Graph of the week: EU cross-country corruption

"Corruption in the EU is breathtaking!" the EU Commission reports. It is estimated to cost Europe at least 120bn euros annually. It's probably even bigger than that. This is the first time the Commission has done such a survey across all 28 states. So this may explain why they were so surprised with the results. 

Here's only a few interesting findings from the report:

"The country analyses show that public procurement is particularly prone to corruption in the Member States, owing to deficient control mechanisms and risk management" 

"Provoked by the crisis, social protests have targeted not only economic and social policies, but also the integrity and accountability of political elites. High-profile scandals associated with corruption, misuse of public funds or unethical behaviour by politicians have contributed to public discontent and mistrust of the political system." 

"In some Member States, shortcomings exist regarding the supervision of state-owned companies where legislation is unclear and politicisation impedes merit-based appointments and the pursuit of the public interest. Moreover, there are insufficient anti-corruption safeguards or mechanisms to prevent and sanction conflicts of interest. There is little transparency regarding the allocation of funds and, in some cases, purchase of services by these companies." 

"Urban development and construction are sectors where corruption vulnerabilities are usually high across the EU. They are identified in the report as being particularly susceptible to corruption in some Member States where many corruption cases have been investigated and prosecuted in recent years."

This last one is the assumption I follow in my "Persistent electoral success with endogenous rents" paper, where I use the proxy of capital outlay spending (spending on infrastructure projects, buildings, purchase of equipment, etc.) to recognize potential rent-seeking activities of politicians and link this to their re-election probabilities. Too much of such spending throws a politician out of office, but only if preceded by a negative economic shock. 

Source: BBC

As can be seen on the map countries leading by bad example are Greece, Spain, Romania and Croatia (all reporting >50% respondents claiming corruption is affecting them in daily life). 

Another interesting thing to observe on this map are the higher levels of corruption in countries of the former Eastern bloc and the countries of the so-called Euro periphery vs the relatively lower reported corruption levels in Western Europe and Scandinavia. Could it be that corruption and political rent-extraction had something to do with the terrible shape most of the peripheral economies found themselves in? I've covered cronyism in Spain, Greece and Italy so far, am very aware of the same issues in Croatia, and have recognized such practices as one of the causes of the ongoing European sovereign debt crisis. In particular this is what I'm aiming at:

"...Greece and Italy [for example] had an additional constraint – corrupt politicians which cared more of self-preservation than the well-being of their country ... Their political elites used expensive populist policies to remain in power. They used cheep borrowing on the international market to “fund” their electoral victories by broadening its welfare states and offering concessions to particular electoral groups. They “bought” votes by increasing pensions, hiring more public sector workers and increasing their wages in order to create a perception of high employment. Their governments were perfect examples of how the inflow of foreign capital was used inefficiently to finance consumption and maintain power."

As I've mentioned many times before, the problem of peripheral Eurozone is purely political. All those European countries who cannot seem to get themselves out of a long-lasting recession have only their political elites to blame. 

Finally, do have in mind that this was a Eurobarrometer survey asking the participants to self-report their own opinion on how widespread corruption is in their country. I would definitely say that there is a high correlation between people's perception of corruption and the actual state of corruption (perhaps in some countries the corruption numbers are underestimated), which is why we should take this data seriously. On the other hand the deficiency of such analyses is well-known to social scientists. It would always be better to find some way, some experiment perhaps, to measure corruption with more precision. But then again, in terms of discovering illegal activities this can be very hard to do.