Corruption, Governance and Security: Challenges for the Rich Countries and the World

Traditionally, national governance and corruption challenges have been seen as: i) particularly daunting in the poorer countries, with the richer world viewed as exemplary; ii) anchored within a legalistic framework and focused on formal institutions, iii) a challenge within public sectors, and, iv) divorced from global governance or security issues - seen as separate fields. Through an empirical approach based on the analysis of the 2004 survey of enterprises by the World Economic Forum, we challenge these notions and portray a more complex reality. We suggest that the undue emphasis on narrow legalism has obscured more subtle yet costly manifestations of misgovernance, which afflict rich countries as well. Emphasis is also given to measurement and analysis of misgovernance when the rules of the game have been captured by the elite through undue influence. We construct a new set of ethics indices, encompassing forms of (legal) corruption not subject to measurement in conventional (illegal) corruption indicators. It is found that manifestations of legal corruption may be more prevalent than illegal forms, such as outright bribery, and particularly so in richer countries. Further, we find that governance constraints, and corruption in particular, is a key determinant of a country's global competitiveness. These findings challenge traditional notions of what constitutes the country's 'investment climate', and who shapes it. It is also found that illegal forms of corruption continue to be prevalent in the interaction between transnationals of the rich world and the public sectors in many emerging countries. Finally, we suggest an empirical link between governance and security issues

Myths and Realities of Governance and Corruption

A number of popular notions and outright myths on governance and corruption are addressed in this chapter. We distinguish clearly between governance and anti-corruption, while probing the links between both notions. In so doing we challenge the conventional definition of corruption as being too narrow, legalistic and unduly focused on the public sector, while underplaying the role of the private sector. We then challenge the notion that governance and corruption cannot be measured, showcasing the latest worldwide governance indicators, measuring six dimensions of governance and cover over 200 countries, based on multiple sources, including the EOS. Thanks to these governance indicators and related datasets, it has been possible to study the extent to which governance and anticorruption matters. Consistent with the adage that 'sunlight is the best disinfectant', the potential gains of embarking on a transparency reform strategy is given particular prominence in this chapter, and a detailed 12-point 'scorecard' for countries to rate themselves in terms of the implementation of concrete transparency measures is presented. The chapter then concludes with a call for a global compact on governance and anti-corruption, where the G-8 and other rich countries, the multinationals, IFIs, civil society and the government leadership in the emerging economies share responsibility in making concerted progress.corruption; transparency; governance

Governance Redux: The Empirical Challenge

Building from the 2002/03 contribution to the Global Competitiveness Report ("Governance Crossroads"), this paper argues that governance continues to be at a crossroad, its underperformance being evident in most regions and across many countries. This ('governance policy gap') contrasts with the strides that have been made in many countries in improving the content of macro-economic policies for well over a decade. Firms from emerging economies single out corruption and excessive bureaucracy among the top constraints to their business operations, while excessive bureaucracy and the tax regime are identified as top constraints by the respondent firms from the OECD. Neither inflation nor the exchange rate regime are rated as important constraints. Many countries currently have levels of governance that are insufficient to support their income levels and/or growth path, namely they experience a 'governance deficit', which we suggest it can be quantified. We also review work analyzing the deeper determinants of governance, and find that in lower income countries the origins of a country's legal system may not matter significantly. Further, we empirically evaluate political dimensions of governance, such as the extent of 'capture' and undue influence by some politically connected powerful firms in shaping the regulations, laws and policies in a country. Unequal influence is closely associated with poor public and financial governance performance. Finally, this firm-level dataset permits the construction of a governance database at the city level, and initial results of an empirical exploration of determinants of city-level governance are presented. A key implication of this chapter refers to the focus on policies aimed at the nexus between corporate strategies and public governance—-emphasizing prevention, external accountability and transparency mechanisms—and challenges the value of traditional measures within the public sector (such as passing laws by fiat or creating new Anti-Corruption Commissions).

Governance Redux: The Empirircal Challenge

This paper is based on the governance chapter contribution to the 2003/04 Global Competitiveness Report (GCR). Building from the 2002/03 contribution to the GCR, it argues that governance continues to be at a crossroad, its underperformance being evident worldwide in most regions and across many countries. This ('governance policy gap') contrasts with the strides that have been made in many countries in improving macro- economic policies for well over a decade. Based on a worldwide survey of enterprises carried out for the GCR, we find that firms from emerging economies single out corruption and excessive bureaucracy among the top constraints to their business operations, while excessive bureaucracy and the tax regime are identified as top constraints by the respondent firms from the OECD. Many countries currently have levels of governance that are insufficient to support their income levels and/or growth path, namely they experience a 'governance deficit', which can be quantified. We also carry out a simple empirical exploration challenging the validity of legal-historical origins in determining governance performance in emerging economies nowadays, and provide a brief synthesis of the empirical importance of inequality of influence (by vested interests), as well as of governance at the city level.Governance Competitiveness, Corruption, Business Survey, Influence

Corruption, Governance and Security: Challenges for the Rich Countries and the World

Traditionally, national governance and corruption challenges have been seen as: i) particularly daunting in the poorer countries, with the richer world viewed as exemplary; ii) anchored within a legalistic framework and focused on formal institutions, iii) a challenge within public sectors, and, iv) divorced from global governance or security issues - seen as separate fields. Through an empirical approach based on the analysis of the 2004 survey of enterprises by the World Economic Forum, we challenge these notions and portray a more complex reality. We suggest that the undue emphasis on narrow legalism has obscured more subtle yet costly manifestations of misgovernance, which afflict rich countries as well. Emphasis is also given to measurement and analysis of misgovernance when the rules of the game have been captured by the elite through undue influence. We construct a new set of ethics indices, encompassing forms of (legal) corruption not subject to measurement in conventional (illegal) corruption indicators. It is found that manifestations of legal corruption may be more prevalent than illegal forms, such as outright bribery, and particularly so in richer countries. Further, we find that governance constraints, and corruption in particular, is a key determinant of a country's global competitiveness. These findings challenge traditional notions of what constitutes the country's 'investment climate', and who shapes it. It is also found that illegal forms of corruption continue to be prevalent in the interaction between transnationals of the rich world and the public sectors in many emerging countries. Finally, we suggest an empirical link between governance and security issues.

Price-Setting Behaviour in Switzerland Evidence from CPI Micro Data

This paper investigates price-setting behaviour of firms based on the individual price quotes underlying the Swiss consumer price index. The data set covers the years from 1993 to 2005. Six main findings emerge from the analysis. (i) Prices are sticky; the median duration amounts to 4.6 quarters. (ii) Price-setting behaviour is heterogeneous across sectors and outlet characteristics. (iii) Price changes are sizeable; the median absolute size amounts to 9.4%. (iv) There is no indication of general downward price stickiness; even in the case of positive inflation, 41.3% of all price adjustments are decreases and the distributions of price changes do not show substantial asymmetries. (v) Firms respond to expected cost shocks at the date of their occurrence; VAT rate changes do not lead to more price adjustments before they take effect. (vi) There is some evidence that firms adjust their behaviour according to the state of the economy; in particular, firms facing higher rates of inflation adjust prices more frequently.Price-setting, frequency of price changes, nominal price rigidity, time-dependent pricing, state-dependent pricing

Corruption, Governance and Security: Challenges for the Rich Countries and the World

Traditionally, national governance and corruption challenges have been seen as: i) particularly daunting in the poorer countries, with the richer world viewed as exemplary; ii) anchored within a legalistic framework and focused on formal institutions, iii) a challenge within public sectors, and, iv) divorced from global governance or security issues - seen as separate fields. Through an empirical approach based on the analysis of the 2004 survey of enterprises by the World Economic Forum, we challenge these notions and portray a more complex reality. We suggest that the undue emphasis on narrow legalism has obscured more subtle yet costly manifestations of misgovernance, which afflict rich countries as well. Emphasis is also given to measurement and analysis of misgovernance when the rules of the game have been captured by the elite through undue influence. We construct a new set of ethics indices, encompassing forms of (legal) corruption not subject to measurement in conventional (illegal) corruption indicators. It is found that manifestations of legal corruption may be more prevalent than illegal forms, such as outright bribery, and particularly so in richer countries. Further, we find that governance constraints, and corruption in particular, is a key determinant of a country's global competitiveness. These findings challenge traditional notions of what constitutes the country's 'investment climate', and who shapes it. It is also found that illegal forms of corruption continue to be prevalent in the interaction between transnationals of the rich world and the public sectors in many emerging countries. Finally, we suggest an empirical link between governance and security issues.Corruption, governance, security, development, ethics, indicators

Rethinking Governance: Empirical Lessons Challenge Orthodoxy

In this discussion draft, linking research findings with concrete operational challenges, we review key issues in worldwide governance, and present recent empirical evidence. Focusing on defining and unbundling key governance components, such as rule of law, voice and accountability, corruption control, and state capture, we then provide evidence which suggests a sobering picture: on average, there appears to be scant progress worldwide in recent times in improving rule of law and governance, in controlling corruption, and in improving institutional quality -- although there is clearly variance across countries. Further, recent empirical research points to the private sector as influencing public governance, thereby challenging traditional notions of the functioning of politicians, public policy and the public sector, and on the conventional determinants of the investment climate. We posit that the interplay between the elite’s vested interests and the political dynamics within a country, in turn affecting governance and corruption, has often been under-emphasized in program design. These argue for revisiting conventional approaches to promote institutional reform. In particular, we challenge the notion that passing laws by fiat, creating new public institutions, or embarking on anti-corruption 'campaigns', can be very effective, and question the value of traditional public sector management and conventional legal/judiciary reform approaches for many emerging economies. We argue instead that sharper focus on external accountability is required, focusing on: transparency mechanisms and empirically-based monitoring tools (including e*governance), as well as participatory 'voice' and incentive-driven approaches for prevention. These need to feature more prominently in providing checks and balances on traditional public institutions, in empowering non-traditional stakeholders, and in ameliorating state capture and mitigating the very ‘unequal influence' playing field in many countries. In turn, this necessitates probing deeper into the private-public governance nexus, which inter alia leads to focusing on concrete measures to address the challenges of political contestability, political financing reform, and transparency in parliaments, the judiciary and the executive. Recommendations on governance strategies for the next phase are suggested, including on the role of the international community.governance, empirical analysis, corruption, rule of law, accountability, state capture, public policy, public sector management, transparency, indicators

Sectoral Inflation Dynamics, Idiosyncratic Shocks and Monetary Policy

This paper disentangles fluctuations in disaggregate prices into macroeconomic and idiosyncratic components using a factor-augmented vector autoregression (FAVAR) in order to shed light on sectoral inflation dynamics in Switzerland. We find that disaggregated prices react only slowly to monetary policy and other macroeconomic shocks, but relatively quickly to idiosyncratic shocks. We document that there is a large heterogeneity across sectors in the reaction to monetary policy shocks and show that sectors with larger volatility of idiosyncratic shocks react more readily to monetary policy. This finding stands in contrast to the rational inattention model of price setting. We also find that sectors, which change prices infrequently, react less strongly but if they do change their prices, they adjust them by a large amount. This suggests that the source of sluggish response to aggregate shocks is heterogeneity in menu costs rather than rational inattention. Furthermore, even though prices respond with a significant delay to identified monetary policy shocks, we find no evidence of a price puzzle on average. For single sectors, however, we still find a hump-shaped response which can partially be explained by the fact that, by law, rents are tied to interest rates in Switzerland.monetary policy transmission, idiosyncratic shocks, rational inattention, heterogeneity in price setting, cost channel, price puzzle

Governance Indicators, Aid Allocation, and the Millennium Challenge Account

Aid works best when it is directed to countries with relatively good institutions and policies. But how should good governance be measured, and how can aid allocation rules be designed in light of the strengths and weaknesses of existing measures? We address in brief a number of methodological and applied challenges, motivated by the U.S. government's recent proposal to allocate resources from the new Millennium Challenge Account (MCA), the issues and recommendations apply more broadly. Among others, we discuss the implications of margins of error in governance data, the difficulties in measuring trends, and the need to complement existing cross-country indicators with in-depth country diagnostics.Millennium Challenge Account, MCA, Aid Effectiveness, Aid Allocation, Governance Indicators, Governance Data