Power and corruption

Published May 1, 2016
The writer is a former Pakistan ambassador to the UN.
The writer is a former Pakistan ambassador to the UN.

MACHIAVELLI’S dictum, ‘Power corrupts; and absolute power corrupts absolutely’, has been validated by history and current events.

Corrupt entities collapse eventually. Great empires have been destroyed by corruption. Corrupt leaders have stalled the development of poor nations.

Recent headlines have proclaimed the wide incidence of greed and corruption in developing countries: Brazil, where the president is about to be impeached; South Africa, where the president has survived an investigation into a $30 million improvement of his personal home at state expense; Malaysia, whose prime minister received $600m from an unknown foreign benefactor.


The focus on corruption of Third World leaders masks the unscrupulous behaviour of major capitalist states.


Then there is Egypt, where both the Mubarak and Morsi regimes were ousted on charges of corruption and misuse of power; Nigeria, where oil revenues of hundreds of billions of dollars have disappeared; Turkey, where investigation of the president’s coterie for corruption has been squashed; Russia, where the rule of the oligarchs is decried; India, where financial scandals are reported daily; even China, where the president has instituted a campaign against official corruption.

And, the most egregious instances of official corruption are reported in conflict states: Congo, Libya, and the poster children of US ‘nation-building’, Afghanistan and Iraq.

The focus on corruption of Third World leaders, however, masks the unscrupulous behaviour of the major capitalist states and their double and triple standards. The wealth of these nations has been created not only by the judicious application of capital, labour and technology; but as often due to their coercive ‘control’ of these factors of production in the past and at present. The rapacious exploitation of natural resources and creation of captive markets by colonial powers are the most obvious examples. The structures of world trade and finance continue to be controlled by the US and its friends.

Bank secrecy in Switzerland was created to prevent the Nazis from seizing the assets of German Jews; it then became a haven for dictators, criminals and corrupt officials from around the world. It was dismantled only when the US felt that too many Americans were being enabled to dodge its Internal Revenue Service.

Tax havens were also created by the Western powers, especially Britain, to attract foreign capital and enable their rich and powerful to avoid onerous taxes. The system has been widely emulated. It has been extensively utilised by legitimate businesses and some of the world’s largest corporations to reduce their tax burden; but also by corrupt politicians, officials and criminals in various countries to avoid taxes or hide money.

The OECD and others are attempting to reform the system to prevent tax leakage and money laundering. But these endeavours are unlikely to significantly change the policies of countries which see their ‘tax friendly’ structures as a unique advantage in competing for international capital. The most powerful nation, the US, will reportedly not allow tax ‘shelters’ in states such as Delaware and Nevada to be covered in the OECD’s scheme for reform of tax havens.

The revelations of the Panama Papers have unleashed an outcry in several countries, including Pakistan. The issue is not only one of illegality. The country’s leaders — past and present — must be held to a high standard of probity. An impartial investigation is justified.

However, it would be a pity if this effort is reduced to a political vendetta. This could needlessly destabilise the country just as it is on the verge of attracting sizable foreign and domestic investment and registering a healthy rate of economic growth.

The revived national concern about official corruption should be utilised to address the entire spectrum of challenges arising from the nexus of power and corruption, especially where it impedes Pakistan’s socioeconomic development.

Apart from an investigation into and accountability for known and reported cases of corruption against political leaders and other officials, there are at least three fundamental and interlinked issues which need to be addressed: the taxation system; crony capitalism and economic governance.

The measures for tax reform have been well identified: enforcement of tax obligations and tax collection; widening the tax net, especially through coverage of the retail, services and agricultural sectors; marking and tracking of products to ensure the collection of value added taxes; full and fair collection of customs and excise duties; and, elimination of arbitrary tax exemptions and concessions.

Eliminating crony capitalism is a broader task. It will require the promulgation of adequate laws and regulations to govern economic competition and ensure transparency in economic decision-making, particularly the award of contracts, permits and licences; and the establishment of an impartial and independent economic oversight body composed of experts of known integrity to rapidly review complaints of abuse of power, fraud or corruption in economic decision-making.

The standards of economic governance in the country are abysmal. With notable exceptions, the bureaucracy is either technically and functionally incompetent or corrupt or both. Administrative reforms have failed. It may be better, in certain areas which involve economic and technical decision-making, to create entirely new, modern bureaucratic structures rather than attempt to reform existing ones. Weeding out incompetent or corrupt officials would accelerate the construction of modernised structures. But the demand for efficiency and accountability will have to be accompanied by attractive, ‘market-related’ compensation for a new meritocracy.

For rapid development, Pakistan’s trade and investment regimes will also require modification. Pakistan’s manufactures will revive only if imported goods are not cheaper than domestic products. Investment will come only if the domestic demand in Pakistan for goods and services can be met domestically, not externally. Exports will expand only when Pakistani goods are competitive in price and quality. The Planning Commission should be reconstituted to perform, without political interference, its original function of formulating and implementing strategic economic policies to propel growth and development.

Last, Pakistan should revive its decades-old leadership role in promoting reform of the unequal global economic, trade and financial structures which continue to retard the development of so many developing countries, including Pakistan. This is an agenda on which national consensus can be built and that will advance development and progress in Pakistan.

The writer is a former Pakistan ambassador to the UN.

Published in Dawn, May 1st, 2016

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