Corruption: Profiting Without Production

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charles-okeke

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Charles Okeke, professor of Economics, writes that the corruption that is destroying Nigeria is caused by Nigerians, who fail to hold their leaders accountable thereby encouraging corruption and stealing on the part of government officials who profits without production

By Charles Okeke  |

Do not be impoverished because of feasting on borrowed money. – Ben Sira

Bribes and backroom deals don’t just steal resources from the most vulnerable – they undermine justice and economic development, and destroy public trust in government and leaders. – Transparency International

I had wanted to discuss the issue of corruption further down the road, but recent and continuing development persuaded me that the discussion is relevant now. As we know, it is difficult to sleep with a foreign body in one’s eyes. So, it is with corruption. President Muhammadu Buhari was elected for a number of reasons depending on who you ask. One reason is for sure: his pledge to deal with corruption. Some of those who voted for him and definitely those who did not are accusing him of focusing too much on corruption to the exclusion of other executive duties. I beg to differ. Fighting corruption is of critical importance for Nigeria and President Buhari is correct in making it a top priority. Has he pursued this issue to the exclusion of others? I do not think so.

In 2016, U.S. News and World Report, “Nigeria, the most populated country in Africa, is perceived to be the most corrupt among 60 countries evaluated, according to data from the 2016 Best Countries rankings. The rankings are a characterization of 60 countries based on a survey of more than 16,000 people from four regions.” The Transparency International, while recording some improvement on the Corruption Index for Nigeria reported the following   about the country on May 28, 2015: “Global Financial Integrity estimates more than US$157 billion in the past decade has left the country illicitly. Corruption is everywhere: even the health and medical services, considered the least corrupt government institution, are considered very corrupt by 41 per cent of Nigerians.”

Before delving into the economic consequences of corruption, let us attempt to define, specify and understand what is meant by corruption in its various mutations and manifestations. The topical subject of corruption constitutes a legitimate area of academic and intellectual inquiry both in corporate and in the realm of public policy. Economists have taken up investigation into the topic. Anthropology is one of the earliest fields to look into the subject, but decided to leave it very much alone partly because of cultural difference in the issue of gift-giving as well as methodological inconsistency. Professor Davide Torsello offered reasons anthropologists have chosen to remain silent on the issue and they could be categorised as follows: methodological, ethical and epistemic. All these could be captured, though simplified, in the notions of reciprocity and gift-giving. The epistemic issue involves definition. The definition of corruption as “a manipulation of powers of government or sale of government property or both by government officials for personal use” is found in paper by Shleifer and Vishny (August, 1993), “Corruption” Quarterly Journal of Economics. Garden variety of the same definition has also been offered by various authors.  On the whole, each emphasizes the “abuse of public office for private benefit.” For now, these definitions will do.

In his second novel, Jagua Nana published in 1961, Cyprian Ekwensi turned his literary periscope on the issue of corruption in Nigeria. Other Nigerian writers, including Nobel Laureate Soyinka, Chinua Achebe to name a few, have in one form or another addressed the issue of corruption in Nigerian society.  The Incorruptible Judge by D. Olu Olagoke was a regular reading in high schools some decades ago. The perverse nature of the phenomenon led at least one Nigerian luminary, Late Professor Lambo, to evaluate corruption in psychiatric terms.  Professor Michael Ogbeidi in 2012 article in the Journal of Nigerian Studies contends that “Nigeria, a country richly endowed with natural resources and high quality human capital is yet to find its rightful place among the comity of nations. A major reason that has been responsible for her socioeconomic stagnation is the phenomenon of corruption”.  Additionally, for me, I raise the issue of private corruption. Public corruption with private corruption is beyond actual miracle, which is near utterly rare.

Economics of Corruption

Every country could be shown to have corrupt practices, but not every country has a credible institutional framework and judicial integrity for dealing with corruption and its ravages. Nigeria is one of those countries that have not been able to deal with corruption effectively at the institutional level. In no society has one-man army been able to check this hydra-headed monster. It calls for general mobilisation of the society’s best resources ranging from effective civic education, a fair degree of uprightness in its legal system. The electorate, public servants, legal system, the entire orchestra must share and appreciate a common value, the damaging consequences of corruption/embezzlement of public funds and preferably be singing from the same notes from the same page.

Corruption and rent-seeking are sometimes used inter-changeable in economics. However, not all rent-seeking is illegal: for example, a single seller of a product that has no substitute may reap monopoly profit and it is not illegal. So, as defined, rent is not always illegal, but corruption is. A government official who is contractually paid salary or benefit to provide some specified services is not expected to receive further remuneration to provide the said service. Any additional benefit received above the contractual salary is rent. According to economist A. Krueger, “corruption creates rent by raising the incomes of government officials above what they would earn in positions of comparable responsibility and skill in the private sector …”

Economic and Social Costs of Corruption

Corruption exerts enormous cost to a nation and the cost it has exerted Nigerian society is incalculable. It provided camouflage for the first military intervention in the country. The ripple effect of this intervention aborted the country’s nascent democratic experiment. The consequences have been pervasive corruption that has penetrated deeply into the fabric of Nigerian society. As I have argued in another venue: in my Inaugural Lecture Delivered to the Nigerian Association of Las Vegas Organization on the Eve of the Celebration of the Nigeria’s Independence Day Nevada in 2008 “When one thinks of Nigeria, he is faced with a kaleidoscope of images. Images of people craving and yearning for a better life, unrepresentative and stifling bureaucracy, military-overstay which emasculated and polluted and further corrupted civil institutions, abiding inability to effectively manage and engage civil institutions, dilapidated public education system, mushrooming private schools and universities (accredited and otherwise), a sea of young people taking unreasonable risks to get out of the country, corrupt politicians and civil servants who have fed and overfed themselves very fat at the expense of the country. We also see a people whose collective psyche has been brutalized by successive periods of unaccountable military regimes that the subsequent civilian governments have also internalised the military methods of non- accountability such that peoples’ business goes undone and nobody seems to care.”

Apologists are wont to say that there is corruption in every country. I agree. However, in many countries, corruption is not accepted as the norm and has not permeated every facet of the national life.  Also, in many countries, there exists institutional framework for dealing with corruption.  In Nigeria, practically, every interaction with many organs of the government requires giving and accepting of bribe that when bribe is not asked for and given, it becomes an oddity.  The fact that today the country does not have a dependable power supply could not be decoupled from corruption. The size of corruption in Nigeria numbs the mind. Take the recent case currently under investigation, true or false, where a judge was claimed to have spent N500 million  in 10 months despite earning N24 million annually.

When a politician contests for a position that officially pays one hundredth of what it costs to campaign and get into office, how does the person plan to recover the often borrowed money used? Your guess is as good as mine.  Pervasive as corruption is in Nigeria, no major figure in the country has faced serve punishment for corruption.

Transparency International has catalogued the disastrous consequences of corruption:  “Corruption corrodes the fabric of society. It undermines people’s trust in political and economic systems, institutions and leaders. It can cost people their freedom, health, money – and sometimes their lives.” In addition, a “distrustful or apathetic public can then become yet another hurdle to challenging corruption.”

“Environmental degradation is another consequence of corrupt systems. The lack of, or non-enforcement of, environmental regulations and legislation means that precious natural resources are carelessly exploited, and entire ecological systems are ravaged. From mining, to logging, to carbon offsets, companies across the globe continue to pay bribes in return for unrestricted destruction.”  Having said all these, what are we to do?

Effective Institutions and Independent Judiciary

No amount of pleading and appeal to conscience will change a corrupt and diseased mind. Cock-tail psychology will not correct the dangerous and ruinous path Nigeria has embarked on. There needs to be a system of hard-nosed distributed agents who are determined to put Nigeria first and ahead of personal rewards.

Nigeria already has such an independent agency which, at one point it was claimed, instilled fears in people especially politicians. It had an aura of incorruptibility which appears to have waned. The law enforcement and the judiciary appear to be the missing part of the tripod. This means that police and judicial reforms are an absolute necessity for any progress in the fight against corruption. It may be necessary to reach out to our ECOWAS partner countries like Gambia and Senegal to house those properly convicted of corruption crimes.

The country has to break grounds for the construction of new prisons as Nigeria is yet to go beyond the prisons built in the ninety sixties. There is need to inform the general public, including the members of the law enforcement, judiciary, civil servants and politicians at all levels that corruption and the theft of public property will be thoroughly investigated and the perpetrator will be prosecuted to the fullest extent of the law.

New prisons should be constructed near major roads with high traffic and names of current prominent occupants should be displayed for everyone to see. There has to be role for public shaming of those people who have shamelessly made the decision to enrich themselves at the nation’s expense.

The current law that politician(s) – mainly governors – can be charged for crime(s), committed while in office, after they leave office is inadequate. Such a law gives the person time to plot an escape, while in office but before the term in office expires. This is a loophole that should be closed. While I understand the need to prevent opposition from distracting our duly elected leaders from carrying out their responsibilities, it would be a farce to avoid prosecuting a politician who is clearly stealing from the public and wait until he or she is out of office. An independent body should determine the merit and seriousness of allegation(s) leveled on a sitting politician.

It should be illegal for politicians and civil servants to maintain foreign bank accounts. This will not only plug the hole through which capital leave the country (capital flight), but will find solution to the country’s problems and not depend on the presence of escape routes provided by Europe and North America.

Extradition treaties should be revisited. The fact that Nigeria has not always been served well by their leaders is no longer news. This is now well known around the world. While this information tarnishes the country’s image, it could also be used to benefit the country in the area of extradition treaties. With the possible exception of the United States, many countries in the West do not have death penalty for white-collar crimes. I do not believe that Nigeria does. The extradition treaties that Nigeria has with other nations should be revisited with the aim of making it easier for countries that are signatory to such agreements to live up to them.

When society is rift with corruption, everybody suffers but, the most vulnerable suffers the most. When national output fall everybody would feel the effect. We all have less goods and services to choose from as a result. As the (2016) PricewaterhouseCoopers study suggests: Corruption leads to reduction in investment and productivity which would lead to reduction in economic growth and this, in turn, increases inequity, poverty and poor institutions and thereby resulting in further corruption.  The vicious cycle continues unabated.

 

Policing and Police Recruitment

Policing, police recruitment and training in Nigeria have not been adequate. These are one of the areas where the country needs to have best practices and international standards. I support the concept of community policing for increased efficiency and reach. I believe that federalized is too far removed from the communities these officers serve. Effective policing requires the officers to know and understand their communities. This has been echoed recently by the Speaker of the House of Representatives, Hon. Yakubu Dogara, who called for decentralized police system.

Individuals aspiring to be police officers should be investigated and testimonies supporting their applications should come from people who know well the potential police recruit and his or her families. A surety for promise of good behaviour should be provided by someone from the applicant’s kindred or from member of the clergy, or someone intricately connected to the community where the applicant resides or hails from. A police officer should be above reproach.  He is the foot soldier and in the forefront of a properly constituted justice system. A system is as strong as its weakest link and currently is not meeting the standard.

How about setting up an independent agency to fight financial crime and prosecute those involved in such crimes. It has been used around the world with varying degrees of effectiveness. Nigeria, too, has one: Economic and Financial Crimes Commission, popularly known as EFCC. At its inception, it instilled fears in the hearts financial crooks to the point, as was reported in a Nigerian daily or magazine, that some criminals claiming affiliation with the agency went around collecting monies from politicians and issuing them certificate of clearance. The leader of any unit or agency sets the operating tone. My understanding, not verified, is that the EFCC is no longer as effective as it used be.

Other Measures

Corruption is retarding the country’s development. It is pervasive and deep. Sometimes, extreme problem requires extreme solution. There is now no facet of Nigerian life that is free from this hydra-headed monster called corruption. Is there going to be a personal cost for fighting this? Yes, but to do nothing is no longer an option. However, individual effort or personality-based approach is not sufficient. There has to be dedicated effort to building and sustaining corruption-fighting institutions. Those people aspiring to leadership position should declare all their assets prior to taking office and re-declare all their assets prior to leaving office.

Image is also important. Individuals who are tainted with corruption, no matter how little, should not be selected or permitted to head corruption reduction or corruption eradication effort. To do so will breed cynicism and undermine the effort. The punishment meted out in high profile cases will serve as a deterrent to those potential criminals expecting to ply the same dubious route of ill-gotten riches.

Given the pervasive nature of this monster, school curricula from primary to the university should have a subject or course that is devoted to the issue of corruption and its impact on the individual and society. I do believe that there may be some people who engage in corrupt practices who do not know that their actions are inherently criminal. This is where education comes in. Our homes, institutions of learning, churches, mosques, temples, synagogues all have the responsibility of instilling in our people that there is a noble life before and after politics. People should not go into politics to enrich themselves, but to be of service to their communities and their nation.

Incentives are very important in economic transactions. Incentives as powerful tool can be utilised to encourage or discourage a set of economic activities. The absence of visible sanctions against corrupt practices will encourage more of those activities. From free market principles, the lower the price of an item (corruption, in this case), the more quantity is demanded of such an item. Conversely, when cost of engaging in an activity (corruption) is high, the market forces induce people to engage less in such an activity. Obviously, the steeper the price allocated to corrupt activities, the more dramatic the expected reduction in the quantity demanded. However, there are exceptions to this basic economic model. The model barely applies to insane individuals

Corruption is a criminal activity and severe harms are inflicted on society when corrupt practices are allowed to flourish. There are series of controls or incentives needed to nip corruption in the bud. These incentives are primed at stopping the corrupt activities: restitution for harm done by corrupt activities and punishment for corrupt activities or offence. If the last two controls are not enforced, it leads to and reinforces the belief that corruption is rewarding and quite beneficial. As long as benefits of corruption exceed its costs, ethically challenged individuals will engage in it. For example, when any individual is not penalised for mis-appropriating public funds or is even allowed to keep part of it for whatever reason, it encourages more of such behaviour. The market incentive model is intentionally distorted and disrupted. This intentional distortion and disruption of the market sends a very strong signal that crime and corruption not only pay, but that they are highly beneficial.  This type of disruption is very detrimental to the process of economic development and positive societal transformation.

It has to be understood, without any equivocation whatsoever, that the corruption that is destroying Nigeria is caused by Nigerians. By creating unreasonable expectation of what a public servant could reasonable do with his salary, the pool of honest public official dwindles. So, in the end, the country has the government it deserves. By failing to hold the leaders accountable, the Nigerian citizenry encourages corruption and stealing on the part of government officials.

 Profit without production is not a way to build a sustainable economy and bring about societal transformation. Nigeria’s economy has for too long been based on excess profit without production. Until the productivity and benefits mismatch are reconciled, the deep recession the economy is in now experiencing is only an alarm. Marginal increase in the price of crude oil will only provide temporary relief for an economy, especially for budgets that are based on fictional productivity.

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*Dr. Charles Okeke was born in Nigeria. He attended St. Joseph’s Secondary School, Awka-Etiti and earned Grade I in the West African School Certificate Examination after which he attended St. Patrick’s College, Asaba.  He is currently a professor of economics and statistics in the department of social sciences and the dean of the School of Education, Behavioral and Social Sciences in the Nevada System of Higher Education.  His areas of interest and research include Health Economics, Macroeconomics, Development Economics, Monetary Economics and Labor. He served as the chairman of Department of Social Sciences from 1993 – 2003. He obtained the Bachelor of Business Administration in Economics from University of Wisconsin, Whitewater, a Master’s degree in School Business Management from University of Wisconsin, Whitewater, Master’s and Doctor of Philosophy degrees in economics from the University of Wisconsin, Milwaukee. He is an expert in wealth protection and intergenerational transfer of wealth.  He holds Life, Health and Fixed Annuities licenses in multiple states in the United States. He has authored and co-authored numerous public interest articles as well as academic papers such as “Enterprise Zones and Community Revitalization: A Wish or Reality?”  “The Wealth Gap: The Continuing Dilemma,” “Employment and the New Economy,” “Why Is the Cost of Health Care Rising So Fast?” “Unskilled Labor and the International Trade’” “Health Insurance Coverage, Medical Events, and Bankruptcies,” and most recently, contributed a chapter titled “The Integration of Africa: Commodity Based Industrialization Examined,” was released last Summer in  Private Sector Development in West Africa, Diery Seck, Ed. (2015) (Springer Scientific Publishing). He has also served on numerous boards such as, International Journal of Economics, Business & Finance (Editorial Board Member) & Scientific Journal International Review Board, (2008 – Present). He was a board member of Las Vegas-Clark County Urban league and later served as its consultant. He is a member of the Knights of St. Peter Claver and 4th degree member of the Knights of Columbus.  He is member of Nigerian Association of Las Vegas where he served as the founding secretary. Dr. Okeke also holds memberships in the International Health Economics Association, American Society of Health Care Economists, Western Economic Association International and the American Economic Association. With over two decades of experience in Higher Education internationally, he is a highly sought after speaker on various policy issues.

— Dec 26, 2016 @ 01:00 GMT

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