Why does corruption survive?


By Henry J. Schumacher  | Special to the BusinessMirror

We (European Chamber of Commerce and Makati Business Club) formed the Integrity Initiative in 2010. Looking back, we are happy that progress has been made in our mission against corruption, both in government and in the private sector. But have we created the “Integrity Nation” in the six years we have been in operation?  I hate to say that we have a long way to go, both in our change advocacy with the national and local governments, and our target to get 10,000 companies to sign the Integrity Pledge and live up to the commitments contained in the pledge.

Why does corruption survive?

The conditions for corruption  to arise are ubiquitous. Its  survival, however, depends upon four conditions:

The first condition necessary for the emergence of corruption is that there be rents associated with a government’s regulatory  powers. Let us consider the rents associated with the sale of rights to serve the wireless market (I don’t want to talk about the telco deal in the Philippines; let’s look at a corruption scandal in India, which puts the value of such rents at $38 billion in that country). Barring pathologically honest bureaucrats, an entrepreneur will collude with public officials to capture those rents. Potential losers from this exchange, which include competitors and consumers, will have incentives to prevent such sales. To prevent the private sale of public property, well-developed public institutions are needed to coordinate the responses of the losers and, hopefully, be able to prevent such deals in the first place.

The second condition requires that corrupt bureaucracies be somewhat independent within the remaining (if honest) administrative structure of the government. External controls on the bureaucracy—whether imposed by the remainder of the administrative system or by society at large—must be weak. If some agents seem to get away with acts of corruption, the internal dynamics of a corrupt bureaucracy will motivate other bureaucrats to expend more effort on increasing the level of their illicit income. I am happy to report that the “Integrity for Jobs” project, co-funded by the European Commission and the Konrad Adenauer Foundation, has effectively created “integrity circles”, composed of participants from the local government units, from business and from civil society, in 60 local government units in the Philippines, clearly addressing the scenario described by the second condition. We will provide more details in future columns.

The third condition requires the public institutions controlling corruption be weak and ineffective. These institutions include civic groups that exert moral pressures, political parties and the media that could expose the wrongdoing, and the legal system that would have the authority to prosecute and punish the guilty.

The fourth condition is a lack of whistle-blower protection. It is obvious that strange deals between government and the private sector and private sector to private sector (price fixing, collusion in biddings, bribing technical and purchasing staff, etc.) will only become known if people inside those companies become whistle blowers. This is the reason the Integrity Initiative advocates the approval of bills that protect whistle blowers in both Houses of Congress.

Societies going through rapid modernization and economic expansion resulting in innovation are prime targets for corruption. In this context, business in the Philippines is happy that the Philippine Competition Act was signed into law in 2015 and the watchdog called Philippine Competition Commission established in 2016.

Measures of economic and social development seem to correlate very strongly with a reduction in corruption, involving the type of  legal system, colonial legacies and religion. While it is clear that the level of corruption in societies with well-developed political institutions is lower, it is difficult to establish the direction of causation. Does development (economic, political or social) cause corruption to decline or is development possible only when corruption declines? I am happy to report that National Economic Development Authority  Secretary  Ernesto M Pernia, when he presented the Philippine Development Plan 2017-2022 a few days ago, clearly outlined the success of the implementation of the development plan hinges on integrity within government and the private sector.

It’s time that companies and individuals signed the Integrity Pledge. Do it now, and help creating the Integrity Nation.







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