Iraq's Flawed Anti-Corruption Strategy

At the end of November, Prime Minister Haidar al-Abadi publicly declared a new “war on corruption” in Iraq. Given the timing of this announcement, the new policy to reduce corruption, especially the misuse of public funds, will be a key pillar of his 2018 re-election campaign, with a strong resonance among the public.

It is widely accepted that corruption – the abuse of public power for private benefit – has done more damage to Iraq’s economy and society than the violence of al Qaeda and ISIS combined. Not only did corruption catastrophically undermine the war against these groups by preventing delivery of effective security and governance; corruption leads to much lower living standards as the average Iraqi finds it difficult or impossible to obtain electricity, fuel, clean water, sufficient food as well as quality medical care and education. These corruption related shortages cause immeasurable suffering to the Iraqi people. But while the threat of corruption to the country’s future is well recognized in Iraq, there has been a continuing failure to develop a successful anti-corruption strategy.

While no country has succeeded in eradicating corruption, a few countries with long histories of widespread corruption have, within a single generation, reduced it manageable levels. The city-state Singapore being a notable example. From these few successes and the many failures, two key lessons can be extracted.

First, it is critically important that a country’s political leadership unambiguously demonstrate the will to defeat corruption. Second, successful efforts have integrated five components into their anti-corruption strategies: changing the culture of corruption, improving governance, increasing the likelihood that the corrupt will be punished, cooperating with international anti-corruption efforts, and reducing the economic incentives for corruption. Iraq is failing at reducing incentives that reward corruption.

One fundamental way that officials can demonstrate commitment to fighting corruption is by personally abiding by anti-corruption regulations. So far, Iraq’s officials have generally failed this basic requirement compared to other countries who adopted similar laws. In Argentina, for example, the 1999 Ethics in Public Office Act made it mandatory for government officials upon taking office to declare all of their assets. The intent was to avoid the reality or perception of conflicts of interest and by 2011 compliance was over 90%.

By contrast, according to the Iraq Commission of Integrity, one of the three major anti-corruption agencies, only 14% of officials submitted their personal financial disclosure statements by March 2017. Among the laggards were Members of Parliament – only 8% submitted their forms – and members of provincial councils (non-KRG) – 12% compliance.

Iraq’s National Anti-Corruption Strategy 2010-2014 contained a detailed action plan for combating corruption with 201 elements – however, there are only a few ambiguous references to reducing economic incentives. In economic terms, Iraq’s current anti-corruption strategy focuses primarily on reducing the supply of corrupt acts by government officials but with little attention paid to the demand for corrupt acts by the Iraqi public. Such an unbalanced strategy is doomed to fail.

Investigating, prosecuting, convicting, and punishing corrupt officials has little long-term effect if the replacement officials face the same strong economic incentives to accept bribes. Currently Iraq provides strong economic incentives for corruption in two overlapping areas: the government of Iraq provides generous subsidies and has created a regulatory environment which stifles the non-energy private sector.

Iraq has an extensive system of subsidies and price controls. The International Monetary Fund estimates that direct subsidies of food, electricity, and fuels amounted to almost 9% of GDP. Including indirect subsidies, the costs may total as much as 12% of Iraq’s GDP. These generous subsidies result in low or zero official prices for food, electricity, fuels, water, medical care, etc. As a result, at the official price, the amount demanded of these goods or services are substantially greater than the amount supplied. In effect, Iraqi families are competing with each other to obtain these subsidized items. Each must try to persuade some government official to favor their family over another family in the distribution of scarce subsidized goods and services. Families may use political pull, tribal membership, or religious connections to persuade officials to favor their request for scarce items. However, the most common means of persuading an official to part with a subsidized good or service is to offer a bribe.

Corrupt officials also benefit when the government creates artificial shortages by refusing to sanction activities necessary to operating a business. Iraq is one of the worst countries in the world with respect to the regulatory environment for private businesses. According to the World Bank, Iraq ranks 165th out of 190 countries surveyed. Legally starting a business is complex, expensive, and time consuming. Iraq has a particularly difficult regulatory environment for private businesses to obtain credit, trade across international borders (Iraq is tied for worst in MENA), or resolve insolvency (Iraq is tied for the worst in the world).

These impediments are carefully protected and preserved because they provide a strong motivation for a business owner to offer a bribe. For example, if an owner is unwilling to wait an average of 167 days to get permission to build a warehouse – not to actually build it but just to get the government’s permission to build it – then he can give six $100 bills to the correct official and receive the necessary permission in two weeks.

Reducing subsidies and rationalizing regulations will have a direct effect on corruption by reducing the demand for corrupt acts. For example, if the government were able to grant permission to build a warehouse in only 30 days instead of the current 167 days then fewer builders would offer bribes and the offered bribes would be smaller.

Reducing subsidies and rationalizing business regulations would also help demonstrate that the government of Iraq has the necessary political will to reduce corruption. Unlike many anti-corruption acts—such as arresting a few high-level officials—the public is able to directly observe changes in the economic incentives. For example, if the government announces that it has reduced the time necessary to obtain an electricity connection from the current 56 days to no more than two weeks, the average Iraqi would be able accurately judge whether the government was telling the truth or not.

Every country’s anti-corruption strategy must take into account its unique culture, history, politics, society, and economy. However, Iraq’s current anti-corruption strategy has two severe and possibly fatal weaknesses. The country’s leadership has failed to demonstrate the necessary political will and the country is making little progress towards reducing the economic incentives that reward corruption. Iraq’s flawed anti-corruption campaign may succeed but, unless substantial changes are made in the areas of political will and economic incentives, the odds of success are small.

Frank R. Gunter is a Professor of Economics at Lehigh University and a Senior Fellow at the Foreign Policy Research Institute. He is the author of: Political Economy of Iraq: Restoring Balance in Post Conflict Society (English: Edward Elgar, 2013; Arabic: Oma Publishing, 2015)