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The EU’s corruption problem

Published in Business Spectator (Melbourne), 28 December 2015

eurocorruptionThe EU likes to portray itself as a good and modern place to do business, despite the hiccups of the euro crisis and other distractions. Between this self-image and reality nevertheless lies a gap, and nowhere is this more evident than in spread of corruption around the continent.

We actually have to thank the EU for drawing our attention to this problem. The latest Eurobarometer survey, conducted for the European Commission, asked almost 8,000 businesses across all EU member states about their perception of corruption in their countries. The results at the same time shocking and revealing.

Across the whole of the EU, 71 per cent of all companies thought that corruption was widespread in their respective countries. Only 24 per cent believed it was rare, 5 per cent did not know — and precisely zero per cent declared corruption non-existent.

If almost three quarters of businesses report widespread corruption, then surely this must be a serious issue, even though it is not one that receives much coverage. What is even more striking are the large differences in perceptions of corruption across Europe.

In Italy, 98 per cent of respondents reported widespread corruption, but only 11 per cent of Danish companies did. Italy and Denmark are the two extreme points in this survey around which other countries cluster.

The most corrupt places are in Italy’s loose geographic proximity. Spain (93 per cent), Greece (96 per cent), Romania (95 per cent) and Bulgaria (91 per cent) are all Southern European countries. Meanwhile, the least corrupt places such as Sweden (43 per cent), Finland (31 per cent), Britain (41 per cent) and maybe even Germany (though at 51 per cent perceived corruption) are all in central and northern Europe.

Interestingly, the perception of corruption does not necessarily mean that doing business is made harder. Take Italy, for example. Though 98 per cent of Italian companies report widespread corruption, only 60 per cent agreed that corruption was a problem for doing business in Italy. Maybe the difference between the two figures are companies are so used to corrupt practices that they regard them as ‘business as usual’, in which case corruption was not a problem for doing business but the way of getting business done.

The discrepancy is similar in all European countries. Even though corrupt practices are regarded as commonplace, fewer companies feel that they make their lives more difficult.

It is worth pointing out that corruption does not always mean bribes and kickbacks. In fact, these were ranked relatively low as the most common occurrences of corruption. Far more prevalent are favouring friends and family members in business, tax fraud and funding political parties in exchange for influence of public contracts.

Perhaps least surprising in the Eurobarometer results is the sector-by-sector analysis. By far the sector most affected by corruption is construction and building, in which 49 per cent of respondents across the EU said corruption was a problem for doing business. This was followed by engineering, electronics and motor vehicles (39 per cent) and financial services, banking and investment (35 per cent).

Another result of the survey which should be embarrassing for the EU is the anticipation of criminal sanctions. Almost two thirds of companies (62 per cent) stated that they would find it unlikely that corrupt people or businesses would be imprisoned or heavily fined. In fact, only 41 per cent believe that such people or businesses would even get caught.

The picture that emerges from this latest Eurobarometer survey is an unsettling one. It shows how the rule of law and clean business practices are not nearly as strong in Europe as one might have expected. After all, most EU member states are mature, developed economies with reasonably functional legal systems. We would instinctively expect them to score much better in corruption surveys.

Yet only in a handful of these countries does corruption seem to be under control (and practically all of them are Scandinavian).

For the EU and its member states, there is a lot of work to be done in this area. This is particularly necessary because corruption is not just criminal and wrong, but especially harmful to small companies. To quote the Eurobarometer survey:

“Smaller companies are more likely to experience a range of problems when doing business in their country, including patronage and nepotism, and corruption. In addition, smaller companies are more likely to say corruption in their country is widespread: 73 per cent of the smallest companies say this, compared to 50 per cent of those with 250+ employees.

“Smaller companies are also much more likely to say corruption prevented them from winning a public tender or procurement contract. Smaller companies are more likely to say bribery or the abuse of power for personal gain is widespread among politicians, party representatives or senior officials at the national or regional/local level.”

So a corrupt business environment seems to work in favour of large incumbent companies while stopping new and smaller rivals from growing in the market. For countries in economic crises, however, it is the dynamic of the SME sector that is vital for creating growth and jobs.

This makes an effective strategy for tackling the corruption problem all the more important. But it is not apparent either the EU or any of its member states has one.

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