Examples of TNC organisations are such as Microsoft, Toyota and Samsung. These TNCs started off as small organisations within their own domestic countries and have been very successful domestically. Once they dominated their domestic markets, market share was no longer sufficient to satisfy their growing desire for increase market share and profits. This resulted in them moving their businesses into foreign markets and expanded their business scope globally, which began with exports and then FDI as they could exploit differences in costs in those countries. We can now see that these TNCs exist not only in a few countries but some even have developed to numerous countries and markets. These transnational corporations are deemed as companies that have supremacy to coordinate and control operations in more than one country, even if it does not own them (Dicken, 2007). According to BBC, TNCs are massive firms that conduct their businesses in several countries and some are wealthier compared to less developed countries. (http://news.bbc.co.uk/cbbcnews/hi/find_out/guides/world/trade/newsid_3099000/3099680.stm)
There is an ongoing debate on the issue of whether TNCs are actually that powerful to be considered footloose. Footloose is defined as mobility of companies moving in and out of countries if they find it attractive in terms of market or resources opportunities. Market opportunities are such as consumers, governments’ regulations, number of competitors, etc. Resource opportunities on the other hand, are like labour costs, raw materials availability and technology accessibility. In this task, a detailed assessment on TNCs and their operations will be done to help determine the fact on whether TNCs are footloose or not.
Findings TNCs are Footloose Profits
The Impact Of Corruption On Economic Development Economics Essay
The post Cold War, globalized era of the 1990’s saw a renewed interest in corruption and its impact. Corruption, a previously neglected issue, became one of the greatest preoccupations of Western powers trying to bring stability and prosperity to global markets. But is the pursuit of an anti-corruption agenda really conducive to development? Corruption has always existed, in all societies and at all stages of development. The dominant discourse suggests that systemic corruption is a major impediment to sustainable economic development yet despite extensive normative discussion on the merits of the absence of corruption, little academic discussion based on empirical evidence demonstrates the validity of this argument.
This paper seeks to establish the relationship between corruption and development. The focus of this discussion will be the South East Asian newly industrialised countries (NICs). NICs are countries exhibiting considerable industrialisation having switched from agriculture to industrial production. South East Asian economies, including South Korea, Taiwan, Hong Kong and Singapore, achieved exponential growth from the 1960’s to the late 1990’s when the Asian financial crisis took effect. The transformation from poverty to affluence was widely heralded as the success of capitalism over communism and a demonstration of the success of liberal, free market principles. However, while the governments were ostensibly laissez-faire, in practice they were quite active in their economies. It is within this context that the study of corruption in NICs is so fascinating. Despite bureaucracy within the market and widespread corruption, remarkable economic development prevailed. What remains unclear is to whether this was because of or in spite of corruption. Can some corrupt activities actually be beneficial to rapid development?
In only focussing on economic development, just one facet of the multi-faceted issue of development, is addressed. The reason for this focus is for reasons of brevity and that unlike aspects such as political or social development for which improvements or otherwise is harder to prove, economic development is more quantifiable. A holistic approach to development may yield different results and whilst recognising the importance of political and social aspects, economic development yields the clearest indicators for development. Hereafter economic development is shortened to, ‘development’ although this is not meant as an all encompassing term to describe all aspects of development.
Beginning with an analysis of the academic perspectives on corruption, this paper investigates South East Asian NICs to establish the impact of corruption on economic development. These countries have been chosen as they have to a great extent completed the industrialisation process and thus the impact of corruption is more readily and clearly identifiable. Extensive reports of corruption in these countries make them well suited to investigation. I argue that corruption acts as a brake to development and that in the absence of corruption, even greater and sustained levels of development can occur. Additionally, I argue that all corruption is inimical to the process of sustainable development and suggest the Asian Financial Crisis is proof of this.
Perspectives on Corruption It is prudent to establish what we understand by the term ‘corruption’. There are various definitions and understandings as to what exactly constitutes corruption. The definition most frequently used by social scientists is Nye’s, that corruption is: “â€¦behaviour which deviates from the normal duties of a public role because of private-regarding (family, close private clique), pecuniary or status gains; or violates rules against the exercise of certain types of private-regarding influence. This includes such behaviour as bribery (use of rewards to pervert the judgment of a person in a position of trust); nepotism (bestowal of patronage by reason of ascriptive relationship rather than merit); and misappropriation (illegal appropriation of public resources for private-regarding uses)” This can be simplified to a general definition that will be used for the purposes of this paper: the abuse of public office for private gain.
Although defining corruption in this way is convenient, it should not be considered a rigid framework for ruling what should or should not be considered corrupt. Different nations and cultures have differing conceptions of corruption; legally, in terms of public interest, and in public opinion. Furthermore, certain ‘corrupt’ exchanges such as clientelism and gift giving may be engrained within the culture of the society and so are not considered by those involved, to be corrupt. As Gardiner notes, “There are nations where official corruption has been widespread for many years with no visible signs of public outrage.” The reason for this may be, as the analysis on the benefits of corruption reveals, there are instances when ‘corrupt’ activities seem to be beneficial to development.
Perspectives on the costs and benefits of corruption can divided into those that perceive the benefits of corruption to be positive for development, and those that regard it as inimical to the development. Although among recent literature there is consensus that Leff’s arguments lauding the benefits are flawed, an understanding of his rationale in asserting that corruption can be beneficial to development is valuable if only to juxtapose against opposing arguments.
Corruption and Development Influencing Government Leff argues that corruption is an extralegal institution used by interest groups to gain influence over the actions of the bureaucracy to an extent that would not otherwise be possible. This he suggests can be beneficial to development if business groups that would otherwise be at a disadvantage in articulating their interests to the government get an opportunity to do so. If these groups are more likely to promote growth than the government, an enhanced position in policy making could, he suggests, be beneficial to development. He outlines instances where this may be the case; “â€¦the government and bureaucracy may simply be indifferent to the desires of entrepreneurs wanting to initiate or carry on economic activities.” The reasons for this may be the government’s dislike for a competing centre of power or that they do not attribute much value to economic activity. Leff also suggests that governments may have other priorities rather than the pursuit of economic development such as the consolidation of armed forces. These are priorities which can impede development. He suggests bribery can activate the bureaucracy to get things done which otherwise would not take place; “â€¦it can induce the government to take a more favourable view of activities that would further economic growthâ€¦ [and] provide the direct incentive to mobilize bureaucracy for more energetic action on behalf of entrepreneurs.” If this were true, and operated under a perfect competition model then there may be benefits to development.
Mauro disputes these claims, noting how in this corrupt system, the sale of government contracts or policy through bribery means that the highest bidder always wins: “The allocation of public procurement contracts through a corrupt system may lead to a lower quality of public infrastructure and services.” Rather than choosing contractors by merit and the best potential outcome, corrupt bureaucrats could harm development by awarding contracts which result in substandard outcomes. In this instance the impact of corruption is a clear failure to achieve government objectives; instead producing inefficiency and waste. With bureaucrats being ‘buyable’, they are most likely to seek out the highest rent-seeking opportunities; “Corrupt government officials may be more likely to choose to undertake types of government expenditure that allow them to collect bribes and to maintain them a secret.” Rather than seeking projects which would genuinely contribute to development, bureaucrats will look to find large projects where money can easily be siphoned off.
If corruption takes the form of a kickback, the total amount available for public purposes is reduced. Corruption is sometimes compared in this way to a tax on investments and business. However, Shleifer and Vishny note that because of the need to maintain secrecy, corruption causes a greater distortion in economic activity than taxation. For example, dishonest government officials may favour promoting government activities, where bribery is most easily concealed. They suggest; “â€¦the demands of secrecy can shift a country’s investments away from the highest value projects, such as health and education into potentially useless projects such as defence and infrastructure, if the latter offer better opportunities for secret corruption.” Not only are total funds available for public use diminished but they are spent on projects which are not necessarily best for development.
Predictability Investments in developing countries can be particularly risky due to the unpredictability of the political and economic conditions. The extensive role of the government in the economy means arbitrary decision making can be problematic for business for which maintaining consistency and judging long term economic trends is important. In this situation, securing predictability for their investment, Leff suggests, creates a more attractive environment for investment; “Corruption can help economic development by making possible a higher rate of investment than would otherwise be the case.” By bribing officials to maintain certain political conditions, the success of an otherwise risky investment can be secured as there is a much more assured return on investment.
However, Mauro has demonstrated through empirical evidence that high levels of corruption are associated with lower levels of investment and GDP. In a corrupt environment, entrepreneurs are aware that bribes are required to ensure the release of required documentation needed to begin business and are consequently discouraged from investing. Additionally, a percentage of returns on the new enterprise may be claimed. It is for this reason that Mauro suggests “â€¦corruption may be interpreted to act as a taxâ€¦which correspondingly reduces incentives to invest.” Empirical evidence shows low levels of corruption correspond to greater levels of investment; “â€¦a one standard deviation improvement in corruption indices drawn from the Business International causes investment to rise by five percent of GDP and the annual per capita GDP growth rate to rise by half a percentage point.” Although establishing what constitutes ‘higher’ and ‘lower’ levels of corruption is problematic, this link, supported by the work of Keefer and Knack indicates that there is an unambiguous link between corruption and levels of investment, GDP and thus development. Businesses want secure investments but adding corrupt rent-seeking bureaucracy may not be effective in securing the political conditions; investors would simply prefer a non-corrupt environment in which to invest.
Innovation In an undeveloped society, potential entrepreneurs may be discouraged from investing and innovating due to the barriers of entry created by existing products and processes. In this situation, Leff suggests, “â€¦graft may enable an economic innovator to introduce his innovations before he has had time to establish himself politically.” Leff suggests that because of bureaucrats’ existing economic interests, innovators may be regarded with indifference or even hostility. In this environment, bribery could provide innovators an opportunity to obtain elusive government licenses and permits. Furthermore, ‘facilitation payments’ may allow businesses to bypass unnecessarily cumbersome delays. Leff also suggests that corruption may increase investment by reducing the risk that a fickle government may, in the future, intervene harmfully in an innovator’s project.
Whilst entrepreneurship is generally regarded as being innovative and beneficial to development, in the case of, ‘innovative rent-seeking’ this is not the case. Baumol argues it is not always productive; it may even have a destructive impact on economies where parasitical activities damage the economy. Corruption misallocates potentially beneficial talent to corrupt activities and distorts investment priorities. Where the informal, black market and corruption is more financially rewarding than the formal economy, a brain drain effect could occur. Rather than highly talented and educated individuals aiding development they will prevent potential development from taking place.
Corruption invariably increases transaction costs and uncertainty in an economy while lowering efficiency by forcing entrepreneurs to divert their scarce time and money to bribery rather than production. As has been previously discussed, those paying the highest bribes may be those with the best insider information and funding rather than those who would most productive and reap the best rewards for development. Furthermore, bribery increases business risk because of the uncertainty as to whether government officials will actually provide the services for which they have been bribed.
Contrary to economists who argue the benefits of entrepreneurial corruption, Murphy suggests that, “â€¦rent seeking activities, particularly public rent-seeking by government officials, is likely to hurt innovative activitiesâ€¦” He notes that in order to start a new enterprise, innovators often require government documentation and licenses. Without an inside contact to expedite this process, they may be forced to pay bribes to secure the paperwork required. This in turn increases the vulnerability to long term bribery. Because innovators are outside the established system of bribery, it is often not in the bureaucrat’s interest to enter into new corrupt transactions because in doing so they increase their chances of being caught. Instead they may prefer to charge their existing ‘clients’ to bar innovators from entering the market. It is in this way that oligarchies can maintain their power in the developing world and prevent innovation which could aid development.