Corruption & Emerging Economies – by – Munaza Kazmi

Economies that are afflicted by a high level of corruption which involves the misuse of power in the form of money or authority to achieve certain goals in illegal, dishonest, or unfair ways are not capable of prospering. Corrupted economies are not able to function properly since corruption prevents the natural laws of the economy from functioning freely. As a result, corruption in a nation’s political and economic operations causes its entire society to suffer.

The average income of countries with a high level of corruption is about a third of that of countries with a low level of corruption. Also, the infant mortality rate in such countries is about three times higher and the literacy rate is 25% lower. However, no country has been able to completely eliminate corruption, but the level of corruption in countries with emerging market economies is much higher than the developed countries.

In the corrupt economy deals are made, contracts are awarded in the terms of corruption, or economic operations are carried out, leads to monopolies in the economy. These are businesses that can use their connections or money to bribe government officials, resulting in manipulation and market mechanisms that ensure them as a sole provider of goods or services in that market. These monopolists do not have to compete against alternative providers, so they tend to keep their prices high and are not compelled to improve the quality of goods or services. Embedded in those high prices are also the illegal costs of the corrupt transactions that were necessary to create such a monopoly.

Likewise, in best practice, companies choose their suppliers via tender processes which serve as mechanisms to enable the selection of suppliers offering the best combination of price and quality. But in corrupted economies, the companies that otherwise would not be qualified to win the tenders are often awarded projects as a result of unfair or illegal tenders. That results in excessive expenditure in the execution of projects and substandard or failed projects, leading to overall inefficiency in the use of resources.

Furthermore, corrupted economies are characterized by a disproportionately small middle class and significant divergence between the living standards of the upper class and lower class. Since most of the country’s capital is aggregated in the hands of oligarchs. In this regard, small businesses are not widely spread and are usually discouraged because they face unfair competition and illegal pressures by large companies. Certain industries are more prone to corruption than others, making small businesses in these sectors even more vulnerable to unethical business practices.

On top of everything, little confidence can be placed in the legal system of corrupted economies in which legal judgments can be rigged, potential innovators cannot be certain their invention will be protected by patents and not copied by those who know they can get away with it by bribing the authorities. There is thus a disincentive for innovation, and as a result, emerging countries are usually the importers of technology because such technology is not created within their own societies.

Moreover, small businesses in such countries tend to avoid having their businesses officially registered with tax authorities to avoid taxation. As a result, the income generated by many businesses exists outside the official economy, and thus are not subject to state taxation or included in the calculation of the country’s GDP.

Another negative of shadow businesses is they usually pay their employees decreased wages, lower than the minimum amount designated by the government. Also, they do not provide acceptable working conditions.

Corruption is one of the disincentives for foreign investment. Since investors will avoid investing in countries where there is a high level of corruption.

Also, it has an adverse impact on the quality of education and healthcare provided in countries with emerging economies. Corruption increases the cost of education in countries where bribery and connections play an important role in the recruitment and promotion of teachers. As a result, the quality of education decreases, and this affects the overall health of the economy.

Similarly, corruption in the designation of healthcare providers and recruitment of personnel, as well as the procurement of medical supplies and equipment, that results in inadequate healthcare treatment and a substandard medical supply, lowering the overall quality of healthcare.

Many countries with emerging economies suffer from a high level of corruption that slows their overall development. As a result, the entire society got infected. So, why not become a sensible and responsible citizen to save the country to save the society, since it is where we all belong to.