The Effects of Corruption on Economic Development - Coursework Example

Section/# Corruption and Its Impacts: An Analysis of the Dichotomy of Systemic Corruption The following analysis will seek to provide the reader with an informed understanding of corruption and the means by which it impacts upon an economy as a whole. Beyond this, the majority of the research will be concentric upon the ways in which different types of unethical practices are oftentimes mis-categorized as corruption. Further, the analysis will seek to delve into the issue surround the way in which different economic systems can still continue to post impressive economic growth statistics; whereas other corrupt systems languish at near zero or negative levels of economic growth. It is the hope of this author that such a level of discussion and analysis will be beneficial in engaging a more definitive understanding of the issue of systemic corruption and the means by which it impacts upon a society. Introduction: Regardless of the metric or scale that is employed, it is clear and apparent that the issue of corruption and the manner through it affects the economy is differentiated and cannot be understood categorically. Complicating this issue further is the fact that corruption exists to a different degree and different level within regions, counts, states, provinces, and governments throughout the world. On the whole, scholars have focused upon research questions that discuss the negative ramifications that corruption has upon overall economic growth. Whereas this particular discussion is certainly useful, it fails to capture the underlying truth that corruption is not a static force with respect to reducing overall economic potential/output. Instead, as has been briefly noted above, the differentials that have been enumerated help to create a situation in which corruption affects different entities and people/groups/governments in unique ways. Beyond this understanding, it should also be realized that certain countries with a very high degree of corruption can exhibit a surprising level of overall economic growth; whereas other countries that exhibit nearly the same level of corruption face a situation in which static or negative economic growth takes place. As a function of seeking to expound upon this seemingly incongruous fact, the following analysis will be concentric upon analyzing why this might be the case. It is the hope of this author that such a level of discussion will provide the reader with a more definitive and differentiated understanding of corruption within the modern world and the means through which certain nations are able to continue to grow under these adverse circumstances. Although the information that is thus far been put forward might lead the reader to assume that this particular author argues in favor of corruption within certain economic spheres, the fact of the matter is that corruption, at its very core, is harmful to any economy that it exists within. Yet, with this being stated and understood, the differential between how corruption exists and different nations is nonetheless an intriguing issue for further analysis. Additionally, beyond merely discussing corruption and the dichotomy in which it seemingly exists, the analysis will also approach the differentials between rent seeking, corruption, and cronyism. A Discussion of Corruption, Rent Seeking, and Cronyism: At this particular juncture, it is also beneficial to help define the differentials that existed between corruption, cronyism, and rent seeking. Rather than understanding each of these as a singular entity, and explication of how they interrelate and rely upon one another as a means of affecting the system is required. Firstly, corruption can broadly be understood in terms of the way in which business or governance is impacted upon by giving or receiving money as a means of subverting existing laws, ethics, or principles. However, by means of contrast in comparison, cronyism is not necessarily a system through which money changes hands as a means of representing and unethical situation (Lash & Batavia, 2013). Ultimately, cronyism represents the way in which long-standing friendship, family ties, or other connections to an individual or partly creates a situation in which under-qualified and ultimately inexperienced individuals are promoted to key positions within government or business (Khan, 1998). As can clearly be noted, the differential that exists between cronyism and meritocracy is quite profound. The economic loss and drop in efficiency that an economy experiences as a result of cronyism is inherently profound. One can of course conjure a litany of situations in which unprepared and ineffective leaders have been chosen for the hosts within government or business merely as a function of their relationships to individuals within power. Although this exists within each and every nation around the globe, those nations that are inherently structured as autocratic and exhibit a relatively low level of democracy are those that suffer the greatest from cronyism; as any level of relationship that exists to the families/individuals and power creates a potential for future cronyism take place (Kang, 2002). Further, rent seeking is a process through which individuals lobby the government as a means of increasing their own wealth without actually “creating” any wealth within the system. An example of this could be with respect to the manner through which a particular firm or business entity with lobby the government as a means of ensuring that it received a reduced tax burden or some other business incentive that other entities within the economy could not experience. Although it might be understood that corruption plays a key role within “rent seeking”, the fact of the matter is that the actual provision of money as a means of affecting this unfair advantage does not always take place. Accordingly, the reader can definitively see that rent seeking, and cronyism are all intimately related to corruption and inherently have the potential to engage this as a means of filling their own respective goals. Whereas each of these definitions is different from its counterpart, they are all unethical at their core. Many researchers and analysts have incorrectly categorized them based upon the level of unethical behavior that they portend. Nonetheless, seeking to understanding the differential between them is a primary starting point for engaging in a further understanding for how these practices can be reduced and how individuals can attempt to make the world more ethical an fare. An Explanation of Why Some Nations Can Exhibit High Growth Levels Under Corruption and Others Cannot: One of the first realizations that can be had with regard to corruption has to do with the overall level of economic tests and complexity that a particular economy might exhibit. Taking the case of China, arguably one of the top five most corrupt nations on earth, the individual can immediately note that the Chinese economy displays and extraordinarily high level of economic diversity. As compared to many other nations throughout the world, the Chinese economy is not dependent upon natural resource extraction and sale alone. Over the past several decades, China has built itself into one of the most surprising economic miracles that the world has yet seen; emerging from relative obscurity to recently becoming the world’s second most powerful economy and the global system. Yet, notwithstanding this rapid rise and development, the extraordinarily high level of corruption that exists within China has seemingly not impacted upon its overall level of growth. However, before the reader assumes that the Chinese miracle has occurred without feeling the impact of corruption, the fact is instead quite the opposite. Economic analysis reveals the fact that each and every year hundreds of billions of dollars of potential is sacked from the system and even the extraordinarily high growth levels that are provided only tell a certain percentage of the overall potential that the Chinese economy could otherwise expect to achieve; in the event that corruption was not such a powerful force as it currently is. As scholars continue to wrangle with the seeming impossibility of China’s rapid economic rise in tandem with its high level of corruption, it is the understanding of this particular author that at least part of this equation can be explained based upon the fact that the People’s Republic of China exhibits an extraordinarily diversified economy. What is meant by this is that the range and diversity of corruption creates a situation in which the ownership and/or leverage that any particular individual or entity can have over the system is drastically reduced as a result of its complexity. Whereas it is nonetheless true that a handful of Chinese oligarchs continue to have a profound impact with respect to economic growth in the way in which the system evolves, the diversity of the Chinese economy creates a system through which a singular level of corruption is not able to exist within the economy as a whole. Instead, different levels of corruption, different important individuals, different expectations, and different cultures within these respective industries/entities creates a situation in which the Chinese economy can continue to grow and expand despite the pervasive levels of corruption that are exhibited throughout its respective sectors. By means of contrast and comparison, many nations within Africa experience an altogether different scenario with regard to corruption. As several of these nations do not come anywhere close to exhibiting the level of economic differentiation that exists within the People’s Republic of China, the economies is ultimately reliant upon the extraction and sale of certain key raw material. With the exception of South Africa and Egypt, this particular dilemma is one that faces almost every nation within the continent of Africa (Weber, 2008). By much the same token, the levels of corruption that exists within Africa are oftentimes equivalent to the overall corruption index that exists within places such as the People’s Republic of China. However, without the overall level of economic differentiation, these economies are not able to grow or expand to the same rate or extent that a more differentiated economy with a litany of different production capabilities could ultimately exhibit. Yet, before coming to the conclusion that corruption within a non-differentiated economy results in economic stagnation, the work of several authors, such as Kelsall, denotes that certain nations are able to still experience economic growth in undifferentiated economies within Africa; even while living with abnormally high levels of corruption within the system itself (Kelsall, 2012). An underlying reason for this has to do with the fact that the more autocratic the system is, the more that a particular leader or group of leaders can centrally planned and defined the economy, the less individuals have the potential for extracting money via corruption. Ultimately, what is being defined is a situation of a “lesser of two evils”. In a situation in which a relatively undefined economy exhibits a high level of corruption and the market itself is relatively open, a litany of different individuals will certainly take advantage of this. However, by means of contrast in comparison, an economy in which a few individuals manage the resources and potential of the entire economy has something of a centrally planned approach, the greater the economic potential that is exhibited within. Further, it is the assertion of this particular author that an autocratic level of control lends such nations a level of protection from multinational corporations and other interests that would take a large part of profitability from the nation itself. Although this cannot be seen as a tacit excuse with respect to advocating a level of corruption, it can be understood as a means of increasing the amount of sovereignty that certain individuals have over the wealth of the nation itself (Weber, 2008). Although a perfect level of Democratic capitalism would create a situation in which all stakeholders in the economy could benefit from these natural resources, the actual practice that is exhibited elsewhere throughout the world is one in which a level of protection and oligarchic control has come to be seen as a means through which corruption can be justified in order to protect the nation against the predatory practices that foreign investment might otherwise seek to “bleed” from their nation. Potential Loss as a Result of Corruption and the Reason that Corruption Causes Economic Harm: Naturally, it is somewhat redundant to analyze and discuss the negative ramifications and implications that cronyism, rent seeking, and corruption can have upon an economic system. In much the same way that an unreasonable have shifts the demand curve and affect supply, a high level of corruption within an economic system creates much the same situation. As prices must be adjusted for the level of corruption that exists within the system, this level of corruption act as a type of unspoken. As such, deadweight loss is created and the overall efficiency of the economy itself is drastically reduced. Although the analysis has thus far represented that corruption need not create a situation in which the economy itself is incapable of growing, it must also be understood and appreciated that regardless of whether or not the economy is growing, corruption still plays a very powerful role in diminishing the overall economic output that a particular system could otherwise experience. As has been stated, an economy that grows despite corruption would find the situation drastically improved in the overall level of economic growth maximize if the corruption itself were decreased. In such a way, corruption can be understood as something of an economic parasite that sucks the life blood of an economy and decreases the overall output/potential that could otherwise be engaged. Further, the systemic effects of corruption within the system lead to a situation in which an overall lack of trust within the system is exhibited. Governmental, nongovernmental, and economic interests, as well as judicial precedent is all called into question within a system that experiences, or is perceived to experience, a high level of corruption. As the loss of faith is exhibited within such an entity, the overall efficiency of these institutions to address the needs of the people, and continue to exhibit a high degree of respect, is inherently called into question. Furthermore, social programs and the overall efficiency of these to address the needs of the people is also minimized as individuals within such a system come to view such programs is merely an extension of the corrupts, inefficient, and ultimately useless set of institutions that are not predicated upon addressing the needs of the people. Another noted level of loss that corruption vitiates within an economic system is predicated upon the fact that like me, corruption creates a situation in which an individual amount of money and resources are escaping from revenue that could otherwise be accounted for and directed towards key social needs. For instance, when a nation creates a tax rate or a duty upon imported goods, a very clear and measurable level of accounting exists with respect to the amount of money that is raised for these efforts (Weber ,2008). Additionally, a tax is measurable and denotes the overall level of economic activity that is taking place within certain spheres of the economy. Yet, as corruption exists within an economic system, governmental powers and oversight bodies have no measurable means of understanding the overall level of money that is being paid towards these corrupt practices. Corruption also has a profoundly negative influence on the overall level of wealth that is retained by society itself. In a highly corrupt system, wealth is retained at the bureaucratic levels of government as well as the higher levels of industry. Yet, the degree and extent to which civil society can grow and/or build a middle class is severely restricted within a highly corrupt system. As individuals within the society seek to navigate the hurdles of corruption, it places an unnecessary burden upon society and creates a type of tax that only serves to reduce the overall purchasing parity and economic resilience of the individual societal stakeholder. As a result of this loss in efficiency, a clear dichotomy tends to develop within economies of highly corrupt nations. The situation that is exhibited is more often than not one in which a very few stakeholders in government or within industry hold an almost complete monopoly on the nation’s wealth; with the remaining classes struggling to survive under the conditions they are faced with. Naturally, there are examples like China which illustrate that rapid and sustained economic growth within a highly corrupt system can eventually spill over and benefit the workers as well. However, it is fair to say that China is an extreme case; due in part to the fact that the “Chinese miracle” is not something that is likely to be replicated elsewhere throughout the developed or developing world anytime in the very near future. The Effects of Political Institutions and Interests on Corruption: As might be expected, political institutions and key interests have a profound impact with regard to the overall level of corruption that is exhibited within a particular system. For instance, within a type of democracy, the drive for power over governance is one that encourages the respective political parties to utilize any and all means available to them as a means of affecting this dominance (Goel & Ram, 2013). Not surprisingly, corruption is a common Avenue that is utilized in order to affect such an end. However, for purposes of understanding corruption within the macro sense, it must be understood and appreciated that particular interests and entities are the more likely groups/individuals that will utilize corruption as a means of affecting their own ends. For instance, a metallurgical group within a small nation would have a disproportionate level of impact concerning policy, tax burden, labor laws, and other relevant issues; lending to a situation in which this moneyed interests would be able to maneuver through government via corruption and similar schemes. By much the same token, moneyed interests are also able to utilize their position and power as a means of coercing public entities to behave in a particular manner (Khan, 1998). Naturally, this is somewhat broadened approach the way in which business and economic activities take place in nations that have a high level of corruption; however, it is nonetheless important to broach this topic as it has a profound impact upon the way in which economic growth and differentiation is exhibited. Conclusion: From the information that has thus far been engaged, it is clear and apparent that corruption has a highly negative impact upon the overall economic performance of a nation. Beyond that, it also negatively impacts the development of the middle class and restricts the movement of individuals up the social system. Further, even though certain economies are able to survive and partially thrive under system sof highly corrupt governance, this should not be misunderstood as proof that corruption does not always need to have a stifling and negative impact with respect to overall economic growth. The few examples of corrupt systems of governance that can continue to post positive levels of economic growth do not in any way shape or form provide evidence that corruption can be beneficial. Instead, the reader should engage with the interpretation that those systems that are able to post positive levels of economic growth in the face of extreme levels of corruption could only stand to show even more robust or impressive growth statistics should corruption be taken out of the equation entirely. From a non-capitalist point of view, a Marxist interpretation of economic growth would have one to believe that autocratic control/central control over an economy could help to protect the economic system from the vultures of foreign or internal capitalism. Whereas this theory might be somewhat tempting to engage with, a further level of understanding and the relevant analysis that has been conducted throughout the globe in terms of the impacts of corruption and economics illustrates that this is simply not the case. Bibliography Goel, R, & Ram, R 2013, Economic uncertainty and corruption: evidence from a large cross-country data set, Applied Economics, 45, 24, pp. 3462-3468, Business Source Complete, EBSCOhost, viewed 20 March 2014. Kang, DC 2002, Bad Loans to Good Friends: Money Politics and the Developmental State in South Korea, International Organization, 56, 1, pp. 177-207, Business Source Complete, EBSCOhost, viewed 20 March 2014. KELSALL, T 2012, Neo-Patrimonialism, Rent-Seeking and Development: Going with the Grain?, New Political Economy, 17, 5, pp. 677-682, Business Source Complete, EBSCOhost, viewed 20 March 2014. Khan, MH 1998, Patron-Client Networks and the Economic Effects of Corruption in Asia, European Journal Of Development Research, 10, 1, p. 15, Business Source Complete, EBSCOhost, viewed 20 March 2014. Lash, N, & Batavia, B 2013, GOVERNMENT ECONOMIC INTERVENTION AND CORRUPTION, Journal Of Developing Areas, 47, 2, pp. 1-15, Business Source Complete, EBSCOhost, viewed 20 March 2014. Weber, J 2008, The Impact of Corruption on Economic Growth: Does Government Matter?, Academy Of Management Perspectives, 22, 4, pp. 80-82, Business Source Complete, EBSCOhost, viewed 20 March 2014. Read More