Impact of Corruption on the Economies

The word corruption is derived from the Latin word “corruptus,” which means “corrupted” and, in legal terms, the abuse of a trusted position in one of the branches of power (executive, legislative and judicial) or in political or other organizations with the intention of acquiring material benefit which is not legally justified for itself or for others.

Throughout the historical past, many intellectuals dealt with corruption or theorized about it one way or another. There were low opinion on republics, considering them much more corrupt than other regimes, and corruption leads to moral degradation, unhealthy education and religion. On the other hand, however the great philosopher, diplomat and lawyer Sir Francis Bacon was known both for receiving bribes and taking them. When he reached the highest judicial position in England, he was caught in as many as 28 cases of accepting a bribe and defended himself before the parliament by saying that he usually accepted a bribe from both parties concerned and that the dirty money subsequently did not have an effect on his decisions The parliament did not accept these arguments and sent him to jail where he spent just a few days as he was able to bribe the judge.

Thus, corruption has been occurring in society ever since, it has only been given extra consideration within the recent period—the researches on the phenomenon and its adverse impacts have become more frequent after 1995, when countries and international establishments began to pay attention to this problem The attitude of the general public towards corruption was, till then, neutral. In 1998 :

  • Bribery is widespread, particularly in developing and transition countries; there are, however, significant differences between and within regions.
  • Bribery increases transaction costs and creates insecurity within the economy.
  • Bribery usually lead to ineffective economic outcomes, in the long run impedes foreign and domestic investments, reallocates talents due to revenue and distorts sectorial priorities and expertise choices for example, it creates incentives for contracting major defense initiatives or unnecessary infrastructure initiatives, but doesn’t encourage investments in rural specialist health clinics or in preventive health care. This pushes companies into the “underground” (outside the formal sector), weakens the state’s capacity to increase revenue and leads to ever-increasing tax rates (as too little tax is taken), which is levied on less and lesser taxpayers, consequently diminishing the state’s capacity to provide sufficient public items, together with the rule of law.
  • Corruption destroys the legitimacy of the state.

The impact of corruption on the economic system

In 1997, a scientific research of the impact of corruption on public funds. Several important info came to light:

  1. Corruption increases the volume of public investments (on the expense of private investments, as there are many choices that allow for public expenditure manipulation and are carried out by high-level officials so as to get bribes (which means that more basic government expenditures or a large budget finances offer more opportunities for corruption).
  2. Corruption redirects the composition of public expenditure from the expenditure necessary for basic functioning and maintenance to expenditure on new equipment.
  3. Corruption tends to pull away the composition of public expenditure from the mandatory fixed assets for health and education, as there is less probability of getting commissions than from other, maybe unnecessary initiatives.
  4. Corruption reduces the effectiveness of public investments and the infrastructure of a country.
  5. Corruption can reduce revenues by compromising the ability of the state administration to gather taxes and fees,though} the web impact depends on how the nominal tax and other regulatory burdens were selected by the officials exposed to corruption.

Corruption for various reasons also impacts the following:

  1. Employment, because the job does not go to the most suitable or qualified person, however the one who is ready to pay for it or in any other way return the favor.
  2. Also affects total investments.
  3. The effectiveness of funding decisions and initiatives. In the presence of corruption, the investments are smaller, as entrepreneurs are aware that they will have to bribe the officials or even give them a revenue share for a successful implementation of a business. Due to these increased prices, the entrepreneurs are not interested in investing.

The answer to the question of how to deal with corruption is not unambiguous; some countries have achieved great success in dealing with it in a relatively short time (Singapore, Estonia and Georgia) and some have been struggling for a long time (probably the most well-known instance is Italy). The first condition in any case is to ensure| freedom (personal freedom, economic freedom, freedom of speech, freedom of the press, etc.) and democracy, after which education and awareness of people. However, at this point, it is not about introducing the Western type democracy, as our culture is aware of it, for it has often proven that, particularly with the help of the army, more harm than benefit was triggered. It is necessary to start utilizing good practices of countries which are comparable to each other (religion, habits, tradition, ethics and morality) and which have common historical past.