Corruption: The biggest threat to developing economies

By Geoff Colvin, senior editor at large

FORTUNE — “We’re thinking of pulling out of Brazil,” the CEO of a large American corporation told me a week ago. The company has been operating there for a few years, doing several million dollars of business. The problem? A series of court judgments so inexplicable, and so crushingly expensive, that the CEO doubts his ability to manage the business. He doesn’t see how the rulings can be honest — even former President Luiz Lula da Silva called Brazil’s judiciary a “black box” that’s “untouchable” — and if the system doesn’t work, this CEO is bailing out.

Tracking dirty money*

This is corruption, a problem we’d rather not think about that now threatens the ascension of developing countries into the top tier of world economies. Given its history, optimism on the subject would be foolish. But while the media and Wall Street focus on more tractable issues like inflation and exchange rates, world leaders seem perfectly clear on the greatest threat to the future of the BRICs and other emerging economies. Corruption is the “biggest threat to China,” Premier Wen Jiabao told the National People’s Congress in March. When U.S. Vice President Joe Biden visited Russia recently, he cited corruption as the No. 1 impediment to better economic relations and pointedly mentioned Sergei Magnitsky, a lawyer who died in custody in 2009 after accusing the police of corruption.

The Rakyat knows the truth:

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A warning to us in Malaysia!

The problem is not just the petty palm greasing that’s common worldwide, though that has its own corrosive effects. Developing-market corruption has reached staggering dimensions. India’s telecom ministry apparently siphoned $30 billion from various projects over the past few years. A Russian activist posted online documents apparently showing a $4 billion fraud in a state-run company’s trans-Siberian pipeline project. In China a minister overseeing the new high-speed-rail network is accused of skimming $152 million (and maintaining 18 mistresses). The threat is broader than it may seem: Corruption discourages the investments needed for economic progress. In India “high-level corruption and scams are now threatening to derail the country’s credibility and [its] economic boom,” says a report from KPMG.

The societal effects are subtler and arguably worse. Initiative and ambition shrivel: Why try hard when effort isn’t the source of success? Respect for authority evaporates. Anger and resentment build, especially as a society becomes richer and the gulf between ordinary citizens and the officially tolerated crooks grows wider. When Premier Wen declared corruption the biggest threat to China, he wasn’t talking about its effect on foreign investors; he’s worried about “social stability.” He knows that while massive corruption isn’t the only grievance of the revolutionaries in North Africa and the Middle East, it’s a big one.

Many people shrug at corruption because they figure it’s eternal and incurable. Not so. England was deeply corrupt in the 17th century, Sweden in the 19th, notes professor Michael Johnston of Colgate University, a corruption expert. Singapore and Hong Kong virtually eradicated corruption in a generation. Still, reform is extraordinarily hard, he says, especially in big economies where “huge stakes are on the table.” Reform “can degenerate into political payback” by the reformers. Where to begin? “One of the best predictors of whether a society will do well on corruption is the strength of property rights,” Johnston says. “That’s not a bad place to start.”

An insidious feature of corruption is that it’s hard to talk about. I can’t identify the CEO who’s thinking of leaving Brazil because doing so could imperil his company’s ability to operate there. More generally, accusing people in power is inherently dangerous. Graft operates in the dark. So, like the man looking for his keys under a lamppost not because he lost them there but because the light is better, we focus on economic issues that are rich with statistics and susceptible to math. But we’re missing a giant danger. It’s naive to think the recent official attention to corruption will amount to much. If it doesn’t, the progress of the emerging economies could turn ugly.  To top of page

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Biting demand over dog attack; keep stray dogs off the street!


Victim’s hubby wants RM88,000 paid to SPCA as ‘compensation’


NIBONG TEBAL: The husband of the dog bite victim has demanded that RM88,000 be donated to the Society for the Prevention of Cruelty to Animals (SPCA).

Dr Lim Ching Syong, 51, through mediators had told the German Shep-herd owner to pay the amount, which signifies fortune and good luck to the Chinese, to the SPCA or face legal action.

“I do not want to accept the dog owner’s offer to settle my 43-year-old wife’s hospital bill, but I want the money to be paid to the SPCA so that abandoned and stray animals could be taken care of.

“I will not compromise with the dog owner as he had been told many times to chain up his pets,” he told reporters at a press conference after his wife Lee Boon Chen lodged a report at the Simpang Ampat police station yesterday.

Also present was Seberang Prai Municipal Council (MPSP) councillor Francis Ong Koon Liak.

The 16-month-old black German Shepherd had allegedly attacked the housewife when she took her pet Shih Tzu to a playground near her house in Taman Bukit Tambun here.

Lee, who was admitted to a private hospital in Bukit Mertajam following the incident on Friday, was discharged on Monday with a bill of RM6,500. She received 12 stitches to close the wounds on her chest.

She said she was still traumatised by the attack, adding that this would take her a long time to recover.

“The owner was accompanying two German Shepherds when one of them attacked me.

“Fortunately, two women with sticks came to my rescue and managed to chase the dog away. I do not blame the dog at all, it is the owner who should be held responsible,” she said in between tears.

Ong, who advised pet owners to obtain licences for their dogs from the MPSP, said pet dogs should always be chained up and not allowed to run free to prevent such incident from recurring.

The German Shepherd has since been taken into custody by the state Veterinary Department for observation. Its behaviour would be noted and the dog also checked for symptoms of rabies such as foaming at the mouth.

The dog will be returned to the owner after 10 days if there’s no sign of the disease.

Council: Keep your pet stray dogs off the streets

GEORGE TOWN: People who take in stray dogs as pets should confine them or face the possibility of the animals being shot or put to sleep.

A spokesperson from the Urban Services, Public Health and Licensing Department said that under the council’s dog licensing by-laws, the council could take action by shooting stray dogs or putting them to sleep if they were found roaming the streets and if there were complaints from residents.

“It is not a problem if people want to take in stray dogs as pets, but these dogs should be confined to the house compound and not cause a nuisance in the neighbourhood,” the spokesperson said.

She was commenting on a complaint to The Star by a college student who was unhappy with several council workers who had removed a six-year-old stray dog and her puppy from his home in Jalan Sungai Emas, Batu Ferringhi, on April 11.

K. Keshure, 19, said both dogs were outside his house when the workers took them away.

He claimed that he had gone to the council to lodge a complaint but was told the dog and the puppy, believed to be three months old, were causing a nuisance in the neighbourhood.

“How can the council take action based on this because I cannot believe that a three-month-old puppy could harm anyone?” he asked.

The council spokesperson said the council workers had gone to the house following complaints that the dogs were chasing motorists in the neighbourhood.

Upon checking, the spokesperson confirmed that both dogs were put to sleep on the same day.

“We are also sure that the puppy was more than three months old as the workers had tried to fit it into a cage made for puppies that age but it was much bigger.

“We would have definitely not put the puppy to sleep if it was three months old or less but sent it to the SPCA (Society for the Prevention of Cruelty to Animals),” the spokesperson said.

SPCA administrator Lily Leng when contacted said dogs which are three months old and above should have a licence.

“The authorities have the right to act if there are any complaints of stray dogs roaming the streets,” she said.


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