In developing states, honesty is the best policy

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News that SA fell in the Transparency International Corruption Perceptions index, to 69th place from 64th last year, has been greeted with concern. Many commentators interpreted the fall as evidence that corruption is increasing. But this is not necessarily so. Rankings can fall because other countries become less corrupt. Our own level of corruption could be improving, but if it does so more slowly than other countries, our ranking will drop. What matters most are changes over time in the levels of corruption. Are we becoming more or less corrupt?

The index gives a ranking and a score for each country. On a scale on which zero means highly corrupt and 100 implies the absence of corruption, SA’s score improved from 41 last year to 43 this year. Even though our ranking relative to other countries worsened, we are actually perceived to be slightly less corrupt than a year ago.

However, it is too soon to draw comfort from this, as some of the improvement in score may reflect methodological changes. Second, we are substantially below 50, the level at which corruption is perceived to become a significant problem. Third, corruption today is perceived to be substantially worse than in 2005, when SA scored 51.

If corruption is so common that it is seen as a significant problem in two-thirds of countries, should we worry about SA’s ranking? After all, 105 countries are perceived to be more corrupt than us. But even if you ignore the moral implications, don’t forget there are economic reasons for concern too.

Corruption means bribe takers obtain illegal financial benefits because of their positions of influence. Bribe payers obtain an unfair advantage over rivals. It would seem obvious that such actions must be socially and economically damaging. Yet some economists have argued that some degree of corruption may, in fact, be economically beneficial. This is because, in highly regulated states, where economic activity is severely hampered by bureaucratic obstacles, bribes may actually “grease the wheels” of an economy, bringing benefits that otherwise would be strangled by impenetrable red tape.

“Evidence” of this is seemingly found by comparing the performance of the Brics countries (Brazil, Russia, India, China, SA). China was ranked 80th and India 94th — far worse than SA and Brazil, which tie for 69th place. Yet, in terms of economic growth, SA and Brazil lag far behind China and India.

However, very high levels of corruption clearly damage growth. Russia is a growth laggard, along with SA and Brazil, and is 133rd in the rankings of perceived corruption, at which level corruption is so high it impedes growth anywhere.

While the relationship between corruption and economic growth is not as direct as one might expect, the very harmful effect of corruption is evident in other economic measures. The chairman of Transparency International noted in 2005 that “corruption is a major cause of poverty as well as a barrier to overcoming it”.

This is borne out in recent research by Rhodes University student Trevor Forster, which found a negative relationship between corruption and education attainment, as well as human development. It is the poor who bear the burden of corruption in a society.

The poor rely on the government for social goods and services such as education and health. In corrupt societies, a portion of the funds intended for service delivery is diverted to officials. This does not just mean that the cost of providing services increases: because resources are limited, it means the quantity (and usually quality) of services declines. 

Forster also found a positive relationship between corruption and political instability. In corrupt societies, the financial rewards of political power are immense. Politicians therefore cling to power because of the financial losses that will accompany departure from political office. At the same time, rival parties or factions in the ruling party desperately strive to gain power because of the financial rewards it will bring.

Finally, it should be noted that while corruption normally refers to actions that are illegal, it is possible that nominally “legal” actions have similar effects in the absence of clear regulations prohibiting ethically questionable action. Thus, in SA, the report by the auditor-general that three quarters of all government contracts in the Eastern Cape are awarded to government officials or their families, cannot be healthy.

Recent media exposés have shown unquestionably how this contributes to the shocking levels of service delivery in the province. It also adds to political instability by encouraging political infighting among the leadership, motivated by patronage rather than ideology.

For those committed to improving the lives of the poor in developing countries, honesty is always the best policy. Sadly, it seems too little honoured in practice.

  • Gavin Keeton is with the economics department at Rhodes University. This article was published on Business Day.