What Are the Costs of Corruption?

What Are the Costs of Corruption?

There are many economic and social costs associated with corruption, not to mention
links to criminal operations and violence. On the financial front, the World Bank has
attempted to attach a monetary figure to the extent of bribery (which does not include the
embezzlement of public funds or the theft of public assets). Based on worldwide
economic data compiled in 2001-2002, the World Bank estimated that the amount of
money paid in bribes globally was some $1 trillion.3
In part because of how it affects access to public services, corruption particularly
impacts the poor. “Corruption is costing the developing world billions of dollars every
year,” indicates the UN Development Program. “It siphons off scarce resources and
diminishes a country’s prospects for development. In a country where corruption is
endemic, the consequences are disproportionately borne by the poor who have no
resources to compete with those able and willing to pay bribes. In the end, corruption
tightens the shackles of poverty on countries that can least afford it, on societies that
need every dollar to pay for important social and economic programs.”4 Economic
development is difficult in countries where corruption undermines the development of fair
market structures and distorts
competition. And, corruption
often leads to the diversion of
scarce public resources to
uneconomic high-profile
projects, such as big office
complexes and shopping
centers, to the exclusion of
necessary infrastructure projects
such as schools, hospitals,
water treatment plants, and
roads. Ultimately, corruption
benefits the “haves” at the
expense of the “have-nots,”
which can lead to growing
economic and social
inequalities.

Another societal cost is that
corruption is linked to the
development of organized crime,
including the involvement of
criminal syndicates in money
laundering and trafficking in
people and drugs. In Colombia,
for example, narcotics trafficking
is the source of much of the
country’s corruption at high
levels. Alliances exist between
politicians and the illegal armed
groups that make money off of a
lucrative trade in cocaine, and

want to see their business continue. A booming cocaine trade is also breeding corruption
in West Africa, particularly in places like Guinea-Bissau which, notes the UN, “is saddled
with high-level corruption and a near-total absence of the rule of law, allowing cocaine
gangs to operate with impunity.”5 In other words, criminals involved in drug trafficking
are bribing public authorities so that they can operate without interference.
Finally, corruption has links to conflict. Although corruption is not likely to be the only
factor responsible for the destabilization of a country, it can have a major impact on
undermining the government—and public confidence in governing institutions—which, in
turn, can become a driver of conflict. The links between corruption, governance, and
conflict are complex and interrelated, and they are a reality in many countries. For
example, in the Caucasus, corruption and conflict are intertwined in the states and
breakaway regions. Corrupt rulers, powerful and contending clans, and networks of
elites who have a shared stake in corruption in states such as Georgia, Armenia, and
Azerbaijan have used “state power to intrude into the economy with impunity” and
created “violence and protection” markets.6 As a result, governing institutions are weak
and there is a pervasive insecurity. While nationalism and ethnic loyalties have also
played a part in conflicts in the Caucasus, links to corruption are intertwined with these
and have contributed to the region’s instability. Charges of widespread corruption were
at the heart of the public demonstrations that led to the overthrow of Kyrgyzstan’s
President Kurmanbek Bakiyev in March 2010.