Ismail Lagardien: Huge cost of corruption

There really is very little new to add to everything that has been said about the latest allegations of corruption within the state-party nexus in cahoots with friends in the private sector.

We wait now as more information is released and for the next shoe to drop.

One point that may be stressed again – I always say this slowly and cautiously, so there is no misunderstanding – is that the problem is not corruption, itself, but the permissibility of corruption.

If the permissibility of corruption is stamped out, we may start to address the scourge itself.

What has become evident in South Africa is that the permissibility of corruption has become cultural and it can lead to economic failure. Sit down at the back! This reference to culture has nothing to do with notions of race, admixture or genetics, nor with perceptions of ethnicity, or geographic specificity.

It has to do, simply, with what is considered to be acceptable conduct, norms, customs and practices.

With particular reference to crime and corruption, I draw on evidence from southern Italy – a place very close to my heart – and Russia.

By some accounts, organised criminal groups have grown alongside states, and often depend on existing institutional and financial structures to move their products and illicit gains.

Money-laundering tends to happen through legitimate financial institutions.

This is as true in Asia, Latin America, Europe, Africa and in the United States.

Almost invariably, criminal groups survive, precisely, because they often are of service to the state on the basis of collusive relations with state institutions and ruling elites.

The prevalence of organised crime in the public sector spreads when state employees are loyal to a ruling party (or a criminal syndicate) and less to a professional ethic of public service.

For purposes of clarity, corruption here refers to the abuse of public power for private gain.

A couple of years ago, before state capture, institutional capture, brazen political reshuffling and the meaning of family business all blended into (yet another) toxic gruel, I wrote, elsewhere, about the way that criminal activities had hollowed out the core of government in southern Italy.

Although I never wrote about it, specifically, there are also masses of evidence from post-Cold War Russia, where the rise of the Russian Mafia has transformed itself from the saprophytes who lived off the decomposing Soviet state into a veritable political economic force.

In 2014, Forbes magazine estimated the wealth of the largest organised crime group in Russia, Solntsevskaya Bratva, at around US$8.5-billion (now R109.4-billion). By one estimate, the ‘Ndrangheta, southern Italy’s most notorious organised crime group, was estimated to have made an astonishing ß53-billion (now R765-billion) in revenue during 2013.

At the time, this amounted to more than the combined revenues of McDonald’s and Deutsche Bank, or the equivalent of 3.5% of Italy’s gross domestic product (GDP).

There are pronounced similarities between the cultures of permissibility and the tolerance of unethical behaviour, or what economists described as rent-seeking.

What usually emerges under such conditions is an extortion-protection trap, when a criminal organisation (or a family) is capable of providing largesse and protection because it has leverage over state officials, or at the extremes, because it poses a credible threat of illegal violence.

Without much effort we can make the connection between the ruling elite tying its own future to that of the country.

In other words the ruling party will take the country down with it.

As we wait, then, for the next tranche of allegations, with communities and societies drained, exasperated and at the end of their wits, extortion and protection rackets may start to undermine legal business and community activities.

Criminal groups tied to public officials set levels of permissibility that distort market initiatives and activities, and encourage rent-seeking.

Entrepreneurs see, for instance, that there is a quick buck to be made from doing business with the state, and see no the need for innovation, creating new markets or establishing ethical and transparent business practices.

When this happens, all of it, money-laundering expands alongside shadow economies.

Racketeering and grand corruption breach the walls of government, and extortion is accepted as part of the cost of doing business, of creating co-operatives and of more equal access to food security, housing and education – among very many other things.

Altogether this places a drag and adds excessive costs on economic exchange.

It reduces competitiveness, lowers incentives for investment, and adds to the spiral of poverty, unemployment, inequality and precarity, in general.

It also sets dangerous examples that are emulated across society and provide disincentives to people battling to get an education (for example).

If wealth can be accumulated so easily by people who can barely string together a coherent sentence – never mind that their wealth is acquired unethically – why should anyone work hard at school, or at anything else, for that matter.

This, I would suggest, is how corruption and unethical behaviour becomes permissible.

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