Integrity and Fiscal Stimulus

As we face up to the economic crisis, the politicians deciding on stimulus packages to support recovery have a heavy responsibility to bear.

As public officials, they are accountable for every cent of taxpayers’ money spent as part of these packages. They must not throw good money after bad.

The potential impact of their decisions is huge. Public procurement, even in ordinary times, accounts for between 10% and 15% of most countries’ economic activity.

Pre-crisis, the combined value of public procurement contracts at all levels in the 30 countries of the OECD was estimated to be worth close to 5 trillion dollars. Today, it’s even bigger: in response to the crisis, governments have expanded their involvement in the economy by reshaping regulations, taking over banks and other financial institutions and supporting selected companies or sectors.

As they disburse trillions of extra dollars to stimulate demand, they have to pay particular attention to the risks of fraud and corruption in the competition for contracts.

Already, as we know, weak governance, lack of transparency and poor levels of integrity in the private sector were some of the root causes of the financial turmoil that led to today’s social and economic crisis. As we get to grips with that crisis, the same flaws must not be allowed to exist in the public sector.

There are many ways to siphon off public funds for private gain. In the Netherlands, a 2003 parliamentary inquiry uncovered misrepresentation of costs and benefits in nine large infrastructure projects out of 10 — including a high-speed railway line between Amsterdam and Brussels which was originally budgeted at 2.6 billion euros and which ended up costing 6/7 billion euros.

In the United States, where a 1980s scandal over wildly overpriced coffee pots, toilet seats and spare parts still overshadows public debate about military spending, President Obama has made clear that there is plenty of room for improvement.

“By ending unnecessary no-bid contracts and reforming the way government contracts are awarded,” he said recently, “we can save the American people up to $40 billion every year.”

Political leaders in every country have a duty to stem and stop such practices. At the G8 summit in L’Aquila, world leaders expressed their commitment to “work together to restore confidence” and navigate the road to recovery by “strengthening standards of integrity, propriety and transparency for economic activities.”

To achieve that, governments must remain vigilant and determined. Building a clean recovery requires a solid culture of integrity in the public sector.

The OECD, as part of its mission to assist governments in developing and implementing effective economic policies, has identified specific actions that they can undertake in order to safeguard integrity and avoid bias in public procurement.

Working with procurement and competition authorities, as well as with donor agencies and anti-corruption experts in the private sector, it has drawn up a set of “Principles for Enhancing Integrity in Public Procurement’ that spell out clear standards for preventing waste, fraud and corruption.

Drawing on examples of good practices at all points in the procurement cycle, from the definition of needs to bidding, contract management and payment, these principles provide a blueprint for enhanced transparency, good management, propriety and accountability.

In parallel, the OECD is launching consultations on a proposed “toolkit” for governments. A system of “red flags” is designed to detect waste and systemic weaknesses, enabling governments to map out risks of corruption and design tailored precautionary measures to avoid bias and capture.

The OECD also helps governments learn from each other through a process of peer review, where best practices are distilled and disseminated — and where country-specific policy recommendations are made.

Getting it right in the public procurement market is crucial for ensuring a level playing field and promoting fair competition.

Governments must ensure that the money from their stimulus packages is spent wisely and fairly. Taxpayers expect and deserve no less.