Wednesday, August 4, 2010

On Corruption

In recent times, there are worrying signs of increasing corruption in our most advanced democracies. This is not a new phenomenon, but what matters are the new forms that it is taking. According to many sources (Transparency International, World Bank, etc.) the level of corruption has reached in some countries, such as Italy and Greece, its highest level. In fact, the corruption index is based on surveys which capture the perception of the phenomenon by citizens, but it difficult to measure it accurately. In a survey carried out by Eurobarometre in 2009, most European citizens consider it a very serious problem, especially in Italy. Again, in this country, 17% of those interviewed declared to have experienced corruption in the last twelve months.
Economists have started dealing with this issue two decades ago. But the findings remain still controversial. For instance, the excess of bureaucracy is regarded as a major cause of corruption, but there is still an open debate on the issue of its relationship with economic development. Although most economists consider that corruption has a negative incidence on growth, there are still some views on an inverse causal relationship, that is low growth determines the level corruption. The channels of influence may differ insofar corruption allows inefficient businesses to survive and thus distorts competition, discourages new entrepreneurship and increases the price of good and services delivered by the public sector. Furthermore, it contributes to an inefficient allocation of ‘talents’ and skills: as D. North, a former Nobel price put it, a system which rewards pirates produces pirates not engineers. It is interesting to note that countries more prone to corruption are characterized by a plethora of lawyers- who make up a great deal of the unproductive class. If corruption in Italy would drop to, say, German levels, economic growth would improve by 0,8% per annum, using econometric coefficients derived from a recent study*.
In Italy, four decades of economic development – between the 50s and the 80s- were not conducive to similar institutional standards of the other founding members of the European countries. This means that the quality of institutions has not improved over time. It has been an era of growth without institutions for which the Italian economy is paying the price with a lower growth. The decline of institutions and the loss of control of corruption are, in fact, associated with recent evolutions in the political system, with Berlusconi’s aversion for the rule of law. There are also specific channels of transmission such as electoral rules and decentralization. In the current electoral system, candidates are chosen by political leaders irrespective of merit or competence, which creates opacity and a risk of corruption as compared to a system based on open lists based on the expression of preferences. Local governments are also more prone to corruption relative to central governments, especially if they are supported by very large majorities built around networks of ‘clientelism’ giving little space to a political opposition making a case for good governance.
Yet, we don't have a full understanding of the phenomenon of corruption, its causes and its effects on economic growth. But, it is clear that without it, policies would be fictive or not effective, and the gap between the political class and civil society will keep growing, economic growth will remain sluggish and we might end up with some kind of authoritarian State.
* T.S.Aidt, Corruption, Institutions and Economic Development, Oxford Review of Economic Policy, 2009

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