Corruption is the Scourge of the Earth!

Corruption is a scourge, much worse than what most people think! Unfortunately the perception about how damaging corruption is, pales in comparison to reality, Unfortunately facts do not convince people. Facts do not win arguments and they do not change people’s minds. It is called the backfire effect which was discovered as a result of […]

Corruption is a scourge, much worse than what most people think!

Unfortunately the perception about how damaging corruption is, pales in comparison to reality,

Unfortunately facts do not convince people. Facts do not win arguments and they do not change people’s minds. It is called the backfire effect which was discovered as a result of research carried out at Stanford back in 1975. When confronted by evidence contradicting their previously held believes, people weight facts as much as untested claims and unfounded allegations; whatever suits best our narrative will prevail in our mind.

Individual allegations should be investigated thoroughly, fairly, and promptly as that is the only way they can be proven or denied. We should not fall into the moral fallacy of defending current misdoings, perceived or real, by highlighting past ones. The mistakes of the past should be condemned on their own not used to sweep under the rug the current ones and condone both.

However, we do have tools to analyse whether corruption in Malta is trending up or down. Corruption is not some fictitious sin, like some people tried to dupe us into thinking divorce or homosexuality were. Corruption is a REAL thing with VERY REAL consequences.

The Consequences of Corruption

Corruption is an albatross around the neck of economic growth and a major hurdle to economic development. Corruption reduces economic performance due to encouraging rent seeking, increasing transaction costs and uncertainty, fostering inefficient investments, and misallocating factors of production (Murphy et al. 1991, Shleifer and Vishny 1993, Rose-Ackerman 1997).

In a study focusing on how corruption, public infrastructure, and public spending has affected economic growth in Italy over the span of 27 years, Del Monte and Papagni (2001) determined that corruption hurts economic growth in two different ways. Corruption reduces the efficiency of expenditure on public investments however, according to Hanousek and Kochanova (2015) the level of public investment itself can go both up or down depending on the country and its institutions. The second way corruption hurdles economic growth is by lowering the return on investment and discouraging Private investment.

Corruption reduces the prospects of economic growth because governments become less able to support private economic activity, resources are wasted, and less infrastructure or public services are available for private production (Del Monte and Papagni 2001).

A study conducted in 21 African countries by Gyimah and Brempong (2002) demonstrates that corruption reduces economic growth by decreasing investment in physical capital, decreasing productivity and through misallocation of existing resources. They also found that corruption hurts mostly the poor.

Teles (2007) found that corruption limits the economy’s capacity for growth as this diverts more resources towards accumulating unproductive “political capital” and away from productive “human capital”.

Policies that reduce corruption, combined with those to reduce military burdens, have a considerable [positive] impact on economic growth (D’Agostino, Dunne, Pieroni 2016). When it is concentrated (i.e. few people receiving big bribes from a few sources) corruption hinders economic growth even more than when it is dispersed (Hanousek and Kochanova 2015).

Of course the relationship between corruption and economic growth isn’t perfectly linear, developing countries tend to be more corrupt than advanced economies, yet they still manage to grow at a faster rate. However, even the most basic economic growth models show clearly that middle-income economies are EXPECTED to grow at a faster rate; and it would be like comparing apples to oranges.

Corruption is also a disease that withers a country’s fiscal health, and “improvements in the corruption environment” result in a “better fiscal performance”. A lower level of corruption leads to a decrease in the deficit as well as debt (Hanousek and Kocenda 2011),

Corruption is also correlated with unemployment, with Mike Patton (Forbes contributor) noting that “In the most corrupt countries, 13 of the 19 which publish unemployment data, have an unemployment rate greater than 10%.” Conversely among the 21 least corrupt countries only two countries have unemployment above 10%.

The Reality going on in Malta

Don’t hold your hopes high for some of this country’s “eminent” economists to come out and say it as it is! Most economists care more about the significance of their regression coefficients rather than what it really entails in real life; they value their ts more than doing something useful for their country.

I welcome the rise in awareness over corruption because corruption IS THE SCOURGE OF THE EARTH! It is an albatross around economic development, undermines our prosperity, weakens a country’s fiscal health and undercuts everyone’s quality of life.

Last week month on Xarabank Simon Busuttil stated that when corruption decreases there’s more money left to buy medicines (and they wont be out of stock), the economy performs better, more jobs are created etc…I wholeheartedly agree and in fact I wrote the same exact thing the previous morning!

We do have tools to investigate whether corruption in Malta is increasing or decreasing, and we should use them so that we can base our opinions on verifiable facts not on unfounded allegations,

Malta is enjoying the strongest sustainable economic growth in almost 40 years and has just registered the first surplus in 35 years. The unemployment rate is at its lowest since we started keeping statistical records and the (material deprivation) poverty rate has fallen by 50%. This while cutting taxes AND extending the quantity and improving the quality of the services provided….the macro indicators are clear;

These results did not materialise out of thin air and are not a normal occurrence. In fact since 2013 Malta has consistently outperformed all economic forecasts published by national and international institutions with regards to economic growth, fiscal balance, and employment; because they were not the results that our country was expected to achieve. These were not the results that the same Malta from 4 years ago would have been able to achieve. Policies aimed at increasing the country’s potential output together with consistent over-delivery have driven international institutions to raise Malta’s long-term growth rate from 2 to 3%.

These are the kind of results that ARE IMPOSSIBLE to obtain if the level of corruption in the country was increasing. These are the kind of results that can only be obtained if you fight and significantly reduce corruption.

Basic economics indicates clearly that corruption is decreasing, but those with a vested interest will stop to nothing to fool people into believing the opposite.

A woman spraying insecticide on the insects which were hidden under the carpet she just lifted
Cleaning under the rug by Peter Schrank for the Economist

Of course you may believe otherwise, in fact that is actually a natural reaction. According to the Economist:

“It is a common paradox: the world often becomes aware of corruption when someone is doing something about it. That leads people to conclude that things are getting worse when they are, in fact, getting better.”


The Uncomfortable Truth Behind Corruption

When standards are raised, scandals which previously would have been swept under the rug will now be brought to light. Transparent laws on how politics is financed unveil what was previously always kept under wraps. Tighter regulations make what was previously common practice stand out.

When you lift the lid of the clogged sewers (which corruption is for the proper working of our economy and our society) the stench will come out, nauseate and disgust everyone around. The stench they never smelt will now be smelt, and people will get angry. Everyone will become aware of the crap that is running underneath our feet they never knew existed before. A normal person’s reaction is to hurry up and put the lid back on, and go back to when we did not have to endure the stench of corrupt…err crap.

However, the crap will still be there, just as it was already there before we lifted the lid. Our choice is between acknowledging its existence and deal with it or sealing it under the lid, ignore the problem and delude ourselves into thinking it magically vanished until it erupts and engulfs us all.

Back to Malta

Corruption still exists and Simon Busuttil is right when he says that if there was less corruption the economy would be performing even better, because the main reason the economy is performing better than it has in the past 40 years IS because there is LESS CORRUPTION! But he does not want to move forward – he wants to go back.

Simon Busuttil never acknowledged any of the government’s achievements, instead he outright denies them, belittles them, or tries to take credit for his party or himself. Simon Busuttil dragged his feet on civil rights and constantly tried to take advantage of, and even foment, the conservative reactionary winds every time Joseph Muscat was trying to move this country forward, just to score some political points. He abstained on civil unions putting his own party’s interest ahead of that of the country.

When he was informed about the flagrant abuse of power that was (allegedly) going on in Giovanna Debono’s Gozo Ministry, his first reaction was brush it off, he chastised and subsequently vilified the whistle-blower.

Faced with several damning reports and allegations of misdoings from the previous administration, Simon Busuttil consistently failed to condemn them, attempted to deny the truth, or constantly tried to divert the blame on the whistle blowers, investigators, constitutional bodies, journalists, and the current government for daring to reveal and deal with them. He persistently defended the perpetrators, as long as they were on his side. Simon Busuttil will not reduce corruption, hence improving the country’s well-being; he will take us back to the same practices, mentality, and people under whom things were worse.

Joseph Muscat reiterated that people should judge the level of corruption by the effect it is having on their standard of living and WE CAN do that, because THAT is the right methodology. However, we should never use economic performance to justify corruption as the former is the direct result of the fight against the latter. Joseph Muscat should keep in mind that the perception of corruption is almost as damaging to the economy as corruption itself.

If I m allowed to borrow and tweak a famous phrase from one of the most esteemed past politicians of this country: it is not enough for corruption to be fought it has to be demonstrated that corruption is being fought. Just as the current strong economic performance proves that corruption is diminishing because it would be impossible to obtain otherwise, an increase in corruption (or even the perception that such a thing is happening) would make it impossible to keep the current rate of success no matter how able, competent, and hard-working the people in charge are.

The electorate’s biggest concern for the upcoming general election is “corruption” and rightfully so, because corruption, transparency, and good governance are not just an issue of morality; but matters which will impact our economy, our healthcare system, our energy sector, our road infrastructure, our public accounts, our environment, our education, and basically our quality of life.

The real danger is that we get desensitized towards corruption or even worse we come to associate it with prosperity and economic growth. We cannot choose between prosperity and good governance because if we stop fighting corruption, just as this success came it will vanish.

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