1
Present
TRANSPARENCY INTERNATIONAL GLOBAL
CORRUPTION REPORT 2006:
CORRUPTION IN THE HEALTH SECTOR:
SEEKING THE CURE
[Transcript prepared from a tape recording]
Wednesday, February 1, 2006
8:30 a.m.
The University Club of Washington, D.C.
University Hall, Second Floor
1135 16th Street, Northwest
Washington, D.C.
The Center for Global Development is an independent think tank that works to reduce global poverty and
inequality through rigorous research and active engagement with the policy community. This event was made
possible in part by funding from the Bill and Melinda Gates Foundation.
Use and dissemination of this transcript is encouraged, however reproduced copies may not be used for
commercial purposes. Further usage is permitted under the terms of the Creative Commons License. The
views expressed in this transcript are those of the participants and should not be attributed to the directors or
funders of the Center for Global Development.
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PARTICIPANTS:
Rafael DiTella
Professor
Harvard Business School
Magnus Lindelow
Economist, Human Development Sector
World Bank
Maureen Lewis
Senior Fellow
Center for Global Development
Ted Moran
Non-Resident Fellow
Center for Global Development
Professor
Georgetown University School of Foreign Service
Nancy Boswell, Moderator
Managing Director
Transparency International USA
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P R O C E E D I N G S
MS. BOSWELL: [Proceedings in progress] get underway. I appreciate
everybody coming out so early. So I want to take advantage of your being here
to get started.
Good morning, everyone. Can everyone hear me in the back there? You
are free to move up to the front, if you want, and take a seat.
Welcome to the launch of the 2006 Transparency International Global
Corruption Report. My name is Nancy Boswell. I am the Managing Director of
the U.S. Chapter of Transparency International and a member of the board of the
global organization.
I thank you all very much for coming out so early in the morning. I hope
you have helped yourself to some coffee and such in the back, and I am very
pleased we have a topnotch panel of experts with us today to discuss this book
and their own research findings, and I think you are going to find it really,
really interesting.
You will also find on the tables outside, if you haven't stopped there yet,
some background materials, including an executive summary, some highlights
from the country reports, and a sheet of frequently asked questions.
Unfortunately, we couldn't provide copies of the report for free. You
have seen it out front there. But if you are interested in buying one, you can
simply log onto Amazon.com and pick up a copy there.
Before I introduce our panel, let me thank the Center for Global
Development, Nancy Birdsall, Ruth Levine and Sarah Dean, and others who
helped us put together the event today.
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Like TI, CGD is a young organization, making a profound difference in
public policy and it does a great job bringing important issues like this one to
the fore, backed up by experts. So we are delighted to partner with them this
morning.
Let me also take a moment to recognize my colleague from TI, Frank
Vogl. Frank, where you are? Somewhere here. There he is.
Frank and others in TI and eminent outside experts, such as Sir George
Alleyne, the former Director of PAHO, were members of the Editorial Advisory
Panel for this report, and I think you will agree they did an absolutely excellent
job.
The report, as I will call it, is an annual publication, which, unlike the TI
index, for which we are probably best known, doesn't rank countries, but rather
gives a more qualitative look at corruption and the fight against it worldwide.
It is a compilation of work by experts and activists, including many from
TI national chapters.
You will see that this year's report is in three sections--actually, four.
The executive summary contains important information on not only the various
types of corruption, but also on recommendations for addressing it.
Part one focuses on corruption in the health sector; part two has, I think,
45 individual country reports, providing a snapshot of current trends and
scandals; and, part three is a section on recent research on corruption.
So why the special focus on corruption in the health sector?
As you may know, each year, we focus on an issue of global importance.
In prior years, we focused on issues such as access to information, fundamental
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building block of an anti-corruption program, and subsequent volumes have
focused on issues like corruption in the political finance area.
The reason for this year's focus, I think, is probably obvious. Good
health care is fundamental to the quality of life of people around the world and
to their capacity to learn, to hold jobs, and, generally, to contribute to society.
Yet, the report demonstrates that corruption takes a serious toll both in
dollars lost and in human suffering.
Starting with the monetary impact, the drain from productive uses is
dramatic. For example, the reports notes, in the U.S. alone, fraud and abuse are
estimated to cost somewhere up to $20 billion; and, in Latin America and the
Caribbean, Bill Savedoff estimates the cost rises to as much as $28 billion.
It is little wonder that with a $3 trillion industry, this sector makes an
inviting target for fraud and corruption. But the cost goes beyond the waste of
public funds. It is the human toll, described in painful detail in the report,
which calls out for our attention.
Corruption, including demands for informal payments, fraudulent
procurement and billing, inappropriate influence on the regulatory process,
selling expired medicine in altered package, and many other forms that you will
see as you read, undermine the quality of medical care and medication, and can
even have deadly consequences.
The report describes the impact in both the developed and the developing
world; deaths due to fake heart valves manufactured in Brazil and purchased by
an Italian hospital on the recommendation of professors who took hundreds of
thousands of dollars in bribes.
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Another example, in Bangladesh, where informal payments of as much as
$75 are required to ensure the safe delivery of a baby. To understand the
burden this presents, you have to know that $75 is about two months average
income in Bangladesh.
I was particularly struck by the piece on HIV/AIDS, where the pandemic
has put millions of lives at stake, and the report cautions that massive flows of
donor assistance, estimated in 2004 at somewhere between $6 and $8 billion,
will not prevent infection or assure treatment without accountability
mechanisms at every juncture.
In addition to the usual corruption problems, the report points to grand
scale theft by ministries and AIDS councils, demands by hospital workers for
bribes, and even sexual favors, to gain access to limited supplies of
antiretrovirals.
The report also highlights the lives lost due to the growing volume of
counterfeit and substandard drugs, estimated by the World Health Organization
at $32 billion, and this is particularly insidious in the case of HIV/AIDS.
The scale of the problem leaves no dispute regarding the need for
increases in donor assistance, but the report urges greater attention to systems
for using these funds, to incentives and benchmarks which donors use to assess
performance, and to ensuring more transparency, monitoring and oversight.
As I note the report makes it clear that corruption in the health sector
afflicts both the developed and the developing world and it has two particularly
timely articles on problems in the U.S..
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The first, by Harvard Professor Malcolm Sparrow, highlights
vulnerabilities in the U.S. system to fraud by medical professionals or
companies and the inadequate control systems that are in place.
Tufts Professor Jerome Kassirer, former editor-in-chief of the New
England Journal of Medicine, looks at the conflicts of interest which arise from
the interaction between pharmaceutical, medical device and biotech companies,
on the one hand, and medical professionals in private practice and in medical
institutions on the other.
I think all of us have read just the spate of recent press articles on these
issues, what is at play, including the corrosive influence on patient care,
medical information, federal regulatory practices, and, perhaps most important,
the public's trust in the medical profession.
While there are protections in place, including federal laws against
kickbacks in American Medical Association and PHARMA Voluntary Codes, the
report raises important questions about their efficacy.
While there is clearly much more I would like to say about the report, I
don't want to spend any more time before turning to our panelists, who are the
real experts here, and I want to be sure there is ample time for their
presentations and, also, for questions.
So you have or should have a copy of the speakers' full bios. So let me
give just the briefest of introductions for each of them, and then let them take
the microphone.
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Starting at the far side of the table, Maureen Lewis. I am so delighted
that she has been able to be with us this morning, but she does have a competing
meeting starting at 9:00. So we are going to start with her.
You have, hopefully, a copy of her excellent paper on Governance and
Corruption in Public Health Care Systems. If you don't, you have our e-mail
address and we would be happy to make sure that you get one.
Maureen is a Senior Fellow at the Center for Global Development. She
was Chief Economist at the Human Development Network at the World Bank,
and, before that, Director of the International Health and Demographic Policy
Unit at the Urban Institute, and I think she has many of her former colleagues
here today to hear her.
Magnus Lindelow, the first one on the table here next to my chair, another
World Bank economist, with a specialty in public finance and public
expenditure management.
Magnus has been involved in survey design and, in particular, the public
expenditure tracking surveys, or PETS, that the World Bank has been
conducting. His article in the report is titled Measuring Corruption in the
Health Sector: What We Can Learn from Public Expenditure Tracking and
Service Delivery Surveys in Developing Countries, and it has very, very
interesting findings.
We will then turn to Gloria Steele, who is next to Magnus there, Deputy
Assistant Administrator for USAID's Bureau of Global Health. Prior to her
many years of service at USAID, Ms. Steele served as a consultant and professor
in the Philippines.
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TI has had the privilege of working closely with USAID's Democracy and
Governance Center experts for years. Gloria's presence, indeed, the presence of
many of you in the health sector who are here today underscores the growing
recognition that addressing corruption cannot be confined, but rather must be an
integral part of all development assistance efforts.
As I noted earlier, the report has three sections, the final one focused on
research. So we are delighted to have Rafael DiTella with us to talk about some
of the thought-provoking trends emerging from his research.
Rafael is Professor of Business Administration at the Harvard Business
School and while his research has been published mainly in academic journals,
we know him for his work in Poder Ciudadano, TI's Argentina chapter, and his
research with Bill Savedoff, one of our report's authors.
Their work focused on fraud and corruption in Latin's America's public
hospitals.
I note, and you may note in his bio, he has also studied of measures of
happiness. So we look forward to some upbeat assessments from Rafael.
Finally, our commentator today is Ted Moran, a non-resident fellow at
Center for Global Development and a professor at Georgetown University's
School of Foreign Service.
Ted has a distinguished career in public service, including in the U.S.
Government and at the U.N. and the World Bank.
Let me add that my attendance sheet for this event demonstrates that many
of you are also experts. So I invite you to feel free to join Ted, when our
speakers are finished, in adding your thoughts to what is being presented today.
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So with that, let me turn to Maureen. If you don't mind coming to the
podium so our audio can catch what you say. Thank you very much.
MS. LEWIS: Thank you very much, Nancy. Thank you to Transparency
International. It is a pleasure to be here. I think that this is an issue that I have
had a lot of interest in for a long time. I think it is a vitally important one.
We have a lot going on in health. A lot of money goes into health, and
that is true in the developed, as well as the developing countries.
So what my paper does, from which I have taken some part here to
present, has to do with developing countries and it is very complimentary, I
think, to the TI report, that I think is a real encyclopedia and something that is
quite useful for a lot of different kinds of purposes and very much as a
reference. So this is a bit of a narrower look at some of the specific issues.
But I start off with the idea that institutions really matter and a lot of the
corruption issues really revolve around the fact that institutions have to work, if
we are to get health care or if we are going to have investment that is viable for
working of a society and working of an economy, institutions are quite central,
and if we expect to reach the MDGs, if donors are going to be effective, if we
can absorb more money, these issues of corruption and governance become to
being able to achieve results.
One of the things that I looked at that I think is quite interesting is taking
the categorizations that Kaufman Cray did most recently in looking at the
relationship between the different components of that index.
Quite interestingly, if you look at these three, I hope you can see them,
but the one in the bottom left-hand corner, which is government effectiveness, is
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the best fit with looking at how much immunization coverage there is for
measles, which is a good indicator of how well the health system is functioning,
how well that institution is working.
So it is quite interesting that some of these very aggregate measures that
have come out from perceptions have a very close relationship relative to others,
because one of the things that is interesting is voice, for example, which has to
do with being able to vote and to have a voice, as it were, in decision-making
and in policy is very random. There is no relationship at all. So this was, I
found, quite important.
Then looking at this in a multi-variable framework, so that you can look
at what is important, again, government effectiveness, when you are controlling
for other things, remains very important as something that explains whether or
not you are going to get immunizations done, and things like GDP per capita
was not important.
So what this, I think, suggests is that if you look across countries, the
issue of governance and corruption is very important in terms of reaching and
achieving results.
Now, if you look at the studies that have been done on corruption
generically, some of them ask about health and they ask not only how corrupt is
the government, but they ask how corrupt are these particular sectors, and
transparency International has sponsored many of these, but it is quite
remarkable what has come out from some of these.
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I mean, you have countries like Pakistan, Tajikistan, Morocco,
Madagascar, where 70 percent or more of the people who are asked say, yes, it
is a very corrupt sector.
So it is not something that people in countries don't know, but it is
certainly something that hasn't been on the agenda, and, again, I think
Transparency International's real contribution is making this a big issue that we
can coalesce around and try and understand better.
But I think there are some indications already from data on this subject
that people in countries realize, officials, business people and ordinary citizens
realize that there is a problem in the sector.
So I looked at some of the measures and indicators of poor governance in
corruption. One of them is absence rates, and this has been something that has
been taken on increasingly by the World Bank, but some of the studies here
were done elsewhere.
What they suggest is that you have a lot of empty health clinics in terms
of staffing and what that means is that you are paying staff and they are not
there, which effectively is a form of corruption. It is certainly mismanagement.
And some of it, there is a good reason for it, has to do with not just poor
performance, but it also has to do with the fact that there is very little
accountability and there is very poor management.
So some of this is a function of just not running things well and it leads to
something that is corruption, even though it wasn't motivated in that way.
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So I think that these are sort of interesting results from the few countries
where they have tried to look at what does absenteeism look like across the
service provision.
I think the other thing that is interesting here is this covers urban and
rural hospitals and non-hospitals. So it is a range.
A third area that has a big indication for corruption is informal payment.
That means under-the-table payments to providers to provide you with either an
entry to the hospital, to see a doctor, whatever. It is much higher than I would
have thought.
I was also quite struck by the fact that the proportion that were going, in
some countries, to seek any kind of services were paying quite a lot.
In India, for example, they find that how much you pay in the public
sector and the private sector are not that different. So that the pricing is such
that everybody knows what they have to pay and it is no secret that the public
clinics that are free are not really free, and I think given the number of
countries here, it suggests that there is an issue.
If you look at it in terms of how much of income we are talking about, it
comes to quite a lot of money in some countries. The really long line, for those
who can't see, it is over 200 percent of income. This is Bangladesh for inpatient
care, and much of the amount as a proportion of income that is important is that
part of it.
There has been an interesting study in China that looks at the fact that
people have been driven into poverty because of this, and there are stories in the
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U.S., as well, where people have been driven into poverty because they couldn't
pay their medical bills.
So this is something that happens in many contexts. We don't have very
good evidence of it. We don't have very good information, but I think it is now
starting to come out as something that we need to deal with as donors and as
policy-makers, because it completely reverses the objective of health care,
which is to make it accessible to those who most need it, regardless of income.
So what do we do about this? It is always easier to raise the problems
than to come up with some of the suggestions on what to do.
I think there is some mixed evidence on salaries. I think that has been a
very common complaint, that if we had higher salaries, we wouldn't have the
absenteeism, we wouldn't have some of the other problems that we have, but
some of the evidence doesn't really point in that direction and there is some
suggestion that looking at things like employment security, looking at
recruitment and promotion criteria, the capability of management, the working
conditions are as important as merely the salaries, that these other factors are
quite demoralizing and create poor behavior as a response.
The second issue is really raising accountability; the ability to hire and
fire staff. There has been a recent study in Tanzania that suggests that the
ability to hire and fire raises the quality of care.
So this is something that is very--that is not something that has been much
on the agenda, but it is clearly something that I think is starting to emerge as
something that we may want to look at more carefully, whereas the
accountability question is difficult.
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Are you accountable to the Ministry of Health, which is 500 miles away,
or to the community or to a supervisor who is local? So I think this
accountability question is at the heart of trying to fix some of these.
A third area is improving oversight. Sometimes inspectors actually
improve performance, but that can backfire and not work so well. So this is
something I think that is a possibility.
Increasing audits. One of the things that Magnus will talk about and that
I raise, as well, is the leakage within a system in terms of transferring money
within the system or drugs within a system. Better audits could try to help some
of that, and the auditing is quite weak, in general, in health.
Another area is who pays. There has been some preliminary evidence that
some of the informal fees can be controlled and since informal fees are illegal
and, therefore, corruption, with banning informal fees and substituting fees that
are legitimate.
This is a very controversial issue, but if the alternative is a very unfair,
under-the-table, corrupt practice versus charging something nominal and having
some sort of sliding scale according to income, this may provide an alternative
that is worth exploring, but we have to be convinced that informal payments are
a problem and that they exist.
The contracting out of services with a pay-for-performance by the
provider, this is another area that is looking like it has some promise, but as
with everything in health, it needs to have enough oversight that it actually
works as intended.
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Finally, this issue of citizen report cards. Citizen report cards have been
used very lightly, in general, and they are something that hold promise, but
haven't been used very much. It is very hard often for communities to report on
physicians and on health care, because they don't feel they have the capacity to
do that and there is a status issue that I think gets in the way.
So this has potential, again, it has been used in other areas, and it is
something that holds promise, I think, for health.
So what do we do about controlling corruption? I have talked about
governance effectiveness. It is hard, I think, to do just one sector, unless the
government has decided we will do a national anti-corruption strategy.
Otherwise, it is hard for one sector to carry the load. So it may be more
efficient to see health within a broader strategy.
Second of all, something rather basic, which is the database of staff, just
to bolster administration. Some of this is now happening in Africa. They were
paying people who were no longer on the payroll, who were no longer--not only
on the payroll, they were no longer working for the government, or they died, or
they retired.
So there have been some serious problems with just not having basic
information.
Records and oversight fall into the same category. There are no
incentives for good records, but the lack of records is quite problematic in terms
of following the money and in terms of having any accountability.
So that this is sort of a first step. It is minor, but it could start to make a
difference.
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There needs to be more information to citizens about public health care
expectations. What is that we expect? What are they supposed to perform for
you?
There have been some interesting studies that the World Bank has done in
Africa looking at the role of newspapers, the role of announcing to the
community what is expected in terms of funding, and that they should,
therefore, be part of the answer in terms of creating accountability at that level.
So this whole question of accountability is quite central to controlling the
corruption at various levels.
So we talk about voice. I have not talked much about it, but voice has
played rather prominently in other sectors in terms of reducing corruption and
improving performance.
The evidence is really quite mixed. Voting in NGO presence to look at
and to sort of help to oversee performance within Bolivia in a rural area,
corruption is lower where you have these local organizing groups. So that
suggests that that voice element is important.
In Uganda and the Philippines, where they looked at voter turnout and
corruption levels, they found no relationship at all.
So public service delivery doesn't always respond to voting patterns or to
candidate selection, because it is only one of a number of things that they want
to look at.
So it essentially may be too blunt an instrument to use to be effective, at
least at this stage, in health systems in most developing countries. That is not
to say that you shouldn't be having an NGO presence and oversight, but the
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voting issue and the voice in that vein doesn't see to be as robust as some of the
other things.
So to conclude, the returns to health may be very low with corruption,
because you are not getting what you expect from the investment.
Institutions matter. You can't divorce health systems from ways to
improve governance and to reduce corruption. You really have to work with the
health system and that has not been a pattern for donors in the recent past.
There has been a pension for doing things that are very narrow and very
vertical, and you have to strengthen those institutions if you want performance
to improve over the long term. It may be messy, it may take a long time, but if
you don't start, it is not clear that you can get to where you need to go in the
end without that.
And we need more evidence. I have really tried--I have pulled things
from various places. Some of them are comparable. Some of them are less
comparable than one would like. But it is clear that the kinds of things that I
have talked about, that are in the TI report, as well, have sort of tried to cobble
together things and I think we need more evidence and we need a more
systematic approach.
Finally, health really can't be sidelined in the overall corruption agenda,
because it is really quite central and it is quite important to health and I think
that now that we have some understanding of this and the relationships, I think
that is becoming more obvious, and now what do we do about it.
Thank you very much. I apologize for having to talk and run, but I have
something else.
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MS. BOSWELL: Maureen, do you want to take some--you have to go?
MS. LEWIS: Go ahead.
MS. BOSWELL: Maureen has agreed to stay just if there are a couple of
burning questions people want to ask specifically to Maureen. Otherwise, we
are going to have a question period at the end. So I just thought I would make
that available to you. Anybody, before she goes? Okay.
Maureen, thank you very, very much.
[Applause.]
MS. BOSWELL: Magnus Lindelow from the World Bank is going to talk
about his survey work.
MR. LINDELOW: Good morning, everyone. I tend to be a little bit too
tall for these, so tell me if you can't hear me and I will try to bend over.
After this whirlwind tour by Maureen of corruption issues in general in
the health sector, I am going to narrow it down a little bit and talk about the
chapter that my colleagues and I have written in the report, and that chapter
asks the question of what we can learn from the public expenditure tracking and
service delivery surveys that have been undertaken in a range of countries in
recent years.
The focus of these surveys has primarily been on health and education,
and we focus in the chapter on the health sector. An important impetus for
these surveys has been the trend in recent years by many development agencies
to channel a growing proportion of development assistance through budget
support or sectoral support, rather than ring finance project support, and that,
when money flows to the government budget, that raises questions about the
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integrity and the use of government funds, and these are issues that, in many
cases, routine budget reporting systems provide limited information, at least in
the short term, and this is where some of these tracking surveys have come in.
What the expenditure tracking and service delivery service has tried to do
is to look at budget allocations or allocation rules and to assess whether actual
expenditures are consistent with allocations.
In the case of the health sector, what that typically has meant is to ask do
the resources that are allocated to primary level health care facilities or
hospitals actually reach the facilities on the front line, so to speak.
The first tracking survey that was done was done in Uganda in 1995 in the
education sector, and some of you may be familiar with that survey. As in many
other cases, the motivation for the survey was that the government had found
that they put a lot of resources into primary education, but were seeing little in
terms of impact on enrollment and other education indicators, and people were
asking, well, why is this happening and could this have something to do with the
flow of resources.
It was found in the survey that only about 13 percent of the government
allocation to schools for non-wage recurrent spending actually reached the
schools.
Since then, a number of surveys have been done in other countries, both
in education and in health, and we summarized in the chapter findings from 12
surveys in, I think, 10 different countries, and the focus of these surveys have
varied from looking at overall budget allocations to primary health care, to
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looking at specific resource flows, like drugs, or, in some cases, on human
resource issues in the health sector.
So what are the findings from these surveys? Well, the first point to note
is that although it is easy, in principal, to conceive the notion of corruption or
illegal fiscal leakages in the health sector, it has often been much more difficult
to pin that issue down in practice, and there are many reasons for this.
As I was saying, the premise of these surveys is to try to compare actual
spending with allocations, but what these surveys have often found is that, in
many cases, there aren't explicit allocations, whether it be drugs or financial
resources to individual facilities.
A lot of discretion is left to local administrators about how resources
should be allocated.
That, of course, makes it very difficult to assess what exactly a health
facility should receive in terms of resources.
Of course, that flexibility may be desirable in contexts where there is a
lack of predictability about local needs, at least if that flexibility is used
judiciously.
But a failure to identify corruption may also be due to other problems.
For example, if facilities receive less drugs or less financial resources than
intended, it may not be because those--it is not necessarily because those
resources have been stolen somewhere along the way. It may simply be delays
or bottlenecks in the distribution or budget execution process.
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Also, one of the challenges in many of these surveys has been to make
sense of financial and other administrative records, which are often incomplete,
inconsistent, or simply lacking, and that has been a challenge throughout.
All of these complications aside, the surveys have generated some very
useful findings and they are summarized in a table. I am not going to go into
the specifics of individual countries.
But some of the surveys have managed to construct leakage estimates for
overall spending on primary health care. Some of the surveys have identified
ghost workers. Some have identified problems with salaries not being paid to
health workers.
But the relevance of the surveys have often gone well beyond the
estimated leakage. They have documented, as I was saying, delays in the budget
execution process or the distribution of in-kind resources. They have identified
inequities in the allocation of resources both by government and development
agencies, and they have identified weaknesses in control and accountability
mechanisms in many countries.
Now, people sometimes comment on these surveys that the focus on
primary health care is inappropriate, because in money terms, the resources
going into primary health care is quite small, and that is true and it is certainly
the case that there needs to be a lot of attention to hospitals and to drug
procurement and other issues where a large chunk of government spending goes.
But while the financial costs or, in money terms, the resources going to
primary care may be small, the human cost of failures, leakages or others, can
be very substantial. We just have to think about problems of getting
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antimalarial drugs or staff not being paid, with the consequences for both
motivation and other issues, to realize the impact that this could have on the
capacity of health facilities to deliver essential services.
So where do the surveys that have been undertaken today leave us? I
think it is fair to say that in many countries, the surveys have proved their
value. They have generated a lot of new information and helped stimulate
debate about issues where there hasn't been much debate before.
I expect that these diagnostic surveys will continue to be done either at
the initiative of the Ministry of Finance or development agencies. Some
countries have committed to doing these types of surveys, Uganda as an
example.
Recently, however, some of the surveys have extended their scope on the
premise that getting resources to help facilities is only part of the battle. Then
you have to get staff to stay and work in the facilities. They have to be
appropriately motivated and compensated. Facilities have to be operated
efficiently.
This raises a whole different set of issues about how to make service
delivery work and some of the recent surveys have integrated those into what
they are looking at.
More importantly, perhaps, to use the language of the title of today's
seminar and to come back to the issues raised by Maureen, these surveys have
been very much about diagnosis and finding symptoms and they have provided
very little in terms of cure. That hasn't been their objective, but that is, of
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course, the $64,000 question, what do we do about some of the problems that we
observe.
As Maureen was saying, a lot of the problems that we find are systemic
and not specific to the health sector. Many of the issues relate to the budget
system as a whole and how it works or doesn't work.
These surveys aren't going to be the right tools for identifying solutions,
but where they can be useful is to help us understand which instruments for
addressing the problems work and which don't, and they have already been put
to effect in Uganda, in the case that Maureen mentioned, where the attempt to
provide information to local communities through a newspaper was evaluated
using a survey before and a survey after.
In that sense, these surveys can help us understand which interventions to
address corruption work and which don't.
I am going to leave it at that. Thank you very much.
[Applause.]
MS. BOSWELL: Thank you, Magnus. We can turn back to other aspects
of what the Bank is doing, but I think these surveys, as you say, are very helpful
in giving us at least the diagnosis of the problem and then that is the first step
before we can find the cure. Point well taken.
Gloria Steele, USAID's Deputy Assistant Administrator for the Bureau of
Global Health. Thank you very much, Gloria.
MS. STEELE: Thank you. Magnus tends to be too tall for the podium
and I tend to be too short for it.
25
Thank you. I would like to thank Transparency International for inviting
me to be here today. The issue of corruption is an issue that I have long been
obsessed with and long been very interested, since my days working in the
Ministry of Agriculture in the Philippines.
Transparency International is one of our most valued partners, because it
has done what I personally think has been instrumental in getting the issue of
corruption on the table.
I remember in the 1980s, working in the Philippines, corruption was not a
topic that was discussed with government officials. Some economists, out of
frustration, called ransacking behavior, but never corruption, and I think that
Transparency International's corruption perception index has been very
instrumental in putting this issue on the table by generating perceptions from
the locals, from the people who live in the countries, so that it does not appear
to be a judgment from an external group about a country's performance or lack
thereof.
I thought that was pretty clever and that was really good, because now we
can talk about it, we do research, Maureen's research, the World Bank, and we
can actually really talk to our government counterparts about what we need to
do in order to make the use of resources more effective and so that the people
for whom these resources were intended can actually benefit from them.
I look back and think about how much resources have been misused as a
result of not dealing with this, because it was not politically correct or it was
culturally insensitive.
So for this, I really think that TI has played a key role.
26
The launching of the book today is also a very important event. I read the
book from cover to cover, if you would believe it, and I found it was really
fascinating. It provides a lot of information that, at least for us in USAID, will
be very useful as we design our programs.
Last year, AID launched its anti-corruption strategy and in that strategy
paper, urging was made to our missions not to just look at the macro level,
although it is important, as Maureen pointed out, but to look within the sectors
that we work in.
Corruption is a health issue, it is an agriculture issue, it is a micro
enterprise issue, et cetera, and our funding tends to be budgeted that way, but
people looked at someone else to take care of corruption and that was not a very
effective way of doing it.
This month I will be taking over the anti-corruption working group in
AID, and, because of my involvement in health, the focus for the next six
months--it is a revolving chairmanship--the focus will be in health, and that is
why the launching of this book is very timely, because we can have something
to discuss and work around.
But looking within the health sector, which I have done in the last year
since I joined the Bureau for Global Health, I have seen the same issues that we
see in agriculture, where I used to be working, were issues that impede use of
resources. These are weak management systems, lack of transparency, poor
oversight.
Today what I would like to talk about is what my colleagues in the health
sector have done to deal with this issue.
27
The programs that we in AID have funded in the area of health revolve
around three major categories. There are programs to improve the health
systems in institutions, which Maureen talked about earlier. There are programs
to improve drug and commodity management and distribution, which is
discussed at length in TI's book that is being launched today. Lastly, there are
programs that fall under improving health financing.
Let me start with the first one, the management systems. We have seen
the need to make sure that institutions' systems are strengthened in order for
governance, especially the ministries of health, to be able to provide the
services it needs to provide.
In Mozambique, for instance, USAID worked with the government to
install a financial management reporting and tracking system, and this system
has enabled the Ministry of Health to do its health budget and to be transparent
in reporting the use of the resources.
In Ukraine, over a year ago, USAID found the beginnings of
mismanagement of a huge amount of HIV funds that were made available to
them through the Global Fund for HIV/AIDS, Malaria and TB, and that was $92
million.
Through USAID's analysis, we were able to work with the Global Fund in
order to correct the management of this grant program, and Ukraine today ranks
among the top ten best performers in grants management, where it started from
being one of the poorest performers.
28
In terms of commodity and drug management, the WHO reports that ten
percent of branded medicines are fake and, in many countries in Southeast Asia,
this goes up to as much as 35 percent.
So in the Macau region in Asia, USAID worked with local authorities in
order to confiscate fake drugs, to revoke the licenses of pharmacies or clinics
that issued the fake drugs, and to take legal actions against these people who
were involved in distributing counterfeits.
We have also educated the people about the dangers of using fake drugs
and ways in which they can be vigilant about not buying them.
This approach has not only made good drugs available to the population,
it has also helped to curb corruption in this region.
In Guatemala, we noticed that our family planning program was losing a
great deal of its contraceptives to the black market. Again, working with the
ministry, we helped them improve their management and logistics systems in
order to be able to reduce this diversion of our contraceptive drugs that we made
available to the country.
In terms of health financing, I think almost as every aspect of the program
we fund in the health sector includes some form of another of measures to
strengthen financing in health, USAID, along with a number of donors, have
helped 65 countries now to develop a national health accounts program, which
has enabled them to have a benchmark on health expenditures and to track
outliers, which provide some indications of whether there is some form of
corruption coming up and, therefore, being vigilant in addressing these issues.
29
But as Maureen said, USAID's anti-corruption strategy, while asking that
we focus on the sector, also understands that the macro level issues need to be
addressed.
It is important to understand the political and the economic underpinnings
of what causes corruption. So primarily through our democracy projects, we
have supported civil society, the development of vibrant civil society almost all
over the world.
The impact of our support in civil society in Eastern Europe and the
former Soviet Union is just tremendous, and I have followed that development
particularly in the Baltics, where we started with almost nothing, to civil society
being very prominent, taking a very prominent role in the country.
We have supported efforts to make the governments and non-governments
more transparent and more accountable. We have supported electoral systems.
Maureen talked about the effect of voting in curbing corruption.
We also support measures to include judicial assistance in the
legislatures. So I think that a lot of what Maureen talked about, a lot of the
examples that are in the book are measures that we are trying to apply in our
programs, and I think that if one were to look at programs that we funded in the
early '80s through now, you will see a distinct difference and I think a lot of
this is due to all the information that has now become available through the
work that Transparency International, and it is in the table, the issue of dealing
with corruption.
So I look forward to working even more closely with you and other
researchers who have figured out different ways of dealing with this, and we
30
would like to share our own lessons learned with others in this room and other
donors.
Thank you again for your important work and for inviting me.
[Applause.]
MS. BOSWELL: Thank you, Gloria. I think this notion of lessons
learned is really such an important one and being able to build on all the good
work that USAID has done all over and maybe if we can extract from the World
Bank and others who are working in similar areas and come up with some things
that we can all take on the road, it would be better.
Rafael, do you want to tell us a little bit about where you see research
heading? Then we will hear from Ted and some of your questions. So think
about it.
MR. DI TELLA: Thank you very for inviting me. I am delighted to be
here.
I have been engaged with Transparency International and anti-corruption
work for a long time, and I am really happy to be here because of the quality of
the report. I think this report is the best we have produced, that the anticorruption world has been able to offer the policy-makers and people interested
in this.
So I am really happy to be here. So thanks very much for the invitation.
Let me pick on a couple of issues in the report and then try to talk about
them in a more general way. There are two issues that I think are quite more
general than what the report makes. One of them is this issue of whistleblower
31
protection. This is an issue that is mentioned many times in the report, in Bill
Savedoff's chapter and others.
Another issue that I think is very important is this idea that acts of
corruption are very difficult to prove, because sometimes you have to prove
intention.
You can always get around it by saying, "Look, I was incompetent. What
do you mean I was corrupt?" Okay. So it is extremely hard to prove corruption
in a court of law and I think that is, again, mentioned in the report in many
parts, and I think has more general ramifications.
Let me go straight into what I think we know about corruption. This is
like a broad picture of the status of our knowledge. So we have some idea of
what drives bureaucratic corruption. Some of it is wages, a little bit we know
about that, particularly when they are combined with auditing.
So the theory predicts that if you have zero auditing or a lot of auditing,
wages don't matter. Wages matter when there is intermediate levels of auditing.
So it is very hard to prove this, because you are going to find moments where
there are intermediate levels of auditing.
If there is zero auditing, the idea that paying high wages creates
incentives is just not there. We can't have any model that predicts that, because
it is always the opportunity costs. We pay you a high wage, then you are
thinking about keeping your wage and being prudent, or taking the risk of being
corrupt, and then, of course, there has to be a risk.
So if there is zero risk, of course, there is no relationship between wages
and that.
32
We have some notion that inflation is a key determinant of corruption.
Why? Because what you do with corruption, you have to compare prices and if
there is a lot of inflation, what typically happens with inflation is that there are
relative price oscillations. All the prices move up and down.
So if you tell me, "Look, you bought this and it was very expensive," I
ask, "How do you know it was expensive?" If inflation was very high, you
know, the relative prices oscillate like crazy. So you can't really do any
auditing and there is no hope, essentially.
So we know inflation is very bad. So we know some of those issues
having to do with low level corruption or bureaucratic corruption, but we really
have no idea of what drives high level corruption. It is very hard to--there is
very little research on that.
What is particularly dramatic about this is all the pressure of the public is
on talking about high level corruption. Nobody is interested about some custom
official over there taking a bribe.
What we want to know is if Chirac took bribes or some president or
somebody we know. Who knows these custom officials or this policeman?
So all the public pressure and expectation on the anti-corruption
movement is on high level corruption, and that is where we have so many
problems in delivering, because it is very hard to prove.
So what do we do? We talk and talk and it is a bit like an emotional
support group, because we can't do much about it, but we provide comfort by
talking about it. I think that has some problems.
33
So one good effect about talking about corruption is that it increases
awareness in the public and there are higher demands, and I think that is a good
thing, and there are many aspects of that that we like.
There is more support for researchers doing corruption and for
organizations that are fighting, and you can see in the report a lot of great
things have come from this public awareness of corruption and I think we are
achieving very good things.
But those are not what the public is looking for. It is quite interesting
that there is a disconnect there.
So, again, remember that proving high level corruption is very hard, next
to impossible. If you think about it, think of the big cases of corruption that
you know. You always think, oh, what an idiot; he could have easily avoided
the detection by being a little bit more smart, a little bit more--so it is quite
interesting that really proving high level corruption, if a person is really bright
and clever and cunning, is extremely hard.
So, again, there is this level of, this possibility of having a lot of
frustration, and I think that has other problems, because it generates this status
that--in the U.S., this is not the case, but for all the rest of the world, there is an
obsession with corruption.
You go to any public debate, any political debate, and corruption is like at
the top of the agenda all the time. In the newspapers, it is the only thing they
talk about. It is extraordinary. It is the number one war. You go to countries
where there are unemployment rates of 25 percent and people are talking about
corruption.
34
So I want to mention a few of these risks and a few of these potential
costs, and then mention a proposal, something that is related to this that
addresses what I think is the biggest risk of them all.
So what are some of the potential problems? One of them is that it
generates more corruption. So you talk a lot about corruption and it generates
more corruption. Why? Well, it is not very complicated. You are diluting the
punishment.
So the idea is that if you misbehave, you are going to be accused of
corruption and maybe we will find out, et cetera, and then you are very naughty;
but if everybody is naughty, that punishment doesn't exist, because everybody is
in the same category.
So talking a lot about corruption dilutes the incentives. So the people
who are there may take more bribes.
Another reason has to do with the psychology of self-justification. So
you are in doubt whether to take the bribe or not. You see that, oh, it is not
very good morally, I am not going be doing very well, but you have the money,
et cetera, but suddenly, I am telling you, everybody is corrupt. So everybody is
doing it.
So then maybe the norms tell me, the external norms that are affecting my
behavior now are more lax, and I'm thinking, well, it is not such a bad thing if
everybody is doing it, when, in fact, it is not true. We know perfectly well that
even in very corrupt environments, there are plenty of people in government
who are not corrupt.
35
But those people are no longer salient. What is salient is that everybody
is corrupt. So then, for you, you can self-justify misbehaving. So that is a
problem of moral hazard, of people who are there who are more prone to be
corrupt.
Another issue is the tendency towards bad politicians. It is an adverse
selection. Now, it is not those that are in power, but those that are trying to get
into power. Who wants to be a politician in a country where all politicians are
corrupt? You have to be a cynic or very corrupt.
So you ask a child in the U.S. what would you like to be, I want to be
President. What do you think of this child? Well, you know, he is very naive,
has high ideals, et cetera. If someone tells you, a child in school in Argentina
tells you they want to be President, you would think they were trying to take
shortcuts to wealth.
So it a little bit devalues the status of politicians and you get all the
wrong people trying to go into politics, and politics becomes this very
unpleasant game where everything is personal attacks on each other and, of
course, nobody wants to be part of that.
Now, that is not a question of just having thick skin, and I think here is
where the big problem appears. It is not a question of, well, you have to take it
black; politics is a tough game, sorry, you don't like it, go somewhere else.
That is not the point.
The point is that there are other aspects which become very--it is not that
you are going to be insulted in a debate. That is not the point. The point is that
you are going to have two issues. You are going to have smear campaigns on the
36
media, because the media, of course, is for profit and the idea that the media are
above the temptations, you know; since when we think the country is very
corrupt, but the media is perfect. It is nonsense.
Of course, smear campaigns are all over the place and you are going to
suffer them in countries where corruption is so prevalent, at least in the people's
mind, because, of course, it resonates with people when you have an accusation
of corruption.
The other one is this pattern that now has a name. It is called the [in
Spanish] in Latin America, which is the judicialization of politics. What
happens particularly is that when there is a person doing reforms, they get
accused of being corrupt, and they are very effective in stopping you.
So all politicians tend to have accusations of corruption, like it is the
standard in Latin America, in Europe, Africa. So it is a question of you going
into politics and you receive these accusations. They are very costly, because
you have to defend yourself with these corrupt judges, because, again, if it is a
corrupt country, since when you thought that the judicial system is non-corrupt.
You can't. You can't have your cake and eating it, too. It is either corrupt or
not corrupt.
If the country is corrupt, then you think, typically, most of the institutions
there are corrupt. Some less than others, of course, but in general, you have this
problem, and that can be extremely costly.
If you think about it, there are a lot of people who end up in the
international organizations in Washington, in the IMF, the IDB, in the World
37
Bank, who were previously officials in their countries, who are accused of
corruption.
Of course, we know they are bogus and we are not going to make a big
fuss about it, but Washington looks like a horrible place to the average Latin
American observer, for example. There are all these people who we have
accused of corruption and you guys hire them.
So how come? Oh, it is this plot by the U.S., you know. So you see the
problem there.
Now, another risk is that this leads to bad institutions. I have listed some
of them. One of them is very popular with economists, which is, okay, what we
have to do is increase the wage more and more to compensate for this. What
kind of compensation are we talking about? What is the magnitude of this?
Well, if you make the calculations, because this is like math, you have to
make your little calculations, how much is it, it is enormous. I did those
calculations on what kind of money is involved for this to have any effect, and
it is millions and millions.
So the closest we have come is Singapore, where they pay a very high
wage to the Prime Minister. Last time I checked, it was over a million dollars.
So that is another disconnect, because you go to countries where there are all
these accusations of corruption, et cetera, and the economists come in and say
what is the solution. Well, pay them more. So people think that we are crazy.
I think one of the merits of the Transparency International and other
advocates who are closer to policy, I don't think we ever went in this crazy
direction of paying--suggesting these crazy high wages to deal with the problem.
38
Another one is that there is forms of insurance. This is standard and
completely secret and happens everywhere. What typically happens is I go to
you and say, "Would you like to be minister of defense." I say, "Look, I am
going to get 27 accusations if I do anything." I can do zero and I don't get any
accusations. But if you want me to work and do something, I am going to get
all these accusations of corruption and I am going to have to then pay, out of my
own pocket, the defense for years and years that are going to be handled by
corrupt judges. So thanks, but no thanks.
Okay, okay. Please, come, come and work for the government, do your
country a service, we will pay you some form of insurance. So the guy is now
dealing with some sort of strange payments which are not dishonest, but they are
not really honest. It is very strange.
Of course, what is originally called just insurance is if you don't have the
accusations, you still keep the money. So it is all very strange.
Another one is this independent commissions against corruption that we
have been dealing with for a long time and I don't want to talk too much about
it. There is some experience that has been documented on how these
commissions operate.
You set up a commission to investigate corruption in the country, and the
best one we know is the Singapore--sorry--the Hong Kong ICAC. My general
read on this is that they have limited application in democratic societies,
because once you give too much power to these independent commissions
against corruption, then they have the power to freeze your assets, to take your
passport away, and the possibilities of political manipulation are horrendous.
39
So if you ask me if I want to live in a country where we are going to give
the politicians now, on top of everything else we give them, the possibility of
freezing my assets, taking my passport, et cetera, I don't want that world at all.
Another possibility is to push for lighter versions of this, where they don't
do any enforcement of anything. They just give you some guidelines.
So the U.S. Office of Ethics has pushed this attitude. Then, of course, a
lot of the most corrupt countries in the world have set up offices of ethics,
because it is perfect for window dressing. You start doing something that has
no effect whatsoever and Washington applauds.
So it is a bit of a not super convincing strategy, I think; again, a risk of a
bad institution being followed.
Some elements of these offices of ethics are great. I am exaggerating a
little bit, but I think the risks are there and, certainly, where I would be is that
the promise of what the Office of Ethics was promising originally has not been
fulfilled anywhere. So you get some form of indication, et cetera, but it is not
the full--you don't get the full benefit that we expected, originally at least.
Now, finally, the worst of all are these immunity laws. I don't know if
you are aware, Nancy, but the IMF is pushing for immunity laws. So there are
all these accusations of corruption down there and we are all appropriately
flabbergasted about all this, but the IMF is protecting all these people.
They go around and ask for immunity laws for some of the worst
politicians that we--so how come? Is IMF working against us? Do they have
anything personal with TI?
40
Of course not. The IMF is busy. They are working. They go to a
country. They say, look, you know, this is ridiculous. You have these lunatic
laws and, for example, you are in the middle of a banking crisis. This has been
documented. If you want, there is documentation on this. A banking crisis.
Well, go and close some banks. It is ridiculous. Well, there are no
directors of the central bank. I don't know. Appoint a couple. We can't.
People refuse. Why? Because there is probability, one, you get judicial action
if you close a bank, by order of the bank. The bank, they have lost everything.
It is very easy to get a judge to mount some bogus accusations to the directors
of the central bank.
So in many instances of financial crisis, you have an absentee central
bank, and nobody with half a brain would be a director at that point, because
they are going to get a collection of accusations.
So what does the IMF say? Well, I don't know. I don't know. Protect
them. Give them immunity. So in the peak of accusations of corruption, where
there were people marching on the streets in Argentina, saying get rid of all the
politicians, all of them out, the IMF is saying yes, yes, but give some immunity
to some of them, the ones that go to the central bank.
So then, of course, the people thought these people are working for the
mafia. The IMF and the mafia are the same thing.
Now, I think the IMF has a point. It can be proven, so, you know, if you
do the math, you can prove that the correct second best institution in a country
that has these spurious sources of accusation of corruption is to get immunity,
because, of course, if you have a bad judicial, you don't want to have it. So you
41
basically silence it with immunity. But the first best is to have a better judicial
system.
So I think the case of immunity is very poorly understood. It is a flagrant
contradiction between organizations that are trying to do good, and we better
have some better understanding of them.
Let me mention briefly one more and then move to my little proposal.
One more is I think there is, in the report, all this mention about the fact
that when there is a lot of corruption, people lose faith in the system and in
democracy, et cetera, and that has been documented and is extraordinarily
important. I am delighted it is part of the report.
It may very well be that that is even more important than what I am going
to mention. I don't know. I'm not that ideological. But what I can report is that
corruption has an ideological effect. Corruption moves the electorate to the left
dramatically, overwhelming evidence.
So first of all, if you want to check--so think of the world, the rich
countries. Look at the political parties in the rich countries. Think of leftists in
rich countries. Think of, I don't know, Kerry. Now, put Kerry in a middle
income country or a low income country. He looks like a lunatic right-winger
relative to the rest of the field. It is documented. That is a fact.
Competition, polity of competition in low income countries and middle
income countries is between central left and left, or at least in this course.
Then, of course, people get to power on a left platform and then they reverse.
42
I am not saying that that is not happening, of course, but you don't get
people who go to politics, say I am extremely rich, I am very efficient, what is
wrong with you, vote for me.
Why? Because, typically, here, wealth is associated with merit in
America. So the rich people have done something, I don't know, there is some
product, Microsoft, Bill Gates. So wealth and value. Wealth and value.
In other countries, the association is between wealth and a contract with
the state. Well, they got a kickback. There is no like genuine valuation in the
minds of the people. There are plenty of great entrepreneurs, but they get
crowded out by what is salient to the people.
What is salient is what these guys, who they think are these evil people
who are doing all these bad things. So I think the corruption makes good
capitalism impossible to sell.
Whereas I can ask you to name ten good entrepreneurs and you would
produce ten entrepreneurs who are like pure in the private sector, et cetera, et
cetera, the top ten entrepreneurs in poor countries are all people who have
contracts with the state, and you can't associate them with a product that has
generated value.
So I think it has many implications, many, many implications.
That is it. I am going over my time and Nancy is going to fire me in a
minute.
So I have a little proposal to the most important problem I find, which is
this idea that you have incredible accusations of corruption and this supply of
43
immunity coming, and I think that is the most dangerous and where we need
more rapidly action.
So I am proposing my--I have a mini-proposal. My proposal is this.
So we have organized the Harvard-Yale Judicial Observatory. So the idea
is that if the IMF can provide financial supervision, why can't somebody provide
judicial supervision. So this is it.
We set up in the U.S. a group of lawyers, some from academia, some
retired, some students, to just observe judicial decisions. That is what we do.
We just observe and we just pass opinion, and that is the end. That is the end.
There is no follow-up. There is no formal judicial follow-up after the opinion is
passed.
All we need for this is just access to the rulings, which are, in most cases,
public. You start by selecting some famous judicial decision where political
influence is allegedly playing a role. We then pass an opinion. We say, "Look,
this sounds like okay, this doesn't," and that is it. That is the end of it. And I
claim that will have a huge impact, huge.
Obviously, the limits for what I am saying depend on the funding, but
even us here this morning will have an enormous impact--there are some rulings
by the judges which are incendiary and they are passed by the first level judge
and then by the appeals court and then by the Supreme Court.
My favorite one is the one that says that a member of the economics
ministry, finance ministry, in Equador is guilty of corruption and there is
obvious proof.
44
What is the proof? The proof is this. He renegotiated the debt and the
debt was a 100, tomorrow, due tomorrow, and then he renegotiated it and we
have to pay it over the next ten years. When you look at it, it is a 110. It is
obvious.
And this crazy, corrupt person is invoking some obviously corrupt concept
of net present value. That is obviously corrupt. Okay. So that ruling takes ten
seconds. We just say this judge is a joke. End of story. And that will have
huge impact certainly for the people who are employing, in Washington, this
official, and for the official, and maybe for other people who are going to have
to renegotiate debts, because otherwise you can't use net present values, that
lunatic limitation for this poor economist.
The demonstration effect is going to be making judges to be more careful,
but I think the biggest impact is--because, you see, my worry is how do we
improve the judicial system. That is where I think most of the action is.
So the biggest action is on the judicial system and I think the technology
used by judges to bias their decisions, if you analyze them, bias never takes the
form of a verifiable--they never say he killed 20 people and there were only 19
people dead. They never falsify the facts in that way.
What they falsify is the technical reasoning, as I was explaining before
with this net present value.
Why do they do that? Because public scrutiny is less likely. It is very
easy to say, no, the judge got the facts wrong, there were only 19 people dead
and not 20, as he said, and that is very easy to prove, whereas if you get into the
technicalities, it is very complicated.
45
So there is less scrutiny about that. So that is going to be--they are going
to have to improve those technicalities, but that is precisely what the forte of
this group is going to be.
That is what happened in the extradition courts. A lot of these people
who are accused of corruption then don't get extradited. You ask the U.S. to
extradite these people and they don't extradite them, and then people get very
frustrated.
You ask Chile to extradite this terrible person and they don't extradite
them, because the requirement is like crazy. The same happens with Fujimori,
et cetera. There is a problem in getting the extraditions to work. So it has real
implications and people get into trouble for this.
Now, there is no reason why there shouldn't be entry into this business.
So if we don't do very well with my little observatory, there may be like the TIStanford observatory. So we can have lots of entry into this business.
The hope is that politically motivated judges will start exercising more
restraint. Once there is more restraint, there are going to be better politicians
going into politics and then at least we have a hope.
I thank you very much.
MS. BOSWELL: Thank you, Rafael.
[Applause.]
MS. BOSWELL: Now we will hear from Ted, our commentator, who is
also going to be provocative, and then, please, let's have time for your
questions.
46
MR. MORAN: Nancy, congratulations. Once again, this is a terrific
report, with lots of rich data that we have to use.
I would like to focus on one aspect, and that is to try to delineate what
steps can be taken to combat and limit some of these kinds of corruption,
specifically corruption on the part of large pharmaceutical firms and external,
that is to say, international providers of hospital and medical goods and
services.
And I am not, repeat, not an expert on the health care sector, but I am an
expert, alas, on corruption in infrastructure and extractive industries.
I begin with bad news, even worse news than Rafael, and that is that our
colleague, Lou Wells, at the Harvard Business School, and I and others have
discovered systematic use of corrupt payment systems by U.S., European and
Japanese multinational firms in the extractive industries and infrastructure
sectors that took the form of forming partnerships.
I have written a one-pager on this, so those of you who are interested can
see it. The Center for Global Development is actually going to have a session
on this, if you are interested, on February 16.
Forming partnerships with cronies, family members, and friends of rulers
in developing countries, loaning them the money to pay for the partnership, and
then providing them with a dividend more than enough to service the loan and
provide a few million dollars of walking around money, that is how to secure
favorable terms in mining, petroleum, and infrastructure.
Now, the alarming thing is that these kinds of corrupt structures do not
run afoul of either the OECD Convention, which is the basis for all of the
47
developed country anti-corruption laws, nor do they run afoul of the U.S.
Foreign Corrupt Practices Act; that is to say, these have been carefully designed
by people within walking distance of here, as well as the City of London,
Moscow, Seoul. I mean, these are carefully designed structures that, the way
laws are written now, are not considered corrupt.
Now, what are the implications for corruption in the health care system?
This is kind of the framework.
Actually, let me make one other point that we are going to make on the
16th. I am a conservative, low key guy, so I am going to say this in a low keyed
way. The entire G8 anti-corruption effort is a sham. That is to say, if these
kinds of structures, in order to gain contracts and favorable treatment, can be
pervasive, then the whole system has to be redesigned and redefined, if we
really want to pick up on this.
Now, turning to the health care sector. Well, the first point is obvious. If
there is a business of doing these kinds of structures in infrastructure and
extractive industries, I cannot believe that it is not being employed in health
care. Now, I have no evidence, so this is a speculation, but that is my first
point.
The second point is--and here I am a little more upbeat than Rafael--there
may be a way to combat this. We just don't have to throw up our hands. That
is, in infrastructure and mining--and then I am going to get to health care--it is
very important what happens in investor-state dispute arbitrations.
48
That is to say, if, in the arbitral process, if you secured the contract or the
concession by corrupt means, then you don't have rights of protection of
property or protection of contract.
So this may be a shortcut way of reforming this system, but, again,
focusing on the arbitration procedures.
Now, my suggestion for Transparency International, but for many of you
in this room, and maybe we can get your Yale-Harvard Observatory involved in
this, too, is to somehow, if you want to stiffen the back of pharmaceutical
companies, health care providers, hospital service providers, Maureen asked me
at the beginning do I mean Indian pharmaceutical companies, too; yes, I mean
Indian and Russian and Turkish and Korean companies, as well as U.S. and
European companies.
Then you have to figure out a way to do some of the following tasks;
figure out how their contracts will be canceled if the evidence of corruption is
found; that they will have to reimburse health insurance providers if they have
gained contracts through corrupt means; they are liable to reimburse the illicit
payments themselves; they, too, will be unprotected in international arbitration.
This list is in my little one-pager, if you are--they should be disbarred for
a period of time from participating in future tenders; and, then, finally, they
should be blacklisted for a period of time by the multilateral financial
institutions.
If you could figure out a way in the health care sector to have these kinds
of real implications from engaging in corruption, then that would stiffen the
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backbone, yes, of the Indians and the Koreans, too, as well as the U.S. and the
European firms.
To make this effective, this is a bad public speaking technique, your dolce
point should not be the last one, but unfortunately, I am violating this.
You have to--we are going to have to redefine the definition of
corruption; that is to say, the way it is defined in the U.N. Convention, the
OECD Convention, and the Foreign Corrupt Practices Act doesn't pick up these
kinds of structures.
That is the beauty of what K Street and others have discovered. So on the
16th, I think we have a little group of lawyers who is going to propose a new
definition and provide six, at least six operational tests so that civil society or
judges or Harvard-Yale will be able to tell it when they see it.
That is going to be a little tedious. That is what lawyers are for. But in
any case, it seems to me that if we begin there and then figure out some of these
kinds of enforcement mechanisms in health care, as in extractive industries and
infrastructure, we may be able to make some real progress.
Thank you very much.
[Applause.]
MS. BOSWELL: Well, we have covered a wide gamut of issues this
morning, all very interesting, some provocative. I would love to take many of
them on, but I will restrain myself, in order to give you time for questions.
So, please, indicate by hands if you have a question. Frank, you want to
step to the microphone, identify yourself.
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MR. VOGL: Good morning. I am Frank Vogl. I am a founder of TI and
I helped edit all of the GCRs, including this one. So if I may, I am going to
make a very, very short comment actually about this report, as opposed to many
of the other good suggestions we have had on other things today.
First of all, Rafael, you were a year too early. Next year's GCR is on
corruption in the judiciary. So we look forward to that proposal for our report
next year.
On this report, perhaps, Ted, it is interesting to you, we have reached the
conclusion that we did not want to limit the definition of corruption to the abuse
of public office for private gain and we talked instead, and you will find it in
various chapters, about the abuse of entrusted authority.
The reason for that is that so much of the corruption is in the private
sector, private-to-private, and we wanted to expand that definition.
Third point is that as you see from one of the chapters in the report, there
is an estimate of corruption costing something between 12 and $23 billion a year
in the U.S. alone, and I must say it raises huge problems, I think, when
Americans go around the world telling people to clean up their corruption in
health care, when it is very clear from this report we have massive corruption in
this country.
The next point, that somehow hasn't been made this morning, is that the
report points out that we are talking about corruption in a sector that costs tens
of billions of dollars a year, the corruption alone, and it costs millions of lives a
year.
51
One of the ideas of putting this report out at this time and building a
campaign on it is because we think this is absolutely essential, as TI, to any
efforts to deal with corruption as a whole and development.
If you don't deal with corruption in health care, you will not get poverty
alleviation, you will not meet the millennium challenge goals, and that is a key
point of the report.
A final point that I would like to make, if I may. There was a huge
struggle in writing this report or in editing this report to get balance. What we
found was that those people who believe there is corruption in health care are,
in some cases, fanatic. They believe all pharmaceutical companies are bad and
could have joined John le Carre in writing "The Constant Gardner." They
believe that all doctors are corrupt and so on.
What I hope, if you can buy the book, get the book and you will find that
a very major effort has been made in this book to be balanced. It concludes that
there are major problems of perceptions of fraud and corruption amongst
pharmaceutical companies worldwide and many other companies, but I think you
will find that this is a very balanced report and, in that, it makes it very, very
interesting to work further and TI would love to hear your views and Nancy
would love to hear your views at another time about what constructive actions
can be taken.
Final point. Mr. di Tella, most of TI's chapters are not concerned with
corruption at the very, very top. They are, in fact, working on programs that
really do affect the ordinary people in their every day, and the stimulus for this
report was the fact that starting over ten years ago, the first national chapters of
52
TI in the south were doing surveys in health care, and it comes back to that
route.
Thank you. I am sorry to be so long winded.
MS. BOSWELL: No, not at all, Frank. I appreciate that. It is a good
bracket to the session, because I had hoped to--tried to make those points in my
introductory remarks. It is always good to have them at both ends of our
meeting so they are firmly implanted in people's minds.
Yes, sir.
MR. HOPCRAFT: Peter Hopcraft. I don't mean to make a major point of
this, but I think it is--and I don't mean to make sort of ideological point, but I
think there are--when there is a scarcity of drugs or of medical doctor services
and they are distributed at way below the market price, one can expect that
difference between the market price and the price at which they are distributed
to stimulate efforts to redistribute according to a market.
In other words, that is what markets typically do. Now, that can generate
this kind of corruption and the question is, is it a more efficient way to simply
put--in a sense, it is the inefficiencies of the system of redistributing drugs and
medical services which generates this kind of corruption.
It is just to raise the possibility that there may be a more efficient way of
doing and perhaps putting income or money in the hands of people who need
those services and have the drugs and medical services distributed by a market.
MS. BOSWELL: And I think that is an interesting question. If I recall, I
think in Mexico they did that in the education system, simply handed out money
to citizens in order to take it out of the hands of the officials.
53
Anybody on the panel want to comment on that one? Magnus?
MR. LINDELOW: I think it is an interesting question and there is
certainly some logic to it. The surveys, I didn't go into that, the surveys that I
was reporting on have almost exclusively been undertaken in sort of public
integrated systems, where, as you were saying, you have health service provided
by government providers at prices below the cost price of services and drugs,
and the tool is perhaps less suited for other types of health systems.
I don't think there is enough evidence to address your question, but I
think, for example, Malcolm Sparrow's article or chapter about the U.S. health
system points to the fact that even in systems where you have individuals
essentially not handed money, but being insured, and providers or pharmacies
being paid market prices in response to the actions or choices by patients have
not succeeded in preventing corruption. It just tends to pop up in different
ways.
I think it is an interesting question and it deserves attention, but I am not
sure it is a sort of whole solution.
MS. PIELEMEIER: Good morning. Nancy Pielemeier, from Abt
Associates. Thank you very much. This is a very interesting panel and I look
forward to the book.
I think that it is very important that an organization like TI is focusing on
the health sector and on the issue of corruption.
I hope that you will take on, more broadly, working on the definitions of
governance in the health sector. Some of the work we have been doing with
USAID and other cooperating agencies has revealed that we really don't have a
54
good framework to look at the whole issue of governance in the health sector, of
stewardship or whatever you call it, and, in addition to that, we don't have good
indicators and we don't have good data to track those indicators.
As a result, I think that we are kind of a little all over the map still in
trying to discuss this topic, and I do hope that there will be some further work
and particularly to try to standardize some definitions, as has been done in the
general governance area.
MS. BOSWELL: I think it is a point well taken. We are still finding, not
just TI, but I think all of us here working in the corruption field are still finding
our feet and trying to catch up with the issue, if you will, and the resource
demands to do the kind of work you are talking about are enormous, and we
need to move in that direction.
MS. EDELMAN: I'm Margalite Edelman, from the pharmaceutical
company Merck, and I manage public affairs and policy in Latin America, along
with a number of other colleagues.
I was a little bit concerned about Mr. Moran's comment before, basically
suggesting that because there is the existence of corruption in these partnership
systems in the extractive industry, that that also exists in the pharmaceutical
industry.
I mean, I can only comment on my company and, more or less, the R&D
based industry, but I know that we are pretty--very ethical. We work with
USAID. We are working with you on a program in the --at least Merck is in the
Caribbean on HIV/AIDS.
55
We work with Transparencia por Colombia, and we are actually doing a
program with them to examine codes of conduct in Latin America for the
pharmaceutical industry.
You know, I think some of our concerns in Latin America, for us,
corruption is a huge concern, because are put at a competitive disadvantage
when you are working in an environment where bribes are accepted, the local
industry is favored.
So we are very much supporting a level playing field and we are
compelled not to give bribes or participate in any corrupt practices.
So for us, it is a huge concern. So are tenders, tenders being open,
transparent, fair, full information available. We are concerned that when
sanitary or registration agencies don't test for bio equivalents and bio
availability, so that all the drugs that are available, whether they allow copies or
generics are actually equal to our original drugs.
So I think that I'm not sure, maybe you want to say if you have a specific
example and then there is something that we can address, but as far as I know,
the R&D pharmaceutical industry is very involved in anti-corruption efforts.
MR. MORAN: Let me be clear. I have zero evidence from the
pharmaceutical industry. I think I said that and I probably want to say I didn't
mean--well, I had--two years ago, Lou Wells and I had zero evidence from
Fortune 500 mining, petroleum and infrastructure energy companies, and now
we are prepared to name names and have documents, but that is the only sector
where I have evidence.
56
MS. BOSWELL: I would say I am glad that you made the point you did,
because I think it goes back to Frank's point of trying to find some balance here.
I think we need to be very careful of what we say and the kinds of accusations
we make.
I think in terms of the role of multinationals, we have made the OECD
Anti Bribery Convention a priority specifically because we do think that those
companies who are trying to operate ethically ought to have a level playing field
and everybody ought to be coming up in terms of the practices rather than going
in the other direction.
It is very challenging getting that convention enforced, even with the
definitions that are there, which are quite broad, actually, but it is a challenge
for all of us to get other countries to enforce those laws in terms of what their
multinationals are doing in countries around the world, competing with
companies like Merck, and there are many major exporters who are not even
members of the OECD.
So they are, at this point, unconstrained in terms of sort of international
regulations. So we really do have a challenge and I think companies that are
trying to operate within those ethical bounds ought to be supported.
MR. BOCCANERA: Rodrigo Boccanera from the QED Group. I just
wanted to make a comment about the pharmaceutical, that my take of this report
was that it was also the trust that people have in governance and also in the
private sector. I think you mentioned that a lot of corruption is from private-toprivate.
57
But also corruption, that it is not illegal, per se, but it is breaking the
public trust. For example, the pharmaceutical industry, they always claim that
research and development is the most costly thing.
Well, in fact, 33 percent of their cost is on marketing, and less and less
research and development, they are spending on research and development.
I am more familiar with AIDS drugs in Brazil, because that is where I
have been working. I have worked in countries like that. Brazil has been
fighting the pharmaceuticals for generics and now they have been able to
negotiate a very low cost, but they have shown that they are saving a lot more
by producing generics and the fact that the pharmaceuticals were charging an
exorbitant amount of money for drugs that they themselves didn't develop.
For example, ACT was one of the first drugs developed by NIH and
academia; yet, I believe it was Glaxo-Smith that was able to buy the rights to
market the drug, and now they have been selling it for 20 years.
And the fact that you get a patent for a drug for 25 years and that they
change the name of the drug, even though the combination is the same, they can
extend the patent for 25 years.
So I thought that maybe in the private sector, it is not so much of the
corruption, but so much of the trust in that these drugs are supposed to save
lives. And I don't mind making profit when you develop something, but the fact
that most money goes into marketing and that they don't develop a lot of the
drugs, a lot of drugs are developed by NIH and public funded institutions, yet
pharmaceuticals are able to buy those rights to market the drugs.
So I just wanted to make that comment.
58
MS. BOSWELL: I think one of the challenges, when you are working in
a field like this, is that it raises all sorts of other questions that are important,
that are challenging, but are not necessarily questions that are on our plate at
least to deal with as corruption issues, but I appreciate the comment.
Last question, because we promised to get you out of here. I'm sorry.
You can come up and talk to our panelists, but we are over and we promised to
get you out of here.
Yes, ma'am.
MS. KORASHI: Sabela Korashi [ph], I am independent freelance
consultant. Thank you all for very thought-provoking presentations.
I think we all anticipate the TI annual report now, with a lot of
apprehension or excitement, depending on where you are coming from.
Personally speaking, coming from a country which had some of the
longest bars on those graphs that Maureen showed us this morning, I could
relate very well to some of the things that were said, and having personally
worked in the Ministry of Health in Pakistan, I think I can also safely say that
that was just the tip of the iceberg.
I do agree with what Frank said about the real--I think where we need to
concentrate is more at the lower levels, the service delivery levels, where not
only is it rampant, but affects the users directly.
I would just like to ask anyone from the panel, and we heard Rafael say
that when you have a situation where everyone--it is so rampant that everyone is
in it, and if everyone is living in a glass house, who is going to throw the
stones.
59
So we come back to the accountability mechanisms and I wish Maureen
had been here, too, because she talked about various options, but I think the
solutions need to be dwelt on far more at those lower levels of corruption, where
we need whether it is civil society, whether it is the voices, whether it is the
communities who are the users, end users.
But I think we really need to focus, to combine those voices with how we
can find the evidence, and that sort of brings us to how can we find that
evidence.
So anything on that would be appreciated. Thank you.
MS. BOSWELL: Rafael, do you want to?
MR. DI TELLA: Sure. My point, I thought, was concerning the
difficulty in finding the evidence. I think it is easier, I think we can frame this
provocatively, as Frank did, or we can frame it somewhat differently. So this is
my take on it.
I think we are in agreement. It is extremely hard to get proof. It is easier
for bureaucratic low level corruption than for high level corruption, and there
are two problems.
The people demand action on high level corruption, not on low level
corruption. So each time, there is--I have been presenting and defending
Transparency International in developing countries, and there is a sense of
disappointment each time we finish a press conference, and the reason is
because they want some big shout against the public figures, and we are not in
that business.
60
Why? Because it is extraordinarily difficult. I think that generates a
problem for fighting low level corruption, for example.
I think my comments are completely relevant for fighting low level
corruption and what this report is about, because a lot of the noise that is being
generated is obstructing and it is making life more difficult for fighting
corruption at lower levels.
I think the fundamental aspects of fighting corruption, in general, is the
difficulty in proving. So a lot of the sort of--Professor Moran's comments on
the G8's plan is a sham. It has to do with the fact that this particular--there is
always a way around it, you see, and he described very well way that actually,
in practice, companies can go around it.
And we are going to put another barrier and we are going to come up with
a new, more sophisticated version of these laws, and still they will be able to go
around it.
So I think the problem has to do with the extraordinarily hard nature of
corruption acts at high level. So I agree with that.
MR. LINDELOW: If I could just add a few comments. I think you are
absolutely right that the challenges now are figuring out how to address some of
the problems, in particular, at the sort of facility level or the front line and
getting health workers to be where they should be and to do what they should be
doing and the drugs to be there and so forth.
Maureen outlined a few approaches that have been tried and we simply
don't have the evidence to say what works and what doesn't, and that is
something that has to be strengthened.
61
I think one other challenge in this is that, and this touches on some of the
earlier comments, is that the line between corruption and something else is often
very fuzzy and the studies provide lots of examples of this, the high rates of
absenteeism.
We know that is a problem in a lot of countries, but we also know that
some of the countries that we have been looking at have HIV infection rates of
25 percent and that partly just reflects health workers being sick themselves or
caring for family members.
We also know that health workers are extremely frustrated working in
environments where they don't have any drugs or where they haven't been paid
for a very long time and to sort of refer to that as corruption is perhaps a
misnomer.
So I think those are the sort of challenges now, to understand the
problems that arise a little bit better and then try to understand more about what
works and what doesn't in terms of addressing them.
MS. BOSWELL: Let me add just another thought, as well, and with the
caveat I raised before that coming out of an American system, there are
limitations, I understand, in terms of applicability in other countries.
But in terms of the difficulty proving guilt and Rafael's comment that you
need to get the big fish and that is what everybody is focusing on, I mean, we
have had a scandal here on Capitol Hill with individuals, big fish, who are still-we still haven't come to the end of that road in the particular instance, and yet
you see a focus on reforming the system.
62
And that has been TI's approach to all of this and you can find, in our
country report on the U.S. in this volume, what we knew at the time and our
approach to it, and that was to say you really need to look at what permitted that
big fish to take advantage of the system and deal with that, and there are many
proposals now being entertained quite seriously to try to reform the system.
Will people try to circumvent it, as has been pointed out here?
Absolutely. That is going to be the constant, and I think that brings me to sort
of the last point and one that you made within your question, which is the role
of civil society, because at the end of the day, there will always be private
sector/public sector people trying to circumvent the system and it is that
alliance, I think, an alliance between reformers within government, within
private sector, civil society, donors like the AIDs, the World Banks of this
world, provided they take a very strong position, but working together, who are
going to turn this or at least keep it within some reasonable bounds.
With that, let me just say thank you to our panelists for an absolutely
fascinating discussion and to all of you for staying with us.
Clearly, there is much more we would like to cover, if time permitted. So
we are in the process of thinking about other meetings we might hold on some of
these issues, looking at more in-depth and providing others with different
perspectives an opportunity to weigh in both in terms of the health sector, but
also in terms of the issues that are covered in the country report on the U.S.
So with that, let me just say stay tuned and thank you again to the Center
for Global Development for working with us on today's event.
[Whereupon, the meeting was concluded.]
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