Examination of witnesses (Questions 752
- 759)
TUESDAY 27 FEBRUARY 2001
THE RT
HON CLARE
SHORT, MR
ROGER WILSON
AND MR
PHIL MASON
Chairman
752. In welcoming you, Secretary of State, this
morning, can I say to you on behalf of the Committee how grateful
we are for the time and trouble you have taken throughout the
time you have held your office in keeping this Committee informed,
and indeed being willing to come to answer questions at sometimes
great inconvenience to yourself. Since this is probably the last
time we shall take evidence from you, depending upon the election
timetable when we know it—it looks like the last time we
shall see you formally anyway—I would like to record on
behalf of all the Committee the appreciation we have of both you
and your officials in working with the Committee on the various
reports we have done. We want to acknowledge that in public and
say to you that we are very grateful to you. I think it aids hugely
the accountability of government and, therefore, the process of
democracy and Parliament in conducting yourself in the way you
have. Thank you very much.
(Clare Short) Thank you very much. I am very touched
by that. At the beginning I wondered why you would be saying such
a thing, but in pointing out the potential timing of the election
I realise its appropriateness. I would like to say, this is a
good committee. It is quite right the select committees check
on the Government, but what we are about in trying to help build
a more just and equal world and more effective government systems
in developing countries is such a monumental task that, if we
are less adversarial and we are more probing and driving things
forward and winning more support and public opinion, that collaboration
makes us all more effective. I think we have had a very intelligent
relationship that has strengthened the work. If this is a mutual
admiration society, then I respect the work the select committee
has done.
753. Thank you very much. Perhaps you would
like to introduce to us your two assistants this morning.
(Clare Short) On my left is Roger Wilson who heads
our governance work. I was just saying to him on the way over,
I always think we should change his title because governance comes
from good governance; it comes from, "Oh, there's bad governance".
Whereas we ought to call it "building effective modern states",
which is obviously a bit too long for his title but we will work
on that. On my right is Phil Mason who was appointed in September
to head up all the work collaborating across Whitehall. The Department
in the past did not engage in money laundering. Well, he is our
corruption expert! To get Home Office systems and mutual legal
systems working in ways to help developing countries, obviously
the Treasury leans on money laundering and tends to think about
criminality and things which will weaken our financial systems,
and we keep turning up and saying, "What about developing
countries' interests in all of this?" Phil has been heading
up that work and has driven it forward enormously effectively.
754. Shall we go straight into questions?
(Clare Short) May I make a couple of preliminary remarks.
The first is how shocking it is that no-one publicly discussed
corruption in the world's development until Jim Wolfensohn in
1996 brought it out of the cupboard with a public question and,
as he was saying yesterday, was heavily advised not to do so because
it is too embarrassing. It is embarrassing in two ways: people
used to argue the rule about developing countries, the culture
and corruption argument, and this big teeming mess of what our
businesses get up to; so let us put a blanket over all of that
and no-one ever used to discuss it. It is shocking. Jim Wolfensohn
started it in 1996. The annual meeting of the World Bank and the
IMF, that Gordon Brown and I went to very shortly after our election,
was the first time there had been a document on an anti-corruption
policy put before those bodies in 1997. It is very good that it
is out of the cupboard now, but it is shocking how recent it is.
I think that makes us feel that at the moment there are prospects
of enormous advance and improvement. We are optimistic that it
is out of the cupboard and we can all get on with it and discuss
it openly. That creates a great opportunity and makes the timing
of your inquiry very useful. The second point I would like to
make is that we all are inclined to approach this as a moral issue,
and clearly there are deep moral questions about corruption at
all levels and anyone who engages in it. The difference between
developing countries and us is not that they have less moral people
than we have—because of course we have little outbreaks
of corruption in voluntary organisations, in local government,
politics and business as we know—but we have powerful systems
that check and catch it. The difference between developing countries
and countries like us is not the morality of the people but the
systems. It is important to be clear about it because suddenly
it becomes un-embarrassing and one can start to see where all
the remedies lie. If we start reading the history of our own country
and the traditions of corruption and when we got the big movements
to clean up the civil service and so on, we can learn a lot from
that, about the kind of remedies that are needed in developing
countries to give them systems that catch and minimise it. That
is my second major point. We should just have the humility to
think, if we were an extremely lowly paid civil servant in a developing
country, where your salary will not feed your family, you would
take payments, you would have to. You cannot go home and say,
"Sorry, children, I'm a very moral person, there's no food
tonight". We have to be clear that people have to live inside
systems. Although there is a morality, we have to respect that.
We similarly have politicians in developing countries. I went
to Benue State, which is one of the states in Nigeria where we
are working (I think we are working in four states) and I met
a group of politicians who had been newly elected in the new democratic
Nigeria—a country that is absolutely riddled with corruption
but new people coming along wanting to deal with it—and
after we talked formally they started talking to me as a politician
from another country, "Do you get people turning up outside
your house in the morning when you come out asking you for help?"
I said, "Good heavens, no". They said, "It's so
difficult, every morning there are 20 or 30 people or more, saying,
`My mother's in hospital', and you're supposed to give them money
and some of them have got genuine cases and some of them haven't.
Some of them will break your heart but you also know they're not
the poorest people in your constituency". They said, "What
do you do?" I said, "I have an advice bureau and I sit
in a school and I write letters to people". I share that
with you because suddenly I thought what would we do if our culture
was like that? Collectively, internationally, as we have advocated
multi-party elections for countries that previously had other
systems, we have failed to give them advice on controls on election
spending and it is a real omission. I have become more and more
conscious of it myself. It is partly because different countries
have different cultures about this, therefore, the international
community did not take it forward. Our restrictions on election
spending in our constituencies, thank heavens for them; they protect
us from the kinds of shenanigans that otherwise go on. The fact
we have now brought in a national cap is extremely good for politics
in Britain. I do think it is an issue we should take to developing
countries and bring out more openly. I want to do some more work
and drive that forward. My next point flows from those—that
the real anti-corruption work is to help developing countries
build effective modern state systems, with good transparent systems
of managing public finances, tight financial systems, effective
civil servants that are paid proper rates and have codes of conduct.
That is the work that will enable countries to have the effective
modern state that bring health care and education to all their
people; and create a climate for a private sector that will grow
and improve their economy. That is the real answer to corruption—systems.
It is big stuff then because you have to look at all the systems
of a country and why they have not got systems which achieve that—which
is why I am thinking about changing the title of Roger Wilson's
department. On that, people always say of us, "You know I
am keen to put funding into the budgets of governments because
in return you can get health care that reaches everyone; you can
get interventions to scale and you can create sustainable systems".
Richard Manning, one of our senior officials, who has worked in
this field for a very long time, was saying to me that it really
challenges the department then to help countries build systems
that catch corruption and ensure money is properly managed. Whereas,
if you have got a corrupt state and you cannot work with the state
and you go outside and you look for NGOs or big projects, you
do not solve the problem. You might protect our own budget and
you bring your service to people but it is not sustainable; the
minute the aid flow stops it will collapse and you have not helped
a country build a capacity to handle money properly and look after
the public revenue. The fact we are moving more in that way is
making us more effective, and helpful countries build financial
systems and public sector management systems that really bear
down on corruption and prevent it taking place. My final two points
are: for years everyone said, "Oh, well, business in these
countries that is what you have to do—bribe, bribe, bribe".
That was in the culture: blink and turn away. I can remember in
the past, and Ann Clwyd probably had this, people would say, "In
Indonesia economic growth has been so great, it's no good talking
about human rights and corruption, poverty reduction has taken
place". I think the answer to that in the end was the Asian
financial crisis, which was partly a result of corrupt relationships
between banks and local companies that created the conditions
which led to the crisis. The OECD Convention is a phenomenally
important breakthrough. My understanding of the history of it
is that, after scandals in the US, parliamentarians in the US
insisted on very tight anti-corruption law; and then USA business
did not want to be disadvantaged and came into the international
system to get a code that applied everywhere. That is a breakthrough
of monumental proportions. Every country is being asked to clean
up its act, when businesses from all our countries used to engage
in bribery. That was when it often went from the petty (survival-type
corruption) to starting to get to the grand scale, the big contracts.
Of course it led to plunder, but it also led to the misuse of
investment and it directed it not to where it was in the business
economic interest of the country, and that was widespread and
is now being really challenged and cleaned up. That is a phenomenally
important change. My final point is on money laundering, we see
in the Abacha case and the case of money which has been laundered
out of Pakistan, that although the UK has systems that supposedly
deal with this, they are very ponderous, slow and not very effective.
This is another area where we are getting a lot of change in the
world. Because of the Asian financial crisis, because of the speed
with which investment flows across the international system, we
now have a real interest in all our countries to have much tighter,
cleaner systems which catch money laundering, that try to catch
fraud and drug money laundering and criminal money laundering,
but it gives us another opportunity to really tighten up systems
and ensure that when corrupt leaders are plundering their country
they are not able to get the money out in the vast amounts we
saw in the case of Mobutu, Abacha and so on. This is big system
stuff, now we are talking about the whole systems of government
in developing countries; all the way in which businesses have
to operate across the world; our own systems on money laundering
and so on; but we are at a moment of enormous opportunity to tighten
all this up and clean up both ends of the corruption thing because
it is not an issue just of developing countries. It is a two-way
street and a lot of big stuff was driven by payments coming from
business in OECD countries. None of us should pretend there is
some culture of corruption in developing countries—we had
our own culture of corruption too. The studies show very clearly
and the voices of the poor show it very clearly, the poor developing
countries hate it. It gets in their way; they cannot get their
children to school; they cannot get the drugs their family need
when they are ill; so we should not be embarrassed and we have
all got to clean up our act, and we are at a moment when we can
do that.
755. Thank you very much. We have some detailed
questions on all those points you have made to us. I would just
say that we as a Committee have been driven to look at corruption,
because evidence given to us by the private sector is that what
drives them away from investing in some of the least developed
countries is the level of corruption. Since we are expecting the
private sector to be the engine developer, as you stated in the
first White Paper, it seems to us that unless we clear up the
corruption situation we are not going to get foreign direct investment
into some of the most important (in terms of poverty eradication)
countries of the world.
(Clare Short) Absolutely. This has come full circle,
from businesses seeking opportunities to bribe to get business,
to businesses saying, "I can't do business in that country—there's
too much corruption. I will be embarrassed and our company will
be embarrassed, and we'll be acting against our code and [increasingly]
law". It is a barrier to investment, there is no doubt about
it.
756. I can certainly confirm that the World
Bank, when you talked to them about corruption as I did several
years before 1996, were not prepared to discuss it; yet many of
their own projects and investments were heavily engaged in corrupt
practices throughout the world in my experience.
(Clare Short) I think we should all thank Jim Wolfensohn
for that.
757. The Department states that action on corruption
in developing countries is promoted as "an essential measure
for poverty reduction", which is what I think you have said
to us. Can you give us any examples of how corruption has affected
the poor?
(Clare Short) It is everywhere. It is all the things
I have just summarised: misuse of public resources; the poor being
made charges; investments going into sectors where they are not
productive and, therefore, damaging the economic development of
the country. Wherever you look it affects the poor. Corruption
is a crime against the poor above all. If you just take Uganda—and
you were at the conference we had yesterday, as was Tony and some
others I saw—the Ugandan education minister was saying as
they made their commitment to universal primary education and
started to focus their budgets more and more on getting poor children
into school, they then tracked that, of the increased allocation
the central government was making, 80 per cent was not reaching
the bottom, it was leaking out of the system. They really tightened
up all their systems and then the money reached the schools. In
Uganda, and in some places in India, Andhra Pradesh, they have
a notice on the school saying the budget comes from this state,
and this is how much the money is; so all the people in the local
village know exactly what money is coming and to make sure it
is being properly spent. In the case of Uganda, central government
had committed big new resources to primary education, did not
produce results because corruption led to leakage but, in the
end, they did get hold of the systems and tighten them up and
then the money got through—the schools got built; the teachers
got paid; the books were there and very poor children got a chance
to have an education.
758. Have you any plans to publish an anti-corruption
strategy?
(Clare Short) This is an area where if lots of different
players all have their own little anti-corruption initiatives
you will not get the systemic clean-up and the tight financial
systems and the good legal systems and the whole effective modern
state that is needed to really catch corruption. We have been
working with our Utstein partners to work together on this and
to work with the Bank and share out the work: someone helps the
Ministry of Finance get its sorted; someone might help the commercial
courts; because you have to share out all these massive layers
of the system to get things improved. We have not published the
Utstein agreement on how we would work together but we could let
the Committee have it.[1]
It is an outline of how we all agreed to work together. We have
agreed with the four countries in the Utstein group that we will
have a common resource centre, which will be basically a website
with expertise and knowledge and places where you can get help
and support, and we expect that to be available in the autumn.
(Mr Mason) This is intended to be an
ability for us to learn lessons we have to learn from our various
bilateral programmes on corruption specifically in Norway, Germany
and the Netherlands as well as ourselves. What we do not want
to do is replicate the vast amount of material that is already
out there in the World Bank, OECD, TI and all their websites.
We want to make sure this adds value. We think from a donor perspective
there is a value we can add. We want to make sure we can get access
to the best expertise which is around. There is a dearth of good
expertise on what makes good anti-corruption programmes really
work. The aim will be to try and collect together where that expertise
exists and make it as available as possible not only to ourselves
but to anybody else who wants to log on to the system.
(Clare Short) It is not quite an anti-corruption
strategy but it is getting close to it. It is trying to gather
together where there has been good practice, or indeed bad practice
because you can learn from things that have failed, to share and
improve. There is more and more interest in corruption; there
is more and more research about corruption; where it is and the
scale of it; but there is a dearth of work on really good strategies
for containing it and routing it out.
Mr Worthington
759. I am a little bothered about DFID taking
on too much, of saying it is working on corruption but not really
having the leverage to do it. For example, if we were in Africa
(we visited Malawi and Zambia) we are big players there as a donor
country. If you take somewhere like Nigeria, I do not see how
Nigeria can be dealt with in terms of external pressure through
DFID. Surely what we should be doing is, where appropriate, giving
a lead; but there ought to be a UN organisation, or an international
financial institution, that is the lead in an area like this.
It might be the WHO, IMF or UNDP; but seeing DFID doing it in
big countries where we are not big players, are we going to be
the effective way of doing it?
(Clare Short) Everyone who needs to do development
should not be doing it without thinking about systems, financial
systems and proper management of money. In the past all development
people did it often by having their own systems outside government
systems. Because government systems were seen as weak, baggy and
easily corrupted, grants would be negotiated outside the government
system, separate bank accounts, separate evaluation systems, separate
recording systems, which led to the hollowing out of weak states,
as we know with the famous Tanzanian example. That was a method
of avoiding corruption but it weakened an already weak state.
That was one way of dealing with corruption. You cannot do development
without dealing with corruption if you are operating in countries
that have got corruption problems. Starting to help countries
build their strong systems means you cannot move. If you decide
to do education, who is going to manage the finances; how does
the education ministry work; who pays the teachers; does the money
go to the schools? You cannot avoid the question. Wherever you
are, you are in it. Wherever you are, you should be collaborating
with others, not all reinventing the wheel, and not having us
all replicating our own system—so the French projects have
a French financial system etc. We have to help countries have
their own systems and merge behind their own systems. Who takes
the lead depends on who is in leading positions in different countries.
In countries where we have a very big UK programme, a very strong
relationship, we would expect to work with others but be a leading
player. In other countries where we are a small fish we should
collaborate with others but be a small player. Of course Nigeria
is an enormously big country and has enormous problems to overcome,
weak government systems, traditions and corruption that this democratic
government has inherited. In poor states we will be leading players
and in different sectors at the national level we will collaborate
with others and share out the work—that is the way to do
it. Getting this more collaborate way of working in development
is a part of building effective modern states and running lots
and lots of projects.
(Mr Wilson) There is effectively a multi-donor mission
to Nigeria on corruption in March. There are a lot of donors who
have concerns about corruption in Nigeria, and those concerns
are shared by the President. He has encouraged a multi-donor mission
to look at the issues and what roles donors have in support of
government. As it happens on this occasion, that mission will
be co-ordinated by UNDP, but it might be another one another day
in another country.
(Clare Short) Do you know the World Bank Institute
work? This is a system for a country to look at itself, draw people
from all sectors, name its own corruption problems and set up
a programme of who is going to sort out the banking regulation
system, who is going to help the Ministry of Finance and what
about drug procurement. This is massive. It is everything in institutions
in a modern state. The diagnosis is national and the sharing out
of who will help in which sector. We are working with the World
Bank Institute in 14 countries to try to get a more systemic approach
from the one-off little intervention approach.
1 See Evidence pp. 281-292. Back
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