“It’s estimated that corruption saps between 2 to 5 percent of global GDP [gross domestic product].”
— President Biden, remarks in Tokyo at the opening of the Indo-Pacific Economic Framework for Prosperity, May 23
Biden referenced this estimate on the worldwide impact of corruption when he unveiled a new trade initiative during his trip to Asia.
It’s a figure with an official White House imprimatur, as it was also mentioned in a memorandum signed by Biden last June declaring that fighting corruption was a “core national security interest” of the United States. “In financial terms alone, the costs of corruption are staggering,” the memo said. “It has been estimated that acts of corruption sap between 2 and 5 percent from global gross domestic product.”
The worldwide GDP in 2021 was estimated by the International Monetary Fund to be $94 trillion. So that means about $1.9 trillion to $4.7 trillion is diverted for corrupt purposes, assuming Biden’s estimate is correct.
We’re always curious how such numbers are developed for hidden economies, as they invariably rely on guesstimates. Biden at least acknowledged that the numbers are fuzzy by offering a rather wide range. But the upper end — 5 percent — has especially come under attack for being unfounded.
The U.N. Convention Against Corruption (UNCAC) defines acts considered to be corruption. They include bribery, embezzlement, abuse of functions, trading in influence and illicit enrichment. Obviously, it’s difficult to get a detailed accounting of the money flows of such illicit acts because the participants want to keep the transactions hidden.
A White House official, calling it a “fairly conservative estimate,” said the president was relying on two estimates to establish the range.
- A 2016 IMF discussion note that said the “annual cost of bribery alone” was “about $1.5 [trillion] to $2 trillion (roughly 2 percent of global GDP).” A footnote says that figure is an unpublished extrapolation of a 2005 estimate that bribery cost $1.1 trillion.
- A 2018 statement by U.N. Secretary General António Guterres, quoting the World Economic Forum (WEF), that “the global cost of corruption is at least $2.6 trillion, or 5 percent of the global gross domestic product.” This estimate in turn appears to come from a 2008 report, which is why Guterrres’s raw-dollar figure seems so low.
The problem is that both estimates have dubious provenance. A comprehensive 2021 report issued by an anti-corruption team at Chr. Michelsen Institute (CMI), a Norwegian research institute, titled “The Credibility of Corruption Statistics,” listed both figures among 10 commonly cited estimates that are not credible enough to use. “The widespread citation of unreliable statistics undermines efforts to understand the nature of the corruption problem,” said the report, written by Cecilie Wathne and Matthew C. Stephenson, a Harvard Law professor.
The statistic about bribery was “problematic,” the report said. The statistic came from a 2005 World Bank paper that relied on two surveys of firm managers. “This survey data, though useful, is insufficient to generate a global estimate of annual bribe payments,” the report said, so the researchers relied on extrapolation through methods that have not been made clear. The 2005 study acknowledged the fuzziness of the estimate, offering a range — $604 billion to $1.76 trillion — but generally the midpoint estimate is quoted.
As for the 2016 extrapolation, the report dismissed it: “All of the concerns discussed above, with the possible exception of the out-of-date global GDP figures, would apply with equal force to this re-estimate.”
As for the 5 percent GDP figure, the CMI report says that it is “unfounded.” The report said the “source for the claim is obscure,” but it appears to trace to a 2008 report, “Clean Business Is Good Business,” from a group of organizations that included the International Chamber of Commerce, Transparency International, the WEF and the U.N. Global Compact. But the report lists no source for this claim and does not explain how it was developed.
Wathne and Stephenson speculate that the source might be the 2005 paper on bribery that led to the lower-end range in Biden’s estimate. That report mentioned an IMF study estimating that money laundering could total between “2 and 5 percent of the world’s gross domestic product, or between US$600 billion and US$1.5 trillion.”
The CMI report comes up with a plausible scenario leading to this estimate: “It is possible that someone who was drafting the 2008 ‘Clean Business Is Good Business’ document skimmed the 2005 paper, saw the 2% - 5% of global GDP estimate, failed to realize that this estimate was for the magnitude of global money laundering rather than for the cost of global corruption, and then took the 5% figure (the high end of the GDP range), multiplied it by 2006 GDP (which was about US$51.5 trillion), and came up with approximately US$2.6 trillion.”
In our own exploration of dubious statistics, we’ve often found that these types of errors have led to widely cited statistics. Once, we discovered that a figure about profits from child sex trafficking was listed as an FBI estimate in a State Department report — when in fact it was an Immigration and Customs Enforcement statistic about human smuggling, something much different. By the time we revealed the error, it had been wrongly cited as an official FBI trafficking estimate in books, a Congressional Research Service report and other studies.
“This [5 percent GDP] statistic, though cited by the U.N., OECD, and other reputable organizations, appears to have no basis whatsoever,” the CMI report says. “No organization or advocate should cite this statistic under any circumstances.”
Yet the president of the United States mentioned it in a high-profile speech.
Gary Kalman, executive director of the U.S. office of Transparency International, said the organization no longer used the estimate. “The 5 percent figure I assume is from an old World Bank study that really should not be relied upon — at one time, not too long ago, we also used it because it was from a seemingly reliable source, but when we looked more closely, we backed away from it because it is too much of a ‘back of the envelope’ calculation for us,” he said in an email.
Kalman said one problem is that many global estimates “often include straight up crime (drug trafficking, counterfeit goods, and other money laundering schemes) — as opposed to just corruption (which we and others usually define as involving abuse of public authority).” He said that although Biden’s range might be plausible, “I would be hesitant to use it because I am unaware of a trusted study that quantifies the total costs of corruption.”
The White House certainly should have been aware of the problems with the 5 percent figure. Our friends at PolitiFact in 2021 dinged Vice President Harris with a “false” rating when she just cited it by itself. “The global cost of corruption is as much as 5 percent of the world’s GDP,” Harris had claimed.
The Pinocchio Test
Politicians love to put a number on a problem. But all too often they grab the biggest number they can find.
Neither of these figures has much statistical grounding. At least Biden provided a range that indicates there is a high level of uncertainty about the estimates.
But the White House needs to have a higher standard for vetting the provenance of such statistics. The 5 percent estimate is so discredited that it should not even be part of a range, especially when uttered by the president of the United States — and after the vice president had already been fact-checked.
Corruption is certainly a serious global problem, with 2 percent of GDP within the realm of possibility. But as far we can tell, there is no reliable estimate for the cost of corruption across the world — so that should be stated forthrightly.
Two Pinocchios
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