Economic and Political Corruptions in Engineering of Management Systems of Developed States

Sam Noshadha, Victor Litvinenko

Today, corruption and the fight against corruption is one of the most important fundamental points in states around the world. International organizations have called financial and political corruption in state management one of the most important reasons for the lack of development in a country. To the extent that political and economic corruption rises, so the level of a state’s national security diminishes.

The word “corruption” was first used by Aristotle and later by Cicero. It means “ruin” and, it came from the Latin word “rumpere”, which in the English language means “break”. Thus, in corruption something breaks or violates. This thing may be moral behavior, a law or even official rules. As there’s no limitation and penalty or punishment for a specific action by law, this action may not be called an act of corruption even if it goes against public interest(s).

The World Bank defines corruption as “the illegitimate use of public (government) power to benefit a private interest”. According to this definition, any kind of corruption, small or big in an economy and/or political areas displays the inefficiency of a government. The incorrect connection between wealth, power and value cause corruption; also, corruption is the result of collisions between the economy and political establishment.

There is always a reverse connection between the right use of power and territory in a state and development of corruption, as whenever the government uses the power in the right way the level of corruption comes down.

The main subject of economic corruption (related to public sectors) is among state administration management employees. This type of corruption arises because of trade limitations, industrial subsidy, controlling prices, different currency rates, low level of state and trade employees’ salary while the government holds natural resources. Generally, economic corruption may cause a decrease in investment and slow down the economy’s development.

The main politics of fighting and reforming economic corruption are forming independent anti— corruption organizations; increasing salaries in the public sector, cut the role of the government in economic activities, develop accounting and auditing, independence of media, independence of the judiciary, citizen cooperation in public activities, decentralization and changing culture in society by providing new healthy codes. These factors may help to stabilize economies and finally cause economic growth and prosperity.

In terms of practice, in the 19th century a wide range of anti-corruption methods in the economy in developing countries included encouraging international trade; privatization of factories, government industries and companies; investment in the public sector (like education). But these countries did not develop fast and their national income was reduced. The main reason for this subject (especially privatization) was the very high level of corruption in these countries, while part of international financial aid given was stolen by politicians and governmental organizations.

The most fundamental economic and political anti-corruption activities are:

— Creating employment options and cutting unemployment;

— Fair distribution of opportunities and fighting bribery; 

— Preparing minimum living standards for all in a country;

— A fair judicial system.

In general terms, we can say that punishment in legislation for corruption takes in:

 For ordinary people:

— returning that which was embezzled or the bribe;

— big fines;

— prison, or even execution in some countries;

 For government employees:

— it may all the same as for ordinary people;

— dismissal from current post;

— ban on taking government jobs for many years.

According to data from the CPI and BPI, indexes of proof of corruption are deviation from social morality and accepted norms. Economic crimes that usually happen when there is management collusion in state sectors can be qualified as administrative corruption.

It must be said that fighting corruption or avoiding corrupt actions must become like a culture in society and to make it so this process needs on average one generation.

International organizations have made special mention of corruption since 1990 and we can recall as the main actions the United Nation Anti-Corruption Convention signed on October 31, 2003 by 133 states.

The most vulnerable part of a society in any corruption are the poor, as illegal withdrawal of government money or economic resources may cause a lack of capital in public sectors like health, education, public transport and Police services. Additionally, corruption may cause a fall investment or capital outflow from a state. This issue will create destructive national or international development problems like human rights violations, social and economic inequality, fraud and theft from the state budget.

 

In general the roots of corruption are divided into five groups:

1. Corruption based on public opinion in a society;

2. Corruption based on public interest in a society;

3. Administrative corruption based on the role of social and family affiliation (nepotism) in the decisions of state employees;

4. Corruption based on organizational level;

5. Systematic corruption.

Government intervention in the free market is one source of corruption. How much a market environment is less competitive, the level of corruption of encouraging government employees to take their share of monopoly rents via bribery will be high. The prevalence of poverty in societies is directly connected with interference by governments in the economy of those societies.

Freedom of media and expression will also be helpful in fighting corruption.
The existence of an independent, powerful and efficient judiciary system to fight administrative, economic and political corruption can clearly aim to provide a favorable environment for healthy economic activities, transparency for the economic activities of the people. It is also imperative to protect the rights of people and prevent the destruction of public property. A politician may resort to contaminated measures, including corruption to achieve political goals. The political structure of a society determines the level of power and responsibility of politicians, which in this way may have an effect on the costs and benefits of corruption for every politician.

Unfortunately, in states with a high level of corruption infant mortality rates are high as corruption is able to raise the cost of health care and education!

There is a direct connection between government interference in the economy and the level of corruption. The experience of European states shows that after both World Wars in the 20th century these countries began strong efforts to develop state ownership via nationalization of industries and services. The result of that nationalism was inefficiency of state companies to raise them up and finally the slogan of nationalism changed to non-nationalism of industries and services and support for the privatization mechanism. But in developing states the privatization mechanism has argued that the price mechanism in these countries does not work well and that there is no good guide for optimal allocation of market capital or conceptualization and production factors, or that essentially there is no modernized market system. These issues occur in most developing counties, as governments are responsible for broad-based activities across multiple networks through exclusive channels. The comparative advantage of a government in this mechanism is in activities that are naturally not done by the market or areas of activity that are beyond markets.

The development of corruption causes increasing poverty and unfair distribution of state income. Additionally, rising corruption will increase expenses and decrease the motivation to invest, possibly pushing up unemployment rate and exacerbating poverty. 

Corruption and economic crimes cause poverty, deprivation and lag in a society. The most important types of corruption and economic crimes, or white collar crimes, are:

— Receiving bank facilities in corrupt ways;

— Non-fulfillment of received banking facilities;

— Collusion and neglect in monitoring of bank facilities and control over their corruption;

— Money laundering;

— Bribery;

— Embezzlement (top government managers);

— Interference in government deals, tenders and auctions;

— Collusion and fraud in payment of customs duties;

— Receipt of commissions in state deals;

— Tax fraud;

— Failure to receive tax and other state interest from taxpayers;

— Utilization of public sector information in favor of personal economic interest;

— Illegal seizure of state-owned properties;

— Collusion and fraud in opening of currency credit;

Theoretical literature on the relationship between the phenomenon of corruption and economic growth can be divided into two groups:

— First, theories that say: corruption is capable of bypassing the inefficient and inflexible laws and regulations imposed by the state (especially in less developed countries) and will lead to increased economic growth;

— Second, theories that say: corruption is a harmful force for the market and may cause a slowdown in market growth.

Controlling corruption has a positive effect on the economic growth of countries with middle and high income and a negative effect on the economic growth of low-income countries. Generally we may divide countries into three income categories:

— High-income countries are countries with USD 10,066 and higher per capita income;

— Middle-income countries are list of countries with per capita income of between USD 10,066  and USD 825;

— Low-income countries are countries with less than USD 825 per capita income.

Anti-corruption activities of some countries are compared:

(A) China

China should be at the top of the countries where corruption is widespread and punishable by severe executions, and sometimes the government uses executions to prevent corruption. According to estimates, almost 35% of companies in China acknowledge that bribes or gifts have been paid to top government management to advance their work and such top management are involved in corruption in the most wealthy regions and the capital as well.

The question is why, with such capital punishment, is there still a high level of corruption in China and many government officials violate anti-corruption laws?
The answer is that there is lack of control or oversight on government power and lack of democratic choices and weak freedom of expression.

(B) Vietnam

In recent years several Vietnamese bankers have been sentenced to death.
The Vietnam government wanted to use injections but the EU disagreed. Today, 29 types of crime in Vietnam will result in punishment by execution, and 5 crimes out of these 29 crimes are related to economic corruption like fraud, embezzlement, smuggling, counterfeiting and bribery. A total of 12 bankers were executed in Vietnam between 2003 and 2006.

(C) India

If someone in India takes possession of property illegally, they will be sentenced to two years in prison or pay compensation, or both. But if they are a government employee and abuse their legal personality, they will receive up to 7 years in jail and pay compensation. In India the worst punishment for a crime of corruption is when they are in a state job and committed embezzlement or money laundering in their government job area; in this case the corruption crime, in addition to paying compensation, may mean a life sentence in jail.

(D) Malaysia

The Malaysian Anti-Steering Committee is an independent and transparent body on combating all forms of bribery related to corruption. It was set up in 2009 under the new Anti-Bribery Act of Malaysia.

A maximum of twenty years prison and compensation amounting to five times more than the sum of bribes, or 10,000 Ringgits, are the punishment for a crime of corruption in Malaysia. This committee in its research on the motives for corruption by government executives concluded that the main motives are: to have a lifestyle beyond their means, to have greedy desires; suitable opportunities for bribery and weakness in trust and honor.

(E) Singapore

The punishment for economic corruption in Singapore is compensation of 100,000 dollars; in addition return of the sum of embezzlement and maximum of five years in prison, or both. In government jobs, this imprisonment may increase up to 7 years. The state employee corruptor is dismissed from his/her position; their salary and retirement will also be cut off.

(F) South Africa

In 2004 the Law On Preventing and Combating Corruption was ratified. According to this law, anyone perpetrating corruption may be sentenced to life in prison. Additionally, the sum of compensation for the corruption crime will be three times more than the scam. According to the amendment act of the South African Criminal Code ratified in 1997, if the sum involved in the crime of corruption exceeds 500,000 Rand, or the corruption criminal’s partner amount of corruption is more than 100,000 Rand or a member of the judiciary takes a bribe of more than 10, 000 Rand they be jailed for up to 15 years.

The Corruption Watch organization, an independent organization in South Africa, announced that in the first eleven months of its activities a total of 1,227 corruption and embezzlement complaint cases were received. They were reported to the relevant state organizations via email, SMS, fax, post, Facebook, etc.  These complaints were investigated and the applicants were told of the results. Out of 1,227 cases, 34% were connected to municipalities, 32% to provincial offices and 16% were connected to central government agencies.

(G) Kenya

According to Article 48 of the Kenya Criminal Code, a person found guilty in an embezzlement case may have to pay up to 1,000,000 Shilling and sit in jail for 10 years. Also, this criminal must also pay the state double the sum that was embezzled in the form of compensation.

A draft was submitted lately on execution for carrying out embezzlement, the reason for  such penalty was: 1— the punishment must be proportional with the crime that hurt public property; 2— the penalty must be a deterrent for such corruption.

(H) Hong Kong

Between 1960 and 1970 this country suffered a great deal from state corruption. For example, Police officers asked for bribes from people directly and government employees did not do a thing without a bribe. Therefore, an independent anti-corruption commission established a team of professional experts from the Ministry of Justice, the Judicial System and the Law-enforcement System. The head of this commission was responsible for reporting and answering to the Governor of Hong Kong.

 

Sam Noshadha, MCIArb, senior partner  at Noshadha Law Firm, vice president of the EPA

Victor Litvinenko, merited lawyer of Ukraine, Professor of Law