Sunday, February 6

Cargo Cult Economics 3 - Structural Corruption

What do the O’Jays have to say about the potential for money, acquired by other than legal means to result in patterns of destructive social behavior?
For the love of money
People will lie, rob, they will cheat

For the love of money
People don't care who they hurt or beat

For the love of money
A woman will sell her precious body

For a small piece of paper it carries a lot of weight
Oh, that mean, mean, mean, mean, mean green

Almighty Dollar!

Talkin' bout, talkin' bout - cash

I know that money is the root of all evil
Do funny things to some people
Foreign Dispatches agrees and is far more concerned with this predictable and tragically human aspect of money and the MDG
All talk of "absorption capability" really is beside the point when talking about a regime like the one that currently runs Ethiopia: the only "absorption capability" that matters in such circumstances is that of Andorran and Cayman Island bankers, and they can handle the inflow of billions just fine. Cash is fungible, and even if the actual aid doesn't get stolen, it loosens up a lot of other funds to be siphoned elsewhere.
Transparency International (TI) is a Berlin-based organization compiles an
index defines corruption as the abuse of public office for private gain, and measures the degree to which corruption is perceived to exist among a country's public officials and politicians. It is a composite index, drawing on 17 surveys from 13 independent institutions, which gathered the opinions of business people and country analysts. Because of the absence of reliable data, only 146 of the world's countries are included in the survey. The scores range from 10 (squeaky clean) to zero (highly corrupt). A score of 5.0 is the number Transparency International considers the borderline figure distinguishing countries that do and do not have a serious corruption problem.
Ethiopia’s rating in 2004 was a not encouraging 2.3, right between the Republic of Congo and Honduras. Haiti was at the bottom with 1.4 and Finland at the top with 9.7 - the U.S. got a 7.5.

The level of perceived corruption is quite properly multiplied above common bribe payment by insidious structural corruption protected by the government. According to the U.S. State Department "membership in the EPRDF [essentially the TPLF] conferred advantages upon its members, and the party owned many businesses and awarded jobs to loyal supporters."
Of 548 seats in the House of People's Representatives (HPR), 496 were held by the EPRDF or its affiliate parties. The EPRDF-affiliated Tigray People's Liberation Front (TPLF) occupied 40 seats. The EPRDF, its affiliates, and EPRDF supporters controlled all seats in the 108-member House of Federation, whose members were appointed by regional governments and by the federal Government. In the Southern Region, opposition parties held approximately 7 percent of the seats in the Regional Council.

Opposition parties accused the NEB [national election board] of being an instrument of the ruling party and for failing to take meaningful action upon being informed of electoral irregularities, including ballot stuffing, vote count fraud, bribery, killings, beatings, and widespread intimidation and harassment by ruling party supporters during the 2001 and 2000 elections.
Ethiopia is effectively a single party state where the tightly disciplined ruling party directly owns or takes great interest in numerous companies, fronts and organizations that command the heights of the modern (i.e. hard currency) economy and other businesses at all levels.

It is important to note that corruption is not inherent to all members of government, business, society at large and the ruling party.

In fact, the country is kept afloat by the unsung daily struggle of millions of decent citizens at every level of society, who only need a chance in a fair system to thrive.

The point being made is that the very structure of Ethiopia's effective one party ideologic state is inherently corrupting and corrosive to human values - independent of those forced to engage it.

the reporter's required reading on a system built for graft

The Reporter addresses the issue
Corruption has become pervasive in our country beyond its capacity to endure it. It has permeated it with its stench. What is more alarming is that the possibility whereby it may be arrested in the future is not distinctly in sight.
I would like to make clear two points regarding the subject under discussion. The first has to do with the repeatedly raised contention that Ethiopia is not as corruption-ridden as Nigeria, Kenya etc. Yes! It may not be. But this fact should not be mentioned as a "boost" to Ethiopia's fight against corruption. Ethiopia's battle strategy should not be formulated by comparing itself with Kenya but in terms of the quagmire it is mired in.

The second point is that regardless of whether Ethiopia may be higher up than other countries on the corruption index, the fact that the present level of corruption is much worse and widespread than during the reign of Emperor Haile-Sellassie or the Dergue should not be suppressed.
This poor country is suffering from the grip of corruption where millions and billions of birr is misappropriated in connection with bank loans, procurement, tax and the like. These days, it has become virtually impossible even to get simple public services without bribery. Corruption has spread out "its tentacles" beyond cities to rural areas unchecked. It has "poisoned" not only the economic arena but the political as well.
The article details coverups conducted under the guise of fighting corruption and the punishment of news outlets who ran exposes of practices at several government enterprises such as Telecommunications, the Airlines, Banks and TV. Government news agencies participated in the charade, characteristically charging critics such as the Reporter with having ulterior motives.
Most of us recall that the EPRDF [essentially the TPLF with some hangers on] won praise for fighting and hunting down thieves when it took control of Addis Ababa in 1991. However, soon after, i.e. in 1992 and 1993, some of its fighters began to be observed to have acquired homes, household furnitures and other properties not commensurate with their salaries.
Fighters at the lower echelon were grilled to prove how they acquired even such trivial things as utensils. But when questions were asked about the situation regarding the leadership, their attitude altered dramatically in an unprecedented manner. As the fact that the leaders and top cadres regularly changed cars and houses was quite known, the question, "Why aren't the leaders evaluated?" was raised. The answer was short and simple: "You cannot evaluate the leadership." The agenda was closed with this threatening and arrogant answer.
This attitude is epitomized by the saying of one of the characters in George Orwell's Animal Farm: "All animals are equal. But some animals are more equal than others."
Does the EPRDF want to pull the wool over our eyes and tell us that it covers its expenses only by membership dues while it owns various buildings and vehicles, and employs numerous salaried staff? Even a "toddler" understands that the EPRDF earns money by engaging in commercial and industrial activity in breach of the law it enacted as well as using its political power and that this amounts to economic and political corruption.
The author goes on to say that at every stage of national life, the ruling TPLF party seeks its interests above all else and that loyalty to the party is paramount. In regard to the charade of party members policing the inseperable government / party apparatus this is said "Party discipline is unforgiving."

Members take an "oath" to believe only in the party's principles, to listen to only what the party says, to hate only what it hates...." In addition "those who have "fallen out” with the EPRDF are made answerable while anyone who satisfactorily passes the criteria - regarding whether he is a supporter or an opponent - will be given protection. This is no way to combat corruption!"

Often, under the guise of reform and transparency in government, the authorities also use charges of corruption against political foes. See this article, “Disabling a Political Rival Under the Cover of Fighting Corruption in Ethiopia” from Deki-Alula.

Because the party can't be distinguished from government, concepts such as privitization, regulation or competition are meaningless. Here is what the U.S. Embassy has to say about
Privatization, like other government tenders, is subject to corruption. The EPA Board of Directors is made up of government officials and cannot be considered neutral. The decision of what enterprises to schedule for privatization, or whether to remove an enterprise from the schedule, rests with people who have vested interests and manipulate the system to benefit themselves, friends and/or family.

Observers speculate that people with connections benefit from re-tenders as they are able to buy viable enterprises at rock-bottom prices. Meanwhile, the government appoints managers to run state-owned enterprises until privatization, creating the opportunity to skim profits, overstate expenses, etc. The privatization process functions, but could garner more revenues for the government if it were more efficiently, and more importantly, independently managed.

A proper system of sealed-bid auctions, for example, might eliminate some of the opportunities for collusion, and would speed up the process.
The Heritage Foundation Index of Economic Freedom 2004 places Ethiopia in the 'mostly unfree' category and says that
Ethiopia’s cumbersome bureaucracy deters investment. Much of the economy remains under state control, and the evidence suggests that businesses also must contend with political favoritism.

According to the Economist Intelligence Unit, “Corruption in Ethiopia poses various problems for its business environment, as patronage networks are firmly entrenched and political clout is often used to gain economic prowess.”

The U.S. Department of State reports that “state-owned enterprises have considerable de facto advantages over private firms, particularly in the realm of Ethiopia’s regulatory and bureaucratic environment, and including ease of access to credit and speedier customs clearance.”
The Reporter continues
The EPRDF has set up huge organizations, ostensibly as endowments, by the name EFFORT [Endowment Fund of the Rehabilitation of Tigray], Tiret, Dinsho… wherein political and economic corruption are widely reflected.

First of all, these organizations are not endowments. They can become endowments when they are freed from the control of the member organizations of the EPRDF (TPLF, ANDM, OPDO) and establish their own council and board; when their assets, the amount of the loans they have taken and the outstanding balance, their profit and loss statement as well as their plans for the future are publicized to the community who is supposed to own them.

These organizations, however, have not made public any of the information mentioned above. It is impossible to mislead anyone this way.
EFFORT operates under it Almeda textiles factory, Messebo cement factory, Addis pharmaceuticals, Mesfin Industrial Engineering etc. If these companies have been registered as endowments we will patiently await until the registrars tell us the fact. But how many of the rank and file as well as central committee members know EFFORT owns a UK-based company called Tower Trading? This company has considerable capital and exports various items to Ethiopia.

For instance, it is Tower Trading which ships, whether at high or low costs, print paper to Mega Printing House and the state-owned Brehanena Selam Printing Enterprise (BSPE).
The author expounds on the various mysteries of these enterprises. The actual numbers and relations between dozens of organizations is not known and even less is known of their tangled financial webs of public, international and private indebtedness. There is also an absolute lack of public audits at any time.

The author says that the organizations run at a loss at every level and only survive because "they are the properties of the persons who are at the helm of the political machinery or of the EPRDF’s member parties." Given the level of transparency, no one knows if they make money or not. One thing all can be sure of is that a few at the top of the food chain will make money whatever happens and that the mass of disenfranchised millions will lose whatever happens.
The organizations can secure bank loans, win tenders, rent and use government-owned buildings not because they compete equally with other Ethiopian businesses but because everything is at their disposal on the snap of a finger, because they are privileged to use the country’s political setting to their advantage.

The manner in which they are availed with better access to credit and be more competitive than other businesses using this political privilege is an expression of the economic facet of corruption.
[I]t is dismaying as well as astounding that a ruling party that is unwilling to be self-critical not only perpetually flounders in a quagmire of error but also has hardened itself to bring down others.
Ethiopia is not alone in this structurally determined mess characteristic of all one party states. According to the Independent of Zimbabwe, government / ruling party owned businesses there are "in a shambles" with billions lost to corruption and mismanagement with considerable "externalization of funds". Often there are no records of audits having been done at any time, significant deals are made verbally with no other record and no one knows who owns what. The only constant is that the ever poorer Zimbabwean population pays and pays.

Both countries will have elections, or more accurately simulated elections in 2005. Watch for full coverage of the one in Zimbabwe and nary a word of the one in Ethiopia.

now imagine what the structural corruption described above would do with billions from the MDG

The system is primed to spiral into unimaginable depths of abuse under MDG. Even in ideal circumstances that much money could leave Transparency International's pristine Finland a ruined society by destroying its existing checks and balances, institutions and even its culture.

All ‘free money’ is naturally corrupting, dangerous and addictive. In a place where thousands or millions of tax or aid money is at hand, the demands on corruption calculators are limited. When there are billions lying around the calculators need to go up into the realm of a baker’s dozen of digits ... or more. A flood of petrodollars is analogous to a MDG level flood of cargo and is as corrupting, especially given the blind faith in spending above all else exhibited by the New York Times.

The MDG will be, without doubt, a prescription for worldwide levels of corruption and depravity unseen before in human history. In short order it will not matter whether or not the receiving government manages the money at all. Consider the comparatively few billions of 'oil for food' dollars intended for the Iraqi people whose skim managed to corrupt dozens of politicians, governments and ’altruistic’ organizations of every stripe around the globe. Any less objectionable regime such as Ethiopia's, would of course, have less oversight, especially if dozens of poor countries were engaged in MDG simultaneously.

Frankly, we would not trust a committee made of Martin Luther King Jr., Gandhi, Mandela, Mother Theresa nor any other saintly icons with that much cash so far out of the purview of extant national institutions capable of handling it. Dante would have to come back and invent a new 'MDG circle of hell' to handle the flood of formerly decent people seduced by the ‘good intentions’ of placing the importance of money above the personal and the social institutions that give it value and meaning.

Given the right institutions Ethiopians are capable of creating an "African Lion*" economy like the "Asian Tigers" that would transform the country in a generation. What needs to be realized is that there are no cash shortcuts to development and that current modes of governance are the biggest problem. Ethiopia's rulers, even more than any observers, are aware of these simple truths.

*Phrase borrowed from Booker Rising.

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