Corruption:the somewhat silent global challenge

Posted on January 23, 2012

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Kenithi Ohmae’s (2005) comment that the global economy is “borderless, invisible, cyber-connected, and measured in multiples” provides an understanding of the reason the challenges facing many nation-states are considered to be global in nature. No longer are problems easily contained within borders: whether it is the Avian flu, the economic downturn or terrorism, problems affecting one nation are more likely than not to impact others. As such, organizations and governments are faced with global challenges that need to be addressed in order for individual states to grow and for the world to improve on the ills with which she is faced. Often when we think of global issues, education, population, scarcity, health issues and more recently, terrorism are foremost in the mind. Understandably so, but corruption, an often overlooked global challenge is an important player that aids in limiting and sometimes prohibiting the economic, social and political well-being of nation-states. With the aforementioned in mind, this paper will examine corruption as a global issue that has an effect on the livelihood of individuals, the growth and development of nation-states and consequently the world as a whole. In order to do so the following areas will be discussed: a) the scope of corruption; b) the causes of corruption; c) consequences of corruption both locally and internationally; d) the global response to date; e) possible solutions.

Corruption as an Issue

Kaufman (2004) defines corruption as “attempts to exert undue influence in order to “privatize” public policy, and/or appropriate the provision of public services for private purposes.” For a long time it was thought that corruption was an issue of concern primarily with developing nations but studies have shown that corruption, while quite prevalent in less developed nations is also pervasive in richer countries. As further noted by Kaufman (2004):

“Available data indicate clearly that ethics and corruption represent a challenge not only for many emerging economies, but also for many countries of the rich world. In fact, there is enormous variation of ethical standards within the rich world itself, more broadly defined to encompass forms of corruption that may not be strictly illegal, such as undue influence on public policy—through political funding or other means—by a few powerful interests.”

In addition, this “legal corruption” mentioned by Kaufman may actually be more prevalent than illegal forms such as bribery which are normally the focus of discussions on corruption. Besides being present in different categories of nations, corruption also exists in varying forms in different types of organizations. This point is supported by Bhagarva (2006):

“Corrupt practices range from small amounts paid for frequent transactions (petty corruption) to bribes to escape taxes, regulations, or win relatively minor procurement contracts (administrative corruption) to massive and wholesale corruption. Corruption occurs within private corporations (corporate corruption) or, more famously, in the public sector, including the political arena (political corruption).”

As mentioned by Richardson (….), certain events in the 1990s exposed corruption scandals in several nations across the globe: France, Italy, Brazil and India, among others. This, it is thought, helped to draw attention to the fact that corruption existed in places outside of those normally considered as havens for corruption.

Causes of Corruption

Corruption predates the modern world. There have been recorded incidences of bribing and seeking illicit favors in early Chinese, Egyptian, Greek, and Indian civilizations. It may also seem that corruption is more rampant in modern times but a counter argument for that point is that society now exists in a globalized technological age when information is more readily available and accessible. This convenience facilitates a greater awareness of current happenings and therefore gives the perception that corruption is more rampant. This perception in itself, however, does not prove greater incidence.

In order to fully understand its impact and ultimately to identify mitigating factors, an appreciation has to be gained of the factors that encourage corruption. While the causes can be somewhat complex with rooting in political and social cultures, there are some basic factors that facilitate corruption. With no universal agreement on all the causes Neelankavil classifies corruption into three main areas, namely: environmental, individual, and firm related. Within each of these categories he identifies the following causes:

a. Environmental variables

• Lack of a clear distinction between what is considered ‘public’ and what is considered ‘private.

• Excessive administrative and discretionary power concentrated among a few.

• There are no clear mechanisms of check and balances; hence it is easy to misuse funds.

• Lack of oversight and therefore corruption goes unabashed.

• Absence of dependable legal machinery for preventing arbitrary application of   regulations and    laws.

• Over regulations. When there are too many requirements to get projects approved, it breeds inefficiencies that are then circumvented through bribing officials.

• Unclear regulations.

• Lack of economic development.

• Lack of competition.

• Income inequalities.

 Individual variables

• Greed – individual greed, whether it be of an official, government leader, or a company executive all lead to actions that may be corrupt.

• Integrity/honesty – some individuals are dishonest by nature and are more prone to acting illegally than others.

• Low wages and salaries

• To maintain power

International firm variables

• Market expansion – international companies participate in corruption to assist themselves in their market expansion strategies.

• Profit maximization

• Supply of resources – by entering some of the countries through corrupt practices, international companies are able to secure a continuous source of resources such as materials and components.

• Low cost labor

Consequences of Corruption

The free flow of information is providing a greater awareness of not just the incidences of corruption but also its impeding nature. Bhargava (2006) writes, “thanks to ever-increasing information flows in an interconnected world, people are becoming more aware that corruption is impeding economic growth, perpetuating poverty, and feeding political instability by undermining faith in society’s key institutions of governance.” Richardson (2001) identifies twelve major concerns with corruption, some of which are mentioned below:

  1. Deterrence of honest individuals from entering public service;
  2. Provision of incentives for public officials (who may have bought their jobs) to focus their energy on self-enrichment rather than public benefits;
  3. Generation of counterproductive regulatory requirements that provide opportunities for officials to demand bribes;
  4. Facilitation of other crimes;
  5. Reduced respect for law;
  6. Erosion of political stability;
  7. Undermining of human and civil rights;
  8. Reduction of tax revenues, resulting in higher tax rates.

These and other consequences of corruption, while affecting everyone and all organizations both public and private, have a disproportionate impact on the poor. This should not be misunderstood as meaning that corruption is something done to the poor and that this group does not also actively participate in corrupt activities. What it means is that corruption takes away resources from organizations and governments which could otherwise have been used to boost the efforts being made to alleviate poverty. In countries with high rates of corruption, development tends to be stagnant or nonexistent. Examples of this include countries such as oil rich Nigeria, Bangladesh and Pakistan. A World Bank report noted:

“While poverty assessments have focused more on measuring poverty than explaining it,anecdotal and survey evidence reveal the cost of petty corruption to the poor. When access to public goods and services requires a bribe, the poor may be excluded. Given their lack of political influence, the poor may even be asked to pay more than people with higher incomes. Furthermore, when corruption results in shoddy public services, the poor lack the resources to pursue “exit” options such as private schooling, health care, or power generation.”

The consequences from corruption also impact private businesses, not just in terms of profit margins but also in relation to the willingness of investors to enter certain marketplaces. A survey of 3,600 firms in 69 countries carried out for the 1997 World Development Report provides further evidence of the widespread existence and negative effects of corruption:

“The survey confirmed that corruption was an important—and widespread —problem for investors. Overall, more than 40 percent of entrepreneurs reported having to pay bribes to get things done as a matter of course. . . . Further, more than half the respondents worldwide thought that paying a bribe was not a guarantee that the service would actually be delivered as agreed, and many lived in fear that they would simply be asked for more by another official. . . . The consequences of corruption often do not end with paying off officials and getting on with business. Government arbitrariness entangles firms in a web of time-consuming and economically unproductive relations.”

While initially viewed as a local issue, corruption has now been proven to be transnational in nature. It spreads across borders and affects several nations. Bhagarva (2006) uses the following examples to highlight the international nature of the problem:

1)      The Iraq Oil-For Food Scandal

2)      The Enron debacle

3)      Acres International

4)      Kleptocracy such as with former presidents of Indonesia and the Philippines.

The expansion of corruption from a mere national problem to a global challenge is aided by the openness of globalization and the ease of movement with technology. Klitgaard (1998) wrote,

“Greater integration of world financial markets and advanced technology have made it possible to transfer millions of dollars from one country to another by a mere click of a computer mouse button. Consequently, corruption has gone international and high-tech. Like terrorism, the drug menace, AIDS, and environmental degradation, it is one of those problems that have no respect for national boundaries. As such, the need for an international response to it has become evident” (as cited in Myint, 2000).

Global Response to Corruption

Prior to the 1990s, corruption was seen as par for the course, almost inevitable. As such, the consequences of this scourge on nation-states were obvious but not sufficiently addressed. As time progressed the situation got worse and it was not until major corruption incidences occurred in nation-states and with businesses across the globe that serious attention began being placed on the situation. Richardson (..) quotes U.S. Congressman James Leach, Chairman of the House Banking Committee, “the struggle of the last half century was to defeat Communism; the challenge in the years ahead will be to constrain corruption.” Along with the growing awareness by politicians, organizations both local and internationally operated became more vigilant and implemented mechanisms to lessen and eliminate.

Richardson (2001) identifies Transparency International and the International Chamber of Commerce as being “largely responsible for the growing awareness of the pernicious effects of corruption.” In addition to the work of these globally operated NGOs, he highlights the World Bank, the IMF and the regional development banks as partners in the process. Added to Richardson’s list must be other entities such as the United Nations and smaller NGOs around the world. Out of the work of these bodies have come publications such as the National Integrity Systems Sourcebook and the Corruption Perceptions Index by Transparency International as well as several studies and publications by the World Bank and other internationals and multilateral agencies. Besides publications there have been Compacts signed, agreements reached and conferences hosted to help fight the battle against corruption. These include, but are not limited to the 1996 UN General Assembly Approved Declaration against Corruption and Bribery in International Commercial Transactions, the ICC’s Rule of Conduct to Combat Extortion and Bribery as well as the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions and the Inter-American Convention against Corruption.

Possible Solutions to Meet the Global Challenge Caused By Corruption

While attempts, such as those mentioned above, have been made and several successes achieved, the problem of corruption is still pervasive in the global world. The incorporation of corruption issues in the national and international agenda has increased awareness which is the first step in the process. What needs to take place, however, is an overwhelming sweep of the way businesses, other organizations and governments operate. While it is the opinion of the writer of this paper that corruption will never be totally eliminated, it must not be a situation where efforts to curtail the problem are stopped. While it may never be eradicated corruption can be reduced and controlled. The following are suggestions to help in that process:

ü  Make bureaucracies more efficient hence eliminating the need for bribes.

ü  Improve the political systems within nation-states.

ü  Work harder to eliminate other global challenges such as inadequate educational opportunities and equal rights for men and women.

ü  Develop cultures that have zero tolerance for corruption.

ü  Improve the legal and record keeping systems within nation-states and businesses.

ü  Encourage and enable stable political systems.

ü  Incorporate ethics into the operational mode of organizations, businesses and governments.

ü  Create and implement firm penalties for breaches.

ü  Create greater opportunities for the poor.

Conclusion

The longstanding nature of corruption makes it an often overlooked challenge facing all sectors of all societies. It is does not readily come to mind as a global issue but is viewed more as a domestic matter affecting individual nation-states, local businesses and organizations. Organizations such as Transparency International and the World Bank have worked over the last two decades to change this mindset and to develop and encourage agendas to fight the growth of corruption as an issue around the world. While it is still too early to judge the full effect of these efforts it is obvious that more still needs to be done especially in poorer nations, whose populations tend to be more adversely affected by the consequences of corruption. Far reaching and pervasive in nature, this often silent global challenge is threatening good governance, economic growth and development in addition to the well being of a large number of persons throughout the world. While largely untested there are solutions that can be added to those provisions already being implemented.

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