11 February, 2006

Wolfgang Kasper, emeritus Professor of Economics at the University of New South Wales, and a Senior Fellow at the Centre for Independent Studies in St. Leonards (NSW, Australia), has recently published a new study on the negative impacts of corruption on development. Its title says it all: „Make Poverty History: Tackle Corruption“. His most important findings concerning sustainable development:

Most Third World and many ex-communist regimes are graft riddled. The development experience over the past half-century shows that poor economic growth is not the consequence of a lack of natural resources, capital or other resources.

Ruling priviligentsias frequently draw on nationalist and socialist sentiments to defend their privileges and to combat openness and transparency. Anti-globalisers now lend them support.

Countries with poorly protected private property rights, over-regulated markets, and a poor rule of law tend to suffer more from entrenched corruption. Rich natural resources, notably oil and gas, facilitate corruption and hence political instability, and possibly even government failure. This is a serious concern for the West, which will for some time yet depend on resource imports.

Foreign aid also tends to facilitate corruption. Attempts to improve accountability in foreign aid, though costly, are becoming more common, because simply disbursing aid to kleptocratic regimes has debased the institutions essential for economic growth and has entrenched corrupt elites.

A policy of debt forgiveness, official foreign aid and ‘fair’ (rather than free) trade tends to support those corrupt regimes which oppose economic and political reforms.

All economies that have failed to grow have in common that poor rules of coordination of social and economic life—institutions—stood in the way of saving, investment, resource exploration and other entrepreneurial efforts to mobilise productive forces.

The morality of corruption control, which the writers of the 18th century European Enlightenment emphasised, has apparently not yet been widely understood in most of the Third World. Corrupt practices are still “steeped in local tradition and culture... They are, moreover, at the core of the.... political system .... [Reforms] can potentially threaten the interests of the wealthy and powerful elites”. [Francis Fukuyama]

The desire for economic growth motivated policymakers in the Third World and elsewhere to institute the rules of a free, open economy and to invest in education. As a materially secure middle class emerged, political freedom was seen as highly desirable, and newly affluent generations began to stand up to traditional corruption. With a growing economy and a broader tax base, governments were able to pay civil servants better, which also helped to reduce corruption. This happened not only in Singapore, Hong Kong, Taiwan, and Korea, but is also happening to some extent in Chile, Mauritius and Botswana, countries that are graduating from the Third World to the First.

Those who tolerate or even promote corruption debase the institutions, which are an essential condition for economic growth. They perpetuate poverty, injustice and misery. Competitors, who rely on corruption to promote their business, betray the fundamental conditions of the market economy, for the modern division of labour depends on the exploitation of what people know, and not on who offers the biggest bribes.

The great challenge now is to persuade traditional and new elites in other developing countries that economic growth requires not only institutional reform (the shaping of those rules that underpin economic freedom), but also a decisive attack on corruption (the transparent, even-handed application of these rules). This is not easy because the takeoff into economic growth typically brings new opportunities for corrupt dealings, and bureaucracies multiply, creating regulations which offer still more such temptations.

Read the full paper at www.cis.org.au