Bangkok recently hosted a forum that was jointly organized by the Organization for Economic Cooperation and Development, the ADB and the Konrad Adenauer Foundation. The "Conference on Combating Corruption in the Asia-Pacific Region" warned that endemic corruption threatens not only the stability of the region but also the globalization process.
Corruption is a structural and deep-rooted problem in many emerging economies whereby exchanging money in return for favors affects many aspects of business and life. These illicit payments may have had a benign beginning where a payment was interpreted as an expression of generosity. This perception might have contributed to a general tolerance of some low levels of corruption and illegality especially if bribery is mistakenly seen to be beneficial to overall economic development.
In all events, it is easy to lose control over the level and extent of corruption. According to the Corruption Perceptions Index issued by Transparency International that measures the degree to which a country is free from corruption, the worst offenders are emerging economies with a culture of corruption.
Confusion over source
Most would agree that corruption refers to the abuse of authority and misuse of discretionary power in pursuit of personal interests, rather than public interests. However, there is considerable confusion and disagreement over the source and impact of corruption.
One flawed perception of bribery is that it serves as a lubricant that gives flexibility to the management of political affairs. In this view, bribery of officials can be beneficial to economic activity and graft can increase the efficiency of bureaucratic systems. Yet corruption pollutes society by lowering the authority of public office, and it lowers economic efficiency by destroying the principle of fair competition and imposes unnecessary costs on the private sector. It also harms a country like Indonesia's place in the global market by raising the cost of international credit.
The recent spate of financial crises in emerging markets can be widely attributed to a reassessment of risk that resulted in a crisis of confidence and net outflows of capital. Governments were considered unable to provide an environment where asset values would be protected and domestic financial institutions were seen as non-responsive to market signals. Restoration of confidence requires decisive and convincing action to limit government regulations and interventions that invite corruption.
Declarations of war against corruption are little more than political posturing and are often used selectively to dispose of opponents. Indeed, allowing corruption can be a means by which despots control the population. Those who are engaging in corrupt activities are less likely to object to abuse of power by rulers.
Some observers see corruption only as a moral issue and blame greed. This moralistic perspective suggests that emphasizing moral standards among public servants or imposing severe punishment on violators could eliminate graft. Such self-righteous pleas to end corrupt business practices do not address the flawed incentive structures that are the outcome of legal and cultural institutions. Even moral people will act improperly when they act with warped incentives. Similarly, immoral and imperfect individuals will tend to act more appropriately if the incentive structure rewards them for doing so.
Shrink political power
Instead of expanding political power to eradicate corruption, the opposite is needed. Yet many politicians and bureaucrats distrust the private sector due to a belief that unfettered markets cause undue harm without the oversight and regulation of public officials. As such, regulatory authorities are created to issue licenses and permits. In this setting, there is an imbalance of power with public officials having monopolistic power with the understanding that they will act in the best interests of their fellow citizens. However, these unequal powers impose harm on some citizens who face a strong incentive to protect themselves through bribery.
Instead of moralizing, legal and institutional reforms are necessary to prevent public graft. Giving extensive authority to government officials over quotas and to assign privilege invites corrupt practices. Since the essential problem with corruption arises from excessive government intervention, the best solution involves reduction of political intervention in people's lives.
Rooting out corruption requires a change in overall political culture combined with an ideological shift away from encouragement or toleration of invasive government powers. The answer to resolving corruption is to move towards depoliticizing life and having governments that regulate less. In the free competition of the market, no corruption arises in the relationship between consumers and suppliers since both parties have equal power. Indeed, almost all sustained market imbalances arise when governments act to restrain competition.
Competition in open markets will always involve legitimate actions, not unlawful means. Those who wish to live in a free and open society should insist upon greater guarantees of free and open markets with less government involvement in their life.
Christopher Lingle is Global Strategist for eConoLytics.com and author of The Rise and Decline of the Asian Century.
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