Effects of Corruption on Capitalism and Foreign Investment

Solution Preview

Corruption impacts countries in many ways, impacting progress and development. Corruption increases the cost of government and may lower the quality of infrastructure. Corruption impacts capitalism and foreign investment in that it changes the environment, affecting decisions and actions. Corruption causes discriminatory treatment. It also interferes in managerial decision making.

Multinational corporations may be unable to compete in certain countries due to dishonesty by government officials, dependent upon a system of graft and bribery to approve and facilitate permits and various company operations. Corruption may be at the highest levels of government, where government decisions regarding military equipment, civilian aircraft, infrastructure or broad policy decisions about industrial subsidies are made, based upon favoritism rather than ethical weighing of facts. Corruption may involve elected officials and politicians as well as nonelected officials. Corruption may be voluntary and petty, for instance, paying to expedite a building permit. It may be extorted, in which a licensing officer holds up a building permit until a bribe is pad. It can also be grander, in which a voluntary bribe is paid to a public elected official in exchange for awarding a contract for a large municipal building, despite the contractors lack of experience. Or a grand extorted bribe might be having a high-level construction ministry official threaten to condemn the building unless a large bribe is paid. Each of these cases causes inefficiencies and inequities, as well as an undermining of political legitimacy.
Bribes to public officials are easy to define as corruption, and involve a "direct exchange of money for favors"(Elliott, n.d.). An illegal exchange involving indirect exchange is harder to ...