Unequal Playing Field Becomes Breeding Ground for Corruption
TESFAYE KIDAN (PhD)
The Corruption Perception Index (CPI) of Transparency International, a non-governmental organisation fighting corruption and trying to raise awareness of it, ranked Ethiopia 120th out of 180 countries in 2009, showing a little improvement from the previous year�s rank of 126th. This indicates the seriousness of the problem of corruption in Ethiopia, which is well understood by policymakers.
Although controlling corruption is important, its efficacy depends on attacking the underlying causes. This requires an understanding of the society�s values on corruption and examining the existence of any fundamental enabling factors.
Corruption is one of the plagues of every society, although its severity differs significantly between countries. While corruption is tolerated in some societies, it borders on being taboo in others. Individual perceptions of corruption and negative attitudes towards it are associated with a lower incidence thereof.
Social scientists collected data on many aspects to study different socio-economic problems. One of the most important data sources is the World Values Surveys, an ongoing academic project to assess the state of socio-cultural, moral, religious, and political values of different cultures around the world. The survey included Ethiopia in 2007, and the data is in the public domain for research and other purposes.
As corruption is mostly an urban phenomenon and endemic to the public sector therein, these observations are limited to urban Ethiopia.
Based on the data, for the majority of the survey respondents, corruption is not justifiable. Between 63pc and 75pc of the survey respondents claimed that accepting bribes, cheating on taxes, claiming undue government benefits, and avoiding a fare on public transport are �never justifiable� acts. The findings are quite encouraging, for negative perceptions on corruption help to reduce its incidence.
However, the study of transparency in Ethiopia, based on the survey of representative households in Addis Abeba, shows that corruption is ranked as the fourth most important socio-economic problem following the problems of escalating costs of living, unemployment, and housing. This is contradictory.
Why is corruption not a major problem in societies where it is viewed as a vice? Either individuals� �stated view� is different from their �revealed act� or there should be another logical explanation for the seemingly contradictory results.
There is much evidence in support of behavioural science that individuals answer moral questions favourably - corruption is bad, for example - when faced with survey enumerators even if they believe otherwise.
This is a major problem that contaminates survey results. However, it may not be the only explanation as other factors could also explain the phenomenon. It is important to look for other logical explanations.
In highly unequal societies, where there is no sign of narrowing inequality, people in the lower income strata lose their dreams of a better life as the country�s economic growth disproportionately benefits people on the higher income scale.
Debraj Ray, a development economics theorist, illustrates this phenomenon thus: �You are in a multilane tunnel with all the lanes going in the same direction, and you are caught in a serious traffic jam. After a while, the cars in the other lane begin to move. Do you feel better or worse?
�At first, movement in the other lane may seem like a good sign: you hope that your turn to move will come soon, and indeed that might happen. You might contemplate an orderly move into the moving lane, looking for suitable gaps in the traffic. However, if the other lane keeps whizzing by, with no gaps to enter and with no changes on your lane, your reactions may well become quite negative.
�Unevenness without corresponding redistribution can be tolerated or even welcomed if it raises expectations everywhere, but it will be tolerated for only so long. Uneven growth sets forces in motion to restore the balance, sometimes even actions that may thwart the growth process itself.�
In the case of Ethiopia, income inequality has been rising over the years. In economics jargon, inequality of income distribution is measured by the Gini Coefficient: a value of zero expresses total equality and a value of one maximal inequality.
During the period spanning almost a decade beginning 1995/06, for which data is available, income inequality among urban dwellers increased from 0.34 to 0.44. In 2004/05, Tigray Regional State was ranked first (0.49), followed by Addis Abeba (0.46), and Dire Dawa (0.43). Some anecdotal evidence proves that the current level of urban income inequality is even higher than that of 2004/05.
High economic growth is mostly accompanied by rising levels of inequality, and governments use different redistribution policies for the wider public to benefit from the economic growth. Yet, when the benefits of economic growth do not trickle down, it dampens an individual�s hope to move up economically.
This seems to be the case in urban Ethiopia where the high inflation rate has eroded the real income of fixed income urbanites as salaries are not adjusted to inflation, not in many cases. The loss of purchasing power due to money creation by the government (which is referred to as inflation tax) reached as high as 31pc in 2008. This was a serious punch, capable of shattering an individual�s chance to increase her income while even without the onset of runaway inflation, the majority of fixed income urbanites were struggling to make ends meet.
A study by Bigsten and Shimeles, conducted in 2008, showed the existence of high rates of re-entering into poverty with low probability of exit out of poverty among both urban and rural households during the period of the decade before 2004/05.
Decent housing and owning an automobile are way beyond the budgets of even the relatively more wealthy fixed income households, including �high� salaried civil servants. In Addis Abeba, the rental price of a one bedroom apartment can go as high as 4,000 Br while its sale price is not less than half a million Birr. The unavailability, or limited availability, of mortgage financing has made the prospect of a decent lifestyle a distant dream.
With a minimum (combined) tax rate of 125pc on automobiles, an 18-year old Toyota Corolla, popularly known as woyane, costs between 170,000 and 180,000 Br. These price ranges are way out of the reach of the �highly paid� civil servants who earn 5,000 to 7,000 Br per month.
Parallel to the struggling fixed income earners are the real estate bonanza enriching the developers, constructors already awash with money from numerous multimillion government infrastructure projects, and other businesses that are, somehow, harvesting millions.
The high inflation rate that eroded the purchasing power of the fixed income earners has made bank credit quite attractive as they bear a negative real interest rate. The amount to be paid on a one million Birr loan with an annual interest rate of 12pc will be 1.12 million Br at the end of the year.
In the case of an annual inflation rate of 40pc, the purchasing power of a borrowed one million Birr will be equal to 600,000 Br at the time of payment. Adding the interest payment of 120,000 Br, the real value of money paid by the borrower is 720,000 Br, a total of 280,000 Br less than what he borrowed. This effectively redistributes income from depositors to borrowers or businesses, pushing the income inequality even further.
Arguably, there is a dramatic change in the lifestyle of the rich. Posh houses equipped with state-of-the-art amenities are floating on the market with price tags of over three million Birr. The overpriced and, yet, overcrowded upscale restaurants and lounges that cater to the rich and the affluent, have mushroomed all over the city. It is common to see rich people cruising around town with their brand-new automobiles, expensive even by a developed country�s standards.
The visibility of the inequality and the difficult conditions under which fixed income earners are supposed to rise on the income ladder, have a serious psychological impact, leading them to react in different ways when trying to catch up.
Below are listed three of the reactions of well educated urbanites, including the technocrats in the government bureaucracy.
The first reaction, when there is no hope to make ends meet, is emigrating to the developed world with better prospects for a decent life. This is the path followed by numerous university lectures, medical doctors, engineers, and many other highly qualified civil servants.
The second reaction, when the first path is not preferred or impossible, is to look for either part-time employment or jobs with competitive salary packages. The third reaction is to exploit the system in the form of bribes and other deceitful tactics.
It seems as if those who could emigrate have already left, and those who could get better paying jobs have left the civil service. For those who remained in the civil service when their dreams were shattered, moral values may be compromised easily - unlike Job in the "Bible." Being corrupt may be considered an optimal path to a better life, which is the presumed underlying reason for corruption.
The opportunities for corruption seem to have increased since the government�s �developmental state� agenda with its financing of mega projects. Ever since 2005, the government has been spending significant sums to stimulate growth, reduce poverty, and provide safety nets for the vulnerable, requiring elaborate spending plans from each ministry to achieve the national targets.
For the technocrats and professionals of the spending agencies, this is a nice opportunity to design mega projects, inflate the costs, and snatch sizable amounts of money. The incentive structures of the technocrats are perfectly compatible with the government�s as it perceives that it is implementing its programmes while the technocrats snatch their undue share.
It is not unusual to see some technocrats and professionals in the civil service who live the life of the rich, which is not on par with their salary levels. The psychological pain of the high-income inequality appears to overshadow the virtues of holding the higher moral ground of no corruption.
The technocrats and professionals have the capacity to lay out efficient and undetectable channels of diverting public resources. The shared belief that �corruption is the only way to prosperity� bonds the culprits together to block openings for the detection of corrupt activities.
This has serious implications for the effectiveness of public spending. Estimates from a survey tracking public expenditure show a significant leakage of funds, in the range of 30pc to 76pc of non-wage funds, going to primary education in African countries.
Only one per cent of the annual capitation grant (per student) from the central government reached the schools in Chad, Paul Collier discovered in his book, "The Bottom Billion." The World Bank�s (WB) estimates that around 30pc of expenditure on roads ends up in private hands.
The adverse implications are much more severe in Ethiopia�s case, as the main development plan, that of a �developmental state� agenda, is predicated on the existence of an efficient government bureaucracy that requires qualified and corruption free technocrats.
However, the facts proved the contrary as the low government salary pushed the highly qualified away from the civil service while creating incentives for corruption. The combined effect has resulted in an inefficient and corrupt government bureaucracy, which is dangerous to the projects of a �developmental state.�
The million dollar question is whether there are any sound interventions which can reverse the incentive for corruption, and improve government bureaucracy.The first possible intervention is to pay a competitive salary to technocrats and professionals working in the public sector. The popular reason for the rejection of this option is the implication on the budget of the salary increments. However, it is a shallow argument for its benefits in the forms of low corruption and improved government bureaucracy are not factored in. The reduction of leakages from the WB estimates of 30pc to 15pc of expenditures on roads could be more than enough to justify the budgetary costs.
The second alternative is to build a vision that a better life is possible without resorting to corruption or other deceitful means. This requires removing various market distortions that make �basic necessities� unaffordable for the technocrats. Specifically, distortions in the housing, automobile, and mortgage markets need to be addressed. By removing the excise tax (that ranges from 30pc to 100pc) on automobiles, it is possible to drive down their prices to a level that is affordable for �highly paid� civil servants.
In contrast to the above intervention, the current corruption control scheme, the Federal Ethics and Anti-corruption Commission (FEACC), is inefficient as it is inherently flawed in its disregard for the underlying reasons for corruption. The technocrats in the commission have the same incentives to be corrupt as they share the characteristics of other civil servants. They even have a higher propensity to be corrupt because they deal with corrupt bodies that are more willing to pay bribes to escape from legal actions.
It is a matter of time before the technocrats there perfect the mechanisms to manage their shady deals without detection; there is a credible risk that the commission may turn out to be a perfect breeding place for corruption.
Given society�s negative perception of corruption, these interventions by the administration, if well managed, could cut the incentives for corruption significantly. However, to the extent that such interventions are delayed, and as corruption becomes common, Ethiopian society may lose its distaste for it. Once corruption is deep-rooted in society, it would be very difficult, if not impossible, to reverse participation in it.
TESFAYE KIDAN (PhD) (email@example.com),
An economist and independent consultant in Addis Abeba.