The Transparency International (TI) brings out an annual report on the prevalence of corruption worldwide, which measures its presence in the form an index, rated between zero and ten. Countries with the highest level of corruption are ranked near zero, while the least corrupt ones are ranked close to ten.
Based on the values of the index from a 2011 survey of 190 countries, the top five countries with lowest level of corruption are: New Zealand, Denmark, France, Sweden and Singapore, while the bottom five ones are Malawi, two Congos, Liberia, and Burundi. Among the low-income Asian countries (with per capita income of under US $5,000), Bhutan ranks the highest and Nepal close to the bottom.
Information gleaned from TI’s corruption rankings is valuable, in the sense that it helps separate ‘good countries’ from ‘bad countries’. The connotation of corrupt countries being perceived as bad ones and clean countries as good ones need not be libelous—a sort of name-calling—although such labeling is hard to dispute. The more justifiable and defensible labeling, in my view, would be to view the corrupt countries as poor and low-corruption countries as rich
The table alongside tells the story—showing the connection between corruption levels and extent of poverty among the world’s least developed countries—those with per capita income and human development levels comparable to Nepal’s. The correlation isn’t perfect but the variables, in large part, tend to move together.
A VICIOUS CIRCLE
Although the correlation between poverty and corruption levels would be hard to dispute, what is more controversial is the causality—which causes which, just like famous chicken-and-egg conundrum—which comes first and which after.
Nonetheless, the argument that poverty causes corruption is widely accepted by the general public and as well as academic thinkers. Public officials are paid so little that they need to take bribes for bare survival. Therefore, to overcome the problem of corruption, public servants need to be paid decent salaries, which will reduce the temptation to take bribes and give the state the moral authority to punish public officials caught taking or soliciting bribes. Some countries have, indeed, tried this method of corruption control and have succeeded. The most notable examples are Singapore and Bhutan, where corruption incidence is remarkably low, an outsized achievement compared to their income levels.
Although the route to lowering corruption by paying higher salaries to public servants is arguably correct, this would be hard to carry out in most countries at low levels of development and, more importantly, in case of those that aren’t growing rapidly. A high growth rate is needed to foot higher wage-bills from limited government resources.
A larger constraint on pursuing this route to clean governance is that in very poor countries, the government—the public sector generally—is the largest source of paid employment, which indicates a poorly developed private sector and political patronage attached to public sector job creation. If, for whatever reasons, public sector has to employ many more people than needed for normal functioning, it must pay lower wages to everyone it employs which, inevitably, lays the ground for corruption and also gives corruption a moral backing.
Whatever the valid arguments in support of corruption, there is little disagreement on its economic impact, which is decidedly negative. One of the main causes of corruption’s negative impact is that it distorts the incentive to engage in productive activities by encouraging—what economists term—rent seeking. Rent seeking simply means getting paid without a quid pro quo in terms of productive work effort. Rent-seeking individuals or groups, for instance, may enrich themselves doing what they do but only at the cost making other people poorer. As such, rent seeking is a sort of transfer of income and wealth from one group to another group, with no net gain for economy as a whole. In a rent seeking environment, it is thus evident that the best and brightest in the society get attracted to socially unproductive activities while the rest of society gets impoverished.
The other serious disadvantage of the prevalence of corruption is that it tends to increase the cost to producers and consumers. In most poor countries, it is very difficult to carry on production and trading activities without bribing officials. Although sometimes the payment of a bribe is justified on the ground that it helps grease the system—facilitates trading and production activities—its impact on cost can be enormous, sometimes equivalent to the value of merchandise itself. The consequence is that a high incidence of corruption makes the country less competitive in the world market, depriving it of the access to global market and improved technology—critical inputs into the development process.
LIVING WITH CORRUPTION
It is not clear how a poor country such as Nepal should get out of this vicious circle—poverty causing corruption and corruption keeping the country poor. Probably, both the aspects need to be treated in unison, turning the vicious circle into a virtuous circle. The approach would be to reduce the incidence of corruption while also helping the economy improve—through expeditious increase in national output and income, benefitting the broadest group of people.
Agricultural development should be a national priority as it has a great potential to for initiate the economy’s broad-based development. Development of other critical sectors—manufacturing and export in particular—will very much depend on reducing regulations. These sectors suffer the heaviest incidence of corruption because of considerable leeway government officials are given in implementing these regulations. Creation of tax-free zones for manufacturing and exporting activities will be another set of policies that would help reduce corruption while, at the same time, helping the larger economy.
Probably most promising in fighting corruption will be civil society’s pressure on the government to take a pledge against corruption. In most countries including Nepal, corruption has political and social roots, while economic conditions only play a small part. Unless the government—under public pressure—doesn’t act tough against the corrupt, the fight against poverty and corruption is going to be long and hard. There is no way to break this vicious circle other than through a proactive government initiative.
Another effective anti-corruption measure would be conditional foreign aid. As data in the table alongside make abundantly clear, poverty and corruption are tightly linked and there can be no improvement in one without improvement in the other. Unfortunately, donors have focused on poverty reduction but largely ignored the principal cause of poverty, which is official corruption. In giving aid, they need to secure verifiable anti-corruption from aid recipient countries. Foreign aid would have been at least twice as effective if its focus had been reversed—requiring that countries show progress on the corruption front to continue receiving aid.