Ending hot money, corruption key to eradicate poverty

Illicit financial outflows are “corrosive” to an economy and its people, according to a US-based watchdog

Corruption and illegal outflows of money from poorer nations cancel out the aid and investment they receive, and must be tackled if we are to end poverty, according to a US-based watchdog.

Illicit financial outflows are “corrosive” to an economy and its people, according to Tom Cardamone, managing director, Global Financial Integrity (GFI).

“If you’re poor in any country, you’re going to be affected. Because of the lack of services, such as healthcare, that are not provided; the housing and sanitation that isn’t available,” said Cardamone. “If you take a very simplistic estimate of the taxes lost… there would be around $200bn globally going into the coffers of governments. The multiplier impact of providing those services to people is tremendous and the loss is also tremendous.”

Illicit financial outflows exceeded the total amount of aid and foreign direct investment flowing into developing countries in seven of the last 10 years, between 2003 and 2012, according to GFI. The newly agreed Sustainable Development Goals recognise how illicit outflows of money undermine anti-poverty efforts for the first time in such a global agenda, said Cardamone.

Experts at a panel in Dubai on Monday also pointed to the issue of corruption as a break on growth. Delving into the many causes of why people take bribes are important tools in the fight against corruption, which can only be tackled in the round.

The panel, from UK-based think tank, Legatum Institute, discussed case studies of how some groups had managed to erase the scourge in different sectors.

“The one thing that really emerges from all these studies, is that it’s really hard to tackle corruption as an isolated issue,” said Christian Caryl, senior fellow, Legatum Institute. “We hear all this talk [in the development world] now of mainstreaming – for example, gender issues, taking corruption into account – and I think that’s where development is really going because you can’t combat corruption effectively without looking at the whole context and social forces.”

Corruption is a global issue. The World Bank estimates more than $1 trillion is paid in bribes each year, and corruption equals more than 5 per cent of global GDP – or $2.6 trillion – annually.

“[Corruption] penalises those who aren’t able to do it,” said Nathan Gamester, programme director for the institute’s Prosperity Index. “So if you live in a society where you need to get a licence to do something and the only way you can do that is to pay a certain amount of money, then if you have that money you can get on in life. But if you don’t, then you can’t. If we believe in [universal] dignity – that everyone should have the same opportunities and start in life – then we can say corruption is a force for bad.”

The think tank issues a Prosperity Index each year, to track how well 142 countries do in terms of wealth and wellbeing. Norway usually tops the tables, according to Gamester. Last year’s index found Yemen and Afghanistan languishing around the bottom of the table for governance, with the latter only ahead of Chad and the DRC on this criteria.

The think tank has compiled around 10 case studies of where corruption is being tackled successfully around the world, from Brazil to Ukraine. One good model for other countries to follow is in Georgia, said Caryl, which managed to overcome pervasive bribe-taking in its universities by officials and professors, in part by having fewer, better-paid academic posts.

“[In Georgia] students were getting diplomas they had bought. The system of higher education was hollowed out by this practice of corruption… If you want to have a healthy economy in Georgia, you’ve got to make sure the diplomas mean something and people are getting educated and trained,” said Caryl. “I think in many cases addressing corruption can help the whole economy.”

Still, breaking the cycle of corruption and cronyism is not easy and requires a lot of determination from all sectors of society, he cautioned. “But there are things that different societies, different groups have tried that have had a positive effect,” said Caryl. “And that in itself is a salutary lesson.”

Photo credit: IFRC