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# **7. Corruption**

This section summarizes the literature on four policy issues related to corruption: its level in infrastructure, its effects, its drivers, and what can done about it.<sup>27</sup>

# **The level of corruption in infrastructure**

Favoritism, fraud, cronyism, patronage, embezzlement, bribes, and state capture are all concepts that have long been associated with the delivery of infrastructure services in many countries. In the early 1990s their perceived increase in the sector was, in many countries, one of the arguments used to motivate privatization. Ten to fifteen years and many reforms later, the same concerns are reemerging in discussions about the delivery of infrastructure services. Indeed, the level of corruption in the sector is one of the main concerns for policymakers and opinion-makers monitoring service delivery in developing countries. The main debate has shifted from the interactions between public operators and users to those between private operators and government. NGOs are releasing books expressing concerns about the issue (such as Finger and Allouche 2002 and Hall and Lobina 2002), documenting legal events that have demonstrated incidents of corruption in the sector. (Friends of the Earth 2001 and social scientists express concerns about the unusually high costs of renegotiations in the sector, while Flyvberg and others 2002, 2003a, 2003b and Mitlin 2002 point to their surprising high levels; see Guasch 2004.) The most powerful recent indicator of the importance of this issue may be that one of the main watchdogs in the business, Transparency International, has just released a survey of corruption and privatization in infrastructure in developing countries (Boehm and Polanco 2003). Unfortunately, this survey provides little new quantitative evidence and only covers concepts and useful anecdotes. Indeed, there is little applied or even theoretical research on this topic—maybe because there is even less data available than for all the other topics covered in this survey.

With the exception of a database compiled by Clarke and Xu (2003) for Eastern Europe and some sense of the ranking of utilities among corrupt institutions from the _Global Corruption Report_ (2004), to my knowledge the annual _Global Competitiveness Report_ provides the only comparable, quantitative, multicountry (59 developing countries) overview of corruption in infrastructure sectors, ranking countries according to the perceived degree of corruption (based on interviews with private firms), among many other criteria.<sup>28</sup> Aggregating the country-specific results by country income group and focusing on the two questions relevant to infrastructure yields sobering results in the report’s 2002–03 edition:

> 27 There is an extensive literature on how to define corruption and on the semantic practices of different institutions; a helpful recent survey is Lanyi (2004). For a recent survey on economic analysis of corruption, see Aidt (2003); on levels of corruption, see Kaufmann and others (2003).

> 28 There are also country-specific databases dealing with publics services, but these are the exception rather than the rule (see Reinikka and Svensson 2002, Svensson 2003, and many of the country reports from Transparency International available on its Website).