Corruption as a Strategic Choice
According to a survey that covered 26 countries conducted on behalf of BBC World Service, corruption is rated as the first most 'talked-about' issue globally, and the second most serious global problem next to extreme poverty. Yet, despite the 'popularity' and the general interest that surrounds corruption; we still have a limited knowledge on its drivers and the consequences.
In particular, we know that corruption is a pervasive phenomenon, and we have been told that usually corrupted economies grow at a slower pace. But it is less clear why some firms pay bribes whereas others do not, as well as what the micro-mechanisms that underlie the negative impact of corruption on economic growth are.
The firm-level data provided by the World Bank that we analyzed tells a simple story. Bribing is, at least to some extent, a strategic choice that firms take weighting costs and benefits. And firms that pay bribes overweight present benefits to the detriment of long-term outcomes. In other words, firms that bribe prefer 'the bird in hand today to two birds tomorrow.'
More specifically, our analyses show that even in developing countries where corruption is pervasive, paying bribes is partly a choice and not an obligation or an additional 'tax'. By paying bribes, firms get the privilege of accessing government resources, which in turn favors short-term performance. However, we also find that bribes reduce firms' investments in fixed assets or other activities that affect their long-term results (such as, for instance, investments in quality certifications). To use a further analogy, it is like someone seeking jobs through recommendations: She will more likely find a job in the short-run, but will invest less in education or other assets that enhance her competence and career development in the long run.
Why do firms that bribe invest less? Our analysis shows that it is not because they have less cash to do so, as bribes drain resources that would otherwise be used to buy assets such as machinery and equipment. Not even because bribing firms are intrinsically less efficient and might have lower returns from investment in fixed assets. Furthermore, we are able to show that lower investments by firms which pay bribe are not driven by the fear of future extortion by government officials (imagine a firm that invests in an area where officials are crooked: it can easily think that given that investments in fixed assets are not easily movable, it will be condemned to pay forever if they want to continue their economic activity, and thus decide to invest less so as to be better able to unfreeze its assets). Having excluded empirically these reasons, we show and conclude that firms (read, managers and entrepreneurs) that bribe overweight the present to the detriment of future results. Bribing is thus a serious toll on the economic growth of firms and regions.
Although our empirical analyses exploit data from 13 developing countries, some of our theoretical conclusions may be extended to Italy, too. And suggest that the fight against corruption is not only a matter of enforcing stronger laws, but also of changing our managerial culture.