September 29, 2002
Corruption does have victimsPosted in · 2 comments ·
The moll, all legs, stilettos and big hair, got out of the Ferrari and demanded a Harvey Wallbanger. The gangster was more subdued, but the mobile hitched to the belt of his Armanis did give him away. “Mr McWilliams, I would like a word,” he said in halting English with a heavy Bulgarian accent. Across the beach, beyond the 1960s style beach tents, the Black Sea stretched for miles. “One million dollars.” He didn’t repeat himself and knocked back his beer.
The blonde at this stage was getting giddy and I was nervous, having just been part of a team that had bought a beach resort for a western bank. Now the local hoodlum, who also happened to be an official in the region (Varna, one of Bulgaria’s finest tourist stretches) was looking for his cut. Corruption is everywhere there. When you come up against it, the first reaction is one of incredulity, followed by anger and resignation.
In our case, it was quickly established that this character was only a small time bluffer who could be seen off quite easily but I have no doubt that somewhere in the legitimate purchase price of the resort was more than a few Bulgarian levs for the local hardchaws.
International corruption indices show that, the poorer the country, the more likely it is to be corrupt. The evidence also reveals that the corruption itself makes countries poor because the dodgy characters drive out the straight businessmen and ultimately, investment and entrepreneurship suffer. The root cause of corruption lies in the delegation of power. Corruption will emerge in any country where the culture allows it, where local councillors or civil servants shrug their shoulders and turn a blind eye. In short, corruption is about bad government. The more licences and regulations, the more likely there is to be corruption. Incentives and opportunities for corruption depend on the size of the rents or the personal profit that the public official can derive from the stroke. Corruption therefore, occurs at those points where political, bureaucratic and economic interests coincide.
A quick trawl around the world indicates that there are three major forms of corruption. There is legislative corruption when politicians betray the electorate by selling their votes to pressure groups; administrative corruption when public officials take payoffs to allow someone to secure a procurement contract or to gain immunity for tax dodging. And there is the blatant Irish-style corruption where a government minister simply trousers the loot in return for a licence or planning permission. Opportunities for misdemeanour exist at every level, from grand corruption in the highest public office, to petty corruption at the lowest rung on the ladder. Our tribunals have thrown up all manner of dodgy dealings from the trivial to the monumental, but at every stage the public suffers.
In the heat of this week’s revelations, it is often forgotten that corruption is not a victimless crime. There are serious costs to an economy and we are all victims. Corrupt politicians are robbing us, plain and simple. The knock-on cost to the economy can be enormous. It is highly likely that emigration and taxes in the 1980s would have been lower, with wages higher and growth more robust had corruption not prevailed.
In addition, it is now also clear that among the social costs of corruption are soulless estates devoid of infrastructure in west and north Dublin. Citizens in socially-deprived areas are the victims and many are still living with the consequences of backhanders. By extension, it is highly likely that car insurance premiums, inflated as a result of joyriding, are related to corruption, as is the public bill for Garda and prison officers’ overtime. We could go on, but the point is simple — corruption has victims.
International evidence also shows a direct correlation between corruption and economic underperformance. A study of developing countries in 1997 (by the World Bank) found that if Egypt were to improve its corruption score from 4 out of 10 to 6 (where 0 means total corruption and 10 means none at all), the rate of investment would increase by 3 per cent and the growth rate would increase by 0.5 per cent. Another study (by the OECD) shows that a worsening of Singapore’s perfect score of 10 to that of Mexico’s 3.25 would have the same negative effect on the economy as raising the tax rate by 21 percentage points.
Corruption also tilts public spending towards projects that make it easier to collect on bribes at the expense of priority programmes. Hence the proliferation of “white elephant” projects in developing countries. Crucially, corruption can lower the quality of public goods and services and even threaten safety. The collapse of buildings in Seoul and the recent earthquakes fatalities in Turkey were partially blamed on substandard contracts and shabby construction.
Corruption also erodes the rule of law. If our politicians are not seen to be clean, then the rest of us will have a perceived reason to defraud the state as well. Thus, generalised tax evasion will thrive. More money will have to be extracted from areas of the tax system where corruption is not possible — such as PAYE workers — to pay for the services that everyone (the corrupt and the non-corrupt) benefit from. Corruption fuels the black market. And in the international context, it distorts programmes to combat poverty, undermining international aid and reconstruction programmes.
In Ireland, we appear to have a strange dichotomy. Most of the international evidence points to the effect of corruption on international investment. In many developing countries the civil service is corrupt and this militates against international investment. In Ireland, the situation appears to be different. The civil service here is by and large clean, smart and very efficient. In fact, many multinationals indicate that the quality of the civil service is one of the positive reasons to chose Ireland over other destinations. Irish corruption exists in the domestic, closed sector of the economy — in construction, planning and government licences. In short, when it comes to backhanders and dodgy envelopes, we are content to leave the foreigners alone, as long as we can rob each other.
Yet the perception of corruption in Ireland is having an effect on investors. Transparency International, the agency that ranks nations according to corruption, reveals that this year Ireland has slipped well down the index. Today in Europe, only Greece, Italy and Portugal are seen as being more corrupt than Ireland. This is a result of the revelations at the various tribunals. Far from this being a cleansing experience, as many would see it, the era of the tribunal is alerting foreigners to a lack of compliance at the highest levels of Irish society, and, according to the international evidence, this scares them.
Arguably more important than the absolute ranking is the direction in which Ireland is moving. Ireland used to be regarded as the 8th least corrupt country in the world; we are now 23rd. This slip has been all the more dramatic because countries with similar income levels have all risen in the ranking.
Ireland is now the only developed country in the world where international investors believe that corruption is getting worse. If we continue on this route, by 2005 we will be down there with the likes of Bulgaria and Romania.
Given the huge competitive pressures we are facing, the rise in the euro, the increase in our wages and the huge efforts the IDA is making to steer the economy onto a higher growth path, we should expect more from the ruling party than obfuscation, cute hoorism and denial.
Corruption hurts all of us. It is not a victimless crime and it is time our leader woke up to this.