Business and Corruption
1. In what ways is corruption a problem for economic development, social well-being, and prosperity? Unlock the mechanics of corruption.
Empirical evidence shows that corruption causes inefficient allocation of public funds and resources; inefficiency of corrupt financial flows in terms of the country's economy; loss of taxes when tax authorities arrogate to themselves a part of taxes; lost time due to obstacles, reducing the efficiency of the state apparatus as a whole. It also results in bankruptcy of private entrepreneurs; reduced investment in production, the economic slowdown; lowering the quality of public services; inappropriate use of international aid into the developing countries, drastically reducing its effect. It is also bringing about inappropriate use of abilities of the individuals: people spend time on unproductive rent seeking; growth of social inequality; strengthening of organized crime - transformed into a mafia gang; damage to the political legitimacy of power; decline of public morality.
In a highly corrupt bureaucracy, most public resources are consciously directed into channels where they are the easiest to plunder or where it is easier just to collect bribes. Policies of the ruling elite become directed on suppression of corruption control mechanisms: freedom of the press, independence of the justice system, competing elites (the opposition), and then the individual rights of citizens (Hess and Dunfee 593).
Therefore, some people say that there are cases where the behavior and appearance of a person is a signal for law enforcement authorities to detain a person in order to extort bribes. There is also a view that to corruption there is acceptable tolerated attitude. According to one argument, in the history of many countries (Indonesia, Thailand, Korea), there were periods when the economy grew at the same time with corruption. In another argument, bribery is only the implementation of market principles in the activities of state and municipal structures. Thus, the tolerant attitude towards corruption is acceptable in an economic boom or until it does not affect the efficiency of the overall market. Critics of this view argue that due to the above reasons, countries with high levels of corruption after a period of growth are at risk of losing stability and fall into a downward spiral.
As soon as the state eradicates corruption, the cost of fighting corruption increases, so that for a complete elimination of corruption there will have to be spent endless efforts. Comparing losses from corruption and the cost of eradication of corruption for each of its levels, it is possible to find the optimal level of corruption, reflecting the lowest total loss. Furthermore, overreliance on the fight against corruption to the detriment of the cause of pain can deprive administrative system flexibility, and the population of civil liberties. The ruling group can use punitive legislation for control strengthening over the persecution of political opponents and society (ICC et al. 3).
Corruption also results in multibillion-dollar losses in terms of international trade. This became one of the reasons for the growth of the international interest in the problem of corruption in recent years. Therefore, the U.S. exporting firms claimed that they often lose lucrative contracts because the law does not have the right to pay bribes to foreign officials. In contrast, in most OSCE countries, bribes to foreign partners were not only not forbidden, but could even be charged with the payment of income taxes. For example, in German corporations such costs amounted to about $ 5.6 billion per year (Emerson 194). The situation changed only at the end of 1997, when the OSCE countries signed the "Convention on Combating Bribery of Foreign Public Officials in International Business Transactions." Pursuant to the convention in the coming years have passed laws explicitly prohibiting national companies to bribe anyone whatsoever.
2. What are the main difficulties (behavioral, institutional) in the fight against corruption?
In any country, political and ruling elite, government officials at various levels have in possession all existing forms of criminal behavior. However, when people say that "politics is a dirty business" or "power corrupts people," there is primarily supposed functional immorality, illegality or criminality officials.
Analysis of the fight against corruption in individual countries indicates a huge gap between the stated principles of equality of all citizens before the law and actual practice of criminal responsibility. A noticeable shift in criminal legal control of the criminal power, intelligence and wealth and to poverty crime, primitivism and poorly adapted subjects from the crimes of the ruling elite to service members and crimes committed by the people to manage it.
The magnitude of these strains shows the extent of national hypocrisy in one country or another. Corruption, its scope, specificity and dynamics is a consequence of the general political, social and economic problems of the country. Corruption is always increased when the country is in the stage of modernization, not just going through the modernization and revolutionized public, state and economic foundations. It is not surprising that it should be the general laws of development, including – negative (Rose-Ackerman 1893).
In circumstances where the state is on the verge of spiritual and financial bankruptcy, more corruption leads to a further weakening of the institution of state power, a skeptical attitude towards it citizens, forms popularly social passivity, demoralizing society, arousing in aggressiveness. The current crisis is a crisis of relations between people and power. Corruption is not only a kind of crime, but also the factor that contributes to the merging of criminal networks with the executive and the legislature systems, the penetration of organized crime in the sphere of management of banking business, large-scale production, trade organizations, the media, and other spheres of public life.
Organization and carrying out privatization, creation of investment privatization funds that rob people show significant scale of corruption of officials who cannot and do not want to think about the economic security of our citizens. This was confirmed by subsequent cash stage of privatization, in which there was a new kind of abuse - speculative attacks whose purpose is tax evasion and a focus on foreign investors. This leads to yet another collapse of the national currency, the shares of which will seek to get rid of the management case, as excessive burden will be easy prey for criminal business.
3. How can business leaders contribute to fighting corruption?
Today there are no known methods in pedagogy and management, which would guarantee that the person could be an ideal officer. At the same time, there are different countries around the world with low corruption levels. There are also examples in history, where actions initially aimed at corruption reduction, have resulted in significant advances in Hong Kong, Singapore, Sweden, Portugal. Thus, there are effective ways to combat corruption.
In addition to the government dissolution, there are three approaches possible to fight corruption. First, it is required to make coarser the laws and their realization, in this way increasing the risk of punishment. Second, people can create economic options to officers to increase their income without breaking the rules and laws. Third, increasing the role of markets and competition, thereby reducing the size of the potential profit from corruption. Also applies to last competition in the provision of public services, provided duplication among public authorities in other organs. Most positively proven methods are related to the internal or external oversight mechanisms.
Internal control includes internal mechanisms and incentives that exist in the administrative apparatus, with clear performance by standards officials of their duties and strict supervision over each serving. To ensure observation there are often secrete special controls that operate autonomously. For example, law enforcement is often subject to the chief executive, as well as the bureaucracy, but at the same time retaining considerable independence.
Internal controls was the main way to fight corruption in the monarchy period of absolutism and still maintains high efficiency. In particular, Machiavelli believed that in monarchies, ruling with the help of servants, corruption is less dangerous, since all the servants depend on the mercy and it is harder to bribe.
External control includes mechanisms that have a high degree of independence from the executive. The UN Convention against Corruption leads a number of such mechanisms. An independent judiciary reform, in which bureaucrat when breaking the law can be easily and effectively convicted, dramatically reduces the potential attractiveness of corruption. One of the most effective tools for controlling corruption bureaucracy are freedom of speech and the media.
External control is typical for countries with market economy and liberal democracy. Presumably, this is due to the fact that the implementation of the normal functioning of the market, clear rules, mechanisms to ensure fulfillment of obligations, including effective legal system, which provides a healthy competitive environment. Liberal democracy to achieve their goals also relies on a system of elections, rule of law, an independent judiciary, separation of powers and a system of checks and balances. All these political institutions are simultaneously mechanisms of external control over corruption.
However, not all provisions of liberal democracy uniquely contribute to the fight against corruption. An example is the principle of separation of powers. Separation of powers horizontally stimulates their supervision over each other. For example, in a parliamentary democracy, the legislature has the power to dismiss the government. On the other hand, in a presidential democracy branch all is more functionally separated.
Further, the separation of powers on the territorial level and the associated transfer of most of the executive powers to the local government level leads to an effective reduction in the size of the government. This increases the power of information transparency and reduces corruption. Nevertheless, the federal structure of the state, providing maximum decentralization often leads to regulation of different aspects of the same activity by officials of different instances, and hence to greater corruption compared to unitary states.
Emerson, Patrick M. "Corruption, competition and democracy." Journal of Development Economics 81.1 (2006): 193-212.
Hess, David, and Thomas W. Dunfee. "Fighting Corruption: A Principled Approach: The C Principles (Combating Corruption)." Cornell Int'l LJ 33 (2000): 593.
ICC et al. “The Business Case against Corruption.” N.d. PDF file.
Rose-Ackerman, Susan. “Grand” corruption and the ethics of global business." Journal of Banking & Finance 26.9 (2002): 1889-1918.