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In the 2013 Corruption Perception Index just released, Sri Lanka’s total score has slipped from 40 in 2012 to 37 in 2013 (available at: http://www.transparency.org/cpi2013/results). At this score level, Sri Lanka is ranked equivalent, by corruption perception, to Malawi and Morocco which too have scored the same value.
Out of 177 countries that have been surveyed, Sri Lanka is ranked at 91 in 2013, a slippage from 79 out of 176 countries in 2012. There is a gradual deterioration of the country’s position of corruption perception from 2005 in which year it had been ranked at 78 out of 159 countries.
A consolation for many patriotic-minded Sri Lankans would be that it has scored a little higher than its neighbour to the North, India, which has scored 36 and there are 80 countries which are more corrupt than Sri Lanka in the globe.
No complacency about the present corruption perception level
But over the years, Sri Lanka’s public sector has been perceived to have become more corrupt both in relative and absolute terms. In 2012, the country was ranked nine slots above the midpoint. In 2013, it has slipped three slots below the midpoint. Naturally, this is a development about which the country cannot be happy at all.
Index is on perception and not on actual incidence of corruption
One clarification of the index is that it is about the perception of corruption and not about the absolute level of corruption. This is because there is no valid and reliable information on an internationally comparable basis on the incidence of the public sector corruption. Hence, one may argue that it is the actual level of corruption about which a country should be worried and not about the perception of corruption. That is because perceptions are based on the subjective assessment of the people and the organisations that are surveyed for the purpose.
A critic might say that such surveys would not reveal the objective and impartial opinion of the personalities being surveyed. Their perceptions may have been largely influenced by media reports, hearsay and gossips about the instances of corruption rather than personal experience of same. To that extent, the perception indexes will overestimate the actual level of corruption in society. Or on the other hand, they may underestimate the corruption levels if perceptions are guided by suppressed information on same.
Perceptions are bad because they drive out honest people
But if perceptions are high, they too give bad examples to members of the society: If your neighbour is corrupt and he can enjoy the fruits of his corrupt practices by going scot free, then why not you also become corrupt and enjoy the fruits?
This logic follows from the Gresham’s Law, named after Sir Thomas Gresham, the English financier who lived during the reign of Elizabeth the First in the 16th century. Gresham is reported to have advised Her Majesty that if she issued cheap metal coins of the same denomination as the gold coins, people will hoard the gold coins for their intrinsic gold value and release only the cheap metal coins for circulation. Pretty soon, the country will be flooded only with cheap metal coins.
Economists have come up with a general law out of this saying: If you tolerate a bad thing along with a good thing in society, the bad thing will eventually drive out the good thing. Hence, untamed high corruption perception will soon encourage everyone to be corrupt thereby increasing the actual corruption level in society as well.
Corruption may help the inflexible bureaucracy to turn its wheels
Should Sri Lanka be worried about the gradual increase in the perception of corruption level in the public sector over the last decade or so? Some might say no, because corruption makes the wheels of the otherwise inflexible public sector machinery turn in double quick time. If citizens are unable to get the needed public services from the bureaucrats or the politicians who manage them, a little oiling of the palms of those concerned helps the citizens to get those services delivered to them.
There are some academics who share this view and amongst them, a notable advocate has been the Harvard University’s Political Scientist Samuel P Huntington. In a book titled ‘Political Order in Changing Societies’ and published in 1968, Huntington argued that when societies attain higher income levels and modernise themselves, the emphasis they place on public welfare gets shifted to private personal interests.
When public servants start working for their personal interests, they invariably look for avenues to enrich themselves and those avenues are exploited by them by resorting to corrupt practices. Thus, corruption proliferates in society. However, Huntington has argued that such corruption has a beneficial side too. The politicians who now resort to corrupt practices are able to tame the public servants who have become all powerful in those societies. The weakening of the bureaucracy helps these societies to develop their political parties.
Modernisation which involves losses for some and gains for others makes everyone stressed and unless those stresses are managed, they would lead to conflicts and violence. Corruption is a way to moderate these stresses and thereby it helps societies to stimulate economic development.
But toleration leads to institutionalisation of corruption
Huntington’s argument has a loophole because it justifies the institutionalisation of corruption as a cultural practice in society. The citizens may tame the corrupt public servants. But in their place, they now have to install a new type of corrupt rulers in the style of political masters. Hence, instead of eliminating corruption in society, they are simply trading one corrupt group for another corrupt group. 
Furthermore, the corrupt public servants may be asking for small bribes to deliver their services to citizens. But the corrupt political masters may be demanding large sums in order to deliver the same service. Hence, the replacement of corrupt public servants with corrupt politicians does not appear to be a sound choice for a society already overburdened by corruption.
Corruption kills growth, welfare and prosperity
There is mounting evidence now that corruption in a society in fact prevents it from sustaining a high economic development on a durable basis. Two German economists, Axel Dreher of the University of Goettingen and Thomas Herzfeld of the University of Kiel, have documented a number of empirical studies that have assessed the long term economic cost of corruption in a paper they published in 2005 under the title ‘The Economic Costs of Corruption: A Survey and New Evidence’ (available at ideas.repec.org/p/wpa/wuwppe/0506001.html).
According to them, corruption has a negative impact on economic growth, the level of per capita income or PCI, investment activity, international trade and even the successful control of inflation. In addition, corruption causes an unhealthy change in the government expenditure programmes favouring those who are prone to corrupt practices and who have a higher bargaining power in the allocation of public funds. Even when they do not have a higher bargaining power, they are in a position to buy those who have the power to make government’s expenditure allocations.
By using six possible channels through which corruption affects economic growth, they have calculated that if the level of corruption, as calculated by Syracuse based PRS Group in its International Country Risk Guide or ICRG index, increases by 1 index point, economic growth is reduced by 0.13 percentage points and per capita GDP by $ 425. Though the two authors have not taken Sri Lanka as a country of study for their analysis, their general conclusions are a pointer for Sri Lanka since countries like India, Bangladesh and Viet Nam which are also in the same category as Sri Lanka with respect to perceived corruption have been included in the study.
Kautilya to king: Eradicate corruption
by all means
The public sector corruption has been an age-old problem. Even in ancient India in the 4th century BCE, the corruption among the king’s servants was so rampant that, Kautilya, the statesman and economics Guru, advised the king in his treatise on economics, The Arthashashtra, to take all possible measures to eliminate it from society. But according to Kautilya, one problem the king will face is that it is difficult to detect corrupt officials just like “one cannot say whether a fish swimming in water is drinking it or not”.
Also, there is a natural tendency for state officials to abuse their power and misappropriate the revenue of the king. Kautilya equated it to “the difficulty of someone with honey in the tip of his tongue to resist the impulse to taste a little bit”. So, his advice to the king was to impose severe punishments, including death penalty, on those who have been found guilty of corrupt practices. Hence, societies throughout history have attempted to address the problem through a system of detection and punishment.
Kautilya has recommended to the king that if there are suspected corrupt officials, he should employ decoys and catch them in the act so that the vigilance exercised by the king in eradicating corruption works as a disincentive to other officials intent on practicing the same.
Legal corruption is the
bigger menace
The Corruption Perception Index of the Transparency International has tackled only the illegal type of corruption practised by public officials including their political masters. It does not cover the legal type of corruption which many democracies have been practising today through their elected representatives. In this case, the elected representatives forming the majority in Parliaments may pass laws and approve schemes that will ultimately rob the funds from taxpayers.
For instance, they may approve of the establishment of public enterprises by using the taxpayers’ money as their initial capital and empower the ministers concerned to hand over the management of those enterprises to their own supporters who have no competency in managing them. The ministers and sometimes their spouses and children too may get involved in the day to day management of those enterprises. The ultimate result will be the inefficiency built into these enterprises leading to losses on the one hand and failure to deliver quality services to the public on the other. The losses made by these enterprises are a corrupt practice pursued by the public sector through legitimate means.
Kautilya was so angry at the king’s officials making losses in the king’s enterprises that he equated such instances to a situation where those officials rob not only the king but also the labours of the workers employed in them. He suggested that such officials should be punished severely for this corrupt practice.
Duty free permits are a legal
corrupt practice
Another instance of legal corruption is the selective duty waivers given to people’s representatives and public officials to import various luxury items where the same concession is not extended to the public at large. The duty free car permits given to Parliamentarians and public officials in Sri Lanka are a case in point. These concessions have been justified on the ground that they help Parliamentarians and public officials serve the public better by easing their travel problems.
But in view of the vast difference in the cost of such vehicles and their market prices, they create an underground market for such vehicles in which the recipients of the permits could encash the duty concession given to them by selling those vehicles to third parties. The tolerance of such underground market transactions by the state has paved way for legal corrupt practices since they not only defeat the avowed goals of the permit schemes but also help the recipients to appropriate the tax concessions for their personal gain.
The control systems introduced by societies to prevent its occurrence do not work properly since those who have been charged with implementing the controls are the very same people who stand to gain from such transactions.
Legal expropriation of private property and allowing them to decay are also corrupt practices
A third instance of legal corrupt practice is the powers given to Parliaments in democracies to expropriate private property in the name of public interest. These properties are handed over to the supporters of Parliamentarians for management as it had happened in the case of the plantation companies nationalised by the Sri Lankan Government in 1970s and the recent take-over of the white-farmer-owned farms by the Zimbabwean Government.
In both cases, there was massive misappropriation of the property by those who had been planted as their managers converting them ultimately from profits to losses. When the losses have eaten up the entirety of the capital in such expropriated enterprises and when they are no longer going concerns, they have been bailed-out by governments by using taxpayers’ money paving way for a second instance of corrupt practices.
Corruption helps one segment to rob another segment in society
Thus, societies should be concerned about both the illegal and legal types of corrupt practices perpetrated by public officials and their political masters. Why should they be concerned about them? That is because corruption brings about an unwarranted redistribution of wealth of people from one segment of society to another.
When people realise that there is a way to quick richness through corruption, they utilise all their resources, energy and talents to get into the club that is permitted to practice corruption legally or illegally. They do not produce any worthwhile output to increase the general wealth levels in society. Instead, they prey on the wealth created by others. Hence, it kills the incentive system for people to work hard, enjoy the fruits of their production and create wealth on a sustainable basis. If societies are concerned about long term sustainable progress, they should not tolerate the proliferation of corruption, whether legal or illegal.
(W.A Wijewardena could be reached at [email protected].)
