ETHICS / Generating Ethical Environment: Who’s first? Public or Private Sector?

Excerpt from session:

One of the most important preconditions for the development of strong and healthy economy is effective implementation of ethics based values in all segments of society. That includes forcing ethics regulation, raising ethical awareness, performing ethical education, supporting ethical management and embracing all types of ethical initiatives. Reduction of unethical behaviour should be the duty of every citizen and every employee within organization but it often requires a “leader” who could serve as an example for everyone. That leader could be a person or an organization within private or public sector or, even a sector itself, can be the one who takes the initiative.

And then, who’s the one to blame if we do not think and do business ethically? Is this the state/public sector, including local government or is it a private sector with its companies and its management who fail to operate and grow on an unethical decision basis? Maybe NGOs?

As an example, there is a great deal of legal regulatory provisions and recommendations for what public sector institutions should do to prevent corruption or conflict of interest. But, that’s obviously not enough. We have to do much more.

Who can and should be corrective to others? What are the expected corrective measures, tools and activities that one sector can use to fight against unethical behavior within other sectors?

Main Takeaways:

  • Corruption in Croatia is rampant; it rises as a consequence of unethical behavior of both firms and politicians
  • Local mayors get rewarded for greater corruption, and the more corrupt they are, the longer they stay in power
  • Do politics have enough incentives to help change this?
  • A change must come from the bottom-up

Speakers corner / Preface to session

ZEC 2018: What does your research suggest on the causes of local corruption in Croatia?

Vuk: I find that local politicians in Croatia, mayors of cities and municipalities, have a higher probability of winning elections and staying in power if they exercise more corruption. I define corruption as the share of suspicious and hence potentially fraudulent public procurement contracts in total procurement expenditures. Suspicious means when firms with zero employees or as the only bidder get multiple procurement contracts worth millions. This testifies of an ill-conceived mutually beneficial relationship between politics and local quasi-entrepreneurs: contracts are exchanged for votes, and such illicit behavior enables politicians to exploit the system and stay in power for long periods of time. However this relationship has an upper limit, so corruption does get punished at the polls, but not until it becomes too obvious to the majority of the voters.
I also find that more corrupt mayors tend to stay in power longer and set higher local taxes.

ZEC 2018: To what extent can we blame unethical behavior for this situation?

Vuk: The relationship I described is clearly unethical as it not only violates the law, it hurts the economy by favoring cheaters thus sending the wrong signals to businesses (be connected instead of be competitive), and the society by channeling public resources towards corrupt activities instead of towards improving social infrastructure for example (schools, hospitals, etc.).
The people involved have clearly lost their moral compass, and the biggest danger is the fact that voters fail to punish this type of behavior. They cynically accept that their politicians corrupt and they are OK with it as long as they perceive to be receiving some kind of benefit from them (in terms of “free stuff”). This further reinforces the politicians to keep behaving unethically as before given that their behavior will only be rewarded.

ZEC 2018: Can politics be useful to help us fight unethical behavior in our society?

Vuk: The current selection into politics does not offer any indication that such corrupt practices will be stopped. In fact they are likely to persist for a long time. This can be broken in two ways: we can either randomly elect an individual or a group that has the know-how and the courage to change this. This requires frequent changes of governments, basically to have a new government every 4 years, meaning that there is a positive probability at one point that we pick someone who can make a change. The second scenario is more hopeful although it’s also more difficult. We should stop relying on politics altogether to change this and that we as individuals start changing our organizations from the bottom-up. How can we do this? Come to the conference and find out!