Monday, 11 March 2013

Could corruption be good for the economy?


I ain't really the type to worry about corruption and how it's plaguing the country. In my opinion, this is something the country is stuck with once it has caught it. It's all about mentality I guess, and in my opinion, ours promotes corruption. Besides, I stand with Gordon Gekko on this issue - Greed is Good.

As of now, I have identified two types of corruption(will update this post again if I find any more):

  1. The corruption committed by politicians
  2. Corruption committed by some businessmen or the other citizens of the country.

Now, I know that you must be thinking that they are both the same, corruption is corruption, no matter who does it. But bear in mind that this is from the economic welfare point of view, forget about the moral point of view, there isn't one in this world(never was, except in fairy tales, mythology and religious scriptures).

Corruption committed by -

Politicians - The records so far show that the money looted by politicians is parked in Escrow accounts in banks, or used to purchase swank properties in other countries(there is even enough to purchase islands in fact) and other various unknown means by which money can be kept from the country of residence. In such a case, the money is no use to the country. It does not boost the economy, provides no boost to employment, education, people welfare etc. The rightful cause of that money is the development of the nation, be it the infrastructure, schools or colleges for education(God knows that this is required right now!), promoting entrepreneurship, investment in the economy(cause there never really is enough money) and the list is endless. Effectively, the nation's money is taken and used for development of some other country(the one where the money is parked).

Most businessmen - Most businessmen are involved in corruption primarily due to their interests in the growth of their companies. Of course, their dealings sometimes do include the politicians but the end result is often positive(often, not always) for the economy. Let me explain. Contrary to what happened with politicians, the businessmen tend to bend law to further their company and its dominance in the market/economy. For example, obtaining money illegally to fund certain projects of the company(leads to economic welfare), evading tax and routing the money through a series of dummy companies overseas to invest it back in the same company for projects(again economic development) thereby converting black money to white money(not what politicians do) and keeping it in the economy, and so on. Of course there are others who declare inflated employee lists to obtain more payment on outsourced projects and then stash that money in personal accounts and they do fall in the previous category. But, in general, businessmen promote our economy through corruption.

Middle class people - This was probably the easiest one to deduce and which got me thinking about corruption. My friend recently tagged me in a post regarding corruption and there were a dozen comments on the post regarding corruption and why we take part in it and how wrong we are to do it and so on, the usual bickering. Based on what you have read so far, you probably already decided that the middle man couldn't possibly generate more jobs or even affect the economy by his little acts of corruption. Read ahead!
Let me take a few scenarios and clarify, will be easier that way.
Evade tax - Some companies allow for medical reimbursement for a certain amount of medical bills during the course of the year. Not everyone falls sick often or becomes terribly sick to generate bills worth that reimbursement amount. Enter counterfeiters. A bunch of receipts totalling the reimbursement amount for a measly payment of 2% of that amount, whereas tax is 10%. Equation - more money in your pocket, less money in swindling politician pockets. What happens if you pay the 10% tax is the government gets your money and spends it on nothing, that's right, nothing. It just goes towards pointless schemes set up to draw the tax revenues into their accounts or gets lost in the flow from one department to another. Instead, what if the money is with you then? You would either spend it or put it in the bank accounts. So how does that benefit the economy? If you spend it, the money goes to someone else(his income increases) and this keeps happening. As incomes increase, expenditure increases, economy grows. If you save it, stash it in your bank account, it is given off as loan to some customer of the bank or invested by the bank in the schemes it finances(which is great really). What I am trying to say is, you cheating the government reaps greater rewards than the government cheating you(if the government does cheat you).
Bribe the traffic cop - This is simpler than the above one(I have to type lesser). Your fine amount again goes to an agency of the government. Instead, bribe the cop, make his day better and your ride easier. Solve the matter quicker too. The cherry on the cake is that you did the economy a favour too!

But, as we all know, sometimes things are too good to be true. And the prospect of something corrupt being good falls in this category too. Sigh. There is a major downside to whatever reasoning has been provided above.
When corruption prevails in the economy, the government tax revenues reduce and this increases the fiscal deficit. No economy would want a growing fiscal deficit and in order to contain this, the government proposes an increase in taxes. See where I am going with this? It becomes a cycle, we cheat, they charge more(unless of course they make stringent laws to prevent that cheating business to start with, but that won't benefit the politicians, now, would it).
Besides, if everyone in the country starts evading taxes and fines, then there would be absolutely no money in the country for development of infrastructure.

It's so much fun to debate from both sides of a topic! Really enjoyed writing this post, looking at both sides of the coin. Gotta find another topic on which I can take up both sides of the issue(preferably in a more convincing manner than this one, corruption is good lost steam after corruption is bad spoke up).

Disclaimer: The author does not promote, partake in or support corruption, corruption against government, evading taxes or any activities deemed illegal by any Government in the universe(or multiverse) that may be reading this or has read it. This is solely meant for intellectual purposes and the contents of this document cannot be used against the author in any judicial court of the universe(or multiverse).