With corruption, everyone pays

By Penny Hawthorne | 13 July 2005

On Marginal Revolution, Lee Coppock writes:

I am lecturing this week in Liberia on the importance of economic institutions that foster growth. I'll talk about property rights, free trade, monetary stability, etc. However, there is a significant issue that Liberia (and most developing nations) need to overcome before these institutions can be effective: corruption.

In Liberia, there seems to be no stigma attached to bribe solicitation, even of the most heinous variety. For example, customs agents at Roberts International Airport showed no shame whatsoever in extorting bribes from us upon our arrival into Liberia last year. I explained to the agent that our (legal) cache of baby formula and Pepto-Bismol was for orphaned children, and that it had the potential to save the lives of children. I did this in a loud voice, in broad daylight, with many onlookers. The (male and female) agents were absolutely unfazed by any potential embarrassment. This was truly shocking to me.

Without any moral stigma attached to corruption, it will be nearly impossible to achieve any real economic growth. In addition, the incentives for creative and intelligent individuals are to vie for government employment. The ones that are particularly good will move up from $20 airport bribes to lobbying for international aid.

Transparency International's website reports that:

According to research conducted by the World Bank, widespread corruption can cause the growth rate of a country to be 0.5 to 1.0 percentage points lower than that of a similar country with little corruption. Widespread corruption can also radically reduce inward investment. A study based on the TI Corruption Perceptions Index shows that a rise in corruption levels from that of Singapore (very low) to that of Mexico's (very high) is equivalent to raising the marginal tax rate by over twenty percent. As a single percentage point increase in the marginal tax rate is calculated as reducing inward foreign investment by about five percent, in the instance given corruption has cost the country and continues to cost the country virtually all of the foreign direct investment it might otherwise have expected to receive.