Business Perception on Corruption: Bothersome?

Should we be bothered over the result of the Social Weather Stations’ Survey of Enterprises on Corruption? The survey showed that 56 percent of respondents among executives in Metro Manila and other major urban centers believe that “a lot” of corruption is happening in the public sector. Further, this was an increase of 16 percentage points (or an increase of 30 percent) from the 2012 survey.

Undoubtedly this is disturbing. And some, especially those who are opposed to the B.S. Aquino (or PNoy) administration. will use this to argue that Daang Matuwid is failing.

I nevertheless maintain that it would be rash—and insufficient—to conclude that Daang Matuwid has become a disappointment on the basis of the perception survey.

As in any other complex issue, context matters.

First, the rise in perception of corruption in 2013 was to be expected, in light of the explosion of the brazen and revolting pork barrel scam that smeared not only individuals like Pogi, Sexy and Tanda but the whole government apparatus. The height of the scam happened under the administration of Gloria Arroyo. True, the practice continued under the present administration, but the scale and intensity of corruption have abated.

Daang Matuwid did not breed the Napoles scandal. In fact, the Napoles scandal waylaid Daang Matuwid, when for some unfortunate reason, the issue shifted from the embezzlement or the illegal use of the pork barrel funds to the legality of the pork barrel funding itself (which ex-ante was in accordance with law).

Second, Daang Matuwid is a recognition that corruption was a binding constraint on growth and development at the time of Aquino’s accession to the presidency. Halfway through the term, corruption remains, but it is no longer a binding constraint. The significant improvement of the Philippine ranking on various indices of corruption, transparency and competitiveness attests to this.

The binding constraints on growth and investments still include infrastructure and electricity. But corruption is not an overriding obstacle. It has not been eradicated, but it has been greatly reduced. It is the high magnitude and unpredictability of corruption (think of the Marcos, Estrada and Arroyo periods) that make corruption unbearable.

Which brings us to the third point. Corruption happens everywhere, even in the most advanced economies and the most democratic countries. The realistic goal is to reduce corruption to a low level. Also, as part of a second-best approach, the corruption that cannot easily be stamped out can be made predictable. Businessmen are willing to pay a little bribe, but the outcome must be certain. There are times that predictable corruption can “grease the wheels of economic growth.”

Corruption, as economists are wont to say, can be an endogenous problem. In the context of many developing countries, reducing corruption is necessary to greater prosperity. But the reverse causation is also valid—the achievement of higher standards of living results in reduced corruption. Context thus matters, to repeat.

This is not to condone corruption. The steps taken by the PNoy administration to combat corruption have been with high approval. The survey respondents recognize this. Of those interviewed in 2013, 76 percent of the executives had high or excellent business expectations, and 70 percent recognized that the government is providing a good business climate.

But much such still has to be done to reduce corruption to a minimum. To illustrate, the number of survey respondents who said that said that government’s anti-corruption measures were effective dropped from 78 percent in 2012 to 73 percent in 2013.

This suggests that the PNoy administration has to refine existing measures and introduce new tools to fight corruption. The administration has recently launched Open Data Philippines. To quote Secretary Butch Abad, the Open Data program “is a resounding affirmation of the administration’s continuing commitment to transparency, accountability, and openness in government.” The Open Data program can then be a springboard for further transparency reforms.

Worth mentioning is the support of the overwhelming majority of the executives for a law on freedom of information (FOI)—88 percent of the 2013 respondents said that FOI would have reduced corruption. The number of respondents who support FOI is a considerable increase from the 2012 survey wherein 78 percent of the respondents believed that FOI was an effective tool against corruption.

We are hoping PNoy can take the cue from the business executives.

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