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World Bank Corruption Strategy: An Impolitic View

December 11, 2006

Dennis DeTrayCGD vice president Dennis de Tray has long experience working for development in countries with serious corruption challenges, including stints as the World Bank resident representative in Indonesia (1994-1999), and more recently as the Bank’s country director for the five Central Asian republics, based in Almaty, Kazakhstan, from 2001-2006. Since de Tray joined CGD one year ago, he has occasionally expressed misgivings about the Bank’s current push to get tough on corruption. He recently explained his views to members of the 1818 Society, the Bank staff retirement association, in a talk he called Corruption and Development: An Impolitic View.

Q: Your talk is quite critical of the World Bank’s draft corruption strategy . What is your biggest concern?

A: The Bank does not seem to be learning from its own experiences. In my talk I paraphrased the Bank's statement on "lessons from the past" as a series of truisms such as "corruption is bad for development," "institutional reforms can succeed" and "governance challenges aren’t uniform". These aren't false, but they also don't strike me as a solid basis for thinking about a “new” approach to combating corruption. Instead, it amounts to a strategy of "doing more of the same, but this time we’re serious,” and I doubt it will take us very far. I do think there are some important lessons from history and I tried to set these out in my talk. Of course, if one took these lessons seriously, the Bank would have to do business in a very different way.

Q: You offer several Dos and Don'ts. The first is "Don't treat the fight against corruption as an end, a sort of war against immorality." What do you mean by that?

A: International development agencies, and the World Bank is no exception, risk losing sight of their core business: enabling poor countries to provide basic services such as health and education to their citizens, and helping to create a policy environment that fosters economic growth. Unless these core objectives are met, the goal of sustainable poverty reduction will be unattainable. Given the amount of rhetoric now devoted to the fight against corruption, you could easily conclude that it has become an end in and of itself. But corruption is not that different from the many other barriers to development most poor countries face--weak infrastructure, poor human capital, missing institutions, among many others. Just as countries have to make tough choices about which types of infrastructure to build, countries--and donors--should pick their corruption battles based on development impact, not moral outrage.

Q: You criticize donor "ring fencing" of projects. What is this, and why do you think it is not helpful?

A: "Ring fencing" means ensuring that an agency's own projects are corruption free--and implicitly worrying less about what happens outside the fence. I understand the need for international agencies to do whatever they can to keep corruption out of their projects. But assuming that meeting this legitimate need will reduce the effects of corruption on development is a mistake. Imagine that a donor agency funds and builds a road project without any recipient government participation, to ensure no leakages through corruption (not that donor-implemented projects are leak-proof, as Iraq is teaching us every day, but let’s assume for a moment that one could be for the sake of argument). Although the road gets built, broader systemic corruption--such as payoffs to tax collectors and bribes to traffic police to let trucks pass--will greatly undermine its development impact. Fixing these issues is a hard, long slog, requiring patience, perseverance, and a lot of trial and error.

Q: Why do you compare Indonesian president Suharto, who tops the Transparency International "rogue table" for having enriched himself and his family more than any other leader, with Sam Walton, the founder of Wal-Mart?

A: This is the "impolitic" part of my talk. I’m not defending Suharto's corruption, whatever it was, but saying that we need to keep our eye on the development ball. At the extremes, Abacha of Nigeria for example, there is really nothing to discuss. He stole a lot and his country continued to slide. But under Suharto’s leadership, Indonesia prospered, and that must count for something. Both the Suharto clan and the Walton clan got rich because of their daddies and their daddies got rich by creating value.

Q: What is the single most important thing the World Bank can do now to make the push against corruption more beneficial to development?

A: Get back to working on development. Far too much energy is being spent on debating ways of dealing with corruption, as if reducing it is our ultimate goal as development actors. Certainly corruption is a serious constraint to development, but I am convinced that the best way to deal with it is to think boldly about new ways of doing development. How about holding governments accountable for delivering on outputs, rather than managing input processes? What if the Bank were to take the hundreds of millions of dollars it spends on so-called supervision (read: micromanaging projects) and instead use it to measure output, such as the number of kids vaccinated or number of kilometers of road built? No output, no (future) money. (For more on this idea, see the new CGD working paper by Owen Barder and Nancy Birdsall, Payments for Progress: A Hands-Off Approach to Foreign Aid). It's really all about incentives. Let’s get on with creating the right incentives for development--for the Bank’s customers, and for its staff.