Corruption - Economic Bad or Good

Some days back, my Microeconomics Professor suggested a very strange thing – ‘Maybe corruption is a good thing after all.’ I was taken aback for a moment and then the incredulous feeling was replaced with a strong contemplation as he proceeded about how the thought of earning that extra bit of money might actually serve as an incentive for people to perform better and work harder. “Maybe it is not such a bad thing after all”, he said.

 I started dwelling on it. Then again, when you think about it, maybe corruption and the facility and liberty of making that extra bit of money can distort many other things as well. If things were left to the policy of – “how much you can get by how much you do”, people would tire everything out to make money. What I believe is the problem in India is the work policy and the facts that people aren’t driven by the right motives and incentives to work. Every one works only to make them better and richer and healthier. There is the spirit of philanthropy, of the concept of making things better for everyone... these things missing. Therefore with the advent of such a policy, there comes this whole widening gap of the social and economic status of people in this country. Corruption is essentially a bad thing, defined as ‘Dishonest or fraudulent conduct by those in power, typically involving bribery’. It is found in a survey that corruption as incredible as it might sound can actually elevate the efficiency of an economic system.

There is an example where it is shown the case of bribery in attaining the driver’s license. Now a person would pay the extra marginal money only if he believes that his utility from that product would be much greater than others and would definitely offset the extra cost, therefore he values it more than the others, which further implies that his usage of the product would fetch an increased marginal productivity, which is kind of efficient. Now this argument of mine might look absurd when it is made to stand on certain moral and welfare grounds, because on a whole, corruption is never good on a long term. The efficiencies on the short term are always short scale and have the capacity to erode social equality and even mar law and order. The cost of corruption is always so huge that it causes disparities on another level. The money which is siphoned off from the main stream is definitely a flawed angle in the whole system of the way the economics works in a nation.

But the main negative point, according to me about this social evil is the huge disparity that it causes amongst the poor. It creates distributional consequences. It hampers the progressivity of the taxing system, creates social and economic inequality and also leads to slowing of the growth of a country and reduces the effectiveness of the social programs, and by perpetuating an unequal distribution of asset ownership and unequal access to education. In a cross-section of 37 countries, a significant impact of corruption on inequality was found, while taking into account various other exogenous variables. When controlling for GDP per head, this impact remains significant at a 10 % level. It was concluded that deterioration in a country's corruption index of 2.5 points on a scale of 0 to 10 is associated with the same increase in the Gini coefficient as a reduction in average secondary schooling of 2.3 years.

Therefore though we can continue contemplating about the good effects of corruption and it’s potent of becoming an economic developer, yet the ill effects need to be diluted first. I would continue writing of this, if some new idea strikes me on how to go about this dilution!!! Till then, have a great weekend! 

Reference for the statistics:  Anti Corruption Resource centre U4