An economy plagued by high levels of corruption (including an economy that abuses money or power to illegally, dishonestly, or unfairly achieve specific goals) cannot prosper compared to countries with low levels of corruption. A corrupt economy cannot function properly because corruption prevents the natural laws of the economy from operating freely. As a result, corruption in the political and economic operations of a country is a significant threat and can make the entire society suffer. Also, the author Gambhir Watts writes in his book "The White Queen," corruption has acquired a more cultured form under the auspices of bureaucracy and is hard to eliminate.
This article highlights how corruption can affect the economy of the country.
1) Staggering Prices
Corruption in the conduct of transactions, awarding contracts, or the conduct of economic activities can lead to monopolies or oligopoly in the economy. Those business owners who can use relationships or money to bribe government officials can manipulate market policies and mechanisms to make them the only providers of goods or services in the market.
As monopolists do not have to compete with alternative suppliers, they tend to maintain higher prices and are not forced by market forces to improve the quality of the goods or services they provide. If competition is fierce, monopolists can act. Buried in those high prices are the illegal costs of corrupt transactions necessary to establish such a monopoly. For example, if a house building company has to bribe officials to obtain a business license, such costs will, of course, be reflected in artificially high prices.
2) Inadequate Resource Allocation
The best practice is when the company selects suppliers through a bidding process (tender), which is a mechanism that enables suppliers to choose the best combination of price and quality. It ensures the efficient allocation of resources. In corrupt economies, companies that are not eligible to win bids often get projects due to unfair or illegal tenders.
It results in excessive expenditure on the execution of unqualified or failed projects, resulting in inefficient use of resources overall. Due to the massive flow of funds involved, public procurement may be most vulnerable to fraud and corruption. Also, it is estimated that public procurement accounts for 15% to 30% of gross domestic product (GDP) in most countries/regions.
3) Unequal Wealth Distribution
One aspect of a corrupt economy is that the proportion of the middle class is too low and that the living standards of the upper and lower classes are very different. Since most of the country's capital is in the hands of pro-corrupt oligarchs or public officials, most of the wealth created also goes to these people.
In a corrupt economy, small businesses are not widely dispersed, and small businesses are usually discouraged because they face unfair competition and unlawful pressure from large companies with links to government officials. Some companies are more prone to corruption than others, which makes small businesses in these industries more susceptible to unethical business practices.
4) Less motivation for Innovation
Because of zero confidence in the judicial system of a corrupt nation, potential innovators are not confident that their creation or discovery will be protected by patents and will not be copied by those who can escape by bribing the government. So, these factors hinder Innovation. Therefore, emerging countries are usually importers of technology because no one in their own country is willing to innovate things because of corruption in the judicial system.
5) Less foreign Investment and Trade
Corruption is one of the obstacles to foreign investment. Investors seeking a fair and competitive business environment will avoid investing in countries with high levels of corruption. While investing in emerging markets is still a popular area of investment, investors will naturally hesitate to invest money in countries with high levels of corruption. As per the research, the level of corruption is directly related to the competitiveness of its country's business environment.
6) Lack Of Education & Healthcare
International Monetary Fund (IMF) working documents show that corruption harms the quality of medical education and care provided by emerging economies. In countries where bribery and interpersonal relations play an essential role in recruiting and promoting teachers, corruption can increase the cost of education. It further worsens the quality of education, affecting the overall health of the economy.
Similarly, in emerging economies, corruption in the recruitment of designated health care providers and personnel and the acquisition of medical supplies and equipment has led to inadequate healthcare treatment and substandard or limited medical supplies, and that reduces the overall quality of healthcare.
Conclusion
Many countries with emerging economies suffer from severe corruption, which slows their overall development. Due to the ineffective allocation of resources, the existence of the shadow economy, and low-quality medical education and care, society as a whole has been affected. Thus, corruption exacerbates these social conditions and lowers the living standards of the majority of the population.
Author's Bio:
Gambhir Watts is a multitasking professional with over 35 years of experience in not-for-profit organizations, strategic planning, and business development. The book "The White Queen" ISBN: 978-1-950088-31-7 highlights all the essential issues that plague the communities all around the world.
Comments