CONDITIONS FAVORABLE FOR CORRUPTION

It is argued that the following conditions are favorable for corruption:

• Information deficits

• Lacking freedom of information legislation. The Indian Right to Information Act 2005 has "already engendered mass movements in the country that is bringing the lethargic, often corrupt bureaucracy to its knees and changing power equations completely."
• Lack of investigative reporting in the local media.
• Contempt for or negligence of exercising freedom of speech and freedom of the press.
• Weak accounting practices, including lack of timely financial management.
• Lack of measurement of corruption. For example, using regular surveys of households and businesses in order to quantify the degree of perception of corruption in different parts of a nation or in different government institutions may increase awareness of corruption and create pressure to combat it. This will also enable an evaluation of the officials who are fighting corruption and the methods used.
• Tax havens which tax their own citizens and companies but not those from other nations and refuse to disclose information necessary for foreign taxation. This enables large scale political corruption in the foreign nations.
• Lacking control of the government.

• Lacking civic society and non-governmental organizations which monitor the government.
• An individual voter may have a rational ignorance regarding politics, especially in nationwide elections, since each vote has little weight.
• Weak civil service, and slow pace of reform.
• Weak rule of law.
• Weak legal profession.
• Weak judicial independence.
• Lacking protection of whistleblowers.
• Lack of benchmarking, that is continual detailed evaluation of procedures and comparison to others who do similar things, in the same government or others, in particular comparison to those who do the best work. The Peruvian organization Ciudadanos al Dia has started to measure and compare transparency, costs, and efficiency in different government departments in Peru. It annually awards the best practices which has received widespread media attention. This has created competition among government agencies in order to improve.
• Opportunities and incentives
• Individual officials routinely handle cash, instead of handling payments by giro or on a separate cash desk—illegitimate withdrawals from supervised bank accounts are much more difficult to conceal.
• Public funds are centralized rather than distributed. For example, if $1,000 is embezzled from a local agency that has $2,000 funds, it is easier to notice than from a national agency with $2,000,000 funds. See the principle of subsidiarity.
• Large, unsupervised public investments.
• Sale of state-owned property and privatization.
• Poorly-paid government officials.
• Government licenses needed to conduct business, e.g., import licenses, encourage bribing and kickbacks.
• Long-time work in the same position may create relationships inside and outside the government which encourage and help conceal corruption and favoritism. Rotating government officials to different positions and geographic areas may help prevent this; for instance certain high rank officials in French government services (e.g. treasurer-paymasters general) must rotate every few years.
• Costly political campaigns, with expenses exceeding normal sources of political funding, especially when funded with taxpayer money.
• Less interaction with officials reduces the opportunities for corruption. For example, using the Internet for sending in required information, like applications and tax forms, and then processing this with automated computer systems. This may also speed up the processing and reduce unintentional human errors. See e-Government.
• A windfall from exporting abundant natural resources may encourage corruption.
• War and other forms of conflict correlate with a breakdown of public security.
• Social conditions
• Self-interested closed cliques and "old boy networks".
• Family-, and clan-centered social structure, with a tradition of nepotism/favouritism being acceptable.
• A gift economy, such as the Chinese guanxi or the Soviet blat system, emerges in a Communist centrally planned economy.
• In societies where personal integrity is rated as less important than other characteristics (by contrast, in societies such as 18th and 19th century England, 20th century Japan, and post-war western Germany, where society showed almost obsessive regard for "honor" and personal integrity, corruption was less frequently seen)
• Lacking literacy and education among the population.
• Frequent discrimination and bullying among the population.
• Tribal solidarity, giving benefits to certain ethnic groups

Relation to economic freedom

According to a study of the conservative think tank The Heritage Foundation, lack of economic freedom explains 71% of corruption: the poorer the Index of Economic Freedom, the more corruption there is in a country. Below is a list of examples of governmental activities that limit economic freedom, create opportunities for corruption (incentives for individuals and/or companies to buy privileges or favors worth of money, from politicians or officials), and have in recent economic history also led to corruption:

• Licenses, permits, etc.
• Foreign trade restrictions. Officials may then, e.g., sell import or export permits.
• Credit bailouts.
• State ownership of utilities and natural resources. 'In analyzing India's state-run irrigation system, professor Shyam Kamath - - wrote: Public-sector irrigation systems everywhere are typically plagued with cost and time overruns, endemic inefficiency, chronic excess demands, and widespread corruption and rent seeking.'
• Access to loans at below-market rates. In Chile, '$4.6 billion was awarded to government banks in direct subsidies through "soft" loans' between 1940 and 1973.

Size of public sector

It is a controversial issue whether the size of the public sector per se results in corruption. As mentioned above, low degree of economic freedom explains 71% of corruption. The actual share may be even greater, as also past regulation affects the current level of corruption due to the slowing of cultural changes (e.g., it takes time for corrupted officials to adjust to changes in economic freedom). The size of the public sector in terms of taxation is only one component of economic un-freedom, so the empirical studies on economic freedom do not directly answer this question.
Extensive and diverse public spending is, in itself, inherently at risk of cronyism, kickbacks, and embezzlement. Complicated regulations and arbitrary, unsupervised official conduct exacerbate the problem. This is one argument for privatization and deregulation. Opponents of privatization see the argument as ideological. The argument that corruption necessarily follows from the opportunity is weakened by the existence of countries with low to non-existent corruption but large public sectors, like the Nordic countries. However, these countries score high on the Ease of Doing Business Index, due to good and often simple regulations, and have rule of law firmly established. Therefore, due to their lack of corruption in the first place, they can run large public sectors without inducing political corruption.
Like other governmental economic activities, also privatization, such as in the sale of government-owned property, is particularly at the risk of cronyism. Privatizations in Russia, Latin America, and East Germany were accompanied by large scale corruption during the sale of the state owned companies. Those with political connections unfairly gained large wealth, which has discredited privatization in these regions. While media have reported widely the grand corruption that accompanied the sales, studies have argued that in addition to increased operating efficiency, daily petty corruption is, or would be, larger without privatization, and that corruption is more prevalent in non-privatized sectors. Furthermore, there is evidence to suggest that extralegal and unofficial activities are more prevalent in countries that privatized less.
There is the counter point, however, that oligarchy industries can be quite corrupt ( "competition" like collusive price-fixing, pressuring dependent businesses, etc. ), and only by having a portion of the market owned by someone other than that oligarchy, i.e. public sector, can keep them in line ( if the public sector gas company is making money & selling gas for 1/2 of the price of the private sector companies... the private sector companies won't be able to simultaneously gouge to that degree & keep their customers: the competition keeps them in line ). Private sector corruption can increase the poverty/helplessness of the population, so it can affect government corruption, in the long-term.
In the European Union, the principle of subsidiarity is applied: a government service should be provided by the lowest, most local authority that can competently provide it. An effect is that distribution of funds into multiple instances discourages embezzlement, because even small sums missing will be noticed. In contrast, in a centralized authority, even minute proportions of public funds can be large sums of money.