Term Paper: Business Ethics Government Corruption: The Political

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Business Ethics

Government Corruption: The Political and Economic Impact of Corruption

Government corruption can have wide ranging and reaching negative effects on both the political and economic development of any country. This essay will particularly explore the effects of government corruption in Europe including the country of Greece. Among the more common effects of government corruption include a sluggish economy where resources are diverted away from societal projects toward government operations. Many government officials engage in bribery which tends to sway there loyalties toward projects that are unnecessary but financially profitable for them personally rather than the economy or society as a whole. Widespread government corruption can also discourage domestic and foreign investment, as has been the case in many European countries such as Greece. These ideas and more are explored in greater detail below.

Corruption: An Overview

Corruption has existed for ages. It is considered one of the oldest problems facing human societies and governments since the dawn of time.

Though it has been defined in many different ways, the most explicit definition of corruption describes it as "a general disease of body politics, public exploitation and abuse of public office for private gain" (Voskanyan, 2000:6). In any society including countries such as Greece in Europe, it seems that cultural factors as well as societal and psychological ones impact and help facilitate or dissuade officials from corrupt practices.

There are many factors that might be involved in government corruption, including monopoly power, discretionary power and "weak accountability of public officials" which can allow ample opportunity for corrupt practices and activities (Voskanyan, 2000).

What Causes Corruption?

According to Holmes (1993) corruption can be categorically defined in three ways: cultural, psychological and system-related (Voskanyan, 2000). Cultural and system-related corruption are more commonly implicated in government activities that impact the political and economic well being of a country.

Klitgaard (1998) suggests that within a government there are three factors that might influence the likelihood for corruption to occur. These include: (1) the power of monopoly among government officials, (2) the degree of oversight and discretion that officials are granted and permitted to exercise within a country and (3) the degree to which government officials are held accountable for their actions (Voskanyan, 2000).

No matter what ones definition of corruption is, one thing is certain: it impacts the political and economic health of a country in a negative manner.

Direct Effects of Corruption on Politics and the Economy

Government corruption in Europe and countries has had many effects on the economy and political development. Political development refers to many different things, including the administrative and legal systems developed in a country as well as the government structure and processes (Nye, 1967). Government corruption often impedes growth and progress in each of these areas.

Political development also refers to the growth in the capacity of a governmental structure and the ability of a government to maintain authority, respect and even legitimacy over time (Nye, 1967; Voskanyan, 2000).

Are the impacts of corruption always negative? There are some researchers that have pointed out that the economic effects of corruption in some instances may be positive. Nathaniel Leff (1964) is one example. He published a research paper that argues that corruption when it comes in the form of bribing "can be an important arm in the hands of entrepreneurs seeking to do business with a hostile or indifferent government" (Voskanyan, 2000:28).

He further argues that government corruption may actually stimulate rather than impede the political development process. Many developing countries and those with poorer economies such as Greece often face excessive bureaucratic control and regulations, which make it difficult for entrepreneurs to enter the country and expand the economy (Voskanyan, 2000). However through the use of bribery bureaucrats can get around regulations and minimize enforcement; Leff (1964) argues further that corruption may actually by a way where the most efficient firm can pay the highest bribe for a license or permit and enter a market (Voskanyan, 2000).

However, the vast majority of research available points to the fact that government corruption has negative and lasting effects. Daniel Kaufmann is one such example who argues that in corrupt societies politicians and bureaucrats have discretion over many things including the proliferation and interpretation of what he calls "counterproductive regulations" (Voskanyan, 2000). Thus corruption becomes according to Kaufmann the "fuel for excessive and discretionary regulations" and feeds on itself (Voskanyan, 200)).

When corruption is tolerated within an economy it can also have negative effects on the political and economic development. For example, government corruption can shift government spending from positive growth and social affairs toward spending on unnecessary programs or low quality investments related to the infrastructure of the government (Mikessel, 1995:65). Government officials often take bribes that persuade them to spend money on low quality investments that are beneficial for personal gain rather than the gain of the country or economy as a whole.

Generally corrupt politicians are more likely to invest in investment projects on the basis of how "opportunistic they might be for bribes and kickbacks" rather than the value these projects may hold for society at large or the economy (Voskanyan, 2000; Mikessel, 1995).

Political corruption can also have long lasting and very damaging effects on resource allocation (Voskanyan, 2000). This is because politically corrupt officials tend to divert resources away from "the function to which they would have been allocated in the absence of corruption" (Voskanyan, 2000).

In a politically and economically corrupt society, government revenue on the whole is typically reduced and thus resources are used to finance spending... these resources might include public investment (Voskanyan, 2000). In addition the infrastructure of countries that have politically and economically corrupt governments tend to be poorly structured (Tanzi & Davoodi, 1997).

In a politically corrupt government generally capital spending is discretionary, based on what is in the best interests of the corrupt officials governing spending. Widespread corruption with regard to the investment budget of a country may reduce the rate of return to a new investment in a country and also affect the rate of return a country might otherwise receive from its existing infrastructure (Voskanyan, 2000).

Higher spending on capital projects is not uncommon in a corrupt society, and this reduces the number and amount of resources allocated for spending. In some cases the corruption may get so bad that the physician infrastructure of the economy and political system needs to be rebuilt (Voskanyan, 2000). This actually may affect development by reducing "the efficiency of public investments directed toward unneeded projects during the long-term corruption" and allows corrupt officials the chance to "extract additional commissions from new investment projects" (Voskanyan, 2000).

The future development of a country's infrastructure and economy often depend on budget revenues. These are usually negatively impacted however when government corruption exists. Among other things government corruption is typically associated with tax evasion and a lower rate of tax collections (Voskanyan, 2000). Business in European countries have for example paid bribes to senior tax officials or other custom officials to assure that they get a tax exempt certificate (Voskanyan, 2000).

Other business officials have paid bribes to lower the level of taxes owed or to secure preferential treatment. Thus through bribery government corruption can negatively impact the tax administration of a country, lead to tax evasion or improper tax evasions and lower the amount of revenue available in a country for funding government services including education (Voskanyan, 2000).

Because there are lower revenues generally within a corrupt administration the government will also face paying a higher operating costs, which usually draws money away from educational projects and health spending so governments can finance their overall operations (Voskanyan, 2000).

The impacts of government corruption on a society are tremendous. Generally the more corruption that exists the less money is available for positive… [END OF PREVIEW]

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