Crossroads (Toward Philippine economic and social progress)
Philippine Star, 23 October 2013


The nation’s focus during the last few weeks has been on the problem of corruption emanating from the use of public funds. Only the big disaster of Bohol’s earthquake, and its aftermath, has overridden this matter. The cliff-hanger that was the US debt limit hardly made a dent on pork barrel issues at home.

One thing is sure: the cancer of corruption has turned out to be more insidious than anticipated by the present government. As more scandals tied up with the use of the pork barrel funds revealed, in particular, the PDAP, the Malampaya fund, and the DAP (Disbursement Acceleration Program), the list of potential-damaged politicians has lengthened from the apparently targeted and specific (in the initial unfolding of the story) to a more generalized one involving the same sins of commission, including even the executive branch of government.

The many shades of corruption we face as a nation. The stench unleashed recently by the misuse of the pork barrel is only part of a bigger picture. It is therefore well to view this in broader light.

The Philippines is part of a community of countries beset by a high degree of corruption. The country’s ranking on this issue requires enormous improvement. Although there have been recent gains in perception due to government efforts, the Philippines’ corruption score in the surveys puts us among the most corrupt countries, even within this region.

Defining corruption. In the context of the present topic, corruption occurs when a private party to a contract undertakes to pay someone in public authority through bribes (or inducements, often monetary in nature) that benefits the former in the award of a contract. As such, it is often the outcome of an interaction between private motivation (and wealth) with public decision-making. At times, the payment direction could be even reversed.

Such payments get in the way of attaining the objectives of the principals – those to whom the decision-makers owe their authority. The principals in this case could be the ultimate superiors – meaning, the general public or the common weal in a democracy.

Private sector corruption. The private sector’s corruptive motivation depends on the business and cultural environment that promotes economic activity and sub-contracting involving the state. This part of the environment is discussed under public sector corruption.

Similar instances of corruption could happen in the operations of private enterprises , or in the interaction of private firms. When such corruption does arise, it is much more easily corrected. In fact, better pay and other conditions of work as well as timely audits often help to minimize its incidence.

Private firms address such problems through immediate punishment of the culprits when discovered. The solution often is quick and efficiently undertaken. It is accomplished through such drastic actions as immediate dismissals or demotions when the corrupt act involves employees

When the case affects or involves the relationships among the firm’s major decision-makers, for instance, among investors, the dissolution of commitments or of partnerships in the business results. As such, withdrawal of investments often abruptly ends the business relationships.

Seldom do such problems ever reach the public sphere, unless they involve regulatory infractions in which the main parties try to settle their problems through legal recourse.

Public sector corruption. A large literature on the economics of corruption has emerged on the subject, ever since the multinational development community led by the World Bank took the issue of corruption head on.

Susan Ackerman-Rose, an authority on the subject at Yale University who had edited an International Handbook on the Economics of Corruption (Edward Elgar, 2006), distinguishes two major types of corruption. The first is “petty” or “low-level” or bureaucratic corruption. The second is one that involves the broader state or government, which she labeled as “grand corruption.” Both could be serious sources of corruption among countries.

Low level or bureaucratic corruption. This type of corruption occurs where the basic laws and regulations are already well in place. The implementing officials, often lodged in agencies or in lower levels of government, exercise certain powers that seize or create more opportunities for personal gain.

Some gains are derived simply by adding up requirements and creating a qeueing for services before they are granted. Processes often associated with the approval of benefits lead to difficulties in securing the service. Adding tiny bits of additional requirements create additional inconveniences that open up profitable niches for corrupt bureaucrats to reap.

Delays and unnecessary hindrances toward the grant of approvals lead to the accumulation of gains. We see this type of corruption taking place commonly in the grant of public licenses and other bureaucratic requirements, in the release of goods in customs areas, and in the grant of permits in various business situations.

These occur with great frequency in the “doing business” sectors of bureaucracies – within national agencies requiring certain compliance and licenses. Such processes get multiplied in the business permit areas in the hands of local governments that can withhold approvals or create problems in the operations of firms and other economic activities.

Grand corruption. This type might reflect the low-level corruption but it takes place at the national level. This could be conducted along a simple framework in which a branch or segment of government is made to operate as a rent-extraction machinery.

Or the case could be one tied to the electoral process in which the election costs for an office is so huge that recovery of election expense while in office becomes the motivation to engage in corrupt practices.

Sometimes, the system might be in relation to the winning of large government contracts which would involve the extraction of cost recovery for the approval of contracts for procurement, for huge infrastructure projects as well as sales of government assets.

{Next week: the anatomy of Philippine government corruption}

Correction on last week’s essay on “US debt limit”: An astute reader from Abu Dhabi, Julius Martinez, pointed out to me a writing slip that came out statistical in regard to the extent of the US debt held by China and Japan. The cited debt exposure of these two countries is with respect to the 60 percent of total owned by foreigners. As written, the debts attributed to both countries appeared to be with respect to the total fiscal debt of the US.