Pro-growth development officials increasingly focus on corruption as an impediment to development, though traditionally economists have held two distinct opinions about corruption, for example, Robert Barro has suggested that, under some circumstances, corruption can have beneficial effects.
According to economist that follows the idea that corruption can be of benefit to the society, he opines that in some circumstances, corruption may be preferable to honest enforcement of bad rules. For example, outcomes may be worse if a regulation that prohibits some useful economic activity is thoroughly enforced rather than circumvented through bribes.
Many more economists would agree with the cost/benefit approach to corruption, if not the moral uncertainty seemingly underlying the position. Economists tend to line up behind Barro’s view on black market activity, which he sees as an adaptation to poorly defined property rights, high tax rates, and oppressive regulation.
By operating in the informal sector, individuals can engage in economic activity that would otherwise be lost to weak institutions and bad policies. Still, there are costs concerning inefficiency, inability to enforce contracts, and lost tax revenue.
Hernando de Soto in support of a contrary view of cost/benefit approach to corruption, graphically outlined the costs to the entrepreneurs operating within an unorganized society, according to him operating in the underground economy is hardly cost-free. Extra-legal businesses are taxed by the lack of good property law and continually having to hide their operations from the authorities because they are not incorporated, extra-legal entrepreneurs cannot lure investors by selling shares; they cannot secure low-interest formal credit because they do not even have legal addresses. They cannot reduce risks by declaring limited liability or obtaining insurance coverage. The only “insurance” available to them is that provided by their neighbours and the protection that local bullies or mafias are willing to sell them.
This somewhat very chaotic society described by Hernando de Soto, is why many economists do not subscribe to the idea that corruption has any benefit at all, they are of the view that the temporary benefit decimate the society very quickly and can quickly bring about break down of law and order and lead to a failed state.
It is the opinion of this writer that rather than have an economy developing on a vehicle of corruption, stakeholders should pressure Government to eliminate red tapes that hinder progressive business development and strengthen Government institutions to function in accordance with the need of the society, the idea that corruption should be encouraged because of the benefit is like “shooting in the dark” not knowing whom or what would be a casualty.