By Professor Owen Skae, Associate Professor and Director of Rhodes Business School
Global bribery and corruption is so massive that it operates as a parallel economy. At the UK government’s anticorruption summit in 2016, IMF head Christine Lagarde quoted the most recent estimate of $1.5-trillion to $2-trillion (about 2% of global GDP) paid annually in bribes in developing and developed countries.
While the direct economic costs of corruption were well known, she said, “the indirect costs may be even more substantial and debilitating, leading to low growth and greater income inequality”.
She added that corruption “undermines trust in government and erodes the ethical standards of private citizens”.
Transparency International’s Corruption Perceptions Index for 2016 found that over two-thirds of the 176 countries and territories in the index fell below the midpoint of their scale of 0 (highly corrupt) to 100 (very clean). They called the average score of 43 “paltry” and concluded that more than 6-billion people lived in countries with a serious corruption problem.
Around the world, there is corruption in all shapes and forms, coupled with a concerted attempt to stamp it out and get to the root cause. Why, when there are well-developed rules and codes of governance and anti-corruption, antibribery and anti-laundering laws, is corruption still so pervasive?
Michael Muthukrishna of the department of psychological and behavioural science at the London School of Economics and Political Science wrote an article about this for Nature and the online journal Economics.
He says that while the total quantum of corrupt money may not materially differ from one country to the next, the scale of its effect must not be underestimated. In a rich country, the difference may mean a city having 25 instead of 20 schools built. In a poor country, the difference might be between having three schools built and only ending up with one.
While the effect on the quality of life of citizens is dire, he says there is nothing mysterious about bribery and corruption; they are simply the names we have given to a natural tendency inherited through our evolutionary biology, which, in evolutionary terms, is far more natural to us than democracy.
“There is nothing natural about democracy. There is nothing natural about living in communities with strangers. There is something very natural about prioritising your family over other people,” he writes.
“There is something very natural about helping your friends and others in your social circle. And there is something very natural about returning favours given to you. When a leader gives his daughter a government contract, it’s nepotism. But it’s also co-operation at the level of the family.”
Muthukrishna says that bribery is a co-operative act between people. These are “smaller scales of co-operation that we share with other animals. The trouble is that these smaller scales of co-operation can undermine the larger-scale co-operation of modern states.”
The flip side of corruption, he says, is accountability, responsibility and co-operation. For groups of humans to live and work together, and to survive and thrive, governments, firms and civil society must develop strong levels of all three.
Otherwise, as he puts it, it would be like putting chimpanzees from different family groups on a train. The mayhem, violence and destruction would be on the grandest scale.
To demonstrate the ease with which people succumb to the ancient call of what we now name bribery and corruption is illustrated in a public goods game that he and his colleagues developed. In the game, 10 people are asked to put $10 into a pool with the promise that they can get three times their money back. No one is aware of who has put in $10, but it seems logical that all 10 would contribute and get $30 out.
Very quickly one individual works out that if he puts in nothing, he takes home $37: this is $9 x 3 and his own $10, which is not in the pool. More people quickly catch on to this and contribute less until the pool of money diminishes to nothing and everybody takes home nothing.
In the next iteration of the game, contributions are enforced. The contributions to the pool rise in the short term to the benefit of all, but very soon somebody works out that they can benefit from other people doing the enforcing, without having to pay for it. This is referred to as the second order free rider problem. It begins to take root and, as expected, contributions start to decline.
The next game created a mechanism for the punishment of defaulters with a punishing leader appointed.
This time, Muthukrishna explains, players could either keep their money or contribute to the pool and also contribute to the leader, who could accept the contributions.
Very quickly, the leader and punishing organisations become too powerful and take a larger share of the contributions; on average contributions fall 25%. The result is a powerful elite that looks after itself, while other players contribute as little as they can get away with.
“So, even among Canadians, admittedly some of the nicest people in the world, in these in-game parameters, corruption was difficult to eradicate,” says Muthukrishna.
He believes that when the public goods multiplier or economic potential was highest for all, and the potential to make money using legitimate means was high for all, then contributions went up.
So, the explanation for why bribery and corruption is rampant all comes back to the quality of a country’s leaders and institutions.
ingapore’s leaders are the highest paid in the world and the nation also has one of the lowest corruption rates in the world; lower than the Netherlands, Canada, Germany and the UK, They are responsible, accountable and have good governance institutions in Singapore.
More successful, less corrupt nations have better governance institutions and a strong belief in, and application of, the rule of law, which serves the collective society of friends, strangers, families, men and women.
Given the extent of state capture, corruption and abuse of office in the National Prosecuting Authority and the police force, South Africans can be grateful that these state organs are not all-powerful.
The country can also be grateful that Chapter Nine institutions — including the public protector, South African Human Rights Commission, auditor-general, Electoral Commission of SA, Independent Broadcasting Authority and the Independent Communications Authority of SA — were established in terms of the Constitution to guard democracy. Most of them regard their mandate as sacrosanct and hold people to account.
Not all of them are operating as they should, but the public benefit outweighs the cost of funding them. Because of these institutions, the corruption and bribery in many leadership bodies has not been as great as it could have been.
Only proper checks and balances in governance can tackle this and it spans many levels, including massive free-riding by global companies that aggressively exploit the law to avoid paying the significant taxes due from them.
It is immoral and it is up to governments to regulate these well-known practices including offshore postbox companies.
Just as love and hate are the flipsides of the same coin, so too are corruption and co-operation. There is a fine line.
And while hate and corruption might be as natural as love and co-operation, they are not good for the functioning of society and democracy.
It is all about balance. SA needs to work out the right number of high-functioning Chapter Nine institutions and ensure the power of the police and president is curbed to make certain key appointments.
Institutions have to hold people to account, guided by the rule of law. Where this happens, more meaningful change is effected.
Because of the Chapter Nine institutions and other anti-corruption organisations, and despite the capture of leading state organisations such as the National Prosecuting Authority and the Hawks, the tide in the country is turning.
First published in Business Day on Friday, 25 August 2017.