Government Breeds Corruption: LFMI’s Position

Most people today consider corruption an inexorable evil. All methods to fight it, it seems, have been tried out: from severe penalties to anonymous phone complaints and “clean hands” commissions. Yet, nothing has changed. Those who accepted bribes continue to do so; those who give bribes are increasingly stunned by the size of “rents,” which are growing alongside the risk involved. Laws that get passed are distressingly tendentious and slanted towards specific businesses or individuals.
Facts of corruption are not limited to Lithuania. The phenomenon is a global one. One may wonder whether corruption and bribery are inevitable attributes of society. Is it worth trying to eradicate these evils, bearing in mind that all democratic states we have used as models have so far failed in their attempts to achieve that? Unanimously considered to be deleterious, the course and effects of corruption urge that this work should be undertaken.
What is Corruption?
Dictionaries define corruption as an act of dishonesty and illegal behaviour by people in positions of authority or power for attainment of personal gain or as an act of bribing an official or a political figure. The aims and ways of corruption can be very diverse: from minor ones, such as giving a small gift for a secretary to have her arrange an appointment with her boss, to presumptuously extensive ones, such as securing exceptional conditions for individual businesses. However, the scope of corruption is of little consequence. What matters is that a position of power or authority can be abused only when such a position exists and when this position allows, or even instructs, one to prescribe rules of conduct for others, to decide, to judge, and to dispense money or favours.
Anyone in authority – be it a director of a private company, the head of the state, or an ordinary state official – has a right to decide, to command, to control, and to give. In a private company, an abuse of power by a hired director if he were refurbishing his own house alongside an expensive renovation of the company’s office would be treated as a sheer theft. The owners of the company would simply fire that director and never think of recommending him for any serious position. They would also be likely to claim compensation for the harm incurred by the firm.
Abuse of official position looks different when committed by state officials and public servants. We speak of corruption only with reference to the abuse of public office, both at the legislative and executive levels. Representatives of these institutions are granted exclusive rights to govern and determine the lot of other people. There is no vigilant “master” to supervise “governors” or to secure that rules of just conduct are obeyed. They may do harm to the whole society, although no one would incur harm directly or personally. Due to this depersonalised nature of harm, no individual can claim damage or rely on imperfect Lithuanian laws to verify the size and existence of the damage.
Many government decisions are slanted for narrow interests or allow someone to thrive at the cost of ruined businesses or individuals. Such decisions simply add up to what is called “general business conditions” or “state policy.” Corruption exists only alongside government. The extent of corruption depends on the scope of powers and authority delegated to, or appropriated by, a government. Corruption is thus the product of government and its doings.
How Effective Anti-corruption Policies Are
Would corruption vanish if penalties for bribery were severer? The results of LFMI’s surveys suggest that Lithuanian opinion leaders estimate the importance of penalties in combating corruption at 6.5 points out of 10. Penalties ranked third, coming after a reduction in bureaucracy and government interventions in the economy. It is widely recognised that penalties may have a twofold effect. On the one hand, they may indeed deter some people who are in two minds about whether to accept bribes or not. On the other hand, those who are determined to do so may be induced to raise the cost of service. Market laws, make no mistake, work here as well: The risk must pay off. It is ridiculous to hope that penalties will preclude that which is in nature. Penalties are only a cosmetic solution to the problem of bribery as one form of corruption.
Can corruption be reduced by raising officials’ salaries and social guarantees? Admittedly, high salaries, just like severe penalties, may prove effective, but only to some extent. An abuse of power which is hard to prove relates pay rises to growing rents rather than declining corruption. LFMI’s survey results indicate that opinion leaders rank pay rises fourth, estimating their utility at 6.2 points out of 10. Interestingly, politicians in general and supporters of the ruling Conservative Party in particular would rely on pay rises more than other groups of opinion leaders. This may explain why salaries of officials are currently on the rise. Still, the curtailment of bureaucracy and government’s involvement in the economy as well as privatisation of state assets are invariably viewed as the most effective ways to stamp out corruption.
A Prescription for Combating Corruption
The most effective way to eradicate corruption consists by no means in disciplining people or in relying on penalties, decent officials or the principled judiciary. The only way is to root out the origins of corruption, the right to decide and to give. The fight against corruption and bureaucracy consists in curbing governmental powers, especially in economic affairs, and privatising the functions currently performed by the state.
Where should a reduction in governmental authority start? The first cause for concern is the existence of corporate welfare programmes, which are aimed at promoting exports, investments and small and medium-sized enterprises, at revitalising troubled companies, providing soft loans for farmers and co-operatives, etc. All these programmes have one thing in common: officials are conceded a right to decide who is worthy of state aid and who is not. Moreover, state aid creates possibilities for “lucrative businesses” to develop outside the market. If corruption is to be minimised, the corporate safety net should be dissolved once and for all.
The existing tax system is another breeding ground for corruption. Let me give you just a few examples of how taxation breeds corruption. The state can manipulate the tax code by adopting tendentious tax laws. The state can manipulate the tax code by allowing various governmental agencies to set tax rates. The state can manipulate the tax code by dispensing tax favours. Finally, the state can manipulate the tax code by obscuring tax rules so that the tax officer becomes the main, yet irresponsible, figure in the tax system. So in order to eliminate the factors favouring corruption, it is essential to cut the number of taxes, to spell out tax rules, to simplify accounting procedures and to outlaw tax favours and exemptions.
In addition to creating conditions for market agents, the state itself is an active player in producing goods and delivering services. The state acts in banking and utilities provision, not to mention the energy sector, hospitals, and schools. For a state-owned company, profit is not really the yardstick of success. A state-run bank lends money not to the best entrepreneurs but to politically connected ones. A state-run company buys not the best and cheapest raw materials but those which are sold by a good chum of some bureaucrat. A state-run enterprise doesn’t bother being inefficient, as exclusive conditions and even government commissions make life much easier. All this is done not to serve the whole society but to please politically connected individuals. The potential for abuse in the public sector is enormous. The state should therefore withdraw from business and transfer state-controlled enterprises to private hands. This would be a major step in eliminating corruption.
The issues addressed in this articles are far from representing an exhaustive list of the sources of corruption. Any new power assumed by the state is a potential threat. The only workable prescription for eradicating corruption is cutbacks in governmental powers and privatisation of state functions. This should be done not only by passing special acts or setting up commissions but in adopting every single decision. Only with this practice in place one dismantled bureaucratic institution or function will not be replaced by three new ones.
The Right to Choose
People are still being lulled into the belief that political leaders’ commitments and government’s openness are the only ways to deal with corruption. If we add to the list stricter penalties, pay rises for officials and the disciplining of entrepreneurs, we will get a package of traditional remedies for fighting corruption. These policies have been pursued by many countries in the world. Yet, not a single one can boast about any groundbreaking achievements.
It is for the reader to decide whether traditional methods are more effective than the curtailment of state powers. However, we should bear it in mind that going with the flow and ignoring measures that are effective, albeit unpopular with the officialdom, costs us dearly. By conceding to the state the right to interfere, to decide and to give, we are shouldering a heavy burden of corruption.