Jose Carlos Ugaz, global chairman of Transparency International, speaks at the headquarters of the Independent Commission Against Corruption in North Point, Hong Kong, in October 2016. Photo: Xiaomei Chen
What Transparency International’s corruption index doesn’t see
Dan Steinbock says Transparency International’s annual measure of corruption is flawed because it only measures public sector graft and takes a biased view of advanced economies’ interests
South Korea’s performance improved as the country suffered from scandals associated with the now-impeached president Park Geun-hye. And, despite more than 100,000 anti-corruption indictments, China’s ranking has improved slowly.
The Philippines was seen as least corrupt when the drug trade thrived. When the government of Rodrigo Duterte began its fight against corruption, the ranking fell. Myanmar has steadily improved, while more than half a million Rohingya Muslims have fled persecution into Bangladesh. These anomalies are systemic.
The index does not measure actual corruption, but perceived corruption, which adds to bias. In theory, the index tries to bypass the bias problem by including “different” perceptions. In practice, most come from the US and a few European countries, including the World Bank, The Economist Intelligence Unit, Freedom House, Global Insights and the Political and Economic Risk Consultancy. In the emerging world, these sources are often criticised for a pro-US and pro-Western bias.
South Korean protesters hold cut-outs of impeached president Park Geun-hye in January 2017 in Seoul. South Korea’s Corruption Perceptions Index rating improved for last year despite her impeachment and the conviction of the Samsung Electronics’ vice-chairman for charges that included bribing Park. Photo: AP
Most problematically, the surveys focus largely on emerging countries, yet the latter are systematically excluded as sources.
The index was developed by Transparency International (TI), an international non-governmental organisation, to combat global corruption. Though based in Germany, its key founders were not only Germans but represented the World Bank, US military intelligence and US multinationals and industrialists.
The NGO has lacked an internal consensus, seen in the recent drift between it 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. Since the 2000s, the foundation had been criticised for a lack of transparency, and deals with resource-rich oligarchs and the highly controversial private military firm now known as Academi (previously Blackwater).
In 2013, TI members called for the end of the prosecution of Edward Snowden and comprehensive protection for whistle-blowers. TI-USA rejected the idea. A year later, it honoured Raytheon, a leading Pentagon defence contractor, for its “efforts to prevent corruption”. By January 2017, Transparency International had stripped its US affiliate of its accreditation (TI-USA has renamed itself Coalition for Integrity).
Edward Snowden speaks via video link during a conference at the University of Buenos Aires Law School in Argentina, in November 2016. A difference of opinion over Snowden’s leaks was a central disagreement between Transparency International’s headquarters and its American branch, which eventually split off into a separate organisation. Photo: Reuters
The organisation’s criteria still have a striking limitation: the index only measures “public sector” corruption. According to the OECD, public sector employment is highest in Nordic countries (25-35 per cent), and countries with a strong state (France and Russia, 28-30 per cent). In advanced economies, the public sector has a lower role (15-22 per cent in the UK, US and Germany). Conversely, private-sector activities are significant in Nordic countries and state-led economies (60-75 per cent), but higher in major advanced economies (more than 80 per cent).
Since the private sector is excluded, Sweden had one of the best index 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 Brothers and AIG. Similarly, the recent Volkswagenscandal failed to tarnish Germany’s high position.
Volkswagen engineer James Robert Liang leaves court in Detroit in September 2016 after pleading guilty to one count of conspiracy in the company's emissions cheating scandal. Photo: AP
In 2015, Transparency International applied for and received US$3 million from Siemens Integrity Initiative. In 2008, Siemens had paid one of the largest corporate corruption fines – US$1.6 billion – for bribing government officials in numerous countries.
Private-sector exclusion means that the activities of multinationals dominating developing economies are ignored, although they can involve huge illicit financial flows to and from developing countries.
Yet, corruption indices typically rank developing countries, which suffer most from these illicit flows, as the most corrupt, whereas advanced economies, which often benefit the most from such flows, are deemed 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.
Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (US) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). See: https://www.differencegroup.net/
