The World Bank is one of the most vociferous critics of corruption since its president, James Wolfensohn, laid out the bank's anti-bribery policies in October 1996. Mr. Wolfensohn reiterated the Bank's commitment to fight corruption with renewed vigor at the 1998 meeting of the World Bank and the International Monetary Fund in Washington, D.C. He pointed to the practice as one of the prime causes of the financial crisis afflicting much of Asia and other emerging economies. In this article, he spells out the Bank's strategy for dealing with corruption and warns governments in developing countries that they will jeopardize their foreign assistance and investment by condoning corruption.

Over the past year, much attention has been paid to the causes and consequences of the global financial crisis. There is no doubting the sense of urgency when it comes to discussions about new financial architecture, better banking systems, and improved surveillance and risk analysis. These are all vitally important, and cooperation in the search for common answers must continue.

But there is another crisis that has received far too little attention. It is the human crisis. Hundreds of millions of people risk being sent back into poverty in countries severely affected by economic turmoil. Decades of social progress hang in the balance. It is a crisis that hurts children by pushing them out of school and into hard and often dangerous labor. It is a crisis that throws millions of people out of work and tears at the cohesion and security of social life. It is a crisis about which we have heard too little.

This crisis must be addressed. There is much to be done, but all strategies must begin with a commitment to building economies and societies that are open, transparent, and, ultimately, accountable. This means making a commitment to fighting the cancer of corruption. No matter how much investment and trade flows into a country, and no matter how fast the economy is growing, economic stability cannot take root in an environment subverted by corruption. Whether it is cronyism among huge corporations and government decision-makers or low-level bribery of customs officials or judges, corruption undermines the rule of law, strangles economic growth, and hurts the poor most severely.

THE TRUE IMPACT OF CORRUPTION

For years, it was believed that bribery and other forms of corruption were effective and even necessary tools for doing business in developing countries. By greasing the right palms, so the thinking went, firms achieved a competitive advantage. Not so. Research undertaken by the World Bank and others shows that far from lubricating business activity, bribery actually fuels the growth of excessive and discretionary regulations. Bribery, in short, feeds on itself, producing layer upon layer of bureaucracy eager to get in on the action. The fact of the matter is that in countries where corruption is recognized to be high, firms spend more time with bureaucrats and public officials negotiating licenses, permits, and taxes.

The evidence also shows that countries with notoriously high levels of corruption risk marginalization in a world of rapid economic integration. This is all the more clear today. Many of the challenges we face today can be traced, in part, to cronyism, shallow disclosure requirements, and opaque record-keeping. Open markets cannot work behind closed doors. Both private capital flows and official development assistance are increasingly discriminating with regard to policy performance and institutional integrity. Investors today have too many options, and they are better able to move their money to where the risks of corruption are less pronounced. And official donors, with shrinking aid budgets, have also drawn the line. Well-informed publics and wary aid agencies and development institutions are seeking returns on their aid investments -- in the form of poverty reduction and social development -- with the same rigor that private investors look for financial returns. Perceptions in donor countries that corruption in recipient countries sends their aid assistance down a black hole is one of the greatest threats to future aid. Again, it is the poor who suffer.

We at the World Bank, as with other multilateral organizations, are fully aware that despite continued vigilance and state-of-the-art auditing and investigative measures, the projects that we support are not immune from the pressures of corruption. There is simply no way to fully isolate individual projects and program lending from fraud if it is pervasive throughout the environment in which they function. This calls for continued efforts on the part of the Bank to pursue and prosecute fraud wherever we find it, while simultaneously strengthening the institutional structures that will ultimately help stop corruption at its source. It will be a difficult, long-term struggle. But make no mistake, it is a winnable fight, and one that must be fought.

TOWARD GOVERNMENT REFORM

Important steps have been taken. Corruption is not just a domestic public sector problem. For every taker of a bribe there is a giver; often this means private sector agents bribing officials in other countries. Private business people, wherever they are operating and no matter what the conditions, must follow the highest standard of probity. The initiative taken last year by the Organization for Economic Cooperation and Development (OECD) to criminalize the bribery of foreign officials is a major step forward in this direction. Continued progress in this area is essential.

The questions are: what can governments do to reduce corruption, and what is the role of international organizations such as the World Bank? Many would like to see the World Bank use its resources and skills to unilaterally rid a country of corruption overnight. Still others believe the Bank, to be serious, must completely cut off all lending to countries at the first sign of fraud. But we are not, and cannot be, a world policeman. Nor will corruption be eradicated overnight. There are, however, important steps that we can and must take to attack the root causes of corruption. What are these?

Since becoming president of the World Bank, I have traveled to more than 84 developing countries. I can say with certainty that corruption is a severe problem in some poor and transition countries not because the people do not truly want integrity in public life. Rather, corruption flourishes because conditions are ripe for it. Indeed, a look back at the history of the United States, England, or any other industrial country reveals that all countries have had to struggle against extreme corruption. This battle never ends. In too many developing countries today, however, government institutions that provide the essential regulatory foundation for a healthy economy are either weak or missing altogether. Deficiencies in banking and financial regulation, corporate governance, tax collection, judicial systems, auditing controls, and a number of other areas that create transparency in economic affairs erode investor confidence and mitigate against long-term, stable investment.

Anti-corruption strategies must begin with strengthening these institutions. In the year since the World Bank issued its Anti-Corruption Policy report, more than two dozen developing countries have approached the Bank for assistance in combating the problem. We are in consultation with all of these countries and are already working to support strategies in a number of them. Specifically, the Bank seeks to work with borrowing governments on long-term institution building; on structural changes, such as breaking up monopolies and other market distortions that provide opportunities for exploitation and corruption; in basics such as training civil servants in standardized procurement and disbursement practices; and, of course, in economic policy-making, such as lowering tariff barriers and introducing competitive credit markets that create competition and reduce the stranglehold on important economic resources. These changes are absolutely essential for building markets that place people first and that reduce built-in economic, legal, and social power of the strong over the weak.

In addition to reforming government, we must recognize the powerful influence of public scrutiny and participation. This is important because it shines a light not only on those who are corrupt but also on those who are struggling to bring integrity to public life. The Bank, through its Economic Development Institute (EDI), has brought together policy-makers, journalists, and business people, often for the first time, to uproot and expose sources of corruption. Through such mechanisms as diagnostic surveys on the provision of public services and business practices, and training judges, parliamentarians, auditors, and journalists on how to identify and combat corruption, the Bank is helping local communities and national governments confront corruption in a practical manner. We know that it works. In Botswana, Uganda, Chile, Poland, and a number of other countries, real progress has been made. People are living better lives because of this progress.

CONSIDERING THE HUMAN FACTOR

In this year that we commemorate the 50th anniversary of the Universal Declaration of Human Rights, it is important to remember that development is about more than economic policies and incentives. Economic growth can only take place alongside dynamic social progress and wide-open civic discourse.

Government institutions that shape the place of citizens in the economy must, if they are to work, be shaped by citizens. We have come a long way in recent years. Voters no longer tolerate corruption or the misappropriation of public trust. Civil society in nearly every country in the world is holding leaders accountable. The international community, including the private sector, is joining hands to build integrity into the rules that govern global markets.

We have a long way to go. But by remembering that a global economy, while much more than the sum of its parts, is in fact made up of people who live individual lives, with unique dreams, confronting specific challenges, we are better able to build a world marketplace in which everyone benefits.