Corruption and Bribery:
Poverty and Economic Development Impacts
Corruption and bribery are not victimless crimes. They hit the poorest people hardest and undermines economic development.
Corruption [is] among the greatest obstacles to economic and social
development
The World Bank
No country is immune from corruption. [1] It flourishes where the criminal justice system and governance are weak, where decision-making is unaccountable and access to decision-makers is dependent on restricted social networks, where pay is low and where management controls are weak.
Poor people are the worst affected by corruption
The World Bank notes that the poor suffer the most from the petty corruption
for the provision of public services: Empirical analysis has shown that the poor pay a higher share of their income
on bribes than the rich
An IMF study shows that an increase of just 0.78 per cent in corruption reduces the
income growth of the poorest 20 per cent of the people in a country by 7.8 per cent a year.
The Final Communiqué from the 2006 G8 St. Petersburg Summit is clear: The net effect of corruption is felt most directly, and disproportionately,
by the poor.
Corruption compromises the effectiveness of aid
In poor countries, [corruption] can kill.
Money meant for drugs for a sick child, or to build a hospital,
can be siphoned off into overseas bank accounts or to build a luxury house.
Hilary Benn, Former UK Secretary of State for International Development
An estimated $100 billion of World Bank loans have been lost to corruption since the Bank's foundation in December 1945; when other multilateral development banks are included, the figure rises to $200 billion. Such 'leakage' leads to aid 'disappearing' before it reaches the poor.
Corruption diverts expenditure away from health, education and the maintenance of infrastructure to high 'kickback' areas such as new construction and defence
The World Bank points out that while this corruption hurts society in general,
it hurts the poor most since they are more vulnerable
and dependent on the quality of governance and state support.
Bribery and corruption...impede the efforts to reduce poverty.
In particular, the diversion of funds through corrupt practices
undermines attempts by citizens to achieve higher levels of economic,
social and environmental welfare.
OECD
Corruption creates incentives for investment in capital-intensive projects at the expense of labour-intensive industries, which traditionally employ poorer people
Corruption reduces a government's tax revenue by as much as half, thereby reducing income available for reducing poverty
Corruption increases the cost of projects
In the construction industry, project costs typically increase by more than
25 per cent as a result of corruption. Similar mark-ups have been reported in
the defence and finance sectors. The Asian Development Bank (ADB)
states that corruption can add between 20 per cent and 100 per cent to the procurement
of government goods and services
. Overall corruption-related losses can total more than a country's foreign debt
.
Corruption is a key element in economic under performance
and a major obstacle to poverty alleviation and development
UN Convention against Corruption
Overpriced and poorly planned projects increase unsustainable nation debt. When countries cannot keep up with the debt repayments, cuts in public services fall disproportionately on poorer people.
The arms trade is the most corrupt business in the world. Every year, some $40 billion worth -- give or take a few billion dollars – of tanks, artillery, bombs, grenades, rocket launchers, attack helicopters, fighters and other lethal weapons are traded around the world. Of that total, an estimated $3 billion is thought to consist of bribes, generally paid through ‘agents’ in the form of ‘commissions’. Without these bribes, many arms deals would simply not happen.
Corruption deprives countries of finance for development
The impacts of corruption on investment and economic growth are complex.
Multilateral Development Banks estimate that some $400 billion has been looted from African states and stashed in foreign bank accounts, around $140 billion from Nigeria alone. The African Unions estimates the $148 billion a year leaves the continent because of corruption, and 80-90 per cent of the illicit overflows never return to the continent. Between $20-40 billion of corrupt money is estimated to flow from transition and developing countries into Western banks annually.
Improved governance benefits poorer people
The World Bank states that:
Corruption... distorts poor peoples relationships with and trust for public officials, the police and people in authority who extort bribes from them
The World Bank
countries that improve on control
of corruption and rule of law can expect
(on average), in the long run, a four-fold increase in incomes per capita.
Thus, a country with an income per capita of US $ 2,000 could expect to
attain US $ 8,000 in the long run by making strides to control corruption.
Similarly, such a country could expect,
on average, a 75% reduction in child mortality
Sources
- World Bank, Anti-corruption; Corruption, Poverty and Inequality; Corruption, Growth and Investment
- OECD Directorate for Financial, Fiscal and Enterprise Affairs, The OECD Guidelines for Multinational Enterprises: Text, Commentary and Clarifications
-
Hilary Benn, Secretary of State for International Development,
speech on
Governance and Development
at Holyrood, Edinburgh, 22 June 2006 -
Gupta, S., Davoodi, H. and Alonso-Terme,R.,
Does Corruption Affect Income Inequality and Poverty?
IMF Working Paper, May 1998 -
US Senate Committee on Foreign Relations, Evidence of Professor Jeffrey Winters,
Combating corruption in the Multilateral Development Banks
, 13 May 2004 - Control Risks, International Business Attitudes to Corruption – Survey 2006
- Asian Development Bank, Anti-Corruption Policy: Description and Answers to Frequently Asked Questions, Manila, Philippines, 2000
-
UN General Assembly,
Global Study on the transfer of illicit origin, especially funds derived from acts of corruption
, 28 November 2002 - Africa All Party Parliamentary Group, The Other Side of The Coin: The UK and Corruption in Africa, 2006
- Joe Roeber, ‘Hard Wired for Corruption’, Prospect, August 2005
Footnote
1. A common definition of corruption is the abuse of public or private office for personal gain.
(Asian Development Bank, Anti-Corruption: Policies and Strategies,
Description and Answers to Frequently Asked Questions, Manila, Philippines, 2000, p1)
The UK government defines bribery as "the receiving or offering/giving of any benefit
(in cash or in kind) by or to any public servant or office holder or to a director or
employee of a private company in order to induce that person to give improper assistance
in breach of their duty to the government of company which has appointed them." (Foreign and Commonwealth Office, UK Bribery and Corruption Law, May 2006)
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