PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | SPEECHES & EDITORIALS | 1999 | COMBATING CORRUPTION

The Role of Business and Civil Society in Combating Corruption Peter Eigen Chairman, Transparency International May 19,1999 The Challenges of the Next Century for the Pacific Basin 32nd International General Meeting of the Pacific Basin Economic Council Hong Kong Convention & Exhibition Centre Hong Kong, China May 17-19, 1999 Many comments have been made over the past few days concerning the importance of the Asia/Pacific region and the various underlying issues and matters that need to be addressed to poise the Pacific Basin for a more prosperous XXI Century. One of the issues that has been often referred to is that of transparency. Regarding this issue, PBEC is to be commended for its decision last May to upgrade its "Statement for Transactions Between Business and Government" to the status of an official PBEC Charter, which reaffirms PBEC's belief that both governments and the private sector have roles to play in the fostering of transparency and the elimination of bribery and corruption. The PBEC Charter not only calls upon governments to redouble their efforts to ensure complete integrity, transparency and accountability in all business-government transactions and to vigorously enforce their anti-corruption statutes. It also encourages PBEC member companies to conform to the Statement of Transaction Standards set forth in the Charter which calls for integrity, transparency and accountability in transactions between enterprises and public bodies. Today I would like to take the discussion a step further by concentrating on two issues -- why and what can business do to help resolve the issues of transparency and corruption and how do we move from words to deeds? Corruption is a highly sensitive issue. There's nothing right about it. It's wrong in principle, wrong in practice and wrong wherever and whenever it occurs. But, as we are all painfully aware, we are a long way from a transparent level playing field, not least in the areas in which PBEC operates. Different organizations and different countries draw different lines in the sand in different places. That is the reality we must deal with. But the deeper truth is that legitimate investment and corruption do not mix. Corruption destroys billions of scarce dollars every year. It is the dry rot undermining aid. It distorts development, it frightens away genuine foreign investors, it perverts societies. The World Bank, the ADB, the IMF and other institutions have amply shown that there are crucial links between the extent of corruption and economic development. Moreover, we are learning that where corruption is pervasive, then human development is low, real incomes are low and foreign direct investment --so vital now for economic progress ---is also low. Indeed, the more research that is being pursued on these linkages, the more we become acutely aware that hopes of real economic progress in countries are crucially dependent upon curbing corruption in order to attract foreign direct investment and secure greater equality of income distribution. The empirical data is convincing. But corruption is by no means only a macroeconomic issue. Corruption also impacts on corporate performance. It corrodes the reputation of multinational companies. It adds to shareholder risks. Worst of all, it can ultimately lead to serious social unrest. Legitimacy of enterprises and their long term viability rest on how they deal with the issue of corruption. Bribes may "sell" obsolete and high priced goods -- but at the cost of losing competitive edge. In what is becoming an increasingly globalized world, technology changes, growing information flows and the attendant increases in competition inevitably are prompting businesses to provide superior goods and services at competitive prices. There is just no way around it. The Growing Consensus and the Pending Agenda Corruption has become an important issue in global business, not least because the free market system operates best when it's anchored on the rule of law and pluralism. Countries and companies operate best in open, meritocratic environments. And a meritocratic society -- one in which ideas and knowledge move freely within a clear system of law and intellectual property nights more often than not is a stable, flourishing society. An this realization has generated increasing consensus, and in fact has started to change the scenery, in economic and political debates. Some years ago, the very subject of corruption was considered taboo -- not a topic for polite conversation at the international level or in dialogue between and within countries. Nowadays, the taboo has been shattered. Everyone, everywhere, speaks of corruption and the need for action. All admit that they, themselves, have problems. There is, too, a broad consensus on the devastating human, moral and economic impact of corruption: Few, indeed, subscribe any longer to the notion that corruption can be beneficial -- that it "speeds" business through red tape and can guarantee certainty in an unpredictable administrative environment. The demise of the East Asian miracle has put an end to all that. The argument that the Foreign Corrupt Practices Act should be repealed has evaporated and the imperative has shifted to the concepts it encapsulates being implemented by all of the OECD countries and beyond. Now, the private sector is starting to work on codes of conduct, ethics programmes and internal mechanisms of control. Corporations are realizing more and more that playing the corruption game is bad for business, that the game itself is unsustainable and that staff taught to He, cheat and steal to win business will, sooner or later, use the same techniques against the corporation's interests. Thus the private sector, in more and more countries is pushing for better, more open processes of bidding and contracting. International business organizations such as PBEC (through its Charter on Standards for Transactions between Business and Government) and the ICC (through its international code of conduct and recently published corporate practices manual "Fighting Bribery") are actively promoting their member companies to adopt and conform to ethical standards of business conduct. Governments similarly are moving towards developing collective standards of conduct for international business, as reflected in the OECD Convention on Bribery of Foreign Public Officials in International Business Transactions, which became effective this past February and the Inter-American Convention against Corruption. Also a number of individual countries are themselves starting to develop domestic anti-corruption programs of one sort or another. Multilateral Development Banks have similarly begun to play an important role in their respective areas of responsibility. The IMF is restricting its operations in countries where the level of corruption is deemed to have a significant negative effect on economic performance and where there is no commitment to address the problem. In July, 1998 the Asian Development Bank approved an Anti-corruption Policy aimed at reducing the enormous costs that widespread systematic corruption exacts upon governments and economics in the Asia/Pacific region. The World Bank has developed a comprehensive program involving modification of procurement procedures, disclosure of agents' commissions and sanctions on firms engaged in corrupt practices. The Bank also provides financial and technical assistance to countries prepared to take steps to combat corruption. Other lending institutions are following this lead and starting to institute similar arrangements. We need to see organizations evolve, country by country, that bring together under one umbrella a diversity of interests. A real coalition against corruption needs to be constructed and fortified, involving business and government, academia and NGOs, professionals and concerned citizens, who can make common cause. Awareness of issues relating to corruption has become so widespread that it is fashionable to seek political credit by extolling fights against corruption. And this is where the challenge now lies. For all the rhetoric of the past three of four years and the progress I mentioned before, not many countries have clearly demonstrated the will to do something concrete of really effective. We must recognize that deep down, one of the primary culprits of the economic difficulties in much of the region is not only the lack of transparency and good corporate governance but also the blurry boundaries between public and private sectors, with consequent incestuous relationships, that have enabled the generation of conflicts of interest and the abuse of public power for private benefit. Not surprisingly, many of the PBEC member economies rate rather poorly and are concentrated in the bottom half of the ranking of countries on the TI Corruption Perceptions Index. This index is a "poll of polls" drawing upon numerous distinct surveys of expert and general public views of the extent of corruption in many countries around the world. Strengthening Civil Society Governments and private sector institutions can help provide solutions to this issue. But so can civil society institutions. In fact, no sustainable and legitimized solution can be found without them. Civil society can work with and be supported by many existing institutions and associations -- from chambers of commerce, professional associations, traditional civil society organizations and new ones with distinct interests, from human rights to the environment -- in each area corruption rears its head as an enemy of justice. When we move towards action, there are no "off the shelf' solutions, no "one size fits all", when it comes to getting on top of systemic corruption. Comprehensive, profound steps are essential. We must do a great deal to change a world where the poor are trapped in non-democratic countries where corruption is prevalent and that fail to attract the investments critical to growth. We must work together to secure improvements. We must work on an agenda that is large but, with sufficient will, is also manageable. The focus of our work should be on strengthening civil society, country by country, to empower it to lead the fight against corruption. This fight cannot be waged from outside of national borders. Yes, there is a great deal the international community can do, through the ADB, the World Bank, the IMF, the other international agencies and the growing network of international NGOs, to complement and supplement national efforts, but they are not a substitute. This means, of course, that technical assistance and other efforts usually provided by the donor community have to move from "expert mode' to "facilitation mode'. From introducing standard "best practices' to assisting local people to develop for themselves tailor-made solutions designed to meet local institutional and cultural concerns and domestic political imperatives. In the end, it is for each society to find answers to its own challenges. Others can assist, present a menu of options and practices and inform the process from which local anti-corruption coalitions and the primary actors can find and forge their own solutions and associated strategies for reform. Only within countries can detailed integrity plans be determined, can nationally sensitive programs be evolved and can effective monitoring of anti-corruption actions be pursued. No effort should be spared to support national civil society organizations, such as TI, dedicated to curbing corruption. We ask for your support in this endeavor. It is this reasoning that has made the building of national TI chapters the top priority of our movement -- TI was launched exactly six years ago -- today we have over 60 national chapters and the number and their quality is improving at a rapid rate. Civil society represents the stakeholders and the ultimate affected parties of corruption. In fact, only a strengthened civil society can create the demand for accountable governments. If behavior of people is to change, then civil society must be engaged constructively to get the support and buy-in for the necessary reforms. If experience elsewhere is to serve as a guide for effective anti-corruption efforts, then a purely technocratic approach to the subject will neither be feasible nor sustainable. No reform program will succeed where the population at large is skeptical, cynical and unsupportive. 'Me laws will pass, the speeches will be made and things will continue as they were before. The Role of Business I think the real issue for the business community is whether business should take an active or a passive role in confronting the challenges we all face. Should companies simply comply with legislation and regulation, that are enacted in response to public concern, or should they take the initiative? We believe it is time to take the initiative: First, no business that wants to be truly successful can ever be passive in the face of change. Passivity is the route to competitive failure. Second, modern business is a dynamic force, one that has always offered new choices and new approaches in response to the evolving needs of societies. Third, it is increasingly unlikely that any business that wants to be successful can ignore the views of its customers, its shareholders, its creditors and society at large. People want and expect large and successful corporations to use their skills and know-how to address the issues in society through their various areas of activity. As companies improve corporate governance, adopt and implement codes of conduct and respond to emerging legislation they should not stop at compliance. 'Me aim increasingly is to encourage openness and integrity within the company. Progressive and successful enterprises welcome public scrutiny. The key for them is transparency and accountability -- and their success is rooted on being better, not just good. PBEC is to be commended for having taken the initiative and I would urge you to continue your efforts to improve transparency and combat corruption -- through your encouragement of member economies in the APEC region to sign on to the OECD Convention, by promoting good corporate governance and a regional agreement on transparency in government procurement and by continuing to promote the adoption by your members of the standards of conduct set forth in your Charter.