Anti-corruption Strategies and Economic Growth: Public Servants Salary Structure Reform in Thailand During the past decade,

corruption and its impact on the economy have received a great deal of attention. The reappearance of this topic is a consequence of a couple of factors. First, there is an increase in the number of corruption indexes. Researchers can empirically examine the effects of corruption on output and other factors. Second, and more importantly, corruption has become more prevalent in the global economy (Tanzi, 1998). Corruption is ordinary understood, and referred to, as the private wealth-seeking behavior of someone who represents the state and the public authority. It is the abuse of public resources by public officials, for private gains (Andvig & Fjeldstad, 2000). A recent study has characterized some main forms or representation of corruption, according to a number of basic characteristics which are bribery, rob, cheating and blackmail. (Amundsen, 1997). The 2010 Corruption Perceptions Index shows that nearly three quarters of the 178 countries in the index score below five, on a scale from 10 (highly clean) to 0 (highly corrupt). These results indicate a serious corruption problem. Denmark, New Zealand and Singapore are tied at the top of the list with a score of 9.3, followed closely by Finland and Sweden at 9.2. Bringing up the rear is Somalia with a score of 1.1, slightly trailing Myanmar and Afghanistan at 1.4 and Iraq at 1.5. For Thailand, it is in the 78th with a score of 3.5 (Transparency International Organization (2010). (see table 1)

Table 1: The 2010 Corruption Perceptions Index

Rank 1 1 1 4 4 6 7 8 8 10 78 168 170 171 172 172 172 175 176 176 178 Country Denmark New Zealand Singapore Finland Sweden Canada Netherlands Australia Switzerland Norway Thailand Equatorial Guinea Burundi Chad Sudan Turkmenistan Uzbekistan Iraq Afghanistan Myanmar Somalia CPIs 2010 9.3 9.3 9.3 9.2 9.2 8.9 8.8 8.7 8.7 8.6 3.5 1.9 1.8 1.7 1.6 1.6 1.6 1.5 1.4 1.4 1.1

Source: Transparency International Organization (2010)

Corruption generates both positive and negative effect to the economy (Andvig & Fjeldstad, 2000; Farida & Ahmadi-Esfahani+, 2007). However, this study mainly focuses on the negative effect of corruption on the economy by applying the Augmented Solow Growth Model. The effects of corruption on the economy have been shown to be negative (Ernst Coupet, 2003; Moe Farida, 2007; Terrenzi, 2010). According to Ernst Coupet (2003), the authors analyzed the real effects of corruption on a firms production function by using an augmented-Solow Growth model with multifactor productivity as a function of corruption. A closed-form solution is derived for real GDP per capita, economic growth and physical capital per capita at steady-state. The hypothesis is a negative relationship

between corruption and multifactor productivity which implies that the corruption negates a societys standard of living, economic growth and investment level. In this framework, corruption is treated as an exogenous factor that deteriorates the productivity of inputs of a representative firms production function. The corruption data are extracted from the IRIS Time Series of the International Country Risk Guide (1997). The result is that the increasing levels of corruption reduce a countrys standard of living proportionally for developing countries and also for the OECD as shown in the convex way. An analysis of the effects of corruption on economic growth produces similar results. Corruption has a negative linear effect on developing countries. However, the results are rather surprising for OECD countries. A reduction in corruption has a positive concave effect on economic growth. Hence, there is an optimal level of corruption for OECD. One potential explanation for these results is that the elimination of corruption carries an opportunity cost as there are positive, but diminishing returns. Additionally, the authors also found the relationship between corruption and investment that an increase in the amount of corruption has a proportional decrease in a countrys level of investment regardless of the size of the country. Moe Farida (2007) used the Solow growth model to include corruption as determinant of the multifactor productivity using a Cobb-Douglas production function framework. This paper examines this fragile negative relationship between corruption and growth in the case of the Lebanese economy. Specifically, A change in the level of corruption leads to a change in the steady state level of output per worker, the per capita rate of growth in output, output through reducing the effectiveness of government spending, foreign aid, and investment. For simplicity, the research uses the functional form of the production function is Cobb-Douglas with positive, strictly diminishing marginal product of physical capital and Inada condition. Moreover, an economy produces only one good. Corruption reduces economic growth by acting as an offsetting force to the efficiencies obtained through improvements in multifactor productivity. Corruption also

decreases the effectiveness of physical and human capital and output per worker. Moreover, Lower levels of output necessitate a lower level of investments. Likewise, a lower level of investment further contributes to lower levels of output. Hence, there is a negative effect on the growth of output per worker. Additionally, increasing in corruption level reduces the productivity of capital by rotating the production function to the right. As shown in figure 2: At the point A, the initial level of capital stock per worker (k0) cannot be maintained and the economy moves to a lower level of capital stock per worker (k1). In this process, the economy faces negative growth as it moves to (k1) along with a reduced level of output per worker. Figure 1: Dynamics of Corruption on physical capital and output

Source: Moe Farida (2007)

Eddie Terrenzi (2010) studied in the topic of Augmented Solow Growth Model with a Theory on Corruption conclude that corruptions effect on investment. The more corruption a country has, the less output it would gain from more investment. If a country has a high level of corruption then the investment in physical capital could be for the profit of the government. The measure used for investment in human capital may not have captured the full effect of human capitals effect on output because investment in education does not always go toward (non corrupt) activities that increase output.

For conclusion, the negative impact of corruption that affect to the economic growth can be explained by following diagram 1 Diagram 1: The negative impact of corruption

Corruption

Effectiveness of physical & human capital & output/worker

Effectiveness of government spending

Standard of living Standard of living

Investment level

Economic Growth

Firms production or output Standard of living For Thailand, corruption and public sector are related to economic growth, because corruption affects to distortion in public administration such as budget process, civil servants, and public expenditure. For example, corruptions in mega projects are form of corrupted by process of bidding, which causes unnecessarily high costs, leakage of publics budgets and project failures. As a result, publics budget will reduce, and then effects at every level, such as consumption, saving, investment, and economic growth. The corruption patterns of Thailand have changed overtime from bribe, process of bidding to the new pattern called policy corruption. The latter becomes a seriously corruption problem, because politicians have also been revisions in some law and regulations to increase the power of them. This is a grand corruption by cooperation among politicians, high level public servants, businessmen, and in some case, including multinational cooperation.

Policies Formulation
Policies Anchor policy: - Public Servants Salary Structure Reform Goals Direct - Reduce the levels of corruption in public sector of Thailand Indicators Strategies 1st year - Increase salaries to those who completed a bachelor's degree and worked in the government agencies to 15,000 baht per month. - Enhance the salaries of the officials by the rages of salaries in form of percentage as following; Salaries(Baht) % per year 15,001-40,000 10 40,001-65,000 15 65,001-80,000 20 > 80,001 25
Note: the salaries is increased apart from inflation adjusted.

- Thailand s CPI reduced - Rate change in political crime declined - GDP per capita increase

- Increase an economic growth Indirect - Public administration system can facilitate and provide services to the public efficiently. - Encourage people who have high potential to work in public sector.

- The public at least 80 percent satisfy with the quality of services and operations of state agencies.

2nd - 4th year - Increase the public salaries by five percent every year.

Policies Formulation (Cont.)

Policies Associated policy: - Controlling corruption strictly measurements Goals - Increasing penalty or working condition. - Promoting and training moral in organization. - Reducing the opportunities of corruption in government process. - Removing high risk corrupted of process. - Cooperating corruption control in all sectors. Indicators - PETS: Public Expenditure Tracking Survey - Working performances Strategies 1st year - Ask for cooperation of Ministry of Justice to revise law for increasing penalty or working condition. - Using moral campaign to promoting and training moral. 2nd year - Improving work methods and procedure for remove high risk corrupted processes - Reviewing government projects for reduce the opportunities of corruption 2nd - 4th year - Working together with all sectors to fight corruption by making it high risk with low returns through education, prevention, detection and prosecution

Implementation Plan
Programs /Projects 1. Study the possibility, impact and the pros and cons of policy. a) Consider the government revenues, expenditures and sources of income that will be used in the implementation. - The adequacy of the budget - The Level of public debt in case of borrowing. - The increasing of Revenue from tax collection after implement the policy - Ministry of Finance - The Comptroller - General's Department - Public Debt Management Office - The Customs Department (income , import , tariff ) - The Excise Department (income , consumption , tax ) - The Revenue Department (income w/ progressive tax, tax ) - Fiscal Policy Office - Ministry of Commerce Responsible agencies Period 45 Days
Budget (Million Baht)

0.5

b) Analyze the impact on the economic system after implement the policy - Economic growth - Inflation - Inequality of income - Well-being of people c) Analysis of the possibility of the modification of corruption culture after implement the policy 2. Draft the Bill in order to amend the Civil Service Act of 2008 which salary package is 9,100 baht per month and requires that the salary must increases not exceed 10 percent gradually, to be the new rate and propose the information in the management of policy in coordination with relevant agencies to achieve fiscal stability.

- Office of National Anti-corruption Commission 1-3 Months 1

- The Comptroller - General's Department

Implementation Plan (Cont.)

Programs /Projects 3. Pass the legislation. 4. Enforcement the policy divided in 4 years. 5. Measure the effectiveness of policies in 3 phases: 1st year, half of the policy, and termination of the policy. a) Level of Corruption

Responsible agencies - Thailand Legislature - Ministry of Finance and relevant agencies

Period 1-3 Months 4 years

Budget (Million Baht)

1 1,336,973

As policy required - Office of the Auditor General of Thailand - Office of National Anti-corruption Commission - Ministry of Finance - Ministry of Commerce - Bank of Thailand

b) Economic Growth

Expenditure Budget
Average Salaries (Million Baht/ Month) Salaries (Baht/Month) Mean of Salaries Number of Public Servants Average Salaries (Million Baht/ Month) 1st year (Depend on ranks of salaries) 450 11,525 (10%) 21,470 (15%) 27,623 (20%) 24,289 (25%) 85,356 1,024,277 2nd year 3rd year 4th year 5th year

(5%) 473 12,102 22,543 29,004 25,503 89,624 1,075,491

(5%) 496 12,707 23,670 30,454 26,778 94,105 1,129,266

(5%) 521 13,342 24,854 31,977 28,117 98,811 1,185,729

(5%) 547 14,009 26,096 33,576 29,523 103,751 1,245,016

15,000 15,001-40,000 40,001-65,000 65,001-80,000 >80,001 Sum Sum per year

15,000 27500.5 52500.5 72500.5 90000

30,000 (2%) 381,000 (29%) 355,600 (27%) 317,500 (24%) 215,900 (17%) 1,300,000 (100%)

450 10,478 18,669 23,019 19,431 72,047 864,561

Note: assume that the number of the officials entry is equal to the retries, as a result the number of public servants are constan

Policy recommendation Improving salary is a good policy in short-term for civil servants anti corruption. For example anti-corruption policy experience from Singapore must use additional strictly measures for control publics corruption such as increasing penalty or working conditions, promoting and training moral in organizations, reducing the opportunity of corruption in government process, removing high risk corrupted of process, and cooperating in all sectors. Moreover, government should give the OAGs (Office of the Auditor General of Thailand) is independent organization, and controlling and monitoring public sector. Public Expenditure Tracking Survey (PETS) useful as a method for location and quantifying political and bureaucratic capture, and leakage of funds. PETS is a quantitative survey of supply side of public service or tracks the flow of public funds and material resources from the central government level, through the administrative hierarchy, and out to the frontline service providers.

SWOT Analysis Helpful To achieving the objective Attributes of the environment External origin Attributes of the organization Internal origin
1. When the salary increased it means that people have higher purchasing power, the consumption increased as well as the investment. 2. The policy will stimulate public servants to work with more capability. 3. The policy will encourage people who have high potential to work in the public sector instead of private sector. 4. Higher income promote higher standard of living of Thai people. 5. Due to the increase of public servants salary, the government revenue will increase from progressive tax. 6. The economy will have the perfectly competition in case of auction project.

Harmful To achieving the objective 1. Thailand encounters the serious problems in morality and ethics. Then, corruption is acceptance in Thai society. 2. The policy takes time in the process to eliminate the corruption. 3. The income distribution between poor and rich will occur by using the policy. 4. It is difficult to verify the transparency.

S W

1. The policy will increase miniature inflation. 2. The policy raising the effective labor in the field of attending higher education level.

O T

1. The policy needs a huge budget. 2. The budget that provide for eliminate corruption might be divide proportion from other parts. 3. The delays of system implementation might occur. 4. Anti-corruption network needed to developing process of network.

Reference Amundsen, I. (1997). In Search of a Counter-Force. State Power and Civi Society in the Struggle or Democracy in Africa (or: Mapping the political landscape of Senegal, the Cte dIvoire and Cameroon). University of Tromso. Andvig, J. C., & Fjeldstad, O.-H. (2000). Research on Corruption A policy oriented survey. Ernst Coupet, J. (2003). Corruption, Investment and Economic Growth: Theory and International Evidence. Journal of Bussiness and Economic Research 1(1). Farida, M., & Ahmadi-Esfahani+, F. (2007). Modelling Corruption in a Cobb-Douglas Production Function Framework. Paper presented at the Contributed paper prepared for the AARES 51st Annual Conference. Moe Farida, a. F. A.-E. (2007). Modeling Corruption in a Cobb-Douglas Production Function Framework. Paper presented at the AARES 51st Annual Conference. Tanzi, V. (1998). Corruption Around the World: Causes, Consequences, Scope and Cures. IMF Working Pa-pers WP/96/63. Augmented Solow Growth Model with a Theory on Corruption 2010.