EFFECTS OF CORRUPTION

SUBMITTED BY: CHINARAJA BARATAM

13BEC0728

Basic effects of corruption

• Effects on Investment and growth• Poverty• Corruption and service delivery• Economic Effects• Environmental and Social effects• Effects on Humanitarian Aid• Effects on other sectors : Health, Education, Public

safety, Trade unions etc.• Effect on small and micro enterprises

• It is well established that investment is significantly affected by the level of uncertainty in the business environment.

• Weak firms might be more inclined to rely on administrative corruption as a survival mechanism.

• The effects of state capture on firm performance show a marked contrast. Where state capture is reported to be prevalent, firms that pay bribes to influence the content of laws, decrees, and regulations show significant increases in sales growth.

• The gains to capture for particular firms appear to be associated with negative consequences for less influential firms.

• The issue of the direction of causality could be raised- capture could directly improve firm performance or stronger firms could be more likely to engage in capture.

• A strong case can be made that corruption contributed to the output decline, given its effects on investment and growth, the weakening of tax revenues, the misappropriation of credits and subsidies, and the erosion of public sector services.

Poverty• For so many individuals and families, the most

immediate and visible consequence of the transition has been a decline in their living standards.

• Poverty rates have remained high as incomes of the poor have failed to recover and inadequate social safety nets have left the most vulnerable groups unprotected.

• Corruption has a direct impact on the living conditions of the poor.

When corruption misdirects the assignment of unemployment or disability benefits, delays eligibility for pensions, weakens the provision of basic public services, it is usually the poor who suffer most. Such corruption undermines the social safety net and may deter the poor from seeking basic entitlements and other public services.

Corruption and Service delivery

Effect on small and micro enterprises

Within the economy, corruption is a highly regressive tax as the BEEPS data demonstrate. Small enterprises across the region pay, on average, more than twice as much of their annual revenue in bribes as do large firms. Such firms are particularly hard hit by administrative corruption. Micro-entrepreneurs appear to be prime targets for corruption. Household surveys in several transition countries demonstrate that bribery at the household level is most strongly associated with participation in a microenterprise. Corruption clearly hinders the ability of the poor to help themselves out of poverty.

Economic Effects• In the private sector, corruption increases the cost

of business through the price of illicit payments themselves, the management cost of negotiating with officials, and the risk of breached agreements or detection.

• Although some claim corruption reduces costs by cutting bureaucracy, the availability of bribes can also induce officials to contrive new rules and delays.

• Corruption also generates economic distortions in the public sector by diverting public investment into capital projects where bribes and kickbacks are more plentiful.

• Corruption also lowers compliance with construction, environmental, or other regulations, reduces the quality of government services and infrastructure, and increases budgetary pressures on government.

Environmental and Social effects

• Corruption facilitates environmental destruction.

• Some effects of corruption are social rights worker protection, unionization prevention, and child labor.

• While drought and other naturally occurring events may trigger famine conditions, it is government action or inaction that determines its severity, and often even whether or not a famine will occur.

• Officials often steal state property. Similarly, food aid is often robbed at gunpoint by governments, criminals, and warlords alike, and sold for a profit.

• The scale of humanitarian aid to the poor and unstable regions of the world grows, but it is highly vulnerable to corruption, with food aid, construction and other highly valued assistance as the most at risk.

• Elsewhere, in construction and shelter, there are numerous opportunities for diversion and profit through substandard workmanship, kickbacks for contracts and favoritism in the provision of valuable shelter material.

• Access to aid may be limited to those with connections, to those who pay bribes or are forced to give sexual favors.

Effects on Humanitarian aid

Effects on other sectors : Health, Education, Public safety, Trade unions etc.

In western countries, there have been cases of bribery and other forms of corruption in all possible fields: * Under the table payments made to reputed surgeons by patients willing to be on top of the list of forthcoming surgeries. * Bribes paid by suppliers to the automotive industry in order to sell poor quality connectors used for instance in safety equipment such as airbags. * Bribes paid by suppliers to manufacturers of defibrillators (to sell poor quality capacitors).

* Bribes paid to obtain diplomas, financial and other advantages granted to unionists by members of the executive board of a car manufacturer in exchange for employer-friendly positions and votes, etc.

Corruption can also affect the various components of sports activities (referees, players, medical and laboratory staff involved in anti-doping controls, members of national sportfederation and international committees deciding about the allocation of contracts and competition places).

* Contributions paid by wealthy parents to the "social and culture fund" of a prestigious university in exchange for it to accept their children.

* Ultimately, the distinction between public and private sector corruption sometimes appears rather artificial and national anti-corruption initiatives may need to avoid legal and otherloopholes in the coverage of the instruments

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