A Clarion Call for Emerging Markets

ITHACA – With 2012 underway, it is worth reflecting on how a decade of strong economic growth in emerging markets led to last year’s resounding political transformations. From the dramatic events in the Middle East, to the groundswell of support for the anti-corruption crusader Anna Hazare in India, leaders in emerging markets are getting a clear message from the streets that growth is not everything. They ignore this message at their peril.

Emerging-market economies delivered solid growth during the 2000’s, and even survived the global financial crisis without a growth collapse. But the specter of rising corruption is compromising the legitimacy of their economic gains and eroding support for further reforms needed to sustain their growth momentum.

Corruption takes many forms, but, in emerging markets, a combination of factors has turned it into a cancer that ultimately topples regimes. Relentless low-level corruption is a major irritant for poor people in many of these countries; indeed, it limits their access to the social services and basic government functions that they often depend upon for their very survival.

Another type of corruption involves siphoning enormous sums of money from large-scale projects. In India, for example, the government lost as much as $30-40 billion of much-needed revenue when coveted band spectrum was sold through a rigged auction.