THE latest report from Transparency International on corruption perception index 2009 (CPI) and the disembodiment of NRO warrants a brief discussion about corruption in Pakistan. The word corruption is used to mean different things in different countries but interaction of power and wealth remains as the core issue. In most cases, it refers to use of public office for private gain, engaging in under-handed private enrichment.

A typical example is where members of the ruling elite at the top siphon off legitimate income to personal accounts through commissions, bribes and shares, etc. usually held abroad. This would deprive the state not only of the legitimate revenue but also would serve as a capital export, a drain on balance of payments.

The above definition can be extended to explain interaction of power and wealth at various levels of the society, especially, bureaucracy and the business sector. Economists expound this kind of corruption by referring to rent-seeking pursuits created by market imperfections.

Whether it is what may be called undeserved personal gains derived by bureaucrats and businessmen or the state treasury manipulated by the ruling class at the top, the consciousness of individuals about corruption is the product of evolution of democracy in modern times.

In the old days, the kings and absolute rulers, or the dictators, would pass on to their subjects what they considered was necessary to do and hold on to what they deemed as their right to enjoy. The power and perks would be showered by them at their discretion. These rulers directly exercised their responsibility for what social values to chose. In today’s world there are prototypes that would fit this description, but are developmental with pseudo- patrimonial political economy.

China with its ‘one country, two systems’ deserves a separate discussion.

With the rise of democracy, the awareness of the individual about the question of responsibility of public office as a service for the general good has been taking hold among the people at large. This point gives us a clue to the perceived or real causes and consequences, as well as remedies to control corruption. In other words, there is a direct relation between the system of government based on rule of law and the effectiveness of governance. When the government in power is weak and/or corrupt, not much can be expected from it, notwithstanding all the paraphernalia of accountability established by it.

This scenario would present a challenging situation. Would a vigorous focus on corruption, for example, cause political instability and open the door to undemocratic rule which may be lurking in the trenches? This question has been raised with regard to the current situation facing Pakistan. My argument would be that this contention is based on a totally false paradigm. Tolerance of corruption at high places is not an option; the need is to improve governance, by strengthening parliament, the executive and the judiciary. Those who choose to become rulers in a democracy, for them it is a matter of image of integrity and of impeccable reputation. We need to pursue this question a step further.

If we examine the relevant data, we notice that the developed countries enjoy lower CPI and higher GDP. Similarly for the least developed countries the reverse is the case. The countries in the middle, however, present a mixed picture. It would be hasty to suggest from these observations that corruption might play a positive role in promoting economic growth. And some observers do use examples of East Asian countries to support this connection. The situation is more complex than that, however.

When Park Chung-Hee took over the government in South Korea in 1961, for example, he embarked upon a comprehensive plan to promote economic growth in the country, mixing state capitalism with free enterprise, i.e., private conglomerates, chaebols, and public corporations, supplemented by export policy for labour-intensive goods. There were reports about corruption lubricating relations between public and private enterprises but the evidence remained sketchy.

The main point, however, is that corruption in South Korea could not have been more than a temporary phenomenon. There were other factors which served as effective checks and balances such as strong judiciary, an active parliament, and president directly elected by the people and sensitive to public opinion and one of the most literate populations in the world. There is an irony in this story that in 1961 South Korea was lagging behind Pakistan in economic growth and its economists were using Pakistan as a model for their country.

But similarity with Pakistan is sadly mistaken, with literacy rate one of the lowest in Asia, and with corruption a way of life for sixty years of the country’s existence, since the days of Malik Ghulam Mohammad, the first finance minister of the country turned Governor General by miracle of musical chairs played by the ruling elite including himself. (‘I will not resign; they will have to carry my dead body.’ And that is how his era came to an end).

The fact is that corruption would affect efficiency in the economy, as the ‘cost’ of transactions would increase. The tax-GDP ratio would remain low as bribes would tend to eat up legitimate revenues. The rules and regulations imposed by a weak government would increase opportunities for rent-seeking. ‘Speed money’ would be used to create further delays in moving files, instead of expediting them, as pointed out by Gunnar Myrdal (Asian Drama).

As for the effects of corruption on economic growth, no studies are available with respect to Pakistan. The data for some other countries indicate that there is a relation between real GDP per capita and CPI, similar to the general ranking as mentioned above. It is negative; countries with lower per capita income tend to have higher corruption. Similarly, corruption seems to have a significant negative impact on the ratio of investment to GDP. And it has also been suggested that corruption has negative impact on the flow of direct foreign investment. (Information drawn from various IMF Working Papers).

What can be done to improve governance in the country? I would briefly outline my response to this question by broadly following a model adapted from the work of Susan Rose-Ackerman of Yale University. Corruption depends on organisation of both electoral and legislative powers and the extent to which wealthy seek benefits from the political system. Democratically elected leaders of political parties would tend to be sensitive to grass roots opinions; president with defined powers directly elected by the people would act within the limits of his mandate; independent judiciary would interpret the law and protect the constitution; the electoral reforms would promote democracy and increase checks and balances on excessive use of powers and on deviations from the criteria of integrity required of the elected officials; and the standards set by the political elite would also establish a framework for bureaucracy, for the military, and for the policemen.

There is no guarantee that democratic reforms can completely solve the problem of corruption. The electoral system, for example, can be vulnerable to special interest groups. But the experience of other countries tells us that corruption can be effectively controlled. The PPP alliance government under President Zardari, therefore, faces a serious challenge. It has to be concerned about its image which is marred by the fact that a majority of senior members of government have been the direct beneficiaries of the NRO, including himself. And he has been very reluctant to re-establish the 1973 constitution and to accelerate the pace of democratic transition.

One cannot but notice the incongruity of the situation that the ‘pro-West’ Zardari government is under siege from the opposition and is lacking in moral standing to cope with challenges facing Pakistan. But then the imperial nations play the game about corruption by different rules at home than abroad: promote NRO if it fulfils their foreign policy objectives.