Reducing inequality through anti-corruption strategies

How does corruption drive inequality? Can feasible anti-corruption strategies tackle inequality? And if so, what makes an anti-corruption strategy feasible? These were some of the questions discussed at a panel run by the Anti-Corruption Evidence (ACE) team at the Development Studies Association’s annual conference this week. Academics were joined by practitioners working in ACE’s three focus countries -Bangladesh, Nigeria and Tanzania - and elsewhere.

Perhaps somewhat surprisingly, inequality is often not considered as part of national anti-corruption agendas. Dr Mark Pyman, one of the panellists and a leading anti-corruption practitioner, noted that in his research looking at over 40 national anti-corruption strategies, not one strategy listed reducing inequality as an objective. He suggested that this is because most developing countries create anti-corruption strategies in response to donor requests, and donors are focused on promoting good governance. In addition, many sectoral specialists and civil servants do not want to bring attention to corruption in their sectors for fear of losing donor funding. Moreover, anti-corruption movements often start with national-level awareness raising and do not trickle down into sectors at a detailed level.

While somewhat surprising, this lack of focus on inequality within national anti-corruption agendas may not be overly problematic because effective anti-corruption strategies need not be top-down. In fact, as Professor Mushtaq Khan pointed out, more often, to be effective anti-corruption strategies should be aimed at the sectoral level (for example at the health or energy sectors) and not try to drive change from the top. This point, of course, is central to the ACE approach, which argues that by focusing on specific sectors and understanding the interests of stakeholders involved in these sectors, it is possible to find ways to create incentives for more productive behaviour, and therefore less corruption. By reducing corruption within sectors, it is possible to drive economic development and promote job creation, which should reduce inequality.

An example of a sectoral-level approach is ACE’s work in the power sector in Tanzania. Insufficient investment in the sector is due in part to poorly aligned incentives and numerous opportunities for corruption. For years, less capable but more politically connected companies have been receiving contracts to construct expensive, cost-inefficient power plants and other wasteful or unnecessary items. The ACE approach is to find ways to incentivise productive companies, with more cost-efficient technologies, to bid for power projects. Ultimately, this should lead to a more diversified energy mix. As it becomes more likely for more productive companies to win contracts, the theory goes, these companies will support the enforcement of more transparent procurement and contracting rules, because it will be in their own interest to do so.

The approach, therefore, is not to add another layer of regulation from the top, but to work on changing incentives within the system. As Emmanuel Tayari of TMBM Yield Capital, an investments holdings company, noted, the idea is “to make small changes in the cycle to reduce corruption so that we can get the process moving in the right direction; then governance issues can be tackled.”

ACE partners are also examining corruption in the health sector. Corruption in healthcare impacts the poor and vulnerable the most, therefore widening inequalities. Dr Eleanor Hutchinson of the London School of Hygiene and Tropical Medicine discussed her research on corruption amongst frontline health providers, such as nurses, doctors and pharmacists, in ACE’s three focus countries. The most common corrupt practices in the three are the same: absenteeism, informal payments, the diversion of patients from public to private sector providers, and irregularities around medicines. There are, however, variations from county to country which impact on how corruption should be addressed.  

“We have gone out to stakeholders in each country to ask both which practice is most common and which is most feasible to tackle,” Dr Hutchinson explained. “In Bangladesh, for example, the answer is informal payments and irregularities around medicines.” The next question is how exactly these practices can be addressed.

In public procurement too, more top-down regulation is not necessarily the answer to corruption, nor to reducing inequalities that are exacerbated by corruption. In fact, Dr Elizabeth David-Barrett of the University of Sussex explained, “Public procurement is often highly regulated, at least on paper.”In most countries public procurement is done through an open tender process, where, in theory, a large number of bidders are invited and the most technically and commercially competitive bidder should win. In practice, this does not always pan out. For example, a tender may be made public two weeks before the bid deadline, making it very difficult, if not impossible, for bidders other than those who were informed of the tender beforehand to submit a quality bid.

Dr David-Barrett’s team is looking to identify “red flags,” or corruption risks, in the public procurement process and outcomes by analysing a large multi-year, multi-country data set. “If we can use data analytics to make the procurement process more transparent, and make it clear to the public that the process really is more competitive and transparent, then we can encourage more companies to bid and enter the market,” Dr David-Barrett said.

“In this way it is possible to open access and diversify economic power. If we can achieve that, then there is a good chance that you can reduce prices and waste in the procurement process, and, due to a higher quality of market participants, improve the quality of public services.”

ACE is a five-year research programme funded with UK aid from the UK government. The programme is generating evidence on effective anti-corruption approaches and is using this evidence to help policymakers, businesses and civil society adopt new, feasible, high-impact strategies to tackle corruption.