Cause and Effect of Corruption

There is a growing worldwide concern over corruption at the present time. Several factors are responsible for this. A consensus has now been reached that corruption is universal. It exists in all countries, both developed and developing, in the public and private sectors, as well as in non-profit and charitable organizations. Allegations and charges of corruption now play a more central role in politics than at any other time. Governments have fallen, careers of world renowned public figures ruined, and reputations of well-respected organizations and business firms badly tarnished on account of it.

The international mass media feeds on it and scandals and improper conduct, especially of those in high places. The rising trend in the use of corruption as a tool to discredit political opponents has brought scandalous and corrupt behavior to international attention. Corruption can be a major obstacle in the process of economic development and in modernizing a country. Many now feel that it should receive priority attention in a country’s development agenda. This greater recognition that corruption can have a serious adverse impact on development has been a cause for concern among developing countries.

In a recent survey of 150 high level officials from 60 third world countries, the respondents ranked public sector corruption as the most severe obstacle confronting their development process. Countries in the Asia and Pacific region are also very worried about this problem and they are in substantial agreement that corruption is a major problem that is hindering their economic, political and social development, and hence view it as a problem requiring urgent attention at the highest level. Increasing public interest and concern over corruption have resulted in a large amount of scholarly research on the subject.

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Admittedly, there are still wide gaps in the current state of information and knowledge on the matter and much more remains to be done. Nevertheless, theoretical and empirical research that has been conducted thus far has yielded fresh insights into the problem. We now have a clearer understanding of the underlying causes of corruption, its consequences, and ideas and approaches on possible measures to combat it. At the same time, a better perspective has been obtained on the reasons why corruption persists in so many countries, and why it is difficult to deal with, although people throughout he world view it with disfavor. It is a common practice in many developing countries to institute price controls and to provide essential goods and services at subsidized prices to consumers. The official price for a key food item, such as rice, is fixed by paying a low administratively set price to farmers, while gasoline, electricity and charges for public transport and other essential items are provided at low subsidized prices. These mostly benefit city dwellers as they are the main consumers of these subsidized goods and services.

The urban bias in the provision of subsidized food and other necessities stems from the political reality that city dwellers, especially the large masses at the lower end of the income scale, are more politically conscious, better organized and are easier to be instigated into civil unrest than the rural poor. It is usually discontent in the cities that ignites social and political upheavals in a country. Fixing prices at artificially low levels lead to demand exceeding supply for the subsidized goods so that the all too familiar shortages, rationing, corruption and black markets result.

Several undesirable consequences follow. There is a loss of potential government revenue. For example, when those that have access to subsidized gasoline, such as government officials and car owners, sell it on the black market at several times the official price, they make large profits. These profits could be taken as revenue by the government, if there is no subsidy, no price distortion, and gasoline is valued at its true opportunity cost, that is, charged by the government at its market clearing price.

Setting low farm prices on rice and other agricultural products, to provide cheap food for city dwellers, means farmers are subsidizing the people in the cities. Likewise, low prices set on gasoline and energy contributes to deficits in the government budget. Fixing low prices on rice and agricultural products, in the wake of sharp increases in the prices of other domestically produced and imported goods, turns the terms of trade against farmers. This adversely affects their incentive to produce and hinders agricultural output. Low prices set on energy result in huge losses for the government enterprises engaged in this area.

Consequently, they do not have the resources to invest in new facilities, to buy spare parts or to properly maintain existing machinery, and equipment that are falling into disrepair. The outcome is frequent breakdowns, unreliable and poor service, and general inability to meet requirements in terms both of generating capacity and in the quality of energy produced. Under-pricing energy has other harmful effects. Cheap energy leads to its uneconomic and wasteful use. When energy prices are kept at a level much below cost for decades, there is little incentive for its users to adopt energy efficient technologies and methods of production.

So they are not sufficiently prepared for the large price adjustment that inevitably comes when low prices are no longer sustainable due to an internal or an external shock. The result is disruption in production, more corruption as bribery will be resorted to order to avoid payment of the higher charges, and increased inflationary pressures as higher energy costs will be passed on to consumers by raising prices. Thus, price controls, subsidies and the corruption and black markets they generate, can lead to undesirable social and economic consequences.

This also illustrates the point that dismantling controls, getting rid of subsidies and preventing price distortions form a key element in economic reforms and for the establishment of a properly functioning market economy. Unfortunately, corruption places severe constraints on a country’s capacity to undertake economic reforms. The rich and the powerful, the main gainers of a corrupt system, will therefore oppose reforms. The leadership in a country has a key role to play in combating corruption. It is an Asian tradition to hold leaders and those in authority in high regard and esteem.

Hence the top leadership must set a good example with respect to honesty, integrity and capacity for hard work. Since fighting corruption will involve taking difficult decisions, the leadership must also display firmness, political will and commitment to carry out the required reforms. Honest and dedicated leaders are an essential, but not a sufficient, condition to counter corruption. Several other conditions are needed as well. Credibility is one of them. For success, the offenders both on the demand and supply side of a corrupt deal must be convinced that the government is serious about fighting corruption.

Publicly try and punish some well-known corrupt people in the country. Some highly publicized trials and convictions of important officials and businessmen on charges of corruption have taken place in several countries. A publicity campaign to create greater awareness on the adverse effects of corruption and a clear and unmistakable official announcement on the desirability to bring it under control would be helpful. Ordinary citizens have a lot of firsthand experience with corruption, they are a good source of information and their help and cooperation should be solicited for the successful launch of an anti-corruption drive.

Once people are convinced that a sincere and genuine effort to combat corruption is underway, they will respond and extend their full cooperation in resolving the problem. Just a little opening up and providing opportunities for them to express their views on the matter will bring forth an outpouring of information, ideas and suggestions. A responsible press to gather, analyze, organize, and present information is considered vital to create greater public awareness and to provide the momentum for undertaking reforms to overcome corruption.

Secretiveness has been a key factor that has enabled public officials and politicians to get away with corruption. A responsible and an investigative press has played an important role in many countries, both developed and developing, in exposing misconduct as well as in serving as a watchdog to limit corruption and preventing it from getting out of hand. The press has not always acted in a responsible manner, and like everything else in this world, it is not perfect. Nevertheless, its power to limit misconduct and improper behavior should not be underestimated.

Views on the effectiveness of anti-corruption oversight or watchdog bodies are mixed. There are instances where they have proved useful. However, in surveys and interviews of public officials and members of civil society organizations, most respondents do not have a high opinion of them. Improving institutions involves such things as improving the legal framework, promoting efficiency of the police force, strengthening the auditor general’s office, and appointment of a responsible inspector general empowered to investigate and prosecute corruption.

A useful conclusion that has emerged from the current discussion and ongoing debate on the corruption issue is that corruption is a symptom of economic, political, and institutional weaknesses in a country. To be effective, measures against corruption must therefore address these underlying causes and not the symptoms. Emphasis must be placed on preventing corruption by tackling the root causes that give rise to it through undertaking economic, political and institutional reforms.

Anti-corruption enforcement measures such as oversight bodies, a strengthened police force and more efficient law courts will not be effective in the absence of a serious effort to address the fundamental causes. Another observation that may be useful to bear in mind is that corruption is most prevalent where there are other forms of institutional weaknesses, such as political instability, bureaucratic red tape, and weak legislative and judicial systems. The important point is that corruption and such institutional weaknesses are linked together and that they feed upon each other.

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