June 28, 2016 By Mahmud Tim Kargbo*
On 28th April, 2004 Mr. Daniel Kaufmann – Global Governance Director of the World Bank Institute – commenting on the costs of corruption stated that: “a conservative approach to such measurement gives an estimate for annual worldwide bribery of about US 1 trillion dollars.”
Corruption can take many forms that vary in degree from the minor use of influence to institutionalised bribery. Transparency International’s definition of corruption is: “the abuse of entrusted power for private gain”. This can mean not only financial gain but also non-financial advantages.
The definition of corruption and how much money it involves is not a particularly challenging notion to tackle. This paper, rather, brings to the attention of the reader the economic importance of combating corruption. The aim is to show the reader:
1 – the role law plays in economic development;
2 – the negative effects of income inequality on sustainable economic development and importance of redistribution on grounds of the Marginal Utility theory;
3-redistribution as the most effective method of eradicating poverty;
4- the negative effects of low approval ratings (unhappiness) on sustainable economic development; and
5 – the negative effects of corruption on redistribution as well as approval ratings and consequently on sustainable economic development.
The argument simply put is as follows:
1 – Empirical studies show that countries with better redistribution of wealth enjoy longer periods of economic development.
2 – Redistribution of wealth is justified by the idea that if utility is the building block of economic policy then redistribution of wealth is favourable on the grounds that it brings upon well being to the greatest possible number of people (since the poor’s benefit is much greater than the rich’s loss out of the redistirbutional process).
3 – Redistribution (based on the idea of Marginal Utility) should only be limited by the idea of Efficiency Cost (when it robs production from individual incentive)
4 – Countries suffering from corruption, like Sierra Leone, cannot implement sound redistributional policies and thus are not expected to take benefit from sustainable economic development despite embarking upon economic growth from time to time for some reason or the other.
The argument, simply put, as well, has it that empirical studies show that countries with higher approval ratings (happiness index) enjoy longer periods of economic development. Countries suffering from corruption, like Sierra Leone, have low approval ratings because of the public’s frustration of their legitimate expectations, impressions of unfair treatments, expectations of unequal treatment which impose a great risk on individual incentive to produce (Efficiency Cost).
Whereas some would differentiate between bad and good corruption, arguing that only corruption (4), which is associated with poor institutions, has a negative effect on GDP growth whilst residual corruption (corruption which is uncorrelated with other governance characteristics) is positively related to GDP growth with poor institutions.
This line of thought has it that an analysis of financial data is positively correlated with capital accumulation and productivity growth in developing countries and that these empirical findings are consistent with the theory that corruption helps overcome inefficient barriers.
This article argues that all forms of corruption in Sierra Leone are intrinsically bad (from an economic point of view) justifying the contemporary global practice of combating corruption.
The paper will show how corruption, if left unchallenged, undermines a country’s (Sierra Leone) attempts to:
1 – fight poverty and inequality (redistribution of wealth),
2 – increase approval ratings (happiness index) and
3 – consequently engage in sustainable development.
The paper attempts to do so by reflecting upon the role of law in economic development in Sierra Leone as well as shedding some light on current economic development policies and how paramount combating corruption features in them.
It is worth mentioning in this regard that Sierra Leone legal market takes benefit from the presence of the Parliament and the Anti-Corruption Commission, which are the only specialised teams of experts in the field of combating corruption in any institution in Sierra Leone.
Law and economic development:
The role of law in development is obscure. Some see law as a transcendental notion of applied justice that has nothing to do with politics, morality and the distribution of wealth. Others see certain types of legal regimes as the environment that fosters and nourishes development. Others recognise the social effects of legalism, its political aspects and distributive function.
In this part, I will explore these different roles attributed to law in the field of development.
The formalists believe deduction of law to be a logical science. There could only be one legally right answer to a certain disputable fact. Law is coherent and has answers to every controversy. Law is detached from politics, morality, religion and society. It thus, according to this theory, has nothing to do with economic development because legalism entails no political decisionism, and exhibits no distributive effects. It is rather the product of impeccable logical deduction from transcendental notions existing supra-society.
The role of the state is to preserve private autonomy, keeping each individual as an absolute lord within his dominion (compartment) of private rights and liberties.
Some saw in the above mentioned legal arrangements the pretext of economic development.
iii. Law as a rational science separated from politics, religion, being man made, universally applied, and disputes decided by general rules, essential for developing science, human activities, and entrepreneurship.
Other societies which have no such legal doctrine could not develop specifically because they don’t have such laws; or in the case of Sierra Leone they have them but deliberately ignore to effect them against the selected few and powerful in corruption.
The difference between this line of thought and the previous is that the “Law as pretext” acknowledges formal legalism as the inevitable institutional infrastructure for development, whereas formalists did not.
Two attributes of logically formal rationality legalism are highly praised. First its relative degree of calculability, second its capacity to develop substantive provisions, principally those relating to freedom of contract necessary to the functioning of the market system.
The Realists’ breakthrough is the critique they presented to the foundations of Formalism. Law derivation is not a science, it is not coherent, and it does not embody answers to all. Cases are decided on facts not legal doctrine.
vi In essence it is not deductive logic; it is rather judicial/political decision-making. They also recognised the distributive function of legalism.
vii Each legal rule renders comparative advantage to the party it favours. In each situation, parties use the available legal norms to twist the counterparty’s arms in order to receive as much as possible the outcome of the bargained deal.
viii Foucault’s Power Relations theory entertains a highly praised position in their literature in addition to Hobbes state of nature.
Chronological note on economic development:
Development as a field of study became the major concern of the post-Second World War international order. It started off with two presumed hypotheses:
1) The problemisation of poverty, meaning that even if we don’t view securing the well-being of individuals as the function of the state, the state from a pragmatic point of view has to address poverty because of its negative social effects.
2) The stress upon the combat of corruption, international crime and money laundry. They demand for gender equality. The emphasise on informal norms as a source of best practices.
The stress on the importance of formalisation of all society’s assets.
The players of the development field today are no longer just the governments and metaphysical market forces. In addition to the government and the market forces we have organisations such as the World Bank, the International Monetary Fund, the International Financial Institutions, international and national non-governmental organisations, civil society, in addition to pressure groups and business men.
Public awareness and pro-activity is also highly praised in today’s development field.
Adopting GDP and/or per-capita income as signs of economic health and no longer trusted. Trusting in the invisible hand of the market and its Trickling Down Theory to achieve social as well as economic stability is no longer considered prudent.
Recognising the draw backs of consumption economics, economists now prefer to target perfect equality, transparency and stability in any given society. To measure this they usually apply, amongst other things, the Gini Co-efficient
which measures the extent of inequality in income distribution in a given country. By measuring income inequality (not wealth inequality) it distinguishes itself from being a Marxist ideology. Also, by excluding non-cash social benefit from the calculation (welfare provision through public services is ignored) it enables governments to create a sort of social balance and economic stability by restoring the inequalities in income distribution by providing subsidised goods and services and thus creating a society wherein individuals are equally empowered (no one is suffering poverty) but not all are necessarily equally wealthy.
The development field witnessed a further step forward by the work of Amartya Sen. His contribution comes as an addition to the 2nd generation reforms in view of the role of human infrastructure. Typically all the previous development theorists would evaluate the development of a given society by means of fiscal measures. However, Professor Sen asserts that this is not immune to criticism. He illustrates that the actual end of development is not to achieve financial welfare but rather to promote human well-being. This is where the “Agendas for Attitudinal and Behavioural Change and Agenda for Prosperity” completely failed!
One concludes, according to the above, that law plays a major role in development.
Research shows that a society with less income inequality (better redistribution) almost always enjoys more frequent and longer periods of economic growth (sustainable development).
Research also shows that a society with a higher happiness index (approval ratings) almost always enjoys more frequent and longer periods of economic growth (sustainable development).
It almost goes without saying that corruption renders futile any effective redistribution scheme a government undertakes. It also goes without saying that corruption frustrates people and leave them disproving of their institutions. Both assertions mean that a corrupt society like Sierra Leone cannot possibly enjoy leaps and bounds of sustainable economic growth and development.
Corruption is now recognised to be one of the world’s greatest challenges. It is a major hindrance to sustainable development, with a disproportionate impact on poor communities and is corrosive on the very fabric of society.
The impact on the private sector is also considerable, it impedes economic growth, distorts competition and requests serious legal and reputational risks. Corruption is also very costly for business, with the extra financial burden estimated to add 10% or more to the costs of doing business in many parts of the world.
The rapid development of rules of corporate governance around the world is also prompting companies to focus on anti-corruption measures as part of their mechanisms to protect their reputations and the interests of their shareholders. Their internal controls are increasingly being extended to a range of ethics and integrity issues and a growing number of investment managers are looking to these controls as evidence that the companies undertake good business practice and are well managed.
The international legal fight against corruption has gained momentum in more recent times through the Organisation for Economic Cooperation and Development (OECD) 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and through the entering into force of the first globally agreed instrument – the United Nations Convention Against Corruption (UNCAC), adopted in Merida, Mexico, in December 2003 – on 14 December 2005.
On 24 June, 2004, during the United Nations Global Compact Leaders Summit, it was announced that the UN Global Compact henceforth includes a tenth principle against corruption. The Principle reads as follows:
“Businesses should work against corruption in all its forms, including extortion and bribery.” This was adopted after extensive consultations and all participants yielded overwhelming expressions of support, sending a strong worldwide signal that the private sector shares responsibility for the challenges of eliminating corruption. It also demonstrated a new willingness in the business community to play its part in the fight against corruption.
The UNCAC is the underlying legal instrument for the 10th Principle against corruption. The adoption of the 10th Principle commits UN Global Compact participants not only to avoid bribery, extortion and other forms of corruption, but also to develop policies and concrete programmes to address corruption. Companies are challenged to join governments, UN agencies and civil society to realise a more transparent global economy.
Legal practitioners specialising in the field of combating corruption not only work in an ever developing exciting field in their countries but also play an important role in the upkeep of global development.
*The author works at Centre for Research Documentation, Policy Studies and Development of Law, 4 Lamina Sankoh Street, Freetown.