by Michael R. Czinkota and Anna Astvatsatryan*

In November of this year, leaders of the Group of Twenty (G20) vowed to implement an anti-corruption action plan. Although the proposed strategies might improve the situation for G20 member states, using the same toolkit will not work in the developing world. One needs to take into account culture, traditions and historical circumstances, when crafting anti-corruption strategies for the developing world.

It has been more than a quarter century that industrialized countries began their anti-corruption crusade. International organizations and developed economies offer a standard toolkit of programs to fight corruption such as: changing education systems; enforcing legislation against domestic and foreign bribery, increasing transparency of the government, and combating money laundry. Every year, Transparency International produces the Corruption Perception Index (CPI). The latest report indicates that a one-generation effort dedicated to the reduction of corruption and bribery has, unfortunately, not led to major changes. Countries where bribes and corruption were acceptable twenty-five years ago have not shifted their positions in the ranking today. In these countries people still perceive bribery as a routine transaction. The top ten corrupt countries remain the same. These findings were based on the Global Corruption Barometer – a Transparency International survey that includes 114,000 people in 107 countries.

It is important to understand that countries with high levels of corruption are more likely to be governed by corrupt officials. Many businesses are either owned by government officials or their family members, or have other personal connections to the government.

According to a study at University of Texas, corrupt connections can negatively affect export capacity of a country. Major government connected companies in transition economies, are less likely to export, as they get more preferential treatment and artificial competitive advantage at home. In addition, these companies are used to the business practices specific to their home market and like to know all the major players. These biased conditions make them less competitive in the international trade; which therefore reduces their volume of exports.

High-level government corruption will also affect the outcomes of the majority of international projects. When in the early 2000’s, the Turkish Parliament investigated allegations of corruption of two former prime ministers, it looked like the beginning of a serious anti-corruption campaign. However, soon a decision of the Parliament cleared them of charges. This news raised eyebrows in the global community.

Some countries are not ready to participate in wide ranging anti-corruption actions and prefer to act on their own. China’s latest anti-corruption campaign has been criticized for being more of a weak attempt rather than а structured anti-corruption effort. The arrests of key members of the Communist Party have so far not been followed by deeper investigation. In addition, China raised a last-minute objection to the G20 anti-corruption plan by refusing to support the principles of transparency that would help fight against shell companies engaged in tax evasion and money-laundry. In 2014, China ranked 100th according to Transparency International, a drop of 20 places from last year.

In systems, where corruption is firmly established, it is oftentimes dangerous to be the whistleblower. For example, in the Czech Republic, 95% of citizens believe that corruption is prevalent at all levels of the government. However, there are no whistleblower protection laws, so many people are actually afraid of being persecuted for exposing cases of high-level corruption.

Culture and history can also represent big obstacles for fighting corruption. In India and Hungary, it is widely accepted to bribe a doctor or an official in order to skip the line and get better service. According to a study at the KOF Swiss Economic Institute in Zurich, in heavily regulated and burdensome entry markets, entrepreneurs often use bribes to facilitate the start of operations. Bribes are considered a greasing mechanism that helps accelerate business processes rather than do harm. De Jong and Bogmans of the University of Amsterdam found that in some countries, bribes are triggering imports, as they allow companies to bypass the waiting times and paperwork at customs. A study by Fisman and Miguel has found that diplomats from corrupt countries are usually getting more parking tickets, but are less likely to pay them. This is another illustration of how deeply rooted a cultural and historical mindset can be, and how it can manifest itself internationally.

Post-industrialized countries are still struggling with corruption and bribery within. In 2013, multiple organ transplant centers across Germany were placed under criminal investigation over allegations of wait list manipulation. This revelations of bribery and dishonesty staggered public trust towards the health care system. Can developed countries expect to defeat corruption worldwide, when they still have very serious bribery cases domestically?

When crafting strategies to defeat corruption both in developing countries and domestically, leading economies should focus more on culture, traditions and historical circumstances of each country. Building trust relationships between the businesses and individuals will create internal capacities to fight corruption, and develop understanding of the negative effects of corruption within developing economies.

Anna Astvatsatryan is a graduate student working on a degree in Communications. Her professional work is in the fields of marketing and international business.

G20 Leaders Agree To Boost Global Economy

The announcement was made at the end of the G20 meeting, held in Sydney, Australia. It is hoped that by generating an additional $2 trillion over five years, the GDP of the top 20 economies will increase economic output by more than two percent over what would be normally expected. It is also hoped that the economic boost will create millions of new jobs. The decision by the G20 leaders to boost the global economy is seen as unprecedented, and appears to be the first time that a concrete decision has been made.

The G20 countries include all of the industrialized nations, and a few emerging economies such as Saudi Arabia and the European Union. Together, these countries constitute more than 85 percent of the global economy. The next step calls for each member country to submit a detailed strategy at the next G20 summit, which will be held November 2014.

The communique issued after the meeting indicates that cross-border taxation was one of the issues discussed. It was agreed that stricter taxation may be necessary, as there has been a concrete shift to a global economy. The playing field should be made level, as many corporations have come under criticism for what has been observed to be profit shifting to avoid higher taxation. Some of the companies that have been brought into focus include Google, Amazon, Apple and Starbucks.

The G20 have developed a set of standards to allow the automatic sharing of bank account information among member countries.  The standards are expected to be in place by the end of 2015.

The plan faces some challenges, as it calls for investment from the private sector, while emerging markets are expected to keep inflation in check. Some countries, such as Japan, the world’s third largest economy, continues to struggle with reforms, such as inducing more competition. The monetary policies introduced by the Bank of Japan has resulted in a devaluation of the currency, making exports much cheaper.

The timing  of the strategy may also present some problems for emerging markets that may be entering the elections. The objective for many of the leaders facing reelection is to make the economy more productive by reducing debt and avoid overspending. The need to tread carefully is fairly obvious. As the implementation of the economic stimulus is curtailed with tighter monetary requirements in the United States, there is likely to be an effect that will be felt in other countries.

The communique issued after the G20 leaders agreed to boost the global economy was made with a warning that there may be an excess of volatility that may hamper growth as policies are adjusted. U.S. Treasury Secretary Jacob Lew  maintains that the reforms, even though they may be unpopular and incite unrest, are necessary, and should not be delayed much longer.

By Dale Davidson


BBC News
Financial Express

EU To Back G20 Growth Target If Accompanied By Reforms

Europe is in favour of setting an economic growth target for the world’s 20 biggest developing and advanced economies (G20), but only if they agree on bold reforms, the European Union’s Economic and Monetary Affairs Commissioner Olli Rehn said.

G20 finance ministers and central bank governors are meeting in Australia on Saturday (22 February) and Sunday (23 February) to find ways to boost global economic growth by focusing on investment, competitiveness, trade and employment.

Australian Treasurer Joe Hockey said support was building for setting a numerical goal for growth, but Rehn said it only made sense if reforms got equal support.

“I see that economic growth is a consequence of right policies and global coordination. So yes, we need a bold growth target, but only on the condition that we can also agree on bold economic reforms and sound economic policies,” Rehn said.

“That is what this G20 is about,” he told Reuters in an interview on the sidelines of the meeting.

He said the growth target discussions were based on an IMF study which envisaged boosting growth by 0.5 percent of GDP annually over the current projections.

But to get such faster global growth, Rehn said, G20 countries that have a current account surplus need to boost domestic demand and investment, while those that run a deficit have to make their public finances sustainable, create jobs and become more competitive.

“Once you agree on that, it is meaningful to have a bold growth target in the world economy,” Rehn said.

He said reforms were also the best defence against the financial market turmoil which shook many emerging market economies at the start of the year.

Some of the affected countries blamed the market volatility, which forced interest rate rises in Turkey, South Africa, India and Brazil, on the policy of the Federal Reserve to start reducing its monetary stimulus to the US economy.

But Rehn said that past policy choices in the emerging markets themselves were mainly behind their troubles now.

“Some economies that have been better prepared are doing better, also in the context of the recent financial market turbulence, while those that have been worse prepared are facing deeper turbulence and more serious challenges,” he said.

“For instance, the European emerging markets — the central and eastern European economies, have by and large been shielded from the recent turbulence … mainly because they have done the right policy choice in the past, learning the lessons of the 1990s,” Rehn said.

To make sure that G20 countries implement what they pledge, reform progress could be monitored by the International Monetary Fund and the Organisation for Economic Cooperation and Development (OECD), Rehn said.

“I believe that we will see further evolution of international policy coordination,” he said, noting that Europe’s economic governance model, which coordinates policies of 28 different countries, could serve as a benchmark.

“The G20 can benchmark its coordination and country surveillance on Europe, where countries have agreed to pool their sovereignties to strengthen economic policy coordination. We are ready to share our experiences,” Rehn said.

He said the G20 financial leaders should send a message to calm markets that they were ready to work together on global financial stability.

“It is of paramount importance that we reiterate our commitment to cooperate to ensure sustained and stronger growth in the global economy, which also requires some policy coordination in monetary policy,” Rehn said.

“The preparatory discussions we have had so far were constructive and bode well for a cooperative spirit as regards economic policy coordination,” he said.

source: Reuters/ image source: Griffith University

G-20 in Russia: Currency Wars

The Group of Twenty (G-20), consisting of industrialized and developing nations, has been prominent in dealing with current economic crises.

Talks took place in Russia February 15th and 16th addressing the current currency wars. Brazilian Finance Minister Guido Mantega commented, “The currency war has become more explicit now because trade conflicts have become sharper. Countries are trying to devalue their currencies because of falling global trade.” That way, exports become more competitive while imports will be reduced.

The U.S. along with other developed nations tend to use quantitative easing as one of their main stimulus measures, in which a central bank buys assets such as government bonds using freshly created money. This results in increasing the supply of currencies such as the U.S. dollar and the U.K. pound; thereby, in the long run, lowering their exchange rate.

The G-20 pledged to “refrain from targeting their currency policies to gain a competitive advantage.” All nations agreed to defuse tensions over unstable exchange rates, marking the first time they were in agreement on such an issue. If all were to engage in competitive devaluation, no country would benefit.

These talks prove G-20 members are moving toward more cooperative efforts. This will help lead the path to global economic growth, which in effect, may help increase U.S. exports and its domestic economy.


The G20 Supremacy: Fact or Wishful Thinking?

The G20 meeting in Pittsburgh has ended with a grandiose self promotion of the event and its future relevance. The participants declared the meeting from now on to be the world’s principal economic gathering. But designation alone is not enough. The real question is how the impact of the meeting will change.

Time was, that the host of an international summit could use the meeting to not only discuss pertinent issues but also initiate policy action. Such potential was also there for the Pittsburgh meeting. For example, as President Obama raised a global trade vision for economic recovery, job creation, and environmental sustainability, he could have demonstrated a commitment to these principles through the announcement of promising policies.

Yet, the Obama Administration’s decision to invoke safeguards and impose tariffs on Chinese tire imports dealt a major blow to such a vision. Many U.S. trading partners were hoping that ‘Buy America’ provisions of the economic stimulus legislation and the U.S. failure to live up to its NAFTA obligations on Mexican trucking were products of an increasingly trade-phobic Congress. Widespread expectations that the Administration could keep legislators on a leash, were far from met. The recent decision against tire imports from China was President Obama’s own, driven by union pressure. It reveals more precisely and loudly than any trade policy speech ever could, the details of the direction of U.S. policy.

It says that the U.S. now views the rules-based global trading system, which successive U.S. Administrations—both Republican and Democrat—placed at the center of U.S. global economic policy, as outdated and expendable. This takes place despite of the fact that rules are in large measure responsible for the post war global economic success.

It says that the U.S. has now created a subclass of economic interests. Manufacturers of auto parts, exporters of poultry, producers of aircraft are now at constant risk of international retribution. For example, in retaliation of the tire decision the Chinese are now threatening not to buy U.S. goods which are in demand and competitive. Motivated workers in successful industries now have their legitimate interests subrogated to the trade agenda of the major U.S. unions.

It says that the U.S. had its fingers crossed when signing on to the anti-protectionist pledge, and raises real doubts about future adherence.

It says that the “Yes we can” Administration has lost confidence in the American model of competitiveness.

China is absolutely right to choose this ground to challenge the U.S. on protectionism. While trade lawyers can argue the letter of the WTO commitment—it is absolutely clear that the spirit of the Safeguards Agreement has been violated in this case.

Unquestionably, there are numerous issues on which the U.S. can challenge China’s approach to trade—including subsidies, exchange rate issues, disregard for intellectual property rights and denial of equal treatment. But a safeguard action addresses none of these. It doesn’t identify any fault with the Chinese—only with the ability of U.S. workers to compete. When faced with competition from Chinese tire producers, the U.S. could not point to dumping or government supports, so the Administration went to the “no we can’t” option.

Larry Summers has said that the long term formula for U.S. economic recovery will be to become an export oriented economy. To do that, U.S. products will have to compete aggressively and successfully with other countries for world markets. Trading partners will also need to be convinced to open up their markets to international products.

There will have to be a reversal of the deepening slide into protectionism heralded by the tire decision. America needs to participate in a trade agenda that gets the world working again. Only then will the next G 20 meetings be relevant and of impact.