TABLE OF CONTENTS I. INTRODUCTION II. CORRUPTION AND AID A. Corruption is Not a Recent Development B. Defining Corruption C. What Is Aid? D. What Type of Aid? E. Assumptions Underlying Aid Programs III. AID INEFFECTIVENESS A. Correlation, Causation and Confusion B. Why Does Aid Fail? Aid Dependency and the Curse of Unnatural Resources 1. Aid and Corruption During the Cold War 2. Is All Corruption Bad? 3. No One Claims Grand Corruption is Good C. Imposing Good Policies Through Conditionality D. Selectivity E. Realities of the "Aid Industry" IV. WHERE HAS AID BEEN EFFECTIVE? V. How IS GRAND CORRUPTION TO BE ADDRESSED.) A. Fighting Grand Corruption: The Inadequacies of Current Statutes and Conventions B. Pushing on a String: Deterring Corruption at the Top 1. Private Right of Action for Grand Corruption 2. Financial Privacy for Senior Governmental Officials C. Resetting the Aid Agenda VI. CONCLUSIONS A. Hypocrisy B. Hyperbole C. Hubris D. Humility I. INTRODUCTION
This article examines the relationship between corruption and foreign aid. By some estimates, more than $2.5 trillion has been expended over the past six decades on aid of all kinds. This enormous total includes military aid, humanitarian and disaster relief aid as well as aid intended to foster economic growth. There is incontrovertible evidence that corruption is responsible for the diversion of billions of dollars of aid from its intended purposes. In Part I, I look broadly at corruption and aid. I focus on "grand" or "political" corruption because it is the most intractable kind and has an obvious impact on aid intended to foster long-term economic development. Part II analyzes the extensive literature on the efficacy of aid in facilitating self-sustaining, poverty-alleviating, long-term economic growth. The result of this review is most disappointing: aid is not an effective means of alleviating extreme poverty. In this section, I outline the foundational assumptions underlying foreign aid and discuss the "inconvenient truths" associated with aid.
Part III exposes some further awkward truths about where self-sustaining economic growth has been successfully established. Part IV deals with the undeniable impact of grand corruption on developmental aid. I analyze the current instrumentalities available to combat corruption and their fundamental inadequacy. Part V concludes with a summary of the overall state of affairs for current national and international aid programs and offers several policy proposals for making long-term development aid more effective and less susceptible to corruption.
Few will state that corruption is not a problem. I argue that although corruption is a problem, it is one that will not be cured or eradicated. Corruption can and should be suppressed and deterred; however, corruption will not be eliminated.
CORRUPTION AND AID
Institutions and experts involved in the delivery of aid have strong views on corruption and its corrosive impact:
* The World Bank has labeled corruption the "single greatest obstacle to economic and social development," and views the anticorruption battle as "central to its poverty alleviation mission." (1)
* The European Bank for Reconstruction and Development tells us "corruption weakens the state's rules and institutions." (2)
* The International Monetary Fund has emphasized that international aid should "ensure the rule of law, improve the efficiency and accountability of their public sectors, and tackle corruption." (3)
* The United Nations Development Program links corruption to problems involving gender, the environment and cross-border investment. (4)
* Others have contributed to the universal condemnation of corruption.
* President Obama has declared that the United States must tackle corruption at home and abroad (5) and should be at the forefront of "an international initiative to root out corruption."
* We are told that:
* Corruption is a cause of poverty. (6)
* Corruption caused the financial crisis of 19971998 in Asia. (7)
* Corruption contributes to man-made disasters. (8)
* "Corruption slows down and diverts investment, distorts competition, is economically inefficient, and is unfair to poor people." (9)
* Corruption reduces private investment, (10)
* "Egregious human rights violations such as international child sex trafficking are made possible by cultures of corruption." (11)
* Corruption "frustrates efforts to achieve very basic human rights," "undermines environmental reform technology and clean up efforts," and "directly affects the safety of ordinary consumers." (12)
* "There is no doubt that graft afflicts the developing world heavily: officials defraud developing nations of up to $40 [billion] yearly." (13)
Corruption is Not a Recent Development
Corruption has been with us from "the Beginning," or at least from the time of Eve's encounter with the serpent in the Garden of Eden. (14) The Bible is unambiguously explicit: "[a]nd thou shalt take no gift." (15) The Quran has many references to corruption:
Give, therefore, full measure and weight [in all your dealings], and do not deprive people of what is rightfully theirs; and do not spread corruption on earth after it has been so well ordered: [all] this is for your own good, 'if you would but believe.' (16) Beyond these religious traditions, we have additional ancient evidence that suggests the acceptance of corruption as an inescapable verity:
Just as it is impossible not to taste the honey (or the poison) that finds itself at the tip of the tongue, so it is impossible for a government servant not to eat up, at least, a bit of the king's revenue. Just as fish moving under water cannot possibly be found out either as drinking or not drinking water, so government servants employed in the government work cannot be found out (while) taking money for themselves. (17) Few would dispute the conclusion that corruption is "somewhat universal," (18) "an expression of our humanity," (19) or "an ugly problem facing every human culture throughout history." (20) The recognition that corruption is a universal truth suggests that corruption cannot be completely eradicated. Despite this, the international community formally condemns corruption and has taken numerous steps to suppress and deter corruption.
Can we define corruption? Supreme Court Justice Potter Stewart once declared that although he could not define pornography, he knew it when he saw it. (21) Similarly, we lawyers and legal scholars know corruption when we see it. This knowledge, however, arises out of cultural norms, not rigorous legal analysis. One of the most prominent scholars in this field, Susan Rose-Ackerman, has noted: "'Corruption' is a term whose meaning shifts with the speaker." (22) For example, the Chinese have the deeply ingrained tradition of guanxi, whereby social relationships are created and developed by providing gifts and favors. Similarly, in East Asia and Sub-Saharan Africa there is a long tradition of gift-giving. Although U.S. policy condemns such practices, we do accept our own practices of business lunches and Skybox entertainment for potential clients. Given the different ways corruption manifests, it can be difficult to define. Nonetheless, we know it when we see it.
For this article, I focus on corruption with respect to development aid, which, if reduced, would make aid intended for sustainable economic development more efficacious. Thus, the focus here is on "grand Corruption," (23) i.e., the embezzlement, theft and diversion of funds by government officials responsible for administering aid. This paper does not discuss "grease" or "facilitating" payments." (24) Similarly, patronage, nepotism, commercial bribery between private parties, and kickbacks that do not involve political figures or state bureaucracies, while important, are not the focus of this article.
What is Aid?
Foreign aid has been an American national priority since 1947 with the announcement of the Marshall Plan, which aimed to revive Europe in the aftermath of World War II. Although this aid was deemed tremendously successful, it is not the type of aid we deal with today. Europe needed to rebuild a physically destroyed capital base, but the institutions, knowledge, national policies and cultural habits necessary for self-sustaining economic growth had long been in place; much of the Marshall Plan's aid was directed--whether directly or indirectly--at businesses which had functioned well prior to their destruction during World War II.
This is not the case in the "less developed," "underdeveloped" or "third world" nations where aid flows today. Nineteenth century colonialism rapidly disappeared after World War II. Ultimately, decolonization increased the number of nations in need of aid to more than a hundred. A portion of this aid was not intended to rebuild previously functioning, developed economies, but to alleviate poverty in societies, which, to a large extent, had never industrialized. For more than four decades during the Cold War, aid donated by the United States and its NATO allies was largely structured to ensure that such nations were loyal to the Free World and not to the Communist Bloc. Such aid was designed to encourage political and diplomatic reliability. The USSR and the Warsaw Pact nations provided aid to secure exactly the opposite loyalty. If this aid was diverted by national leaders to personal use, this was not seen as a reason to terminate the aid, thus risking its primary diplomatic and political objectives.
What Type of Aid?
There are many forms of aid and many institutions and organizations committed to providing aid. One way to think about aid is to categorize it as development aid, humanitarian aid or on-going charitable aid.
* Development aid is focused on long-term economic growth in the receiving country and is generally directed to the receiving nation's government, (25)
* Humanitarian--emergency aid is...