1

Global Parliamentary Integrity and Institutional Strengthening: Empirics and

Implications for Broader Institutional Reforms

Daniel Kaufmann and ColleaguesThe World Bank

Background Handout for Discussion for Session at Global Parliamentary ConferenceLondon, January 28th-29th, 2001

The data and views presented in this handout are for discussion, reflecting recent research work carried out at the World Bank Institute (WBI) in collaboration with other Bank units and with institutions in emerging economies. They are preliminary and do not necessarily represent official views of the Bank or its Executive Directors. At

WBI I am particularly indebted to R. Stapenhurst on Parliamentary Learning events.

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Broad and Empirical Approach to Governance

• Rule of Law

• Control of Corruption (or Graft)

• Lack of Regulatory Burden

• Government Effectiveness

• Voice and Accountability

• Political Stability and lack of Violence

3OECD East Asia MENA South Asia Eastern

EuropeLatin

AmericaSub-Saharan

AfricaFormer

Soviet Union

Quality of Rule of Law by Region

GoodGood

PoorPoor

4

The ‘Dividend’ of Good Governance

Infant Mortality and Corruption

0

10

20

30

40

50

60

70

80

90

Weak Average Good

Control of Corruption x Development Dividend

0

2,000

4,000

6,000

8,000

10,000

12,000

Weak Average Good

Regulatory Burdenx Development Dividend

Per Capita Income and Regulatory Burden

Literacy and Rule of Law

0

25

50

75

100

Weak Average Good

Rule of Law x Development Dividend

Per Capita Income and Voice and Accountability

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Weak Average Strong

Voice and Accountabilityx DevelopmentDividend

Note: The bars depict the simple correlation between good governance and development outcomes. The line depicts thepredicted value when taking into account the causality effects (“Development Dividend”) from improved governance to betterdevelopment outcomes. For data and methodological details visit http://www.worldbank.org/wbi/governance.

5

…Small firms and New Entrants face more administrative (petty) corruption in transition

0

0.01

0.02

0.03

0.04

Bri

bes

as a

per

cent

age

of

reve

nues

De Novo Privatized State Owned

6

...Yet the focus ought to shift to ‘Grand Corruption’: firms shaping the legal, policy and regulatory environment by illegally ‘purchasing’ the

laws, policies and regulations of the state (“State Capture” by corporates)

State Capture Index and its Components(% of firms affected by corporate purchase of:...)

Country

Parliamentarylegislation(% of firms)

Presidentialdecrees(% of firms)

CentralBank(%offirms)

CriminalCourts(% offirms)

CommercialCourts(% offirms)

Partyfinance(% offirms)

CaptureEconomyindex(% offirms)

CaptureEconomyClassification

Albania 12 7 8 22 20 25 16 MediumArmenia 10 7 14 5 6 1 7 MediumAzerbaijan 41 48 39 44 40 35 41 HighBelarus 9 5 25 0 5 4 8 MediumBulgaria 28 26 28 28 19 42 28 HighCroatia 18 24 30 29 29 30 27 HighCzech Rep 18 11 12 9 9 6 11 MediumEstonia 14 7 8 8 8 17 10 MediumGeorgia 29 24 32 18 20 21 24 HighHungary 12 7 8 5 5 4 7 MediumKazakhstan 13 10 19 14 14 6 12 MediumKyrgyzstan 18 16 59 26 30 27 29 HighLatvia 40 49 8 21 26 35 30 HighLithuania 15 7 9 11 14 13 11 MediumMoldova 43 30 40 33 34 42 37 HighPoland 13 10 6 12 18 10 12 MediumRomania 22 20 26 14 17 27 21 HighRussia 35 32 47 24 27 24 32 HighSlovakia 20 12 37 29 25 20 24 HighSlovenia 8 5 4 6 6 11 7 MediumUkraine 44 37 37 21 26 29 32 HighUzbekistan 5 4 8 5 9 4 6 Medium

Overall 24 21 25 18 18 20 20

Source: Hellman, Jones and Kaufmann “Seize the State, Seize the Day”, http://www.worldbank.org/wbi/governance/

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Ranking of Parliaments Relative to other Institutions within the Country: Enormous Variation on Corruption

1/10

30/76 9/22

14/26

12/20

38/56

27/36

35/35

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cambodia Paraguay Georgia Slovakia Romania Bolivia Latvia Ecuador

Rank of Parliament within country, by Public Servants

Very Corrupt

Not Corrupt

The ratio at the top of each column is the corruption ranking of Parliament among all surveyed institutions. Thus, for instance, in Cambodia, relative to other surveyed public institutions, Parliament rated best among 10, while in Ecuador it rated worst among 35. Research sources: Governance Anti-Corruption Index Country Diagnostic Surveys, Bolivia, Cambodia, Ecuador, Georgia, Latvia, Paraguay, Romania, Slovakia, WBI/WB. http://www.worldbank.org/wbi/governance/

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Clearly, Parliaments are not all alike: Questions from Empirics and Implications for global

partnerships and institution-building

• Enormous Variation in Legitimacy and Performance of Parliaments Worldwide

• Performance of Public Sector and Parliaments in a country appear to be closely correlated

• Where executive is well governed, parliament has high probity• But if executive is corrupt, parliament not exempt…• Internet News Review 2000: China, Japan, Nigeria, Thailand,

Russia, Colombia, Egypt, Israel, others? • Approach needs to look at all key institutions within the

country, and not as Parliament as island• Setting Example from Within: Role of Parliament as part of

the solution (and not perpetuating it as part of the problem)

For details on the empirical research on state capture, on diagnostic surveys which is background to this presentation, visit: http://worldbank.org/wbi/governrnance

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'Capture ' of State Institutions: Grand Corruption in Parliamentary Votes, Presidential Decrees and Overall State

Capture (selected countries, BEEPS, 1999)

0%

10%

20%

30%

40%

50%

Grand Corruption within Institution (% of firms affected)

Parlamentaryvotespurchased

Presidentialdecreespurchased

State CaptureIndex(excludingParliament)

Slovenia Hungary Bulgaria Russia Ukraine

Source: J. Hellman, G. Jones and D. Kaufmann, Seize the State, Seize the Day: State Capture, Corruption, and Influence in Transition (World Bank Policy Research Working Paper 2444) September 2000. http://www.worldbank.org/wbi/governance/

10

Purchase of Parliamentary Votes vs. Presidential Decrees (Effect on Firms in Transition Economies, BEEPS, 1999)

r = .95

0%

10%

20%

30%

40%

50%

0% 10% 20% 30% 40% 50% 60%

Firms affected by the sale of Presidential decrees to private interest

Fir

ms

affe

cted

by

the

sale

of

Par

lam

enta

ry

vote

s on

law

s to

pri

vate

inte

rest

s

Source: J. Hellman, G. Jones and D. Kaufmann, Seize the State, Seize the Day: State Capture, Corruption, and Influence in Transition (World Bank Policy Research Working Paper 2444) September 2000. http://www.worldbank.org/wbi/governance/

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Overall Performance Ratings of Parliament vs. Central Government by Firms in Transition Economies

(BEEPS, 1999) -- highly correlated

r = .88

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%

Firms rating Central Gov't Leadership (President/PM/Cabinet) as Good

Fir

ms

rati

ng

th

e se

rvic

es p

rov

ided

by

th

e

Pa

rlia

men

t a

s G

oo

d

Eacb dot denotes one country in Transition, rated by firms in terms of performance of the Executive and Legislative. Source: J. Hellman, G. Jones and D. Kaufmann, Seize the State, Seize the Day: State Capture, Corruption, and Influence in Transition (World Bank Policy Research Working Paper 2444) September 2000. http://www.worldbank.org/wbi/governance/

ExcellentPerformanceRating

13

Enormous Socio-Economic Costs of State Capture by Enormous Socio-Economic Costs of State Capture by Oligarchs and Vested Elite Interests: Oligarchs and Vested Elite Interests: Business sector grows Business sector grows

much slower, lacks investments and insecure property rightsmuch slower, lacks investments and insecure property rights

0

5

10

15

20

25

Ave

rage

rat

e of

gro

wth

'97-

'99

High capture Countries Low capture countries

SalesInvestment

14

The result: weak property rights

0

10

20

30

40

50

60

70

80

Est

Uzb Pol Sln

Aze

r

Hu

n

Cro Slk

Geo

Bu

l

Arm

Rom B

el

Cze

Kaz L

it

Kyr

Ru

s

Uk

r

Mol

Firms reporting insecure property and contract rights

% o

f A

ll F

irm

s

%

15

% bribe 'cut' by Firms with FDI for public procurement contracts (avg., mid-99; beeps prelim)

4.8%

4.7%

5.7%

5.9%

1.5%

4.5%

5.0%

5.6%

0% 2% 4% 6% 8% 10%

Domestic firms

FDI firms

Turkey

Germany

Other

France

USA

UK

Co

un

try

of

ori

gin

of

inve

stm

ent

Percentage of contract value

16

State Capture exists where partial Civil Liberties and slow Economic Reforms

0%

10%

20%

30%

40%

Ext

ent

of S

tate

C

aptu

re

High Civil Liberties Partial CivilLiberties

High Economic Reform

Partial Econ. Reform

Low Ec. Reform

Degree of Civil Liberties in Transition Economies

EconomicReforms

17

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

Not Free Partly Free Free

Cor

rup

tion

High

Low

Civil Liberties

Civil Liberties Help Control Corruption (Worldwide Evidence, 150 countries)

18

AGOALB

AREARG

ARM

AUSAUT

AZE

!

BEN

BFABGDBGR

BHR

BHS

BIH

BLRBOL

BRABRN

BWA

CANCHE

CHL

CHNCIV

CMR

COGCOL

CRI

CUB

CYP

CZE

DEU

DNK

DOMDZA ECU

EGY

ESP

EST

ETH

FIN

FJI

FRA

GAB

GBR

GEO

GHA

GIN

GMBGNB

GRC

GTM

GUY

HKG

HND

HRVHTI

HUN

IDN

IND

IRL

IRN

IRG

ISL

ISR

ITA

JAMJOR

JPN

KAZKENKGZ

KOR

KWT

LBN

LBRLBY

LKA

LSOLTU

LUX

LVA

MAR

MDA MDGMEX

MKD MLI

MLT

MMR

MNG

MOZ

MUS

MWI

MYSNAM

NER

NGANIC

NLD

NOR

NZL

OMN

PAK

PANPER PHL

PNG

POL

PRK

PRT

PRY

QAT

ROMRUSSAU

SDN

SEN

SGP

SLE

SLV

SOM

SURSVK

SVN

SWE

SWZ

SYRTCD

TGO THA

TJK TKM

TTO

TUN

TUR

TWN

TZA

UGA

UKR

URY

USA

UZBVEN

VNM

YEMYUG

ZAF

ZAR

ZMB

ZWE

r = 0.68

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

0 0.2 0.4 0.6 0.8 1

Control of Corruption and Freedom of the Press

High

Low

Low High

r = .68

Freedom of the Press (Freedom House)

Con

trol

of

Gra

ft [

kkz]

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What to Do About Corruption: Responses from Officials In 62 Countries

20%

30%

40%

50%

60%

70%

80%

90%

Anti-corruptionwatchdog

institutions

Privatization Democracyand civilLiberties

Reform taxregime

Budgettransparency

Deregulateeconomy

Implementpenalties for

corruption

Example setby leadership

Per

cen

tag

e o

f re

spo

nd

ents

as

sig

nin

g h

igh

rat

ing

20

Civil Society Oversight:Civil Society Oversight:• Freedom of information• Public hearings of draft laws • Monitoring by media/NGO’s

Good and CleanGood and CleanGovernmentGovernment

Competition & Entry :Competition & Entry :• Competitive restructuring of monopolies• Regulatory simplification

Public Administration and Public Finance: Public Administration and Public Finance: • Meritocratic civil service • Transparent, monetized, adequate remuneration • Accountability in expenditures (Treasury, Audit, Procurement)

Strategy for Good Government and Anticorruption

Accountability of Political Leadership:Accountability of Political Leadership:• Disclosure of parliamentary votes • Transparency in party financing• Asset Declaration, Conflict of Interest Rules

Checks and Balances:Checks and Balances:• Independent and effective judiciary• Decentralization with accountability

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Implications -- Some Issues for Discussion and Debate

• For Legislative Body Setting an Example, Parliamentary strengthening is needed first in many settings

• Strengthening/reforming of Parliaments: cannot be done in isolation of reforms in public institutions?

• Towards Full Transparency in Legislative Votes• Mitigating ‘Capture’ by the Executive & by Vested Interests• Towards Transparency in Electoral/Political Finance• Role of Multinational Firms and International Responsibility• Integrated approach, focused on country priorities and action

towards Institutional Reform --- therefore...• Role of Parliamentary Training and Networks key: but with

better integration with other institutions and civil society?

How can we best support process with learning programs?

Info on programs: http//www.worldbank.org/wbi/governance/

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For further information and data:

http://www.worldbank.org/wbi/governance