Combating Corruption in Transition Countries

Contact: 
Caroline Scullin, cscullin@cipe.org, 202-721-9200

by John D. Sullivan, CIPE Executive Director

Transitions of political rule, especially those involving public outcry and uprisings, are highly uncertain processes. Turbulence persisting is the post-revolution Egypt and Tunisia or emerging tensions in Burma illustrate that transition is not a one-off event; instead, it frequently is a long and bumpy road toward meaningful institutional change.

Transitions vary considerably from region to region and even country to country. In many cases, corruption was a driving force in igniting successful movements that led to transition such as the EDSA People Power Revolution in the Philippines in 1986, Color Revolutions in the Balkans and the former Soviet Union in the 2000s, and most recently the Arab Spring. Specifically, it was a combination of stolen elections combined with persistent large-scale corruption that drove people’s demands for change.

However, a dictator’s fall does not automatically mean that corruption has ceased. To the contrary, in most of these situations corruption became a large and growing issue soon after the transitions. In many cases the privatization processes created a group of cronies who profited on a grand scale from the economic transformation. Especially in the post-Soviet countries, this trend has undermined the transition to democracy and is threatening economic progress.

It is important to recognize that corruption is not just a moral problem: it is an institutional problem, a matter of the underlying incentive structures that determine why things work the way they do. This understanding is key to effecting lasting change. The starting point is to examine and analyze how corruption occurs – what the enabling conditions are that allow a corrupt transaction to occur, whether in procurement, customs, land sales, or any other area of the economy.

The next key element of successfully fighting corruption in transitions requires collective action of engaged citizens through associations, civil society groups, think tanks, and other groups. Providing assistance to these organizations in the form of technical, management, and even financial assistance can help foster a successful transition.

There are many points of engagement in the reform process, but one crucial area is the role of the private sector. The term “private sector” is thought by many to refer exclusively to multinational corporations. Yet, in most countries the private sector is made up of a much more diverse group of businesses: small and medium-sized enterprises (SMEs), large national companies, and the informal sector, which consists of shop owners and entrepreneurs who conduct business outside of the official economic system.

Each segment of the private sector has an important role in building integrity and transparency. However, it has to be noted that not all them are equally interested in reforms. In transition countries in particular there is a part of the private sector often referred to as the crony capitalist sector. During the era of President Ferdinand Marcos in the Philippines, this term was used to refer to a group of business people who owned most of the large-scale enterprises and blocked the development of new firms or the growth of the SME sector. At the same time, many of those on the streets during the EDSA Revolution were business people from the SME sector. Jesus Estanislao, Finance Minister under President Corazon Aquino, documents this well in his work and also describes the key role that think tanks and other groups of private business people play in developing a democratic market economy and fighting for the integrity of the market. 

As mentioned earlier, there are a number of areas of engagement that various parts of the private sector should address to build a successful transition and fight corruption. These include building business associations and think tanks that promote reforms reducing the opportunities and need for corruption and creating coalitions to help business people defend themselves from extortion and demands for bribes. There must also be an effort to promote corporate governance as a key part of an honest privatization process and to create demand for freedom of information laws and transparency. Businesses need to implement systems of ethics and internal controls, often with the assistance and support of business associations, think tanks, and other organizations. Finally, countries need to engage the informal sector to enable these entrepreneurs to join the formal economy and address the injustices and corrupt practices that keep them informal.

History shows that it can take years before democracy is fully institutionalized, market economy becomes competitive and inclusive, and embedded corruption begins to be effectively treated. As we celebrate the International Anti-Corruption Day on December 9, let us examine lessons learned from past transitions and apply them in new contexts so that corruption does not derail people’s aspirations for greater political and economic freedom.

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