CHAPTER 2

CORRUPTION AND ITS EFFECTS ON SOCIETY

CORRUPTION

Corruption has many causes and effects. It is something that is difficult to combat, much more totally eradicate.
This is why it has become an issue on the national and international agendas of politicians and policy makers in the
world. Even the World Bank in 1977 has taken the view that economic development, its rise and fall, is closely lined to
whether or not there is corruption.

Corruption comes in various forms and considered differently in different cultures and in different
parts of the world. What is considered corrupt in another nation may be completely acceptable in another
country. In the succeeding discussions, the varieties of corruption shall be discussed for the purpose of
informing the would-be practitioner of good governance the evils that he must face and come out head-
high over and above these practices that are almost endemic, if not already endemic to some cultures of
the world.

Corruption is defined as the abuse of power by a public official for private gain. However, it is believed that a more
expanded definition should be taken to include many situations that may be considered corrupt practices but which do
not fall within the purview of corruption based on that definition. Thus, corruption is suggested to be defined more
extensively as “the abuse of power and intellect by any person, public official or not, for private gain of whatever kind
that distorts or disrupts an existing system in society” in order to cover such events as the following:
 When a boxer or a basketball players throws a fight or a game for the benefit of bettors or financiers or for himself,
even if none of them are government officials;
 When a layman lies under oath during his testimony in court either to help convict or prove the innocence of an
accused person;
 When a person favors a relative by committing nepotism, thus, although may not be favored by his action,
discriminates all others who are not part of his family;
 When a police officer fabricates evidence to secure convictions of persons he strongly suspects of criminal offenses
in a genuine desire to rid society of some evils;
 When a member of the academe seeks favors of any kind from his students in exchange for passing or high grades;
 When doctors collaborate their testimonies in defense of a fellow physician who do know had been negligent in
relation to a failed surgical operation that caused the death of the patient; or
 When a coach or a trainer supplies his athletes with banned substance to enhance performance or ensure victory for
them.

There are two general kinds of corruption: institutional and personal. The first corrupts an organization by those
who exercise power within it and the second corrupts the person who disregards his moral and ethical values.

The Evils in Society Facilitated by Corruption

 Human Trafficking – the illegal trade of human beings for the purposes of commercial sexual
exploitation or forced labor, a modern-day form of slavery.
 Drug Trafficking or Illegal Drug Trade – is a global black market in the cultivation, manufacture,
distribution and sale of those substances which are subject to drug prohibition laws.
 Money Laundering – is any financial transaction which generates an asset or a value as the result of
an illegal act, which may involve actions such as tax evasion or false accounting.
 Other Organized Crimes and Criminal Activities

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  Organized Crimes or Criminal Organizations – a transnational grouping of highly centralized
enterprises run by criminals for the purpose of engaging in illegal activity or the unlawful activities
of highly organized, disciplined association.
 Mafia – a term used to describe a number of criminal organizations around the world such as the
Sicilian Mafia (Italy) known as Cosa Nostra and the American Mafias.
 Crime – is the breach of rules or laws for which some governing authority can ultimately prescribe
a conviction. While every crime violates the law, not every violation of law counts as a crime such
as a breach of contract which ranks as an offense or infraction of a civil law.

Effects of Corruption on Development

Generally, corruption derails the legitimacy of a government as well as weakens it as institution

because it throws out values such as honesty and integrity and utterly disregards procedures, drains
resources, and even buys and sells public offices, thus, resulting into a constituency that is devoid of trust
and confidence on its governors.

Specifically, corruption affects the realm of politics, election and legislative bodies, the judiciary, as
well as the practice of public administration, to wit:
 Political Realm – corruption openly ignores, disobeys, defies or show contempt for law or convention
and overthrows authority structures and formal processes, thus, weakens and destroys democracy and
good governance.
 Election and Legislative Bodies – corruption reduces accountability and distorts representation in
policymaking.
 Accountability – refers to being accountable, the liability to be called on to render an account, and
the obligation to bear the consequence for failure to perform as expected.
 Distort – means to give a false or misleading account of something, or to simply misrepresent an
idea or intention.
 Representation – is the ability to influence the political process or how political power can be
alienated from most of the members of a group, and vested, for a certain period of time in the hands
of a small subset of its members.
 Policymaking – is the process of developing policies within government institutions to address
public issues through the political process to jointly identify a desirable future state and monitoring
progress to allow for future adjustments or in its absence to move away from a desirable future
state because of the inability to reach a consensus.
 Judiciary – corruption compromises the rule of law or performing or accepting less than what the law
desires to accomplish or because what is wanted is or becomes unattainable.
 Public Administration – corruption results in the inefficient provision of services such as there is
inequality of services rendered as those who corrupts are given preferential services and greater
priority than those who do not corrupt or has no means to corrupt the system.
EFFECTS OF CORRUPTION

Corruption holds back economic development because it generates a lot of distortions and inefficiency.
It affects both the private and public sector.

Effects of Corruption on the Economics of the Private Sector

 Increases cost of business through:
 Price of illicit payments
 Management cost of negotiating with officials
 Risk of breached agreements or detection

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 Reduces red tape and costs of producing services because of bribery – however, officials are
encouraged to create harder rules to cause delays that would eventually increase costs of delivery of
services and eventually, raise up price of bribes to covertly bypass these rules and delays.
 Inflates the cost of business – because corruption disturbs the playing field, shielding firms with
connections from competition, and thereby sustaining inefficient firms.

Effects of Corruption on the Economics of the Public Sector

 Focuses public funds into capital projects where the most bribes and kickbacks can be generated
 Distorts government disbursements further by concealing or paving the way for more bribery and
kickbacks by increasing the technical complexity of capital projects
 Lowers compliance with construction, environmental, or other regulations through the grant of permits
and certifications to projects which do not conform or have only partially conformed with the
aforementioned concerns
 Consequently, reduces the quality of government services and infrastructures
 Increases budgetary pressures on government since corruption indirectly increases costs as less and
less funds are poured into the public projects
 Moves financial capital overseas rather than invested at home such as the practice of African dictators
who have Swiss bank accounts resulting into a less developed economy than in Asia – for example,
$400 B was stolen from Nigeria’s treasury between 1960-99 and $187 B capital flight occurred from
1970-1996.
 Rent Extraction – a primary form of corruption in Africa which means getting without giving
anything in return or seeking income by capturing economic rent through manipulation or
exploitation of the economic or political environment, rather than earning profits through economic
transaction and the production of wealth.
 Political Instability – a factor that causes the behavior and encourages a new government to seize
corruptly-obtained assets of previous ones, thus, practices stashing of wealth abroad
 Asian administrators often take cuts on business transactions or provide conditions for development
through infrastructure investment, law and order, and others.

Effects of Corruption on Environment and Society

 Makes it easier to destroy the environment because laws to protect it are not enforced properly when
officials take bribes.
 Government action or inaction determines the impact or severity when drought and natural events
such as famine occurs.
 Corrupt officials largely steal from a nation’s state even in countries which experience very good
harvests
 Gains economic advantages illegitimately by non-enforcement of social rights and worker protection,
unionization, and/or prevention of child labor

Effects on Other Areas Such as Health, Public Safety, Education, Trade Unions, and Others Which
Can Ultimately be Dangerous for All
 Taking bribes or under-the-table payment by reputed surgeons in western Europe from patients willing
to pay the price for their surgeries to be scheduled ahead of others
 Taking bribes by automotive industry players from suppliers of poor quality connectors such as those
used for airbags in automobiles
 Taking of bribes by manufacturers of defibrillators (life-enhancing machines for the heart) by
suppliers of poor quality capacitors
 Taking of contributions from wealthy parents to some “social and cultural fund” by prestigious
universities in exchange for the acceptance of their children

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 Taking of bribes to obtain diplomas, financial and other advantages granted to unionists by members
of the executive board of a car manufacturer in exchange from employer-friendly positions, votes, etc.
 Taking bribes from referees, players, or medical and laboratory staff involved in anti-doping controls,
members of national sports federation and international committees deciding about the allocation of
contracts and competition places
 Various types of corruption in non-profit and non-government organizations as well as religious
organizations

CONDITIONS FAVORABLE FOR CORRUPTION

In the studies of corruption, some segment identify certain conditions, situations, or circumstances that
makes people fall to the practices of corruption easier that they would if such conditions do not exist.
They are as follows:

Information Deficits
 Lack of transparency in government
 Lack of legislation re: freedom of information
 Lack of investigative reporting in the local media
 Lack of measurement of corruption – regular surveys to quantify the degree of perception of
corruption from a nation’s people to increase awareness and create pressure to combat it – and enable
officials to evaluate the methods used to fight corruption
 Lack of timely financial management and weak accounting practices
 Tax havens that tax citizens and local companies but not their foreign counterparts and the refusal to
disclose information necessary for foreign taxation which make way for large scale political
corruption in foreign nations
 Contempt for or negligence of exercising freedom of speech and freedom of the press.

Lacking Control of the Government

 Dysfunctional or absence of democracy
 Lack of a civil society and non-governmental organizations that monitor the government
 Rational ignorance of individual voters especially in nationwide elections since each vote has little
weight
 Weak civil service and slow pace of reform.
 Weak rule of law
 Weak legal profession
 Weak judicial independence
 Lack of protection for whistleblowers
 Lack of benchmarking – to evaluate degree of excellence of procedures and performance compared
with those who are best

Opportunities and Incentives

 Allowing officials to routinely handle cash instead of by checks which make it more difficult to make
illegitimate withdrawals
 Centralized handling of funds instead of allowing local agencies to handle it – misuse of funds it more
difficult to notice in a national agency with $2.0M than from a local agency with only $2,000
 Public investment that are large and unsupervised
 Privatization and sale of state-owned property
 Poorly paid government officials and employees

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 The need for government licenses to conduct business encourages bribery and kickbacks
 Relationships which encourage and help conceal corruption and favoritism between officials and the
public as the former are not often rotated to avoid familiarity
 Costly and excessive political campaigns which are recovered after candidates win the election
 Procedures that often allow more personal contact between officials and the public instead of using
fully automated computer systems
 Export of natural resources which may encourage corruption
 Wars and conflicts that breaks public security

Social Conditions
 Presence of self-interested closed cliques and “old boy networks”
 Clan- of family-centered social structure that has a tradition of nepotism/favoritism
 A “gift economy” such as the Chinese quanxi or the Soviet blat system usually in a Communist
centrally planned economy
 Absence of personal integrity which makes it easier for people in positions more susceptible to
corruption
 Lack of literacy and education among the people
 Frequent discrimination and bullying among the population
 Tribal solidarity giving more benefits to certain ethnic groups

RELATION TO ECONOMIC FREEDOM

The lack of economic freedom encourages corruption which is derived from governmental activities
that forces individuals and/or companies to buy privileges or favors from politicians or officials, such as:
 Requirement of licenses, permits, and others
 Foreign trade restrictions encouraging sale of import or export permits
 Credit bailouts
 State ownership of utilities and natural resources
 Access to loans at below-market rates

Size of Public Sector

 The more the regulations, generally, the higher the corruption
 Privatization – the sale of government-owned property is particularly a the risk of cronyism – as those
with political connections unfairly gain large wealth
 Private sector corruption can increase the poverty and helplessness of the population, thus, it can affect
government corruption over the long term
 Principle of Subsidiarity – government service should be provided by the lowest, most local authority
that can completely provide it – which distributes the funds into multiple areas of government which
can discourage embezzlement as even small sums missing will be noticed.
 Centralized Authority – loss of funds are not easily noticeable since even minute proportions of public
funds can be large sums of money..

Governmental Corruption
 Neologism Kleptocracy – when the highest echelons of governments take advantage from corruption
or embezzlement from the state funds
 They can also take advantage of the natural resources like diamonds or logs
 They can also enriched themselves via foreign aid which are often spent on showy buildings and
armaments

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 Corrupt Dictatorship or Exploitive Dictator – typically results in many years of general hardship and
suffering for the vast majority of citizens as civil society and the rule of law disintegrate – and usually
and routinely ignore economic and social problems in their quest to amass ever more wealth and
power.

Campaign Contributions
 Politicians who receive campaign funds from some companies will of course be subject to public
scrutiny if they appear to be acting in the interests of those parties that funded or supported their
campaign.
 It is of course, difficult to believe that those organizations who help fund the campaign of certain
officials if they will not get anything in return.
 In the USA all politicians are required to disclose publicly the contributions they receive for their
campaign funds.
 France bans totally the corporate funding of political parties
 It also places maximum limits on political spending in order to prevent the circumvention of the
ban
 Those who exceed limits or have handed in misleading accounting reports risk having their election
to office nullified or being prevented to run in future elections
 Government also funds political parties according to their successes in elections
 Subscriptions or Membership Fees – main source of funds for political parties in some countries.

Measuring Corruption
 Corruption is very difficult, if not impossible to measure, due to its illicit nature and the imprecise
definitions of corruption
 Transparency International – an anti-corruption NGO seeks to measure corruption and currently
publishes three measures which are updated annually:
 Corruption Perceptions Index – is the best known of these metrics which is based on aggregating
third-party polling of public perceptions of how corrupt different countries are
 Global Corruption Barometer – based on a survey of general public attitudes toward and
experience of corruption
 Bribe Payers Index – looking at the willingness of foreign firms to pay bribes
 World Bank – collects a range of data on corruption which includes survey responses from over
100,000 firms worldwide and a set of indicators of governance and institutional quality
 Worldwide Governance Indicators – measures “Control of Corruption” which is defined as the extent
to which power is exercised for private gain, including both petty and grand forms of corruption, as
well as ‘capture’ of the state by elites and private interests.
 Millennium Challenge Corporation – adopts the datasets gathered by the Nationwide Governance
Indicators.
 Global Integrity and International Budget Partnership – a second wave of corruption metrics that aim
not to create awareness but to create policy changes via targeting resources more effectively and
creating checklists toward incremental reform.
 They each dispense with public surveys and instead uses in-country experts to evaluate the
opposite of corruption – that is defined as – the public policies that prevent, discourage or expose
corruption.

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