Corruption as an Impediment to Economic Growth
Some of the World Bank money allocated to village infrastructure ends up greasing palms not smoothing gravel. But how much? In a remarkable study backed by the bank, Ben Olken, of Harvard University, dug deep into the sand and stone to find out. He reports the gap between what a village claims it spent on a road, and what he and his engineers reckon the road really cost. They left little to guesswork. To discover prices and wages, they surveyed quarries, labourers, truckdrivers and suppliers. To get a fix on quantities, they dug holes in the roads, taking a sample of the material that had gone into their construction. And then they built their own “test roads”, to find out what it cost to do the job properly.
Mr Olken calculates that on average 28% of reported spending went missing, mostly because roadbuilders skimped on materials. (Not all of the gap can be put down to venality, though: some of the gravel, for example, was probably worn away.) Thanks to his measure of corruption, Mr Olken can weigh up different strategies to fight it.
He reaches an unfashionable conclusion. The bank puts great store by “empowering” the poor to keep their officials honest. In Indonesia, villages must hold public hearings before they get the second and third slices of their money. In a random sample of villages, Mr Olken tried to stir up a bit of Tocquevillean spirit (“Town meetings are to liberty what primary schools are to science...they teach men how to use and how to enjoy it”) by sending out hundreds of invitations to villagers to attend the public hearings. His efforts raised attendance, but this had little measurable effect on corruption.
For all its romantic appeal, monitoring by villagers suffers from a free-rider problem. If your neighbour keeps a beady eye on road spending, you can benefit from his vigilance without making an effort yourself. Why, then, should you bother? But by the same logic, why should he?
Mr Olken puts his faith in a less fashionable ally: auditors. A group of villages, chosen at random, were told that they would be audited at the end of the project. This threat reduced missing expenditures by about eight percentage points, to 20% or so.