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Applying an economics function

by Phil Bartle, PhD

Training Handout

The amount that a corrupt official steals from the public is far less than the amount that the society loses.

Economists tell of the " multiplier effect."  Where new wealth is invested, the positive effect on the economy is more than the amount created.  As the new money is spent, those who receive it usually spend part of it, and save part of it. Let us say they spent eighty per cent and saved twenty per cent. Then there is eighty units of new money in the economy, and the receivers spend eighty per cent of that and save twenty per cent. That continues until the amount injected into the economy may be as much as four to eight times the original investment.  You do the math.

That original investment may be money created by the Government, or it could be Aid money donated by multilateral or bilateral assistance.  The effect on the economy will be a multiple amount of the original investment.

When resources that are intended to be used for community services or facilities are diverted into the private pockets of someone in a position of power, that is a major factor of poverty. Corruption means dishonesty among persons of trust and power. The amount stolen from the public, that is received and enjoyed by the individual, is far less than the decrease in wealth that was intended for the public.

The amount of money that is extorted or embezzled is not the amount of lowering of wealth to the community. When investment money is taken out of circulation, the amount of wealth by which the community is deprived is greater than the amount gained by the embezzler.  When a Government official takes a 100 unit bribe, social investment is decreased by as much as a 4 to 800 unit decrease in the wealth of the society. When embezzled money is then taken out of the country and put in a foreign (eg Swiss) bank, then it does not contribute anything to the national economy; it only helps the country of the offshore or foreign bank.

See keywords: dishonesty, multiplier effect.
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