Svensson_JEP_2005 - Eight Questions about Corruption Jakob...

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Unformatted text preview: Eight Questions about Corruption Jakob Svensson S ome years ago I interviewed the chief executive officer of a successful Thai manufacturing firm as part of a pilot survey project. While trying to figure out a good way to quantify the firm’s experience with government regula- tions and corruption in the foreign trade sector, the CEO exclaimed: “I hope to be reborn as a custom official.” When a well-paid CEO wishes for a job with low official pay in the government sector, corruption is almost surely a problem! The most devastating forms of corruption include the diversion and outright theft of funds for public programs and the damage caused by firms and individuals that pay bribes to avoid health and safety regulations intended to benefit the public. Examples abound. A conservative estimate is that the former President of Zaire, Mobutu Sese Seko, looted the treasury of some $5 billion—an amount equal to the country’s entire external debt at the time he was ousted in 1997. The funds allegedly embezzled by the former presidents of Indonesia and Philippines, Mo- hamed Suharto and Ferdinand Marcos, are estimated to be two and seven times higher (Transparency International, 2004). In the Goldenberg scam in Kenya in the early 1990s, the Goldenberg firm received as much as $1 billion from the government as part of an export compensation scheme for fictitious exports of commodities of which Kenya either produced little (gold) or nothing at all (dia- monds) (“Public Inquiry into Kenya Gold Scam,” 2003). An internal IMF report found that nearly $1 billion of oil revenues, or $77 per capita, vanished from Angolan state coffers in 2001 alone (Pearce, 2002). This amount was about three times the value of the humanitarian aid received by Angola in 2001—in a country where three-quarters of the population survives on less than $1 a day and where one y Jakob Svensson is Assistant Professor, Institute for International Economic Studies, Stock- holm University, Stockholm, Sweden. He is also Senior Economist, Development Research Group, World Bank, Washington, D.C.; and Research Fellow, Center for Economic Policy Research, London, United Kingdom. His e-mail address is [email protected] . Journal of Economic Perspectives—Volume 19, Number 3—Summer 2005—Pages 19–42 in three children dies before the age of five. In Turkey, the effect of the earthquake that took thousands of lives in 2004 would have been much less severe, according to the government of Turkey, if contractors had not been able to pay bribes to build homes with substandard materials (Kinzer, 1999). Extrapolating from firm and household survey data, the World Bank Institute estimates that total bribes in a year are about $1 trillion (Rose-Ackerman, 2004). While the margin of error in this estimate is large, anything even in that general magnitude ($1 trillion is about 3 percent of world GDP) would qualify as an enormous issue....
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This note was uploaded on 10/16/2009 for the course ECON ECO324 taught by Professor Gustavoj.bobonis during the Fall '09 term at University of Toronto.

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Svensson_JEP_2005 - Eight Questions about Corruption Jakob...

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