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Thursday, July 12, 2007

Auditing the Way to Prosperity

Tyler Cowen discusses using voluntary audits to reduce corruption problems in resource-rich developing countries:

A Way for Resource-Rich Countries to Audit Their Way Out of Corruption, by Tyler Cowen, Economic Scene, New York Times: It is unfortunate that economists have to debate whether natural resources are a blessing or a curse for a developing nation. Minerals, diamonds or oil may appear to represent automatic wealth but resource-rich countries usually become mired in corruption. ...

The solution is to make these governments more accountable in spending their money, but how can that be done? Paul Collier ... at Oxford University, has a new and potentially powerful idea. In his recently published book, “The Bottom Billion...”..., Professor Collier favors an international charter — ... guidelines that countries can voluntarily adopt — to give transparency in spending wealth from natural resources. A country would pledge to have formal audits... Imagine PricewaterhouseCoopers auditing the copper revenues of Zambia and issuing a public report.

Professor Collier’s proposal at first glance seems toothless... Yet citizens could pressure their government to follow such a charter, and the ... charter would create a focus for political opposition... Foreign corporations would bring further pressures to heed the charter. ...

In the optimistic case, a few poor countries start abiding by the charter. Those countries prosper and attract more investment and status in the international community. The pressure to adopt the charter would then spread. ...

The British government has already made one start toward a natural resources charter with its Extractive Industries Transparency Initiative, begun in 2002. The World Bank has supported this idea... Even more promising is that Nigeria, one of the most corrupt countries, enacted a revenue transparency provision into law, as of May 28. ...

In general, transparency can improve governance. ... Simply sending more foreign aid backfires when leaders are corrupt and governance is bad. And Western governments are not willing to send enough aid to make a big difference. Revenue transparency is not an immediate fix, but it would increase the productivity of both Western aid and Western trade. Workable development ideas are hard to find, but Professor Collier may have identified the next frontier for positive change.

    Posted by on Thursday, July 12, 2007 at 12:24 AM in Economics, Policy | Permalink  TrackBack (0)  Comments (7)

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