4.2. Effects of corruption in developing countries
Reality in many developing countries today is still shaped like this: relatively underdeveloped public institutions, small upper class elites, and huge differences in wealth and income-with the concomitant possibilities of wielding power and exercising authority. Under these conditions corruption has especially deplorable effects. (26) Where it spreads no bedrock remains in the long run; habituation to dishonesty destroys all sense of honesty. The disposition to corrupt and be corrupted rather than qualifications comes to determine relations between people. Corrupt conduct in office ends up as flagrant disregarding of community interests.
The ones short-changed by all this are the socially powerless and decent people, for they either cannot or will not join in playing the crooked game. Because of their poverty or uprightness they constantly get short shrift in comparison with those who have the wherewithal to influence decisions and the way things are handled to their advantage and are not shy about doing so.
When it comes down to cases this often means that quite normal services to which all citizens are nominally entitled by the constitution and the law are denied persons from the underclass, already under severe social duress, unless they cough up. It starts with giving someone who needs a certificate of birth or death a hard time, continues where children are enrolled in school, testimonials are required for job applications or positions with government are filled, and does not stop even when, following a catastrophe, the state distributes free or subsidized relief goods such as food.
Those, on the other hand, who thanks to their connections and social status and the pull these confer, are better off and in a position to dispense pecuniary or other favors need not fear mistreatment. Oftentimes they do not even have to pay their full taxes or other levies. Thus privileged, they regularly enjoy the benefits of government-provided services that, in view of their social position, they ought not and certainly have no need to profit from.
The same mechanisms are in play at the institutional level, for example in connection with official approvals, authorizations, prohibitions and the like that are of importance to business companies' operations, among other things. Wherever muzziness prevails in the awarding of contracts for goods and services by officeholders possessing discretionary authority, power centers take shape that positively invite corruption. And again, this has consequences.
Only select circles of clients get to benefit from services that government, by virtue of the job it was set up to do, should provide without discrimination. For certain companies approvals are not forthcoming, no matter that all legal requirements have been fulfilled. Conversely, other companies get the stamp of approval without having met the requirements. Some firms, wondrously, are spared tax audits and technical inspections for years and years, although it is obvious for all to see that they are precisely the ones who should be controlled. Others have to undergo controls three or four times a year, no explanation given -and never mind that there is no detectable evidence of anything amiss.
What a business enterprise, be it large or small, has to contend with in a state-dominated economy with its profusion of laws, decrees, regulations and implementation directives, and how corruption can trammel the life of the economy, was described graphically a few years ago by Hernando de Soto, taking Peru as an example:(27)
De Soto induced a “typical Peruvian small businessman” to petition for permission to operate a tailoring establishment, specifying that all legal requirements should be fulfilled. In order to obtain a permit the entrepreneur had to “pay his respects” to no less than 11 ministerial or municipal departments, one after the other. Ten of 11 officials were only prepared to perform their duty in return for an additional financial consideration. Two of them even threatened to “bury” the application if the businessman did not pay up. In the end it took 289 days, and the expenditure and lost working time came to USD 1,231, i.e. 32 times the Peruvian minimum wage at the time.
Contrary to stereotype, a want of governance and corruption hit the small people hard, not the bigwigs. Large companies can hire experts to cope with the bureaucratic hurdles and obscure rules of play. They also have the means, should they wish to employ them, to “oil” the administrative machinery and speed up long drawn-out decision-making processes.
In earlier discussions of the problem of corruption in developing countries this fact led some authors to perceive positive aspects of it as well. Their argument ran that corruption overcomes bureaucratic indifference and accelerates decisions, reduces uncertainty about deciding whether or not to invest, and thus serves to mitigate the consequences of poor government policies. (28)