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November 13, 2012

Graft and corruption is a tricky beast to engage.   In our experience, the war against this social menace had so far left us literally swimming and steeped in our own river of tears as scandal after scandal squeezed out so much emotion, so much resentment, and indignation, draining out much of our vitality and energy– yet without much success to show.   It must be asked: are we dealing with the beast correctly? Are we being smart or simply being too emo?

I wish to share my own insight if it could help clear the fog clouding the view.  What is the nature of this ogre called corruption, this irregular appropriation of public money, or more graphically,  the thievery of government fund?   The prevalent notion is that pervasive corruption is the foremost reason for the poverty of our nation.   This same notion is the force behind the staunch, even obsessed, assertion that if we could stop corruption, prosperity would follow inevitably, naturally.  Indeed, it is the inspiration for popular slogans like  “kung walang kurap, walang mahirap” , anchoring it seems the entire economic development strategy of the present administration.   To be sure, for much of the years after 1986,  after the downfall of Marcos, in reaction to the perception of excessive corruption of his regime, the anti-corruption theme dominated policy, the result being a bureaucracy saddled with innumerable laws providing layers upon layers of checks and balances seeking to stamp out corruption.  If it is any measure of success, the Philippines is today considered one of the most corrupt countries in the world.

There is a formula widely accepted to measure the progress or regression of an economy.  It is called GDP, and it would help to use it to better sort this out.  If we could examine how graft and corruption affect each variable of the equation measuring an economy’s growth, we might have a better perspective from where to view corruption in the larger scheme.  GDP or Gross Domestic Product is stated in this simple formula:

GDP= C+I+G+ (X-M)

where C, consumption, I-Investment, G-government spending, (X-M)- balance of trade, X-exports, M-imports.

Now, let us see.  How does, say,  a 50% ‘commission’ on government projects reflect on the equation?  Because it is a cut, necessarily it would show up as a proportionate subtraction from Government spending (G).   By a layman’s understanding, this would be seen as a diminution of its aggregate value and thence lost entirely,  in turn reflected as proportionate drop in the sum, GDP.   But is this the case?  Let us take for granted said cut is deposited in the local banks, how would this be reflected?  Because this amount then becomes part of investible fund in the banking system, it should reflect as an increase in the aggregate value of Investment(I).  Thus, corruption in this case does not essentially cause a dissipation of value from the equation but simply facilitates a transfer of aggregate value from one variable to the other.  The sum GDP should stay basically the same.

GDP= C  +  I↑  +   G↓ + (X-M)

Now, let us suppose the cut is used to buy a fleet of car or expensive jewelry,  or food to feed a horde,  or provisions to throw a lavish party, or liquor to distribute to an entire neighborhood, or daily groceries to bring home to the family— how would it reflect on the equation?  Because consumption or purchase of consumer goods show up in aggregate C, this kind of corruption would similarly reflect as a transfer of aggregate value  in this instance from G to C.  Curiously,  as in the first instance, neither would result in a change in the GDP.

GDP= C↑  +  I  +   G↓ + (X-M)


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