Aaron Fernando explains how transparency and accountability can help reduce corruption

e-cw-nov16Every year, Transparency International (TI) compiles an annual Corruption Perceptions Index (CPI) of countries, based on its residents’ perceptions of corruption. A high score indicates lower levels of perceived corruption. Last year, Sri Lanka scored 37 (out of a maximum 100), which ranked the nation in the middle of the list of 168 countries.

The US scored higher, though there is still rampant dishonesty in the American political system. After all, every country is affected by corruption; and as Tolstoy says of unhappiness, in Anna Karenina, each country is corrupt in its own way.

EVERYBODY LIES The CPI is a simple metric for a complicated and fascinating issue dealing with human nature, morality, economics and psychology. Economists have a peculiar way of looking at dishonesty and corruption, because they often assume that it represents rational behaviour – or, at least, that’s what the classical incentive theory says.

Professor and researcher of behavioural psychology Dan Ariely has called this view the Simple Model of Rational Crime (SMORC).

According to SMORC, a person will choose to commit a crime (or engage in corrupt activities) based on the calculation of three factors: the benefit of committing it, the probability of being caught and expected punishment, in the event of being caught. But of course, research has shown that the SMORC model is wrong, because human nature is far more complex than that.

Rather than a rational cost-benefit analysis, Ariely’s research – and that of others – reveals that, when provided with an opportunity, a vast majority of people chose to behave dishonestly, by cheating in a game or test.

EVERYBODY CHEATS It is human nature to want to get ahead… and cheat a little, to do so. But there is one caveat: people are only dishonest to a relatively minimal extent. Why? As Ariely explains, in his book The (Honest) Truth About Dishonesty: “Essentially, we cheat up to the level that allows us to retain our self-image as reasonably honest individuals.”

Given this understanding, there must be more effective ways to incentivise people to behave less dishonestly, and use this understanding to curb corruption. It turns out that simply reminding people about morality, or convincing them to sign or state an oath beforehand, will shift behaviour in a positive manner.

Writer C. S. Lewis has said that integrity is doing the right thing, even when no one is watching. The opposite of integrity, dishonesty can often be curbed with surveillance or by being taken to task. In fact, studies have found that people will behave in more moral ways when they think they’re being watched.

MANAGING CORRUPTION So instead of thinking of corruption moralistically, and attempting to catch and punish those who engage in it, it would be far more effective to manage corruption on a practical level. As it turns out that it’s not merely about a few rotten eggs, but that all the eggs have a small tendency to be bad, reality should be dealt with as such.

Narrated in the book Poor Economics, by MIT researchers Abhijit Banerjee and Esther Duflo, is a study conducted in Indonesia, where widespread corruption was driving up the cost of infrastructure projects far beyond what materials, transportation and labour would usually do.

Community leaders managed to do this by deliberately overestimating costs and reporting wages that were never paid. To combat this, government officials simply informed the leaders that their projects may be audited. The result: a one-third reduction in costs associated with bogus wages and materials.

TRANSPARENCY PAYS But that’s only the beginning. Monitoring and audits can be conducted at a local level as well. In the same book, another study – this time, in Uganda – that concerned corruption and school funding is worth scrutiny.

Researchers Ritva Reinikka and Jakob Svensson despatched surveys to schools, asking how much funding they had actually received, and compared it to the records of what had been sent. They found that only a pitiful 13 percent of funds made it to the schools, while the rest had been siphoned off by corrupt officials.

A truly interesting occurrence that transpired following the study was published: the Ugandan Ministry of Finance began providing information to the national newspapers about how much money had been allocated to schools.

The newspapers published the information, and things began to change drastically. A follow-up survey, conducted some eight years later, found that 80 percent of funds were reaching the schools. The amount lost to corruption had dropped by 67 percent, merely because it became transparent to the public.

According to Banerjee and Duflo, “about half of the headmasters of schools that had received less than they were supposed to had initiated a formal complaint. And eventually, most of them received their money… It seems that the district officials had been happy to embezzle the money when no one was watching, but stopped when it became more difficult. A generalised theft of government funds was possible, it seems, mainly because no one had bothered to worry about it.”

So in a fascinating way, perhaps the Corruption Perceptions Index – flawed, as it may be – is changing the very thing it is measuring, by measuring it.