Not only the state will bleed

There wasn’t much for me to do when I first joined the Budget Division of Malawi’s Ministry of Finance back in 2006. My particular position had been vacant for almost a year, so it took a bit of time before the acting budget director grew accustomed enough to start diverting work my way. One of the very first things I worked on was an attempt to reconcile the difference between expenditure ceilings set by my department and actual reports of expenditure from the Accountant General’s department.

What complicated this process was the fact that the Accountant General had recently adopted an Integrated Financial Management System (IFMIS), essentially a comprehensive software platform for approving and tracking expenditure. A lot of promises came with IFMIS – the ability to track expenditure in real time and keep a tight leash on expenditure by line ministries. Yet, when I had arrived, the budget department had yet to fully adopt the platform, meaning that our (often fairly specific) budget ceilings had to be manually reconciled with IFMIS-generated expenditure reports.

I doubt that the budget director seriously believed that this greenhorn civil servant was really going to accomplish much with this work and probably saw the task as something to keep me busy while I grew more accustomed to my environment. Even so, I quickly noticed that IFMIS-generated reports seriously deviated from what was being approved by the Budget Division, sometimes even showing expenditure which was above and beyond what had been mandated by our department.

At my director’s prompting, I visited the relevant department at the Account General’s to request more detailed reports from IFMIS. The likely culprit was some of data problem, and I was curious to get to the bottom of it, seeing the whole exercise as a problem with some sort of technical solution. While the civil servants I spoke to at the AG were friendly enough and agreed to send me reports, upon my return to the Ministry of Finance it was later made clear to me that the AG wasn’t too fond of this unknown fresh-faced mzungu making random requests. Not long after, more pressing work diverted my attention, and this particular issue faded into the background.

Later, our own department grappled with the adoption of IFMIS. While technological solutions are frequently touted as solutions to institutional problems (this platform will eliminate corruption!), my experience was that without some basic level of capacity in place, even the most advanced platform was doomed to fail. Hence, if two government ministries can’t keep their budget tallies synchronised in Excel, they are unlikely to be able to get a more complex `black box’ system to work properly.  This is problematic, because when finance systems don’t work properly, it’s very difficult to tell the difference between corruption and incompetence.* My feeling at the time that the discrepancies between the AG’s expenditure records were due to the latter, even though I heard the occasional, unsubstantiated whisper that someone at the AG was stealing money.

This was surprising to me, as there had been a fairly visible crack down on corruption and leakage during the first term of then-president Bingu wa Mutharika. However, it was widely recognized that during his second, more tumultuous term (which began after I had left the country), government systems became more porous and corruption become more common.

One might have expected things to improve upon Mutharika’s sudden death and the ascension of the pragmatic Joyce Banda to the presidency. Yet despite wowing a lot of donors and even some skeptics – including yours truly – her government seems to have inherited many of its predecessors failings: a recent scandal has broken out over implications that there has been substantial theft by employees of the Accountant General’s department, who exploited loopholes in IFMIS to siphon off money.

We tend to lump all dodgy dealings into the broad category of corruption, but there is a clear difference between institutionalised corruption, where political leaders divert resources towards their own benefit, and the kind of rampant theft which goes on when you have a leader who either is unaware of or cannot control corrupt practices. Banda’s situation clearly falls in the latter – given that she has, until very recently, ruled over cabinet  of former members of Mutharika’s party as well as the opposition – she has always been in a precarious position and thus unable to fully keep everyone in her government in line.

The scandal hasn’t been completely bloodless. The recently-appointed director of the Budget Division, Paul Mphwiyo, was nearly shot to death following his attempts to close the loopholes leading to theft of public resources. I knew Paul during my time in Malawi: he was serving as an assistant budget director when I was working for the Ministry of Finance, although we didn’t often work closely together. Let’s hope he recovers quickly and his assailants are eventually apprehended, although I have my doubts about the latter.

For those wanting to keep tabs on the scandal, Kim Yi Dionne remains an excellent source for recent Malawi news and analysis.

 

*This confusion can be easily exploited.

Update: This post got a little more attention than I thought it would, so just wanted to add a little addendum.

I want to be cautious about drawing too many conclusions from my (very brief) interaction with the AG’s system – the Cashgate scandal is another animal entirely. In weighing the corruption or incompetence possibilities, it’s highly likely that my situation fell in the latter. I just felt it was worth noting that these things aren’t always clear, and that there was a bit of an administrative wall between the Account General’s Office and the Budget Division of the Ministry of Finance (they were, at least when I was there, separate `votes’ on the cabinet and in separate buildings.) Also, for the sake of my former department, I want to make it clear that this thing at least seems to be entirely of the AG’s making, and I saw nothing in the Budget Division during my time there that suggested any wrongdoing of this sort.

The More Things Change…

A paragon of transparency

A paragon of transparency.

Today’s Guardian runs an eye-opening piece on expenditures made in the last year of the Labour administration. The Tories are, in their drive for transparency, publishing expenditures made by various Government departments online. The documents relating to the Department of Communities and Local Government show:

Among the expenses revealed was £1,673 to a company called Stress Angels, which offers massages, acupressure, Indian head massage and reflexology…

Then there was £626 on a trip to a nature reserve in Nottingham and £539 on an awayday to Blackpool Pleasure Beach. Accommodation at a hotel – the Rubens, opposite Buckingham Palace – cost £17,000. Another £3,670 went to Halfords cycle shop.

The litmus test for the Tories will, of course, be whether they maintain their drive for transparency when it is going to expose even their own Government.  We see this kind of thing happening all the time in Africa, relating to corruption. A new Government comes in promising change and a war against graft. For the first year they push hard to identify and punish culprits, making high profile arrests and prosecutions. These arrests and prosecutions damage the previous administration, normally the opposition party in Parliament.

Then as time goes on, the anti-corruption agency exhausts its ability to prosecute the opposition. It’s eyes turn towards current or recent corruption scandals – those that implicate the current regime. Suddenly, the political will dissipates – they’ve ‘done enough to show that corruption will not be tolerated’. Quietly, the support and direction of senior officials is withdrawn. The old bad habits reassert themselves and the Government continues to make merry with public funds.

Eventually they get voted out, and the whole cycle starts again. This happened in Kenya (though it all went a bit pear shaped when John Githongo showed the tenacity of a bull-terrier); it happened in Malawi and in almost identical circumstances, in Zambia.

It’s easy right now for the Tories to attack the culture of expenditure in Government, because the punches are landing on their opponents. The real win will be when they let the expenditures be published on a monthly or quarterly basis, and let the whip fall on themselves. After all, this is what we demand of developing country administrations. Why should the standards we hold for ourselves be different?

“Pay Me Money – Pay Respect; Don’t Insult My Intellect”

A different kind of cash transfer...

A different kind of cash transfer...

Owen Barder’s newest Development Drums features Mushtaq Khan and Daniel Kaufmann debating corruption . I haven’t heard it yet (a combination of a temperamental internet connection and a hearing problem that makes podcasts less than ideal for me), but I know their views on the issue, and I imagine it will be brilliant and interesting.

I studied under Mushtaq during my Master’s degree. His was probably the best lecture series I ever attended. His work covers a range of issues relating to the development of capitalism, taking a strong political economy and historical approach, but the area in which he’s probably received most attention is corruption. His arguments are extremely persuasive, but there are elements to the corruption issue that are best understood from outside the paradigm of economics (even political economy) that merit further considerations.

Even a brief consideration of his ideas shows their merit, though. There are two central elements to Mushtaq’s argument about corruption. Firstly, he argues that corruption itself is not necessarily bad for development. The second and more important argument is that different kinds of corruption obtain in different kinds of polities, and some specific patterns of corruption are symptomatic of a polity is structurally impeded from a transition to capitalism and rapid economic development.

England provides an example of the first element to his argument. There, agrarian capitalism was one of the pre-conditions for the industrial revolution. It arose from the enclosures movement, in which landowners essentially annexed public land for their personal use. Rule of law was manipulated for the benefit of a select group, in turn providing material benefits to those with the power to ratify this. Yet, the enclosures movement made a significant contribution to English economic development, allowing for the efficiency gains required to feed a nation, and also created a class of landless labour, who played a key role in the industrial revolution and the transition to true capitalism. The corrupt practices of the landed and powerful contributed to an economic transformation.

Of course, there are also many economically stagnant or failing countries that are characterized by corruption. This is where the second element of Mushtaq’s argument about corruption comes into play: it is the underlying socio-political structure that determines the pattern and effect of corruption and explains their poor performance.

Much of Sub-Saharan Africa is characterised by complex patron-client networks, in which a number of groups vie for the patronage of a Government with a weak power base vis-à-vis these groups. The Government cannot cut the corrupt relationships that exist between them and any of these groups in order to aid economic transformation, as the spurned group frequently has the political power to successfully challenge the Government. This contrasts sharply to patterns prevalent in most currently developed countries at the time of their transition to capitalism. In these cases, the crucially important aspect was that in the relationship between the state and one or more key economic actor, power was asymmetric. For example, South Korea’s Government was in a position of unchallenged power vis-à-vis the Chaebol, a legacy of WW2 in which they were seen as collaborators. As a result, Government was in a position to offer subsidies (and accept bribes), but more importantly, it was able to remove these subsidies without political repercussions. This meant that if a conglomerate was unable to meet the targets that Government set, it could easily be disciplined through the removal of subsidies. Patronage was focused and contributed to economic transformation and consolidation of resources in the most productive hands.

Even much abridged, this summary of Mushtaq’s position demonstrates some of the most valuable insights he brings to analysis of corruption (and indeed development more broadly). He homes in directly on the power relations and political realities that underlie the way Governments and polities in the broader sense function; and he makes a clear and persuasive case as to how this distribution of power and political clout can help or hamper the economic transformation that must stand at the heart of any sustainable development process.

Despite this, there is another approach to the problem of corruption that also needs to be considered, one that doesn’t invalidate his arguments, but rather introduces new complications, focusing on the role of the state and the effects of corruption on state – subject/citizen relations.

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What do you want to be when you grow up? Corrupt.

My role model: Captain Renault

My role model: Captain Renault

Hat tip to Chris Blattman:

Danwei.org shares this pretty adorable video from the Chinese newspaper Southern Metropolis Daily showing schoolchildren returning to class on the first day of the term. The reporter asks the children what they want to be when they grow up and most give standard answers like fireman or pilot. Around 1:55, though, one little girl goes a little off-script.

“I want to be an official”
[Reporter:] “What kind of official?”
“A corrupt official, because corrupt officials have a lot of things.”

Video (without subtitles) here.

I want to be a corrupt official when I grow up!

Thu, 09/10/2009 – 1:42pm

Danwei.org shares this pretty adorable video from the Chinese newspaper Southern Metropolis Daily showing schoolchildren returning to class on the first day of the term. The reporter asks the children what they want to be when they grow up and most give standard answers like fireman or pilot. Around 1:55, though, one little girl goes a little off-script

Fighting corruption through fashion

From the BBC:

The country’s anti-corruption body said there had been growing complaints about staff at Kathmandu’s Tribhuvan airport.

A spokesman said trousers without pockets would help the authorities “curb the irregularities”

Perhaps we could carry this further: presidents and finance ministers without bank accounts?

Hat tip to MR; I couldn’t help but laugh at the first commenter:

Speedo?