Did corruption contribute to the economic crisis?

Elwin Tobing

A number of prescriptions have been proposed by many: establishing a clean government, fixing and recovering financial system, and etc. Although some of the financial sector weaknesses were the result of actions by companies and individuals, they were also products of political processes involving, primarily, the central bank and the ministry of finance. The weaknesses in our financial system were therefore to a large extent also the result of poor governance. This clearly is demonstrated from the recent BCA’s problem.

Right after the crisis, many believed that once a clean and democratic government leads the country, the problem would be easier to be solved. The reason is based on the argument that the political system and the corrupt power were the key sources of the crisis. The collusion and corruption between government and business, which is at the core of our political and economic system, have been considered as the source of evils.

Corruption is of course not a new phenomenon in the country. But did it really a significant contributing factor to the economic crisis and the uncertainty we are now facing? More clearly, is there any empirical support for the notion that political corruption, widely occurs in the country, has undermined the country’s ability to achieve the right path of economic development?    

Understanding the impacts of corruption is as essential as the effort to eradicate it. So far, claims about the impacts of corruption tend to rely upon on intuition rather than proven results/empirical evidences. Consequently, one of the strategies to combat corruption is to begin from the end to the beginning: understanding its impacts.

Political Corruption

What is political corruption? According to Huntington[1] corruption is behavior of public officials which deviates from accepted norms in order to serve private gains. Another definition is given by Nye[2] who states that corruption is behavior which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains.

Both definitions simply state that political corruption is the misuse and abuse of public office for private monetary or power gain. But how such practices affect our economic development? It seems not easy to directly assess its impact. From economic theory, it argues that political corruption creates inefficiency. As it is not really satisfactory, we need a broader perspective since political corruption has various effects, from undermining democratic process to distorting economy. 

Then we can pose questions: how far we would have been - in regards to our economic development and democracy - if we were governed by a clean government? What are the costs we bear due to the corruption practices of the New Order Regime? How political corruption has affected the ability of the political system to deliver the public goods on which economic development depend? As we often heard,  massive corruption practices commonly occur in public projects. But how do they affect our economic development and did they really contribute to the crisis? Those are important research agenda that need to be studied seriously in order to learn more about the effects of political corruption.

It is often said that the bureaucrats do corrupt but the government does not. This is a falsehood claim. State-regulated monopolies (Bulog and Pertamina come to mind), licensing, rationing, regulations, tariffs, and other measures by which the state restricts the free operation of markets, create the so-called rent havens, which can be captured by some combination of well-placed businesspersons and bureaucrats. In order to capture rent havens, market and government actors engage in rent-seeking activities, ranging from the legal (lobbying) to the illegal (bribery). Dennis Muller (1989) calls this as a socially wasteful activity.

Evidence

While political corruption and rent seeking practices might be considered as the cause of the country’s sudden plunge into economically dire straits, very little concrete evidence presented to support this notion. Political corruption is a hidden activity and this is not surprising since categorically it is criminal acts committed by high power and brain. It is supported by complicated and yet smooth networks.  Even after four years of the collapse of the New Order Regime, we have not been able to reveal publicly and significantly any corruption practices. So far, the only significant effort is to put Bob Hasan in to Nusakambangan. This certainly misses the point of ‘war’ against corruption. What we need is a serious effort to entangle the corruption web.

However, the lack of hard evidence makes it difficult to do that. Consequently, it is even harder to explain in detail the impact of corrupt politicians and bureaucrats had on our economy. We do know that a series of individual decisions (and non-decisions) by public officials had disastrous consequences. But we do not know for a fact that these choices were directly driven by corruption. They may just as well have been the result of ignorance or incompetence. We lack material that proves (or disproves) any direct link between individual cases of corruption and economic policy-making. That’s why many people linked to the Freeport, IPTN and other mega projects - which are suspected packed of heavy corruption - can get away easily from such cases.

The lack of empirical evidence of corruption is indeed problematic. In particular, one must guard against the risk that vague references to corruption are used to explain things that are otherwise too hard to explain—such as ignorant or irrational political behavior. As Peter (Political Corruption and Political Geography, 1997) argues that it is never easy to disentangle political corruption from other irregular political processes, chance, incompetence and indolence for example.

The difficulty in obtaining empirical facts presents us another option to combat corruption: preventive approach. We may discuss corruption forever. However, unless there is no enhancement in the state of mind of our people as well as improvement in our judicial system and law enforcement, we will end up spending time uselessly. The origins of corruption are in the people’s mind and the lack of rules and punishment.

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