Corruption remains to be a major concern in developing countries. Corruption is the main reason why some countries are still far behind in the economy. It is not because they do not have the resources or they cannot develop. Corrupt officials take bribe and use it for their private gain rather than going by the rules and using it for the public. If corruption persists then the public will not gain anything and the economy will not grow.
Money gained from corruption is accounted in the unofficial economy. As the size of the unofficial economy of a country increases it makes it more difficult for the economy to grow. It is so because, all the money that is supposed to be used for the welfare of the people and helping the country to grow its economy is pocketed by corrupt government officials. That money instead of being used for the sake of the public is pocketed by government officials. This is not it, they receive bribes to decrease the tax as well. This results in greater loss for the government making it even more difficult for the country to develop. Corruption now is deep in the roots of many systems in various countries in the world. If this continues, it is not only bad for that specific country but is also dangerous for the whole world because the unofficial economy will continue to grow and all the money that can be used for development will be lying in the same place and will not be used at all.
So, for a country to develop and to help it grow its economy, corruption should be eradicated from its system completely. This report shows the impact of corruption on the economy and various methods have been discussed by which corruption can be eradicated.
2. INTRODUCTION
Corruption is generally defined as the use or abuse of public office for private gain. From an economic point of view, undesirable consequences of corruption involve increases in the costs of legal dealings and distributional concerns associated with favouring the rich. The World Bank estimates that globally about $1 trillion in bribes are paid out each year - a fairly substantial figure, given that the total size of the world economy in 2001-2002 was $30 trillion. The United Nations and The World Bank have made corruption control a significant focus of their agendas and continue to fight against corruption. Some people view corruption as "Grease Money" that lubricates the squeaky wheels of rigid bureaucracy and commerce or as an internally generated price mechanism that corrects the imbalance and restores optimal allocation in the market, but most view it negatively. Studies show that corruption reduces investment, increases the size of the unofficial economy and is associated with lower levels of human capital, financial depth and foreign trade. When expressed in percentage for every 1% increase in the corruption level the growth rate reduces by 0.72%.
Statistics shows that in Latin American countries and transition economies the unauthorized economy accounts for a larger share of the GDP where there is great bureaucratic inefficiency and discretion, where firms experience a greater tax and prevailing burden, as well as more bribery and corruption. The unofficial economy is also much larger where there is less state takings and where the rule of law is weak. Findings advise that countries with a larger unofficial economy tend to develop slower.
Corruption is a topic that has soared in importance in the development of the community in recent years. It can be endogenous to political structure. Thus, corruption can be systemic and planned rather than being decentralized and coincidental. Corruption, particularly political or "Institutional" corruption, distorts the entire decision-making process connected with public venture schemes. The level of distortions is higher with weaker auditing institutions. Corruption lowers investment and retards economic growth to a significant extant, misallocation of talents, loss of tax revenue, and decrease in the quality of infrastructure and public services. These are just some of the consequences of corruption. If certain reforms are not made, corruption is expected to persist to be a problem regardless of actions directly aimed at it. This report assesses how institutionalised corruption reduces the economy growth in developing countries and does not help in driving the economy in developing countries. How corruption can be eradicated from the system and how the economy will benefit if corruption is eliminated from the system.
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3. ISSUES AND IMPACTS
The key issues are identified for the current issue and the factors causing them are mentioned as follows
3.1 Political Corruption
3.2 Effect on Investment
3.3 Corruption and the Unofficial Economy
3.4 Effect on Economy
3.1 Political Corruption
The revelation of political corruption often sends shockwaves through a society. Despite the strong demands for justice, famous world leaders who are suspected of dishonesty prove difficult to accuse or convict. Many leaders are out of office or dead before their crimes come into light. Corruption mainly affects common people or the general public. Research shows that if citizens could try and eliminate corruption from just one institution at least, then more would choose to clean up political parties than from any other institution. Business people, now, have also started to sense the effects of political corruption. A study by the World Economic Forum shows that people believe that legal contributions have a high impact on politics, that corruption does feature as a regular means of achieving policy goals in about 20 percent of the countries reviewed, and that unlawful political donations are a standard practice in almost half of all the countries surveyed. Corruption in political finance takes many forms, from the use of donations for private improvement to the abuse of state resources. Money matters for democracy because much of democratic political activity simply could not occur with it. The misuse of money in politics, mainly when it reflects fraudulent practices, creates major problems for democracies-not least because it threatens democratic principles of equal justice and fair representation.
Once corruption is treated as endogenous to the political system we must address the issue of how corruption changes in changing political condition. This requires further clarification of the term corruption.
3.2 Effect On Investment
Corruption lowers the economic growth in poor countries, impede economic development, and undermine political instability. In developed countries, the economic effects may be not so harsh; however, even in rich countries preoccupied resources will not be available for improving living standards. Corruption can undermine political legitimacy in industrialized democracies as well as in developing ones by alienating the citizenry from its political leadership and making effective government more difficult. Corruption may have the most damaging effects in countries that are in transition, such as Russia, where, if left unimpeded, it could weaken support for democracy and a market economy.
Corruption tends to hurt innovative activities because innovators need government-supplied goods, such as permits and import quotas, more than recognized manufacturers do. Demand for these goods is soaring and rigid and hence, they become primary targets of corruption. Moreover, innovators have no established lobbies and connections so that they are subject to particularly heavy bribes and expropriations. Furthermore, unlike reputable producers, innovators are usually credit-constrained and cannot find the cash to pay bribes. This will decrease the chances for private investment and, hence, the stock of producible inputs in the long run. People's talent and effort will be allocated to rent-seeking activities instead of productive investments, e.g., accumulating capital, knowledge, and skills. Moreover, corruption favours a particular class of people and creates inequality in opportunities in addition to the shrinking of opportunities due to productivity retardation, inequality in opportunities, which is similar to income and wealth inequality, will lead to frustration and socio-political instability.
3.3 Corruption and the Unofficial Economy
Let us consider the allotment of labour between the official and the unofficial sectors of the economy, the government forces taxes on the official division and provides public goods from the tax revenues. These public goods boost the efficiency of firms in the official sector. The illegal sector does not pay authorized taxes, but it doesn't have access to the public goods given by the government either. Instead, it pays fees to private safeguard agencies to provide some public goods, such as shield from thieves and contract enforcement. Such a turn down in the government revenue leads to weakening in the supply of public goods.
The "unofficial economy" consists of such action that is not reported to the state office. It may vary from the economy which is not proofed in official statistics, however, since central statistical offices make some variations for these underreported activities in the unofficial economy. Estimates were based on the escalation of total electricity consumption to compare total output growth and illegal activity across countries. Measured GDP by definition confines only the official part of the economy.20121023_Gray1.png
3.4 Effect on Economy
Existing evidence shows that African countries exhibit higher levels of corruption when compared to other countries. Which is a major constraint to the efforts made to accelerate the growth in order to achieve internationally and nationally mandated development goals. Corruption dampens private venture by raising indirect production costs because corruption acts as a tax on investment by raising the concern of returns on capital in the future. Corruption also has a pessimistic effect on the efficiency of public investment as corrupt officials give priority to projects that create higher bribe and political gains over projects with higher social income (positive impact on the economy).
Research shows that corruption daunts venture let it be domestic investment or foreign direct investment, because the a range of forms of takings and contract costs due to corruption increase uncertainty over the returns to capital and raise the cost of manufacture, which eventually lessen profitability. Study shows that the effects of corruption on investment are quantitatively large. For example, one standard deviation in the fraud index raises private venture by as much as 2.5 percentage points. This in turn directs to GDP increase by about 0.34 percentage points.
Corruption also reduces growth by unfavourably affecting both the quantity and the quality of public venture. Corruption corrodes effectiveness in decisions regarding public investment, especially by inducing preference for large projects with potential for large private gains for the policy makers. Data supports this prediction of a positive correlation between public outflow and corruption. Also, corruption causes a partiality in favour of new projects to the harm of preservation expenditures. The inclination for new projects is motivated by the pursuit of higher earnings. The rent-seeking spurs generate a positive correlation between corruption and the measure of public investment and a negative correlation between corruption and the quality of public investment.
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4. CRITICAL ANALYSIS
There can be many reasons for corruption, now we will use data from many countries to examine the role of historical factors, geographic influences on corruption, and government on corruption. We will mainly consider the role of the government intervention in the economy, in terms of both size and scope, in great detail. Some country specific factors such as the geographic size of a country affect corruption. Larger geographic expanse of a country will affect the incentives for engaging in corrupt activities as well as the governance of such acts. Countries that are spread out will be more susceptible for corruption for mainly two reasons. First is that it is difficult to monitor government officials in a geographically large location. For example let us consider the challenge of monitoring two potentially corruptible civil servants working for a customs department. One employee is posted at a remote border crossing, and the other works in the central office in the country's capital. Every other aspect being the same, the officer who is stationed in a remote border crossing is more likely to take advantage of his/her discretionary control than his/her counterpart in central office. The second reason is that when an employee is isolated. That is when only the employee is not being bribed he/she gets a potential threat of colleagues telling on them can act as a restriction for clustered corrupted employees. History also plays a major role in shaping the cultural norms that dictate corrupt acts. Bribe giving and bribe taking may be acceptable in one country, while frowned upon in another country. That is bribing has long been in the country that now it has become a system. These are the major reasons behind bribing.
The following figure, shows, who bribe the most to get and keep a business.
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Now, let us review some fresh studies that methodically examine the consequences of corruption on the economic development. First we will look at domestic investment. Let us take up a story from the China Youth Daily. Huang, a 36 year old farmer soldier was a private business owner in Guangxi province's Fangchenggang City in Southwestern China. After he left the army, he thought he would start up a restaurant business. After putting in long hours of his and his family's hard work his restaurant "Changxin Restaurant" had developed a good reputation and even won the official honorable designation from the country government. This is where the trouble began for Huang. Bureaucrats and their relatives loved the restaurant. They paid numerous visits over the years, sometimes in the name of inspection. The problem was that they did not pay the bills. In a short period of time the County government of Tanying, where the restaurant was located, had to pay him close to 89,000 Chinese yuans in unpaid bills. In a couple of months burdened by his dues Huang had to close his restaurant. This is just one of the many stories that have been affected by corruption. If corruption is institutionalized and is a part of the system there can be even more severe effects on the public which will reflect on the economy. Numerical evidence shows that if Philippines could trim down its bribery level to the level of Singapore and everything else being equal, it would have been able to raise its investment/GDP ratio by 6.6 percentage points. This is quite a significant increase in the outlay.
In foreign direct venture examining a data set of foreign direct investment from fourteen main source countries to forty one host countries shows, Wei, shows clear evidence that bribery in host countries puts off foreign ventures. The coefficients on corruption and host country marginal tax rate are -0.09 and -1.92. The study also suggests that if India could reduce its corruption level to the level of Singapore, its outcome on attracting foreign investment would be the same as reducing its marginal corporate tax rate by 22 percentage points. Asian countries usually offer large tax incentives to lure in multinational firms to locate in their countries. The research also advocates that these Asian countries would have fascinated just as much or even more foreign venture without any tax incentive if they could get domestic corruption under control.
If it is said that corruption trims down domestic investment and reduces a investment from outside, one would think that it would also reduce the fiscal growth rate. A study conducted, examined how the undecided growth rate (that is, the rise rate given the country's beginning point and population size) is affected by bribery. And it was found that the relationship that as the domestic investment and foreign investment decreases the economic will reduce as well. This supports the view that institutional corruption does not help drive the economy in developing countries and instead destroys the economic growth in developing countries.
The following graph shows the ratings of the anti-corruption group Transparency International- raging from zero to ten, with zero the most corrupt- again per capita income. This was obtained from the World Bank's World Development Indicatiors database.
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5. RECOMMENDATIONS
5.1 Political Leadership be Dedicated
5.2 Anti-Corruption Agency
5.3 Review Procedures Periodically
5.4 Privatizing Utility Companies
5.1 Political Leadership be Dedicated
The political management of the country must be genuinely committed to the abolition of corruption. They must exhibit typical demeanor, take on a humble life-style, and avoid indulging in corruption behavior themselves. Anyone found guilty of bribery should be punished severely not considering his/her position or rank in the society. If the "big fish" (a person who is rich and celebrated) are protected from being put on trial for fraud, and only the "small fish" (common people) are caught and executed (similar to China and Vietnam), the anti-corruption policy will lack consistency and is unlikely to succeed.
5.2 Anti-Corruption Agency
To battle corruption efficiently, plenty anti-corruption measures must be employed as incremental willpower will not be sufficient. A successful complete anti-corruption policy consists of full anti-corruption laws and a non-corrupt and self-governing anti- corruption agency. The anti-corruption legislation must be inclusive to prevent loopholes and must be from time to time reviewed to introduce appropriate modifications whenever required. The anti-corruption agency (ACA) must itself be morally upright. To ensure this, it must be controlled or supervised by a political leader who is incorruptible. The ACA must be employees and honest and able personnel. Any staff member found responsible of corruption must be punished and discharged from the civil service. The ACA must be removed from police jurisdiction as its position within the police stops it from functioning effectively, especially when there is a common police corruption.
5.3 Review Procedures Periodically
To reduce the chance for bribery in those government divisions which are open to to corrupt activities, divisions should review their procedures periodically in order to reduce the chances for corruption. The motivation for corruption among civil servants and political leaders can be reduced by ensuring that their pay and fringe settlement are competitive with the private segment. However, governments might not be able to increase unless there is economic growth and ample financial income. The total consequences of low civil service salaries are critical as capable civil servants will leave to join private corporations for higher pay, while the less capable will remain and surrender to corruption to supplement their low salaries.
5.4 Privatizing Utility Companies
Privatizing utility companies will reduce bribes. One explanation for this is that private owners might have a greater incentive than public managers to impose stiff penalties upon employees taking bribes, reducing bribe payments. When a company is privatized, the owners become outstanding applicants on the income of the company, giving them a large incentive to reduce corruption. In contrast, under public ownership, it is often clear who the residual claimants are and who will gain from reducing corruption. Also, profits are the property of the general public in theory, individual of the public has little incentive to monitor the employees of the utility company. Since privatization will raise the marginal benefit of monitoring employees without affecting the marginal fee, privatization will increase the optimal amount of monitoring, and thus reduce the extent of bribes.
6. IMPLEMENTATION PLAN
I would like suggest few implementations and possible timelines which are set to achieve current and long term issues, based on the recommendations made in this report.
In the current implementation plan I would like suggest what can be done to eradicate corruption and which will in turn help in the growth of economy in developing countries.
A public officer should not be allowed to borrow money from, or in any way put himself/herself under a financial obligation to any person who is in any way under his official authority or has official dealings with him/her.
A public officer should not be allowed to use official information to further his private interest.
The public officer should be made to declare his assets at his first appointment and subsequently annually.
Complaint boxes can be kept in every civil services office. And a separate team can be assigned to look after and follow the complaints that are received. Actions taken against the complaints should be fast.
A special anti-corruption agency should be formed to take action against corrupted officials. This agency should be a standalone one and should not be answerable to anyone except the President of the country or the Prime Minister.
These are the action plans that should be taken to prevent corruption in the short term as well as the long term. If a public officer is found to be guilty these actions can be taken against him/her.
The person who is convicted of a corruption offence should be fined heavily and or be imprisoned. The bribe giver should also be punished. This will make the public to hesitate to give bribe.
If the officer is convicted of public charge he/she can receive one of the following punishments depending on the severity.
Dismissal from service
Fine
Reduction in rank
Retirement issued in public interest
7. CONCLUSION
The report suggests that in a country where there is corruption and bribery the economy rate tends to decline. If the culture of corruption continues in developing countries and is not removed from the system then the rate of economy growth will be very low. On the long run it will affect the economy badly. Once corruption gets deep into the system it will be very difficult and will take a long time to eradicate it completely from the system. This will not encourage foreign investments or domestic investments as well.
In view of Myanmar, this is the time when all foreign countries are looking to come in to Myanmar and are ready to invest in the country. At this time if corruption persists then it would make it difficult for foreign investment. If there is no foreign investment into the country then it makes it difficult for the economy to grow, taking into consideration that the economy of Myanmar is still developing and is not very strong. Unless corruption is not eliminated from Myanmar it will be difficult for the economy and as well as the country to grow.
