Slapping the Grasping Hand: Correlates of Political Corruption in Emerging Markets
Goldsmith, Arthur A., The American Journal of Economics and Sociology
ARTHUR A. GOLDSMITH [*]
ABSTRACT. The international community is redoubling efforts to curb political corruption in the developing and transitional economies. The consensus now is that the abuse of public office stunts economic growth, replacing a formerly dominant view that the effect is neutral or positive. Corruption's political correlates, however, are seldom studied empirically. Using Transparency International's recently developed index of perceived corruption, this paper explores this issue by regression analysis in a sample of less-developed countries. Economic liberalization, political democratization, and administrative centralization are associated with lower degrees of political corruption.
THE "GRASPING HAND" OF CORRUPT OFFICIALDOM is becoming a top issue in international affairs. For example, in 1997, member nations of the Organization for Economic Cooperation and Development (OECD) agreed to make bribing a foreign official while doing business overseas a criminal offense. The aim is to stem the spread of political payoffs and kickbacks (often written-off for tax purposes as commissions or fees) by multinational corporations in the emerging markets. Corruption is far from unknown in the OECD countries themselves, of course (Washington 1997). But the problem looks worse in the emerging markets, which are the subject of this paper. The OECD accord follows on the heels of the Inter-American Convention Against Corruption, signed by 21 Organization of American States members in 1996.
Similar moves are taking place at the international financial institutions, which have heretofore treated political corruption as an internal matter for sovereign states to deal with. Recently the International Monetary Fund (1997a) has abandoned its neutral stance. The IMF's new policy is to withdraw support from countries where fraudulent activities have significant macroeconomic implications. Similarly, the World Bank (1997a) is initiating more audits of loans and stricter procurement procedures as a way to excise corruption in its recipient countries. Among bilateral foreign aid donors, corruption also is becoming a major concern (United States Agency for International Development 1996).
Private sector international organizations are heading in the same direction. The International Federation of Accountants, for example, has formed a task force to address accountants' role in fighting corruption. The International Chamber of Commerce adopted rules of conduct in 1996 to fight extortion and bribery in business transactions. A new nonprofit organization called Transparency International (TI) was formed in 1993 to help raise ethical standards of government around the world. The idea behind TI is to spotlight corruption the way Amnesty International has publicized human rights violations.
These examples may convey the impression of the "first world" trying, perhaps disdainfully, to impose its prescription of political hygiene on the "third" and former "second worlds." That would be a misperception of recent trends. Evidence abounds of domestic public disgust with dishonest officials in the developing and transitional regions themselves. The soviet empire's collapse in 1989 was partly due to declining local confidence in an increasingly greedy elite. Less well known but similar events swept Africa (Harsch 1993) and Latin America (Goodman 1994) at about the same time. In Asia, the 1997 currency crisis has called into question that region's brand of "insider capitalism," with its cozy relations between business and government. All developing countries have laws forbidding forms of political corruption; many have set up new commissions of inquiry, ombudsmen, and related institutions to try to put teeth into their anticorruption laws. So the distress about third and second world graft goes beyond the sometimes sanctimonious complaints of foreigners.
Why is the "grasping hand" getting so much attention now? …