Sheikhupura Chamber of Commerce & Industry

By Sohail Shahzad

Corruption is one of the most talked about subject these days and is one of the biggest worries of conscientious citizenry all over the world. Though not new, it has spread like an epidemic in recent years and hardly any area of human life has been left unaffected. There are however, people who want to see this curse eliminated but the problems start in finding effective ways to do so. Its not as simple as it looks as it requires unshakable will and a multi-dimensional approach to uproot it. In this crusade, the most obvious approach that is usually conceived is the strengthening of the rule of law. However, as Publius Cornelius Tacitus (AD 56 – AD 117) a senator and a historian of the Roman Empire had said, “in a state where corruption abounds, laws must be very numerous.” Hence, we may have to start by changing the mind sets and improving the social status of the downtrodden and the marginalised living in poverty and exploitation instead of passing toothless laws without will and resources to implement them. While the change of mind sets can be one of the by-products of prosperity, the priority therefore may be given to the uplift of economic conditions with special focus on the lower strata of the society.

Industrial development is one of the ways to ameliorate the economic conditions and pave way for prosperity and consequently help eradicate corruption. Industrial development all over the world has been recognised as one of the driving forces behind economic progress. Starting in the early 18^th century as a consequence of the industrial revolution, industrial development has acted as a vehicle for progress and given entirely new shape to the businesses around the world. However, industrial development has to be sustainable to eradicate the menace of corruption. This it actualises by achieving various social objectives like providing employment opportunities, helping in raising the standard of living, poverty alleviation and improvement in health care and educational facilities. Moreover, industrial development promotes business activity in private sector and corruption which is generally more rampant in public sector gets mowed down due to a lesser emphasis on this sector. More and more people turn to industrial activity and related businesses in private sector for better jobs and related benefits and automatically become part of a more efficient, disciplined and better regulated culture of this sector. This way, the general belief that corruption prevents economic growth can be reversed and used for checking and controlling corruption through economic growth so achieved.

Before applying the theory of eliminating corruption through industrial development, there is a need to understand corruption itself. Transparency International defines corruption as "the abuse of entrusted power for private gain". This may include both financial and non-financial advantages. Corruption may also take many forms that vary in intensity, from a minor use of influence to systematic and institutionalised bribery.

As for the causes of corruption, they are rooted in the political and economic conditions of the countries. Corruption is not confined to any one country or state. This plague is a global phenomenon which has infected virtually every society in the world. However, its occurrence is higher in poor, economically down trodden societies where per capita income is extremely low, unemployment is high and masses are forced to resort to illegal means for earning bread and butter.

The question may however be asked as to how industrial development may help in eradicating corruption from the upper classes of the society as most of the objectives it achieves relate to the middle to lower classes. The answer lies in the capacity of industrial development to bring about technological transformation in the economic growth engine and multiply the production capabilities. This increased output primarily benefits a country’s elite like mill owners, the policy makers in the government or the ordinary rich directly reaping the fruits as consumers. As a matter of fact, industrial development and corruption eradication compliment each other. The case of which came first, the egg or the chicken, may however arise here but this question can easily be decided in the favour of industrial development coming first. The main argument to this claim may well be the fact that poverty is considered a facilitator of corrupt practices but when poverty gets alleviated as an outcome of economic growth, corruption automatically comes under tremendous pressure. However, this economic uplift has to be sustained if its true benefits are to be achieved because only a sustainable development and growth can help narrow the gap between the rich and the poor addressing the wants and needs of the latter in a more pragmatic way. Once these wants and needs are met, corruption meets a down turn.

Efforts are already on to check the rapid rise of this curse and governments, civil societies and various organisations are working towards this cause. The UN Global Compact's[1] “ten principles” in the areas of human rights, labour, environment and anti-corruption are a step in this direction and enjoy universal consensus. They are derived from the International Labour Organization's Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development and the United Nations Convention Against Corruption.

On 24 June 2004, during the UN Global Compact Leaders Summit, it was announced that the UN Global Compact will includes a tenth principle against corruption which was adopted after extensive consultations and supported by all the participants. This over whelming support sent a strong worldwide signal that the private sector shares responsibility for eradicating corruption and most importantly, demonstrated a willingness in the business community to play its part in the fight against corruption. The adoption of the tenth principle has committed the UN Global Compact participants not only to eradicating corruption but also to develop policies and programs to address the menace in the future as well. As a practical step, the UN Global Compact suggested its participants to consider joining forces with the industry peers and with other stakeholders for the eradication of corruption. In other words, a realisation about the importance of economic activity as a measure against corruption has taken place and a movement has been born to mobilise the economic sector against corruption.

Cartier-Bresson[2] has highlighted five economic conditions which encourage corruption in societies. First, the existence of an exploitable natural resource e.g. oil etc providing opportunity to the authorities to embezzle. Secondly, the dearth of public assets vis-à-vis the demand which encourages bribery. Thirdly, low wages in the public sector. Fourthly, high levels of state intervention and planning in the form of state-owned enterprises, price controls and controls on import licenses, etc., very typical of the developing countries. Finally, the problems faced by economies in transition when they undertake privatisation and establish the relevant legal frameworks for companies like contract law, etc. Industrial development tends to address most of these conditions and hits at the underlying causes that create these conditions. With a primary industry[3] at work, the natural resources of a country are effectively brought under check and theirutilisation by the industrial units situated in the secondary industries either prevents or drastically cuts down the opportunities of embezzlement. Similarly, the economic progress that results from industrial development tackles the dearth of public assets through increased tax collections and revenues generated as a result of increased economic activity. Industrial development enhances productivity and demand for the skilled and general labour resulting in increase in wages. Employment opportunities are created and general standard of living of masses is improved. Industrial activity also promotes free market economies where most of the controls exercised by the state come under the purview of market forces weakening the states’ ability to interfere or impose its own plans. And last but not the least, the economies once transformed completely through privatization become more independent and free and can only be controlled by the state through proper legislation or laws which in turn effectively harnesses the menace of corruption.

Through industrial development, a market economy tends to take shape. For this market economy to grow and prosper, certain conditions are to be introduced which are considered essential for the entire industrial activity irrespective of the size and magnitude of the industrial units operating within that activity. With the stakes of the members of the upper classes involved, they will themselves make sure that those conditions are in place. These conditions include establishment of an independent and fair judiciary, frameworks of laws to enforce contracts, define and implement property rights, impose accountability, create efficient administration and an efficient tax collection system. In other words, for industrial development to succeed, institutions will have to be strong and efficient. Thus, industrial development will become a manifestation of corruption eradication with its stake holders constantly busy to strengthen and reform the institutions and their functions for a sustainable industrial development.

Industry owners can be very effective towards forcing the governments for market reforms which facilitate their own operations as well. As these market reforms help impose discipline, industrialists become the key players in the establishment of measures that combat corruption by demanding that governments enforce the anti-corruption laws. They can also play a role in pin pointing the corrupt practices to the government, the media, and the public. They can also act as watchdogs on the government by monitoring.

Societies desirous of getting rid of corruption have to ensure sound economic governance which inculcates discipline, eliminates corrupt practices and enhances macro-economic stability. It is no secret that corruption is bad for businesses and industrial activity but it is also evident that we can make businesses bad for corruption. The faster the market reforms take place by levelling the playing field for fair and transparent practices.

Industry and businesses, if join hands together, can establish norms and ethics and set good examples for the society as a whole. Industrial development will certainly not be the ultimate solution against corruption but will certainly go a long way in addressing the issue in the long run. It will atleast help in alleviating poverty and hunger from the under developed societies and will tremendously help eradicate corruption as a by-product.

About the Author

Sohail Shahzad is an ex Pakistan Army officer and a free lance Broadcast Journalist. He has done Masters in International Relations and is a LUMS Alumni.

[1] www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html

[2] Corruption and Economic Development: An article by Stephen J. H. Dearden.
Manchester Metropolitan University, Department of Economics (http://e-space.mmu.ac.uk/e-space/bitstream/2173/1870/2/Dearden%2018.pdf)

[3] Three-sector hypothesis: (http://en.wikipedia.org/wiki/Three-sector_hypothesis)