Thursday, March 09, 2006

My Simple Economic Theory On Corruption


This Should Be My Phd Thesis

Let's just concentrate on Asia. What a beginning to 2006 - people power rallies in the Philippines and Thailand - the Asean economies as a whole have a clouded track record when it comes to corruption (with the notable exception of Singapore). It affects business, foreign investment and equality. The poor and the powerless remain defeated. Those who are honest lose out in shady deals. The ones in power favours the well connected. I think every country have some sort of corruption, just that the pervasiveness of it differs. The selected rankings below are based on approximately 150-155 countries over 2004 and 2005 as reported and surveyed - the 2005 Corruption Perceptions Index. More information on their sampling and scoring methodology can be obtained from www.icgg.org/corruption.cpi_2005-data.html

Oct 2005 Ranking - Country (2004's Ranking) - Score Out Of 10
1 Iceland (3) - 9.7
2 Finland (1) - 9.6
3 New Zealand (2) - 9.6
4 Denmark (3) - 9.5
5 Singapore (5) - 9.4
....
9 Australia (9) - 8.8
....
11 UK (11) - 8.6
....
15 Hong Kong (16) - 8.3
16 Germany (15) - 8.2
17 USA (17) - 7.6
....
21 Japan (24) - 7.3
....
30 UAE (29) - 6.2
....
32 Taiwan (35) - 5.9
....
39 Malaysia (38) - 5.1
40 South Korea (47) - 5
....
46 South Africa (44) - 4.5
....
59 Thailand (64) - 3.8
....
77 China (67) - 3.2
78 Sri Lanka (67) - 3.2
....
88 India (87) - 2.9
....
107 Vietnam (102) - 2.6
....
117 Philippines (97) -2.5
....
126 Russia (90) - 2.4
....
137 Indonesia (133) - 2.2
....
157 Bangladesh (144) - 1.7
158 Chad (141) - 1.7

Here comes my Phd thesis:

1) A country's level of corruption and its pervasiveness is correlated to the level of power to the government/authorities - i.e. the more power resides in a government, the more pervasive will be corruption. Absolute power corrupts absolutely. The seperation of power and where it resides - if more power is concentrated in the ruling government, away from the people, it gives rise to higher levels of corruption. As a country becomes more democratic, people will demand for more equality and accountability, governments can and will be voted in and out of offices.

2) A country's level of corruption is also correlated to the development stage of a country's economy - i.e. the more developed a nation, the more they will demand for corruption to be eliminated. This rest on the premsie that once the basic needs of the people have been met, then they go for higher aesthetics.

So, these two premise would explain much of where a country is in the corruption index. The exception being Singapore as the level of corruption is near zilch but democracy has been curtailed - well, Singapore is a unique state as it is run more like a well-oiled comapny.


If the above two conjectures are "true", it has important implications. One, we need to move a country's right to democracy, elevate people's power, so that corruption will take its natural course of evolution to die down. You cannot wish for "no corruption" and DO NOTHING. The above conjectures indicate that we need to increase the level of democracy of a country in order to fight corruption. (Again, the exception being Singapore).

The more power resides in a government, the greater will be the prevasiveness of corruption. (Again, Singapore is the exception). In an emerging or less developed nation, power generally resides with a small group of politicians - hence the propensity for corruption. We should always then strive for smaller "governments" and better transparency.

Also, for those countries on low levels of corruption, do not gloat, the main reasons you are there is because you are generally smaller, easier to pre-planned and institute changes, made it easier to reform education, regroup and restructure industries when necessary, ... you get the drift. Be thankful you are there, but also do not look down on nations who are lower down the ladder, there are many reasons why they are there.

I guess the main theory I have is that each country probably CANNOT GET AWAY from the life cyle of corruption. Can you get a country from emerging market status to developed status withn 3 years - no, it has to take its natural course of evolution. If the government were to take the lead in a very strong way (such as Singapore did), it could quicken the evolutionary process enormously. Hence a country takes 10 years or 30 years to halve its level of corruption - it all depends on how proactive the government has been.... please listen!!!

From the transparency index, especially at the bottom quartile, we can also see that a country can have a lot of corruption mainly because it is very poor. That, we have to bear in mind. Who can afford integrity when you haven't eaten for a week? This is the other side of corruption - when it is a matter of just surviving or, a life or death matter.

From a business stand point, many companies in Asia have been diversifying into other countries, either for construction, utilities, toll roads, exploration, etc... As investors, they will have to be more careful with the countries they are getting into bed with. There is no need to list out which Asian companies have been to where and when ... investors just need to be a lot more cautious when companies announce that they are going to ventures in the following countries: (this is not a slight on the countries mentioned below, but a hint on where they are in the corruption index)

105 Khazakstan
108 Ukraine
111 Zimbabwe
118 Libya
123 Uganda
125 Niger
128 Cambodia
132 Papua New Guinea
140 Uzbekistan
143 Pakistan
149 Sudan
150 Tajikistan

4 comments:

Rohan_888 said...

It looks not so bad (39/150), but somehow or the other I have the feeling it is actually worse. How do they anyhow "test" these scores?

Another way of looking at it is comparing income-inequality, in that list Malaysia is the worst of the whole SE-Asian region, normally that points at a high degree of corruption.

Is it possible that some forms of corruption are counted in other countries but not here since it is officially legal here?

I am thinking about AP's, all sorts of other permits (for instance to build power stations which are passed through and sold for huge gains), land deals, etc, etc, etc

hhc1977 said...

i dont really agree with your reasoning
":1) A country's level of corruption and its pervasiveness is correlated to the level of power to the government/authorities...."

You did mention Spore as an exception. How about the biggest democracy in the world, India. How about taiwan which the ppl did vote out the ruling party.

A weak gov is not the prerequisite to clean government. THis got more to do the people culture and the gov determination to stem out corruption. If the upper echoleon of the society is from those aristocrats who are bornt with special privileges, they will always encourage corruption in order to protect their interest.

In a clean goverment, meritocracy is the rule of the day. No handicap policy.

Salvatore_Dali said...

hhc,

good job in yr comments, my comments are still generalisations at best, not a RULE. As in any postulations, there will eb exceptions - my conjecture is that everything being equal, a power ledened government have more room to act "badly". Please do not associate small govts as weak governments - I saying small as in interference, that not everything has to go through govt channels, a much less bureaucratic govt.

As for Taiwan, its unique, they poll aggressively, but both parties are also quite corrupt, so no argument there. As for India and the Philippines, both are very democratic, but also generally quite poor, so there are many otehr reasons for corruption as I have mentioned before.

hhc1977 said...

"As for Taiwan, its unique, they poll aggressively, but both parties are also quite corrupt, so no argument there."

Before coming to power, the ruling is a clean party (which position itself as vangaurd in crushing taiwan legacy corruption. Due to the inherent culture and the social structure of taiwan, it succumbed to rent seeking. Mind you the ruling class is from the military with so not clean record. read the history of KuoMintang in China.

AS i said, corruption has more to do with ruling class mentality and culture.

Let's look at Spore. When it was kicked out from Malaysia, they are ruled by a class of technocrat (unlike our bureaucrat) which focus on meritocracy. (this remind me a the period before French revolution where Realism is the call of the day). With proper check and balance in place for its budding gov sector, Mr Lee steered its new found gov away from rent seeking culture. He did this through practising what he is preaching. Not just by wearing white shirt or shouting slogan or badges. Action speaks louder than word. If you look at how Mr Lee ruled Spore, can u use the phrase

" Absolute power corrupts absolutely" Mr Lee definitely has more power in his country than most of the head of the states in his day.