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    This blog highlights effective ideas in the fight against poverty and exclusion, and analyzes the impact of development projects in Latin America and the Caribbean.
  • Corruption and waste: one example and four lessons

    8
    Jun
    2011

    By

    Corruption and waste

    A few days ago UNICEF publicized for the first time the prices it pays for vaccines for kids in poor countries. It revealed that western drug companies charge $1 more than Indian companies.  UNICEF buys over two billion doses a year.  It is clear that this kind of information sharing by publicizing prices in the public sector has a huge impact.

    A recent article on waste and corruption confirms that we should worry a lot about corruption, but waste and inefficiency are a lot worse.

    This article teaches four eye opening lessons.

    First, if government agencies are unable – or unwilling – to compare and share prices, the taxpayer ends up paying a lot more.  If all agencies were to buy at the same prices as those paid by the agencies who got the cheapest prices through a centralized purchasing agency in Italy, potential savings would be between 1.6 percent and 2.1 percent of GDP.  This is equivalent, for example, to more a third of the total budget deficit in Colombia.  A year.

    Second, more than 80% of this is passive waste, inefficiency, not corruption.  In other words most of the money is lost not because somebody gets greedy and rich, but because public servants don’t go out shopping for the cheapest deal, they don’t compare notes, share information. One would only hope for a Groupon or Living Social site for public bidding.

    Third, hierarchical organizations like central ministries pay, on average 40 percent higher prices than semi-autonomous organizations such as hospitals or universities.

    Fourth, those that pay higher prices would rather buy from a centralized buying agency, if given the chance.  Not many countries in Latin America have a centralized buying agency.

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