What exactly is ‘corruption’?

Part I of our anti-corruption handbook is by NKÚ vice president Miloslav Kala, sometimes called the ‘last remaining Don Quixote in the civil service.'

foto: © ČESKÁ POZICEČeská pozice

The state failing to react to serious problems that citizens face used to have — and is still bound to have — grave consequences. Currently, a form of crime defined as “corruption” constitutes such a serious problem. Corruption affects many fields of our public environment.

  • In the moral field, it primarily leads to a loss of faith in the justice system and in the state’s ability to fight crime or protect the interests of the citizens. The political costs involve a loss of faith in democracy that, in turn, opens the door to populism and extremism.
  • It has devastating consequences in the economic field, such as allowing public resources to be wasted, letting select small groups sponge off of public funds, and creating an increased tax burden as a result of the ineffective fiscal system — as well as higher expenses for entrepreneurs who are not part of the corruption system.
  • In the social field, it widens the gap between rich and poor and suppresses human rights, solidarity, justice and equal opportunities; it also interferes with maintaining a level competitive playing field.

The international watchdog Transparency International defines corruption as “the abuse of entrusted power for private gain.” It involves the actions of officials in the public sector — be they are politicians or civil servants — who surreptitiously and unlawfully enrich themselves through the abuse of power.

A definition based on actions aimed at someone obtaining certain benefits is apparently insufficient from a criminal law perspective. Although on a daily basis we are confronted with manifestations of possible corruption, in practice incidences of corruption are rarely resolved in a systematic fashion; people at the center of curious transactions and networks invariably claim no one has ever “proven” they were involved in any illegal acts.

Of course this is not because no acts of corruption were committed but because these acts have been covered up with sophisticated transactions that in themselves are illegal. The decisions made by public officials are usually supported by opinions from “experts” who are motivated by financial awards for circumventing legal regulations. Consultancy firms have brought these methods to perfection, achieving “tailor-made fully guaranteed risk-free corruption.”

Economic theory applies models like “agency-type corruption,” referring to the harmonization of interests of the ordering (corrupting) party and the executing (corrupted) party, and “quarry-for-a-gavel” corruption. Both types has their pitfalls. When it comes to the agency type, it is impossible to prove whether the executing party’s decision was its original intention, the result of an erroneous estimate or just pure chance. That is due to asymmetric information, as described by economist Joseph Stiglitz in the May 1986 edition of the Quarterly Journal of Economics.

Asymmetrical information offers an impenetrable defense for those who, as a result of their own carelessness or because of a failing link, become the focus of suspicion. For example, take the possible scenario where the ordering party assumes the result of a tender was influenced to their advantage and pays the agreed “commission.” The ordering party has, however, no way to assess whether it has indeed succeeded thanks to the person who is “collecting” the money.

The theory underlying “quarry-for-a-gavel” corruption shows the same theoretical problem. It is not possible to determine specific “legitimate and illegitimate,” commonly desirable or undesirable, real benefits, according to a 2007 paper by Tomáš Otáhal.

Reports regarding the increase in the cost of building the Blanka tunnel, and the assertion of the investor’s representative that every individual item will be crosschecked, implies that, in this case, those who “quarry for a gavel” will once again be successful.

One of the hallmarks of corrupt behavior is that the obtained service is always paid for. Considering that corruption practices are by their nature conducted as part of a network, payment for obtained services is often not realized instantly. This is how the risk presented by the transfer of cash is minimized, liability for punishment is avoided and regulation targeting money laundering is circumvented (and so on).

The World Bank in a 1998 working paper, for example, offers a broader definition of corruption as the abuse of public power for personal gain or for the benefit of a group to which one owes allegiance.

Such a neutral definition leads us to a surprising conclusion: the act does not necessarily have to be illegal to be considered corrupt. In other words, it is possible to hide corrupt behavior through a series of actions which are not illegal in themselves! As a result, existing law-enforcement instruments are failing.

I would like to note here that according to various authors like Václav Bělohradský, to name a Czech example, corruption is inherent to the system and global capitalism has been erected on it. “An interpretation where this systemic problem is deemed to be a moral or legal problem or one concerning the police would be hypocritical,” he was cited as saying by the Právo daily in December 2010.

 

Next installment: Can corruption be measured?