How Corruption Stymies Economic Growth and Sparks Unrest

Mark Goebel

 

Corruption, one of the primary impediments to economic growth, yet among the least systematically tackled, undermines the fragile political and economic progress being made by emerging democracies, including Mexico, Indonesia, and Nigeria.

 

Recent impressive growth notwithstanding, corruption also threatens to hold back India’s and Brazil’s drive to join the ranks of the world’s developed countries, and has brought Venezuela and Ukraine to the brink of political collapse.

 

Even China, this century’s economic star, is being handicapped in its long-term quest to overtake the U.S. economically by corruption, so much so that China’s new supreme leader, President Xi Jinpang, has made stamping it out one of the main priorities of his time in office.

 

According to Transparency International’s 2013 Corruption Perceptions Index, nearly two-thirds of the countries surveyed (including all of the aforementioned), were categorized as more corrupt than not.

 

The index scores countries from 0 (highly corrupt) to 100 (very clean).

 

Over half of the survey’s respondents, 55 percent, said that corruption has worsened over the past year.

 

Nearly all of the survey’s most corrupt countries ranked among the world’s poorest.

 

Bribes and backroom deals, the most common forms of corruption, undermine economic development and destroy trust in a country’s political, judicial, security, and business leaders, the report concludes.

 

Corruption triggers unrest

 

Recent widespread protests in Ukraine and Venezuela have been largely sparked by widespread corruption.

 

Venezuela ranks as the world’s 9th most corrupt country (20) and Ukraine is the 14th most corrupt (25).

 

Corrupt policemen and government officials in Venezuela regularly abuse their power to enrich themselves through bribery and extortion.

 

Ukraine’s economy has stagnated since it broke free from the Soviet Union in the early 1990s.  The country’s per capita output, which was roughly equal to Poland’s two decades ago, is now one-third as large.

 

Ukraine’s recently deposed president, Victor Yanukovich, and his predecessor, Yulia Tymoshenko, both closely tied to the country’s billionaire oligarchs, enriched themselves while in office to the tune of hundreds of millions of dollars.  

 

Greater economic freedom in Asia fails to stem corruption

 

Despite robust economic growth over the past decade, many countries in Asia still rank poorly on international corruption indexes.

 

Between 2001-2010, $2.74 trillion in illegal funds left China (20) through criminal financial schemes, corruption, tax invasion, or other illegal activities, according to a study by the U.S-based Center for International Policy.

 

India (36) and Thailand (35) had nearly  $123 billion and $64 billion spirited away, respectively.

 

In China, bribery, uncompensated taking of private property by unscrupulous local Communist Party officials looking to cash in on the country’s real estate boom, poor construction and shoddy goods are the main sources of widespread public discontent.

 

India has not nearly met its full economic potential in large part to widespread corruption permeating every level of government from the national parliament to local police forces.

 

The ruling Congress Party (projected to lose in upcoming parliamentary elections in part because of corruption) regularly demands massive kickbacks from businesses for defense and infrastructure projects.

 

According to the country’s leading business publication, Business Weekly, public corruption cost the Indian economy at least $50 billion annually.

 

Middle East and Africa swimming in corruption

 

The regions most lagging in economic development, the Middle East, Africa and Latin America, contain nearly all of the world’s most corrupt countries.

 

Transparency International’s findings indicate that the Arab Spring uprisings, which were largely caused by anger with unethical government officials, have not brought about a decline in corruption in Egypt (32), Libya (15), Tunisia (41) or Yemen (18).

 

Sub-Saharan African is the region most affected by corruption. All of the region’s countries rank among the world’s most corrupt and nearly three-quarters of the region’s people say they paid a bribe to a public body in the last year, according to Transparency International. In addition, very few expressed confidence that the police, judiciary, or politicians look out after the general population’s interest rather than their own.

 

How bad is it in Sub-Saharan Africa?

 

The world’s most corrupt country, Somalia (8), has a barely functioning government, while the second most, Sudan (11), is fomenting a civil war in the third most, South Sudan (14).

 

 

Latin America makes economic progress but fails to stem the tide of corruption

 

In the Americas, Brazil’s star turn on the global stage – it will be hosting the World Cup this summer and the Olympics in 2016—is being overshadowed in part by corruption scandals involving officials overseeing tens of billions of dollars in infrastructure and stadium construction.

 

Last year’s large-scale protests (which continue albeit less widespread) across Brazil were sparked by the public’s disgust at politicians and businessman lining their pockets at the expense of the country’s middle class and poor.

 

Drug cartel-centered corruption has migrated north from Colombia and south from Mexico to Guatemala (29), El Salvador (38), and Honduras (26), fueling political instability and widespread violence. 

 

Numerous politicians and law enforcement officials have been accused of protecting drug cartels, bribery, and money laundering, and more than 100,000 people, including 66,000 in Mexico, have died the last six years in drug-related violence, according to the Los Angeles Times.

 

Drug-trafficking and gang violence have shaved at least 2 percent economic growth in all five countries with Guatemala, Honduras and El Salvador particularly hard hit given their relatively low per capita incomes, according the Organization of American States.

 

Latin America’s largest economies Brazil (42) and Mexico (34) ranked in the middle of Transparency International’s 2013 index, yet both were judged as being more corrupt than not.

 

Despite some progress and willingness to reform (the Mexican government recently announced a plan to partially privatize the national oil company, Pemex, for example) both economies are still largely based on cronyism and patronage preventing them from reaching their full potential given their natural resources.

 

 

People fed up with corruption take to the streets

Protests around the world (including the Arab Spring and Occupy Wall Street) fueled by corruption and economic instability, demonstrate that citizens, whether they are from relatively rich countries like the U.S. or poor like Egypt and Ukraine, are no longer willing to stand by as political and economic decisions are unduly influenced by special interests, valuable resources are exploited by politically connected individuals for personal gain, and public services are weakened because funds intended for them are stolen.

 

Why Nations Fail: The Origins of Power, Prosperity, and Poverty by economists Daron Acemoglu and James Robinson, contends that the wealth of a country is most closely correlated with the degree the average person shares in overall growth of its economy.

 

According to the book’s thesis, when a nation’s institutions, public officials, and business leaders through corruption prevent individuals from benefiting from their own work, no amount of foreign aid, disease eradication or infrastructure development can compensate.

 

Put another way, corruption, abuse of public resources, bribery, and cronyism prevent countries and their people from reaching their full economic potential.

 

Author Bio:

Mark Goebel is a contributing writer at Highbrow Magazine.

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