Reducing Regulatory Red-Tape Prevents Corruption

Tackling the complexity and red tape of the regulatory state at all levels of government doesn’t just support businesses’ bottom line. Reducing red tape and chances for favouritism and bribery builds trust between citizens and the state.

Even in developed economies, clear, transparent, accountable and efficient government procedures for regulations build trust between businesses, citizens and the government. Governments should be continuously working to make administrative procedures more predictable, transparent and less burdensome. In New Orleans, two officials have been charged after it was found that they were approving buildings that had not been inspected or were not up to code in exchange for bribes.

Regulations, like building codes and permitting, are ostensibly designed to protect the safety and well-being of citizens. These licences and permits ensure that buildings are safe for its occupants. However, the lengthy process puts critical financial and economic power in the hands of a few bureaucrats. Businesses are encouraged to pay bribes to speed-up or completely avoid lengthy procedures, particularly for large projects were delays could potentially last years.

The link between regulation and corruption is well established. Holcombe and Bordeaux (2015) found “a strong relationship between the amount of government regulation in a nation and the level of corruption.” Clarke estimated that increasing the time spent by managers on regulation from the 25th percentile to the 75th percentile increases the risk of bribery by 42%. Aghion et al. (2010) found significant links between regulation and government trust. A number of authors, including Nobel Prize winner Joseph Stiglitz, have noted that particularly corrupt governments also have an incentive to create more regulatory burdens. More rules mean more opportunities to collect bribes.

All of this has a significant effect on the economy. Mudambi et al. (2012) found that the level of economic regulation is a strong predictor of corruption levels and FDI inflows.

Interestingly, academics have found only marginal links to the size and influence of government spending and corruption. It seems logical that a government that spends a greater share of GDP and thus controls more of the economic pie would encourage bureaucrats to accept bribes. Bureaucrats that control a large part of the production could be bribed to spend it on favoured agents through public procurement contracts or redistribution. However, few papers have found an active link. Instead, it’s the burden and complexity of regulation that creates the most opportunities for graft.