121207, Is corrupion getting worse?
Is Corruption Getting Worse?
Posted: 12/07/2012 8:55 am
This Sunday [9 December 2012] marks World Anti-Corruption Day, a time to pause and ask ourselves: is corruption getting worse or are we simply becoming more open about discussing the problems that exist?
Over the past two years, there is evidence of a stronger political and societal imperative to address corruption in its many facets. The Arab Spring has brought about a major geopolitical shift, but one that has been indicative of growing societal discontent with corruption in public governance. In the US, sanctions against corporations prosecuted under the Foreign Corrupt Practice Act (FCPA) reached a record high in 2011 of US$ 1.7 billion. And in key emerging markets like China, India and Brazil, the former hot button issue of corruption has taken a top spot on the domestic policy agenda. All these changes are welcome.
In 2011, the World Economic Forum’s Global Risk Report identified the nexus of corruption, illicit trade and organized crime as a major set of risks with the potential to further erode economic, societal and geopolitical stability in the coming years. In 2012, corruption appears again as one of the top 50 global risks, with strong connections to a wide range of risks including global governance failure, backlash against globalization and severe income disparity.
Our most recent competitiveness data from businesses provide further perspective. The Forum’s Executive Opinion Survey measures business perceptions of impediments to doing business. In 2012, 58% of the 144 countries ranked included corruption as one of the top five impediments to doing business. Corruption was rated as the top impediment in 22 countries; in 2009, only 16 countries were ranked with corruption as the top impediment.
We went ahead and compared how business perceives the occurrence of irregular payments and bribes with the GDP of a country and found a deeper connection between growth, competitiveness and one widely regarded indicator of corruption. Our data indicates that there might be a correlation between the likelihood for businesses to be subject to such irregular payments and GDP of a country. For example, there seems to be a relationship between incidents of bribery and irregular payments and factors such as availability of venture capital. Markets where businesses are more likely to be subject to such corruption are also the less likely to have sufficient access to venture capital. As businesses turn their attention to new and emerging markets, these perceptions become increasingly important factors in decision to invest. It is worth noting that the top 10 most competitive countries in the Forum’s annual Global Competitiveness Report are also among the least corrupt.
Speaking of new and emerging markets, governance, transparency and managing risk are increasingly central themes. Conversations in India, for example, are at a tipping point, where the endemic challenge of corruption in the public sphere, both in major public procurements as well as in day-to-day business (citizens paying a bribe to obtain a driver’s license) has resulted in a stronger public outcry.
The discontent has manifested itself among the general public, in websites such as ipaidabribe.com, where visitors log in their experiences in dealing with corrupt officials. But this new openness has also engendered a much more open admission within the top ranks of government about the need to deal with corruption in major government procurements.
What is the business incentive to participate in defining these game-changing solutions? Dealing with corruption has moved from the realm of compliance to one that must now be considered a strategic enterprise risk. Corruption is in fact preventable, despite those who say the problem is too big to tackle. That is exactly the type of thinking that will allow the problems to remain.
Through its Partnering Against Corruption Initiative, the Forum brings over 80 of the world’s leading businesses across industry sectors to developing a real level playing field. We have developed local networks of companies espousing principles against corruption in bribery in places such as Mongolia, where working with companies in extractive industries forms of the basis of our partnership.
The recent G20 round resulted in a strong set of recommendations to strengthen the fight against corruption. Through the B20 process, business leaders articulated recommendations to G20 governments across a range of areas including the development of collective action and sectoral initiatives, model codes of conduct to SMEs, good practices to incentivize self-reporting and common principles on enforcement of bribery legislation. Together, these recommendations can spur tangible efforts under a framework of support from countries among and beyond the G20, becoming the basis for a model legislative framework.
As businesses turn increasingly to opportunities in new and emerging markets, the need for a transparent and competitive environment has only grown. At the same time, corporate boards – at least those based in the US and much of Europe – can no longer claim plausible deniability about the machinations of their far flung subsidiaries and supply chains.
The growing number of prosecutions and resulting fines as a result of the US Foreign Corrupt Practices Act and more recent UK Bribery Laws are setting a new bar for enforcement. Greater transparency is no longer an option, but an imperative to create sustainable competitiveness environments that serve the public and foster an ethical and competitive marketplace.
Robert Greenhill is Managing Director and Chief Business Officer, World Economic Forum; Elaine Dezenski is Senior Director and Head, Partnering Against Corruption Initiative, World Economic Forum.