Reputation risk

Every year, the Berlin-based Transparency International comes out with various survey-based reports ranking the different countries on a corruption scale. This week, it released its Bribe Payer's Index for 2006 and perhaps caused some shock in India as it has showed up as the country with the greatest propensity for businesses to pay bribes when winning export contracts. At one level, this should evoke feelings of disgust, especially because it has nothing to do with domestic regulations and market distortions (which might be considered attenuating circumstances); rather, this is how Indian businessmen conduct their business overseas. It therefore reflects, not on the weakness of the domestic system of governance, not on the bureaucrats, and not on corrupt politicians; rather, it reflects on the Indian businessman's greed.

It is in fact interesting that India does not do nearly as badly in the same Transparency International's Corruption Perception Index, which is put together by talking to international businessmen who deal with different countries, and becomes therefore a reflection (however imperfect) of the domestic situation in India. There are 19 countries (out of a total of 91) that rank lower than India (on a declining scale) on the CPI. Even that is not a great advertisement for India, since India's rank is a lowly 72nd, but the message when you put the two surveys together seems to be that foreigners find it easier to do business honestly in India than in some other countries, but that Indian businessmen are more than willing to muddy the water elsewhere, and more than their counterparts from other countries, bar none.

Following India in the top five most corrupt countries are China, Russia, Turkey and Taiwan. The top three are from the BRICs list (Brazil does slightly better than the other three), and the top two are the fastest-growing economies in the world. Though high oil prices are admittedly a significant contributor, Russia too is charging along at more than 6 per cent GDP growth. Taiwan used to be rapidly growing, and Turkey has featured frequently among the half dozen fastest-growing economies. In short, the common feature of the most corrupt economies seems to be that they are all growing fast. By contrast, the least corrupt (though not incorruptible) countries are quite affluent and their pace of growth is, typically, leisurely. What does this suggest? That the costs of time spent and opportunities wasted in playing by the rules are found to be unacceptably high for people in rapidly growing economies? Or, that their domestic situation is such that they have learnt to play by crooked rules? Or perhaps that the countries growing rapidly today are still to stabilise their internal standards at a high enough level, in terms of preventing malfeasance, and that it will happen if given time?

Lest anyone do a straight equation of corruption and rapid growth, it should be noted that the quest for growth in revenues and the willingness to bend the rules are not confined to businesspersons in fast-growing countries. The report cites several examples of organisations in the affluent countries making questionable payments to authorities in not-so-affluent countries, perhaps a good example of the "when in Rome" syndrome. This is all the more reason to view the incidence and processes of corruption in terms of their economic functionality rather than as a broad reflection of the moral state of society as a whole. It may well be true that persistent and unchecked corruption has an adverse impact on critical social and political institutions. But it is also true that in many economies that are rising to prominence, growth has sped ahead of governance norms.