The transformation from poverty to affluence was widely heralded as the success of capitalism over communism and a demonstration of the success of liberal, free market principles. However, while the governments were ostensibly laissez-faire, in practice they were quite active in their economies.
It is within this context that the study of corruption in NICs is so fascinating.
The Amount of Corruption in a Country and Economic Development: Free Essay Example | EduZaurus
Despite bureaucracy within the market and widespread corruption, remarkable economic development prevailed. What remains unclear is to whether this was because of or in spite of corruption. Can some corrupt activities actually be beneficial to rapid development? In only focussing on economic development, just one facet of the multi-faceted issue of development, is addressed.
The reason for this focus is for reasons of brevity and that unlike aspects such as political or social development for which improvements or otherwise is harder to prove, economic development is more quantifiable. A holistic approach to development may yield different results and whilst recognising the importance of political and social aspects, economic development yields the clearest indicators for development.
Beginning with an analysis of the academic perspectives on corruption, this paper investigates South East Asian NICs to establish the impact of corruption on economic development. These countries have been chosen as they have to a great extent completed the industrialisation process and thus the impact of corruption is more readily and clearly identifiable.
Extensive reports of corruption in these countries make them well suited to investigation. I argue that corruption acts as a brake to development and that in the absence of corruption, even greater and sustained levels of development can occur. Additionally, I argue that all corruption is inimical to the process of sustainable development and suggest the Asian Financial Crisis is proof of this. There are various definitions and understandings as to what exactly constitutes corruption.
Although defining corruption in this way is convenient, it should not be considered a rigid framework for ruling what should or should not be considered corrupt. Different nations and cultures have differing conceptions of corruption; legally, in terms of public interest, and in public opinion. Perspectives on the costs and benefits of corruption can divided into those that perceive the benefits of corruption to be positive for development, and those that regard it as inimical to the development.
Leff argues that corruption is an extralegal institution used by interest groups to gain influence over the actions of the bureaucracy to an extent that would not otherwise be possible. This he suggests can be beneficial to development if business groups that would otherwise be at a disadvantage in articulating their interests to the government get an opportunity to do so. If these groups are more likely to promote growth than the government, an enhanced position in policy making could, he suggests, be beneficial to development.
Leff also suggests that governments may have other priorities rather than the pursuit of economic development such as the consolidation of armed forces. These are priorities which can impede development. In this instance the impact of corruption is a clear failure to achieve government objectives; instead producing inefficiency and waste. If corruption takes the form of a kickback, the total amount available for public purposes is reduced.
Corruption is sometimes compared in this way to a tax on investments and business.
However, Shleifer and Vishny note that because of the need to maintain secrecy, corruption causes a greater distortion in economic activity than taxation. For example, dishonest government officials may favour promoting government activities, where bribery is most easily concealed. Investments in developing countries can be particularly risky due to the unpredictability of the political and economic conditions.
The extensive role of the government in the economy means arbitrary decision making can be problematic for business for which maintaining consistency and judging long term economic trends is important. However, Mauro has demonstrated through empirical evidence that high levels of corruption are associated with lower levels of investment and GDP. In a corrupt environment, entrepreneurs are aware that bribes are required to ensure the release of required documentation needed to begin business and are consequently discouraged from investing. Additionally, a percentage of returns on the new enterprise may be claimed.
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Businesses want secure investments but adding corrupt rent-seeking bureaucracy may not be effective in securing the political conditions; investors would simply prefer a non-corrupt environment in which to invest. In an undeveloped society, potential entrepreneurs may be discouraged from investing and innovating due to the barriers of entry created by existing products and processes.
In this environment, bribery could provide innovators an opportunity to obtain elusive government licenses and permits. Baumol argues it is not always productive; it may even have a destructive impact on economies where parasitical activities damage the economy. Corruption misallocates potentially beneficial talent to corrupt activities and distorts investment priorities. Where the informal, black market and corruption is more financially rewarding than the formal economy, a brain drain effect could occur. Rather than highly talented and educated individuals aiding development they will prevent potential development from taking place.
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The Amount of Corruption in a Country and Economic Development
Kickbacks and Warning Signs They Might Be Happening A kickback is an illegal payment intended as compensation for favorable treatment or other improper services. Facilitating Payment A facilitating payment is a financial payment that may constitute a bribe and is made with the intention of expediting an administrative process. Command Economy Definition A command economy is a system where the government determines production, investment, prices and incomes.
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