How Transparency International’s corruption perceptions fail
In the most recent Corruption Perceptions Index (CPI), the rankings are topped, as often before, by the tiny Nordic countries, Western Europe, the US and advanced Asia, including Singapore, Hong Kong and Japan. Yet, anomalies seem to abound.
South Korea’s performance improved the most when the country suffered from bribery and corporate scandals associated with the now-impeached president Park Geun-hue. Despite more than 100,000 anti-corruption indictments, China’s ranking has improved slowly and it is still ranked far behind Romania, Senegal, and Belarus, which may come as a great surprise to foreign multinationals and expats operating in these countries.
The Philippines was seen as least corrupt when the drug trade thrived, corruption soared and US observers warned about the Philippines’ plunge toward a “narco state.” When the Duterte government began its fight against corruption, the ranking fell to its worst in years. In turn, Myanmar has steadily improved its ranking, while more than half a million Rohingyas have fled persecution to neighboring Bangladesh.
These anomalies and others cannot be easily explained away. They are systemic.
Methodological bias
While corruption may be too complex to be captured by a single score, CPI is often used precisely for that purpose. Also, no distinction is made in terms size. As a result, corruption and the ways to overcome it are seen as pretty much identical in both India and China, and in Suriname (560,000) and Solomon Islands (600,000).
Moreover, the CPI does not measure actual corruption, due to challenges in measurement, but perceived corruption, which adds to bias. If history is written by the victors, then corruption perceptions are framed by the world’s leading media companies, most of which are headquartered in the US and Western Europe.
Analysts and investors routinely use the CPI for longitudinal purposes. Yet, the methodology was changed only in 2012 to allow for comparison across time. And even these changes leave questions about such comparisons. In the case of Nigeria, the largest African economy, the CPI suggests that the country had some of its least corrupt years under President Jonathan Goodluck, even though that’s when illicit capital outflows soared.
In theory, CPI tries to bypass the bias problem by including “different” perceptions. The problem is that the sources appear different but perceptions aren’t. In practice, most come from the US and few European countries, including the World Bank, the Economist Intelligence Unit, Freedom House, Global Insights, and Political and Economic Risk Consultancy. In the emerging world, these sources are often – and for a good reason – criticized for US and Western bias.
Most problematically, the surveys focus largely on emerging countries, yet the latter are systematically excluded as sources, which do not include even a single think-tank or consultancy operating in emerging and developing economies. It is as if “diversity” would be redefined as different shades of white rather than as a rainbow.
Internal divides
The CPI was developed by the Transparency International (TI), an international non-governmental organization, which seeks to combat global corruption. Though based in Germany, TI’s key founders were not only Germans but represented the World Bank, US military intelligence, US multinationals and industrialists.
Intriguingly, even TI lacks internal consensus, as evidenced by recent drift between TI and its US affiliate. In 2012, Transparency International USA gave Hillary Clinton its Integrity Award, even as the US State Department issued a subpoena to the Clinton Foundation, which had raised $2 billion in two decades. Since 2000s, the Foundation had been criticized for lack of transparency, odd deals with resource-rich oligarchs and the highly controversial Blackwater Worldwide. In the Clinton deals, billions of dollars exchanged hands, but only a fraction ended in the final destination.
In 2013, TI members called for “Edward Snowden’s recognition as a whistleblower.” TI-USA rejected the idea. A year later, TI-USA honored Raytheon, a leading Pentagon defense contractor, for its “efforts to prevent corruption.” In 2015, Bechtel, a global nuclear-security giant, won TI-USA’s corporate leadership award. As questionable corporate capital soared in TI-USA, corruption perceptions increased around TI in both the US and Germany.
By January 2017, the open conflict between TI and its US arm led TI to strip its US affiliate of its accreditation. Today, TI-USA has renamed itself as “Coalition for Integrity,” and its major funders include US defense contractor giants (Lockheed Martin, and Raytheon) and security-nuclear conglomerates (Bechtel), financial interests (Citigroup, Deloitte) and multinationals (GE, Google, Johnson & Johnson, PepsiCo, Pfizer).
Private-sector corruption excluded
Oddly enough, the CPI only measures “public-sector” corruption. That’s a striking limitation and one that is routinely ignored by most who rely on the Index. The implications are many.
According to OECD, public sector employment is highest in Nordic countries (25%-35%), and countries with strong state (France and Russia 28%- 30%). In advanced economies, public sector has a lower role (15%-22% in UK, US and Germany). Conversely, private sector activities are significant in Nordic countries and state-led economies (60-75%), but higher in major advanced economies (over 80%).
Since the private sector is excluded, Sweden had one of the best CPI scores in 2015, even though TeliaSonera was facing serious bribery allegations. Despite the massive LIBOR scandal, the US and UK rankings did not take major hits. The same goes for corporate scandals from WorldCom and Enron to Lehman and AIG. Similarly, recent Volkswagen scandal failed to tarnish Germany’s high position.
In 2015 Transparency International actually accepted millions of dollars from Siemens, which has paid some of the largest corporate corruption fines for international bribes, and other companies criticized for corruption.
Illicit financial capital flows excluded
The private-sector exclusion means that the activities of multinationals dominating developing economies are ignored, although they also involve huge illicit financial flows to and from developing countries. The magnitude of estimated illicit inflows in the latest year for available data (2014) ranged from $1.4 to $2.5 trillion.
Yet, corruption indices typically rank developing countries, which suffer the most from these illicit flows, as the most corrupt, whereas advanced economies, which often benefit the most from such flows, are deemed the least corrupt.
Transparency International operates in a very important area. There is a huge, pressing need for an effective multidimensional corruption indicator. But the current Index is too prejudiced for informed analysis, too biased in its exclusions and too hypocritical in its professed neutrality.
Dan Steinbock
Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/
• The original, slightly shorter commentary was released by South China Morning Post on March 16, 2018