Tuesday, October 7, 2008

The Oscars of Corruption

One of the most important rankings in the world of business ethics was updated and released last week: the ‘Corruption Perception Index’ (CPI) of Transparency International. Founded by the former UN aid worker Peter Eigen the Berlin based organization regularly collects extensive data on how countries in the world are perceived with regard to corruption in business and politics.

Sweden, New Zealand and Denmark top the list while Iraq, Myanmar and Somalia come out at the very bottom. But it is not just a list where rich Western industrial democracies win while poor developing nations lag behind. It’s interesting to see who went up and who went down. Britain took a hit, as did France and Germany – all due to high profile corruption cases in recent years. We talked about the BAE scandal in the UK in this blog which appears to have led to a drop in the UK's rating – in particular the government’s decision not to pursue the case due to ‘national security concerns’. Endemic corruption at one of Germany’s biggest companies, Siemens, arguably contributed to a drop in the ranking for Europe’s biggest economy. The US comes out 18th – just before St. Lucia – largely perhaps because of dubious campaign finance practices and special interest lobbying in Washington.

You might by now have noticed that one of the recent ‘pet theories’ of Crane and Matten focuses on the political role of the firm. Seen through the lens of the CPI the collusion and non transparent role of business in politics is interpreted as a form of corruption. And the fact that by no means all democratic countries lead the ranking and some of the them even dropped can be seen as an indicator that the political role of the corporation is on the rise.

So what is the solution? Clearly, there is still a role for strong government. The top countries, in particular Sweden and Denmark, are long standing democracies with a strong welfare state where the spheres of business and politics are reasonably held apart. Georgia, Nigeria, South Korea or Turkey – all countries which improved their ranking – did so mostly through improvements in the political governance of these countries.

But generally, we would argue that the CPI reflects the rise of private business in influencing politics, both for better or for worse. One way of addressing this then might be to just tackle these issues from the business angle. Some of the most creative approaches to eradicating corruption focus on business-government relations, such as the Extractive Industries Transparency Initiative (chaired by Eigen). Creating more transparency, clearer accountability and new forms of democratic control, both for governments and powerful corporations can be effective in addressing corruption. After all, corruption is not just an ethical issue: a one point improvement in the CPI coincides with 0.5 percent increase in GDP and a 4 percent rise in average income of a country. In particular in the global south, corruption translates into a matter of life and death for ordinary people...

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