Essay on Causes and Effects of Corruption

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Literature Review

While there is no definite definition, among scholars there is a consensus that political corruption speaks to “the abuse of public authority for private profit” or “the abuse of entrusted power in the interest of self-enrichment” (Doig and Theobald 2013; Chang and Chu 2006; Hughes 2010; Warren 2006; Quah 2003). Public authority refers to the public official, who is appointed or elected and uses their authority illegally to advance his or her interests (Doig and Theobald 2013, 3). According to The United Nations Development (UNDP), bribery, exertion, influence peddling, nepotism, speed money, fraud, and embezzlement, all constitute corruption (cited in Quah 2003, 235). Other forms of corruption include acceptance of money or other rewards for awarding contracts, violations of procedures to advance personal interests, common theft, overpricing, the diversion of public resources for private use, and overlooking illegal activities or intervening in the justice process (Doig and Theobald 2013, 3). In Southeast Asia, political corruption is characterized as systematic and structural with the judiciary sector being the most corrupt (Chan and Chu 2006, 261; Croissant 2004, 161). Where there lies a divide in the scholarship, is how to define the relationship between corruption and democracy. Some scholars argue that political corruption is functional in democracies as it serves as a “grease” for the bureaucracy and elicits administrative action (Lien 1986 cited in Chang and Chu 2006, 260). The allocation of resources by corruption and bribery could also promote efficiency because only the lowest-cost firms can afford abundant bribes in the competitive bidding environment (Lien 1986 cited in Chang and Chu 2006, 260). Corruption can also facilitate the development of parties and encourage political participation (Chang and Chu 2006, 260).

The claims highlighting the benefits of corruption in democracies lack empirical evidence as most countries with corruption have a negative relationship with democracy. For this reason, there is a growing number of scholars challenging the nurturing effect of corruption on economic development and in the democratization process. As the most significant threat to democracy, political corruption is neither a benefit nor an insignificant irritant in the democratization process (Warren 2006, 803; Chang and Chu 2006, 260). Not only does corruption undermine the confidence of people in the government, but it breaks the link between collective decision-making and the civilians’ power to influence the collective decision through their votes (Hughes 2010, 36; Chang and Chu 2006, 260; Warren 2006, 803). Similarly, Theobald (1990) argues that corruption undermines political participation as the gains of corrupt exchange are directed towards the members of the elites, not the civilians, alienating them from the policy-making process (Chang and Chu 2006, 261). Corruption also violates fundamental principles of democracy like accountability, equality, and transparency which may lead to the political mistrust of citizens in the political systems (Anderson and Tverdova 2003; Seligson 2002 cited in Chang and Chu 2006, 259). Moreover, political corruption represents a “direct and brutal betrayal of public trust placed in institutions, since political corruption revolves around situations where government officials entrusted by the public engage in malfeasance for private enrichment” (Bardhan 1997 cited in Chang and Chu 2006, 259). One of the key tenets of democracy is the responsiveness of the government to its citizens, yet political corruption recklessly infringes on such principles. While corruption may act as a push for efficiency in institutions, possibly leading to development, that is not enough to conclude a positive relationship between corruption and democracy. As the scholars highlighted, corruption breaches some of the most significant principles of democracy, most notably the legitimacy of political institutions. Without legitimacy and confidence in the government and its political institutions, citizens may cease to actively participate in politics. It may not necessarily occur consequently after, but this suggests a trajectory of corruption in democracies. This path does not lead to the consolidation of democracies as Indonesia and Thailand demonstrate, rather it arrests the democratization process.

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In the literature on corruption and democracy in Southeast Asia, Thailand, the Philippines, and Indonesia tend to dominate the discourse. This is because the three are the larger countries of the region, with diversity in religion, culture, and colonial traditions. They are also ranked the most corrupt of developing countries (Lim and Stern 2002, 20). According to the Weberian perspective of the modernization theory, corruption will eventually be eradicated by democratization (Chan and Chu 2006, 260). However, this does not seem to be the case for any of these countries. Moran (2001) provides an account for this, suggesting that in countries transitioning into democracy or new democracies, corruption may develop during the transition (379). For Moran, the argument that democratization reduces corruption suffers from fallacy. Since democracy is good and corruption is bad, democracy must reduce corruption (2001, 379). Lim and Stern also argue that neither economic development nor diminishment in corruption has occurred after adopting political democracy in Southeast Asia if anything corruption has increased with development and democratization (2002, 20). This is similar to the modernization theory of economic development following democratization which asserts that countries will experience economic growth upon democratization. In reality, the process is more complex, suggesting that democracy is not simply the answer to these problems. Authoritarian regimes indeed offer more opportunities for corruption compared to democracies, but the latter still may create structural conditions that encourage corruption (Rose and Shin 2001; Moran 2001). For example, observers in both Indonesia and Thailand agree that corruption rose following democratization due to the collapse of the centralized network of corruption giving way to more corrosive and decentralized corruption

“free-for-alls” (Rock 2009, 56). Indonesia and Thailand adhere to the notion that corruption increases after democratization but subsequently decreases with the consolidation of democracy, suggesting an inverted U pattern (Rock 2009, 56). While this may be the case, neither polities show any evidence of consolidating their democracies with corruption being one of the key barriers. Therefore, scholars who accept the rise and fall of corruption in these countries as a part of the democratization process lack emphasis on the incompatibility of political corruption and democracy. It needs to be made clear that the very existence of corruption in these polities undermines their democracy, arresting any hopes of fully becoming democratic in Indonesia and Thailand.

Democracy and Corruption in Indonesia and Thailand

Democratization appeared in Indonesia and Thailand between 1986 and 1999 (Croissant 2004, 160). In both countries, corruption triggered the collapse of authoritarian regimes (Chalmers and Setiyono 78). Following the change in political regime, Indonesia and Thailand made efforts to implement rapid democratization which revealed the failure to control corruption in the newly democratic regimes (Chalmers and Setiyono 78). Therefore, the phenomenon of corruption that led to democratization proved to be a serious challenge to the political legitimacy of that regime. One of the reasons for this is that corruption only changed with the political regime, meaning that democratization being accompanied by decentralization shifted corruption from being centralized to decentralized (Lim and Stern 2002, 44). While democracy was meant to close the doors of corruption altogether, in reality, it opened up room for an alternative in Indonesia and Thailand. The inconsistency in theoretical framework and empirical evidence is prevalent in Southeast Asian countries. For example, Singapore has established itself as one of the least corrupt countries in the world, and the least corrupt in Southeast Asia. However, in Singapore the state not only owns and controls the majority of the economy, but it also heavily intervenes in the private sector (Lim and Stern 2002, 36). The country has also been characterized as an illiberal democracy. These conditions in other countries are positively correlated with corruption. Another example is how during President Suharto’s rule in Indonesia, the country was amongst the world’s most corrupt nations, and the most corrupt in Southeast Asia yet the country was experiencing its fastest economic growth (Lim and Stern 2002, 23). This is a paradox, considering that in most literature, corruption is found to be negatively correlated with economic growth and development (Mauro 1995 cited Lim and Stern 2002, 23). In reality, things are not so black and white. Thus, it is important to analyze cases closely to get a better understanding of the realities in these countries. Rather than basing the relationship between corruption and democracy on theory or what is supposed to happen, it is best to adhere to what the evidence in Indonesia and Thailand tells about corruption and democracy. This means that tracing the existence of corruption and its causes in both countries is essential in developing an argument on the relationship between corruption and democracy.

Causes of Corruption in Indonesia and Thailand

Low salaries are one of the main causes of corruption in both Indonesia and Thailand. In Indonesia, corruption can be traced back to the Dutch Colonial period when the salaries of the Dutch East India Company were inadequate (Quah 2003, 239). Day (1996) observed that the labor force was not only underpaid but these personnel were exposed to every temptation that was offered by “the combination of a weak native organization, extraordinary opportunities in trade, and an almost incomplete absence of checks from home or in Java” (cited in Quah 2003, 239). Corruption became endemic during the presidency of Sukarno due to the inflation of budgets on civil service salaries to the point that people could not live on them (Quah 2003, 2339). In 1969, Smith (1970) surveyed regional civil servants in Indonesia and found that “there is not a single official who can live by his government income alone” as the “official income amounts to approximately half of his essential monthly needs” (Quah 2003, 239). A more recent survey found that low salaries correlated with the cause of corruption in Indonesia by 51.4 % of public officials (Quah 2003, 239). As Chalmers and Setiyno explain, in an unequal society, people tend to be more protective of their interests and are more likely to indulge in corruption as a means to that end (2012, 80). While income inequality does amplify corruption in developing countries, it becomes a problem when it is coming from the public servants who are put in power to serve the needs of the people. Political corruption is different than corruption in private sectors as it directly affects the polity, consequently, hindering any development in the democratization process.

In Thailand, corruption has roots in the 16th century, when civil servants withheld revenue collected for the King themselves because they were not paid regular salaries (Chai-Anan 1977 cited 240). This tradition of officials retaining part of royal revenue was difficult to eradicate even after the creation of the Revenue and Audit Offices in 1873 by King Chulalongkorn (Quah 2003, 240). Recently, Thailand's police chief, General Sant Sarutanond, admitted that the reason Thai policemen were corrupt was because they were undereducated and underpaid (Quah 2003, 240). According to General Sant Sarutanond, commissioned police officers should receive a monthly salary of 20,000 baht to meet their expenses in the large cities, but they only receive a starting monthly salary of 6,000 baht (Quah 2003, 240). The narrative here then is that 'if bureaucrats are paid a high enough wage, even a small chance of losing their jobs would discourage them from being corrupt” (Banerjee 1996 cited Quah 2003, 240). Prime Minister Lee Kuan Yew shares these sentiments. Yew said, ‘It’s a simple choice. Pay political leaders the top salaries that they deserve and get honest, clean government or underpay them and risk the Third World disease of corruption” (Lim and Stern 2002, 36). In Singapore, public servants are paid generously, curbing any need for enrichment through corruption. For example, Singapore’s cabinet ministers make equivalent to the CEOS in the largest multinational firms in the world and the Prime Minister of Singapore’s pay is also several times that of the United States President (Lim and Stern 2002, 36). There is a lack of coverage on this issue even though it is one of the biggest contributors to corruption in most developing countries, Indonesia and Thailand included. While the democratization process is supposed to bring economic growth, it is difficult to see such achievements with corruption hindering democratization.

Corruption is also caused by the opportunities that allow for it to take place. For example, the expanding role of public bureaucracy in national development has increased the opportunities for administrative discretion and corruption as “regulations governing access to goods and services can be exploited by civil servants in extracting ‘rents’ from groups vying for access to such goods and services” (Gould & Amaro-Reyes 1983 cited 241). In other words, public servants have more access to outlets that allow for corruption. In Indonesia, civil servants have distinguished between “wet” and “dry” agencies depending on their budgets and their accessibility. Wet agencies are generous with allowances, boards, service on committees, and development projects (Warwick 1987 cited Quah 2003, 241). This would capture institutions like customs, immigration, internal revenue, and the police. Wet agencies also provide more opportunities for corruption compared to dry agencies which deal with research and administrative work that does not interact with the public (Quah 2003, 241). The tax office and the customs service were the most profitable of the wet government agencies in Indonesia. In Thailand, the wet agencies are the Ministries of the Interior, Education, and Agriculture which all had high numbers of corruption cases during 1970-1990 (Quah 2003, 242). The Police Department was also among the corrupt. According to Quah, these wet government agencies provide plenty of room for corruption because of their substantial budgets and access to the population (2003, 243). Wet agencies are an outlet for public officials to exploit civilians, which is contrary to their role in the polity. Rather than operating for the public good, they use these spaces for their private gain, undermining the culture of democracy.

Another cause for corruption is that it has a low risk of detection and punishment. Treisman (2000) argues that countries with legal and socio-economic systems that maximize the risk of being caught and punished have a lower chance of having corruption (cited Chalmers and Setiyono 80). However, developing countries are dominated by political elites who are above the law, reducing the effective effectiveness of the crime and punishment mechanisms (Chalmers and Setiyono 80). Indonesia and Thailand fall in the latter category. While corruption is illegal in both countries, those found guilty of the corrupt offenses have a low chance of being punished, making the offense of corruption a low-risk, high-reward activity (Quah 2003, 243). In Indonesia, the common procedure for officials found of corrupt offenses was to transfer them to new jobs before their activities gained wide attention (Smith 1971 cited in Quah 2003, 243). When a senior Indonesian civil servant was advised to dismiss his corrupt subordinates, he refused to do so, arguing that “they had large families to support and needed these jobs. Besides, they didn't earn enough anyhow' (Palmier 1985 cited Quah 2003, 243). Even former President Suharto was charged with corruption in 2000, but his case was dismissed on medical grounds (Quah 2003, 243). In August 2003, the Attorney’s General stopped an investigation into the alleged corruption by Suharto’s eldest daughter, Siti Hardiyanti 'Tutut' Rukmana when the prosecutors could not find any evidence of irregularities in a deal involving her and the state-owned oil company, Pertamina (Quah 2003, 243. In fact, out of Suharto’s family, only his son has been punished for corrupt activities. Similarly, in Thailand, the lack of policing of corruption was evident between the years 1975-1998, when the Counter Corruption Commission (CCC) was responsible for investigating allegations of corruption against civil servants (Quah 2003, 243). Still, very few civil servants were punished for corruption even after more power was given to the CCC. These cases in both Indonesia and Thailand clearly show that these public officials are abusing their power. In a democracy, no one is above the law – not even the president. Democracies are meant to be transparent and have accountability, yet these principles are absent in both countries. According to the findings of Lederman, Loayza, and Soares (2001) on the influence of political institutions on corruption, democracies are associated with low corruption because political accountability reduces corruption in the polity (cited Lim and Stern 2002, 43). However, this may only be the case for democratic countries that have been democratic for decades which has not been the case in Southeast Asia (Treisman 2000 cited in Lim and Stern 2002, 43). This becomes a double-edged sword for Indonesia and Thailand as corruption prevents both countries from fully democratizing but the consolidation of democratization could potentially decrease corruption.

While both countries have attempted to combat corruption, their fight against the practice has been exploited as a political tool (Crossaint 2002, 160). For example, in Indonesia President Suharto, President B.J. Habibie, and President Abdurrahman Wahid have all established institutions to curb corruption but there has not been any significant progress (Quah 2003, 246). Corruption was especially institutionalized during President Suharto’s time as the incumbent, but as mentioned before only his son, Tommy, was convicted of corrupt offenses. The same can be said for Thailand where anti-corruption measures in the 1997 constitution were an indicator of former Prime Minister Chuan Leekpai's commitment to fighting corruption, however, he lost to

Thaksin Shinawatra was removed from power for many reasons including corruption (Quah 2003, 254). The failure to make any effective changes to the conditions of corruption in both Indonesia and Thailand continues to hinder the democratization process.    

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