What types of activities lend themselves to grand corruption? It is sometimes argued that it is monopoly businesses where lots of rents can be extracted. However, it is not clear that this is the main mechanism. Extracting rents means monitoring profit and loss statements and charging profit-maximizing prices. The very information contained in comprehensive accounts that allow this to be done, makes it more likely that corrupt practices will be found out. High profits or high prices are very visible signs that attract attention of critics. For example, it is standard to argue in textbooks on infrastructure regulation that rate-of-return regulation is less likely to be considered illegitimate, because it seems to be better at rent extraction for the consumer than price cap regulation, which may lead to observable high ex-post profit, even when all-in costs and prices may be lower. In reality, effective prices are typically too low in corrupt countries – below full cost and often even below operating costs. Grand corruption often seems to go together with stealing from government funding of large projects and substandard service rather than high consumer prices and corporate profits.

Low prices conveniently provide a “developmental narrative” that surrounds projects. Such narratives are a part of corrupt strategies. The narrative remains popular even though many studies suggest that the distributional effects of low prices tend actually to favor better-off people. Low prices also mean that funding has to come from government sources. If an infrastructure venture were dependent in full on payment by customers and funded by private debt markets, reasonably solid accounts would need to be maintained, which would increase the likelihood of finding out wrong-doing<sup>7</sup> . Corrupt payments may thus more easily be taken out of public funding, not privately paid revenues.

# **_Monitoring and accounting_**

The discussion suggests that basic accounting is an enemy of corruption. It also highlights that a measure like profit exerts relatively tight management discipline, because, to be derived, it requires consistent and comprehensive accounting. Nigeria provides apposite anecdotes. In 1978 a scandal broke for the national oil company, NNPC, facing allegations that it had diverted something in the order of 2.8 billion dollars. The allegations were never proven, not least thanks to the inexistence of accounts for the company. A public commission that dealt with the matter recommended in 1980 among other things that NNPC keep proper accounts. Consultants were hired. Yet, accounts kept being late by more than a year – unsuitable for management. In the mid-1980s a fire broke out in the accounting department and set the effort back further. The breaking out of fires, not in the kitchen, but in the accounting department had a good tradition in the country. West Africa’s then tallest tower, the NITEL building in Lagos, stood charred for many years from a fire that had broken out in its accounting department.

A lack of accounts prevents serious management and the lack of control is acutely felt by management. A colleague and I once developed a financial model of the Nigerian National

> 7 In addition, as is often argued taxpayers may be less organized and able to resist than other social groups.

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