Select Committee on International Development Minutes of Evidence

Examination of witnesses (Questions 752 - 759)




  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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