Corruption: more competition rather than more governmental structures

MONTREAL, May 26, 2016 /CNW Telbec/ - With a lot of ink still being spilled over the issue of corruption in Quebec, an MEI Viewpoint published today proposes some solutions for reducing corruption in the awarding of public contracts.

Economic research shows that size of government goes hand in hand with corruption. "This is because regulation creates incentives for a company to try to influence the decisions of government officials in order to obtain benefits and privileges from them, like the awarding of a contract or exemption from certain costs, allowing it to circumvent regulation, for example," explains Mathieu Bédard, Economist at the MEI and author of the publication.

Indeed, Transparency International's Corruption Perceptions Index is highly correlated with the Economic Freedom of the World index published by the Fraser Institute. This means that when the size and scope of the government in the economy are smaller, there is less corruption.

Although the government believes it is doing the right thing by announcing the creation of an inspector general's position and a watchdog for public contracts, in addition to asking the Auditor General to investigate the awarding of public contracts at Transports Québec, it is overlooking the real solution. "The government is not advocating the lasting remedy for eliminating corruption, which is that of reducing the size of government and avoiding the addition of more layers of oversight," says Mathieu Bédard.

The case of the Scandinavian countries is sometimes raised as a counter-example. These countries have large governments, but little corruption. However, Scandinavia's distinctiveness is explained by the fact that while government spending represents a considerable share of the economy, companies have relatively few administrative formalities to follow, approvals to obtain, and regulations to respect.

Competition is another way of reducing corruption by allowing more companies to participate in the tendering process for public contracts. For example, free trade agreements can increase the number of bidders.

"When the 60 recommendations of the Charbonneau Commission are analyzed, taken individually, they can help reduce corruption," points out the author of the publication. However, only two involve the matter of competition, and a large proportion of them would end up increasing the size of the government, says the author.

The Viewpoint entitled "Less Regulation and More Competition to Curb Corruption" was prepared by Mathieu Bédard, Economist at the MEI. This publication is available on our website.

The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

SOURCE Montreal Economic Institute

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