Myths and Realities of Governance and Corruption

DANIEL KAUFMANN,1 World Bank Governance and corruption remain controversial and misunderstood topics. But they are now given higher priority in development circles and by the corporate sector, including multinationals. Indeed, some donors and international financial institutions (IFIs) increasingly work with emerging economies to help reduce corruption, and increase citizen voice, gender equality, and accountability.The 2005 World Economic Forum in Davos highlighted the agreement reached among 63 multinationals in key sectors to work within a set of principles to control corporate bribery. Further, with 29 countries having ratified already, and another handful of developing countries on the verge of doing so,2 the UN convention against corruption signed almost two years ago is about to come into force, requiring, among other things, repatriation of looted assets stashed abroad by corrupt leaders.3 And when in July 2005 the Group of Eight countries announced their decision to double aid and debt relief to the poorest countries in Africa, governance concerns were prominent.As the recent joint report by the Africa Commission explicitly stated,“Good governance is the key.... Unless there are improvements in capacity, accountability, and reducing corruption ... other reforms will have only limited impact.” Similar statements are voiced in other regions of the world, and there is also increasing scrutiny about corruption in OECD countries, and of multinationals. But is good governance and controlling corruption really fundamental for growth, development, and security? The explosion of empirical research over the past decade, coupled with lessons from countries’ own experience, have given us a more solid basis for judging many of the effects of governance on development, and the effectiveness—or lack thereof—of strategies to improve it. In our contributions to the Global Competitiveness Reports (GCR) in recent years4 we have presented a number of selected governance topics. Insights derived from the analyses of the Executive Opinion Surveys (Survey) conducted by the World Economic Forum every year, and presented in previous GCR chapter contributions, include the study of determinants of governance at the city level, the anatomy of undue influence, state capture and bribery involving many domestic private firms, multinationals, and public officials, and the links between governance, corruption and security threats, and others.