Dish sponge and USA dollar note signifying money laundering

Disrupting corruption

Christine Lagarde explains the important role of the International Monetary Fund in dealing with corruption – it’s not just about getting the bad guys, it’s also crucial for our young people, the economy and society in general.

Why does the IMF care so deeply about corruption? The reason is simple. The job of the IMF is to protect global economic stability and promote strong, sustainable, balanced, and inclusive economic growth. And this becomes difficult, if not impossible, to achieve in the presence of entrenched and institutionalized corruption.

Why corruption matters

Fundamentally, corruption impairs the ability of the government to do its job. It undermines the ability to raise needed revenue, and it also distorts spending decisions—in the sense that governments might be inclined to favor projects that generate kickbacks over projects that generate economic and social value. This is bad for growth and bad for economic opportunity. It is bad for equity and fairness, as the poor lose out most from the diminished social spending and investments in sustainable development. And it is bad for economic stability, as the toxic combination of a low revenue take and wasteful spending lets deficits run too easily out of control.

More generally, broad-based corruption can weaken the foundations of a healthy economy by degrading social norms and undermining civic virtues. When the wealthy do not pay their taxes, the entire tax system loses legitimacy. When cheating is rewarded, and when elites are seen to play by different rules, trust will give way to cynicism, and social cohesion will fragment. In a worst case, this can lead to civil strife and conflict.

Bottom line: if the foundation of your house is “rotting”—another meaning of “corruption”—then how can you build a strong and sustainable economy? You cannot.

All of this is especially debilitating for youth. When corruption is deeply embedded, far too many young people find that they have no prospects, no sense of purpose, no ability to participate, to make their mark, to flourish, and to contribute to society. They lose the motivation to pursue an education, knowing that getting ahead depends on connections rather than ability. They become disillusioned, disengaged, and disenchanted. They lose hope. At a visceral level, corruption can be soul-destroying.

So, it is really no surprise that the absence of widespread corruption is one of the key factors explaining differences in well-being across countries.

It is also no surprise that tackling corruption is central to the success of the Sustainable Development Goals (SDGs). It is certainly central to Goal 16 of the SDGs, which calls on the global community to: “Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels.” Goal 16 incorporates specific targets relating to reducing corruption, bribery, and illicit financial flows. But more than that, the success of all other SDGs depends crucially on getting to grips with the corrosive cancer of corruption. Again, you cannot build a house on a rotten foundation.

Dealing with corruption is especially important in the current global context. I am thinking here about the pervasiveness of tax evasion, as documented by recent scandalous revelations; rising skepticism among some toward traditional institutions, which are seen to favor insiders and elites; and the need to prioritize challenges such as uncertain job prospects, rising inequality, and magnified environmental stress.


Read more: Corruption Disruption | IMF Blog

Posted in Governance, Innovation and disruption, It's all about people.