al., 2005). However, a growing demand for global financing logically induces those firms to adopt governance mechanisms and processes that are accepted on a global basis. It is not too difficult to see that most of the best governance principles are focused on assuring that managers of companies are fully accountable to shareholders. A common platform in corporate governance principles is becoming a necessity to guarantee and sustain international financing from institutional investors or even to gain a competitive edge through a superb corporate reputation. Moreover, increased disclosures are associated with market liquidity, reduced cost of capital, and greater overall transparent responsibility. Adhering to those transparency principles allows greater access to
rights and encourages cooperation and information-sharing; (4) disclosure and transparency rules provide timely, accurate and cost-efficient information on all matters regarding the corporation, including financial and operating results, change of ownership, voting rights, key executives/board members and their remuneration, governance structures, and policies and issues regarding employees; and (5) responsibilities of the board detail their accountability to the company and shareholders and their role in ensuring compliance with laws and regulations and the integrity of the financial reporting process.

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global competitive financing and global skilled talent. However, it is doubtful that mediumsized and smaller companies in Europe and Asia, including Japan, in general are adapting those strict formal Anglo-Saxon disclosure principles, despite an obvious convergence among the big multinational corporations. 2.3 Global Governance Principles, Best Practices and Transparency in an Open Society Many countries in Southeast Asia and China with insider-dominated systems have focused on improving the legal protection of minority shareholders, concentrating on improving corporate accountability by forcing companies to produce consolidated accounts and to encourage greater dispersion of equity ownership.3 Cultivating a broader shareholder base will likely result in greater shareholder democracy (Solomon & Solomon, 2004) and increased shareholder activism. There is definitely pressure toward global corporate governance compromises. Such a trend would imply that reforms in systems of corporate governance implying a relatively high level of transparency both in the West and in the East will focus on long-termism and accountability.4
See Green (2005) and Neoh (2003). The current state of the Chinese capital markets is the result of short-termism in managerial attitudes that has lead to shortterm speculative investment horizons, which in fact is contradictory to the Confucian values of harmonious continuity in family-owned businesses. Nevertheless, most listed companies in China are still state-owned, which implies that political rather than economic objectives play an important role. The Code of Corporate Governance for Listed Companies in China (2002), which was implemented by the China Securities Regulatory Commission, is a good step in the right direction that seeks to make listed companies in China more attractive to investors. Appropriate good governance mechanisms would be highly recommendable to improve the financial performance of those listed Chinese companies.
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In the governance and financial literature, transparency is related to the continuous dissemination through accessibility to media, consistent communication with stakeholders and periodic disclosure of firm-specific information on a voluntary or mandatory basis (Bushman, Piotroski, & Smith, 2004; Yadong, 2005; Patel, 2002; Pope, 2003). Such disclosure and dissemination can have a positive efficiency effect on obtaining capital (Uren, 2003) or enhance the firms reputation (Bennis, Goleman, & OToole, 2008; Fombrun, 1990, 1996, 2000). In some cases, firms in countries with weak investor protection and disclosure standards may choose to cross-list in countries with stronger standards and requirements, with the aim to attract and protect additional (minority) shareholders (Reese & Weisbach, 2002). Transparency is linked to the value of respect for individual autonomy that often leads to a form of generalized trust in an open society. Moreover, such an attitude of transparency logically requires access to needed information, based on the assumption of reasonable assessment of truth claims by the public at large. Obviously, any change in values as expressed in the demand for more transparency arouses resistance. This is in contrast with the notion of secrecy that limits individual autonomy and is linked to hierarchies, obedience and discretion, resulting in some form of particularistic trust5 in a closed circle only. Secrecy hiding information intentionally should be distinguished from opacity absence of information, sometimes manipulated. Opacity is the lack of transparency, and is easier measured

See Cornelius (2003) and California Public Employees Retirement System criteria, among others. From different sources, we can summarize that most global investors believe that good corporate governance standards imply that there are (1) a significant percentage of outside or independent directors on the board; (2) these independent directors are truly independent of the management; (3) the board members
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and directors have significant shareholdings when representing fund managers and institutional investors; (4) a material proportion of the directors compensation is related to these stockholders; (5) there are mechanisms for formal evaluation of directors and board members; and (6) the board is very responsive to investors questions on governance issues. See Uslaner (2002) and Brenkert (1998). Generalized trusters presume that most people they meet share their values, whereas particularistic trusters view the outside world as a threatening place over which they have little control.
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than the nations of transparency itself. Kurtzmans (2004 and 2007) opacity index 6 gauges the economic costs to countries which lack transparency. Opacity and secrecy have long been ancient tools of authority in most, if not all, societies. Obviously, both secrecy and opacity are still powerfully entrenched and even increasing in some domains, especially in response to security threats or for the protection of illicit gains and privileges of special interests (Holzner & Holzner, 2006). Calling for more transparency can be easily perceived as an onslaught against tradition, identity and security, as well as against the established authority and power of the governing elite. It can also be seen as a fight against corruption, inequity and authoritarianism, and for freedom, openness, civil rights and personal autonomy (Holzner & Holzner, 2006). The key to any good investment is clarity while the lack of transparency and candor erodes trust and discourages collaboration. Transparency is a current condition as well as an emerging norm, presupposing the idea that betrayal should be avoided. The demand for more transparency expresses an ideal of accountability. From that perspective, lies should be distinguished from secrecy. Under the modern global conditions in a complex political and economic environment, lies have become much more devastating than in traditional societies. Lies can question the very foundations of our life and should therefore be more severely penalized in modern societies in comparison with lies told in simpler traditional communities. However, keeping secrets is necessary in antagonistic relationships, but doing so also may be chosen as an instrument of strategy in interactions among partners to time a particular revelation or strategy announcement to prevent premature public debate about incomplete project plans, or to make surprises possible, among others.
See Kurtzman (2004, 2007). The opacity index analyzes five areas of concern: corruption in business and government; ineffectiveness of its legal system; negative aspects of its economic policy; inadequacy of its accounting and governance practices; and detrimental aspects of its regulatory structures.
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Changing values of information cultures are often linked to changes in identity and morality in a prevailing context. That the last 20 years of fast developing information and communication technology has created enormous new opportunities, unheard of two decades ago, as well as threats such as loss of privacy and increased surveillance, cannot be ignored either. Nevertheless, transparency is not about eliminating privacy but it is about holding powerful people accountable in case of violations. As is the case with markets, governments hardly function well in the darkness of secrecy. Scandals have played a special role in stimulating the demand for more transparency. It is indisputable that practices such as capitalizing lease payments as in the case at WorldCom or hiding investments in partnership as over-exercised in the Enron case are wrong. The adoption of new accounting practices, auditing oversight, and rules for managerial liability make sense given the abuses of those corporations (Cornelius, 2003). Transparency is effective to the extent that centers of authority, citizens, customers and clients construct valid information and achieve a common understanding about it. Hence, an open society almost becomes a prerequisite to allow transparent responsibility to assess information and understand it. G lo b alizatio n , d er eg u latio n an d privatization are assumed to change competitive dynamics dramatically. The more intense is the competition, the more transparent are the markets, and the lower are the switching barriers for customers, the more important it is to persuade customers of the value of a product or service (Bailom et al., 2006); hence, the focus on customer value. The need for a global convergence in corporate governance derives from the existence of forces leading to international harmonization in financial markets (Solomon & Solomon, 2004). We observe a certain trend toward international harmonization if not imminent convergence in the areas of accounting and financial reporting, with the principles based International Accounting Standards Board (IASB) driving toward a comprehensive set of internationally acceptable

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standards for accounting aimed at a global standardization with the rulesbased GAAP. An obvious example is the fact that stock options granted to top management as a performancedependent form of remuneration are off balance and thus not considered as a real expense until materialized at the maturity date, according to the GAAP, whereas the socalled IAS 39 Financial Instruments Recognition and Measurement clearly stipulate such security as a real cost that needs to be immediately cushioned against its fair value through capital for possible future risk (Couglan, 2004). Although compensation through stock options is rarely practiced in East Asia, including China unless with explicit professional partnerships we believe that, with the growing internationalization of companies and the increasing pressure to find or to retain talented management expertise, these Western ingrained practices may gain some prominence in Asia in the not too distant future as long as appropriate capital reserves are recommended and foreseen as a cushion for the risks taken. Political, institutional and market pressure seem to be the main drivers of the convergence of corporate governance principles and to a certain extent even its practices. Empirically, one could argue that the globalization of reasonably free capital flows and the increasing relevance of globally active institutional investors who take an active share-owning role have been instrumental in moving toward a more coherent and internationally accepted governance model that emphasizes improved disclosure through transparency and accountability. It should be noted that governance will not completely prevent misconduct or misdeeds, but it can actually improve the way a corporation is run. Ultimately, a company with good governance structures in place will attract talent, skilled management,7 and investors who are willing to pay a premium for stockholding in a well-managed and transparent corporation. A McKinsey survey (2001) has proven that foreign investors are willing to pay considerable premiums (between 20 and 30 per cent above the market stock value depending on the country of origin of the investment) for companies in emerging countries which implement internationally recognized minimum governance standards. Higher transparency and better disclosure reduce the information asymmetry between a firms management and financial stakeholders, i.e. equity and bond holders, mitigating the agency problem in corporate governance. Other research suggests that firms with higher transparency and disclosure practices are valued more highly than comparable firms with lower transparency and disclosure practices (Crist, 2003); that research shows that the Asian emerging markets exhibited greater transparency and disclosure following the 1997 crisis (Patel, Beli, & Bwakira, 2002). In other words, markets place a premium on companies with lower asymmetric information problems. The financial crisis has prompted countries in the Association of Southeast Asian Nations (ASEAN) to undertake drastic measures to improve the transparency that undergirds their corporate governance. Especially the ASEAN banking sector, severely affected by the financial crisis of 1997, which is increasingly interlinked with the global financial markets, has started a consolidation process and has reacted to the market by improving its corporate governance mechanisms. The intention to implement the Basel II Accord and liberalize their banking sector, as stipulated by the World Trade Organization Accord on financial services, will continue to consolidate and improve the quality of governance in the financial system (Randhawa, 2005).

In these times of knowledge-based organizations, one should recognize that the critical success factor has become the human asset, the knowledgeable workers. The
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organization is at risk if its culture deviates too much from the values of its people. In other words, greater priority needs to be given to good corporate citizenship in all senses of the word, which makes the organization attractive to enlightened knowledge workers and other stakeholders, especially if the organization is responsive to pressing humanitarian and environmental issues.

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Engaged businesses usually go beyond mere quarterly shareholder profitability expectations and aim at a longer-term sustainable value of an organization. The definition of longer-term is itself conjectural since future is a fickle concept that usually turns out differently than expected or forecasted. The devil lies in defining the details of what is understood by the longterm value8 of an organization. Despite the growing importance of corporate governance practices, information is still scarce in the areas of corporate ownership, structures, composition, board practices, and compensation (Mobius, 2003; Green, 2005). Furthermore, attempting to take a longer-term perspective is more often than not hindered by the financial communitys adamant and sometimes irrational overemphasis on the next quarterly financial results. Moreover, the lack of transparency and accountability not just in emerging markets but even up to Wall Street institutions, as indicated above, has become a major issue of public debate. What shareholders is the board of directors representing? Does the board need to jump to the fancies of short-term investors (i.e. hedge funds) or does it represent the interests of long-term investors? In contrast to strategic investors, institutional money managers with mainly short-term perspectives increasingly control vast financial assets and start to determine the (short) time horizon of the corporate boardroom (Wellum, 2007). What about long-term wealth creation or efficient use of capital or responsible stewardship? What is sure
Should long-term value include externalized costs, such as corporate polluting practices, for example? Changing the organizational culture of a firm to one that adheres to a broader definition of value and is committed to transparency is not an easy task, but some firms on a multinational as well as a national level are increasingly taking up the challenge and achieving partial success. However, the continuing global ecological degradation, increasing income inequality and poverty gap, and the insensible and often greedy and materialistic trend of irrational consumerism promoted and advertised by global corporations must be watched for. Nonetheless, it is within a regulatory and legal institutional framework that governments have a vital role to play in the creation of strong vibrant markets that embrace economic and social values.
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though is that vision, moral competence and strongly accountable and responsibly engaged leadership embracing transparent global governance principles comprise a key characteristic in building a foundation on which businesses and governments may have a chance to withstand the tensions of an uncertain and often enduring future. The fiduciary duty of the board and its top management should analyze to what extent the organization dwells in or links to a wider socio-economic environment which can and will need to be translated into fiduciary care (Hart, 2007; Frances, 2008; Elkington & Hartigan, 2008). Such care of loyalty will likely result in (a) some sort of corporate citizenship with the objectives of optimizing resources, which may lead to valuable products and services, wanted and needed by the society (Wallace & Zinkin, 2005), and (b) profitability. In a competitive global environment, where it takes substantial time to gain a good reputation, that reputation can be shattered by the click of a computers mouse. Hence, there is an enormous need for transparency, responsibility and accountability, underpinned by a sense of fairness by the leaders designing and implementing strategies. Obviously, internal secretiveness should be distinguished from competitive advantages and innovative research which are closely guarded by the firm. Lack of transparency erodes trust and discourages collaboration. Despite legitimate moral and legal limits on disclosure, leaders should aspire to a policy of no secrets (Bennis, Goleman, & OToole, 2008). However, the emergence of innovative Internet and communication technology has led to profound changes in our global culture wherein the ever-present Internet-eye scrutinizes any possible shady (corporate) behavior that will be immediately blared in the openness of YouTube or FaceBook and the blogosphere alike. More than ever, trust and transparency are correlated into present corporate and public life. Transparency is no longer simply desirable; technologies and changed expectations have made it unavoidable. Google is not merely a search engine; it has become

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an instrument that crushes or elevates ones reputation. Genuine leaders of global corporations, such as Johnson & Johnson or General Electric among a few other global firms,9 encourage honest sharing of information, endorsing good corporate governance which creates a reputation of candor underpinned by trust and respect. Moreover, such transparent policies supported by appropriate risk management may enable corporations to be better prepared to face a risky future, sometimes more fierce and unexpected than could be imagined. 3. The Quest for Improved Transparent Accountability Globalization is creating a political, economic, social and ecological environment that needs to be governed in a responsible manner where political choices and corporate actions need to be taken in order to address global challenges, especially by those in power. Accountability of those in power relies on the value of trustworthiness that could inspire a culture of transparency, candor and individual responsibility, providing the glue for a new phase of a global fairer world. A trust and verify attitude can be enabled only through greater transparency and measures of accountability. Transparency and creating a culture of candor refer to the free flow of information within an organization and to a high extent between the organization and its many stakeholders. It often requires the leaders commitment enabled by a particular organizational culture that is governed according to certain principles. Where information travels globally throughout the Ethernet, transparency is no longer nice to have. It has become a necessity in order to survive in this digital era. An institutionalized form of transparency clearly states that financial and to a lesser degree non-financial data need to be disclosed to shareholders and other relevant stakeholders. On the other hand, it is essential for companies to implement initiatives that prevent and manage employee misconduct. The latter requires an effective code of conduct or compliance program that must become a part of everyday corporate governance, whereas the former needs strict adherence to regulatory compliance. At the same time, one should acknowledge some legitimate limitations to transparency. 3.1 Compliance with Institutional Entrenched Transparency Institutionalization is the process through which components of formal structures become widely accepted to legitimatize organizations, as

See http://www.gmiratings.com; Green (2005); and Kurtzman, Yago, & Phumiwasana, (2004). Governance Metrics International (GMI) maintains ratings on the corporate governance practices of over 3,200 global companies, evaluating them based on (1) board accountability and independency of directors; (2) financial disclosures and internal control; (3) executive compensation; (4) shareholder rights and minority rights; (5) ownership base, ownership concentration and takeover provisions; and (6) corporate behavior and responsibility. It should be stressed that social corporate responsibility and its appropriate behavior is only one of the six variables used to analyze and evaluate those global multinational corporations. Such metrics are used not only by institutional investors, but also by credit rating agencies, lenders, and even regulators. In the period 2004-2005, GMI announced that 34 companies, 27 of which were based in the United States, received a perfect score of 10.0. A few of those wellgoverned companies are named in alphabetical order: 3M Company, BCE Inc, BP Plc (UK), Citi Group Inc, Colgate-Palmolive Company, Dow Chemical Company, Eastman Kodak Company, General Electric Company, General Motors Corporation, Johnson Controls, Lockheed Martin Corporation, Mattel Inc, Nexen (Canada), PepsiCo Inc, P&G, Vodafone Group (UK), and Westpac Banking Corp (Australia). However, such a high score in the yearly beauty contest does not guarantee against missteps or crises, such as Mattel recently experienced. Furthers, companies, not exactly known for their corporate social responsibility commitments, such as the Dow Chemical Company (which acquired Union Carbide), nevertheless made it to the top list. The ratings remain highly subjective but give an indication of the importance of corporate governance. If one compares such corporate governance ratings with the opacity index rating developed by Kurtzman, Yago, & Phumiwasana one finds some consistency between corporate and generic governance ratings. However, most small and medium-sized companies are, unfortunately, excluded from these contests and surveys because of a lack of information.
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both appropriate and necessary (Tilbert, 1983, p. 25 cited in Zanotti, 2008). Telling is United States Supreme Court Justice Louis G. Brandeis eloquent statement that sunshine is the best disinfectant (Khurana, 2008). The economic value of that sunshine is evident in the higher cost of capital in economies that lack it. Trust, moreover, underpins vibrant social and economic activities. It is because of the asymmetry of information that there is market pressure to disclose relevant information through corporate governance principles and mechanisms to guarantee some market efficiency and fairness. A global corporate governance mechanism facilitates an efficient transfer of global capital that is constrained by a sound oversight framework and that promotes trust and efficiency in market transactions (Markarian, 2007). The legal or judicial regime and the role of political structure in a country affect the degree of transparency. It is expected that legal protection of outside investors rights and enforcement of those rights vary around the world. The demand of outside investors for transparency is expected to increase with stronger protection of property rights as is the case in countries under common law tradition (La Porta et al., 1999, 2000; Bushman, Piotroski, & Smith, 2004). The decentralized nature of English common law has the propensity to protect the property rights of individuals more than French civil law or even German or Scandinavian civic law traditions, which fall in between the common law and the French civic judicial system (La Porta et al., 1999, 2000). The propensity of policymakers to mandate and enforce transparent corporate reporting is expected to be much higher in countries where investors rights are quite well protected. In the absence of a viable judicial system to enforce contracts, relationship-based arrangements and private social capital enforcement mechanisms are sought that consequently rely less on publically disclosed information (Dixit, 2003; Verhezen, 2008b). The lack of effective courts in a number of emerging countries with a civic law tradition in line with continental civic judicial history has an impact on the nature of contracts and business protection. Indeed, the stronger are grimes protections of individual rights, the more can corporate transparency through greater voluntary disclosure be expected (Bushman, Piotroski, & Smith, 2004). Similarly, some distinct measures of the political economy, such as the concentration of political power, the extent of state ownership of enterprises, the cost of entry imposed on start-up firms, the extent of state ownership of banks, and the risk of expropriation by the state, all have a dramatic effect on corporate transparency. Concretely, it is argued that powerful, centralized, closed governments will likely constrain the financial development of disclosure in order to maintain power and capture wealth through politically connected interest groups. Such regimes may thwart financial development to maintain their economic advantage by suppressing competition. In other cases, economic institutions may not be sufficiently developed for private banks to play a crucial development role and therefore allow state ownership to take over that development role (Bushman, Piotroski, & Smith, 2004). Given the propensity for autocratic regimes to limit the freedom of the press, one could argue but in our knowledge not empirically researched or proven yet that corporate transparency could be suppressed under less open political regimes; hence, the quest for more open or less opaque regimes. Obviously, when the state is directly involved in the economy, as is still the case in a number of emerging countries and to an extent even in some developed countries they may suppress firm-specific information in order to hide expropriation activities by politicians and their cronies. In some exceptional cases, benevolent regimes use state ownership to directly govern and manage firms, obviating the need for public information (Bushman, Piotroski, & Smith, 2004; Shleifer & Vishny, 1994). Moreover, politicians may exploit control over banks and regulatory policies through (a) preferential financing or (b) huge entry barriers or high entry costs for start-up

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firms. Such behavior is aimed at favoring cronies in return for bribes, nepotism and political support. Restricting the flow of information to prevent public scrutiny of their business dealings with cronies is the logical manner to keep politicians protected from the light of transparency. In other words, politicians and governments can promulgate weak accounting and disclosure requirements or hardly enforce the existing disclosure requirements, or even use their influence over professional media to retard dissemination of firm-specific information in the economy (Bushman, Piotroski, & Smith, 2004). Richer autocratic countries seem to behave less nepotistically. A third factor used by politicians to exploit their power over firms is the potential threat of expropriation of the firms assets and profits. When politicians exhibit a high propensity to expropriate wealth from firms as is the case in a number of ASEAN member states it creates incentives for highly profitable firms to limit the disclosure and dissemination of firm-specific financial information in order to hide the existence of their profits from perceived corrupt government officials, while relatively less profitable but highly visible firms may have incentives to voluntarily disclose more firm-specific information in order to keep the too eager tax officials at bay. Paradoxically, governments with a propensity to expropriate but also those with more benevolent objectives though tough tax rules may mandate higher corporate transparency to aid them in identifying profitable assets more easily. Since competing forces are at play, no clear conceptual hypothesis or empirical evidence for one or the other reason of governments pushing for more or less disclosure requirements could be found (Bushman, Piotroski, & Smith, 2004). It should be noted that business transparency may be dangerous in a regulatory environment with poor quality and enforcement. In such situations, firms which disclose profits can still be subject to arbitrary government audits and expropriation by corrupt public officials. These arbitrary actions force firms to internalize those risks associated with corruption by maintaining a much closed non-transparent bookkeeping system because accurate information is used by corrupt officials to apply increased levels of extortion (Root, 2001). Transparency policies are effective only when information becomes embedded in an action cycle of market participants, becoming an intrinsic part of the decisionmaking routines of information users and disclosures (Weil, Fung, Graham, & Fagotto, 2006). Therefore, global corporate governance principles are also interrelated with the notion of transparency through the implementation of practices based on integrity, accountability and responsibility. It should be recognized that since the corporate fiascos of Enron and WorldCom in the United States, Parmalat in Italy, the recent Madoff case in the United States and the Raju Satyam case in India, among others, some efforts have been made to implement stricter codes by individual organizations, as indicated above, backed up by stricter legal oversight control on transparent disclosure and accountability required by the Sarbanes-Oxley Act (2002). Indeed, business analysts have claimed that murky accounting practices were partially to blame for a general loss of investor confidence, which is harmful to the economy (Anctil, Dickhaut, Kanodia, & Shapiro, 2004). It requires detailed reporting of off-balance sheet financing and special purpose entities and the SarbanesOxley Act has increased penalties on executives for misreporting. However, the Act does not question the nature of corporate governance. As in traffic laws, the Act and other codes of corporate governance afford a certain minimum protection; they do not guarantee excellent governance. The increasing transnational across and beyond national borders demand for more accountability and transparency unquestionably highlights the need for compromises between the Anglo-American outsider-dominated systems, which are composed of dispersed equity shareholder positions and compliance driven systems, and those of an Asian and to an extent European insider-dominated system, which are family or bankcontrolled equity shareholder positions, respectively, even in the case of public

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companies, emphasizing longterm vision and credibility within the community. In other words, a convergence regarding corporate governance would mean that a virtual merger would take place between the competitive market forces of the traditional Anglo-American systems of finance and control with the more long-term styles of management and investment prevalent in the traditional insider systems of corporate governance (Solomon & Solomon, 2004). The litmus test will be the practical and specific implementation of such governance principles in concrete contexts and subsidiaries, not just according to the letter, but also and especially to the spirit, of these principles. Institutional transparency 10 is firmly entrenched with disclosure and dissemination of financial reporting, and should be distinguished from individual transparent leadership, which is closely related to the notion of accountability. Both are necessary to create a better and more effective market system that optimizes resource allocation. Nonetheless, in spite of the generic principles of disclosure and accountability, one will need to emphasize the local context in which institutions operate. We should note that even a company such as Shell, known to be very complianceoriented, seems to get off track once in a while by, for example, misjudging the impact of some misreporting or inaccurate disclosure and subsequent reclassification of the companys oil reserves. Shell has been fined a total of US$ 151 million for wrongly reporting 20 per cent of its oil and gas resources: hardly a deterrent for a company which booked a 2 billion net profit that same year (Mehra, 2005, p. 5). Empirical results indicate that the size and exchange effect of the company is positively associated with disclosure since public companies are more in the public eye, which tends to make them exhibit greater disclosure behavior than other smaller firms (Martinez, 2008). Although some industries require even more disclosure because their activities are of important interest for environmental reasons, for example, effective disclosure and transparency can be inadequate because they are incomplete. The real issue here is to find out the real intention and thus the perspective regarding the disclosure that is made. Moreover, increasing pressure from NGOs and governments that are concerned with environmental and ethical decisionmaking render large organizations more transparent by requesting them not regulated yet in most countries to publish socalled triple bottom line (people, planet, profits) reports. Transparency is particularly important not just to shareholders but also to stakeholders since disclosing accurate and complete information is seen as part of the process of recognition of responsibility on the part of the organization for the external effects of its actions and equally part of the process of transferring power to external stakeholders (Martinez, 2008). Cases such as that of Shell show however that increased disclosure, especially voluntary disclosure, does not guarantee that management is fully accountable to stakeholders, and it may even hide important evidence of a less benevolent nature. Trust and confidence in the availability of sensitive but often asymmetric information is at stake in a more global and interdependent economy in order to guarantee some form of economic stability. A transparent company fosters a culture of openness and inclusion, and therefore is able to adapt to unexpected shifts in market conditions (Baum, 2004). In other words, transparency builds trust, fosters good dialogue and communication, and encourages honest reporting and open and ethical business practices. Communicating the core values of an organization plays a major role in promoting a transparent culture, and it is suggested that continuously

See Millar, Eldomiaty, Choi, & Hilton, (2005, p. 166): Institutional transparency is the extent to which there is publicly available clear, accurate information, formal and informal, covering accepted practices related to capital markets, including the legal and judicial system, the governments macroeconomic and fiscal policies, accounting norms and practices (including corporate governance and the release of information), ethics, corruption, and regulations, customs and habits compatible with the norms of society.
10

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doing so will help the efficiency of relationship building. Transparency may reduce asymmetric information and hence lower the cost of trading or exchange while competitive costs may arise because disclosure provides potentially useful information to rivals. In other words, the main reason why corporations adhere to a high level of transparency is threefold: (a) improvements in information disclosure usually result in better recommendations by financial analysts and thus lessen risk (because of reduced information asymmetry); (b) improvements in stock liquidity also due to less information asymmetry; and (c) reduced capital costs because of lower information risk (Grning, 2007; Verrecchia, 2001). Increased disclosure resulted in a higher share price, increased institutional ownership, a broader analysts following and increased stock liquidity as measured by a narrower bid-ask spread (Uren, 2003). In line with these expectations, 81 per cent of executives and investors conclude that continuous disclosure regimes had added to the integrity of the market (Uren, 2003). Although people and organizations may try to take advantage of this openness, that should not deter one from sticking to his or her principles of candor and honesty. However, a caveat to this kind of openness should be added since directors would ensure that nothing that is price-sensitive would be released to the public other than through the formal corporate channel. A disciplined policy of continuous disclosure will reduce but not necessarily eliminate some surprise factor in the market and thus reduce some element uncertainty. Although prompt disclosure about news may generate greater volatility in the short term, it should produce a stronger market following and on average a higher share price over a longer period (Uren, 2003). Wellestablished markets do not like delayed bad news and therefore it is good to develop a reputation for being candid, forthcoming and open. Such a valuable and formidable asset may be difficult to measure, but it seems plausible to argue that companies with higher levels of disclosure achieve larger institutional shareholding and a lower cost of capital. Despite the positive effects of transparency that completeness of information in annual reports certainly appears to lower cost of capital, it also seems to suggest that higher levels of disclosure in more timely reporting results in more volatile share prices, certain competitive disadvantages, and bargaining disadvantages (Boesso, 2003). Moreover, the risk of litigation in the United States and other Anglo-Saxon governance regimes suggests that companies with bad news are more than twice as likely to provide advance disclosure as are companies with good news. Intangible assets, such as confidence in the personal strength and strategy of the company leadership, partially constituting institutional and retail shareholders value, have proven to be equally, if not more, important than the most recent financial results and the level of dividend payout (Uren, 2003). We should indicate that superior market and individual outcomes are observed when information is withheld as compared with markets in which highly uncertain information is released. In recent years, the United States Federal Reserve, for example, has more liberally disclosed information concerning its future plans. However, in a highly uncertain environment, such as the one we face in the recent financial global crisis, better outcomes may actually result when some tentative information is withheld. Moreover, voluntary disclosure of managerial earnings forecasts could produce more uncertainty in asset markets (Ackert, Church, & Gilette, 2004). In other words, more transparency may sometimes cause more harm than good. Two interesting trends should be mentioned. There seems to be a growing demand for more (voluntary) disclosure, related to stakeholders interest, such as ecological and ethical issues on one hand, and a corporate desire to guard and keep sensitive information as private as possible on the other (the subject of the next paragraph). 3.2 Guarding Corporate Information One should ask whether the notion of transparency implies that all management

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decisions should be completely disclosed, which may be contrary to the Asian intuition of keeping ones cards close to ones chest, or contrary to some Western management perceptions about revealing sensitive information. Nonetheless, it seems that transparency implies slightly different objectives. For private sector managers, core objectives of transparency often include improving profitability, market share and reputation, whereas for public officials, objectives of transparency may include gaining constituency support, legitimacy and trust (Weil, Fung, Graham, & Fagotto, 2006). Holding certain sensitive information close to ones corporate chest does not preclude the importance of candor that brings about a higher level of trust and most often increased productivity. The dissatisfaction with quarterly mandatory disclosure on one hand and the demand for increased stakeholder reporting on the other have led to many initiatives in the world, encouraging companies to improve stakeholder reporting. First, opponents of quarterly reporting question whether increasing the frequency of reporting will lead to an actual improvement in transparency, the pillar of good corporate governance. Such quarterly pressure rather misrepresents the financial position of the company and misleads investors, and it promotes shortterminism in investing (Low, 2005). Second, company emphasis on stakeholder engagement and the need for management of intangibles were significant drivers to voluntary disclosure in Italian companies (and by extension to other continental European corporations), while in the case of United States companies such a relationship was not noted (Bousso, 2003, 2005). It could be argued that observed voluntary disclosure focuses on stakeholder relations in a European context and is less driven by relevant internal processes, such as governance and intangibles in an AngloSaxon context. The findings of Bousso (2003, 2005) furnish evidence that the corporate governance system of companies in a European context are extending beyond their traditional focus on investors and the financial community in order to address diverse stakeholders. In other words, simply disclosing large volumes of information, it appears, is not sufficient. Rather, it is important to understand the perceived value of voluntary disclosure items in terms of the needs of individual stakeholders. Moreover, empirical evidence suggests that voluntary social reporting is not a result of increased pressure on firms to be accountable but is a result of its success as a risk management tool (Hess, 2007; Porris, 2007; Esty & Winston, 2008). Current social reporting practices appear to be used by firms as a legitimating tool and insurance policy that attempts to change perceptions about a firm without necessarily changing facts. Undoubtedly, there is a growing consensus on firms voluntarily disclosing social and environmental information when they are faced with some type of crisis that threatens their legitimacy (Hess, 2007). Nonetheless, in spite of the good intentions, the apparent goal of this disclosure of non-financial data is mainly to build their reputation through impression and public relations management. Mandatory reporting can be seen as compliance with the letter and the spirit of the law, while voluntary reporting could be interpreted as complying with the spirit of the law and intentions extend beyond the law. In order to make disclosure of non-financial information more effective and standardized, researchers have suggested turning voluntary reporting into mandatory reporting (Hess, 2007). However, it should not be forgotten that, according to executives, the most important reason for expanded disclosure of non-financial information is the opportunity to enhance the companys brand image and overall reputation, although meaningful stakeholder engagement would require comparable and thus standardized information. A fine line needs to be walked between mandatory reporting and allowing competitive forces, as in voluntary reporting, to play out. Obviously, not all corporate information could or should be shared with all stakeholders, competitors or the public at large. Organizations

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have a legitimate interest in withholding and guarding from competitors certain information about innovations, original processes, secret recipes, corporate strategies, or sensible information about human capital. However, being sensible and reasonable about keeping certain information from the outside world should not be used as an excuse for secrecy the main characteristic to distinguish corruption from ethical corporate behavior (Ho, 2005; Verhezen, 2010). An organization benefits from an open policy of no secrets where shared beliefs become the narratives and source of inspiration for those working there. Successful companies are able to get critical information to the right person at the right time and for the right reason (Bennis, Goleman, & OToole, 2008). The reputation of the organization and its leadership is at stake when information that should be shown within the organization is kept secret too long, indicating and creating mistrust. When genuine leaders succeed in creating organizations known for their reputation of candor and honesty, invariably they can draw on strong goodwill, which tends to weather scrutiny more easily in times of crisis. Nevertheless, one could distinguish several motivations for secrecy within an organization (Uren, 2003): it could preserve the golden goose as in the recipe for making CocaCola; it also could hide a dark secret of corruption, price-fixing cartels, illicit payments or other illegal and immoral corporate behavior; it could be a strategic advantage that functions as a deterring factor for potential entrants or it keeps at bay entrants that are too eager; it could reveal some tactical move as in negotiation techniques where not all information is shared in order to obtain the best solution; or secrecy may be paradoxically used to avoid harassment, for example, that temporarily could preserve its reputation. In that sense, preserving some kind of confidential information remains an intrinsic component of corporate management. Companies limit the circulation and disclosure of information in several ways. There exists a tendency in organizations to call on the public relations department to put a spin on unfavorable events. Most companies prefer to cover up their mistakes instead of learning from them. Often executive narcissism is the motive behind this form of sheer organizational hubris to conceal certain matters. In most organizations, hidden ground rules govern what can be said and what cannot (Bennis, Goleman, & OToole, 2008). Sometimes organizations have developed structures, procedures and images that expect certain behavior, often adhering to bureaucratic hierarchical conformity and less to real performance, often resulting in what McComish (2001) labels an anti logic of business. Failing to hear critical information may prevent an organization from understanding the real risk of certain activities. Herd effects or group-driven decisions heralded as group cohesiveness and the pride in belonging should be critically reviewed since it may not always result in optimal decisionmaking as the unfortunate negative consequences of the subprime mortgage bubble seem to indicate. One should not avoid constructive conflict which may function as a dialectic process toward a more effective decision-making process. One could even argue that transparency could be seen as the evidence of an organizations moral health. Executive compensation is one of the most important aspects of transparency because it is the catalyst for so many other related issues in an organization. Compensation packages can cause chief executive officers (CEOs) to cut corners or to do the wrong thing. If a CEO is grossly overpaid compared with the companys performance, this situation can easily lead to pressure in other areas to manipulate financial reporting in order to make the companys numbers look better overall. Transparency by itself achieves little. Transparency needs to be matched by accountability on an institutional level and responsibility on an individual level. Some might argue that disclosure becomes effective only when managers are made accountable, which should apply to any disclosure regulation in general. The United Kingdom has legislated requiring listed

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company boards, for example, to report a detailed breakdown of the remuneration of executive and nonexecutive directors for the information of shareholders for a vote at the annual general meeting (Uren, 2005). Although the Sarbanes-Oxley Act (2002) in the United States requires that anyone involved in reporting a companys finances be held responsible if it can proven that he or she concealed the truth about the financial health of a publicly listed company, as will be argued in the next section, good character along with good credentials constitutes a transparent leader. However, a leader needs to be able to fall back on institutionalized structures, as found in governance principles. Have the recent regulations promulgated by the Sarbanes Oxley Act and those of the Financial Accounting Standards Board adequately addressed the disclosure requirements of offbalance sheet and over-thecounter derivatives, particularly where accounting and disclosure requirements may not track or measure economic realities of those products? Research has indicated that the accounting of intangible assets, such as patents, unpatented results of research and development projects, proprietary software, ownership of non-utilized energy resources, brand names, reputation, the knowhow and skills of key personnel, are at the heart of creating economic value but are not shown in reporting statements of the organization (Welch & Rotberg, 2006). Resource-based competitive advantage, next to the traditional agency theory, has become a top priority in management theory (Millar, Eldomiaty, Choi, & Hilton, 2005; Hu & Verhezen, 2009). The board and its directors set the level of transparency or the amount and quality of disclosure. As indicated previously, higher disclosure provides both benefits and costs. In other words, better transparency is not free. Better transparency improves the boards ability to monitor the activities of the CEO and the top management, which also implies that the risk of being exposed has logically increased as well. It seems that a profitmaximizing level of transparency requires balancing these two factors. Hermalin and Weisbach (2007, p. 19), for example, argue that there is an optimal level of transparency beyond which profits tend to decrease because managers will have to be paid higher salaries to compensate them for the increased career risk they face, and because greater transparency increases managerial incentives to engage in costly and counterproductive efforts to distort information. Indeed, better information disclosure up to that optimal point increases the firms value. The unintended consequences of going beyond a certain optimal level of transparency would reduce the value of the firm because CEOs may be engaged in a socalled exaggeration effect to increase particular signals, or they may try to obscure or deliberately direct certain information, or even conceal information. Moreover, it seems that, if there were an increase in the quality of available information either due to more stringent reporting or better analysis by institutional investors or media, one would expect that CEO salaries would increase and that the rate of CEO turnover would be much higher. The substantial increase of the 1990s is to a large extent attributable to the demand for more complex management, partially as a result of the higher level of press scrutiny and investor activism (Hermalin & Weisbach, 2007). In other words, rightfully pressing for more transparency is not without costs. From a purely economic perspective, one should note that, although greater transparency of information may mitigate uncertainty and thus risk about economic fundamentals, strategic uncertainty could be exacerbated, which may result in inferior economic outcomes (Anctil, Dickhaut, Kanodia, & Shapiro, 2004). Bank runs, currency attacks, loan foreclosures, and other panic-driven phenomena, such as the current mortgage crisis, are examples of the power of uncertainty. It almost functions as a self-fulfilling prophecy where creditors, for example, may prematurely foreclose a loan if it is believed that other creditors would act similarly because, under conditions of increased uncertainty with the presence of multiple equilibrium participants converging on the least risky solution, this often r e s u l t s i n a n e c o n o m i c a l l y i n e f fi c i e n t

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equilibrium. It seems that risk predominantly determines the selection of disclosure, rather than a principle-minded management, which may or may not ignore the strategic uncertainty side effect created by more disclosure. In other words, although increased transparency furnishes scope for significantly increasing wealth in the economy, this improvement is apparently neutralized and even wasted because strategic interdependence (a coordination problem) drives conformity to inferior strategies (Anctil, Dickhaut, Kanodia, & Shapiro, 2004). The conclusion here is that unless the publically disclosed information is sufficiently precise, it could create a risk that coordinated expectations may diverge from fundamentals, leading to suboptimal solutions or even unreasonable panic reactions as result of more transparency. Analyzing disclosure requirements leads us therefore to refine the notion of transparency. Financial transparency captures the intensity and timeliness of financial disclosures, whereas governance transparency is defined as capturing the intensity of governance disclosures used by outside investors to hold officers and directors accountable. Empirical research indicates that financial transparency is significantly related to the countrys political economy and not to the countrys legal/judicial regime. Governance transparency, in contrast, seems to be stronger in countries with strong common law and only positively related to the presence of state-owned banks (Buchman, Piotroski, & Smith, 2004). One thus can stipulate that corporate transparency varies across countries: governance transparency is primarily related to the legal/judicial regime, whereas financial transparency is primarily related to the political regime. Financial transparency is significantly higher where firms are larger, a situation that does not necessarily apply for governance transparency. High-quality financial reporting, the strong presence of financial analysts and institutional investors, as well as welldeveloped media channels contribute to financial transparency, with the exception of insidertrading activities which are less easily suppressed by the abovementioned factors (Buchman, Piotroski, & Smith, 2004). A responsible and accountable board that functions as the link between operational executive management and the owners is more than an adviser; it functions as the supreme commander of the firm. A board that has a legal and moral obligation establishes the expectations of the company and demands evidence of achievement. 4. Responsible Leadership and Integrity beyond Compliance The SarbanesOxley Act (2002) and the expected new regulatory oversight (expected in 2010-2011) with respect to contain global financial systemic risk may help to make organizations more transparent through more strict corporate governance practices. However, internal or external legislation alone cannot make organizations more healthy or open. Only the virtuous character of those in power and all those making decisions that affect the production process of a good or service can make the ultimate difference between playing the game, continuously finding loopholes in the system, and going beyond what is legally expected. Individual candor and institutionalized transparency become part of the organizational culture when corporate leaders agree that openness is valued and individual responsibility and institutionalized accountability are rewarded accordingly. Accountability is more than being called to account, or merely being appropriate or acting justifiably. Responsibility and accountability also create conditions for dialogue through which often tacit assumptions can be challenged and re-defined. 4.1 An Attitude of Individual Integrity based on Candor In our networked global world, trust is everything. However fragile, trust along deeply shared cultural assumptions is one of the strongest glues binding people together in groups and organizations (Bennis, Goleman, & OToole, 2008). Responsible behavior by individuals and corporate behavior across national boundaries may be more easily initiated by voluntary and

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prerogative actions rather than coercion and mandatory or necessary laws. It is the nonexecutive skill in exercising independence of mind that is the key to effective board behavior. The openness of executives can become a source of confidence and trust for non-executives, and that in turn can encourage a mutually beneficial dialogue between management and board, improving the companys performance. Hence, trust in and distrust of executives is rather to be understood as a continuous process of accountability. Where agency theory assumes self-interested opportunism as a given of human nature, resulting in the presumed need for monitoring and control, a focus on accountability and integrity points to a more complex view of causality, in which top management motives are themselves conditioned by governance processes and relationshipbuilding. Leaders need to show their responsibility, with effective and (either political or corporate) independent oversight providing checks and balances to ensure that the process of providing its citizens or stakeholders, with sustainable value under the overall constraints of ethical values does not get off track for those organizations and institutions. Merely securing (minority shareholder) rights, verifying duties and performing authority checks and balances are necessary actions to steer corporations away from disasters, and may get them some corporate credibility or public relations kudos but are not sufficient steps to take in the face of the daunting global challenges we are facing (Verhezen & Morse, 2009). Captains of governance need to embrace scalable entrepreneurial solutions that align and integrate profitability motives with societal and ecological goals that encourage the transition to sustainable renewable resources and to stimulate investments in evolving and disseminating the necessary innovative technologies. It is not an exaggeration to say that the quality of management and leadership correlates with the quality of governance. Any business that attempts to pursue its corporate objectives at the expense of the society in which it operates will find its possible financial success to be spiritually illusory and most often very temporary. Hence, the overall importance of global governance principles that are translated into best global governance practices may transform the corporation into a genuine global corporate citizen. Nevertheless, this remains a fallible work in process. It should be acknowledged that wellperforming boards would seek broad counsel where needed (Peng, 2005; Charan, 2005). Because power does not infer infallibility, failing to hear critical information may undermine a firms risk exposure. Some leaders may believe that vital lies preserve the surface harmony within the firm, but usually at a great cost, setting in motion a certain dynamic which often afflicts rather than defends the longerterm competitive position of the firm or public organization. It conforms to the conspiracy of moral silence. A vicious spiral of silence can easily undermine the morale and productivity of the workforce under the helm of secretive or bullying leaders (Verhezen, 2010). Only productive candor as found in constructive conflict results in organizations which are characterized by a high level of transparency, which indicates a level of moral health. In other words, transparent leadership helps to communicate successfully and clearly the firms vision and objectives. Such open and candid communication has become an effective tool to exert real (often informal) power in order to achieve superior performance. The law is rarely the best guide for appropriate ethically and ecologically sound corporate behavior: it is often too little and invariably too late for many of the victims of corporate scandals or disasters. Legislation alone cannot make corporations responsible, open and healthy. That, however, does not contradict the importance of regulating bodies that monitor and minimize negative economic externalities and steer toward public and common goods; hence, the importance of moral and visionary leadership at private and public levels. Harvard Business School ethicist Lynn Paine (1994) argued that an integrity strategy should be distinguished from

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merely complying with the law. A compliance strategy is a necessary but not sufficient approach to impress and inspire the workforce and the firms executives. The notion of transparency is applicable to both a strategy based on integrity or legitimacy as well as a compliance strategy or legality though the intention differs in both cases. Only when there is a strong bond of trust will a company be able to responsibly thrive over a longer period. When corporate governance focuses on justifying management decisions and aiming at some level of legitimacy or even legacy in society over a longer period, it will need to apply the same principles of authority to make responsible and sustainable decisions with accountability for those decisions Legality based on an Institutional Legal Framework - is lower ranked than seeking Legitimacy which refers to the Art of Leadership. From an integrity perspective, seeking Legacy usually goes beyond Best Governance Principles or a compliance oriented behavior that obeys to Legal & Regulatory Pressure. Ultimately, one seeks to become a good Corporate Citizen. At the lower side, risk can become a threat and when one fails to react or prevent such a risk, one often regrets such immoral and or illegal behavior, but then it is too late. At the other extreme, by adhering to corporate citizenship one creates opportunities that enhance the reputation of the company while taking into account that risks and thus failure - remain. Ultimately, trust in leadership and confidence in corporations depends on the (moral) character and attitude of those who run the corporations and influence the newly emerging world order. 4.2 Trustworthiness and Leadership Responsibility The discursive power of the different players, namely private corporations, governments and the public at large, is very vulnerable and far from secure in a globally interdependent context. The question of legitimacy will continue to pop up and keep corporations and governments on their toes. Moreover, the political power of corporations has become contested in the context of the pros and cons of the globalization discourse (Fuchs, 2007; Stiglitz, 2007, 2008). Global surveys currently reveal high levels of suspicion or an aversion to corporations. The objective of corporations in todays world should be to underwrite broader fundamental principles which may have some universal or global validity beyond cultures or ethno-centric perspectives that acknowledge and adhere to specific local practices. Ideally, such discourse may even result in some form of spirited sustainability (Frances, 2008). For instance, a good corporate citizen in China complying with and following international or global best governance principles and practices is unlikely to be perceived as evil in other business contexts. Good governance is not characterized only by a set of rules and procedures. One reason that corporate challengers from emerging countries are particularly adept at creating and operating in such fluid organizations is their emphasis on trust, instead of mere procedures only. This functions as the glue holding together any business transaction. The right to know and the duty to disclose are grounded in trust. The transparency movement is a response to uncertainty and distrust. Somehow, it is an attitude that brings a sense of responsibility into the realm of the corporate and political world. The legendary investor Warren Buffett allegedly looks for managers who are hard working, smart, and honest. Recent corporate scandals strongly indicate that the first two of these qualities without the third can be disastrous (Wellum, 2007). It is in the interest of corporations to gain trust and to be perceived as trustworthy, which confirms that only an integrity-based strategy based on accountability and openness will succeed in the long term (Verhezen, 2008a). Such an

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integrity-based strategy could turn the symbolic capital of integrity and responsibility into real economic profit. The principle of responsibility and accountability will need to be contextualized, institutionalized and translated into local duties and rules. It is an attitude that is based on and inspired by the notion of integrity that encompasses accountability for ones actions, responsible behavior and a commitment to fair decisions in a transparent and thus open manner. Integrity displays virtuous behavior within a complex reality that serves to link or dissolve disparate goals, values, emotions, aspects of self and periods in an individuals life. It is a virtue of balance that enables management of self-conflicts in a normative manner while taking into account that the self is dynamic and interdependent. Because transparency claims some truth value, the virtues of trustworthiness or sincerity and accurate reporting underpin the notion of accountability. A certain level of openness is required to create trust between employees and management, between investors and management, and between an organization and the public at large. Such openness, that is, transparency on an institutional level and candor on an individual level, turns out to be necessary for the longterm interest of all organizations. Trust and shared cultural or organizational assumptions constitute the strongest glue binding people together in organizations. When leaders and top management trust their employees with due respect and speak with candor, those employees will respond with trust. Such an attitude is possible only when leaders walk their talk, when they are inspired and driven by integrity. Speaking truth to power implies providing equal access to information for all, refraining from punishing those who dare to speak out in organizations, refraining from rewarding mere loyalty, and empowering principled employees and management. Obviously, truthfulness occasionally clashes with the principle of loyalty. It is within the sphere of integrity that an appropriate balance between truthfulness and loyalty can be struck. Individual managers need to morally reflect upon the actions required, to be steadfast in keeping commitments in adversity, and to be unashamed about sticking to those principles (Carter, 1996). Integrity justifiably integrates an intelligible and defensible moral vision of ones character within a certain context, enabling a wise person to know how and when to adapt his moral principles and commitments when understanding a different reality asks him to do so. The how one does is sometimes more important than what one does, emphasizing an empathetic or virtuous attitude of integrity. Aligning a firms commitment to moral values with a competitive strategy is a calling and an art, not just an engineering problem (Eisenstat, 2008). Having a passionate purpose that aligns financial and non-financial objectives and unleashes energies will enable businesses to take sensible risks (Elkington & Hartigan, 2008; Frances, 2008). To build in best practices with regard to governance principles may have unexpected positive effects on our environments and even on our psyche. Visionary, purposeful and compassionate leaders function like alchemists who bring to the physical realm dreams and hopes that become attainable in a sensible business proposition. The best way to guarantee fulfilling the expectations of customers and other important stakeholders alike is to build integrity within a corporate culture or to engrain integrity into the DNA of the company. Such a process may take painful years to achieve that objective, and one misstep can undermine all those efforts in a minute. Desiring to build a brand, an image, or the appearance of doing good is calculated and not genuine; that game could be revealed any day. The reaction from the customers and the public at large may be harsh. Todays consumers expect corporate responsibility in the companies from which they buy (Baum, 2004). Acting with integrity is doing the right thing regardless of the circumstances or consequences. A truly shared vision inspires an organization to hopefulness and success. Using vision and hope as the driving force is a more powerful force than a real or manufactured crisis. Leadership responsibility within organizations assumes a minimum form

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of transparency that informs shareholders and stakeholders about the status of the organization without necessarily disclosing strategically sensitive information unless it is legally required or socially strongly expected to do so. The other important factor is individual candor or accountability incorporated into an attitude of integrity that is underpinning the overall principle of openness and honesty. A culture of truthfulness and candor is characterized by virtues of humility, service to others, and respect for people, exactly the opposite of sheer hubris, which can be seen as being at the root of the downfall of many leaders or managers falling into that trap. It is the boards responsibility to reward a culture of candor; hence, the importance of independent directors who are usually better placed than others to provide disinterested and objective truth telling (Bennis, Goleman, & OToole, 2008; Banks, 2004; Clarke, 2007). Both Aristotle and Confucius suggested that the overall good of the group (i.e. organization or state) takes moral precedence over the individual aspirations of persons in power. 5. Conclusion Transparency invites accountability and drives dialogue between the corporation and the communities it serves. Transparency and candor are enabling corporate leaders and their organizations to respond to situations of crisis and to limit greed and ignorance in times of great uncertainty and increased levels of complexity. Indeed, in the face of a disappointing action, product or policy, those leaders are usually able to react responsibly in ways that maintain their clients trust and respect. Nonetheless, the daunting challenges that current business leaders face ranging from issues of globalization, of creating and maintaining trust, of balancing shareholder and stakeholder interests, of visioning and executing sustainable strategies, of acknowledging the need for broader vision and corporate leadership in society beyond a mere license to operate, and of those arising on the Internet should be recognized and should be given time to be addressed in an appropriate and realistic manner. Moreover, the celebrity status of CEOs should give place to a more spirited stewardship role and transparent responsibility whereby corporate boards and CEOs recognize their contribution and duty with regard to longterm organizational value while undertaking all institutional and personal endeavors to limit immoral greed and risky neglect, which made possible the roaring corporate appropriation and irrational escalation of CEOs compensation. Moral hazard widely recognized as one of the key causes of the current economic-financial crisis should not be countered only by more and complex regulatory systems. The boundaries of the game through governance principles should be pronounced and enforced more clearly and effectively without over-regulating the market game. The new line of defence should be improving market competition through more transparency, not eliminating competition. It seems that there evolves a common understanding and agreement on some common ground of how good corporate governance principles should look. Global governance principles in whatever way they are practically translated within their specific context will help the overall performance of the organization, creating organizational value by taking societal and ethical values seriously. Those common ideals or global governance principles reflect an inward sense of vocation grounded in a commitment to peer sanctions and institutionalized monitoring. Failing to commit to those principles often results in mediocrity or worse, and may lead to illegitimate and non-compliant behavior. Such consensus-building around the governance principles of transparency and accountability is a dialectical process between firms and governments, offering a prospect of convergence for a better well-being and welfare of their respective citizens, based on common overlapping norms of governance. Since the start of the global financial crisis, it seems that the pendulum has swung back toward governments which currently are taking the lead to govern the markets toward more sustainable goals.

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The notion of transparency aids corporations to gain legitimacy. Obviously, there are legitimate strategic and legal limits on disclosure, but ultimately, visionary leadership that emanates transparent responsibility will result in a legacy of which one can be proud. Good disclosure and higher levels of transparency place demands on governance, with the leadership being pressed to show the responsibility to deal honestly with the public, rather than concealing mistakes and difficulties. Transparent leaders who embrace institutionalized disclosure linked to improved risk management systems and individual candor based on integrity-based strategies will assess business strategies and make thoughtful and responsible choices amid an increasingly complex world. Transparency has afforded a vehicle for new and imaginative research methods to improve practice and inform the public. Moreover, wise leaders find ways to get information in its raw form, and to get unbiased information. Transparency if well managed and well tuned could be seen as a useful tool to improve the communication and relationship between management and other stakeholders on one hand, and to reduce reputation and financial risk on the other. The building blocks of disclosure and integrity function as the pillars of transparent responsibility and thus of good corporate governance, possibly steering organizations away from future disasters. Institutionalized entrenched transparency and an attitude of individual integrity underpinning accountability by top management can be perceived as one of the main pillars constituting best governance practices. The values of virtuous and accountable leadership that inspire and drive an organization are often expressed in institutionalized transparency and individual candor where everyone is empowered to speak the truth in a respectful manner. Within such a trust enabling environment, companies rise to the occasion to embrace uncertainty and to take full advantage of particular business opportunities. Actual effectiveness of a board committed to transparent leadership implies a culture of candor and openness, underpinned by a constructive dialogue in an environment of trust and mutual respect. Visionary and transparent leadership, encompassing efficient compliance and reporting requirements on one hand and compassionate integrity strategies on the other, functions like the sails that determine a favorable outcome. In other words, it is not greed, ignorance or neglect but institutionalized transparency and individual candor that are the compasses that guide boards and top management in steering the corporate ship away from murky waters. Fear is often a poor guide for business decisions, and regret usually comes too late. If one is aware that it is not the wind but the sails that determine the course, one will be able to avoid regret and to overcome fear.
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Corruption, Human Trafficking and Human Rights: The Case of Forced Labor and Sexual Exploitation in Thailand
Malinvisa Sakdiyakorn* Sutthana Vichitrananda** Abstract Human trafficking is considered to be a serious violation of human rights. Causes that contribute to human trafficking are commonly believed to be related to poverty, globalization and economic disparities among countries. This paper raises corruption as an important factor that not only facilitates but causes and perpetuates trafficking activities. The argument is strengthened through empirical evidence of labor and sex trafficking in Thailand wherein corruption invariably plays a role. In order to foster respect for the fundamental rights and freedom of people, the article seeks to promote greater awareness among all parties involved about the adverse relationship between corruption and human trafficking. Keywords: Human trafficking, corruption, human rights, labor trafficking, sex trafficking. 1. Introduction Human trafficking is a serious violation of human rights because of the involuntary manner in which trafficked victims are recruited, entrapped, transported and subsequently subjected to the exploitation and abuses inherent in the act (Obokata, 2005; Piper, 2005, p. 209). Data compiled by different international organizations and government agencies suggest that the number of people trafficked each year ranges from approximately 500,000 to 2.5 million persons globally (ILO, 2008; UNODC, 2008; US State, 2008; UNESCO Bangkok, 2009; UNIFEM, 2009). As the fastest-growing and third-largest criminal industry after the arms and drug trade, human trafficking is also believed to be one of the lowest risk and most profitable illegal activities (Hughes, 2000, p. 1; Van Impe, 2000, p. 119; Newman, 2006, p. 5; Siobhan, 2006). According to ILO (2005a), trafficking in people is estimated to generate almost US$ 32 billion annually. In mere figures, it would be difficult to pinpoint to what degree Thailand fits into this overall picture in view of the fact that the statistics concerning human trafficking are largely unreliable, scattered and unsystematically collected (Salt, 2000, pp. 37-41; Piper, 2005, pp. 203, 215; Zhang & Pineda, 2008, p. 43). Yet, as a major source, transit and destination country for trafficked victims, Thailand has been highlighted in the existing literature as having great significance and being an excellent example with regard to the nature and extent of the problem (Derks, 2000, pp. 16-17; Piper, 2005, p. 204). When trafficking networks in Thailand are viewed as business organizations (Salt & Stein, 1997), it is perhaps easier to understand how they operate and why they continue to expand. This paper targets corruption as the fuel that drives the crime, although strong supply and demand forces readily enable the conduct of the business. Linkages between corruption and trafficking become clearer when trafficking is considered an economic activity and trafficked victims are perceived as a commodity through which the parties involved in the trafficking process are able to make profits (Kyle & Liang, 1998, cited in Salt, 2000, p. 35). 2. Corruption as a Causal Factor The causes of human trafficking have been explained by what are often regarded as

Malinvisa Sakdiyakorn, Ph.D, is a lecturer at the Business Administration Division, Mahidol University International College. E-mail:malinvisa@gmail.com
*

Sutthana Vichitrananda, Ph.D, is currently working for the Center of Philanthrophy and Civil Society, National Institute of Development Administration
**

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push and pull factors. The macro factors that push people into becoming victims of human traffickers are commonly related to poverty and its social and economic causes, such as income inequality, war and internal armed conflict, environmental degradation, limited educational opportunities, and gender disparities. The pull factors are often described as those which promise economic prosperity in the richer destination countries, stimulated by the globalization infrastructure that induces and facilitates the movement of goods and labor (Heyzer, 2002; Zhang & Pineda, 2008). However, these push and pull factors, minus the exploitation and abusive crimes of the traffickers, would only merely explain regular labor migration. These trafficking crimes exploit human beings for the benefit of the involved traffickers, employers, and corrupt officials (Heyzer, 2002). A study in Europe conducted by the Program against Corruption and Organized Crime in South Eastern Europe reported on linkages between corruption and human trafficking by stating that trafficking cannot take place without the involvement of corrupt officials (Zhang & Pineda, 2008). In establishing the linkages between human trafficking and corrupt practices, this paper adopts the operational definition of corruption of Transparency International: the misuse of entrusted power for private gain. Corrupt acts in the trafficking industry exist at all stages of trafficking, ranging from recruitment, transportation, and exploitation at the destined workplace, to the prosecution and justice system. A vicious cycle is created by corruption, which ensures the continuation of the trafficking business and obstructs the efforts to prevent trafficking, protect the victims, and prosecute the traffickers. 2.1 Corrupt Practices in the Various Stages of Trafficking Successful trafficking requires collusion with corrupt accomplices. Recruitment can be facilitated by bribes paid to corrupt labor service and immigration officials in reaching out to targeted laborers and in securing forged labor documents (Richards, 2004). Roby and Tanner (2008), in their study of prostitution and sexual trafficking in Thailand, also mentioned that brothel owners routinely bribe local police, and officials often help recruit and detain the young women. Similarly, the second stage of trafficking, which involves the transportation of trafficked victims, could hardly succeed without the assistance of corrupt officials working in border control and immigration. The long ride to cross borders before reaching the destination requires organized acts by traffickers so that they can pass smoothly through numerous police and immigration checkpoints. Exploitation and the abuse of trafficked victims forced into labor or prostitution occur at the third stage, when workers are delivered to their employers. At this stage, although workers are entitled to be protected under labor laws and human rights conventions, such measures would function only if properly enforced. Exploitation continues to occur as employers are able to bribe law enforcement officials to work in their favor. Some employers use corrupt police also to help exert control over trafficked employees through a combination of physical abuse and threats of arrest and deportation. Charges made against traffickers or the employers involved are dropped when those employers are able to bribe their way through the corrupt law enforcement and judiciary system (Richards, 2004). The staff member of a non governmental organization (NGO) that we interviewed said: It is very difficult to bring the traffickers to justice. Victims that were rescued just wanted to go home; most do not want to pursue charges as they do not know whom to trust. They are afraid of their own safety as well as their families. Authority and traffickers are the same to them. 2.2 Research on the Interconnections between Corruption and Human Trafficking Linkages between corruption and human trafficking have been explored by scholars despite the great difficulties most of them faced in obtaining data, thus limiting their research.

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Richards (2004) indicated that corruption in human trafficking could take the forms of active involvement as well as passive negligence. The active involvement of corrupt parties in human trafficking ranged from paying, accepting and transferring bribes to facilitating trafficking transactions (recruitment, transport, exploitation), as well as obstructing the criminal justice system. In Thailand, some law enforcement and government officials were reported to have become parties to trafficking crimes; many were reported to have ownership stakes in the brothels concerned (Roby & Tanner, 2008). Passive negligence refers to the act by officials of ignoring what is taking place and not taking action to protect trafficked victims, or neglecting to perform their rightful duty. This is not the same as inertia, lack of skills, or the ineffectiveness of the authorities. The term refers to those who are parties to corruption and who choose not to execute what responsibilities/duties are demanded of them. When those in authority turn a blind eye to the issue, they enable aggravation of the unlawful activities. Lack of enforcement of labor standards, for example, has also been raised as an incentive for labor trafficking. In addition, indicators of trafficking could also be ignored and victims testimonials neglected, which enables traffickers to continue to succeed (Richards, 2004). A recent exploratory research study by Zhang and Pineda (2008) hypothesized corruption as being a stronger predictor of human trafficking than other assumed poverty- related causes. To test this hypothesis they compared data from various tiers of countries, ranging from the richest to poorest, using the following: (a) the corruption variables in the Corruption Perception Index (CPI) of Transparency International; (b) poverty variables (per capita income, infant mortality rate, primary education, life expectancy) from several United Nations-based sources; and (c) human trafficking variables in the Trafficking in Persons (TIP) ranking report of the United States Department of State. The research found that income, infant mortality, primary education, and life expectancy were not good predictors of human trafficking because there were inconsistencies in the correlation and regression results across the countries concerned. Corruption was the only variable found to be consistently correlated with the TIP ranking across the countries, and was the only variable that achieved statistical significance in correlation to the TIP ranking. This led to their conclusion that country corruption practices contributed much more to human trafficking than did poverty. Therefore, efforts to curb human trafficking must address this important causal factor. 3. Curbing Human Trafficking in the Thai Context For many years, Thailand has made efforts to deal with human trafficking by establishing mechanisms, conducting national policy and planning exercises, implementing preventive measures, and engaging in law enforcement measures (ILO, 2005b). Most recently, the Anti-Trafficking in Persons Act B.E. 2551 was enacted, entering into force on June 5, 2008; it sets out a new definition of human trafficking and establishes penalties for offenders (see Box 1). In line with the Trafficking Protocol the United Nations-based international agreement on preventing trafficking crimes and protecting the victims of trafficking the Anti-Trafficking in Persons Act B.E. 2551 holds certain important implications with respect to human rights and corruption.

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Box 1 Definition of human trafficking under the Anti-Trafficking in Persons Act B.E. 2551 Whoever, for the purpose of exploitation, conducts the following acts is considered guilty of trafficking in persons (Chapter 1, Section 6): (1) Procuring, buying, selling, vending, bringing from or sending to, detaining or confining, harboring, or receiving any person, by means of the threat or use of force, abduction, fraud, deception, abuse of power, or of the giving of money or benefits to achieve the consent of a person having control over another person in allowing the offender to exploit the person under his control; or (2) Procuring, buying, selling, vending, bringing from or sending to, detaining or confining, harboring, or receiving a child (under the age of 18). Source: Anti-Trafficking in Persons Act B.E. 2551 (2008) First, it denotes as a human trafficking crime use of force, fraud, or coercion to exploit a person beyond his/her basic human rights. Although these basic human rights are not explicitly stated within the law, they include the right (a) to be born free and equal in dignity and rights (Article 1); (b) to not be held in slavery or servitude (Article 4); (c) to not be tortured or treated cruelly, inhumanly or degradingly (Article 5); (d) to work and have free choice of employment under just and favorable work conditions, and to be given equal pay for equal work (Article 23); (e) to be able to rest from work and be give time for leisure, which implies reasonable limitation of working hours and the granting of periodic holidays with pay (Article 24); (f) to have a standard of living adequate for maintaining the health and well-being of the worker and his/her family, including food, clothing, housing and medical care and necessary social services (Article 25); and (g) to education (Article 26) (United Nations, 1948). Second, unlike previous Thai anti-trafficking legislation which defined trafficking only in terms of sexual exploitation and allowed only females and children to be classified as victims eligible to receive shelter or social services from the government, the new law prohibits all forms of trafficking in persons by extending protection for the first time to male victims of sexual exploitation and to all victims of labor trafficking (Office to Monitor and Combat Trafficking in Persons, 2008; UNODC, 2009). For this purpose, the law allows for the coverage of existing trafficked victims so that they are protected under the extended standards of human rights. In terms of prosecution, the new law clearly recognizes the concrete role played by other parties beyond the direct traffickers; they shall be punished in the same way as the direct offender for offences related to trafficking in persons, if he/she: (1) Supports the commission of the offence of trafficking in persons; (2) A i d s t h e t r a f fi c k i n g p r o c e s s b y contributing property, or procuring a meeting place, or lodge, for the offender trafficking in persons; (3) Assists the offender trafficking in persons by any means so that he/she would not be arrested; (4) Demands, accepts, or agrees to accept a piece of property or any other benefit in order to help the offender trafficking in persons escape punishment; (5) Induces, suggests or contacts a person to become a member of an organized criminal group, whose purpose is to commit the offence of trafficking in persons (Chapter 1, Section 7).

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While the term corruption does not appear in the legislation, it is apparent that the above-mentioned practices can easily constitute acts of corruption; those involved in such practices are liable to incur penalties: imprisonment ranging from 4 to 15 years and a fine ranging from 80,000 baht to 1 million baht. A necessary yet insufficient solution in curbing human trafficking is the establishment of a prosecution mechanism that would point out the main concern of the problem. Although there is greater clarity under the new law in defining the victims and involvers of trafficking activities, practically it is still very difficult to track down the various key parties involved in the process let alone bring them to court. The cases described in the next sections suggest that human trafficking in Thailand will likely continue to exist if corruption, whether in the form of active involvement or passive negligence, is not truly eradicated throughout the entire process in a systematic manner. 4. Labor Trafficking in Thailand An estimated one-third of victims worldwide were trafficked for economic purposes other than sexual exploitation (ILO, 2005a). In Thailand, the International Organization for Migration has estimated that currently there are about 1.9 million migrants in the Greater Mekong Subregion (GMS). In the past, a large influx of migrants into Thailand was due to war or internal conflict in other GMS economies. However, in recent years, migration from Thailands neighbors was stimulated largely by economic conditions. A shortfall in low-skilled laborers in Thailand created a demand for migrant workers, from neighboring relatively poorer economies with surplus labor. Although Thailand instituted a registration program for issuance of work permits to regularize the stay of migrant workers in the country, the majority of migrant workers are in Thailand illegally. Migrant workers enter Thailand through many channels, both legal and illegal, and in many cases they became victims of human trafficking. Many of those who registered upon entry stayed beyond their permit period; others did not register at all. In 2008, an estimated 1.3 million migrants in Thailand were unregistered (Sciortino & Punpuing, 2009). Their illegal status, coupled with their general lack of understanding of the relevant Thai laws and their rights plus the fear of deportation, open them up to exploitation and harassment from their employers, police, and other officials. The vulnerable conditions of migrant workers also provide fertile ground for corrupt practices to take place. Their abuse and the violation of their human rights and labor rights continue to be reported. Although linkages between human trafficking and the forced labor of migrants can be established, they are not always straightforward. Largely because of the economic situation in their own country, many aspirant migrants chose to migrate illegally on their own before being coerced or deceived into forced labor at their destination. Sometimes, if such adverse events do not occur at their first destination, the migrants may be trafficked or led into forced labor at their second or third destination. Therefore, the distinction of whether they were cases of human smuggling or trafficking is often raised, but any conclusion needs to be treated with care. The cases described below also reflect these elements of complexity; however, they also represent empirical evidence that enables better understanding of the linkages between and manifestations of trafficking, corruption, and violation of human and labor rights. 4.1 Recruitment and Transportation Recruitment and transportation occur upstream in the process whether or not the laborers are smuggled or trafficked. Workers are recruited through brokers who receive orders for laborers from employers. Recruitment may take place in various forms, such as through abduction or by luring victims with false promises of a well-paid job and a better life at their destination. Increasingly, owing to economic hardships in the GMS economies

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surrounding Thailand, many people migrate voluntarily, and they may even pay the recruiters in the hope of getting the promised employment. The brokers often collaborate with corrupt officials in order to facilitate the transportation process (UNIAP, 2007). With numerous checkpoints throughout the border provinces, it would be quite a challenge, if not impossible, to transport migrants to the workplace successfully without help from corrupt officials. Adisorn (2008) also described how broker operations would be possible only if they could collaborate with officials. The forms of collaboration could be as simple as paying bribes but in some cases officials even partner with or lead these broker operations. Another study by ILO (2006) also revealed that police officers have been involved in the transportation of illegal migrants. In conducting the present research study, migrants were asked if they had paid anyone to get the job; many responded that they paid police officers. In the same research, a number of migrants also indicated that the police had transported them to Bangkok in exchange for money. During the transportation process, the migrants were often hidden in a truck or container, which put them at risk of accidents, injuries and sometimes death. An example of such an incident occurred in April 2008 when 54 (out of 121) Burmese migrants died from suffocations while being transported in a seafood container traveling from Ranong to Phuket. This was not the first such incident. According to local NGOs, more than 100 deaths have been recorded as a result of more than 10 such incidents in 2007 (Nopporn, 2008). Serious violations of human rights occur during recruitment and transportation; however, at this stage is it often difficult to identify the migrants as victims of human trafficking owing to the absence of all the elements of a trafficking crime. This situation creates loopholes, and certainly opportunities for corruption, as an arrest made during transportation could be for illegal immigration, a violation receiving fewer penalties than the crime of trafficking. Such a lesser charge would certainly cut off any deeper probe into the organized crime of trafficking. During recruitment, brokers might charge workers fees directly; in some cases, brokers would collect the fees from the employers who in turn would then deduct them from the workers salary. Fees in such cases are sometimes excessive and give rise to debt bondage,1 a means commonly used by traffickers to control and later abuse and exploit their workers. The Labour Rights Promotion Network (2007) estimated that 80-90 per cent of the 200,000 Myanmar workers in Samut Sakhon Province are in a debt bondage situation. In addition to debt bondage, brokers and employers could also use other techniques to exert control and prevent workers from changing jobs, such as holding their registration or travel documents, threatening deportation, restricting communication and movement, and abusing them physically. 4.2 Labor Rights in the Workplace Labor rights were incorporated within two articles of the Universal Declaration of Human Rights: Articles 23 and 24. Of these rights, the most frequently violated are just and favorable conditions of work, equal pay for equal work, just and favorable remuneration, and reasonable limitation of working hours and periodic holidays with pay. Sciortino and Punpuing (2009) found that registered migrant workers who arrived in Thailand from GMS economies were employed mostly in agriculture (18 per cent), construction (15 per cent), fisheries and fish processing (15 per cent), and domestic work (11 per cent). The wages of these workers were found to be much less than those paid to Thai workers, especially if the migrant workers were not registered. Table1 demonstrates the wage disparities between Thai and migrant workers in these sectors.

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Table 1. Comparative Monthly Wages of Thai and Migrant Workers in 2004 Sector Agriculture Construction Fisheries Domestic work Thai workers (baht) 3,000-4,000 3,000-6,000 10,000 5,900-7,000 Registered migrants (baht) 3,000-4,000 4,500-6,000 3,000-4,500 1,000-4,000 Unregistered migrants (baht) 1,000-1,500 3,000-3,300 2,800-3,900 700-1,000

Source: Chantavanich, 2008 (in Sciortino and Punpuing, 2009). ILO (2006) also reported that migrant workers in the manufacturing and fish-processing sectors earned about 60 per cent of the minimum wage. In particular, child migrant workers and unregistered workers, the two most vulnerable groups, often receive reduced wages. In some cases, the wages of some migrant workers are further reduced by what employers call deductions for mistakes and in-kind wage payments, such as for their food and accommodation. The violation of labor rights in terms of long and uncompensated working hours is an issue for many migrant workers. ILO (2006) has reported that excessive working hours occurred more frequently among domestic workers, followed by those in fishing, manufacturing, and agriculture. The majority (82 per cent) of domestic workers in that research study worked more than 12 hours per day. Migrant workers in manufacturing were forced to work long hours. Cases documented by the Asian Human Rights Commission in 2003 showed that at least 75 Burmese workers in a garment factory were forced to work continuously for 41 hours without rest during the period September 19-21, 2003. All of them were reported to be underpaid and half of them were fired on September 24, 2003. In the fisheries sector, in addition to working long hours, the workers were given insufficient time for rest. The working hours were long and overtime was mandatory but usually uncompensated. During their 20-25 days at sea, the fishermen had to work around the clock in 2.5-hour shifts, with only a half hour break between those shifts. They would receive only about 1,500-2,000 baht per trip plus about 1-1.5 percent of the proceeds from the sale of the fish for a total of about 5,000-6,000 baht per trip (Wille, 2001). ILO (2006) reported the physical abuse of migrant fishermen in Thailand, and IRIN (2008) reported that more than 4,000 Cambodians were trafficked from that country and sold to boat operators in Thailand. Once on the fishing boat, life is unbearable; we get little to eat and are often beaten.Its so bad there are only two choices: commit suicide or jump ship, said Kong, a Cambodian fisherman, describing conditions on a Thai boat (IRIN, 2008). Migrant workers are pressured, either by force or by a lack of choice, to accept wages much lower than what they are entitled to. Such workers are already inside Thailand, most do not know the Thai language and jobs are not easy to find. Their illegal status also puts them at a disadvantage and they have little negotiating power. Furthermore, their vulnerability increases owing to their lack of knowledge of their rights. Access to justice is also complicated by the risk of deportation. The authorities were perceived as working for the benefit of their employers rather than for that of the migrant workers. In the absence of corruption, the above-mentioned abusive practices of trafficking networks and some employers would not have endured and escalated to the current scale. Collusion between corrupt officials and employers drives and sustains this crime.

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Amnesty International (2005) stated that the Burmese migrant workers whom they had interviewed mentioned that if they were to demand proper pay they would be punished or subjected to force by their employers, through such means as beatings administered by local gangs hired by their employers or they would be arrested by the local authorities and deported to Myanmar. The following case was among many that were submitted by the Asian Legal Resource Center to the Commission on Human Rights. On 16 December 2003, police arrested over 260 legal migrant workers on strike and planning to sue their employer for insufficient pay, after 25 of their number were sacked. Police reportedly surrounded a monastery where the workers, including about 200 women, were staying after they had decided not to continue work at Nasawat Apparel Company, and to file charges against the factory. The police beat the workers before taking them to the Immigration Detention Centre for deportation. The owner of the Nasawat Apparel Company, Kwanchai Wimut, previously had police beat and deport workers who had attempted to organize strikes, and had had his security men sexually harass women workers. On 25 November 2003, prior to the workers walkout, drunken police had also entered the womens quarters and threatened them sexually (Asian Legal Resource Center, 2004). protected than called for under such measures. As these cases have shown, corruption prevents such victims from accessing protection and justice. Corruption fuels the exploitative practices of employers to whom cheap labor means greater profit. This is particularly so for employers who have paid fees to the trafficking brokers and bribes to others. 5. Sex Trafficking in Thailand Trafficking for the purpose of sexual exploitation in Thailand has long been a heated topic widely discussed in many trafficking-related research studies (Piper, 2005, p. 209). Part of this is related to the magnitude of the sex trade activity, which can be found to occur throughout the country in a socially acceptable manner (Roby & Tanner, 2009, p. 94). Despite the growing debate that a large number of sex workers alternatively termed prostitutes, entertainers, hostess, or hospitality companions, among other euphemisms enter the sex industry on their own initiative and therefore should not be considered trafficked victims. The reality is that there exist unfortunate women, and in the worst cases children, all of whom are actually forced into situations of sexual exploitation by their lack of choice, compensation and legal status (see Table 2). Several characteristics can be used to describe the current trend of sexual exploitation cases in Thailand. First, although the number of trafficked Thai victims of sexual exploitation is believed to be on the decline, there is a growing consensus that foreign victims are replacing them (Archavanitkul, 1998; Piper, 2005, p. 220; Roby & Tanner, 2009, pp. 91-92). Transported across borders, the majority of these victims come from countries in the Mekong River basin, namely Cambodia, China, Lao Peoples Democratic Republic, Myanmar, and Viet Nam (Archavanitkul, 1998; Wille, 2001, p. 1; Steinfatt, 2002, p. 28; Jayagupta, 2009, p. 234).

The above description casts doubt on this incident being a normal police operation: arresting the migrant workers for illegal entry just after they coincidentally had gone on strike and had announced their plan to sue the factory; more likely the employer had given the police incentives to conduct the raid. Also, it could be asked what induced the police allegedly to violate the workers human rights during this operation? Many conventions, treaties, and laws have been enacted to protect the rights of laborers; unfortunately in practice they remain much less

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Table 2. Human Trafficking: Sexual Exploitation versus Prostitution Human trafficking for sexual exploitation (Berger & van de Glind, 1999, p. 7; Brown, 2000 in Roby & Tanner, 2009, pp. 94-95). Fourth, the extent of child trafficking for sexual exploitation goes beyond the purpose of the sex trade involving girl victims to include other illicit sex crimes, such as pornography, and boy victims made to serve foreign pedophiles who see Thailand as a haven for engaging in sexual activities with children (Wille, 2001, p. 1; ABC News, 2006). What makes all these events possible? Is it poverty, primitive conditions, political fear, lack of education and job opportunities that the victims in sending countries encounter? Or is it the growing demand for sex, the availability of advanced technology, transportation and communications, or the dream of a better life in the receiving countries? While trafficking for sex normally evolves from a mixture of all these factors, most incidents are made possible because of the various forms of corruption involved. The flexible nature of the trafficking process, involving diverse parties that respond to particular situations and constantly changing routes and tactics makes corruption an essential component in sex trafficking crimes (Skeldon, 2000, p. 12). Unfortunately, there is no clear-cut pattern concerning the ways in which corruption takes place. However, what can be drawn from the empirical evidence is that corruption exists in all stages of the trafficking process from the recruitment and transportation phases to the delivery, marketing and exploitation phases. 5.1 Recruitment and Transportation In the recruitment process, the arrangements made for trafficking victims for sex are normally conducted through the medium of brokers, who act in a similar way to that of their counterparts in labor migration. At this point, strings of brokers or agents loosely connected to one another are responsible for preparing documents and transporting victims from one point to another. Victims of trafficking are brought into Thailand through four main borders: passing

Criteria

Prostitution

Choice

Individuals are Individuals forced to consent to provide sexual provide sexual services and services work even if ill

Victims are not Workers are paid for the Compensation paid or their compensation services which is very limited they provide Legal status Always illegal May be legal or illegal depending on the regulations

Source: Batsyukova (2007). Second, unlike well-established bars, cocktail lounges and massage parlors, wherein the providers of the relevant services consider themselves to be decent sex workers eager to make a living, most trafficked victims are normally abducted and kept in closed brothels or hidden establishments (Thomas, Jones, Asia Watch Committee, & Womens Rights Project, 1993), many of which are located in the northern and north-eastern parts of the country, such as in Nong Khae, Mae Sai, Mae Sot, Mukdahan and Savannakhet (Wille, 2001, pp. 50-53; Brown, 2000 in Roby & Tanner, 2009, p. 92). Third, child prostitution seems to be increasing disproportionately, mainly as a result of demand fueled by the fear of AIDS among clients combined with the perception that having sex with children is safer than with adults. Another factor is related to the cultural and social mores of deflowering a virgin sex partner

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through cities on the Myanmar border, such as Chiang Rai, Ranong and Mae Hong Son, on the Cambodian border, such as Trat and Sa Kaew, Mukdahan and Nong Khai on the Laotian border, and Yala and Narathiwat on the Malaysian border (The Nation, 1997). Once across the border inside Thailand, both the traffickers and the victims of trafficking continuously risk being stopped by police patrols at various checkpoints. The provision of tea money along the way, however, makes it possible for them to continue their journey safely (Skeldon, 2000, pp. 9-10). In the worst cases, facilitation is provided by certain groups of policemen that choose to transport the victims themselves in order to make harboring the victims easier. Nyi Nyi and her friend left in a truck driven by a policeman to Chiang Rai. There were many police checkpoints between Mae Sai and Chiang Rai the policeman had everything arranged [he] took them to a hotel and told them to wait until the agent came to collect them (Thomas, Jones, Asia Watch Committee, & Womens Rights Project, 1993). Pyone Pyone spent three days in Mae Sai at the home of an agent before a uniformed policeman arrived and drove her and twelve other Burmese girls from the agents house to a brothel in Bangkok. Their van was not stopped at any of the police checkpoints along the way (Thomas, Jones, Asia Watch Committee, & Womens Rights Project, 1993). brothels. In 1997, an Australian newspaper reported on two Pattaya policemen who were arrested for running an operation that sold under-age boys to tourists seeking prostitutes and planted drugs on other boys in order to blackmail them (Sydney Morning Herald, 1997.) Another officer had been charged with running a brothel and kidnapping a 15-year-old girl for prostitution. In many instances, brothels are located next door to or a short distance down the street from local police stations. Why would they have been situated in such close proximity to law enforcement agencies if not to make it easier for the operations to be looked after and harder for the trafficked victims to escape? When she got to the brothel, Pyone Pyone was told she could not leave. She said she knew there was no way to escape anyway, because all the police in the area knew the policeman who had brought her there (Thomas, Jones, Asia Watch Committee, & Womens Rights Project, 1993). Thuza explained to us her inability to escape by the fact that the police station was just next door. She said it was impossible to leave because the policemen came every day to the brothel, usually in full uniform and carrying guns (Thomas, Jones, Asia Watch Committee, & Womens Rights Project, 1993).

Acts of corruption are also exhibited in the exploitation process. As facilitators or protectors of the illegal establishments, many police officials have been given special privileges or free services from the owners to exploit the trafficked victims against their wills. Aye Aye, who came to Thailand when she was fourteen years old, told us that the police came often to the Dao Kanong brothel in Bangkok where she worked. They usually came in uniform in groups of two to five men and were very friendly with the owner. The policemen were the only ones allowed to take girls out of the

5.2 Marketing Activities and Exploitation While some public figures have been found to assist traffickers in the delivery of the victims of trafficking, some have also extended their roles into marketing activities. According to Erlanger (1991), many [Thai] politicians, officials and policemen invest in the sex trade or benefit from it [with some] owning chains of

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brothel, and they never had to pay (Thomas, Jones, Asia Watch Committee, & Womens Rights Project, 1993). A Laotian girl, aged 14, was approached by a stranger, who offered her better paid work in Bangkok. She was excited about her good luck. Upon arrival she found that she had been lied to about the hours and the pay, and was forced to sleep without payment with a local police officer, who threatened to arrest her if she left (Wille, 2001, p. 43). [Siri] is forced to have sex with 1015 men a night in a brothel. She lives in fear of AIDS and pregnancy, but may be beaten if she insists that the men use condoms. At first she ran away from the brothel but she was quickly brought back, beaten and raped, until her will was broken. Now she lives with resignation, convinced that she is a bad person and seeing herself as just a whore.

While preventive measures can become lax throughout the trafficking process because some officials ignore sex work, mostly in return for sexual favors or bribes, corruption has been found to hinder protective action too. In an interview with a Thai NGO, the difficulty in both finding and rescuing the victims of trafficking is made more complicated when information on rescue missions is placed in the wrong hands. Brothels or victims of trafficking can easily disappear overnight thanks to the assistance of certain public figures. In other cases, rescued victims are sent back to brothels after certain exchanges have been made. Several of the Burmese we interviewed had previously been arrested by local police and returned to the brothel after the owner paid money to the police. Their fine was then added to their debt and furthered their bondage to the owner (Thomas, Jones, Asia Watch Committee, & Womens Rights Project, 1993).

In addition to the physical injury they suffer, victims of sex trafficking normally experience psychological deterioration which can last a lifetime. Attempts to rehabilitate the victims, whether they are children or adults may work. Their traumatic experience may sadly render them unable to develop themselves socially and find a better life. According to IOM (in Roby, 2005, p. 140), many victims have no place to go and may even form attachments to the very people who have exploited them. They often return to prostitution as their sole means of support. 6. Conclusion From a human rights perspective, trafficking is unacceptable; therefore, serious efforts should be made to combat the factors that contribute to such activities. That being said, human trafficking will continue to flourish if awareness and acceptance of corruption as a causal factor of human trafficking is not truly established. In order to tackle this problem, an elaborate justice system is only a means to the end. Thailand provides a clear example of how corruption and human trafficking are strongly interrelated. Sadly, these social evils are shaped by the wrong attitudes of different parties in society. Trafficking is a profitable business that may require extra assistance from certain groups of public figures. For such persons, the additional earnings to be realized from facilitating trafficking activities have already become the expected norm for them. While others may not approve of their behavior, no one does anything to obstruct such malpractice. Trafficked victims,

5.3 The Rights of Sex Victims Victims who are trafficked for the purpose of serving the pleasure of sex clients lack access to their basic rights as is also the case with the previously mentioned victims of labor trafficking. During exploitation, they are forced to work long hours, endure threats and abuse as well as work without adequate health and sanitary protection while getting little or no pay. In an interview with Siri, a 15-year-old victim, Bales (in Roby, 2005, p. 139) described this inhumane condition as follows:

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even if they managed to escape, are afraid of confronting public officials for fear of being imprisoned or sent back to the traffickers. The general public has become used to stories of human trafficking and regards such cases merely as daily news stories to be acknowledged although not tackled seriously. Given these circumstances, the efforts made by public agencies, international organizations and NGOs involved in curbing human trafficking depend not only on how the corruption embedded in the process is dealt with, but also on realigning the perceptions of all the actors involved or affected by the issue of human trafficking in the right direction.
ABC News. (2006). Southeast Asia a haven for pedophiles: Poverty and corruption blamed. (August 17). Retrieved on April 19, 2009 from http://abcnews.go.com/US/ Story?id=2325416&page=1. Amnesty International ( 2005). Thailand: The plight of Burmese migrant workers. Archavanitkul, Kritiya (1998). Combating the trafficking in children and their exploitation in prostitution and other intolerable forms of child labor in Mekong Basin countries. A subregional report submitted to International Programme for the Elimination of Child Labour (IPEC), International Labour Organization (ILO), Bangkok, Thailand. Asian Human Rights Commission (2003). Thailand: Abuse of workers rights by the Siriwat Garment Factory in Mae Sot. Asian Legal Resource Center (2004). Abuses of migrant workers in Thailand. Written statement submitted to the Commission on Human Rights. Batsyukova, Svitlana (2007). Prostitution and human trafficking for sexual exploitation, Gender Issues, 24: 4650. Berger, Herve & van de Glind, Hans (1999). Children in prostitution, pornography and illicit activities: Thailand: Magnitude of problems and remedies. An ILO-IPEC paper. Derks, Annuska (2000). Combating trafficking in South-East Asia: A review of policy and programme responses, IOM Migration Research Series., 2/2000. Erlanger, Steven (1991). A plague awaits. The New York Times Magazine. (14 July). Heyzer, N. (2002). Combating trafficking in women and children: A gender and human rights framework, plenary address at Human Rights Challenge of Globalization : Asia-Pacific-US: Trafficking in Persons, especially Women and Children. Hawaii (November 13-15). Hughes, Donna M. (2000). The Natasha trade: The transnational shadow market of trafficking in women. Journal of International Affairs. 53 (2): 1-18. International Labour Organization. (ILO) (2005a). A global alliance against forced labor, International Labor Conference, 93rd session. _____________________ (2005b). Thailands country paper on Policy mainstreaming: The labour and employment perspective in taking action against human trafficking. _____________________ (2006). The Mekong challenge: Underpaid, overworked and overlooked: The realities of young migrant workers in Thailand. _____________________ (2008). General report. 18th International Conference on Labor Statistics. (IRIN) (2008). Cambodia: Human trafficking likely to increase, IRIN humanitarian news and analysis, a project of the United Nations Office for the Coordination of Humanitarian Affairs. Jayagupta, Ratchada (2009). The Thai governments repatriation and reintegration programmes: Responding to trafficked female commercial sex workers from the Greater Mekong Subregion. International Migration, 47 (2): 227-253. Kerdmonkol Adisorn, (2008). Rang-ngarn kam chad nai sangkhom Thai. Prachatai, October 19 (in Thai). Labour Rights Promotion Network (2007). From facilitation to trafficking: Brokers and agents in Samut Sakhon, Thailand. SIREN Field Report. United Nations Inter-Agency Project on Human Trafficking (UNIAP): Phase III. The Nation (1997). Flesh trade shrugs off new risks. (May 1). Obokata, Tom (2005). Smuggling of human beings from a human rights perspective: Obligations of non-state and state actors under international human rights Law, International Journal of Refugee Law, 17 (2): 394-415. Office to Monitor and Combat Trafficking in Persons (2008). Trafficking in persons report. Piper, Nicola (2005). A problem by a different name? A review of research on trafficking in South-East Asia

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and Oceania., International Migration, 43 (1/2): 203-233. Richards, Kathy (2004). The trafficking of migrant workers: What are the links between labour trafficking and corruption? International Migration, 42 (5): 147-168. Roby, Jini (2005). Women and children in the global sex trade: Toward more effective policy, International Social Work, 48 (2): 136-147. Roby, Jini L., & Tanner, Jacob, (2009). Supply and demand: Prostitution and sexual trafficking in Northern Thailand, Geography Compass, 3/1: 89-107. Salt, J. (2000). Trafficking and human smuggling: A European perspective, International Migration, 38(3): 31-56. Salt, John & Stein, Jeremy (1997). Migration as a business: The base of trafficking, International Migration, 35 (4): 467-494. Sciortino, R. & Punpuing, S. (2009). International migration in Thailand 2009. Bangkok: International Organization for Migration. Siobhan, M. (2006). Sinister industry, ABA Journal,. 92(3), 5960. Skeldon, Ronald (2000). Trafficking: A perspective from Asia, International Migration, Special Issue, 2000/1: 7-30. Steinfatt, T. (2002). Working at the bar: Sex work and health communication in Thailand. London: Ablex Publishing. Sydney Morning Herald (1997). Sin city cant shake vices grip (May 17). Thomas, Dorothy Q., Jones, Sidney, Asia Watch Committee (U.S.), & Womens Rights Project (Human Rights Watch) (1993). A modern form of slavery: Trafficking of Burmese women and girls into brothels in Thailand. New York: Human Rights Watch. United Nations (1948). Universal Declaration of Human Rights. UNESCO Bangkok (2009). Data comparison sheet: Worldwide trafficking estimates. Retrieved on April 15, 2009 from http://www.unescobkk.org/ culture /our-projects/protection-of-endangered-and-minoritycultures/ trafficking-and-hivaids-project/projects / trafficking-statistics-project/data-comparison-sheet/ UNIFEM (2009). Facts and figures on violence against women. Retrieved on April 15, 2009 from http://www. unifem.org/gender _issues/violence_against_women/ facts figures.php?page=5. United Nations Office on Drugs and Crime (UNDOC) (2008a). UNODC launches global initiative to fight human trafficking. Perspectives Publication: No. 3. Retrieved on April 15, 2009 from http://www.unodc. org/newsletter /en/perspectives/no03/page009.html. _____________________ (2008b). Corruption and human trafficking: The grease that facilitates the crime, background paper for Vienna Forum to Fight Human Trafficking (February 13-15). _____________________ ( 2 0 0 9 ) . G lo b al r ep o r t o n trafficking in persons. Retrieved on April 16, 2009 from http://www.unodc.org /documents/Global_Report_on_ TIP.pdf United States Department of State (2008). Trafficking in persons report. Washington, D.C. Retrieved on April 15, 2009 from http://www.state.gov/g/tip /rls/ tiprpt/2008/. Van Impe, Kristof (2000). People for sale: The need for a multidisciplinary approach towards human trafficking, International Migration, Special Issue, 2000/1: 113131. Wille, Christina (2001). Thailand-Lao Peoples Democratic Republic and Thailand-Myanmar border areas: Trafficking in children into the worst forms of child labour. The Asian Research Center for Migration, Institute of ASEAN Studies, Chulalongkorn University for the International Labour Organization. International Programme on the Elimination of Child Labour (IPEC). Wong-Anan, Nopporn (2008). No light at end of Thai-Myanmar smuggling tunnel. Reuters (13 April). Zhang, Sheldon X., & Pineda, Samuel L. (2008). Corruption as a causal factor in human trafficking, in D. Siegel and H. Nelen (Eds.), Organized Crime: Culture, markets and policies. New York: Springer Science+Business Media.

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Corruption and Policy Outcomes in Indian States
Jennifer L.Bussell* Abstract The emergence of new information technologies in the 1990s sheds new light on a fundamental, but often flawed, role of government: the provision of public services to citizens. Low-cost, digital technologies offered prospects for increasing the effectiveness and transparency of government. However, policies to reform service delivery using new technologies differ both across and within countries, and the timing of policy initiation in particular has varied dramatically. Drawing on a new data set of technology policies in Indian states, the author uses event history analysis to show that political calculations drive variation in the timing of technology policy initiation. The character of the ruling governments constituency and the level of corruption in a state are found to be the best predictors of when states implement policies promoting computer-enabled services. Keywords: Corruption, India, public services, information technology 1. Corruption and Policy Outcomes in Indian States The emergence of new information and communication technologies in the 1990s sheds new light on a fundamental, but often flawed, role of government: the provision of public services to citizens. Low-cost, digital technologies were expected to provide opportunities for increasing the transparency and effectiveness of government. Developing country citizens were expected to benefit from the improved delivery of government services, such as issuance of identity cards, birth and death certificates, and licenses; payment of utility bills; the supply of welfare and redistributive goods; and general governmentcitizen communication (see, inter alia, Davison, Wagner, & Ma, 2005; United Nations, 2003; West, 2005; World Bank, 2004). The benefits of the new technologies were predicted to be greatest in countries where government inefficiency is rife and problems of corruption create major leakages of resources through the service delivery system. At the turn of the century developing country governments took up this opportunity with vigor and began to develop new systems for e-governance and digital technology-based service delivery (see, inter alia, Bussell, 2007; de Tolly et al. 2006; Madon, 2004; Satyanarayana, 2004; Heeks, 2003; and Bhatnagar, 2002). Yet these efforts exhibit significant variation. The timing of technology policies, in particular, has varied greatly across political units, both within and across countries. In India, the main subject of this analysis, subnational states, began to implement policies in the late 1990s to promote the use of computers and the Internet in delivering government services. Yet states varied in the speed with which they adopted these policies. Andhra Pradesh launched a computerized services policy in 1999, for instance, whereas West Bengal, a state with similar economic conditions, did not launch such a policy until 2003. By 2006, despite the substantial attention that technology policies had received in both Indian and international policy circles, 4 of 20 major states had failed to implement any version of a computer-enabled services policy.1 Figure 1 shows the cumulative adoption of policies over the period under consideration, and Table 1 categorizes the states according to policy timing.

University of California, Berkeley Mobile: +1-510-459-5151 Fax: +1-510-642-9515 E-mail: jbussell@berkeley.edu

*

This excludes the seven northeastern states and Jammu & Kashmir.
1

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Figure 1. Cumulative State Policy Adoption politicians, in order to identify what factors affect the initiation, or lack thereof, of computer-enabled services policies. 3 The paper shows that an explanation based on the dynamics of political incentives, and emphasizing the role of corruption in service provision, furnished the greatest analytical leverage for explaining the timing of policy initiation. 2. Federalism, Policy Implementation, and Technology-Enabled Service Center Policies This analysis focuses on the delivery of services through technology-enabled service centers,4 also known as telecenters, information kiosks, citizen information centers, or common service centers. These centers, which serve as a public outlet for computerized services, have been conceived as a potentially cost-effective model for improving service delivery (Badshah & Khan, 2003). For our purposes, these service centers are defined by three main components or characteristics. First, they deliver services to private individuals through the use of information technologies, in particular computers and the Internet. The services themselves may be public and/or private in nature. Second, the centers are dedicated, physical locations to which citizens can go to access services. While there may be related policies regarding service delivery via call centers, mobile centers, or mobile phones, computer-based service centers all involve service delivery at an immovable center through the use of information technology. Third, the combination of service delivery and dedicated centers produces a one-stop shop environment where there are services available from multiple government departments. Thus, the centers studied here effectively take the ultimate act of service delivery out of the hands of the originating
In all of these cases the presumed motivation for the policy lies at the state level, as it was not until 2006 that a related policy was implemented by the central government.
3

Table 1. Categorization of States by Timing of Policy Initiation2

Why is it that some states began the process of digitizing their service delivery as early as 1999, while others had still not done so by 2006? This paper uses event history analysis to examine the relationship between state-level characteristics and the timing of policy initiation. It found that, in the context of the Indian states, established explanations for subnational policy diffusion are limited in their explanatory value for the case of these new technology policies; neither state socio-economic development and levels of technology infrastructure, nor the previous implementation of similar policies in nearby states can explain the variation in when these new technology policies were implemented. Instead, it is necessary to examine the expected effects of these policies on established government stakeholders, in particular state
This categorization is a modified version of that developed by Rogers (1995).
2

I refer to the centers throughout as technology-enabled, computer-enabled, computer-based, and one-stop service centers.
4

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department and place it in the hands of service center operators. 3. The Argument It is argued that the observed variation in technology policy adoption results from the strategic calculations of political elites. Politicians attempt to utilize technology initiatives in order to maximize their chances of retaining power, but these policies have both potential benefits and costs. Thus, politicians evaluate the expected effects of policies on their potential for re-election, and when the balance of politicians calculations differs across states, we observe variation in the adoption of these policies. The potential advantages for politicians from technology policies stem directly from the benefits these initiatives can provide to citizens. By providing improved access to fundamental government services, the implementation of information technology policies may help politicians improve their chances of re-election by offering a clear example of their ability to serve the needs of citizens. As one citizen noted when patronizing a service center in rural Rajasthan, I am a lowly electrician in a textile mill and am hired on a daily wage arrangement. I cannot afford to waste a full day being sent back and forth between sundry government offices, without much hope that my job will be done (Raju Mali, as quoted in Tiku & Kulkarni, 2003). The computerized center which this citizen patronized made it substantially easier for him to access the government services he required. However, the potential costs to politicians from technology policies derive primarily from decreased income from corruption, due to more transparent service delivery. Corruption in India is seemingly endemic, with Transparency International India finding that more than 60 per cent of Indians have paid a bribe to receive a government service, amounting to more than Rs. 210 billion (approximately US$ 5 billion) in bribes each year across 11 different government departments (Transparency International, 2005, p.3). Inefficiencies in the traditional provision of government services create opportunities for the extraction of rents by bureaucrats and their political superiors; by disrupting established bureaucratic relations and streamlining the process by which citizens access government services, new technologies limit the ability of politicians to generate and appropriate these rents.5 More specifically, bureaucrats in India are the face of government, interacting on a daily basis with citizens and often demanding an extra fee to ensure the delivery of services. Bribes collected by bureaucrats, or at least a portion thereof, are likely to be passed on to politicians. In their analyses of Indian bureaucratic institutions, scholars such as Wade (1985) and de Zwart (1994) uncovered a sophisticated flow of bribes extending from the individual citizen through layers of the state bureaucracy and into the pockets of state politicians, who are then likely to use at least some of these proceeds to fund future elections. The structure of the bureaucracy supports this flow of funds through its model of bureaucratic transfers. State bureaucrats are given appointments at the behest of their superiors, who are ultimately controlled by the chief minister,6 the state minister overseeing their department or the current member of the state assembly representing their constituency (Wade, 1985; de Zwart, 1994). Because certain posts offer greater potential for bribes, bureaucrats are willing to pay their superiors to retain a lucrative post, or to gain a new post with greater promise of bribes. Politicians take advantage of this willingness to offer bribes for appointments (Wade, 1985) and, as Manor (1995, p.56) noted,
Following common definitions in the literature, I consider corruption to be the use of public office for private gain, where private gain can entail not just pecuniary gains, but also broader private interests, such as reelection.
5

Chief ministers in the Indian parliamentary system are the approximate equivalent of the prime minister at the state level and oversee policymaking in the state assembly.
6

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some legislators collect sizeable sums from bureaucrats who seek agreeable transfers. Computer-enabled service centers can stem the transfer of funds from bureaucrats to politicians by disrupting the collection of bribes. This reduction in corruption is largely expected to result from changes in current bureaucratic processes that simplify procedures, increase oversight, impose technical constraints on the sources of bribes, and generally reduce the frequency of government-citizen interaction. Improved record-keeping, the introduction of electronic queuing systems, and digital security systems are also expected to reduce the opportunities for bribe-taking. This disruption in the flow of funds to politicians poses an electoral threat, not simply an economic one. This is due to the structure, or lack thereof, of campaign finance in India.7 There is no explicit funding mechanism for elections to the state assembly. Parties give candidates tickets to run for a particular office in the state, but candidates must fund their own election without significant support from the party (for further elaboration, see Wade, 1985). While the Election Commission of India limits candidate expenditure in state assembly elections from Rs. 500,000 (about US$ 12,500) in small states to Rs. 1 million in large states (ECI 2007), political parties and supporters of candidates can legally spend unlimited amounts, thereby creating the potential for much higher spending if funds are available. This loophole indirectly allows for higher spending by the candidate, who can attribute expenditures above the limit to the party or friends (Iype, 2004), and encourages recourse to illicit funds. Given the high cost of running election campaigns, incumbent politicians who depend on bribe income to finance their campaigns will have incentives not to support the introduction of transparency-inducing technologies into service delivery channels. As a bureaucrat in West Bengal put it: One of the biggest issues or challenges for e-government and kiosks [service centers] is all of the people who will lose money from the new system, and politicians worry about loss of money (IT Department official, West Bengal government, personal communication, January 18, 2008). Based on this discussion, it may be expected that the two major factors affecting the timing of technology policy implementation will be politicians expectations of electoral benefits from the policy and their perceived threat from reduced corrupt income. The anticipated electoral response from constituents and the prevailing level of corruption in a state should have clear effects on policy implementation. Our explicit hypotheses regarding these variables will now be considered. 4. Ruling Government Constituencies In order to maximize the potential electoral benefits from technology adoption, it is expected that politicians would attempt to target policies at those citizens whom they expect will both see the greatest benefits from the policies and be likely to reward the ruling party for providing them with these benefits. In the case of one-stop service centers, the Indian media focus has tended to emphasize the potential benefits of these centers to poor and rural citizens who have traditionally faced the greatest barriers to accessing government services. Those parties with large constituencies among lower socio-economic categories may then be more likely to expect that these policies will appeal to their constituents. The Congress Party has a stronger historical base among the poor and rural voters than its main competitor the Bharatiya Janata Party or any of the other major parties (Kumar and McMillan, 2004). Thus, it is likely that the Congress Party will be more likely than other parties to implement policies to deliver services through one-stop centers.

This is not to say that politicians in other countries may not face a threat to electoral prospects from a reduction in corrupt funds, yet the details of the system are likely to work differently in different contexts.
7

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5. Corruption The importance of corrupt income to the political campaigns of incumbents provides a critical, and underinvestigated, explanation for the variation in timing of technology policies across Indian states. The level of bureaucratic corruption differs across states, and it is in highly corrupt states where we should see the greatest effect on policy timing. Politicians in these states are more likely to view these policies as a threat to their resources, which could put at risk their ability to use corrupt funds to contest in the next election. As a result, it is hypothesized that states with higher levels of corruption will be less likely to implement technology-enabled service center policies than states with lower levels of corruption, all else remaining equal. 6. Alternative Arguments Electoral Competition Other arguments in the established literature might lead us to believe that alternative political factors should contribute to decisions about policy timing. Analysts of policymaking in India, in particular, have emphasized variation in the number of parties active in the state legislature as a driver of policy outcomes (Chhibber & Nooruddin, 2004; Wilkinson, 2004). These analyses posit that the number of active parties in government, as a measure of electoral competition, affects the strategies of individual parties to target policy goods toward particular groups of constituents. When there are a small number of parties in the legislature, ruling parties have an incentive to provide broadly appealing policy goods. Ruling parties in states with a large number of parties in the legislature should be more inclined toward targeting goods toward smaller groups of constituents (Chhibber & Nooruddin, 2004). One-stop service centers are, in theory, expected to serve large segments of the population. Thus, based on these arguments, one might expect that ruling parties in states with a small number of seats (<3) in government would be more likely to implement service center policies. 7. Election Proximity According to observers in India, the initiation of the first major state service center project created an electoral incentive for other states to follow suit. As one bureaucrat put it, Chief Minister Naidus efforts [in Andhra Pradesh] set up the first really healthy competition between the states. Because this was a period when states were facing a lot of difficulties in other areas. This gave them an opportunity to prove their worth to their constituents and show that they could do it also (former IT Department official, Government of Rajasthan, private communication, May 5, 2007). Bureaucrats in most states also felt that politicians generally believed service center initiatives would be seen as something done to help citizens. The literature on policy diffusion argues that, when politicians expect an electoral benefit from a particular policy, they will be more likely to implement that policy in the period leading up to an election. Berry & Berry (1990: p. 406) found in their analysis of lottery policies that politicians do seek to adopt popular policies during election years, when the accompanying electoral rewards should be at their maximum. Because there is evidence that politicians in India did expect to receive an electoral benefit from these policies, it could be derived from this argument that the timing of policy implementation should be associated with the timing of state assembly elections and specifically that the likelihood of policy implementation should be highest in the 12 months leading up to an election. 8. Prior Policymaking When other political units introduce technology-enabled service centers, this may encourage additional policy implementation at the state level. This effect may occur between states or between states and their sub-state units. At the sub-state level, district-level administrators have in some places been proactive in using computers and the Internet to improve their ability to deliver services within their

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administrative domain. It is possible that, in states where local administrators have implemented computer-enabled service initiatives, state-level governments would be more likely to implement similar policies. The policymaking efforts by geographically close states may also influence later-adopting neighbors. Analysts have seen this dynamic as important both for policy diffusion across states and for diffusion from these subnational laboratories to the national policymaking level. Previous studies have typically argued that as states around state A increasingly enact a new policy, the likelihood goes up that state A will implement a similar policy. 9. Economic Conditions and Development In addition to political characteristics, previous analysts have emphasized a variety of socio-economic variables in attempting to explain the timing of policy enactment. These variables are included in the analysis largely to control for their effects while evaluating key political variables. Characteristics such as income per capita and a political units short-term economic health have been linked to the likelihood of policy implementation, especially those policies that would entail capital outlays on infrastructure and technology systems development (Berry & Berry, 1990; McNeal, Tolbert, Mossberger, & Dotterweich, 2003). According to these theories we should expect states with higher per capita income and smaller short-term fiscal difficulties to be more likely to implement technology center policies. Analysts have also investigated the role of development, as measured by education levels or life expectancy, in evaluating policy diffusion (McNeal, Tolbert, Mossberger, & Dotterweich, 2003). High levels of human development may reflect a historical tendency by the state government to invest in social welfare and indicate a greater likelihood to implement reforms intended to improve the provision of basic services. 10. Technology Infrastructure The intracountry characteristics of the digital divide may also be relevant. McNeal (2003, p.60) hypothesized that e-government initiatives would be more likely in states with high levels of Internet diffusion, as residents would be more likely to want services utilizing these technologies. The opposite is likely to be the case in India, as the policies considered here involve the provision of technologies in areas that might not otherwise have significant levels of technology diffusion. Therefore, states with low levels of technology penetration in homes may be more likely to implement information and communication technology (ICT)-enabled service policies. Unfortunately, good measures of computer and Internet penetration do not currently exist at the state level in India. However, measures of teledensity, that is, the number of telephone connections per 100 citizens, are available and should provide a reasonably good measure of overall technology infrastructure. Another measure of the digital divide is the number of software companies present in the state. Some observers have noted that software companies can encourage the government to implement governance policies, and so a large number of software companies per capita may be associated with earlier policy implementation. 11. Developing a Model of Policy Initiation The main analytic technique used for evaluating policy timing is event history modeling.8 This statistical technique enables an evaluation of what characteristics of states help to predict when a policy is implemented. Established largely in the fields of biology and engineering, event history analysis has increasingly been utilized by social scientists to investigate the timing of actions by social entities. As Box-Steffensmeier and Jones (2004, p. 1, emphasis in the original) put it, [u]nderstanding
8

Also known as survival analysis or duration modeling.

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an event history entails a consideration of not only if something happens, but also when something happens. In political science this has often meant the analysis of policymaking decisions by subnational or national political units. This technique is applied in this paper to data on the timing of computer-enabled service center policies within the Indian states. In an event history model the dependent variable is a measure of the time that units spend in a state before experiencing some event (Box-Steffensmeier & Jones, 2004, p.1). The model is then used to ask the question, What is the risk that a unit will experience this event at a given moment in time? When covariates are added to the model, the question is modified to ask, What is the risk at this moment, given the units measures on these covariates? As a result, through the use of event history models, [n]ot only can some claims be made regarding survival and risk, but also, explicit comparative inferences can be made regarding differences across the cases (Box-Steffensmeier & Jones, 2004, pp.3-4). The hazard rate for the model is the rate that defines the likelihood that units experience an event (for example, policy implementation) at a given moment. In the context of a Cox proportional hazard model (Cox, 1972), the value of the hazard rate at a given time, t, is calculated from the values of the explanatory values at time t (Box-Steffensmeier, 1996, p. 364). Once a unit has experienced the event of interest, it is dropped from the data and is no longer included in these calculations. Thus, for any moment in time the hazard rate is calculated based on the characteristics of those units that remain in the data set, otherwise know as a risk set, at that moment (i.e. those units still at risk of experiencing the event). The likelihood that any particular state will implement a policy at a given moment in time is then determined based on the scores of that unit on the included explanatory variables relative to all of the other units that have not yet experienced the event. The specifics of this model are discussed below. 12. Operationalizing the Variables Policy initiation is measured as the date of initial implementation of at least one computerized service center. This is the most appropriate measure for this analysis because, while it does not provide us with information on overall implementation, unless all of the centers are opened on a single day, it marks the public launch of the policy. Initiation of new government initiatives in India is typically marked by the participation of top government officials and significant media attention. For this reason these dates are both the easiest to confirm, and the most relevant in terms of the potential electoral effects for politicians, as these are the dates when the public will be made the most aware of a new government initiative. Overall, the public initiation date of a computer-based service center initiative provides the most reliable and theoretically useful date for measuring the timing of these policies. Thus, the question asked with this model is: What is the risk that a state will initiate implementation of a computer-enabled service center policy, through the opening of the first center, at a given moment in time? We collected the data for the dependent variable through interviews with state government representatives in 16 Indian states, and analysis of primary and secondary documentation for the 20 states included in the dataset.9 In the model, the dependent variable, Policy, is a dichotomous measure of whether a state implemented a policy in a given month/year. For the two main hypotheses about the role of corruption and ruling government constituencies, in addition to the control variables, we have attempted to find or develop appropriate measures in the context of the Indian states. State Corruption Level is a measure based on the
Interviews were conducted in the states of Andhra Pradesh, Delhi, Gujarat, Haryana, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, Uttarakhand, Uttar Pradesh, and West Bengal during the periods JuneJuly 2004, JanuaryMarch 2006, May 2007, and December 2007February 2008.
9

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results of a Transparency International survey of state-level corruption in India. This survey provides an indexed corruption score based on the presence of corruption in public service delivery across 11 departments. The survey asked individual citizens about both their personal experience with corruption in attempting to acquire services and their perception of corruption in government. This makes the survey particularly appropriate for the purposes of this analysis because the focus is explicitly on bureaucratic corruption in low-level service delivery, the area targeted by service center policies, rather than the higher-level corruption more often engaged in by top officials (Rose-Ackerman, 1999).10 The Ruling Party Constituency, State Competitiveness, and Election Proximity measures are based on election results and schedules, as tracked by the Election Commission of India. In all of these cases, the score for a state depends on the results of elections for the state assembly, which typically occur every five years, so these measures vary by state every five years.11 Ruling Party Constituency is a dummy variable that takes on a value of 1 when the Indian National Congress Party (INC) is the lead member of the ruling government. State Competitiveness is measured by the effective number of parties holding seats in the state assembly.12
The survey was conducted in 2005, six years after the initiation of the first service center policy. As a result, there is a risk of endogeneity with this variable because states that implemented early policies may have reduced their levels of corruption as a result of these policies by the time the survey was taken. While earlier state-level corruption scores are not available, I did test alternate measures of corruption from within the survey drawn from government departments that have not typically been addressed by these policies, such as the police. In general, these measures show similar results to those presented below using the indexed measure.
10

The Sub-State Initiatives variable measures the number of technology service center-type projects launched in a state prior to the state governments own policy. This measure varies by state and year. As noted above, district-level bureaucrats often launched these projects in order to improve local administration. The data for this variable are based on our own collection of information about these projects in the Indian states. The measure for previous policy implementation in contiguous states is a yearly measure of the percentage of states that are geographically contiguous to the state in question, which have already implemented a service center policy. This measure is constructed using the policy initiation dates from the dependent variable Policy. The economic variables are based on yearly state-level data from the Reserve Bank of India, with per capita measures based on the 2001 national census. The measure of socio-economic development that is used is from Indias National Human Development Report (2002). The indexed score varies by state (not year) and includes measures of state income per capita, literacy, rural versus urban population, and life expectancy. While economic factors are incorporated into the index, the inclusion of other development measures makes it worthwhile also to test this measure on its own. Teledensity is used to measure Technology Infrastructure, which is the number of telephone lines per 100 people. IT companies measures the number of IT companies in the state per capita. This measure is based on a voluntary survey of software and services companies conducted by the Indian National Association of Software and Services Companies (NASSCOM). Table 2 summarizes the measures used for each independent variable and its sources.
gives greater weight to parties holding a larger number of seats or receiving a larger number of votes. ENP is calculated by the formula n = 1/p i 2 where n = the effective number of parties and pi is either the proportion of seats received by each party in the state assembly or at the elections respectively.

In a given year only a portion of states will hold elections, so this measure changes in different years for each state.
11

Effective number of parties (ENP) is a standard measure of electoral competition that takes into consideration the number of legislative seats held by each party or the number of votes all parties received and is a weighted measure that
12

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Table 2. Variables and Measurements 13. Cox Proportional Hazards Model of Technology-Enabled Service Center Policy Timing The heart of this analysis is the event history model of policy initiation. The unit of analysis is the Indian state, of which there are 28 in India, 3 of which became states during the period under investigation. 15 Excluded from the analysis are eight states, the Northeast states and Jammu & Kashmir, owing to the implementation of an earlier national government initiative in those states in 2001. None of these states had implemented its own state-level policies prior to the national governments initiative. This leaves an N of 20 states, 16 of which had implemented policies prior to 2006 and 4 that had not.16 The type of event history model used for this analysis is a Cox proportional hazards model. The key benefit of the Cox model is that it does not require the analyst to predetermine a distributional form for the overall hazard rate (Box-Steffensmeier & Jones, 2004, p.47). Alternatives to the Cox model include parametric models, such as the Exponential, Weibull or Log, which require an assumption that the underlying hazard rate is a constant, monotonically increasing or decreasing, or shaped similarly to a log function, respectively. The Cox model, on the other hand, enables the distribution of the hazard rate to be determined by the data, rather than the analysts assumption. Theoretically, we do not expect the hazard rate
Jharkhand, Chhattisgarh, and Uttarakhand became states in 2000 when they were carved out of the states of Bihar, Madhya Pradesh, and Uttar Pradesh, respectively.
15

13 14

A normalized measure of the budget surplus (or deficit).

Indian states typically hold assembly elections every five years with the states spread out across the years such that in no year are all states holding an election. As a result, the number of observations for the election-dependent x-variables depends on the number of elections during the period of observation.

In general it would be preferable to have a larger sample for conducting an event history analysis. However, previous research on maximum likelihood estimation techniques in general and Cox proportional hazard models in particular show that the greatest risk in small sample analyses is a Type II error in which a false null hypothesis is not rejected. The risk of a Type I error, in which the null hypothesis is falsely rejected, is much lower, even in sample sizes of 20. The risk of both error types increases in sample sizes of about 10 (Hart & Clark, 1999).
16

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for enactment of technology policies to be constant or monotonic. Indeed, a slow start is expected followed by an increase in the hazard rate and subsequent dropping off at the end of the period. Because this theoretical expectation does not directly match the assumed distributional forms of any of the parametric models, it is more appropriate to utilize a Cox model in this case.17 In the context of a basic Cox model, the hazard rate for unit i is: hi(t) = ho(t)exp(x) associated with a 40 per cent increase in the hazard (risk) of the outcome under consideration. If the hazard ratio is less than zero, this implies that the variable is associated with a decrease in the baseline hazard rate. If the hazard ratio is . 78, then a one-unit increase in this variable is associated with a 22 per cent decrease (1 78) in the baseline hazard. The closer the hazard ratio is to one, the smaller is the effect of a change in the size of the variable on the baseline hazard. We initially conducted bivariate tests of each independent variable and policy enactment, in addition to testing restricted models with variables grouped into economic and political categories. In the bivariate analyses (results not shown) only the Corruption variable displayed a significant relationship with the timing of policy enactment. In the subcategory model for economic variables, only the Human Development Indicator variable is shown to have a significant relationship with timing of policy implementation. In the model for political variables, Corruption is the only variable with a statistically significant relationship to timing outcomes. When all of the variables are tested together, the National Human Development Index indicator no longer shows a significant relationship, but Corruption continues to be significant, and Technology Infrastructure and Ruling Party Constituency also display statistically significant relationships with policy timing. The results for each of these models are shown in Table 3.18 14. Interpreting the Results The first major result of the analysis is that economic variables cannot explain variation across states in the timing of policy implementation, nor can policy diffusion from contiguous states. None of the estimated hazard ratios on State Domestic Product, State Budget Surplus, Primary Sector, Human Development Index or IT companies are significantly different
In the table I have provided hazard ratios, rather than coefficients, in order to simplify interpretation.
18

where the baseline hazard rate is ho(t) and the regression parameters and covariates are x (Box-Stenffensmeier & Jones, 2004, p.48). Another way of presenting this relationship, which will help in interpreting the results of the model, is: log(hi(t)/ ho(t)) = b1x1 + b2x2 + +

Partial likelihood estimation is then used to analyze the ordered failure times of the units and their related covariates to estimate coefficients for the model. As can be seen from the above equation, the coefficients are related to the log of the hazard ratio. In other words, eb1 is equal to the hazard ratio for the variable x1. Thus, to calculate the hazard ratio for a specific variable it is simply necessary to calculate e to the power of the coefficient. Once the hazard ratios are known for each variable, their interpretation is relatively simple. If a predicted hazard ratio in the model is greater than 1, this implies that as the variable increases, an increase in the hazard rate would be expected and, thus, the likelihood of policy implementation. For example, if the hazard ratio for a variable is 1.4, then a one-unit increase in that variable is
I conducted the same analyses as presented here using a parametric model based on a natural log distribution. The natural log model produced largely similar results with the same variables exhibiting significant relationships as what is found using the Cox model.
17

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Table 3. Computer-enabled Service Center Policies: Cox Proportional Hazards Model from zero in the full model, and only the hazard ratio for the National Human Development Index is significant in the restricted model (without political variables). The hazard ratio for Technology Infrastructure (teledensity) is significant in the full model, but the ratio itself is nearly zero, indicating no additional effect on the baseline hazard ratio. Policy diffusion, as proxied by policy adoption in contiguous states, does notexplain variation in the timing of policies; the hazard ratio for Contiguous State Policy is insignificant.20 On the other hand, while economic variables do not explain policy adoption, the variables measuring Corruption and Ruling Government Constituency play a robust role in predicting the implementation of computer-enabled service center policies across states. The effects of these variables on the likelihood of implementing a technology-enabled service center policy are substantial and in the predicted directions. In the full model, with the relative corruption levels of the states scaled from 0 to 10, the hazard ratio for the Corruption variable is .33. In accord with the above discussion, this means that a one-unit increase in the level of corruption is associated with a 67 per cent decrease in the baseline hazard rate for the state. This means that if two states are the same across all other variables, but one has a corruption score of 4 and the other has a corruption score of 5, then the risk that the state with a corruption score of 5 will implement a service center policy is 67 per cent smaller than that of the state with a score of 4, all else being equal. Ruling Party Constituency is also statistically significant in the full model. As predicted, having the Indian National Congress as the lead party in a state (be it as a single party or
Of course, as discussed above, it may be that policy diffusion works through other mechanisms, for example the spread of media reports via the Internet, that state contiguity does not pick up.
20

Note: Entries are estimated Cox model hazard ratios, with z-ratios in parentheses. *p < .05 **p < .0

There is no corruption score available from the 2005 Transparency International survey for the state of Goa, therefore this state is excluded from models where the corruption variable is included. A more recent survey of state-level corruption in India placed Goa in its most corrupt (Alarming) category (Transparency International, 2008). Thus, given that Goa did not implement a service center policy before 2006, it is unlikely that the results would change if Goa were included in the full model.
19

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the lead party in a coalition) makes it more likely that a state will implement a technology-enabled service center policy, relative to non-Congress Party states, at a given moment in time. A move from a non-Congress-led state to a Congress-led state is associated with a 120 per cent increase in the baseline hazard rate. Among the alternative political explanations, a higher number of parties holding seats in the state assembly is associated with a decrease in the baseline hazard rate, but this relationship is not statistically significant. The relationship between policy implementation and election timing shows an above zero hazard ratio for the 12 months prior to an election, but it is again not viable for us to judge this relationship to be different than zero. 15. Conclusion These findings provide important insights into the role of political incentives in processes to increase the use of new technologies in developing countries, and in efforts to reform public service delivery in general. In particular, the character of the ruling party and the level of corruption in a state exhibit strong relationships with the timing of policy initiation. For analysts of corruption, this has important implications for considering the ways in which new technology may, and may not, be helpful for increasing transparency in service delivery. Because these policies can disrupt established patterns of rent-seeking for corrupt politicians, practitioners must look to the causes of corruption, such as high levels of electoral competition combined with ineffective policing of campaign spending, rather than simply rely on new technological tools. Unless the root causes of corruption are addressed, the results of this research suggest that implementation of policies intended to use technology to reduce corruption are least likely to succeed in those states that have high pre-existing levels of corruption. References
Berry, F. S. and Berry, W. D. (1990). State lottery adoptions as policy innovations: An event history analysis. American Political Science Review, 84(2), 395-415. Bhatnagar, S. (2002). Lessons from egovernment in developing countries. Regional Development Dialogue, 24. Box-Steffensmeier, J. (1996). A dynamic analysis of the role of war chests in campaign strategy. American Journal of Political Science, 40(2), 352-371. Box-Steffensmeier, J. and Jones, B. S. (2004). Event history modeling: A guide for social scientists. New York: Cambridge University Press. Bussell, J. (2007). Electoral competition and digital development in India and South Africa. Proceedings of the IEEE/ACM International Conference on Information and Communication Technologies for Development (ICTD2007). Chhibber, P. and Nooruddin, I. (2004). Do party systems count? The number of parties and government performance in Indian states. Comparative Political Studies, 37(2), 152-187. Cox, Sir D. (1972). Regression models and life tables. Journal of the Royal Statistical Society, Serial B, 34, 187-220. Davison, R. M., Wagner, C. and Ma, L. C. K. (2005). From government to e-government: A transition model. Information Technology and People, 18(3), 280-299. De Zwart, F. (1994). The bureaucratic merry-go-round: Manipulating the transfer of Indian civil servants. Amsterdam: Amsterdam University Press. Electoral Commission of India (ECI) (2007). Handbook for candidates. New Delhi: Media Coordination & Publication Section, Electoral Commission of India. Hart, R. J. Jr. and Clark, D. H. (1999). Does size matter? Exploring the small sample properties of maximum likelihood estimation. Presented at the Annual Meeting of the Midwest Political Science Association. Heeks, R. (2003). Causes of egovernment success and failure: Factor model. Accessed June 1, 2006, from eGov4Dev. org http://www.egov4dev.org/causefactor.htm Iype, G. (2004). How much does an election cost? Rediff Election Special, March 25. Accessed March 10, 2008., from http://www.rediff.com/election/2004/ mar/26espec.htm.

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Madon, S. (2004). Evaluating the developmental impact of e-governance initiatives: An exploratory framework. The Electronic Journal on Information Systems in Developing Countries, 20(5), 1-13. McNeal, R. S., Tolbert, C. J., Mossberger, K., and Dotterweich, L.J. (2003). Innovating in digital government in the American states. Social Science Quarterly, 84(1), 52-70. Rogers, E. (1995). Diffusion of innovations. 4 th ed. New York: Free Press. Rose-Ackerman, S. (1999). Corruption and government: Causes, consequences, and reforms. Cambridge: Cambridge University Press. Satyanarayana, J. (2004). E-governmentthe science of the possible. New Delhi: Prentice-Hall. Transparency International (2005). India corruption study. New Delhi: Transparency International India. Transparency International (2008). TII-CMS India corruption study 2007: Key highlights. New Delhi: Transparency International. United Nations (2003). World public sector report: E-government at the crossroads. New York: United Nations publication, Sales No. E.03.II.H.3. Wade, R. (1985). The market for public office: Why the Indian state is not better at development. World Development, 13(4), 467-497. West, D. (2005). Global e-government 2005. Retrieved June 1, 2006 from Inside Politics, http://www.insidepolitics. org/egovt05int.pdf. Wilkinson, S. (2004). Votes and violence: Electoral competition and ethnic riots in India. Cambridge: Cambridge University Press. World Bank (2004). World development report: Making services work for the poor. Washington, D.C.: World Bank and Oxford University Press.

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A Review of Chinas Tangible Construction Market: A Mechanism to Curb Corruption in Public Procurement
Lotte Beck* Abstract This paper is aimed at describing and analyzing the role of Chinas Tangible Construction Market, or the TCM, as an institutional mechanism to curb corruption in public procurement of construction projects. The TCM is a bid invitation management system for construction projects which regulates bidding activities. This unique approach exists only in China. The information for this research project was collected during a trip to China where the author conducted interviews with 20 experts in anti-corruption and public procurement. Important results of this research trip are presented and analyzed in this paper. Keywords: Tangible construction market, public procurement, corruption, construction, China 1. Introduction Owing to its intricate nature, the construction market is most susceptible to corruption. It is nearly impossible to keep track
University of Passau Innstrae 27, Zimmer 109 94032 Passau, Germany. E-mail: lieselotte.beck@uni-passau.de Tel.: 0049 (0)851 509 25 53 Fax: 0049 (0)851 509 25 52 The author would like to thank the following people. Without their kind support the realization of this paper would not have been possible: Mr. Cai Wei and Mr. Zhou Congyuan from the Chinese Ministry of Supervision, who invited the author to China and made it possible for her to visit the TCMs in Beijing and Dalian and to conduct interviews on site. In addition, Prof. Cheng Wenhao from the Tsinghua University was of great help in finding interview partners in the academic field. Thanks to the translations offered by Ms. Dong Xiaoyan it was possible to conduct interviews with non-English-speaking people. The author would also like to thank everyone who took the time to give an interview as well as Mr. Bi Kewei and Ms. Deng Fu.
*

of the entire network of actors involved in public procurement of construction projects and it is a major challenge to control how public money is spent. Thus, corruption can occur easily and be hidden relative effectively (Stansbury, 2005, pp. 36-37). If one wants to curb malpractice in the construction field, procurement institutions that work very well are essential. To meet this challenge, a unique solution called the Tangible Construction Market, or the TCM, was introduced in the Chinese construction market. The TCM is a mechanism that enforces existing legislation. It is a bid invitation management system, which offers one-stop purchasing services supported by electronic facilities to avoid personal contact between involved parties (Zou, 2004, p. 184). It regulates bidding activities and it is aimed at providing an efficient and transparent market environment. The purpose of this paper is to explain the structure and working process of the TCM and analyze whether it is a useful mechanism for curbing corruption in public construction projects. The organization of this paper is as follows: section 2 provides information on the empirical approach of the research project. Section 3 highlights the organizational structure of the TCM and explains its working process. In section 4, it is analysed whether the TCM is capable of curbing corruption in public procurement. Section 5 concludes the paper. 2. The Empirical Approach In order to explain the empirical approach of the research project, chapter 2.1 provides information on the scope of investigation. Chapter 2.2 continues with revealing the survey design. 2.1 The Scope of Investigation All activites concerning public purchase can be summarized in a standard procurement

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process as defined by Transparency International (Wiehen & Olaya, 2006, p. 17). This process consists of five stages which are visualized in Figure 1. Figure 1: A Standard Procurement Process always being developed and often involve complicated networks of secret relations. This is especially true for environments lacking transparency, such as the construction market. It is impossible to describe each single shape that corruption can take. However, some important areas of risk, which offer room for manipulation during the conduct of public procurement, are mentioned in Table 1. Table 1. Areas of risk in the five stages of the standard procurement process In China public procurement involves many different public institutions and agencies besides the TCM. They have various functions, which can be categorized along this standard process. The operational area of the TCM specifically covers the bidding activities, which occur in the second and third stages of the standard process. It includes all activities ranging from the publishing of the procurement notice to the award of a contract. This paper concentrates particularly on these stages by explaining the structure, functions and services of the TCM. The study focuses exclusively on construction projects that are subject to public bidding. According to Chinas law on bid invitation and bidding, this includes all construction projects that are financed completely or partly with State owned funds or financed by the State, as well as projects using loans or aid funds from international organizations or governments of other countries (Bidding Law, article 3(2)-(3)). Public purchase activities of construction projects are in particular vulnerable to corruption, as they are complex and highly specific ventures which involve huge investment sums. In this context, corruption is understood as the misuse of public power for private benefit (Lambsdorff, 2007, p. 1). In order to be corrupt one has to be creative to ensure the successful manipulation of a contract award. New forms of corruption are

Source: TI Handbook for Curbing Corruption in Public Procurement (2006), pp. 18-20.

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These risk factors should be kept in mind if corruption is to be curbed. They give some idea of the many forms that illicit manipulation can take during public procurement. Besides, they demonstrate that it is worth looking into the unique approach of the TCM to analyze if it is capable of curbing corruption in public bidding. 2.2 Survey Design Owing to the fact that only a few written documents exist about the TCM, other than those in the Chinese language, the collection of information was done through interviews. Therefore, 20 experts in the field of anti-corruption and public procurement were interviewed during a research trip to China. Two different groups of experts were considered. First, the focus was put on experts who have extensive knowledge covering anti-corruption work and public procurement in China, all of them being professors from the Tsinghua University in Beijing. The information gathered during these conversations constituted the contextual basis for further interviews. The second type of experts selected included people that were directly involved in some field of activity of the TCMs located in Beijing or Dalian. These specialists formed the main part of the group of interviewees. The group existed of officers from each department of the TCM. It also included one civil engineer who presented the point of view of the bidders. Each one of the second type of experts held a key position within the TCM and fulfilled a specific function during the TCM bidding process. By sharing their experience and the knowledge they had gained during direct participation in the procedures, these insiders were able to provide the information needed for this paper (Meuser & Nagel, 1991, pp. 443-445). Table 2. Sample of interviewees

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Note that in this paper interviews are citied by mentioning the name of the interviews partner followed by a number. The number refers to table 2 which lists all interview partners. In case a person expressed the wish not to be mentioned with his or her name he or she is cited as anonymous. In spite of the considerable effort made to find more participants from the supplying sector, that search was unsuccessful. One reason may have been the sensitivity attached to the topic of corruption in China. Consequently, the present study emphasizes the point of view of the public sector. Nonetheless, the perspective of each and every market participant is relevant in order to furnish a complete inside view on the problem of corruption in the Chinese construction market. Reading the present study, this research limitation has to be kept in mind. The information collected was analyzed on the basis of a qualitative approach, using Mayrings content analysis (2002, pp. 114-117). To this end, two objectives were pursued. First, the institutional structure and functions of the TCM as a facility for regulating public procurement in the Chinese construction market were established. Second, on the basis of this information, the TCM was analyzed in terms of its capability to curb corruption in the construction market. The results of these investigations are presented in the following section 3. and 4. 3. The Tangible Construction Market The TCM is a building in which all bidding activities related to public construction projects take place. It offers one-stop services, meaning that all public offices and agencies involved in the bidding process have an office within the TCM building and they provide all services on-site at a fixed location (Zou, 2004, p. 184). TCM buildings exist all over China and they are operated on the municipal, provincial and national levels. Until 2006, among the 336 existing Chinese cities 325 had already established a TCM (Guo, 2006, p.14). All public projects with Whereas the Trade Centre provides market participants with services during the bidding procedure, the Bidding Management Department supervises the entire bidding process and approves the qualifications of all parties involved in the market activities. Besides the services of the Trade Centre and the supervising role of the Bidding Management Department, the TCM provides a lot of venues for several operations. This includes meeting rooms for opening bids, a closed-to-the-public evaluation area, a single contract worth over 2 million Yuan, or a total investment of 30 million Yuan, must be announced in the specific TCM subordinated to the council in whose jurisdiction the project is planed to be constructed (anonymous [7]). The organizational structure of the TCM consists of two main departments, namely the Trade Centre and the Bidding Management Office. Figure 2 depicts an organisational chart of the TCM and lists all its offices. Figure 2. The Tangible Construction Market

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a sealed room to keep bidding documents, a closed-to-the-public archive and various information facilities where all market participants can receive an inside view of the current market situation (anonymous [10], anonymous [14]). 3.1 The TCM Bidding Process In order to provide a clear overview of the involvement of all the above-mentioned offices and the roles they play, this chapter outlines the TCM working process. The working process can be divided into 11 stages, which are illustrated in figure 3. At each stage, several actions have to be completed successively. Along the way, procurement participants have to approach various TCM offices to conduct the bidding activities in accordance with regulations and standards. We continue with a description of the 11 stages by stating the main operations corresponding to each stage. Figure 3. The TCM Bidding Process 3.1.2 Publication of the Procurement Notice Once the bid inviter completes the registration, he or she can hand in the procurement notice to the Bidding Supervision Office where staff revises the documents to ensure that the procurement notice has been prepared in accordance with the general standards. If the procurement notice has been prepared correctly, the Bidding Supervision Office, with the help of the Information Office, publishes the relevant advertisement on the TCM website, on computer terminals located in the TCM building and at the TCM information hall (anonymous [10], anonymous [13]). Thereafter, the bid inviter prepares a declaration of prequalification requirements, which is filed at the Bidding Supervision Office. This document will be needed again when the Bidding Supervision Office has to examine whether companies have been selected carefully during the pre-qualification process (anonymous [12]). 3.1.3 Registration of the Bidders If a construction supplier wants to take part in bidding for publicly procured projects, he or she has to register at the TCM, too. During registration, basic information about the company is required. Construction companies are divided into four groups, A*, A, B, and C, according to their technical capabilities, their past performance, their financial capability, and their company assets. Those companies rated as A* may take part in all bids, whereas construction suppliers in group C are limited to offering services only to small projects (anonymous [15]). 3.1.4 Preparation for Prequalification Once suppliers have been classified into a certain group, they can search on the TCM website or via the computer terminals for projects in which they are interested. If they find an appealing project announcement they can request that they be included in the bidding process. To do so, they must complete a standard application form by using the computer terminals

3.1.1 Entrance Registration First of all, the inviter of a public bid has to register at the TCM building. During the entrance registration that person has to prove that he or she possesses the licenses and approvals required for completing a certain public project. The Bidding Service Office conducts the registration, whereas the Bidding Supervision Office is responsible for ensuring that all activities are completed correctly (anonymous [13]).

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or the TCM website. Their electronic application will be accepted only if the project is suited to the group in which they are registered. 3.1.5 Implementation of Prequalification After having been accepted, the construction company needs to pass prequalification selection procedures before it would be eligible to take part in the bidding. This process requires the constructor to prepare a bid-proposal in line with the specific request defined in the procurement notice (anonymous [7]). During the expert interviews conducted to collect the information for present study, different information had been provided on how and where the prequalification is organized. Thus, it is not possible to give detailed information on the conduct of prequalification. But all the interviewees agreed that the bid-inviters must submit reports on the selection criteria, together with all the written materials that had been obtained during the prequalification process, to the Tender Supervision Office. The Bidding Supervision Office double-checks whether the selection was carried out in accordance with the prequalification requirements that had been filed at that office in advance. Only if that is the case are the prequalified companies informed in writing about their admission to the bidding process (anonymous [12]). 3.1.6 Preparation for Bidding To continue, the bid inviter has to device the tender documents and submits them to the Tendering and Contract Management Office. The tender documents comprise a booklet made available to all suppliers, summarizing the information that they need to prepare their bids. The documents have to include instructions for bidders to inform them about all the project requirements, the conditions of the contract, and all the project specifications. Furthermore, the tender documents include instructions to the evaluators describing the evaluation criteria, and they include a timetable with information about the time and venue of the most important activities of the bidding process (Zhang Zhihui [6]). If the bid inviter changes the requirements described in the tender documents, he is obliged to report the adjustments to the Tendering and Contract Management Office, as well as to the bidding parties not later than 15 working days before the deadline for bid submission (anonymous [8], anonymous [12], and anonymous [19]). Subsequently, it is the duty of the bid inviter to inform the Tender Service Office about the planned date for the opening of the bids. The Tender Service Office books a bid-opening room and a room in the evaluation area, which is closed to the public. Besides, the bid inviter has to apply for arranging the selection of a group of experts from the municipal expert tank one working day before the actual evaluation takes place. This so-called tank of experts is a list of all regional specialists in the field of construction provided by the human resources department of the city council. The experts are divided into several groups according to their specific field, and are registered in an electronic database known as the expert tank (anonymous [8]). These experts are the only ones who are able to evaluate the bids for public construction projects. The selection of experts from the expert tank is done one day before the evaluation or on the day of the evaluation. Nobody knows the name or any other personal information about the chosen experts. They are selected randomly with the help of computer software. An automatic sound system calls a randomized expert and asks him if he has time to come to the TCM on a certain date. If the expert has the time and wants to join the evaluation team, he is asked to type key number 1 on his telephone; if he is not free, he would touch key number 2 (Wong Xiaohui [9]). The experts are provided with only basic information, such as the place and the date of an evaluation. Detailed information is not given to the experts until they have entered the non-public evaluation area (Zhang Zhihui [6], anonymous [16]). Before bids can be opened and evaluated, all bidders have to deposit a tender entry security to ensure that they have good intentions. The amount would be returned to

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them if the process could be finalized in accordance with all the relevant laws and regulations. 3.1.7 Opening of the Bids The bid opening takes place on the date indicated in the tender documents, under the supervision of the Tendering and Contract Management Office. On the day of the bid opening, or one working day before the bid opening, bidders lodge one copy of their bidding documents with the Tender Service Office and a second copy at an external place, as specified in the tender documents. A third copy is to be brought along to the bid-opening room. All three copies of the bidding documents have to be enclosed in an envelope and sealed with the official company stamp. In order to conduct the bid-opening, authorized representatives of the bidders and the bid inviter, as well as the TCM supervision staff, meet at the bid-opening room. The bid opening follows standard procedures (anonymous [7], anonymous [8]). At the end of the bid opening, the chairman closes the meeting and asks the bidders to bring their bids to the entrance of the closed-to-the-public evaluation area. The evaluation generally starts 20 minutes after the bid opening has finished (anonymous [12]). 3.1.8 Evaluation of the Bids Experts can access the evaluation area only after having their fingerprints taken at a computer terminal featuring a recognition system, which is placed next to the entrance of the evaluation area (Deng Xiaomei [5]). Once the fingerprint has been verified, the computer indicates the room where the evaluation is to take place. Experts have to enter the area before 9 oclock in the morning. If an expert is more than half an hour late, he or she is refused permission to enter the area and is excluded from the evaluation of the bids. If this happens, the expert tank can be browsed in order to locate experts living close to the TCM. Again the system selects an expert randomly using the automatic call mechanism and requires him or her to come to the TCM within 30 minutes of the call (anonymous [11]). Not until the experts enter the evaluation area will they receive information on the project to be evaluated. In the evaluation room they will meet the other members of the evaluation committee for the first time. The bid assessment is done in an anonymous way and no name or identification is attached to the bidding documents. Before the evaluation can begin, video-surveillance of the room is switched on and the video is broadcasted to a supervision room located inside the evaluation area. This is a room equipped with a large-screen television where supervisors can sit and watch the experts evaluating the bids. Experts conduct a review of the bids according to the tendering documents. The assessment is done on a multicriteria basis, which can be divided into technical and economic aspects (Zhang Zhihui [6]). Each of the experts appraises each bid and gives scores in accordance with the evaluation criteria. The average of all scores constitutes the final score based on how the bidders are ranked (Zou, 2004 p. 188). In addition to these functions, the experts are to check the bidding documents for collusion or any hint of collusion. If they find anything suspicious, they stop the evaluation process and transfer the documents to the Bidding Management Office where a special investigation is set up. If collusion is proven, the expert who signalled the Bidding Management Office of this matter will receive 20 per cent of the insurance that had been deposited by the bidders earlier in the process (Wong Xiaohui [9]). Before the experts come to a final decision, they often need additional information clarifying certain aspects of the bids. For this purpose, they can call at the clarification room located in the TCM outside the evaluation area. These clarification rooms look like telephone booths. In each of them one supplier has to wait for requests on his or her documents. The

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telephone is connected to loudspeakers so that all the experts of an evaluation committee can follow the discussion with a certain bidder. At the end of the evaluation the experts identify the three companies which scored the highest. Experts are not allowed to leave the evaluation area before they come to a final decision. In case they need more than one day to assess the bids, the area provides overnight facilities. Experts prepare a list naming the best bidders and submit it to the Tendering and Contract Management Office, which will publish the outcome of the evaluation in the TCM information hall for at least five days (Zhang Zhuhi [6]). During this time, the public has the opportunity to hand in appeals to the Practice Regulation Office if unsatisfied with the outcome of the assessment (anonymous [16]). 3.1.9 Selection of the Winning Bid Contracts can be awarded only after any default problem has been dealt with or if no serious complaints have been submitted. The bid inviter makes the selection of the winning bid within 15 days of the evaluations conclusion. The public bid inviter must choose the best of the three bidders recommended by the experts. If he or she does not accept that selection, the next best supplier is chosen (anonymous [8]). 3.1.10 Signing of the Contract The contract has to be signed within 30 days after it has been awarded. In the end, the winning bidder has to prepare a written report about the bidding process and submit it to the Tendering and Contract Management Office. In addition, the contract between the bid inviter and the supplier must be filed together with the letter of award, the tendering documents, duplicates of the contract and letter indicating power of attorney. The Tendering and Contract Management Office checks to ensure that the information contained in the bidding documents is also used in the contract. Furthermore, it proves if the name of the supplier mentioned in the contract is the same as the one of the selected winning bidder. After having received and checked all these documents, the Tendering and Contract Management Office sends a letter with its comments to the contracting parties. The TCM staff advices the parties of their duty to keep the Tendering and Contract Management Office informed about any amendments influencing the realization of the contract (anonymous [8]). 3.1.11 Preparation of the Invoice Services To cover its overheads the Trade Center charges the winning bidder 0.11 per cent of the final contract. All the services and the various facilities provided at the Trade Centre can be completely financed by utilizing this source of income (anonymous [17]). 3.2 Handling Complaints By law, all participants involved in public procurement must have the opportunity to report complaints at any time (Bidding Law, Article 65). It is the task and function of the Practice Regulation Office to deal with dissatisfied market participants. For this purpose, a telephone and mailbox were set up for reporting dissatisfaction. Complaints may address any part of the bidding process (anonymous [10]). At this stage, the description of the functions and services of the TCM are completed. The explanations given in section 3 will be examined in the following section 4 in order to analyze the capability of the TCM to curb corruption in public procurement. 4. The Capability of the TCM to Curb Corruption The TCM meets the fundamental requirements necessary to prevent corruption. It successfully fulfils its role as a law enforcement mechanism in many areas (Zou, 2004, p. 190). An important advantage of the TCM is that all bidding activities have to take

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place inside one building where all necessary services are provided. This arrangement is of considerable help in affording an overview of all the market activities involved. It simplifies the implementation of reasonable regulations and standards. The sophisticated composition of the TCM provides a high level of transparency where needed to create a level playing field (e.g. information hall). At the same time it ensures anonymity when it is helpful to support fair procedures (e.g. evaluation area). Besides, the problem of speed money becomes less important as the market participants can easily walk from one office inside the TCM to another office. The pressure of time, which is the basic cause of people paying speed money, loses its impact. Concerning the organizational structure of the TCM, its division into Trade Centre and Bidding Management Office explicitly separates administrative tasks from supervision and control. Thus, the TCM is based on a mechanism of checks and balances. In cases of malfeasance, the probability of detection increases as various offices monitor whether the relevant rules and regulations have been fulfilled. The danger of being detected by a well-implemented supervision mechanism has a preventive influence on corruption. The development of the Trade Centre, as a unit capable of covering its own income and expenses, has provided those involved in building contracts with an administrative body equipped to work free of political influence. Its status in this regard supports the maintenance of good governance in public procurement (Ren Jianming [2]). Within its scope, the TCM creates a level playing field for market participants, offering proceedings that are transparent owing to the high level of predefined standards and information available. All the activities follow a bidding process that is designed in an efficient and economical way. The division of power and duties throughout the bidding process stands out positively. It hinders public officials from maintaining too much discretionary power that could be abused for private interests (Weber Abrano, 2003, p. 22). As the entire process is managed and controlled by computer software, the TCM provides a further suitable and effective control mechanism (anonymous [8]). At this stage, it is suggested that the bid submission be integrated into the software-based process, too. The establishment of an electronic submission procedure with a secure logbook would enable the prevention of bid rigging after the bids have been submitted (Lengweiler & Wolfstetter, 2006, p. 7). In particular, the innovation of the expert tank and the closed-to-the-public evaluation area proved to be very useful to prevent the assessment from being manipulated. Through different arrangements, the evaluation area is closed to the public and access to the area is allowed exclusively to the randomly selected experts (anonymous [16]). Hence, these arrangements ensure that the experts opinion on a bid cannot be influenced through a third party and that the specialists assess each bid thoroughly on the basis of their expert knowledge. The evaluation is conducted in total isolation and anonymity (Zhang Zhihui [6], Deng Xiaomei [5]). This endows the evaluation committee with sufficient discretionary power, without fear arising that the experts might misuse their function. It is beneficial that clear evaluation criteria are defined a priori in the tender documents which the experts have to follow strictly (OECD, 2006, pp. 18-19; Trepte, 2004, p. 76). The installation of the clarification rooms enables experts to address questions to the suppliers during the assessment process. Bidders are obliged to sit inside the previously mentioned telephone-booths in cases when experts need clarification on bids. Transparency is ensured as the cells are video-supervised and experts can make conference calls only via telephone loudspeakers so that the entire evaluation committee can listen to all telephone calls. Personal conversations between experts and bidders are not possible; thus, manipulation through these conversations can be excluded. The conversations not only help the evaluation committee to judge the bidding documents in a more detailed way but also assist in uncovering

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malpractice through the asking of strategic questions. If a supplier answers in a suspicious way, the TCM evaluation committee becomes more careful in assessing the documents for hints of malfeasance (Wong Xiaohui [9]). Furthermore, the implementation of the complaint mechanism is very useful as any party can report malpractice at any time. Complaints often serve as the first hint of malfeasance and, thus, they are a useful self-policing mechanism. In view of the above-mentioned aspects, it can be seen that the TCM is a useful institution for curbing corruption during public procurement in the construction market. Illegal trading advantages are very difficult to create within the TCM bidding process. However, considering the fact that corruption in the Chinese construction market is still a serious problem, it becomes obvious that this mechanism needs improvement. Therefore, in the following discussion, various areas are highlighted where the potential for enhancement was identified. First of all, the practical success of the TCM, as far as its ability to curb corruption is concerned, highly dependents on how the system is implemented in different regions of the country. Despite the fact that national legislation covers public procurement, many regulations that have an impact on the functions and services of the TCM are determined at the provincial and local levels. Thus, while the principal concept of the TCM is the same throughout China, practical enforcement can vary in different regions. Only if the TCM works on the basis of uniform regulations throughout the entire country can it be ensured that the TCM is able to successfully curb corruption in the Chinese construction market (OECD, 2006, p. 13). In order to ensure the thorough provision and correct functioning of TCMs country-wide, it would be helpful to establish a central agency which is in charge of procurement regulation in the Chinese construction market. Furthermore, in section 2, it was shown that there are many high-risk areas throughout the procurement process, whereas the TCM bidding process covers only a limited area of all the aspects involved. Consequently, the TCM alone cannot ensure the successful prevention of corruption because it does not cover the entire procurement process. Therefore, it is recommended that the scope of the TCM be expanded so that it includes all five stages of the process. In addition, some improvements are suggested concerning areas which are already within the field of functions of the TCM. In this context, it is important to determine a clear and standardized method of prequalification to support fair and transparent proceedings. It is suggested that a committee be established comprising members from the expert tank which conducts the pre-selection of constructors in the evaluation area of the TCM. This would help to prevent the misuse of information exchanges during the prequalification process and to realize the same positive achievements that have been attained during the evaluation stage. An important challenge facing the TCM will be overcoming the lack of capacity in various areas (Guo & Lian, 2005, p. 131). This especially refers to the closed-to-the-public evaluation area. In large TCMs, all the evaluation rooms are occupied during some busy periods and the assessment cannot start directly after the bid-opening procedure. Once the bids have been opened, they become especially vulnerable to corruption, as all bidders then know each others offers. Some of them might consider offering a bribe as their only chance to win the contract. Only if sufficient evaluation rooms are provided could the risk of manipulation between the time of the bid opening and the evaluation stage be minimized. In conclusion, it is recommended that not only should the suppliers and the bid inviters be required to register with the TCM but also consultants and financial institutions should do the same. In the establishment of corrupt networks

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both parties play an important role, but they are not yet integrated and monitored in the TCM bidding process. During registration, it should be required that all players prove their past adherence to honest business practices. Implementing a mechanism that would control all actors business integrity in the past could make their future involvement in public construction projects dependent on having a good record. This could constitute an incentive for companies to establish a good reputation (Klitgaard, 2000, 132). Companies could be requested to implement a code of conduct for their businesses as a necessary condition for them to take part in public procurement. In this way, it would be emphasized that the establishment of good governance practices is an indispensable standard for taking part in public procurement. 5. Conclusion This paper describes the organizational structure and the working process of the TCM. It shows that the establishment of the TCM constitutes a step forward in curbing corruption in the Chinese construction market. It has been demonstrated that the TCM is able to provide the strong institutional support necessary to foster integrity during bidding activities; however, the TCM fails to cover all stages and activities of the public procurement process. For this reason, in its current stage of development, the TCM on its own is still not sufficient to eliminate the problem of corruption. Important strengths and weaknesses of the TCM approach have been outlined and suggestions have been made for improving the system.
Guo,Y.(2006).National Integrity System-Transparency International Country Study Report China 2006, TI Berlin Guo, Y. and Lian, R. (2005). Corruption in Chinas booming construction sector. In Rodrigeuez, D.,Waite, G., & Wolfe, T. (Eds.), Global corruption report 2005. London: Pluto Press, pp. 131-133. Klitgaard, R. (2000). Corrupt cities. Oakland: ICS Press. Lambsdorff, J.Graf. (2007). The institutional economics of corruption and reform. Cambridge: Cambridge University Press. Lengwiler, Y., & Wolfstetter, E. (2006). Corruption in procurement auctions. In Dimitri, (Piga, G., & Spaganolo, G. (Eds.), Handbook of procurement Cambridge: Cambridge University Press, pp. 412-429. Mayring, P. (2002). Einfhrung in die qualitative Sozialforschung. Munich, Germany: Beltz. Meuser, M., & Nagel, U. (1991). ExpertInneninterviews vielfach erprobt wenig bedacht. In Graz, D., & Kraimer, K. (Eds.), Qualitative-empirische Sozialforschung Opladen, Germany: Westdeutscher Verlag, pp. 441-471. Stansbury, N. (2005). Exposing the foundations of corruption in construction. In Rodrigeuez, D., Waite, G, & Wolfe, T. (Eds.), Global corruption report 2005. London: Pluto Press. pp. 36-50. Trepte, P. (2004). Regulating procurement. Oxford: Oxford University Press. Weber Abramo,C.(2003).Prevention and detection in bribery-affected public procurement. Tranparencia Brasil Working paper, September 2003. Wiehen, M., & Olaya, J. (2006). How to reduce corruption in public procurement - The fundamentals. In Kostyo, K. (Ed.), TI Handbook for Curbing corruption in public procurement Berlin: Transparency International, pp. 13-99. Wittig, W.A. (2005). Good Governance for Public Procurement: Linking Islands of Integrity, OECD Paris,. ZOU, P. (2004). The tendering process of construction projects in China: A critical review. International Research Symposium on Advancement of Construction Management and Real Estate. Hong Kong, pp 181-195. Law of the Peoples Republic of China on Bid Invitation and Bidding (The Bidding Law). OECD (2006). Curbing corruption in public procurement in Asia and the Pacific. Manila: Asian Development Bank. An online version can be obtained from:www. adb.org/Documents/ Books/Public-Procurement-AsiaPacific/public-procurement.pdf

References

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Problems in Trans-Boundary Recovery and Return of Assets or Proceeds of Corruption from the Perspective of Thailand
Visoot Tuvayanond* 1. Introduction In the wake of recent developments in international law and state practice with regard to the worldwide combat against corruption, a global consensus has been reached that elimination of the incentive to commit corruption via the trans-boundary recovery of diverted assets and their proceeds is, inter alia, one of the most efficacious means to deter corruption and deprive offenders of financial resources that could be used to commit other crimes and corruption more discreetly and with more subtlety. 1 This conviction is unequivocally and explicitly shared by Thailand. Hence, this country recently developed a two-pronged strategy to tackle problems in the trans-boundary recovery and return of looted assets and proceeds of corruption. The first strategy deals with problems in the recovery and return of assets and their proceeds from overseas. The second deals with problems of such recovery and return from Thailand by a foreign country. As far as Thailand is concerned, both strategies will always be confronted with several hurdles in the domestic laws and regulations of Thailand and in international law. In many ways these hurdles are similar to and different from each other. Although they are essentially legal problems, whether their outcome would be positive or negative often is contingent upon the political will and motivation of the persons holding the leverage of the policymaking authority of the countries involved and upon the preparedness of the law enforcement agencies of such countries to address them. With regard to the zeal and actions of Thailand in this matter, the iconic turning point was the resolve of the Thai government to accede to the UNCAC in order to halt rampant corruption and to rectify the countrys tarnished image. The author will endeavor to single out and individually address many salient elements that obstruct and frustrate the achievement of objectives in this area, especially regarding the inadequacy of Thailands institutional and legal frameworks to deal effectively with the impediments inherent in this realm, with a view to proposing pragmatic and workable solutions thereto. 2. Hurdles for Thailand The problems that Thailand faces in the trans-boundary recovery of assets and their proceeds are substantially the same as in other third world countries: to wit, the inadequacy of preparedness in the countrys legal and institutional frameworks, and lack of financial resources and the expertise required to conduct an operation of this kind efficiently. In effect, once it accedes to the Convention, it is foreseeable that Thailand will encounter both legal and practical problems among other hurdles in the trans-boundary recovery and return of the assets and proceeds of corruption from aboard. The legal problems that it may encounter could be both in international law and the domestic laws of the countries from which it seeks the recovery and return of the assets and proceeds of corruption, as well as in its own domestic laws. The practical problems and how to deal with them will be contingent on the policies, resolve and political will of all the countries involved in this operation.

Former ambassador and full-time lecturer of law at Sripatum University Law School, Thailand. E-mail : ambvs@yahoo.com 1 That is the reason why the United Nations Convention against Corruption (UNCAC) regards the return of looted assets as a fundamental principle of this Convention, and the States Parties to it are required to afford one another the widest cooperation and assistance in this regard (cf. Article 51 of UNCAC).
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2.1 Legal Problems for Thailand Given the extraneous nature of this type of operation, the legal problems and complications should normally be in international law, such problems in the domestic laws of Thailand and of the countries from which it seeks the recovery and return of such assets and proceeds, could nonetheless be of substantial importance too. This is because they can give rise to several dilemmas for policymakers and influence the available options concerning the strategies to be adopted in order to pursue the best course of action. With regard to problems in international law, the very first of these that Thailand will encounter is that implementation of certain undertakings under the UNCAC will require special agreements between Thailand and the countries from which it seeks to recover assets and proceeds. For instance, the enforcement of the foreign confiscation order or allowing other States Parties to the Convention to seek a confiscation order in a domestic court, and parallelly where foreign and domestic orders are sought to freeze or seize assets, mutual legal assistance treaties (MLATs) and agreement on the recognition of foreign judgments and confiscation orders are needed. The most significant problem for Thailand in this respect is that, to date, the country has never concluded treaties on the recognition of foreign judgments and confiscation orders with any country; it has concluded mutual legal assistance treaties with only a handful of countries. Thus, Thailand can request legal assistance for the recovery of the loot of corrupt high-level officials and politicians only from such countries whose legislation permits them to give legal assistance to foreign countries, even in the absence of MLATs, provided that problems related to mutual recognition of foreign judgments and confiscation orders could also be overcome. With regard to the legal problems associated with Thailands domestic laws, although state practice has evolved from the earlier principle that the confiscating state had exclusive proprietorship over the confiscated assets and proceeds, under the Convention the requesting state could call on the confiscating state to consider returning the assets and proceeds to the requesting state. However, any such consideration is still entirely discretionary and the confiscating state is allowed to deduct reasonable costs from the proceeds before they are returned. The requesting state may nonetheless encounter reluctance from the confiscating state to cooperate fully in the assets recovery process. Hence, a practice has been adopted of offering an incentive in terms of asset sharing in addition to the deduction of reasonable recovery costs to ensure the full cooperation of the state making the request. Although from a practical point of view, such a practice may be justifiable, with the rationale being that without personal interest in the deal the confiscating state may not be zealous in cooperating, the adoption of such a practice may not be altogether in keeping with the prevailing Thai legislation and therefore not entirely feasible legally. From the standpoint of Thailand, in cases of grand corruption the whole country is deemed to have been victimized en mass, so the recovered funds must be paid back to the government and used for the betterment of the country. As the countrys assets, the recovered funds must be disposed of under the financial laws and regulations of the country; however, the current financial laws and regulations do not provide for asset sharing. Therefore, disposal of part of the recovered assets for such a purpose may not be legally doable. Asset-sharing would, therefore, require the enactment of implementing legislation, failing which the problem of seeking the cooperation of a country from which Thailand seeks to recover assets would remain a stumbling block. Moreover, even the mere accession of Thailand to the UNCAC, which is a fundamental legal framework for international assets recovery, may precipitate legal problems with regard to both the domestic laws of the country and international law. In the context of international law, in view of the fact that the Thai legal system has adopted the dualist approach,2
According to the dualist school of thought, an international treaty requires implementing legislation to be applicable on an internal plane.
2

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implementing legislation would be required if there is no enabling legislation to cover all commitments made under a convention such as the UNCAC. Even if the inability to implement some commitments of the Convention could be tolerated on the international plane, intransigence on the internal plane may be politically motivated and could thwart Thailands accession to the UNCAC, especially under the prevailing political circumstances. Thus, the accession of Thailand to the UNCAC is unlikely in the near future, unless the government administration could persuade Parliament to condone some imperfection in this matter. Nonetheless, the trans-boundary recovery of assets would still be possible, but only in certain cases and only on a make-shift basis. Several safe havens exist that corrupt officials and politicians could still choose for hiding their loot and the proceeds of their corruption; there are also shortfalls in Thailands efforts to eradicate corruption that would also serve to frustrate recovery efforts. 2.2 Practical Problems for Thailand in the Recovery of Assets from Abroad As for the practical problems and impediments, the major factors that could serve as a drawback for Thailand in its trans-boundary recovery attempts to have the diverted assets and their proceeds returned from abroad are often related to the policies and political will of the country involved. Such problems may also be due to the inadequacy of the countrys preparedness in terms of human resources; for example, the specialized technical expertise required in this field is extremely limited and normally provided by private lawyers whose services are very expensive. The inadequacy of Thailands preparedness is also related to its legal and institutional framework in this field of international cooperation, which is relatively new for Thailand. In effect, even at this point in time, Thai public authorities are still disputing over their respective legitimacy to be the competent authority of the country for the recovery of the assets and proceeds of corruption. To date, three public authorities have been dealing with this matter separately, namely the Office of the National Anti-Corruption Commission (NACC),3 the Office of the Attorney General, and the Anti-Money Laundering Office (AMLO), but only on a make-shift basis, since none of them could legitimately claim to be officially and exclusively in charge of this mission. In this connection, the Office of the Attorney General asserts that, since it as the National Central Authority has been conferred by law the task of performing duties related to extradition, it de facto also acts as the international contact point for the trans-boundary recovery of looted assets and proceeds of the crime. This is a parallel function in that the person whose extradition is sought would have transferred such assets overseas; therefore, the recovery of those proceeds from crime is closely related to the extradition of the person concerned. 4 The thinking is that it should, therefore, be allowed to continue to perform the task because this parallel function of its duties is after all already known to foreign countries. Similarly AMLO contends that it would be more suitable to serve as the responsible authority for the recovery of such assets and proceeds, especially those related to corruption owing to the fact that, in cases of so-called grand corruption, corrupt high-ranking officials and politicians often try to conceal and defeat the tracing of diverted assets through money laundering. Thus, as specialists with expertise in this area, AMLO would be more apt to out-perform any other public authorities in recovering looted assets and the proceeds of corruption. In spite of the pertinence of these arguments, the NACC seems to have even more compelling arguments since effecting the recovery and return of assets and the proceeds of corruption is widely recognized as the most efficient deterrent to corruption. The Commission forms an essential part of the national anti-corruption apparatus, and the tasks

The NACC was established by virtue of the organic law under Section 18(8) of the Constitution of the Kingdom of Thailand, B.E. 2550 (2007).
3

Because a safe haven for the looted assets and their proceeds and for the offender is an incentive for the commission of further crimes.
4

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which are conferred upon the NACC by organic law prevail over any other parliamentary acts. The NACC should therefore be the competent authority for the trans-boundary recovery of assets and their proceeds, or at least the focal point for the coordination of such efforts among Thai public authorities and the contact point for international cooperation in asset recovery operations. Another argument in favor of the NACC in this connection is that the Commission is, by resolution of the Council of Ministers, in charge of Thailands accession to the UNCAC and its subsequent implementation. Consequently, given that the recovery and return of looted assets and their proceeds form an integral part of the fundamental principles of the Convention, the NACC should logically be the Central Authority, rather than a mere focal point in this matter. A fortiori, as NACC is the responsible authority for the adherence of the country to the UNCAC, who else would other States Parties to the UNCAC contact if not the NACC? Currently, Thailand is still working out a cogent solution to this controversial problem, the awaited outcome of which is being temporarily stalled by the ongoing political unrest in the country. Pending a positive outcome of this endeavor, the actions of the Thai authorities in the trans-boundary recovery of looted assets and their proceeds will inevitably remain fragmented, or perhaps inefficient, 5 unless the three authorities strike the proper balance between their opposing interests so that this bickering can be settled amicably. 3. Problems in the Tracing of Assets and the Proceeds of Corruption As in any other third world country, at the initial phase of Thailands recovery operation one of the major problems for the country was tracing the diverted assets and
The scandal involving Rakesh Sakxena is a case in point, where only a symbolic amount of the proceeds of the crimes could be retrieved; this is an example par excellence of such a flaw and scenario.
5

proceeds of corruption. Normally, such a task is complicated by the fact that major corruption usually occurs when the key machinery of the country or the very country itself is controlled by corrupt politicians and high-ranking officials. In such cases accurate information about the assets looted from the state treasury is very difficult to obtain, and this is the principal drawback in attempting to trace the diverted assets and proceeds of corruption, especially when they have been laundered and cleverly concealed by experts with adequate time and control of the countrys machinery at the very moment that such corruption occurred. They can effectively defeat efforts to trace the money and complicate its seizure and recovery. Besides, expertise in money-laundering has been developed to a high degree and the enormous amounts of proceeds involved in grand corruption make it possible for perpetrators to hire troops of highly competent asset-laundering experts to conceal the loot and their proceeds, which makes tracing such money even more complex and much more expensive. Such situations give rise to a set of problems, the successful solution of which depends very much on the political will and policy of all the countries involved. 4. Problems of Policy and Political Will of Interested Countries As mentioned previously, efficiency and success in the trans-boundary recovery and return of such assets and proceeds very much depend on both the policy and political will of all the countries concerned. Lack of political will on the part of the confiscating country is the major drawback and common barrier to the successful recovery of diverted assets. Strong political will and commitment on both sides is, therefore, essential for a successful recovery operation. Countries from which assistance in the recovery of assets and their proceeds is sought might be reluctant to cooperate either for fear that the recovery operation could be politically motivated and designed to settle old accounts with political

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enemies or opponents, or they could also be merely reluctant to move against powerful interest groups such as major banks. This is especially so where the banks in question are not only holding the proceeds, but may also have been involved in facilitating their transfer, or where such countries stand to gain immensely in the event that the proceeds deposited in the banks are definitively unrecoverable after the death of the corrupt politicians or the high-level officials who had held the bank accounts in question, which is far from being a rare and unusual case.6 5. Dilemmas for Policymakers in the Recovery of Assets and the Proceeds of Corruption Among the major dilemmas that Thailand has had to face in its trans-boundary assets recovery operations are those relating to the cost of asset recovery operations, as well as to the choice of strategies to adopt in implementing the recovery operations. 5.1 Dilemma over Trans-boundary Asset Recovery Operation Costs With regard to the financial factor, which is the first difficult dilemma for the country, its root cause can be traced to the fact that normally, during the time when the corruption occurred and the proceeds were exported, the corrupt high-level officials involved had controlled key state agencies and functions, including law-enforcement agencies, banks and other financial institutions, thus making it difficult to acquire accurate information about the corruption case, which is a major handicap in the tracing of the assets and proceeds of such crimes. The direct involvement of high-ranking officials or leaders of the country themselves in corruption can decisively thwart any actions that the country might otherwise take. Besides, the diverted assets and their proceeds are usually laundered and meticulously concealed by highly competent
Such was the case involving the assets that a Laotian general had deposited in a Swiss bank. To date, over 35 years after his death, neither the Laotian government nor his heirs could recover those assets. This is a good example of such a scenario.
6

experts in money laundering. Furthermore, in order to conceal and defeat attempts to trace the money and to complicate its seizure and recovery, the diverted assets are frequently transferred to many different countries, which further complicates the efforts to trace and seize them, a fortiori, because most countries, including Thailand, normally do not allow foreign lawyers to practice law and handle cases in their domestic courts. When coupled with the differences in the local laws of such countries, this situation makes retention of local legal counsels inevitable. However, because the retention of legal counsel in Western countries could be exceedingly expensive, this constitutes one of the major hurdles for Thailand in such an exercise. The costs in mounting trans-boundary asset recovery operations in Western countries are often exorbitant. For instance, the average fee for the retention of legal counsel in the United Kingdom is 300 per person/hour.7 An operation of this type requires extensive use of human resources, and asset recovery operations, especially in the case of grand corruption, may take years to conclude.8 (By contrast the cost of a decent meal for the average Thai person is only 2.) When such high fees are combined with the posting of financial advances/rewards, which may be needed in several countries, to compensate the defendants in the event that the civil action is unsuccessful, the total cost of an asset recovery operation would be exceedingly high and difficult for Thailand to meet. After all, a third world country like Thailand often lacks the resources required to mount international asset recovery operations. The dilemma from which Thailand must extricate itself is to determine whether it would be worthwhile to take the risk of not being able to recover the high costs of such an operation from its attempt to have its assets returned. Spending such a great deal of money in advance on private lawyers based on the uncertain hope of actually being able to recover the costs would
7 8

Quotation of two British law firms in London.

In at least two pending cases of embezzlement and fraud, the operations for trans-boundary recovery of the assets deriving there from have been dragging on for almost a decade.

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not be so easy to explain to parliament and the general public. The policymakers of the country are thus faced with a delicate dilemma over whether or not to pursue the proceeds of the corruption and the assets deriving there from, as most countries do in cases of major corruption, in spite of such uncertainties. There are, in effect, two quite different options from which Thailand must choose. First, it is widely recognized that the recovery of the financial and other proceeds of corruption is a form of punishment and a means to eliminate the incentive to commit corruption if offenders can be deprived of the financial resources that could be used to commit other crimes and further corruption. Recovery is thus one of the most efficacious means to deter other corruption. Hence, the financial factor and the successful recovery of what has been diverted from the country and its people can very well be less important to a countrys decision-makers than the sanctioning and imprisonment of the offenders, especially where the settlement of old accounts with their political enemies and opponents constitutes a hidden agenda, regardless of the fact that most third world countries often lack the resources needed to mount such an exceedingly onerous legal recovery operation. This option in the dilemma consists, therefore, in going ahead with asset recovery operations in spite of the risk of the recovered assets being drowned by the high cost of recovery operations. The aim is primarily to penalize the offenders. Second, major corruption cases usually involve principally the pursuit of the proceeds or other assets deriving from the corruption. Normally new governments of the countries previously victimized by major corruption cases maintain that, as mentioned previously, the whole country and its people have been victimized en mass so the proceeds of corruption must be recovered and returned to the government and used for the betterment of the country and the people. In such cases financial considerations and cost-effectiveness would be the prime concern of the countrys policy. Thus, the successful recovery of what had been looted from the people could be more important to the public and policymakers of the country than obtaining convictions for all the criminal acts involved and the imprisonment of the offenders. It is for this reason that offenders may be offered immunity from prosecution in exchange for the fullest collaboration that would lead to the optimum recovery of the looted assets and their proceeds.9 Financial concerns and the cost of asset recovery operations could thus be the decisive factor regarding the countrys policy whether to back off or proceed with those recovery operations, notwithstanding their extremely high costs. Hence, in seeking recovery of the diverted funds, the country is obliged to choose between seeking justice in the punishment of the corrupt politicians or officials and successfully recovering the looted assets. It is therefore a matter of policy for the country to decide on which alternative to pursue. There has never been a fixed pattern in the practice of Thailand in this regard. The countrys policy is variable and is contingent upon the resolve of the policymakers at a point in time. There is no denying, however, that sometimes a new government may be committed to neutralizing the ousted corrupt leader in exile by trying to bring him to justice and to eliminate any threat he poses by confiscating and recovering the largest amount possible of the looted assets. Under such circumstances, recovery operations would be mounted regardless of their costs in the options equation. Another difficult policy question for the country is the dilemma over the selection of the appropriate strategies for reflecting the method for recovery of the assets and their proceeds, because the legal factors that Thailand has had to take into consideration in trans-boundary asset recovery depend largely on the legal systems of the countries in which the assets are located. This is the decisive factor in choosing the mode of recovery, that is, civil or criminal recovery,
Which is commonplace as a practice of the Thai police in spite of the fact that there is no law that authorizes such a derogation.
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each of which presents advantages and disadvantages, depending upon whether the country in question is a common law or civil law country. For instance, in a common law country, Thailand would choose civil recovery as it is advantageous for the country. A civil claim usually requires a lower burden of proof; in civil proceedings the link between the looted assets or their proceeds and the criminal acts at their origin needs to be established only on the ground of balanced probabilities, and a judgment in absentia may be issued in cases where the defendant fails to appear. A major disadvantage of civil action is that such an approach could be very complicated and exceedingly expensive for Thailand. Owing to the differences in the local law of the country where the looted assets are located, the retention of local legal counsel is indispensable, yet retention of such experts could be exceedingly onerous. Besides, in some cases it is also legally impossible for a state to bring civil action in another country. The advantage of criminal recovery is that criminal law generally provides investigators with privileged powers regarding access to information both at the national and international levels, making it easier to overcome bank secrecy and to obtain orders to freeze accounts. Another clear advantage of the criminal recovery approach is that it involves a lower level of financial resources on the part of the requesting state, because most of the investigative work would be undertaken by the law enforcement agencies of the other country. Furthermore, States Parties to the UNCAC are mandated to provide each other with assistance and cooperation in criminal cases. However, criminal recovery is not without disadvantages, since the actual confiscation and refunding of the assets to the victims may prove more complex than in civil recovery, because most legal systems still require that the illicit origin of the proceeds of corruption be established beyond a reasonable doubt. The choice of method for recovering the assets is thus a frustrating dilemma for Thailand, a fortiori when to date, asset recoveries have been fragmented and carried out separately by three different authorities not coordinating with each other, and not having a central authority with adequate expertise in this area to consistently choose the method of recovery that would best protect the interests of the country. 5.2 Problems for Thailand in the Trans-boundary Recovery of Assets and Proceeds from Thailand by Foreign Countries Although Thailand has never been known as a safe haven for the concealment of illicit assets, and it is unlikely that large amounts of foreign assets of dubious origin would be deposited in banks in Thailand, because banking secrecy in Thailand is not sacrosanct as it is in Switzerland. It is well known that the laundering of large amounts of foreign assets of illegal origin is far from being rare in Thailand. Therefore, the recovery from Thailand of such assets and the proceeds of crime could also be just as important as recovery from abroad. The problems for Thailand, as the country being requested for the recovery of assets and their proceeds from Thailand by foreign countries, as well as for a requesting foreign country, or for both, can be legal (in terms of both international and domestic laws) and practical. 5.3 Legal Problems As in the case in the recovery by Thailand of assets from foreign countries, the major problem in the recovery by a foreign country of assets from Thailand under international law is that the implementation of some of the mandatory provisions of the UNCAC in Thailand lacks the required special agreements between Thailand and the countries seeking the recovery and return of the proceeds of corruption. An example would be the agreements on the recognition of foreign judgments and confiscation orders that, to date, Thailand has not concluded with any country. Thus, given that the Thai legal system is a dualistic regime, such a treaty and its enabling or implementing legislation are required for the application of the treaty in the Thai legal system. The confiscation of assets and their proceeds in Thailand by force of foreign

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judgments and confiscation orders is not legally possible. Thus, asset recovery by a foreign country must be done by direct recovery, whereby the requesting state must file a lawsuit in the competent Thai court in order to prove its ownership of the property in question. Thailand has so far concluded MLATs with only a few countries. Therefore, the countries that have not concluded such treaties with Thailand could seek legal assistance for the recovery of illegal assets from Thailand only if their law permits reciprocity in this matter even without MLATs and treaties on mutual recognition of the judgments and confiscation orders of foreign courts. Yet, even in such a case, under Thai law it is still at the entire discretion of Thailand to choose whether or not to give the requested assistance. Problems in the domestic laws of the country are just as hard to overcome. In effect, although Article 53, subparagraph (a) of the UNCAC requires the States Parties to take the measures necessary to ensure that other States Parties may file civil claims in each others domestic courts to prove their ownership of the properties which have been acquired by an offence established in accordance with the Convention. Subparagraph (b) of the UNCAC requires that measures to ensure that the courts of all States Party have the power to order the payment of damages to other States Parties. Sub-paragraph (c) requires that measures to ensure that the courts considering criminal confiscation also take into consideration the civil claims of other States Parties. Direct civil recovery of illegal assets in Thai courts by foreign countries or governments in compliance with the UNCAC is still not legally possible because under Thai law the states and governments are not vested with juristic personality so they do not have a locus standi and competence to be a party in litigation in Thai courts. Besides, under Thai law, without agreements on mutual recognition of judgments and confiscation orders of foreign courts and MLATs, confiscated assets belong to the state and, as such, they must be turned over to the state and not to the requesting countries. 5.4 Practical Problems in the Recovery and Return of Assets to Foreign Countries One of the major practical problems in the recovery and return of assets or their proceeds to foreign countries is that, in the absence of a central authority for such purposes, the recovery of assets or their proceeds in Thailand by foreign countries is fragmented and usually done on a makeshift basis. Often their success depends on personal connections with the Thai authorities with whom they are dealing. Recovery operations are thus carried out without any coordination between the public authorities concerned. Hence, the level of their efficiency is often mediocre owing to the lack or the inadequacy of the required expertise for such complicated operations, especially if the assets and their proceeds were professionally laundered by highly competent experts, and the property-based confiscation regime under prevailing legislation has not been superseded by a value-based confiscation regime, which is currently still in the process of being enacted. The major hurdles in the restructuring of the public authorities involved in the recovery of assets are as follows: First, there are budgetary implications in the establishment of a new public authority, which run counter-current to the policy of the government to reduce the number of government agencies and public authorities, especially those which are redundant and may involve the allocation of additional budget and the recruitment of more staff. The policy of the government is to try to reduce the staff of the administration through its early retirement program. In this respect it should be noted that it is precisely in order to eliminate redundancy that such a central authority should be set up. Second, in all likelihood, the public authorities currently involved one way or another in asset recovery would surely be not pleased to relinquish their power in this matter; they may insist on maintaining the status quo, in which case only the government could arbitrate. However, because there would surely be political bickering and power struggles in the Government itself; ultimately the minister in charge of the three

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interested authorities have the final say in this regard if he/she had the necessary leverage in the current coalition government. Under such circumstances, it would surely take some time before the central authority in question could be put into place. In the meantime, Thailand and the countries seeking the recovery of assets in this country would still have to endure the inconvenience of not having a focal point in this matter. 6. Conclusion Asset recovery and return operations, especially in cases of grand corruption, could be very complex and delicate, requiring the assistance of highly competent technical experts in this specialized field, that are very scare in Thailand. Thus, the course of action that Thailand should take in this matter is not to tarry in acceding to the UNCAC as soon as possible and not to wait for the enactment of comprehensive implementing legislation for every residual commitment not yet covered by the three major implementing acts. This is a much less urgent matter in view of the fact that the acts already permit the implementation of all core principles of the UNCAC, and the other States Parties should have no interest in impeding the adherence of Thailand to the UNCAC. The implementation of the said residual commitments could always be gradually accomplished at a later stage. Accession to the UNCAC would make Thailand eligible to benefit from the assistance and technical training offered under the UNCAC, which would better equip the NACC with the required expertise and the technical know-how for the efficient recovery of the assets and proceeds of corruption. The national authority for asset recovery should be put into place expeditiously in order to facilitate trans-boundary asset recovery in conjunction with other States Parties to the Convention in order to optimize the achievement of the objectives of the States Parties in their global efforts to eradicate corruption worldwide. The creation of a central authority for the recovery of the assets and proceeds of criminal activities may prove to be complicated and controversial. In all likelihood, the two other government agencies which have also been dealing in some capacity with asset recovery may not easily relinquish their powers in this connection. Furthermore, since asset recovery was formerly just part of NACCs duties not the centerpiece in the suppression of corruption, the Commission has not been allocated much in the way of the financial and human resources needed for the purpose. However, now that asset recovery has become a major legal device to deter and suppress corruption, the financial and human resources currently at the disposal of the NACC for this task no longer suffice; they need to be increased as soon as possible through the recruitment of more staff to meet the new requirements in this field of international cooperation. With regard to budgetary matters, committing a certain percentage of the assets recovered in corruption cases to strengthening the institutional and legal anti-corruption framework is quite common in other countries and by far the most feasible means for allocating the necessary funds.10 As for the human resources aspects, apart from the recruitment of more staff, the acquisition of expertise through the overseas training of NACC staff by means of international cooperation is highly recommended. Besides, with so important an investment, the mandate of the central authority might as well be expanded to encompass the proceeds of all sorts of crimes and not just the proceeds of corruption, by using the terms of assets and their proceeds instead of assets and proceeds of corruption. Such a central authority should be established by legislation to ensure the full cooperation of all agencies concerned, public and private. Pending the advent of that authority, the NACC should be conferred the task of acting as the focal point for all international asset recoveries, and to that end,

Because it does not tamper with the normal course of the annual budget allocation by the Parliament; therefore, it is less exposed to opposition.
10

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the government should do whatever it takes to ensure that the public authorities currently involved in asset recovery cases effectively coordinate and cooperate with each other through the NACC in these matters. Wherever political will11 is weak, there is little chance that the complex legal and factual problems typically occurring in asset recovery cases will be overcome. Attention should also be paid to the fact that the pecuniary gains from the reduction, if not eradication, of corruption will largely surpass the expenses incurred in strengthening the NACC so that it will be able to recover illicit assets and their proceeds.
Boonchalermvipast Swang & Team (2008). Preparedness of Thailand for the implementation of the United Nations Convention against Corruption. Bangkok: Deantula. Constitution of the Kingdom of Thailand B.E. 2550 (2007). Section 18 (8) and Section 190. http://en.wikipedia.org/ wiki/ Constitution_ of_/Thailand. Foreign BusinessAct, B.E. 2542 (1999). http://en.wikipedia. org/wiki/Foreign_Bussiness_Act_of_1999_(Thailand). Thai Lawyers Act, B.E. 2528 (1985). http://chiangmai2. mofcom.gov.cn/ aarticle/lawofhostcountry/ invesmenthost/200811/20081105897053.html. United Nations Convention against Corruption (2003). Article 51, 53 http://en.wikipedia.org/wiki/ United_ Nations_ Convention_against_Corruption

References

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Both at international and domestic levels.

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The United Nation Convention Against Corruption and Income and Asset Declaration
Richard Messick* The United Nations Convention against Corruption (UNCAC) requires States Parties to consider establishing policies requiring officials to reveal to appropriate authorities . . . their outside activities, employment, investments, assets and substantial gifts or benefits (Article 8, UNCAC). The World Bank has advised a number of countries on whether an income and asset disclosure program is an appropriate response to the corruption issues they face, and if so, what type of program they should establish. Assistance has ranged from advice on drafting legislation and furnishing model disclosure forms to providing financial and technical support to an agency created to administer the program. In drawing on this experience and studies under way by several Bank units, this paper describes the issues policymakers should weigh in deciding whether to adopt a financial disclosure law, and if so, what provisions it should contain. 1. Should Public Officials Disclose their Finances? Although international experience suggests that a financial disclosure regime can be an important element in an anti-corruption program, there are drawbacks to requiring public servants to disclose their finances. How the trade-offs should be weighed varies from country to country, and, in deciding whether the advantages outweigh the disadvantages, policymakers would want to evaluate them against the backdrop of their own countrys history, law, and political traditions. 1.1 Advantages Mandating that officials divulge information about their finances may reduce corruption in several ways. Disclosure enables a public employees wealth to be monitored. If periodic disclosures show an unusual increase in assets or extravagant expenditures, the employee can be asked for an explanation. In addition, when managers know what assets an employee owns interests in firms, real estate, and so forth they can determine when the employees participation in a decision may be colored by personal interests, and thus when he or she should be excluded from the decision-making process. Financial disclosure cannot stop those determined to accept bribes, award themselves public contracts, or otherwise loot the public purse. What it can do is deter the less determined, those tempted to steal from the public but fearful that their wrongdoing might later be revealed. It can also help honest employees by reminding them and their managers when they should abstain from participating in a decision because it could affect their interests. Finally, it can bolster confidence in government by reassuring citizens that conflicts of interest are being policed and public employees finances scrutinized. Financial disclosure laws are an important tool for law enforcement. When suspicions about an individual are raised, investigators can review the persons income and asset disclosure statement. Is it consistent with bank account records and what one can observe of the persons lifestyle? Or is there a significant discrepancy between what the disclosure reveals and the way the person is living? Prosecuting and convicting corrupt officials is also easier when there is a financial disclosure law. Almost all such laws make it a crime to file a false declaration. By doing so, the law creates a new, easily provable offense directly associated with corrupt conduct. 1.2 Disadvantages Forcing public servants to declare their income and assets is not cost free. There is first the administrative burden it puts on government.

Senior Public Sector Specialist World Bank E-mail: rmessick@wordbank.org

*

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Personnel must be assigned to review and maintain disclosure forms and train filers in how to comply. The greater the number required to file, the greater the administrative cost. A much greater cost is the effect it can have on citizens willingness to enter government service. When financial disclosure laws were introduced by several American states in the 1960s, many legislators and executive branch employees resigned rather than reveal details of their personal finances. In 2005 several judges quit the bench when Romania required them to publicly disclose their finances. The impact that disclosure could have on the composition of the national legislature was a major issue during the recent German debate on legislation requiring members of parliament (MPs) to disclose. Opponents contended that it would discourage small business owners, lawyers, and other independent professionals from running for parliament. Disclosure would embarrass this group, especially by revealing, in a society with egalitarian norms, just how wealthy they were. Some might also be reluctant to serve for fear the disclosures would reveal details of their business or professional practice from which competitors could benefit. While Germanys constitutional court ruled by the narrowest of margins that the potential impact of the legislation on an individuals willingness to run for office does not give rise to constitutional concerns, the debate about the impact of such legislation continues. 1.3 Weighing the Advantages against the Disadvantages Decision-makers may want to ask if qualified individuals in their country would refuse to become state ministers out of a reluctance to reveal their wealth. Would those for whom disclosure was not a concern differ in some key aspects from those not willing to disclose? Opponents in Germany argued that parliament would become less representative as only those with modest wealth, civil servants, teachers, and social workers would seek election. The most significant drawback to financial disclosure is neither the administrative cost nor its impact on the recruitment of public servants. Rather, it is the invasion of privacy that results. Although the violation is greater when the disclosure is made public, disclosure to a government agency also infringes privacy rights. What policymakers have to decide is whether the interests that disclosure advances outweigh the violation of privacy rights. Lawmakers are divided on whether officials right to privacy outweighs the public interest in disclosure. A 2006 World Bank study, reproduced in section 5, found that, of the 148 countries where the Bank works, 42, or 30 per cent, require no disclosure. In the remaining 106 one-third require public disclosure and two-thirds mandate disclosure only to a government agency. In at least four countries Chile, Germany, Romania, and the United States the trade-off between privacy rights and the public benefit has been the subject of litigation in national courts. With one exception, the courts have ruled that constitutionally protected privacy rights are not infringed by financial disclosure legislation. The exception was a 1970 decision by the Supreme Court of the state of California holding that a California law which required officials to reveal information unrelated to their work was an unconstitutional invasion of their privacy. However, in all other decisions that the Bank has located on the question, courts have ruled that the interests served by the public disclosure of an officials finances outweigh the officials right to privacy. In each of these cases the court was not writing on a blank slate. Rather, the starting point was a scale tipped sharply in favor of disclosure. In each, the law being challenged had been approved by two other branches of government: the legislature which had passed it and the executive that had promulgated or approved it. Thus in each case, two branches of government had already determined that the public interest in disclosure outweighed the public officials

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privacy interest; in democracies, courts accord a determination by the two elected branches of government great respect. In several countries proponents of disclosure dismissed the privacy issue saying that individuals could choose whether to enter public service and if they chose to do so, a part of the price they paid was waiving their right to privacy. How much weight should be given to this argument will depend upon local conditions. If, thanks to an underdeveloped private sector, government employment is highly desirable, it may carry less force. Probably the main reason why international experience is of so little use in resolving the privacy question is that the value put on privacy and indeed what the term privacy itself means varies across nations and cultures. Even among the industrialized countries of the West, significant differences exist. Whereas in the United States the names of individuals charged with a crime are always made public, in many European countries they are not on privacy grounds. European laws governing electronic databases are much more protective of individuals privacy than corresponding American laws, and in Europe libel and slander laws are more protective of officials private lives than those in the United States. In the United States the courts have interpreted the right to privacy mainly in terms of the protections afforded reproductive issues or marital relations. Financial information has been given far less protection. 2. If Disclosure is Mandated, Should It be Public or Non-Public? Disclosure can be either confidential or public. Confidential disclosures are made to an anti-corruption agency, supreme audit bureau, or other government entity. A public disclosure law requires that the receiving agency publish the disclosure form in the media or on the Internet or otherwise allow the public to see it. In the United States those wishing to view the disclosure forms of a senator must visit a special office in person, show identification, and sign in. An effective confidential disclosure regime demands that the agency administrating it be politically neutral and that it enjoy the confidence of the citizens. These are difficult conditions to meet in many countries. Thanks to the loss of confidence in the American government as a result of the Watergate scandal in the early 1970s, senior officials of the federal government, previously required to disclose their finances to their employing agency, were required to make them public. More recently, an East Asian country had a program requiring members of parliament to disclose their income and assets to an office in the legislature. Although the office was non-partisan, it was common knowledge that its director manipulated the program: leaking details of the opposition members finances but overlooking the ruling party members failure to file. This manipulation cost the program its credibility, and an all-party coalition subsequently approved legislation requiring the disclosures to be made public. Public disclosure enables civil society and the media to help enforce the program. In 2003 a Philippine reporter used the publicly available forms filed under a newly enacted financial disclosure law to check the lifestyles of mid-level managers of the national tax agency. She compared what was reported about the value of homes, the number of cars owned, and so forth with what real estate and automobile registries showed and what neighbors said about how the managers lived. Many had significantly understated the value of their homes or lied about the number of cars they owned. On the day that her story appeared, two managers resigned and several more were placed on administrative leave. Some commentators commend public disclosure as a signal of a governments commitment to conduct business transparently. If the government is willing to make public the personal finances of senior officials, it becomes much harder for mid-level personnel to hide

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behind claims of secrecy when processing requests under right-to-information laws or otherwise denying citizens access to information to which they are entitled. Two objections against public disclosure are raised. The first, heard in states where crime and violence are a continuing concern, is that if criminals know that an official is wealthy, they are more likely to kidnap him or her or a family member for ransom. For this reason, Colombia and Haiti have both declined to require that financial disclosures be public. The second is the privacy issue reviewed above. Whatever the infringement on an officials right to privacy by disclosing information about his or her wealth to a government entity, the infringement is that much greater when the disclosure is made public. 3. Compromises between Public and Non Public Disclosure A number of governments have found a middle ground between public and non-public disclosure. In the United States only senior government officials cabinet secretaries and deputy secretaries, other individuals appointed by the president, and senior civil servants are required to disclose publicly. The remaining 90 per cent of those who must disclose their income and assets do so only to officials of the agency where they are employed. Another variation is to disclose some information publicly and keep the remainder confidential. Members of the Canadian Parliament submit detailed financial disclosure statements, listing even credit card debts in excess of C$ 10,000. The parliamentary commissioner for ethics then publishes a summary of the statement online, which shows the MPs holdings but not the value of these holdings. A third variation is found in Bolivia. Executive branch officials make a comprehensive declaration of income, assets, and debts to the Comptroller General, but only the totals are published. Figure 1 furnishes an example: the public declaration form for President Juan Evo Morales Ayma in 2008. Four entries appear: total assets (bienes), total debts (deudas), the net of the two (patrimonio neto), and a fourth line for income from rental property (rentas). Under Bolivian law, a citizen can request the complete form if he or she shows a need for it. This is a recent provision, and its limits have yet to be tested.

Figure 1. Financial Disclosure Form of the Bolivian President

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4. Administering a Disclosure Law If policymakers do decide to enact financial disclosure legislation, they will want to specify how it should be administered. This requires decisions on four questions: (1) Who should be required to disclose? much decision-making authority do they have? What opportunities do they have to commit corrupt acts? While even junior employees may engage in petty corruption, is it likely that an income and asset disclosure program would catch those taking small bribes? Is that likelihood enough to justify making thousands of persons take the time and trouble to divulge their assets, outside income, gifts, and other details of their financial lives? Will the public be that more reassured that the government is serious about combating corruption if junior-level employees must file? More often than not, policymakers tend to overreach, requiring far too many lower-level personnel to disclose. In Mongolia, over 43,000 civil servants must make an annual disclosure, and in Kenya all of the approximately 675,000 civil servants are required to submit an annual declaration showing their income and assets. Observers of the long experience with financial disclosure in the United States, where many state governments have required disclosure since the early 1960s and the federal government since 1965, agree that too many junior personnel are required to disclose. Over 250,000 employees of the federal government must file a declaration annually, and in the state of California even supervising lifeguards at public beaches are required to file a statement of economic interests. The political dynamic driving enactment of a financial disclosure regime often explains the overreach. Acting against the backdrop of a recent, highly publicized scandal, with public concern at a peak, policymakers compete with one another to show how tough they can be on corruption. If one proposes to cover the top two levels of the civil service, another will raise the ante by proposing the top four. The answering bid will be the top six and so on until, as in California, even lifeguards must reveal details of their personal finances.

(2) What information should be disclosed? (3) How often should disclosure be made?

(4) What agency would administer a disclosure program? In making these decisions, they will in turn want to bear in mind three issues: (1) The filing burden;

(2) The extent to which officials privacy should be invaded; (3) Governments capacity to use the information disclosed. 4.1 Who Should be Required to Disclose? At a minimum, any financial disclosure law should cover ministers, ambassadors, the top grade of the civil service, and senior management in state-owned enterprises. These individuals possess significant decision-making authority and are therefore likely to find themselves in situations where their personal financial interests could be affected by the decisions they are asked to make. They are also likely to have discretionary power to allocate substantial sums of money, which would give them the opportunity to profit from corrupt acts. How much deeper into the executive branch or state-owned enterprises should a disclosure law reach is a matter of judgment that would depend on several factors. How much discretion do individuals at the lower levels exercise over the allocation of public funds? How

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One way to reduce the number of employees required to disclose-without compromising the objectives of disclosure-is to focus not on civil service grade or pay level when defining coverage but on the type of risk that the job entails. Not all employees at the same grade or pay level will have the same exposure to potentially compromising situations. Individuals involved in public contracting or tax and customs collections are obvious examples of higher risk categories of employee. In resource-rich countries those responsible for setting or administering policy are in another such category. A 2006 Jordanian law requires that all members of tender committees of government, military, or state-owned enterprises disclose. A recent Haitian law covers all officials with the power to authorize expenditures. In addition to senior officials, the Ghanaian law reaches accountants and internal auditors of any rank or pay grade. There is no consensus among countries on whether an official should be required to disclose a spouses income and assets when declaring his or hers. Of the 32 states with disclosure programs that responded to a 2002 the United Nations survey, 17 reported that spouses income and assets had to be reported. Proponents of spousal disclosure argue that a husband and wifes financial affairs are so closely intertwined that separation is artificial. A second argument is that, if the spouses finances are excluded, evasion of the law is made that much easier, for stock certificates and property can be registered in the spouses name. On the other side are concerns about invading the spouses privacy. No matter how many officeholders are covered by a law, implementation should be introduced gradually to ensure that administrative arrangements are in place to manage the required submissions. Upon passage of the law, tens of thousands of public servants in both Uganda and Argentina were required to file financial declarations. The agencies administering the programs were unprepared to handle such a deluge; the forms went unexamined, and the programs were quickly discredited. When initially enacted, disclosure programs typically covered only executive branch officials; however, the international trend is to expand them to include parliamentarians and judges as well. A 2008 World Bank survey found that over 100 countries require some form of disclosure by legislators. Of the 21 countries that responded to a 2007 survey of European Union members, 18 require legislators to disclose and 10 require judges to do so. 4.2 What Information Should be Disclosed? The information that should be disclosed under a comprehensive law is as follows: income from all sources, assets, positions in for-profit or non-profit firms, debts owed, gifts received, and any reimbursement for travel or other expenditures from non-official sources. Disclosure of these items provides a complete picture of an individuals personal finances. To reduce the filing burden on those covered by the law, many countries do not require the disclosure of assets, debts, gifts, or reimbursements below a certain amount. Canadian parliamentarian need list only assets greater than C$ 10,000. In the United States federal officials are required to disclose a gift only when the total received from a single source exceeds $285 in a calendar year. Setting a reasonable threshold reduces the burden on filers without loss of any significant information. Given Canadas GDP per capita and the level of government salaries, it strains belief to think that a gift of C$10,000 would influence the decisions of a member of parliament. The purpose of financial disclosure legislation is to determine whether the actual value of assets, income, debts, gifts, and reimbursements needs to be revealed or not. Conflict of Interest Monitoring. When the sole purpose is to alert employees and their managers to potential conflicts of interest, asset values need not be revealed.

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The financial disclosure system governing members of the British House of Commons is an example of one, the purpose of which is to police conflicts of interest. Members must reveal their ownership interests in a firm when it exceeds 15 per cent of the outstanding shares or when the value of their interest is more than the annual salary of parliamentarians slightly less than the equivalent of US$ 95,000 in 2009. If they have to disclose interest in a firm, they must provide a brief description of the firms business as well. MPs must also disclose any directorships, whether paid or unpaid, any source of income from employment or a profession and gifts from any source. There is an exemption if the income or gift is worth less than 1 per cent of their salary, which currently amounts to the equivalent of US$ 949 per year. Although they do not have to furnish information about their personal residence, they must disclose any real property that they own worth more than their annual salary. The rules of the House also contain a catchall provision. Any relevant interest, not otherwise required to be disclosed, which provides information which might reasonably be thought by others to influence [a Members] actions, speeches, or votes in Parliament must also be shown on their disclosure form. Figure 2 below reprints the disclosure form that had been filed by British Member of Parliament Anthony Baldry. It shows that he is a director in seven different companies, including as chairman of a company in the natural resource business in Sierra Leone and one exploring for oil in Central Asia. He has stock in nine companies with the (a) indicating that his holdings exceed 15 per cent of the outstanding shares and the (b) that he owns more than the equivalent of US$ 95,000 in shares. Figure 2. Financial Disclosure Form of Anthony Baldry, MP

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Wealth Monitoring. When the aim of the disclosure regime is to monitor changes in employees wealth, the law must require that the actual value of each asset and gift received and the amount of any income earned from outside activities be provided as well. Hong Kong was the first jurisdiction to use financial disclosure to monitor employee wealth. A 1990 law required public servants periodically to file a statement showing the value of their assets. If the anti-corruption agency detects a significant increase, it can demand that the employee explain the change. Failure to provide a satisfactory one constitutes the offense of illicit enrichment. Although public employees may occasionally reveal information pointing to illegal activity, rarely do those embezzling public funds, accepting bribes or otherwise enriching themselves through corrupt activities disclose that their assets are increasing as a result. When the law requires that the value of assets be divulged, understating the value of land, buildings, shares or other assets that the employee owns must be made a crime. As noted above, falsifying a disclosure is a much easier crime to prove than the underlying corruption, particularly when bribery is involved. There are usually no witnesses when a bribe is passed, and even when there are, a causal link between the receipt of the bribe and an official action must be demonstrated. By contrast, showing that an employee failed to accurately report the value of his or her assets is a straightforward matter. Figure 3 is an example of a disclosure form showing asset values. It is an excerpt from the 2007 financial disclosure of Indonesian President Susilo Bambang Yudhoyono. The first part lists the real property (harta tidak) that the President owns; the second part, the two automobiles or moveable property (harta bergerak) that he owns. The value in rupiahs of each item, on the first day of the reporting period (July 23, 2001) and the last day (May 10, 2004) appears in the two columns to the right. Item A(4), for instance, is a house worth 1.3 billion rupiahs (approximately US$ 130,000) and B(a)(1) is a 1994 Honda Accord automobile that he estimated to be worth US$ 11,000. Figure 3. Excerpt from President Bambang yudoyonos Financial Disclosure Report for 2006

4.3 How Frequently Should Disclosure be Made? Although the provisions governing how frequently a financial disclosure statement must be submitted vary, three patterns can be discerned. Probably the most common is the one requiring that the submission be made periodically, annually, or, as in the case of the new Jordanian law, biennially. Less common are laws that are event driven. Filers must update their submission whenever there is a significant change in their holdings. A third pattern, found in several African states, requires officials to make a disclosure upon entering the government and a second upon leaving.

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Periodic reporting is most often associated with public disclosure, while the other two are almost always found when the filings are non-public. Some laws are a combination of one or more variety. In Kenya, covered officials must file annually as well as upon entering and leaving government. In Algeria, reporting officials must not only update their forms whenever there is a significant change in their finances but also file annually. If policymakers do decide to enact a financial disclosure law, the question of how often to require disclosures will turn on a series of practical questions. How frequently do people enter and leave government service? How long do they stay in service? If most civil servants remain with the government for life, requiring that they file every two years may be enough, particularly when the cost to the government and the individual of more frequent filings is taken into account. For ministers or those who enter and leave government on short-term assignments, the biennial requirement could be supplemented by requiring a submission upon leaving government. 4.4 How Should a Disclosure Program be Administered? There is great diversity in the administrative arrangements for income and asset disclosure programs. Some countries have established an independent agency to manage their program while others have assigned responsibility to a civil service commission or other personnel agency. Some divide the different administrative tasks among different entities; others do not. One of the few areas where a pattern is discernable is in the administration of programs covering parliamentarians or judges. The legislature or judiciary almost always manages these programs separately from those covering executive branch staff. The reason given is the need to maintain the separation of powers. Legislators and judges fear that, if they are subject to an agency outside their control, it could compromise their independence. Arrangements for legislatures and courts are usually fairly simple because there are so few employees involved. The judiciary will typically have an office in the judicial council or other governing body to oversee judges submissions. Legislatures will typically assign responsibility to an ethics committee or an office within the leadership. As a result of the recent uproar over the abuse of expense accounts in the United Kingdom, an independent entity has been proposed to administer all parliamentary ethics laws. Many observers of parliaments have long recommended such a step but few parliaments have been willing to take it. Whether the controversy in the United Kingdom will provoke a rethinking of this position by other legislatures remains to be seen. Because they have so many employees, agencies responsible for executive branch disclosure usually have the most complex structure. Administration of a financial disclosure program requires that five discrete tasks be performed as follows: (1) Form management (receipt and review of submission/omissions; notification of non-filers); (2) Training and counseling on compliance; (3) Review with the employee to determine conflicts of interest; (4) Verification of submissions;

(5) Investigation and prosecution of violators. A common pattern is for the first three of the five tasks identified to be handled by a single agency. Managing the receipt of the disclosure forms and helping employees to obey the law are compliance functions, whereas the last two

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involve law enforcement. While several countries combine compliance with enforcement, this may not be the best solution. Compliance personnel want those with questions to come forward and seek answers. If compliance officers are housed in the same agency as enforcement staff, some employees may be reluctant to discuss possible conflicts of interest or questions about what they must disclose out of fear that they would be turned over to the enforcement wing. Recruitment can also be more complicated if the agency is hiring both compliance and enforcement staff. Separating compliance from enforcement can also prevent duplication and overlap, and thus bureaucratic turf wars, with police and prosecution agencies. The United States federal government separates compliance personnel from enforcement staff. The Office of Government Ethics is responsible for compliance. It receives the forms of those required to make public declarations and ensures that they are properly completed. Personnel from the office also counsel filers on possible conflict-of-interest situations and how they can be managed. Enforcement is left to the public prosecutor for criminal offenses and to administrative agencies for lesser transgressions. A slight variation on this model is used in Argentina and Madagascar. In these countries the anti-corruption agencies perform not only the first three tasks but some verification as well. The Argentine agency checks filings against land and vehicle registries. Its counterpart in Madagascar compares filings with tax records. Until recently, the Argentine office posted the names of non-filers or those whose declarations appeared to be inaccurate. This was the offices way of pressuring the judiciary to pursue cases. These offices do not extend their oversight beyond this passive form of verification. They do not review bank records, put suspects under surveillance, or otherwise actively seek to verify their financial disclosures. This work is left to the public prosecutor. 5. Conclusion An income and asset disclosure program can be a useful tool for combating corruption, but it must be designed and administered with the particular circumstances of the country in mind. Developed and developing countries have rich experience with these programs upon which reformers can draw when establishing a program or revising an existing one. Policymakers contemplating adoption of such a program or revisions to an existing program will want to examine these experiences carefully.

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Appendix Income and Asset Disclosure in Countries and Areas that are World Bank Clients In order to provide an overview of the types of income and asset disclosure requirements in countries and areas around the world, the following breakdowns of those that are clients of the World Bank may be useful.

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Bibliography
Argentine Government, Officina Anticorrpcion, (2007). Declaraciones Juradas de Funcionarios Publicos: Una herramienta para la prevencin y control de corrupcin , 2nd ed., Buenos Aires. Demmke, C., Bovens, M., Henkl, T., van Lierop, K., Moilanen, T. , Pikker, G., & Salminen, A. (2008). Regulating conflicts of interest for holders of public office in the European Union: A comparative study of the rules and standards of professional ethics for the holders of public office in the EU-27 and EU institutions, Maastricht, the Netherlands: European Institute of Public Administration in co-operation with the Utrecht School of Governance, the University of Helsinki, and the University of Vaasa. Lavine, A., & Rush, L. (2009). Sunshine in the State House: Financial Disclosure requirements for public officials, chapter 4 in American Bar Association, Ethical Standard in the Public Sector, 2nd ed., Chicago: American Bar Association. Mackenzie, G.C., with Halfkin, M. (2002). Financial disclosure.In Scandal proof: Do ethics laws make government ethical, Washington, D.C.: Brookings Institution. Rohr, J.A. (1998). The problem of financial disclosure, chapter 6. In Public Service Ethics and Constitutional Practice. Lawrence, KS, University of Kansas. U.S. Office of Government Ethics (2005). Report to Congress evaluating the financial disclosure process for employees of the executive branch, and recommending improvements to it. Washington, D.C. _ (2009). Report: Elements of a successful financial disclosure program, Washington, D.C.

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Restructuring, Renorming, Rethinking: Inferences from Canonical Thai Corruption Cases
Jeffrey Race* Abstract Close study of two scandals offers powerful inferences both for remedial public policy and for improved analytic methods. The cases of Attorney General v Rakkiat Sukthana (2003) and the Constitutional Tribunals 2007 decision dissolving the previously dominant Thai Rak Thai Party spotlight crucial factors allowing ministers to operate with impunity large criminal enterprises within the state. Structural properties of the two situations are compared to differentiate the initial factors in success of the criminal enterprises and the later factors in their collapse. Factors in the success of the corrupt activities were secrecy of government processes, political control over the careers of those tasked to investigate impropriety, passivity of in-house control bodies, absence of any organ tasked to uncover corruption independently of complaints from an injured party, and participants viewing their illegal activities as normal, expected and appropriate to their offices. The downfall of the criminal enterprises resulted from active involvement of private citizens and public interest groups, from overconfidence and carelessness of corrupt state officials out of belief that corrupting the state was normal, expected, and riskless, and from happy accidents.
Jeffrey Race is a regular visitor to Thailand since 1967 and author of the historical classic now in its second edition, War Comes to Long An: Revolutionary Conflict in a Vietnamese Province (Berkeley: University of California Press, 2010), and numerous other studies in the fields of political and technological change, available online at http://<pws.prserv. net/studies/publ_01.htm>. E-mail : <jrace@attglobal.net> For familiaritys sake this paper initially employs conventional terminology; its final section introduces alternative terms suggested by the preceding analysis.
*

Effective remediation would entail a body whose career incentives are not controlled by state authorities actively to search out misconduct without prior complaint by an injured party or private citizen, and public access to documents regarding state procurements and concessions, such that evidence of wrong-doing could be routine rather than haphazard. Structural infirmities as described above only facilitated in the Thai context, so structural changes would still fail without renorming, since the form and extent of corruption result from a vast public dissensus over the purpose of the state. Very many both at the top and within the states bowels view it in patrimonial terms: the state exists to transfer resources from the public to their rulers. Renorming strategies are well understood in the literature, effective in practice every day in all kinds of organizations, and readily available to anyone interested in mitigating official corruption. Work in corruption studies should henceforth employ a more comprehensive understanding of the publics view of the role of the state (recognizing the normative nature of the systems under study), should eschew pejorative in favor of scientific terminology, and should abandon an inapposite state-machine model of reality in favor of an intelligent-machine analog which alone can capture the subtleties of cooperative homeostatic systems motivated by social exchange to maintain a dominance hierarchy. Keywords: Thailand, Corruption Cases 1. Introduction Too seldom can scholars examine and learn from the detailed histories, structures and intentions of corruption cases, due to their inherently illegal nature. For this reason the happy availability of two bodies of data about notorious cases of misconduct in recent Thai history provides a welcome opportunity to draw important conclusions both for research

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and analytic methods and for public policy in Thailand and elsewhere. First is the case of the Attorney General of Thailand versus Rakkiat Sukhthana, which reached legal finality on September 19, 2003 with Judgment 2/2546 of the Supreme Courts Criminal Division for Political Office Holders.1 The Courts detailed analysis provides valuable insights into both the modus operandi of criminality within the Ministry of Public Health (MPH), the means used to protect it for so long, and the reasons for its final exposure and successful prosecution. The second derives from the Constitutional Tribunals Decision 3-5/2550 dated May 30, 2007 ordering dissolution of the Thai Rak Thai Party.2 Its detailed analysis of the facts of the case likewise spotlights crucial structural properties of the state, which facilitated organized criminal activity within it on behalf of a political party. This paper analyzes structural properties of the two situations and compares the initial factors in the success of the criminal activities with the later factors in their collapse, thus permitting inferences as to remedial measures. It finds from the examined cases that the criminal activities were quite predictable, following well-understood patterns of personal and organizational behavior. Just as there are no secrets to succeeding at corruption, so there are no secrets to diminishing it. However, the practicalities of doing so are obstructed by a hidden value dissensus in Thailand, an existential aspect of which this paper will spotlight near its conclusion.
Judgment (Black Case) 1/2546 (Red Case) 2/2546 of the Supreme Court Criminal Division for Political Office Holders, Attorney General vs. Rakkiat Sukhthana, September 19, 2003, download able (only in Thai) from <http://pws.prserv.net/studies/twocases. htm>.
1

Though specific to Thailand, these two cases also lead to a more inclusive understanding of the phenomenon of corruption and to a potentially much more fruitful practical approach to its mitigation. 2. Evidence Base, Methodology, Theoretical Base, and Analytic Template Both cases of misconduct were well documented in the press and in legal proceedings. Both exhibited periods of success and then failure. This papers methodology is a structural comparison to identify differentials and then to infer from them factors amenable to policy. Theoretical domains employed are psychology (individual motivation), sociology (group processes), and organization theory (organizational behavior). This paper uses the following template for each case study: (a)Overview of the corrupt action;

(b)Noteworthy structural features of the corrupt action; (c)Factors in the success of the corrupt action; (d)Important factors in the outcome.

3. Case One: Attorney General vs. Rakkiat Sukhthana, Minister of Public Health 3.1 Overview of the Corrupt Action Rakkiat had assumed his position as Minister on November 14, 1997 and resigned on September 15, 1998. As the Judgment details, the scandal surrounding his tenure began with press reports in August 1998 of substantial purchasing irregularities, subsequently taken up by parliament.3 On November 27, 1998 the matter was sent for police investigation. In June 1999 the parliamentary investigative body
3

Decision 3-5/2550 of the Constitutional Tribunal, May 30, 2007, Attorney General vs. Pattana Chart Thai Party; Attorney General vs. Phaendin Thai Party; Attorney General vs. Thai Rak Thai Party; downloadable (only in Thai) from <http://pws.prserv.net/studies/twocases. htm>.
2

Attorney General vs. Rakkiat Sukhthana, p. 6.

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confirmed purchasing irregularities for medicines and medical supplies in 34 provinces. Specifically, it determined the following: There is reason to believe that there was an organized activity planned to order (medical supplies) and coordinated by political officials and high-ranking permanent officials and in reliance on doctors in many provincial hospitals and hospital directors to purchase drugs and medical supplies from firms picked by those officials.4 Upon investigation the Auditor General of Thailand found excessive purchase prices and excessive differences in purchase prices for purchases by community hospitals of same products on same dates in same localities compared with purchases by hospitals under the MPH. According to the indictment 5 on December 15, 1997 Minister Rakkiat revoked the reference price list which had established ceiling prices on the procurement of drugs and medical sup plies by hospitals under the Ministry, thus creating a loophole for colluding firms to vend the same to the MPH at excessive prices. Rakkiat was alleged to have ordered or induced his subordinates to purchase from two colluding firms with a corrupt intention. Two weeks later sums totalling Bht 33.4 million appeared in bank accounts of his wife, and in August 1998 (just before leav ing office) Minister Rakkiat himself obtained Bht 5 million by cashiers check from the manag ing director of one colluding firm in compensation for his acts.6 The National Anti-Corruption Commission (NACC) ruled that Rakkiat was unusually wealthy and the Attorney General petitioned to seize his property, including Bht 233 million in banked cash, on October 24, 2002.
4 5 6

The NACC also investigated and found negligence by officials leaving a loophole for more than one year, creating an opening for opportunists to act corruptly;7 the government then dismissed many doctors and officials of provincial hospitals involved in the corrupt procurements. The Attorney General indicted Minister Rakkiats secretary, Mr. Chirayu Charat-sathien, who entered a plea of innocence and contested the accusation on factual grounds, specifically denying that the cashiers check was a bribe on behalf of the minister. He was convicted and imprisoned. After he was imprisoned Chirayu volunteered to give new evidence, stating that he no longer had reason to conceal the truth. On October 11, 2002 he affirmed to investigators that the Bht 5 million check given by the director of a colluding firm to Rakkiat on August 10, 1998 was consideration for assisting in purchases from the said firm. From this the NACC concluded that it had sufficient evidence to indict Rakkiat, who pled innocent and contested the proceedings on procedural grounds.8 The Court found unpersuasive all of Defendant Rakkiats procedural objections, which asserted a lack of authority to prosecute him. It concluded from Chirayus confession and detailed analysis of the trail of funds (including extensive efforts to manufacture evidence) that the Bht 5 million was indeed consideration for revoking the ceiling price and making purchases from a colluding firm which sourced the said Bht 5 million. The Court stated: Thailand now faces the problem of deeply rooted corruption, so the present Constitution established independent bodies for efficient and effective investigations... The evidence shows without doubt that the
Ibid., p. 9. Ibid., p. 14.

Ibid., p. 8 Ibid., pp. 1-2. Ibid., pp. 4 and 2, respectively.

7 8

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Defendant revoked the reference price to create an opportunity for a company conspiring with him to benefit... then received Bht 5 million... in consideration ... In view of the fact that the Defendant was five times Minister... and was practiced in the profession of law... it is appropriate to mete him heavy punishment. ... The Defendant is sentenced to 15 years imprisonment.9 The Judgment made no mention of the earlier payment of Bht 33.4 million, which should have figured prominently in adjudicating criminal liability had there been evidence to support such a conclusion. Accordingly, the only proven fact in the fall of Minister Rakkiat was his receipt of the Bht 5 million cashiers check, and that was proven only by the voluntary confession of bagman Chirayu, a critical fact to which we shall return shortly. 3.2 Noteworthy Structural Features of the Corrupt Action The Judgment and supporting investigations clarify that hundreds of individuals cooperated in a complex scheme known by its participants to be criminal, from the minister through collaborators in numerous provincial hospitals, including purchasing officials, doctors and businessmen. Ample evidence was scattered about, easily obtained by investigators or by almost anyone with inside contacts which is in fact how the criminal activity came to light, as discussed below. 3.3 Factors in the Success of the Corrupt Activity (1) Government procurement processes were secretive. (2) Political authorities possessed extensive control over the careers of those positioned or empowered to investigate impropriety. (3) In-house control bodies were passive; the criminal activity had protection from the top and political parties. (4) No body existed with the duty to uncover corruption independently of complaints from an injured party; official bodies were only reactive to complaints of damaged parties or news reports; contemporary press accounts describe official bodies as passive or even obstructive.10 (5) Participants in criminal activity put forth little effort to conceal their acts, implying that they expected never to have a case to answer. That is, they considered it normal to organize criminal activity within the state apparatus. 3.4 Important Factors in the Outcome The protagonist in this case was the Rural Doctors Society, which launched a public campaign to expose the organized criminal activity. Two elements are noteworthy with regard to the Society. First, the 1997 Constitution adopted the innovation of an impeachment petition mechanism allowing the Society to raise suspect activity to official notice. It should

Ibid., pp. 35-37.

Consider the account of activist Rosana Tositrakul: The 1997 Constitution had just been promulgated at that time, which allowed 50,000 concerned citizens to petition the National Counter-Corruption Committee (sic) to investigate corrupt politicians. The drug procurement scam was the first time this mechanism was used. The pressure was enormous. After five days we hadnt yet gathered 50,000 names the then health minister Rakkiat Sukthana quit. Ten days after that his deputy minister quit. Everyone thought it was over. I said, not yet, I hadnt got up to 50,000 names. I wanted to know how the mechanism worked. I managed to gather them, but the senate chairman refused to forward the list to the NACC. We fought on by filing an unusually rich charge against the minister with the NACC, which did an investigation and found that there was 233.8 million baht in his account that Rakkiat could not convincingly explain, of which 5 million was alleged bribery. ... There were calls threatening me and harassing me every day during the drug scam campaign. I was sued six times, four [times] by former minister Rakkiat, [once] by the [Ministry of Health]s permanent secretary and the other [time] by the deputy minister. <http://www.thefreelibrary.com/The+fight+for+whats +right-a0149461454>; accessed on May 10, 2009.
10

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be noted that the Society did not succeed by using established procedures, such as a complaint to the police or to an inspector-general function. This confirms the inference above that there was a pervasive lack of faith in effectiveness of state bodies to cleanse themselves; many considered it normal for top state officials to organize criminal activity within the state apparatus. A second element is that action may have been possible in this particular ministry due to professional ethics which some doctors may have felt obliged to observe and because doctors may have been less easily pressured than officials in other ministries. A third noteworthy fact is that Rakkiats conviction depended crucially on the confession of his bagman subsequent to his imprisonment. That is to say, even with all the evidence lying about, his conviction was still a chance occurrence. Structural change adoption of the petition mechanism still did not suffice reliably to diminish organized criminal activity within the state. 4. Case Two: Dissolution of the Thai Rak Thai Party 4.1 Overview of the Corrupt Action This case grew out of the controversial April 2006 parliamentary election victory of the Thai Rak Thai Party, viewed by many as having been secured through a level of electoral fraud extraordinary in Thailand in modern times in both scope and brazenness. On March 20, 2006, even before the election, Secretary General of the Democrat Party, Mr. Suthep Thuagsuban, lodged a complaint with the Election Commission alleging that the Thai Rak Thai Party had conspired with two smaller parties to falsify the official electoral database by backdating party memberships, so that legally unqualified persons could run against Thai Rak Thai candidates. (It should be mentioned that the Democrat Party had abstained from the election on the ground of fraud.) The complaint reasoned that dummy candidates for hire were required so that the Thai Rak Thai winners could take office even if securing less than 20 per cent of the vote; should an uncontested candidate gain less than that, he or she could not be certified. On July 6, 2006 the Attorney General petitioned the Constitutional Court to disband the Thai Rak Thai Party and two smaller parties for electoral fraud; the Court accepted the petition on July 13, 2006. A coup dtat during the pendency of the proceedings resulted on September 19, 2006 in the suspension of the 1997 Constitution. However the coup maker decreed the continuity of independent bodies and so a bench of the Court (known in English as the Constitutional Tribunal) carried forward. During the period September through November 2006 the three accused parties submitted their pleadings, defending themselves factually by simply denying the evidence, claiming their enemies had fabricated incriminating bank records, video images and oral statements. The parties also proclaimed that, since they themselves had authorized no crimes in writing, any proven criminality would have been the action of individuals. The accused parties also raised multiple procedural objections to the litigation, most importantly that the alleged acts, even if proven, were trivial, 11 not meriting the requested penalty of party dissolution. The Constitutional Tribunal read its Decision on publicly broadcast television on May 30, 2007 and released the lengthy (105-page) text simultaneously on the Internet. It concluded from detailed examination of filmed images, bank transfers, computer files and oral statements that the three accused parties had indeed conspired to seize and retain state power illegitimately, by falsifying official electoral records, bribery,
Attorney General vs. Pattana Chart Thai Party, p. 27; in the Thai language lek noi.
11

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suborning perjured testimony, and illegally running more than one candidate in the same constituency. It ruled that the opposition Democrat Party did not falsify evidence; such Thai Rak Thai accusations were instead false, made with intent to deceive the Tribunal. The Tribunal ruled that such offenses, far from being trivial pranks, threatened the secur ity of the state itself, as shown by subsequent turmoil; it ordered dissolution of the three accused political parties. (Although the acts underlying the order were crimes, the Tribunal imposed only the civil penalties of party dissolution and revocation of the political rights of those involved.)12 4.2 Noteworthy Structural Features of the Corrupt Action An important element of the defense of the three accused political parties was their assertion that any crimes were private acts of rogue individuals. The Tribunals extremely detailed adjudication clarified that the criminal activities were part of a coordinated enterprise involving scores or hundreds of persons, many state officials, from a low-ranking data-entry operator right up to cabinet members using state property to commit their crimes (specifically, Lieutenant General Thammarak Issarangkura na Ayudhya, then Minister of Defense, and Pongsak Raktapongpaisarn, Minister of Communications; security camera images produced in evidence showed General Thammarak acting in furtherance of the criminal scheme right at his ministry).13 A clear inference from the Tribunals explication of the evidence is that the plotters acted with impunity, never imagining that they would be called to account; this inference follows from their openly falsifying electoral records in official computers, using fully archived banking channels to transmit illegal payments rather than untraceable cash, and arranging payoffs right under the cameras at the Ministry of Defense.
See also <http://en.wikipedia.org/wiki/2006_Thai_ political_party_dissolution_charges>. 13 Attorney General vs. Pattana Chart Thai Party, p. 65.
12

Further evidence for this (ultimately excessive) confidence comes from the removal from office and imprisonment in July 2006 of the entire Election Commission on the basis of their illegitimate aid to the ruling Thai Rak Thai Party.14 4.3 Factors in the Success of the Corrupt Activity Weakly checked control of state power enabled the accused to gather financial resources by such well-understood mechanisms as state procurement and concession grants and then to use this mix of money and control over career incentives to motivate misconduct even among the indifferent or the unwilling. We may reasonably infer that this same mix gave the accused confidence that if worse came to worst they could save themselves by intimidating the judiciary as had previously proven effective.15
In an historic judgment the Criminal Court of Thailand held yesterday (July 25, 2006) that the Election Commission was guilty of malfeasance and illegal assistance to the Thai Rak Thai Party in the April 2 Election and Repeat Vote. The Court sentenced the three members of the Commission to four years in gaol, revoked their voting rights for ten years and denied them bail before sending them to remand prison. The Court of Appeal confirmed the Criminal Courts decision on the denial of bail. The Court ruled that the commissioners had failed to protect the election rights of the plaintiff and to ensure that the elections were free and fair. The Court further held that Sections 24 and 42 of the 1998 Organic Law regarding the Election Commission (EC) and Section 83 of the Penal Code had been violated. The Court held in favour of the plaintiff who stated that the Election Commissioners had unlawfully allowed candidates to switch constituencies, change application dates and use old identity numbers for the benefit of the Thai Rak Thai Party, which is the party headed by the Prime Minister, Thaksin Shinawatra.<http://www.ahrchk.net/statements/ mainfile.php/2006statements/657/?print=yes> accessed on May 8, 2009.
14

Thaksin Trial: My Wife Had To Pay The Nation, October 21, 2002, Issara Nitithanprapas, the recently retired Constitutional Court president, has implied that he was unsuccessfully lobbied during last years trial of Prime Minister Thaksin Shinawatra, and suggested that his wifes civil service career suffered as a result of his decision to vote guilty. ... Issara said the immense pressure on the judges and maybe some mistrust among them kept them all from expressing their opinions during their deliberations of the case. And for big cases like this there were often attempts
15

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In this case also nobody had the duty to unearth misconduct independently of the com plaint of an injured party. Initial action thus depended, in this case, as in that of the MPH, on private individuals bringing to light through personal connections otherwise hidden evidence. 4.4 Important Factors in the Outcome Retrospectively, it is clear that the Thai Rak Thai Partys reversal of fortune developed partly from the bad decisions of its leaders, grasping beyond their means based on overconfidence inflated by the success of earlier illegal schemes. However, if we look for structural changes the key factor tipping the precarious balance in favor of legality was the 2006 coup dtat which withdrew the perpetrators control over the career incentives of those who might discipline them, so rescinding immunity to legal process which they had formerly enjoyed. Another factor is likely to have been the (unusually) televised statement of His Majesty King Bhumiphol Adulyadej to a group of Supreme Administrative Court judges on the occasion of their oath-taking on April 25, 2006 that he would not intervene to resolve unilaterally the then bitter political conflict; instead he was depending on the judiciary to resolve this problem. Historically, the Thai judiciary has quite abstemiously applied its powers to the executive; the Kings address was a clear invitation to judges to assume an untraditional activist role.16 5. Structural Comparision and Commonalities (1) Investigative work once initiated was performed very effectively. The police displayed a high level of forensic skill in technical matters and of persistence in following leads back to their sources. (2) The plentiful availability of incriminating evidence reveals that malefactors took few precautions to cover their tracks, from which we may infer that they never expected to have a case to answer; that is, they considered it normal to run a criminal network within the state. For example, only after the MPH case broke into the news were efforts put into manufacturing evidence to conceal the trail of corrupt payments to the minister.17 (3) An important empirical finding of this paper is that the offensive activities were not miscon duct by a few out-of-control bureaucrats for their personal benefit but instead behavior expected by cabinet ministers and supported by extensive networks of officials. The activities were complex, carefully planned and coordinated, and completely documented as would be any official program. They were enduring programs, not quick grabs against fleeting targets of opportunity. The word rogue suggests vicious and solitary or operating outside normal or desirable controls, as in the following sentence: How could a single rogue trader bring down an otherwise profitable and well-regarded institution? 18 In distinction the phrase a criminal enterprise refers to a group of individuals with an iden t ified hierarchy, or comparable structure, engaged in significant criminal activity.19 The Thai Rak Thai Partys defense that the misconduct was not a criminal enterprise organized from the top but the private actions of rogue individuals was specifically repudiated by the Constitutional Tribunal. This
17 18 19

to lobby the judges in order to help the accused... <http:// www.nationmultimedia.com/search/read.php?newsid= 67822 &keyword=issara+nitithanprapas>.See also<http:// www.asiamedia.ucla.edu/article-southeastasia.asp? parentid=15989>. Royal Address to the Judges of the Supreme Administrative Court, April 25, 2006, downloadable (only in Thai) from <http://pws.prserv.net/ studies/ two cases . htm>; accessed on May 10, 2009.
16

Attorney General vs. Rakkiat Sukhthana, p. 27. See <http://www.thefreedictionary.com/rogue>. See <http://www.fbi.gov/hq/cid/orgcrime/glossary.htm>.

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fact has important consequences for remedial measures. In both cases the initial efforts to bring down the malefactors were those of individuals, in essence fighting as private citizens against a criminal enterprise supported by the power of the state. Seen in this way it is unsurprising that corrupt activities persist so broadly. An effective program to mitigate corruption of the form it often takes in Thailand (converting a part of the state itself into a criminal enterprise) would necessitate a rebalancing, by enabling a state body itself to take up the role played in these two cases by private citizens. (4) State organs not only did not actively search out misconduct but were passive or sometimes obstructive. This leads to an important inference about the values and motivations of significant numbers of actors. No solution can be effective without addressing this fact. (5) Despite the apparent triumph of the cause of justice in these two cases, in reality the happy endings resulted only from happy accidents, namely bagman Chirayus voluntary confession in the first case, and the coup dtat withdrawing power over the state from the malefactors in the second.20 This fact has overwhelmingly important implications for any project aimed at mitigating the corruption of the Thai state and of those with similar structural properties.
In confirmation of this point, the Thai Rak Thai Party vociferously objected that the proceedings against it were irregular, having resulted from the September 2006 coup dtat That was of course its exact point: modest cleansing of the state as it stood was impossible given its structure and the values of the incumbents. Worth noting in connection with the concept of accidents or irregularities is that the only other conviction of a minister for corruption in the history of the modern court system up to Rakkiats time occurred almost 40 years prior to his downfall: Supreme Court Case 948/2510, resulting in the imprisonment also for 15 years of Lieutenant General Surachit Charuserani, Minister of Agriculture, also famously accidental; when Surachit failed to deliver the forestry concession for which he had been bribed, businessman Somrerk Kittisuwan launched an action to recover the bribe; see <http://board. sae-dang.com/OpenMessages.php? no=44939>. Other ministers, such as Thanom Kittikachorn, Prapat Charusthien and Subin Pinkayan, lost unex plained assets to civil forfeiture but otherwise lived happily ever after.
20

6. The Small Picture: Structural Conclusions These cases highlight the present haphazardness of two processes essential to mitigating corruption: (a) the initial complainant, in both of these cases aggrieved private citizens who had to fight uphill against the power of the state; and (b) sourcing evidence, in these cases fortuitously available only due to the leakiness of the corrupt state, careless overconfidence of the malefactors, and personal contacts of the aggrieved. Among appropriate structural reforms would be: (1) To institutionalize the accidents which produced incriminating evidence by establishing bodies (for example in each ministry, or independently of the ministerial structures) charged with seeking out misconduct, whose career incentives would not be influenced by the targets of their investigations. In a loosely related sense, some foreign jurisdictions employ ad hoc special prosecutors to handle the difficulty of influence over career incentives. The same issue is faced by banks where it is described in the Basel II Accord as the internal fraud aspect of operational risk, which is defined as direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.21
Best practice under the Basel II Accord requires a dedicated, proactive, internal fraud-control function reporting directly to the banks board. Absent such a proactive body, many renowned financial institutions have recently come to grief in a way comparable to the catastrophic consequences of the type of corruption described here on affected states, both economic and political. The issue is thus not peculiar to governments but a structural property of systems which suffer from principal-agency conflict in managing resources. The Basel II model offers valuable insight into the kind of structural reform essential to political institutions; see http:// www.bis.org/publ/bcbs12 8.htm>, especially Part 2 Section II and Part 3 Sections II and III. However, it should be noted that many finan cial institutions have passed through recent troubles in robust health even without such structural appurtenances; they did this because their value systems did not facilitate the financial miscon duct dooming their now injured and departed brothers (compare for example State Street Bank of Boston with Wachovia Bank). This supports the thrust of this paper that mitigating misconduct entails consideration of both structure and values. (The misconduct in point here was bank employees gaming of their bonus system despite likely ruin of their employers.)
21

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(2) To open documents regarding state procurements and concessions to public inspection, so that evidence of wrong-doing would be routinely rather than haphazardly available. Greater transparency would diminish economic rents, and thus the payoff for rent-seeking behavior which is the goal of organized corruption.22 (3) To improve the speed and ease of the freedom-of-information process. (4) To adopt a suitably protective whistle-blower statute. (5) To conduct research constructed around interviews with officials imprisoned for corruption in order to probe what could have been done in their view to prevent the behavior resulting in their own incarceration. Some should be willing to be candid; their responses could be highly valuable in crafting measures adapted to local circumstances which vary from country to country. 7. Big Picture One: Renorming With these case studies in hand and the clear understanding they afford us of motivations and methods regarding the cases, we can now move rapidly through analytical and policy conclusions. The Constitutional Tribunal ruled that corruption of the type concerned in this paper was not the work of rogue individuals but of criminal enterprises within the state and controlled at the
The seminal article is Anne Kruegers The political economy of the rent-seeking society, American Economic Review 64 (3): 291-303; for an overview see <http://en. wikipedia.org/ wiki/ Rent-seeking>. For case studies in two other Southeast Asian countries, see Jeffrey Race, The political economy of new order Indonesia in comparative regional perspective, Seminar Series (Research School of Pacific Studies, Canberra, Australian National University, November 1979); and Jeffrey Race, Whither the Philippines? Institute of Current World Affairs, Novem ber 30, 1975, downloadable from <http://pws.prserv. net/studies/publ_ 01.htm>.
22

ministerial level. Once this fact is established then it follows that no purely structural cure exists, for the simple reason that such enterprises, like all social groups, depend on the voluntary cooperation of large numbers of persons consenting even if not enthusiastically to common values and sharing common goals. The common values define the behaviors acceptable in the group and the common goals define the purposes which those behaviors advance. Such group activities are always voluntary, never coerced . 23 Changing the behavior of such
Motivation generates cooperative group behavior; its incentives derive from social exchange. The first formal statement of exchange theory in sociology was by George Homans. However, Chester Barnards classic study of business organization employed exchange analysis implicitly, and assumptions about the primacy of exchange processes have an extremely long tradition (see following Gouldner reference). The most extensive and rigorous use of exchange analysis is now in economics, but some writers have begun to develop frameworks for its application to sociology (see following Blau reference) and political science. With exchange theory we can explain the development of one kind of social bond between individuals and thus the emergence of new group structures. Social bonds develop since each party exchanges something less valued (to him) for something more valued.
23

Respective references are: George C. Homans, Human Behavior: Its Elementary Forms (New York: Harcourt Brace World, 1961); Chester I. Barnard, The Functions of the Executive (Cambridge: Harvard University Press, 1938); Alvin W. Gouldner, The norm of Reciprocity: A preliminary statement, American Sociological Review, 25:2 (April 1960); and Peter M. Blau, Exchange and Power in Social Life (New York: Wiley, 1964). For economics, the literature is summarized in Peter Newman, The Theory of Exchange (Englewood Cliffs, NJ: Prentice-Hall, 1965); for sociology, see Blaus Exchange and Power in Social Life and his entry under Social Exchange in the International Encyclopedia of the Social Sciences, as well as John W. Thibault and Harold H. Kelley, The Social Psychology of Groups (New York: Wiley, 1959); for political science, see Sol Levine and Paul E. White, Exchange as a conceptual framework for the study of interorganizational relationships, Administrative Science Quarterly, 5 (1960); Robert H. Salisbury, An exchange theory of interest groups, Midwest Journal of Political Science, 13:1 (February 1969); James C. Scott, Patron-client politics and political change in Southeast Asia, American Political Science Review, 66:1 (March 1972); The erosion of patron-client bonds and social change in rural Southeast Asia, Journal of Asian Studies, 32:1 (November 1972), pp. 5-27; Jeffrey Race, War Comes to Long An: Revolutionary Conflict in a Vietnamese Province, 2nd edition (Berkeley: University of California Press, 2010).

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bodies entails changing the values and goals of its members, necessarily a process of inducement. 24 Coercion legality alone cannot succeed. Therefore, regardless of how interesting, or not, may be the conclusions about structural changes noted under the previous heading, such changes will never be more than marginally effective in situations such as Thailands which are in fact typical of corruption systems in other countries; no anti-corruption program can succeed unless it deals also with values and goals. It is here that we come to the most interesting fact dramatized by the Thai Rak Thai case: deeply embedded value dissensus concerning the relationship between the state and those staffing it, which characterizes endemically corrupt states. The very concept of corruption grows out of a legal-pluralist model of the state which distinguishes between person and office, which model informs the entire discussion of corrup tion and abuse of power. However, the preceding (patrimonial) tradition out of which this newer state model evolved makes no such distinction: one seeks power for one purpose and one purpose only: to harvest benefits from the state for oneself, ones family, and ones friends, as well as for others willing to pay for influence. In former times everyone understood this unflinchingly, but nowadays superficial respect is usually rendered to an ornamental legality. Both the legal-pluralist and the patrimonial-extractive models have long traditions worldwide from centuries past up to this very day. Using the state to transfer economic surplus to oneself, to insiders and their friends is the world-wide pattern of rule going back to the dawn of societies any larger than a
Refer to any standard reference on group processes, e.g. James G. March and Herbert A. Simon, Organizations (New York: John Wiley & Sons, 1958), especially chapter 4, Motivational constraints: The decision to participate.
24

closed corporate community. The Thai Rak Thai Party just systematized and updated an ancient pattern 25... and looting the state has a long tradition in Thailand.26
The definitive statement appears in Gerhard E. Lenskis classic Power and Privilege: A Theory of Social Stratification (New York: McGraw-Hill, 1966); an overview of his work appears in <http://en.wikipedia.org/wiki/ Gerhard_Lenski>. An illuminating snapshot of a transitional moment in a European context is provided by the 1746 Battle of Culloden, a historically decisive military engagement (the last battle on British soil), the exact purpose of which was to establish which social classes, clans and lineages would gain favored access to the wealth of the British Isles; see <http://en. wikipedia.org/ wiki/Battle_of_culloden>. Peter Watkins dramatic recreation of this battle as a quasi-documentary (now available in DVD) personalizes, in unforgettable scenes of simulated interviews, the economic and military burdens borne by those at the bottom stratum of society to support those at the top. A similarly thrilling re-creation of such a transitional period in the Thai context is M.C. Chatrichalerm Yukols daring 1973 Thai-language film entitled His Name is Karn (khao chue karn) from Suwanee Sukhontas novel of the same name, based on her childhood experience as the daughter of a rural doctor. In one important scene the district police chief instructs the naively idealistic Dr. Karn that he must for his safety conform to the system of local corruption (the chief protects the district gambling business and delights in the pleasures of local maidens); in another the district chief complains to his gunman that, unless Dr. Karn is done away with, he will (reluctantly) have to continue making his pile in this remote area (tong haa kin thi nii iik nan). Dr. Karn is gunned down, the district chief is imprisoned (though not for Karns murder), and the system of organized corruption continues to the present. For an elaboration of these points in the Thai context, see <http://www.camblab. com/nugget/ extrao2.pdf>.
25

Kin muang, literally eat the city, refers to the historic practice of tax farming or more generally of local rulers supporting themselves ad libidem by exactions from the populace rather than by legally defined amounts appropriated from a central budget; it is the term used by the corrupt district chief in the film titled His Name is Karn. Some scholarly sources translate the term perhaps more elegantly as eat the realm. Though he does not use the expression, Quaritch-Wales describes the practice and its consequences: At all times the officials were dependent for their living on the people committed to their charge, not on any direct rewards or salary from the king... [O]fficials mainly depended for their living on what they could make in the course of the exercise of their duties... [E]very conceivable species of corruption was in vogue among the army of officials who handled the kings revenues... H.G. Quaritch-Wales, Ancient Siamese Government and Administration (London: Barnard Quaritch Ltd., 1934), pp. 41-42 and 229. Quaritch-Wales stresses the importance of
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Proof of this is the remarkable follow-on to the Constitutional Tribunals decision, which revealed that the 111 Thai Rak Thai members deprived of their political rights in fact saw themselves not as cynics or thieves but as intrepid realists. Of these 111 executives banned from politics for five years due to irrefutable proof of their partys systematic electoral fraud, not one apologized to the public even though faked repentance and a sham promise to reform might have lifted the chance for return of political rights. At the least a few of them might have been expected to feign contrition for their childrens sake, but none did. They genuinely believed that lying, falsification of official documents, bribery, sham electoral contests, threatening witnesses and suborning false testimony were appropriate in gaining power to extract resources from the public. Further and just as important they knew that these actions were accepted by large numbers among the public, at all levels of society. Their committing these acts diminished not at all their reception in polite society: they were and still are invited to cut ribbons and to sponsor society weddings. Infamous scoundrels appear weekly in positions of honor on the front pages and in the society columns of Thailands newspapers.27 Anti-corruption advocates thus face a much more daunting challenge than superficially appears in advocacy for structural reform and better law enforcement. The problem is not the evil of (some of) those at the top, nor faulty structures, nor a shortfall of investigators or investigative tools. The problem is the vast public dissensus over the proper purpose of the state itself. Very large numbers of people both at its top and within its bowels view the purpose of the state in historic terms: to extract resources from the public for the benefit of their rulers. Thus, in this context anti-corruption is not about effective law enforcement or efficient running of the state; it is about ultimate values. In the short run it is always more beneficial for each person to use state power to divert resources to ones self and family and friends than to serve others unselfishly, so one cannot appeal to the self-interest of those large numbers in the patrimonial-extractive tradition to change their behavior. Corruption is perfectly rational, just as it is perfectly rational never to tip in a restaurant to which one has no intention to return, even though plenty of people do. This is the province of implanting social values regardless of, and indeed contrary to, private utility. There are no secrets to changing a communitys values and goals; historically, the process is regularly employed in reforming faith communities, private businesses, military units, governmental bodies, and public behavior at large examples are anti-smoking and recycling campaigns The process entails a combination of charismatic leadership, proclamation of new values, and a period of highly visible zero tolerance enforcement of sanctions (principally shame, not penal measures) for violations of the newly proclaimed values. In due course an emergent structure of coordinated expectations appears in which the new values interlock the behavior of all participants despite their individual preferences; this is the definition of institutionalization. With the passage of a generation, new values become unthinkingly accepted.

the historic weakness of the Siamese state, which continues through the present day. See also M.R. Akin Rabibhadana, The Organization of Thai Society in the Early Bangkok Period, 1782-1873 (Ithaca, NY: Cornell University Press, 1969). My inferences about the mentality of corrupt politicians rest upon personal experience. In the 1980s a local attorney, scion of a prestigious family, assisted me in some litigation, but after a year he passed my case file to a colleague in his law office upon resigning to pursue a national electoral career. We remained friendly and at a later time he invited me to lunch during which he complained that he had been double-crossed. The party he had joined had agreed to field him in the next election if he would collect bribes for its members. My lunch host groused that he was going to move to another party because this partys leaders were dishonest: he had collected the bribes as agreed but they had refused to execute their part of the bargain. Some time later he invited me to another lunch and complained that he had collected the bribes for the second party but had again been double-crossed. Recently, he represented a famously corrupt businessman who is now a nationally known politician.
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These peer-reference values compel behavior in ways that neither law nor coercion (each working through calculation) can accomplish. As every parent knows, peer pressure is compelling because it works via the most powerful factor in behavior: human emotion. 8. Big Picture Two: Rethinking 8.1 Rectification of Names The very name of this domain of study obstructs scientific thinking. The word corrupt derives from the Latin root for broken; in fact, nothing is broken the system works! It is well known that the form in which an issue is posed affects the comprehension of it and the choices one makes concerning it.28 The cases just discussed reveal this clearly. That is to say, referring to patrimonial extractive behavior as corruption and abuse impedes comprehension and remediation, because it conceals the fact that such behavior is normative in the affected communities. Research in the domain of anti-corruption studies is currently limited by this framing issue. Studies typically pose a hypothesis as to why some people are corrupt and what might be done about this, but this is backward precisely because the cases just reported illustrate that such behavior is not deviant but normative. Frame-shifting to ask Why in the world would anyone do his duty unselfishly when it is clearly to his disadvantage to do so? is, on the other hand, a realistic question, answers to which open up fruitful new policy perspectives. The first step in advancing this domain of study and policy prescriptions is therefore to abandon perception-distorting pejorative language in favor of scientific terms of analysis: drop corruption, looting and kleptocracy in favor of teamed surplus appropriation (as one possibility). The next step would be intellectual recognition that teamed surplus appropriation is a rational behavior for value maximizers, which most people (save the righteous) are, as these Thai studies prove from cases typical of corruption worldwide. Since such behavior generates material benefits it results in peer approval and so becomes normative, thus doubly reinforcing the behavior. One then sees that rational-legal structures of rule institutionally limiting rulers appropriation of surplus are historically deviant, not normative; that is the reality that the study of corruption and its cure must now accept. This being so, the underlying comprehension of anti-corruption is faulty, for example the United Nations Development Programmes definition of corruption as abuse of public power for private benefit or Transparency Internationals definition of it as the abuse of entrusted power for private gain. 29 Policy prescriptions are flawed and less effective than they would be were they founded on a scientific rather than pejorative understanding of the world. The same applies to scholarly analyses; for example: Corruption has become a common practice in many societies and in some countries like Thailand it has become a pervasive phenomenon. This indicates that something has gone wrong in the management of state affairs, in the bureaucracy, and in the political society.30 Since it is generally more beneficial to be corrupt, it is irrational not to act for ones own selfish interest. Since teamed surplus appropriation is perfectly rational, logically

29 30

See <http://www.transparency.org/about_us>.

See <http://en.wikipedia.org/wiki/Framing_ (social_sciences)>.

28

Suchit Bunbongkarn Democracy, money politics and corruption: The case of Thailand, a paper presented at the Conference on Evidence-Based Anti-Corruption Policy organized by Thailands National Anti-Corruption Commission in collaboration with the World Bank, June 5-6, 2009, Bangkok, Thailand.

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one cannot devise a mechanism or structure of material incentives and sanctions to prevent it. The model now dominating the anti-corruption field is faulty in its analytical capability and productive largely of a fools errand in terms of its policy recommendations (legal codes and procedures, audit mechanisms, enhanced enforcement mechanisms, and procurement regulations). 8.2 Choosing the Right Machine Model Let us now move to the fields defective model of the reality it purports to study, in engineering terms a state machine in which the outcome is uniquely determined by its initial conditions and subsequent inputs. 31 If the machine is corrupt (literally broken straight from its Latin root) then students of the domain may legitimately render policy prescriptions to repair the broken machine. Their recommendations would cure the machines misoperation just as cowpox vaccination immunized people against smallpox. Smallpox has been eradicated, but corruption remains endemic despite the existence of so much research and so many clever analysts. Why is this so? Because they have chosen the wrong machine analog to the reality they aspire to change. Human intelligence in the service of value-seeking will predictably overcome anti-corruption measures, because the social structure in which its members participate reconfigures itself in response to its members goal-seeking: an intelligent machine.32 Complex social structures are strongly homeostatic, having evolved adaptive and protective mechanisms,
A current state is determined by past states of the system. ... The next state and output of an FSM [finite state machine] is a function of the input and of the current state.http://en.wikipedia.org/wiki/Finite_ state_machine> accessed February 25, 2010.
31

including in this case internal restructuring to defeat anti-corruption measures, to maintain within and between generations the distribution of salient social values, such as wealth, income, power and status.33 Anti-corruption programs can fruitfully be visualized as planned assaults on homeostasis and so must utilize the plentiful literature on how this is done. 8.3 The Way Forward Counter corruption as a field of analysis and prescription can achieve more substantial results only when: (1) Its practitioners begin to act upon the fact that the fields very name impedes results, so abandon pejorative anti-corruption and good governance analytic modes in favor of a scientific analysis of the phenomenon of self-interest as a lifestyle choice between legal-rationalist and extractive methods of maintaining the distribution of values. (2) Intelligent-machine institutional models replace finite state machine analyses in research and policy formulation; analysis and prescription draw upon the extensive knowledge available from domains of study of intelligent machines (rational agents) and the study of cooperative homeostatic systems motivated by social exchange. (3) Policy, personnel, budgets and analysis move from efforts to demotivate corrupt behavior, using threats or incentives rationally weighed by the target individuals, in favor of efforts altering behavior at the level of personal choices diminishing the individuals desire to acquire the quotidian values of most people everywhere at all times, namely wealth, income, status, and power. Action plans must recognize the need to shift focus to willed self-abnegation from a value-accumulating calculus.

[A] system that perceives its environment and takes actions that maximize its chances of success. <http://en. wikipedia.org/wiki/Artificial_intelligence> accessed on February 25, 2010.
32

33

See <http://pespmc1.vub.ac.be/homeosta.html>.

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Should responsible agencies shift their efforts in these directions, the evidence from these case studies and from what we know of human behavior gives confidence that more substantial results would soon be realized. 9. Epilogue As this paper was being edited in late 2009 for final publication, three news reports appeared, the import of which attentive readers will immediately perceive from the following excerpts: 11 named in stimulus scam, Committee exposes budget irregularities34 The public health minister and his deputy are among 11 people linked to alleged budget irregularities and flawed management involving the governments economic stimulus scheme. The allegations were aired by a government-appointed committee looking into alleged graft involving the Public Health Ministry under the Thai Khem Kaen Thailand: Investing from Strength to Strength scheme. More than 86 billion baht has been earmarked for allocation to the ministry over the next three years for the development of health-care facilities and medical professionals under the governments much-publicised scheme. But just as the scheme was about to start, alleged irregularities in procuring medical equipment emerged. Inquiry panel secretary Vichai Chokewiwat said the 11 people are: the minister, Witthaya Kaewparadai; his deputy, Manit Nopamornbodee; Siriwan Pratsachaksattru and Krissada Manoonwong, former advisers
Bangkok Post, December 29, 2009.
35 36

to the health minister; health permanent secretary Paijit Warachit; Policy and Strategy Office director Supakij Sirilak; former public health permanent secretary Prat Boonyawongvirote; former deputy health permanent secretary Siriporn Kanchana; former director of the Regional Public Health Administration Bureau Kasin W i s e t s i t h ; r e t i r e d o f fi c i a l S u c h a r t Laohaboripat; and Zone 6 health inspector Jakkrit Phumsawat. Reshuffle on the cards, Irregularities rock Abhisit government35 Deputy Prime Minister Sanan Kachornprasart has been assigned to head the Public Health Ministry. [Authors note: this politician had previously been barred from political involvement for five years on grounds of documented financial dishonesty.] Thailands former public health minister released on parole36 Former Thai Public Health Minister Rakkiat Sukthana was granted parole by the Corrections Department after conduct [sic] good behaviour and had served about five years of his 15-year jail term.

Bangkok Post, December 30, 2009.

34

See http://<enews.mcot.net/view.php?id=12536> (October 29, 2009). Of the Bht 233 million proceeds of corruption ordered forfeit (equal to about US$ 7 million), the government was able to seize Bht 34 million (<http://www. matichon.co.th/ news_detail.php? newsid=1267358674& grpid=00 &catid=no>.). The balance of approximately $6 million mysteriously disappeared before seizure and was not demanded as a condition of pardon after five years of imprisonment.

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Can Equality in Education Be a New Anti-Corruption Tool? Cross-Country Evidence (1990-2005)
Kraiyos Patrawart* Abstract Cross-country evidence shows that corruption could be controlled with support from the education, free press and independent judicial systems, yet the theoretical foundation for such a connection is somewhat limited. This paper investigates the mechanisms behind the anti-corruption effect of education through civic engagement. We argue that equal universal access to education and the free press is a crucial tool for the majority of citizens to acquire the correct information needed to succeed in their anti-corruption initiatives. A simple reduced-form theoretical model, which allows for heterogeneity in educational attainment among agents, is used to explain the link between education equality and corruption. Evidence from cross-national panel data estimation between 1990 and 2005 shows robust support for the relationship. Education equality has independent and complimentary anti-corruption effects with press freedom and the duration of democracy. Keywords: political economy, corruption, distribution of education, factor analysis 1. Introduction In the fight against corruption, citizens can no longer be seen as passive recipients; they are main actors and strategic partners rather than targeted groups. The principles of empowerment, transparency, participation and accountability are at the core of the civic-based anti-corruption initiative. (UNDP, 2004, p .6.) As one of the leading international organizations actively engaged in international anti-corruption programs, the United Nations Development Programme (UNDP) has developed a strong strategic vision for its anti-corruption initiatives.1 That vision clearly values the new civic-based approach in combating corruption; the approach has received growing support from international anti-corruption initiatives. Svensson (2005) argues that the government-led anti-corruption programs that are aimed at reducing the size of government and regulation have had little success in practice, and only limited support from empirical studies. On the other hand, the civic-based2 anti-corruption programs that are aimed at promoting socio-economic factors which encourage civic monitoring have received great support from both theoretical and empirical standpoints. 3 For
The Organaisation for Economic Co-operation and Development (OECD) and the United Nations Educational, Scientific and Cultural Organization (UNESCO) have also made similar policy recommendations.
1

Teaching Fellow and PhD candidate, Royal Holloway University of London, Egham, Surrey, United, Kingdom and Visiting Fellow, Department of Government and Institute for Quantitative Social Science (IQSS), Harvard University, Cambridge, Massachusetts, United States. E-mail:k.patrawart@rhul.ac.uk; kpatraw@fas.harvard.edu
*

The author is indebted to Cecilia Testa for precious discussions throughout the course of writing this paper, and would like to express gratitude to Michael Spagat, Jonathan Wadsworth, Peter Dolton, Arnaud Chevalier, Anne Booth, Srunya Nopsuwanwong and seminar participants at the Department of Economics, Royal Holloway, Faculty of Economics Thammasat University, and the NACCs Conference on Evidence-Based Anti-Corruption Policy, Bangkok Thailand for helpful comments. Financial support from Royal Holloway and NACC is acknowledged with gratitude. Finally, the author would like to thank Amparo Castello, Rafael Domenech and Vinod Thomas for providing data on education distribution. The views expressed herein reflect those of the author and no one else. JEL Classification Code: D72, I21, O15

Comparable to an external mechanism (outside the bureaucratic system) in Brunetti and Weder (2003).
2

For instance, Glaeser and Saks (2006) and Rikka and Svennsson (2006).
3

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instance, Keen (2000), in association with the Human Rights Education Association (HREA), recommended that public education programs should incorporate anti-corruption elements as the prime objective of the national curriculum in order to reduce the likelihood of corruption in society. Such public education programs should cover the broad spectrum of activities which promote the dissemination of information and increase awareness of corruption. These programs should also change the perceptions and attitudes toward corruption and pass on the new skills and abilities needed to counter corruption. In practice, many governments have already adopted anti-corruption education in the actual compulsory curriculum. For example, Cameroon started its pilot program, Fighting against corruption through schools, to teach students and parents to identify and act against dishonesty in their schools and the rest of their local communities. Hence, education can be an effective channel to instill the correct awareness and perception toward corruption, which makes more apparent to people the perceived benefits of engaging in anti-corruption activities. D e s p i t e t h e s i g n i fi c a n t p o l i c y recommendations and extensive literature that support the roles of socio-economic factors in promoting civic-based anti-corruption initiatives, the empirical evidence and the theoretical foundation for the role of education are limited; no single study has examined the role of equality in education. On one hand, Magnus, Polterovich, Danilov and Savvateev (2002) found that education can increase the intolerance of people in society against the corrupt behavior of others and can stop them from performing corruptive activities and encourage them to engage in anti-corruption initiatives. Furthermore, as schooling raises interpersonal and cognitive skills, an increase in the duration of schooling reduces the interpersonal cost to individuals of engaging in anti-corruption initiatives and also improves peoples productivity in doing so (Glaeser, Ponzetto, & Shleifer, 2007). On the other, education can promote corruption through various channels. Since corruption is an illegal and secret activity, politicians and bureaucratic officers have incentives to make their corrupt activities complicated and unnoticeable. Educated officials can be more effective in making corruption sophisticated. When corruption becomes more complicated and very well concealed, it is more difficult and costly for the media and citizens to challenge the corrupt acts (Ahrend, 2002). As a more specific example, an expansion of education creates larger potential rents that corrupted agents can extract (Eicher, Garca-Pealosa, & Ypersele, 2007; Frechette, 2006). As a result, the relationship between education and corruption is non-monotonic, which could be the underlying reason behind the ambiguous relationship between education and corruption in the literature. Nonetheless, the academic literature has paid very limited attention to this issue. The main argument of this paper is that citizens who are potential monitors of corruption, depending on a personal stock of human capital, have heterogeneous attitudes toward corruption and have varied anti-corruption skills gained through civic participation. Several studies support this argument. For instance, Magnus, Polterovich, Danilov and Savvateev (2002) used cross-national evidence to show that the level of intolerance to cheating increases by years of schooling.4 Dwivedi (1967) used evidence from the Indian Public Opinion Survey to show that differences in educational attainment among the participants could explain the heterogeneity in civic engagement and political knowledge, as well as the perspective toward honesty, of government officials. Hence, equality in the distribution of education should reduce the scale of disruptive heterogeneity and allow the monitoring agents to coordinate and make a monitoring threat against corrupted officials. This credible anti-corruption initiative could potentially control corruption. Therefore, what matters in constraining corruption through a civic-based anti-corruption mechanism is not just the absolute stock of human capital in

Magnus conducted the experiment with 885 students (high school, undergraduate and post graduate) from the Russian Federation, Israel, the Netherlands and the United States.
4

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society, but rather the relative stock of human capital across the population. Consequently, the theoretical argument that assumes homogeneous stocks of human capital across agents or empirical analysis which employs only the average enrollment or attainment rates of schooling across the total population to identify the relationship between education and corruption, is likely to find inaccurate predictions and imprecise estimations of the relationship between education and corruption. This paper tests the hypothesis that education, measured by averaged attainment measures and equality measures, has either insignificant or undesirable effects on corruption against the alternative hypothesis that education, either the averaged attainment or the equality measures or both, has anti-corruption effects in the society. We focus on the cross-country evidence between 1990 and 2005 and identify the causal relationship between equality in education and the perceived level of corruption by using new measures of education equality that have not yet been employed in corruption studies. These measures are calculated from the educational attainment dataset of Barro and Lee (2000). Overall, the estimations suggest that the past condition of equality in education distribution affects the current perceived level of corruption independently and complimentarily with other socio-economic factors of civic participation. The anti-corruption effects of education equality remain robust through various specification changes. The following section reviews the literature that is relevant to our research agenda. Section 3 provides a simple theoretical model that allows for inequality in education among citizens and public officials. Section 4 illustrates the data set that we employ in the empirical analysis in sections 5-7 which, in turn, searches for empirical evidence for the theoretical predictions in section 3. Section 8 concludes the findings and describes the policy implications and research opportunities. 2. Literature Review This section reviews the relevant findings of the determinants of corruption in order to address the non-monotonic relationship between education and corruption. The review serves as the foundation of our main argument that the causal link between education and corruption could potentially connect through the equality of education among the relevant agents in the economy. 2.1 The Anti-Corruption Effects of Education The relationship between education and corruption is nothing new. Scholars have praised the anti-corruption role of education through civic participation and political accountability. Several empirical studies on the causes of corruption have found that education determines the perceived level of corruption. Ades and Di Tella (1999) formally investigated the various causes of corruption by using time-varying factors in their fixed-effect estimation. The identification strategies in their work also included the use of instrumental variables to overcome the endogeneity problem of country openness and corruption. Using the World Competitive Report and Business International Corruption Indices in the 1980s, the results showed that, other things being equal, in countries where domestic firms enjoy sheltered business and low competition, more rents could be extracted and thus more corruption could take place. More importantly, they were the first scholars to formally verify that civil society, measured by educational attainment, per capita income and a political rights index, could control corruption. However, these authors did not check the anti-corruption role of civil society in a fixed-effects model as they argued that there is no variation in schooling across time. Also, they did not include press freedom in their civil society analysis. However, this was due to data limitation problems. We address these shortcomings and try to overcome them in our empirical analysis by employing longer panel data of schooling and adding more relevant factors that support civic participation in controlling corruption, including press freedom.

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Another important work in the study of the causes of corruption is that of Treisman (2000). His paper tested the broader ideas of factors that can determine the level of corruption across countries. As he extensively included all potential causes of corruption in his estimations (ordinary least squares - OLS and two-stage least squares - 2SLS), one may have to place greater emphasis on positive than negative results. Treisman focused on various determinants, ranging from religion and historical culture to current institutional and economic factors. Since his work employed generally time-invariant factors, the main sources of variation for his analysis came from cross-country differences. Primarily, he used the Corruption Perception Index for 1996-1998 as well as Business Internationals Corruption Index for 1980-1983. In addition, Treisman detected the potential endogeneity problem between per capita income and corruption in the empirical analysis where he proposed the time-invariant distance from the equator as an instrument for per capita GDP. Then, the income effect in reducing corruption still holds. However, Treisman did not include schooling and press freedom variables in his analysis. Although his fourth hypothesis intended to test the effects of democracy, a free press and civic association on corruption, the variables he actually employed, in contrast to the earlier attempt by Ades and Di Tella, were the duration of uninterrupted democracy and the political rights index from Freedom House. It is unclear for many reasons whether these variables appropriately capture the effect of civic society. The duration of democracy according to Alvarez et al., (1996) is measured by just a dummy variable that indicates whether a country has had an uninterrupted democratic regime in the period from 1950 to 1995. However, it is unclear whether continuity in democracy is the only determinant of civil society and a free press. Moreover, the differences in civil society and corruption among 23 countries with 40 years of uninterrupted democracy are substantial.5 Also,
India, South Africa and Mexico have been democratic for 40 years as have Finland, Denmark, the United States and the United Kingdom.
5

the political rights index from Freedom House was constructed mainly from the ratings of whether or not the country had a free, fair and competitive political system. Even though Freedom House produced an exclusive quantitative score for press freedom in 1994, Treisman did not employ this rating in his analysis for the fourth hypothesis. 6 As the anti-corruption effects of press freedom and education have been found in a number of studies on corruption,7 the explanatory power of some factors in Treismans analysis, which correlate with education and press freedom, may incorporate the effect of schooling and press freedom in its explanatory power. In other words, Treismans estimations may have overestimated the anti-corruption effect of some variables that correlate with education and press freedom. Hence, we will contribute to this research gap by explicitly including the measures of schooling and a free press along with other significant factors found in Treisman (2000) to re-estimate the role of civic association and a free press on corruption. Glaeser and Saks (2006) studied corruption determinants within the United States by using average objective data on corruption convictions for the period 1976-2002, as documented in a Justice Department report, and the education and economic characteristics of various states. The main findings of their survey are that the states with more educated, richer and less unequal people have less corruption. Also, heterogeneity in ethnicity and earnings appears to promote corrupt practices. Moreover, states with more corruption convictions experienced slower growth in total output during the past two decades. However, there appears to be weak support on the negative impact of income and size of local government. Also, there is no evidence
The results of this hypothesis show that what matters to corruption is not the current status of democracy but the duration of uninterrupted democracy.
6

Brunetti and Weder (2003) and Chowdhury (2004) found the causal relationship between press freedom and corruption, while Ades and Di Tella (1999), Ahrend (2002), Glaeser and Saks (2006) and Svensson (2005) found the causal relationship between education and corruption.
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that the degree of regulation brings about a higher level of corruption. These results reinforce the argument of Svensson (2005) mentioned in the introduction. Unlike the size of government or degree of regulation, the factors income and education are important because they raise the level of civic participation. Thus, the corrupted behavior of government officers is strongly motivated by the potential costs of being caught rather than by government reward. In other words, the external civic demand for greater accountability driven by education and income can effectively discipline public servants. This finding strongly supports the prominent study about crime and punishment by Becker (1968). Also, these findings strongly support the view that civic participation can help reduce corruption in the United States.8 2.2 The Adverse Effects of Education on Corruption Ahrend (2002) found that education increases corruption when media freedom in the society is very limited. His reduced-form model predicted that an increase in human capital has two diverse effects: (a) increased corruption through a rise in the bureaucrats productivity and the skills to make corruption sophisticated; and (b) reduced corruption through a rise in monitoring capacity, which can be seen as the effectiveness and the independence of monitoring institutions. Hence, the crucial factor which determines the nature of the net effect of education on corruption is the effectiveness of the monitoring institutions. Ahrend assumed that the determinants of the effectiveness and independence of monitoring institutions are a free press and the independence of the judicial system. He also found empirical evidence from the cross-national regressions that education reduces the perceived level of corruption only if the efficiency of the monitoring capacity in the society, measured by press freedom, is sufficiently high.9 Similarly, Frechette (2006)
Reinikka and Svensson (2005) presented evidence in a least developed country that supports this argument.
8

found that the availability of rents driven by income and trade restrictions increased corruption. He also found that an increase in education, measured by the primary school enrollment rate of the total population, increased the perceived level of corruption in the society. We argue that Ahrends theoretical conclusions were driven by the unusually strong assumptions in his theoretical model. For instance, he assumed an identical human capital stock among public officials and monitors, which is a very strong assumption. As we have discussed previously, the wide education gap between citizens and public officers can potentially create room for corruption; thus, this strong assumption prevents Ahrends analysis from identifying the anti-corruption effect of equality in the distribution of education. Moreover, he concluded that freedom of the press and judicial independence determine the nature of educations role; however, these two factors do not exist in his theoretical model. We, thus, intend to contribute to Ahrends work by relaxing the assumption of identical human capital stock and explicitly incorporating press freedom and judicial independence into the function of monitoring capacity in the subsequent theoretical section. From the empirical standpoint, we argue that the findings of Frechette (2006) and Ahrend (2002), that schooling increases corruption, are sensitive to their choice of education measures. Frechette (2006) claimed that an increase in education raises the availability of general rents and also increases bureaucrats skills in performing corrupt acts. The second part of the argument is unclear as he employed the measure of schooling, which is the current ratio of primary school enrollment, regardless of age, to the total population of the age group that officially relates to the primary school level. Ahrend (2002) and Frechette (2006) argued that this choice is preferred to that of Ades and Di Tella (1999) concerning secondary school attainment because it involves more variation. This choice of the schooling variable and its interpretation are quite ambiguous for several

Specifically, education reduces corruption only in countries with the free status of press freedom in the Freedom House index.
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reasons. An increase in the current share of total enrollment in primary school among the population should not affect a government officers corruption skill for two reasons. First, there is no convincing reason for the connection between todays public officers skill in corruption and todays enrollment ratio of the population of primary school age. Obviously, the age of public officers is substantially older than that of primary school students (6-13). In fact, a primary school qualification is typically insufficient if one is applying for bureaucratic jobs. Second, the enrollment rate is a weak proxy for human capital stock. When the school dropout rate is high, especially in developing countries, this indicator becomes severely misleading. The finding of Glaeser, Ponzetto and Shleifer (2007) supports our argument by showing that enrollment data conceptually reflect investment flows rather than stocks of human capital. To conclude this review, cross-country and within-country evidence suggests that education significantly determines the level of corruption. The measures of education that are found to be the determinants of corruption include the historical and current levels of educational attainments and the current enrollment rates across populations. Yet, no single study has examined the impact on corruption of equality in the distribution of education. Existing studies present two diverse types of education effects on corruption: promoting effects and controlling effects. Yet, those studies do not provide explicit theoretical argument or apply appropriate empirical treatment to study the non-monotonic relationship between education and corruption; instead, they either claim that there is only one type of relationship or argue that the type of relationship depends upon the condition of its complementary factor, such as press freedom. Consequently, the effects of education are found to be fragile10 and highly sensitive to specification changes, as the typical chosen measures of aggregate human capital cannot explicitly account for the non-monotonicity in the relationship between education and corruption. These issues are investigated in the next section. 3. Theoretical Model This section illustrates the theoretical foundation for testing the hypothesis that education and, in particular, its distribution can play a vital role in determining the optimal level of corruption in society. We argue that education inequality and the limitation of press freedom create room for corruption in society. We begin by presenting the reduced-form model of rent-seeking, in which the bureaucrat optimizes his opportunity to extract rents from public goods without being noticed and prosecuted. This model is comparable to that of Ahrend (2002). However, as Ahrends model does not allow heterogeneity in human capital among agents, we implement some necessary modifications following similar works by Persson and Tabellini (2000) and Gerrber and Green (1999). The refined model will show that the variations in distribution of human capital and media freedom are crucial in determining the bribery level chosen by opportunistic bureaucrats. The predictions from this reduced-form model will then be used as a foundation for empirical analysis in sections 6-8. 3.1 The Economy, Citizens and Bureaucrats The economy consists of two types of agent: citizens (C) who work and earn wages as an increasing function of their educational attainment,Wc=E(ec); and the government official (g) who authorizes the provision of public goods. Following Persson and Tabellini (2000), there are N citizens with identical preference given by equation 3.1: (3.1)

Many studies, including the sensitivity analysis, e.g. Serra (2006), have found that the effects of education are insignificant.
10

where c, t, ec , G denote consumption, taxes, citizens educational attainment and net public good, respectively, while H(G) is a concave and increasing function. The distribution of

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educational attainment among citizens is predetermined and will be discussed shortly. Each citizen has a different view toward the bureaucrats ethical standards,11 which are normalized into a one-dimensional parameter represented by the bribe rate, b. All citizens receive the same public information regarding the bribery from the media. However, each citizen interprets the information from the media differently subject to his or her private human capital stock. We assume that the awareness and the intolerance toward information about corruption that the citizen extracts from the news are increasing in line with the citizens private stock of human capital. This assumption is consistent with the empirical evidence in Dwivedi (1967) and Magnus, Polterovich, Danilov and Savvateev (2002). The levels of press freedom and education equality in the economy are exogenously predetermined; government officials cannot manipulate these determinants of civic society. This assumption portrays the findings in the literature that the variations in the stock of human capital, especially its distribution, and press freedom are highly persistent across time.12 Moreover, the variations in theses variables rely on various exogenous factors outside the specific society. Furthermore, the appointment of a bureaucrat is normally on a short-term basis and non-tenurable. Hence, when the bureaucrat is assigned to a new post in any local economy, the only possible choice variable for him is the size of the bribe, b, that he plans to take, not the levels of education equality or media freedom in the local community. This design of the model enables us to study the variation in the government officials behavior given the changes in equality of educational attainment and media freedom. Our model is intended to explain why there are greater perceived levels of corruption in some economies than in others rather than examine the dynamics of corruption in one specific economy.
11 12

3.2 Education We relax the assumption of identical schooling among agents in Ahrend (2002) by assuming that citizens and bureaucrats attain discrete years of schooling, which is normally distributed according to the distribution function . There is an inequality (skewness) in the distribution of education whereby the median level of educational attainment (em) is below the mean, which is normalized to 1, Additionally, working with the government requires a substantial level of schooling; thus, we assume that the government official attains an education higher than the average and median schooling level of the society, 3.3 Corruption The government official works as the provider of public goods, G, which is financed by the flat income tax rate. There are two sources of revenue from holding public office: private benefits and public welfare. The private gains for the bureaucrat are his official wage, Wg, and the expected return from taking bribes. The officer can divert a proportion of the public goods, in the form of a monetary bribe (B); thus, Hence, government spending and bribery are financed by flat income tax, where is the citizens average income and N is the total populationsize. Corruption is noticed and prosecuted with probability P, 0<P<1, which is a function of the distribution of education and media freedom in the economy. We depart from Ahrends model by relaxing the assumption of perfect equality in schooling among agents, and explicitly include press freedom within P. To focus our analysis on the anti-corruption role of civic engagement, we assume certainty in the prosecution of corruption if it emerges. Therefore, the corrupted officer will be prosecuted with probability (P), which depends primarily on three main determinants of civic monitoring capacity: press freedom, which measures the efficiency of the media in minimizing the imprecision of available

See Dwivedi (1967). See section 5.2.

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information on the actual bribe free); the size of the bribe (b); and the equality in education . Making P an increasing function of b reflects the fact that, when the size of the bribe is large, it is more obvious and likely to be noticed and challenged. In addition, to capture an aspect of education inequality, we assume that P is determined by the relative human capital stocks of the median citizens and bureaucrats, relative to the mean schooling of the society . Alternatively, P can be seen as the observable amount of the bribe from the public point of view. Equation 3.2 shows that the ratio increases when the gap between the educational attainment of the median citizen and the bureaucrat decreases, letting. in anti-corruption initiatives. If caught extracting a bribe, the government official would face punishment, which, for simplicity, we assume to be a monetary cost, F. Nonetheless, when the political competition is tense, the public officer would be under political pressure from the central government to uphold the provision of G. The relative weight, , of the officers concern over the public good provision to his private gain represents this political pressure.13 Equation 3.3 describes the government officials original utility function while equation 3.4 substitutes G with the budget constraint. The next section derives the optimal bribery rate (b) of the bureaucrat and carries out some comparative static analysis using the main properties of interest.

(3.2) 3.4 Optimal Bribe Level Equations 3.5-3.7 show first order and second order conditions (FOC and SOC) of the government officials utility with respect to b. Equation 3.6 presents the optimal bribe rate, which is a function of political pressure (), monetary fine (F), press freedom (I) and education equality (), while equation 3.7 shows its concavity.

Our testable hypothesis is that, as press freedom and education equality improve, a government officer will be more accountable for his or her rent-seeking activities. Although the bureaucrat cannot manipulate P directly, he can make corruption sophisticated and more difficult to track down as his educational attainment, , increases. The opportunistic bureaucrat takes advantage owing to his highly educated background by making corruption as sophisticated and secretive as possible in order to maximize his expected gain from corruption. As the government officer knows the quality of press freedom (I) and education equality in his service area, he therefore optimizes the bribe strategy (b) accordingly. When corruption becomes complicated, it reduces the chance for citizens to assimilate a revealing piece of information. This creates imprecision of information on the bribe rate observed by citizens who, on average, have a less-educated background relative to the government officer. The empirical evidence presented in Dwivedi (1967) shows that this group of citizens is likely to misevaluate downward the level of corruption and it has less incentive to participate

We then calculate the optimal bribe level with respect to the determinants of interest. Equations 3.8 and 3.9 present the effects of changes in education inequality and press freedom, respectively.
Alternatively, may represent the type of officer, honest or corrupt.
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credibility of the civic monitoring threat against corruption, which results in the persistence of the misuse of public office. The next section will seek empirical support for these theoretical arguments. 4. Data and Analysis 4.1 Subjective Corruption Indices We use cross-country subjective indices of the perceived level of corruption from three different sources: Transparency Internationals Corruption Perception Index (CPI), International Country Risk Guides Corruption Index (ICRG) and Daniel Kaufmanns Control of Corruption (WB). All corruption indices are re-scaled on the basis of 0-10, where 10 stands for countries with the least corruption. These three corruption indices are very similar in design and variation; in fact, the correlations between them from 1995 to 2005 are well above 0.8. Table 1 summarizes all corruption indices by year. The average perceived level of corruption has been increasing across the globe, while its dispersion has been decreasing. The mean values of each index are very close to each other throughout time. All the indices will be employed as the dependent variable in three different regression specifications: cross-national OLS analysis, pooled OLS and the panel fixed effects - model. The first specification employs the averaged values of the indices between 1995 and 2005. In the pooled OLS and panel fixed-effects model, as all education variables are available on a five-year basis, the corruption indices will be an average value of the periods of four years around the time of the analysis, e.g. the average for the years 2002-2005 represents the year 2005. As the CPI and WB indices are available between 1995 and 2005 while the ICRG index is available between 1984 and 2003, pooled OLS and fixed-effect estimations that use the CPI and WB indices as dependent variables will employ three periods of repeated cross-country data, whereas the ICRG regression will employ four periods of data between 1990 and 2005.

Equations 3.8 and 3.9 represent the anti-corruption return to education equality and press freedom. Obviously, apart from its independent effects, both determinants of civic monitoring capacity work together in eliminating corruption. This finding contributes to that of Ahrend (2002), which implicitly shows that the anti-corruption role of education depends on monitoring capacity. Our finding explicitly shows that education equality and press freedom work together in controlling corruption through civic monitoring. Additionally, equations 3.8 and 3.9 prove that political pressure complementarily promotes the effects of education equality and press freedom. Moreover, from equations 3.10 and 3.11, political pressure () and monetary fine (F) also have independent anti-corruption effects. The political pressure role increases with press freedom and education equality while the role of the monetary fine decreases with the size of the public good provision. This reflects the fact that what matters in constraining corruption is not the absolute value of punishment but the relative value of punishment and the value of the available rents.

To conclude, this section illustrates the theoretical foundation for our research agenda. Predictions from the comparative analysis of the reduced-form model prove that improvements in education equality, press freedom, political pressure on bureaucrats and magnitude of punishment (I, , F, ) can reduce the optimal bribery level chosen by the government officials in the economy. Intuitively, when inequality in education and limitation in media freedom are substantial, they significantly reduce the

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Table 1. Descriptive Statistics of Corruption Indices Rather, it identifies the distribution of human capital stock across the total population. In fact, the same value of the Gini coefficient can represent different shapes of Lorenz curves. Putting it differently, when the relative level of educational attainment between the median educated citizen and public officers () varies, the value of the Gini coefficient does not necessarily identify this difference. Another shortcoming of the Gini coefficient is the limitation of the granularity of the measurements. For instance, using the same distribution of educational attainment, a Gini coefficient calculated from 10 levels of schooling, (high granularity) will often yield a higher value (less equal) than a Gini coefficient calculated from 5 levels of schooling (low granularity), and vice versa. Since the B&L data set on educational attainment contains only four different levels of schooling, it is likely that the Gini coefficient calculated from this data set would overestimate the true equality of the distribution in educational attainment. As our analysis focuses on the relative levels of schooling, we need a more precise indicator to identify from the B&L data set. To identify in the B&L data set, we calculate the years of schooling attained by the median citizen (median) and by public officers. To locate the median, we treat the B&L data set as simple group data where the percentage of the population that graduated in each level of schooling represents the frequency. For the public officer, we assume that the public officers years of schooling are represented by the years of schooling attained by the 4th quartile group (Q4) in the distribution of education. Table 2 shows summary statistics of the new variables. The mean years of schooling of the 4th quartile was below 5 years in 1960; it increased to about 10 years in 2000. Apparently, 5-10 years of schooling is equivalent to a normal secondary school qualification, which is the typical criterion for the employment of public servants. This evidence supports the external validity of the assumption that uses the 4th quartile as a proxy of public servant schooling. In addition, on average the median had been lower than the mean in the education distribution throughout the 40 years

4.2 New Measures of Education Equality Identifying education equality from the B&L data set is nothing new. Castello and Domenech (2002) and Thomas et al. (2003), using B&L education attainment data, have calculated the Gini coefficient of education distribution (Gh) and the ratio between the level of education attained by the lowest and the highest quintiles. In addition, the literature14 on economic growth employs the standard deviation of educational attainment (ESD) as a proxy for education inequality. However, ESD is not suitable for identifying education equality in our framework. It measures primarily the absolute dispersion of human capital across the population, but does not control for the differences in the mean of the distributions. As some countries characterized by a low-educated population can have the same standard deviation in educational attainment as countries with a highly educated population, the interpretation of the anti-corruption effect of the distribution of education measured by ESD can be misleading. On the other hand, although Gh captures the information on education equality of interest, this indicator has two crucial methodological shortcomings. The Gini coefficient itself cannot precisely identify the relative distance between human capital stocks within the distribution.
Birdsall and Londono (1997), Lopezetal. (1998) and Park (2006)
14

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covered in the B&L data set. Therefore, statistically, the median is the superior measure of the central tendency of education distribution rather than the mean in the B&L data set. Nevertheless, it is important to note that about one-fifth of the countries in the B&L data set accounted for more than 50 per cent of the adult population with no formal schooling.15 Undeniably, in this case, the schooling year of the median citizen is equal to 0. As a result, the typical minimum values of the median in Table 2 are 0. The subsequent empirical analysis uses median/Q4 as the main indicator in the regression analysis to identify the anti-corruption effect of education equality while the coefficient of variation (CV) and the Gini coefficient of education (Gh) are used as a robustness check. Table 2. New Measures of Education Equality data analysis, the press freedom score in 1994 represents freedom of the press in 1990, while the averaged value of this score for the periods 1995-1998, 1999-2002 and 2003-2006 represent freedom of the press in 1995, 2000 and 2005, respectively. Owing to the unavailability of a quantitative press freedom score in 1985, the panel data regressions employ four time periods from 1990 to 2005. Furthermore, as the theoretical model in section 3 predicts that press freedom and education equality jointly affect the corruption level, we add the interaction terms between press freedom and different measures of education equality into the regression specification. A measure of judicial independence from the Political Constraint Index (POLCON) is used to measure the magnitude of punishment (F) in the economy. This index was compiled by Henisz.16 The independence of the judiciary is identified by using the information from various measures of judicial independence, including a polity score on executive constraint and a score on law and order in the previously mentioned International Country Risk Guide. This measure is continuous from 0 to 1 and available from the mid-nineteenth century until 2004. The higher value of this measure represents the strength and impartiality of the legal system and the likelihood that the judiciary would successfully constrain the decision of the executive authority. As the degree of independence in the court of justice increases, it is more likely that corrupt public officers would be fully accountable for their misuse of power. This likelihood of punishment can be seen in the theoretical model as an increase in F. Political pressure () is measured by the degree of political competition and turnout data from poliarchy measures of democracy from Vanhanen (2003). Data are available from 1810 to 2002 in nearly all independent countries around the world. The measure of electoral
http://www.management.wharton.upenn.edu/henisz/ POLCON/ContactInfo.html
16

4.3 Other Determinants of Civic Monitoring To measure freedom of the press (I), we employ the quantitative press freedom score compiled by Freedom House. These survey data evaluate the freedom of information in printed media from various influential sources, such as legal, political and economic authorities. Although a qualitative score has been available since the early 1980s, a quantitative score had not been available until 1994. Hence, in the panel

This pattern is highly persistent in some countries over time (e.g. in Algeria, the Central African Republic, the Islamic Republic of Iran, and Pakistan).
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competition represents the percentage of votes in parliamentary or presidential elections, or both, won by the largest party. Therefore, the smaller the measure is, the more likely it is that a candidate from a small party would win the election. For turnout, the turnout record measures the percentage of the population that voted in the same elections which used to measure the electoral competition. 4.4 Control Variables Controls for a countrys characteristics are based specifically on the findings of global sensitivity analysis in Serra (2006). To control for the economic development and the economic structure of a country, per capita income at constant prices and degrees of openness are employed. These indicators were obtained from Penn World Table 6.2. For institutional and legal factors, following the argument in Treisman (2000), we use the dummy variable for colonial history, equal to 1 if the country is a former British colony, 0 otherwise, and the dummy variable for uninterrupted democracy, equal to 1 if the country had remained democratic between 1950 and 1995, 0 otherwise. We also add into the regression specification the interaction term between an uninterrupted democracy and education equality in order to test whether education equality works differently between the countries with a different establishment of democracy. In addition, to control for the factor of religion, we use the population share with a Protestant tradition from La Porta, Lopez-de-Silanes, Shleifer and Vishny (1999) as a proxy for Protestants in the regression analysis. Lastly, continental dummies are employed as the proxy for regional factors that could determine the perceived level of corruption. The dummies correspond to the division of regions in the World Banks classification, which includes Latin America, Eastern Europe, the Middle East, Africa, South Asia, and Asia and the Pacific. The baseline category comprises the Western Europe and North American continents, which contain the typical least corrupt countries. The descriptive statistics are presented in Table 3. Table 3. Summary Statistics of Civic Monitoring Capacity and Control Variables

5. Regression Specifications 5.1 Ordinary Least Squares and Pooled OLS Cross-National Analysis Equation 5.1 formalizes the theoretical predictions into a typical cross-national OLS regression on the determinants of corruption literature, which was reviewed earlier. We regress corruption indices concerning the measures of education equality and the control variables described in the previous section. All variables represent the average values from 1995 to 2005. In addition, as education equality shows its supporting anti-corruption role with regard to other variables, such as press freedom, we look for empirical evidence of this argument by including in the regression analysis the interaction terms (k) between education equality and other variables. To the best of our knowledge, this is the very first attempt in determinants of corruption studies to incorporate into the analysis the interaction effects between education and press freedom. Also, one might argue that what determines corruption is the level of average years of schooling in the total population, or the proportion of the population that graduates at a particular level of schooling, even though the theoretical model shows that it is indeed an equality effect. Furthermore, one could also think that education determines corruption through an income effect. Therefore, we anticipate the arguments and test them by including those education variables (e) and per capita income

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as control variables in the regression analysis in order to check the robustness of education equality. Additionally, we also control for a countrys characteristics and other determinants of corruption (x) that had their robustness verified by the sensitivity analysis in Serra (2006). Hence, the averaged perceived level of corruption in country i between 1995 and 2005 is determined by the specification of the formula: individual country-specific characteristics, ij.17 Hence, the observed level of corruption in country i at time j is determined by the equation 5.3 below:

To estimate a more precise effect of education equality on corruption and to incorporate into the analysis a within-country variation across the time dimension, we extend our investigation to the repeated cross-country estimation. In a similar fashion to equation 5.1, we estimate the pooled OLS regression model of cross-country data between 1990 and 2005 by regressing the ICRG corruption index on the determinants of civic monitoring capacity, the interactions terms (ij), the control variables (xij) and the time-fixed effects, ij. Specifically, the observed level of corruption in country i at time j between 1990 and 2005 is determined by the specification of the formula:

If education equality has a causal relationship with the perceived level of corruption, the regression models presented here should be able to consistently identify significant causal relationships. Moreover, the results should remain robust through various specification changes. 6. Empirical Results 6.1 Descriptive Analysis This section gives a graphical description of the relationship between the dependent variable and its determinants. Figure 1 presents scatter diagrams, with the fitted regression lines located between the averaged values of the corruption indices and education equality measures between 1995 and 2005. Obviously, all three corruption indices show a strong relationship with education equality measures. On average, the higher is the median/Q4 ratio (), the lower is corruption, whereas the higher is the Gini coefficient for educational attainment (less equal distribution), the more likely would corruption be observed in the society.

The empirical results of regressions 5.1 and 5.2 are discussed in section 6. Next, we discuss the regression specification of the fixed effects model. 5.2. Panel Data Fixed-Effects Model To anticipate the possibility of the omitting variable problem and the existence of unobservable heterogeneity, we employ a more advanced methodology in the empirical investigation, that is, the fixed-effects estimation. In a similar fashion to equation 5.2, we regress the ICRG index on the determinants of civic monitoring capacity (M), other education variables (e), the interaction term (), the control variables (x) and the time-fixed effects, ij . Additionally, we control for

Most of the empirical literature on corruption employs the fixed-effect model rather than random-effect model, as it is generally believed that the countrys specific effects correlate to some extent with the covariates, after using the Durbin-WuHousman test. The results support this argument well.
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Figure 6.1 Scatter Diagrams of Corruption and Education Inequality the less likely it is for corruption to be perceived in that society. Nevertheless, it is worth noting that among three schooling levels, the percentage of secondary schooling attainment shows the strongest link with the corruption index, whereas primary schooling attainment shows a somewhat unclear association. Therefore, the theoretical predictions in section 3, that less equality in the distribution of education increases the likelihood of corrupt practices are well supported by the graphical evidence shown in the scatter diagrams. Nevertheless, all hypothetical observations here need to be verified by formal regression analysis in the next part, so that we will be able to see whether these associations are causal or just spurious relationships. Figure 2. Corruption, and Income and Press Freedom

In addition, countries with higher per capita income and freedom of the press seem to have less corruption, as shown in Figure 2 Furthermore, Figure 3 presents scatter diagrams of the CPI corruption index and four different education measures: average years of schooling in the total population, percentage of the population attaining no schooling, and primary and secondary schooling, respectively. A country with higher years of average schooling and a smaller proportion of the population that had no schooling qualification tends to have less corruption in its society. Additionally, the larger the population that attained primary, secondary or tertiary education,

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Figure 3. Corruption and Measures of Schooling

6.2 Cross-Country Ordinary Least Squares It is crucial to note that all education measures in our analysis are lagged variables. In OLS regressions, education variables are the average values between 1960 and 1980, while all the other variables are the average values between 1995 and 2005, whereas the pooled OLS estimations in section 6.3 employ 10-year lagged values of education measures. This identification strategy is used in order to prevent the endogeneity problem between corruption and education equality and to minimize the undesirable transitory shocks that may affect corruption in each country. Moreover, using lagged values of educational measures reflects a more realistic story. People influence the level of corruption in society for most of their lives, as educated citizens can produce lasting anti-corruption or corruption initiatives. This argument is in line with that of Glaeser, Ponzetto and Shleifer (2007) and Svensson (2005).18 Appendix Table 1 presents the baseline results of OLS regressions, as specified by equations 5.1 and 5.2, respectively, without and with the vector of interaction terms (). Columns 10-15 in Appendix Table 1 present the results of pooled OLS regressions with time-fixed effects, as specified by equation 5.2. that table presents the key estimations that use median/Q4 as a

They both found empirical evidence to support the economic and human capital theories of institutional development.
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measure of education equality, which has theoretical support from section 3, while Appendix Table 2 presents a robustness check by re-estimating equations 5.1 and 5.2 again, with alternative measures of education equality. (a) Education Equality and Press Freedom score of corruption indices. This increase is equivalent to the difference between the CPI index of Cameroon (2.3) and Argentina (2.9) in 2005. Nonetheless, as regression models in Appendix Table 1 contain two interactions of education equality measures with press freedom (PF) and continuity of democracy (AllDem), the interpretation of the anti-corruption effect of education equality measures needs to incorporate the supplementary effect of other determinants if the interaction effects are significantly different from 0. Otherwise, the interpretation can be inaccurate. In regressions 5, 7, 10-11 and 13-14, the coefficients of the interaction term between education equality and press freedom are significantly different from 0. Consequently, the interpretation of the anti-corruption effect of education equality , needs to incorporate the supplementary effect of press freedom. As both factors of interaction are continuous, we need to calculate the net effect as follows: In letting Xi represent other covariates, in Appendix Table 2 we regress as follows:

In columns 1-3 in Appendix Table 1, the estimates of the association between education equality and the corruption indices, as specified in equation 5.1, without an interaction term, yield no significant result. Thus, we follow the theoretical prediction by adding the interaction terms into the specification; the results are presented columns 4-15 of Appendix Table 1. The measures of education equality now show a significant relationship with the corruption indices. A possible explanation is that the equality in education distribution determines the corruption level individually and jointly with other variables. When we exclude the interaction terms from the regression specification, the interaction effect remains inside the error term, which then creates the problem of omitted variable bias. As most of the significant interaction terms (columns 4, 5, 7, 10-11, 13-14 in Appendix Table 1) have opposite signs to the measures of education equality, there are two opposite forces determining the corruption level which need to be identified. Unable to identify such an effect, the regression specifications in columns 1-3 in Appendix Table 1 fail to reject the null hypothesis that the measures of education equality have no causal relationship with corruption indices. From the results in regressions 4, 5 and 7 in Appendix Table 1 everything else being equal, the countries with a smaller gap of schooling years between the median and the 4th quartile in the distribution of education (higher median/Q4) during the period 1960-1980 were less likely to have been corrupt during the period 1995-2005. More specifically, from regression 4 in Appendix Table 1, reducing 10 per cent of the years of schooling gap between the median and the 4th quartile () produces an increase of 0.6112 in the

To calculate for the main effect, we use the following formula: The anti-corruption effect of education equality (,) depends on the coefficients of education equality, press freedom (I), their interaction term and the level of press freedom. To make our interpretation more meaningful we choose the mean level of press freedom to interpret the result, which equals 42.5. Thus, using equation 6.2, from regression 4 in Appendix Table 1 a reduction of 10 per cent in the years of schooling gap yields, on average, an increase in the CPI index of about 0.717. This suggests that the OLS estimators in column 1 of Table 1 underestimate the effect of education equality on corruption due to the omitted variable problem. Also, the earlier interpretation, which does not incorporate interaction effects,

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underestimates the true effect of education equality. Figure 4 presents graphically the effects of median/Q4 (,) on corruption, depending on the levels of press freedom. To make this interpretation more intuitive, the upper panel in Figure 4 shows that, given a press freedom level below 50 (free press), as we move down to 1 along the median/Q4 axis (more equality) or move up to 0 along the press freedom axis (more freedom), the CPI score increases. Put in other words. the marginal anti-corruption effect of education equality is positive. On the other hand, when press freedom is above 50, the slopes become negative. This shows that the marginal effect of an increase in education equality becomes negative when press freedom is limited. However, although the slopes become negative, the net effects still remain positive until the changes in median/Q4 start to exceed 0.4. Hence, the negative net effects of the median/Q4 level occur when two conditions are met: when the level of press freedom is above 50 and an increase in education equality is dramatic (over 0.3). However, in reality it is very difficult to see the net negative effect of education equality. From the median/Q4 data between 1960 and 2000, which contain 832 observations, we calculate the first differences of this variable to see how likely any country in the data set has experienced a change of over 0.3 units in median/Q4 within this five-year interval. We find that, out of 738 observations of the first differences, there are only 2 observations (0.28 per cent) that had values above 0.3. Hence, in principle a negative effect of education equality is possible, but in reality it is very unlikely to occur. This likelihood is far less than the findings of Ahrend (2002). Figure 4. Upper Panel: The Effects of Median/ Q4 and Press Freedom on the CPI Index (with Interactions); Lower Panel: Corruption Measured by Press Freedom and Gini Coefficient for Education

The other measures of education distribution, coefficient of variation and the Gini coefficient of education, the results of which are presented in Appendix Table 2 show similar relationships between the corruption indices and median/Q4. In the countries with less equal education distribution, the likelihood of observing the incidence of more corruption increases. From regression 2 in Appendix Table 2, the increase by 0.1 of the coefficient of variation in educational attainment can explain the reduction in the WB corruption index of about -1.2. This is comparable to the average gap between the WB corruption index from 1996 to 2005 between Brazil (4.8) and South Africa (5.9). Likewise, from regression 10 in Appendix Table 3, an increase of 0.1 in the Gini coefficient for educational attainment can explain the reduction of about 2.47 in the average

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CPI corruption index between 1995 and 2005. In other words, given all possible levels of press freedom, the more equal is the distribution of education, measured by the Gini coefficient and coefficient of variation, the less frequently corruption will be perceived in the society. Similarly, press freedom has both individual and joint relationships with education equality measures, especially with the Gini coefficient and coefficient of variation regressions in Appendix Table 2 consistently show that countries with more press freedom were less likely to witness corruption. However, the effect of press freedom was reduced by the inequality in education distribution. The visual interpretation of the press freedom effects is presented by the bottom panel of Figure 4, which depicts a negative relationship between press freedom and corruption from regression 10 in Appendix Table 2. Obviously, this link depends partially on the level of education equality measured by the Gini coefficient. The least corrupted society occurs at the top left of the plain, where the distribution of education is at the most equal point and press freedom is at its freest point. On the contrary, the most corrupted society occurs at the bottom right of the plain, with the most unequal distribution in education and fully limited freedom of the press. Hence, press freedom and education equality should be considered as complimentary tools in any anti-corruption campaign. (b) Education Equality and Democracy equality in the country, separately with and without uninterrupted democracy. Besides, the duration of democracy shows no significant anti-corruption effect when median/Q4 is used as the measure of education equality. Nevertheless, in Appendix Table 2 when the Gini coefficient and coefficient of variation are used as the measure of education equality, the effect of democratic stability becomes significantly positive. Based on the results in Appendix Table 2 the country with uninterrupted democracy is more likely to receive, on average, a corruption score 1-2 points higher compared with a country that has experienced such as interruption. A possible explanation for this finding is that countries with established democracy may have institutional factors or supporting mechanisms which promote accountability more effectively than countries with fragile democracies. Moreover, some interaction terms between education equality measures and uninterrupted democracy are significantly different from 0 (columns 1-3, 6-9, 10 and 16-18), which means that the impact of changes in education distribution, measured by Gini coefficient and coefficient of variation in a country that has not experienced 40 years of uninterrupted democracy (Alldem=0) is different from a country with 40 years of uninterrupted democracy. However, this finding is barely significant and is highly sensitive to specification changes; thus, we focus our attention primarily on the results from Appendix Table 1. (c) Other Determinants of Civic Monitoring Most of the other determinants of civic monitoring capacity show significant associations with corruption indices in regressions presented in Appendix Tables 1 and 2. In countries with higher judicial independence and competitive democracy, corruption was less likely to occur, ceteris paribus. Moreover, countries with fewer Protestants, lower income per capita and smaller degrees of openness were more prone to corruption. However, the measure of legal and institutional culture, British heritage, does not show any significant link to perceived levels of corruption around the globe. These findings

In Appendix Table 1 the coefficients of the interaction terms between median/Q4 and uninterrupted democracy are insignificantly different from 0; hence, the anti-corruption effect of education equality in a country that has more than 40 years of uninterrupted democracy (Alldem=1) is insignificantly different from a country that has not had such stability in its political system.19 Therefore, we do not need to interpret an anti-corruption effect of education
Although we exclude this interaction from the model, all the main results are still robust.
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are consistent with those of Serra (2006). Additionally, the results in regressions 7-9 and 13-15 in Appendix Table1 and regressions 4-6, and 13-15 in Appendix Table 2 include regional dummies within the regression model.20 Latin American countries tend to have more corruption than Western European and North American countries; specifically, they are about 1.5 points lower in the corruption indices. Moreover, the anti-corruption effects of all education equality measures increase when the regional dummies are added. This suggests that the regional factors do matter and cannot be left in the residual terms. Nonetheless, all main results discussed above still remain robust. 6.3 Pooled Ordinary Least Squares Estimation We re-estimate the OLS regression model using the repeated cross-country data set of the same set of countries between 1990 and 2005 and include time-fixed effects within the model. Columns 10-15 in Appendix Table 1 and columns 7-9, 16-18 in Appendix Table 2 present the results of pooled OLS regressions, as specified by equation 5.2. As the CPI and WB corruption indices are available only from 1995, the regressions, which employ these indices as dependent variables, will estimate the repeated cross-country data set between 1995 and 2005. All education measures are in 10-year lagged values. The main findings are highly consistent with the earlier OLS estimations. For instance, from regressions 10 and 11 in Appendix Table 1, reducing by 10 per cent the years of schooling gap between the median and the 4th quartile produces a net increase of about 0.851 and 0.837 in the scores of the CPI and WB corruption indices, respectively. When including the regional dummies into the regression model, the anti-corruption effects of education equality in terms of the corruption indices score are slightly reduced to 0.724 and 0.673, respectively, as presented in columns 13 and14 of the same table. Moreover, as was the case with the earlier findings, richer countries seem to have less
The coefficients of regional dummies are not presented in the tables but are available upon request.
20

corruption: specifically, an increase of US$ 1,000 in per capita income can result in increases of about 0.03-0.05 in the corruption indices scores. In addition, the anti-corruption effects of press freedom, share of Protestants in the population and duration of uninterrupted democracy are very much the same as in the cross-country OLS estimation. The effects of openness and political pressures are insignificant here. Interestingly, however, the income effect disappears when regional dummies are included within the regression specification while the effects of other explanatory variables remain unchanged. Moreover, we also add into the OLS specification in equation 5.2 the proportions of the total adult population that attained three different schooling levels: primary schooling, secondary schooling and tertiary schooling. The results are presented in Appendix Table 3. Interestingly, having a more educated population does not necessarily reduce the likelihood of corruption in the society. All measures of population share, in each schooling level, show significant and differential effects toward corruption. An increase in the proportion of the population attaining schooling can reduce corruption in the society only if the schooling is at the secondary level or above, see columns 2-3 and 5-6 in Appendix Table 3. This finding, however, contradicts that of Ahrend (2002, p. 14), which shows that only tertiary education can significantly control corruption while primary and secondary levels of education have neither positive nor negative significant effects. These different findings could potentially originate from the difference in the measure in education between our work and that of Ahrend (2002), as discussed previously. More importantly, the results in columns 1 and 4 highlight the alarming evidence that primary schooling is insufficient to control corruption. As discussed in the theoretical section, the higher share of adult population who graduated only from primary school increases the likelihood that the median population attains only primary schooling which critically undermines the capacity of civic monitoring to detect or to control corruption among public officers. This argument is reinforced by the positive and

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significant coefficients of median/Q4 in columns 1 and 4. Therefore, social planners who employ civic education in measures to fight corruption should incorporate this non-monotonic relationship between educational attainment and corruption. The greater the number of people who acquire post-primary education, the more effective monitors they can be in the fight against corruption. 7. Identification Problems and Strategy This section verifies the robustness of the results of the OLS estimations in section 6 by examining for endogeneity and omitted variable bias, which could lead to loss of identifiability in the parameters of interest in the OLS regression. We employ a fixed - effects model and instrumental variable to control for endogeneity and omitted variable bias. 7.1 Endogeneity Problem The reverse causality between education and corruption has been consistently shown in the literature that examines the effects of corruption on the public provision of education. Research suggests that, by reducing corruption today, the education system can be improved in the future by securing government funding for the targeted educational plans (Mauro, 1998; Reinikka & Svensson, 2005). Using the instrumental variable21 estimation, Reinikka and Svensson (2005) showed that an increase in public information exposure is associated with an increase in government spending for local schools, which would have been extracted by rent-seeking activities. The estimations presented in sections 6.2 and 6.3 anticipate the endogenous relationship between education and corruption presented by the literature, and identify the anti-corruption effects of education equality by using the lagged values of education measures to prevent such a problem. The validity of this strategy depends upon the identifying assumption that the present value of corruption does not affect the past
They used the distance to the nearest newspaper outlet as an instrument of the teachers knowledge about a grant program.
21

value of education measures. There are realistic arguments that support this assumption. First, there is no evidence to support the hypothesis that corruption today can cause education inequality in the past. Mauro (1998) and Rikka and Svensson (2005) present only evidence in which current levels of corruption affect future values of education spending, enrollment rates and academic performance. Second, as subjective corruption indices were conducted primarily by evaluating the perception of international businessmen toward corruption in their host country, there is no clear channel that their perceptions 22 toward the level of corruption today could possibly determine the situation of education inequality a decade ago. Additionally, we perform the Durbin-Wu-Hausman test for endogeneity to see how effective the current identification strategy is in preventing such a problem. The results of the test on OLS and pooled OLS estimations are presented in Appendix Tables 4-5. Surprisingly, the coefficients of the residual terms from the reduced-form regression from regressions 4-6, 10-12 and 16-18 in Appendix Table 4 and from regressions 3-4 in Appendix Table 5 are consistently significant, which means that the endogeneity problem still exists in the estimations. However, in recalling the argument about heterogeneity discussed previously, we suspect that the endogeneity problem detected by the Durbin-Wu-Hausman test does not originate from the reverse causality problem but from the unobservable heterogeneity problem. 7.2 Unobservable Heterogeneity The problem of unobservable heterogeneity in our context is similar to the individuals unobservable ability in the study on return to schooling. In our estimates, this problem could potentially originate from the correlation between educational regressors and unobservable anti-corruption capacity of civil society, and more specifically as follows:
There is no question about the country education system in the past 10-20 years in the questionnaire.
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regressions 2-3, reducing by 10 per cent the years of schooling gap between the median and the 4th quartile can increase by approximately 0.06-1.01 the score of the corruption indices, while a 10 per cent reduction in the Gini coefficient increases by about 2 scores the WB corruption indices. The reduction in anti-corruption effect of median/ Q4 supports the hypothesis that Cov[E, z] > 0. Thus, the OLS estimator overestimates the anti-corruption effect of the education equality measure. Interestingly, the anti-corruption effect of mean/Q4 is insignificant, which suggests that the relative years of schooling attained by the median is more important than the mean citizen in the anti-corruption context. 24 More importantly, in regressions 11-12, when including the measure of average years of schooling within the model, the coefficient of median/Q4 is relatively unchanged from regressions 2-3, while the effect of averaged schooling years is insignificant. This result suggests that the significance of this variable is driven by the correlation with unobservable anti-corruption ability in the error term. 7.4 Instrumental Variable and Two-Stage Least-Squares (2SLS) Estimates To control the unobservable heterogeneity in average cross-national OLS estimates, the method of instrumental variable is the most employable choice in the literature. In section 7.2. we have reviewed some of the efforts of Ades and DiTella (1999) and Glaeser and Saks (2006) to ease the endogeneity problem by instrumenting education indicators. Moreover, Cook (2002) and Moretti (2004) used demographic variables, including the population structure, sex ratio and expectation of life at birth, as the instruments, whereas Park (2006) also employed the global price of some commodities as an instrument. They argued that the violation in these variables had an influence on human capital formation, but not corruption and income. We follow this identification strategy in our analysis by using the share of the middle-age cohort (15-60 years of age) in
24

Equation 7.1 presents the hypothetical equality between corruption and its determinants where E and X stand for educational determinants and other determinants in equation 5.2, while z represents the unobservable anti-corruption ability of civil society. When z is correlated with E, the residual term (z+v) will be associated with the regressor E, which causes the inconsistency in the OLS estimators.23 In attempts to evaluate the civic return to education in cross-country analysis by Ades and Di Tella (1999) and Ahrend (2002), they overcome the unobservable heterogeneity problem by using the instrumental variable and fixed effects model to capture the unobservable country characteristic. We adopt both methods in our empirical investigation. If the unobservable anti-corruption ability is a time-invariant, the fixed effects estimation should provide consistent parameters of interest to us. However, if the ability is indeed a time-varying factor, we also need to employ the instrumental variable method to identify the causal relationships in the fixed effects estimation. On the other hand, for average cross-national OLS estimates, using the instrumental variable method is the only option we have. 7.3 Fixed-Effects Estimation Fixed-effects estimation is a demanding methodology; thus, owing to the limited time dimension of our panel data set, we start the fixed-effects estimation from the simplest specification as presented in equation 5.3 by regressing all corruption indices on education equality measures and income in regressions 1-9 in Appendix Table 6. The anti-corruption effect of education equality measures, namely median/ Q4 and the Gini coefficient, remain significant but their magnitude is substantially reduced compared with that of the earlier estimates. From
In fact, from the surveys and evidence provided by the India Institute of Public Opinion (1965), it is difficult to reject the hypothesis that Cov[E, z] 0.
23

The result will be made available on request.

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the total population and the sex ratio as the instruments for the measures of education equality.25 The share of the middle-age cohort (m) is calculated by using the information of the young (y) and aging (o) cohorts shares in the total population, specifically, as follows: From equation 7.2, the share of the middle-age cohort in country i at time t is equal to 1 minus the shares of the young and old cohorts 10 years previously. Hence, when the shares of young and/or old cohorts increase, they raises the future share of the middle-age cohort. The sex ratio is also in 10-year lagged values; the value of 110 means that, on average, there are 110 males for every 100 females in the total population. To be valid instruments, these demographic variables need to be uncorrelated with the error terms in equations 5.1 and 5.2, in particular, the unobservable anti-corruption ability, and sufficiently correlate with the education equality measures. For the exogeneity criteria, the underlying argument is that a larger share of the middle-age cohort means that the old-age population with lower averaged years of schooling is leaving the population structure while the younger generation with higher averaged years of schooling enters the population. On the other hand, women have a better opportunity to obtain schooling nowadays than decades ago. The new generation of females should attain higher schooling than ancestoral generations did. Therefore, the changes in these instruments are mainly due to demographic variation, for which there is no obvious link to unobserved anti-corruption ability. Therefore, exogenous variations are created for the distribution of human capital across the population. For the second criterion, we find that a larger share of the middle-age cohort and female population correlate with the more equal distribution of education in the society.26
The data are obtainable from the United Nations Population Division website: http://esa.un.org/unpp/index.asp?panel=2
25 26

Nevertheless, the validity of this identification strategy still depends on the identifying assumption that these past demographic changes do not directly correlate with the current perceived level of corruption in the society. One concern may be that a larger middle-age population induces intolerance against corruption and civic movements. However, based on the evidence presented in Magnus (2002) and Glaeser, Ponzetto and Shleifer (2007), we argue that these anti-corruption effects of demographic changes work through the education system. In other words, there are no clear direct links between demographic changes and the perceived level of corruption except through the education channel. Hence, we have run the first stage regression according to the following specification: letting stand for all predetermined variables while Z is a vector of instrumental variables. Appendix Tables 4-5 present the 2SLS results of the averaged cross-national estimate and repeated cross-national estimate accordingly. For a robustness check, all three measures of education equality are instrumented and we estimate the 2SLS regressions for all available corruption indices. From Appendix Table 4, regressions 1-3 present the reduced forms estimates as specified by equation 7.3 using different measures of education equality. The results show that the middle-age cohort can significantly explain the variation of education equality measures, while the sex ratio can barely explain the variation. Columns 7-9, 13-15 and 19-21 present second stage estimations. When the measures of education equality are instrumented, their anti-corruption effects become substantially larger. However, the F-statistic for the test of overall fit of first-stage regression at the bottom of Appendix Table 4 shows the values range from 1.3 to 5.5. As the anti-corruption effects of the education equality measure become considerably larger than in the OLS estimates in Appendix Tables 1-2, even the values of the F-statistic in

The result will be made available on request.

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reduced form estimates are lower than 10; it is a rule of thumb that these are the signal of a weak instrument problem. If the instrument is to be a legitimate one, it should correct the inconsistency in the estimator of educational measure, not increase it. In this case, as Cov[E, z] > 0, the 2SLS estimator should be smaller than the OLS estimator, which is contaminated by the effect of the error term. A possible explanation for the weak instrument problem is the limitation in the variation of instruments, especially the sex ratio. The 2SLS estimates on repeated cross-section in Appendix Table 5 and fixed-effects estimations with the instrumental variable in Appendix Table 6 also present similar results and problems. From columns 5-6, 9-10 and 13-14 in Appendix Table 5, the anti-corruption effects of median/Q4 and the Gini coefficient in the 2SLS estimates are larger than the OLS estimations in Appendix Tables 1-2. However, this problem is improved in the repeated cross-country context, as there are more observations available compared with the averaged OLS estimations. Consequently, the F-statistics increase about 5-6 times and the coefficients of the second-stage regression are sizeably reduced. Therefore, for the cross-country analysis we need a better instrument or larger panel data to estimate the consistent relationship between education equality and corruption. We leave this opportunity for future research. Nonetheless, we have estimated the fixed effects model that controls the unobservable heterogeneity problem by the country fixed effects. As long as the assumption that an unobserved anti-corruption ability is time invariant, the identifiability of these results remains consistent. In fact, unlike the time-varying unobserved heterogeneity found in the work of Frechette (2006), which determines the availability of rents in the economy, there is no clear evidence that the anti-corruption ability of civil society around the globe has changed dramatically during the past 10 years. Hence, the result of the fixed-effect model in Appendix Table 6 supports our hypothesis that education equality can control corruption, while the results from OLS regressions should be treated with caution until legitimate instruments for education equality measures or a larger panel data set are available. 8. Conclusion The literature on the causes of corruption suggests that education, in general, is statistically irrelevant or positively correlated with corruption. However, these studies usually use a vague measure of human capital, mostly primary school enrollment and the unrealistic assumption of a homogenous stock of human capital in the theoretical model, to support the conclusion. This paper argues that this inappropriate identification strategy and modeling are the underlying factors of such findings. As education is like a two-edged sword in the conduct and control of corruption, understanding what each side is meant for should help policymakers and practitioners to employ education in a more accurate and efficient way in order to combat corruption. Our theoretical model internalizes the diverse roles of education on corruption in order to identify a non-monotonic relationship between education and corruption. The theoretical and empirical analyses consistently suggest that education equality can capture a more precise role of education on corruption. The findings support an alternative hypothesis: that the effect of education is differential in the levels of schooling. More importantly, the equality aspect of education plays a crucial role in determining the level of corruption in the cross-country database. Two lessons can be learned from this study. The distribution of human capital should receive more attention from anti-corruption initiatives as a supplementary tool to combat corruption, together with the existing anti-corruption toolkit. Furthermore, the formulation and assessment of the anti-corruption program, in which education has been involved, should treat the impact of education on corruption distinctively by its levels and the nature of measurement.

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In addition, although education equality has direct anti-corruption effects at almost all quantitative levels of press freedom, it works more effectively in a country with freedom of the media and a stable democracy. Future research should develop further theoretical arguments to gain a better understanding of the non-monotonic association between educational attainment and corruption. The potential effects of human capital distribution across other socio-economic dimensions, such as gender and geographical areas, should also be examined. From the empirical standpoint, a longer panel data set, and a microbased data set, which are rich in both observations and duration of time, should enable researchers to obtain more precise estimates of the effect of education on corruption with a more demanding identification strategy. References
Ades, A., & Tella, R.D. (1999). Rents, competition, and corruption, The American Economic Review, 89 (4), 982-993. Ahrend, R. (2002). Press freedom, human capital and Corruption. DELTA Working Paper. 11. Alvarez, M., Cheibub, J.A., Limongi, F, & Przeworski, A. (1996). Classifying political regimes, Studies in Comparative International Development, 31:3-36. Barro, R. J., & Lee, J.W. (2001). International data on educational attainment: Updates and implications, Oxford Economic Papers, 53 (3), 541-563 Brunetti, A., & Weder, B. (2003). A free press is bad news for corruption,. Journal of Public Economics, 87 (7-8), 1801-1824. Castello, A., & Domenech, R. (2002). human capital inequality and economic growth: Some new evidence,. The Economic Journal, 2002, 112 (478), C187-C200. Cook, D. E. (2002). Education and growth: Instrumental variables estimates ECON Working Papers. Dee, T. S. (2004). Are there civic returns to education? Journal of Public Economics, 88 (9-10), 1697-1720. Dwivedi, O. P (1967). Bureaucratic corruption in developing countries, Asian Survey, 7 (4), 245-253. Eicher, To, Garca-Pealosa, C., & Ypersele, T. (2006). Education, corruption, and the distribution of income,. monograph. Frchette, G. R. (2006). Panel data analysis of the time-varying determinants of corruption, CIRANO Working Papers, 28. Gerber, A. &Green, D. (1992). Misperceptions about perceptual bias. Annual Review of Political Science, 2 (1), 189-210. Glaeser, E. L., & Saks, R.E. (2006). Corruption in America., Journal of Public Economics, 90 (6-7), 1053-1072. Glaeser, E.L., Ponzetto, G., & Shleifer, A. (2007). Why does democracy need education? Journal of Economic Growth, 12 (2), 77-99. Indian Institute of Public Opinion (1965). The citizen and his society: Attitudes of the Indian people toward government, modernization and each other,. Public Opinion Surveys, 112-113. Keen, E. (2000). Fighting corruption through education. Budapest: Open Society Institute. Koop, G., & Tobias, J. L. (2004). Learning about heterogeneity in returns to schooling,. Journal of Applied Econometrics, 19 (7), 827-849. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1999). The quality of government.Journal of Law, Economics, and Organization, 15 (1), 222-279. Lambsdorff, J. G (2007). The institutional economics of corruption and reform, Cambridge: Cambridge University Press. Magnus, J. R., Polterovich, V. M., Danilov, D. L., & Savvateev, A.V. (2002). Tolerance of cheating: An analysis across countries,. Journal of Economic Education, 33 (2), 125-135. Mauro, P. (1998). Corruption and the composition of government expenditure,. Journal of Public Economics, 69 (2), 263-279. Moretti,E. (2004). Estimating the social return to higher education: Evidence from longitudinal and repeated cross-sectional data,. Journal of Econometrics, 121 (1-2), 175-212. Park, J. (2006). Dispersion of human capital and economic growth,. Journal of Macroeconomics, 28 (3), 520-539. Persson, T., & Tabellini, G. (2000). Political economics: Explaining economic policy. Cambridge, MA: MIT Press. Persson, T., Tabellini, G., & Trebbi, F. (2003). Electoral rules and corruption, Journal of the European Economic Association, 1 (4), 958-989.

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Reinikka, R., & Svensson, J. (2005). Fighting corruption to improve schooling: Evidence from a newspaper campaign in Uganda,. Journal of the European Economic Association, 3 (2-3), 259-267. Seldadyo, H., & de Haan, J. (2005). Determinants of corruption: A literature surrey and new evidence,. monograph. Serra, D. (2006). Empirical determinants of corruption: A sensitivity analysis,. Public Choice, 126, 225-256. Svensson, J. (2005). Eight questions about corruption,. The Journal of Economic Perspectives,19,19-42. Thomas, V., Wang, Y., .& Fan, X. (2003).Measuring education inequality: Gini coefficients of education,. Journal of Education Planning and Administration, 17 (1),5-33. Treisman, D. (2000). The causes of corruption: A cross-national study,. Journal of Public Economics, 76 (3), 399-457. UNDP (2004). Anti-corruption: Practice note, Governance Practice Notes. Vanhanen, T. (2003). Democratization: A comparative analysis of 170 countries. New York: Routledge Waisman, G. (2005). Complementary controls of corruption, monograph.

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Development and Corruption in Asia: A Substantive Econometric Analysis for Practical Policy Use
Tran Van Hoa* Abstract The foundation of corruption is personal gain, tangible or intangible, by illegal or amoral, unethical or unfair means, at the expense of others. Transparency International, the worlds most influential anti-corruption non-governmental organization (NGO), and the leaders of many Western governments have observed that there is a high correlation between corruption and low economic development (Peng, 2008, p. 70). Is this true? The paper uses a simple corruption-development model and recent Transparency International data to test this hypothesis and its causality for 15 countries and areas in Asia and 20 developed countries evolving during two periods, 2001 and 2008. The direction and intensity of corruption causality are then established, and anti-corruption and pro-economic development policy recommended to governmental and NGO decision-makers in order to help minimize the incidence of corruption. It is aimed therefore at promoting better government and corporate governance to enhance economic growth and social harmony in the developing countries of Asia. Keywords: Corruption, Asia, causality detection analysis 1. Introduction The foundation of corruption is personal gain, tangible or intangible, by illegal or amoral, unethical or unfair means, at the expense of others in a system or community. In this context,
Professor and Director, Vietnam and East Asia Summit Research Program, Centre for Strategic Economic Studies, Victoria University P.O. Box 14428, Melbourne 8001, VIC, Australia E-mail: jimmy.tran@vu.edu.au, Website: http:// staff.vu.edu.au/CSESBL/
*

corruption reflects a dark side of human nature. It has been in existence since primordial times and at the different levels of intensity everywhere and for everybody, rich or poor. In recent years, in the practical area of development economics and business administration, Transparency International (TI, 2009), the worlds most influential anti-corruption non-governmental organization (NGO), and numerous Western government and corporate leaders, through their often-quoted public comments, have observed that there is a high correlation between corruption and low economic development. More specifically, they have observed that corruption distorts the basics of competition by misallocating resources and slowing economic development (see Peng, 2008, p. 70). From a social and cultural perspective, the question of what causes corruption has also been addressed by some previous studies (see, for example, Khoman, 2008). Several research questions are addressed in this paper, which comprise the target region of our interest: Is this corruption-development nexus true for developing Asian countries and areas? If it is true, how can we identify the problems and develop appropriate policy to improve what is essentially corporate, business and government governance in the current context of globalization, international competitiveness, international cooperation and poverty reduction in order to attain common prosperity? The paper is an empirical study with testable or verifiable hypotheses to carry out rigorous research and to provide substantive and credible answers to these important questions. The findings and their policy implications are useful for informed debate and pro-growth and anti-corruption policy analysis. The plan of the paper is as follows: in section 2, a simple corruption model with testable hypotheses is constructed and, using recent data, the corruption-development causality hypothesis is tested for 15 major Asian countries and areas and 20 developed economies for comparison and for capturing the evolution of anti-corruption progress during two key periods, 2001 and 2008, for which data are available. Corruption causality direction

JEL : D74, D78

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is then statistically verified and established in section 3. Based on these findings, policy implications for anti-corruption and pro-economic development are recommended in section 4 in order to assist corporate, governmental and NGO decision-makers to minimize the incidence of corruption, if possible. It is aimed therefore at promoting policy to enhance growth and reduce poverty in the developing countries of Asia. Section 5 provides a summary and conclusion. 2. A Corruption-Development Model 2.1 The Model The simple corruption-development causality model we propose for our empirical study has four conceptual parts or testable causality hypotheses. First, if the general perception and that of Transparency International of corruption (denoted, say, by a corruption perception index, or CPI) as an impediment to development or economic growth (proxied respectively by, say, real income or GDP growth or real per capita GDP, and their annual rates of change) in Asia is true, then in implicit function form (denoted by f1), GDP=f1(CPI), its first derivative) is f1 > 0. Second, if reverse causality is true, then similarly CPI=f2(GDP) where f2 > 0. The hypothesis here is that as a country attains a higher income level it is likely to have a lower corruption level. Third, as the countries in the sample progress to higher levels of development and higher growth in their national development program or reform policy through time, their level of corruption must decline (higher CPI scores). Then, f2 for a previous period (say 2001) is greater than f2 for a later period (say 2008). Fourth, for high-income but low-growth economies (countries in the Organisation for Economic Co-operation and Development (OECD) in recent years), the hypotheses are null. The empirical study below focuses on estimating and testing these four hypotheses. Before carrying out our research, we noted that there is a large number of theories with strong assumptions of causality direction and numerous practical empirical approaches in the literature on explaining economic development and growth in developed and developing countries (see, for example, Levine & Renelt, 1992; Easterly, 2007; Krueger, 2007). We also noted that f1 and f2 above can be non-linear in their relationships (see Tran Van Hoa, 1992; Minier, 2007; Baier & Berstrand, 2008, for non-linearity issues in economic policy modeling and analysis of non-linear functions). However, for pragmatic reasons and for ease of interpretation, a simple bivariate linear model is assumed in this paper. Thus, the four testable hypotheses in a model representing the corruption-development causality nexus can be written more concisely mathematically as follows: 2.2 Four Testable Hypotheses

2.3 The Data and their Epistemological Issues The CPI cross-country data with scores ranging from 1.0 (more corrupt) to 10.0 (less corrupt) for the 15 Asian countries and areas and 20 developed economies were obtained from Transparency International (2009) surveys for 2001 (beginning) and 2008 (most recent). The list of the countries and areas and their CPI scores in our sample are given in the Appendix at the end of this paper. In 2001, Transparency International had CPI data for a total of 91 countries. In 2008, the number of countries surveyed had increased to 180. We concentrate only on the countries that are included in both Transparency International surveys. To accommodate a countrys development stage and level of growth (see Levine & Renelt, 1992 and Minier, 2007, for their theoretical and empirical relevance in the literature) and their possible causal association with corruption, the GDP data are divided into two groups: real per capita income or GDP (in thousands of 2005 US dollars) to reflect what is essentially a countrys

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development stage or living standard, and real GDP growth (annual) in order to represent on the other hand a countrys dynamic economic achievement. The real per capita GDP and growth data are also given in the Appendix. These macroeconomic data were obtained from the online databases of the United States Department of Agriculture Economic Research Service (USDA-ERS, 2009). 3. Empirical Findings from the Corruption-Development Model In our study, a number of what Kydland (2006) called computational experiments for the four basic hypotheses of the models above were carried out, extensively, estimated and subjected to conventional and new testing procedures. The testing procedures included the usual significance test, the conventional summary goodness of fit, and the observation-by-observation data-model consistency criterion proposed earlier by Friedman (1953) and advocated more recently by Kydland (2006). The test for a possible improvement (or a lack of it) in corruption behavior and activity (due probably to anti-corruption policy) of the 15 Asian countries and areas in focus during the 2001 and 2008 periods in the form of a structural break (or Chow test) is also adopted. The final findings and their summary associated statistical diagnostics are reported collectively in Table 1 for 15 countries and areas in Asia. The models have also been estimated and their causality hypotheses tested for the 20 developed economies; however, as all the hypotheses were found to be statistically null, the findings are not shown in this paper. The country-by-country modeling performance of the estimated models for the 15 Asian countries, and areas, as judged by the Friedman-Kydland criterion, has also been calculated but not reported here. White-heteroskedasticity seems absent in all the 2001 and 2008 models. Judged by these tests, the estimated models and their parameters are regarded as good representations for the data under study. Table 1. Corruption and Development in 15 Asian Countries and Areas 2001 and 2008, Empirical Causal Findings

Notes: Growth = per capita real GDP growth, CPI = corruption perception index, GDPH = per capita real GDP (an income level), R 2 = R-squared, White = White-heteroskedasticity test statistic, Chow = Chow structural break test statistic. ** = significant at the 5% critical level. * = significant at the 10% critical level.

4. Policy Implications: Does Corruption Hamper Development Growth in Asia and in Developed Countries? The empirical findings for the four hypotheses proposed earlier and reported in Table 1 reveal a number of interesting and important implications for the corruption-development stage and growth nexus for Asian economies. In an economic-theoretic context they are also relevant to corporate, business and government governance policy and NGO anti-corruption programs in the 15 major Asian economies. First, when development is defined as real GDP growth, then both for 2001 and 2008, higher growth is found to be attributed to a higher level of corruption (lower Transparency International scores). The impact of corruption is weaker (in magnitude) on growth in 2008 by

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up to 28 per cent compared with that in 2001, reflecting an improvement in anti-corruption policy outcomes. This evidence is also statistically stronger in 2008 than in 2001. Second, in terms of reverse causality, higher growth in these countries seems to have significantly increased their level of corruption (lower Transparency International scores) by up to 16.14 per cent between 2001 and 2008. Again, this evidence is found to be statistically stronger in 2008 than in 2001. We note that, while the test for the modeling performance of the estimated models shows that they are statistically significant, this finding is mitigated somewhat by their relatively low summary goodness of fit for both 2001 and 2008. However, when development is measured by real income or GDP per capita, reflecting the living standard or the development stage (Levine & Renelt, 1992) of the 15 Asian economies in our study, the findings are starkly different, theoretically and statistically. First, for both periods, less corruption (higher Transparency International scores) is found to be significantly associated with higher living standards or advanced development stages. Again, the impact in 2008 is much stronger (in magnitude) than that in 2001, reflecting to some extent an improvement in anti-corruption policy outcomes. Second, in reverse causality, in both periods, higher real income per capita is found to be significantly promoting more transparency (higher Transparency International scores). The promotion is weaker in 2008 than in 2001. We note that, for both periods, the estimated models are characterized by statistically significant and very high goodness of fit. We have estimated the models for 2001 and 2008 using real per capita GDP, real GDP growth and CPI data for 20 developed countries. As all individual and overall parameter hypotheses were found to be statistically null, the findings are not reported here. However, a number of interesting findings can be described. First, the signs of all (except two) estimated parameters in the developed economy models mirror those of the 15 Asian economies. The difference in sign is in the two CPI-to-growth and growth-to-CPI models in 2008, where a positive impact was found instead. These differences mean that higher CPI induces higher growth and higher growth promotes more transparency (less corruption) in developed economies. Second, contrary to the findings for the 15 Asian economies, when development is measured by real per capita GDP or living standards, the effects of anti-corruption policy on development and its reverse causality in the developed economies in 2008 are weaker or less effective (in magnitude) than those in 2001. Research on the causality of these relationships would be an interesting study in the future. 5. Summary and Conclusion The paper uses a simple corruptiondevelopment econometric model to test the basic and sometimes folklore hypothesis that higher levels of corruption are associated with low levels of development in Asia. If this hypothesis is true, then prima facie and based on official published data, the high-growth countries in Asia should have a lower corruption level than low-growth countries. This would have profound implications for corporate, business and government governance policymakers, official development assistance donors and NGOs. Our findings indicate that, while development can be measured by output growth, development stages, living standards or other economic-theoretic and welfare indicators, it should be measured by real per capita income (a true welfare indicator), which is the top development priority of many developing countries worldwide. In this context, our findings lend strong empirical or evidence-based support to the hypothesis that lower corruption promotes higher development not only in developing economies in Asia but, significantly, also in developed economies, such as those in the OECD group. In addition, our findings indicate that tremendous progress has been made in many countries and areas in Asia to improve the effectiveness of anti-corruption policy and economic development between 2001 and 2008. On the other hand, high living standards in the developing economies of Asia are found to have

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deep influence on reducing their corruption. While other political, social and cultural measures (see, for example, Khoman, 2008) can be good candidates to explain corruption, promoting and achieving high living standards for a country should be regarded as the most effective policy to fight corruption. Our findings also show that this policy and its impact in Asia are much stronger or more effective than that exerted in developed and rich economies in the same period. References
Baier, S.L. & Bergstrand, J.H. (2008), Bonus vetus OLS: A simple method for approximating international trade-cost effects using the gravity equation, Journal of International Economics, 77 (10); 77-85 Easterly, W. (2007), Was development assistance a mistake? American Economic Association Meeting, January 5-7, Chicago. Khoman, S. (2008), Corruption and cultural effects. NACC Journal, pp. 67-82. Friedman, M. (1953). Essays in positive economics. Chicago: Chicago University Press. Krueger, A.O. (2007), Understanding context and interlinkages in development policy: Policy formulation and implementation. American Economic Association Meeting, January 5-7, Chicago. Kydland, F.E.(2006). Quantitative aggregate economics. American Economic Review, 96 (5): 1373-1383. Levine, R, & Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions, American Economic Review, 82 (4): 942-963. Minier, J. (2007). Nonlinearities and robustness in growth regressions, American Economic Association Meeting, January 5-7, Chicago. Peng, M.W. (2008). Emphasizing informal institutions: Cultures, ethics, and norms. In: M.W. Peng (Ed.) Global Business, Mason, Ohio: South-Western Cengage Learning. 2008/09, 54-85. Tran Van Hoa (1992). Modeling output growth: A new approach, Economics Letters, 38, 279-284. Websites Transparency International (TI) (2009). http://transparency.org/layout/set/print/ policy_research/surveys_indices/cpi/2008. Accessed 16 March 2009. United States Department of Agriculture Economic Research Service (USDA-ERS). (2009). http://www. ers.usda.gov/Data/Macroeconomics/. Accessed 16 March 2009.

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