Posts Tagged ‘Corruption’

Ali Baba and Robin Hood

November 21, 2018

By Anjum Altaf

Daniel Kahneman (2002 Nobel Memorial Prize in Economics) has a lovely book called Thinking, Fast and Slow (2011) in which he distinguishes between the two modes of thought. Fast thinking is instinctive and emotional and subject to many cognitive biases; slow thinking is deliberative and logical and much to be recommended when stakes are high and situations are unfamiliar.

In Pakistan, we have succumbed over time to fast thinking and the graver the situation the more instinctive and emotional the thought process tends to become.

It’s time to take a deep breath.

Look at the current situation which offers a surreal scenario of a major country reduced to a farcical contest between Ali Baba and his forty thieves on one side and Robin Hood and his merry men on the other. Ali Baba’s gang purportedly looted the people and got phenomenally rich under the protection of earlier kings while Robin Hood and his gang are vowing to get it all back to the poor with the support of the reigning monarchs.

Those with the luxury to enjoy the spectacle can let their imaginations roam and fill in the secondary characters of King Richard, Maid Marian and the Sheriff of Nottingham but the poor who have been looted and to whom the loot is to be putatively returned are paying a very heavy price for the fast thinking.

This fast thinking incorporates a number of biases. The Ali Baba-Robin Hood frame assumes that there is a fixed pot of money in the economy that has to be in one set of hands or the other; that nothing can be done till this money is recovered; that all those on one side are thieves while all those on the other are saints; and that the end of corruption is the precondition for development.

All these assumptions are flawed as even a cursory look at any real world economy would reveal. There is no country in which corruption has been completely uprooted and there are vibrant neighboring economies in which the size of scams is much bigger than those in Pakistan. Corruption exists in developed countries like Japan and Korea where prime ministers have gone to prison, as well as in China, India, and Bangladesh. Nowhere has life been put on hold till the end of corruption. China and India have been growing at unprecedented rates for extended periods and even the Bangladeshi economy is growing faster than Pakistan’s despite being rated more corrupt than the latter.

There is no argument that corruption is a problem to be addressed but it is also an ironic fact that its extent is often a good indicator of the size of the economy. Fast-thinking attempts to go after corruption can often strangle the economy or, like similar perennial attempts to purge prostitution, spread it even further into the interstices of society. Slow thinking would force one to balance the difficult choice between a fast growing economy with some corruption and a land of the pure that is mired in equitably shared poverty.  

It is also silly to posit that saints and sinners are distributed non-randomly in the world. Here we do not even have to look beyond our borders. How can it be when so many of Robin Hood’s merry men were earlier members of Ali Baba’s set of heartless thieves? And what does one make of the fact that our Ali Babas and Robin Hoods share the same set of ever-ready advisers, a phenomenon that would have been quite alien in Sherwood Forest.

Slower thinking would help absorb the reality that the primary task of any government dedicated to the welfare of the poor is to make the economy grow, even at the cost of some corruption, and to understand the concept of sunk costs and let bygones be bygones as the price of moving ahead. The biggest impediment to that realization is the obsession with purity, proving oneself holier than thou and chasing the mirage of hidden wealth and looted plunder. This instinctual urge to move money from one pocket to another, a corollary of fast thinking, is consuming precious time that should go into formulating policies to move the economy forward.

A deliberative stocktaking is also part of slower thinking. China and India both commenced their historic trajectories of rapid growth, in 1979 and 1991 respectively, following major innovations in their policy regimes. Neither owes its economic success and poverty alleviation to ending corruption, recovering looted wealth, or indiscriminate harrassing of non-filers of income tax in countries where vast majorities do not even earn enough to be liable for taxation.

All these are lessons that are there for the learning, preferably sooner than later, but it would be much more ominous if the fast thinking on display masks a lost ability to think slow in policy terms. If that turns out to be the case, the merry men would push the country over into a certain catastrophe.    

This opinion was published in Express-Tribune on November 16, 2018 and is reproduced here with the author’s permission.

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Governance in Pakistan: Context Matters

August 13, 2017

By Anjum Altaf

In real estate, the mantra is Location, Location, Location. In governance, it ought to be Context, Context, Context. But while we have grasped the first, our appreciation of the second is deficient because we emulate first-world practices without sufficient appreciation of our conditions.

Take poverty alleviation as an example. In countries where 80 percent of the population is affluent and 20 percent in distress, there are many ways of addressing the situation using transfer payments. Reverse the percentages and all those remedies become financially infeasible. The surplus does not exist to sustain them. Countries like China and South Korea have reduced poverty by creating jobs not by distributing welfare.

Apply the same analogy to governance. In countries where 80 percent of public servants are law abiding and 20 percent otherwise, there are a certain number of ways available to ensure accountability without derailing the system. Reverse the percentages and none of those ways are likely to yield the desired results without unintended consequences.

Let’s put this to the test and ask on oath all holders of public offices in Pakistan to raise their hands if they believe they are honest as determined by the limited criterion on which the prime minister has been disqualified, i.e., for not declaring an income that was due but not received. Then add, as one should, the criterion of incomes received but not due. Let us then subject them to an investigation with no statute of limitations by teams including members of the intelligence services.

How many do we expect standing at the end of the day and do we really believe we can run federal and local governments and public agencies with this number of individuals? If we don’t, we have to admit that attempting to eliminate dishonesty via such a top-down approach is either an example of intellectual bankruptcy or of mendacity and abuse of power.

And that brings us to the crux of the contextual issue. In countries where 80 percent of public servants are unlikely to withstand scrutiny, who shall guard the guardians? Giving discretionary powers to some agents of the state like inspectors, regulators and policemen to apprehend violators is only going to end with endless side deals in which millions of Rupees change hands without any impact on accountability or corruption. Rather, people will invest money in cultivating networks and godfathers that protect them or find ever more creative means to beat the system.

Is it any wonder that the kinds of accountability agencies that deliver in rich countries only end up being used to harass and nab political and business opponents in poor ones? At the worst of times the guardians end up striking deals, proclaiming amnesties, and forgiving each other. At the best of times, one or the other gets run over and the game begins anew with the distribution of sweets, high hopes and loud proclamations that not even the short-term winners believe.

It is hard to conceive that the intelligentsia applauding the elimination of corruption in such a partisan and blood-thirsty manner does not see that it makes no structural difference whatsoever. In this regard, the understanding of common people is much more sophisticated. They are under no illusion that any of their public representatives are, or are likely to be, honest and truthful. Ask the person on the street and he or she would inform you without a moment’s hesitation that “they are all thieves.”

Given their appreciation of the context in which it is virtually impossible for an upright individual to be elected, what then is the criterion they employ to choose their representatives? Very simply, they base their choice on the pragmatic consideration of which thief or set of thieves is going to deliver more for them or their community. Whether this is a sound criterion or not, it is much more in consonance with the socioeconomic reality than the good intentions of the saviours of the nation who supplant the choice of the people with their own, often biased and self-interested, selection of kosher representatives.

This argument is not to suggest that nothing should be done about corruption, only that the way we are going about it is at best foolish and at worst dishonest. We need to find structural remedies for structural problems and these can only be sought in the intelligent reformulation of constitutional and bureaucratic rules. Term limits, shorter electoral cycles, staggering of national, provincial and district elections, recall provisions, and credible due processes are only the most obvious places to start but there are many other reforms to limit the abuse of power and strengthen the hands of citizens and voters.

None of these would be possible unless we pay attention to the context in which we exist and operate.

This opinion appeared in Dawn on August 2, 2017 and is reproduced here with the author’s permission.

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The Economics and Politics of Corruption in India

August 26, 2011

By Anjum Altaf

Is there an alternative to taking sides on the Anna Hazare controversy? Could one step back and gainfully employ an historical and institutional perspective to understand it better? Would it help to argue that the mismatch in speeds at which economic and political institutions have rooted themselves in Indian society is contributing to a disorienting disconnect between modern ends and pre-modern means?

The supply and demand of goods and services is mediated through the economic market and Indians have been dragged into it whether they liked it or not; they had no choice. The theory of perfect and imperfect economic markets is well known. In brief, markets can exhibit friction, they can fail, and they can exclude large segments of the population without effective demand. In all such cases, the state has to step in thereby creating the interface between economics and politics. (more…)

Informal Labour at the Root of Corporate Corruption

August 6, 2011

By Dipankar Gupta

If bribe giving is legalized will that ground the bribe taker for good? This suggestion was made recently by Kaushik Basu, the Prime Minister’s Economic Advisor. Sadly, such low cost, budget one-liners invariably fail to fly. Eager to clean up the corporate sector, Narayana Murthy, of Infosys, initially endorsed this suggestion, but later found faults with it. The bribe giver could rat on the bribe taker, but it would not be worth the halo. Word would go around and that person would be singled out forever in the real world of give and take.

Under current conditions, but for a handful of companies in IT, telecom and financial services, it is hard for business to play clean and be above board. (more…)

Corruption and Democracy: Disputing Neera Chandhoke

April 17, 2011

By Anjum Altaf

We have the opportunity to improve our understanding of corruption, democracy and the relationship between them by examining critically the views of Professor Neera Chandhoke outlined recently in connection with the Anna Hazare campaign.

In The Seeds of Authoritarianism, Chandhoke articulates two fundamental positions. First, the establishment of a Jan Lokpal is not democratic and carries within it the seeds of authoritarianism. Although Singapore has controlled corruption, it is not a preferred model because it ‘does not respect the two prime fundamentals of democracy as India does: popular sovereignty and the equal moral status of citizens.’ Therefore, corruption in India needs to be addressed within the procedures and norms mandated in the Constitution.

Second, Anna Hazare’s political beliefs are questionable because he has expressed a low opinion of the voter by saying that some sell their votes; contempt for the voter defies the ‘very rationale for democracy and that of its very claim to legitimacy, that of equal moral status.’ Political democracy, despite all its flaws, has empowered voters to influence political behavior.

We can begin our engagement with these positions by stating the obvious. First, democracy has been in existence in India for over sixty years; it has not been able to eliminate, reduce or even restrain corruption. Corruption has grown by leaps and bounds in tandem with the growth of the economy.

Second, although corruption as an issue agitates and angers every citizen, there seems no reason to believe that democracy as practiced in India would be able to translate this anger into meaningful political action in the future any better than it has in the past.

There are two questions here: Why is this so and what is to be done? Chandhoke does not provide an answer to either.

The reason for this inability, in my view, is that while Chandhoke focuses on the reality of corruption, she seeks her solutions in the practice of an ideal democracy. Despite an early acknowledgement that India’s democracy ‘is deeply flawed in many crucial respects’ she moves on to argue that ‘the proposed solutions for a corruption-free India that are currently on offer might not be democratic at all.’

But what we have to work with is a deeply flawed democracy and the fact of the matter is that in this democracy we have not been able to find a way to channel the deepest desires of voters into effective political outcomes. It is also a matter of fact that votes are traded in this deeply flawed democracy; much evidence was available earlier and more confirmation is provided by the latest revelations from Wikileaks. To state this fact can only be considered contempt for the citizen in a moral framework that values political correctness over truth.

Another perspective on this reality can lead one to argue that voters are rational; they consider the compensation for their vote the best deal they can get out of a deeply flawed democracy. The hope that a vote cast entirely on the basis of ideas can deliver results seems a fairy tale to most voters given the reality with which they are intimately familiar. Popular sovereignty and equal moral status are fine as ideals but woefully wanting in their lived reality. A contrarian position would argue that respect for the citizens requires an acknowledgement rather than a denial of the circumstances that compel them to trade their votes.

It is equally obvious that in India it is ‘non-democratic’ mechanisms like fasts to death that channel popular concerns much more effectively that ‘democratic’ ones as has been witnessed by the outcome of the Anna Hazare campaign – it has put public representatives on the defensive in a way no other mechanism has in the past. We should be learning from what works and asking why rather than being concerned more with what ought to work.

If we start with the reality of what clearly works much more effectively, we can move to the subsequent stage of thinking how such mechanisms can be institutionalized so that they become more compatible with popular sovereignty and less susceptible to authoritarianism. Referenda on single issues and the ability to recall individual public officials would make up for some of the flaws that cripple the democratic process as it exists today. This could be extended, perhaps, to directly electing the governors of the Jan Lokpal that may come into existence in the future.

Related to this discussion is Chandhoke’s comparative evaluation of Singapore and India. After mentioning that “[t]he island-state has one of the highest per capita incomes in the world, possesses a world-class educational and health system, and boasts of an incorruptible public service’ she expresses her preference for India because of the latter’s adherence to  the two prime fundamentals of democracy, popular sovereignty and the equal moral status of citizens. One could argue that such a preference itself cannot be imposed via an authoritarian choice. It too should be the outcome of a democratic expression of opinion.

The point is that the preference for popular sovereignty and equal moral status over a world-class educational and health system and an incorruptible public service is not independent of one’s station in life. One can’t eat popular sovereignty and equal moral status, nor, it seems, can one translate them into outcomes that would put enough on the table over a reasonable period of time. We will not belabor the point here because we have covered it adequately in earlier posts – Would You Wish to be a Chinese in China? and Is Singapore a Successful City?

The conclusion we arrive at is that the starting point of any analysis or proposal for reform should be the reality of democracy as it exists in India today and an understanding of how and why it frustrates the translation of popular desires into political outcomes. There is something not quite right in saying that a democracy that has half the population at starvation levels for over sixty years is still preferable to an authoritarian state that has transformed ‘a malaria-infested swamp to an economic powerhouse.’ Such a choice between life and death should not be made on behalf of starving people without their consent.

Of course, this is presenting the argument very starkly in order to highlight what is at stake in the alleged choice between democracy and authoritarianism. The real challenge is to move beyond pointing to the superiority of an ideal democracy. It is to incorporate into the practice of democracy as it exists in India today the mechanisms that allow citizens to make their desires matter and their voices heard. Mechanisms that ensure accountability and are themselves accountable are steps in the right direction.

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Corruption: Counterintuitive Conclusions

December 24, 2008

We never get away from blaming corruption for everything that is wrong in South Asia. Corruption is our biggest problem, it is repeated, and until we can deal with it we will be unable to develop.

No one is a fan of corruption but where is the evidence for such a strong assertion? In two posts (here and here), we have argued for a nuanced perspective. In this post, we put forward some counterintuitive conclusions.

The trigger for the post is the recent high profile incidents of political and financial corruption in the United States. In the state of Illinois, where the previous governor is already in prison, the incumbent is charged with trying to auction off political office in what is being termed as a standard practice – ‘pay for play’. And the financial corruption on Wall Street to the tune of $50 billion is said to have broken all records.

The fact of the matter is that none of this is new to the US which has gone through the periods of the ‘Robber Barons’, the Mafia, and all sorts of political corruption to still emerge as the most developed country in the world. And the same can be said of Italy, Japan, South Korea and Taiwan.

What this tells us is that corruption, bad as it is, cannot stop development. China and India are no less corrupt than Pakistan but China’s economic development has been spectacular. And despite all its corruption and inefficiency, the growth of the software industry in India has been unstoppable.

A number of conclusions can be drawn from this evidence. First, corruption exists in Pakistan despite it being the home of Islam with perhaps the highest number of mosques per square kilometer of inhabited land; in China despite the abolition of religion and the imposition of socialism; and in the US despite the existence of extensive oversight and the rule of law. This more or less confirms that it is not possible to root out all corruption from society.

Second, when the engine of development gets going, it is not brought to a halt by corruption as evidenced by the case of industry in China and software in India. Rather, as development takes off and the size of the economic pie grows, the growth itself invites greater corruption. This explains the paradox of the scale of corruption in a country like the US where the size of the economy can both give rise to and absorb incidents of corruption of the order of $50 billion.

The lesson to take away from this is that instead of obsessing about rooting out all corruption (which would seem an impossibility given the evidence above), one should focus on unleashing the forces of development and on figuring out what it takes to do that.

When one looks at the issue from this perspective one can see that the difference among China, India and Pakistan is not in the level of corruption. It is in the quality of leadership and of human capital and the stability of the social order. One can measure the quality of leadership by the sum of the qualifications of the key decision makers; the degree of stability by the orderliness of transfers of leadership; and the depth of human capital by the extent of illiteracy on the one hand and the number of institutions of higher education that are globally recognized on the other.

These are objective indicators and they tell most of the story about the variation in development in these three countries. Pakistani leadership does not have the competence to unleash the forces of development – it matters little whether it is corrupt or not. Pakistani society is not stable enough to sustain development – it matters little how much potential it has. Pakistani professionals do not have the depth in quality or numbers to manage development – it matters little whether they are honest or not.

Our obsession with corruption stems from its pervasiveness in our daily lives. This is the one major difference between countries like Pakistan and the US. In the latter, citizens do not have to pay bribes for minor services to which they have rights and entitlements like getting a driving license or a passport. This irritation, justified as it is, clouds our judgment – low-level corruption has little impact on the engine of development; it is simply a transfer of income from one pocket to another.

If we wish to unleash the engine of development we have to demand competence in our leadership, learn to recognize competence in our applicants for office, seek out competence in our managers, promote competence in our employees, and nurture competence in our students.

There will always be corruption in society but rapid development in our quality of life would make it more bearable.

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Is Corruption Good or Bad?

September 23, 2008

A college student has asked us if corruption is good or bad. The proposition he has been asked to consider is the following:

Corruption greases the wheels of development; it benefits the rich and poor alike.

This proposition is very easy to disprove by thinking of concrete examples where corruption does not benefit the rich and poor alike.

Let us take examples from the recent earthquakes in Kashmir and China. Many school buildings collapsed killing thousands of children. The Chinese government has admitted there was corruption in the construction of the buildings. Second-rate material was used but approved by supervisors in exchange for bribes. In this case rich contractors and bureaucrats benefited but poor public school students and their parents paid the ultimate  price.

This example shows that whenever corruption creates hazardous conditions, it does not benefit rich and poor alike. The sale of contaminated infant milk in China and the sale of spurious medicines in Pakistan are other similar examples.

When corruption leads to inefficient choices the gains do not accrue to all parties either. Suppose the national airline is in the market for new airplanes and suppose the evaluation committee finds that company A offers the best value. However, the airline awards the contract to Company B in return for a bribe. The individuals who get the bribe gain but the nation as a whole loses because the less efficient planes raise the cost of travel for the ordinary passengers.

When corruption leads to unfair outcomes the benefits are again not equally shared. Suppose in an important examination third rate students are ranked higher than the best students in return for bribes taken by examiners. The examiners and the undeserving students would gain but the deserving students would lose.

A similar situation arises when incompetent people are appointed to important positions as a result of corruption. Not only do the deserving candidates lose but the entire nation loses as well because the incompetent officials run their offices poorly and make bad decisions that are damaging for the economy. In addition to that this kind of corruption undermines the system because people no longer believe that there is any reward for merit or hard work. Instead people begin to devote their efforts to pleasing patrons who would oblige them even if they were not qualified. This slowly undermines the moral fabric of society.

The spectrum of corruption is very wide and there are indeed some types of corruption that can be said to grease the wheels of development and benefit the rich and poor alike. Appropriately, this kind of corruption is known as grease or speed-money. It is common in underdeveloped economies where legitimate transactions take a long time to process because of bureaucratic inefficiencies.

Take the case of a businessman who has imported goods that are being held up at the port. Every day of delay causes a huge loss to the businessman. In such a situation, a little grease can speed up the transaction. It can be said that everyone, the businessman, the corrupt official, and the national economy are better off because of the corruption.

However, this is a superficial analysis. This kind of corruption causes cynicism and a decay of the moral order of society. The officials learn that they benefit from being inefficient. Thus they have an incentive to make the system even more inefficient. Virtually nothing gets done without corrupt dealings.

In such an environment, the honest businessman or official cannot compete with those who are dishonest. Society becomes so sick that the honest person is thought of as a fool. So, while it is true that in the short run everyone seems to gain, in the long run everyone loses because of the decline of morality and the loss of values in society.

It is rightly said that corruption is a cancer that rots societies from inside and leaves them hollow and worthless.

Related posts: Corruption and Development and Corruption: Counterintuitive Conclusions

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Corruption and Development

August 22, 2008

Unacceptable levels of poverty continue to prevail in South Asia. In order to understand the nature of this poverty we have to first challenge the popularly held beliefs about its causes.

Just as there are people who believe that illiteracy or overpopulation are the major causes of poverty, there are others who attribute it to corruption and argue that nothing can be done till corruption is eliminated.

There is no doubt that corruption is a pervasive and aggravating phenomenon but even a cursory look at hard data and a comparative analysis should make one skeptical of the assertion that it is a major cause of underdevelopment in South Asia.

China provides one contrary example. The issue of corruption is very high on the political agenda of the Chinese government and people holding very high offices have been executed for related crimes. But despite the corruption the economy has expanded continuously over the past fifteen years at historically unprecedented rates of growth. Today China is considered a major economic power of the future. The concern with corruption stems less from its impact on growth and more from the social discontent it causes which negatively impacts the credibility of the government at home and abroad.

Indonesia is another country where considerable economic development occurred despite very high levels of corruption that are well documented. The country was very much a part of the East Asian miracle whose momentum was broken by the financial crisis in 1997. While the other regional economies have recovered, Indonesia is lagging not because of corruption but because of the political instability that ensued after the fall of the Suharto regime.

The East Asian crisis raises interesting issues related to corruption. Many analysts were quick to attribute the crisis to the high levels of corruption in the regional economies and “crony capitalism” emerged as a popular explanation for what happened.

This may or may not be correct but from our perspective the relevant aspect of the East Asian miracle is the tremendous economic development that took place prior to the crisis. This suggests that significant economic growth is possible despite high levels of corruption. Therefore, we need to continue searching for the causes of the lack of similar dramatic growth in South Asia.

Within South Asia, the Indian economy is doing much better than in the past and the country has begun to be mentioned in the same league as China. Our Indian readers would be able to inform us if the acceleration in the rate of growth is the result of any significant decrease in corruption in the country.

While the Indian economy is charting a steady upward course, the Pakistani economy is continuing its usual roller-coaster pattern. Once again it would be hard to relate these ups and downs to sudden changes in the level of corruption in the country. Bangladesh is rated much worse than Pakistan on the corruption index but its economic performance is not very different.

It would be interesting to compare the levels of corruption in South Asian countries. If they are different, we would like readers to try and explain the likely reasons for the differences. Such an analysis could yield ideas that could contribute to identifying measures that could reduce the prevalence of corruption.

A focused discussion of corruption would benefit from defining it narrowly as the abuse of public office for private gain. This would distinguish it from other criminal acts like fraud, embezzlement, extortion, blackmail, etc., all of which can be committed by private individuals not holding public office.

It would also help to consider separately the phenomena of low- and high-level corruption, respectively. Low-level corruption is what citizens encounter every day and what colors their perception of its importance. The social frustrations caused by having to run around and pay extra money for virtually everything can understandably make it seem the cause of all our problems.

In fact, low-level corruption may not have major negative consequences for economic growth. It constitutes a transfer of money from one pocket to another in a society where many public officials are not paid a living wage and where bureaucratic procedures remain archaic, cumbersome and slow. Its incidence inevitably diminishes with economic growth and modernization as both the need to demand small bribes and the opportunities to manipulate procedures decrease.

In a perverse way one can argue that low-level corruption, while frustrating, could actually be good for growth. The money that would otherwise go into government revenues is siphoned off into private pockets. And we can claim that in South Asia private individuals spend money more sensibly than governments. It is quite likely the government revenues would be used to buy non-productive weapons from abroad to fight non-productive wars with neighbors contributing nothing to the economies and destroying existing assets. Individuals, on the other hand, would be buying goods and services produced in local markets.

High-level corruption (the domain of big people and big businesses playing for big stakes), on the other hand, can have major lasting negative effects if public resources are diverted from economically useful to economically useless activities. But the fact remains that there are economies that have continued to grow even in the face of high-level corruption. Prime ministers have gone to jail in Korea and have been indicted in Japan on charges of corruption. Nevertheless Japan is among the richest countries in the world and Korea has vaulted into the ranks of developed countries within the period of a few decades. (We can assume that there is much less low-level corruption in Japan and Korea.)

These arguments are not intended as a defense of corruption. The world would be a better place without it and it does impose costs on the economy. But the contention that corruption is our biggest problem and we need to eliminate it before meaningful change can occur is not supported by evidence. We need to look beyond the simple answer to figure out what might be holding back South Asian economies from developing at the same rate as those in East Asia.

Transparency International’s 2007 Corruption Perceptions Index ranks 180 countries.  Following is a sample of some rankings (a higher rank signifies higher level of corruption): Japan 17, Korea 43, China 72, India 72, Thailand 84, Sri Lanka 94, Vietnam 123, Philippines 131, Pakistan 138, Indonesia 143, Bangladesh 162.

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