CAUSES AND EFFECTS OF CORRUPTION

The article emphasizes the multiple sides of corruption, its causes and consequences. According to relevant studies on the subject, the threat that corruption presents increases with the level it appears at, the most dangerous being the high level corruption, "kleptocracy", and state level generalized corruption, "state capture", which blocks reforms as well as economic and social development. At the same time, combating the phenomenon should not aim low-level corruption, as this affects the population and constitutes the basis that high level corruption is built on. Keywords: corruption, bribery, kleptocracy, public office, JEL Classification: G. Financial Economics.






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Publication: Land Forces Academy Review
Author: Floristeanu, Elena
Date published: April 1, 2010

"... for as the offerer of a bribe, if it be accepted, has vanquished the taker, so the person who refuses it and is not corrupted has vanquished the person offering" (Demosthenes, De corona 247 B.C.)

1. Introduction

Corruption has been and will be a permanent reality, the harmfulness of which hurts both the individual, and the society. The consequences turn this phenomenon into a highly media-covered topic, being used for gaining votes as well. Its adduction for personal or group interests can turn the subject into old news, and the lack of interest can diminish the efforts to combat it. Most of the times, however, its emergence in public debates is proof of the extent of corruption and its degree of nuisance.

A theoretical approach to corruption that can stand as the basis for practical means of fighting it or, at least, for population education, implies both a clear definition of the term and finding answers to some of the questions it raises, as well.

Although the specialized literature is very reach in theoretical approaches to corruption, we will only mention those that will clarify some of its causes and effects. The corruption's multiple causes, dimensions and effects have made researchers eager to come up with an antidote. The initial question, one with multiple answers and that generates in its turn other questions, deals with the significance of corruption. Hereinafter, no matter the questions and the answers, it is essential that both categories contribute to the phenomenon's diminution.

2. What Is Corruption?

Corruption has begun to be a topic in economic publishing since the early 60s, and at the time there were authors that thought of it as beneficial, from some points of view (Leff, 1964).

The neutral sense of the term, without any specific implications is: "deflection from morality, honesty, duty" [I]. A broad definition of corruption is the abusive use of power with the purpose of satisfying personal or group interests [2].

Due to the fact that corruption expands on the goods and services considered to be "public goods" and that it reduces the expected public benefits, some authors consider corruption to be "public evil" (M. Negruç, 2006).

This public evil represented by corruption affects persons, companies, fields of activity, national economies as well the global one. With this perspective, it is clear that the phenomenon cannot have a universally accepted definition, as it can be defined by different criteria, including its national and international dimension.

According to Vito Tanzi's [3] definition of corruption, the phenomenon is viewed at macro level, as it stands as an obstacle in state's fulfillment of its functions, in macroeconomic policies, in resource allotment and income and goods redistribution. Although admitting that corruption affects the private sector of the economy as well, Michael Johnston, in an ample study on corruption, defines it as "abuse in public office and resources for private benefits" [4].

The 1999 Law that ratifies the Civil Law Convention on Corruption, mentions the two parties in the phenomenon, the defendant and the plaintiff, the fact that corruption means requesting, offering, giving or accepting, directly or indirectly, a bribe or any other undue advantage or prospect thereof "which distorts the proper performance of any duty or behavior required of the recipient of the bribe, the undue advantage or the prospect thereof [5].

As far as corruption in public office is concerned, the phenomenon is considered to be "abuse of a public servant, no matter his/her status, structure or position in hierarchy, for direct or indirect undue advantages, for a person or a company [6].

Corruption is the means through which people come across resources (influence, money) and manage to get what should be theirs, as tax payers, but that can be supplied by the state to a limited number of persons. Corruption is an additional tax paid for public goods and this is why it stands rather as an indicator of inadequate rules and procedures than a mentality indicator [7].

Going even further, Transparency International states that when referring to institutions and authorities, any act that produces public damage is "corrupt" if the purpose is to promote personal or group undue advantages [8]. Furthermore, corruption is power in the private sector used abusively for the purpose of satisfying personal or group interest [9].

The definition of the Multidisciplinary Group on Corruption, established in 1994 by the European Council, acknowledges corruption presence in both private and public sectors and the fact that it includes "occult commissions and actions that involve people in public or private office, which have defied their obligations as public servants, independent agents or private-sector employees, with the purpose of gaining illicit advantages, regardless of their nature, for themselves or others."

3. Corruption Causes and Forms

Determining the causes and forms of corruption could stand as a preliminary step in future fighting against corruption actions. In order to achieve the desired outcomes in the fight against corruption, it is important that after identifying favorable environments for acts of corruption, to have established the factors that generate the corrupt behavior as well as the forms it takes. The following questions need answers: Which?, What?, and How does it manifest itself?

3.1. What Are the Institutions Most Affected by Corruption?

The answer is provided by many institutes researching corruption, at a national, regional or international level. According to the results of the Transparency International Barometer (the barometer evaluates the degree to which corruption affects the lives of ordinary people, with questions on public attitudes towards corruption, the degree to which people consider public institutions to be corrupt, their experiences on the small scale corruption and their opinions on the future of the fight against corruption) on Corruption in Romania, should there be a top of the most affected institutions, the first place would be shared by political parties and the parliament, the second by the legislative/juridical system, and the third by medical services (Figure 1) [10].

Also vulnerable to corruption are the economic-financial and banking system, the privatization process, capital and patrimony transfers, the field of industry and material resources, especially the oil sector, the food and the alcohol industry a.s.o., the customs and frontier field and the public administration system. The fact that people consider first place institutions as corrupted, can be explained in terms of population's dissatisfaction with the effects of economic, educational and medical reforms, with the amplification of acts of violence and the discretionary application of law. Results are furthermore alarming as the most affected institutions are those that draft laws and see to their application: the Parliament, the political parties, the police, and the justice system.

3.2. What are the Factors that Favor Corruption? Sources of Corruption

As the social system was replaced by the market economy conditions, risk factors multiplied and corruption became a structured phenomenon, well-specialized and professional. By means of informal organizational networks it can influence decision-makers of the political, legislative, administration, justice, and even security fields (as shown in the previous chart).

Exerting power discretionarily and the very often monopolist market position of public companies, stand as prerequisites for corruption, whereas political, bureaucratic and economic interests' convergence provides it with a favorable environment.

Specific activities determine specific risks and vulnerabilities to corruption, some of them shared by all public institutions, while others generated by the very specificity of the activity performed. Among these, some of the most common will be mentioned, the ones occurring within high risk institutions. Within the Ministry of the Interior, for instance, corruption appeared and evolved as a consequence of: laws, institutional relationships, and the great volume of activities to be performed in a given amount of time, organizational culture, wage levels, logistics and individual structure [11].

Quite often, the causes generating corruption include: the recruitment and promotion system in local or national public administration, based on who you know instead of what you know, relations with public decentralized services and governmental organizations (long term contracts, high and certain incomes), nepotism and services provided to people for economic or political benefits, vague objectives and superficial control and audit (both internal and external ones), and shallow organizational culture a. s.o. A high demand for a type of service could also result in corruption if the possibility that authorities have for supplying it are limited. When demand is higher than the offer, under these circumstances, the result is not the same as on the free market. The price of the desired good or service is not necessarily higher, but the cost for purchasing it is increased by the price paid in order to gain access to it.

Education is of utmost importance in the fight against corruption in terms of increasing resistance to its benefits. These are some of the risk factors in graduate and under-graduate education [12]. legislative instability (lack of correlation between the laws on education); inefficiency and lack of involvement of some national and local institutions; low level of competitiveness between institutions; low professional motivation (determined by career prospects, working-place and wage conditions, the adverse selection, evaluation and promotion systems; procedures applied in evaluating students (objectivity and transparency).

Corruption is an instrument of economic criminality that is used in order to avoid indictment of criminals, to facilitate tax evasion, intellectual property-related crimes, to sign contracts in the public/private sector and win contracts by firms that act as cover for organized crime groups or networks. According to some authors, there are no criminal organizations beyond corruption, these structures being formed by professionals in crime and corruption [13].

3.3. How Does Corruption Go Off?

The range and implications of corruption differ from one country to the other, from a region to another as it appears under different forms. An act of corruption, under Romanian law [14] is considered to be accepting and giving bribery, accepting undue advantage, using influence or paying for it, abusing power, forgery in documents drafted to acquire European funds, as well as malversation of these funds even if they were legally obtained. Corruption's escalation at all levels, from public servants at the basis of the public organizational system (small corruption), to higher political ranks (the large corruption), has harmfiil implications on the society and the business environment. According to studies, depending on the fields it affects, corruption can be grouped into: political corruption, administrative corruption and kleptocracy.

The Global Corruption Report [15] defines political corruption as the politicians' abuse of power for personal advantage. Politicians' integrity is mostly affected by the conflict between public and personal interests. Corruption in political finance can appear under various forms, from vote buying to use of illicit funding for candidate position selling and the misuse of state funds and public administrative resources. Administrative corruption appears in the area of laws and rules' application, at the public administration level, mostly under the form of small corruption.

Kleptocracy is a political corruption subcategory and it mostly appears in the countries that have juridical systems less structured and where public and private activity transparency is limited. It includes the highest level officials that systematically use public funds, directly or indirectly, for their own enrichment.

In kleptocrat economies, economic and social problems are ignored, there is little respect for the law, and moral values are forgotten a.s.o. Kleptocrats are concerned with taking-over state assets, no matter if we're talking about natural resources (oil, diamonds etc.), state budget, companies or estates [16]. Unlike administrative corruption, kleptocracy influences the laws and regulations, which are especially drafted to favor it.

According to Michael Johnston, the difference of influence exerted by corruption (and the other way around) on wealth and power exchanges, state institutions and societies, leads to the emergence of four corruption categories, as follows: influence markets, elite cartels, oligarchs and official mogul clans [17]. The author's statement, according to which identifying major corruption syndromes and their implications helps understand the main underlying variations of the ways that wealth and power are gained and used in personal interests, can be complemented by other interests, such as that of transnationals', political parties' etc.

4. Corruption Levels and Consequences

The analyses on corruption highlight the fact that it has become "a global issue involving global reactions" [18]. A lack of action can result into state capture by private interest groups, with harmful effects on the state, its economy and society, because the "rules of the game" can be "fundamentally distorted for good", in the favor of some privileged individuals" [19].

Developing market economies are perceived as being a constant source of corruption, a fact that discourages investment as entrepreneurs are aware that some part of their investment could be claimed by corrupt officials [20]. In this environment corruption prospers, as in transition periods frail political and administrative structures lack the legitimacy and the institutionalized power. Some studies argue that lack of security around corrupt transactions is amplified by three characteristics: corruption does not allow legal resources; it has to be hidden from the public; mutual exposure threats are everpresent as partners in corruption are bound even after the exchange is final [21].

Corruption and poor governing can affect reforms, economic efficiency and tax revenue implicitly, public expenditure and the fiscal deficit. Hence, an empiric study on corruption's impact on tax structure shows an increase in the corruption index by 1% reduces the collected taxes level by 2,7% of the GDP [22].

Corruption interferes with economic growth, generates inequities and erodes government credibility and the efficient functioning of state institutions. As it becomes generalized and perpetuates, corruption becomes a major threat to stability and democracy, eroding the fundamentals of the state. Consequences of corruption that are acknowledged as well include: low quality services, public resource embezzlement, increase in the degree of population poverty and suffering, high social costs, abuse spreading, property impairment, decrease in public income, inefficient allotment and faulty public resources management.

Because of the fact that corruption affects public projects, that it determines significant loss to education, health and poverty prevention budgets, in both underdeveloped and developed countries, corruption is considered to be an important obstacle in the way of sustainable development [...] TI estimates that the loss in public purchases caused by corruption amounts to at least 400 billion dollars each year, all over the world [23].

The Corruption Perceptions Index 2004 performed by Transparency International underlines the poisonous connection between poverty, malfunctioning institutions and corruption. "For the poorest countries, the level of corruption can draw the line between life and death, when money for hospitals and drinkable water is at stake". The Global Corruption Report performed by Transparency International in 2008 evaluates corruption costs to 50 billion USD (35 billion Euros), sum that represents half of the annual assistance expenditure, of the costs of water and sewage systems [24].

5. Conclusion

The globalization of economic, political and social relationships generated an international corruption development framework. Corruption erodes the principles of efficient administration, undermines not only the market economy but also the state institutions' stability. The ample acts of corruption are shocking in terms of the amount of money involved and the connections necessary to achieve them. The ever-growing area, complexity and the various forms of corruption, impose a unitary and systematic approach of its causes and consequences as well as enforcing laws against it regardless of the state's size and power.

References:

[1] ***, Dictionarul explicativ al limbii române, (Bucharest: Academia Româna, Institutul de Lingvistica "Iorgu Iordan", 2nd edition, 1998), 230.

[2] "Transparency International Romania", in Centrul de Resurse Anticoruptie in Justitie, 1.

[3] Vito Tanzi and Hamid Davoodi, Government Role and the Efficiency of Policy Instruments, IMF Working Paper, (Washington, D.C: International Monetary Fund, 1995), 139.

[4] Michael Johnston, Syndromes of Corruption: Wealth, Power and Democracy, Corruption and Its Forms, (Iasi: Polirom, 2007), 24.

[5] Law no. 147 of April 1st 2002 that ratifies the Civil Law Convention on Corruption signed in Strasbourg on November 4th 1999, M.Of. no.260 of April 18th 2002, art.2.

[6] Ghidul Anticoruptie 2008, (Bucharest: Ministerul Internelor si Reformei Administrative, Directia generala anticoruptie), 11.

[7] Early Warning Report, Recommendations for Romania, 46.

[8] Ibidem, Transparency International Romania, 1.

[9] Transparency International Romania, Ghid anticoruptie in justitie pentru cetateni si oameni de afaceri, (2006), 4.

[10] The Global Corruption Barometer 2007, Transparency International: Romania 's evolution between 2004 and 2007.

[11] Ghidul Anticoruptie 2008, (Bucharest: Ministerul Internelor si Reformei Administrative, Directia generala anticoruptie), 33.

[12] The National Strategy on Prevention and Fight against Corruption within Local Public Administration Vulnerable Sectors (2008-2010), 13.

[13] Donald R. Cressey, Criminal Organization, (London: Heinemann Education Books, 1972), 20-25.

[14] Law 78/2000 of May 8th 2000 for Acts of Corruption Prevention, Exposure and Punishment, Bucharest, M.Of. no. 219 of May 18th 2000, modified and amended (law 521 of November 24th 2004, law no. 69 of March 26th 2007 a.s.o); The Penal Code, art. 254-257 and Law 161/2003 of April 19t 2003 on Measures for Assuring Transparency in Public Office, the Business Environment, Acts of Corruption Prevention and Punishment, M.Of. no. 279 ofApril 21st 2003, art. 6.

[15] www.lransparencyintemational.org.ro

[16] Mariana Negrus, Piati si garantii internationale, (Bucharest: C.H.Beck, 2006), 521.

[17] Johnston, 13-14.

[18] Glynn Patrick; Stephen J. Kobrin and Nairn Moises, "The globalization of Corruption", in Corruption and the Global Economy, ed. Kimberly Ann Elliot (Washington DC: Institute for International Economy, June, 1997): 7-30.

[19] James H. Anderson, and W. Cheryl. Gray, Anticorruption in Transition 3, Who Is Succeeding . . . and Why? (The International Bank for Reconstruction and Development, 2006), 17.

[20] Paolo Mauro, The Effects of Corruption on Growth, Investment and Government Expenditure", Corruption and the Global Economy, (Institute for International Economics, 1997), 83-109.

[21] Johann Graf Lombsdorff, and Mathias Nell, Corruption: Where we Stand and Where to Go, www.icgg.org.

[22] Vito Tanzi, Governance, Corruption, and Public Finance: An Overview, Governance, Corruption, and Public Financial Management, 10.

[23] Peter Eigen's Declaration, Chairman of Transparency International, 2004.

[24] The Global Corruption Report performed by Transparency International in 2008.

BIBLIOGRAPHY

Anderson, H. James, and Cheryl W. Gray. Anticorruption in Transition 3, Who Is Succeeding . . . and Why? The International Bank for Reconstruction and Development, 2006.

Cressey, Donald R. Criminal Organization. London: Heinemann Education Books, 1972.

Ghidul Anticoruptie 2008. Ministerul Internelor si Reformei Administrative. Directia generala anticoruptie.

Johnston, Michael. Syndromes of Corruption: Wealth, Power and Democracy, Corruption and Its Forms. Ia§i: Polirom, 2007.

June, Raymond et al. A Users' Guide to Measuring Corruption, United Nations Development Programme, 2008.

Lombsdorff Johann Graf and Mathias Nell. Corruption: Where We Stand and Where to Go.

Mauro, Paolo. The Effects of Corruption on Growth, Investment and Government Expenditure", Corruption and the Global Economy. Institute for International Economics, 1997.

The Global Corruption Barometer 2007. Romania's evolution between 2004 and 2007. Performed by Transparency International.

The Global Corruption Report. Performed by Transparency International in 2008.

The National Strategy on Prevention and Fight against Corruption within Local Public Administration Vulnerable Sectors (2008-2010).

Vito, Tanzi, and Hamid Davoodi. Government Role and the Efficiency of Policy Instruments, IMF Working Paper N97/139. Washington, D.C: International Monetary Fund, 1995.

Vito, Tanzi. Governance, Corruption, and Public Finance: An Overview, Governance, Corruption, and Public Financial Management.

Author affiliation:

Elena FLORI STEANU

"Nicolae Balcescu" Land Forces Academy, Sibiu, Romania

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