Corruption can be due to greed, or it can be due to need. But pervasive corruption does distort our environment for living in a free and prosperous manner. In a world where everyone must become a criminal to satisfy their daily needs, the social order will be one that disrespects the law in general and social cooperation under an extensive division of labor will be increasingly difficult to achieve. Time horizons of investment will shorten, the span of the extended order will be reduced, and many mutually beneficial opportunities will be foregone.
Corruption is caused by government regulations over the choices of individuals -- a fact that must be stressed at all times in these discussions. It is when people use their position in office to extract personal benefits to themselves that otherwise would not be forthcoming. A customs agent or passport control official, for example, who accepts money to look the other way, is only able to do so because of government restrictions on the free flow of goods and services. The Enron accounting fiasco, or the misuse of funds by the head of Red Cross is not corruption. It is undesirable behavior, it is behavior which violates a fiduciary duty, but it should not be labeled as corruption. No, corruption holds a special place in our language (and history) and that is reserved for the use of positions of governmental power to extract resources from individuals due specifically to their unique position of power over the life choices of those individuals.
John Wallis wrote a paper in 2005 on the concept of systemic corruption and one way to read that paper is that when economic resources are used to influence politics or get a regulator to look the other way (venal corruption) the negative consequences are minimal, but when political resources are employed to influence economic life the negative consequences are pervasive and severe. Wallis's paper is part of an NBER project and is part of a stream of very powerful papers --- several of which contain vital themes that will appear in his forthcoming book with Barry Weingast and Douglass North.
But there is something about expansive interventionist environments, even those where we can utilize our economic resources to minimize the negative consequences of overregulation that are undesirable from the point of view of societal progress. Wallis, in other words, may be underestimating the cumulative erosion that is set in motion by corruption (even of the relatively beneign nature of paying off a building inspector to overlook some ridiculous regulation). Free individuals just should not have to deal with the burden of meddlesome government in their day to day decisions on how to spend their time, money, and talents.
The study of corruption has taken off over the past 20 years, and Transparency International is at the forefront of this effort among international policy agencies, NGOs, and academics. On Wednesday October 18th I saw David Nussbaum talk on the theme "Money versus Morality: Is Corruption Just a Matter of Mis-Aligned Incentives?" It was a solid talk, though not a talk that said anything really new.
He started out by simply pointing out the sheer magnitude of the problem, and then he sought to explain how we have tried to study and address the problem, and then discussed the new avenues of research that are currently being explored. The original approach focused on politics, economics and law, and how incentive alignment through policy, finance and regulation might address the problem of corruption. He then argued that more recently research has also focused on religion and beliefs, psychology and behavior, and anthropology and group pressures.
The first question from the audience raised the general point I alluded to in the first paragraph. Namely, what is more vital to addressing the problem of corruption --- dealing with the everyday expectations of individuals in a bribe based society, or focusing on the higher officials who use their office to extract rents. The women from the audience used the example of a woman she knew from India who was poor enough to qualify for public assistance, but too poor to actually get public assistance beecause she couldn't afford the bribe to the official.
Nussbaum addressed the question by pointing out that "fish rot from the head down." Have to go after those in high office, and the rest of society will follow. Or at least that is the practical policy to be pursued.
BTW, a recent creative study looked at traffic violations in NYC by members of the UN and found that representatives of the countries with the worst corruption scores from Transparency International also had the highest incidence of violations. This was taken to suggest that a general disrepect for law by those in positions of privilege translate across country borders.