Corruption
in Developing Countries: Who is the real loser?
Globalist
Perspective - Global Development
Corruption
in a Developing Country Context
By Ngozi
Okonjo-Iweala | Wednesday, July 25, 2007
(Comments;
this article is about how corruption has been destroying any chance for developing countries to get out their vicious circle poverty
and misery for the majority of the their people and for the benefit of only a few corrupt officials. This is exactly the current
situation in Cambodia under Hun Sen and Sihanouk's control. The corrosive and pervasive corruption in Cambodia, is a real
factor that has not only kept Cambodia underdeveloped and miserable, but also had made Cambodia defenseless as the country
is valueless and there is no moral foundation. How long can a country like Cambodia last in this very competitive world, especially
with a very aggressive and smart neighbor like vietnam? The answer is; NOT VERY LONG. Naranhkiri Tith PH.D. Washington DC.
July 27, 2007)
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Corruption plagues
every aspect of society and causes more substantial damage in developing countries. As Ngozi Okonjo-Iweala, Nigeria's
former Finance Minister, observed in her Sabot Memorial Lecture to the Center for Global Development, corruption affects all
walks of life including education, governance and hinders progress in developing economies.
Viewed in its broadest
sense, corruption is simply the misuse of public office or public assets for private gains.
It is also the misuse
of these assets in a way that creates an unlevel playing field and that makes people feel injustice has been done. Perhaps
this is why the average citizen in any country, in fact all of us, feel so badly about corruption.
Manifestations
of corruption
Corruption may be manifested
in various forms, such as theft, fraud, bribery, extortion, request for kickbacks, nepotism and patronage.
In the case of grand
corruption, big businesses are seen greasing the palms of senior state officials to receive favours.
A distinction is often
made between grand and petty corruption.
In the case of grand
corruption, big businesses are seen greasing the palms of senior state officials to receive favors.
And in petty corruption
junior civil servants may be enticed to receive side payments or bribes to facilitate administrative arrangements for their
clients. The existence of corruption clearly indicates that something has gone awry. And it is indeed symptomatic of weak
governance and, more importantly, weak institutions.
Good governance
Of course, the desired
outcome is that of good governance — a situation in which public institutions are strong, and public resources and public
goods and services are managed efficiently to address the needs of society.
In the past, some skeptics
often provided a rational defense for corruption based on economic efficiency arguments. It was argued that bribes helped
in lowering the cost of doing business, in clearing the market, in providing incentive bonuses, and in distributing monopoly
rents from a single agent to other officials who collude in sharing a bribe.
Bribes might
be efficient
For example, it has
been argued that in an environment where there are restrictive or bureaucratic government procedures — such as Education, which is the one way for the poor to open doors of opportunity is perverted,
and such means of upward mobility is closed to them.
bottlenecks in paying
taxes, burdensome customs procedures or difficulties in obtaining licenses — bribes could actually provide an efficient
way of reducing burdensome transaction costs.
Similarly, in cases
where a government needs to allocate a scarce resource to various private agents, a bribe payment may help the market to clear
more efficiently by allocating the resource to the highest bidder.
Bribes could also be
explained as a rational incentive bonus to public sector workers whose wages may be artificially depressed.
Damaging development
The problem with many
of these arguments is that they point to the microeconomic efficiency of an isolated corrupt event without examining its long-run
systemic impacts.
In the long run, widespread
corruption often creates much larger negative effects which can hinder the dynamic efficiency of an economy.
Affecting the
poor
In Nigeria and many
other countries in Africa where we have struggled with this problem, systemic corruption has diverted resources, corrupted values, and led to rent-seeking activities in
place of productive ones.
The culture of impunity
and corruption that crept in under non-transparent, authoritarian regimes was so pervasive that it had corroded the psyche
and moral fiber of Nigerian society.
While corruption damages
a country’s development, what is not at all sufficiently understood is that, in practice, it is highly regressive and
inequitable. This is simply because corruption ultimately is most vicious on the poor. This may occur in various ways.
First, poor households
are likely to be excluded from public services which require grease payments since the burden of corruption (that is, the
cost of a bribe as a share of income) for the poor is likely to be disproportionately large compared to that of wealthier
households. In this sense, bribery acts as a form of regressive taxation.
Public service
Second, in instances
when public service delivery is weak due to corruption, the poor tend to be heavily disadvantaged as they may lack resources
to obtain private services (in private clinics or schools, for example).
Teachers and lecturers
take bribes to pass children on exams. Education, which is the one way for the poor to open doors of opportunity, is perverted
— and such means of upward mobility is closed to them.
Roads to nowhere
Third, there is evidence
that in a corrupt environment, government spending tends to be diverted away from social expenditures (such as health and
education, which benefit the poor) towards infrastructure projects
such as "roads to nowhere" or electricity projects that do not function.
Corruption
may be manifested in various forms such as theft, fraud, bribery, extortion, request for kickbacks, nepotism and patronage.
Such projects are heavily
transactional, yielding contracts that lend themselves to bribes.
When the environment
becomes purely transactional with little focus on policy, the impacts on the poor is devastating. In fact, in a corrupt environment,
actions of ministers and civil servants focus heavily on transactions rather than policies. Ample evidence exists in Nigeria
of the so-called "juicy government ministries," such as Works, Power, Defense, Agriculture and Water Resources, which have
large procurement budgets each year.
Non-economic
effects
Finally, in instances
when infrastructure projects are financed, procurement fraud leads to inflated contracts which further divert scarce public
resources away from competing pro-poor programs.
A sad thing is that
corruption could have even more pernicious non-economic effects on a society.
Nigeria is
still fighting
In Nigeria, prior to
the recent reforms, the culture of impunity and corruption that crept in under non-transparent, authoritarian regimes was so pervasive that it had corroded the psyche and moral fiber of Nigerian
society.
A sad thing is that
corruption could have even more pernicious non-economic effects on a society.
There was complete
invasion of our moral and values system, reaching well beyond the economic sphere as illustrated in the corruption examples
above. Despite a vigorous fight launched against corruption, Nigeria is still fighting these ills today. But it is by no means
the only country in Africa struggling with these issues at present.
Editor's Note: This
feature is adapted from the Second Annual Center for Global Development (CGD) Richard "Dick" Sabot Memorial Lecture given
by Dr. Ngozi Okonjo-Iweala on June 20, 2007.
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