About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Tuesday, February 3, 2009

When checks on graft increase it

Many people believe the existence of multiple institutions for accountability in public procurement provide checks and balances on the process. This belief is born of the efficacy of such checks and balances in Western democracies rather than an objective study of how they work in a poor and polarised society like Uganda. Many Ugandans think Western systems of accountability can be introduced here and they perform as they do in rich nations. This copy and paste approach makes a bad situation worse.

It is good to learn and borrow from the good practices of others; so Africa does not need to re-invent the wheel. But it is also important to appreciate the unique social configurations that shape our policies and therefore adjust foreign systems to our circumstances or introduce completely different institutional innovations to address our problems. Uganda has myriad institutions to check abuses in public procurement: PPDA, IGG, Attorney Generals Chambers, contract committees in every ministry and public body, parliamentary oversight committees. Yet rather than check corruption, they tend to accentuate it.

Many studies show that corruption per se does not impede economic growth and development; rather, it is the specific form it takes that shapes its developmental impact. I feel bad to admit this truth because corruption is a morally repugnant thing. But be that as it may, in 1995, ex-president Roh Tae Woo of South Korea was arrested for corruption.  He admitted to accumulating a personal fortune of US$ 650m while in office. This was just a tip of an iceberg. It turned out that there had been a lot of corruption in South Korea during its period of industrial transformation.

So why didnt corruption impede transformation in South Korea and Indonesia but destroyed the economy of Marshal Mobutus Zaire? New York University professor, William Easterly in his book The Elusive Quest for Growth argues that corruption is corrosive when it is decentralised (i.e. when there are many bribe takers and their imposition of bribes is not coordinated among them). However, corruption is less negative when it is centralised (i.e. a government leader organises all corruption activity in the economy and determines the share of each official in the ill-gotten proceeds).

Easterly uses the common pool problem: multiple roadblocks by soldiers in Mobutus Zaire. Each soldier at the roadblock is an individual predator, without taking into account the effect of his actions on other soldier-predators. The wealth of the travellers is a common resource that all of the independent thieves try to appropriate. Easterly argues that the bribes demanded will be higher as each soldier-thief tries to get as much revenue from the hapless traveller as possible before other soldier-thieves get it. Under such circumstances, the total theft rate will be higher. 

This is the problem with corruption in public procurement in Uganda. The myriad bodies to check corruption in public procurement in Uganda are the equivalent of soldiers at roadblocks in Zaire; we have many bribe takers whose theft is not coordinated among them. Thus, an investor awarded a contract by the ministrys contract committee runs the risk of losing it on a petition to PPDA if his rival supplies a better bribe there. Equally, the one who has been approved by PPDA could lose it if their rival petitions the IGG. This creates a lot of uncertainty over rights to property granted by government hence negative incentives for investment. This is one reason why increasingly, only Kamikaze investors look up our country for investment.

Therefore, the only way an investor can be secure with the allocation of a given right is by trying to bring on board all bodies with power over his/her tender: Attorney Generals Chambers, IGG, PPDA, the ministry contracts committee, State House, parliament, etc. The transaction costs (the time and effort taken in coordinating all these bodies to arrive at a common agreement) of security on a common agreement among all these institutions are very high. And since each of these centres of power demand a cut from the deal, the financial costs inflict a heavy toll on the hapless investor. That is why tendering deals that meet all procedural rules in Uganda are very expensive.

Now, let us remove these decentralised layers of control and introduce a highly centralised form of corruption (Gen. Suhartos Indonesia). Easterly argues that in a corrupt Mafioso, one leader seeks to maximise the take from the corruption network as a whole. This leader has a vested interest in his victims prosperity because he knows that stealing too much will cause his victim to take evasive action, a factor that will lower the total bribe collections. So the bribe tax-rate will be lower at all the collection centres in order to maximise the total take of the system. Such corruption is less damaging to growth. The lesson is that for corruption to have less damage, you need a structure of incentives that makes corrupt leaders solicitous of their victims prosperity. Removing multi centres of control in poor countries seems the solution.

With the decentralised corruption we see in Uganda, many public officials are corrupt but the state is incompetent to apprehend them. The likelihood that someone will be punished for corrupt behaviour is positively related to the strength of state enforcement and negatively related to the number of corrupt officials. This means that even if the state prosecutes some corrupt officials, the likelihood of being caught is very low; there are too many corrupt officials from whom to choose when the state decides to prosecute. So, the thieves steal with impunity.

There can be a legitimate argument that these multiple institutions of control over public procurement merely reflect the actual fragmentation of power within Ugandas polity. In other words, they are consequences, not causes of decentralised power, and with it decentralised corruption. This means that even if we removed them at an official level, effective power over procurement would remain decentralised. Informal factions within the state and inside State House itself would vie for tenders in similar fashion. But this should only make us think of the right institutional innovation to achieve better, albeit incremental change in public procurement.


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