Letter from Dumaguete. Siliman U. Econ Prof. O. Roncesvalles‘s musings on the grand corruption (breathtaking) that’s finally being exposed, the easy solutions (like prayer) that won’t work, the hard solutions that would take unusual political will (like an anti-dynasty law and vote-counting reform) but that we can aim for, toward systemic change, now that the youth are awake.

LA VIDA LOCA – corruption style
When it pours, it rains
By Orlando Roncesvalles

Where we are

Corruption cannot be helped. At times, we accept it (keeping our tongues in check and cheek). We tolerate low-level corruption, but grand corruption is something else. It is breathtaking, magnificent, munificent, gargantuan, and earthshaking. It invites performative art on TV, where we get to watch legislators make general denials, and we pretend belief. We give them their presumption of innocence, but they know that the jig is up. So, our youth go to protest marches. Some of us — parents and grandparents — join in. It feels like the 1980s.

It is not my intention to excuse a particular form of corruption. Still, under certain conditions, we can tolerate or even justify corruption. The justification is both practical and academic. If corruption is small enough, we live with it. Such corruption can also address market failures. Based on this theory, Adam Smith supposedly excused a corrupt customs official. Robert Barro and Sala-i-Martin raised the same argument in a 1995 book on economic growth. We entertain the thought that as an economy advances, petty corruption tends to go away. For example, adopting a de minimis rule for imports (giving an exemption from import tariffs for small-value shipments) has cut much of petty customs corruption.

We should then be clear about the corruption we will not abide by or endure — the kind that kills. “Bill” will now turn in his grave. It isn’t because corruption is the misuse of public power for private gain. It is more than that. It is grand theft. It is the kind that takes from the poor (the taxpayer, the masa, the hapless subscribers of Facebook, X, and TikTok) and gives to the rich or powerful. It is the kind driven by greed in the dark hearts of men.

If entrepreneurs were smart enough, they might provide “corruption insurance” in the same way that insurance companies write policies to cover floods and disasters. Instead, we find several explanations in the academic literature for why corruption persists (a topic I hope to revisit soon). These explanations generate solutions to the problem of grand corruption.

Easy solutions

Some facile solutions don’t work. They are: (1) prayers, (2) asking government officials to showcase their talents, (3) looking for introverts, and (4) moralizing or “shame and blame” tactics.

Prayer is useless. We pray to the good Lord to “lead us not into temptation.” The late senator Miriam D. Santiago said, “When the government employee is poor, and he works in a corrupt agency, he can resist everything except temptation.” I would amend her observation. Those now caught in the flood control scandals are not poor. Corruption would not exist in an honest government agency. And of course, prayers would not be needed. To her credit, I cannot imagine Santiago advocating only prayers to fix our corruption mess.

An aspect of temptation is the Mt. Everest syndrome. “Why did you climb the mountain?” You respond that it was just there, so unattainable. Oh, and this RollsRoyce comes with an umbrella. And there is no way to level Mt. Everest. We all secretly want to climb the heights of (social media) fame and fortune, and be envied by our neighbors. Perhaps, we ought also to require, as a condition for public service, a high score for being an introvert. Introverts don’t fall into a honey-pot corruption scheme. They wouldn’t know what to do with the money!

It also doesn’t pay to simply “name and shame” the culprits, even if we are disgusted by the faces of legislators who are as honest as the day is long. All right, that was a line from the movie Casablanca. The truly corrupt have armies of PR and legal people who deodorize their s***. The guilty can even include famous (and possibly infamous) anti-corruption crusaders. Likely, some journalists, celebrities, and “influencers” are also on the take. How long should we put up with this charade?

Hard solutions

Moving on, we should consider the best ideas that economists have offered and documented. Our legislators should study the successes in such countries as Singapore, China (including Hong Kong SAR), New Zealand, and Rwanda.

One guardrail worth considering is a “smell test.” If the corrupt scheme has grown too large, it cannot be hidden or denied. It stinks. Such a smell test works for the recently discovered flood control schemes. Almost any whistleblower system will deter such schemes. Some reformers believe that computers, ‘blockchains’, and transparent internet portals will make it practically impossible to hide massive corruption. They may well be right. Some well-intentioned citizens have also called for publishing the SALNs of public officials and giving more teeth to the AMLA.

One solution from institutional economics lies in the design of penalties. Corruption is typically a conspiracy. Breaking up the conspiracy requires penalties that are light on the “victims” and heavy on the “predator” parties. Economists call this remedy ‘asymmetric penalties.’

Setting up a conspiracy is not cost-free. In the case of a flood control program, a senator or congressman seeking a kickback must negotiate with other parties, such as contractors, auditors, and engineers, to devise a systematic method of diverting taxpayer funds through the budget. The key player is the legislator who proposes (the “proponent”), under the guise of good intentions, “ghost” or overpriced projects. If undiscovered, this type of corruption feels like a perfect crime. However, it requires resources and coordination that are basically transaction costs.

A general solution is therefore to raise the transaction costs of corruption. One way of doing this is to introduce uncertainty or mistrust among the conspirators. A solution in China featured a twist on the bidding process for public works. There, disinterested and anonymous experts were asked to study and approve particular bids. The experts did not know beforehand which projects they would be judging. Johann Lambsdorff reported on this solution in his book, The Institutional Economics of Corruption and Reform.

Another approach is a direct application of asymmetric penalties. A controversial proposal to decriminalize bribe-giving was suggested in 2011 by Kaushik Basu, a former World Bank official and Chief Economic Adviser to the Indian government. Moral outrage greeted the proposal. The Chinese already had a version of the proposal in place since 1997; there, according to one observer, it was motivated by sympathy toward bribe-givers whom public officials “victimized.” The Basu proposal was to apply only to acts, such as the issuance of licenses, to which the bribe-giver was justly entitled. The bribe-taking official would be severely punished. Interestingly, the original proposal backfires if it results in zero bribes and also zero licenses!

Using the tools of game theory, Martin Dufwenberg and Giancarlo Spagnolo analyzed the Basu proposal and suggested scenarios in which it may be effective. The trick was to modify the proposal so that it achieves two objectives: reducing the cost of reporting an illegal bribe or transaction, and reducing the incentive for an official to participate in such transactions. The first objective is something we already have to some extent — incentives and amnesty for whistleblowers. The second objective is perhaps more challenging; it would be helpful if we also had an efficient legal system and a culture of honest and fair dealings among government officials — difficult but not impossible.

Old-fashioned street protests also work if enough of the citizenry have become sensitized. Studies by Erica Chenoweth at the Harvard Kennedy School suggest that nonviolent protests, involving only 3.5 percent of the affected population, are effective because such protests are often representative of underlying public sentiment. The recent demonstrations by the youth in Indonesia and Nepal serve as a warning to established politicians who think that corruption can persist.

It is evident today that the absence of a law implementing the constitutional ban on political dynasties encourages corruption. The 1987 Constitution was explicit: “The State shall… prohibit political dynasties as may be defined by law.” The underlying logic is straightforward: profits from corruption allow political families to maintain their grip on public office and thwart legislation that would define a ‘political dynasty,’ effectively undermining the constitutional mandate.

What we can do

We can enforce the constitutional ban against political dynasties through the necessary legislation. This is no longer a matter of wishful thinking. Many support such an initiative after waiting almost 40 years. We can demand that legislators resign if they fail to act accordingly.

We can, with political will, strengthen the existing anti-graft and anti-money laundering laws by affirming the protections and amnesties we offer to whistleblowers, and by penalizing the banks that allow their clients to use dummies or shell companies to move illicit funds. Note that under AMLA, casinos are considered banks and are required to implement anti-money laundering measures.

We can demand transparency in public office — no more secret SALNs, all budgets at every level of government should be “out there” for each citizen to scrutinize and debate, and no more secret meetings among councilors, provincial boards, and legislators when they deliberate on budgets. This “sunshine” approach is so elementary, but we are still in kindergarten. We can also enforce transparency through public ledgers, providing the public with easy access to the details of governmental revenues and expenditures, and to the SALNs of officials.

If our legislators and executive officials aren’t up to the task, we can vote them out of office. Can we, if corrupt candidates buy votes or can manipulate the votecounting process? Some quarters have suggested returning to manual and public counting at the precincts, while allowing for speedy and open-access canvassing of votes — the preferred practice in most advanced countries.

Prognosis and prescription

Our youth have awakened. No longer will they stand idly by. We can support them en masse and earn their respect. The corrupt old fogeys will wonder what hit them. Keep them guessing, and by all means, let them rot on the wrong side of history.

CORRUPTION BE GONE