ways.
First of all, low government revenue makes it difficult to pay decent salaries to public officials, which makes them vulnerable to bribery. It is actually quite remarkable how so many developing country government officials live honestly despite being paid a pittance. But, the poorer the salaries are, the higher the chance that officials will succumb to the temptation. Also, a limited government budget leads to a weak (or even absent) welfare state. So the poor have to rely on patronage from politicians who give out loyalty-based welfare benefits in return for votes. In order to do this, the politicians need money, so they take bribes from corporations, national and international, that need their favour. Finally, a limited government budget makes it difficult for the government to spend resources on fighting corruption. In detecting and prosecuting dishonest officials, the government needs to hire (in-house or from outside) expensive accountants and lawyers. Fighting corruption is not cheap.
With better living conditions, people can achieve higher behavioural standards. Economic development also increases the capacity of the government to collect taxes – as economic activities become more ‘visible’ and as government administrative capacity rises. This, in turn, allows it to increase public salaries, expand the welfare state and spend more resources on detecting and punishing malfeasance among officials – all of which help reduce corruption.
Having said all this, it is important to point out that economic development does not automatically create a more honest society. For example, the US was more corrupt in the late 19th century than earlier in that century, as I mentioned earlier.Moreover, some rich countries are far more corrupt than poor ones. To illustrate this point, let’s look at the Corruption Perception Index published in 2005 by Transparency International, the influential anti- corruption watchdog.* According to the index, Japan (
Not only are the Bad Samaritans using corruption as an unwarranted ‘explanation’ for the failures of neo- liberal policies (for they believe that those policies cannot be wrong) but the solution to the corruption problem that they have been promoting has often worsened, rather than alleviated, it.
The Bad Samaritans, basing their argument on neo-liberal economics, say that the best way to tackle corruption is to introduce more market forces into both the private and the public sectors – a solution that neatly dovetails into their market-fundamentalist economic programme. They argue that freeing the market forces in the private sector – that is, deregulation – will not only increase economic efficiency but also reduce corruption by depriving politicians and bureaucrats of the very powers to allocate resources that give them the ability to extract bribes in the first place. In addition, the Bad Samaritans have implemented measures based on the so-called New Public Management (NPM), which tries to increase administrative efficiency and reduce corruption by introducing more market forces into the government itself – more frequent contracting out, a more active use of performance- related pay and short-term contracts and a more active exchange of personnel between the public and private sectors.
Unfortunately, NPM-inspired reforms have often increased, rather than reduced, corruption. Increased contracting out has meant more contracts with the private sector, creating new opportunities for bribes. The increased flow of people between the public and private sectors has had an even more insidious effect. Once lucrative private-sector employment becomes a possibility, public officials may be tempted to befriend future employers by bending, or even breaking, the rules for them. They may do this even without being paid for it right away.With no money changing hands, no law has been broken (and, therefore, no corruption has occurred) and, at most, the official can be accused of bad judgment. But the payoff is in the future. It may not even be made by the same corporations that benefited from the original decision. Having built up his reputation as a ‘pro-business’ person or, even more euphemistically, a ‘reformer’, he can later move to a plum job with a private law firm, a lobbying organization or even an international agency. He may even use his pro-business credentials to set up a private equity fund. The incentive to do favours for the private sector becomes all the greater if the careers of the civil servants are made insecure through short-term contracting in the name of increasing market discipline. If they know that they are not going to stay in the civil service very long, they will have all the more incentive to cultivate their future employment prospects.*
In addition to the impact of the introduction of New Public Management, neo-liberal policies have also indirectly, and unintentionally, increased corruption by promoting trade liberalization, which weakens government finances, which, in turn, makes corruption more likely and difficult to fight.[14]
Also, deregulation, another key component of the neo-liberal policy package, has increased corruption in the private sector. Private sector crookedness is often ignored in the economic literature because corruption is usually
Corruption often exists because there are too many market forces, not too few. Corrupt countries have shadow markets in the wrong things, such as government contracts, jobs and licences. Indeed, it is only after they made the sale of things like government offices illegal that today’s rich countries could significantly reduce profiteering through the abuse of public office. Unleashing more market forces through deregulation, as the neo- liberal orthodoxy constantly pushes for, may worsen the situation. This is why corruption has often
In addition to corruption, there is another political issue that occupies an important place in the neo-liberal policy agenda. It is democracy. But democracy, especially its relationship with economic development, is a complex and highly charged issue. So, unlike on issues like free trade, inflation or privatization, there is no united position on it among the Bad Samaritans.
Some suggest that democracy is essential for economic development, as it protects citizens from arbitrary expropriation by the rulers; without such protection, there will be no incentive to accumulate wealth; thus the USAID argues that ‘[e]xpanding democracy improves individual opportunity for prosperity and improved well- being’.[18] Others think that democracy may be sacrificed if it becomes necessary in defence of a free market, as evidenced by the strong support offered by some neo-liberal economists to the Pinochet dictatorship in Chile. Still others think that democracy will naturally develop once the economy develops (which, of course, can be best achieved by free-trade, free-market policies), because it will produce an educated middle class that naturally wants democracy. Yet others sing the praises of democracy all the time but keep quiet when the undemocratic country in question is a ‘friend’ – in keeping with the
Despite this diversity of views, there is a strong consensus among neo-liberals that democracy and economic development reinforce each other. Of course, neo-liberals are not unique in holding such a view. But what distinguishes them is their belief that this relationship is mainly, if not exclusively, mediated by the (free) market. They argue that democracy promotes free markets, which, in turn, promote economic development, which then promotes democracy: ‘The market underpins democracy, just as democracy should normally strengthen the
