13 2.4 Theories of corruption
2.6 Consequences of Corruption
Corruption has many dimensions and has numerous political, economic, social and environmental consequences (Boersma, 2012). Rose-Ackerman (1999) describes corruption as a symptom of something gone wrong in the management of the state. The institutions designed to govern the interrelationship between the citizen and the state are used for personal enrichment, rather than for the provision of basic services for citizens. Corruption reflects poor governance and erodes the moral fibre of society. Corruption in any form affects societal harmony, dignity, freedom of speech, equity and social development (Pathak & Prasad, 2005). It is imperative to understand the consequences of corruption, in order to develop and enforce measures to counteract corrupt acts (World Bank, 2000).
2.6.1 Political
Corruption undermines trust in the efficient functioning of a political system, which leads to instability and possible disengagement of citizens (Rose-Ackerman, 1997). It weakens good governance by discouraging public trust in government and can lead to a reduction in political participation by citizens (Akonor, 2009). Numerous political contestations arise when individuals vie for the benefits that corrupt activity may generate (Jain, 2001). Consequently, it becomes difficult for
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governments to form and implement policies that respond to citizens needs and to use scarce resources in beneficial ways (Rose-Ackerman, 1997).
Corruption directly erodes democracy and the legitimacy of government. It hinders democratic governance, for example, an election that is rigged, will result in those in power not being accountable to the public (Adediji, 2013). When corruption is prevalent, citizens are unable to put their trust in the political system, which renders it illegitimate. Governments‟ political decisions are undermined by corruption, causing citizens to lose faith in the state‟s ability to provide services.
Corruption can also lead to armed conflict, especially when large endowments of natural resources are present (Bannon & Collier, 2003). Corruption significantly heightens grievances and opposing demands for political change. The negative economic connotations of corruption and increasing inequalities result in discontentment (Boersma, 2012). Thus, political instability arises as citizens begin to support movements that advocate for political change. Le Billion (2003) indicates that leaders of violent coups promise to address corruption by the previous government to gain political support. War also provides many opportunities for individuals to participate in illicit practices. For example, the allocation of wages to ghost soldiers and the selling of illegal weapons (Le Billion, 2003).
2.6.2 Economic
Economic growth plays a role in development, specifically to improve the quality of life of citizens.
Poor countries may have economic growth without development, however no country can sustain economic development without growth (Dong, 2011). Several empirical studies provide statistical evidence that countries with greater corruption levels have a weaker economic performance (Chetwynd et al., 2003). Corruption is detrimental to economic development and growth because it reduces domestic and foreign investment, alters the size and composition of government expenditure away from basic services, to projects that can be easily manipulated (Camerer, 2009).
Corruption is a major disincentive for foreign investment. A seminal study by Mauro (2002) analysed 106 countries to show that high levels of corruption are associated with lower levels of investment.
Investors who seek a transparent, fair and competitive business environment will avoid investing in countries where there is a high level of corruption.
Corruption has significant consequences on the revenue and expenditure of the government budget (Cooray, 2013). It weakens the financial and tax system and further strengthens the underground economy that aids organised crime (Camerer, 2009). Paying bribes can lead to a reduction in various
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sectors such as taxes and public utility charges. However, bribes can also be used to evade paying for services such as water and electricity. This leads to major losses of revenue in the government budget (Myint, 2000). A study by Tanzi and Davoodi (1997) analysed the extent to which corruption changed the allocation of public spending away from basic needs such as education and health care.
Corruption can be directly linked to the rise of the underground economy. There are two types of underground economic activities. First, those that are illegal due to them engaging in the drug trade or smuggling. Second, the activities that are legal but not recorded in order to escape taxes (Myint, 2000). When a large area of an economy goes underground, official macroeconomic data, which covers the formal sector becomes unreliable, making it difficult to formulate economic policies.
2.6.3 Social
There is vast literature on corruption, and many of the approaches provide an economic or a political viewpoint on the subject. Therefore, analyses of the causes, effects and combative measures reflect these approaches (Pearson, 2001). However, these approaches do not provide an understanding of the actual social consequences of corruption. Corruption can simply be put as the stealing from the ordinary man and giving to the rich. Under a corrupt regime, the privileged élite symbiotically benefit from connections to government officials (Myint, 2000).
Corruption derails the poor as they are unable to pay required bribes to send their children to schools, acquire healthcare and basic services. Resources which are meant to provide for public services are siphoned off to the bank accounts of those in power, resulting in basic services such as healthcare being reduced in both quality and quantity (Gebeye, 2012).
Widespread corruption also has a detrimental impact on development and distribution of the associated benefits (Pearson, 2001). Corrupt practices undermine meaningful development efforts;
corrupt officials rechannel allocated resources for personal enrichment. Poor targeting of social programmes persist, due to the use of government-funded programmes that benefit the wealthy (Gupta et al., 2002). For example, in India and Pakistan, the subsidy in agriculture is distributed unevenly, and those at the bottom of the system have a limited access to these benefits (Rose- Ackerman, 1997).
Corruption also erodes established social standards of society, and citizens turn to illegitimate means to earn money for their survival (Igwe, 2012). Thus, corruption becomes the norm and destroys the ethical and moral foundations of society.