Why is Corruption Dangerous?

To begin with I would like to say that our world is facing tremendous challenges now. And in recent years we have made a lot of efforts in order to overcome these issues. But there are still a number of challenges that we have to cope with. World’s economy has substantially weakened with the latest events that our globe has witnessed.  Refugee crisis, IDP, Ebola, various conflicts and the last but not least Brexit are inevitably ruining world’s economy.  

But the key threat that I would like to focus my attention now is corruption and how it destroys our world. The history shows that every country, every nation has ever faced this problem. But the key question or challenge that rises is whether they succeeded in finding the practical steps on how can corruption be tackled?

Without exaggeration one can claim that corruption has been long recognized as a global phenomenon of the last centuries. According to the United Nations Secretary-General's message «Corruption is a global phenomenon that strikes hardest at the poor, hinders inclusive economic growth and robs essential services of badly needed funds. From cradle to grave, millions are touched by corruption’s shadow."  And the world’s efforts to kill the corruption is the number one priority nowadays. But what exactly does corruption bring to our fragile and unsteady world?

First, corruption undermines government revenue and, therefore, limits the ability of the government to invest in productivity-enhancing areas. Where corruption is endemic, individuals will view paying taxes as a questionable business proposition. There is a delicate tension between the government in its role as tax collector and the business community and individuals as tax payers. The system works reasonably well when those who pay taxes feel that there is a good chance that they will see a future payoff, such as improvements in the country’s infrastructure, better schools and a better-trained and healthier workforce. Corruption sabotages this implicit contract.

Second, there is solid empirical evidence that the higher the level of corruption in a country, the larger the share of its economic activity that will go underground, beyond the reach of the tax authorities.  Not surprisingly, studies have shown that corruption also undermines foreign direct investment since it acts in ways that are indistinguishable from a tax; other things being equal, investors will always prefer to establish themselves in less corrupt countries.

Third, corruption discourages private-sector development and innovation and encourages inefficiency. Budding entrepreneurs with bright ideas will be intimidated by the bureaucratic obstacles, financial costs and psychological burdens of starting new business ventures and will either opt for taking their ideas to some other less corrupt country or, more likely, desist altogether. In either case, economic growth is adversely affected

Fourth, corruption contributes to a misallocation of human resources. To sustain a system of corruption, officials and those who pay them will have to invest time and ffort in the development of certain skills, nurture certain relationships, and build up a range of supporting institutions and opaque systems, such as off-the-books transactions, secret bank accounts, and the like.

Fifth, corruption has disturbing distributional implications. It also distorts the tax system because the wealthy and powerful are able to use their connections to make sure that the tax system works in their favor.

Sixth, corruption creates uncertainty. There are no enforceable property rights emanating from a transaction involving bribery. The firm that obtains a concession from a bureaucrat as a result of bribery cannot know with certainty how long the benefit will last. The terms of the “contract” may have to be constantly renegotiated to extend the life of the benefit or to prevent its collapse. Indeed, the briber, having flouted the law, may fall prey to extortion from which it may prove difficult to extricate himself. In an uncertain environment with insecure property rights, the firm will be less willing to invest and to plan for the longer-term.  A short-term focus to maximize short-term profits will be the optimal strategy, even if this leads to deforestation, say, or the rapid exhaustion of non-renewable resources.

Seventh, bribery and corruption lead to other forms of crime. Because corruption breeds corruption, it tends soon enough to lead to the creation of mafias and organized criminal groups who use their financial power to infiltrate legal businesses, to intimidate, to create protection rackets and a climate of fear and uncertainty.

Well as you see, there is really no limit to the extent to which corruption, once it is unleashed, can undermine the stability of the state and organized society. In this article we have looked through some critical points and some areas where corruption might possibly take place. Corruption proved to be tremendous challenge to the world whose outcomes no one can surely predict. The only thing that is known is that we have to start working now in order to make the world better and more transparent.

- Pavlo Cherchatyi

Camp MUN Ukraine Staff Member