Good Practice
Public Procurement Podcasts – Dr Telles Talks to Guilherme Lichand about Corruption in Healthcare

We’ve been following the series of Public Procurement Podcasts (PPP) put together by Dr Pedro Telles of Swansea University for the past few months. In the series, he interviews various academics who have an interesting viewpoint on aspects of public sector procurement. In number 16, he speaks to Guilherme Lichand, a PhD candidate in Political Economy and Government at Harvard University.

Lichand’s areas of study are in Development Economics, Political Economy and Behavioral Economics, particularly in the design of products and institutions to improve the lives of the poor. He has produced a paper on how cracking down on corruption can help or hurt public service delivery, having analysed the effects of an anti-corruption programme in Brazil.

The study found that, while the programme greatly reduced the incidence of corruption, public services became significantly worse. “Lower corruption came at a high cost: local procurement staff dramatically reduced purchases after the program, either because they no longer could capture rents, or because they were afraid of being punished for procurement mistakes,” he says in his paper.

Telles begins by asking what made him decide to look into the issue of corruption in the health sector and its potential effects downstream. He answers that more broadly, in the public sector, while we understand which tools can most effectively fight corruption (like audits) we have a less clear picture of the effects of those tools on the outcomes that corruption is supposed to affect. “Theory predicts that the implications of deterring corruption on public service delivery should be ambiguous, and, hence, we try to understand whether deterring corruption helps or hurts public service delivery. That’s the prime motivation on the paper.”

Lichand chose the health sector in Brazil mainly because there is a huge amount of data available from retrospective investigation audits for them to code as corruption, and because there are a lot of indicators at the municipal level that are measured every year for all municipalities. Telles finds the subject fascinating and asks about the main outcomes of the programme. The anti-corruption programme did – on the one hand – greatly reduce corruption in some areas, like procurement manipulation, off-the-record settlements with vendors, and resource diversion.

However, the effects of the programme were to reduce certain indicators, like hospital beds per thousand inhabitants, immunisation coverage, or household access to piped water* and proper sanitation, in comparison to other health indicators that involve less procurement. Transparency was gained, but, he says, “by focusing so much on corruption – both in terms of public opinion and administrative punishments, what seems to have happened is that spending fell by so much that corruption per dollar spent has actually increased after the program.”

Telles breaks that down into sub-questions: firstly he ascertains that the programme did actually achieve what it set out to do. The answer was yes “… when we look at the percentage of investigations that were coded as corruption, looking at these audit reports, indeed it is the case that the baseline incidence of corruption is decreased by half.”  But “…. corruption fell by so much you might think that health indicators would become much, much better after this, what we find is that these health indicators … become significantly worse.”

The conversation then goes on to determine the methodology of separating the analysis in accordance with different procurement intensity: to look at procurement-intensive processes and non-procurement-intensive processes. Telles asks the reason for that. There’s a very detailed explanation which you can read in the transcript, but the essence is that they could compare (because they have the retrospective data), municipalities before and after both the Mayor and the local procurement staff learned they could be audited.

Telles wonders whether the findings are transferable to other areas of the public sector, and it would seem that they are. “Our thought is that there’s nothing really specific, it seems, about this program in Brazil that would prevent the findings from being extended elsewhere. First, this kind of bureaucratic politics through which the federal government transfers resources that would fund the provision of local public goods, with a local bureaucracy which is responsible for running procurement before these resources can reach their final users – citizens – is the modal workings of public bureaucracy in the developing world, it’s seems to us.”

The discussion takes a turn towards country comparisons, how too much focus on rigid procurement rules can undermine development, the problems in Europe with procurement capacity and budget cuts, and the murky waters of whether it is the civil servant who is corrupt, or the process itself. It is a fascinating discussion which merits further thought, and its counter-intuitive fundamental argument – that cracking down on corruption might make public services worse – needs some more investigation, to be sure.

We have only covered a subset of the discussion here; to see the full transcript of the interview, do go to the PPP website.