Ajit Mishra

Ajit Mishra

1/22/2009 @ 6:00PM

The Cancer Of Corruption

During my recent visit to a village in a relatively poor district in India, I asked several individuals whether they have had to pay any bribe to anyone in the recent past. All these individuals are likely to be considered poor (income less than approximately $1 a day). All of them reported “no.” Keeping in mind the fact that this district is not viewed as a corruption-free district, a number of explanations are possible. It is possible that they have paid bribes without realizing it. It is possible that they are lying out of fear of persecution. However, the most plausible explanation in the light of other evidence seems to be that these people are too poor to have any demand for goods and services, which require bribes. So, how are they affected by corruption?

Generally speaking, corruption is abuse of public office for private gain (bribery in most cases). It can take the form of extortion where clients or consumers of various government or public services have to pay bribes in addition to the official price (license, permits, access to medical facilities, education, jobs, etc). Corruption can also be collusive in nature where individuals escape official regulations or sanctions by paying bribes to officials. Because of its nature, it is difficult to measure corruption.

However, it is possible to survey a large number of individuals, experts and investors and arrive at some measure of the perceived level of corruption in a society. Suppose we list various countries according to these perception measures on one side and the proportion of the population living below the poverty line on the other. Such an exercise shows a high degree of correlation between corruption and poverty: Countries with high levels of corruption also have higher levels of poverty. Various explanations are possible, but there is reason to believe that, although the poor may not pay bribes, they experience adverse effects when corruption is prevalent. Not only does aid not reach the poor, but they are also excluded from vital goods and services because they cannot afford to pay the bribe.

Corruption undermines many of the income transfer programs designed to help the poor. In fact, anti-poverty programs have earned a bad name because of corruption. For example, the government of India recently sought to implement the National Rural Employment Guarantee Act (2005). According to the Act, there is a legal guarantee of employment to anyone who is willing to do casual manual labor at the statutory minimum wage. Each rural household is entitled to a maximum of 100 days of employment (or equivalent allowance) per year. It was estimated that 100 days of employment at the minimum wage would be enough to push a significant proportion of rural poor above the poverty line. However, the Act was greeted with several articles in the popular press bearing titles such as “Corruption with a Human Face,” “Rename NREG as Corruption Guarantee Scheme” and “Will it Reduce Poverty or Fill Corrupt Pockets?”

These articles reflect fears that are not baseless. Recent audits reveal that there is widespread corruption in many areas. Payments have been made for non-existent public works, money has been disbursed to fictitious (sometimes long dead) persons, employed persons are paid only a fraction of the stipulated wage with the rest being appropriated by officials. This is not an isolated example; anti-poverty programs around the world have encountered similar problems. In some cases, the leakage from corruption can be as high as 80%.

But leakage is only part of the story. More worrying is the fact that laws and regulations to apprehend and punish corrupt individuals seem to be ineffective. First, the poor who are the intended beneficiaries are mostly without a voice and cannot complain or appeal. Second, even when these individuals are apprehended, they tend to escape punishments because of corruption in the other parts of the system (police, judiciary, higher official and politicians).

Corruption also severely curtails the poor’s access to various publicly provided goods are services like water, health care, credit and education. If access requires a bribe, only the better-off sections of society will consume of these goods and services. Moreover, corruption erodes the quality of public goods to such an extent that the population has to largely rely on private providers. Once again, the poor household loses out. This non-access to vital public goods not only affects the current generation of the poor, it also perpetuates poverty across future generations by depriving the children of poor households from education and good health.

Lastly, even if you subscribe to some version of the trickle-down theory where overall prosperity of the economy will eventually trickle down to the poor, corruption seems to affect the poor adversely. Barring the experience of some Asian countries where rapid growth in national income has coexisted with high levels of perceived corruption (China, Vietnam), evidence suggests that corruption slows down or even reduces economic prosperity in a vast majority of economies around the world. Certain individuals (especially those in power) may enjoy a spectacular rise in fortune, but countries fail to achieve their growth potential because of corruption. Hence, relying on the prosperity to trickle down may not really be an option for the poor.

Large scale corruption is a real and present danger to the poor, whether or not they themselves pay bribes. Anti-poverty programs and the provision and quality of public goods are directly and adversely impacted by widespread corruption. If reducing poverty is a social priority, controlling corruption must be an even greater one.

Ajit Mishra is a development economist based at the University of Bath and is the author of The Economics of Corruption.

Click here for full coverage–Special Report: Corruption

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