Austrian-British economist Frederick Hayek foresaw more than 60 years ago, economic freedom is required in all aspects of economic life in order for countries to improve their economic efficiency and the living standards of their people.
- Corruption is a symptom of over regulation, lack of rule of law, a large public sector and not the root of the problem.
- Morality and ethics are hard to measure. Economic freedom removes opportunities for corruption and promotes ethics not just for its moral implications, but also because of its economic value.
- Ethics is defined as 'rules of behavior based on ideas about what is morally good and bad'. In general, we call unethical those actions for which there is a social consensus that they are a bad thing.
- Corruption has several meanings and for most people corruption is something unethical, something considered a wrongdoing. A closer look at human behavior in economic life suggests that corruption does not reflect lack of ethics as it reflects a lack of economic freedom.
- Economic freedom is defined as “the absence of government constraint or coercion on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself.”
- The Index of economic freedom provides a framework for understanding how open countries are to competition; the degree of state intervention in the economy, whether through taxation, spending or over regulation; and the strength and independence of a country’s judiciary to enforce rules and protect private property.
- Corruption does not always reflect inherent unethical behavior especially for those who are forced out of the formal economy into the informal economy through burdensome regulations, taxation, and weak property rights.
- As economic freedom vanishes, the informal economy takes a larger share of GDP. The size of the informal economy in economically unfree and repressed economies is almost three times the size of the informal economy in free economies.
- The economic repression has its perverse effects on the ethics of ordinary people and on the perpetuation of their poverty conditions.
- In most developed countries, people have a better standard of living due to credit access. In USA, without credit, most people would not have a house, a car, a TV, a vacation, or many of the products that add comfort and convenience to my life. Credit makes it possible for middle-class people, to improve standard of living in many ways.
- To have access to credit, you need to have income or property. To prove that you have income, you need a formal job, and to prove that you have property, you need a property title.
- The availability of formal jobs depends on ease for people to invest and do business. The friendlier the business environment, the more formal jobs will be available. In most low to middle income countries, it is extremely difficult for small and medium investors to operate, both because of the regulatory environment and because of the lack of a strong rule of law.
- In developing economies, the problem with the legislation is that it assumes that all employees are equally good, equally responsible, and equally productive, which is not true. The burden of regulations compels small and medium businesses to create jobs in the informal sector, where the benefits are negotiable and tied to performance, and not forced by law.
- The rules of the state creates perceived unethical behavior by private employers and employees when what is really in question is the ethics of such a regulatory burden.
- If they do not have a formal job, poor people can still get access to credit if they have a property title to use as collateral. The poor own many things that they could use as collateral, but it is bureaucratically impossible for them to validate their property rights. As a result, they are unable to raise credit and their standard of living.
- In the developing world many of the poor people have property but the bureaucracy they have to go through in order to get a property title is huge. The poor own many things that they could use as collateral, but it is bureaucratically impossible for them to validate their property rights. As a result, they are unable to convert what they own into capital and, therefore, raise their standard of living. For example, in Peru, “to obtain legal authorization to build a house on state-owned land took six years and eleven months, requiring 207 administrative steps in 52 government offices. To obtain a legal title for that piece of land took 728 steps.”
- Informality is a response to economic repression, not to something inherently unethical in those who circumvent legislation. What is most unethical about informality is the condition in which the government forces the poor to live. Informally employed people are condemned to a standard of living that is significantly lower than that of formally employed people, who have credit access. Informality creates a culture of contempt for the law and fosters corruption and bribery in the public sector as a necessary means to navigate the bureaucracy.
- As economic freedom vanishes, corruption flourishes. The level of perceived morality in economically free countries is almost four times the level of perceived morality in the public sector in most unfree or repressed economies.
- Weak rule of law adds to the level of corruption in the public sector as well as the amount of informal activity. A weak judiciary is a 'blind eye' on anything done outside the law. With a weak judiciary, corruption goes unpunished and informality flourishes.
- In 2003, 108 of the 161 countries received bad scores in both regulation and property rights, undermining the efforts to improve the living standards of the poorest.
- The unethical behavior stems from the environment and convoluted regulations and weak rule of law foster a culture of corruption and informality both in the private and public sectors.
- In the public sector, convoluted regulations and weak rule of law provide ample opportunities for public officials to accept bribes without punishment. In the private sector, those two factors push some people to do business informally as a means to survive and others to profit far more than they would if the possibility of bribery did not exist. Both result is an increasingly unequal society, in terms of the opportunity to create wealth and improve living standards.
- To fight corruption and informality, it is essential to understand that corruption is a symptom--of over regulation, lack of rule of law. A large public sector is not the root of the problem. The real problem is the government action/regulations causing undesired behavior of the private sector. The unethical/corrupt behavior of the private sector, leads to the government to press more on private-sector activities. The solution is to eliminate burdensome regulations so that unethical behavior does not occur.
Let no young man, choosing the law for a calling, for a moment
yield to the popular belief that lawyers are necessarily dishonest.
Resolve to be honest at all events; and if, in your own judgment, you
cannot be an honest lawyer, resolve to be honest without being a lawyer.
Choose some other occupation, rather than one of which you do,
in advance, consent to be a knave ... Abraham Lincoln
The observations in the article are highly theoretical but the reality in India is some what different. The most unethical, corrupt and tax evading people are rich, highly educated, well placed & well connected. The poor people are ethical and law abiding. The middle classes are torch bearers of traditions although corrupt & unethical. The small bribe paid by a poor man for obtaining birth certificate etc is understandable, the corruption by businessmen in collusion with politicians & bureaucrats, escalating project costs siphoning of funds to tax havens etc burdening the whole nation is a criminal act and deserves harshest punishment. Corruption & lack of ethics is so rampant that today it hard to find and ideal person.
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