The acceptance, or the demand, or the giving, or the offering of bribes in Cambodia,
is illegal. A reminder made recently by the new commissioner of police. Was he signaling
a new morality in the administration? A far cry from 21 Dec. 1991, when Phnom Penh
saw its first violent public demonstration against official corruption in over two
decades. For several days students took to the streets of the city to protest the
more venal operations of certain State of Cambodia ministers who were selling off
public property for personal gain. The then Transport and Communications Minister
and deputies were dismissed from their posts before the military "restored order".
Since then, there has been no comparable outburst. But the issues the students demonstrated
against, continue apace.
Given that history, whether ancient or modern, shows no country to have ever been
immune from corruption, one may well ask: "how serious is corruption, is it
only a question of degree?" Indeed, "is it a fact of life?" More importantly,
"in the hierarchy of problems faced by Cambodia, does it really matter?"
Senior Cambodian officials acknowledge that there is corruption but reasonably insist
that it is minor compared to the rampant 1970-75 Lon Nol period. Given the lack of
any estimates as to the true cost of corruption in Cambodia and the fact that none
of the major studies of the country prepared by international bodies have considered
it necessary to broach the issue, is it worth expending time and effort on the subject?
Most people would answer with an emphatic YES; for them, the issue has strong moral
overtones. The word's usage shows this. In everyday language, corruption denotes
the perversion of something from its original state or the spoiling of anything considered
sacred or worthwhile for personal gain at the cost of social benefit. On a personal
level, the word is used to refer to deterioration in the moral fiber or "backbone"
of someone we trusted.
A second sense of the word, more germane to the argument, will be developed here.
Induce to act dishonestly, or make venal through bribes for personal gain, while
moralistic in tone, has the virtue of bringing in money; the meat and drink of economics.
This is a highly useful point of departure. Wherever there is a culture clash, as
there is inevitably in a developing country when Western interests become involved,
staking out the moral high ground often fails to have the desired effect on government
ministers. And, of course, it rarely cuts any ice with the offenders. Nevertheless,
if the West really wants something concrete to be done about an age-old phenomenon,
then it will have to present it in terms of practicalities. This article suggests
another way of looking at corruption. A way that is non-moralistic, concerned only
with laying bare the bones of the problem as an aid to possible prevention. A way
based on economic insights.
As a starting point, take the two examples cited at the beginning. For an economist,
their connection is clear: the implicit conflict between public and private interest.
For the conflict between public cost and private gain to flourish, two things are
necessary. First, market forces must be denied free reign in the allocation and distribution
of resources. This happens when the prime function of the market has been replaced,
whether totally or partially, by the uncertainly of bureaucratic decisions.
The second essential ingredient follows. Whenever the state's officials exercise
a wide degree of discretion in the performance of their duties, coupled with a low
or ineffective level of public accountability, the problem is compounded. Only if
the effects spreading there from are truly widespread, pervading the whole of society
and thus undermining economic growth on a systematic basis, can the problem be said
to have a moral dimension of general rather than individual application.
Luckily, this latter consideration does not apply to Cambodia; it could well do so
if oil were to be discovered.
To begin with, one needs to realize that corruption cannot be totally erased; it
can only be contained. This harsh statement derives from economic analysis. The optimal
level of corruption is not zero!
Corruption has a social cost. Clearing up corruption is a social benefit that always
incurs an economic cost. Arriving at a state of nil corruption will prove prohibitively
expensive. Costs to society must thus balance in terms of benefits. Logically speaking,
there will always be a point at which the further eradication of corruption will
outweigh the benefits; keeping costs down, especially when a government has a cash
flow problem, inevitably means there will always be a break-even level of corruption.
The policy lesson to be drawn is clear. Go for the main culprit, the public sector.
Concentrating to the maximum on the public sector, often disproportionately large
and powerful in developing countries, is the most cost effective way of reducing
the harmful effects official corruption has on the average citizen and private business.
In targeting this area, other economic insights are helpful to policy formulation.
"Trade-offs", "transaction costs", "rent-seeking" and
"market-clearing prices", are all concepts of particular use. To take them
"Trade-offs" are a particularly useful tool for understanding what happens
at the public sector level. Basically, there are two entities involved. On the one
hand, government policy and those responsible for managing it. On the other, all
the lower echelon personnel charged with carrying it out vis-a-vis the general public.
Here, economic analysis shows that the person interfacing with the public will be
strictly honest only if the disadvantages of not doing so really outweigh the immediate
advantages of using the position for private gain. Thus, in all areas where officials
are in regular contact with the public at large, government policy should be directed
at enhancing the benefits of doing a proper job relative to stiff penalties for corrupt
If the penalty for getting caught acting dishonestly can be discounted, if there
is no incentive to performing well, then the civil servant's corruption/anti-corruption
ratio will always point one way.
Seeing bribes in the form of "Transaction costs" is another approach to
showing the inefficiency of corruption. Strictly speaking, bribes can be seen as
an additional cost to be paid for facilitating business operations when the market
is not operating properly. When a market is inefficient, uncertain, and where ignorance
of the degree of required palm-greasing is high, goods and services are not allocated
according to the free play of market forces. In such cases, bribes are simply a way
of oiling the cogs, for speeding up a slack or arbitrary decision-making process.
The net result, in such circumstances, may well be the efficient (in the circumstances)
short-run provision of scarce goods and services. But this only applies because the
market itself has not been allowed to operate properly in the re-ordering of priorities.
Overall, the effect of unpredictable bribery levels imposes additional costs on the
private sector which, in turn, deters business expansion and maximization. More seriously,
it effectively discourages foreign long-term investors who will end up choosing other
country localities with no or low level hassle and economic uncertainty.
Again, the policy remedy in Cambodia is to continue to make the market more efficient.
To be effective this must be reinforced by ensuring strict guidelines for any decisions
affecting areas sensitive to public well-being in the widest sense of the term. In
other words, it is more cost effective to focus on potential areas of bribery in
government departments dealing in matters of health and environmental standards,
safety regulations and permits of all kinds, than to make the sale of such things
as car licenses or entrance tickets to sports performances, bribery and corruption
"Rent-seeking" has similarities but it is more pernicious. The term is
associated with monopolies. Monopolies can arise from natural or man-made reasons.
In both situations, the monopoly owner can charge a higher price (ie "an economic
rent") than otherwise would be the case. It is the latter, man-made public monopoly,
with its built in penchant for artificial price premier, that is important for the
public corruption argument.
Thus, whenever the government takes upon itself the role of sole dispenser to the
public of authorizations or permits to do something of whatever kind, it creates
potential rent-seeking opportunities. Allowing this to happen on any wide scale is
doubly inefficient, economically speaking. First, private individuals are forced
to pay more than necessary; akin to a type of extra tax on disposable income; a sum,
moreover, which does not end up in treasury coffers. It can also create a situation
in which senior civil servant's energies are turned more in pursuit of such lucrative
opportunities to the general detriment of initiatives directed towards the public
Again a combination of remedial approaches can be suggested. Corruption seems to
be dependent-in administrative matters-on the ability to create barriers and alternative
high cost charges if the "easy route" is not taken. An initial assessment
should thus be made as to the rationale of needing so many permits. Next, where a
service can be privatized, the possibility of so-doing should be given strong consideration.
While a "paid for service" by an implementing agent is no guarantee that
it will be corruption free, it can certainly be monitored more effectively by a government
department without an ostensible axe to grind.
The final analytical tool is the "market-clearing price". A useful instrument
for assessing the most likely areas and the possible extent of corruption. Essentially,
market-clearing prices are the prices that reflect the correct match of supply and
demand in a competitive market. If additional premiums have to paid before transaction-satisfaction
is attained, this is prima facie evidence that the market is not being allowed to
function efficiently. Such instances can then be pin-pointed and investigated for
remedial action. To be beneficial, such action must always by proportionate to the
inefficiency costs caused thereby.
In Cambodia, excluding the wide-spread "toll system" operated on highways
outside Phnom Penh and the highly organized triangular contraband trade in cars,
motorcycles and consumer durables, corruption sectors can be conveniently divided
into two. Those that arose in the pre-election period when factions took advantage
of the disruption and strains to the social fabric stemming from the shift to a market
economy in an environment where there was no accepted government. And those that
are generally endemic to public sectors in developing countries.
In the first group, the blatant areas of corruption were: the sale of state assets,
uncontrolled exports of natural resources, and the deliberate relaxation of tax and
customs controls to influence voting intentions. Most visible, and provoking the
unprecedented public outcry 21 months ago, was the pre-election sell-off or transfer
of state assets. A strategy adopted by the then asset-rich-but-cash-poor administration
to raise funds for their electoral campaign war-chest by selling government property
at artificial prices to individuals for party gain. Tactics adopted by other factions
but with less to sell, were less successful. The SNC decision 10 June, 1993, through
UNTAC, to place a moratorium on the sale, transfer, or leasing of all public assets
in the country, has put a stop to this.
However, its aftermath will see an important number of land titles of dubious legality
and, consequent party friction, once the new government instigates a full inventory
and investigates the way existing procedures were deliberately circumvented.
Finally, the pre-election period saw the SOC going slow on revenue collection. Customs
controls were deliberately relaxed. Duties were not collected, underestimated, or
unrecorded. Similarly, taxation demands were put on hold, declared sales turnover
figures were not checked up on, or left in abeyance. This was done on purpose to
buy the goodwill of the business community. While combined revenue losses were severe,
the first and last example may be seen more as one-off affairs for election-financing
purposes, than systemic corruption concerns for the future.
However, despite the interim government's renewal of the logging ban, uncontrolled
exports remain the biggest long-term threat.
Traditional areas, in the second group, together with some examples of corruption
possibilities include: Taxation (with visual assessment of business for turnover
and profits tax purposes; collusion to reduce tax liabilities); Customs and Excise
(import levies understated, sharing proceeds from placing in a lower duty category;
"unrecorded" items); Passport and exit visas (kick-backs and "speed-up-the-process"
money which, until UNTAC began its over sight, reached a high of U.S. $ 3,000 for
a passport). In addition, hotel taxes and house rental income taxes were either falsified
or, as there were no penalties, not paid. This was true for Phnom Penh as well as
Finally, and not only scandalous, but with the widest impact of all on the general
population are the payments extorted for education and medical treatment. Examples
abound. Patients pay to be treated in "free" hospitals while freely donated
medicaments are siphoned off ending up in local pharmacies. Students pay first for
pre-copies of exam papers, then extra for a guaranteed pass. Only the well-to-do
can be totally sure of being one of the quota intake of eventual success in such
university faculties as medicine, law, modern languages, etc.
In all these areas probably more is paid privately to teaching and medical personnel
than would be charged if the government set, collected, and honestly administered
fees. Thus the second target should be the civil service. Here, there is a simple
rule of thumb: after the trade-off equation through changing existing rewards and
penalties. While means must be found to restore the purchasing power of civil service
and military salaries, corruption is more likely to be reduced by focusing on a narrow
range of items. Such as salary incentives, regular performance evaluation and promotion
based on merit and honesty, selective audit investigations, transferring those caught
abusing their position, and upgrading public accountability by allowing the public
to complain openly.
Concentrating only on cutting down numbers and raising salary levels overall, will
not do the trick.
Finally, consideration must be given to the overall climate that allows corruption
to flourish. Corruption reflects the ability (through non-economic means) to restrict
supply and extort economic rent. Action to solve the problem must therefore involve
administrative action (reform and control), transparency (free availability of information)
as well as proceeding with more liberalizing economic measures. So doing, and publicizing
the fact will have an immediate positive spin-off on the expectations of ordinary
Cambodians. The moral issue, which arises because power is vested in a few to exploit
restrictive of compulsory situations that in some sense, are artificially created,
will thus be handled indirectly.
Corruption will never be eradicated; economic analysis shows such a pipe dream would,
in any case, cost far more than the optimum solution. What needs to be reduced is
the wastage of Cambodia's scarce economic resources. The interim coalition government
has made a beginning. But far more needs to be done. However, with an unsustainable
revenue position (official receipts during the first quarter of 1993 were only 66
percent of budget estimates) and a pathetic tax take, far more needs to be done.
This article contends that such a desirable goal is more likely to be reached by
emphasizing the costs of economic inefficiency to ministers-to-be in the new government,
than by any amount of yammering on about moral injustice!