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November 16, 2012

Understanding Corruption

All the passion and outrage which corruption scandals arouse seem to emanate from the view that every act of thieving represents an irretrievable loss of resources as when a burglar sneaks into a house and runs away with the valuables or when a pickpocket takes away the wallet.   On the whole, corruption does not necessarily cause an equivalent harm because a leakage in one variable eventually flows into another.  The loss of a kilometer of road, for example, could be a gain in somebody’s business which employs several people.   The thousands of classrooms that were not built represent a huge loss but the fund diversion resulting from it could have helped prop up a food industry supposing the loot was used to buy foodstuff and groceries.

Because of corruption increasingly getting all of the blame and livid attention for the continuing economic decline, expectedly, cries to eliminate it by all means have grown all too forceful and strident too over time.   Accordingly, laws and regulations were dutifully crafted to make it very difficult, if not impossible, for the usual suspects to commit the crime and hide their loot.   Noble intentions though have a way of engendering unintended consequences.  Layers upon layers of controls and regulations meant to eradicate the menace have as well systematically turned the bureaucracy into a super slow, control-fixated organization that it takes effort of colossal proportions just to get things moving, let alone to produce any significant result at all

Yet with exceedingly stricter laws and extra-vigilant anti-corruption watchdogs on the lookout, is corruption then held in check?    Not so.  It seems that corruption finds remedy by enlarging the booty so that somehow everyone gets a piece of the spoils and nobody remains unsoiled.    For a campaign that relies on whistleblowers, this is a bare naked weakness.  No wonder too that instead of the rate of corruption going down compared with the corruption in much-despised Marcos regime, it was going up instead.

Interesting how will this reflect on our equation.   To escape the law now stricter and harsher than before, the loot must find a more hospitable fort:  foreign banks, outside the reach of authorities.  Logically, because after being subtracted from G, the larger part of the aggregate value exits from the system altogether,  this would reflect in proportionate decrease of the GDP.  Ironically enough, the stricter laws meant to trap the crooks have produced a worse consequence instead.

GDP↓ = C  +  I  +   G↓ + (X-M)


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