A 2021 POLICY paper co-authored by the Institute for Democracy and Economic Affairs’ and the Coalition for Business Integrity, entitled “Corruption in the Supply Chain: forms and impacts on consumers” (May 2021), examines the impact of corruption on the cost of living for the average Malaysian consumer.

The paper sought to document and explore how “everyday corruption” can negatively impact prices of consumer goods and services and, therefore, the cost of living.

The authors Adli Amirullah, Danya Frances, Laurence Todd and Sri Murniati utilised both qualitative and quantitative methodologies to analyse how corruption could impact prices. Existing literature on the impact of corruption on the economy and prices was studied while an econometric analysis to test the correlation between corruption and price levels in Malaysia was conducted.

The paper made a number of findings, including that corruption “imposes a ‘mark-up’ on goods and services and results in increasing prices of consumer goods and services.”

On the finding that the cost of corruption in the supply chain is passed on to the consumer, the authors wrote: “The most direct impact that corruption can have on the cost of living is through increasing the costs of doing business – costs which are then passed on to the consumer. When suppliers of goods and services are required to engage in corrupt practices – such as paying bribes – this increases the cost of doing business, and these costs will be passed on to the consumers.

“The impact can be significant: research has shown that the increase in costs due to illegal payoffs can be as high as 30% (Wade, 1982). Budak and Vizek (2015) found that the general price level increases by 0.135% when the TI-CPI score decreases by 1%, i.e. when corruption gets worse.

“The study finds that that the price of corruption is the highest for consumer services: a 1% increase in perceived corruption increases the prices of consumer services by 0.25%, which suggests that the effect of corruption on prices of services is twice as large as that on prices of goods.

“Dealing with corruption is an everyday reality for many businesses in Malaysia, as shown by the response of 71% of respondents in the KPMG Survey 2013 (KPMG Malaysia Fraud Bribery and Corruption Survey, 2013) who believe that corruption is inevitable when conducting business and 64% of respondents who believe that business cannot take place without corruption in Malaysia.

“As a result, corruption can directly increase the prices of essential goods and services. Increases in the cost of doing business will be passed on to the consumer.”

Accordingly, it is delusional to say that preoccupation with eradicating corruption will not reduce prices of essential goods and services.

In a recent conservative estimate of the country’s monetary loss to corruption, Emir Research CEO Dr Rais Hussin put the figure at a whopping RM4.5 trillion over the last 26 years.

Enough of delusions. Enough of corruption. – May 28, 2023.

* Hafiz Hassan reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.