Regulation and Corruption: A Hidden Relationship

Abstract

It is a non sequitur to attempt to combat political and bureaucratic corruption while leaving intact the existing regulatory structure and practices-the single-most important source of incentives to engage in corrupt activities for bothe private and public actors. Anti-corruption efforts will be self-defeating if they are made without keeping this fact clearly in mind. Unfortunately, however, this obvious fact is not well recognized. The lack of recognition can be found in the sidespread erroneous belief that all the government regulations exist to protect and enhance the public interest. This is emphatically not so. As abundant literature on rent-seeking or economic theory of regulation amply attests, a large chunkk of regulations has come into being as a result of self-interested attempts to appropriate economic rents, which must be created in the exercise of government's power over allocation of resources. Nevertheless, the efforts to put existing regulations under scrutiny from this perspective have been conspicuously lacking in the anti-corruption movement. Most importantly, we have to examine them whether they are of s uch a nature as to come into existence to promote particular actors' interest in disguise of public and general interest. In addition, we have to see whether they are simply mal-designed to encourage corruption at the stage of implementation. In this paper I will try to give pertinent examples of each with a particular reference to Korea, and strongly contend that anti-corruption should go hand in hand with regulatory reform, the emphasis of which should be placed on making regulations more market-conforming, transparent, and self-enforcing.