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Cost of Corruption – Fahmida Khatun

Published in The Daily Star on Monday, 13 July 2015.

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Cost of Corruption

Dr Fahmida Khatun

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A candid acceptance of the finance minister regarding corruption’s impact on Bangladesh’s economic growth is noteworthy. A departure from the usual feel-good presentation of the economy by a member of the government is also rare in our country. Recently, the finance minister said that 2 -3 percent of our GDP is lost due to corruption. However, TIB thinks that such loss constitute at least 5 percent of the GDP if we add large public procurement along with corruption in health, education, police and judiciary. The enormity of corruption has been reflected in indicators produced by TIB through its Corruption Perception Index which is published annually. To recapitulate, on a scale of 0-100, where 0 indicates a highly corrupt and 100 a clean country, Bangladesh scored 25 and was positioned 145th out of 175 countries in 2014. Our score was lower than that of four other South Asian countries, such as India and Sri Lanka (85th position with a score of 38), and Nepal and Pakistan (126th position with a score of 29).

Despite the government’s unwillingness to accept such a ranking, the existence of corruption is observed far and wide by common citizens, entrepreneurs and investors in various forms, such as bribery, favouritism and embezzlement of public resources. It is an open secret now that one cannot get the work done in many government offices without paying bribes. Files wouldn’t move, instructions from the high offices wouldn’t be given and signatures wouldn’t be put on papers unless one makes several visits to those offices, begs, and finally satisfies the powerful groups by paying them off adequately. This process is applicable irrespective of the merit of the work. This informal dealing is now coined as ‘facilitation fee’ or ‘speed money’ not only in Bangladesh but in other countries as well. So one gets paid by the government just for attending the office, but to fulfill services for people, they have to be paid off by the person who needs the work to be done.

Such practice not only harasses the honest citizens, but also creates opportunities for the dishonest ones. One corruption leads to another. License, permits and contracts given through underhanded dealings to less deserving groups cannot deliver quality product or service as their objective is only to maximise profit in a fraudulent manner. When money is transferred from one pocket to another, it may not be directly linked to loss of economic growth. But when a bridge or a building collapses due to poor construction, then it is not only a waste of money and loss of potential output of the economy but also a loss of invaluable human lives.

Corruption also acts as a disincentive to many in the private sector who genuinely want to invest, but suffer from uncertainty and anxiety about getting necessary permission. High facilitation fees may become less cost-effective for many businesses and reduce their competitiveness. A land bought at a throwaway price in Gulshan for business surely gives a much higher competitive edge than those who would buy similar land at the market price. An industry paying an exorbitant ‘speed money’ for gas and electricity connections would be in a less advantageous situation than the one which gets it done by paying the regular price. A business paying existing interest for the bank loan would struggle to compete with a business which enjoys frequent interest waiver. Such disincentives may discourage those who could add more to the national output through job creation, innovation and productivity.

Then there is the social cost — the distributional aspect, the environmental aspect. When the government cannot generate resources through taxation, it cannot allocate adequate resources for social protection for the poorer section of society. When encroachers construct buildings by filling up rivers and lakes or cutting forests, the environmental damage that is caused is irreparable. When unfit vehicles ply on the road emitting harmful gases by bribing the concerned department, the pollution costs human health. Not only does expenditure of the government go up to address the situation, productivity also declines due to pollution.

Reduction of corruption requires drastic measures. Making the system accountable and transparent is a must. Digital governance can help this to a large extent. Institutional reform of the responsible bodies for overseeing corruption is a long awaited demand. Exemplary punishment, practice of rule of law, and motivation and capacity of concerned officials as well as protection of honest officials are also critically important.

There is even a bigger issue when we talk about corruption. This is the moral hazard related to corruption. As corruption continues to go unchecked, many get encouraged; others get frustrated and demotivated. Siphoning off millions of taka from banks isn’t a big crime, it seems, since action against the crime is slow. Theft of public resources gives the license to show off the power of money and to attract people towards them. They are the ones who get invited to high profile public and state events. When a concerned high authority enjoys a musical programme at a bank defaulter’s garden or when a member of the regulatory body attends dinner at a tax evader’s palatial house, what message does it carry? Can they act impartially against those who dodge public exchequer? A common citizen wonders, where does it end?

The writer is Research Director at CPD, currently a Visiting Scholar at the Earth Institute, Columbia University, New York. 

 

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