Federal and Unitary Government Systems
From its laws to its procedures and rules, the system of government can profoundly affect a nation’s procurement system. Three fundamental types of governments are found around the globe. In a unitary system, power resides at the national level; subnational governments are merely administrative arms of the central government. A second type of government is a confederation—the regional or state governments are the locus of sovereignty and they band together to create the national government. The central government is subservient to the wishes and dictates of the regional governments. A third system of government is federalism, in which the central government and regional or state governments exercise power with autonomous authority in the same political system.
The latter system tends to produce a diverse array of protections while encouraging innovation, but problems arise in coordinating multiple autonomous governments that may duplicate activities. Moreover, some federal systems give each government supremacy in its constitutionally assigned area, while in other systems the lines of authority are blurred. Because federal systems tend to have concurrent powers exercised by both national and subnational governments, interjurisdictional rivalries can end up undermining anticorruption strategies.
The main reason the institutional structure of the procurement system is important concerns the overlap between levels of governmental functions, which leads to coordination and regulatory problems in purchasing. As a consequence of blurred lines of authority, interpretations of what is appropriate in procurement can be frustratingly muddled in a federal system. In such an environment, local capture can lead to corruption opportunities in one area of the country while not in others. Thus, at the very least, an integrated system of procurement standards and operating procedures is needed for fighting corruption; this can be aided through increased cooperative procurement among regional and local governments.
Central Procurement Structure
Because institutional arrangements are important to curbing corruption in developing countries, locating the overall responsibility for procurement policy in one government entity, such as a national ministry, proves beneficial. Although the links between decentralization and corruption are not entirely clear (Fjeldstad 2003: 4), recent research suggests that devolution and decentralization are desirable (Bardhan and Mookherjee 2000; Gurgur and Shah 2005).However, decentralizing procurement in developing countries must be approached with caution—the lack of technical expertise at the local level can prevent positive outcomes because decentralization makes bribes more accessible (Bardhan and Mookerjee 2003; Carbonera 2000).
Where corruption is widespread, attempting to deal with it as a series of isolated problems is generally ineffective. Sustainable anticorruption efforts depend on a number of stakeholders all performing their parts in a holistic manner (Pope 2000). Because enforcement alone is often uncertain and inadequate, and high penalties almost always fail to deter crime (Marjit and Shi1998), some strategies should focus on prevention even when conceived and planned at the national level, while some elements must be planned and implemented entirely at the local level—participation by all levels of government, including local, is needed to achieve success (United Nations Office on Drugs and Crime 2004). Government procurement and contract management systems are especially vulnerable to corruption in times of tight budgets or high inflation, because payments to vendors can be delayed, and civil servants’pay may be inadequate to resist corruption. Indeed,Van Rijckeghem and Weder (1997) provide evidence that corruption is slightly lower in developing countries where civil servants are paid better.
The proper level of decentralization is difficult to assess because one procurement process that effectively reduces the opportunity for corruption in one government may be ineffective in another local government. Because of the nature of grand corruption, especially in developing countries where it is endemic and nationwide, the central government must have some role in monitoring the performance of local procurement officials. By serving as a procurement watchdog, the national government can guarantee a floor for the provision of services and reserve the prerogative to intervene when required.
Centralization versus Decentralization
Developing countries must consider the repercussions of the way in which power is distributed and exercised along the public procurement pipeline. For many reasons, corruption is minimized when transparency of the procurement system is maximized, yet when decisions are not made locally, local beneficiaries have difficulty understanding how and why the actual procurement decisions were reached. Thus, these countries must weigh the efficiencies that can come from a centralized national procurement system against the loss of accountability and legitimacy that may result from opaque decision-making structures at the local level.
The most decentralized procurement architecture shifts power to the lowest levels of government and their line staff. By fragmenting authority, decentralization is often seen as one of the best ways to increase intergovernmental competition, strengthen checks and balances, increase accountability by responding to local needs, and possibly reduce the role of the state in general. The problem remains that decentralization may also increase the potential for corruption at the local level if officials in these positions have the opportunities outlined earlier to engage in corrupt practices. Because of lower capacity in financial management and auditing systems and greater constraints on fiscal resources at the local level (which often lead to lower pay for these officials), strong incentives to engage in corrosive practices may exist. Thus, developing countries must consider the trade-offs and differing capacities of their governments when choosing their procurement systems.