V. Policy Issues - 1

V. Policy Issues

We now turn to policy issues arising
from our analysis above. We shall in
general avoid paying much attention to
the policy positions taken by the “moralists”
and the “fatalists” on corruption,
even though it is sometimes tempting to
take their side. The “moralists” empha-

size that without fundamental changes
in values and norms of honesty in public
life—a kind of ethic cleansing through
active moral reform campaigns—no big
dent in the corrosive effects of corruption
is likely to be achieved. The “fatalists”
are more cynical, that we have
reached a point of no return in many
developing countries, the corruption is
so pervasive and well entrenched that
for all practical purposes nothing much
can be done about it. Our discussion in
the last section on the history-dependence
of the high-corruption equilibrium
and the forces that tend to perpetuate
it does point to the difficulties
of getting out of the rut, but there exist
some examples of success in controlling
corruption even in the recent history of
developing countries: Robert Klitgaard
(1988) cites several examples, of which
the cases of the Hong Kong Police Department
and the Singapore Customs
and Excise Department are the most
successful, but in some sense the valiant
efforts by one tax commissioner to fight
pervasive corruption in the Bureau of
Internal Revenue and the substantial
impact he made in the 1970s in a hopelessly
corrupt country like the Philippines
under Marcos provide the most
striking case. Without minimizing the
importance of moral exhortations in
anti-corruption campaigns, our focus
here will be on incentive structures that
may induce even opportunists to forego
corrupt practices and the general problems
and prospects of implementing
them.
The first point that is commonly
made, no doubt with a great deal of justification,
is that regulations and bureaucratic
allocation of scarce public resources
breed corruption, and so the
immediate task is to get rid of them. In
some sense the simplest and the most
radical way of eliminating corruption is
to legalize the activity that was formerly
prohibited or controlled. As Klitgaard
(1988) notes, when Hong Kong legalized
off-track betting, police corruption
fell significantly, and as Singapore allowed
more imported products duty
free, corruption in customs went down.
Sometimes, however, turning over a
government agency’s functions to the
market implies essentially a shift from a
public monopoly to a private monopoly,
with a corresponding transfer of the
rent,11 but without much of an improvement
in allocational efficiency (except
that due to a removal of the distortion
caused by secrecy discussed in Section
II).