While closing older avenues for kickbacks, liberalization can open new opportunities, like privatization deals, for corruption. Corruption distorts the decision making of both the public and the private sectors. Officials will work at cross-purposes with the institutions they represent, keep supplies and permits scarce, and use opaque regulations to create insecurity in order to maximize their profitable interventions. Similarly, firms must adapt management structures that maximize secrecy and idiosyncratic forms of ownership to prevent manipulation by politicians and to cope with unpredictable government bureaucracies. Business often succeeds at outwitting the regulators but at the expense of transparent practices that encourage long-term business confidence.
Excessive regulation causes profit-seeking firms to break the law.
Assaults on illegally accumulated wealth subject business to persistent political uncertainty, and denies business public support or a continuous, open role in policy making. To surmount regulatory uncertainty, business relies on strong personal relationships with politicians. Deals that depend on the right connections, however, can be overturned when a new government appears. Opposition parties can cite the corruption of the previous government to gain political advantage. When government changes hands, contracts consummated under one government may be reconsidered.