Tag Archives: corruption

Corruption and fundamentalist movements-Discussions from Africa

Published at Pakistan Policy Group

Lets start off by looking at the logic of corruption in society. This ‘logic’ come outs of experiences of systemic corruption, and is not just visible in Africa.

1.    Corruption is wide ranging, affecting many types of transaction;
2.    Corruption has become the norm;
3.    Everybody hates corruption; Nobody will denounce the corrupt;
4.    Corruption corrupts, and once the rot sets in little can be done to stop it;
5.    All political systems are prone to corruption (democracy offers no easy cure);
6.    Corruption is considered “fair” by its perpetrators, but not by its victims.

We have taken this description of corruption from a paper titled, “A moral economy of corruption in Africa” (De Sardan, 1999). The general conclusion drawn by the author  is that the most likely outcome of conscious and generalized corruption is a fundamentalist revolution. The description of corrupt practices, and our discussion to follow, is very relevant to the case of Pakistan.

Pakistans Corruption Rankings, Transparency International

Corruption is diverse in practice and is not marginal or sectoral  and ranges from petty corruption to major (state elite corruption). It is generalized and banalised, and a central part of civil discourse. However, everybody knows who is corrupt, but it would be unthinkable to denounce a relative or acquaintance to the police. Similarly, “Important individuals” are all compromised and dare not denounce each other, giving rise to a loose network of solidarity. Corruption is expanding, and seems to be irreversible due to its pervasiveness and “normalisation”. In the case of Africa this inability to regress comes from state failure, massive unemployment, unproductive civil servants, an irresponsible ruling elite and underpaid civil servants. Additionally development aid and income from illegal drugs trade and demands has caused clientelism favorable to corruption.

Single institution/sector perceived to be most affected by corruption, overall results. Source: Transparency International Global Corruption Barometer 2009. Percentages are weighted.

Such a situation offers dismal prospects for political solutions. De Sardan writes that, “There is no obvious correlation between the extent of corruption, on the one hand, and the types of political regime, their degree of despotism and their economic effectiveness, on the other.” Thus the type of government may affect the type of corruption in vogue, but not its scale. Secondly, corrupt practices are consider legitimate by perpetuators, it may sometimes only be exclusion from the gains of corruption that causes criticism and awareness- “A minister may think it fair to use government resources to build a villa, because he is far from being properly recompensed for his services.” Predatory authorities may even consider these gains a right of office- a mindset modeled on colonial relationships. Corruption is also necessary for social acceptance and the logic of solidarity requires linkages from school or family or middlemen, and bargaining patters or gift giving between them, to get things done.

What facilitates the acceptance and fuels the banality or ‘everyday-ness’ of corruption? Within traditional cultures there exists a practice of over-monetarisation. By over-monetarisation De Sadan means the social pressure to give gifts, especially in cash (e.g. marriage gifts, birth announcements, religious holiday gifts etc.) These social relations can form an “excuse”, or a vehicle, for corruption practices like bribery, concessions etc. Shame or guilt of not helping and acquaintance with the manipulation of the system is also a reason for acceptance of corruption and a legitimization of ones own actions. A study of civil servant corruption from Malawi says that three sets of rules intertwined- official rules, kinship rules and the unofficial code of conduct, are what encourage corrupt behavior (Anders, 2002).

Coming to the issue of a “fundamentalist revolution”, a major proposition in anthropological studies of corruption say that it is not realistic to combat corrupt practices as long as the people who take part in them view them as acceptable, thus systemic reform will be difficult. For success an almost utopian change at the administrative level will be needed. As long as political elites are unwilling to give up some of their privileges and to reform, changing the general public’s attitudes may ultimately take the form of ‘puritanical’ or ‘fundamentalist’ movements based in the ‘grassroots’ (Fjeldstad, Kolstad and Lange, 2003).

References
Anders, G, “Like Chameleons: Civil servants and corruption in Malawi”, 2002, La gouvernance au quitidien en Afrique, 23-24.
De Sardan, J P Olivier,  “A moral economy of corruption in Africa?, Journal of Modern African Studies”, 37, 1, 1999, pp 25 – 52
Fjeldstad, O, Ivar Kolstad and Siri Lange, “Autonomy incentives and patronage: A study of corruption in the Tanzania and Uganda revenue authority”, 2003, CMI: Norway.

Pakistan’s economic underbelly

I was recently researching the extent and measurement of the informal economy in Pakistan for a colleague and the econometric methods used to estimate the shadow economy are pretty interesting and intuitive. For every Rs 100 in taxes, the government receives only Rs 38 and the rest is eaten up by the tax payer, the collector and tax practitioner.

The official description of the shadow economy is ‘unmeasured and untaxed economic activity’ taking place in a country. And this is obviously poorly reflected in official measures of national income and output. Pakistan can very easily fall into the description of the ‘shadow state’ where decisions and actions are taken by an individual ruler and do not conform to a set of written laws and procedures, although these might be present. A history of our politics and the way constitutions and have been torn ad taped together with new paragraphs added here and there is a testament to this fact. In a shadow state rulers ‘manipulate external actors’ access to both formal and clandestine markets, by relying on the global recognition of sovereignty, and are thereby able to undermine formal government institutions’. This weakens bureaucratic structures and manipulates markets. These “informal commercially orientated networks” are created that operate alongside government bureaucracies (The Shadow State in Africa: A Discussion,  Nikki Funke and Hussein Solomon, 2002).

A State Bank of Pakistan study last year (Arby, Malik and Hanif, 2010) makes use three different methodologies to measure the informal economy of Pakistan. The first is the monetary approach based on the idea that higher tax rates induce people to use currency for transactions to avoid tax reporting (known as the ARDL model). The assumptions of this approach are that informal economic activities are the direct consequence of high taxes. Since such transactions are mainly carried out by currency, the overall currency in circulation in the economy has two components: currency used for informal economic transactions and formal transactions. Thus the transaction velocity of money in both the informal and formal economies is the same.

The second method, the electricity consumption method is even more novel. Electric-power consumption is regarded as the single best physical indicator of economic activities in a country. Overall economic activity and electricity consumption can be observed and move together with GDP. By exploiting this relationship, one can have a proxy measurement for the overall economy and estimates of the hidden economy can be found by subtracting official GDP from the estimated overall GDP.

The last method they use is an economic model (MIMIC model) that whereby the informal economy is taken as a latent variable which on the one hand caused by a set of variables and affects other variables on the other. The model they select consists of three causes of the informal economy including tax/GDP ratio, M2/GDP and the regime durability as well as two indicators including currency in circulation (as ratio to M2) and growth in electricity consumption.

The ARDL results show that the informal economy has increased its share in the Pakistan’s economy until end of 1990s and has a declining trend since then. In the 1960s and 1970s it was below 30 percent and increased to 33 percent in the 1990s, and declined to 23 percent in current decade of 2000s. Results of MIMIC model show that the informal economy has been around 30% of the total economy in Pakistan. The growth path remains steady irrespective of the initial values. It is evident that ratio of informal economy to the recorded economy has been fairly stable in Pakistan. Thus we can conclude that the informal economy has grown with almost the same rate as the recorded economy. The electricity approach, on the other hand, shows that the extent of the unmeasured economy was less 5 percent during 1970s which then increased sharply until 1990s and then remained stagnant. However, this approach may not reflect the actual performance of the economy as official numbers of electricity consumption do not incorporate self- generation of electricity by economic agents in the mid 1990s onward due to crisis in official sector of power generation and distribution in Pakistan.

The results are generally close to those obtained by other studies on Pakistan but their remain some concerns as other studies show a rising trend up to the end of 1990s while some show a declining trend. M. Ali Kemal (Pakistan Institute of Development Economics, 2007), writes that if there was no tax evasion, budgets balance might have been zero and positive for some years and we would not have needed to borrow as much as we have.

The impact of the underground economy is significant to the movements of the formal economy, but the impact of formal economy is insignificant in explaining the movements in the underground economy. In the long run, underground economy and official economy are positively associated. Kemal (2007) estimates that the black economy ranged between Rs 2.91 trillion and Rs 3.34 trillion (54.6 percent of GDP to 62.8 percent of GDP respectively) in 2005 and tax evasion ranged between Rs 302 billion and Rs 347 billion (5.7 percent of GDP to 6.5 percent of GDP respectively) in 2005. Underground economy and tax evasion were increasing very rapidly in the early 1980s but the rate of increase accelerated in the 1990s. It declined in 1999, but reverted to an increasing trend until 2003. It declined again in 2004 and 2005. This supports Arby, Malik and Hanif’s ADRL model.

A study conducted by The Lahore University of Management Sciences in 2003 showed that the Rs 720 billion collected in tax in 2005-06 was only the 38 percent of the Rs 2 trillion that could have been collected. Two-thirds of the income earned in the shadow economy is estimated to flow into the official economy. The growth of the informal economy affects everyone.

The State Bank of Pakistan study can be found here.

Neutral, impartial and independent?

June 18th, The Friday Times

The three principles of international humanitarian action have long been held to be neutrality, impartiality and independence and Transparency International comes under the purview of these principles of humanitarian action.

There have been major criticisms levelled at the 2010 National Corruption Survey by Transparency International Pakistan (TIP) in the media, for example that the report has an unfair bias and targets the PPP government unfairly.

Imran Khan for one in The News (June 9), questions the sampling of TIP saying, “The 2009 survey differs from the other two when it comes to the provincial sample size. In 2002 and 2005, the sample size for each province was somewhat reflective of its overall population proportion in Pakistan. But in 2009, each province had the same sample size, 1,300.”

Continue reading Neutral, impartial and independent?

Summarising Corruption in Pakistan

The Friday Times, June 18th

Perceptions of Corruption

The National Corruption Perception Survey 2010 published by Transparency International (TI) reports that corruption has increased from Rs 195 billion in 2009 to Rs 223 billion in 2010.

The Police retained the title of the most corrupt departments of the Pakistani government for the fourth time. It has topped the list of the ten most corrupt departments and sectors in all of the four such surveys conducted by TI Pakistan in 2002, 2006, 2009 and 2010.

Continue reading Summarising Corruption in Pakistan