Corruption And Its Global Impact: Part 2 (Global Issue)

Question 1

Measures of corruption

Answer 1

Global corruption barometer.
Bribe payers index
Corruption perception index

Question 2

Global corruption barometer and example

Answer 2

Measures ordinary households interaction with corruption, in basic services delivery

% of people that think corruption increased in last 12 months.

Question 3

Bribe payers index, how is it measured and scale?

3 most corrupt continents

Answer 3

Measures corruption engagement of the private sector. (How many firms in that country engage in bribery?)

Scored from 0-10
10=companies from that country never bribes
0=companies from that country always bribe

Most corrupt is Russia, China, Mexico. (Asia, Africa, SA)
Least corrupt is Netherlands, Switzerland, Belgium

Question 4

Corruption perception index (CPI)

How is it measured, and scale?

Answer 4

Measures degree to which politicians are believed to accept bribes. Using experts and opinion surveys.

0-100
0=highly corrupt

Considered on of the best available measures.
Most corrupt continents Asia, Africa, SA.

Question 5

Global amount of bribes paid in $

Answer 5

1 trillion a year

Question 6

Global cost of corruption in $

Answer 6

2.6 trillion a year

Question 7

2 theories of globalisation on corruption

Answer 7

Globalisation increased opportunities for corruption and making it harder to detect.

Globalisation decreased corruption>countries must comply with international regulations.

Question 8

So what does the evidence suggest about the relationship between globalisation and corruption.

Answer 8

Non-linear relationship, shaped like a quadratic (laffer curve)

Just like the democracy evolution and corruption diagram.

Question 9

Stages

Answer 9

Low globalisation=corruption rises
Transition level> strengthening of institutions
High globalisation=high regulation so corruption falls back down.

Question 10

This increase in globalisation led to need for
Anti corruption policies (2)

Answer 10

OECD Anti-bribery convention
UN convention against corruption UNCAC (2003)

Question 11

OECD Anti-bribery convention (1997) and weakness

Answer 11

Creates a level playing filed for the international business environment

-focused on supply side of bribery
-43 states

Weakness:enforcement-most are recommendations, no obligation to implement.

Question 12

UNCAC (2003) UN convention against corruption

And weaknesses (4)

Answer 12

Facilitate fight against corruption by strengthening policies by international cooperation.

Demand side (prevent parties from receiving bribes, unlike OECD who focus on supply, making bribes)

Weakness:
No definition of corruption
Recommendations (again)
Fails to criminalise certain acts e.g bribing foreign officials
No punishment mechanisms for members who do not fulfil obligations (BROADER-DEEPER TRADE-OFF mentioned in part1)

Question 13

Game theory approach to international corruption

Outline setting, and 3 possibilities

Answer 13

Setting- MNC bidding on foreign contracts.
Assume cost of bribe=2, and profit (R)=8, probability of winning contract (P) =50%

If both don’t bribe payoff= R x P (so 8 x 0.5=4 each)

If both bribe payoff= (R - 2) x P (so 8-2 x 0.5=3 each)

If one bribes: they get the contract. (R-2) (8-2=6, other gets nothing)

Question 14

US’ problem in real life with bribery, and what would this do to their payoff in game theory, and dominant strategy for American vs other firms?

Answer 14

Congress made illegal to pay bribes to foreign officials.

So FCPA changes payoffs only for US countries. Significant negative payoff if they bribe (and get contract). So dominant strategy (regardless of others actions) for American firms are not to bribe. Company B would bribe

However received complaints from firms that it put them at a competitive disadvantage internationally.

Question 15

How much did US firms lose in contracts

Answer 15

$11bn in contracts due to the congress making bribes illegal, thus placing US firms at a disadvantage internationally.

Question 16

So what did US do?

Answer 16

Call for a level playing field.

OECD Anti-bribery convention 1997 came along (20 years after bribes were illegal in US)- equalise cost of bribing for US and OECD companies (i.e same punishment for bribe)

Question 17

Problem of implementing OECD Anti-Bribery convention 1997 (2) NEW ONE ADDED FROM EARLIER FC

2. Evidence to support (2)

Answer 17

Enforcement. (As mentioned earlier)
Requires members to implement account standards. The fines to actually be imposed.

Only recommendations.

2. Only one prosecution made in another country (Canada). Shows the lack of enforcement. So in reality, payoffs for OECD firms did not reduce.

Graphical evidence shows 22 countries of OECD showed no or little enforcement.

Question 18

Overall corruption suggestions

Answer 18

International institutions have a role to encourage and support policy reforms e.g World Bank, IMF for financial support.

Question 19

Reforms for corruption (3)

Answer 19

Reforms that open up and liberalise economy (increase competition)

Reforms that eliminate unnecessary regulation.

Political reforms giving more power to citizens.