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Malaysia’s 26 million people could be excused for
feeling disoriented.
Their
current prime minister, Abdullah Ahmad Badawi, has been
feuding with predecessor Mahathir Mohamad over
corruption allegations. And then there’s the man tipped
by many to be Malaysia’s next premier, Anwar Ibrahim,
who is facing new allegations of sodomy.
It’s an
unfortunate predicament for Asia’s 10th-biggest economy.
That’s especially true at a time when nations are
grappling with ways to attract the investment flowing to
China.
Such
headline-grabbing “top-down” tussles may be distracting
Asia from a bigger problem. Activists such as Ramon
Navaratnam, president of Transparency International
Malaysia, are more interested in the “bottom-up” side of
things.
“We
really need to attack this from the ground up, where it
really affects people,” Navaratnam said in Kuala Lumpur
in December. “It would be a real coup to get that point
across.”
The coup
that Navaratnam and his ilk had hoped for may have
gotten closer thanks to a June 12 report from the United
Nations Development Programe (UNDP).
A few
Malaysian ringgit here, a hundred Indian rupees there, a
thousand Thai baht there. It won’t sound like much for
the average investor deciding where to put millions, or
billions, of dollars. Yet, so-called petty corruption is
a far bigger drain on growth than many appreciate.
Big fish
What’s
more, it’s a rapidly increasing drag on the region’s
potential. Governments favor arrests of “big fish” as
they work to hone their anticorruption reputations. It
may be time to turn that strategy on its head.
“It’s
important to point out that the idea of petty corruption
is a misnomer,” says economist Anuradha Rajivan, who led
the team that compiled the UNDP’s 200-plus-page report
titled “Tackling Corruption, Transforming Lives.” “We
prefer the term ‘retail corruption’ at this point.”
The
focus isn’t on the bribe takers, but the victims of the
“hidden taxes” that would be unthinkable in rich
nations. Billions of Asians pay them, without recourse,
to nurses, doctors, teachers, police officers, water-
and utility-company workers, bureaucrats, low-level
politicians and postmen. All this smothers opportunities
for Asia’s most vulnerable citizens.
Small
fish
It’s not
something to which investors in London, New York or
Tokyo probably give much thought. Yet, as Rajivan points
out, the demands are incessant, the number of people
affected is enormous and the share of poor people’s
income diverted for corruption is high—and rising.
Investors ignoring this dynamic may be in for some nasty
surprises. It perpetuates poverty and increases child
mortality in a region on which corporate executives are
depending for future growth. The phenomenon dovetails in
the worst of ways with the increase in food and energy
costs.
Even
before this year’s jump in oil and food prices, about
600 million Asians lived on less than $1 a day. Add in
retail corruption and you begin understanding how
fragile the region is becoming.
If
small-fry corruption were a problem a year ago, before
crude oil doubled in price, it’s a far bigger one today.
Mobile-phone maker Nokia Oyj, motorbike producer Honda
Motor Co., sports company Adidas AG, filmmaker Viacom
Inc.’s Paramount Pictures and others betting on Asian
sales may have to reassess things.
Bold
action
Sadly,
corruption isn’t discussed in Asia as much as it needs
to be. There’s a lot of big talk, but not enough bold
action to eradicate it.
It’s no
coincidence the UNDP unveiled its report in Jakarta.
Indonesia is Southeast Asia’s biggest economy and,
according to Transparency International, one of Asia’s
most corrupt nations. In its 2007 Corruption Perceptions
Index, Indonesia ranked 143rd—behind Ethiopia and
Pakistan.
Indonesian President Susilo Bambang Yudhoyono, who took
office in October 2004, is trying to deal with the
economic system created during the 32-year reign of
President Suharto. It will require all the political
will Yudhoyono can muster.
This is
an Asia-wide problem. China and India are working to
reduce official corruption, as are governments in Hanoi,
Kuala Lumpur, Manila and elsewhere in the region.
‘Middle-income trap’
The
issue is critical because of what the World Bank calls
the “middle-income trap” in Asia. Of course,
high-profile leadership struggles like the one unfolding
in Malaysia don’t help. Yet, corruption is a key force
keeping the benefits of growth from trickling down.
As
nations such as the Philippines step up efforts to go
after the “middle-class” actors and business people who
routinely evade taxes, it’s time to tackle the other end
of the corruption universe. It undermines development,
retards democratic institutions and contributes to
government instability. The creation of small businesses
also is held back by unofficial “start-up costs.”
Among
the changes the UNDP recommends are increased government
oversight, higher salaries and a more merit-based system
for civil servants, greater press freedom and
international cooperation.
Investors in Asia’s growth are looking for a different
scenario. They are betting on governments going after
corruption’s big fish. Going after the small fish may
pay higher dividends. |
