Corruption and Globalisation - Both of them have been so pervasive in recent years. According to a BBC survey, corruption ranked as the second biggest problem people concern in the worldand globalisation ranked first. Are there any links between the ...

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Corruption and Globalisation

Corruption and Globalisation - Both of them have been so pervasive in recent years. According to a BBC survey, corruption ranked as the second biggest problem people concern in the world…and globalisation ranked first. Are there any links between the two? To what extend they are related to each other? And what effect do they have?

1. Introduction

Both globalisation and corruption are the words that have been used frequently in public debates all over the world in the last few years, and they are both complex concept. Globalisation is relatively new while corruption is an old one. Whether there may be any links between the two phenomena? And to what extend they are related? This essay will attempt to explore the relationship between the two from the definitions, causes, consequences and the solutions.

Corruption can be defined as the abuse of public power for private gain. (World Bank, 2004) Corruption is attracting a lot of attention around the world, and is a growing international and regional concern. According to Corruption Around the world (Tanzi, 1998), in its end-of-year editorial on December 31, 1995, The Financial Times characterized 1995 as the year of corruption. The following three years could have earned the same title. The writing of books on corruption has become a growth industry in various countries. Corruption came second on a list of the biggest problems facing the world, the survey of BBC viewers worldwide found. Conflicts - war and terrorism - ranked third, with 50%, followed by hunger, 49%, and climate change with 44%. BBC World asked 1,500 viewers of its news and international channel for the biggest problems in the world with 52% saying the US and globalisation. (BBC NEWS, 2004)

Why is there so much attention nowadays on corruption? Did people ignore corruption in the past? Or is it because there is more corruption than in the past? Some of the main reasons could be:

- As countries trade more with each other, fair trade is expected and unfair business or political practices are being paid more attention.

- The media is reporting much more about corruption cases, especially in emerging market countries, such as China, India.

- Globalisation has brought individuals and companies that from countries with no or little corruption to those countries where corruption is more frequent.

- International organizations such as Transparency International, IMF, and the World Bank are playing growing role in terms of anticorruption actions. The publications regarding the problems of corruption by those organizations have increased the awareness of the costs to the world of this problem.

2. Corruption and Globalisation

Corruption has been around for a very long time. From ancient China to United States, from old Greece to modern Japan, it is hard to find an era in the human history where corruption doesn’t exist. We are now at the time of very intense globalisation. International companies have much greater opportunities to trade and to invest than ever before. Countries are becoming more and more interdependent to each other. Communications are more efficient and information flow quicker. Globalisation can produce benefits, it can also bring risks. For example, the benefits may not be evenly distributed and therefore rich people become richer, poor people become poorer. It has been an increasingly serious question about the means of monitoring and regulating the way international firms conducting their businesses. While multinational corporations operating in emerging market countries, they will sometimes have to make a choice: they can act as good citizens, moral business that contribute to the country’s economic growth and raise business standards in a long-term perspective, as well as help increase the local employment and economic; or, they may only focus on maximization of their profit alone in the short term, but the result may be that they find themselves are the center of media investigation report, or government inspection, even involved by certain international organisations as a result of conducting some of the unethical business practices, corruption could be the most common one.

2.1 Defining Corruption

World Bank defines corruption as the abuse of power for private advantage. International corruption can be defined as following: 

International corruption is the set of all corrupt acts where the agent involved is located in one country and the organisation involved either is located in another country or is an international organisation. Even if the representative of a bribing organisation is local, but the head office is located outside, the bribing is considered to be part of international corruption. (Andvig, 2003)

What are the causes of corruption? It is very hard to pinpoint every cause of corruption. According to Neelankavil (2003), the environmental factors that cause corruption include:

- Lack of a clear distinction between what is considered ‘public’ and what is considered private. This leaves the door open to appropriate public resources for private gains.

- Excessive administrative and discretionary power concentrated among a few. Since these leaders have supreme powers, their actions are never questioned and those who do raise questions are summarily dismissed or severely punished.

- Lack of transparency in the handling of public finances. There are no clear mechanisms of check and balances; as a result it is easy to misuse funds.

- Lack of independent control agencies. Since there is no oversight, corruption goes unabashed.

- Absence of dependable legal machinery for preventing arbitrary application of regulations and laws. When the legal system fails, it becomes a hot bed for corruption, as there are no penalties for misuse of funds and at the same time the ones who loose out do not have any recourse for appeals.

- Weak public institutions. Because there is no free press, many misdeeds go unreported.

- Over regulations. When there are too many requirements to get projects approved, it breeds inefficiencies that are then circumvented through bribing officials.

- Unclear regulations. When laws can be misunderstood or misinterpreted it leads to confusion and a few individuals who can operate in this set up can become targets of bribery.

- Lack of economic development. When a country has not reached its economic potential, many of the common people do not have employment opportunities leading them to resort to corruption or other illegal activities.

- Lack of competition. In countries where many of the industries have just one or two firms competing for markets it creates an informal barrier for other firms to enter. In order to perpetuate this equation, these firms resist others entry and win contracts through illegal means.

- Income inequalities. When just a few members of the population live lavishly leaving the rest to barely manage, it can lead to corruption by necessity.

For international companies, corruption can be caused by several factors. First, market expansion – international companies may want to participate in corruption to assist themselves in their market expansion strategies. By bribing a few officials, these companies are able to establish operations and achieve their goals. If not for these bribes, these companies would not have received the necessary permits to set up operations. Profit maximization – by selecting those countries with potentially a large expanding market with very little competition, some of the international companies choose to bribe officials to enter these markets and reach their profit targets. Supply of resources – by entering some of the countries through corrupt practices, international companies are able to secure a continuous source of resources such as materials, components, etc. Low cost labor – some of the most significant cases of corruption has occurred when international companies have gotten permission to establish operations to tap into the inexpensive and abundant labor that is available in these countries.

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Many companies operating in poor countries assume that corruption is pervasive, and that payoffs are an inevitable fact of doing business there. According to a survey of American business leaders, more than half of the respondents affirmed that they would, under certain circumstances, bribe a foreign official in order to gain a desired contract-an act which is illegal under US law (Obreja, 2002). Their justifications were based on the ideas that business abroad could not be conducted without such bribes and corruption, that cultural differences made American business ethics inapplicable, and that such payments might not be illegal under foreign law. ...

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