It is rather common sense that corruption "contributes" to slow economic growth and financial instability. Yet the battle to eliminate corruption also has a very high cost in itself. This article will give you interesting stories:
http://blogs.wsj.com/economics/2014/04/09/asias-anti-corruption-battle-produces-unofficial-austerity/
Here is a short excerpt:
The anti-corruption campaign launched by Chinese President Xi Jinping after he took power in late 2012 is worsening China’s economic slowdown, economists say, as fearful cadres pull back on everything from lavish banquets to building projects.The sharp cutback in fiscal spending could be a 0.6 percentage-point
drag on China’s GDP growth this year, estimates Ting Lu, an economist at
Bank of America Merrill Lynch in Hong Kong. That could pull China’s
growth rate down to roughly 7.2% in 2014.
“Corruption can hurt growth by undermining property ownership,” said
Frederic Neumann, co-head of Asian economic research at HSBC in Hong
Kong. “There’s clear evidence that corruption at some point inhibits
productivity and the efficient allocation of capital.”
And Asia’s developing economies still suffer from widespread corruption. In Transparency International’s latest survey of perceived corruption,
China tied with Greece for 80th (with first being the least corrupt).
India tied with the Philippines and Colombia for 94th. Indonesia tied
with Egypt for 114th.
What do you think about this trade-off? What are some methods to treat corruption?
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ReplyDeleteI believe the circumstances surrounding the anti-corruption campaign in China is one of the those "things will get worse before they get better" types of situations. If China wants stronger economic growth in the long-run, they will need to crackdown on corruption today. I also wonder how much of President Xi's expanding political power and his crackdown on political opponents (ex: Bo Xilai and the murder case of Neil Heywood) has contributed to this.
ReplyDeleteBased on what you posted, I can see how difficult it is to deal with corruption in China. It's not hard to see that the efficient allocation of resources will be hindered if a country has corruption. Corruption is a form of government failure and government failure is problematic because monetary and fiscal policy cannot be implemented properly. Regulation may also be very difficult, making market failures difficult to fix. Apparently, even trying to fix corruption is very costly and inefficient.
ReplyDeleteClearly, there are very difficult tradeoffs, but hopefully those tradeoffs will be easier to navigate once developing countries become more affluent.
P.S.
I can't open the link for the article.
corruption is a harsh reality for all developing countries in Asia. the trade-offs are costly and hard to recover. corruption trumps economic activity and therefore, growth and development. is it the fault of the government?
ReplyDeleteI agree with Sameen that corruption is harsh however, I wonder if this issue could have been thought about much sooner than today. It seems to me that the "corruption" mentioned here in this article deals more with politics and their lasting impressions on China's economy.
ReplyDeleteBattle to corruption is costly but I think the trade off is definitely worth it in the long run. There are many other developing countries which are not mentioned in the article where the effect of corruption is much more than just economic slowdown. Corruption has prevailed in those countries for so long that growth has been almost non-existent for decades. Action should be taken right away.
ReplyDeleteRegarding Sameen's question, it's the fault of the government but they are not the only one. As soon as people get into power of any sorts, they don't want to miss the opportunity to make the money. There is a viscous cycle. When one is not in the power, they complain about the corruption but when the same people get the power, they behave in the same way as rest of the corrupted official did.
I agree with Utsav that countries should take action now because in the long run they will find more benefits from being corrupt free (is this even possible?) than staying in a corrupted environment. However, what I get from the article is that the main problem is not eliminating corruption itself, but the mechanisms used to accomplish this. If countries avoid spending because of the risk of getting involved in "the graft dragnet" they are not eliminating the situation, they are just masking it! what mechanisms should be used to eliminate corruption?
ReplyDeleteAs Sameen said, corruption is very prevalent in most developing countries. Most African countries also suffer from the same trade off but recently studies have shown some hopeful answers to this. I attended an African Youth Empowerment conference last week where African Studies professors showed that fighting corruption does slow down economic growth and that the best solution is to continue pushing for economic growth. With regards to combating corruption it was said that it's not the intention of individual political leaders to be corrupt, it's large institutions or powerful/rich minority who use their resources to corrupt people. I guess empowering the political leaders and motivating them to refuse bribes would be one way to go about this.
ReplyDeleteWhile the costs to reduce corruption may not show a great improvement in the nation right away, in the long run it could prove to be very worthwhile. However, corruption does exist in some way all over the world and throughout human history. So, maybe they are wasting their time trying to eliminate something like corruption which seems to be so inherent in human nature.
ReplyDeleteI guess I will have to agree with all of the above comments that say fighting corruption slows the economy in the short run but strengthens it in the long term.
ReplyDeleteI find Utsav's and Justina's comments interesting. You may never know that you can be corrupted until you are in the position of power and are under the pressure to conform with the norms at powerful institution. This reminds me of the game on Tuesday when those who were winning money colluded to push poor folks into bankruptcy. Just a game but real life may not be much of a difference.