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Corruption

Heritage Foundation loves being awesome

The Heritage Foundation is adorable.

A recent article published in their foreign aid section lambasts the UN’s “statist” approach to development, arguing that it merely entrenches corruption.

I argued last week that Transparency International’s Corruption Perceptions Index (CPI) looks a lot like the Heritage Foundation’s bullshit Index of Economic Freedom. Thankfully, the defenders of liberty are here to prove that two indices which essentially measure the same thing will show a correlation.

Really, I love these guys.


Not so transparent: measuring corruption

Cartoon courtesy of University of Colorado
Transparency International (TI) just released their 2010 Corruption Perceptions Index. For those of you unfamiliar with CPI, its an attempt to measure and rank  corruption in each country based on “expert opinions” from 10 “independent sources”. I think you can see where we’re going with this.

First, let’s see what TI says corruption is.
Transparency International (TI) defines corruption as the abuse of entrusted power for private gain. This definition encompasses corrupt practices in both the public and private sectors.”

This definition, sufficiently broad gives TI the flexibility it needs to examine something as abstract as corruption. However, such a broad view should include a broad, diverse group of sources. But that isn’t the case with TI. TI’s sources are all pretty much on the same side of the political spectrum. Lets see if you can find the similarities:

1) Bertelsman Foundation
2) Freedom House
3) African Development Bank
4) Asian Development Bank
5) World Bank CPIA
6) Economist Intelligence Unit
7) Global Insight
8) IMD International- Switzerland
9) Political and Economic Risk Consultancy
10) World Economic Forum

Oh wait, looks like they forgot to include ANY  nationally-based sources for data. But maybe these guys are the only ones with sufficient data?  Well, not entirely….since a half of these sources gather all of their data by surveying (mostly expatriate) businessmen (IMD, WEF, PERC, IMD and GI).So the ‘perception’ of corruption would appear to be the perception of the ease of doing business.

Other sources that don’t just survey expats still focus on business data for their perception of corruption. Freedom House (already of dubious neutrality), considers an “excessive state presence” in economic affairs as a proxy for corruption. Likewise, the World Bank CPIA and EIU conception of corruption still focuses entirely on the role of state in business. Bertelsman Foundation has likewise come under some criticism for compromising its declared neutrality through neoliberal advocacy (article is in German). This might explain why CPI ranks Singapore as less corrupt than Sweden. Or how South Africa ranks higher than Rwanda, which has nearly draconian anti-corruption laws.

The end result is that TI’s CPI ends up looking a lot like Heritage Foundation’s Index of Economic Freedom, something which few development practitioners or academics take seriously. Can business leaders provide insight into the workings of a state’s commercial, industrial or tax policy? Absolutely. But, given that corruption is also a private-sector phenomenon, should business leaders be given the sole power to judge the integrity of a state? Hell no.

In terms of the actual methodology, TI has been courteous enough to explain that their indicators shouldn’t be used to measure trends, since the sources used for each country change every year.  As a result, you get a snap-shot, not a big-picture analysis.  Even the World Bank, one of CPI’s sources has lambasted the aggregation of dubiously compatible indicators:

“There is a strong desire to quantify the entire concept of corruption into a single index, so that it may be compared across countries and over time. Unfortunately,corruption is such a complex phenomenon that attempts to compress it into a single number lead to results that are imprecise (at best) and misleading (at worst). This is not to say that corruption should not be studied. On the contrary, there is a great need for good measures of governance and corruption.

Organizations such as Transparency International say that corruption indices likethe CPI are a “wake-up call to political leaders and to the public at large to confront theabundant corruption that pervades so many countries.”33 The truth is that governmentsand citizens are fully aware of the corruption which pervades their country. The problem is that the people are powerless to stop corruption.”

booyakasha.