Corruption Reconsidered

Sam Vaknin

Belgium (Brussels Morning Newspaper), Corruption has become more ostentatious in the European Union with some high visibility scandals, arrests, and resignations. Candidate countries are required to stamp out venality as one of the pillars and goals of their accession process.

But is corruption, this touchstone of good governance, all that it is made out to be? 

Corruption runs against the grain of meritocratic capitalism. It skews the level playing field; it imposes onerous and unpredictable transaction costs; it guarantees extra returns where none should have been had; it encourages the misallocation of economic resources; and it subverts the proper functioning of institutions. It is, in other words, without a single redeeming feature, a scourge.

Strangely, this is not how it is perceived by its perpetrators: both the givers and the recipients. They believe that corruption helps facilitate the flow and exchange of goods and services in hopelessly clogged and dysfunctional systems and markets (corruption and the informal economy “get things done” and “keep people employed”); that it serves as an organizing principle where chaos reins and institutions are in their early formative stages; that it supplements income and thus helps the state employ qualified and skilled personnel; and that it preserves peace and harmony by financing networks of cronyism, nepotism, and patronage.

Bribes are paid in order to limit choice and eliminate competition. Consequently, in corrupt environments, consumers pay less than optimal prices. The difference between the competitive price and the new, post-corruption cost equals the amount of bribe paid in cash or in kind. Corruption amounts to a unilateral transfer from the consumers’s pockets to the manufacturers.

In times of economic crisis, consumers tend to shop around (in other words: they prefer price competition and encourage it via their behavior). Producers/manufacturers tend to collude in order to fix prices. In recessions, businesses regard consumers as enemies and vice versa: producer firms court consumers, but they also seek to limit their choices by “channeling” their purchases and determining their preferences.

Twenty years ago, I proposed a taxonomy of corruption, venality, and graft. I suggested this cumulative definition:

  1. The withholding of a service, information, or goods that, by law, and by right, should have been provided or divulged.
  2. The provision of a service, information, or goods that, by law, and by right, should not have been provided or divulged.
  3. That the withholding or the provision of said service, information, or goods are in the power of the withholder or the provider to withhold or to provide AND That the withholding or the provision of said service, information, or goods constitute an integral and substantial part of the authority or the function of the withholder or the provider.
  4. That the service, information, or goods that are provided or divulged are provided or divulged against a benefit or the promise of a benefit from the recipient and as a result of the receipt of this specific benefit or the promise to receive such benefit.
  5. That the service, information, or goods that are withheld are withheld because no benefit was provided or promised by the recipient.

There is also what the World Bank calls “State Capture” defined thus:

“The actions of individuals, groups, or firms, both in the public and private sectors, to influence the formation of laws, regulations, decrees, and other government policies to their own advantage as a result of the illicit and non-transparent provision of private benefits to public officials.”

We can classify corrupt and venal behaviors according to their outcomes:

  1. Income Supplement – Corrupt actions whose sole outcome is the supplementing of the income of the provider without affecting the “real world” in any manner.
  2. Acceleration or Facilitation Fees – Corrupt practices whose sole outcome is to accelerate or facilitate decision-making, the provision of goods and services or the divulging of information.
  3. Decision Altering (State Capture) Fees – Bribes and promises of bribes which alter decisions or affect them, or which affect the formation of policies, laws, regulations, or decrees beneficial to the bribing entity or person.
  4. Information Altering Fees – Backhanders and bribes that subvert the flow of true and complete information within a society or an economic unit (for instance, by selling professional diplomas, certificates, or permits).
  5. Reallocation Fees – Benefits paid (mainly to politicians and political decision-makers) in order to affect the allocation of economic resources and material wealth or the rights thereto. Concessions, licenses, permits, assets privatized, and tenders awarded are all subject to reallocation fees.

To eradicate corruption, one must tackle both giver and taker.

History shows that all effective programs shared these common elements:

a.      The persecution of corrupt, high-profile, public figures, multinationals, and institutions (domestic and foreign). This demonstrates that no one is above the law and that crime does not pay.

b.     The conditioning of international aid, credits, and investments on a monitored reduction in corruption levels. The structural roots of corruption should be tackled rather than merely its symptoms.

c.      The institution of incentives to avoid corruption, such as higher pay, the fostering of civic pride, “good behavior” bonuses, alternative income and pension plans, and so on.

d.     In many new countries (in Asia, Africa, and Eastern Europe) the very concepts of “private” versus “public” property are fuzzy, and impermissible behaviors are not clearly demarcated. Massive investments in the education of the public and of state officials are required.

e.      Liberalization and deregulation of the economy. Abolition of red tape, licensing, protectionism, capital controls, monopolies, discretionary, non-public, procurement. Greater access to information and a public debate intended to foster a “stakeholder society”.

f.      Strengthening of institutions: the police, the customs, the courts, the government, its agencies, and the tax authorities – under time-limited foreign management and supervision.

The most potent remedy against corruption is sunshine-free, accessible, and available information disseminated and probed by an active opposition, uncompromised press, and assertive civic organizations and NGOs. In the absence of these, the fight against official avarice and criminality is doomed to failure. With them, it stands a chance.

Corruption can never be entirely eliminated – but it can be restrained and its effects confined. The cooperation of good people with trustworthy institutions is indispensable. Corruption can be defeated only from the inside, though with plenty of outside help. It is a process of self-redemption and self-transformation. It is the real transition.





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Sam Vaknin, Ph.D. is a former economic advisor to governments (Nigeria, Sierra Leone, North Macedonia), served as the editor in chief of “Global Politician” and as a columnist in various print and international media including “Central Europe Review” and United Press International (UPI). He taught psychology and finance in various academic institutions in several countries (http://www.narcissistic-abuse.com/cv.html )