Corruption and development in the Philippines

Corruption can be defined as the abuse of public power for private gain. Based on this definition, corruption occurs when a public official or employee uses his or her power to solicit or extort bribes. This is only one side of corruption, however. The other side features private persons, bribing and influencing public officials to gain an undue competitive advantage or secure a profitable government contract, for example.

Corruption acts as a strong disincentive for investments. It has emerged as a major bottleneck to economic growth and development because it discourages investors from actively pursuing plans of putting up new businesses in the country. It also discourages existing investors from pushing through with their expansion plans because of the political and regulatory uncertainties that corruption creates.

The adverse effects of corruption manifest in lower levels of human development. Figure 1 shows that countries that succeeded in controlling corruption have higher levels of human development compared to countries that are unable to do so.

In the Philippine context, many business managers surveyed by the country's top polling firm, Social Weather Stations, say that corruption is wrong because it "hurts national development". The cost of failure to win the battle against corruption translates into lost opportunities for job creation and poverty reduction.

Country quartiles based on eight-year average CPI (n=72 countries)	Average CPI (1998-2005)	Average Human Development Index for 2005
First	8.710	0.941
Second	5.680	0.830
Third	3.610	0.728
Fourth	2.410	0.640

Sources of basic data: Transparency International annual reports; United Nations
Development Program's Human Development Report 2005

cross-country survey of more than 700 firms conducted jointly by the Asian Development Bank (ADB) and the World Bank between 2003 and 2004 identified macroeconomic instability and corruption as top two obstacles to economic growth in the Philippines.1 The 2005 Competitiveness Rankings of 61 economies prepared by the Institute for Management Development (IMD) showed that one major reason for the decline in the country's competitiveness is the perception of widespread bribery and corruption existing in the economy.2 Along with regulatory uncertainty, corruption contributes largely to the deterioration of the environment for doing business in the Philippines.
Table 2 reveals the worsening perception of corruption in the country since 1998 based on the Corruption Perceptions Index (CPI) published by Transparency International, a non-government organization devoted to fighting corruption. CPI declines for the Philippines confirm findings in other studies showing how the Philippines has failed to win the campaign to reduce corruption.

The country's performance in fighting corruption leaves so much to be desired. Its CPI of 2.50 is very far from the 9.40 CPI of Singapore, a much successful Asian neighbor. CPI data of the Top 10 countries show that much remains to be done in the country's anti-corruption campaign. Large gaps between the CPI of the Top 10 countries and the Philippines would justify the adoption and implementation of stronger and more effective measures to fight corruption.

1.1.1 The dynamics of corruption in the Philippines

Corruption is widespread among people occupying higher public positions. Data from a 1999 survey done by the Social Weather Stations generally support the assertion that power corrupts, and that corruption is usually concentrated in people who possess wider powers in their respective organizations. In the Philippine public sector, for example, corruption would normally be committed by people who are occupying higher-level positions. In organizational contexts, powerful people are exposed to many opportunities for using the power entrusted to them by the public or by their respective organizations to advance their self-interests. With no mechanism to check the exercise of power entrusted to them, powerful would likely be corrupted, to the detriment of the public or organizational interests. Enhancing individual and organizational transparency would help temper these abuses of entrusted power.

Corruption can be learned and nurtured in the workplace. An individual will become more corrupt if he/she continues to work in an organization that tolerates questionable practices. Corruption, according to 71 percent of business managers surveyed by SWS in 2004, is "imbibed in the workplace than during childhood (see Table 5). In a corrupt organizational cultures, workers become corrupt through time. To check corruption in many organizations, there is a need to implement programs to enhance organizational transparency and, at the same time, revive positive values against certain questionable individual and organizational practices.

Corruption thrives in an environment that lacks people who challenge, and do something to stop a, wrongdoing. One of the main reasons why corruption is very difficult to eliminate is that only a few companies or individuals complain publicly about it. In fact, 95% of business managers surveyed by SWS in 2004 said that they would rather stay quiet than complain when somebody asks for bribes to facilitate a government transaction.
Corruption becomes more widespread when government lacks sincerity to act on reported corruption. The perception that nothing would be done about a complaint of wrongdoing discourages the reporting of corrupt practices (see Table 6). This is true in the public as well as in the private sector.
Corruption perpetuates in a culture that has high tolerance of wrongdoing. It is quite disturbing that a substantial number of people would consider it as a standard practice not report actual attempts by public officials to solicit bribes. Corruption spreads when people continue to tolerate questionable practices and do not report it.

The widespread perception that nothing would be done about a complaint regarding solicitation of bribes tallies with the perceptions that many government agencies are not sincere enough in terminating corrupt practices. In the 2005 SWS survey on corruption, majority of government agencies registered declines in sincerity in fighting corruption. This trend has adverse implications on the government's anti-corruption campaign.
Despite this dominant trend, however, some agencies posted improvements in sincerity in fighting corruption. These seven agencies include the Securities and Exchange Commission, the Office of the Ombudsman, the Commission on Audit, City/Municipal Government, the Department of Justice, the Presidential Commission on Good Government and the Trial Courts.
Lack of transparency and accountability a dominant cause of widespread corruption. Corruption remains a high-reward, low-risk activity in the public sector. It is not easy to detect because its key participants have an interest to hide the corrupt practice. The "good governance" principle of transparency can be enforced by encouraging organizational insiders to report questionable activities.
In the Department of Public Works and Highways (DPWH), for example, one the top five most corrupt agencies in the national government, the dominant forms of corruption occur because of the absence of mechanisms to enhance the transparency of individual and organizational transactions. Many of the observed forms of corruption such as 1) diverting money away from projects, 2) asking for bribes, 3) lack of transparency in bidding, 4) overpricing, 5) doing substandard projects, and 6) no monitoring of projects can be cured with enforceable mechanisms of enhancing transparency in organizations.2
In the Bureau of Internal Revenue, the dominant forms of corruption include connivance in tax evasion and not collecting the right amount of taxes. General bribery and tariff evasion are the most dominant forms of corruption in the Bureau of Customs. These forms of corruption can be prevented if there are mechanisms to enforce transparency in individual and organizational transactions.
The private sector's ability to control corruption within its ranks contributes to worsening corruption. The private sector's performance in eradicating corruption is not a bright spot in the anti-corruption campaign. In the SWS 2005 Enterprise Survey on Corruption, 54 percent of enterprise managers said that "most/almost all companies" practice bribery in order to secure public sector contracts. The anti-corruption campaign must reduce the supply of bribes coming from the private sector in order to reduce corruption.