Corruption and Market Economy - Assignment Example

Name) (Instructors Name) (Course) (Date) Question 1 Corruption is the misuse or abuse of public office with the intention of personal gain. According Balboa et al. (p.12) corruption comes in different forms and in a broad array of illicit practices as well as behaviour such as fraud, graft, pilferage, falsification of records, extortion, nepotism as well as bribery. However, it should not be concluded that the private sector is free from corruption. Corruption cases are common in large private enterprises; however, these cases are often solved in private to a avoid bad reputation. For instance, corrupt managers in the private sector often practice the vice when hiring as well during procurement processes. Moreover, Balboa et al. (p.14) points out that corruption also exist in private activities, which are regulated by governments. In many corruption cases, the abuse of office with the intention of private gains is not usually for individual benefit, but for several people participating in the illegal deals. Majority of nations in both the developing and developed countries define corruption in the same way, as they all subscribe to World’s Bank view of corruption. The Word Bank defines corruption as the abuse of public office both in the private and public sector for personal or private gain (World Bank p.2). As such, the World Bank proposes tough regulations on this vice. In effect, all nations have enacted laws, though they vary, which help to tackle corruption related cases. For, instance many countries have laws that require public servants to disclose all their assets, as well as the annual income. In many countries more so in third world countries, the state’s role is often carried out based on many regulations as well as laws. In these countries, a state officer needs permits, licenses as well authorizations in order to engage or continue engaging in various activities. These activities include taking part in foreign trade, borrowing money, acquiring a passport as well as running a business. All these activities often require specific authorization as well as documents. Accordingly, various government offices are often charged with authorizing as well as issuing the required document thus; respective public servants must always be contacted. Tentatively, officers who work in public offices as well as in the private sector sail in monopoly power due to the existence of these authorizations and regulations. This is because these officers are charged with authorizing or inspecting the aforementioned activities. With such powers, officers may choose to sit on authorizations or fail to make decisions that enable an individual to carry out an important activity. These officers often employ such tactics in order to extract bribes from desperate citizens. For example, in India, “license raj” is an expression used to refer to those who sell permits in order to engage in various forms of economic activities. In the developing countries, much of the regulations set by governments for anyone to engage in various activities often encourage corruption. Accordingly, citizens may require to enormous amount time in dealing with public officers as well as acquiring permits. Such kind of situations will often push citizens to look for shortcuts such as bribery in obtaining these permits. Fisman et al. (p.31) argue that many managers for small enterprises often spend large proportions of time in dealing with bureaucracies which of often result in burgeoning prevalence of corruption cases. These managers often opt to save the time needed to be used in bureaucracies by paying bribery. Although not in the same way, most of the countries in the world have various legislations that aim to curb corruption practices. Western countries such America and Canada have introduced stringent laws that make corruption activities a criminal offense. The United Kingdom under its Bribery Act, American Foreign Corruption Practices Act and the Canadian anti-corruption Act are some of the legislations that have been introduced by the respective governments in order to stop or minimize corruption practices. These laws prohibit individuals, institutions as well as corporations from engaging in corruption practices such as bribery. Failure to comply with these regulations may cost an individual or a corporation serious reputational damage, imprisonment, considerable fines as well as debarment of an organization from doing business with both the local and international businesses or governments (Carr et al., p.12). However, developing countries such as Sudan and Philippines seem to have a high prevalence of corruption due to soft laws and regulation (Doig p.2). For example, Philippine is known to be the oldest democracy in Asia. However, ambiguous policies as well as “personalistic political system” have eroded the country’s good foundations as far as the judicial impendence, as well as the rule of law is concerned. Although corruption is a global challenge, some nations are corrupt than others. According Transparency International Corruption Perceptions Index of 2014, Somalia is considered the most corrupt country in the world with an index of -1.7. In contrast, Finland and New Zealand have the lowest cases of corruption in the world with over than 9.6 index rate. Most third world countries, worse off being Somalia, experience a high prevalence of corruption, such that they have learned to live with it (Wraith et al. p.24). Moreover, Wraith (p.28) posits that the citizens in these countries are used to the vice such that they have considered corruption an integral part of their culture. The situation in these countries is despicable, in that even exercising a right or accessing a public service such as obtaining civil documents involves bribery. Whereas measuring corruption is still a major challenge, non-governmental organizations such as Transparency International have largely helped in evaluating the rate of corruption in various countries. This organization is involved in collecting data through surveying and analysis thus ranking countries according to their index scores. Accordingly, the organization draws on 14 data sources based on the opinion as well as the perception of country experts and business people. The organization refers its measurements as the Corruption Perception Index (CPI). The organization often gives 177 nations a score between zero and a hundred, whereby a score of a hundred indicates that the country’s public sector is clean and does not engage in any corruption activity. On the hand, a score of zero and below shows that the country’s public sector is highly corrupt (Sampford et al. p.1). According to Balboa (p.47), the level of corruption in different sectors often differs. Balboa (p.48) argues that the natural resources, which is under the primary sector of the economy is the more prone to corruption than other sectors such as the secondary and tertiary sectors of the economy. The natural resources which host the extractive industry plays an integral role in the economy as it is charged with production of energy, which makes its vulnerable to corruption. Recent studies indicate that the extractive sector more so the energy subsector contribute to seventy percent of the world’s development Balboa (p.32). As such, individuals who head these sectors are often surrounded with tempting opportunities that can result to personal gain as they have immense powers. These individuals often initiate the exportation of huge amounts extractives and have a say when it comes to giving out tenders. The boundary between the private sector and the state is thin as private entities have high influence in terms of offering bribes in order to gain access to these natural resources. The United States abhors corruption at all levels and views it as burgeoning threat to National security as well as its allies around the world. Over the years, the US has been on the forefront in the fight against corruption more so international bribery. Consequently, it made an important step in the struggle against corruption through enacting the Foreign Corrupt Practices Act in 1977. The law prohibits its citizens as well businesses falling under the jurisdiction of the law from participating in bribery activities in order acquire or retain business. Moreover, the US also managed to convince other OECD states to join the war against corruption through criminalizing bribery. Accordingly, the United States led other OECD countries to the signing of the Anti-Bribery Convention in 1997 and became operation 1999 (Low et al. p. 243). Question 8 Born in 1941, Hernado De Soto Polar is a renowned Peruvian economist known for his considerable contribution to the informal economy arguing on the importance of business as well as property rights. Hernado, who is the president of the Institute for Liberty and Democracy, is the author of the book, “The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.” In his book, Harnado explains why capitalism has continued to succeed in the west whereas the same has failed to in the developing countries. He claims that he has discovered the reason for the abject poverty in the developing countries. Hernado claims that the main reason for poverty in these nations is the citizen’s incapability of transforming their already “dead capital” to “live capital.” The reason they fail to “resurrect” their capital is because of the “legal apartheid” which the governments have introduced (De Soto p.9) Hernado observes the market economy of the Western (developed countries) countries as well as the Non-western nations (developing countries) and comes up with a thesis concerning how countries accumulate wealth. De Soto (p.14) points out that the developed countries multiply as well as preserves the ownership holdings using straightforward formal property systems. In other words, through developing mechanisms for streamlined as well as accurate records, the developed countries maintain economically meaningful assets that increase in value. According to Hernado, capital is useful when identified and used thus unleashing its potential value. He continues to posit that capital is often dormant and it is upon the citizens to make value out of it, a feature that the developing countries have capitalized on. Capital can be of no value if property rights are not protected. Hernado asserts that many developing countries have judicial lapses and as such, the necessary property rights are prone to manipulation (p.30). Conversely, he points out that developed countries have proper laws and working judicial systems thus capital flourishes since the property rights are protected. Fortuitously, Hernado adds that property-protecting mechanisms are abounding in the developed countries because of the importance and seriousness they accord publicly secured techniques of tracking ownership. De Soto points out that assets in the western countries such houses merchandise and land often retain as well augment their value not because of their pressing functional worth, but because of they as well command a dimensional collateral value in the future. These assets often attract future value acquisitions (P.37). Unlike the developing world, the western countries believe in the value of the existing capital. Accordingly, De Sato compares value of capital in regard to its potential to augment wealth to Einstein’s success in the discovery of the atomic energy. To support his argument, Hernado looks at Karl Marx ideology. According to Marx, capital is a value separated from the product thus becoming transcendent (De Sato p.43). Conversely, the developing countries value money more than assets as money can solve their immediate problems. However, De Sato argues that money should not be confused with capital as it is used to necessitate transactions and cannot fix or be compared to the abstract potential of a particular asset. Hernado points out that the developing countries often lack proper formal property systems and as such, people risk losing their assets through illegal means. Hernado refers the inefficient property systems in operation, in the third world countries, as an “extralegal system of ownership” (p.34). He calls it “extralegal” as the informational property system falls outside the formal legal framework. In the developing countries, most assets are restricted to local buyers residing in those countries and as such, cannot reach their capital potential. This is due to the enormous as well as the unreliability involved in establishing the ownership of the asset before it is sold. Notably, Hernado discovered that the lack of capital in the third world countries is usually due to the inaccessibility to adequate property system, and not lack of entrepreneurial spirit (p. 47). When analyzing the extralegal system arrangement, Hernado observes that unlike the developing countries, the western nations often produce six effects that allow the citizens to create capital. These effects include fixing the maximum economic potential of the country’s assets, protecting transactions, personal accountability, connecting or networking people, integrating information into one system as well as making assets fungible. Hernado explains the failures of developing capital in the third world countries by pointing out the eroded legal systems in these countries. He pontificates that the legal systems in these nations often run under misguided information and misconception concerning the motivation of ownership. One major misconception that Hernado highlights is the fallacy that individuals operate outside the existing laws and regulations with the intention of avoiding taxes. As he also points out, asset owners often engage in ways that depict increased accountability. As De Soto says, even though informally, owners participate in a manner that increase accountability. Moreover, Hernado also points out that property assets are being “registered” by owners even though through informal arrangements. He manages to illustrate this through giving out an interesting example on page 185, whereby an ad hoc of Haitian property titles showed tremendous variance. Evidently, Hernado observes that the complicated combinations of custom and discerning official regulation make the “extralegal social contacts” undesirable to asset owners. As De Sato puts it, asset owners in third world countries are comfortable operating within the typical intricately structured frameworks provided that the same systems reflect the regulations as wells as the laws designed by the local operatives. He believes that the developing nations admire and wish for the property recording systems such as those in the developed; sadly, it would take centuries for them to actualize that desire. This means that the western constructs work best in the developed countries as they already have effective working systems that can support capitalism. On the other hand, capitalism will still fail in developing countries since their systems are eroded. In summary, Hernado asserts that there are trillions of dollars worth of “dead capital” in the developing countries waiting to be converted into productive or working capital, if only the owners would have an insight of the same. However, he posits that the conversion can be difficult even if the owners as willing as there is usually confusion when it comes to granting of legal titles to land or property. People the developing countries confuse their stock of wealth with savings or the flow of “capital” that is needed for investment. The level of ignorance and illiteracy is high and such it is difficult for people in the third world countries to adopt the western style of capitalism as they cannot understand the basic principals related to investing. Opponents of De Soto’s approach argue that his assertions are largely mistaken as the real obstacle to economic development in the developing world as well as the Soviet bloc nations are due to poverty (Raymond p.343). Raymond (p.344) argues that the problem with the developing countries lies in the inadequacy of finance investment as well as domestic savings. Poor individuals in these nations hardly own property. There the problem does not revolve around the legality and ownership of the title deeds. Raymond (p.34) asserts that Hernado solution of massive titling program by states is not the amicable solution. Instead, the developing countries should be helped in education initiatives and infrastructure development to sustain themselves. As such, capitalism can work in the developing countries if corruption is eliminated and people abide by the laws and regulation. Works Cited Balboa, Jenny D., and Shinji Takenaka. Corruption and Development, Revisited. Philippine Institute for Development Studies, 2010. Carr, Indira, and Opi Outhwaite. "Investigating the impact of anti-corruption strategies on international business: an interim report." (2013). De Soto, Hernando. Mystery of capital: why capitalism triumphs in the West and fails everywhere else. Basic books, 2003. Doig, A. and Riley, S. Chapter 3:Corruption and Anti- Corruption Strategies: Issues and Case Studies From Developing Countries. Retrieved December 11,2014 from http://magnet.undp.org/Docs/efa/corruption/Chapter03.pdf Fisman, Raymond, and Roberta Gatti. "Decentralization and corruption: evidence across countries." Journal of Public Economics 83.3 (2002): 325-345. Low, Lucinda A., Andrea K. Bjorklund, and Kathryn Cameron Atkinson. "Inter-American Convention against Corruption: A Comparison with the United States Foreign Corrupt Practices Act, The." Va. J. Int'l L. 38 (1997): 243. Sampford, Charles John, et al. Measuring corruption. Ashgate, 2006. The World Bank. “The Quality of Growth.” The International Bank for Reconstruction and Development/The World Bank, Oxford University Press, (2000). Wraith, Ronald, and Edgar Simpkins. Corruption in developing countries. Routledge, 2010. Read More