Economic Policy Review ISSN 1313 - 0544

Total Corruption

Author: Metodi Lazarov / 08.08.2008
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Corruption exists all over the world. This is a phenomena, which when is noticed, could be cured if the political will is present and technical means available. The reports of the European Commission and the public reaction in Bulgaria show not only that a point of intolerance has been reached, but also that there are no doubts that total and absolute corruption is present in Bulgaria at all levels.

We believe that the size of the public sector directly defines the size of the corruption in Bulgaria. We believe that further privatization of state and municipal companies, simplifying the regulatory regimes and the elimination of various "doors" in the laws, as well as reduction of the administrative apparatus, will directly reduce the possibilities for corruption, nepotism, favoritism and misuse of power. We are not talking only about the specific case with the EU funds, but also about the long term development of the state and its bureaucracy. The main idea is that when control is transferred to the private sector and public-private partnerships, it is easier to bring to account a smaller state apparatus particularly when the working tasks are clearly defined.

The very significant work of LaPalombara (1994)[1] about the positive relationship between the percentage of the Government expense and corruption, states that the proposition that with the exception of the Scandinavian countries, such correlation really exists. Other researchers went deeper into the structure of the state expenses and discovered that this is actually more important that the absolute value itself. In other words, corruption is more likely to appear when the government transfers predominate over those which are financing the main function of the state - to create a system, which presupposes stable money bearers, provides correct and unbiased execution of the various types of contracts, protects its citizen from aggressors, which aims at protecting their property and provides the so called "public goods" such as street lighting, fire protection, etc.    

Paulo Mauro (1998)[2] discovers in empirical studies that the corrupt politicians prefer to direct the state funds towards sectors where it is easier to cover up the corrupt practices. As a result, the larges bribes are generated in state regulated markets with little competition and with goods whose price is difficult to monitor. For example, the state decides that it must build a highway and sport arena by hiding the construction plans, because they are a state secret. The incentive for corruption increases significantly when there is no transparency. Mauro also developed a regression model, which shows inverse relation between the level of corruption and the level of funds set aside for education and healthcare

In their paper Tanzi and Davoodi (1997)[3] claim that political corruption directly affects the process of decision making with respect to the public financing of public projects. The higher corruption directly correlates with high public financing, bad infrastructure and a bad return on investments in other projects on the basis of empirical comparisons between the countries over a 15 year period. The authors give a specific example regarding the corruption practices in Italy during the 80's and the 90's, which according to an investigation of Transparency into a long term increase in the price of public services, specifically in Milan. Only two to three years after the scandals with the corruption, the expenses in the city railroad transport fell down by 52%, the price of kilometer of subway by 57% and the budget of the new airport terminal was reduced by 59%.

The research that we discussed above shows that the presence of corruption in Bulgaria is by no means an exception from the rest of the World, but also give an explanation for the lack of effectiveness in the business environment and bad infrastructural projects. The lack of political will to overcome corruption is the important detail, which is in contrast with the experience of the other countries. The reorganizations and moving of departments apparently does not produce results in Bulgaria and for that reason it is necessary to move towards decisive measures such as reduction of the administration and reduction of the Government's expenses. It is not likely that anybody believes that the State could internally resolve that problem and for that reason it is necessary to eliminate the unnecessary administration and to set up smaller, fewer and more effective structures for handling the EU money, this would be the best and the fastest decision. The result from this reform will also depend on the will of the Government to eliminate corruption practices at all levels of the administration.


 


[1] LaPalombara, J., Structural and Institutional Aspects of Corruption Social Research 1994

[2] Mauro, P., "Corruption and the composition of government expenditure" Journal of Public Economics 69 (1998) 263-279

[3] Tanzi, V. and Davoodi, H., "Corruption, Public Investment, and Growth" IMF Working Paper October 1997