Easy come, easy go…

UNESCO Courier, June, 1996 by Rochel Andriambelomiadana

Corruption in industrialized countries tends to be concentrated in the higher echelons of power; in the developing world it seems to extend to virtually every level of economic and social life. It may be limited in extent - as when it is simply a matter of unclogging the wheels of administration - but when a court verdict is reached as a result of bribery rather than objective judicial decision, or when a surgeon only operates when prompted by a wad of banknotes, it can be a matter of life and death. Corruption can even damage the economic life of entire countries.

When this is the case, corruption is far more than an occasional bribe offered to influence a public decision. It is an institutionalized system in which networks of cronies seek to enrich themselves by winning and keeping control of strategic political or commercial positions from which they can exercise illegal pressure. This system, which has international ramifications, is expanding. Action against it must be based on an understanding of the factors that encourage it to spread and an analysis of the effects of corruption on development.

Three key factors will be examined in this article: money, its link with politics, and poverty.

Oiling the wheels

In a commercial transaction, a sum of money is paid for something (a commodity or a service) which is itself the fruit of labour. Social success based on money is thus the visible fruit of effort. This social philosophy stimulated the rise of the industrialized countries.

Today, however, money is increasingly dissociated from labour. With the sudden rise in the prices of coffee, cocoa, oil and other raw materials in the early 1970s, huge quantities of money flooded the international financial markets and threw the economies of the industrialized countries off balance. To regain a certain stability, these countries were forced to export at all costs. Corrupting leaders of countries of the South appeared the most effective way of doing this.

Later, narcodollars replaced petrodollars, and today highly sophisticated techniques are used to launder the profits from drug trafficking via international financial circuits and networks involving bankers, stockbrokers, business-people, lawyers and politicians. Corruption and clientelism are the bedrock of the system.

As a result, money inevitably seeps into politics, perverting public administration and governance. Since there is no watertight partition between public money and money used to fight elections, politics is funded, without public consent, by creaming off the national wealth. Thus, political organizations are funded by illegal means and to stay in power depend on political forces whose support is earned by handouts from the state coffers. Slowly but surely, this use of money leads to a system of government based on corruption.

Squandering national resources

Poverty in developing countries is a breeding ground for corruption. A small minority of people get rich quick by illegal means from non-productive activities while the majority of the population wallows in poverty. Government officials are among the first victims: inflation erodes their purchasing power while their employer (the state) is unable to increase their wages. This largely explains why the hard core of corruption is found in government.

Other contributory factors to the spread of corruption are over-regulation and state interventionism in social and economic life.

While it is undeniable that widespread corruption paralyzes development, it may have some positive effects, albeit limited. Corruption brings about a redistribution of untaxed income, which absorbs some of the social costs of the notorious "structural adjustments". Furthermore, the transfer of income from the less poor to the very poor does promote social justice of a kind. But this circulation of money is merely a transfer of wealth, not a means of wealth-creation. Nor is it very realistic to argue that the informal economy, boosted by corruption that counteracts an over-regulated market, stimulates commercial activity. In reality, because of its weak productivity, the informal sector brings little added value.

The truth is that the more corruption gains ground, the harder it becomes to manage the economy. When the logic of production loses out to the logic of speculation, there can be no effective economic policy. Disequilibrium in public finance, for example, is the result of a disparity between rising expenditure and stagnating tax receipts due to the size of the informal sector, fraud and tax evasion, not to mention the corruption of the tax authorities.

Corruption also goes hand in hand with a squandering of national resources at the very time when the latter should be exploited sustainably. It diverts these resources so that their contribution to the country's economic growth is insignificant. The problem becomes critical when the state, the main economic actor, is taken hostage by networks of predators. Furthermore, redirecting income from this system towards the consumption of imported goods puts pressure on the foreign exchange market, to the detriment of the local currency. The country's economic development suffers as a result of these interdependent factors.