Defeating corruption to help development - Coursework Example

? Defeating Corruption to help Development Introduction When citizens become the custodian of the goods and services of the it is indeed a great and an honorable responsibility. Simultaneously, they are also entrusted with the duty of distributing these goods among the society on behalf of the country’s Government. The public servants have to manage large amount of the State’s resources for their work. In many situations, the government officials are lured into securing a part of the State’s resources for their personal benefit. This is usually accomplished by adopting some unfair means. Such an activity of exploiting a public service for some personal gain is known as “corruption”. Examples of corrupt illegal practices include offering and accepting of bribes, practicing black-market activities, stealing public resources etc. Corruption has affected most of the bureaucratic systems of the modern-day countries. Both senior government officials as well as low-ranked public servants have been found to be engaged in unlawful activities. The corruptive malpractices have gradually eaten into the health of the public service organizations. They have originated from different social and institutional factors and have now become deeply embedded in the social system of countries. The illegal activities are prevalent on a regular basis and have come to be accepted as an integral part of the bureaucratic systems. In many countries corruption has become so endemic that it is perceived as normal. People are not necessarily genetically programmed to pay bribes, yet they do it for a range of complex and deeply-seated institutional and social reasons. It is more difficult to break this cycle of normality than penalizing individual corrupt acts. Thus, Governments of different countries have encountered numerous difficulties in eradicating corruption. In the early 1990s, the Russian authorities had to implement a number of institutional reforms to tackle corruption in the public as well as the private sector. The nature of Corruption Corruption is defined as the ‘abuse of public office for private gain’ (USAID, 2005). It refers to the malpractice of taking undue advantage of an existing system for catering to some personal requirement. Governments of different countries have introduced various public service programs for the benefit of the local population, especially the poor section of society. However, most of these public service systems have been the breeding ground for corruptive practices. According to the USAID Anticorruption Strategy (ACS), corruption pollutes the fair and unbiased system of the national democratic institutions by placing them at the discretion of the privileged class citizens. This reduces the efficiency of the public service systems: the goods and services meant to be delivered to the poor population are channelized elsewhere. These corruptive practices act as a huge barrier to the governmental efforts of promoting social, political and economic development of the society. Thus, corruption is a significant hindrance to the economic development of a nation (USAID, 2005, p.8). Corruption is prevalent in varying degrees in almost all economies of the world. The national Governments have implemented a number of measures to deal with this bad practice. They have mainly adopted a two-pronged strategy in this context. On one hand, they have tightened the rules and regulations of the bureaucratic systems to prevent the incidence of corruption among the public servants. On the other hand, governments have also administered strict punishment to the citizens found guilty of being involved in corruptive practices. (USAID, 2005. P.8-9s) Human Behavioral Reasons behind Corruption Human Psychologists and Behavior Specialists have tried to trace the origins of corruption to help them understand the reason as to why normal people indulge in such unlawful behavior. Human society has been plagued by corruptive malpractices right from the ancient times. The old civilizations like India bear testimony to this fact. The famous strategist ‘Chanakya’s’ work on public administration written in the fourth century B.C, provides a hint of the prevalence of corruption even in that ancient period. He stated that that it was natural for the King’s servants to acquire a part of the State’s revenue for themselves, even if that meant going against the laws of the kingdom. Since the Government servants handled the State’s revenues most of the time, they were easily lured by the desire of acquiring a part of it, in excess of their earned salaries. Chanakya likened the king’ revenues to a spoonful of honey placed at the tongue tip of the government servants and the latter succumbed to the temptation of getting a taste of it. He goes onto make an important observation by declaring that it was difficult to identify corruption in the government systems. Since the public servants were always dealing with national goods and services, it was nearly impossible to tell whether they were acquiring them for the state or for themselves. He described that there were forty such ways of embezzlement, and gives a precise account of each of these ways. In recent times, human behavioral specialists have undertaken several studies to understand people’s psychology behind committing these crimes. The findings of these researches suggest that humans are not genetically inclined towards indulging in unlawful behavior. Thus the corruptive practices prevalent among the population cannot be attributed to any hereditary cause. People themselves ruled by their intensions are solely responsible for all the actions undertaken by them. However, humans are required to survive in society under a complex set of circumstances. They are expected to function within a complicated institutional framework which sets out the rules for people’s behavior in society. It has been found that humans are forced to break these accepted social rules and resort to corruptive malpractices owning to number of reasons. Foremost among them are some social and institutional factors which have their roots in the intricate fabric of human society. Therefore, corruption is a deep-seated disease of the social institution. Arising out of certain communal anomalies, it has gradually spread its fangs to all layers of the present social network. Since the corruptive practices are so deeply embedded in the system, it is difficult to eradicate them completely from the social scenario. In many countries corruption has become so endemic that it is perceived as normal. People are not necessarily genetically programmed to pay bribes, yet they do it for a range of complex and deeply-seated institutional and social reasons. It is more difficult to break this cycle of normality than penalizing individual corrupt acts (Bardhan, 1997, p.1320). Corruption as a National Epidemic Citizens engaged in public services are tempted to flout the governmental rules and regulations by resorting to a number of illegal actions. Examples of some common corruptive practices include public servants accepting bribes to accomplish certain important tasks, members of the Public Distribution System engaging in the black market sale of the essential commodities and so on. All these malpractices are undertaken by the bureaucratic servants to make some excess personal profit, over and above their regular incomes. In the modern governmental systems, corruption has been found to be prevalent among different levels of public servants. Officers serving in high bureaucratic ranks engage in illegal activities as much as their counterparts in the lower positions. Thus corruption has become rampant from the lowest strata of a public service organization right through to the top managerial level. In many countries, corruptive practices like offering and accepting bribes have become very common in bureaucratic companies. Such are the incidence of these illegal payments that they have come to be accepted as a part of the existing system. No one questions their validity any longer. Citizens are also aware that they have to afford some extra payments in order to successfully get through a bureaucratic procedure. In case, these payments are not made, the process might take months to accomplish or in some extreme cases, may not be completed at all. In this way, illegal practices have become an integral part of modern public service organizations. Such is the regularity of their occurrence that both the citizens as well as the government servants have accepted them as a part and parcel of their system. Thus, corruption has become entrenched in almost every strata of the bureaucratic system. It has assumed the proportion of a national epidemic that threatens to eat into the vary roots of the various governments. This nature of corruption makes it even more difficult for the national authorities to deal with it. It is a herculean task to do away with practices that have become a norm under the existing system. Governments would have found it much easier to deal with corruption, if it had been restricted to some individual illegal acts. In such cases, it is possible to identify the persons guilty of the crime and implement strict punitive measures in their favor. However, when the entire bureaucratic system of a country is steeped in corruption, it is impossible to single out individual perpetrators of the malpractices. It seems as though all the agents of the system are involved in such unlawful activities. Reforming such a corrupt bureaucratic system is infinitely more difficult than dealing with individual acts of corruption (Bardhan,1997, p.1320). The Case of Russia in the post-Communist Regime Countries across the world have to deal with varying degrees of corruption in their respective bureaucratic systems. A comparison between the different nations reveals that communist countries and their succeeding transition economies have witnessed widespread illegal activities in their governmental organizations. This was mainly due to the integration problems encountered during the transition of the nations’ bureaucracy system from one regime to another. A classic example is the case of the Russia, which was formerly a part of the USSR (United Soviet Socialist Republic of countries). The features of the governmental system existing under Russia’s previous communist regime had to be seamlessly integrated into the new bureaucracy of the post-communist era. This proved to be a difficult task and did not go without its share of problems. Any transition process is expected to encounter its own share of hindrances and results in a temporary confusion in the economy. As the country shifted from one socio-political regime to another, the citizens were at a loss regarding which regulatory structure to follow. A section of the population also took advantage of this chaotic situation and resorted to illegal bureaucratic activities within the economy. This rampant corruption in Russia came to the fore in the post 1989 era. This was the period when the country was administering the donor-aided technical assistance programs in its economy. These technical programs were implemented to reform the different governmental departments including the executive and the judiciary arms and in general improve the political scenario of the country. The reform programs were also aimed at transforming existing the social and economic condition of Russia. However, the country’s civil servant officers and politicians created major impediments to the progress of these assistance programs. These public officers had been thriving on a culture contaminated by the corrupt practices of ‘clientelism, favoritism, bribery, extortion’ and so on. Once the executive system was reformed, these malpractices were sure to be strictly prohibited in the economy. Under the new socio-political regime, these bureaucrats would not be able to make extra profits for themselves by these methods. Thus, they refused to do away with their long-standing bureaucratic system which created a major impediment in the successful implementation of the reform programs. Subsequently, the donor countries were required to reformulate the strategy of their technical assistance programs for Russia. They addressed the loopholes of the governmental bureaucratic system so that the public servants were provided with least opportunities of engaging in these illegal practices. They also attempted to reduce the monetary incentives accruing to the public servants from these corrupt activities. Following these methods, new redesigned technical aid programs sought to be administered in the Russian economy. (USAID, 2005, p.8) The Transfer of Industrial Property Rights to Private Ownership A major issue arose in the Russian economy regarding the transfer of the property rights of the country’s industrial firms. Under the communist regime the Government was the owner of the firms as they were considered to be the collective property of the society. Since the Government was the custodian of all the socially owned resources, it also owned the property rights of the Russian industrial firms. However, when the communist regime broke down in the country, these industrial rights had to be transferred to the private capitalists of Russia. However, this process of transfer was not an easy task. It needed to be governed by strong institutional regulations including corporate government rules and overseeing laws. However, the post-communist government failed to foresee such a requirement and accordingly did not take any measures in this respect. The transfer of the industrial property rights were conducted without the adequate supervision of regulatory laws. As a result of this, the private Russian entrepreneurs who succeeded in acquiring major stakes in the industrial firms began resorting to certain illegal practices. They began to indulge in asset striping activities and several such other ‘skimming’ practices. The private owners of the Russian industrial firms were not concerned about maximizing the investment values of the firm. If they had directed their efforts to this end, the firms would have maximized their production and generated increased profits. This in turn would have yielded a handsome return on the shares invested in the firm. Instead of this, the entrepreneurs only extracted the value of their own shares and invested the money in overseas investments. These offshore investments seemed more lucrative to them compared to their indigenous private firms. During this time, The Russian economy became the seat of corruption in the public as well as the private sectors. In the private sector, the business entrepreneurs were involved in widespread “self-dealing” practices, the unfair treatment of the agency relations with respect to the minority shareholders and other outside people and an utter neglect of their respective fiduciary duties. The public sector was not to be left behind in this respect. The bureaucratic public servants used to supply a part of the State revenue to the private entrepreneurs for making the down payments of the Russian industrial firms. The entrepreneur fell short of necessary resources for servicing these payments. Instead they utilized their high-level bureaucratic contacts to gain access to the financial resources. During that time, there were privatization auctions held in the Russian economy, where the major industrial companies were auctioned by the State to the private businessmen. Even though these entrepreneurs were starved of financial resources, they acquired the State Revenue illegally with the help of the public servants. The entrepreneurs then used these resources to acquire the industrial firms at almost a fraction of the real values, In this way, the private business took the help of the corrupt public servants to rig the privatization auctions. Corruption in the Public and Private Sectors in the Russian Economy It was further found that the process of privatization of the Russian firms created a conducive atmosphere for the public and the private corruption practices to flourish in the economy. In fact, under these circumstances, the private and the public illegal practices used to reinforce each other’s prevalence. The private Russian entrepreneurs were engaged in the practice of acquiring business firms by unscrupulous methods. They also indulged in a host of other illegal activities after the acquisition of these firms. They were ably supported by the Russian bureaucratic officers in their efforts. The corrupt public servant officers also protected the private entrepreneurs in case of criminal investigations against the latter’s activities. In this way, the corruption in Russia’s private sector encouraged the same practices in the public governmental sector as well. The Russian economy was the breeding ground of a vicious cycle of corruption where the illegal activities in the public and private sectors kept following each other in a cycle of events. In the private sector, the new business entrepreneurs strengthened their nexus with the bureaucratic officials to gain access to certain unfair advantages. Some of the businessmen even had ties with the underworld Mafia in the country and this made the exercise even greater clout in the society. They utilized their resources to give bribes to the bureaucratic officers and the judiciary authorities in order to accomplish some tasks in their favor. The public corruption spread to the other governmental areas including the tax service practices, the regulatory agencies, the law enforcing authorities and so on. Thus even the government officials were not interested in promoting the performance of the industrial firms. The private entrepreneurs who were the new owners of these firms showed little interest in the maximizing the companies’ profits. If this was accomplished, it would have automatically maximized the value of the entrepreneur’s investment in the firms. However, the company owners did not follow such a policy. Instead, they began to indulge in ‘asset stripping’ activities which protected the businessmen’s resources from the corrupt bureaucracy and the uncertainty in the institutional sector. Further, the Russian privatization program introduced the practice of offering ‘benign bribes’ in the economy. Under the communist regime, the country’s industrial units were owned by public stakeholders. In the post-communist era, when the Russian Government decided to sell the firms to private owners, it became necessary to obtain the consent of the existing public stakeholders. However, not all stakeholders readily agreed to such a privatization program and wanted to remain the joint owners of these industrial units. In these circumstances, they had to be offered ‘extra payments’ to earn their approval for privatizing the Russian companies. The existing managers of these enterprises were allowed to participate in the privatization process and permitted to buy some of the firm’ shares at very cheap prices. This lucrative offer attracted the managers and they encouraged the government’s privatization drive by actively taking part in the initiative themselves. In this way, offering bribes to the public stakeholders helped to earn their consent regarding transferring of the industrial firms’ ownership rights (USAID, 2005, p.26-27). The Reaction of the Society However, the members of the Russian society did not take kindly to this privatization process. They could foresee that the economy would be plagued by widespread illegal practices including theft under the privatized regime. Thus, the citizens did not support the Government’s decision of according priority to the private entrepreneurs in the industrial scene. In spite of this, the property ownership rights of the Russian industrial units were transferred from the Government to the private entrepreneurs. Unlike the common citizens, the country’s authorities did not perceive any impediments in the functioning of a privatized regime. Russia had in place the necessary rule and regulations required for the smooth operation of the private property rights framework. However, the new private owners of the industrial firms had other plans. They did not pay much attention in adhering to these regulations and were not strict about their implementation in the daily business activities of the firms. Some legal specialists are of the opinion that Russia did not have a suitable legal and institutional framework for supporting the functioning of its economy under a privatized regime. The existing laws and regulations were not adequate for this purpose. The Government committed a serious mistake in implementing a widespread privatization program during the early part of the 1990s, before ensuring the adequate regulatory infrastructure for supporting this initiative. However, the Russian authorities had their own logic in pursuing such a strategy. They believed that once the ownership rights of the industrial units were transferred from the government to the private entrepreneurs, the latter would themselves request the former to ensure the security of these property rights. Thus, the country’s authorities did not hesitate to administer their privatization initiative. (USAID, 2005, p.26-27) The Effects of Privatization and Corruption in the Private Sector The Russian Government’s expectation about the post-privatization scenario proved to be erroneous. The new private owners of the industrial firms did not show much interest in ensuring the security of their newly acquired property rights. Therefore, they did not put forward any such requests to the government authorities. Instead, the private entrepreneurs became averse to the implementation of new rules and regulations in the capital market. After the privatization program, the Russian legislative authorities strengthened the laws governing the country’s capital market. They also implemented certain measures to ensure the proper enforcement of these regulations. The new private owners and company managers of the Russian firms vehemently opposed these governmental efforts. They could foresee that the new regulation regime would put an end to their unfair practices of earning extra profits for themselves. The entrepreneurs only looked to maximize the value of their shares by directing them into more innovative avenues of investment. These new investment opportunities were mostly present in the foreign countries. However, the new business owners were skeptical about whether the new legal framework would continue to allow such investments. In case, the new laws did not permit the entrepreneur’s resources being invested in foreign lands, the businessmen would lose out on the opportunities for making extra personal profits. For this reason, the private business owners protested against the government’s initiative of implementing new laws in the capital market. In addition to this, they became engaged in a number of unscrupulous activities within the economy. The private businessmen began thriving on a culture based on paying bribes, self-dealing practices, acquiring resources by unfair means and so on. They had a strong network of contacts with the bureaucratic officials and provided the latter with extra payments in order to gain access to the State revenues. Some entrepreneurs also had links with the Russian underworld network of the Mafia. In case, any honest government official failed to yield to the requests of the businessmen, the latter took the help of the Mafia men to extort their demands from the public servants. The Russian economy lacked a strong regulatory framework which could check these corrupt malpractices of the private business owners. In the absence of a sound institutional structure, the private entrepreneurs drowned the economy into a sea of dishonest practices. Thus, the scenario of Russia was rather dismal at that point of time (USAID, 2005, p.26-27). The Policy Implications After analyzing the situation, some legal experts have argued that the Russia’s government authorities should have administered a strong regulatory structure in the capital market before embarking on its huge privatization drive in the 1990s. This would have prevented the country from becoming a breeding ground for corruption. However, there is no method of verifying this claim. On the other hand, the Russian case presents enough evidence to prove that when an economy is not governed by sound rules and regulations, privatization does not prove to be a prudent decision. In such a situation, promoting private enterprises in the economy could have disastrous consequences for the economy. In these cases “bad politically powerful owners reinforce corruption and create pressure for weak rules and weak enforcement.”(USAID, 2005, p.26-27). However, this does not mean the privatization of a country’s business enterprises always gives rise to corrupt practices within the economy. Only the Government must ensure that there is an adequately strong institutional framework to protect the economy from being corrupted by illegal activities. Once this is done, the Government would not need to be concerned about the ownership of the nation’s enterprises. Both public and private entrepreneurs can foster a healthy growth momentum in the country (USAID, 2005, p.26-27). Conclusion Corruption is a form of an operational hazard of the public service system. When bureaucratic officials take advantage of their public position to reap some personal profits for themselves, such activities are termed as examples of corruption. Certain social and institutional factors are responsible for compelling humans to engage in these illegal practices. The causes behind corruption are deeply embedded in the complex social fabric of the modern times. However, evidence from old civilizations suggest even ancient kingdoms were subject to the ill effects of corruptive activities. Since the roots of corruption are interwoven into the social network, the illegal practices have gradually gnawed their way into all the levels of the social system. Practices like accepting bribes have become so common that they have become a part and parcel of the existing bureaucratic system. Public officials conduct these unlawful activities with elan and the public citizens do not question their intention any more. Corruption has been accepted as a practice that is here to stay. In such a situation, it is really difficult for the Governments of countries to break this vicious cycle. It would have been much easier to deal with individual acts of corruption and punish the offenders. However, in a situation where each and every agent of the bureaucratic system seems to be involved in dishonest dealings, it is nearly impossible for the Government to rectify the situation. A new method of solution needs to be worked out. References 1. IRIS Center, University of Maryland, (2005). An Anti Corruption Reader, USAID for the American People, available at http://pdf.usaid.gov/pdf_docs/PNADF530.pdf (accessed on January 3, 2012) 2. De Asiz (2006). ‘Anti-Corruption Reform in Rule of Law Programs’ available at http://info.worldbank.org/etools/docs/library/35977/asis_ac_rol.pdf (accessed on January 3, 2012) 3. Bardhan, P. (1997). Corruption and Development: A Review of Issues. Journal of Economic Literature, Vol. 35 No.3, pp. 1320-1346, available at http://www.jstor.org/pss/2729979 (accessed on January 2, 2012) 4. Carr, I.M. (2006). Fighting Corruption through Regional and International Conventions: A Satisfactory Solution? 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