Using Special Governance Zones to Battle Corruption

Charter Cities was recently reminded of an excellent policy proposal from Shang-Jin Wei, an economics professor at Columbia. At the International Anti-Corruption Conference in 1999, Wei proposed Special Governance Zones (SGZs) as a way to catalyze reforms in countries where broad-based national reform efforts had failed to effectively fight corruption.

Wei’s proposal is just as relevant today as it was in 1999. Many countries, such as India and Greece (gated), that are visibly struggling to battle corruption could be well-served by the type of SGZ reforms that Wei suggests.

Wei identifies three obstacles to anti-corruption reform at the national level.

1. Risk for leaders: A leader who launches a real effort to eliminate systemic corruption might find himself or herself out of a job.
2. Budget: Reducing corruption often requires higher pay for high-quality civil servants, an expense that can be difficult to meet because most countries that suffer from corruption problems have difficulty collecting taxes.
3. Local context: Officials need flexibility in adopting the best anti-corruption practices from elsewhere in the world. National reforms may not give officials enough breathing room to try new policies and revise them as local challenges arise.

Wei believes that SGZs can reduce risks to national level leaders by getting things started in an area small enough to contain unpredictable consequences. Such zones would also be small enough to concentrate resources and reward effective civil servants with higher salaries. Seed funding from an organization like the World Bank may be necessary at first, but over time, lower levels of corruption would broaden the tax base and raise revenues. SGZs also allow for the flexibility needed to fine-tune policies to local conditions.

To fight corruption effectively, Wei envisions a two-speed reform process in which a government implements the reforms that it can at the national level and implements more difficult or controversial reforms in the SGZ. If the SGZ is successful, people will begin to realize that low-corruption outcomes are feasible elsewhere in the country and the momentum for reform will begin to build.

Wei suggests that SGZs be established in municipalities that nominate themselves, or in pre-existing Special Economic Zones. In addition to higher pay for effective civil servants, Wei suggests reducing opportunities for bribe taking by simplifying governance: reduce unnecessary permit and license requirements, simplify taxes, tariffs, and fees, and eliminate unnecessary discretion for officials.

Though Weiʼs proposal sees advisory and technical assistance roles for agencies like the World Bank or governments, like Singapore and Hong Kong, that have achieved very low levels of corruption, it stops short of addressing the issue of “who guards the guardians,” i.e., who holds the leaders in the SGZ accountable. (India is struggling with this very same issue as it contemplates nation-wide reform.)  Exploring shared governance could solve this issue—the right partner government could provide credibility and reduce political risks even further.

Its not hard to imagine a SGZ in which the host government partners with an ally that has a demonstrated history of achieving and maintaining low-levels of corruption. For example, the host government might ask the Independent Commission Against Corruption (ICAC) in Hong Kong to audit and investigate the integrity of the civil service in a SGZ or give the ICAC the power to appoint the anti-corruption commissioner in the new zone. The host government might also give an organization like the World Bank a say in the appointment decision in exchange for providing the seed funding for higher civil servant salaries in the SGZ.

Last year, Paul suggested that the Greek government adopt similar policy, using oversight from the EU to lower corruption, shore up tax revenue, and spur investment in Greece.

Wei’s two-speed process for fighting corruption is an excellent example of a meta-rule, a rule for changing the rules. In cases where policy gridlock allows wildly inefficient rules to persist, governments may be able use a meta-rule, like an SGZ, to break through to a more efficient set of rules and norms. As Wei suggests, special zones may offer the right scale to tackle bold reforms that would otherwise remain stalled at the national level.