Towards A Competitive Malaysia #90
Chapter 13 Deteriorating Institutions
Discouraging Corruption
It is not enough to be vigilant and intolerant of corruption. Human ingenuity is infinite; no matter how strict and well enforced the rules are, if conditions exist that would tempt people, there will be corruption. Both briber and bribee benefit from the exercise; hence there is no incentive to expose it.
More important is to ensure that the environment does not encourage and or tolerate unethical and corrupt behaviors. Prevention is always better, easier, and more effective.
Corruption is akin to termite infestation. The damage inflicted is silent and cumulative; by the time one sees evidence of the critters or the damage they wreck, it is already too late. The integrity of the structure is already compromised. Likewise with corruption; by the time one becomes aware of it, the effectiveness of the institution is already destroyed. The damage wrecked is considerably much worse than what is exposed. The emphasis should thus be on discouraging the practice from ever taking a toehold, and simultaneously encouraging a culture of intolerance to it.
Just as in a building, there are areas that are damp, dark, and away from sunshine that are prone to infestations, so too there are areas in government more susceptible to corruption. Agencies that deal with cash (Customs Department), issue valuable licenses (the Ministry of Trade with its Approval Permits for importing cars, and Motor Vehicles Department for drivers’ licenses), or where decisions are not open to public scrutiny (the Ministry of Finance with its non competitive tender bids) are likely areas for corruption.
Often simple administrative procedural changes would reduce corruption. When the Mafia wanted to launder their ill-gotten cash, they used restaurants as their front; hence dinky pizza outlets depositing millions in “revenue.” When regulators mandated that businesses depositing more than $10,000.00 in cash at any one time be reported unless they had prior clearance, that laundering scheme disappeared quickly.
The Chinese government has a novel scheme to discourage fraud and corruption with restaurants underreporting their receipts. Under the guise of supporting the hospitality industry (or perhaps it is a genuine effort), the government would reimburse patrons for a portion of their expenses when eating out, with one condition: they must produce a receipt. Very effective! Everyone is happy; the patrons for getting some money back, the industry for the growth in business, and honest restaurant owners who now have one less problem with monitoring their dishonest workers. The government now also has a reliable estimate of a restaurant’s revenue, useful in calculating the tax liabilities. The only ones unhappy are the crooked operators and workers.
Another effective mechanism would be to reward citizens for reporting fraud and corruption. This goes beyond the usual banal public recognitions and praises by leaders. America’s False Claims Act rewards citizens who provide the government with evidence that would lead to conviction by giving them 15–25 percent of the loot recovered. Citizens could also sue the corruptors on behalf of the government (qui tam suits) and claim the whole booty, plus reimbursement from the guilty party for legal costs. Obviously with such rich rewards, the risks are commensurably higher. If you were unsuccessful, the other party could counter sue for recovery of legal expenses and for libel and malicious prosecution. If your case is strong, the government reserves the right to be a party in your lawsuit, thus lessening your potential reward as you would have to share the recovery with the government. Such whistle blowers and qui tam lawsuits serve as major deterrents to fraudulent and corrupt practices.
There is no incentive for the participants in corruption and bribery to expose their crime as both parties benefit from the transaction. As the focus of the criminal justice system has been on punishing both parties, there is even less of an incentive for either party to squeal. Qui tam suits and the False Claim Act serve to encourage insiders to spill the beans by offering rewards.
In an effort to encourage crooks to fess up, a Berkeley law professor suggests a novel scheme of offering rewards and simultaneously granting amnesty to the party in a corrupt transaction if he or she were to report the crime. Working on the familiar theme of the prisoners’ dilemma, this “virtuous circle of distrust” would encourage those with some pangs of conscience to confess to their crime. If one party to a corruption were to confess and co-operate to secure the conviction of the other party, then he would be granted amnesty. His incentive to come forward would be to spare himself prosecution should the other party squeal. For the diehard crooks and those without conscience, then we can depend on that old principle that there is little honor among thieves.
Experts emphasize the need for strong leadership and political will at the highest level, and point to the remarkable success of Singapore and Hong Kong. Yes, strong leadership is important, but with a large and complex nation, that alone is not enough, unless you have dictatorial leaders. Mussolini made the Italian trains ran on time, but.… It is the “but” that is problematic. Singapore and Hong Kong are tiny political units; their leaders are effective in eradicating corruption in the same manner that some city mayors in America are also effective.
Streamlining the government machinery and reducing the discretionary powers of officials would also reduce the temptations for corruption. Every year, thousands apply for the limited supply of taxi licenses and permits (AP) for importing cars, making such documents extremely valuable. One simple solution would be to set up explicit criteria. In case of the taxi licenses, give bonus points for would-be owner operators, those who could speak English (good for tourism), high school graduates, and former servicemen. Alternatively, simply auction those taxi licenses to the highest bidders, as New York City is doing. Had the government auctioned off its APs, imagine the added revenue it would have gained, quite apart from sparing itself the unnecessary embarrassments and controversies. It would also eliminate one prime source of influence peddling and corruption.
To control corruption effectively you need both complementary approaches: small incremental measures as noted above, as well as by radical “shock and awe” moves at the macro level like shutting down entire agencies and aggressively going after the “big fish.”
Next: Corruption in the Private Sector
Discouraging Corruption
It is not enough to be vigilant and intolerant of corruption. Human ingenuity is infinite; no matter how strict and well enforced the rules are, if conditions exist that would tempt people, there will be corruption. Both briber and bribee benefit from the exercise; hence there is no incentive to expose it.
More important is to ensure that the environment does not encourage and or tolerate unethical and corrupt behaviors. Prevention is always better, easier, and more effective.
Corruption is akin to termite infestation. The damage inflicted is silent and cumulative; by the time one sees evidence of the critters or the damage they wreck, it is already too late. The integrity of the structure is already compromised. Likewise with corruption; by the time one becomes aware of it, the effectiveness of the institution is already destroyed. The damage wrecked is considerably much worse than what is exposed. The emphasis should thus be on discouraging the practice from ever taking a toehold, and simultaneously encouraging a culture of intolerance to it.
Just as in a building, there are areas that are damp, dark, and away from sunshine that are prone to infestations, so too there are areas in government more susceptible to corruption. Agencies that deal with cash (Customs Department), issue valuable licenses (the Ministry of Trade with its Approval Permits for importing cars, and Motor Vehicles Department for drivers’ licenses), or where decisions are not open to public scrutiny (the Ministry of Finance with its non competitive tender bids) are likely areas for corruption.
Often simple administrative procedural changes would reduce corruption. When the Mafia wanted to launder their ill-gotten cash, they used restaurants as their front; hence dinky pizza outlets depositing millions in “revenue.” When regulators mandated that businesses depositing more than $10,000.00 in cash at any one time be reported unless they had prior clearance, that laundering scheme disappeared quickly.
The Chinese government has a novel scheme to discourage fraud and corruption with restaurants underreporting their receipts. Under the guise of supporting the hospitality industry (or perhaps it is a genuine effort), the government would reimburse patrons for a portion of their expenses when eating out, with one condition: they must produce a receipt. Very effective! Everyone is happy; the patrons for getting some money back, the industry for the growth in business, and honest restaurant owners who now have one less problem with monitoring their dishonest workers. The government now also has a reliable estimate of a restaurant’s revenue, useful in calculating the tax liabilities. The only ones unhappy are the crooked operators and workers.
Another effective mechanism would be to reward citizens for reporting fraud and corruption. This goes beyond the usual banal public recognitions and praises by leaders. America’s False Claims Act rewards citizens who provide the government with evidence that would lead to conviction by giving them 15–25 percent of the loot recovered. Citizens could also sue the corruptors on behalf of the government (qui tam suits) and claim the whole booty, plus reimbursement from the guilty party for legal costs. Obviously with such rich rewards, the risks are commensurably higher. If you were unsuccessful, the other party could counter sue for recovery of legal expenses and for libel and malicious prosecution. If your case is strong, the government reserves the right to be a party in your lawsuit, thus lessening your potential reward as you would have to share the recovery with the government. Such whistle blowers and qui tam lawsuits serve as major deterrents to fraudulent and corrupt practices.
There is no incentive for the participants in corruption and bribery to expose their crime as both parties benefit from the transaction. As the focus of the criminal justice system has been on punishing both parties, there is even less of an incentive for either party to squeal. Qui tam suits and the False Claim Act serve to encourage insiders to spill the beans by offering rewards.
In an effort to encourage crooks to fess up, a Berkeley law professor suggests a novel scheme of offering rewards and simultaneously granting amnesty to the party in a corrupt transaction if he or she were to report the crime. Working on the familiar theme of the prisoners’ dilemma, this “virtuous circle of distrust” would encourage those with some pangs of conscience to confess to their crime. If one party to a corruption were to confess and co-operate to secure the conviction of the other party, then he would be granted amnesty. His incentive to come forward would be to spare himself prosecution should the other party squeal. For the diehard crooks and those without conscience, then we can depend on that old principle that there is little honor among thieves.
Experts emphasize the need for strong leadership and political will at the highest level, and point to the remarkable success of Singapore and Hong Kong. Yes, strong leadership is important, but with a large and complex nation, that alone is not enough, unless you have dictatorial leaders. Mussolini made the Italian trains ran on time, but.… It is the “but” that is problematic. Singapore and Hong Kong are tiny political units; their leaders are effective in eradicating corruption in the same manner that some city mayors in America are also effective.
Streamlining the government machinery and reducing the discretionary powers of officials would also reduce the temptations for corruption. Every year, thousands apply for the limited supply of taxi licenses and permits (AP) for importing cars, making such documents extremely valuable. One simple solution would be to set up explicit criteria. In case of the taxi licenses, give bonus points for would-be owner operators, those who could speak English (good for tourism), high school graduates, and former servicemen. Alternatively, simply auction those taxi licenses to the highest bidders, as New York City is doing. Had the government auctioned off its APs, imagine the added revenue it would have gained, quite apart from sparing itself the unnecessary embarrassments and controversies. It would also eliminate one prime source of influence peddling and corruption.
To control corruption effectively you need both complementary approaches: small incremental measures as noted above, as well as by radical “shock and awe” moves at the macro level like shutting down entire agencies and aggressively going after the “big fish.”
Next: Corruption in the Private Sector
posted by M. Bakri Musa | 8:04 PM
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