Why government intervention can create fertile ground for corruption

Video transcript: Professor Enrico Colombatto

A European Commission survey shows that corruption is a serious problem and is getting worse. What are the dangers if this is not addressed?

Professor Enrico Colombatto:

Well, the danger is that corruption is a drag on economic growth, in that the more corruption you have the less you’re likely to invest.

Although we are free market supporters, we know that government investment, public investment, is a large share of investment. And that is where the corruption is. So corruption will affect the quality of public investment, of government investment, because of course if you pay bribes it is unlikely that the best project is going to get approved and productivity will be affected by that.

Corruption is worse in developing and emerging economies. How can they deal with this?

Professor Enrico Colombatto:

Corruption thrives when you have a lot of discretionary power. So whenever you have many layers of regulation, whenever you have a lot of regulation, and whenever you have byzantine regulation so you can’t make head or tail of it, you have to trust the bureaucrat or the local policy-maker and they will inevitably take advantage of that.

So the only way out is just to cut regulation, cut bureaucratic layers, cut opportunities for political intervention.

I’m not making this into an ideological statement. I’m not making a value judgement about whether government intervention is good or bad. What I’m saying, however, is that in many countries government intervention is fertile ground for corrupt practices.

Which countries have effectively tackled corruption?

Professor Enrico Colombatto:

Not many, actually. A prime example is Georgia. They did a very good job until last year and then they started multiplying regulation again and corruption came back.

But if you look over the long period, many former Soviet empire countries – so to speak - did a fairly good job. If you think of the Baltic republics like Latvia, Lithuania and Estonia, they managed to reduce corruption considerably. Poland did a very good job. Turkey did a good job.

So, there are good examples, but there should be many more than that.

(Photo credit:dpa)