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Corruption, Economic Development and Poverty Alleviation

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Corruption, Economic Development and Poverty Alleviation

Corruption continues to be a major drag on economic growth in developing countries.

Corruption, Economic Development and Poverty Alleviation
Credit: Corruption protest via 1000 Words /

Corruption has probably existed since the dawn of human civilization. With a steadily increasing population, accelerating economic activities, and intensification of global inequalities, corruption has become increasingly commonplace and pervasive. Alan Greenspan, former Chairman of the Federal Reserve of the United States of America, has observed: “Corruption, embezzlement and fraud are all characteristics that exist everywhere! It is regrettably the way human nature functions, whether we like it or not.”

The magnitude and extent of global corruption is difficult to estimate because such activities are always covert and invariably done in secret. The World Bank estimates that annual worldwide bribery alone now exceeds $1,000 billion. World Economic Forum estimates corruption costs now exceed 5 percent of the global GDP, a very significant sum by any account.

Considering only top leaders of some countries, Transparency International has estimated that President Suharto of Indonesia embezzled between $15-35 billion, while Ferdinand Marcos of Philippines, Mobutu Sese Seko of Zaire and Sany Abacha of Nigeria may each have embezzled $5 billion.

Examples of corruption abound from different parts of the world. In 2015, President Otto Pérez Molina of Guatemala was forced to resign after the Congress stripped him of his legal immunity. He is now facing trial for accepting bribes from businesses wishing to avoid customs duties. The mind-boggling “car wash” corruption of Petrobras in Brazil has already ensnared many leading politicians, including a former president. India is currently embroiled into the “choppergate” scandal, where bribes were alleged to have been paid to procure 12 helicopters for transportation of very important personalities. The contract was for 556 million euro ($635 million), of which 5-10 percent may have been used to grease the palms of the corrupt politicians and bureaucrats.

Corruption is not new. A World Bank survey in 2009 found that 70 percent of Brazilian business considered corruption to be a major problem. In 2014, Lamido Sanusi was ousted as the chairman of Nigeria’s Central Bank after observing that some $20 billion of oil income had gone missing and could not be accounted for. Corruption is a de facto tax on foreign direct investment, of around 20 percent.

Not surprisingly Pope Francis urged young Kenyans not to “develop the taste for that sugar called corruption.” U.S. President Barack Obama noted in his address to the African Union that “nothing will unlock Africa’s economic potential more than ending the cancer of corruption.”

Corruption seriously hinders poverty alleviation in Asian developing countries. According to ADB, some 320 million people in Asia live in absolute poverty. Close to 30 percent of these poor are from South Asia and about 25 percent are from Southeast Asia. Poverty alleviation can at best be incremental when corruption siphons away significant amount of development funds. Asian countries like China, India, Bangladesh, Pakistan, Indonesia, Malaysia and the Philippines, which together account for half the world’s population, all face pervasive corruption.

A World Bank analysis indicates that if developing countries can control corruption and the rules of law are properly enforced, per capita income could increase fourfold over the long-term. On average the business sector can grow faster to the tune of about 3 percent per year. Socioeconomic indicators like infant mortality could be reduced by some 75 percent.

More perniciously, several studies have shown that the costs of corruption are disproportionately borne by the poor. This means corruption not only deprives the poor of public goods but also increases income inequality.

Corruption encourages public officials in developing countries not to enforce environmental laws. Projects are approved fraudulently even when they may not meet with environmental standards. This indirectly worsens the lot of the poor, and lead to disastrous environmental consequences, a condition which some scholars have referred to as “environmental poverty.”

In China, corruption and non-compliance with regulations have often been one of the main causes of rising pollution levels. Illegal discharges of hazardous industrial, mining and agrochemicals have rendered nearly 20 percent of China’s non-arable farmland unusable for growing edible crops. In all Asian developing countries, the quality of water in lakes, rivers and aquifers have continued to deteriorate because of corruption and non-compliance. The long-term health and environmental costs of such corrupt practices are going to be very significant.

Corruption has become a way of life in most Asian developing countries. Unfortunately, it appears to be becoming more entrenched over time in many countries. A survey by Transparency International, in 2011, found that 66 percent of Bangladeshis and 54 percent of Indians paid a bribe during the previous 12 months. In addition, 62 percent felt that corruption has worsened in their countries over the past three years.

In countries where corruption is rife, providing gifts, bribes, and free services to public servants is often part of the local culture, as ways to show gratitude and maintain good relations with them. Honest civil servants often encounter intensive and sustained peer pressure if they want to shun corrupt practices.

Corruption can be controlled by strengthening institutions and by upholding the rules of law.

Consider Singapore. It is an excellent case study of how strong political will can ensure clean governance. In wide-ranging private discussions, the late Prime Minister Lee Kuan Yew recalled that corruption was once commonplace in Singapore’s colonial civil service. When his party came to power, its leadership enshrined anti-corruption as a development priority because they considered it prerequisite for good governance. The absence of corruption provided a hospitable and sustainable environment for foreign direct investment and economic development, two things the city-state needed to reduce its high unemployment rates and accelerate its economic development.

China is following in Singapore’s footsteps. President Xi Jinping has declared war on corruption, targeting both “tigers and flies.” It has made considerable progress. However, China is a vast country, with a population of nearly 240 times that of Singapore. Because of this huge size, the fight against corruption will take much longer in China than it did in Singapore. Moreover, success will require sustained high-level interest in controlling corruption. Although, though, many powerful Chinese politicians and bureaucrats are now behind bars because of corrupt practices.

In contrast, in India, as the eminent economist Jagdish Bhagwati has noted, the main problem is that no one gets punished for corruption, even in very serious cases. This has given many powerful politicians and senior bureaucrats a free license to steal.

As President Obama has noted “a strong, more inclusive, more accountable and transparent” governance structure is needed which could strengthen the national institutions and laws. This will reduce corruption and contribute to economic development and poverty alleviation in developing countries.

Asit K. Biswas is the Distinguished Visiting Professor at Lee Kuan Yew School of Public Policy, National University of Singapore; Cecilia Tortajada is a Senior Research Fellow at the Institute of Water Policy, and Augustin Boey is a Research Associate in the same School.