Corruption debilitates an economy

September 2, 2003

Free Market Foundation

Until a few decades ago, corruption-fighting programmes consisted mainly of lamenting the human character. Academic studies of corruption were hindered by the reluctance of scholars to seem patronising to third-world countries. When scholars did look at corruption, their major focus, absurdly, was the question of whether it was harmful.

Today, the costs of corruption are widely discussed, and they are stunning, says Tina Rosenberg:

Francisco Barrio, until April Mexico’s anti-corruption czar, estimates that graft costs his country 9.5 percent of its Gross Domestic Product (GDP) twice the education budget and Mexico ranks only in the middle of the corruption charts.

When the levels of graft are high, governments spend less on education and health and more on public works projects chosen not for their value to the nation but for their kickback potential.

Corruption greatly discourages foreign investment, and with globalisation, its effects have become borderless: when the Bank of Credit and Commerce International went down in 1991, 40,000 depositors in Bangladesh lost their life savings.

There is, however, a curious assortment of places where, in recent years, things have changed:

Australia, now one of the world’s cleanest nations, was a long-time Wild West of lawlessness.

Singapore is now a model of probity, but in the 1950s it was awash in corruption.

Bolivia is one of the world’s most corrupt nations, but for a time a reformist mayor gave residents of its biggest city, La Paz, a reprieve.

Ferdinand Marcos, of all people, cleaned up the Philippines’ tax bureau. Even in many nations where fraud is rampant, some agency or region stands out for integrity.

Source: Tina Rosenberg, The Taint of the Greased Palm, New York Times, August 10, 2003.

For text http://www.nytimes.com/2003/08/10/magazine/10CORRUPT.html
For more on Government Corruption and Growth http://www.ncpa.org/pi/internat/intdex3.html

FMF Policy Bulletin/ 26 August 2003