Few subjects dominate the media more than alleged corruption - even in countries such as the UK, once regarded as havens of correct behaviour. But it is less easy to say what is meant by corruption. It would be easy to devote a whole book to its definition. Even hard-core bribery is not easy to define, although it is clearly connected with cash transfers to individuals not disclosed in official contracts. Corruption is wider and vaguer.

In a wide-ranging study* the Cambridge economist Robert Neild defines public corruption as the breaking by public persons for private gain of the rules of conduct in public affairs. The difficulty with this definition, as the author acknowledges, is to distinguish between changes in the rules and breaches of them. But he does not allow changing standards to be too much of an excuse.

He does not pretend to have either a comprehensive theory or remedy. As corruption has been the norm, he asks instead why there was a move away from it in four western societies - the US, Britain, France and Germany - in the past two centuries and why it has more recently returned.

One reason was the pursuit of military prowess, especially important in the rise of Prussia, helped by "efficiency in gathering and spending revenue".

But, as he emphasises, the military factor has more recently had a reverse effect. During the cold war, illicit practices were a substitute for hot war. This left two legacies: the use of cover-up falsehoods by public officials and their involvement in corrupt arms deals.

Prof Neild provides a succinct economic analysis of the forces affecting the level of corruption in a democracy, from which it is clear that the outcome is indeterminate. The swing factor used to be Victorian public morality and its partial subsequent survival. But if the costs of corruption are too low, or the benefits too high, a strain is placed on the moral inhibitions.

The arms industry is a near-perfect example, in which contracts worth billions are placed by fairly low paid officials. This is also evident in highly regulated civilian economies. It is difficult to disagree that that there was an increase in "alleged wrong-doing" in Britain in the last years of the 20th century. Market liberals would attribute it to the still-enormous size of the state sector. Yet global data do not suggest that government size correlates with corruption.

The alternative analysis, to which Prof Neild is more drawn, would put the emphasis on "market behaviour and business models" fostered recently by both main British political parties and the denigration of old-fashioned public sector values. It is indeed difficult to imagine leaders such as Clement Attlee or Stafford Cripps indulging in either the excesses of spin or the proliferation of honours for political friends that we have seen recently.

My own suggestion would be that corruption arises in the west not just from the size of the public sector but from the increased interface between public officials and private business.

If the state sector consists of professionally managed enterprises such as the old National Health Service, at arm's length from both ministers and private enterprise, the opportunities for corruption are limited to purchasing policy. But when the distinction between the public and private sector is said to represent outmoded ideology, and it is urged that the two should interact as much as possible, the floodgates have opened. This increased interpenetration came in with the more pragmatic post-Thatcher Conservative administrations of the 1990s with their emphasis on policies such as the private finance initiative.

These ideas have, of course, been taken over and magnified in Tony Blair's Third Way and its equivalent in other countries. The risks incurred emerge from the latest report of Transparency International. This does indeed show that the most corrupt countries are in either the developing world, or former communist states. But the UK now emerges as only the 13th least corrupt country: less corrupt than France, Germany or the US but more corrupt than the Scandinavian countries, Canada or the Netherlands.

Prof Neild does not analyse how harmful corruption really is. To my mind it is less odious than terrorism, cruelty to children or religious fundamentalism. Indeed it may on occasion be positively desirable. It was mainly the use of side payments of various kinds that enabled the Soviet economy to function.

Nevertheless, corruption is a second-best strategy. Its long-term harmful effects can be seen in the post-Soviet aftermath where too many entrepreneurs believe that successful competition consists in bribing or even killing business associates.

A last thought. Corruption in its widest sense often arises from over-passionate partisan politics. If the other side is seen as an unspeakable evil, stretching the rules seems a small price to pay to reduce the chances that it may ever regain office. Some friends of mine met a well known Labour spin-doctor on a holiday in France and complained of government policies. The riposte was: "Would you like to see a Tory government?" My friends were quick to reply: "We have a Tory government." Quips aside, if such a possibility is regarded as ultimate evil, everything is justified to prevent it.

If we are serious about reversing the tide we need to go back to an arm's length relationship between the government and the private sector. Parliament would then make the rules within which the profit motive would be allowed to operate; and the number of face-to-face confrontations would be minimised.

When the Blair government came into power in 1997, a sympathetic observer said to me: "This government likes doing deals." That is the trouble.

*Public Corruption, Anthem Press, £16.95