sectoral agenda for improved governance builds upon the same principles and approaches as these macro interventions, but tailored to the particular features of construction.

# **Ownership, Competition and Regulation in the Sector**

Again at the sector level, overall efforts to improve governance are likely to be an important tool in reducing the impact of corruption. As with other sectors, it will be important to separate the ownership and regulatory functions of government, and to ensure that the government as a client bids out work on a level playing field. Given the competitive nature of the sector, there appears little justification for state ownership of construction firms, and removing the government as an owner will also help to simplify the political economy of contract award and, in particular, monitoring for quality. What we know about corruption in the sector in Eastern Europe and Central Asia suggests that a private-sector dominated industry may be less prone to corruption. Evidence from the BEEPS surveys suggests that state-owned firms are at least as if not more likely to bribe for government contracts and licenses (Table 5).<sup>21</sup> Regarding regulation, a study of labor practices on eleven large construction sites in Tanzania found that one of the most egregious violators of labor standards was the National Housing Corporation (National Construction Council, Dar es Salaam, 2005). Furthermore, the example of Indonesia’s Kacematan road projects suggests that corruption in construction by local government employees may frequently take the additional form of materials theft. This materials theft can be some of the most economically damaging form of corruption in construction, as we have seen.

Of course, the privatization process itself can be prone to considerable corruption. In a number of countries, privatization of construction firms has often been to the benefit of the few (Copplestone, 2006). Increasing the transparency and competitiveness of the privatization process itself should be an important precursor to this element of sector reform.

Regulation will remain a vital role for government in the sector, because monitoring technical standards in construction is both complex and central to ensuring quality. Attempts to deal with the information asymmetries inherent in construction have a long history. The Code of Hammurabi (1800BC) imposed the death penalty on builders whose houses collapsed and killed the owner (World Bank, 2006). Four thousand years later, there remains a need for greater regulatory oversight of construction in parts of the Middle East. Earthquake-prone Iran, for example, still lacks any building code for masonry structures.

At the same time, it is important that regulation is limited to cases where it is necessary, and that it is fairly but rigorously enforced. The record of developing countries in this regard is decidedly mixed. _Doing Business_ surveys suggest that the number of procedures required in order to get permission to build a warehouse varies considerably

> 21 These results carry more than the usual caveats about regression results –there are no checks of robustness to the inclusion of other variables or country dummies, for example.

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