Corruption in Developed and Developing Countries

Since the end of the Cold War, policymakers in many countries have recognized the global nature of corruption and are now making efforts to coordinate their control and cleanup efforts. Thus, instead of viewing corruption as a domestic problem caused primarily by the interaction of the bureaucracy with the private sector, many lawmakers, especially those in the developing and transition economies, are now acknowledging the contributions of transnational corporations to the problem.

Many governmental and nongovernmental organizations—including the United Nations (UN), the Organization of American States (OAS), the International Chamber of Commerce, Transparency International (TI), the World Economic Forum (WEF), World Bank, Interpol, and the Organization for Economic Cooperation and Development (OECD)—have developed an interest in dealing with corruption.

Several reasons have been advanced to explain the sudden interest by these organizations. Changes in international political relations during the period from 1989 to 1991 significantly reduced people's tolerance for incompetence, malfeasance, and venality in the public sector. As part of the movement toward improved governance, citizens of many countries demanded the elimination of corrupt practices. Thus, since the late 1980s, the balance of power in many countries has been shifting in favor of more open, transparent, and participatory governance structures.

Scholars have identified three changes that have contributed to the globalization of corruption. First, greater levels of economic integration have increased chances that corruption in one region of the world will have an impact on economic and political activities in other parts of the world. For example, when the corrupt activities of the Bank of Credit and Commerce International (BCCI) forced it into insolvency in 1991, many economies around the world were affected. In fact, several countries in Africa suffered significant financial losses from the BCCI collapse.

Second, developments in communication technology have revolutionized the international financial system and enhanced the ability of traders to engage in corruption. The emergence of electronic networks for the transfer of funds has made it quite difficult for countries to deal effectively with corruption. Many anticorruption organizations have argued that the ease with which funds can be transferred to Europe or the Caribbean from different parts of the world implies that corrupt civil servants can effectively hide their extra-legal income from the public, making it virtually impossible for such funds to be recovered in the event of conviction. Fortunately, policing agencies, especially in the West, continue to innovate and come up with technology that can effectively monitor traffic in these electronic networks. Such technology could prove very helpful in the fight against global corruption.

Third, since the end of the Cold War there has been a significant increase in the number of cooperative alliances between economic units, within countries and across borders. Continued globalization exacerbates the problem of corruption; however, it also offers opportunities for its control.

Pervasive corruption is a major threat to the maintenance of a free, multilateral trading system. In order for a global competitive economy to function properly and efficiently, participants must play by the rules. Opportunism (e.g., corruption) by some market participants can derail the international trading system since it (i.e., corruption) invariably creates an unlevel playing field. For example, corporations or countries that do not tolerate corruption will be placed at a competitive disadvantage. Those countries that encourage their companies to engage in corruption abroad and offer favorable tax treatment for bribes paid to foreign public officials place these firms at a competitive advantage over those from countries in which corruption (including paying bribes to foreign public officials) has been criminalized. In fact, many American firms, which are prohibited by U.S. law from offering bribes to foreign officials, have complained bitterly of the disadvantage that they suffer since, until recently, many of their European counterparts were allowed and often encouraged by favorable tax treatment by their national governments to engage in corrupt practices abroad.

Many policymakers around the world, especially in the developed countries, have come to realize that the long-run social, economic, human, and political costs of global corruption are enormous and that it poses a threat to the rule of law. It can also cause citizens to lose confidence in their leaders and distort market incentives and negatively affect the flow of investment and, hence, wealth creation. Perhaps more important is the fact that corruption can prevent the poor from gaining access to welfare-enhancing and even life-saving public goods and services.