The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Bribery and corruption stifles economy
Accusations of bribery and corruption among politicians by politicians just prior to elections are farcical. The manner in which these charges have been revealed has shown the scant seriousness of the issue among politicians. The opposition had done nothing about it till the elections were called. Further the charges of corruption against the previous government lay dormant.

The Bribery Commission had ceased to function for sometime owing to the behaviour of the self-same politicians who are making charges before an impotent Commission. Yet this melodrama has exposed the corrupt nature of our society. Whatever the merits of the specific allegations, they point to widespread corruption in our body politic.

These have serious consequence to the economy. A root cause of bribery among politicians is the vast expenditure they have to incur at elections. The laws that limit election expenditure are only observed in the breech. Politicians, who begin their career as honest, end up as corrupt, as they have to incur huge expenditures to retain their seats. The public perception is that bribery and corruption have increased in the latter years of the last regime and during the current one. The public is of the view that most politicians and many key officials are corrupt. This public perception of a high incidence of corruption has been confirmed by the ranking of Sri Lanka as one of the most corrupt countries in the world.

Transparency International has placed Sri Lanka as the 66th least corrupt nation. We have achieved this unenviable rank together with China, Panama and Syria. We have scored only 3.4 of a 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. Corruption retards economic growth in numerous ways. Recent studies have pointed out that corruption has been the single most significant factor for economic stagnation. Corruption delays as well as distorts economic decision-making, increases public expenditure, results in faulty construction, especially of large projects and retards long-term economic growth.

Corruption reduces government revenue owing to officials exempting or levying lower duties and taxes from individuals and companies for lesser costly bribes. 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. 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, especially in the financial sector and public construction work. The vitiation of the regulatory and prudential regulations was an underlying reason for the financial crisis in Asia in 1998.

Corruption can be particularly disadvantageous to economies like ours that have 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 drawbacks are even more serious. When corruption is recognized to be pervasive foreign investors are diffident as it is often difficult to cope with the nuances of corruption and their efforts could be costly in terms of effort, time and money.

Foreign investors look to countries that have transparent systems and officials with whom they could deal openly and honestly. Foreign investment in infrastructure development and the expansion of energy sources, in particular, may have been seriously affected by political and official corruption in Sri Lanka.

When corruption is rampant and widespread it can threaten the entire development effort and ruin development prospects. Allegations of corruption have been levelled at cabinet ministers, high officials and persons who deal with day-to-day affairs in government offices. The transaction costs of many activities are costly 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 economic performance. 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 tragedy is that 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. Despite the public perception that corruption is pervasive among politicians, civil society appears to ignore this at elections. So the current wave of accusations may have little effect.

Each time an election is called for there are charges of corruption and promises to rid the country of corruption by the new government. Recent experience shows that governments have done nothing substantial to check corruption. In fact those vociferous about others corruption may have skeletons in their cupboards. The only solution for tracking bribery and reducing corruption is to set up effective machinery free of political interference.

The institutional capacity to deal with bribery must be strengthened after the election. That is a hope that goes against recent experience. Leaving the monitoring and punishment of bribe takers in the hands of politicians, when they themselves are the dishonest and the accused, is like leaving the guardianship of thieves to their mothers.

Back to Columns