As discussed, corruption weakens  the competitiveness of the company, but on the other hand, similar to a cartel, corruption reduces the free competition and can lead to monopolies and nearly monopolies. Lambsdorff showed in his ’98 study “that exporters from less corrupt countries face disadvantages in import countries with a high corruption level.”[1] This can have three reasons:

  • The company has not the required experience or local connections,
  • The company understands the sustainability concept,
  • The company wants or has to comply with local and global laws, as the FCPA or UKBA.

Even if on the long run corrupt behavior will turn against the company, on a short run this can mean an advantage, as corrupt companies in countries with a high corruption level can us these market limitations to earn higher profits. This makes it clear that cost of corruption are not the sum of the bribery payments, but the development of the region, as clients not get the best quality for their money. This can include basic products, but also affects product safety (including public projects) or healthcare solutions. So it is no surprise that Matthew Murray and Andrew Spalding analyzed, if freedom from official corruption can and / or should be a human right.[2]

The Bertelsmann Stiftung elaborates the “Sustainable Governance Indicators. As part of them, they measure the “Quality of Democracy”, an index, what includes the electoral process, access to information, civil rights & political liberties and rule of law, for the OECD-countries.[3] If we compare this 2014 index against the Transparency International Corruption Perception Index 2014[4], we get a good positive correlation of 0,68.

As this is a statistical relation, it does not determine if corruption lowers the quality of democracy or the other way around. Based on David Cressey’s Fraud Triangle we can assume that it is a vicious circle, as non-efficient bureaucracy provokes bribery and missing transparency inside a company can corrupt the public institutions.

QualityDemocracy

These costs not only affect the citizens of a corrupt country, but people around the world. As for example, a company can use the strong position in a corrupt country to reach higher margins and profits and thanks to this, to acquire their transparent competitors, and limit further competition, not just on a regional market, but also on global level.

Sources

[1] Dreher, Axel / Herzfeld, Thomas (2005): “The Economic Costs of Corruption: A Survey and New Evidence

Henz, Patrick (2016): “Compliance is a Race Car.”

[2] Murray, Matthew / Spalding (2015): “Freedom from Official Corruption as a Human Right”

[3] Sustainable Governance Indicators (2014): “Quality of Democracy”

[4] Transparency International (2014): “Corruption Perception Index”

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