Hello, welcome back.

This is corruption, week one, lecture three.

Today, we're going to ask the question, how much corruption is there in the world?

Now, there are three ways we can think about how much corruption.

One is just how frequent is this abuse or misuse of power or trust for

personal benefit, rather than the reason for which the power or trust was given.

Another way of measuring how much corruption is the amount

that the abuser or misuser gains.

And then, finally, we might think about how much value is lost.

Of the three ways of thinking about how much corruption there is,

the one that has been measured the longest and for

which there's probably the most accurate measurements is frequency.

And with respect to frequency, the most respected and

clearly the most well-known is the Corruption Perceptions Index

which is published every year by Transparency International.

Now, I love Transparency International, they're an amazing organization,

they are publishing the CPI later, and later, and later every year.

And so it is generally not until December that we get that year's iteration,

which is why I'm using Corruption Perceptions Index from 2015.

The Corruption Perceptions Index brings together sources such as risk evaluation,

survey, business polls, business evaluations,

government evaluations, competitiveness index.

And amalgamates them all into one comparable index.

It gives polities a score from 100, which would mean

that country was clean as could be, that there was no

perception of political corruption at all in that particular polity to zero.

Which means that there is a perception that every single interaction

involving that particular polity also involves corruption.

On this map, you can see by color code the scores

that various polities have gotten.

And the yellow would be the cleaner countries, the red and the dark red

would be those countries for which there's a perception of more corruption.

What you'll notice on this map is that there is lot of red.

Unfortunately, Transparency International reports that

around two-thirds of the polities that they measure and

they measure most of the polities in the world,

say about two-thirds are either corrupt or endemically corrupt.

And we can break that down and take a look at some of the countries at the top,

in the middle, and the bottom.

The top, you tend to have countries like Singapore, Scandinavian countries,

Canada and they are coming in with scores in the 90s and

the high 80s, down to Uruguay which is really taking care of

a lot of these kind of issues, which gets a score of around 74.

The middle is always very interesting, because we are looking for the point out

of 170 or so countries in any given year, the number varies every year.

We're looking for the point at which we get the score of 50.

Above 50 means a polity is perceived to be cleaner than it is corrupt.

Below 50 means that a country is perceived to be more corrupt than it is clean.

And for this year that comes in at around 54.

So 54 countries are cleaner than they are corrupt.

And from 54 to 170 or so, I think this year it's a 167,

countries are perceived to be more corrupt than they are clean.

A lot more polities are perceived to be more corrupt than

they are clean, and that's true every single year.

We get down to the bottom of the table, of the index for this year and

we see scores like 8, 11, 12, 15.

When we're talking about scores like that,

we're talking about a perception that there's

an extremely high frequency of corruption.

Now, Transparency International's Corruption Perception Index

reached the entire polity.

But of course, the frequency of corruption is lumpy.

So let's take a look at this map.

This is a map produced by Michael Johnston and Oguzhan Dincer.

They spent a long time bringing together from, again,

a variety of sources the frequency of corruption in one particular country,

and that country is the United States.

And on this map, the lighter color once again means that upstate is cleaner,

that there's lower frequencies of corruption.

And a darker color means that there's more frequent incidences of corruption.

And you can see that it's lumpy, that there's some states

right next to states that are completely different colors, right?

So when we look at Transparency International's Corruption Perceptions

Index, we want to understand it's a very coarse grained index.

We can get a finer grain by looking discreetly at a country.

And I'm willing to believe that within the United States,

if we mapped it out by county or by city, we would get an even finer, and yet

still differentiated map of the frequency of corruption.

Now to answer any questions before they come up,

there is one state down in the bottom center, it's called Louisiana,

for those of you who are not familiar with United States, that's red.

And [LAUGH] there is an interesting story behind that and

I urge you to read the entire story.

But basically what the investigators found was that

Louisiana had such a high frequency of corruption,

that the very sources of information about corruption were unreliable.

And so, they merely say there's a lot of corruption here,

but it's difficult to actually measure the amount.

Here's some URLs if you want to get deeper into this kind of information.

I strongly encourage you to spend sometime

looking at the methodology and at the results.

Really interesting bottomline, there's a tragic and high frequency in

terms of incidence of corruption around the world and within polities, today.

With respect to the amount gained from corruption,

those measurements are far, far, far more difficult.

But very serious social scientists have been doing some really interesting work to

try to figure out if we can put some value next to [COUGH] how much the abuser or

misuser is gaining from the abuse or misuse of office of trust or authority.

Just with respect to business in the United States and

it'd be great if we had this data for the entire world but we don't.

So just with respect to businesses in the United States,

the amount of gain that employees or agents have accrued

each year through the form of corruption defined as theft,

the research suggests is anywhere from $6 to

$60 billion per year, $6 to $60 billion.

That’s a pretty wide variance and part of the variance is due to the decade

that separates the really good studies that have been done on this.

But another part of the variance is also due

to the Better ways of getting at behaviors that people try to hide.

We've learned a lot over the last 15 years or so

about how to ask questions, how to get at this kind of information.

What to look at when we investigate these kinds of things?

So, $6 to $60 billion have been gained,

that's what the people who steal have got in, just within the United States.

Around the world that numbers probably staggering.

The World Bank has tried a number of different ways and

with growing accuracy to determine how much people have gained,

have accrued by taking bribes.

Their estimate based on surveys,

based on extrapolation from interviews with bribe taking officials,

based on extrapolation from investigations into

World Bank projects and the projects based on or related to World Bank Projects.

Is that the amount that has been accrued, the amount gained through bribery

exceeds $1 trillion.

In other words, people have made over a trillion dollars just by taking bribes.

And again, that's probably a low estimate, our accuracy,

the way that we can figure these kinds of things out, is improving every year.

And each time it improves, that number goes up.

With respect to the value lost, again, very difficult to measure.

A very common measurement, a number that gets thrown

around a lot is that global corruption costs around

$2.6 trillion, US dollars, every year.

Around 5% of the global economy.

Now, I want to caveat this particular number with a bit of caution.

The methodology with which this number was developed involves a lot of speculation.

It's speculation based on really good experience.

And it's speculation based on some pretty defensible

assumptions about how corruption works and

about how corruption manifest itself in the global economy,

but it still involves some assumptions and some questions.

Most people who spend a lot of time working with corruption think

that this is probably a low estimate, and

it's a low estimate because it's very difficult to measure how

corruption effects in a secondary, and a third, and a fourth level.

We know that the effects of corruption ripple out, but the causal link and then

the definite number next to that causal link, very, very difficult to measure.

So we're left with a commonly accepted but

still questioned estimate of a global cost of around $2.6 trillion every year.

Now, the European Union did a much,

because they had a much smaller group to work with, did a much finer study.

And their study found that corruption within the European Union

cost the people of the European Union that they lost the value of

about $120 billion every year.

That again represents a fairly

large percentage of the value, the entire value of the European Union.

Finally, the Organization for

Economic Cooperation and Development, the OECD,

which is a, essentially a policy making platform.

A platform for these countries to interact on economic issues.

They did an extensive study on contracts within the public sector,

so public contracts.

Their study found that somewhere between 20 and

25% of the value of these contracts is lost to corruption, primarily bribery.

20 to 25% of public contracts is a very large percentage and

that's a value that's not being used for more productive things.

All right, so how much corruption is there in the world?

Well, we know that corruption occurs frequently.

In some places more frequently than others.

No places it not occur at all, but generally around the world,

corruption now occurs quite frequently.

We know that corrupt actors are gaining billions of dollars.

Billions of dollars by abusing or misusing their power or trust.

By acting in ways that we don't want them to act,

they're gaining billions of dollars that they don't deserve.

And finally, we know that at the societal level, we are losing trillions of dollars.

Trillions of dollars of value are locked away,

are taken away from us because of corruption.

Thank you and I look forward to seeing you for the next lecture.

1.3 How Much Corruption?

Corruption

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