Corruption destroys human prosperity
Re: How we can fix this problem
In response to this letter, I’d like to share with your readers an article by Augusto Lopez-Claros titled “Nine Reasons why Corruption is a Destroyer of Human Prosperity.” The article reads:
(1) Corruption undermines government revenue and, therefore, limits the ability of the government to invest in productivity-enhancing areas.
When corruption is allowed to flourish taxpayers will feel justified in finding creative ways to avoid paying taxes or, worse, become bribers themselves.
Money that leaks out of the budget because of corruption will not be available to lighten the burden of the poor.
(2) Corruption distorts the decision-making connected with public investment projects.
Large capital projects provide tempting opportunities for corruption.
Governments will often undertake projects of a larger scope or complexity than warranted by the needs of the country.
Public investment will thus be higher—the world is littered with the skeletons of white elephants, often built with external credits, and representing a heavy burden on meager budgets.
(3) The higher the level of corruption in a country, the larger the share of its economic activity that will go underground, beyond the reach of the tax authorities.
Corruption undermines foreign direct investment since it acts in ways that are indistinguishable from a tax.
Investors will always prefer to establish themselves in less corrupt countries.
(4) Corruption discourages private-sector development and innovation and encourages inefficiency.
Budding entrepreneurs with bright ideas will be intimidated by the bureaucratic obstacles, financial costs and psychological burdens of starting new business ventures and will either opt for taking their ideas to some other less corrupt country or, more likely, desist altogether
(5) Corruption contributes to a misallocation of human resources.
To sustain a system of corruption, officials and those who pay them will have to invest time and effort in the development of certain skills, nurture certain relationships, and build up a range of supporting institutions and opaque systems, such as off-the-books transactions, secret bank accounts, and the like.
(6) Corruption has disturbing distributional implications.
Corruption actually contributes to worsening income distribution.
Corruption lowers economic growth, pushes up income inequality.
Corruption also distorts the tax system because the wealthy and powerful are able to use their connections to make sure that the tax system works in their favor.
(7) Corruption creates uncertainty.
There are no enforceable property rights emanating from a transaction involving bribery.
This uncertainty is partly responsible for a perversion in the sorts of incentives that prompt individuals to want to seek public office.
Where corruption is rife, politicians will want to remain in office as long as possible, not because they are even remotely serving the public good, but merely because they will not want to yield to others the pecuniary benefits of high office.
(8) Because corruption is a betrayal of trust, it diminishes the legitimacy of the state and moral stature of the bureaucracy in the eyes of the population.
While efforts will be made to shroud such corrupt transactions in secrecy, particularly when the opportunities for bribery are linked to some government-inspired initiative, the relevant details will leak out and will tarnish the reputation of the government, thereby damaging its credibility and limiting its ability to become a constructive agent of change. Corrupt governments will have a tougher time being credible enforcers of contracts and protectors of property rights.
(9) Bribery and corruption lead to other forms of crime.
Because corruption breeds corruption, it tends soon enough to lead to the creation of mafias and organized criminal groups who use their financial power to infiltrate legal businesses, to intimidate, to create protection rackets and a climate of fear and uncertainty.