The ethical dilemma: Saying no to corruption

What might seem like a short-cut to quick gains could end up hurting profits in the long run.

Normally financial corruption between the public sector and the private sector is condemned on moral and legal grounds. It is, however, justified by people on commercial grounds because it is linked with getting things done quickly in a system that is by and large corrupt. One such opinion justifying corruption for business growth appeared in these pages recently. However corruption entails significant economic losses and business costs which are normally overlooked by the private sector.

I will argue that while corruption increases the transaction speed it also raises transaction costs for all firms thus eating into profits earned through otherwise fair businesses.

It was argued that if corruption really hampers economic progress then not so much investment would have been  made in India in recent years, from where mega scandals such as the 40 billion dollars telecom scandal have come to light. Accordingly, the argument goes that the investor is not much bothered about the extent of corruption and is willing to pay bribes if it enables him to utilize what he thinks are good investment opportunities. This argument suffers from a logical problem known as attribution error. Investment continues to pour in India not due to corruption but in spite of.

As a matter of fact, according to Transparency International, in 2010, India ranked 87 whereas Pakistan was 143 out of 178 ranked countries. In 2001, almost a decade ago, Pakistan and India were almost at par in corruption, when India was ranked 71 and Pakistan was ranked 79 out of 91 countries surveyed then. In 10 years, India has moved up on economic growth and moved significantly down on corruption. Thus if we need anything to learn from Indian case is how far ahead the Indian economy has progressed while also at the same time reducing corruption.

India is now home to a burgeoning middle class, flush with money, new enterprises, independent and impartial courts, and a politically mature system – all these are ingredients for investment. Corruption hinders this investment and does not facilitate it. If corruption, or the tolerance of it, were to facilitate new investment then Pakistan would have ranked much high in attracting foreign investment. As a matter of fact, as corruption is on a high, foreign investment has been on the decline for the past couple of years. The latest report of Transparency International ranked Pakistan as the 34th most corrupt country in the world and the Economic Survey of 2010 indicated a decline of 45 per cent in foreign direct investment.

It is an established fact that corruption is rampant in Pakistan in the private and public sectors, but what is probably less widely known is the risks we undertake by allowing corruption to grow uncontrolled. These risks are significant and we will take a look at them in the concluding part of this article.

The writer is the Director Programme and Development at the Alternate Solutions Institute, Lahore Email: [e-mail]

Published in The Express Tribune, March 28^th, 2011.