Tuesday 24 November 2009

Corruption and high-income economy don't share the same house

WHEN the World Economic Forum (WEF) published its Global Competitiveness Index 2009-2010, the countries which are listed in the top 10 most competitive nations remain the same. The difference is only how these countries are ranked.

Switzerland is now in pole position, relegating the United States to the second spot. Our neighbour Singapore is now ranked third, overtaking Sweden and Denmark which are ranked fourth and fifth respectively.

The competitiveness ranking is based on the 12 pillars of competitiveness which are grouped into three categories — basic requirements, efficiency enhancers, and innovation and sophistication factors.

As countries progress economically from factor-driven to efficiency-driven and finally to innovation-driven, the pillars that drive competitiveness gradually shift from basic requirements to sophistication and innovation as they must design cutting-edge products and processes to maintain their competitive edge.

The first pillar which provides the foundation for competitiveness is the institution, which represents the legal and administrative framework within which individuals, firms and government interact to generate income and growth in the economy.

According the WEF report, the quality of institutions has strong bearing on competitiveness and growth as it influences investment decisions, organisation of production and the ways in which societies distribute benefits and costs of development strategies and policies.

Let us consider the position of the top competitive countries in the Corruption Perception Index (CPI) that was released by Transparency International last week. The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world based on 13 different experts and business surveys.

The top five countries ranked with the least incidence of corruption are New Zealand, Denmark, Singapore, Sweden and Switzerland. If we compare the WEF list and CPI, the composition of the countries in the top five spots is about the same with the exception of New Zealand (which is ranked 20th in the WEF report) and the United States (ranked 19th in the CPI).

A simplistic reading of the two reports would suggest that a country would have a better chance to be competitive if the public institutions are functioning effectively and corruption is kept at a minimum. Why?

As suggested above, the quality of institutions influences economic decisions and wealth distribution. For people to be innovative and creative, they should first believe that being innovative and creative pays.

If budding entrepreneurs who are starting their venture believe that they have equal chance to business and commercial opportunities, more would be putting efforts to create something that could be eventually commercialised and sold to the world.

Corruption naturally disrupts the fair distribution of wealth and opportunities. Worse, it sends the wrong signal that key success factors in the economy are not about thinking and working hard but that success could be bought and sold provided the price is right.

In our case, the failures of governance and controls as reported by the auditor-general every year could deter real entrepreneurs from putting more effort in their enterprises. Some may even be looking at other countries with similar if not better opportunities.

The recent statement by the Port Klang Authority (PKA) that it would accept and implement the recommendations by the Ad Hoc Committee on Governance established in responding to the PKFZ problem is a positive sign.

Among the recommendations of the committee is the implementation of the Integrity Pack which will put in place strong anti-corruption mechanism within the governance framework of the port authority.

The Integrity Pack consists of a process that includes an agreement between a government or a government department and all bidders for a public contract.

It contains rights and obligations to the effect that neither side will pay, offer, demand or accept bribes; collude with competitors to obtain the contract; or engage in such abuses while carrying out the contract. It also introduces a monitoring system that provides for independent oversight and accountability.

Given that PKA is one of the many government agencies, it would be appropriate if this anti-corruption tool is also implemented across all government agencies.

In fact, if PKA adopts and applies the Integrity Pack, it would be interesting to know the reasons why other government ministries and agencies are not doing the same. Even if the rest do not have similar problems as PKA's, putting in place a strong deterrent of corruption will make the rakyat happy.

In order for Malaysia to move into the high-income economy, we should ensure the foundation for that is firmly established.

The fight against corruption would not only strengthen the foundation for our economic competitiveness, but would also enhance the creative and innovative culture among entrepreneurs as they would see them as the key driver for success when opportunities are made available based mostly on merit.

This article was also published on the Edge Malaysia website here:

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