Not by Carrot Alone: Do High Salaries Help Fight Corruption in Public Office

High Salaries Help Fight Corruption. But Only If You Fight It.

Not by Carrot Alone: Do High Salaries Help Fight Corruption in Public Office

Increase of salaries for civil servants and public sector are part of almost all programmes of anti-corruption reforms in many countries. Yet, it is a sensitive issue for the public. People do not want civil servants to have high salaries because the latter are corrupt.

Reform-makers claim it is impossible to have an honest and efficient state as long as public officials get a pittance of a salary. VoxCheck analyzes recent studies dedicated to the topic to get things straight. Decent salaries are a necessary prerequisite for efficient civil service. But not sufficient enough. They help fight corruption only if combined with effective control of abuse.

PRO Argument #1. Corruption is compensation of low salary

Low salaries of civil servants, heads of state-owned companies or public sector employees push them to look for additional income. This is a typical argument in favour of salary increase. Public office allows disposing of someone else’s money and destiny so a civil servant, who does not earn much, is likely to use this opportunity for their own financial gain. To put it simply, civil servants and public sector officials abuse their office and partake in corruption to reach sufficient income level to pay for necessities.

As a matter of fact, we can hardly expect that a policeman, doctor or municipality employee can do their job efficiently and refrain from abuse if their salary is not enough to cover their vital necessities or those of their family. Besides, low salary decreases the value of work they do which can also lead to corruption. Loss of low-paid job is not a very serious punishment as it is not hard to find such a job again.

It is particularly relevant for mid-rank officials and public sector employees who make little money and take bribes to make up for their low salary. 

but…

This kind of argument does not always hold true as sometimes corrupt income helps satisfy needs that can hardly be called typical or basic.

Pro argument #2. Low salaries stand in the way of hiring quality professionals for public office

Another argument in favour of high (at times extremely high) salaries for civil servants is the need to be competitive with the private sector when it comes to quality staff. Lack of top professionals and the complexity of their training result in tough competition. Private sector, which is more flexible in terms of setting salaries, moves the amounts up the scale. Thus, public officials get stimuli to transfer to private companies. It is especially true for top managers of large state-owned corporations or experts working for top government agencies. Their salaries should not only be enough to lead a decent life but they should be a convincing argument for refusing alternative work in the private sector. The situation can also be made more complicated by poor reputation of civil service or the need to attract a large number of employees at the same time to implement various reforms. 

This is a frequent argument to substantiate extremely high salaries and bonuses for top managers of state-owned companies and top officials. Yet, it can be applied to lower-level employees as well. Good doctors or teachers are also not interested in working for a low salary if they have better options in the private sector or, for instance, abroad.

Arguments against high salaries

Typical arguments against have to do with fairness. For instance, people do not support higher salaries for officials if they think they are corrupt.  The same argument can be worded a bit differently – “first, we overcome corruption and become efficient and then we get higher salaries”. Still, if low salaries indeed stimulate corruption, this argument has serious flaws. It brings the discussion to a dead-end: the salaries remain low because everybody understands that officials take bribes; and officials continue taking bribes because the salaries are low, among other things.

Another argument against relates to motivation. Setting extremely high salaries may attract people who are primarily interested in money. This may create additional risks of abuse. In addition, it does not really align with the idea of civil service itself, which, in its non-corrupt version, should attract people who are willing and interested in taking care of social wealth.

As a rule, salaries are a bit lower in the public sector than in private. But the difference is compensated by, first of all, stability (it is harder to fire a civil servant than an employee of a private company) and, second of all, the idea of civil servants that they are performing an important social mission.

What works and what does not: results of study

World experience shows that there is a negative correlation between salaries of public officials and corruption. In countries, where civil servants get higher salaries (in comparison with salaries for identical positions in the private sector), general corruption level is lower. And, vice versa, where average salaries of civil servants are lower, corruption is much more widespread. At the same time, this correlation says nothing about the cause and effect and does not mean that increase of salaries will necessarily result in decrease of corruption. That is why the findings are mixed for some countries.

For instance, in 1997 salaries for customs officers were increased two times. But it did not affect customs income volumes, which meant, among other things, that the officials continued taking bribes as before. Economists, who studied the issues of this reform, showed that the reason might lie in extremely high customs tariffs applicable in India at the time. Trade barriers created such serious opportunities for corruption that even doubling the salaries was not a serious enough impetus to refuse bribes. (Mishra et al. 2008).

It means that increase of salaries is not very efficient if the corruption rent is too high. Even more so, higher salaries may be an additional cover-up for corrupt officials who live in luxury. This is described by corruption researchers Ray Fisman and Miriam Golden in their  book, with reference to a retired Indian official. From the interview of former customs officer, who described the reform, increase of salaries simplified things for the corrupt customs officers. It became easier for them to explain their wealth and the luxury life to state auditors.

Another problem, which can result in inefficiency of higher salaries as means of fighting corruption, are established corrupt norms. If there is a situation in the circle of politicians or civil servants, where everyone is involved in illegal activities and has a luxurious lifestyle, the salaries may not be enough.

Salaries work as positive financial incentive by decreasing the need for illicit income. But they in no way affect the risks of being punished. That is why a corrupt official can decide for themselves whether to refuse corrupt income if the official salary is enough. With no guaranteed punishment, established corrupt norms within an organization and toleration of luxury among officials do not make them refuse bribes, even if official income increases.

Respectively, besides positive financial stimuli, such as decent salaries, negative social stimuli are also of importance, i.e. public pressure and pressure from honest colleagues within the organization. It is hard to violate laws when everyone around you obeys them. On the one hand, the chances of getting caught and punished increase, on the other hand – the culprit faces constant psychological pressure and social unacceptance.

At the same time, in a very corrupt environment social factors lose their efficiency. Corrupt officials do not suffer from guilt too much and excuse their behaviour by saying that is how the world works and everybody does the same. So, with increased salaries the society is most likely to get the same old corrupt, yet slightly richer officials.

However, this does not mean that salaries play no role in decreasing corruption or that they can be increased only if the corruption problem is solved completely. The facts only say that salaries cannot be an efficient anti-corruption instrument on their own.

The “carrot” is not enough: what do we do

Efficient punishment. For salaries to work as means of decreasing corruption, we need efficient punishment in case of abuse. This means that the likelihood of being punished multiplied by the “scope” of punishment is higher that the potential corrupt income. The “scope” can include both direct punishment (loss of salary resulting from being fired, paying fine or being incarcerated) and indirect punishment – tarnished reputation and lesser chances of finding a good job in the private sector.  Of course, if the probability of being actually punished is low, the stimuli to be honest are also going to be low. 

Higher salary increases the value of job lost because of corruption. If a low-paid official loses their job because of bribes, it will not be a problem for them. There are many other opportunities to make little money. If salaries are increased twofold or threefold and the potential for punishment also increases, it will be harder to find an alternative. 

In this way, salaries and justice work as mutually complementary tools. Salaries alone, without justice, do not create enough stimuli to refuse corruption. And justice without salaries does not decrease financial stimuli for bribery.

This is the conclusion made by economists Rafael Di Tella and Ernesto Schargrodsky. They studied corruption in state procurement for hospitals in Buenos Aires. After the salaries for hospital staff have been increased, they started buying hospital necessities at lower prices. It meant, among other things, that higher income decreased the number of “kickbacks” that the employees received from suppliers. But it worked only after having conducted other anti-corruption efforts such as improved monitoring of procurement and stricter control over abuse (Di Tella, Schargrodsky 2003).

Breaking up corruption networks and changing norms. It is particularly hard to fight corruption when it becomes a norm within an organization. An official, who takes bribes and has a luxurious lifestyle, may rest assured that their colleagues do the same. At the same time, having colleagues who are not corrupt increases the risks of being uncovered. So, a reliable strategy for decreasing corruption is to hire new people and simultaneously increase transparency of processes and enhance monitoring of abuse. This breaks up the network of corrupt employees and can promote new forms of organization, when corruption and illicit luxury are not tolerated. 

Firing corrupt staff and increasing transparency within government agencies can work better if at the same time we decrease stimuli for illicit activities, for instance, by paying decent salaries. 

Numerous studies show that this works on state level as well. Economic transformations succeeded in those post-Soviet states which had new political elites and where democratic limitations for power abuse were established.

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