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Thinkers

 

The corrupting influence of red tape

Far from stamping it out, too much regulation actually encourages corruption, argues Dr Stelios Zyglidopoulos, Fellow at Cambridge Judge Business School and Reader in Management at the Adam Smith Business School, University of Glasgow. So what’s the solution?

CorruptionOnce in a while, we all come across regulations that seem excessive. Though frustrating, we take these instances with a weary shrug of the shoulders, reassuring ourselves that there must be a good reason – unknown to us – behind this or that particular piece of red tape.

We assume that our regulatory framework makes sense, albeit with the odd exception, and we understand that for a society to function it must have these rules and regulations. But at what point does the sheer quantity of those regulations actually stop being a force for good and become a driver of corruption?

Faced with instances of corruption within their state organisations, the knee-jerk reaction of most politicians or senior public administrators is to increase regulations. Common sense tells them that less corruption (i.e. bribery, fraud) would take place if the various activities susceptible to corruption were more regulated.

Stelios Zyglidopoulos

Dr Stelios Zyglidopoulos

However, in countries already heavily regulated (i.e. southern European countries) over-regulation is already a major driver of corruption; more regulation only makes matters worse. In these over-regulated countries, the raft of apparently purpose-less laws make everybody involved doubt the legitimacy of the whole regulatory system, particularly as they often believe there is very little, if any, control behind them.

Moreover, the environment of excessive regulation increases the probability of different rules contradicting one another. In such cases, the citizen or businessperson faced with contradictory regulations has two alternatives: do nothing (not very good for business), or break one of the regulations involved. The third theoretical option – bringing it to the attention of a more senior administrator – usually ends nowhere.

In the long-term, however, the most damaging aspect of over-regulation is the erosion of the legitimacy of the law, caused by the widespread belief that laws and regulations are meaningless. Individuals draw on this idea to justify breaking any rule that is not aligned with their interest, regardless of whether those rules are reasonable, have a very clear reason for existence and do not contradict any other regulation.

Indeed, this erosion of legitimacy actually drives corruption, creating situations where both motive and opportunity are present. By introducing confusion and additional layers of complexity, over-regulation creates motive for both private business and public servants to engage in corruption. And it makes control harder to achieve, reducing the chance that the individual(s) involved will be caught.

To give an example, for how many months would a businessperson wait for his/her construction permit or company registration before the idea of bribing an official to get it done in a day started to sound attractive? Public servants know that, given the complexity of the regulations and the slim chance that they will be caught, they can ask for a bribe, substantially increase their income, expedite somebody’s business and make friends – all at the same time. Of course, many public servants will refuse to engage in such activities, but when the motivation and opportunity is there – systemically present – sooner or later someone will give in, and more will follow.

So by creating motives, opportunities and justifications for corruption, over-regulation is a clear danger. The solution – particularly in countries that already suffer from an over-regulated public sector, such as those in southern Europe – must be regulatory reduction and simplification. After all, you cannot cure the disease by injecting the patient with more strains of the virus that caused the sickness in the first place.