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The economics of corruption -Lal khan

Posted by admin On February - 26 - 2013

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‘The world has 50-60 active tax havens, with over $21 trillion invested virtually tax-free and over 30% of global foreign direct investment is booked through these tax havens’

The political debate in the ruling elite is marked by the corruption discourse. It is dubbed as the most serious threat to the system while its eradication is portrayed as the recipe for the social and economic salvation of this country.

The most vociferous anti-corruption leaders, ironically, are an integral part of the military-civilian- bureaucratic elite. Most of them are themselves notorious for their corrupt practises. However, hardly anybody talks about corruption’s social, economic, and political root-causes. The most crude explanation is the personalisation of the issue, thus, limiting it to the conduct and role of individuals.

Firstly, corruption is not the cause of the prevalent socio-economic crisis. It is a symptom of the diseased capitalism that needs and breeds this curse. It is the inevitable by-product. And corruption is not just a Pakistani phenomenon. Wherever capitalism exists, one has corruption, prostitution and crime as its essential components.

Corruption has rapidly soared in China ever since the process of the restoration of capitalism began under Deng Xiao Ping in the late 1970’s. According to an official report, Indian capitalists have stashed away 1.4 trillion dollars in Swiss and other off-shore financial heavens. This huge amount is made out of tax evasion and other corrupt practises popular among India’s national bourgeoisie. The Economist in its recent issue says, “the world has 50-60 active tax havens, with over $21 trillion invested virtually tax-free and over 30% of global foreign direct investment is booked through these tax havens and it does not stop here as domestic investment is routed offshore to qualify for tax breaks reserved for foreign investors. Some suspect this accounts for a sizeable portion of ‘foreign’ investment in India and China. This is also the case in America, whose companies face one of the rich world’s highest corporate-taxes, also has some of the most energetic tax avoiders.”

There is not a single capitalist country on this planet that can claim to be corruption-free. The multinational corporations set aside huge sums of money in their budgets as kick-backs for the civil-military elites with whom deals are struck. The biggest culprits are rulers of the neo-colonial states, the military-industrial complex and the oil industry. These corporations also bribe the parliamentarians, political parties, bureaucrats [ i.e. policy makers of all hue].

The financial sharks invest heavily in elections campaigns to get their favourite politicians elected. These elected politicians, once in command, arrange bailouts, contracts and other such economic privileges. The 2012 presidential race, for instance, was the most expensive in US history. It was worth $6 billion.

With the economy in crisis, corruption and black economy assume even bigger role. Economists at Paris School of Economics and Global Financial Integrity have highlighted in recent studies that the elites of 139 low-middle-income countries have paocketed up to $9.3 trillion of unrecorded wealth offshore and this turns some of them from big debtors into creditors. “Developing countries as a whole don’t face a debt problem, but a huge offshore tax-evasion and money-laundering problem”.

In Pakistan, the black economy has been expanding robustly. From about five percent, in the mid- seventies, it has soared to about seventy percent of the total economy now. Presently, the formal or the official economy is growing at the rate of less than three percent while the growth rate for the black economy is estimated to be nine percent. It is like a tumour outgrowing the body itself. This black economy consists of drug trade, human trafficking, extortion, kidnapping for ransom, counterfeiting, smuggling, illegal logging, software and music piracy so on and so forth.

This black economy has had severe ramifications for politics, state and society. Terrorism and violent crime are two vivid aspects. Also, it has pitched various factions of the ruling class against each other.

Paradoxically, corruption and black economy have been pivotal to offer country’s economy a breathing space. Due to the burgeoning crisis of the formal economy, Pakistan has been increasingly relying on this corruption. With ever-increasing military expenditure and debt retirement, there is hardly anything left to spend on the social and infrastructural sectors. Austerity and price hike, leading to a decline in the buying power, have caused contraction of the market. It is the black market consumption which nudges the economic cycle ahead.

This sector apart from being a cushion for the formal economy is accountable for 73.8 percent of the total employment in the country. Characteristically its investments are in short term sectors like the real estate, transport, health, education and other service sectors. It is shielded by the religious fundamentalist, several political parties, sectarian and nationalist chauvinist setups, sections of the state and outright criminal mafias. 

The politicians claiming to end corruption are either too naive or unashamedly deceiving the people. If corruption is eradicated, present economic facade will crumble down. Pakistan’s capitalism is in its terminal decay. The way a junkie is dependent on his fix, this decaying system is totally dependent on the informal economy. It is simply not possible to revive or recreate a healthy capitalist economy in this country. With little or no chance of the recovery of world capitalism in the near future, hopes of boasting Pakistani exports, attracting any foreign investment or industrial growth are almost dashed.

The debt continues to pile up. In the last five years, the incumbent coalition democratic regime has acquired more foreign and domestic loans than the ones acquired in the preceding sixty years. Any party in power, in this system, would have done the same. With about two percent of the population paying taxes, declining exports and record deficits, the economy cannot run on the foreign remittances alone. Pakistan’s economic future is bleak to say the least. It is not a question of interpreting or predicting the system; the point is to change it. 

 Lal Khan is the editor of Asian Marxist Review and International Secretary of Pakistan Trade Union Defence Campaign. He can be reached at ptudc@hotmail.comThis e-mail address is being protected from spambots. You need JavaScript enabled to view it 
http://www.viewpointonline.net/the-economics-of-corruption.html

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