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Why red tape increases graft

By Andrew M. Mwenda

Charles Onyango-Obbo disagrees with my argument that multiple checks and balances on tendering and contracting in Uganda tend to increase rather than reduce corruption. His arguments are convincing theoretically but wrong empirically. I am hostile to the current obsession by many people in this country with procedural rules because I know it is the source of corruption, not the solution to it.

First, corruption is the way the system in Uganda works, not the way it fails. It is naive therefore to think that Contracts Committees in every ministry, PPDA, IGG and parliamentary oversight committees reduce the incidence of corruption. Even in developed countries, the creation of onerous procedures (otherwise called red tape) leads to increased corruption. The best way to fight corruption anywhere is to reduce them.

If investors came to Uganda seeking to do business that requires government involvement, they would immediately saddle themselves with a complicated contracting process. If a ministry’s Contracts Committee awarded them a deal with the approval of PPDA and the Attorney General’s Chambers, they would still be insecure because the IGG can unilaterally intervene and cancel the deal. If it is not the IGG, a parliamentary committee or NEMA will. This creates uncertainty over property rights.

The easiest way to discourage investment is to create uncertainty over rights to property. If there were a tender going through any state body in Uganda, the investor would certainly pay a bribe. If there are ten bodies responsible for approving that tender, then the investor would pay ten bribes. Yet the biggest problem with this is not the financial cost of the bribe, as Obbo thought I was arguing. Rather, it is the transaction costs (time and effort) of getting so many institutions to agree to a deal. The second cost is the uncertainty resulting from such a fragmented government. Uncertainty over property rights is the worst cost you can impose on an investor.

Knowing Obbo as a free marketeer, I thought he would be hostile to government red tape. I also thought he would share my cynicism about the state claiming to control corruption by adding a new layer of bureaucracy onto existing ones. This was because my hostility to red tape was actually born of Obbo’s early influence on me. He used to project skepticism about the self righteous claims of those in government.

My experience as a journalist in the late 1990s at The Monitor enriched my understanding. I saw companies buying off officials in the office of the IGG, bribing MPs, manipulating the press etc. and realised that the process meant to fight corruption was actually making it worse. Initially I thought it was a dysfunction born of Uganda’s specific politics.

However, when I went for graduate studies in London, I found a new debate on public management. Britain, USA, Australia and New Zealand were going through a series of administrative reforms dubbed ‘post modern’. To reduce graft, governments were removing onerous obligations imposed on businesses seeking investment licences and public tenders. To circumvent time lost to red tape, businesses were being forced to give bribes to bureaucrats. The lesson: too much procedure was the cause, not the solution, to corruption.

Then Freedom House began to publish an index on the ease with which a person can do business in a country. The more procedures you impose on investors, the less attractive for investment you are. In his famous books The Other Path and, later, The Mystery of Capital, Hernando de Soto showed how too many procedural rules were making it difficult to do business in poor countries.

In his home country, Peru, to obtain authorisation to build on state-owned land, a person could spend on average six years and eleven months ‘ requiring 207 administrative steps in 52 government offices. In Egypt, one would go through 77 bureaucratic procedures at 31 public and private agencies enduring four to fourteen years of bureaucratic wrangling and haggling. Such onerous obligations create incentives for shortcuts leading to bribery. The lesson: Never give the bureaucrat too much power.

Under what came to be called ‘New Public Management’, reformers sought to make government more effective through ‘autonomy of accountability.’ Thus, bureaucrats were freed from too many procedural rules, i.e. processing red tape. Instead, they were given professional autonomy and were henceforth judged on their ability to achieve set objectives. New Public Management now focused more on performance measurement and sought to hold bureaucrats accountable more to results than to procedures.

In Uganda, the donors, the government and the public seem to be moving backwards on this vital lesson learnt from the 1970s about the costs of red tape. The argument for more procedures is self-defeating. If officials who sit on the finance ministry’s Contracts Committee are corrupt, what guarantee do we have that if government hired PPDA and the IGG, the officials in these institutions would hold their counterparts in finance to account? More generally, with thieves in charge of the state, how does the creation of more state bodies under their control combat corruption?

Indeed, President Museveni has always defended his record in fighting corruption by pointing out that he has created many institutions to fight it ‘ a perfect excuse. Yet at best, these bodies have increased the number of those likely to get a share of the loot. Public debate has largely focused on whether public officials adhered to all procedures. In the process, we have let public officials off the hook on the more important issue of services/goods delivered (results) and value for money.

The greatest beneficiaries of this distortion have been civil servants. Having been in the system for a long time, many have mastered the art of procedure. Yet these are the people who are looting this country with reckless abandon ‘ well because they adhere to all procedures. Ugandans should be demanding MORE health, education and transport services and focusing LESS on whether every ‘t’ was crossed and every ‘i’ was dotted in a government contract. In other words we should pay greater attention to our strategic goals (results) than we pay to our tactical moves (procedures).

amwenda@independent.co.ug

www.andrewmwendasblog.blogspot.com

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