So What's New? The World Bank Takes Another Stab at Governance and Corruption

The World Bank recently posted the outline of its “new” approach to fighting corruption (pdf) and has invited comments from interested parties both inside and outside the Bank. In my development calculus, reducing corruption enters the equation if, and only if, among the enormous number of very difficult challenges these countries face, it is one of the “binding constraints” to growth and development (in Dani Rodrik, Ricardo Hausmann, and Andres Velasco’s parlance).We know that corruption is everywhere and that it is hugely resource intensive to deal with. So, we had better be sure we are fighting it in a way that really matters to the development and poverty agenda, and in a way that has the highest development returns for effort expended. In some countries the need to fight corruption on a broad base is pretty clear - Nigeria during the Abacha era, the Philippines during Marcos - but in others the picture is more complex - China and East Asia for much of the past 50 years, especially Indonesia under Suharto.I was privileged to be a World Bank country director for several not-so-savory countries and came away with four “corruption lessons”: reducing corruption is the other side of the institutional development coin, which means we need to get a lot better at developing institutions if we want to have a lasting effect on corruption; corruption is a long term, systemic problem that will not be cured by short term instruments, nor by good intentions, wishful thinking or taking the moral high ground; when it comes to development, some types of corruption matter more than others, which means we need to focus our attack on the elements that limit development the most; corruption and governance are the quintessential “domestic” issues, and will not be cured from the outside or by outsiders. Judged by the outline, the Bank’s new strategy will have some elements of these “lessons”, but not enough.Whether Paul Wolfowitz's new fight against corruption helps the fight against poverty and promotes development depends on the answers to three related questions:

• Is the Bank's corruption lens focused where it matters most from a development perspective?
• Does the new approach to dealing with corruption actually offer anything new?
• Are the trade-offs involved worth the fight?

On focus: my fear is that the Bank’s concern over its own reputation will divert scarce resources from the real problem. Ring fencing bank projects, increasing supervision budgets, more audits, more and better measures of corruption may reduce leakages from Bank projects. However, in my experience, these measures will do little to reduce those aspects of corruption that matter most to the poor, corruption that lowers the quality and quantity of public service delivery, corruption that stands in the way of small scale business activity.On novelty of the approach: I’m not optimistic. One might read the outline as saying “more of the same, but this time we’re serious.” The Bank promises to “strengthen diagnosis,” develop a new “Country Governance and Anticorruption Assessment,” heighten “focus of governance in country assistance strategies,” bring “more focus on combating governance at the sector level,” do more investigations, seek more “lessons learned.” We’ve heard this all before. But there is one area listed that I do think matters – strengthening the accountability link between citizens and governments. On that issue the question is: how can external actors get involved,and what role should they play?On trade-offs: At the end of the outline, the authors state“a strategy to minimize corruption risks in Bank projects will most likely involve trade-offs and additional costs…Is the Bank prepared to accept a possible slowdown in the pace of lending…?”There will be trade-offs, but surely a slow-down in lending is not the trade-off that matters. A no-holds-barred, zero tolerance stance against corruption in Bank projects, in poorly governed countries, runs the serious risk of making the poor in these countries worse off, at least in the immediate term. Taking the Bank out of a sector, out of a “bad” country may protect the Bank’s reputation but it doesn’t educate people, doesn’t improve health care. Sensible and informed engagement, even in an imperfect environment, can and often does achieve the objectives of education and health care provision.