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Select Committee on International Development Minutes of Evidence


Examination of Witness (Questions 280 - 299)

TUESDAY 12 DECEMBER 2000

MR MARK MALLOCH BROWN

Mr Worthington

  280. Was that Alexandra Jones?
  (Mr Malloch Brown) Yes, that is right. She is leading this project which is focussing on the different elements of good governance including an anti-corruption drive. You have got strong commitment from the Indonesian leadership who realise that corruption was what undid Suharto and compromises the ability to deliver basic services now. While you have still got a very difficult, arcane bureaucracy to work through, you have got the basic support. In Latin America also there is tremendous focus on this issue from poor countries like Bolivia where we have created a ten-year national integrity programme, which is a combination of culture change in government combined with capacity building and decentralisation. I perhaps should say that we have put great emphasis on decentralisation because where people see some transparent control over resources and are able to hold government to account for the delivery of education and health care to their communities, you see an absolute transformation in delivery capability. We consider decentralisation as a major part of the package. Where those are all in place this thing moves very quickly. In Africa I would say the best examples at the moment are the work we are getting going in Nigeria, but it is also a major thrust of programmes in countries such as Uganda or Ethiopia as well.

Chairman

  281. How can you know whether a government is serious on anti-corruption or is just giving lip service to it?
  (Mr Malloch Brown) I think it is a difficult question and again this is where that closeness to government which you refer to is very important because we feel at least that we get a bit better read and a better feel for what is really going on at the top ends of these governments than the show that is put on for the visiting delegation from a bilateral agency or a Bretton Woods institution. They have a lot less reason to impress us and a lot more interest in treating us honestly and fairly openly as their trusted advisers.

  282. You mentioned anti-corruption projects with parliaments and governments. What other anti-corruption work are you involved in and how do you know any of it works?
  (Mr Malloch Brown) Let me put it in a global context. I wondered, seeing the list of witnesses you have had, from Transparency International and others, whether anyone else had offered you this observation. If you go back to when the great press on anti-corruption began, which coincided with the wave of privatisation in developing countries, there was an assumption that privatisation was going to reduce corruption and the argument of the economists was that it would remove the bottlenecks and choke points by turning over to the market a greater volume of economic decision-making and therefore the petty bureaucrat at either local or governmental level in a country would have much less opportunity to extort bribes if public enterprises were in private ownership, and if you cut back on the web of regulation which offered these choke points. I think that in a decade where we have seen the rise of Transparency International and a much enhanced international agency focus, led by Jim Wolfensohn and the Bretton Woods institutions notably (but I think we have played our part too), there is actually more corruption today than there was ten years ago. I think the good news is that it is a corruption bubble. I do not want to enter into British politics but I cannot help noticing the criticism going on of railway privatisation in the United Kingdom. If you think you have got problems, look at the privatisation of utilities in Latin America, for example, where essentially the same problem was faced, which is, how do you successfully move a monopoly into private ownership? Therefore, in some senses accountability has been reduced over these new enterprises. We are now moving into a second phase where these privatised entities in telecommunications and energy have failed to deliver services to consumers, so you are now getting what you should have had from the start, which is diversification of supplier, so in telecommunications, the PTTs are getting displaced by a lot of new cell licence operators, and in energy you are seeing the failure of the old energy monopolies now privatised and therefore the creation of a lot more localised energy production, power production capabilities, so in any big country—India, Brazil, Nigeria—you see no longer just a national grid but a lot of little private energy companies. As you get that diversification of ownership you are starting to see the corruption levels dipping. In that regard I would also say that what is beginning to bite are the OECD guidelines, which again I was pleased to see were in the new White Paper endorsed as something Britain has come into line with because, as I am sure people have said to you, it takes two to tango when it comes to corruption. You need a briber as well as a recipient. After a bubble generated by the imperfections of first generation privatisation we are now going to see a spread of private ownership and a much greater strengthening of the institutional frameworks of market economies in developing countries and a greater transparency, greater environment law. You will see after a lag time the work of Transparency International and others really paying off in that we will now see corruption start to sharply decrease.

  283. You have mentioned sectors like power and telecommunications. What other sectors would you mention as being prime targets?
  (Mr Malloch Brown) Obviously financial services are always a major target, the whole export/import business of any goods and services, the granting of any concessions in the natural resource area, and indeed the granting of concessions generally.

  284. Licensing then?
  (Mr Malloch Brown) Licensing.

  285. What about marketing corporations and so on?
  (Mr Malloch Brown) I think marketing corporations are a little bit a thing of the past. They are by no means gone but we are seeing less use of them as companies are able to take on much more of their own marketing. Whereas five years ago the argument for having a local partner was that he dealt with this murky environment, today the argument for a local partner is that he helps you avoid this murky environment. The international companies which are doing very well in developing countries and building honest, respectable businesses which they and their shareholders can be proud of tend to be ones with strong local partners who share their sense of business ethics but nevertheless know their way around the societies in which they are operating and can offer some political space and protection for the company to operate in and protect it against these demands.

Ms King

  286. The Nigerian example you gave illustrated in terms that are crystal clear the direct link between corruption and poverty. When corruption is so all-consuming where do you start and how? You have listed some things: leadership, decentralisation, capacity building. I just wondered, for example, in a country like Bangladesh, where you were asked a minute ago how do you know if the Government is serious, there is another question which is that even when the Government is serious how do you know if the Government has the ability to deliver? What would your judgment be of how and where you start tackling corruption?
  (Mr Malloch Brown) We do in Bangladesh have a kind of national corruption audit arrangement with the Government in which they are trying to expose themselves to new tests of transparency because they recognise the difficulty they are in. It is for Bangladesh or any country where there has been a deep history of this to make a multi-year change and it goes along these two tracks of institution strengthening and culture change. You cannot do it without both. Because Nigeria is fresher in my mind than Bangladesh you will forgive me if I give a specific example from there, particularly if you are going to see President Obasanjo. The Niger Delta produces, as you all know, the majority of the oil revenue of the country. There is an agreement in this vast country where federal state relations are always difficult that 13 per cent of resource revenue should flow back to the states that produce it, so 13 per cent of oil revenue in the case of The Delta should flow back. It is very frustrating to the oil companies working there, as it is to ordinary Nigerians, that there is no evidence of that coming back on that kind of scale in terms of education or health care. You essentially still have a stand-off between the oil companies and the people, certainly in Ogoniland. I went down there because I felt this was one area where we could perhaps be the catalyst to change things. On the back of that trip and seeing President Obasanjo we agreed on a rather ambitious approach. Companies like Shell are spending a lot on community development. They say they are spending $60 million in the areas of operation in Nigeria, rather less than they are probably spending on security but a major amount of money, which does buy you a lot of schools and clinics in a way, and there are NGOs and others who want to operate. One part was how could we bring all these players who wanted to help together to deliver a common model of community development across as many communities as possible in The Delta through implementing the partners in which the local communities had trust. We saw ourselves playing a co-ordinating role in that. The second thing is that the President rebuffed others who had tried to intervene on this and it is therefore news that he accepted us playing this role. The next bit is that if you had the Chairman of Shell in here he would say to you, "However many schools and clinics we build, whether or not we do it through community organisations or with the Shell logo on it, it is not going to fix the basic political economy problem of The Delta. That will only come when the citizens of The Delta feel the renewed commitment of the Federal Government of Nigeria because that government's new democracy is delivering health and education to them." The analogy I used to President Obasanjo was that I wanted to build into our governance programme now a "follow the money" issue where my Bank friends tell me that they have been able to follow it from collection point in the oil companies to the federal exchequer where it gets lost. We want to create a system where we tag it so that you can see the 13 per cent identified in the federal budget and then flowing back to the different states that comprise The Delta, and from there still tag it down to the community level. We have some very big examples of having done this in Latin America where we had this phenomenon of very large resources in the Ministry of Education in Brazil and Argentina supported by even larger resources from the international financial institutions, the World Bank, the Inter-American Development Bank, all not getting dispersed because the money was sclerotic; it got stuck at the capital. If it got beyond the capital it just got to the state capital level. In Brazil six out of 10 dollars were not getting to the classroom and there was a lot of corruption. We innovated a temporary system where we put in place a direct payment system to the parent and teacher associations and the headmasters and headmistresses and for a time we were directly dispersing the education budget from Brasilia to the schools. This forced decentralisation to occur, it forced the whole bureaucracy from Brasilia to the classroom to reorganise itself around the principle that we were going to employ these guerilla tactics to bypass it. In ten years Brazil has moved from being a major source of the absence of universal primary education in the world to enrolment rates of 95 per cent plus. It was because of this radical decentralisation approach that we pursued. In other words, where we became the temporary implementing arm within government, also hiring the consultants to put in place the long term systems (and that was my proposition to Obasanjo) we went on two tracks. Get all the community development money we can but in the meantime restructure the Nigerian Government to deliver. That is the solution, this really hands-on, sleeves up, get into these ministries and make the system work approach. Brasilia does not have quite such a federal state problem as Nigeria has. There is nothing like the ethnic or other centrifugal tensions going on. Obasanjo has not let other international organisations into The Delta until now. That is the fix for corruption but it comes from our trusted adviser/trusted implementer role.

Barbara Follett

  287. I wanted to ask about what UNDP is doing to ensure that corruption is addressed in other UN agencies. I know that there is a problem with lack of co-operation and co-ordination between the agencies and this may be a very large question. Perhaps you could tell me what it is doing.
  (Mr Malloch Brown) We are trying to get the same programming tools and administrative procedures at the country level because we provide a lot of the administrative support to the different UN agencies and at the country level we are it for many agencies which do not have a universal field presence. In terms of internal corruption in the UN we have got a pretty tight handle on that. I honestly again think that good new managements in most UN organisations have managed to crack down on internal corruption problems. Again the issue becomes one of, are we all at one in terms of trying to force it out of the countries in which we operate? We are all terribly conscious of the insight that where there is corruption we do not have poverty reduction and sustainable development, and there is no way round that basic fact of development. I think we are all pretty united in fighting corruption wherever we find it.

  288. Is the UNDP the lead on this whole UN family?
  (Mr Malloch Brown) Are we the lead? We are the lead on development and corruption is very much part of that. There is an enormity of work which is done in various intergovernmental conferences which other bits of the UN handle: the Department of Economic and Social Affairs, UNCTAD, but in terms of the operational country level activities we are the lead, along with, I should add, the drug control and anti-corruption programme in Vienna which is doing crime busting. It is organising this conference in Palermo on money laundering, for example. The global standard setting is done by others but the operational bit we lead on.

Mr Khabra

  289. In UNDP's Discussion Paper 3, a statement was made about three years ago that "A state with endemic corruption can be especially brutal to the very poor, who have no resource to compete with those willing to pay bribes". Three questions arise out of this. How in UNDP's experience does corruption affect the poor? How do governments in countries with endemic corruption view the problem, and what is their response to anti-corruption initiatives? How can you tell genuine anti-corruption initiatives from mere window dressing?
  (Mr Malloch Brown) The corruption affects the poor very directly in terms of lost economic growth in the national economy, but second, exclusion from basic services because they cannot afford to pay the very small bribe that is required for access in many cases. As I reflect on it, the difference between UNDP and the World Bank is that in a way we see poverty as political and not economic. We think it is the poor's lack of any political rights and power, particularly the right to vote, which leads them to be excluded. Amartya Sen we consider as one of our intellectual fathers and his observation that there has not been a famine in India because people make a fuss and go and lobby their local MP in Delhi to get the food situation resolved we think is an extraordinarily important dynamic. Therefore we see the promotion of democracy as one of the critical ways of overcoming corruption at the level of the poor themselves. They have got to have the "throw the rascals out" right if they are going to deal with this. On the issue of governance, taking it seriously, I acknowledge to you that there are governments who just do it for form and there are governments who do it substantively. We are lucky enough (I say it again) because of our particular trusted role and because we have not got a huge loan book to wave at them, so we perhaps get a more honest answer from governments and a better sense of their priorities than often others are able to get. Where they do respond it becomes an accelerating momentum. I do not know of governments who have been disappointed by their involvement with Transparency International in their affairs. Everybody feels that this is a popular issue, it helps them with their electorate. Even in China, the one area where the press in China is very free is reporting corruption by senior officials. This is a good issue for governments. We are pushing much more on an open door on this than you might believe.

  Mr Khabra: What will be your reaction if, in a situation like we find in some of the developing countries, democracy has collapsed because it is corrupt and it has failed to deliver services to the people and then you have a dictatorship which is tough on corruption? How would you react?

Chairman

  290. Perhaps that is the point to introduce Pakistan where you have been working.
  (Mr Malloch Brown) I would say first that the Secretary-General and I were both last week in Benin at an African conference that we had sponsored on restored democracies. I in my speech there said that poverty, not colonels, is the great threat to democracy in Africa. I do not know a country in the world where people do not look at democracy through the lens of the services it provides for them. In other words, even British democracy would come under threat if government was not responding to the desires of people. That link is critical and we are at a dangerous moment in the development of democracy because we do have countries which follow the form, not the substance, of democracy and then fall under the weight of their failure to deliver basic services to the poor and because they have allowed their democratic legitimacy to be undermined by corruption. Obviously Pakistan was the extreme example. Our view however remains that authoritarianism is never a good answer to democratic weakness. We just make it clear whenever asked that in our view, however enlightened the leadership, over time its lack of democratic accountability to the poor themselves will lead it to drift away from the priorities it should have. The Government in Pakistan, while it has actually made some admirable appointments as ministers reaching into the civil society organisations and others, over time it is a losing proposition because until it can meet the democratic test of delivering services and delivering transparent, honest government to people, the incentives to drift, make compromises with other forces within society will be impossible to resist over time.

Ms Kingham

  291. I want to explore this a bit further. Definitions of good governance and democracy can be fairly subjective. There can also be the danger of imposing specific models, particularly certain western role models, on some countries. What kind of definitions do you use to decide what is democratic and what is not? You have brought up examples there that service delivery can be very good in some countries but where the human rights record can be appalling, so what happens when there is tension between those two needs in a country?
  (Mr Malloch Brown) You may have seen it this year, our Human Development Report is on human rights and human development, and this is a short version of it. I am like a stage actor with the wrong prop! The worst drawing room comedy, I am sorry! What we argue in this report is that without giving people human rights, including the right for political power and therefore some degree of control over the services they get, they never get those services. That is our view. We do not think there are any good examples of authoritarian governments delivering services. The Chinese model, which everybody cites—a highly centralised, efficient, service delivery model without democracy—is interesting because it is one of the most decentralised systems of governments in the world. It has a smaller tax take at the centre. It is something like no more than 10 or 11 per cent of GNP is taken in central taxation. Therefore, most of the transactions between the state and people in China happen at the local level where there is considerably more degree of control, not through formal democracy but through the party and villagers demanding it. Please do not misunderstand this, we are pushing for an expansion of democracy in China. I explain that because people always come back and say China proves the opposite. I do not think it does and if you take China out of the equation I do not know of a country where the authoritarian model is delivering better services.

  Chairman: China heads the corruption list. It is the most corrupt country in the world.

Ms Kingham

  292. You spoke in terms of democracy. Do you mean by that that the model of democracy has to be multi-party or can other models such as that in Uganda or Eritrea, where there has not necessarily been a multi-party system, which work on a different model?
  (Mr Malloch Brown) It certainly has to be a competitive system. I think that is critical to it. I think it has also got to be an evolving system. What I think is a great mistake is to move everybody to a single cultural model like that. I think people will always end up in different places but it will be an evolving process. Again because of our character as the development agency of developing countries, about eight years ago we started to put into the Human Development Report political indexes of freedom and political rights. Huge row, dropped it. We are now coming back to doing it again in partnership with the Economic Commission for Africa. We have got 14 countries which have taken a deep breath and are willing to this. We are going to start building political indicators on political freedoms. We will try to make them neutral in that we are not going to have in mind one ideological model of what the ideal democracy looks like but we do think that a competitive system, freedom of expression; these are universal values.

Chairman

  293. Independence of the judiciary?
  (Mr Malloch Brown) Independence of the judiciary, a free press. One thing that is often forgotten by the UN is that we consider ourselves both an inter-governmental organisation and the guardians of the Conventions and the Charter, so we have absolutely no shame in poking our governments in the eye when we think they are contradicting our basic mission statements.

  Mr Colman: Just briefly coming back to the different performance of democracies and your current experience of Pakistan where I was earlier this year. General Sharif seems to be wanting to not allow either of the two political parties who previously held power there to retain power into the future. There are the new union and district and regional elections that start this month where the idea is to have non-party political people standing. How do you think this is working out? Is this a new paradigm of introducing competitive democracy at local government level initially?

Chairman

  294. Are you working with Nawaz.
  (Mr Malloch Brown) Nawaz is in Saudi Arabia.

  295. When he was in power?
  (Mr Malloch Brown) We were there and, interestingly, we are there through thick and thin in these countries.

  296. Were you doing any anti-corruption work there?
  (Mr Malloch Brown) That is a very good question. It was before my time as I used to say. Before my time; I do not know. Let me answer it in a way that may confirm something. I have just hired to head our Asia bureau somebody who was a minister under Sharif who is one of the great Asian authorities on poverty, has written extensively, Hafiz Pasha, who is a technocrat who was a minister first in the Quereshi Government, a former World Bank managing director who led that very successful Government and then served under Sharif. My view, like in so many of these countries, is that you have got these incredibly honourable ministers whom you try to find ways to work with and support them in very difficult periods. To turn to the specifics of the election, we are supporting the municipal election process. What we do to guard against the issue of getting too much into bed, is we have an agreement with the Department of Political Affairs, Kieran Prendergast, who I am sure some of you know, that he will give us a seal of approval before we help in an election because I do want that independent judgment so that we are not guilty in our enthusiasm of getting ahead of ourselves. I have also done what I think is a first for UNDP, I have pulled support in the middle of election campaigns. What we should do is very rarely the observing—Kieran Prendergast does that—what we do is capacity building so we have been running training workshops for candidates, we modernise election registers, we give training to vote count observers.

Mr Colman

  297. In Pakistan?
  (Mr Malloch Brown) In Brazil we introduced the new voting system which the US is going to emulate.

Chairman

  298. You might have a bit of work to do in Florida!
  (Mr Malloch Brown) But the big question will be if the municipal elections are then followed by national elections on the same limited model as to whether we would give support to those. That is an open question at this point.

Mr Colman

  299. Is this limited model in fact leading to a new form of democratic base, if you like, which is worth looking at as an alternative to becoming clan parties, which is what it is?
  (Mr Malloch Brown) Let me say that I think that these models often end up in places their originators did not mean them to. I spent 10 years of my life as an international political consultant working for democratic challenges to authoritarian governments, the work of Cory Aquino and the No campaign in Chile, dozens of these, and in each one of them the guys in power by offering a limited option, like Marcos allowing an election in 1986 or the No campaign being Pinochet's referendum, had no intention of losing them, but the control system they had —



 
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