The relationship between money and political power can be a real problem in countries where wealth does not depend primarily on entrepreneurial ideas, but on political influence and access to the levers of power. 

The more power the state has, the more likely it is that lobbyism and corruption will flourish.  Countries with overly powerful governments also tend to be countries with rampant corruption. Russia, for instance, ranks a poor 136th (out of 180) in the Transparency International Corruption Perceptions Index. In the Heritage Foundation’s Index of Economic Freedom, Russia is a distant 113th. From countries such as Russia, it is clear that we need more – not less – capitalism where the ties between business and politics are too close.

Capitalism and Corruption

Many people associate “capitalism” with “corruption.” But, as the economist Alan H. Meltzer wrote: “Offenses such as bribery can be either public or private and are common in many nations, but they are most common where government officials have the most authority.” The view that corruption is particularly prevalent in capitalist countries is wrong. The opposite is true, as confirmed by a comparison of Transparency International’s Corruption Perceptions Index (CPI) and the Index of Economic Freedom.

The Index of Economic Freedom, published by theHeritage Foundation since 1995, is widely regarded as a capitalism ranking. According to the Index, the countries with the lowest levels of corruption also have the highest degree of economic freedom. The ten countries with the least corruption are all, without exception, in the Index’s “free” or “mostly free” categories: Singapore, Denmark, Finland, New Zealand, Switzerland and the Netherlands are among the ten most corruption-free countries in the world – and they are all among the ten most economically free countries! 

Conversely, countries in the bottom ten of the Corruption Perceptions Index are also classed as “repressed” in the Index of Economic Freedom. The two worst performers in the Index of Economic Freedom, Venezuela and North Korea, are also among the worst performers in the Corruption Perceptions Index. The more the state intervenes in economic life, the greater the opportunities to bribe government officials. Anyone who wants to limit unethical or even criminal influence on political policy by the wealthy should therefore not advocate for bigger, but for smaller government.

Less regulation = less corruption

I recently visited Georgia, a country where corruption used to be endemic. I met the economist Professor Gia Jandieri, an instrumental figure in the fight against corruption, who explained the most effective anti-corruption measures (apart from dismissing all 35,000 or so police officers in one fell swoop): “At least as important for fighting corruption was that reforms eliminated many superfluous regulations and rules.” This provides a key lesson for other countries: Cutting government regulation also reduces opportunities for corruption. In 2004, Georgia ranked as low as 133rd in Transparency International’s Corruption Perceptions Index. By 2021, it had climbed to 45th out of 180.

What lessons can the EU learn from this? Well, the EU regulates more and more areas of life. As a result, the EU also opens more and more doors to special interest lobbyists and even corruption. It would not be surprising if the corruption uncovered so far is just the tip of the iceberg. As we have seen elsewhere, less red tape, smaller government and less power in the hands of politicians could be among the most effective measures for the EU to deploy in its fight against corruption.

Rainer Zitelmann also addresses this topic in his book In Defense of Capitalism.

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