Mwenda and corruption debate

By Joseph Were

Often, when we talk of corruption, the focus is on different issues from what is at stake

Andrew Mwenda appears to have carried angry red ants into his bed with the assertion that extensive research shows that there is no scientific proof that corruption is an impediment to economic development except for moral concerns.

Mwenda does not say corruption is good. Unfortunately, the debate so far has not shown how corruption hurts the economy which is what a 2011 study by Professors Mehmet Ugur and Nandini Dasgupta of the University of London’s Evidence for Policy and Practice Information and Co-coordinating Centre (EPPI-Centre) does.

Entitled: “Evidence on the economic growth impacts of corruption in low-income countries and beyond: a systematic review” the study makes a startling conclusion: Corruption is harmful to poor economies but there is no point fighting it unless you are very determined. ”… there is a prima facie case for policy interventions aimed at reducing the incidence of corruption in both low-income and other countries. However, the findings also indicate that the economic gains from targeting corruption in low-income countries are likely to remain small if interventions aimed at reducing corruption are not combined with a wider set of interventions aimed at improving the quality of governance institutions in general.

Ugandans need to take these views into consideration because, when we talk of corruption, the focus is usually on stolen money – as in the OPM scandal, the Ghost Pensions, and even the traffic police officer on the road. But when the World Bank and other researchers talk of corruption, they focus on ‘capture’ of the state by elites and private interests, suspicious ties between politicians and business people, bribery of public officials, kickbacks in public procurement, embezzlement of public funds and secret party funding. They talk of ‘favour-for-favours’, nepotism, and job ring-fencing.

We need to look at the cost of what and where the government is spending, whether private investors have to `grease’ the system to succeed, the impact of unskilled people getting jobs because of technical know-who, and whether the government is effective and accountable. Cuurently, a look at corruption should analyse the impact of creation of districts during elections which is a form of political corruption, investing in expensive Private-Public-Partnership projects like the Bujagali Hydropower Dam which are promoted by capitalist middlemen, and public policies like the privatization of health, and education services. World Bank studies note that such corruption leads to misallocation of resources, encourages patronage and rent-seeking middlemen, increases cost of investment, stifles hard work and innovation and lowers quality of human resource. It creates bottlenecks to business, and drives serious players away from the formal sector. All these are a loss to the nation.

The other point to consider is that it may well be that corruption is killing off Uganda’s economic growth prospects. But is it the same in other countries?

Whenever this question is asked in development literature, Prof. Pranab Bardhan 1997 essay which tackles it is cited. Entitled `Corruption and Development: A review of issues, Bardhan also quotes equally renowned economists and development scholars; Samuel P. Huntington, Nathaniel H. Leff to explain corruption’s effects on efficiency as `speed money’.

Bardhan says in some cases, “If the government has erred in its decision, the course made possible by corruption may well be the better one.”

I will give an example.

Recently, I went to Mengo Hospital in Kampala for a medical procedure. At this privately-owned hospital, I was told the consultation fee is Shs35,000. At the point of payment, however, I saw a clear sign saying “consultation fee is Shs8000”.

Initially, the cashier looked at me like I was from a different planet when I pointed out the anomaly. But I got an explanation when I persisted. It was a Thursday and Thursday, I was told, is an ultra-private-private day at Mengo. The Shs8000 applied on other days. But even on those days, Mengo Hospital maintains two tiers; the Shs8000 and a Shs25000 one. Mengo also has `private wings’ where consultation is Shs50,000. A patient paying the higher fee gets to jump the queue. Unfortunately, Mengo does not display any public notices of this.

Now, Mengo is a religious institution and it could be well-intentioned. But it is also clear it does not appreciate that allowing someone to jump the queue, for most reasons, is a form of corruption.  In the hospital’s view, it possibly sees it as a way of ensuring efficiency. Well aware that it could be inundated by patients and fail to serve them all efficiently, the hospital realises that two things could happen.  In the first, the hospital could insist on charging Shs8000 all around. In this case, with many patients fighting to be served, the desk clerks individually would demand the higher fees or bribes to let higher paying patients access the services first. This would be a form of decentralised corruption. It is what happens in many public offices in Uganda. Each desk officer creates a roadblock which can only be cleared by bribery. In the second case, the service provider centralises the top up fee or bribe. The bribe, in effect is embedded in the cost of service. This is what happens in Mengo. It increases speed if the hospital is able to ensure that, as long as the official high fee is paid, no desk officer can create an individual road block.

This is what explains the high salaries enjoyed by workers at Uganda Revenue Authority, KCCA, and State House. They are a form of centralised corruption and are given on the assumption that they will dissuade staff from extorting the same from clients.  But, as the World Bank says, corruption is a symptom and outcome of weak institutions. Such centralised or lumpsum corruption only leads to efficiency if individual desk officers can effectively be barred from imposing individual roadblocks and the penalty when one is caught is punitive. That appears to happen in Rwanda but not in Uganda and other places.  In 2006, Prof. Tomas Larsson of the University of Cambridge made this point in on one of his many books: “Reform, corruption, and growth: Why corruption is more devastating in Russia than in China”.

In it, according to another World Bank study, he says corrupt but strong governments may encourage economic prosperity if combined with growth performance targets. This happened in China, South Korea, and other places. Since this ‘Schumpeterian rent’ awards innovation and entrepreneurship, it may be efficient in the short run. Eventually, even centralised corruption may lead to distortions and a negative impact on growth.

In the long-run, therefore, it appears corruption can only be tempered by good governance which ensures transparent, accountable, and equitable participation. This creates low costs of transactions and could lead to national well-being and prosperity.