Corruption and the Capital Markets

A corrupt elite begets corrupt institutions (e.g. government, church, academia, and business). Corrupt institutions produces a culture of distrust. A culture of distrust results in a dysfunctional capital market, which only serves to stifle entrepreneurship amongst the individuals that are not part of the establishment.

The bottom line is there needs to be a functioning social control mechanism that will protect people from each other through the creation of effective laws and the subsequent consistent enforcement of it; so that an environment of trust can be established in society.

Trust is the key to a thriving economy. Trust is a vital ingredient to a healthy capital market.

Due to the lack of trust in the capital markets, we see banks tend to lend money to entities with lots of money to begin with, while the rest are forced to deal with Tambunting Pawnshop, loan sharks (five six), relatives, etc. for their capital needs.

Due to the lack of trust our stock market is as sluggish as a sloth; potential investors shy away because they do not trust the financial statements released by public companies.

Low trust, low domestic and foreign investments…
Low investments…slow economic progress…

It’s a paradox you see…

The more distrust there is, the more trust is needed to cure a laggard capital market. But an environment of trust cannot be created when we are resigned to the fact that our law enforcers, our law-makers, our judges, etc. are corrupt. The most tragic thing is that Filipinos are resigned that corruption is part of life and seem to have found justification to live a life of circumventing laws.