NCPA - National Center for Policy Analysis

Free Market V. Corrupt Government

July 29, 1996

The foundation for a market economy rests not only on economic freedom and limited government but also on a sound judiciary and the rule of law, economists emphasize.

They point out that:

  • Bribes for government favors are disguised taxes that discourage honest entrepreneurs, inhibit private investment and restrain economic growth.
  • There is less corruption in countries where the power of the state is lower and economic freedom is higher -- partly because officials have fewer government favors to hand out and there is less black market activity.
  • In addition, a strong court system reduces corruption by imposing costs on corrupt officials -- increasing the likelihood of detection and punishment and the severity of punishment.

The data support this logic. For example,

  • New Zealand was rated the least corrupt, while Nigeria was rated the most corrupt of 54 countries in a recent study by Transparency International.
  • Also, New Zealand received a grade of A for economic freedom and Nigeria an F- in an evaluation of 100 countries in Economic Freedom of the World 1996.

Many developing countries have begun to liberalize their economies and rein in the power of government, stimulating economic growth and reducing the opportunities for corruption. But economists caution that they must also revamp their unprofessional and unpredictable judiciary systems to achieve maximum prosperity.

Source: Steve H. Hanke, "The Curse of Corruption," Forbes, July 29, 1996.


Browse more articles on International Issues