ICT Views


Corruption - Grease or sand in the wheels of an economy?

by: (AML/Financial Crime Prevention Course Director) on

It’s that time of year again when I find myself wondering what the future will bring and reflecting on the past, and my thoughts turn very quickly to what we have witnessed globally on corruption.

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Who has been found guilty of corrupt practices, the increase in the amount of media coverage, the scale of the fines and the audacity of the perpetrators.

We are all so much more aware of what has been going on, more so than ever before, because we live in an era where transparency and accountability is demanded and paramount in the minds of most. 

So what impact have all of these developments had on the way we view corruption?

FCPA enforcement continues unabated and the UK Bribery Act is being used on larger scale cases, with the first conviction taking place under Israeli law for a company bribing a foreign official. Guernsey has just had the first conviction under their Prevention of Corruption legislation too. 

So there is no shortage of evidence of penalised corrupt practices, all of which continues to influence popular opinion. Enforcement is on the increase, and with it, so it seems, the negative view and intolerance towards corruption.

Or is it? Arguments still continue as to whether corruption has a predominantly positive or negative impact on economic development.  Is corruption as black and white as some maintain? Let’s revisit the arguments.

Sand or Grease?

Is it ‘grease’, encouraging foreign investment and particularly beneficial in developing countries? Or is it ‘sand’, lowering private investment and preventing poverty reduction?

Has the era of transparency and accountability, ethics and conduct, changed our tolerance levels to the point of sainthood? Or are there compelling arguments for when that which might be classified as corruption is acceptable? Does the amount of information and research available help or confuse the arguments? There are points to be made for both sides of the coin (no pun intended).   

I remember my surprise when first reading Huntington’s comment (Political Order in Changing Societies, 1968). [Just to be clear, I didn’t actually read it in 1968!]

“In terms of economic growth, the only thing worse than a society with a rigid, over centralized, dishonest bureaucracy is one with a rigid, over centralized honest bureaucracy”.

We can go back further than that. In 1714 Bernard Mandeville (The Fable of the Bees) wrote that private vices by the “dextrous management of skilful politicians” could be turned into “publick (sic) benefits”!

Individuals, such as the social scientist Robert Merton (Social Theory and Social Structure, 1968) and his contemporaries upheld the idea that corruption could be viewed as ‘grease’ in the wheels of an economy. From their point of view corruption was very much needed by developing nations to bind society together.

And more recently, the likes of Werner (The Development of Political Corruption: A Case Study of Israel, 1989) suggested that corruption encourages foreign investment by “bypassing cumbersome, genuinely hampering, governmental regulations”. And Theobald (So what really is the problem about corruption?, 1999) follows this argument, adding that discussion on corruption is led by inquisitorial investigations or sociological studies and has become the preserve of moralists.

So - corruption is ‘grease’ in the wheels of an economy and should be viewed, without a ‘moralistic’ approach, as a necessary evil?

A Divergence of Views

Then we have the ‘sand’ argument. To quote one of many examples, the World Bank view is that corruption results in “the weakening if not destruction of the private investment climate”.

Mauro (Why Worry About Corruption? 1997), using an analytical approach to indices and growth rates, concluded, “Corruption discourages investment, limits economic growth, and alters the composition of government spending, often to the detriment of future economic growth”.

As a specific argument against ‘grease’, Klitgaard (Subverting Corruption, 2000) challenged that, “These scholars had a point. But, nowadays, it is easier for us, sensitised by both passionate denunciations and econometric estimates, to reel off some of the costs.”

An interesting analogy used of corruption is that of it being like a disease pandemic, where the first stage is the ‘raising of consciousness’, the second stage ‘prevention’ and the third stage ‘fighting’ the disease. But (and this is me talking now), doesn’t the use of ‘passionate denunciations’ support the earlier preserve of moralists comment?

A wealth of other studies have concluded that corruption significantly affects foreign direct investment, reduces the overall growth rate of the economy and diverts funds away from the poor, increasing income inequality and poverty. Lower-income groups pay bribes that are a disproportionate share of their income compared to higher-income groups, and this leads to less access to services and education.

So, Grease or Sand: What’s your view? Let us know by commenting below.

Please note, the views expressed above do not necessarily represent my personal opinion, or that of ICT. I have written this blog simply to prompt discussion and would welcome your views as to the argument presented. Don’t dismiss either side of the comments, the sources are shown, research and let me know your views!

Would you like to learn more about anti-corruption and how it can impact your organisation? To find details of the ICA Certificate in Anti-Corruption, click here

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