How bad is corruption?

India has some reason to cheer on one front; Transparency international has rated India as the 70^th in its corruption perception ranking of 150 countries in its latest rankings; a significant improvement from its 88^th ranking in 2005. Of course, the survey is fraught with defects: it’s based mostly on perceptions of foreigners; addition of new countries may suddenly push down rankings; and challenges in maintaining comparability for data of different countries. All the same, it is the most respected index for tracking corruption.

What I found interesting is that the rankings show that there is no correlation between national ideology and propensity to be corrupt. Supposedly religion-heavy states like Iran, Saudi Arabia, Nepal, India and even USA have comparatively low rankings while the top rankers are mostly European states which are the most agnostic in character. Similarly, communist countries like Vietnam, Cuba, and Laos have low rankings.

Also though Transparency has tried to promote the concept of “more corruption implies more poverty”; the link doesn’t always hold. Many countries like Russia, Venezuela, Argentina etc., which are economically much better of than India, rank much lower. Also some of the fastest growing economies like India, China, Pakistan, Vietnam, Chad etc., have low rankings. Bhutan, one of the poorest countries in the world, has a respectable rank of 32.

One question has always interested me: How bad is corruption for the country as a whole? I believe that willingness to spend corrupt money would be higher than for hard earned money. So corruption would add to the economy by boosting consumption. Corruption may also help enhance efficiency and productivity; corrupt money can help fasten up processes caught in red tape. Also, it is unlikely that level of corruption has any significant influence when it comes to investment decisions by corrupt companies. In almost all cases, money paid through bribes would be a small component of the overall benefit of investing in an attractive foreign location: this explains why China and India are the most preferred FDI destinations despite their low ranking in the corruption index. The adverse effect of corruption is more psychological; it hurts the basic human goal of fairness. And it provides the feeling of a great nuisance: like bad roads, power cuts in summer and a rowdy neighbour. And worldwide, it is the easiest platform to latch onto for a politician who wants to challenge the incumbent.