The Solution to Corruption

Corruption is the all-but inevitable underside of capitalism. That’s where there’s a profit motive, and where there’s the ability to maximise profit by illegal or unprincipled means without being punished. Because of this, individuals and organisations will generally use those illegal or unprincipled means. This maxim has been proven yet again in recent months, with the Kenyan finance minister, Henry Rotich, being charged with corruption in connection with the construction of two dams in Kenya.

Rotich has denied these charges, which allege that he needlessly and deceptively added $164 million to the budget of a contract initially worth around $450m, which had been agreed for the building of two dams by CMC de Ravenna, an Italian construction firm. Despite the fact that neither of these dams have been constructed, $180 million of the total budget for the project has inexplicably been paid out.

Needless to say, this kind of problem isn’t restricted to Kenya. According to estimates from the World Economic Forum, corruption costs the global economy anything from $2.6 trillion to $3.6 trillion each year, an amount which would equal to (or exceed) 5% of the world’s GDP. And traces of this gargantuan sum can be found throughout the developed and developing world, with recent cases of alleged corruption being reported in GuatemalaKyrgyzstan, and Puerto Rico, to name only three.

In Guatemala, for instance, public prosecutors have spent much of July investigating a $7 million corruption scandal, which allegedly saw 100 individuals operate a ring that paid and received bribes for ‘renovating’ public hospitals. And in Kyrgyzstan, a grossly inflated contract worth $386 million was handed improperly to a Chinese company, Tebian Electric Apparatus (TBEA), which ended up cutting corners in the refurbishment of the Soviet-era Bishkek Thermal Power Station.

Other examples could be produced almost endlessly, but needless to say, one recurring feature emerges from most accounts of global corruption: poverty. Because while affluent, developed nations are certainly no strangers to less-than virtuous governance, there is a very strong correlation between levels of poverty and levels of corruption. For instance, the worst 20 nations for corruption (according to Transparency International) are a who’s who of the poorest countries on the planet, with the bottom five being Somalia, South Sudan, Syria, North Korea and Yemen. No standardised poverty data is available from a single source for all 20 of these nations, but based on assorted figures from the OECD, the World Bank, the WEF, the UN, and the CIA, their average poverty rate sits at around 60%.

By contrast, the average poverty rate of the 20 least corrupt nations (including Denmark, New Zealand and Finland) is approximately 4.6%. This is no accident, and while there’s little doubt that corruption only exacerbates the situation of the world’s poorest countries, it’s also clear that governments and businesses operating within certain developing nations wouldn’t be able to get away with so much financial chicanery if these nations weren’t so impoverished.

As Transparency International affirmed in its 2018 Corruption Perceptions Index, to “make real progress against corruption and strengthen democracy around the world,” governments need to enhance democratic institutions and institutions of accountability in four interrelated ways. Firstly, they should “strengthen the institutions responsible for maintaining checks and balances over political power.” Secondly, they should close the “implementation gap” gap between anti-corruption legislation and its enforcement. Thirdly, they should “support civil society organisations which enhance political engagement and public oversight over government spending.” And lastly, they should nurture “a free and independent media.”

What Transparency International doesn’t elaborate on, however, is that the only way to, say, enable “civil society organisations” and “public oversight” is to help lift the public to a level of education and material welfare sufficient for them to form and participate in civil society organisations, and to read newspapers, engage with media, and mobilise politically. And as the poverty rates of the most corrupt nations in the world indicate, this isn’t going to happen until developing nations benefit from the kind of foreign investment that doesn’t merely extract their natural resources or profit from infrastructure projects, but rather aids social justice and helps develop human capital.

Human capital – particularly levels of education and health – is vital for transparency (and also for economic growth), as evidenced by a large body of research. In 2004, for instance, the OECD published a highly cited study in which it theorised that the “impact of education on corruption [would] depend on the capacities of civil society to oversee government officials,” and in which it found “empirical evidence to support this result for secondary and higher education.” Likewise, another highly cited paper, published in 2016 and authored by researchers from City University of New York, found a “link between levels of mass education in 1870 and corruption levels in 2010 for seventy-eight countries that remains strong when controlling for change[s] in the level of education, GDP/capita, and democracy.”

In other words, investment in human capital must be substantial and sustained over many years, so that developing nations can build the public bases necessary for holding politicians and businesses to account. In Zambia, for instance, “several hundred people” protested against government corruption recently, but with significant investment in education and welfare, this number could in the future be increased tenfold, a hundredfold, or a thousandfold. This requires the developed world to adopt a longer term and more joined-up view of foreign investment, something which admittedly may be a big ask for a pathologically short-termist age. But if we’re serious about cutting down on that trillion-dollar corruption bill and on ultimately boosting the global economy, it’s something we’ll have to do sooner or later.