Combatting corruption needs checks and balances

Psychology and social science look at corruption as a moral degradation or social disease. On the other hand, economics looks at corruption as a bureaucratic, institutional and political problem. Referring to a study, when JS Nye says, “especially in newly born state bribery and corruption are integral parts of public life, which, like weeds, tend to destroy good plants; or in other words, corruption and nepotism destroy peoples’ good intention and ruin the policies that are beneficial for the society,” he actually echoes Kautilya’s ‘Arthashastra’ and Niccolò Machiavelli’s ‘The Prince’.

Paolo Mauro used Bangladesh as an example in his seminal article published in 1995 and says that Bangladesh is enormously losing investment and growth due to corruption.The World Bank in its 2002 report, says, in absence of corruption Bangladesh’s growth would have been double. It is, therefore, comprehensible that Bangladesh is deprived of its desired growth because of corruption.

Bangladesh achieved a growth rate of 4.68 per cent in 1991-2000, 5.58 per cent in 2001-2010 and 6.95 per cent in 2012-2019, which cannot be said to be remarkable, while Ethiopia achieved a growth rate of 9.25% in 2012-2019. Asadullah, Savoia and Mahmud have shown how NGOs contributed to Bangladesh’s development indicators. Therefore, in the absence of NGO activities, how the development indicators in Bangladesh might look, remains debatable.

Too much regulation is an important cause of corruption. The more regulations are there, the more would be the scope for the bureaucrats to take bribes. The World Bank publishes an index called ‘ease of doing business’ every year, which indicates the regulatory requirement in government offices. Here we can see that the value of the index is higher in countries where corruption is higher, for example, in Afghanistan, Bangladesh, Nigeria, Pakistan and India this value is 173, 168, 131, 108 and 63 respectively.

On the other hand, the value is low in countries where the level of corruption is low, for example, in New Zealand it is 1, in Denmark 4, in Norway 9 and in Sweden 10. The value in Malaysia is only 12, which has achieved spectacular developments in its industrial sector, and trade and commerce in the last four decades.

Leaving the discretionary power with the bureaucrats and politician gives them the opportunity to take bribes. The discretionary power should be left with only the lawmakers who will make law after long discussions in the parliament and before passing the law, the parliamentary committee has to listen to all the parties related to the issue. For example, if the law is regarding garment industry, parliamentary committee must listen to the workers belonging to the garment industry. Gunnar Myrdal, in his famous book, Asian Drama, has mentioned discretionary power as a cause of corruption as it creates a strong vested interest group.

The bigger the size of the government, the more the scope for corruption, and the more decentralised the power structure of the government, the less the scope for corruption. If the government spending is segmented in many layers, corruption is less likely to take place. All research conducted in this area, show similar results.

It is also seen that corruption will fall if the size of the government is small only when there is democracy in the country. Corrupt bureaucrats and politicians transfer resources to unproductive projects with a view to misappropriating the state funds. Due to dishonesty and inefficiency of the bureaucrats, Bangladesh is wasting billions of dollars ever year. The Asian Development Bank expresses the similar view and says that the limited resources of the state, is being transferred to unproductive projects due to corruption in Bangladesh.

Research on corruption and the freedom of press and media, and the independent judiciary occupies a lot of area in economics and political science. That without the freedom of press and media, and an independent judiciary corruption cannot be combatted, is the main findings of these research works. Participation of women in labour force, parliament and other divisions of the state may help to reduce corruption.

The correlation between corruption and political institution and political system has been widely discussed in economics and political science. That democracy promotes human development is like an established truth. In a recent study, Daron Acemoglu shows that democracy has a positive effect on GDP per capita.

There has been a lot of research on political connection and corruption.If the distribution of permit, contract, license and administrative tasks in government offices are done with political consideration or with partisan viewpoint, economic growth is bound to be hampered because the most efficient firms which are already in the market, might be deprived because of having no political connection. And the firms willing to enter the market, will be prevented by the syndicate.

Mara Faccio in his article published in American Economic Review (2006) has made this clear. There is a huge incentive for firms to be connected with political parties. The politically connected firms will receive preferential treatment from the government in a number of forms, for example, they will buy state-owned enterprise at a nominal price, they will receive bank loans easily without collateral, they will pay less tax or no tax at all, regulatory requirement will be relaxed in their cases, etc. Politicians take away much of the ‘windfall gains’ that the politically connected firms mange to gather.

As a cure for corruption, economists suggest to set some tools or instruments with a view to creating ‘checks and balances’ in state. Democracy and accountability, presence of an effective opposition in the parliament, freedom of press and media, freedom of speech, independent judiciary, independent election commission, independent human rights commission etc. are these tools. Not only that, police and the inquiry commission will also have to be independent and the recruitment procedure will have to be free, fair and unbiased, otherwise, corruption cannot be combatted.

NN Tarun Chakravorty is Visiting Professor of Economics at the Siberian Federal University, Russia