US vacuum in global governance opens space for others

22 Jan 2018

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Even if the US government shutdown is brief, President Donald Trump may or may not show up at this week’s annual gathering of the world elite in Davos. In any event, do not expect any US high official to convey a credible message on good governance and controlling corruption. One casualty of Mr Trump’s nationalist and protectionist inclinations, coupled by questionable ethics, is US global leadership on anti-corruption. The Trump administration and the Republican-dominated Congress have undermined a range of important global initiatives to fight corruption and improve governance; for example, the repudiation of regulation mandating payment transparency by oil and mining companies and the withdrawal from implementing the Extractives Industry Transparency Initiative. The vacuum created by this abdication of global leadership means that other countries are now on their own on these challenges. National leaders have a chance to exercise regional if not global leadership. East Asia and Latin America have experienced major corruption scandals recently. Their economic prospects hinge crucially on good governance and corruption control. Both regions have also shown signs of progress in governance. Thanks to superior public policies and governance, including control of corruption, East Asia grew much faster than Latin America over the past half century — twice as fast or so, more than bridging an initial income gap of some 3:1. But it is not a given that these two middle-income regions will continue their divergent growth paths. Either can seize the moment and prosper, or falter.

Higher incomes do not translate into improved governance; it is better governance that drives sustained growth. Improving governance raises average incomes threefold over time. When governance slips, growth suffers and income inequality grows. While East Asian growth is still high, it has softened and inequality has worsened, approaching the higher (yet declining) levels in Latin America.

Each region has been shaken by corruption scandals. Brazil has had Lava Jato (Operation Car Wash) while Malaysia was roiled by 1MDB and South Korea suffered the Choi-Samsung debacle, which cost the presidents of the country and of the largest conglomerates their jobs.

Due to its exposure of an intricate web of bribery and illicit political financing extending to many other countries, Lava Jato has resulted in the stoppage of infrastructure investments in other countries in the region, and has affected policymaking and the polity: witness the political earthquakes that have seized the highest office in Peru, for instance.

Latin America’s growth prospects are handicapped by the extent of state capture — the undue influence of elite corporates in shaping the state’s policies, laws and regulations. Further, the region has larger gaps than East Asia in government effectiveness.

In comparison, East Asia’s governance deficit is glaring in “voice and accountability” — the ability of citizens to freely organise and express themselves and hold their governments to account — while countries in Latin America (with exceptions such as Venezuela and Cuba), are more advanced. Latin America is also ahead in transparency; for instance, countries rich in natural resources are less opaque than most of their resource-rich peers in East Asia.

The East Asian deficit on citizen voice and accountability often translates into ineffective anti-corruption strategies, where the demand side for accountability is suppressed. Anti-corruption drives in China and Vietnam have garnered headlines, but their top-down approach, focused on selective purges, fails to get to the roots of corruption and is often driven by the political agenda of those in power. (The same may be said of Russia’s Vladimir Putin banning anti-corruption activist Alexei Navalny from running against him in the upcoming presidential election, or of the “princely purge” in Saudi Arabia.)

Here is the progress to build on. In East Asia, Taiwan does well in voice and accountability and in controlling corruption. Indonesia, repressive and ranking extremely low in corruption control in the 1990s, has experienced much progress on voice and accountability and in graft reduction, as well as in transparency in natural resources. But more is needed, not least in ensuring that its corruption eradication commission, Komisi Pemberantasan Korupsi, remains truly independent.

A number of Latin American countries, spurred by citizen pressure, have also moved forward on reforming governance, such as Brazil. There, an increasingly independent judiciary responded to corruption with determination and initiatives such as plea bargaining. In Chile, progress has come recently thanks to its inclusive and independent Anti-Corruption Commission, which led to many far-reaching reforms enacted by the government. Colombia has also improved in anti-corruption and transparency, including in the extractives sector. Chile, Costa Rica and Uruguay score well on control of corruption, similar to OECD countries, and ahead of Greece and Italy.

The evidence points to a strongly positive association between voice and accountability on the one hand, and corruption control, on the other, as depicted below. Latin America, which is in the midst of a mega-election cycle, can build on its strength in voice and accountability, making its politicians and governments accountable, demanding an independent judiciary and an end to impunity, and a move away from elite capture by corporate interests. With political openings in some countries in East Asia, progress is possible regarding citizen voice and participation as well as in transparency, which are key to addressing corruption.

control of corruption and voice & accountability- prof vinod's op-ed
Note: dots in blue represent countries in East Asia; orange, Latin America; grey, the rest of the world. Source: Worldwide Governance Indicators. Methodology paper here.

As the US retreats in matters of governance, the focus on emerging Asia and Latin America is timely. Whether they step up to the plate will depend in East Asia on its readiness to promote political opening, transparency and inclusiveness; in Latin America, on reversing state capture; and in both, on furthering an effective and independent judiciary.
Vinod Thomas

Visiting Professor

Daniel Kaufman

President and chief executive of the Natural Resource Governance Institute