Crime, Corruption and Capital

Abstract

Corruption is a symptom of wider political dynamics and electoral malpractice and is likely to thrive in conditions where law enforcement and legal institutions are weak or politically paralysed. Against the backdrop of globalisation, the nature of organised crime and corruption are changing to adapt to the new circumstances to amass illicit profit and market power. The chapter aims to explore the nexus between organised crime and corruption in the backdrop of liberalised foreign investment policy. In so doing, a four-stage game-theoretic model has been constructed to determine endogenously the bribe rate and the effective enforcement of law and order from the strategic interaction among the political party currently in power, an incumbent firm and a potential entrant firm. A general equilibrium analogue is built for a representative developing economy in the presence of factor market distortions and legal system distortion, to investigate whether foreign capital inflow acts as a panacea to curb corruption and crime endogenously or rather help augment this nexus. It is shown that the existence of the organised crime sector becomes necessary to sustain corruption which leads to the formation of the nexus between these two illegal activities. The results of the chapter obtained that foreign capital is detrimental to the law-and-order situation and augments the incidence of corruption; however, it may lead to decriminalisation in terms of a fall in the number of criminals. This reflects the internal contradictions of a democratic state in a developing economy distorted by political cronyism and corruption with the existence of the criminal sector.