By Regina Scott,2014-12-13 12:59
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    Denis Osborne, Associate Director Studies, RIPA International, London

    Based on a presentation at the WORLD ETHICS AND TRANSPARENCY FORUM,

    on the theme ‘Towards Greater Transparency for Global Competitiveness’

    in the session ‘Combating Corruption – Impact of Corruption

    on Developed and Developing Economies’

Personal introduction:

    I was glad to have the opportunity given by the Forum to learn from others and share ideas, and to meet friends in Malaysia including four Malaysians who came to a two-week seminar I led at RIPA International in London last November. I had also hoped to meet Syed Hussein Alatas. His books on 1 helped me in my early studies of the subject and I had a corruption published in 1986 and 1990

    delightful evening talking with him at his house in Kuala Lumpur two years ago. I could get no response when I tried to contact him by e-mail and telephone and I heard the day before I left London that he had died two weeks before. I dedicate this short paper to him, for I owe him much.

    Unfamiliar truths? This question reflects uncertainty about whether you, as the reader, find these claims unfamiliar and whether you think them true. For the most part I agree with the often-repeated advice about corruption and ways to combat it, but rather than repeat accepted wisdom I concentrate here on matters I think important (and true) but unfamiliar to many.

     The social consequences of corruption matter more than the economic 1

    When people write or speak about the impact of corruption most focus on the economy, but it is often not the economic impact that worries citizens most. Many are more concerned with the breakdown of trust in society and the risks to people‟s safety and lives caused by corruption than with its impact on the national budget. Some point to strong economic growth

    in countries said to be very corrupt and to „wicked‟ companies doing well.

    Corruption damages society by destroying trust at all levels. There can be stormy relationships in the family when relatives or friends think they are being cheated by each other. That is especially so in some extended families in traditional societies, as reported by some of their members. Working life is soured if employees think their colleagues are using corrupt means to gain unfair promotion, or that top management has made corrupt deals that put jobs at risk. There can be a breakdown of trust between management and staff or staff and clients. Corruption leads citizens to lose trust in government, including both elected leaders and public

     service employees. Sometimes this extends to disillusion with all parts of the political process

    politicians, elections and democracy. There is similar loss of trust at all levels of government

    national and local and in regional groups of countries and international organisations. This is matched by crises of confidence from time to time in private sector business and in non-profit non-governmental organisations, Governments are aware of the problem. Political leaders have expressed concern about lost public confidence in the competence as well as the integrity of politicians and appointed officials and are giving greater priority to winning the trust of citizens. Concern about a decline in customer confidence in the ability of the public service to deliver effectively was voiced clearly by the British Government and linked with the need for top managers to be „visible leaders who inspire trust‟ (Cabinet Office, 2003). The concerns of

     1 Copies of notes or ‘reviews’ written at that time, and since revised, are given in an annex to this paper.

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 1

    many elected leaders match those of their citizens so that for them, too, the social damage when corrupt practices cause a breakdown of trust is of greater concern than damage to the economy.

    Arguably the damage to personal safety and local and national security causes even more anxiety. Corruption puts lives at risk. Corruption kills. If corrupt payments enable managers to avoid compliance with regulations, the health and safety of employees is at risk and the environment may be subjected to unrestrained pollution. If there is corruption in the appointment of managers, their incompetence may endanger others. On a small scale there is the danger from those who pay bribes to get a driving licence for which they are not qualified.

    Those risks to safety and security are very serious if corruption affects law-enforcement. Bribes may then enable thieves and murderers to escape arrest, conviction and punishment, leading to increased crime that puts citizens at greater risk from theft, robbery, rape, murder (and terrorist crimes), the growth of criminal syndicates and failures of national security. The loss of personal safety for self and family drives people to despair and anger, and may boost the frustration with corruption that leads some to support extremists, about which an early warning was given by de Sardan (1999). A further danger of which many seem unaware but which may cause major concern in the next few years comes from irresponsible experiments in genetic engineering and neuroscience, „brain control‟ and other research fields, for which

    precautions and monitoring can be rendered inadequate when bribes are paid.

    The impact of corruption is important because concern about the damage done by corruption motivates people to combat it. There is nothing especially new in recognising this. Alatas (1990) argued that the case against corruption is moral rather than functional or economic. Corrupt acts are immoral because of the personal suffering they cause.

2 The scale of the economic impact is often under-estimated

    It has been argued above that the loss of trust and safety caused by corruption are more important than the damage to the economy. Nevertheless the risks to the economy are also important and the economic costs are sometimes under-estimated. In 1992 a „Clean Hands‟

    operation led to a reduction of corruption in Milan and it was found that contractors had been winning contracts with bribes 2% or 3% of contract value. After the clean-up it was reported that the costs per kilometre for building an underground railway fell by 57% and costs for other 2. Milan‟s local government had been getting very poor value projects by between 15% and 60%

    for money because bribes had made competition ineffective. But where had the money gone if bribes of 2% or 3% led to prices being doubled? It must have been the companies and their agents that made massive gains. When their agents knew that the companies would refund the cost of the bribes it would be easy to exaggerate the cost of the bribes needed to win a contract (the companies could not expect those paid the bribes to give receipts!) Those who paid the bribes the companies and their agents made much bigger profits than the officials

    who took them. Many efforts to combat corruption focus on officials and other employees who take bribes; it is important to recognise the very great motivation that drives people to pay them.

     2 e-mail of 29 November 1999 from Transparency International Italy ( circulated in virtual

    conference by

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 2

     3 the estimated losses of tax revenues In two Asian countries in which I have worked

    attributable to corruption have been 50%. Again it seems likely that relatively small bribes to a customs officer or tax collector could bring big savings in tax liabilities, with those who pay getting greater benefits than those who receive. This may help show money trails that can help investigate corruption, and serves as a further warning that those who pay bribes have a strong motivation to keep a system corrupt.

    Such costs, together with the distortion of policy when choices are made to get personal gain rather than benefit to the community, make it valid to argue an economic case for acting against corruption. Those arguments are especially necessary when seeking funds to combat corruption from ministries of finance, and from international sources such as the World Bank which have or had mandates to support only economic development. But this should not lead to forgetfulness about the costs of corruption to society and to personal and national security.

3 Corruption comes in one of two frequencies, Low or ‘Very high’

Corruption comes in many forms and all sizes but usually in one of two frequencies very

    seldom or Low Frequency (LF), or very often or Very High Frequency (VHF) in any group of

    business transactions. The claim is that it usually occurs at or near one of the extremes, seldom in between. Alatas (1986) suggested a three-fold classification:

    (1) restricted, not necessary to bribe to live;

    (2) rampant and all-pervading;

    (3) self-destructive, extortion, protection money.

    Alatas appears to associate these categories with nations rather than with more specific categories of business activity, and de Sardan (1999) describes a similar picture for the occurrence of corruption in African nations. What they describe for society as a whole, or a nation, is sometimes more obvious and explicable for any one type of business activity. When

    VHF corruption is found in several types of transaction involving several people the public reaction seems to follow the pattern shown in Table 1.

    Srinivasan (2002) draws on earlier suggestions that crimes of corruption may be helpfully understood (as are other crimes) as learned and copied behaviour. We can use that concept to carry out a „thought experiment‟ to show how a particular pattern of corrupt behaviour might become VHF in an environment where previously such practices occurred very seldom. Imagine an office with staff that travel from time to time on business. One is short of cash. Under pressure to raise a little money he makes a fraudulent expense claim thinking it may escape attention or at worst be thought accidental if done „just once‟. He gets paid the inflated sum. The financial pressures continue and he submits another fraudulent claim, then another. He has learnt what he can do without being detected. One day he tells his friend, and she copies his behaviour. Soon she tells her friends and they tell others until in that office it seems that „everybody does it‟.

    Somebody new joins the office staff. Those in the corrupt syndicate worry what might happen if the newcomer makes expense claims consistently below theirs for similar missions. Might

     3 Where work in a country leads to my having information that has not been published or made widely known, the disclosure of which may be to that country’s disadvantage, I do not reveal the name of the country concerned.

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 3

    management suspect the wrongdoing? The newcomer is told of the scam and encouraged to join in. If reluctant to do this they may be threatened…

    Situations like that happen in real life. Hong Kong in the 1970s was thought to be very corrupt, with the police having an especially bad reputation. A Commission of Inquiry found that new recruits in the police and elsewhere were corrupted at the start of their careers. The Chairman‟s Report (Blair-Kerr, 1973) shows the nature of syndicated corruption:

    “On a number of occasions during this inquiry I have been told that there is a saying

    in Hong Kong:

    1 „Get on the bus‟, meaning „join us in a pattern of corrupt behaviour, if you wish to

    accept corruption, join us‟ [and they would describe how they, the police, were taking

    bribes from those they were supposed to protect, and sharing these gains with each

    other and with the station‟s superintendent]; or if you don‟t wish to do that

    2 „Run alongside the bus‟ - if you do not wish to accept corruption, it matters not, but

    do not interfere, and you won‟t go so far or so fast;

    3 „Never stand in front of the bus‟ - if you try to report corruption, the „bus‟ will

    knock you down and you will be injured or even killed or your business will be ruined.

    We will get you, somehow.”

    Once they took part those recruits were trapped, scared of discovery and the risk of prison, scared even more of being beaten up by their colleagues.


    In any group of transactions bribes come in one of two frequencies,

    LF or VHF but seldom ‘in-between’, affecting people in different ways



    ; A few people bribe ; ‘Everybody’ pays

    to get unfair advantage to get fair treatment

    ; Few employees abuse ; Employees learn, demand

    position, take bribes payments and justify to

     themselves - extortion

    ; Subject seldom discussed ; Much discussed

    ; People, complacent ; People complain, pay

    ; Bribery a shameful act ; No shame

    ; Guilty fear trouble! ; Fear ‘group’ pressure (to take

     part in corrupt activities)