When corruption eats into economy: The case of Malaysian governance

Tunku Abdul Aziz, New Straits Times, Kuala Lumpur

In every other type of crime there is a clear victim who suffers directly from the action of the perpetrator. Bribery involves a giver and a taker, but neither is the victim. They are, in most instances, willing collaborators. Hence corruption is sometimes referred to as the "victimless" crime.

Yet, corruption exacts a heavy price in the form of an invisible tax on everyone. The perpetrators -- the direct beneficiaries -- are few in number. The rest of society -- the powerless and decent people -- are the unwitting victims.

The word "corruption" contains different definitions. Transparency International has chosen to define corruption as the misuse of entrusted power for private benefit. Although the public's perception is that corruption is confined to government servants, this is not entirely true.

Graft in its varied forms is becoming a problem of major proportions in the private sector as well. It has affected giant companies in the U.S., where powerful CEOs have used their positions to mislead auditors, shareholders and regulators to falsify reported earnings to influence share prices. Major U.S. stockbroking firms and key employees have been found guilty of giving tips, kickbacks and other benefits to gain business.

No one has statistics to show the exact extent of corruption. Evidence is mostly anecdotal or based on perceptions. Those directly involved would do their best to hide the facts, not reveal them. Because of the surreptitious nature of corruption most people can only see the picture through a montage of personal experiences, those of their acquaintances, and occasionally from the cases prosecuted in court.

In November 2001, Transparency Malaysia conducted a survey of residents in Selayang, Selangor, to research the perceived level of corruption in that district. 60 percent of the 979 respondents viewed corruption at the local council as a "very serious" problem. Seventeen percent of them said that giving a bribe was acceptable.

That was not a comprehensive survey of the whole country, but no one would seriously question that its results do not fairly represent the general level of corruption or the public's attitude towards it.

The public has no difficulty understanding crimes such as rape, theft or murder. These to them are essentially crimes of morality that can be avoided by the proper teaching of morals in schools, at home or through religion.

Corruption and ethics, on the other hand, are hardly taught anywhere. This is not surprising given the "soft" nature of corruption. It is not regarded as a hard-core moral problem that merits intensive teaching or learning.

However, once the evil of corruption is properly understood -- its negative impact on the national economy, and how it can subvert the law and destroy the social fabric -- this crime will be seen in its true light.

It is no less a crime of morality. Because of its impact on the national economy, we sometimes hear of the term "economic crime" being used to refer to corruption.

Corruption comes from the illegal exercise of power. Inefficient governments invariably make too many rules that serve no useful purpose except to slow things down.

When bribes are used to obtain special benefits or favors, the effect is to create an uneven playing field. Those who pay gain an advantage, resulting in unfair competition. It permits dishonest manufacturers to produce shoddy, sub-standard goods and services for sale at high prices. As unscrupulous businessmen can bribe to shut out competition, they have little incentive to innovate. Such an economy will be stunted. As one would expect, bribes are never declared to the Inland Revenue Board. Hence the illicit activities of those engaged in corruption are not properly accounted for in the economy. As a result, tax revenue suffers.

However, the overall impact of corruption on the rest of the economy is much greater. A government that tolerates corruption encourages civil servants to erect obstacles to slow processes down in the hope of extracting huge bribes from the public. This has the effect of slowing investment decisions, and making investments unnecessarily more expensive, thereby increasing business costs and risks.

Many businessmen would cave in to the demands of dishonest bureaucrats, although some will not. Of these some are restrained by their innate sense of morality and some, especially foreign investors, are prevented from doing so by the laws of their home countries. Investments suffer as a result.

In countries with high corruption, the low level of investment is also due to the fact that the people who benefit from bribery tend to take their money overseas -- sometimes literally in briefcases -- to avoid detection.

Politicians and high government officials have the most to fear because their official incomes are low, so a big asset discrepancy becomes highly visible. Corrupt businessmen are equally fearful that once their political patrons are out of power they may come under investigation. Thus a good portion of corrupt money is not reinvested in the country but instead benefits the economies of the countries of refuge.

Thus, we can see that the consequences of pervasive corruption -- low investment, high business costs, uncertain supply, unfair competition, high prices, inferior goods and services -- combine to translate into lower economic growth. This then completes the circle of corruption: poor countries with bad government engender corruption, leading to lower economic growth and more poverty, which leads to worse corruption and even slower growth. The spiral continues.

Corruption is like a cancer: It can only get worse with time if left untreated. The greater the impact, the slower will be the economic growth.

The writer is president of Transparency International, Malaysia