Corruption may be distortionary to economic growth

By Mike Ibrahim Okumu

The culture of earning without effort leads to low productivity, more shirking and theft at work

Corruption can be categorised as grand, bureaucratic/petty, and legislative. Grand corruption involves the executive undertaking public policy choices that do not necessarily benefit the general public but rather are in the best interest of the executive.  For example the scandal surrounding the Mukono-Kyetume-Katosi road construction project could be an example of grand corruption. By allocating the project to a briefcase firm Eutaw, meant that the quality of the road project would have been compromised. Bureaucratic corruption involves bureaucrats undertaking public decisions for private gain for instance issuing health and environmental permits where a facility such as a factory might not deserve it in return for a bribe. Legislative corruption involves the parliament undertaking decisions in its own interest as opposed to the good of the public. For example the recent creation of new constituencies might not necessarily improve the performance of the Ugandan parliament but rather increase the cost of public administration.

Whether corruption is grand or bureaucratic or legislative, it does have an impact on economic growth. There have been two strands of debates regarding the impact of corruption on economic growth that corruption: one, that it enhances economic growth and, the other, that it is deleterious to economic growth.

Under conditions of competitive bidding, the most efficient and profitable firm will pay the highest bribe and therefore win a government contract. Under such circumstances corruption is argued not to be deleterious to economic growth. However, where you have briefcase firms like Eutaw winning government infrastructural construction contracts then it is unlikely that corruption would propagate economic growth at least in Uganda.

Where public officials can collude, then a single bribe payment would guarantee the delivery of a public service. Under such circumstances an economy could potentially experience robust economic growth amidst corruption. In Uganda however, bureaucrats behave like independent monopolists implying that when one pays a bribe, he might not be guaranteed the delivery of a public service. For instance payment of a bribe to a tax official in order to evade taxes might not compel another tax official from instructing a firm to fulfil its rightful tax obligation. Such conditions propagate multiple bribe payments for a single public service. Multiple bribe payments compromise firm profits and incentives to invest thereby being deleterious to Uganda’s economic growth potential.

Corruption related inefficiencies in government programs such as “Entadikwa”, National Agriculture Advisory Services and Universal Primary Education among others implies that government efforts to mitigate income inequality and poverty are compromised. No matter how fast an economy grows, high levels of income inequality render the economic growth fragile. While corruption-induced income inequality would have been potentially higher in Uganda, however, the existence of a large informal sector offsets the positive effect of corruption on income inequality.

Uganda as an investment destination is not competitive in attracting investment because of among others infrastructure deficiencies, costly energy and inconsistencies in energy supply, and low purchasing power. Introducing corruption worsens Uganda’s competitiveness as an investment destination compromising its economic growth potential.

Corruption has bred the culture of earning without effort in Uganda. This has meant that there is an increased degree of shirking and theft at work places. Shirking compromises productivity while theft is an additional cost to production. The bottom line is that producers (firms and government) have to invest heavily in monitoring work operations as opposed to production, management, supply chain and product innovations. Aggregately Uganda’s growth potential is compromised.

Overall, Uganda is far much better off without corruption than with corruption. This is because the industrial organisation of corruption in Uganda implies that corruption is deleterious to Uganda’s corruption economic growth potential. Also, Uganda as an investment destination is not competitively attractive as such corruption worsens Uganda’s investment attractiveness hence worsening its economic growth potential.

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Dr. Mike Ibrahim Okumu is a lecturer in the School of Economics at Makerere University in Kampala.