Corruption and competitiveness

Citation

Ali, A.J. (2011), "Corruption and competitiveness", Competitiveness Review, Vol. 21 No. 4. https://doi.org/10.1108/cr.2011.34721daa.001

Corruption and competitiveness

Article Type: Corruption and competitiveness From: Competitiveness Review: An International Business Journal, Volume 21, Issue 4

Competing globally and enhancing a nation’s position internationally are characteristically linked to the welfare of citizens. In fact, in today’s world, improving the welfare of citizens has become a priority for responsible governments and those which aspire to be global actors. Liberalization, globalization of business, and access to information have induced governments in many parts of the world to demonstrate to their constituencies that they are responsive and committed to fostering a healthy economy.

But in the absence of sound legal institutions and rules of law, fraud and corruption deepen their roots and cumbersome bureaucracy becomes a serious burden, making it impossible for any government to function adequately, invest in human skills, cultivate knowledge, and meet domestic and international obligations, including its responsibility toward its public. Subsequently, national competitiveness erodes and living standards deteriorate.

Furthermore, in an environment of fraud and corruption, it is not only the government that is likely to be dysfunctional, but citizens and organizations will be in turmoil and their energies wasted instead of being focused on innovation, productive activities, and growth. All these reinforce the citizens’ state of resignation and carelessness leaving a few powerful elite in control of vital economic activities and resources. In Russia, Kazakhstan, or Egypt, for example, corruption has become the norm. A clique of well connected individuals has taken advantage of the privatization of public enterprises and, within a few years, has become billionaires while the majority of the population lives in miserable conditions.

The Washington Post (Leiby, 2011, April 9) reported that the steel tycoon, Ahmed Ezz, in Egypt, in recent weeks has:

[…] emerged as perhaps the most hated symbol of a system that rewarded the few and oppressed the many. Fairly or not, Ezz – the oligarch who cornered the market on steel production in the Arab world – represents for millions of Egyptians a pervasive crony capitalism that, before the revolution, was simply a fact of life.

After the youth revolution in Egypt, many of the old regime’s powerful elite have been investigated for corruption and mishandling of public wealth.

Does corruption or lack of it relate to competitiveness? The answer to this question depends on the degree of corruption. Corruption does exist in many forms and it is impossible to eradicate it completely. However, in countries where corruption is not prevalent, national competitiveness is considerably high. The Table I presents the top ten least corrupt countries in 2010 and their ranking in the Global Competitiveness Report 2010-2011 (World Economic Forum, 2011). It is clear from the data provided in the Table that a relationship does exist between the economic health of a nation as represented by its competitiveness position and the lack of corruption.

Table I

Countries that have sound legal institutions and governance tend to have relatively transparent operations and people have better access to economic opportunities. Furthermore, individuals in these countries are more likely to take advantage of the available opportunities and are less likely to tolerate power abuses. Indeed, it is in these countries that social and economic justices are guaranteed to a broader segment of the population.

The Transparency International (2011) in its Corruption Perceptions Index 2010 indicated that “across the globe, transparency and accountability are critical to restoring trust and turning back the tide of corruption. Without them, global policy solutions to many global crises are at risk.” Corruption is not only costly economically, but it also weakens social and political institutions and eventually incapacitates their ability to function properly. While it severely paralyzes institutions, it renders individuals a passive actor economically and socially.

A few years ago, we defined national competitiveness as a nation’s ability to improve the economic and social welfare of its people through active and purposeful participation in the global marketplace. This implies, among other things, a deliberate and purposeful attempt to sufficiently minimize corruption. In a country where culture tolerates corruption, steady economic growth will be lacking, the gap between the elite and ordinary citizens will be enlarged, the government will be paralyzed and the rule of law exists only on paper, and citizens’ respect for institutions will dramatically diminish.

These developments will eventually limit creativity and the spirit of discovery, constrain the capability of growth and investment, and sustain dependency on other countries. Any country experiencing these difficulties will never achieve a competitive position in the global marketplace. This makes it imperative that corruption is dealt with as a precondition for having a functional economy and polity.

At the end, the health of any economy is linked to sound domestic institutions and growth-oriented strategies that release human energy and cultivate citizens’ capabilities to be involved in productive growth that seeks to sustain a reasonable improvement in living standards while safeguarding human dignity. It is imperative, therefore, to renew commitment to ethical and moral conduct, not only as an intellectual exercise, but also as a practical outreach that opens new avenues for growth and prosperity and where corruption is publically abhorred and officially banished.

Abbas J. Ali