Corruption growth rates of these nations however, have

Corruption is an extra-legal
institution used by individuals or groups to gain influence over the actions of
the bureaucracy (N. Leff, 1964). Several authors have argued that corruption
can benefit an economy. These include Nathaniel Leff and Samuel Huntington.
Among the arguments raised by Leff are that corruption can raise investment,
reduction of uncertainty and increasing efficiency among firms. This essay will
discuss corruption as it exists in South-East Asia, the growth that has and is
ongoing in the region and what changes these nations could experience in terms
of development, if there is a concerted effort to reduce corruption in the
region.

 

There is a perceived conventional
logic that corruption does more harm than benefit to society and by extension,
the economy. Institutional trust is important in preserving property rights,
enforcement of laws and investor/consumer confidence and corruption leads to
lower levels of institutional trust. These are factors that contribute heavily
towards economic growth. Investors, especially foreign investors would not be
willing to invest in a lawless nation, or one that has lax enforcement of laws.
South East Asia however, seems to be bucking the trend for economic growth and
corruption. For this essay, the levels of corruption in each nation is based on
the corruption perception index produced by Transparency International.

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            Of the 10 members of ASEAN, which
comprises the nations of South East Asia, only Singapore ranks highly for
government governance in the last 2 years (2015 & 2016) while the other
nations of the bloc lag far behind according to Transparency International. In
their annual Corruptions Perception Index Brunei, Malaysia and Indonesia follow
behind Singapore with paltry scores of 58, 49 and 37 respectively for 2016.
Singapore scored 84, down from 85. The other South East Asian nations lag with
Cambodia being perceived the worst at 21.

 

            The growth rates of these nations
however, have been thoroughly impressive. Cambodia, Laos and Myanmar who were
perceived to be the most corrupt nations grew at 7%, 7% and 5.9% respectively.
The three nations that experienced the smallest rates of growth were Brunei,
Singapore and Malaysia. Brunei contracted 2.5%, Singapore grew 2% and Malaysia
by 4.22%. These nations were perceived to be the least corrupt nations and yet
experienced the least growth. All the nations in South East Asia except Brunei
grew in 2016.

 

           

Why South-East Asia is Experiencing
Growth

Now there are several reasons as to
why in South East Asia, despite the corruption, the economies seem to be
growing. One reason is that strong centralized governments tend to lower
corruption, as there is only one main corrupt, i.e. the government.
Decentralized governments would lead to more individuals and communities being
allowed to take bribes etc. Strong centralized governments, or politically
secure governments would desire long term growth prospects for their nations as
they have very little incentive to not invest in growing their economies.
Weaker governments and decentralized governments may feel a time pressure if
they are unsure about what their positions will be by the time the next
election comes along and so may be more rampant in their corrupt practices.

 

            The governments in these nations employ
various systems of governance. Laos and Vietnam are both communist, although
Vietnam has become more liberal with trade. Brunei is an absolute monarchy.
Myanmar and Thailand are under military rule. Malaysia, Singapore, Philippines,
Indonesia and Cambodia all have regular elections and can be considered
democracies. The 3 least corrupt and slowest growing economies also happen to
be the 3 nations with the most centralized state authorities. For Malaysia and
Brunei, state authorities who are in charge may wish to reduce corruption in
the interest of the state to maximise revenue not just in the present but in
the long run as well.

 

            The other South East Asian nations,
with either communist rule or politically unstable governments, face the
problems of institutional corruption at every level of public service. If every
individual or group can maximise their respective profits by being corrupt in
the present than this could lead to a greater impediment to the creation of
institutional trust or in could drive economic growth.

 

In many Asian countries, corruption
is structured and predictable (Lim. L, 2003). This means that many businesses
can already factor corruption and bribery costs into their business costs as
well as make certain administrative tasks easier such as the obtaining of permits
and selection for government projects. This might help businesses in that it
removes certain risks and a large degree of unpredictability. We already see
this in the economic growth rates of all these nations surpassing their more
well-governed neighbours, although Malaysia and Brunei may well have business
cultures that mirror their less economically developed regional neighbours.

 

            Another reason as to why corruption
and economic growth seem to be correlated in South East Asia is the incentive
by the ruling elite to drive economic growth. As noted by Wademan (2002), while
corruption is ‘degenerative’ and poisonous, corruption in East Asia is distinctive
in its’ ‘developmental’ nature. The logic here is that ruling elites would seek
to use their state authority to empower select entrepreneurs. These
entrepreneurs are provided with a business environment that is suitable for
economic growth. The state may erect high barriers to entry, provision of cheap
public goods or outright ban competition in certain sectors, supporting a
monopolist, to suggest but a few ways a state may support chosen entrepreneurs.
These entrepreneurs in return, supply the ruing elite with funds and other
resources generated by their profits that help the state consolidate power and
invest further into the state. Following this logic, it is obviously in the
state authority’s best interests to promote economic growth. Economic growth
also leads to more opportunities for corruption and thus profits for those who
partake in corruption.

 

            There can be an argument that the
government is second-guessing the free market by selecting certain
entrepreneurs, eliminating the chances that the free market may remove
inefficient entrepreneurs and therefore provide the nation with higher
productivity and more efficient firms. However, some nations have specific
priorities such as India post-Independence when government support was given to
certain industries national leaders felt would contribute most to the future
growth of the nation. Another reason some governments may choose to directly
get involved is to control, to some degree the capital in the domestic markets to
direct the economy, indirectly. This can be achieved either by direct
Government-linked corporations (GLCs) or by selecting certain entrepreneurs and
building rapport.

 

            There is also a unique difference
between how the distinct cultures in South East Asia perceive corruption as opposed
to the cultures in other parts of the world. Rose-Ackerman (1999) notes that
while corruption is usually the misuse of public power for private gain, the
definition implicitly assumes that citizens are aware of the distinction
between one’s public and private roles. In Asia, reciprocal gift-giving in
exchange for public service is common and often many Asians, including
entrepreneurs, will provide elected representatives with gifts for having done
well in the provision of public goods and services. Rose-Ackerman provides a
good example, with citizens in Thailand believing they should reward
authorities with gifts when they perform well in their roles.

 

            A third reason could very well be
that corruption has become a cultural norm and that these economies and
societies have successfully imbedded corruption as an extra cost and occasional
‘extra government assistance’ when certain situations arise. If the above
situation is normalized, then many entrepreneurs would have access to services
not available in other economies outside of the region. Bribing officials to
lower labour rights, minimum wages or even influence the enactment of tariffs
could lead to enormous benefits for domestic firms. For example, the Malaysian
government had previously enacted high import taxes for cars as well as import
quotas to help facilitate the development and growth of its domestic car
manufacturers. Certain foreign cars were subject to permits, the Vehicle Entry
Permit (VEP) and many permits were purchased through corrupt government
officials.

 

Why South-East Asia Should Reduce
Corruption

Despite all these factors seemingly
creating a situation where corruption is beneficial, there are some arguments
why South East Asian economies should tackle corruption for economic growth.
First and foremost, Foreign Direct Investment (FDI). The only nation from South
East Asia that attracts significant FDI is Singapore which recorded an
impressive $61.596 billion according to the World Bank in 2016. Malaysia and
Vietnam followed with $13.5 billion and $12.6 billion respectively. The lowest
positive influx of FDI is Laos for South East Asia at just $997 million. Brunei
saw a net loss of FDI in 2016 of $150 million. One could argue that corruption
is a strong disincentive to businesses looking to invest based on the low
figures across South East Asia, apart from Singapore. Other examples from
similar economies are Hong Kong which scored 77 on the Transparency
International report and attracted $117.1 billion worth of FDI. The Republic of
Korea, with a score of 53 attracted a paltry $10.83 billion. That is a lower
level of FDI than Malaysia despite a better perception of the level of
corruption in The Republic of Korea. These two economies, which are like the
more developed economies in South East Asia show that corruption while being a
factor, doesn’t generally mean too much if nations are perceived to be corrupt
to an extent. In other words, FDI does not fluctuate too much between nations
of a similar perceived range of corruption. Major reform would be needed in
order to facilitate a change in perception and deliver meaningful results.
Other factors such as economic vibrancy, investment opportunities and stability
of government could have affected these figures.

 

            Another argument for South East Asia
investing effort and resources into reducing corruption levels are for greater competition.
In recent years, there has been very few major start-ups in South East Asia
that have gone on to generate new sources of income or even firms that have
positively impacted regional industries. Corruption could be detrimental to
small-medium enterprises in the region competing with the larger, often more
well-connected firms in the market. This obviously leads to greater difficulty
in alleviating the poverty of the public through entrepreneurship at the local
level. The logic also follows that bigger firms who have more funds and
extensive ties to state officials are more likely to run smaller firms out of
the market. Difficulty in knowing who to bribe as well as having the funds to
do so may hinder the competitiveness of the smaller firms. Nathaniel Leff hints
at this as well. He hints that firms may become more efficient under corrupt
systems but only those that can afford to partake in these extra-legal
activities, with the proceeds continuing to fuel future corrupt activities.

 

Possible Policy Shifts in
South-East Asia

To lower corruption in South East
Asia, several policies could be enacted that would maintain the vibrant
economic growth while strengthening institutions and institutional trust among
the consumers and investors, thus also attempting to generate higher FDI levels
for the developing nations of the region. The first policy that these nations
should adopt is higher public-sector wages. Singapore boasts one of the lowest
levels of corruption anywhere in the world and it can be at least in part
attributed to the high pay for public servants serving as an incentive to
maintain a largely corruption-free public service. Singapore’s Prime Minister
draws the highest salary of any public servant in the world. While others may
be vastly richer than the Prime Minister of Singapore, for example the Prime
Minister of Malaysia and his family has been dogged by allegations of
embezzling state funds for personal use that run up to well over $100 million
in various scandals, it should be noted that all levels of corruption in
Singapore would be lower if the average public servant were, on an individual
by individual basis made less likely to accept bribes and other forms of misuse
of power. One could also argue that higher wages in the public sector may well
draw more capable individuals into public sector work, benefiting the state indirectly.

 

            Another policy change is a more
powerful enforcement of anti-corruption laws. In many South East Asian
governments, anti-corruption authorities are either not independent or lack the
necessary government support to do much. For example, the Malaysian
Anti-Corruption Agency is under the Prime Minister’s office which will lead to conflicts
of interest and questions of transparency etc.

 

Concluding Remarks

With regards to development,
corruption is both a hindrance and a driver for economic development. A few
countries practise race-based economic policies that seek to redistribute
wealth from the richer communities to those who are less economically
developed. For example, Malaysia had experienced an incredible divide in the
economic welfare of its’ three primary races. The Chinese and Indians who had
immigrated before independence ended up in communities that were more
entrepreneurial than the indigenous Malay race. Under the Mahathir government,
and even those preceding and succeeding governments, the government began
providing the Malay community with state support. Many Malays benefited from
the numerous policies that were enacted favouring them over other races.
Corruption became a solution to the problems this caused many businesses and it
also inadvertently developed many businesses in the process, providing many
communities economic development.

 

            On the other hand, corruption could
hinder small-medium enterprises as previously discussed. Additionally,
corruption could lead to inefficient public services. This inevitably ends up
costing the economy as the provision of quality goods and services becomes
compromised. This makes it harder for the poorest in society to alleviate their
economic conditions. Individuals and communities hoping to invest will be held
back by having to compensate for corruption. Corruption may also make it harder
for certain communities to improve their socio-economic welfare as the culture
perpetuates what may be described as patronage. In order to gain certain public
goods or services, a high ‘corruption tax’ must be paid increasing the premium
of even the most basic goods and services. While the communities with more
funds can afford these ‘corruption taxes’, those who are at the bottom of the
economic development will find their savings even more constricted.

 

            All the nations in South East Asia,
except Singapore, are manufacturing nations with an export led economy. If
these nations wanted to pursue a structural change in the economy and move away
from manufacturing and into highly specialised skilled services such as finance
and information technology (IT), then a business environment that has less
negative perceptions of corruption could prove beneficial. This structural
change in the economy could potentially benefit many who are in the middle
income and below as there will be further job opportunities in an expanding
services sector.

 

            To conclude, while systematic
corruption in South East Asian economies have proved efficient in bringing
these economies incredible levels of growth, in the long-term South-East Asia
should seek to reduce corruption to attract FDI and assist small-medium
enterprises, many of which remain the best way for many South-East Asian
natives to gain meaningful economic development and raise themselves from tax
bracket to tax bracket.