INTRODUCTION TO ECONOMICS                                  Lesson 3 of 2006



The current inquiry into the activities of the Australian Wheat Board has, inter alia, raised questions, in an economic context, as to the meaning and significance of corruption.


 What is Corruption?

What is corruption ? is a question more easily formulated than answered.  One common definition is “ “the use of public office for private gain”.  This is relatively simple but it raises questions; is corruption then something, which only occurs, in the public sector?  Can, for instance, a bureaucrat in a large company or other private organisation be corrupt, or just dishonest?   Or a headwaiter at a popular restaurant who for a sizeable tip will let you jump the queue for a table. 

Dissatisfaction with the restriction of the use of the word corruption to refer only to the public sector has lead to another common definition; “the use of a position of trust for dishonest gain”.  Whilst wider than the first, this definition also raises questions; to whose trust does it refer and what is dishonest.  Is the headwaiter in the above example corrupt, given that the public generally knows of the practice and the owners condone it.

The concept of corruption requires at least some precision when it is criminalised, particularly if such criminal laws are then sought to be enforced.  One place where this has occurred is Hong Kong, which has set up an Independent Commission Against Corruption [ICAC].  Its website offers the following definition;

“In simple terms, corruption occurs when an individual abuses his authority for personal gain at the expense of other people.  Corruption brings unfairness, crookedness and, in more serious cases, puts the lives and properties of the community at stake.  The spirit of the Prevention of Bribery Ordinance [POBO] enforced by the ICAC is to maintain a fair and just society.  The law protects the interests of institutions and employers and inflicts punishments on unscrupulous and corrupt staff.  POBO oversees corrupt offences in both the public and the private sector.”

The concept of corruption can be considered from many aspects; moral, cultural, legal, philosophical political and so forth.  Some areas of consideration are whether corruption is efficient as a means of achieving a desired result, whether corruption leads to any and if so what distortions of the marketplace, what are the negative and positive impacts of corruption on an economy and whether ultimately an economy is likely to achieve greater production and growth or less if it were to seek to reduce or even eliminate it.  These are questions of economics. 

One reason often advanced, explicitly or implicitly, for proscribing corruption [or various particular practices identified as corrupt] is that allegedly it or they are inefficient and impose an overall cost on the community.  Refuting or confirming such allegations is a task for economists.  In a narrow sense they can try to do so by isolating and addressing those aspects traditionally considered ‘economic’.  In a wider sense they can try to do so by evaluating the entire concept.

Some Arguments Against Corruption

·         It reduces respect for government

·         It reduces the effect of government regulation and impedes the achieving of government aims.

·         It distorts the market process..  Thus for instance competitive tendering is rendered nugatory if the person responsible for making the decision to purchase does so on the basis of a ‘kickback’.

·         It reduces respect for, and value of, brands and institutions, and of their product.  Thus for example a university, which permitted its degrees to be purchased, would lose reputation and would also diminish the esteem of all previous graduates holding that degree.

·         It adds to the cost of doing business and to the cost of existence generally


Some Arguments For Corruption

·         It reduces or eliminates some of the effect of bad laws or bad government.

·         It reduces the effect of government regulation and impedes the achieving of government aims.



                                                                                                David Sharp

                                                                                                    March 2006



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