Impact of business organizations on anti-corruption policy: Cases of Mongolia and Kazakhstan

Analysis of concepts of corruption and collective action approach in the fight against corruption. Study of international anti-corruption regulations. Analysis of impact of business organizations on anti-corruption policy in Mongolia and Kazakhstan.

Рубрика Экономика и экономическая теория
Вид дипломная работа
Язык английский
Дата добавления 30.08.2016
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MASTER THESIS

Impact of business organizations on anti-corruption policy: Cases of Mongolia and Kazakhstan

Student: Javzandolgor Tsedendorj

2nd year MA in Political Analysis and Public Policy

Research Advisor: Professor Sergey Parkhomenko

Department of Public Policy

2016

Contents

  • Introduction
  • 1. Theoretical Framework
    • 1.1 Concepts of corruption and emergence of collective action approach in the fight against corruption
    • 1.2 Collective action approach to combat corruption
    • 1.3 Assessment criteria for business organizations for effective business-government relation against corruption
    • 1.4 Policymaking process and stages
  • 2. International level
    • 2.1 International anti-corruption regulations for public and private sectors
    • 2.2 Anti-corruption measures initiated by private sector
    • 2.3 Good practices for collective action against corruption
  • 3. Analysis of impact of business organizations on anti-corruption policy
    • 3.1 Mongolian Study
      • 3.1.1 Current situation of corruption and anti-corruption measures
      • 3.1.2 BOs and their potential for effective collective action against corruption
    • 3.2 Kazakhstan study
      • 3.2.1 Current situation of corruption and anti-corruption measures
      • 3.2.2 BOs and their potential for effective collective action against corruption
  • Conclusion
  • Bibliography

Introduction

Undoubtedly, corruption is a global issue that threatens sustainable economic, political and social development in the whole society. For government, corruption undermines the rule of law, causes widespread poverty and loss of confidence on institutions and government, and huge fall in investment and market development. Businesses lose their reputation and increases doing business costs and resource misallocation, and reduces competition, productivity, innovation, and investment. Individuals ruins their career and reputation, and triggers crime when connecting to corruption. (World Bank Institute, 2008) There are many efforts to combating corruption have been made by governments, international donors, and non-governmental organizations such as United Nations Convention against Corruption 2003, OECD Anti-Bribery Convention, the Canadian Corruption of Foreign Public Officials Act 1998, the UK Bribery Act 2010 (UKBA). However, there are several criticisms about efforts that have done before can't work well due to sole attention to corruption public officials and in the recent years, the awareness has been growing that important role of business in the fight against corruption and points importance of the business-government relation in addressing corruption.

According to the Ernst& Young survey, businesses are victim of corrupt government officials that nearly fifth of executives responded they have lost business to a competitor who paid bribes to public officials and took advantages. In the United Nations Global Compact' 10th principal pointed “Businesses should work against corruption in all its forms, including extortion and bribery”, Transparency International's “Business Principles for Countering Corruption”, World Bank Institute “Fighting corruption through collective action”, World Economic Forum's Partnering Against Corruption Initiative (PACI) Principles and more.

This paper therefore focuses on assessing potential of business organizations, including business associations and chambers of commerce, for effective collective action between business and government in the fight against corruption. Business organizations potential for effective collective action in the fight against corruption means capacity of businesses can take important role to institutional reform through providing practical and concrete information to the government that meets real needs of the businesses, participating in policy making process and ensuring policy implementation in the organization and the industry.

Shortcomings of literature

Corruption has been and is still a hot topic in the areas of scholars for study. There are a great number of works have been done in the field but I have decided to concentrate on literatures that are relevant to business participation in the fight against corruption, particularly how businesses are combating corruption and how businesses play crucial role in anti-corruption policy. In the initial category, I have placed literatures regarding general understanding of corruption and its underlying causes and why fighting corruption is important. After then literatures concern an importance of business role in the fight corruption and why collaboration of business and government is necessary, eventually literatures are placed regarding successful relation between business and government in the field of anti-corruption policy and importance of role of business associations and chambers of commerce.

In the first category, there are many works have been done but some relevant articles to my research field have been studied in this part. (Begoviж, 2005) explained concept of corruption in applying two views of economic theory to the political process, and its types and causes. (Transparency International) defines corruption and classified it. Also, it divided cost of corruption into four main categories: political, social, economic, and environmental. (UKDID, 2015) reviewed causes and bad effects of corruption at both macro and micro level. Costs of corruption at macro level include inequality, reduced legitimacy and lack of confidence/ trust in public institution, decreased domestic investment and tax revenue. At micro level, costs of the corruption include addition cost for company's growth and productivity and conflict. (Lambsdorff, Johann Graf, 2005) studied cause of corruption in using data on perceived levels of corruption from cross section countries and clearly defined main causes of corruption. The study by World Bank shows negative effects of corruption too and emphasize it a global issue that threatens sustainable economic, political and social development in the whole society. For government, corruption undermines the rule of law, causes widespread poverty and loss of confidence on institutions and government, and huge fall in investment and market development. Businesses lose their reputation and increases doing business costs and resource misallocation, and reduces competition, productivity, innovation, and investment. Individuals ruins their career and reputation, and triggers crime when connecting to corruption. (World Bank Institute, 2008)

Second category considers literatures of an importance of business role in the fight corruption and effective business-government relation in the fight against corruption. Previously, majority of anti-corruption efforts were based on the principal agent theory developed by Susan Rose-Ackerman (1978) and Robert Klitgaard (1988), which explains corruption is a principal-agent problem and occurs when there is asymmetric information, for instance, between public and government officials and it aimed to limit ability these government officials to engage corruption through public controlling government officials' motivations to involve in corrupt behavior. However, Andvig & Fjeldstad (2001) pointed what if the principals (public) themselves involve in corruption too? Here, it is more likely to lead the principal and the agent to build coalition to make illegal, corrupt acts which results in the principal-agent framework becomes ineffective and no actor are in willing to control and monitor corrupt behavior and risk of corruption increases in the end. (Andvig & Fjeldstad , 2001) Also, study of Persson& Rothstein&Teorell (2013) shows that the main failures of the anti-corruption reforms in countries with highly corrupted environments can be explained as collective action problem on the case of Uganda and Kenya case. Several other scholars like Morrell& Bettcher (2013), Ostrom (1998), Booth&Cammack (2013), and Olson (1965), Matthew Stephenson (2015) also suggest that collective action theory can explain better understanding of corruption than the principal-agent theory, especially there is systemic corruption. Collective action approach to corruption supported by Persson&Rothstein & Teorell (2013), Rothstein (2011), Booth & Cammack (2013) and some other scholars view corruption as a collective action problem and highlights influential role of perceptions of how other group members act or trust in the group. In other word, problem occurs when individuals are in best interest in acting collectively towards common goal and group members prefer their individual interest and don't make any contribution for the group.

According to the Ernst& Young survey revealed that some businesses prefer short term benefit but that nearly fifth of executives, majority of them are small and medium entrepreneurs, responded businesses are victim of corruption and corrupted government officials too, they have lost business to a competitor who paid bribes to public officials and took advantages. Then John D. Sullivan, the executive director of the Center for International Private Enterprise (CIPE), developed the collective action approach and suggests successful strategy to combat corruption in explaining in two sides of contribution: important contribution of both public and private sectors. According to his strategy, elimination of opportunities for corruption engaged with tough enforcement is the appropriate in order to restrict public sector corruption. These include open procurement codes with reliable third party monitoring, reducing duplicative laws and regulations, reducing tax burden, and setting public officials' wage which is competitive with private sector salaries. On the other side, successful efforts of private sector corruption focused on eliminating causes and opportunities for corruption in private sector.

(John D. Sullivan and Aleksandr Shkolnikov, 2004) point out that building a system with strong, balanced institutions can reduce corruption in a way of creating a set of well-founded incentive structures, where collective action between private and public sector is essential. Meanwhile, in the United Nations Global Compact' 10th principal pointed “Businesses should work against corruption in all its forms, including extortion and bribery”, “Business Principles for Countering Corruption” of Transparency International, “Fighting corruption through collective action” of the World Bank Institute. Key international organizations such as OECD, UNODC, and the World International Chamber of Commerce, World Economic Forum Partnering against Corruption Initiative (PACI) all endorsed important role of business in the fight against corruption and emphasizes importance of the business-government relation in addressing corruption, and developed number of guidance and handbooks regarding the issue. (World Bank Institute, 2008)

In the last category, there are literatures concerning business coalition, role of business associations and chambers of commerce, and their potential for the effective collective action of business and government effort in the fight against corruption. During my research, it seems anti-corruption initiatives including 10th principle of United Nations Global Compact and the Revised Principles for Donor Action in Anti-Corruption promotes engaging the private sectors in anti-corruption efforts, however, they don't specifically state exactly how to engage and promote the private sector is not clearly defined and not many literatures regarding this found. Survey on corruption conducted by of Social Weather Station reveals SMEs (small and medium entrepreneurs) are relatively vulnerable to corruption compared to larger and well-known companies due to their inadequate resources to counter with bureaucrats, corrupted government officials and it is hard to fight corruption alone for them. Therefore, the awareness is growing in recent years that SMEs join forces together and build coalitions of professional or industry associations to influence or work directly with the government on making institutional reform that meet real needs of the businesses and public good through providing practical information to the government and ensuring that policies that are designed to fight corruption address the real needs of the businesses in the several literatures such in “Guidance for SMEs” of Center for Corporate Governance; “Collective Action in the fight against corruption” of United Nations, “How business together can lead the fight against corruption” of CIPE, “Fighting through collective action” of World Bank Institute, “ The role of business associations and chambers of commerce in the fight against corruption” of U4 Anti-corruption Resource Center, and more.

Business associations and chambers of commerce (CCs) are voluntary based business organizations, where their members are open to decide leave the group and which commitments and recommendations to follow or put into practice. Businesses join business associations and chambers of commerce to obtain wide knowledge/ experiences on sector-specific advice and guidance; to have well-developed and coherent technical standards on corporate sustainability performance; to get more possibility to engage with policymakers and to draw their attention to main priorities; to have wide range of access to information; corporate sustainability etc. Chambers of commerce and business associations fight against corruption through following ways: facilitating collective action of business community and build up and maintain communication with government, civil society and the media; working with other domestic and international business organizations on the issue of anti-corruption; providing practical information to the government that meets real needs of the businesses and implementing effective anti-corruption compliance programs in their organizations and industries, and take key warrant role; and supporting members to expand their investment and trade expansion, which reduces the risk of firms engaging informal businesses in turn. (U4 Anti-Corruption Resource Centre, 2007)

There are plenty of good practices where business and government work together successfully in fighting corruption. “Combating Corruption: Private Sector Perspectives” of CIPE revealed basic concepts of corruption, and gives clear explanation how can address causes of corruption, and suggests the solution that business community can play important role on making legal and regulatory reforms through promoting transparency, corporate governance, accessible information and voluntary standards in the fight against corruption in public and private sector. There are several good practices for successful business-government relation in the fight against corruption such as cases of Bulgaria, Ecuador, Armenia, Kosovo, Colombia, and so on. For instance, local business associations in Kosovo and Riinvest Institute, local think tank, collaborated with some policy makers to decrease tax burdens placed on business community and as a result legislators made some changes to the tax on property, wages, and profits. Also, Colombian Confederation of Chambers of Commerce (Confecбmaras) collaborating with policy makers initiated the project aimed at addressing corruption in the public sector and change the business culture in Colombia through encouraging business ethics and create a transparent business culture. The biggest success of the project was that Colombia's new Procurement Law No.80 adopted with private sector's recommendations that enhanced competitiveness and transparency in 2007. Then, World Bank Institute demonstrated sets of successful practices where business and government built open and effective relationship and brought big positive changes against corruption as illustrated by some practices in Mexico, Ecuador, Germany, and Indonesia. “The role of business associations and chambers of commerce in the fight against corruption “of U4 Anti-Corruption Resource Center revealed also some successful examples where chambers of commerce and business associations have played leading roles in setting integrity and anti-corruption standards for the businesses through certification programs and committing code of conduct in Thailand, Philippines e.g., as well as through trainings, awareness raising and advocacy in Vietnam and China.

Research problem and research question

Until recently, almost all anti-corruption efforts were based on the principal agent theory, which explains corruption as asymmetric information problem and concentrated on limiting ability of public officials through controlling government official's motivations to involve in corrupt behavior. However, Andvig & Fjeldstad (2001) pointed what if the principals (public) themselves involve in corruption too? Since that time, it hasn't been such a long time and there are many scholars such as Persson& Rothstein&Teorell (2013), Morrell& Bettcher (2013), Ostrom (1998), Booth&Cammack (Andvig & Fjeldstad , 2001) introduced corruption as a collective action problem and suggests successful anti-corruption programs in long run need all stakeholders build up alliance and act jointly in the fight against corruption, particularly here businesses take important role to institutional reform through providing practical information to the government that meets real needs of the businesses, initiating anti-corruption programs, participating in policy formulation and ensuring that policies implementation in the organization and industry. In latest years, the awareness has been growing that there are some particular works for businesses and organizations to develop their own respective anti-corruption programs, as well as guidelines and integrity systems provide companies step-by-step process on developing their comfortable anti-corruption tools, frameworks and agreements such as Transparency International's “Business Principles for Countering Corruption”, World Bank Institute “Fighting corruption through collective action”, World Economic Forum's Partnering Against Corruption Initiative (PACI) Principles etc.

However, apart from all these works, there is a lack of research has been found to study the impact of business associations in anti-corruption policy in transition economies like Mongolia and Kazakhstan. These two countries have some similarities in geography, culture and historical background. Both are Central-Asian countries with rich-natural resources but are covered by lands and their population density rates are relatively low compared to others have due to their nomadic tradition. Both countries have faced dozens of challenges when shifted from socialism into democracy in 1990s where corruption penetrated every corners of the countries and noticeably increased unemployment and poverty rate. In last twenty years, things have been changed in a positive direction in both countries and governments are making efforts to combat corruption in adopting anti-corruption regulations and conventions, strengthening national laws and regulations against corruption, increasing public awareness against corruption and creating better environment with high ethical behavior and zero tolerance of corruption. However, both countries are still implementing former anti-corruption compliance programs focusing on limiting ability of public officials to get bribes and gifts or unfair award or contracts and licenses to his/her friends and family but participation of private sector on anti-corruption policy is being often ignored though. Corruption in two countries are still at high level and according to the Corruption Perception Index 2015 (CPI) of Transparency International Mongolia and Kazakhstan placed respectively 72nd and 123rd out of 168 countries, which are considered as highly corrupted states.

For instance, in Mongolia, copper represents about ninety percent of total exports and GDP growth reached at 17.3 percent in 2013, which brought big improvements on society and economy in Mongolia and experts were predicting Mongolia could have economic potential having GDP growth would reach at 18-20 percent next years. However, corruption, poor governance and unstable government regulations threatened Mongolia's social and economic potential, which resulted foreign investment decreased by 48 percent, unemployment, inflation and resource-fueled conflicts overspread in contrary. Also, same picture can be seen in Kazakhstan, which was placed in 107th out of 158 countries in CPI in 2005, then went down to 150th out of 179 countries in 2007, then 120th out 180 countries in 2009, and now 123rd of 168 countries. It proves corruption is still one of the common problems in the country, particularly in the area of public procurement. So, Mongolia and Kazakhstan both suffering from corruption are in need of effective anti-corruption programs. Therefore, this paper aims at filling this gap, as well as propose the idea that business and government can build together effective anti-corruption policy through increasing capacity and participation of business organizations on the anti-corruption policy making process on the cases of Mongolia and Kazakhstan. Therefore, research question of this paper is as follows:

What is the potential of business organizations to impact on anti-corruption policy in Mongolia and Kazakhstan?

Research goal and tasks

Research goal and research tasks

This paper aims to assess potential of business organizations, including business associations and chambers of commerce, for the effective business and government relation in the fight against corruption and identify and analyze their impact on anti-corruption policy. Potential for effective business and government relation in the fight against corruption means capacity of businesses taking important role to institutional reform through providing practical and concrete information to the government that meets real needs of the businesses, initiating anti-corruption programs, participating in policy formulation and ensuring that policies implementation in the organization and industry.

To achieve aim of goal of the research following tasks are to be conducted:

* To review literatures on the conceptualization of existing theoretical approaches of anti-corruption measures;

* To study collective action approach in which public and private sector discuss, join forces and develop enforcement and monitoring mechanisms in the fight against corruption;

* To assess potential of business organizations, including business associations and chambers of commerce in Mongolia and Kazakhstan, for effective business and government relation to fight against corruption. The assessment is based on CIPE's internal and external considerations that need to be observed prior to assess business associations and chambers of commerce capacity to form effective business-government relation and influence effective policy formulation and its enforcement and implementation.

* To identify and analyze impact of business organizations on anti-corruption policy in Mongolia and Kazakhstan;

Methods and Data

The paper intends to adopt qualitative research methods from the perspectives of an analytical approach to give answers to the main research question. Data will adopt from publicly available materials, literatures including relevant publications, annual reports, and online data bases of several leading business associations/ chambers of commerce in Kazakhstan and Mongolia. In order to assess potential of business organizations for effective business- government relation in the fight against corruption in two countries, CIPE's internal and external considerations will be used. Meanwhile, to identify impact of business organizations on anti-corruption policy in Mongolia and Kazakhstan, case studies will be analyzed on how business organizations participate in anti-corruption policy making process in Mongolia and Kazakhstan. The paper will not point out specific associations, rather it intends to identify potential of business organizations, including business associations and chambers of commerce, for effective business and government relation in the fight against corruption in Mongolia and Kazakhstan as a general.

Importance of the research

I suppose the novelty of the research can be explained by following two main reasons. First, corruption is one of the biggest global issues and dozens of works have been done on its negative impacts of social and economic development and suggest number of strategies to combating corruption for sure. However, still there is a room for more empirical research to combat corruption and effective anti-corruption programs. Therefore, this paper will contribute to public policy and anti-corruption research field by collecting data of some transition economies like Mongolia and Kazakhstan's current business and government relation against corruption and finding out what are important to develop participation and impact of business organizations on the anti-corruption policy making in those countries.

Second, almost until recently, almost all anti-corruption efforts were based on the principal agent theory, which explains corruption as asymmetric information problem and concentrated on limiting ability of public officials through controlling government official's motivations to involve in corrupt behavior. In recent years, the awareness has been growing that not only government but also participation of business, business organizations are also important, and business and government together can combat corruption more successfully rather than government solely does. Therefore, it is important to study the collective action between government and businesses against corruption, particularly important role of the businesses, business organizations on anti-corruption policy so that I believe this paper will make some small contribution on this study.

1. Theoretical Framework

This chapter consists of following four subchapters: 1. Concepts of corruption and emergence of collective action approach in the fight against corruption 2. Collective action approach to combat corruption 3. Assessment criteria for business organizations for effective business-government relation against corruption 4. Policymaking process and stages;

1.1 Concepts of corruption and emergence of collective action approach in the fight against corruption

From Medieval Latin etymology of the word, corruption means “break or destroy someone's trustworthiness and good reputation with others”, made of com - meaning `with, together' and rumpere - meaning `to break'. It is a very old and universal phenomenon that can be even found in the writings from 2250 BC but finding corruption is challenging because of its many forms.

Transparency International, a leading global civil society organization, describes corruption as “an abuse of entrusted power for private gain”, which refers both public and private corruption between businesses and individuals, and classifies grand, petty and political corruption depending on size of the transaction and the sector. Grand corruption refers to the high level of government and always is being done behind closed doors and hard to disclose. Petty corruption refers to everyday corruption taking place at a smaller scale or lower level where bureaucrats meet the public directly. Political corruption consists of manipulation of policies, allocation of resources, rules of procedures, and large amount of financing committed by political decision makers, who abuses their power and position. Corruption can be found in many forms and common forms of corruption includes:

* Bribery (an act of unethically persuading someone to act in one's favor by payment or gifts, loans, fees, rewards etc.)

* Embezzlement (an act of stealing or misusing funds or assets placed in one's trust or in one's control),

* Extortion (an act of making use of someone's access to position of power or knowledge through coercive threats or force),

* Fraud (an act of deliberately cause someone to believe something untrue to gain illegal and unfair advantage);

* Favoritism (an act of the treating some people better than others in unfair way)

Why corruption matters? World Bank and other reliable sources states that corruption is the greatest obstacle to countries' economic growth and development and social and political stability that harms both individuals, businesses, and government. Individuals ruins their career and reputation, and triggers crime when connecting to corruption. Businesses lose their reputation and increases doing business costs and resource misallocation, and reduces competition, productivity, innovation, and investment. For government, corruption undermines the rule of law, causes widespread poverty and loss of confidence on institutions and government, and results huge fall in investment and market development. According to World Bank estimation, cost of corruption equals more than 5 percent of global GDP and nearly US$ 1 trillion is paid for bribes every year. The World Economic Forum states that corruption adds up 10 percent cost of doing business globally and up 25 percent cost of public contract. The African Union states that 25% of the GDP of African states, equals to US$148 billion, is misused to corruption each year. The U.S Healthcare programs Medicare and Medicaid informs that 5% to 10% of their annual budget is wasted due to corruption. As a result, it leads to big countries' gap between rich and overspread poverty and increase in conflict of interest within the state. For instance, Equatorial Guinea, one of the most corrupted countries, about 75 percent of its population is living below the average living standard. Also, dangerous armed conflict and human rights abuse are common in Nigeria and Sudan, highly corrupted states. (Terra Lawson-Remer and Joshua Greenstain, 2012)

We see corruption is one of the greatest challenge for not only national level but also global level and its costs are really challenging. In previous 16 years, many efforts to combating corruption have been made by governments, international donors, and non-governmental organizations (NGOs). There are several intergovernmental and non-governmental anti-corruption organizations like Transparency International, U4 Anti-Corruption Resource Centre, TRACE International, and Integrity Action and number of international anti-corruption laws and conventions such as US Foreign Corrupt Practices Act 1977 (FCPA), OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transaction 1997, the Canadian Corruption of Foreign Public Officials Act 1998 (CFPOA), Council of Europe Criminal Law Convention on Corruption 1999 (COE Criminal Law Convention), United Nations Convention against Corruption 2003, the UK Bribery Act 2010 (UKBA), and formal anti-corruption strategy of the World Bank. However, still there are not many successful cases where countries have significantly reduced corruption during such time period. In recent years, experts explain main reason of the failures of anti-corruption reforms with an inappropriate theoretical based foundations and view corruption as a problem of collective action.

Emergence of new approach to corruption

As previously mentioned, there are several international anti-corruption laws and conventions that are supposed to fight corruption including US Foreign Corrupt Practices Act 1977 (FCPA), OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transaction 1997, the Canadian Corruption of Foreign Public Officials Act 1998 (CFPOA), Council of Europe Criminal Law Convention on Corruption 1999 (COE Criminal Law Convention), United Nations Convention against Corruption 2003, the UK Bribery Act 2010 (UKBA), and so on. However, there are huge criticisms among many scholars that these anti-corruption efforts were not as successful as expected and couldn't work well in reducing corruption because majority of them are based on inappropriate theoretical foundations. Previously, anti-corruption programs majorly focused on limiting ability of public officials to get bribes and gifts or unfair award or contracts and licenses to his/her friends and family but participation of private sector was often ignored in combating corruption. For decades, the principal agent theory developed by Susan Rose-Ackerman (1978) and Robert Klitgaard (1988) was dominant and most of anti-corruption programs were rooted on the theory. It explains corruption is a principal-agent problem and occurs when there is asymmetric information between principals and agents. The theory is based on two principal assumptions. First, there are diverging interests between principals who are assumed to represent public interest, and agents who are assumed to prefer in favor of corruption transaction and its benefits are greater than the costs. Secondly, it is assumed that the agents have more information than the principals which results in asymmetric information between the actors and problem arises.

Broadly, because of the information asymmetry, the principal cannot fully monitor and check the actions and accountability of the agent, and the agent have preference in pursuing their own interests and benefit rather the principal's interests. (U4 Anti-Corruption Resource Centre, 2015) Depending on who is the agent and who is the principal, the principal agent-model (PAM) differs. In some case, politicians can be the `principals` and bureaucrats can be `agents`, also it is possible citizens are assumed as `principals` and public officials like political leaders or bureaucrats as `agents`. For example, true democracy is defined as where there are governments (agents) who work for the citizens (principal), and citizens pay taxes and vote the government that act on their benefits and can be perfectly monitored by citizens. However, it is common government officials (agents) have more information than the citizens (principal) and the problem arises. (Figure 1)

The principal-agent theory suggests the principal should focus on controlling agent's motivations to involve in corrupt behavior through following control instruments in order to reduce or prevent corruption, which include reducing their level of discretion, restricting the monopoly of agents, expanding monitoring mechanisms and level of the accountability, supporting transparency in the government, and promoting anti-corruption civil society organizations that work as watchdogs, and building up effective sanction system for those who engaged in corruption. Generally, principal-agent theory is based on the assumption where decreasing asymmetric information between the principal and the agent and in such case the principal-agent model promotes the principal will take key role in fight against corruption. (Robert Klitgaard, 1988).

In contrary, there are great number of scholars led by Andvig & Fjeldstad, Persson& Rothstein&Teorell, Booth&Cammack argue efficiency of the principal agent theory and emphasize several evidences that may adversely impact on further anti-corruption programs. Andvig & Fjeldstad (2001) pointed what if the principals themselves involve in corruption too? Here, it is more likely to lead the principal and the agent to build coalition to make illegal, corrupt acts which results in the principal-agent framework becomes ineffective and no actor are in willing to control and monitor corrupt behavior and risk of corruption increases in the end. (Andvig & Fjeldstad , 2001) Also, study of Persson& Rothstein&Teorell (2013) shows that the main failures of the anti-corruption reforms in countries with highly corrupted environments can be explained as collective action problem on the case of Uganda and Kenya case. In other word, principal theory doesn't work well when there is highly corrupt environment due to lack of the honest principals. (Persson& Rothstein&Teorell , 2013) Several other scholars like Morrell& Bettcher (2013), Ostrom (1998), Booth&Cammack (2013), and Olson (1965), Matthew Stephenson (2015) also suggest that collective action theory can explain better understanding of corruption than the principal-agent theory, especially where systemic corruption is common.

1.2 Collective action approach to combat corruption

Collective action is not that new concept but it is gaining more attention from businesses, governments, and NGOs as a tool to fight corruption in recent years. Those who actively supports collective action approach to corruption include Persson&Rothstein & Teorell (2013), Rothstein (2011), Booth & Cammack (2013) and so on so far. Collective action theory sees corruption as a collective action problem and highlights influential role of perceptions of how other group members act or trust in the group. In other word, problem occurs when individuals are in best interest in acting collectively towards common goal but group members prefer their individual interest and don't make any contribution for the group. In that case, individuals are more likely to make decision or acts how many other individuals in the same group are expected to corrupt.

According to (Persson, A., &Rothstein, B., & Teorell, 2013), corruption is seen as an expected behavior and it is fully possible everyone not only agents but also principals can be expected corruptly. (Olson, 1965) gives clear explanation about how collective problem occurs in using some interesting examples. Lighting, certain fishing grounds, forests are public goods which are not restricted and everyone can get benefit (non-excludable) but its misusage can reduce stock availability for the others. However, the non-excludable products can be used by everyone, even by those who don't contribute towards the productions, and they are called free-riders. According to him, the free-riders are the core of the collective action problem and people follow free riders when they realize they get same benefits no matter how much they make contribution towards the collective good, in other word people start choosing rational choice which enables them gains more benefits.

Generally, from collective action perspectives, all stakeholders including like governments, bureaucrats, citizens, businesses, and other actors all are self-maximizers and the way they act to maximize their benefits is directly depending on how others act. In other word, corruption is a symptom of both public and private sector problem and limiting private sector ability to engage in corruption are therefore also important. Corrupted government officials misuse their power to extort bribes and provide public service at specific/illegal additional cost. Businesses give money or non-monetary gifts to receive the services offered by the corrupted officials to try to obtain specific government treatment or get more advantages from other competitors in the competitive market. Transparency International and other reliable anti-corruption initiatives state that corruption flourishes in the system with lack of accountability and transparency in policy making and in the relation between businesses and government, and weak legal system and poor enforcement mechanisms.

Collective action approach suggests that combating systemic corruption should be far beyond than simply punishing corrupted government officials, instead addressing to both public and private sectors equally and promotes the environment where government officials don't misuse their power to exercise bribes while businesses don't pay illegal money or other incentives to get favoritism from government officials in any case. In order to make successful anti-corruption programs in long run need all stakeholders build up alliance and act jointly in the fight against corruption, effective relation between government, and businesses and civil society. According to World Bank Institute definition, collective action is `a collaborative and sustained process of cooperation amongst stakeholders.' (World Bank Institute, 2008) The main stakeholders can be businesses, governments, and civil society. Collective action can be forms in the industry and sector standards, joint collaboration of public and private sector, multi-stakeholder initiatives.

In general, this is the collective action where all stakeholders discuss, join forces against corruption and develop enforcement and monitoring mechanisms to make sure that every stakeholder is adopting and implementing properly common measures in the fight against corruption. Here, governments work with international anti-corruption frameworks like United Nations Convention against Corruption (UNCAC), OECD Anti-Bribery Convention, and adopt them into their national laws and regulations, and make sure effective enforcement and create better environment with high ethical behavior and zero tolerance of corruption in order to address corruption through limiting public and private sector ability to engage corruption. Here, businesses take important role to institutional reform through providing practical information to the government that meets real needs of the businesses, participating in policy formulation and ensuring that policies implementation in the organization and industry, and having zero tolerance of corruption. Civil society organizations monitor governments and businesses in the countering corruption and make sure public awareness of addressing corruption and provide zero-tolerance in their daily life too.

According to the Ernst& Young survey revealed that some businesses prefer short term benefit but that nearly fifth of executives responded businesses are victim of corrupt government officials, mostly small and medium entrepreneurs, they have lost business to a competitor who paid bribes to public officials and took advantages. The World Economic Forum states that corruption adds up 10 percent cost of doing business globally and up 25 percent cost of public contract. The African Union states that 25% of the GDP of African states, equals to US$148 billion, is misused to corruption each year. According to survey on corruption conducted by of Social Weather Station in 2009, is the most common case that SMEs (small and medium entrepreneurs) are more vulnerable to corruption compared to larger and well-known companies because of their inadequate resources to deal with bureaucratic, corrupted government officials and it is hard to fight corruption alone for them. Therefore, the awareness is growing that SMEs join forces together and build coalitions of professional or industry associations to influence or work directly with the government on making institutional reform that meet real needs of the businesses and public good through providing practical information to the government and ensuring that policies that are designed to fight corruption address the real needs of the businesses. There are many successful cases where business and government effectively work together more effectively against corruption including cases of Kosovo, Colombia, Ukraine, and so on so far. For instance, in Kosovo policy makers collaborating with local business associations and Riinvest Institute, local think tank, to decrease tax burdens placed on business community and in the result legislators made some changes to the tax on property, wages, and profits. Also, Colombian Confederation of Chambers of Commerce (Confecбmaras) collaborating with policy makers initiated the project aimed to combating corruption in the public sector and change the culture of business in Colombia through encouraging business ethics and create a transparent business culture. The biggest success of the project was that Colombia's new Procurement Law No.80 adopted with private sector's recommendations that enhanced competitiveness and transparency. The growing importance of business and government equal participation against corruption stated in many anti-corruption initiatives in recent years, including United Nations Global Compact' 10th principal “Businesses should work against corruption in all its forms, including extortion and bribery, Transparency International “Business Principles for Countering Corruption”, World Bank Institute “Fighting corruption through collective action” and CIPE (Center for International Private Enterprises) “Collective action guide” and more.

1.3 Assessment criteria for business organizations for effective business-government relation against corruption

According to survey on corruption conducted by of Social Weather Station in 2009, it is the most common case that SMEs (small and medium entrepreneurs) are more vulnerable to corruption compared to larger and well-known companies because of their inadequate resources to deal with bureaucratic, corrupted government officials and it is hard to fight corruption alone for them. It seems recent anti-corruption initiatives including 10th principle of United Nations Global Compact and the Revised Principles for Donor Action in Anti-Corruption promotes engaging the private sectors in anti-corruption efforts, but they don't specifically state exactly how to engage and promote the private sector is not clearly defined. However, recent years the awareness is growing that SMEs join forces together and build coalitions of professional or industry associations or join in chambers of commerce to influence or work directly with the government on making institutional reform that meet real needs of the businesses and public good through providing practical information to the government and ensuring that policies that are designed to fight corruption address the real needs of the businesses. corruption international business policy

In this paper, business organizations will be examined and this term refers chambers of commerce and business associations. Chambers of commerce (CCs) and business associations seems to have many similarities but these two are different. Chambers of commerce is one kind of business organizations and are organized bodies of classic trade and industry, and its membership is free to all such businesses. Chambers of commerce is important body in European countries and English speaking countries. Rather, business associations (BAs) is more clearly defined function and not open to all companies. Business associations are bodies established by corporations active in certain sector or region or certain aim such as to support certain industry through policy advocacy, educating/training, political donations, publishing or other promoting activities. Business associations and chambers of commerce play almost same roles regarding anti-corruption measures and both are voluntary based rather than governing ones. It means they cannot make decision behalf of their members as well as cannot enforce compliance to their members. Their members are open to decide leave the group and which commitments and recommendations to follow or put into practice. (U4 Anti-Corruption Resource Centre, 2007) Companies around the world at different size and different sectors include join business associations and chambers of commerce for following reasons such as to get wide knowledge/ experiences on sector-specific advice and guidance; well-developed and coherent technical standards on corporate sustainability performance; more possibility to engage with policymakers and to draw decision makers' attention to main priorities; wide range of access to information; corporate sustainability e.g. Chambers of commerce and business associations do following activities in order to fight red tape and unfair regulation that result in corruption:

* Facilitating collective action and setting up and maintaining communication with government, civil society, and the media.

* Supplying positive publicity and public relations.

* Working with other domestic and international business associations, chambers of commerce and institutions to consolidate a collective approach to anti-corruption issues.

* Working with government and its agencies to providing practical information to the government and ensuring that national and international efforts to curb corruption that are designed to fight corruption address the real needs of the businesses and implementing effective anti-corruption compliance programs in their organizations and industries, and take key warrant role.

* Provide services that promotes investment and trade expansion to support members, which reduces the risk of firms engaging informal businesses such as giving loan with specific condition etc.

The World Bank has developed a list of characteristics based on CIPE's assessment tool (Centre for International Private Enterprises) to assess business associations and chambers of commerce potential for effective business-government relation in the fight against corruption in its “Fighting corruption through collective action 2008”. CIPE (Centre for International Private Enterprise) is a part of U.S. Chamber of Commerce aimed to building market-rooted democratic system through involving private enterprises in policy advocacy, institutional reform and promoting good governance, which already has promoted more than 800 local initiatives in over 90 countries since its establishment in 1983. CIPE has defined internal and external considerations that need to be observed prior to assess business associations and chambers of commerce capacity to form effective business-government relation and influence effective policy formulation and its enforcement and implementation.

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