“Of course, that depends on whether you think corruption is a bad.” This statement was made, rather surprisingly you might think, over a glass of beer in a West African country, by a lawyer from Europe, somebody whom you might have expected to take a rather more robust view. It was suggested by that it was better to tolerate corruption and end up with one’s yacht in St. Tropez harbour, than to be intolerant of corruption and not to have one. A depressing moral view, no doubt, but how damaging is corruption?
Even if we leave aside – and I am not suggesting for one moment that we do – the moral question, corruption is bad for business. It adds an additional – often considerable – cost, and uncertainty to transactions as well as raising an expectation of further (and more expensive) favours in the future. Equally importantly, a decision based on the receipt of a bribe may not be in the best interests of the recipient either. If a contract is awarded solely on the basis of a bribe having been paid, then it is unlikely that the goods or services received will represent either the best commercial alternative or the best value for money. In the public sector, this may well result in taxpayers being left with an expensive, sub-optimal solution and in the private sector resources which properly belong to shareholders will have been diverted elsewhere.
It will, therefore, come as no surprise to note that there is a direct correlation between a country’s ranking in the World Bank’s survey of ease of doing business (mentioned here in The Bank Job) and Transparency International’s corruption perception index. Taking five countries at random: the United Kingdom, Poland, Ghana, Benin and Togo (which I have visited several times on business over the last two months, hence the recent infrequency of new posts on this blog) their respective rankings for ease of doing business and corruption are: United Kingdom 7 & 16; Poland 55 & 41; Ghana 64 & 69; Benin 175 & 100; and Togo 156 & 143. And, equally unsurprising, there is the same correlation when it comes to the UNCTAD world investment report’s measurement of green field foreign direct investment. This seems compelling evidence that corruption, or the perception of corruption, is actually harmful to economic development.
Another feature of corruption is that the costs are borne by those least able to afford them, particularly in developing countries where, in many cases, those aiding and abetting the corruption are multi-national corporations and others who not only should know better but, indeed, are themselves subject to specific statutory prohibitions (and sanctions) on undertaking corrupt activity. The counter argument is always the same: that in some cultures facilitation payments are an expected and normal feature of business life and that it is better for all that that a project does go ahead and some wider benefit accrues to the community – albeit with a payment – than that there is no project all or if we do not make the payment somebody else will. At the margins there, indeed, difficult moral calls, but the case against a toleration of corruption remains overwhelming.
Most of us, thankfully, do not encounter corruption in our daily lives but for those who do, it is often the petty corruption, which is the most pernicious. One example will serve. Travelling on the road from Lomé, the capital of Togo, to Cotonou, the capital of Benin, along what is the major West African coastal highway, we encountered a number of “unofficial” road blocks. We were travelling with a locally prominent person in a large car so we merely drove to the head of the queue and drove straight through, neither halting nor parting with money. Normal travellers were relived a small amounts of money they could little afford. It was explained to me that these road blocks allowed junior soldiers and policemen to make extra money so they did not bother their officers which kept everybody happy. Everybody, that is, except the poor citizens. To answer the question posed at the outset – yes, corruption is bad.