Tackling corruption will fast-track progress on the millennium development goals

Here's an interesting article from The Guardian written by Paul Collier and Jamie Drummond:

This week at the UN in New York world leaders are reviewing progress on the millennium development goals (MDGs). Previous meetings have been focused on drumming up more aid. Times are doubly inauspicious for such a purpose: in the OECD fiscal deficits are squeezing aid budgets, while in the poorest countries faster growth is enabling governments to finance more from their own revenues. International aid is still very important, but such summits should no longer be confined to discussions of aid.

The key driver of that faster growth, the bonanza of natural resource extraction, is a two-edged sword. The value of the resources to be extracted from impoverished economies is enormous: if it translates into revenues that are well-spent it will be transformational. But the historical record of resource extraction in these societies is abysmal: money that could have delivered the millennium development goals instead corroded governance. In the poorest societies nearly all resource extraction is done by non-national companies. Only they have the skills and finance necessary for what are often large and complex undertakings. It takes two to tango: the corrosion of governance depended upon the misconduct of these companies.

Of course, most employees in resource extraction companies are honest, yet it is very difficult for the industry to police itself. The incentives for rogue behaviour are intense: executives know that if their company refrains from corruption they are likely to lose contracts to less scrupulous rivals. They know that even if they get a contract, public officials are liable to block implementation unless bribes are paid. In such murky waters murky companies thrive, doing doubtful deals, often ones which they themselves would be unable to implement, but then selling on to the major companies once the bribery is successfully concluded.

The most effective way of preventing this race to the bottom is if all resource extraction companies are subject to the same standards of integrity. The first step was the voluntary standards introduced by the Extractive Industries Transparency Initiative. Since its launch in 2003, more than 30 governments have made commitments. But voluntary standards can only go so far. The key step beyond voluntarism has just been taken by the US. In July, the Wall Street Reform Act came into force, including the Cardin-Lugar amendment on energy sector transparency. As a result of the amendment, companies registered on the NYSE must present all payments in itemised detail in their annual filings with the Securities Exchange Commission. This enables citizens, media watchdogs and, perhaps most importantly, other companies to monitor closely all payments to government officials. Corruption has suddenly become more difficult.

Clearly, though, it is not sufficient for the US to be acting alone. In the immediate future Britain has to decide whether to match American action or to connive at maintaining an advantage of dishonesty for those British companies not cross-listed in New York. The upcoming British financial services regulation bill is our equivalent of the Wall Street Reform Act. London is home to many of the major companies not covered by Cardin-Lugar, such as Gazprom. Integrity, rather than opportunism, would be consistent with the exemplary emphasis of the coalition on transparency in all areas of British government. In particular the transparency and accountability agenda of the international development secretary, Andrew Mitchell, is high on the MDG summit's agenda, where Nick Clegg will also have the opportunity of his first official overseas trip as deputy prime minister to make it clear that Britain will not leave the US to stand alone. The coalition's profoundly moral commitment to raise aid to 0.7% of GDP in the face of fiscal adversity, gives Britain, uniquely among OECD governments, the moral authority to speak up on governance. Concern about governance is not a derisory substitute for our money, but a necessary complement to it.

The summit is the right setting to give impetus to what must become a global process. Anglo-American cooperation is a realistic place to start, but it will not be enough. At a European level, the commission is considering action. The current consultation on the Transparency Directive provides a clear mechanism through which changes can be made in respect of all 27 member states. But resource extraction is now a truly global industry. The smaller companies are usually listed on the Toronto market, and many of the Chinese companies are not listed anywhere. What is needed is global action and the G20 provides the obvious forum. It has already signalled its intention to join the movement for greater transparency with the creation of a corruption working group in Toronto. Co-chaired by France and Indonesia, the group will look at a range of issues, but omission of the natural resource-corruption nexus is inconceivable.

Britain's aid can now be multiplied many times over if it is the springboard for global adoption of best practise in the governance of natural resources. That offers the fast-track to those previously illusive goals.