Excising the cancer of global corruption

By Frank-Jürgen Richter

Business Times, October 25, 2011

The Singapore example is worth emulating by governments around the world.

When it comes to curbing corruption, the legacy of Singapore is exemplary. Its founding father Lee Kuan Yew had three main concerns: to ensure national security, to boost the economy, and to resolve social issues. The prevention of corruption lay at the heart of the governance required to achieve these goals. As Mr Lee has said: ‘The moment key leaders are less than incorruptible, less than stern in demanding high standards, from that moment the structure of administrative integrity will weaken, and eventually crumble.’

Singapore has followed its own approach to dealing with corruption, including paying market-based salaries to officials, which has reduced, if not eliminated, the temptation of rent- seeking that is so common in the developing world.

At the moment, corruption, broadly defined, is an issue in developed nations as well. The public in the United States is seething with anger over the excessive pay packets of bankers and other top corporate executives. And in Europe, in addition to disgust at top-hat salaries, the public is angry with government officials milking their expense accounts. Austria and Italy are currently plagued by a series of corruption cases.

Even the BRICs – the grouping of Brazil, Russia, India and China – which are touted as the leaders among emerging economies and are dynamic in many ways, do badly when it comes to corruption.

Transparency International (TI) publishes an annual Corruption Perceptions Index, which in 2010 covered 178 countries. Brazil was ranked at 68, Russia at 154, India at 87 and China at 78. The latest entry to the group, South Africa, did relatively better, ranked at 54. By contrast, Singapore, was ranked 1st out of 178, jointly with Denmark and New Zealand.

Globally, TI identifies the police as the most frequent recipient of bribes in the past 12 months, and almost six out of 10 people report that corruption in their country has increased, with the biggest rises perceived to be in North America and the EU.

We are clearly facing an unprecedented problem with corruption that is not only endemic in the developing countries, but is worldwide.

Like many other social problems, corruption hits the poor the most. They have to bribe their way through almost every day of the year. Further, their poverty may arise from systemic failures in their countries – which are themselves partly a result of corruption. For example, they are often poor because they and their families were poorly educated because of a corrupt education system. They also suffer because of dubious land rights from which much of their profits are grabbed by rent-seeking officials. Or else they work in menial jobs that pay below the official minimum wages, imposed by unscrupulous managers.

The managers and officials themselves also suffer in their own way. For instance, junior ministers in developing countries observe their superiors pocketing millions of dollars in bribes, and are emboldened to emulate these practices. In principle, this behaviour is no worse than that of a poorly paid policeman demanding cash from a poor trader.

Eventually, the mounting rage against corrupt officials and leaders can cause uprisings, as we saw in Tunisia and Egypt earlier this year.

While one cannot prescribe revolution as a policy against corruption, the huge financial and social costs of corruption need to be better recognised.

Just think how much more productive the BRICs might be if their officials behaved honestly and their large populations could trust their governments and leaders.

If they could trust their neighbours as well, billions of dollars of inefficient spending on armaments and the war machine could be freed up and used to solve social problems.

American political scientist Francis Fukuyama, after analysing political and economic systems, suggested that societies endowed with high social capital tend to have an economic structure based on large enterprises which are managed by professionals. Trust is an essential element in this process. If trust can pass from the level of the family to social, professional and business relationships, it would be possible to achieve the high level of social capital to which Mr Fukuyama refers. We would hope that had occurred already in the developed nations of the world – but this is not so, according to Transparency International, which notes that in many developed nations, levels of distrust are rising.

Corruption thrives in an administration when there are plenty of loopholes for it to flourish unnoticed and unchecked. Recognising this reality, many governments can take a leaf from Singapore’s playbook, which embodies the idea that if there is an efficient system of governance that is tight and well controlled, there will be less room for corruption.

The writer is founder and chairman of Horasis, a global business community. Horasis hosts annual meetings to advance solutions to the most critical challenges facing corporations today.

Frank-Jürgen Richter is the founder and chairman of Horasis, a Zurich-based global business community