Measuring the extent to which corruption prevails worldwide is notoriously difficult. However, it is certainly not difficult to understand why corruption can have a hugely detrimental effect on a country’s economic integrity.

Earlier this week, the non-governmental organisation Transparency International released their annual Corruption Perceptions Index. The 2013 index ranks 177 countries according to perceived levels of public sector corruption, as determined by both expert-level assessments and opinion surveys.

Corruption, as defined by the New Zealand Serious Fraud Office, is “behaviour on the part of officials in the public or private sector in which they improperly and unlawfully enrich themselves or those close to them … by misusing the position in which they are placed”.

There is no doubt that the economic consequences of corruption can have an utterly devastating effect on individuals and societies worldwide. And while substandard economic performance itself does not suggest pervasive corruption; pervasive corruption does often result in substandard economic performance.

Firstly, corruption impedes a government’s ability to provide high-quality public services. Severe corruption results in lower-quality services at a much higher cost.

Secondly, corruption deters foreign direct investment, which can be a driving force of economic growth. Corruption raises investors’ costs and risks.

Thirdly, corruption constricts the healthy functioning of market economies. Illicit behaviour – for instance, the rigging of procurement processes – diminishes market competitiveness and, in turn, lowers economic growth.

The World Bank estimates that around US$1 trillion is paid in both public and private bribes per year. However, given that this estimate excludes other common forms of corruption – such as the embezzlement of funds or tainted procurement processes – the economic costs in real dollar terms are likely to be significantly higher.

New Zealand and Denmark, with identical scores of 91, tied for first place in this year’s index. While New Zealand can applaud itself for scoring consistently high on the index, any score less than 100 indicates that there is still some form of vulnerability to corruption.  

Given the damaging impact corruption can have on a nation’s economy, it is not enough to simply identify a country’s strengths. It is also critical to identify the weaknesses.

Next week, the New Zealand arm of Transparency International will follow up this report with the release of the ambitious National Integrity System assessment which will provide a detailed report on New Zealand’s vulnerability to corruption. Armed with this information, if New Zealand wants continued economic growth, we should be working towards attaining a perfect score.