Corruption: Good Governance Powers Innovation
Alina Mungiu-Pippidi explains that the potential for innovation of a country is highly dependent on the quality of national governance.
Many believe innovation can lead the way out of the present economic crisis. In Europe and the United States leaders have repeatedly referred to the importance of innovation, research and education to sustaining economic growth. Former European Commission President José Manuel Barroso said in his last state of Europe address ”I believe many of the solutions are going to come…from new science studies, from new technologies….This is why we… have made such a priority of Horizon 2020 in the discussions on the EU budget”. U.S. President Barack Obama stressed the role of innovation saying in his address to the nation that “Today in America … an entrepreneur flipped on the lights in her tech startup, and did her part to add to the more than 8 million new jobs our businesses have created over the past four years”. Similar pledges and encouragements for innovators can be heard coming from the developing world from development agencies like the World Bank. The concept that innovation is the key to prosperity is great- but we must understand that this applies to a certain governance context which is seldom encountered in the real world.
Corrupt countries do not innovate
The potential for innovation is highly dependent on the quality of national governance. However we measure innovation – and increasing numbers of researchers have recently tried to assess both the capacity of societies to innovate and the role their governments and public sectors play in the process – governance and innovation are strongly associated. If you know how corrupt a country is you can predict pretty accurately how much innovation you will see there (see chart 1). In the European Union, capacity for innovation of private sector (assessed by The Global Competitiveness Report -GCR) correlates at 84% with control of corruption assessed by World Bank (CoC), at 85% with quality of national scientific research institutions (also a GCR rating), and at 90% with gross domestic expenditure on research and development (Eurostat data).
That means that if a country is ranked below the upper third ranking for control of corruption as assessed by the World Bank, it is safe to say that there will not be much innovation there. The majority – 109 – of the world’s electoral democracies are presently to be found below that line, just like 47 of the world’s autocracies – most of them in fact. EU countries neighbouring the Balkans or Eastern Europe are considerably low, with Ukraine and Russia doing particularly badly. Figure A shows Romania, Bulgaria, Greece and Italy as the worst examples of that association in the EU, and the Nordic countries as the most ‘virtuous’ ones (Scandinavians, Netherlands, UK, Germany): outside Europe, New Zealand, Canada and Australia are leading, in front of the US which remains the world’s largest country where corruption is reasonably controlled.
Why is that? Not because talent is not uniformly distributed across countries and not even entirely because of poverty – which of course plays a role, as it means poorer infrastructure for innovation and technology. Simply, innovation needs a certain governance context to flourish. Where advancement based on merit is the rule and favouritism the exception, government and markets alike promote value, with prosperity the result. Where such a system fails to take hold there is unfair government and crony capitalism, with social allocation directed preferentially rather than based on ethical universalism where everyone is treated similarly. Corrupt societies cannot evolve through innovation because innovation simply will not happen there. On the contrary, science and research are marginalized in such contexts from fear that talent unleashed will introduce real competition, thus threatening the monopoly on public resources enjoyed by those in power. In corrupt societies, neither talent nor hard work, but power is the main explanation of wealth and the greatest personal wealth in such countries is linked to privilege rather than entrepreneurship. Moreover, systemic national corruption is associated with significant brain-drain as the best educated flee to meritocratic countries, ultimately further subverting their own country’s investment in education (such as it is) and development itself (see Figure B).
Recent research reveals further evidence that favouritism is far more widespread than previously thought. A merit-based society is not the norm: its takes many generations to develop and only 25 countries have achieved it – the same who are on top of corruption control, a Scandinavian cluster, an Anglo-Saxon cluster, a German speaking cluster and very little for the rest. In the rest of the world surveyed by the Global Corruption Barometer (GCB) 2013 (114,000 respondents in 107 countries, commissioned by Transparency International) two-thirds of respondents believe that favouritism (connections) gets things done in the public sector- from the allocation of jobs in universities to state sponsored research funds. In the European Union, another large survey, EQIS (88,000 respondents) found many Europeans complaining of favouritism in both public and private sectors. Only in Northern Europe (including France) did a majority believe that merit prevails over connections. In Mediterranean countries the two groups were nearly even and in new member countries of Eastern Europe that norm was reversed, with favouritism perceived as the dominant exchange norm.
Societies perceiving high levels of favouritism also believe that merit has little to do with social advancement and success. Such perceptions are grounded in widespread experiences with all aspects of school, career, and public life. Societies which reward personal connections and not impersonal merit become vicious traps where talent flees or is unproductive. Using survey data, I find that although better educated individuals declare themselves less tolerant of corruption, they offer no fewer bribes than educated ones. This is the social trap where individuals can no longer escape the rules of the game.
When the solution is the problem
Is spending more on education and research then not a good growth strategy? Well, of course it is, only we have to understand why governments who buy political support with client-driven allocations do not invest much in education and research. First, because in such societies there are insufficient public funds to start with. Second, governments are reluctant to increase the share for education and research because returns are seen as too general instead of benefiting their target groups. A giant soccer stadium or a new airport bring multiple returns to politicians: from the favoured companies which build it (and contribute to the next electoral campaign) to the many voters who use it. A thousand individual science scholarships are infinitely less profitable for those who preside over allocation of public resources and they cannot be awarded to cronies with no scientific aptitude. That is why I find that more corrupt EU states are significantly associated with greater public investment (big projects in particular), in contrast to more universalistic types of social investment like health, research and development spending (see Figure C) . When – with the best of intentions – Brussels promotes austerity policies guess which funds dry up first in countries where control of corruption is poor? Yes; the most universalistic, not the most discretionary – funds for education and science!
The European Commission knows all this, of course. Explicit recommendations were made to EU Member States not to promote austerity to areas credited in the Horizon 20-20 strategy with economic recovery potential. An examination of procurement by European member states in the TED (tender) database shows the great variety across EU Member States, despite attempts to unify procurement. Sweden, Denmark or Netherlands have a maximum of 6% tenders with single bidders, while countries like Croatia or Poland are at around 40%. The research, training and education sectors also vary accordingly across EU countries. The UK has fewer than 3% tenders with only one bidder in research or education, while Poland has 73% and 59%, respectively. Post-communist countries are doing particularly badly on this front.
Such figures are only a starting point. How many of the apparently competitive tenders or public jobs competitions are not de facto settled behind doors and in a particular way in countries where favoritism is the rule of the game? Far more activism is needed, however, at the domestic level, from civil society, universities and research communities. Technology helps enormously with fiscal transparency and far more national civil society watchdogs are needed to oversee and report on the integrity of public spending allocation, especially on research and education (for instance, large infrastructure projects are far better scrutinized than funds for training or research grants). Europeanization of education also helps – but we need more of it. We need pan-European education and research watchdog networks to promote innovation and research spending, to help internationalize reviewing for national research funds allocation and to mitigate brain-drain effects through international cooperation – and to police national expenditure and its integrity.
For science and technology to fulfil their growth potential, they must be empowered by a combination of funding and good governance. The impetus cannot come only from above. Reluctant national governments must be lead on by both the European Commission – a chief promoter of growth and innovation in Europe – and by demanding domestic civil societies and science communities.
 North, D. C., Wallis, J. J., & Weingast, B. R. (2013). Violence and social orders. Cambridge Books.
Alina Mungiu-Pippidi is the chair of the policy pillar for the ANTICORRP project.
This article originally appeared in the science journal Nature on 18 February. The original article can be found here: http://www.nature.com/news/corruption-good-governance-powers-innovation-1.16927