Corruption and its effect on business and nations

Thursday, 16 June 2011 00:45 -     - {{hitsCtrl.values.hits}}

 

THE impact of corruption on investments

Often described as mankind’s most weakening social disease, corruption exacts a heavy toll on a country’s political, social and economic development and above all, ruptures its national consciousness and ethos. 

Some rationalise that corruption is a victimless transaction between two consenting adults who both stand to profit from it. This cynical justification appears to be extremely distasteful. Combating the scourge of corruption should not be an end in itself; it should be a means of ensuring just and fair governance for all.

 

 

 

Our determination to confront corruption must therefore take on an urgent aspect because of its wholly negative impact on poverty alleviation, sustainable human development and the improvement of the social and economic conditions of all levels of society. In a word, corruption is destructive of the very values on which we aspire to build society.

Recent World Bank research has consistently shown that when corruption is well under control in countries, they are more likely to be attractive to investors. (There are not many countries like this in the South Asian region where we come from). There is also evidence to suggest that their ability to reduce poverty and improve the lives of their people significantly is greatly enhanced.

On the flipside, we see numerous countries, in many parts of the world, throwing away decades of social and economic progress and trapping millions of their citizens in a vicious cycle of poverty because they have allowed corruption to become, not merely a fact of life, but a way of life, with all that this implies in social, economic and political terms.

These countries are putting at risk all prospects of capital inflows because potential investors now have a much wider choice of options as far as investment destinations are concerned.

Addressing systematic corruption

In a global economy, investors are spoilt for choice and will not risk their investments in countries with high levels of corruption. Countries that want to be recognised in the mainstream of international business have no choice but to address the problem of systemic corruption.

They have to strive in order to ensure that a sound legal framework, rules and regulations which are clear and transparent, and a regime of effective and accountable enforcement are firmly in place.

Strategies for fighting corruption are indeed necessary, however they will not amount to anything without a strong commitment to institutionalising a zero tolerance policy for corruption. I stress on zero tolerance and not zero corruption because such ideals will be humanly impossible to achieve, even in a country like Finland with enviably low corruption rates. 

All we can ever hope to do is to get on top of it, and not allow it to overwhelm us.

The new economy

Now let me stress on the new economy. What bearing has it on the fight against corruption and the economic wellbeing of nations? 

Irrespective of one’s personal views, many will agree that globalisation offers some hope of success in curbing corruption because of its demand for much greater transparency and accountability in the management of resources including the environment. Globalisation demands strict compliance with corporate best practices and ethical standards.

It also demands that:

n A well-regulated capital market which brooks no “insider trading” and similar forms of manipulation.

n A well-managed banking system maintaining the highest principles of prudence, diligence, stewardship and trusteeship.

n Political stability as a means of ensuring that the playing field will always be level and that the goal posts will not be shifted while the game is still in progress.

n And last, but not least, a sound legal framework which will guarantee equity and justice. This underscores the independence of the judiciary and legal services.

These are only the minimum prerequisites and both governments and companies in our region should seriously think about the possible consequences of not playing by the new global rules. The rules are no longer ours to make and manipulate. Although adhering to these rules is a heavy price to pay some may claim, however the long-term benefits of globalisation far outweigh any minor shortcomings.

Complex circumstances

It is important when discussing corruption in particular countries, to recognise the special and complex circumstances that give rise to it. No two countries possess the same economic, social and political trajectory.

Studies show that a common cause of corruption is the absence of a strong government, political and state institutions and pressure groups such as the judiciary, the legislature, the office of the auditor general, the police, the office of the ombudsman and watchdog regulatory agencies. 

The important role that the media, civil society organisations and the private sector can play in the fight against corruption is equally important and should not be underestimated.

Developing strong institutions, both in the public and corporate spheres, is a crucial factor in controlling corruption, and if such institutions are in any way compromised, it will contribute directly to the spiralling problems of unethical public behaviour, as we have seen in many countries facing anarchy and unrest.

The main purpose of developing strong institutions as part of a national integrity system is ‘to make corruption a high risk, low return undertaking’. As such, the system is designed to prevent corruption from occurring in the first place, rather than relying on penalties after the event. 

Fighting corruption is a long and strenuous process requiring substantial resources. It is interesting to note that in general, the least corrupt countries in the world are the richest countries.

While generous resources are admittedly useful in developing anti-corruption strategies, of greater importance is the ability of these countries to develop and sustain sound social, political, legal and economic institutions long term. 

Political will

However, no anti corruption campaign will get off the ground without what is referred to as ‘political will’. In other words, those on top of the pile must themselves be convinced that corruption is an unprofitable business that renders their ability, in the long run, to control fundamental events such as sustainable economic development that much less effective.

If innovations are to mean anything at all, they must be institutionalised and they should not be identified with individuals, however committed they may be in fighting corruption. Individuals have temporary bearing, whereas systems, codes and procedures form an integral part of governance of every developed society, and will be in focus for time immemorial. 

It is worth repeating that the fight against corruption in order to create a climate of business confidence, among other nuances, will depend very much on the political will and commitment of the government. The campaign against corruption must be owned by all of us. No government on its own can launch a successful war against corruption without the involvement of all sections of the community, including the private sector.

The best innovation of all is a well-crafted legal and social framework that provides for checks and balances as a basis for ensuring ethical public behaviour.

Mass media and minimising corruption

The integrity of journalists must first be established before mass media can play a pivotal role to combat corruption.

Journalists can never be expected to talk about corruption if they are biased. They must first be clean and above all be perceived to be clean by the people before their political voice can be trusted by the readers and viewers. If you cannot trust the messenger, how could you trust the message?

The words governance, transparency and accountability are distant concepts and not many people actually understand what they are all about. But on the contrary, if we ask many of the people what the biggest problem faced by the country is, the majority would cite corruption as the root cause. So the word anti-corruption should gain more weight in our country.

The media can play the role as a whistle-blower in corruption cases. But, more importantly, people can also play the same role, if not better. It is the media that can shed some light to the public and encourage them to report corrupt practices through media channels and other civil societies. But, since anti-corruption is a burning issue amongst the public, programmes focusing on it can easily attract the attention of millions of people and garner high ratings. 

According to the World Bank, corruption is the single greatest obstacle to economic and social development, since it undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends.

A broader definition of governance includes six universal principles:

n Respect for human rights

n Respect for the rule of law

n Political openness

n Accountability and 

transparency

n Administrative and 

bureaucratic capacity

n Efficiency

The mass media can definitely contribute towards educating the public on all those elements. At the very least, mass media can make the system more transparent to the public. But mass media can play a much more important role than that. Foremost, the mass media can help people understand the ways of working of the government and the business sector.

Secondly, mass media can participate in the political decision-making by amplifying public opinion. Thirdly, in their investigative reports, the mass media can hold government officials and business leaders accountable for their wrong doings.

Law, the guardian of civilisation

The law is in fact the guardian of civilisation. The law is not merely the concern of lawyers and legal professionals. It is everybody’s concern! When the law collapses, civilisation crumbles. Under no circumstance must the law be contravened. But that is no longer the daily occurrence. Most instances people take the law into their hands because they think the government can no longer enforce law. This leads to rebellion and resistance.

The business sector, with the practice of good corporate governance achieved through enforcing honourable codes of business practice and conduct, can play a pivotal role in our country’s legal reforms. The opportunity is clear. The media and the business sector can work hand in hand to facilitate legal reforms.

Without the mass media, ideals like openness and accountability are impossible to achieve and implement in contemporary democracies but sometimes the mass media can also hinder transparency. Politicians and business people can stimulate public opinion through rhetoric and media manipulation that harbours no real intent. Politicians and business leaders need to stop using media events to manipulate transparency.

The mass media today is increasingly intruding into the private lives of public figures. It has endeavoured to make the private lives of public figures transparent to the public at large. The public, they argue, have a right to know. 

Although such revelations may ultimately prove immaterial, journalists often think that is important to place all potentially relevant information before the public and let the public decide whether it is relevant or not.

If you are clean as a whistle, there is no reason why you should be afraid of the press. One should never feed journalists with money or other favours. One has to only provide them with sufficient information – good and usable information for that matter – so that they can help to educate the people about good governance, transparency and accountability. Without strong, proactive media governance, a nation and state cannot possess pillars of democracy and good governance. Also the public and corporate sectors will collapse without reasonable media scrutiny. 

In short, the mass media can be helpful if you have good news to tell. Otherwise, they will have a field day on your bad news.

(The writer is Managing Director/CEO – Chemanex PLC and Chairman, The Finance PLC.)

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