Why is corruption good

Your Money. Personal Finance. Your Practice. Popular Courses. Markets Emerging Markets. Table of Contents Expand. Data on Corruption's Impact. High Prices for Low Quality. Inefficiently Allocated Resources. Uneven Distribution of Wealth. Low Stimulus for Innovation. A Shadow Economy Exists. Low Foreign Investment and Trade. Poor Education and Healthcare. The Bottom Line. Key Takeaways Countries that have a high level of corruption are unable to function efficiently or prosper at an economic level, causing suffering for society as a whole.

Emerging market economies tend to have much higher corruption levels compared to developed countries. Corruption can lead to an uneven distribution of wealth as small businesses face unfair competition from large companies that have established illegal connections with government officials. In a corrupt economy, resources are inefficiently allocated and companies that otherwise would not be qualified to win government contracts are often awarded projects as a result of bribery or kickbacks.

The quality of education and healthcare also deteriorates under a corrupt economy, leading to an overall lower standard of living for the country's citizens. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear.

Investopedia does not include all offers available in the marketplace. A great influence comes also from the ineffective sanctioning of corruption, which only increases the possibility of continuing the corruptive actions of those involved, creating at the same time a strong likelihood that others will join in the corruption due to this inefficient sanctioning. The sole lack of professional ethics is a particular issue, as the administration requires different amounts of time to develop or change its ethics and professional standards, which is well known in transition countries in some, ethics and professional standards changed overnight and approached the equivalents in the developed democracies, and in some, they remained the same as in socialism.

Therefore, due to lack of professional ethics in some countries that otherwise manage illegal corruption well, there is nevertheless a widespread form of legal corruption. Corruption also generates a lack of transparency and a lack of control by supervisory institutions. Therefore, where there is insufficient legal basis or sufficient political will to control, which enables a non-transparent functioning of both politics and the economy, corruption flourishes.

Corruption is also affected by the extensive, non-transparent or incomplete legislation, where laws can be interpreted in different ways for the benefit of the one who pays. Different countries have different attitudes to corruption. In Europe alone, we can find two extremes; from completely corruption intolerant North to the warm South, where corruption is an almost normal, socially acceptable phenomenon. Or the difference between countries with a democratic past, which traditionally prosecute corruption, and former socialist countries, where the corruption in the state apparatus was a part of folklore tradition.

Everything is only a matter of ethics and morality; however, they can be very different in different areas and different countries. Some forms of corruption also relate to an informal form of social security, where the family or the immediate community takes care of its members.

Such forms of informal social security prevail in less developed countries, where there is no legal regulation of formal social security and in the countries of Southern Europe where the influence of the broader family patriarchate 5 is still very strong, like for example in Italy, Greece, Albania, Bosnia, etc.

These countries are known for nepotism, cronyism and patronage, since the family as well as the wider community provide social security. The family or community takes care of their members, who, in return, must be loyal and in a way also repay the benefits they receive from it. The same is true of faith. While the southern, predominantly Catholic, very hierarchically organized part of Europe, encourages the cult of the family also joint and several community and several liability, the northern, mainly Protestant part, emphasizes individualism and individual responsibility which means less forms of corruption.

The corruption also prospers better in countries where Islam and Orthodoxy are the main religion. The influence of the dominant religion in the country is thus important. The influence of majority Protestantism has been tested several times and has proven to be an important factor for the low level of corruption in a country.

Today, there are many nominally Protestant countries that are de facto secular, while also many non-Protestant countries fight effectively against corruption. Thus, the influence of Protestantism appears to emerge from its egalitarian ethos, which could indirectly function as a support to the general orientation toward ethical universalism, literacy and the promotion of individualism.

Its role is therefore important, as it at certain stages of the development explains why the first countries that were well managed were predominantly Protestant. This does not mean that other religious traditions are incompatible with good governance, but only that they have not succeeded in compiling this particular array of factors at the right moment [ 16 ]. Similarly, the research by North et al. The results of their research have shown that there is a link between religion and corruption on one hand, and respect for the rule of law on the other, but not that the link is causative.

The questions therefore arise: Why do some religions respect the rule of law more than others and control corruption? Do the characteristics of a particular religion themselves lead to the results? Are there any differences in religious doctrines, practices or cultures that lead to such results? Are there other links that are not rooted in the religious culture, but are related to religious affiliation? A study titled Perception of corruption by authors Melgar et al.

They found that those who think that there is a lot of corruption also perceive it so and are consequently more willing to pay for it as they think or expect the society to function that way.

By using a wide and very heterogeneous set of data and econometrics, it has been shown that the social status and personal characteristics also play an important role in the shaping of corruption perception at the micro level.

While divorced women, unemployed persons, persons working in the private sector or the self-employed are considered to be in positive correlation with the perception of corruption corruption is perceived more and they are more willing to pay bribes , the opposite applies to married persons, full-time employees, people who frequently attend religious ceremonies and people with at least secondary education they perceive less corruption and are also unwilling to pay.

According to the classification of countries, they find that it can be proved that all African and Asian countries are in the upper half of the table, and the same applies to the former socialist countries and most of the East Asian countries.

People living in these countries perceive more corruption than others. On the contrary, most European countries and some of the former English colonies show lower perceptions than the average there are also exceptions and rank in the lower half, the same as half of the richest countries.

They also added that the geographical classification of countries has been strongly correlated with the corruption perception index CPI , which shows that individual characteristics and social conditions are specific factors that influence the perception of corruption. However, they have also found that better economic results reduce the perception of corruption, while the macroeconomic instability and income inequalities have precisely the opposite effect.

A very important factor that affects corruption is also demographics. A number of studies have shown that patriarchal society is more prone to corruption. This is confirmed by several researches that actually explore to what extent are men women corrupt. Several earlier, especially econometric contributions to the debate on who is more corrupt, men or women, argued that there is a link between a higher representation of women in government and lower levels of corruption.

An influential study of countries in Europe, Africa and Asia by the World Bank [ 20 ] confirmed this and concluded that women are more reliable and less prone to corruption. The subsequent findings were later reinforced by further research. Rivas [ 21 ] also affirms this in his research and notes that, according to the results of the survey, the conclusion could be that women are less corrupt than men and that the increase in the number of women on the labor market and in politics would help fight corruption.

Lee and Guven [ 22 ] in the survey: Engaging in corruption—the influence of cultural values and the contagion effects at the micro-level also raised the question of whether men are more corrupt than women. The findings of the research support the thesis that women are less susceptible to corruption than men, especially in cultures that require men to be ambitious, competitive and materially successful, as these factors significantly contribute to unethical behavior.

This was surprisingly well shown also in practice [ 23 ] when, due to gender equality, the Peruvian government a decade ago decided to involve more women in the police units. When the 2, female police officers were joined as traffic police officers, something unexpected happened; bribery was drastically reduced, and people welcomed the female police officers on the streets. In , Tanzi and Davoodi [ 2 ] conducted a systematic study of the impact of corruption on public finances.

Several important findings came to light:. Corruption increases the volume of public investments at the expense of private investments , as there are many options that allow for public expenditure manipulation and are carried out by high-level officials so as to get bribes which means that more general government expenditures or a large budget offer more opportunities for corruption.

Corruption redirects the composition of public expenditure from the expenditure necessary for basic functioning and maintenance to expenditure on new equipment. Corruption tends to pull away the composition of public expenditure from the necessary fixed assets for health and education, as there is less chance of getting commissions than from other, perhaps unnecessary projects.

Corruption reduces the effectiveness of public investments and the infrastructure of a country. Corruption can reduce tax revenues by compromising the ability of the state administration to collect taxes and fees, although the net effect depends on how the nominal tax and other regulatory burdens were selected by the officials, exposed to corruption. The influence of corruption on the economy was studied by the same authors [ 3 ] through several factors:.

Through the impact of corruption on businesses : The impact of corruption on a business is largely depend on the size of the company. Large companies are better protected in an environment that is prone to corruption, they avoid taxes more easily and their size protects them from petty corruption, while they are often also politically protected, which is why the survival of small especially start-up companies and middle-sized companies, regardless of their importance for the growth of the economy and the development, is much more difficult than the survival of large companies.

Through the impact of corruption on investments : Corruption affects a total investments, b the size and form of investments by foreign direct investors, c the size of public investments and d the quality of investment decisions and investment projects. But the effects of this type of corruption will be largely determined by the state of democracy in the country. Using growth data from over a hundred countries between and and combining this with different measures of democracy and corruption, the authors find that, on average, the effect of corruption on growth is positive in autocracies as compared to democracies.

The authors suggest that the positive effect of corruption on growth in autocracies is because the authoritarian nature of political regimes can give firms the confidence that the ruling powers will deliver on the deals that they have entered into. These credible commitments are vital for investment and growth.

The expectation is that the political leaders, even as they seek rents, will allow businesses to operate freely. In contrast in democracies, political commitment to businesses may seem less credible because of the frequent change in ruling parties.

But the authors find that the effects of corruption on growth vary with the degree of democracy-- a higher level of corruption lowers growth as the economy becomes more democratic. For instance, Finland, a mature democracy, was found to experience negative growth with increased corruption. This is not explained. The case is, of course, much stronger for grand embezzlement which is difficult to justify on any grounds.

Ang then proceeds to a nice empirical estimate of the four types of corruption in 15 countries. The results are interesting. It turns out that access money corruption dominates in China and the United States, speed money in India and Russia, grand theft in Nigeria.

Yet the differences in the relative importance of these various types of corruption between countries are small. Just by looking at the numbers for Russia vs. China, or China vs. India pp. The stories are interesting and instructive and one wishes that Ang would have included a few more as she obviously could, given that some are tucked away in an Annex. Here she argues that lower level corruption in China follows a prebendist method of profit-sharing.