Corruption: The Economic Impact

Uploaded by CranfieldSoM on 28.02.2011

>>Steve Macaulay: Today we are going to look at the economic impact of corruption. It comes
in the week of ex-President Mubarak in Egypt allegedly stashing away millions and billions
Now, joining me in the studio today is Professor Joe Nellis. Now, Joe, what is the big deal,
some people say, corruption is what oils the wheels and anyway, it really isn’t a big
>>Joe Nellis: Well corruption may well oil the wheels of commerce, but there are huge
costs involved in allowing corruption to take place; and there are many aspects of this.
For example, bribing of public officials, well, that may lead to decisions that are
not the right ones for society. Tax evasion, itself – the whole bureaucracy, it can lead
to mistrust and even a loss in a foreign investment, loss of trade. And it widens the gap between
the haves and have nots; those who can afford to pay the bribes and to work in the corrupt
environment, they are looking after themselves – but what about the rest of society? There
are huge costs for all countries concerned resulting from corruption.
Let me just emphasise, corruption is not just in developing and poor economies – it is
everywhere. Tax evasion is a form of corruption.
>>Steve Macaulay: So, let’s examine this a bit more because you say it is universal,
it is everywhere – is it worse in some countries than others?
>>Joe Nellis: Yes, it is everywhere to varying degrees and it is difficult to measure it
– I should have said that at the outset. But we have got a report that comes out every
year, Transparency International, they produce a corruption perception index. This is based
on perceptions – how corrupt is a country, how many kick backs do they think are being
given. On that basis they rank most countries in the world, at least those they can record
and find evidence for.
At the bottom of the list – well, there are two categories. There are those that have
fallen the most over the last twelve months and those that tend to be at the bottom in
any case. And the ones at the bottom tend to be Somalia, Afghanistan, Iraq – perhaps
not too surprising – Myanmar is another one. They are at the bottom of the list historically.
Over the last twelve months, the ones that have fallen the most – not necessarily to
the bottom, of course – tend to be the ones that have gone through a financial crisis
and have perhaps had the most severe consequences. So Greece, Italy, the Czech Republic, Hungary
– even the USA has fallen down the list, although it is far from the bottom, of course.
>>Steve Macaulay: So let us look at bit more then at the damage this is causing and, aside
from any moral stance – and I know that a lot of people would take a moral stance
on this – what we are looking here is the economic consequences. Let’s unpack this
a bit more; can you say categorically that a country will be a lot worse off as a result
of corruption?
>>Joe Nellis: No, we can’t be definitive in that sense. There are no studies that look
at the macro economy as a whole; no study estimates the overall impact on any economy.
What we do have are a number of individual sector reports for individual countries. So,
for example, it may be that in a certain country, 20% of the rice goes astray – rice provided,
perhaps, by UN or some charitable organisation. Or 50% of trucks are overloaded and still
on the roads in certain countries because they are paying a bribe.
So we have no measure of the macro cost. But let me go back to what I said earlier; from
the viewpoint of foreign investment, you may say well, I regard corruption and bribery
as a cost of doing business, at the same time it may discourage – it will discourage in
many cases – honest companies from investing in those countries. In that sense it isn’t
just a short term cost in terms of jobs and investment, but it is about long term growth
prospects, it is about prosperity in the long run. I think that is the real cost here –
the trust, the confidence in that country as a place to do business.
And so, as we see the growth of globalisation, the growth of trade relationships in foreign
investment, certain countries are definitely losing out in that context, countries like
Myanmar for example. And of course, Afghanistan and Iraq are in a different situation, but
Somalia – these countries are losing out long term as well as short term.
>>Steve Macaulay: Now, any rational view would say right, what we need to do is to stamp
this out, but we all know that in reality that is extremely difficult isn’t it? Are
there countries that you can see that have demonstrably improved the way that they have
handled corruption and the benefits that has caused?
>>Joe Nellis: You are absolutely right, there are some countries that are flagships for
tackling corruption. Countries like Chile, for example, and Bhutan, Gambia, even Haiti
and Jamaica – a number of South American and Central American countries have pushed
ahead and are trying hard to fight corruption in its many forms. And the way they are doing
that – really this isn’t rocket science – it is encouraging their citizens just
to ask the simple questions, you know, where is my receipt? Why should I pay this bribe?
Reporting officials – and it is not just public sector, it is also private sector but
of course we tend to think of corruption in the public sector primarily.
So there are a number of countries absolutely leading the way; some in the Middle East as
well- Kuwait and Qatar – these are the countries that are reporting the most improvements in
their corruption perception index.
>>Steve Macaulay: So if we leave aside any kind of moral issues – and as I say, there
are plenty of people that would jump on that bandwagon – from a hard headed, economics
perspective, you would say you really need to tackle this, there are ways of doing it,
you need to get on and do it?
>>Joe Nellis: No question about this. Again, if I look at the rank list based on the corruption
index, the richest countries like Denmark, Finland, Sweden, Singapore – they tend to
be the top of the list. What that means is that they are the most trusted countries based
on perception of corruption.
Those at the bottom of the list tend to be the poorest countries. Now that is not a coincidence;
there is a direct correlation and causation, I would argue, between the most corrupt economies
and the poorest economies. And that itself is a cause, is a reason why we should all
fight the evil of corruption.
>>Steve Macaulay: Joe, thank you very much.
>>Joe Nellis: Thank you.