The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

The economic cost of corruption
Transparency International has ranked Sri Lanka as one of the most corrupt countries. We have achieved the unenviable rank of the 66th least corrupt country together with China, Panama and Syria. We have scored only 3.4 of maximum 10 points for honesty. The Transparency International's ranking is based on the perceptions of academics, business leaders and risk analysts of corruption among politicians and public officials.

Transparency International has only confirmed the perception that people have of an increasing trend in corruption in the country. This widespread public view is based on experiences of transactions with the government. The public perception is one of most politicians and officials being corrupt.

Civil society has turned cynical about corruption. People have more or less accepted corruption as a way of life. This attitude is indeed tragic, as the best protection against corruption is the vigilance of civil society.

At one time corruption was deemed inevitable in a developing economy. A little bit of corruption, it was said, is necessary to grease the wheels of the economy. There was even a contention that corruption enables faster economic growth. These ideas have been rejected. That is why Transparency International monitors the levels of corruption around the world.

The concept of "good corruption" is unacceptable. Corruption retards economic growth. Recent studies have pointed out that corruption has been the single most significant factor for economic decline. Corruption destabilizes economies, retards long-term economic growth, distorts economic decision-making and increases public expenditure. Ultimately the costs of corruption have to be borne by the people.

One of the underlying causes of the Asian Economic Crisis of 1997-98 was corruption in many areas of economic activity. Philip Segal, a Hong Kong-based journalist has argued that "once corruption takes hold, these economies (Hong Kong and Singapore) have found, it can rage out of control and threaten the entire fabric of a society, weakening development prospects in a disturbing, dangerous way."

These two countries, which were once corrupt, have reformed themselves and thereby been the beneficiaries of the change. Singapore and Hong Kong have been transformed to such an extent that in 1998 Transparency International's Corruption Perception Index placed Singapore above the United States.

In the latest Survey, Singapore has been placed as the fifth least corrupt country in the world and the least corrupt country in Asia. It is ahead of many European countries. Singapore's exemplary anti-corrupt character, particularly the very high integrity among civil servants, is well known. Singapore boasts of a high code of ethics, regulations and high salaries for public servants. No doubt the high level of honesty is one of the contributory factors for Singapore's economic success.

Corruption can be particularly disadvantageous to economies like ours that have a high dependence on foreign investment and trade. If corruption is in agencies that are directly involved in foreign investment and critical areas of infrastructure development, the damage is likely to be even more serious. Foreign investments and the development of new energy sources have been seriously affected by political and official corruption.

Foreign investors look to countries that have transparent systems and officials with whom they could deal openly and honestly. Where corruption is known to exist investors are hesitant to come in as it is often difficult to cope with the nuances of corruption in a country and their efforts could be costly in terms of effort, time and money.

The importance of being honest is being increasingly recognised. Allegations of corruption have been levelled at ministers, high officials and persons who deal with day-to-day affairs in government offices. The transaction costs of many activities are a high cost to clients. Persons in high positions have been accused of corruption, charged before the Bribery Commission and little else has happened.

Today the Bribery Commission is in limbo. If the levels of corruption in our society are to be brought down, there must be a far greater sense of urgency and recognition that it affects the economic performance of the country.

Corruption has an economic cost. Vital decisions could be distorted to the detriment of the economy. Corruption could lead to a whole range of economic decisions being taken at colossal costs to the economy. The economic distortions that such corruption may entail are immeasurable. The Government must lead by example while Civil society must recognise the need to eradicate this evil and bring pressure to bear on the government to take effective measures to check corruption, particularly in high places.

The media must be relentless in their search and exposure of corruption. Corruption is costly to the economy. It is like a cancer that could corrode the efficiency and capacity of an economy. We cannot expect to achieve high rates of economic growth and economic stability while being a corrupt society.

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