Risk Analysis - Trend of Corruption in 2008

Buzz word of corruption always in the news since past decade. The persistence of corruption in some of big countries may reflect the presence of immigrant communities in these countries, in which barter and other forms of reciprocal dealing based on (and constructing) relations of trust, extended family relationships, clan ties, and the like continue to organize significant economic activity and make it natural to think of public officials as "selling" public services to their friends and relatives. Again, problem of corruption in 2008 underscores the importance of the legal framework to economic development. An honest, incorruptible police, criminal law enforcement machinery, and judiciary can increase economic efficiency by greatly reducing the amount of corruption (as well as in other ways), though it is equally important to have a commitment to free markets and a workable legislative and regulatory machinery to prevent economic activity from becoming encrusted with inefficient restrictions.

My personal comment I concentrate on corruption that on balance is bad. Obviously, if governments strongly regulate many activities, then companies, unions, and other groups that are regulated can do better if they can "bribe" officials to overlook or relax these regulations. So the wider is the reach of governments, the greater is the corruption potential. Somehow, other than narrowing the scope of government and strengthening legal institutions, what can be done to reduce (bad) corruption? One simple step is to improve the incentives of officials to act honestly. The incentive to be honest would be stronger when officials are better paid, and if they are fired from their well-paying jobs, and sometimes also punished rather severely if they are caught engaging in corrupt behavior. A few studies do support this conclusion that corruption thrives more in environments where officials are badly paid, such as policemen in most of Asian counties (name it - Indonesia? China? India?).

In a role - corruption is reduced by greater competition between separate political jurisdictions and stronger competition for political leadership. This implies that corruption is lower in decentralized political systems compared to centralized systems. Various studies do indicate that democracies generally appear to have less corruption than totalitarian systems, although some of the corruption in totalitarian systems like the Soviet Union may be of the good kind because the laws are so bad. And, corruption is reduced when information is more easily disseminated to the public. That is why a free press is such an important protector against greater corruption. The press is more effective in better educated societies, and various studies have shown that corruption is lower when education is greater. Education also helps cut corruption by improving political institutions, so part of the positive relation between the amount of corruption and the weakness of institution is the result of the positive connection between education and good institutions.

Next question - Can we stop this?