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posted on 29 October 2015

The Anatomy Of Anti-Corruption

from STRATFOR

--this post authored by Reva Bhalla

The tradition of abusing political power for personal gain goes back to antiquity, as does the debate over whether corruption is a necessary cultural vice in a country's development or a cancer that must be obliterated for a society to progress. A topic less covered, however, is what is behind the counter-corruption current.

In the past year or so, a striking number of scandals have been exposed, anti-corruption campaigns launched, probes deepened and leaders toppled over corruption charges. Brazil's state-run oil giant Petrobras, now the most indebted company in the world, is at the center of the biggest corruption scandal in the country's history; dozens of business executives and politicians, including the heads of the upper and lower houses of Brazil's legislature and Brazilian President Dilma Rousseff, are under investigation. In Mexico, President Enrique Pena Nieto has been heavily scrutinized for granting big contracts to companies that also sold him houses on favorable terms and for abruptly canceling a contract with a Chinese-led consortium for high-speed rails because of corruption allegations, as well as after the brazen escape of Joaquin "El Chapo" Guzman from federal prison. In Guatemala, a U.S.-backed anti-corruption investigative committee forced the resignation of President Otto Perez Molina, while in Honduras, another U.S.-led anti-corruption investigation has taken down one of the country's wealthiest and most politically connected families.

In Zurich, a U.S. and Swiss investigation has brought down on bribery charges the once untouchable Sepp Blatter, who headed FIFA, the global governing body for soccer. Elsewhere in Europe, Romanian Prime Minister Victor Ponta is barely holding onto his seat while standing trial for tax evasion and money laundering. And an already fragile government in neighboring Moldova could fall any day now as mass protests persist over more than $1 billion that suspiciously vanished from the country's three largest banks.

Further east, Turkish President Recep Tayyip Erdogan is working every institutional lever he can to neutralize corruption charges against himself, his son and a group of former ministers before he faces off against a vengeful opposition in a second round of elections. Chinese President Xi Jinping'ssweeping anti-corruption probe is surging ahead after rounding up the biggest tiger yet, former security czar and former Politburo Standing Committee member Zhou Yongkang and his network of powerful allies. Malaysian Prime Minister Najib Razak is facing a series of no-confidence votes following allegations that the state development fund had deposited $700 million in his personal bank account.

Meanwhile, foreign investors and Nigerians alike are waiting for action after Nigerian President Muhammadu Buhari came to power with the promise of pursuing an aggressive anti-corruption campaign. In a desperate attempt to defuse mass street protests, Iraqi Prime Minister Haider al-Abadi launched a sweeping anti-corruption campaign that does away with sectarian-allotted government posts.

The list could go on, but the trend is discernable: Around the globe, and under a variety of circumstances, the momentum to expose and crush corruption appears to be building. Even the most presumably immune members of the political elite in many countries have to watch their backs much more carefully than before.

The question then becomes why. We could assume that the world is collectively cleaning up its act and that international bodies promoting good governance and investigative reporters, aided by social media distribution channels, are having more success in mobilizing the public to demand more from their leaders. But nothing is that simple. Even in the list of cases cited above, there are great differences in each country's stage of economic growth, internal political climate and geopolitical circumstances.

The Roots of Corruption

A lot of scholarly thinking has been devoted to what drives corruption, what mitigates its corrosive effects and what role (for better or for worse) corruption plays in a country's economic development. A developmental economic approach would lament the "resource curse" afflicting countries that are overly dependent on extractive industries when large amounts of money taken in by state-owned firms is easily funneled into the pockets of a small political elite. A sociological approach would emphasize the differences between cultures and how they perceive corruption. For example, the West looks down on the tribal tradition of handing out positions to one's brother or cousin, but there are parts of the world where entrusting one's business to a stranger would be considered outright reckless.

Geopolitics will tell you that countries that are physically difficult to govern will be more prone to bribery. If a country is internally fragmented by its geographic features, allowing for the development of distinct cultures and sects that need to be brought under some form of central rule, then patronage-building will likely be an ingrained practice of the government and will be difficult, if not impossible, to root out.

Samuel Huntington, a revered political scientist who died in 2008, would stress that the taming of corruption and the rise of political order all comes down to institutions. If institutions are too beholden to the political ego of the day, then a wide gap between the political elite and the civil society will result, leaving ample room for a culture of impunity to develop at the top. From Huntington's point of view, the style of government (for example, a liberal democracy) is not a prerequisite for effective governance; rather, the degree of government - and thus the strength of its institutions - will chart a country's path toward growth or decay. Huntington even postulated that corruption could actually compensate for weak rule of law and provide an alternative path to growth when a country becomes bloated with bureaucracy. In other words, corruption will at least get things done in countries where the formal channels of government simply do not work.

A question that has received far less attention is what fuels the anti-corruption engine. What is giving new anti-corruption bodies around the world the space and courage to act now? There is of course no single answer, but a closer examination traces these actions back to declining growth rates, internal political competition and encouragement from larger outside powers seeking their own geopolitical gains.

Anti-Corruption in Action

This part of the discussion focuses on a selection of countries: Turkey, Brazil, China, Mexico, India and Indonesia. Each has experienced dramatic economic growth since the early 2000s, and each of those growth stories has been heavily tainted by corruption.

The World Bank's Worldwide Governance Indicators include "Control of Corruption" as one of the core variables to measure governance in countries. Drawn from a compilation of sources that measure everything from perception of corruption through surveys to anti-corruption policy and prosecution, the index ranks countries annually from 0 to 100, with a higher number showing stronger control of corruption and a lower number showing weak control of corruption. Overlaying the Control of Corruption measure against gross domestic product and foreign direct investment rates from 1996 to 2014 has yielded some notable observations.

In boom times, when credit is abundant and foreign direct investment is shooting up in developing countries, corruption on the grandest scale becomes possible. After all, when a government is the chief party awarding major infrastructure projects with multimillion- and sometimes multibillion-dollar price tags attached, there is ample opportunity to pad the budget with political favors. Each step - from the environmental and technical feasibility studies to ongoing maintenance - is an opportunity for government bureaucrats and businessmen to cut ribbons in public and make furtive financial deals in private to move the process along.

When economic times are good and there is more money to go around, there is little variance in the Control of Corruption variable. However, when global economic conditions began stagnating following the 2008-2009 financial crisis and growth flattened out in 2011-2012, Turkey, Brazil and Mexico all showed a noticeable decline in Control of Corruption as major scandals were exposed and the perception of high-level corruption rose. Under more stressful economic conditions, political competition will naturally escalate, and civil society will be hyperaware of abuses of political power.

Unsurprisingly, spikes in the Control of Corruption variable correlate closely with political transitions in many of these cases. For example, when Erdogan came to power in 2003, many Turks - both secular and conservative - saw him as the fresh face that would clean up Turkey, root out the Mafioso networks and make the economy work again. For a while, that perception held, and Turkey's corruption ranking steadily rose. Meanwhile, Erdogan used Turkey's growth spurt to rapidly build out his patronage network and hand out contracts to political loyalists while sidelining his political adversaries. Once news started trickling out on the scale of corruption that had emerged during his tenure, Erdogan did not bother trying to redeem himself with a fresh anti-corruption drive. Instead, he dug his heels in further, promising more privileges to those who remained loyal to him.

Volatility in Indonesia's Control of Corruption variable seems to mirror significant political shifts in the late 1990s and early 2000s. The Suharto New Order dictatorship came to an end in 1998, and new efforts were made to undo his tightly knit and centralized patronage network extending from the armed forces to a sizable class of capitalist cronies. Indonesia has hit several major bumps along the way as successive governments have attempted to adopt anti-corruption platforms, only to see more entrenched interest groups derail these efforts from within. In fact, as post-Suharto Indonesia has become more politically decentralized, corruption has simply taken on a new form as additional layers of regulation at the local level create more space for bribery.

India's corruption ranking, on the other hand, appears to be largely insensitive to political shifts. The Indian National Congress party was hit by a slew of major corruption scandals involving the coal sector, telecom, railways, aerospace and defense, and construction. India's Control of Corruption rating declined steadily during that time. When it was in the opposition, the Bharatiya Janata Party used these scandals to smear the Congress party, but now the Bharatiya Janata Party is caught up in "Lalitgate" - a scandal involving India's professional cricket association - and the Vyapam scandal, which exposed payoffs to place students in the best schools and government jobs. The fledgling anti-corruption Aam Aadmi Party, which unseated the Bharatiya Janata Party in state elections in Delhi, is already faltering in popularity. Perhaps India's politics are too deeply mired in corruption to build a credible anti-corruption platform at this stage of development.

China is a much more complex story. China's current leaders seemed aware early on that the country's rapid growth could endanger the Party's credibility and viability should corruption go unchecked. Xi is well aware of his country's long history of dynastic cycles, beginning with centralized power and consolidation, the erosion of the imperial court by bureaucratic corruption, the gradual empowerment of local landlords at the expense of the center, a call too late to reform and inevitable dynastic decline. Now stuck in the throes of an economic slowdown and still far behind in a number of crucial reforms to rebalance the economy, Xi is focused on the need to consolidate control under himself while he works to redeem the Party's credibility through the most aggressive anti-corruption drive since Maoist China. The spike in China's Control of Corruption ranking seems to correspond closely with the launch of Xi's anti-corruption drive, but it also appears to be leveling out. Although Xi's anti-corruption drive is earnest, his ability to enforce reforms is still questionable. When officials are too intimidated to make decisions, they avoid them altogether, and reforms are left in limbo. It remains to be seen whether Xi can avoid the historical paradox of anti-corruption reform precipitating political decline in China.

The Role of Outside Players

In other cases, the agendas of larger outside powers influencing smaller states in their periphery could drive anti-corruption efforts more than economic cycles. In Ukraine, the protesters who withstood the cold in Maidan Square for weeks in hopes of toppling former President Viktor Yanukovich were incensed by his flagrant spending habits, but would they have succeeded in overthrowing their president without support from certain Western intelligence agencies interested in pushing back against Russia in one of the most sensitive points in its periphery? In Moldova, a highly fragile coalition of pro-European parties is facing the ire of protesters (many of whom are Russian-backed) over a major corruption scandal that could topple the government once again and give Moscow an opening in another proxy battleground with the West.

Backing foreign anti-corruption bodies is developing into a handy foreign policy tool for Washington. The United States did not have to build institutions from scratch; it inherited them from the British and then figured out a more equitable system in the end to check and balance political power. This makes it all the easier for Washington to export the argument that institution building is the path to effective governance and economic growth. And if the United States is a leading provider of capital in a time of great economic stress, then U.S. officials towing large delegations of investors have a bit more leverage in trying to shape institutional development in countries of interest.

In Romania, a critical Western ally in the former Soviet periphery known for entrenched corruption, the United States has worked very closely with the country's intelligence service strengthening the National Anti-Corruption Directorate. Against all odds, this investigative body has succeeded in removing a number of high-level officials and stripping politicians of immunity and is currently trying to unseat a sitting prime minister. From the Western perspective, if Romania is more politically stable and more conducive to foreign investment, it will be more immune to Russian influence and sit more comfortably in the Western camp.

In Central America, the United States has the ability to withhold crucial aid to pressure drug-ridden and corrupt countries to enable anti-corruption investigative bodies. One such entity, the International Commission Against Impunity in Guatemala, actually brought down President Otto Perez Molina. The bitter former president is now blaming U.S. Vice President Joe Biden and the "geostrategic" agenda of the U.S. government for pressuring him to extend the mandate of the committee that ultimately brought about his downfall. The U.S. Drug Enforcement Administration has played a particularly significant role in building cases and pursuing corrupt politicians in Latin America, from Honduras to Venezuela. In the name of building more credible institutions and stable governments to limit drug-trafficking and illegal immigration, Washington can increasingly be expected to use anti-corruption measures to shape political evolutions in many of these states.

No simple or single explanations will come from examining the drivers of corruption and the forces that counter the abuse of political power for personal gain. In some cases, anti-corruption initiatives will amount to little more than a political campaign, only to fizzle out within a couple of years. In other cases, corruption is so endemic that political and economic changes will have little impact on a country's ranking. For several countries, the recent explosion of bribery scandals is the natural product of more than a decade of unprecedented economic growth. And for a country like China, an anti-corruption campaign is both the saving grace of the Party and the potential harbinger of decline. A less familiar but growing trend reveals how countries sitting in the shadow of bigger powers can be pushed and pulled through anti-corruption protests and investigations toward broader geopolitical ends.

"The Anatomy of Anti-Corruption is republished with permission of Stratfor."

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