The effects of corruption

Saifuddin Ahmed ponders how we got here and how we can move forward

As I ride along in rickshaws or pass them by in a car, I can't help but wonder: what makes us poor. Are our people lazy? Not judging from the rickshaw-puller. Have we just been given less by God? Fertile land, natural gas, a system of rivers. Nope, we definitely were not divinely short-changed.

In the chicken industry, where I spent the last few years, farmers did poorly for one of two reasons, poor inputs or poor management. Diseases, adverse weather -- all of those are only problems if the farm is managed poorly. National poverty can also be blamed on poor management. However unlike a farmer, who has the lack of knowledge to blame for poor management, a nation cannot blame any thing other than the lack of desire. Poor management on a national scale is an act of commission. Countries like Bangladesh are deliberately poorly managed.

Wealth is created by a combination of human resources (hard work, education, know-how, etc), man-made resources (bridges, roads, communication systems, factories, etc), and natural resources. Conventional wisdom holds that poor countries became rich by investing in the man-made resources and human resources. However, the investment doesn't come on its own. It has to be driven, and the right incentive structure and platform must be created for the investments to have a maximal effect.

Let's take the example of Bangladesh. Why have we not invested in our education? We have. In fact our education sector has consistently gotten the highest allocations in our budgets. We've already mentioned the hard work of our people. How about the man-made resources. Are we investing in those? Yes, but we're making very poor investments in order to steal most of our capital.

The key to our poor investments and our poor performance in improving our human capital and virtually all the reasons for our poverty can be summed up in one word. Corruption. Corruption is the reason all the investments that should have led to wealth failed. In fact all the structural causes we give for our poor development -- whether it's poor

Corruption is by no means unique to Bangladesh. It is a common feature of most countries that have failed to develop. There are examples of countries that developed despite pervasive corruption. However, corruption stacks the odds heavily against development.

Corruption is what drives the career choices of politicians. Because of corruption politicians consider public office as a means of earning money. And to earn this money they have to promote further corruption. The output of a manager is determined by the output of his subordinates. So goes the business of corruption as well. For a minister to make money, he has to ensure that the secretaries make money who in turn makes sure their deputies make money and pass some along. Top level corruption percolates through the system to a point where drivers in ministries have drivers of their own.

To keep the system going corrupt politicians also have to ensure that they stay in power. One way to do that is to hand out political favours. This includes jobs, admissions to schools and universities, contracts. Thus a meritocracy is systematically destroyed in order to provide currency to buy votes. Another method of buying votes is with muscle. Thugs provide money and muscle to politicians. In return the politician ensures that the thug can carry on their money making activities -- typically extortion, drugs, and prostitution -- without interference from the police.

The direct affects of corruption are severely felt in public services. Systems are geared towards draining corruption taxes. Take the road system for example. There are probably more speed-breakers per km of road in Dhaka than any other city in the world. Why? Because there are more accidents. Why? Because traffic laws aren't enforced. Why? Because the enforcers are too busy collecting bribes.

Keep asking why and every problem in this country has its roots in corruption. Speed-breakers are just a system to free up time for the police to engage in other activities, such as taking bribes from trucks. The damage it does to the economy is significant.

Movement of goods and services are slowed down. Vehicles spend significantly more fuel decelerating and accelerating and the wear andtear on vehicles in increased thus further increasing the chances of accidents.

In the public service recruitment, a lot of money changes hands to get a government job. Thus government officials see it as an investment to be recouped. The more lucrative the under the table income, the more expensive the job. For example a customs job costs significantly more than a foreign service job. Jobs are also created for the sole purpose of corruption. Creating new jobs means more people paying for the privilege of buying that job.

A corrupt government is like a King Midas in reverse when it comes to public sector enterprises. All developing countries start out with large public sector investments to develop industries that would not otherwise develop. Examples are telecommunications, power, and airlines. In Bangladesh the public sector industrial development mostly arose out of the socialist leanings of the government in the 70s. That failed experiment with nationalisation has single-handedly caused the destruction of the jute industry that is still struggling to come back despite world demand being up. It also severely damaged other industries and discouraged investments for many years. And the mounting losses from companies such as Biman or Bangladesh Shipping Corporation or Bangladesh Chemical Industries Corporation takes a huge toll on the public exchequer. The rickshaw-puller I mentioned earlier will never see the inside of a plane but his taxes (VAT, license fees, and other indirect taxes) will go to subsidise a minister's free trip on Biman.

The indirect costs of corruption is more difficult to quantify. To feed the corrupt system we have to pay more tolls raising the cost of goods and services for everyone. Because of the huge underground economy, fiscal policy has a negligible effect on inflation. Fiscal and monetary policy is rendered impotent by the huge impact of black money in the economy.

There are even more indirect costs. Corruption is seriously damaging the society and with it the economic potential. The younger generation is losing its work ethic and developing a sense of entitlement. Why should someone try to be productive when the least productive members of society are the wealthiest? Why invest in risky ventures when you can focus your efforts in getting a government concession.

Corruption has also become socially acceptable. Gone are the days when no respectable family would allow their daughters to marry someone with even hints of corruption. Now marrying a corrupt official is not only acceptable but even commands respectability.

And we finally come to poverty. With a corrupt system in place, the mechanisms to fight poverty automatically fail. Without the proper rewards for merit and hard work the poor cannot get out of poverty because they cannot buy their way into a good school or a job. With the increased cost of starting and running businesses people with a small amount of capital cannot start a business and create employment. Because of corruption, anti-poverty measures only benefit the rich and the corrupt. Even natural disasters affect the poor more as flood prevention measures and relief and rehabilitation never make it to the poorer segments of society.

Is there an easy fix out of our predicament? No. An addiction takes a long healing process. Moreover corruption is viral in nature. Once it reaches beyond the capacity of the built-in immune systems to suppress, it increases and spreads rapidly. Only very strong measures can reverse its course now. It's an uphill task but not an impossible one. And a multi-pronged effort must be made.

Firstly, top level corruption will have to be eliminated. Secondly, the education system needs to be free of corruption so that we can establish a new meritocracy. That should be followed by an overhaul of government recruiting systems. The prestige of government service should be restored by making it a well paid and respected profession once again. The size of the government needs to be reduced. This will allow for better paid and more efficient officials. The government needs to get out of the business of doing business and focus on public services. All government companies in industries where the private sector has already developed should be sold or shut down. These are the broad strokes. The details must be worked out by bureaucrats and politicians, once we manage to get some that will put the interests of the nation first.

Saifuddin Ahmed studied Economics at Oberlin College. He has worked in IT consulting, animation, and, most recently, in the poultry sector in Bangladesh. He now operates his own agro-business.