[Vnbiz] Corruption and investment on health & education

[Romi]

 FYI ~

>From the discussion list about the forthcoming Asia - Pacific Human
Development Report on Corruption and Human Development (
ap-hdnet at groups.undp.org):
**
*Facilitator's note:*

Ramesh Gampat asks how to explain corruption. He undertakes to explore the
beginnings of the hypothesis that corruption is traced to shortages
(under-spending, under-valorization of human resources) in the supply of
education and health. He further questions whether this linkage (higher
levels of spending and lower levels of corruption) is compounded when there
is too much red-tape and a high levels of illiteracy, and, seemingly, when
inequality predominates. Ramesh tests the proposition with empirical
evidence: countries with low levels of corruption invest relatively high
levels in health and education; medical investigators in NE China have found
that where demand outstrips supply of blood-boosting drugs this has led to
the production of fakes.

Ramesh's work challenges neoclassical economics: it operationalizes
corruption in sites of workplace relations (productivity) rather than
further upstream in market interactions. This can be seen in how it allows
for the complexity of nature and of human inventiveness to 'fill spaces'
that corruption opens up; i.e. if teachers' pay is too low and
under-valorized, then non-rational behaviour (often found in corruption),
can be predicted. Ultimately, Ramesh's work suggests that a sectoral
approach could work in curbing corruption – versus the notion that only a
national approach adequately captures complexities of human behaviour that
underpin corruption.

To see the charts:
http://www.undprcc.lk/RHDR_2007/discussion/Posting_29_June_Health_and_Education_CHARTS.pdf

------------------------------

Some people believe that the focus (that is, looking for ways to control
corruption) on sectoral corruption is somewhat misplaced, because it is
difficult to unambiguously define a sector in a complex modern economy and
because there are always spillover effects from one sector to the other.
Further, to the extent that moral and ethical values exert an impact on
corruption, a national, rather than a partial, sectoral, approach is likely
to be more effective.

While an interesting issue, my main purpose here is to explore empirically
the relationship between the level of sectoral spending - in the present
case, health and education - and corruption. This is a tentative,
exploratory effort as corruption is a complex and highly contextualized
phenomenon and a meaningful study of it cannot be reduced to a
two-dimensional analysis.

With the above understanding, it seems plausible that corruption will thrive
in a situation where the supply of health and educational services is
severely constrained by shortages. We explore this hypothesis using data
from World Bank's World Development Indicators database and Transparency
International's Corruption perception Index (CPI). Note that the
charts<http://groups.undp.org/t/1208456/160858/765/0/> show the
reciprocal of the CPI, which makes CPI readings more intuitive:
lower values mean lower levels of corruption, high values higher levels of
corruption. The data on public spending on health and education are given as
a share of gross domestic product, GDP.

The dataset covers 117 developed and developing countries, including 21 from
the Asia-Pacific region. The results are displayed in charts 1 and 2
<http://groups.undp.org/t/1208456/160858/765/0/>. Both charts are
scatterplots but I have dropped a trend line - in effect, a regression line
- that plots the relationship between the CPI and government spending
on health (chart 1) and CPI and government spending on education (chart 2).

According to the data, there is an inverse relationship between public
spending on health and corruption: higher levels of spending on health are
associated with lower levels of corruption. The same relationship is present
between spending on education and corruption, albeit it is weaker. How does
one explain this relationship?

Our research to date (validated by the three stakeholder consultations in
the Pacific, East Asia and South Asia) suggests that shortages of these two
public goods breathe corruption, especially when it is coupled with redtape
and a high rate of illiteracy and perhaps high levels of inequality as
measured by the Gini coefficient).

In the case of health, this situation creates, among other things, "corrupt
space" for fake pharmaceuticals. Recently, for example, medical
investigators have found batches of a fake blood- boosting, human albumin,
drug in northeastern China. Human serum albumin, made from human blood
plasma, is used to treat shock due to blood loss, burns and low protein
levels due to surgery or liver failure. It is believed that high demand for
the drugs led to the production of fakes. According to WHO, 38 percent of
104 antimalarial drugs available in pharmacies in South East Asia do
not contain
any active ingredients. And according to a TI 2006 Global Corruption Report,
for every 10 percent increase in corruption: immunization rates drop as much
as 20 percent; waiting time in public clinics increases as much as 30
percent; and children are one-fourth as likely to complete their courses of
vaccination.

Other causes of corruption in the health sector include the need to pay a
bribe for admission to hospitals, diagnostic services and surgical
procedures. In all of these cases, the underlying cause can be traced to
shortages, which frequently led to flourishing private practices and
sub-standard quality of services.

There are many causes of corruption in the educations sector, some of which
have been discussed on the network. These include shortages of classrooms
and thus bribes for admission; the emerging concept of "pay for performance"
where schools blackmail parents into paying a bribe for the promotion of
their children; forced bribes for the issuance of certificates; a certain
percentage deduction (by schools) for scholarships awarded by various
government bodies and philanthropic organizations.

Now, according to the data, a higher share of pubic spending on health and
education would decrease shortages and perhaps redtape as well. Indeed, the
data show that countries which have low levels of corruption also invests
relatively high shares of their GDP in health and education. If this is in
fact true, then a sectoral approach to curbing corruption will apparently
work, casting doubt on the issues raised in the opening paragraph. Or could
it work more effectively if a national ( a more holistic) approach were to
be taken to curb corruption?

Your views would be much appreciated.

Ramesh
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