Corruption is a huge problem.
It is estimated by the United Nations that up to 5% of the global economy (estimated to be around $2.6 trillion) is lost to corruption annually.
In one case I remember vividly from 2015, Nigeria’s former national security adviser, Sambo Dasuki, was arrested for allegedly stealing $2bn [Ed: Yes, that’s a billion with a B] by awarding phantom contracts to buy 12 helicopters, four fighter jets and ammunition.
It removes money from the economy by funneling it towards those taking unnecessary cuts in the form of bribes or theft.
It also aims to slow down the rate of innovation and progress within a society, as it is in the best interests of those in power who benefit from a corrupt system to keep things going as they are. A recent study by the World Economic Forum also illustrated how corruption harms innovation.
So what can be done to address it?
Can we find some innovative solutions to help reduce the impact of corruption?
Many Anti-Corruption initiatives usually fall into three major camps:
- Legal / Intergovernmental punishments for participating in corrupt activities: These are only as effective as far as the policies are understood, followed, and enforced.
- Whistleblowing helplines & Apps: Ways for people to report corrupt activities. Some initiatives like the Whistleblowing Helpline in South Africa and TRIMS app in Nigeria (to map transport blockades asking for bribes) are already having an effect, and using technology with a centralised database allows people to quickly report and track offenses.
- Education and social involvement: Many initiatives aim to reduce the appeal of engaging in corrupt activities through education, social outreach and community building. The UNDP recently identified and funded six social innovation initiatives to combat corruption with $50k seed funding each, in China, Vietnam, India, Pakistan, Thailand, and the Phillippines.
While all of these activities are worthwhile and necessary, often they rely on the people who are negatively affected by corruption taking the lead in stopping it.
In this article, I want to share two outstanding case studies of innovations which have effectively removed process steps which previously were rife for corrupt activities, in both cases with middlemen skimming profits from people further down the line, without them being aware of it.
What I love most is that while the first case study is a technology-driven solution, the second is basic but ingenious.
Case Study 1: Afghanistan Police being paid to their mobile phone
Anyone who has heard me speak knows how much I love M-Pesa, the SMS-based mobile payment system created in Kenya which gives electronic money transfer, saving and even micro-loans to low-income individuals. Nearly half of the entire Kenyan GDP (48.7% in 2017) is now processes using this phone-based system, but it also has had tremendous success in reducing corruption.
The clearest example came from Afghanistan, where their offshoot M-Paisa was first trialed in 2009 to pay their police force via their phones instead of with cash.
Afghanistan is a country where less than 5% of people have a bank account, so cash was traditionally the major means of getting paid.
The results were immediate and dramatic: overall salary costs for the government dropped by 10% because it eliminated fake payments to nonexistent officers which were created by middlemen.
But the more surprising result was that the police force themselves thought they had received a 30% salary increase when they checked their balance, because these same middlemen were no longer able to skim cash from legitimate salaries before being paid out.
This shows the dramatic effect that cutting opportunities for corruption out of the process of payments itself can have.
Case Study 2: Postcards to get more rice to the poorest Indonesians
Indonesia is the fourth most populous country in the world, and has a program called Raskin to ensure that everyone in the country receives a minimum ration on rice to live off. The program costs the Indonesian government more than $1.5 billion annually, but studies had shown that for every 100kg of rice being shipped to a government warehouse, only 50kg were reaching the people it was intended to feed. That means over half of it was being lost along the way.
According to an NPR article about the initiative, here’s how the program was supposed to work:
The central government shipped the rice to thousands of distribution points across the chain of islands that makes up the Southeast Asian nation. Then officials at the village or neighborhood level were in charge of handing out the rice and collecting a meager subsidy. Low-income families are supposed to get 15 kilos of rice a month — about 33 pounds — at roughly 15 cents a kilo, about a fifth of the going price in the market.
Many of the local officials, however, decided to distribute the rice to residents who weren’t on the government’s poverty rolls but who they felt were in need. Others decided to set the subsidy price themselves. This wiped out much of the intended benefit of Raskin, which was to provide a staple food at a rock bottom price for the country’s poorest citizens.
MIT Economist Abhijit Banerjee had been studying the program for years, and proposed an experiment to reduce the instances of corruption along the supply chain.
The solution would not be high-tech, but instead something incredibly simple.
This postcard would contain the proof the poorest people needed to show not only how much rice they were due, but the price they should be charged for it.
This meant that the middlemen along the way, especially at the final stage, no longer had a monopoly of information (an economic principle related to common knowledge) to set whichever prices they wanted. People finally had the bargaining power to get the rice for the price which the government had promised them, but they previously were not aware of.
Banerjee and his team sent out hundreds of thousands of postcards with the required information (how much rice each individual is eligible for, and what price they would be charged) on them to a test sample of 550 villages.
According to the results of their study, villagers with the postcards received on average 26% more rice than they previously had.
The Indonesian government has expanded on the idea of the Raskin to cover several other social programs, including a school subsidy and a temporary cash transfer program. The government in 2015 sent out a credit-card sized I.D. called Kartu Pelindungan Social or “Social Protection Card” to more than 15 million Indonesians, letting them and aid officials know what benefits they should be getting.
So as we can see, innovative ideas can have a substantial impact on reducing corruption around the world.
And the most effective ones actually remove opportunities for corruption from the process automatically.
So what do you think?
Do you know of any other examples of innovative solutions to corruption?
Let me know in the comments below.
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