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An interesting quote by US author and philosopher Ayn Rand, taken from her masterpiece, the novella “Atlas Shrugged”:

“When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.”

“Atlas Shrugged” plays in a near future post-recession United States, ruled by a kind of socialistic government, including cartels and corruption. Result is further negative development of the country. The two main characters are business leaders of railroad and steel companies and start to fight the system.

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The novella is based on Amy’s philosophy of objectivism and published back in 1957. Besides that the book was controversial discussed by critics, it reached fame and even got movie-adaptions. Nevertheless of its age, “Atlas Shrugged” and the mentioned quote are still alarming actual and relevant.

So why corrupt societies are doomed or in other words, what is the cost of corruption?

  • For a company, corruption (as part of missing legal certainty) is an additional cost factor. The tasks of the employees are not just limited in elaborating the best technical solutions, finding an adequate pricing, but also have to deal with local bureaucracy and connections. These costs are included in the decision making process, in which countries a company wants to expand and invest.
  • “Financial incentives may lure the more talented and better educated to engage in rent seeking rather than in productive work, with adverse consequence for the country’s growth rate.” (Paolo Mauro)
  • Corruption reduces the efficiency of the public sector and money “gets lost on the way”: Due to the missing effectiveness in its processes, the country on the one hand loses the possibility of receiving the totality of the taxes; and on the hand, the costs of public investments increase.
  • With given corrupt structures, a public buyer will look for its best personal benefit (including the possibility of receiving a bribe), which is normally not compatible with the best public benefit. Further consequence: “Corruption may distort the composition of government expenditure. Corruption may tempt government officials to choose government expenditures less on the basis of public welfare than the opportunity they provide for extorting bribes.” (Paolo Mauro)

As quality of infrastructure, education and healthcare are arguments to compete with other countries to receive the needed foreign direct investments, countries with a high corruption level are less attractive for global companies. Less investment means smaller budgets and less competitive products. This fosters the results that budget for infrastructure, education and healthcare is missing. As education does not only mean teaching of knowledge, but also of values, it is difficult for a society to break this cycle.

At the end Ayn Rand’s philosophy and theories as from Paulo Mauro fit perfectly together with actual statistics.

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