Does corruption impact the development of the Finnish economy?

During her trainee period at the National Audit Office, Fanni Rantamaa, a student of economics, also worked with her master's thesis. In this blog post, Rantamaa presents the key contents of her completed thesis regarding corruption in Finland and its possible impacts on the economic development.

To cite English Lord Acton‘s famous quote, “power tends to corrupt, and absolute power corrupts absolutely”. Corruption has been generally defined as the abuse of power for private gain. However, there are different views of the type of power abused in corruption. According to the World Bank, abuse in corruption is directed at public power, whereas according to Transparency International, a non-governmental organization for combating corruption, the abuse is directed at entrusted power.

In practice, corruption is often considered to be a synonym to bribery, although bribery is actually only one of the many forms of corruption. Other typical forms of corruption are extortion, networking that is contrary to integrity, nepotism and abuse of inside information. Therefore, corruption does not necessarily mean that the owner of money changes – at least directly. Corruption may also refer to an exchange of information or services, as a result of which the gain improperly obtained by the parties grows.

On the other hand, corruption is the result of social constructionism: what is considered corruption today is not necessarily considered corruption 50 years later. Nor is there a single universally accepted definition for corruption, which makes it difficult to study it.

Structural corruption appears in Finland as unofficial networks

Corruption in Finland occurs typically as an exchange of information or services or both, rather than street-level bribery. In research literature, the kind of corruption that is typical of Finland is called structural corruption. The term refers to corruption that exploits the defects in the structures of society and where the entire organization culture and decision-making process are corrupt.

In Finland, structural corruption appears usually as unofficial networks, also known as “old boy networks”. According to an anti-corruption report issued by the Ministry of Justice in 2009, old boy networks are concerned “when insiders of the public administration and business life do one another favours based on unofficial relationships”. On the other hand, the dual roles of policy-makers and politically motivated appointments are prone to structural corruption. However, based on current research, there is no ample evidence available of structural corruption in Finland.

In any case, it can be stated that structural corruption is in many ways linked with the public administration, institutions and power. Structural corruption occurs mainly when there are significant financial interests. It is therefore justified to ask whether corruption has an impact on the economic development in Finland.

The corruption risk related to public procurement is also a risk to the economic development

In the light of research results, it can be stated that corruption has an impact on the economic development even in Finland. This is particularly obvious on the local government level, where the risk of corruption is particularly high. In the local government, oversight is less effective than on the national level, and the decision-makers consist often of powerful local people.

The unofficial networks of these powerful people may sometimes steer the local government decision-making related to public procurement and land use planning: public purchases are made from actors favoured by the decision-makers, and planning decisions are made to please certain actors. Even if no improper measures are taken to influence the decision-makers, this type of favouring is dangerous to the economic development, as it restricts competition and distorts the market by allocating resources to targets that do not necessarily provide society with the most added value. This, in turn, results in a welfare loss, the price of which is paid in the end by ordinary citizens.

On the other hand, corruption in Finland is not on such a large scale that it would impact all sectors of economic development. It can be stated, however, that the risk of corruption related to public procurement, in particular, also presents a risk to the economic development, as public procurement constitutes almost a fifth of the GDP in Finland.

Although, based on research results, corruption does not seem to present a major threat to the economic development today, it may well do so in the future. Theory indicates that the economic impacts of corruption become evident particularly in the long term.

If the problem is not addressed in time, it may have significant economic and social consequences. In this sense, corruption is therefore the same kind of problem as the climate change: it will not disappear if we close our eyes or take it into account only in the short term. Therefore, it is important to combat corruption in good time.