Chapter 2 Some Quantitative Measures of Corruption

Chapter 2

Some Quantitative Measures of Corruption

R. N. Ghosh and M. A. B. Siddique*

UWA Business School

Abstract

The word “corruption” has a moral as well as a qualitative connotation. Corruption is immoral and therefore it has to be stamped out. In this chapter, we discuss some of the quantitative measures of corruption. The Transparency International (TI) has developed several measures. The most popular measure is known as the Corruption Perceptions Index (CPI).

The TI produces another measure of corruption known as the Global Corruption Barometer (GCB). A third measure is known as the Bribe Payers Index (BPI), which assesses the supply side of corruption and ranks corruption by source country and industry sector.

The World Bank corruption index is known as the Control of Corruption Index (CCI). Yet another measure of corruption known as the International Country Risk Guide (ICRG) has been published on a monthly basis since 1980 by what is known as the PRS Group.

A final measure that is discussed in this chapter is known as the Opacity Index (OI). This index was produced for the first time in 2001, by the PricewaterhouseCoopers (PwC).

Keywords: Corruption, Transparency International, Corruption Perception Index (CPI), Global Corruption Barometer (GCB), Bribe Payers Index (BPI), World Bank, PricewaterhouseCoopers, PRS Group.

* We wish to thank Rebecca Doran-Wu, UWA Business School, for her excellent research assistance in preparing this chapter.

The Concept and Measurement of Corruption The concept of corruption

Corruption refers to “the misuse of public power, office, or authority for private benefit — through bribery, extortion, influence peddling, nepotism, fraud, speed money or embezzlement” (United Nations Development Programme, 1999, New York, UNDP). When corruption is thus defined, it has a distinct moral and qualitative connotation. No matter what, corruption is immoral and therefore it has to be routed out.

However, in real life, we have to make a distinction between ‘grand’ and ‘petty’ corruption. While a ‘grand’ corruption involving rich and influential people who accept millions of dollars as bribery, or who accept enormous gifts in kind, is to be unequivocally condemned, it is not certain that a level of ‘petty’ corruption to get a job done, without red-tape, is to be regarded as totally unacceptable. Indeed, many of the developing countries which poorly rank in any corruption index fall behind many developed countries, not because of so much more ‘grand’ corruption but because of ‘petty’ corruption that poorly paid public officials or individuals with some authority take as ‘grease money’. Such ‘petty’ levels of corruption have existed in many societies and cultures from time immemorial. ‘Petty’ corruption has the same lineage as the tradition of giving ‘ nazrana’ in the Indian sub-continent. For example, the practice of a supplier offering some sweets to an official who has the authority to pass the bills for payment is not totally condemned in some cultures.

Corruption is by no means confined to public officials. Individuals in private companies may also take bribes to provide goods and services if these are in short supply. Scarcity leads to rationing and rationing encourages corruption. If all services and goods were available in plenty, there would be less room for both taking and giving bribes.

Unfortunately, over the past two decades, the World Bank and the IMF have increasingly used the definition of corruption in a uniform manner in all countries, irrespective of widely different cultural practices. Again, there are many financial practices which are corrupt and immoral, but when approved by a government in power are not regarded as corrupt. Switzerland, for example, is generally regarded as a country with little corruption. Yet Switzerland’s banking system, under authority from the

Swiss Government, provides a haven for massive amounts of ill-gotten and corrupt sources of funds from all over the world. It is only recently that the Swiss Government has begun to tighten controls over the flow of illegal money. A similar situation exists in Singapore.

Corruption at all levels of government — the executive, the legislature and the judiciary — are now relatively uncommon in most developed countries, although some public officials are still brought to justice for acting corruptly. But in many of the developing countries corruption exists at all levels of government, and it is sometimes very difficult to get a job done, such as procuring a license for an activity, without offering bribes, in cash or in kind, to layers of public officials.

Now, the question is: does corruption have an inhibitive impact on economic growth and development? The question has been widely examined in economic literature in the past three decades. For the first few years, opinions of the experts were divided; but in more recent years, there is a growing consensus that high levels of continuing corruption tend to be inimical to long-term growth.

However, it is possible to argue the other way round. Most developed countries seem to experience much lower levels of corruption in both government and non-government agencies than in comparable agencies in developing countries. If this is so (and we will see later that all quantitative measures of corruption confirm it), we could argue that corruption is a by-product of poverty and underdevelopment, and that development itself provides an automatic mechanism to reduce (or eliminate) corruption. It is certainly arguable that when the general population in a country becomes more and more affluent with economic growth and development, they are less tempted towards ‘petty’ levels of corruption.

In brief, it is difficult to define corruption in a manner that would apply to all countries. What is regarded as corruption in one country may be regarded as part of a normal transaction in another country with a different cultural heritage. However, it is possible to argue that many types of ‘petty’ corruption are bred in an atmosphere of poverty and economic scarcity. Therefore, economic development, which leads to an eradication of poverty and also ensures a plentiful supply of goods and services, is the likely long-term solution for the lower levels of corruption in many backward countries where corruption is sometimes a necessity for survival.

The measurement of corruption

Corruption Perceptions Index (CPI)

A Berlin-based organization known as the Transparency International (TI) developed an index in 1995 to rank the level of corruption in different countries. This index is now produced annually and is known as the Corruption Perceptions Index (CPI). In its CPI produced for the year 2008, TI ranked more than 180 countries. In preparing its annual CPI, TI receives reports from its own network of personnel and also from many independent institutions: for example, TI relies on data and statistics provided by institutions such as the Economist Intelligence Unit, Freedom House, Political and Economic Risk Consultancy and many others. TI requires at least three different sources to be available in order to rank a country in the CPI. In its early years, TI used to rely on public opinion surveys, but now only uses ‘experts’ to compile its data base.

As the CPI is based on polls and surveys from different institutions, the results are subjective and are, strictly speaking, not uniform. Presumably, the information given by TI is less reliable for countries with fewer independent sources. It is also important to remember that the index is based on ‘perception’ rather than on actual ‘experience’; so, the index does not provide any information about the actual level of corruption in a country. Moreover, as the CPI is constructed by compiling information from different sources, statistics for different countries and for different years are not strictly comparable. However, despite all these limitations, CPI is a widely accepted tool to rank countries in terms of the levels of corruption.

In preparing the CPI, TI uses a scale of 1 to 10 to measure corruption. A high score means less corruption; and the lower the score, the higher the level of corruption in a country. Table 2.1 summarizes the CPI ranking of some selected countries in 2008.

It is to be noted from Table 2.1 that; (1) most developed countries have a low ranking in corruption, as compared with the poor and developing countries; (2) there are exceptions to (1), for example, Russia was ranked as No. 154, i.e., a lower rank than both Bangladesh and Pakistan in the 2010 CPI; (3) Somalia was ranked 178 in 2010, the lowest in CPI ranking; and (4) Mainland China and India — two of the fastest growing